Tax Notes logo

2021 Year in Review – Administrative Matters Part 2

Posted on Dec. 30, 2021

This part includes some Tax Court administrative matters in addition to those at the IRS.  Also included in this part is a reminder of the problems with the calculation of the statute of limitations on collection, changes to the FAQ policy and the new policy on offset in offer in compromise cases.

Collection Statute of Limitations

The NTA published the National Taxpayer Advocate Objectives Report to Congress (Fiscal Year 2022) which provides some information on the glitch causing the IRS to improperly record the collection statute of limitations. The glitch was first publicly identified in a blog post by then-NTA Nina Olson. In that post, Nina said the IRS was working to address a glitch that was causing the IRS computer system not to recognize the CSED in certain cases in which taxpayers had sought installment agreements. She indicated in her post that the issue surfaced two years prior in 2016 and her office had been working to identify cases.

Her blog post identified five different buckets of cases in which the IRS was incorrectly calculating the CSED:

  • Bucket 1 = multiple pending IAs with only one corresponding rejected IA determination
  • Bucket 2 = one pending IA and one approved IA where 52 or more weeks have passed
  • Bucket 3 = multiple pending IAs with one approved IA, where 26 or more weeks have passed
  • Bucket 4 = one pending IA with one rejected IA, at least 52 weeks later
  • Bucket 5 = one pending IA, with no other action on the IA request for at least 52 weeks

Prior to her post, the IRS had agreed to review the cases TAS identified in Bucket 3 and found that 83% had incorrect CSEDs.

In 2017, TAS identified a population of taxpayer accounts with unreversed or improperly reversed pending IAs that led to incorrect CSED calculations and erroneously added time to the tax debt collection period. TAS also found inconsistent IRS procedures related to CSED guidance. The IRS agreed to correct taxpayer accounts with erroneous CSEDs and the underlying problems that led to the miscalculations.

In July 2020, TAS identified and provided the IRS with over 6,000 taxpayer accounts with CSEDs erroneously extended by one year or more. As of December 2020, the IRS had not finished reviewing and correcting these cases. TAS has recently provided the IRS with several thousand more taxpayer accounts that appear to have the CSED incorrectly extended by a year or more. Despite efforts to find and correct unreversed and improperly reversed pending IAs, TAS continues to find errors, resulting in incorrect CSED extensions of a year or more. Even the most sophisticated taxpayers face challenges in calculating the CSED because of its complexity, as noted in this post from several years ago.

IRS Update on FAQs

One of most commonly utilized IRS methods of explaining the tax law when it needs to get out guidance quickly has become FAQs. Everyone understands the need for quick guidance and the fact that because of the speed in issuing guidance through FAQs the IRS does not want to be bound by this type of guidance. It should not be bound by this type of guidance and should be applauded for quickly issuing guidance. The concerns come when taxpayers follow this type of guidance and then the IRS changes its position. The IRS has taken the position that taxpayers should rely on those FAQs at their own peril, as there would be no relief if the guidance turned out to be incorrect.

On Friday, October 15, 2021, the IRS finally issued guidance addressing the controversial issue of taxpayer reliance on positions the agency announces in FAQs, which are published on its website (IR-2021-202, IRS updates process for frequently asked questions on legislation and addresses reliance concerns. The new guidance accepts two of the three recommendations made by the National Taxpayer Advocate Erin Collins in her July 7, 2020 blogpost. But, unfortunately, the new guidance suffers from the same shortcomings that attended the NTA’s recommendations.

During the week of October 19, 2021, we published a series of comments on the FAQ guidance which you can find here, here, here and here.  It was interesting for us because it was maybe the first time we had received multiple requests to publish posts on an issue.  All of the posts provide thoughtful takes on the procedure and the IRS position regarding this guidance.

Change to Offer in Compromise Policy

The new policy regarding offset in OICs represents a significant shift in collection policy for the benefit of taxpayers with accepted offers. Kudos to the decision makers behind this policy shift. A recent blog post from the National Taxpayer Advocate sets out the shift in policy and does a nice job of providing background as well as summarizing the new policy. This post seeks to complement the information provided by the NTA but is somewhat duplicative. Christine wrote a two-part blog post on offers and refunds, here and here, if you want more background on this subject.

The specific language developed by the IRS regarding the commitment of the taxpayer to give up their refund in the year of the OIC acceptance is found on page 5 of the form in section 7(e), which states:

The IRS will keep any refund, including interest, that I might be due for tax periods extending through the calendar year in which the IRS accepts my offer. I cannot designate that the refund be applied to estimated tax payments for the following year or the accepted offer amount. If I receive a refund after I submit this offer for any tax period extending through the calendar year in which the IRS accepts my offer, I will return the refund within 30 days of notification.

