Law Assists Taxpayers in Dealing With IRS
Do you feel helpless when dealing with the Internal Revenue Service? Thanks to Congress, now you will have a bit more power.
The tax bill signed a week ago by President Reagan contains a “Taxpayer Bill of Rights” that will increase your privileges in dealing with the IRS for advice, audits, collections and other procedures.
The bill of rights stemmed partly from horror stories of overzealous IRS actions against taxpayers and concerns by IRS critics that the agency had too much power against taxpayers.
Some provisions in the bill of rights were already incorporated into IRS procedures, but others go beyond existing practices.
Here are some key provisions of the new law, many taking effect during the next few months:
- You must be informed in advance of your rights as a taxpayer. Upon notifying you that you may owe additional taxes, the IRS must send you a written statement explaining your rights, the agency’s collection procedures, the amounts owed and why. A notice that you will be audited must also be accompanied by a statement explaining your rights to have representation, documentation you will need and other procedures.
The IRS says it has been doing this already, but the bill codifies this into law.
* You won’t be liable for penalties caused by erroneous written advice from the IRS. This will be the case as long as you provided the agency with adequate and accurate information on which the advice was based. However, you still must pay any tax owed. And you cannot be exempted from penalties caused by inaccurate oral advice.
* You will be protected somewhat from overzealous collection agents. The IRS cannot use quotas or goals measuring amounts collected in audits, returns examined or other revenue production numbers to evaluate employees for promotion. Although the IRS says this already had been disallowed, agency critics say it has been used in practice anyway.
* You may not have to be present at an audit. Instead, you can have a lawyer, certified public accountant or enrolled agent represent you. They must be qualified to practice before the IRS, and you must grant them power of attorney. The IRS can still insist on your presence but must issue a summons. Guidelines covering taxpayer attendance have been vague and controversial, agency critics say.
Also, you can make an audio recording of the interview, as long as you notify the IRS in advance.
* You have a right to sue. You may obtain damages if a judge rules that an IRS collector recklessly or intentionally disregarded the tax code. However, you must sue in federal court. You can receive up to $100,000, or your actual damages and legal costs, whichever is less. Also, you must have pursued all other administrative remedies, such as seeking to negotiate a settlement.
You also can seek damages when an IRS officer knowingly or negligently fails to release a lien against your property.
* You can be reimbursed for your legal and administrative costs. This can happen if you substantially prevail against the agency in an administrative or court proceeding. However, you also must have exhausted all other administrative remedies.
On the flip side, if you challenge the IRS and your action is ruled by a court to be frivolous or groundless, you can be fined up to $10,000. Previously, it was a maximum of $5,000.
* You have more leeway in IRS collection procedures. After giving notice that it intends to seize your property or wages to pay a tax bill, the IRS must wait 30 days, instead of 10, before moving to collect.
If the IRS has seized your property but there is sufficient question of your liability, an IRS problem resolution office can release the property if you can show that it creates a hardship. This already was part of IRS procedure, so the bill of rights just codifies it into law.
Also, if it is shown that an IRS lien against your property was improper, you can request that the agency provide you with a statement that it was in error. That can be used to remove records of that lien in your credit report, says Dick Poladian, partner at the accounting firm of Arthur Andersen & Co. “That’s been a significant problem in the past,” he says.
* More of your wages and possessions will be exempt from seizure. Under the new law, $1,650 of your fuel, furniture or other personal effects will be exempt from IRS seizure. That is up from $1,500 before. For books, tools, machinery or equipment necessary for your trade or business, the cutoff has been raised to $1,050 for 1989 and $1,100 for subsequent years, up from $1,000 now.
Also, the amount of your wages exempt from seizure will be increased based on a formula tied to your standard deduction and personal exemptions. Other sources of income will be totally exempt, including welfare income, assistance received under the Job Training Partnership Act, aid to dependent children and supplemental Social Security benefits for age and blindness.
Want further information on your rights? Call for a copy of the IRS’ new four-page pamphlet, Publication 1, “Your Rights as a Taxpayer.” It’s available by calling (800) 424-FORM.
Bill Sing welcomes readers’ comments and suggestions for columns but regrets that he cannot respond individually to letters. Write to Bill Sing, Personal Finance, Los Angeles Times, Times Mirror Square, Los Angeles, Calif. 90053.
