The National Taxpayer Advocate’s Report is published biennially by the Taxpayer Advocate Service (TAS), an independently run organization that serves as a type of watchdog for IRS performance. The mid-year report addressed the ethical issue of confiscating passports based on tax non-compliance, a matter of great importance to expats around the world. The newly released report summarizes the problems faced by taxpayers in 2018 and has set forth objectives to Congress for 2019. What should expats know? Skip the 300+ page reports and read our summary below.
2018 Filing Hiccups
No tax-filing season goes perfectly smoothly, and 2018 was no exception. You may remember that the IRS had technical issues in April, causing them to permit taxpayers an extra day to file their taxes. The report mentions that the IRS was quick to act, communicate with the general public, and find a solution, but that the problem belies the aging technology plaguing the IRS as a whole. The Government Accountability Office noted that the IRS is using the two oldest databases still in use by the federal government, a system so old that even integrating with newer technology can cause quite a headache. The IRS does have some advanced technology – but it is used specifically for finding fraud, identity theft, and other tax-related noncompliance, rather than to protect taxpayers.
Part of the problem is that, in recent years, in order to implement the Affordable Care Act (ACA) and the Foreign Account Tax Compliance Act (FATCA), the IRS suspended all new IT projects irrelevant to the filing season, ACA, and FATCA. With the ongoing implementation of the Tax Cuts and Jobs Act, it’s reasonable to assume this technology freeze will continue. So, more technical difficulties may lie in store for taxpayers until this situation is rectified.
Objectives for 2019
The Tax Cuts and Jobs Act (TCJA) is the most sweeping American tax reform since 1986. For the IRS, this means reprogramming 140 systems and generating or altering roughly 450 forms, instructions, and publications for a department whose funding has been substantially cut. On top of the back-end implementation, many taxpayers are confused as to how the TCJA will affect them individually, and some of the guidelines in the TCJA still require further fleshing out. The IRS has issued soft guidance on its website from time to time and will continue to do so, but always with a caveat that taxpayers should not rely on it fully since it could be changed at any moment. Naturally, this places taxpayers in a tough spot. To correct this, the TAS has committed to advocating for the IRS to waive penalties due to a lack of timely and reliable guidance.
Another area of focus that could impact expats is the tax noncompliance passport revocation procedures – procedures that the TAS says impair taxpayer rights. Taxpayers need more notice before passports can be fairly revoked or denied, and the TAS will advocate that the IRS should exclude currently open TAS cases from passport revocation. The report notes, “As part of the right to a fair and just tax system, taxpayers have the right to seek assistance from TAS if they are experiencing financial difficulty or if the IRS has not resolved their tax issues properly and timely through its normal channels,” so taxpayers with open cases are aware of their noncompliance status and trying to seek a fair solution. It seems only reasonable that they should be allowed exemption from passport revocation.
For foreign persons living in the US, the report contains objectives to make it easier to obtain an Individual Taxpayer Identification Number (ITIN). Only people without Social Security numbers need to use ITINs for tax-filing purposes, but IRS policies make ITINs tricky to obtain. The report recommends instituting year-round application acceptance and providing alternatives for people who are unable to submit original documents.
Other issues that the report to Congress contains are that the IRS has expanded its math error authority in a somewhat dubious manner, and the ongoing problem of high false fraud detection rates for compliant taxpayers. Since the National Taxpayer Advocate seems to believe that the emphasis on implementing the TCJA will come at the cost of ignoring most of the other issues at hand, unfortunately, it appears that progress toward a more efficient, fair, and modern IRS will likely not be made in 2019.
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