National Taxpayer Advocate Erin Collins discusses the effect of the COVID-19 pandemic on taxpayers, recent IRS program changes, and what’s to come from the annual Taxpayer Advocate Service report to Congress.
In our “In the Pages” segment, David Hasen, a professor at the University of Florida Levin College of Law, chats about his recent Tax Notes piece, "Three Cheers for Proposed Changes to Partnership Debt Basis Allocation Rules."
For additional coverage, read these articles in Tax Notes:
Follow us on Twitter:
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This episode is sponsored by Avalara. For more information, visit avalara.com/taxnotes.
This episode is sponsored by SafeSend. For more information, visit safesend.com.
This episode is sponsored by the UC Irvine School of Law’s Graduate Tax Program. For more information, visit https://ce.uci.edu/?utm_source=TNM&utm_medium=podcast&utm_campaign=2022taxnote.
We are excited to announce the new Tax Notes Transfer Pricing Center! For more information, visit taxnotes.com/transferpricing.
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Credits
Host: David D. Stewart
Executive Producers: Jasper B. Smith, Paige Jones
Showrunner and Audio Engineer: Jordan Parrish
Guest Relations: Christa Goad
National Taxpayer Advocate Erin Collins discusses the effect of the COVID-19 pandemic on taxpayers, recent IRS program changes, and what’s to come from the annual Taxpayer Advocate Service report to Congress.
In our “In the Pages” segment, David Hasen, a professor at the University of Florida Levin College of Law, chats about his recent Tax Notes piece, "Three Cheers for Proposed Changes to Partnership Debt Basis Allocation Rules."
For additional coverage, read these articles in Tax Notes:
Follow us on Twitter:
**
This episode is sponsored by Avalara. For more information, visit avalara.com/taxnotes.
This episode is sponsored by SafeSend. For more information, visit safesend.com.
This episode is sponsored by the UC Irvine School of Law’s Graduate Tax Program. For more information, visit https://ce.uci.edu/?utm_source=TNM&utm_medium=podcast&utm_campaign=2022taxnote.
We are excited to announce the new Tax Notes Transfer Pricing Center! For more information, visit taxnotes.com/transferpricing.
***
Credits
Host: David D. Stewart
Executive Producers: Jasper B. Smith, Paige Jones
Showrunner and Audio Engineer: Jordan Parrish
Guest Relations: Christa Goad
Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week: checking in with the advocate. Erin Collins became the third National Taxpayer Advocate(NTA) in March of 2020. Following her predecessor, Nina Olson's, 18 year run in the role. Collins began her tenure right as the COVID-19 pandemic shut down the United States, forcing the IRS and the Taxpayer Advocate Service(TAS) to grapple with a number of unprecedented challenges. Tax Notes reporter William Hoffman spoke with her about the last year and a half and what the future could bring. Bill, welcome back to the podcast.
William Hoffman:Thanks David. Nice to be back.
David D. Stewart:Now, before we get to your interview, could you give us some background on Erin Collins?
William Hoffman:Well going back to h er time as the IRS's industry council for savings and loan during the savings and loan crisis of the 1980s, Erin Collins has 35 years experience in tax law, David. She worked 15 years at the IRS Office of Chief Counsel and then 20 years in private practice at KPMG. She also received the chief counsel's highest honor, the national litigation award in both 1995 and 1997. Before joining the Taxpayer Advocate Service, Ms. Collins also volunteered at nonprofit organization Step Up, helping girls in disadvantaged communities become college bound career-focused professional women.
David D. Stewart:All right. And could you give us a rundown of what you talked about?
William Hoffman:Well Ms. Collins teased some IRS announcements she anticipates will be made soon on protections for taxpayers left in limbo by the recent departure of two private tax debt collection companies from the tax agencies program and their replacement with a new collector. The IRS, according to Ms. Collins, is planning procedures whereby as many as 17,000 taxpayers formally in private collection could roll over into installment agreements with minimal or no further financial disclosures. Apparently these changes and others are still under discussion, David, so we may have broken a little news here. The National Taxpayer Advocate explained hers and the IRS's reasoning behind the tax agency's recent decision to reform its FAQ process, but also why reform was necessary in the first place. Ms. Collins also gave a peek at her annual report to Congress, usually sent right after New Years, but I don't want to get ahold of her own comments, David.
David D. Stewart:Well all right. Now, before we get started, I should note that we're recording this remotely. So please excuse any sound issues you may hear. And with that, let's go to the interview.
William Hoffman:Welcome National Taxpayer Advocate, Erin Collins to Tax Notes Talk.
Erin Collins:Good afternoon or good morning Bill, depending on where you're listening from. Thank you for inviting me to participate today. I always appreciate the opportunity to get key information out to taxpayers and practitioners.
