Internal Revenue Bulletin: 2011-18
May 2, 2011
Table of Contents
This document contains final regulations relating to taxpayer assistance orders. These regulations reflect changes to the law made by the Taxpayer Bill of Rights II, the Internal Revenue Service Restructuring and Reform Act of 1998, the Community Renewal Tax Relief Act of 2000, and the American Jobs Creation Act of 2004. The final regulations affect taxpayers in cases where a taxpayer assistance order is being considered or issued.
Effective date: These regulations are effective on April 1, 2011.
Applicability date: For dates of applicability, see §301.7811-1(f).
These final regulations contain rules related to taxpayer assistance orders under section 7811 of the Internal Revenue Code (Code). These regulations are necessary to reflect changes to the law made by the Taxpayer Bill of Rights II (TBOR 2), the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA 98), the Community Renewal Tax Relief Act of 2000, and the American Jobs Creation Act of 2004. On July 27, 2009, a notice of proposed rulemaking (REG-152166-05, 2009-32 I.R.B. 183) relating to taxpayer assistance orders was published in the Federal Register (74 FR 36973). No comments were received from the public in response to the notice of proposed rulemaking. No public hearing was requested or held. The proposed regulations are adopted without substantive change by this Treasury decision with one exception. Example 3 in §301.7811-1(a)(4)(iv) of the regulations illustrating significant costs was revised slightly.
Furthermore, §301.7811-1(g) of the final regulations (T.D. 8403) published on March 23, 1992, in the Federal Register (57 FR 9975) defined the term “Ombudsman.” After these final regulations were published, section 101 of TBOR 2, Public Law 104-168, 110 Stat. 1452 (1996), amended section 7811 by changing the name of the “Ombudsman” to the “Taxpayer Advocate.” Section 1102 of RRA 98, Public Law 105-206, 112 Stat. 685 (1998), further amended section 7811, by replacing “Taxpayer Advocate” with “National Taxpayer Advocate.” Thus, §301.7811-1(g), which defined the obsolete term “ombudsman” is being removed by these final regulations as it is obsolete. Section 301.7811-1(e) of the existing final regulations (T.D. 8403), which contains the term “ombudsman” and concerns the suspension of the statute of limitations, was not revised by these final regulations as changes to that section may involve changes to IRS computer processing systems. Thus, all references to the term “ombudsman” in §301.7811-1(e) should, consistent with the current version of the statute, be construed as referring to the “National Taxpayer Advocate.” Possible revisions to §301.7811-1(e) will be considered at a later date.
It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations. Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it is hereby certified that these regulations will not have a significant economic impact on a substantial number of small entities. The information required under this Treasury decision is already required by the current regulations and the Form 911, “Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order).” In addition, the Form 911 takes minimal time and expense to prepare, and the filing of a Form 911 is optional. Therefore, preparing the Form 911 does not significantly increase the burden on taxpayers. Based on these facts, the Treasury Department and the IRS have determined that these regulations will not have a significant economic impact on a substantial number of small entities. Furthermore, the substance of the regulations does not concern the Form 911, but the procedures the Taxpayer Advocate Service (TAS) or the Internal Revenue Service (IRS) must follow with respect to taxpayer assistance orders. Therefore, any burden created by these regulations is on the TAS or IRS, not taxpayers. Pursuant to section 7805(f) of the Code, the notice of proposed rulemaking preceding these regulations was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.
Accordingly, 26 CFR part 301 is amended as follows:
Paragraph 1. The authority citation for part 301 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 301.7811-1 is amended by revising paragraphs (a), (b), (c) and (d), removing paragraphs (f), (g), (h) and redesignating paragraph (h) as (f) and revising newly designated paragraph (f) to read as follows:
(a) Authority to Issue—(1) In general. When an application for a taxpayer assistance order (TAO) is filed by the taxpayer or the taxpayer’s authorized representative in the form, manner and time specified in paragraph (b) of this section, the National Taxpayer Advocate (NTA) may issue a TAO if, in the determination of the NTA, the taxpayer is suffering or is about to suffer a significant hardship as a result of the manner in which the internal revenue laws are being administered by the Internal Revenue Service (IRS), including action or inaction on the part of the IRS.
