The National Taxpayer Advocate (NTA) has released the 2024 Annual Report to Congress^1, along with the 2025 Purple Book, a compilation of legislative recommendations. These documents highlight critical issues facing taxpayers and propose solutions that could significantly impact tax practice. This article will delve into the key findings of the report and the legislative recommendations, offering insights relevant to CPAs in tax practice.

Key Findings of the 2024 Annual Report

The NTA’s report is mandated by IRC § 7803(c)(2)(B)(ii)(III) to identify the ten most serious problems encountered by taxpayers in their dealings with the IRS. For 2024, the NTA identified and analyzed ten such problems, offering recommendations to assist both the IRS and Congress. The report also summarizes the tax issues most frequently litigated in the U.S. Tax Court and other federal courts.

Here are some of the key findings from the report:

• Improved Taxpayer Experience: For the first time since 2020, the NTA reported a noticeable improvement in the taxpayer experience. The IRS has made progress in eliminating the backlog of paper returns and correspondence that accumulated during the pandemic. In 2024, taxpayers generally received timely refunds and faced shorter wait times to reach customer service representatives.

• Imbalance in IRS Funding: The NTA has criticized the imbalance in the allocation of IRS funding from the Inflation Reduction Act (IRA). The majority of the funds, 58%, were allocated to enforcement, while only 4% was allocated to taxpayer services. The NTA recommends that Congress provide additional funding for taxpayer services to improve the taxpayer experience.

• Most Serious Problems: The NTA identified the ten most serious problems encountered by taxpayers, using criteria including the impact on taxpayer rights, number of taxpayers impacted, financial impact, and barriers to tax law compliance. These problems are:

  • Employee Retention Credit - IRS Processing Delays Are Resulting in Uncertainty and Are Harming and Frustrating Business Owners
  • Return Processing - Continuing Delays in IRS Return Processing Are Frustrating Taxpayers and Causing Refund Delays
  • Identity Theft - Processing and Refund Delays Are Harming Victims of Tax-Related Identity Theft
  • IRS Service - Taxpayer Service Is Often Not Timely or Adequate
  • Tax-Related Scams - More Taxpayers Are Falling Victim to Tax-Related Scams
  • Hiring - The IRS’s Continuing Challenges in Employee Recruitment, Hiring, Training, and Retention Are Hindering Its Ability to Achieve Transformational Change in Taxpayer Service and Tax Administration
  • Individual Taxpayer Identification Number Processing - IRS Dependence on Paper Forms and Manual Document Review Is Causing Delays, Mistakes, and Potential Security Risks
  • Tax and Financial Literacy - Limited Tax and Financial Knowledge Is Causing Serious Consequences for Taxpayers
  • Civil Penalty Administration - The IRS’s Administration of Penalties Is Often Unfair, Is Inconsistently Deterring Improper Behavior, Is Not Promoting Efficient Administration, and Thus Is Discouraging Tax Compliance
  • Criminal Voluntary Disclosure - Changes to the IRS’s Criminal Voluntary Disclosure Practice Requirements May Be Reducing Voluntary Compliance and Negatively Impacting the Tax Gap

• Tax-Related Scams: The IRS scam reporting process is noted to be confusing and the IRS should encourage taxpayers to come forward and share information about scams they have observed.

• Tax and Financial Literacy: The NTA emphasizes the importance of tax and financial literacy, noting the need for the IRS to improve taxpayer understanding of the U.S. tax system and where tax dollars go. This includes creating graphics on IRS.gov to explain the U.S. tax system and how the government uses tax revenue. The NTA also recommends that Congress amend 20 U.S.C. § 9703 to include promotion of tax literacy among the duties of the Financial Literacy and Education Commission (FLEC).