William Hoffman:Well, thank you for joining us. For those who are not tax professionals or intimately familiar with tax administration. Tell us a little bit about the National Taxpayer Advocate position and the office that you serve in, the Taxpayer Advocate Service.
Erin Collins:Sure. So the position of the National Taxpayer Advocate and the office that I lead, which is the Taxpayer Advocate Service, they were created by Congress over 20 years ago and it was to help taxpayers, free of charge, when facing financial hardship or financial difficulties. Or when you're dealing with the IRS, when there's a system or procedure failure that you can't get resolved with the IRS, we're sort of the safety net. You can come to us and we could work with you and the IRS to try and resolve the issue.
William Hoffman:All right, thank you. There've been a number of recent news events that might impact directly or indirectly on the Taxpayer Advocate Service and the people that it serves. Most particularly the recent announcement by the IRS, that it won't dispute good faith reliance on FAQ's, which was a major issue last year and earlier this year for many taxpayers and taxpayer advocates on their behalf who are concerned about the proliferation of these FAQ's through the CARES Act and other late legislation due to the pandemic. So I wanted to get your impression of what the IRS's announcement will mean for taxpayers generally, and for tax clients in particular. Is it a good start or is it just the beginning?
Erin Collins:I'd like to say both. This was one of the first issues that I addressed when I first arrived back in March of 2020 as the IRS was issuing, as a result of the CARES Act, over 500 FAQ's. In my prior life, when I was in private practice, there was a struggle when the IRS would issue an FAQ and either they would change it and then it would just sort of in essence, disappear off the internet and you weren't able to track it, and it led to problems with respect to possible concerns of penalty reliance and other things. So I was working with Mike Desmond, who was the prior chief counsel on this issue and before the change of administration, which who having an agreement in principle. Unfortunately Mike left the administration, and so I've been working with the current counsel Bill and Rita have been great to work with. So anyway, fast forward to the announcement that came out. When I look at it, its sort of a challenge of being between a rock and a hard place. But we want to protect taxpayers, we want to protect their rights, but we also want the IRS to act quickly. So I viewed it as we have two options: One, we can provide quick guidance to taxpayers, so they can have information or two, we can go through the somewhat lengthy process that has to play out to receive the official guidance of the IRS following the Administrative Procedure Act, getting comments with respect to that. I think we're all painfully aware that that process is long. It can take one, two, three years before the guidance is actually out the door. So in a perfect world, I think we want both, we want to expedited guidance that's binding on the IRS and also provides penalty protection. But in today's environment, I don't believe that's possible. So what I was advocating for is that we get the guidance out the door as quickly as possible. We have a means of tracking it, so if the IRS were to change its position, you could follow the progression. And most importantly, if you relied on it, you would have penalty protection. So if you look at the proposed legends that's going to be included on the FAQ, it basically says that, although you can't rely on it with respect to the substance, it does give you penalty protection for a reasonable cost standard relief, and they also included negligence or other accuracy related penalty. So it's very broad, if you have the ability to argue reasonable cause. So it could be other penalties such as failure to file, failure to pay, other things that have a reasonable cause standard. They would agree to have penalty protection. If the FAQ is right, at the end of the day, the IRS will be fine, if the IRS changes their mind, no different than a revenue ruling or revenue procedure, if they change their mind, the old one you can't rely on. So it's very similar, but it is not officially the position of the IRS that you can rely on. So it's kind of splitting hairs. Would I prefer it to be the official position of the IRS and have people be able to rely on and bind the agents? Absolutely. But in today's environment, I don't think that that's going to happen tomorrow.
William Hoffman:Do you believe that this is the IRS's final word on the matter? Or do you think that they're open to revisions, modifications in light of public criticism?
Erin Collins:They're always open to comments, whether or not it's going to change. I think the real challenge is, and being inside the building as well as outside of the building, trying to recognize the pros and cons, when you look at the approval process of FAQ, it's substantially lower than the approval process of more official guidance or a regulation or revenue ruling, revenue procedures. So the IRS is basically saying,"if you want it to be binding for all purposes, we have to go through this review process." And that's the challenge here is the whole purpose of an FAQ is it's quick and it gets the information out there and they tend to be issued when there's a change of law, change of position, or it's an emerging issue. And they want to get information out to taxpayers. So the more we push to make it binding, I think the slower that guidance is going to be. And I think at the end of the day, practitioners and the IRS need to determine which is more important: having the binding guidance or quick guidance, because in a perfect world we could have both. I just don't see IRS today in a perfect world.
William Hoffman:But which do you see it as? Which end would you tend to favor, binding guidance or quick guidance?
