In June 2014, the IRS released a publication outlining the rights of U.S. taxpayers. Taking a cue from our forefathers and the first 10 amendments to the U.S. Constitution, Publication 1 has been dubbed "The Taxpayer Bill of Rights.”
The full document, along with the IRS’s descriptions for each of the rights can be found on the IRS website. The commentary below is my thoughts on these rights based on my experience with assisting clients and dealing directly with the IRS on a variety of matters.
The Right to Be Informed
The IRS actually provides excellent, user-friendly information on its website. For the most part, form instructions, publications, and other published guidance provide accurate information on how to handle various tax matters and interpretations of tax law. Their response and guidance on new tax legislation is often confusing, but that can be attributed to the typical, last minute actions of Congress and the President. Unfortunately this lack of timeliness in enacting tax law has become the norm.However, tax notices and other direct correspondence from the IRS to a taxpayer can be overwhelming and difficult to understand. Finding the reason for the notice is challenging with all the jargon and technical language. And quite often the notice is incorrect. This results in confusion and additional professional fees incurred by taxpayers in order to resolve the notice.
The Right to Quality Service “Quality Service” in the eyes of the service provider might be far different than in the eyes of the service recipient. Millions of taxpayers never experience any service from the IRS. They file their returns annually, pay their taxes, receive their refunds and life goes on.For those who have the unfortunate experience of receiving notices or getting audited, the service provided by the IRS can be frustrating. Taxpayers are often panicked by the notice or audit. It can be unsettling to wait months, even years, to receive a final resolution from the IRS on the issue. Multiple notices are often received after a taxpayer response has been sent to the IRS, often threatening collection or liens. Even when the original notice was incorrect! This results in more panic and frustration.
The Right to Pay No More than the Correct Amount of Tax The correct amount of tax is nothing more than zero, correct? 🙂 The IRS actually does this fairly well. What we (taxpayers) have to remember is the IRS hasn’t established what the “correct” amount of tax is. Tax law originates in either the House Ways and Means Committee or the Senate Finance Committee. Once the House and Senate finally agree and pass a tax bill, it goes to the President for signature and becomes law. The Internal Revenue Code was written by our elected officials, not the IRS.
The Right to Challenge the IRS’s Position and Be Heard The IRS is the enforcer of the tax law. The purpose of notices and audits is to ensure that taxpayers are paying the correct amount of tax. Of course, there are gray areas in the tax code and the IRS and the taxpayer may not agree. The first step is to challenge the IRS’s position by directly engaging with the agent or employee involved in the dispute. This may include asking to speak to his or her supervisor. An agreement or compromise is often reached. If not, the IRS will issue a closing determination, which can then be appealed at the Service level. The IRS also has a “Taxpayer Advocate” division that can help taxpayers, particularly in areas where the taxpayer’s position is clearly correct.
The Right to Appeal an IRS Decision in an Independent Forum If no agreement or compromise is reached and the amount of tax involved is significant, the next step is the US courts that handle tax cases. Cost-benefit analysis is critical here as taking the government to court is expensive and time consuming.
The Right to Finality Tax returns have a statute of limitations which prescribes the amount of time that the IRS has to audit the return. This statute is typically three years from the date of filing, although there are circumstances where this time period is extended, either voluntarily or involuntarily.Notices are eventually resolved. Audits eventually end in a “closing letter.” That panicked taxpayer mentioned earlier will eventually have a conclusion on the matter.
The Right to Privacy IRS auditors are taught to be skeptical. They can request additional information and inquire further into the taxpayer’s financial and other records. Their requests can seem intrusive and unreasonable. The auditor should be able to articulate why they are asking for these items. Taxpayers have due process rights and protections available if these inquiries are not within reason.
The Right to Confidentiality The IRS actually does an exceptional job at keeping taxpayer’s records confidential. The IRS will always verify your identity if you call. Always make sure you know who you are speaking with. The IRS agent will give you their name and ID number. The IRS will not release any information to others without an appropriate Power of Attorney on file.Taxpayers should be very alert and aware of whom they are providing information to. The IRS will not call a taxpayer, unless there has been previous written correspondence and appropriate disclosures made. There have been recent scams where someone calls and says they are with the IRS. Do not provide any information to these callers. This is not how the IRS contacts taxpayers.
Taxpayer’s rights of confidentiality extend to tax preparers. Tax preparers should not disclose any taxpayer information to others without the express permission from the taxpayer.
The Right to Retain Representation Taxpayers always have the right to hire representatives such as Certified Public Accountants to assist with tax preparation and representing them with the IRS.
The Right to a Fair and Just Tax System Taxpayers should expect to be treated fairly and to allow their facts and circumstances to be considered regarding their tax liabilities or their ability to provide information when requested. Taxpayers have the right to disagree and to receive assistance, both from the IRS and outside professionals.
Written by: Mike Varner, CPA, CGMA - Partner Email Me
Phone: 574.264.2247, x305