Do You Know the Taxpayer Bill of Rights?
The Taxpayer Bill of Rights has been part of the Internal Revenue Code since 2015. Prior to that, the principles existed merely as a set of aspirational guidelines. Once the Taxpayer Bill of Rights was formally adopted, it became the duty of the IRS Commissioner to “ensure that employees of the Internal Revenue Service are familiar with and act in accord with” the Taxpayer Bill of Rights. But the idea of taxpayer rights is not limited to the federal government. Pennsylvania has also enacted legislation to protect certain taxpayer rights. The IRS Taxpayer Bill of Rights is listed below, and specific rights that have been adopted in Pennsylvania are denoted with an asterisk.
The Right to Be Informed*
Taxpayers have the right to know what they need to do to comply with the tax laws. They are entitled to clear explanations of the laws and IRS procedures in all tax forms, instructions, publications, notices, and correspondence. They have the right to be informed of IRS decisions about their tax accounts and to receive clear explanations of the outcomes.
The Right to Quality Service*
Taxpayers have the right to receive prompt, courteous, and professional assistance in their dealings with the IRS, to be spoken to in a way they can easily understand, to receive clear and easily understandable communications from the IRS, and to speak to a supervisor about inadequate service.
The Right to Pay No More than the Correct Amount of Tax
Taxpayers have the right to pay only the amount of tax legally due, including interest and penalties, and to have the IRS apply all tax payments properly.
The Right to Challenge the IRS’s Position and Be Heard*
Taxpayers have the right to raise objections and provide additional documentation in response to formal IRS actions or proposed actions, to expect that the IRS will consider their timely objections and documentation promptly and fairly, and to receive a response if the IRS does not agree with their position.
The Right to Appeal an IRS Decision in an Independent Forum
Taxpayers are entitled to a fair and impartial administrative appeal of most IRS decisions, including many penalties, and have the right to receive a written response regarding the Office of Appeals’ decision. Taxpayers generally have the right to take their cases to court.
The Right to Finality
Taxpayers have the right to know the maximum amount of time they have to challenge the IRS’s position as well as the maximum amount of time the IRS has to audit a particular tax year or collect a tax debt. Taxpayers have the right to know when the IRS has finished an audit.
The Right to Privacy
Taxpayers have the right to expect that any IRS inquiry, examination, or enforcement action will comply with the law and be no more intrusive than necessary, and will respect all due process rights, including search and seizure protections and will provide, where applicable, a collection due process hearing.
The Right to Confidentiality*
Taxpayers have the right to expect that any information they provide to the IRS will not be disclosed unless authorized by the taxpayer or by law. Taxpayers have the right to expect appropriate action will be taken against employees, return preparers, and others who wrongfully use or disclose taxpayer return information.
The Right to Retain Representation*
Taxpayers have the right to retain an authorized representative of their choice to represent them in their dealings with the IRS. Taxpayers have the right to seek assistance from a Low-Income Taxpayer Clinic if they cannot afford representation.
The Right to a Fair and Just Tax System
Taxpayers have the right to expect the tax system to consider facts and circumstances that might affect their underlying liabilities, ability to pay, or ability to provide information timely. Taxpayers have the right to receive assistance from the Taxpayer Advocate Service if they are experiencing financial difficulty or if the IRS has not resolved their tax issues properly and timely through its normal channels.
The Taxpayer Bill of Rights does not read like a typical section in the Internal Revenue Code. It may appear to lack efficacy, but it is in fact an important tool for taxpayers. Many of the principles described above are backed by other code sections that give teeth to the Taxpayer Bill of Rights and create administrative protections for taxpayers. For example, if a taxpayer’s return is examined and the taxpayer disagrees with the outcome, the taxpayer can appeal the decision. If the taxpayer disagrees with the results of the internal appeal, the taxpayer can petition to have the case heard in U.S. Tax Court. By executing an IRS power of attorney, the taxpayer can retain legal representation at any point in this process. If a tax is assessed but remains unpaid after notice and demand, the IRS can begin collection efforts. However, before the IRS can file a Notice of Federal Tax Lien or take enforced collection actions, the taxpayer is entitled to notice via certified mail and may request a “collection due process hearing” if the taxpayer believes the lien or collection activity is inappropriate. Moreover, if the IRS’s efforts to collect the tax balance due would create an economic hardship for the taxpayer, the IRS must delay collection activity or enter into an alternate payment arrangement with the taxpayer.
Notwithstanding these protections for taxpayers, the IRS still holds most of the cards when it comes to collecting tax revenue. Given that we have a system of voluntary tax compliance, but given the staggering size of the tax gap (i.e., the difference between what is owed and collected on an annual basis), which is typically about 15-18% of total tax liability and which totaled about $400 billion!^ on a net basis in 2016, perhaps this is as it should be. But that doesn’t mean taxpayers should yield all power and authority to the IRS. As noted by Nina Olson, the former National Taxpayer Advocate who was instrumental in getting the Taxpayer Bill of Rights codified, “at their core, taxpayer rights are human rights,” and there has never been a more important time for protecting human rights.
^Tax Policy Center, Briefing Book
DISCLAIMER: The foregoing does not constitute legal advice and has been prepared for informational purposes only. Please contact us directly with questions about how these and other laws and procedures relate to your specific situation.
Prepared by GKH attorney Doug Smith. In addition to other practice areas, Attorney Smith helps clients who have tax planning needs or who are involved in tax controversies with the IRS or the PA Department of Revenue. If you have questions about this article or a business or personal tax matter, please feel free to contact him.