Erin Collins:I took the quick win in talking with them. I thought it was important to have, I do believe that the IRS, if they say,"I know X is deductible," you may not be able to say it's binding on the IRS, but if that's a correct interpretation of the law, then the FAQ will be very helpful. If the IRS changes their mind and they now say,"X is not deductible," it wouldn't matter if it was binding or not because the IRS has changed their mind. So I look at it and try and do it as a practical consequence. If we were to look at the legal niceties and dance on the head of a pin, absolutely, I would like to have it so it's binding on the IRS.
William Hoffman:There've been some recent changes in the private tax debt collection program, as you know, Ms. Collins, two collectors are out and a new one coming in. We have tried to contact these collectors to find out why two of them left and why a new one was coming in. We also called the IRS, no one wants to talk to us about it. That's not entirely unexpected, but we are curious as to whether you can give us any insight either from inside TAS. Maybe you notice something that was going on that would indicate there were issues in the program, or maybe through the IRS or just your ordinary life and work, you had heard something that would indicate why these companies left the program. Have you heard anything that would enlighten us on those questions?
Erin Collins:I have not. What is my understanding is that these contracts by the agreements in the contract had an expiration date at the end of September. So what the IRS was doing, I believe they started in early summer, is they reached out in the competitive bid process and they selected three of the private collection agencies. And my understanding was they used two criteria: one was their technical expertise and two was basically the value, what the bid was put in for. One of the things I was surprised to learn is that there are only six eligible bidders throughout the United States. So basically they chose two that they had a prior relationship with, and then one new company that they brought in.
William Hoffman:I understand that there are some changes coming from IRS regarding this program, is that correct?
Erin Collins:Yes. I was hoping that they would have been announced prior to sending those letters out at the end of September informing taxpayers that the contracts were expiring. But we are expecting very shortly, for the IRS to announce what they are doing with respect to the taxpayers or the cases that were sent over to collections. So my understanding, and I know it hasn't had final, final approval, but I'm pretty confident that what I'm going to discuss have not changed. So there are about 17,000 taxpayers that had an agreement with one of the private collection agencies where the contract has lapsed. What the IRS will be doing is they are going to be sending them out a letter very shortly, beginning in November providing certain information to them, explaining that they could have an installment agreement similar to the sort of more informal agreements that they had with a private collection agency. And they would give them an opportunity to, in essence, roll over the terms in a more formal installment agreement. They would allow them to do it similar to a streamline, where you don't have to provide financial data in order to qualify for the agreement. They would have agreed that they're going to suspend any fo rce c o llection. So for example, a le vy o r seizure for those taxpayers, so that they're not at risk that the IRS could go into their bank account and let's say, take funds out. They are very concerned an d l ooking at what we've been discussing Social Security recipients, o ther folks like that to make sure that there's no errors or mistakes with respect to those folks. So the IRS has be en l ooking at this, I wish they moved a little faster, b ut it should be announced shortly. And for the remaining give or take million ta xpayers, w ho are coming over without an agreement, they're going to be in what the IRS calls"Currently Not Collectible" status, which is goo d fo r those taxpayers. And if they meet the criteria under the revision of the code, a couple of years ago, they may be required to be sent out to a collection agency and they will be notified of that in the near future. So one of the other things that we're looking at and working with the IRS is preventing this from happening again, because they just started three new contracts. The contracts have already been executed, but we're talking about with council and collection, could they do an addendum? Or could we establish internal procedures with the IRS? So when those also lapse or expire that we can be more proactive, so that we don't put taxpayers in the situation of being a little bit in limbo during this period of time and make sure we protect taxpayer rights and more importantly, explain this to taxpayers.
William Hoffman:Okay, well hopefully that's good news coming for those people fairly soon. I wanted to ask about the Taxpayer Advocate Service's involvement in the Biden administration's racial equity executive order and find out whether or not you had submitted any comments for the IRS portion of the report or the Treasury's portion of the report, and whether there was any observations or insights you might be able to give me either on what you submitted or what your thoughts are about how the executive order should be implemented at TAS.
