ACA publishes summary of National Taxpayer Advocate 2022 Annual Report to Congress
ACA SUMMARY OF NTA’S 2022 REPORT TO CONGRESS
On Wednesday January 11, 2023, the U.S. National Taxpayer Advocate, Erin Collins, published the Taxpayer Advocate Service’s Annual Report To Congress. The report includes the Most Serious Problems, a report of the ten most serious problems encountered by taxpayers in 2022. It also includes the 2023 Purple Book, a concise summary of 65 legislative recommendations the Advocate believes will strengthen taxpayer rights and improve tax administration.
MOST SERIOUS PROBLEMS REPORT
These are the Advocate’s 2022 Most Serious Problems. Many, arguably, are magnified for Americans filing from abroad.
- Processing Delays: Paper Backlogs Caused Refund Delays for Millions of Taxpayers.
- Complexity of the Tax Code: The Complexity of the Tax Code Burdens Taxpayers and the IRS Alike
- IRS Hiring and Training: Weaknesses in the Human Capital Office’s Hiring, Recruitment, and Training Programs are Undermining the IRS’s Efforts to Achieve Appropriate Staffing to Meet Taxpayer Needs
- Telephone and In-Person Service: Taxpayers Continue to Experience Difficulties and Frustration Obtaining Telephone and Face-to-Face Assistance to Resolve their Tax Issues and Questions
- Online Access for Taxpayers and Tax Professionals: Inadequate Digital Services Impede Efficient Case Resolution and Force Millions of Taxpayers to Call or Send Correspondence to the IRS
- E-File and Free File: E-filing Barriers and the Absence of a Free, Easy-to-Use Tax Software Option Cause Millions of Taxpayers to Continue to File Paper Tax Returns
- IRS Transparency: Lack of Transparency About Processing Delays and Other Key Data Frustrates Taxpayers and May Undermine Voluntary Compliance
- Return Preparer Oversight: Taxpayers Are Harmed by the Absence of Minimum Competency Standards for Return Preparers
- Appeals: Staffing Challenges and Institutional Culture Remain Barriers to Quality Taxpayer Service Within the IRS Independent Office of Appeals
- Overseas Taxpayers: Taxpayers Outside of the United States Face Significant Barriers to Meeting their U.S. Tax Obligations.”
For the first time, one of the ten Most Serious Problems focuses exclusively on taxpayers filing from abroad. ACA is very pleased with this development!
MOST SERIOUS PROBLEM #10 – Overseas Taxpayers
In Most Serious Problem #10 the report succinctly describes the many tax compliance challenges faced by taxpayers living, working, studying, retired and investing abroad. Though ACA would like to see some of the matters explored in greater detail, we acknowledge this groundbreaking coverage and believe it provides critical focus to help expand Congressional support for urgent expat tax reform. ACA is also delighted the report references our oral and written advice to the Advocate and the research of District Economics Group which was commissioned/sponsored by the ACA Global Foundation.
In brief, the report articulates these issues in the discussion of Most Serious Problem #10:
- Tax laws and financial account reporting rules impacting U.S. taxpayers based abroad are very complicated.
- Large and consequential monetary penalties exist for some errors and breaches.
- The IRS provides very limited support – e.g. informational resources; telehelp; fee-free advice, etc. – to non-resident filers.
- Tax filers abroad lack easy access to affordable tax preparation services.
- Tax preparation service providers serving Americans abroad often lack adequate knowledge of U.S. tax laws and/or an adequate understanding of the convergence of the U.S. tax regime and other nations’ tax regimes.
- Many e:filing systems do not feature the IRS forms and statement upload capability which are essential to reporting income generated abroad.
- Delays and serious application obstacles make it difficult for non-resident filers to obtain Taxpayer Identification Numbers (typically Social Security numbers), which are essential for e:filing.
- S. tax laws require many information returns to be filed electronically; further, proposals exist to materially expand mandatory electronic filing.
- Postal delays or failures make it challenging for non-resident taxpayers to send, receive and respond to IRS correspondence. IRS response timeframes set forth by statute do not make adequate accommodation for international postal delays or failures.
- Until March 2022 the IRS was unable to send taxpayer refunds by direct deposit into non-U.S. bank accounts.
- Until December 4, 2022, individuals without a Social Security Number were unable to authenticate their identity, which is essential to accessing IRS online tools and applications.
ADVOCATE’S CONCLUSION FOR MOST SERIOUS PROBLEM #10
“The tax law, as it applies to taxpayers outside of the United States, is extremely complex and procedurally and administratively difficult. Whether it’s determining what income taxpayers need to report, what forms they need to file, or whether there is even a requirement to file, U.S. citizens abroad and foreign persons with U.S. tax obligations must navigate a landscape of complex rules, nuanced analyses, and exceptions to exceptions.
At the same time, these taxpayers have limited access to IRS support and resources. They have even more limited access to telephone customer service than domestic taxpayers, and they face long delays in receiving IRS correspondence through the mail, if it arrives at all.
Some burdens on overseas taxpayers, such as time differences and postal delays, are beyond the control of the IRS to resolve. And others, like tax law complexity, would require a significant act of Congress. However, there are meaningful steps that the IRS can and should take to better accommodate the needs of taxpayers outside of the United States and to better facilitate their ability to meet their U.S. tax obligations.” 
