Bill of Rights for Taxpayers Is a Step Forward

When it passed Congress last November, the Omnibus Taxpayer Bill of Rights was hailed as a great law, sure to put a leash on the Internal Revenue Service. Three-quarters of the Senate joined Sen. David Pryor (D-Ark.) as co-sponsors, backed by groups as diverse as the ACLU, U.S. Chamber of Commerce, Urban League and National Taxpayers Union. The aim, said Pryor, chairman of a Senate Finance Committee subcommittee on IRS oversight, was “to inject reason and protection for individual rights into the tax collection process.”

The IRS, having fought its passage, shrugged it off as mere codification of existing IRS practices, suggesting that the whole stir was just a congressional grandstand play that produced something one step up from Lee Iacocca’s Car Buyer’s Bill of Rights (“Every American has the right to a quality car”). And consumers, if they heard of it at all, wondered what’s in it for them.

Behind the bill was a congressional sense of over-powerful bureaucracy, of an IRS that had become, in Pryor’s words, a “near totalitarian system.” Congressmen field innumerable complaints about the strong arms of the IRS, and congressional hearings brought out more--well-repeated tales of people who received $400 penalties for owing 2 cents or had IRS liens filed on their homes well after they’d paid the taxes in question, of IRS seizures of children’s savings accounts to satisfy a parent or grandparent’s tax debt and of small businesses threatened with closure, or shutdown, the minute they got behind in payroll taxes.

Congress Took Some Blame

The complaints were matched by official reports of inaccuracy in IRS assertions. The General Accounting Office found a 36% error rate in the information the IRS gave taxpayers over the phone in the 1988 filing season and a 31% rate of “critical errors” in its taxpayer correspondence during three months of 1987.

In fairness, Congress took some blame for IRS attitudes, having urged it on by writing into law ever more penalties in an effort to boost tax collection and reduce the deficit. “There are 150 tax penalties now on the books,” says Ira Bergman, chairman of the American Institute of CPAs’ tax practice and procedures subcommittee. “These created an attitude in the IRS that they had Congress in their corner. They became aggressive in the collection process, and sometimes lost sight of the end: If a small business that owes $5,000 is shut down, maybe the IRS gets a dime on the dollar.”

Many provisions of the Taxpayer Bill of Rights specifically address the collection phase of IRS activity, involving those taxpayers, says IRS spokesman Rob Giannangeli in Los Angeles, who “have a substantial liability that they haven’t paid”--a liability that the IRS considers by that time incontrovertible. The IRS must now give the taxpayer 30 days’ notice before starting collection activities instead of 10, and banks must wait 21 days before surrendering any funds.

Residence Usually Exempt

Except in unusual circumstances, well-reviewed, the taxpayer’s personal residence is exempt from seizure, and there are slight (very slight) increases in the amount of assets held exempt from seizure--$1,650 worth of furniture and personal effects, for example, instead of $1,500; $1,050 of books and tools instead of $1,000, and personal income of $288 a week for a family of six instead of $225.

The IRS is now authorized to make installment agreements with the taxpayer. And taxpayers can now sue the government for damages suffered as a result of IRS collection actions or refusals to release a lien, and can be awarded court costs, legal and administrative fees if they win an administrative or court case against the IRS.

Some provisions are obviously not so generous on their face--a few bucks here, a few days there. Others (installment arrangements, the personal residence) “just codified what we’ve done all along,” says Giannangeli. “What was discretionary before has been put into law.” The same could be said of some of the bill’s more general provisions, not involving collections, but perhaps helpful in averting collection.

By this summer, taxpayers must be sent explanations of their rights and of IRS procedures with any notice of tax determination or collection--”a Miranda type of warning,” says Los Angeles CPA Michael Sedgwick. By January, 1990, all “deficiency” notices must break down and explain the basis of all amounts assessed. Taxpayers can send a representative (attorney, CPA, tax preparer) in their stead to any IRS interview; if they go themselves, they can record the interview or suspend it at any point to consult with their advisers.

The Bill of Rights gives considerable power--finally--to the IRS Problem Resolution Offices, which serve under the national ombudsman in Washington. The PRO staff can now issue taxpayer assistance orders immediately halting any IRS action if it seems the taxpayer “is suffering or about to suffer a significant hardship.” There’s nothing new in such PRO requests, but before the bill, they were just requests, ignored at the discretion of the receiving division.

The most important thing about the bill is that taxpayers are no longer so dependent on IRS discretion. However well it’s wielded, discretion is really the greatest power of all, and the Taxpayer Bill of Rights “sends a signal,” says an aide to Pryor, that this imbalance must be corrected. Thus it is, as the name suggests, much like the federal Bill of Rights amended to the Constitution, meant to secure and protect certain basic rights of the individual against the powers they give to their government.

The Taxpayer Bill has been criticized for its limitations, specific and general, but many people, like Ira Bergman, think it’s “a step in the right direction.” Until now, said Wade Henderson, associate director of the ACLU’s national office in Washington, “there was never really a mandate from Congress that IRS power should be moderated in any way. The very idea of establishing a Taxpayer Bill of Rights is an incremental step forward that Congress can build on.”