Erin Collins:Well, not a surprise that President Biden didn't reach out to me ahead of time. So we weren't involved in the early process, but Treasury is taking the lead on this initiative. It has different agencies within Treasury and the report and the initiative are being based out of Treasury. That said, the IRS has been very active in discussions with Treasury, and we've been working the issue as well. But when I think about the order and what it's trying to accomplish, I like to think that that's what TAS has been recognized for. And we've been on the forefront of really supporting underserved communities and our low-income population pretty much since inception. This is a real goal of TAS. It's kind of the fiber of our being, so to speak, that we work towards minimizing systemic problems or barriers that potentially impact taxpayers. And again, with a real focus on low-income folks, folks of color, or underserved communities. Last year prior to the president even issuing this, we partnered with some outside vendors and our equity diversity inclusion group, where we developed internal training for our folks on understanding unconscious bias. And then we've been rolling that out. IRS is now also going to do something very similar. What we really want to do is just remind people, get our goal out there, really understanding how the biases influence our relationship with others and even our decision-making. So again, it's something that TAS has been focused on for a period of time even without the executive order. Our local taxpayer advocates, I would say it's kind of a grassroots outreach that we do across the country throughout the year. And we really do try and focus again on underserved communities. This last year, it's been difficult with some of our outreach. We've done a lot of it by Zoom. But we've partnered with the IRS and our outside stakeholders on various events throughout the year. I think some of them that have been really advertised were the advanced child tax credit(ACTC), or they had both national and local events. So usually TAS was involved in the majority of those events. One of the honors that I have as the National Taxpayer Advocate is we administer and work with low-income tax clinics who do the grant program. I'd like to say we're in 50 states. I think currently we're only in 48 states, but we're working towards that 50. And so that also gives us a real, kind of a lens into seeing how issues impact low-income folks, because we do work very closely with those clinics. We also oversee the Taxpayer Advocate Panel or what we call affectionately called TAP. And a lot of people aren't familiar with that group. It's in essence comprised of about 75 citizen volunteers. They spend a lot of time, so I want to thank them for all the volunteer work that they do. And what they do is they are out in the real world, so to speak, and they listened to taxpayers concerns, they try and identify issues, and then they make suggestions to try and improve IRS service or customer satisfaction. And again, we try and have that to be a real diverse group of folks. And it's in again, all 50 states and then we also have individuals from District of Columbia, Puerto Rico, and we always try and include one person who either lives or works abroad so that we can make sure that we also take into account our citizens who are living or working abroad. So we work on a lot of initiatives. We've also worked on the limited English proficiency, as well as visually impaired. I mean, you name the program and pretty much TAS is in it and working with the IRS. We're also involved in the multilingual project that the commissioner has been really pushing. So TAS is, I appreciate President Biden doing that, but I didn't tell him where we were ahead of them. And we, I think they're doing a good job on that.
William Hoffman:Another object of recent concern, although it seems to have been pushed more to the edge of the table at this point, is the possibility of a government shutdown. As I understand it, that's now been put off until December. But it's still there and however unlikely. There are written plans for what the contingency plans for what TAS is supposed to be doing, but I'm wondering if you can explain what you envision would be TAS's situation if we do have a government shutdown in early- or mid-December.
Erin Collins:Yeah, unfortunately, I guess good news is that we're not a stranger to this problem. It just comes up a lot. And so, as you pointed out, we do have procedures. It's not a pleasant situation. I prefer that we not have that, but in the event of a shutdown, what TAS, what we are authorizing is that we would have a person for every office. We're located across the United States, we have about, I think it's 78 offices throughout the United States, plus our headquarters in Washington. So we're going to have someone go out and each of the offices are responsible for things like checking the mail. Occasionally we actually get checks are mailed into us, through taxpayers to give to the IRS. And more importantly, looking for any correspondence where people have financial hardship that needs to be addressed during that period of time. So we really focus on that piece of it. Myself and my deputy and a few other of the headquarters folks also will be working if we were to have a government shut down. As I said, unfortunately, this is something I hate to say, wouldn't say ever year, but it's a reminder that we are on a year by year budget. And so it is something that we do have to take into account, but it's stressful. It's hard for people not to be able to project what's going to happen tomorrow. But our TAS employees, I'd like to say, are pretty resilient and dedicated. And with all the challenges that have been thrown at us for the last two years, we are also feeling the pressure in the sense of we have our phone lines are just high volume of calls. We've never had such historic volume of calls. Our case advocates have more open cases now than they've ever had in any other year. So it's been tough on folks. So Congress please approve a budget so that we don't have to deal with that issue on top of everything else.
William Hoffman:We often hear about problems of attrition at the IRS losing either very experienced, frankly older employees, or just having burnout bring people down. I'm wondering if TAS has experienced that to any extent and how, if at all, you've had to deal with it.
Erin Collins:When you think about what our folks do day in and day out, it's very difficult. I mean, they're very empathetic, giving people and they really are trying to help taxpayers, but think about yourself answering those calls eight hours a day, every single day, it's hard. It is a hard job. And hopefully they understand how much taxpayers and we all appreciate them, but it is a difficult job. And I can see that after a period of time, you do get a little bit of burnout. The sad news for us is we have a very large percentage of our folks who are past retirement. So I am concerned that at some point we're going to lose a percentage of our folks. We're already down on head count. So I am cautiously optimistic that Congress is going to give IRS additional funding. I've had discussions with the commissioner that we too will get additional funding, but that's really up to Congress. So I really do hope for taxpayers sake, that both the IRS and TAS gets additional budget. So we can do the job that we were intended to do.
