What is a Taxpayer Assistance Order?

Around the country there are Local Taxpayer Advocates (LTAs) in every state.  Larger states have more than one and every service center has one.  There are a total of 84 LTAs.  If you do not know the LTA for your area, you might want to get to know them because this person will assist you when your client has a serious hardship.  Better to know your LTA and develop a relationship of trust before you face the pressure of seeking their assistance with a time sensitive hardship matter.  The LTAs constantly have outreach efforts so that representatives in the area of their geographical coverage do know who they are and what they can accomplish.

If your taxpayer experiences significant hardship because of IRS action, and this does not just include collection action, although that is traditionally a source of hardship, and if your client’s case meets TAS case criteria for acceptance, then the LTA can initiate a TAO ordering the appropriate IRS operating unit to take action or to stop action in order to alleviate the hardship.  The power of the LTA to do this derives from IRC 7811 and delegation from the National Taxpayer Advocate.  The delegation does not go below the LTA so case advocates working the case with the taxpayer or the representative do not have the authority to issue a TAO but must convince the head of their office, the LTA, to do so.

The LTA will only issue the TAO if convinced that the operating division has acted incorrectly based on the Code or, more likely, the Internal Revenue Manual.  The more research you provide to the TAS caseworker and the LTA showing that the IRS has acted inappropriately, the more likely the LTA will consider a TAO.  The LTA does not want to issue a TAO and have the operating division point out the basis for the TAO is incorrect since the LTA will lose credibility.    Some LTAs issue TAOs regularly and some almost never.  In addition to getting to know your LTA, you want to get a sense of whether your LTA has demonstrated a willingness to issue TAOs and under what circumstances.

The PMTA describes the process of what happens after TAS issues the TAO.  Before issuing the TAO, the LTA will call the impacted operating division.  Let’s say that your small business client was the victim of a fraudulent payroll services provider similar to the unfortunate McDonald’s franchisee I blogged about last year.  Your client now owes $40,000 in payroll taxes to the IRS it paid to the payroll services provider but which was stolen.  Your client’s business has more than $40,000 in equity and income resources so that it does not qualify for an offer in compromise on doubt as to collectability; however, if it pays over another $40,000 the payment will severely cripple the company.  The company makes an effective tax administration offer in compromise of $5,000 which the special OIC unit for ETA offers rejects.  You bring the case to the LTA and point out the IRM provisions that suggest the IRS will consider an ETA under these circumstances.

The LTA can issue a TAO to the OIC unit that considers ETA offers asking that it reconsider the OIC taking into account the IRM provisions.  First, the LTA will call.  After being rebuffed, the LTA will write up the TAO citing to the IRM provisions and detailing the hardship created by the embezzlement.  If the manager of the OIC unit refuses to reconsider the OIC, the normal path is for the LTA to forward the TAO to his or her manager, the Deputy Executive Director Case Advocacy (DEDCA).  The refusal process may involve phone discussions between the LTA and the OIC manager after receipt of the TAO or it may simply involve a written response denying (appealing) the requested action in the TAO.  The LTA cannot accept the OIC but can only use the TAO process to direct and persuade the appropriate function within the IRS to take the action that the LTA thinks would appropriately follow the rules and regulations governing the IRS.  When the LTA receives the appeal of the TAO from the operating unit, the LTA can modify or rescind the TAO, or sustain the appeal.  If the LTA disagrees with the response, the LTA forwards the appealed TAO to the DEDCA for review.  The PMTA describes the process in detail.

If the TAO moves from the LTA to the DEDCA, the DEDCA reviews the TAO to determine its correctness.  This process might involve a fair amount of back and forth between the LTA and the DEDCA.  Just as the LTA must be persuaded that issuing the TAO will not create an embarrassment, so must the LTA now persuade the DEDCA.  The more persuasive the LTA can present the facts and the law (or the IRM) the more likely that the LTA will convince the DEDCA that the TAO should be sustained.  If the DEDCA agrees with the TAO, the DEDCA will raise it to the level of the territory manager.  The manager of the offer unit knows that this is a possibility from the start and knows that if the OIC unit has followed the wrong process or made a boneheaded decision, this process will shine a light on that fact.  Conversely, if the head of the OIC unit feels strongly that they have correctly interpreted the applicable rules and evaluated the circumstances surrounding the OIC, the manager will deny the TAO and stand ready to face the scrutiny from the territory manager.  The elevation of the TAO will cause one or more conversations between the territory manager and the OIC manager about the case which may result in acceptance of the TAO or rejection and the rejection may, or may not, include new facts not previously mentioned.

If the territory manager rejects the TAO, then the DEDCA must decide whether to send it to the NTA.  If the TAO goes forward to the NTA, she raises it to the Commissioner or Deputy Commissioner.  The process provides an interesting dance of competing bureaucratic emotions.  The operating divisions hate being told what to do and that they have done something wrong.  Many can be quite smug about the correctness with which they handle the matters coming through their office but at the same time they also hate shining the light on their practices to their boss and their boss’ boss.  The practice can have good effect of fixing bad practices, it can expose TAS as too overbearing if it pushes a TAO not properly grounded and it can create animosity between TAS and the operating division rather than a spirit of cooperation to reach the right result.  Sometimes, TAS becomes more the “enemy” than the taxpayer.

The PMTA focuses on what to do when new facts come to light during the process of the TAO.  Because the TAO causes the operating division to carefully look at what it did and to justify its actions, the possibility exists that the action it took was correct for a reason it did not mention to the taxpayer or even to the LTA when the TAO was first issued.  The PMTA opines that when the operating division raises new facts in response to a TAO or the appeal of a TAO, the appropriate person within TAS has the ability to go back to same level of employee within the operating division with a supplemental memo “to the same official addressing the concerns raised in the response and ordering that the official reconsider the matter again in light of the new information before modifying or sustain the TAO to the next level IRS official for further consideration.”

The current IRM does not address the situation of sending the case back from the same level for reconsideration.  The IRM contemplates a back and forth but does not mention this formal move seeking reconsideration.  The guidance here is not radical and simply formalizes what probably was happening in a less formal way.  It does provide a formal opportunity for clarification and resolution of the issue at lower levels.  Such a resolution is good for the taxpayer and the IRS.  Because the TAS is a voice for taxpayers behind the curtain of the IRS, we do not get to see what goes on between the two sides in the TAO disputes.  The PMTA gives a good description of the process.  For taxpayers being “represented” by TAS in this process and for taxpayers or representatives considering the use of TAS to resolve a problem, understanding the process and the possibilities makes use of the process more possible.  If done correctly, it has the ability to greatly assist taxpayers, to fix systemic problems within the IRS and to avoid litigation or feelings of utter frustration.