Taxpayer Bill of Rights 2 (May 1996)

New legislation governing the relationship between the IRS and the taxpayer has been approved by the House Ways and Means Committee. Given its wide congressional support, enactment seems likely, perhaps by as early as by next fall. The Taxpayer Bill of Rights 2 significantly expands upon rights taxpayers acquired under the original legislation.

The centerpiece of the new bill is the creation of the “Office of Taxpayer Advocate,” which would report directly to the Commissioner. The primary duties of the Taxpayer Advocate would be to assist taxpayers in resolving problems with the IRS, and to propose changes in the administrative practices of the Service to mitigate problem areas.

Other important aspects of the new legislation include proposals to:

¶  Grant taxpayers the right to seek administrative review of an IRS decision to terminate an installment agreement, before any action were taken.

¶  Permit the IRS to abate interest where its own actions contributed to the interest accrual, and grant the Tax Court jurisdiction to review an IRS failure to abate interest.(Under current law, interest is only rarely abated.)

¶  Require the IRS to disclose in writing to divorced spouses whether collection activities have been taken against the other spouse, and the amount, if any, collected.  collected.

¶  Expand the circumstances in which liens and levies could be released by the IRS would be expanded, by permitting the Service to withdraw a notice of lien or release a levy (and require the IRS to so advise credit reporting agencies and banks) if (1) the lien were filed prematurely, (2) the taxpayer agreed to pay the liability, (3) the withdrawal would facilitate collection, or (4) the Taxpayer Advocate Consented. he consent of the Taxpayer Advocate.

¶  Allow offers in compromise of up to $50,000 to be approved without the Chief Counsel’s consent.  (Under current law, offers over $500 can only be accepted if supported by an opinion of the IRS Chief Counsel.)

¶  Impose damages in an amount equal to the greater of $5,000, or any actual damages sustained by the aggrieved person, as a proximate result of an individual’s filing of a fraudulent informational return.

¶  Require the IRS to conduct a reasonable investigation of information returns the accuracy of which the taxpayer has reasonably disputed, and impose upon the IRS the burden of producing reasonable information concerning the deficiency.

¶  Conclusively presume that an IRS position was not “substantially justified” for purposes of imposing attorney’s fees where the IRS failed to follow its own regulations, revenue procedures, notices or advice issued to the taxpayer, such private letter rulings. (Currently, it is extremely difficult to show that an IRS position was not substantially justified.)

¶  Increase IRS exposure for actions of its officers or employees who intentionally or recklessly disregard Code or Regulation provisions in collecting tax would increase to $1 million from $0.1 million.

¶  Require the IRS to send annual notices to taxpayers with outstanding tax balances to prevent taxpayers from being lulled into a false belief that claim had been abandoned.

¶  Require the IRS to notify the taxpayer of a third-party summons served upon an attorney or accountant, and permit the taxpayer to contest it.

¶  Bar the IRS from seeking retroactive application of its regulations. [The Tax Court, in Tate & Lyle, Inc. v. CIR, 103 T.C. 656 (1994), declared that retroactive application of regulations violated the Due Process Clause, as interpreted by the Supreme Court.]

Taxpayers would also be permitted to use receipts from qualified (e.g., FEDEX) private-delivery companies as proof of mailing.

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