William Hoffman:One thing I'd like to find out for our listeners is what might be coming in the annual report to Congress, which as I understand it, you folks pretty much spend the entire year preparing. Is there a most serious problem that you've identified? Is there a newest or more unusual problem that perhaps has come up as a result of the pandemic or any newer notable research that you feel taxpayer advocates, service fields, Congress, and the taxpayers need to know about?
Erin Collins:So you're looking for a spoiler alert?
William Hoffman:Absolutely.
Erin Collins:Before they actually read the report, you want the,"what's the last chapter say?"
William Hoffman:We just want the first couple paragraphs.
Erin Collins:So for those who are not familiar with the annual report, by statute, the code requires the NTA to file a report, in essence, addressing two main areas: one is to identify the most serious problems impacting taxpayers, taxpayer service, taxpayer rights, and the most litigated issues, during the previous year. And then what we do is also provide administrative and legislative recommendations. So what the Taxpayer First Act, what Congress did was they changed section 7803, which controls and provides the guidance for what's to be in the report from 20 most serious problems to'the' 10 most serious problems. And so we're looking at that, trying to figure out what does it mean to have'the' 10 most serious problems? So what we try to do is really look at the impact to taxpayer service, taxpayer rights, taxpayer administration, in a big picture. How does this problem impact a large percentage of taxpayers? Whereas throughout the year we internally raise and focus on systemic issues all year long, some small, some big, but for the purposes of the annual report, we're really looking at the big ones. So I don't think it's really much of a surprise that last year when I joined just when COVID was taking off, that last year's report really focused on the problems that COVID highlighted that the IRS was having. So fast forward a year, you're going to see a lot of do-overs because those problems still have not been fixed. So you're going to see similar discussion and the theme that we had last year, which is really how the rights and service have been impacted dealing with this remote environment. I think it's really focused the need on providing taxpayers kind of a robust online account. Can I self service? Can I go in for, those taxpayers who have the ability, can I go online and get all the data I need, and no disrespect to my colleagues, without ever calling the IRS? How can people, self-serve in this environment where you can't get the IRS to answer the phone. There are many conditions and problems with refiling electronic returns. Again, for those people who can file electronically, it's very frustrating if theirs gets bounced for a particular reason. The simple one is you can't attach a PDF, that returned would not be able to be submitted electronically. So we're working with the IRS on that. Shock, surprise: telephones. The last two years have been very painful for taxpayers, as well as practitioners, and the IRS. When you look at the amount of calls that they received both during filing season and throughout the year, it's at least a 300 percent increase. So I think for the year, they total about 290 million calls coming in. And the result of that is you're looking at the amount of calls that were picked up. Unfortunately, there were times throughout the year that we were in the single digits, which is unacceptable. I don't think the IRS would disagree, but I also don't think anyone expected COVID and the impact of COVID. So we really need to figure out on the phone system, either have people have other alternatives or we need to change the system. So part of it's money, part of it's resources, but really it's going to be thinking outside the box, how does the IRS do a better job being more transparent? Get the information out to taxpayers, so they don't have to pick up that phone. So it's kind of, they're very much interrelated. And the other thing that's going to be a little bit different this year. So I guess this is a spoiler alert. Again, we're supposed to identify the 10 most litigated issues. And then we usually talk about the various issues. So in the past, the report focused on opinions. So they took any opinions that were issued during the one-year period of time, to analyze the most litigated issues. So as a former litigator, I'm looking at it saying, and in light of also we have more technology now, that litigation, in my opinion, starts long before the trial. And so what we're doing this year is we're actually, with the help of data analytics, we're able to focus on the filed petitions, because if you look at the percentage of cases that are resolved, and I don't know what the current statistics are, but it's usually between 80 and 95 percent of Tax Court cases are settled. I want to see what's going into the litigation process. So I think you're going to see, once the numbers come out, those 10 most serious problems, which were pretty consistent in prior years, I suspect are going to change. I have a kind of a bet with our folks internally is, I think earned income tax credit is for the first time in a long time going to show up on that list because a lot of those cases go into Tax Court, but they get resolved long before a trial. So what I really wanted to do is look at the most litigated cases as in the time of petition, because I think our intent is, how do we fix the system so we don't have to have litigation? So anyway, so we're taking a little bit of a different spin. The numbers were closing i n as of the end of October, so I haven't seen the final numbers yet, but I suspect we're going to have a different approach this year.
William Hoffman:You're familiar with the fact that the Taxpayer Advocate Service has been at the center of a long battle to establish a Taxpayer Bill of Rights at the IRS. There have been various maneuvers in Congress and inside the IRS, which have established the basic framework. How do you feel COVID-19 pandemic has affected taxpayer rights? Do you think the COVID-19 pandemic has been worse for taxpayer rights and why or why not?