(2) The National Taxpayer Advocate defined. The term National Taxpayer Advocate includes any designee of the NTA, such as a Local Taxpayer Advocate.
(3) Issuance without a written application. The NTA may issue a TAO in the absence of a written application by the taxpayer under section 7811(a).
(4) Significant hardship—(i) Determination required. Before a TAO may be issued, the NTA is required to make a determination regarding significant hardship.
(ii) Term defined. The term significant hardship means a serious privation caused or about to be caused to the taxpayer as the result of the particular manner in which the revenue laws are being administered by the IRS. Significant hardship includes situations in which a system or procedure fails to operate as intended or fails to resolve the taxpayer’s problem or dispute with the IRS. A significant hardship also includes, but is not limited to:
(A) An immediate threat of adverse action;
(B) A delay of more than 30 days in resolving taxpayer account problems;
(C) The incurring by the taxpayer of significant costs (including fees for professional representation) if relief is not granted; or
(D) Irreparable injury to, or a long-term adverse impact on, the taxpayer if relief is not granted.
(iii) A delay of more than 30 days in resolving taxpayer account problems is further defined. A delay of more than 30 days in resolving taxpayer account problems exists under the following conditions:
(A) When a taxpayer does not receive a response by the date promised by the IRS; or
(B) When the IRS has established a normal processing time for taking an action and the taxpayer experiences a delay of more than 30 days beyond the normal processing time.
(iv) Examples of significant hardship. The provisions of this section are illustrated by the following examples:
Example 1. Immediate threat of adverse action. The IRS serves a levy on A’s bank account. A needs the bank funds to pay for a medically necessary surgical procedure that is scheduled to take place in one week. If the levy is not released, A will lack the funds necessary to have the procedure. A is experiencing an immediate threat of adverse action.
Example 2. Delay of more than 30 days. B files a Form 4506, “Request for a Copy of Tax Return.” B does not receive the photocopy of the tax return after waiting more than 30 days beyond the normal time for processing. B is experiencing a delay of more than 30 days.
Example 3. Significant costs. The IRS sends XYZ, Inc. a notice requesting payment of the outstanding employment taxes and penalties owed by XYZ, Inc. The notice indicates that XYZ, Inc. has small employment tax balances with respect to 12 employment tax quarters totaling $10X. XYZ, Inc. provides documentation to the IRS which it contends shows that if all payments were applied to each quarter correctly, there would be no balance due. The IRS requests additional records and documentation. Because there are 12 quarters involved, to comply with this request XYZ, Inc. asserts that it will need to hire an accountant, who estimates he will charge at least $5X to organize all the records and provide a detailed analysis of how to apply the deposits and payments. XYZ, Inc. is facing significant costs.
Example 4. Irreparable injury. D has arranged with a bank to refinance his mortgage to lower his monthly payment. D is unable to make the current monthly payment. Unless the monthly payment amount is lowered, D will lose his residence to foreclosure. The IRS refuses to subordinate the Federal tax lien, as permitted by section 6325(d), or discharge the property subject to the lien, as permitted by section 6325(b). As a result, the bank will not allow D to refinance. D is facing an irreparable injury if relief is not granted.
(5) Distinction between significant hardship and the issuance of a TAO. A finding that a taxpayer is suffering or about to suffer a significant hardship as a result of the manner in which the internal revenue laws are being administered by the IRS will not automatically result in the issuance of a TAO. After making a determination of significant hardship, the NTA must determine whether the facts and the law support relief for the taxpayer. In cases where any IRS employee is not following applicable published administrative guidance (including the Internal Revenue Manual), the NTA shall construe the factors taken into account in determining whether to issue a TAO in the manner most favorable to the taxpayer.
