TREASURY INSPECTOR GENERAL

FOR TAX ADMINISTRATION

The Taxpayer Advocate Service Effectively Responded to Taxpayers Requesting Relief from a Significant Hardship

April 2001

Reference No. 2001-10-073

Executive Summary

The Taxpayer Advocate Service acts as an advocate for taxpayers within the Internal Revenue Service’s (IRS) operations. A Taxpayer Advocate Service goal is to provide prompt and appropriate relief on problems the IRS has been previously unable to resolve to the taxpayers’ satisfaction.

The National Taxpayer Advocate and Local Taxpayer Advocates have the authority to issue a Taxpayer Assistance Order (TAO) after determining that a taxpayer is suffering or about to suffer a significant hardship as a result of the manner in which the internal revenue laws are being applied. A TAO may require the IRS to release taxpayers’ property or to take an action permitted by law. It may also stop the IRS from taking an action. The IRS Restructuring and Reform Act of 1998 (RRA 98) expanded the definition of a significant hardship.

Taxpayer Advocate caseworkers confirm that a taxpayer’s circumstances meet the criteria for a significant hardship and then determine the actions needed to relieve that hardship. The caseworkers will either take the actions themselves or send a request to an IRS function to take the required actions. If the IRS function refuses or fails to complete the requested actions, the National or Local Taxpayer Advocates can issue a TAO requiring that the actions be taken.

The overall objective of this audit was to determine if the Taxpayer Advocate Service effectively implemented the law addressing relief for taxpayers with a significant hardship. The Taxpayer Advocate Service closed approximately 120,000 cases of taxpayers requesting relief from a significant hardship (as defined by law) and issued 5 TAOs during Fiscal Year 2000.

Results

The Taxpayer Advocate Service effectively implemented the provision of the law providing relief for taxpayers with a significant hardship. The Taxpayer Advocate Service also established procedures for processing applications for TAOs. Caseworkers effectively confirmed if taxpayers were suffering or about to suffer a significant hardship and initiated appropriate resolution actions. Additionally, the Local Taxpayer Advocates determined if TAOs were necessary to relieve taxpayers’ significant hardships.

Caseworkers Confirmed Taxpayers’ Significant Hardship Claims and Initiated Appropriate Resolution Actions

The Taxpayer Advocate Service established procedures to assist caseworkers in effectively processing applications. In general, caseworkers appropriately confirmed that taxpayers met the criteria for a significant hardship in the 30 cases we reviewed. Caseworkers then identified the appropriate actions, including those necessary to relieve each taxpayer’s significant hardship and to help resolve each taxpayer’s problem without delay. The caseworkers then took the actions or requested that the responsible IRS function initiate the actions necessary.

Local Taxpayer Advocates Determined if Taxpayer Assistance Orders Issued Were Necessary to Grant Taxpayers Relief

The Taxpayer Advocate Service established procedures to assist Local Taxpayer Advocates. When Local Taxpayer Advocates issued a TAO, the taxpayer was suffering or about to suffer a significant hardship as a result of the manner in which the internal revenue laws were being applied. The Local Taxpayer Advocates properly issued four of the five TAOs in accordance with the law. In the fifth instance, the Local Taxpayer Advocate mistakenly exceeded his/her authority when issuing the TAO. Specifically, the Local Taxpayer Advocate improperly issued the TAO to grant relief from a tax liability, an action not permitted by law.

Management’s Response: The National Taxpayer Advocate agreed with the results and conclusions presented in this report.