Erin Collins:Well, I think one of the challenges in the order, and I actually have it right in front of my office here so I can look at the number one is,"right to be informed," that's been a real challenge this past year. And again, we're going to be focusing on transparency on the most serious problem. One of the things that we have been internally pushing is, what we call a,"filing season dashboard." This last filing season was incredibly difficult. The numbers again, historic highs by the time that the filing season closed in, I guess it was May, we had 35 million returns still waiting processing. Well fast forward to last week, good news is we're down, but we're not down far enough. So currently we're looking at about 12.9 million returns still waiting to be processed in the system, plus any new ones that are going to come in by the October 15th filing. And also what's somewhat, unnerving is the amount of amended returns that have not been processed throughout the year. So I think what we envision and what we've recommended is for the IRS throughout the filing season to have like weekly updates. So for example,"if you filed a paper return on the week of February 15th, we are currently working those." So if all of a sudden you realize that your return was filed long before whatever that date is, you may realize there's a problem and you may want to reach out and contact the IRS. If you realize you filed your return a month later, don't bother picking up the phone because the IRS is not even close to processing your return. And I think that would help provide information to taxpayers. So I really do think the right to be informed is huge and an environment where you can't go into an IRS building, you can't go to a taxpayer system center, picking up the phone— you can pick it up, well whether or not the IRS will answer, it has been very difficult. So again, I think what COVID has really emphasized is the need to focus on those rights and to provide better service to the taxpayers.
William Hoffman:We would also like to find out if TAS is doing anything or knows anything about what the IRS is doing and planning for the 2022 filing season. Besides the fact that the budget is still in the air, possibility of a government shut down, COVID pandemic, economic disruption. Am I missing anything?
Erin Collins:You're painting a very cheery picture. Thank you. Yes.
William Hoffman:Well, it does seem like a lot of work to prepare for, but what I'm wondering is whether you think the IRS is preparing in ways that anticipate some of the problems that tax practitioners and taxpayers have been worried about? I'm thinking particularly about the advanced child tax credit payments and recipients of Letter 6419, which is basically a summary of what the recipient got from the advanced child tax credit. And it's supposed to be used on their returns. And it seems like a very simple, potentially effective prophylactic device to prevent a lot of problems in the filing season. I'm wondering whether in that particular case, you think that's a sensible good idea, or whether it falls short of the mark for some reason. And then broader than that, I'm just wondering if there's anything that TAS or IRS that you know of is doing to prepare for complications on the ACTC or unemployment tax reconciliation or any of the other issues that are going to come up in 2022 that we can see clearly, but maybe, need some preparation.
Erin Collins:Yeah, I am concerned about the next filing season. What a lot of people don't know is the IRS actually starts preparing for the next filing season, as soon as the first one closes. So we have a weekly calls that myself and others from TAS participate, and it's the entire IRS with respect to the filing season. So their updates, discussions, anticipated problems. So one of the issues that came up last year, that caused a lot of challenges was the reconciliation of the stimulus payments. So taxpayers, for the first stimulus, for second stimulus payment, if they did not receive it, had the opportunity to, in essence, true it up on their tax return. And it was called the"Recovery Rebate Credit," and you would put it there. There were over, and I don't know the actual number, but it's over 11 million taxpayer returns were identified as being inconsistent with IRS records. The challenge was that since the legislation, some of the legislation passed at the end of December, IRS was not able to program their computers. So every one of those needed manual review and think about that number 11 million, that's a lot of tax returns to go through with limited resources. So what that resulted in was the IRS sending out over 11 million, what they call"Math Error Notices," but basically it just says,"we're adjusting your tax return and this is why." We've expressed concerns that those letters could be a lot more explanatory to tell a taxpayer exactly what it is, they're somewhat confusing. But we also identified around March-April timeframe, was over 5 million of those did not include the rights that the taxpayers have to ask the IRS to basically undo the correction. We worked with the IRS, took a little bit of time. They agreed to reissue those letters to start the new, it's a 60 day window that the statute provides that you can come in and ask the IRS to undo it. And those have just started going out the end of September-October, which gives taxpayers another window. But the way that impacts the current, is I'm concerned about, as you said, the child tax credit, these are monthly payments. Some taxpayers it's the same, let's say,$250-300 every month. Other taxpayers they've gone in and adjusted their adjusted gross income or other things, so the amount has gone up or down. What the IRS is doing differently this year, which I hope will have a good impact on the reconciliation piece of it, is they're sending out, as you indicated, the Form 6419, which I think it will be public shortly. I have seen it and commented on it. They're trying to make it look more like a W2 or 1099 form. So hopefully people won't throw it in the garbage. And what is going to show is the total amount of advanced credit that you received in one box. And it's also going to talk about the number of qualifying children they use to determine your credit so that when you go to prepare your return, hopefully you don't throw out this piece of paper, you can compare it and then use that for purposes of reconciliation. Should your amount go up, should it go down and what the difference is. The other thing the IRS has done, which we talked a lot about, was the portal that they have for the child tax credit. It reflects the monthly payments, but in December, what the IRS is going to do is show the total six months worth of payments that a taxpayer received. So what we're trying to do is proactively avoid this problem. We're also working with IT to see if we can program something to do the reconciliation rather than manual review. So good news, lessons learned from the last cycle. Bad news, the last cycle was very painful. So, I have my fingers crossed it will be better, but my bigger concern is at the end of the year, the majority of the returns, you may have less than a million returns carry over from one year to the other. I'm concerned at this point that we're looking at, if you include some of the correspondence and amended returns, we're probably closer to 19 million returns currently, and we're at the end of October, and this doesn't include the last two weeks of the filing period on those who filed on extended. So I suspect you're going to have a lot more returns coming in. So I don't think that number is going to go down fast enough by December 31st, and that really concerns me. Because the same people who are working on these are going to be working on the new returns being filed.