(b) Generally. A TAO is an order by the NTA to the IRS. The IRS will comply with a TAO unless it is appealed and then modified or rescinded by the NTA, the Commissioner, or the Deputy Commissioner. If a TAO is modified or rescinded by the Commissioner or the Deputy Commissioner, a written explanation of the reasons for the modification or rescission must be provided to the NTA. The NTA may not make a substantive determination of any tax liability. A TAO is also not intended to be a substitute for an established administrative or judicial review procedure, but rather is intended to supplement existing procedures if a taxpayer is about to suffer or is suffering a significant hardship. A request for a TAO shall be made on a Form 911, “Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order)” (or other specified form) or in a written statement that provides sufficient information for the Taxpayer Advocate Service (TAS) to determine the nature of the harm or the need for assistance. A taxpayer’s right to administrative or judicial review will not be diminished or expanded in any way as a result of the taxpayer’s seeking assistance from TAS.
(c) Contents of taxpayer assistance orders. After establishing that the taxpayer is facing significant hardship and determining that the facts and law support relief to the taxpayer, the NTA may issue a TAO ordering the IRS within a specified time to—
(1) Release a levy. Release levied property (to the extent that the IRS may by law release such property); or
(2) Take certain other actions. Cease any action, take any action as permitted by law, or refrain from taking any action with respect to a taxpayer pursuant to—
(i) Chapter 64 (relating to collection);
(ii) Chapter 70, subchapter B (relating to bankruptcy and receiverships);
(iii) Chapter 78 (relating to discovery of liability and enforcement of title); or
(iv) Any other provision of the internal revenue laws specifically described by the NTA in the TAO.
(3) Expedite, review, or reconsider an action at a higher level. Although the NTA may not make the substantive determination, a TAO may be issued to require the IRS to expedite, reconsider, or review at a higher level an action taken with respect to a determination or collection of a tax liability.
(4) Examples. The following examples assume the existence of significant hardship:
Example 1. J contacts a Local Taxpayer Advocate because a wage levy is causing financial difficulties. The NTA determines that the levy should be released as it is causing economic hardship (within the meaning of section 6343(a)(1)(D) and §301.6343-1(b)(4)). The NTA may issue a TAO ordering the IRS to release the levy in whole or in part by a specified date.
Example 2. The IRS rejects K’s offer in compromise. K files a Form 911, “Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order).” The NTA discovers facts that support acceptance of the offer in compromise. The NTA may issue a TAO ordering the IRS to reconsider its rejection of the offer or to review the rejection of the offer at a higher level. The TAO may include the NTA’s analysis of and recommendation for resolving the case.
Example 3. L files a protest requesting Appeals consideration of IRS’s proposed denial of L’s request for innocent spouse relief. Appeals advises L that it is going to issue a Final Determination denying the request for innocent spouse relief. L files a Form 911, “Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order).” The NTA reviews the administrative record and concludes that the facts support granting innocent spouse relief. The NTA may issue a TAO ordering Appeals to refrain from issuing a Final Determination and reconsider or review at a higher level its decision to deny innocent spouse relief. The TAO may include the NTA’s analysis of and recommendation for resolving the case.
(d) Issuance. A TAO may be issued to any office, operating division, or function of the IRS. A TAO shall apply to persons performing services under a qualified tax collection contract (as defined in section 6306(b)) to the same extent and in the same manner as the order applies to IRS employees. A TAO will not be issued to IRS Criminal Investigation division (CI), or any successor IRS division responsible for the criminal investigation function, if the action ordered in the TAO could reasonably be expected to impede a criminal investigation. CI will determine whether the action ordered in the TAO could reasonably be expected to impede an investigation. Generally, a TAO may not be issued to the Office of Chief Counsel.
* * * * *
(f) Effective/applicability date. These regulations are applicable for TAOs issued on or after April 1, 2011, except that paragraph (e) of this section is applicable beginning March 20, 1992.
Steven T. Miller,
Deputy Commissioner for
Services and Enforcement.
Approved March 25, 2011.
of the Treasury (Tax Policy).
(Filed by the Office of the Federal Register on March 31, 2011, 8:45 a.m., and published in the issue of the Federal Register for April 1, 2011, 76 F.R. 18059)
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