ADVOCATE’S ADMINISTRATIVE RECOMMENDATIONS TO THE IRS
- Develop a comprehensive agency wide customer service strategy for both U.S. citizens and resident aliens abroad.
- Expand existing informational resources and create a “one-stop-shop” for information on filing from abroad.
- Partner with the State Department, U.S. embassies and consulates to provide U.S. tax information.
- Address e-file system and software limitations that prevent non-resident taxpayers from filing electronically and include the needs of taxpayers living abroad in the design of the free online filing platform it is planning.
- Improve online identity proofing.
- Implement customer callback on the telehelp line dedicated to international callers and provide detailed information on the scope of services available from agents operating that telehelp phone line.
- Make virtual Taxpayer Advocate Services appointments available to non-residents.
- Perhaps in partnership with the State Department, establish Volunteer Income Tax Assistance (VITA) and Tax Consulting for the Elderly (TCE) program sites abroad, and expand Taxpayer Experience Day to locations abroad.
ADDITIONAL MATTERS NOT REFERRED TO THE IRS
ACA believes that there are additional administrative matters that were not included in the report that should be brought to the IRS’s attention. We have and will continue to raise them with the National Taxpayer Advocate.
- There was no discussion of the grave problems that the Global Intangible Low Tax Income (GILTI) Tax is causing for Americans abroad who run small to medium sized businesses registered as companies in their country of residence. GILTI Tax compliance is enormously complex, disruptively time-consuming to administer, unreasonably costly and unjust when the same dollar of profit is taxed twice, with no available offsets or credits. It is forcing small business owners to re-structure, sell or close otherwise viable businesses that were supporting American families.
- There was little reference to the impact that mandatory electronic filing has on low-income, elderly or otherwise technologically disabled taxpayers abroad, especially those with little English language proficiency.
- The profound complexity involved in navigating international tax treaties was briefly noted. If the non-resident filer cannot hire a (costly) tax return preparer experienced with both the U.S. tax system and that of the taxpayer’s country of residence, he or she has no option other than to dive into the relevant double tax treaty and figure out how the rules converge.
THE 2023 PURPLE BOOK
The Purple Book is a compilation of legislative recommendations from the Advocate to the IRS and Congress to strengthen taxpayer rights and improve tax administration. In the report, the recommendations are enumerated in brief and then described with a summary of the problem/reason for the change and outline of the reform recommendation. Several of the 2023 recommendations have ancillary applications for non-resident filers.
Those noted herein have explicit applications for Americans filing from abroad.
ADVOCATE’S LEGISLATIVE RECOMMENDATIONS TO CONGRESS AND THE IRS
- Eliminate Duplicative Reporting Requirements Imposed by the Bank Secrecy Act and the Foreign Account Tax Compliance Act. We note this recommendation has been included in the Purple Book since around 2015. For the last couple of years, the report has referred to the proposed Overseas Americans Financial Access Act, which has the support of ACA and mirror ACA's recommendation for Same Country Exemption. This treatment is also supported by other tax reform advocates. This year the Advocate's advice around this recommendation is more detailed and also stipulates a 12-month implementation deadline.
- Amend the IRC to allow taxpayers 120 days to request an abatement of tax when a math error is mailed to them outside the U.S.
- Modify the definition of “willful” for purposes of finding FBAR violations and reduce the maximum penalty amounts
LEGISLATIVE MATTERS NOT REFERRED TO CONGRESS AND THE IRS
- In her identification of categories of parents who need an exemption from obtaining a child’s SSN for the purpose of claiming the Child Tax Credit (Legislative Recommendation #54), the Advocate has not included non-resident parent filers who lack access or adequate access to U.S. Consular Services. This is another category of U.S. citizen child whose parent-filer should benefit from the special exclusion from the requirement to provide the child’s SSN to claim the Child Tax Credit.
Parents living abroad must first obtain a Consular Report of Birth Abroad and a U.S. Passport before obtaining a child’s SSN. Obtaining these are complicated and greatly delayed when parents living abroad have inadequate access to Consular Services. Non-resident parents, therefore, should be included in the Legislative Recommendation #54’s exemption.
- Although the Advocate recognizes that tax law complexity is a serious barrier to tax compliance faced by non-resident filers, no simplification of the tax regulations as it relates to Americans abroad has been recommended.
There are many approaches that can be considered for the problem, primarily a move towards Residence-based taxation (RBT) or similar legislation that would exclude US taxation of foreign income. A bill that created an opening for tax reform consideration was introduced in the 117th Congress, the Tax Simplification for Americans Abroad Act, which calls upon the IRS to create a new, short form tax form for qualifying non-resident filers and expands the types of income allowed as foreign earned income for the purposes of the foreign earned income exclusion. This bill would greatly simplify filing from abroad and therefore, expand tax compliance for a many non-resident filers.
 It is also often confusing for the taxpayer to determine whether an entity created under foreign law is properly characterized as a corporation for US tax purposes. This is not a straightforward exercise. The IRS should provide specific, up-to-date guidance.