William Hoffman:I'm going to ask you one last question, if that's okay, which is, we had kind of discussed this in a pre-interview about the contrast between the IRS commissioner's five-year term, which is effectively a four-year term because Congress goofed around for a year before Mr. Rettig was approved. And then the term of the National Taxpayer Advocate, which is indefinite could be considered beneficial. It could be considered a contrast of questions. I wonder what your thoughts are on that contrast between the IRS commissioner statutory five-year term and the NTAs effectively indefinite term.
Erin Collins:In my opinion, and this actually came up when I was interviewing with Secretary Mnuchin, but I believe if you weigh the pros and cons, I think it should be a term position, but I would suggest that they did the term position that you overlap commissioners, that you don't come in with one commissioner and go out with one commissioner that they try and have it so you overlap both the commissioners' timeframe. So I'm happy to tell you what I think advantage and disadvantages, but because I think if you step back and look at the position, I do think you might be able to retract a different set of qualified individuals if they realize this is not a long time commitment to go to the IRS. And I also think sometimes all of us a deadline makes you work faster. So I do think if someone comes in for a set period of time, we can just pick five years, whatever the time period is, you have a finite period of time to accomplish your mission or accomplish your goals or your vision. And I do think knowing that you do have sort of that exit plan, might help move things along. I also think it kind of introduces a new group dynamic to both the TAS executive as well as the IRS executives. Sometimes, we look at any organization when you have leaders who have been around for a long time, there tends to be the perception, not necessarily the reality, but either favoritism or other things. So I think every time you bring in new people and you change the dynamic, I think that leads for more open dialogue and more change. So I do think there's a lot of pluses. Also if you have a date, maybe they could hire the next person before the first one leaves. So maybe that would be helpful, but there is some downside. I think we all realize that too, time and effort in identifying, attracting, and hiring people, I mean, it takes some work. So if you have to do that every hypothetical five years, there are some times. And then you could also lose that perfect gem, the person that really brings the right benefits, to the position that after five years would have to leave. So, I mean, that is a downside, but I do think preserving the independence of the role is very important. So I think having an NTA come in for a shorter period of time, I think it really keeps that independence. There's there's no, we don't have the Stockholm syndrome. You don't become one of them or don't come one against, I mean, you really, you have your vision, you have your goal, you have your mission, you get in, you get out. So, I think as a practical matter, it's hard on any organization anytime a new leader leaves or joins, because it takes them a time to get up to speed, learn the organization. But I think at the end of the day with the right leader, it'll turn around quick. And I do think infusing kind of a different set of blood and experience, than the prior one would be a good thing for the organization.
William Hoffman:Perhaps we can get people talking. Either way, thank you very much, Ms. Collins for taking your time for us here on Tax Notes Talk.
Erin Collins:Thanks Bill.
David D. Stewart:And now, coming attractions. Each week, we highlight new and interesting commentary in our magazines. Joining me now is Acquisitions and Engagement Editor in Chief Paige Jones. Paige, what will you have for us?
Paige Jones:Thanks, Dave. In Tax Notes State, Billy Hamilton examines the complexity of state tax laws governing the taxation of Halloween-related products. Kyle Richard examines the tax-exempt bond and low-income housing provisions in the proposed Build Back Better Act. In Tax Notes International, Mindy Herzfeld explores what the United States stands to gain or lose under the recent OECD agreement on international taxation. Charlotte Tolman and Michael Molenaars explain the conditional withholding tax regime of the Netherlands and its implications for hybrid entities. In Featured Analysis, Nana Ama Sarfo looks at how specific country and regional requests influenced the OECD inclusive framework's two-pillar package. On the Opinions page, Robert Goulder and Joseph Thorndike discuss envy and what it might mean for tax policy, all in five minutes. Carrie Brandon Elliot looks at how the discussion of tax and nonfungible token goes beyond gain income. And now, for a closer look at what’s new and noteworthy in our magazines, here is Tax Notes Federal Editor in Chief Ariel Greenblum.
