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The Taxpayer Rights the IRS Says We Have

Posted on June 12, 2014

Tuesday, the IRS announced the adoption of a ten provision list entitled “Taxpayer Bill of Rights.” This lexicon entered the tax arena in 1988 with the passage of the Technical and Miscellaneous Revenue Act of 1988 which included as a part of the provisions passed a Taxpayer Bill of Rights (TBOR). Congress liked the idea so much that in 1996 it passed Taxpayer Bill of Rights 2 followed quickly by the Restructuring and Reform Act of 1998 which is sometimes referred to as the Taxpayer Bill of Rights 3.

Because the legislative versions of the TBORs primarily focus on procedural issues, this new administrative TBOR deserves mention in a blog devoted to procedural matters. The adoption of the IRS TBOR does not bring immediate procedural changes to the federal tax system in the way the legislative TBORs did but may have an impact on administration on the tax code moving forward.

Before talking about Tuesday’s announcement and what it might mean, a look at the history of this product line may provide insight into the likely impact of the IRS TBOR provisions. Many of the provisions added to the code in 1988 and 1996 were served up to Congress by Treasury and came from existing IRS procedures never mandated by Congress through the code. My favorite example from the 1988 legislation is IRC 6159 which codified the installment agreement. Prior to 1988 the IRS regularly entered into installment agreements and the Internal Revenue Manual provided for the use of installment agreements. They were simply an administratively convenient way for the IRS to collect from taxpayers unable to pay up upon demand. The problem with codifying the installment agreement provisions was not immediately noticed by the IRS.

Revenue officers and the relatively new, at the time, Automated Collection Service determined what a taxpayer could pay and asked them to make regular payments of that amount. A taxpayer might have the ability to pay $25 a month even though the taxpayer owed $100,000. The collection officials correctly figured that $25 a month was better than nothing and set up the installment agreement for that amount. Section 6159 changed that, or should have changed that, since it required full payment before the end of the statute of limitations.

Once the IRS realized the new limitation, it went about working with it by getting taxpayers to enter into extended statute of limitations agreements which sometimes extended for 50 years. Often the amount of the monthly payment did not even service the accruing interest. Many bad practices involving installment agreements were adopted by the IRS as it tried to get around the language of the statute. The Rosenbloom case provides a graphic example of one such case. Eventually, the IRS acknowledged its mistakes in this area and made a public apology although cases like Rosenbloom hung around the system for many years later and some may still exist.

I mention installment agreements to point out that sometimes codifying an administrative practice does not bring the expected result. I do not know what Congress expected but I am sure the IRS did not expect the problems with installment agreements that occurred with codification. The IRS lost a lot of flexibility that administrative rules provide and codes do not.

TBOR2 brought another round of modest changes similar to TBOR1that did not cause the IRS to break much of a sweat to adjust to the changes and brought no fundamental changes to way the IRS operated. The TBOR mold was broken in 1998 with TBOR3 because the IRS and Treasury held little sway over the actions of Congress and radical changes to IRS procedures and taxpayer rights were enacted. For better, and sometimes for worse, Congress engaged in much more fundamental reform in its third trip to the TBOR well. While it did not create the type of taxpayer bill of rights now adopted by the IRS, Congress did pass many provisions that gave taxpayers rights they did not previously possess – particularly in the collection area.

So now, 16 years after the last Congressional venture into the TBOR brand, and over a quarter century after the creation of the brand, the IRS has come forward for the first time to offer its version of taxpayer rights. What does it mean and how will it impact taxpayers and practitioners? Will it impact tax procedure in a meaningful way? I read the Commissioner’s statement accompanying the announcement as suggesting he viewed these changes similar to the reaction the IRS had to legislative TBOR1 and 2. He seems to say that these 10 listed rights already exist and the promulgation of the specific list of rights makes clear preexisting core concepts in federal tax administration – “Respecting taxpayer rights continues to be a top priority for IRS employees and the new Taxpayer Bill of Rights summarizes these important protections in a clearer, more understandable format than ever before.”

I agree with the Commissioner that the statement of rights is clear and that nothing like this existed before. I know that Nina Olson pushed hard for this clear statement of rights as part of her role in championing and advocating for taxpayers. The ten principles listed in the IRS TBOR all represent ideals we hope for in tax administrators. Now we get to the interesting phase of a pronouncement of taxpayer rights. Will taxpayers get quicker or better action from the IRS by citing to one or more of these rights or see any meaningful changes?

I do not have high expectations that the IRS TBOR will produce tangible changes, but perhaps I bring the same sort of expectation to the announcement the IRS brought to legislative TBOR1 and TBOR2. The IRS thought these actions by Congress did not create radical changes and were blips on the screen. It did not see the importance of codification and the results that could follow as they did with installment agreements. Changes that I do not envision may result from these pronouncements.

Without a better level of funding, another theme of Nina Olson’s annual reports, I see the IRS struggling to keep up with the tasks already placed upon it. Ramping up its game to provide more and better taxpayer protection at a time when it struggles to meet its current obligations seems a difficult task to me but maybe a dark hour is the best time to try harder to improve. The IRS TBOR brings the opportunity for better taxpayer service and may help focus the IRS on that goal. It may also bring Congress back into the TBOR game in which it last played 16 years ago. I am ready to be pleasantly surprised by the results of IRS TBOR and see little downside in this administrative effort to set out its view of the rights and expectations citizens should have of their tax administrators.

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