Taxpayer Bill of Rights

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Taxpayer Bill of Rights

A federal or state law that gives taxpayers procedural and substantive protection when dealing with a revenue department concerning a tax collection dispute.

Perceived abuses by the federal Internal Revenue Service (IRS) during tax audits led to the enactment of the "Omnibus Taxpayer Bill of Rights" in 1988 (Pub. L. No. 100-647). A second set of provisions was enacted in 1996 (Pub. L. No. 104-168) to give taxpayers increased leverage in dealings with the IRS. The 1988 act also spurred many states to enact similar taxpayer bill of rights laws.

Although the rights given to taxpayers under these federal acts do not reduce the chance of being audited or diminish IRS authority to penalize taxpayers for inaccuracies or cheating on their returns, the provisions correct many of the perceived abuses in IRS auditing and collection procedures. The bill of rights seeks to relieve taxpayers from the unfettered discretion of IRS agents. Congress stated that the aim of the 1988 act was "to inject reason and protection for individual rights into the tax collection process."

The bill of rights requires the IRS to explain the audit and collection process to the taxpayer before any initial audit or collection interviews and to include on all tax notices a description of the basis for taxes, interest, or penalties due. The bill also requires the IRS to inform taxpayers of their rights, including the right to be represented by an attorney or tax accountant, whenever an audit notice is sent. The bill allows the taxpayer to make an audio recording of the interview with the IRS agent, provided prior notice is given. An actual audit interview can be stopped, Without Prejudice, so that the taxpayer can consult with an attorney or accountant. Another key provision prohibits the IRS from imposing quotas or goals on agents with respect to the number of returns they audit and the amount of taxes and fines collected.

The 1988 act created the Office of Taxpayer ombudsman, which served as the primary advocate for taxpayers within the IRS. The 1996 act shifted this role to the newly established Office of the Taxpayer Advocate. This office helps taxpayers resolve problems with the IRS, identifies areas in which taxpayers have problems in dealings with the IRS, proposes changes in the administrative practices of the IRS, and suggests potential legislative changes that may reduce these problems. To ensure independence from the IRS, the Taxpayer Advocate reports directly to Congress twice a year.

The Taxpayer Advocate also has broad authority to issue Taxpayer Assistance Orders. These orders can release property or require the IRS to cease any action, or refrain from taking any action, that will cause significant hardship as a result of the administration of the internal revenue laws.

Under the bill of rights, before the IRS can put a lien on or seize taxpayer property, it must give the taxpayer thirty days' notice instead of the previous ten days' notice. Taxpayers are permitted to sue the IRS for damages suffered as a result of tax or property collection actions or refusals to release a lien; they can be awarded court costs and legal and administrative fees if they win an administrative or court action against the IRS.

Under the bill of rights, the IRS is authorized to make installment agreements with taxpayers to alleviate the burden on a taxpayer who would experience financial hardship if forced to make a lump-sum payment. The IRS must give thirty days' notice before altering, modifying, or terminating a previously agreed upon installment agreement, unless the change is caused by a determination that the collection of tax is in jeopardy.

Another provision of the law states that if the IRS believes additional taxes are owed, the agency must send the taxpayer a written notice that explains and identifies all amounts due. The IRS must also describe the procedures that it will use to collect any amounts due. Previously, the IRS generally explained the basis for a tax deficiency but was not required to explain penalties or how they would be collected. Instead, the IRS simply sued the taxpayer.The bill of rights gives the IRS authority to abate interest for delays or unreasonable errors caused by nondiscretionary procedural acts of the IRS or by IRS managerial acts such as loss of records by the IRS or transfers, extended illnesses, leave, or professional training of IRS personnel.

Further readings

Mumford, Ann. 1997. "The New American Bill of Rights." British Tax Review (November-December).

Petersen, Scott. 1997. "The Rights of Third-Party Taxpayers Under the Taxpayers' Bill of Rights." Journal of Small and Emerging Business Law 1 (winter).

U.S. Department of the Treasury. 1997. Taxpayer Bill of Rights 3 and Tax Simplification Proposals. Chicago: CCH Incorporated.

Cross-references

Income Tax; Taxation.

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