Ariel Greenblum:Thanks Paige. I'm here with David Hasen, professor at the University of Florida Levin College of Law to discuss his recent Tax Notes Federal piece titled"Three Cheers for Proposed Changes to Partnership Debt Basis Allocation Rules." Welcome to the podcast, David.
David Hasen:Thanks very much for having me
Ariel Greenblum:To begin, could you give us a brief overview of your article?
David Hasen:Sure. I was reviewing the proposals coming out of the Senate Finance Committee with special interest in the partnership provisions and I saw the proposed rules regarding the treatment of partnership liabilities. And it just so happens that I had written an article earlier this year that mostly dealt with the treatment of debt more generally, but has a section on the treatment of partnership liabilities. And the recommendations that I made in that article almost exactly align with the proposed language per section 752, dealing with partnership liabilities. So I thought I would take that opportunity to kind of write up my findings as it were and explain the rationale a little bit in support of the proposal.
Ariel Greenblum:Thanks. So where did the idea for the original article come from?
David Hasen:I had been working on the treatment of a loan proceeds under the income tax, and still am in fact, for a while. And that was motivated by a review of the scholarship in the area, which takes a view of the nature of the loan transaction that I think is somewhat problematic. So most of the rules for the treatment of debt, the tax treatment of debt, in my view are correct with the exception of the partnership rules, of course, but the way that tax scholars and commentators have understood the underlying loan transaction is not correct I think, and it's made those rules vulnerable to criticisms that really don't apply. And so what I did in that article was developed the view that a loan is really much more like a lease than it is like anything else. And when you conceptualize a loan as a lease, the rules for the treatment of debt or most of the rules for the tax treatment of debt make perfect sense. And what was interesting is that then Senator Wyden's committee put out its proposal for the partnership tax rules and that proposal closely follows the suggestions I made in that article about the partnership tax rules and what they should be. That's one area in which existing law is, in my view, not correct. And Senator Wyden's proposal in my view, more or less gets it right.
Ariel Greenblum:Before we let you go. Where can listeners find you online?
David Hasen:I guess the best place to find me online is at Twitter. And I'm, my handle is@david_hasen, H-A-S-E-N. You also, of course, you can go to my webpage(www.law.ufl.edu/faculty/david-hasen), which is maintained by the University of Florida. And if you just search for my name and the University of Florida, that will come up also of course, if listeners want to email me, they can david.hasen@law.ufl.edu.
Ariel Greenblum:Thanks for joining us on the podcast, David.
David Hasen:Thanks very much for having me.
Ariel Greenblum:You can find David's article online at taxnotes.com and be sure to subscribe to our YouTube channel Tax Analysts for more in-depth discussions on what's new and noteworthy in Tax Notes. Again, that's Tax Analysts with an S. Back to you, Dave.
David D. Stewart:That's it for this week. You can follow me online@TaxStew, that's S-T-E-W. And be sure to follow@TaxNotes for all things tax. If you have any comments, questions, or suggestions for a future episode, you can email us at podcast@taxanalysts.org. And as always, if you like what we're doing here, please leave a rating or review wherever you download this podcast. We'll be back next week with another episode of Tax Notes Talk. Notes talk is a production of tax notes. You can learn more about us by visiting www.tax notes.com/podcast. When major media wants the straight story, they turn to tax notes. Thank you for listening and join us again for another edition of Tax Notes Talk. For the last few months, frequent guest of the podcast, tax notes legal reporter Ryan Finley, and I have been working on something special and now we're ready to show it to everyone. We designed the Tax Notes Transfer Pricing Center as a one-stop shop for transfer pricing news rules and guidance from the OECD, U. S., UN, and around the world. On the OECD page, you'll find a comprehensive topic index that will take you directly to the OECD guidelines section you're looking for. On the U.S. page, you'll find a digest of important court cases with summaries and links to key documents and related cases. And while you're looking around, check out the OECD-U.S. comparison table to quickly reference related topics. And everywhere you go in the Tax Notes Transfer Pricing Center, you'll find convenient links to news and commentary from all of the talented writers here at Tax Notes. Ryan Finley, very much included. To check it out today, go to taxnotes.com/transferpricing, that's taxnotes.com/transferpricing. Tax Analysts Inc. does not provide tax advice or tax preparation services, nothing in the podcast constitutes legal accounting or tax advice. A full disclaimer is included in the transcript.