• Civil Penalty Administration: The report highlights issues with the IRS’s civil penalty administration, noting that the focus has shifted away from using penalties solely to encourage voluntary compliance. The NTA believes it is time to reconsider the existing penalty regime and develop better information on how penalties affect taxpayer behavior. There is concern that numerous penalty provisions have been enacted that do not achieve the goal of encouraging voluntary compliance. The report also cites research that indicates penalties should be administered in a way that is responsive, reasonable, and reproducible.

• Most Litigated Issues: The NTA identifies the ten most litigated tax issues in federal courts. This includes Collection Due Process (CDP) hearings, which is an area where a relatively small number of taxpayers exercise their right to request an administrative review. Other issues include those related to Foreign Bank Account Reporting (FBAR) penalties, which have been the subject of circuit splits, and challenges concerning the Administrative Procedure Act.

• Taxpayer Advocate Service (TAS): The TAS has seen a significant increase in cases, receiving nearly 257,000 cases in FY 2024, a 17% increase from FY 2023. The TAS has implemented new ways to prioritize work and provide assistance to taxpayers. TAS also provides systemic advocacy by making recommendations to the IRS and proposing legislation to Congress.

• Employee Retention Credit (ERC) Delays: There is a significant backlog of ERC claims, with 1.2 million claims pending as of October 26, 2024, many for over a year. These delays impact eligible businesses.

Legislative Recommendations in the 2025 Purple Book

The NTA’s 2025 Purple Book contains 69 legislative recommendations aimed at strengthening taxpayer rights and improving tax administration. These recommendations are grouped into categories that reflect various stages of the tax administration process. Each recommendation includes “Present Law,” “Reasons for Change,” and “Recommendation(s)” sections. The book’s name reflects the bipartisan nature of its recommendations.

Here are some key legislative recommendations relevant to tax practitioners:

• Tax Return Preparer Competency: The NTA recommends that Congress authorize the IRS to establish minimum competency standards for federal tax return preparers and to revoke the identification numbers of sanctioned preparers. This recommendation is based on evidence that non-credentialed preparers disproportionately prepare inaccurate returns, leading to overpayments, underpayments, penalties and interest for taxpayers.

• Taxpayer Bill of Rights: The NTA suggests elevating the importance of the Taxpayer Bill of Rights (TBOR) by redesignating it as Section 1 of the Internal Revenue Code. The TBOR is currently codified in IRC § 7803(a)(3). The IRS has updated Publication 1, Your Rights as a Taxpayer, to highlight the TBOR.

• Access to Information for TAS: The NTA recommends amending IRC § 7803(c) to clarify that TAS employees have the authority to participate in meetings between taxpayers and the IRS, and to access tax returns and return information. This is intended to help TAS in their advocacy for taxpayers.

• Amicus Briefs: The NTA recommends authorizing the National Taxpayer Advocate to file amicus briefs in federal tax cases to share their views as the voice of the taxpayer. Currently, the National Taxpayer Advocate is not authorized to submit amicus briefs.

• Penalty Administration: Several recommendations address penalty administration. One recommendation calls for clarifying that supervisory approval is required under IRC § 6751(b) before proposing penalties. The NTA also recommends that assessable penalties be subject to deficiency procedures.

• ITIN Assistance: The NTA recommends authorizing the use of Volunteer Income Tax Assistance (VITA) grant funding to assist taxpayers with applications for Individual Taxpayer Identification Numbers (ITINs).

• Collection Due Process: The NTA proposes giving taxpayers abroad additional time to request a Collection Due Process hearing and to file a petition challenging a Notice of Determination in the Tax Court.

• IRS Guidance: The NTA recommends that the IRS should be required to specify the information needed in third-party contact notices.

• Innocent Spouse Relief: The NTA suggests clarifying that taxpayers may raise innocent spouse relief as a defense in collection, bankruptcy, and refund cases.

• Tax Court Jurisdiction: The NTA advocates for expanding the U.S. Tax Court’s jurisdiction to hear refund cases and to determine overpayments by non-filers with filing extensions.