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Research Studies

For the National Taxpayer Advocate, thorough research and analysis of current tax issues and trends is a vital part of the Annual Report. The Taxpayer Advocate Service (TAS) research projects yield accurate, insightful data that inform her as she advocates for taxpayers, and strengthen her authority and arguments before the IRS and Congress.

Research Studies


Do accuracy-related penalties improve future compliance?

Accuracy-related penalties are supposed to promote voluntary compliance by taxpayers. However, this study found that those who were subject to the penalty had no better subsequent compliance than those who were not. In estimating the effect of accuracy-related penalties on Schedule C filers (i.e., sole proprietors), comparing their later compliance to that of similar taxpayers who the IRS didn’t penalize, we found that accuracy-related penalties did not appear to improve compliance among those who were subject to them. One of the policy implications of this study is that the IRS shouldn’t propose a penalty before exhausting efforts to communicate with the taxpayer to be sure the penalty actually applies.

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Analyzing factors in small business compliance

Because voluntary compliance by small businesses could significantly impact the tax gap, last year’s Annual Report to Congress presented preliminary results from a survey of sole proprietors concerning tax compliance and related socioeconomic attitudes. This year’s report presents further analysis, which confirms the importance of trust in government, while specifying that taxpayer service is the principal component of the trust factor. This finding lends support to the suggestion in the 2012 report that improvements in taxpayer service could increase voluntary compliance by small business proprietors.

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Revenue officers vs. Automated Collection System

When a taxpayer doesn’t pay after receiving a series of notices, the IRS may assign the case to a field revenue officer (RO), Automated Collection System (ACS) employees in centralized call sites, or leave it in the “queue” until resources to work the case become available. This study compared the IRS’s performance in working similar cases assigned to an RO, ACS, or the queue. TAS found the field ROs collected more dollars and resolved delinquencies faster than the automated system. This may be because each RO is generally expected to address the cause of the noncompliance and resolve his or her cases rather than pass them along. It may also be because ROs communicate with the taxpayer by visiting or making outgoing calls.

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Optimizing delivery of taxpayer services

The National Taxpayer Advocate is concerned that cuts to the IRS’s budget have significantly eroded the quality of taxpayer service, undermined taxpayers’ faith in the system and reduced compliance. While she believes high-quality service can only be restored by adequate funding, the National Taxpayer Advocate has urged the IRS to develop a methodology that would enable it to deliver the best possible service given resource constraints. The Wage & Investment division and TAS are collaborating on a project to identify a proper balance between automated and personal services. The project team is developing a ranking methodology for IRS taxpayer services, taking taxpayer needs and preferences into account. The National Taxpayer Advocate is pleased that the IRS has agreed to collaborate with TAS to develop this tool and use it to inform service decisions.

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Reforming the filing season

The National Taxpayer Advocate has written repeatedly about the need for the IRS to issue refunds after matching financial data from third-party payors with information reported on tax returns. In this report, the National Taxpayer Advocate offers a strategic proposal, based on research by TAS, to better structure the filing season to reduce fraud and protect the best interests of taxpayers and the government. The proposal is based on research conducted by the Taxpayer Advocate Service and is meant to serve as the first step toward implementation.

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Comparison of Private Sector and IRS Collections

In 2004, Congress granted the IRS the authority to contract out collection of past due taxes to private collection agencies (PCAs), with the agencies receiving commissions. The IRS ended the program after about three years, but continued to work the tax accounts it had placed with and then recalled from the private firms. TAS compared the results achieved by the IRS and PCAs at working the PCA inventory. We found the IRS collected about 62 percent more than the PCAs ($139.4 million compared to $86.2 million), and was significantly more effective in collecting taxes in all but the first six months after case receipt. These results likely understate the difference in effectiveness, since the PCAs worked the cases first and collected the easy dollars while the IRS only got cases the PCAs had already handled.

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