Even though the IRS rarely accepted OICs prior to the change in its policy in 1992, it did have an OIC program. In the Sarmiento case, discussed below, the clinic traced this language back to at least 1964. At that time, however, refundable credits did not exist and the policy as originally designed would not have been intended to claw them back after OIC acceptance.

For OICs accepted after November 1, 2021, the IRS will forego taking the post-OIC acceptance refund for the year of acceptance. It will still take refunds for the periods leading up to the acceptance of the OIC (subject to the discussion of Offset Bypass Refunds (OBRs) discussed below). The benefit to taxpayers varies based on the amount of refund they might have received for the year of OIC acceptance. The NTA’s blog has some statistics on this; however, the individuals receiving significant refunds based on refundable credits, usually among the poorest of the taxpayers receiving acceptances, will definitely benefit.

The new policy does make clear that the IRS expects to offset any refunds related to pre-OIC acceptance tax years.  This policy makes sense.  It prevents taxpayers from delaying the submission of amended returns until after an OIC acceptance in an effort to circumvent having the refund offset.  In this way, the policy operates similarly to the requirement that taxpayers disclose their interest in potential lawsuits and other claims not yet turned into a definite amount at the time of making the OIC.  The IRS should receive these monies or at least know about them and make a judgment.  See our full post on this issue here.

Premature Assessments

The IRS was not the only place backed up because of the pandemic. During 2020, the IRS held off on sending out notices of deficiency because of the pandemic. Those notices went out late in 2020 and during 2021, creating a significant increase in the number of new Tax Court petitions, especially during the first half of 2021. The Tax Court clerk’s office, like the IRS Service Centers, is not working at full strength during the pandemic because of efforts to ensure the safety of the employees. The combination of a much higher volume of cases to process and the pandemic work restrictions created significant delays in the processing of new petitions from the Tax Court to IRS Chief Counsel, which meant that the IRS treated taxpayers as not having petitioned the Tax Court, resulting in premature assessments or inappropriate collection.

The Tax Court could have done a better job of alerting the practitioner community to the problem earlier but eventually began putting out news releases and working with Chief Counsel to notify it of new cases even before formally processing them and serving the answers. Both the IRS and the Court react quickly to information about a premature assessment or collection; however, the high volume of pro se taxpayers filing petitions who do not know that a premature assessment should not have occurred hinders the process of identifying all of the problem cases.

The Court’s dedicated email address for dealing with premature assessments created is In addition to contacting the Court, reaching out to the local Chief Counsel Office will also result in assistance in fixing a premature assessment. On December 9, 2021, the Tax Court issued a news release focused on the number of petitions filed in 2021 and the method of filing those petitions. By the end of November, the Court had received 33,000 petitions, a significant increase from 2020 when filings were down due to COVID suppressing IRS issuance of notices that would lead to the filing of petitions. The increase in filings coupled with the work restrictions brought on by the pandemic have led to delays in processing petitions which we have reported on previously here and here.

To provide some perspective based on recent years, below are the statistics for filing for the previous five years. This information is taken from page 21 of the Congressional Budget Justification for Fiscal Year 2022, submitted by the Court on April 5, 2021. This report has quite a bit of data about the Tax Court for those interested in the Court’s budget and operations.

FISCAL YEAR                         FILED              CLOSED
2016                                      28,831                       33,038
2017                                      27,091                       29,037
2018                                      25,422                       26,259
2019                                      24,364                       21,740
2020                                      16,988                       19,568

In FY 2020, of the 16,988 cases filed, 10,061 were regular cases and 6,927 were small cases. The overwhelming majority, 95%, of the cases filed in FY 2020 were based on the Court’s original deficiency jurisdiction granted by Congress.  The mix of regular and small cases filed in 2020 veers away from the mix in recent years which has run closer to 50-50.  The percentage of deficiency cases is higher than normal, reflecting the shutdown of collection for much of the year.

Tax Court Proceedings

The Tax Court stopped holding in-person trials in March of 2020 as the world recognized the dangers posed by COVID.  It cancelled the remaining trial calendars in the Winter session that year and all of the calendars in the Spring session, using the time to develop an online platform for interacting with taxpayers and the IRS.  It held all of its 2021 trial calendars remotely using the online platform before announcing a return to in-person proceedings at the beginning of 2022.  We discuss the announcement here.  As it returns to in-person proceedings, the Court remains willing to hold remote proceedings at the request of the parties.  Many of the hearings the Court holds can occur just as effectively in a remote setting as in-person.  The pandemic may have hastened a move to hybrid court proceedings that could make the Tax Court more efficient.  It has also caused many, if not more or all, of the judges to begin interacting with petitioners on a regular basis prior to calendar call.  This is a good thing.

Copy RID