On March 26, 2018, the House of Representatives Committee on Ways and Means Subcommittee on Oversight published a discussion draft entitled “The Taxpayer First Act.” Unlike the recent tax reform legislation, the Act was jointly released by Chairman Lynn Jenkins and Ranking Member John Lewis of this subcommittee in a bipartisan effort to reform tax procedure. It’s nice to see that tax procedure can bring the parties together. The publication of the draft came with an invitation to submit comments and a statement that “Comments would be most helpful if received by April 6, 2018.” That’s a pretty short turnaround time; however the legislation came out just as my clinic class turned to policy. Each semester I try to end with a focus on the policy issues raised by the individual cases on which the students have worked. Writing proposed legislative solutions to policy issues we had encountered seemed like a good way to focus on policy given the invitation from the subcommittee. So, we tried our hand at commenting on the legislation and offering legislative proposals in the tax procedure area that might create a better tax system for the low-income taxpayers we represent. Thanks to Toby Merrill, Sean Akins and Carl Smith who assisted on this project. On April 6, 2018, the clinic submitted comments to the subcommittee.
The proposed Act has six parts roughly described as: 1) Independent Appeals; 2) Improved Service; 3) Sensible Enforcement; 4) Cyber Security; 5) Modernization and 6) Tax Court. The Clinic did not comment on all of the proposals. You can read the 49-page document submitted by the Clinic if you want the details, but I will give you a thumbnail sketch here.
The subcommittee was concerned about the independence of Appeals. It almost seemed as if much of the concern stemmed from the issues raised in the ongoing Facebook litigation, about which we have blogged before here and here. Low-income taxpayers do not face the same issues of Appeals independence that large corporate taxpayers face. No one in IRS compliance or in Chief Counsel attempts to influence Appeals on an individual case involving a low-income taxpayer because no one at the IRS has worked their case. Their cases are worked in a group setting at correspondence exam. So, the concerns about the independence of Appeals expressed by the subcommittee’s proposal are not concerns that relate to the issues facing low-income taxpayers.
Low-income taxpayers would, however, like the same opportunity as their higher end counterparts to meet with an Appeals officer to discuss their case when a face-to-face meeting would be appropriate. The Appeals employees who work in local offices typically have worked with the IRS for some time and have achieved high grade levels. Appeals does not want these highly-graded employees to spend time working on cases involving low-income taxpayers. Appeals employees with the lower grades generally reside in the work ghettos generally known as service centers. Because of their location, these employees are not accessible to taxpayers. As a result, low-income taxpayers who do not have an individual assigned to their case as they go through the examination process get assigned to someone they never meet face to face and who may work in a community that is across the country creating time zone and community understanding issues. The Clinic suggested that the concerns of low-income taxpayers with Appeals will not be resolved by creating a more independent Appeals but a more accessible one.
Similar to the problem with Appeals, one of the big issues for low-income taxpayers is access to service. We know that Service is the last name of the IRS but it does not have to be the last aspect of focus. The Clinic identified issues that could improve the ability of taxpayers to deal with tax problems. It praised the subcommittee suggestion allowing IRS employees to make referrals to clinics rather than simply passing out a publication. It suggested making eligibility for clinics indexed to local cost of living so that clinics servicing high cost of living areas did not need to turn away individuals living a marginal lifestyle but one slightly above the national average for qualification. Specifically, the Clinic suggested changing the criteria for requiring entities forgiving debt to allow the non-issuance of Form 1099-C in instances of disputed debt. Sending out tens of thousands of Form 1099-C to individuals, usually low-income individuals, relieved of debt in the settlement of a lawsuit disputing that debt causes havoc for the individuals and for the system. This issue is currently playing out in the for-profit school industry where numerous state attorney generals and private parties have challenged the business model and practices of this industry to assist individuals with high debt and little meaningful education to show for it.
The Clinic also suggested changing the litigation path of assessable penalties so that taxpayers do not face insurmountable obstacles in seeking to litigate their dispute with the IRS because of the Flora rule. It suggested changing and clarifying the operation of the I.R.C. section 32(k) penalty for wrongfully claiming the earned income tax credit, arguing that the current penalty operates more like a penalty imposed in the welfare context rather than one imposed by the tax code which causes the IRS trouble is properly administering the penalty. The Clinic also suggested clarification of the provisions regarding taxation of attorney’s fees so that the fees do not create a barrier for low-income individuals seeking remedies for consumer law violations and other similar provisions where the statutory remedy provides a small recovery amount for the individual coupled with statutory attorney’s fees that could trigger tax to the individual in excess of the award amount, that can trigger loss of other public benefits because of the phantom income, and that creates a system of double taxation of the individual and the attorney.
The subcommittee proposals would rename court orders and rename the special trial judges to bring the names more into line with other federal courts. The Clinic made proposals seeking to open up the Tax Court both from a jurisdictional and information perspective. Consistent with the litigation the Clinic has pursued regarding the jurisdiction of the Tax Court, the Clinic suggests that Congress make clear it did not intend the time periods for filing a petition in Tax Court to be jurisdictional. Regarding information availability, the Clinic proposes that all notices giving a taxpayer the right to petition the Tax Court contain the last date for filing the petition, as the notices of deficiency do after the 1998 amendment regarding those notices. Additionally, the Clinic has some suggestions on accessing the Tax Court’s records and other matters.
Although it is now past the requested deadline set by the subcommittee for comments on its legislation, if you agree with any of the proposals of the Clinic, you might consider submitting comments yourself. The portal for sending comments is firstname.lastname@example.org. Happy commenting.