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Taxpayer Bill of Rights 2: a practitioner's perspective.

Tax practitioners everywhere should stand up and cheer over the passage of TBR 2. The new law includes many useful tools for tax practitioners representing clients before the Internal Revenue Service and the United States Tax Court. The following is a thumbnail sketch of the law's salient provisions. It is not intended to be all - inclusive. For detailed information, the reader should become familiar with the actual legislation.

Taxpayer Advocate

The office of the Ombudsman is replaced by the Taxpayer Advocate Office. It was Congress' intent to give the Advocate broader authority in its ability to intercede on behalf of the troubled taxpayer. Congress strengthened the power of the Advocate to help taxpayers by expanding its authority to issue taxpayer assistance orders. Instead of simply requiring the IRS to refrain from enforced collections, the Advocate can order the IRS to take any action permitted by law to relieve significant hardship.

The new major task of the Taxpayer Advocate is to submit two annual reports to the tax writing committees of Congress. The first report must focus on the Advocate's objectives for the year. The second report must detail the Advocate's work for the prior year, provide

Congress with a list of the 20 most serious problems and provide solutions for resolving them. These reports go directly to Congress without review or oversight of the IRS.

If this provision works as intended, it gives practitioner organizations a new opportunity to influence tax legislation and the administration of tax policy.

Installment Agreements

Beginning February 1, 1997, the IRS is required to inform the taxpayer a minimum of 30 days before terminating, altering or modifying an existing installment agreement (IA). Effective Jan. 1, 1997, taxpayers are also entitled to a review of the termination of the IA. This means relief is now provided from the automatic cancellation of IAs, which occurs when a subsequent year has an unpaid liability.

Abatement Of Interest And Penalties

Generally speaking, interest can now be abated if the IRS's actions are untimely. This provision applies to liabilities incurred with tax years after July 31, 1996. Also, Tax Court has been granted jurisdiction in matters dealing with interest abatement. Finally, the Service has been given the authority to waive penalties for failure to deposit payroll taxes for certain first time depositors who fail to make the deposit or who send the deposit to the Service Center rather than the depository. When requesting interest abatement, we won't have to contend with the adage, "We can't abate interest as it is statutory."

Joint Returns

Effective immediately are two important items: 1) In jointly filed returns, one of the former spouses can request collection activities of the other spouse when they are no longer married. 2) An amended return changing filing status from separate to joint may now be filed without paying the full joint tax liability.

On January 31, 1997, the Advocate's Office submitted to Congress a study on the items below, which are related to jointly filed returns:

1. How would the tax liability differ from a typical jointly filed return with one which apportions the tax to the spouse earning the income?

2. What would the effect be of having divorce decrees as the controlling factor in determining tax liability?

3. Do the innocent spouse rules provide meaningful relief?

4. Should community property rules be overturned so that the income of a new spouse cannot be used to pay the tax liability of a prior spouse?

There still may be time for practitioner organizations to provide input to the Taxpayer Advocate on this important topic. As of early May, the Service had not met the January 31, 1997, deadline and we are still awaiting the report.

Collection Activities

The IRS's authority to withdraw liens and return levied property prior to payment has been made statutory. Offers in Compromise need not be approved by counsel if the tax being compromised is less than $50,000. One recommendation made by the CAG is to institute an expedited OIC process for offers that no longer need counsel's approval.

Information Returns

TBR2 has provisions allowing taxpayers to sue when they are issued a fraudulent information return; e.g., 1099NEC. Furthermore, the burden of proof with respect to the income reported on the bogus 1099 is on the Internal Revenue Service.

Taxpayers Bill of Rights, continued from page 34

Litigation Costs

The burden of proving the IRS was substantially justified in maintaining its position when it loses a case is now shifted to the IRS. This is a major reversal in the rules. Prior to TBR2, the taxpayer was required to prove the IRS was unjustified in pursuing the case.

Unauthorized Collection Actions

Taxpayers who can show damages resulting from collection actions that recklessly or intentionally disregarded the IRC can sue the United States for up to $1,000,000. The amount depends on damage sustained by the taxpayer. Naturally, the taxpayer is expected to utilize all possible administrative remedies.

Trust Fund Recovery Penalty Modifications

Trust fund penalties can no longer be assessed unless the IRS notified the taxpayer in writing 60 days prior to assessment. This provision became effective on July 1, 1996.


Upon written request, for one who is liable for the trust fund recovery penalty, the Service is authorized to release the name and the collection efforts imposed on everyone liable for the same trust fund recovery penalty. If responsible parties pay more than their proportionate shares of the trust fund recovery penalty, IRC 6672(d) now permits them to initiate legal action against those parties who have not paid their shares. Voluntary board members of tax exempt organizations are now protected under TBR2 if they are serving in an honorary capacity and not participating in day to day operations. The only twist to the rule is that someone has to be found responsible for failing to pay trust fund taxes.


Enrolled Agents are included with CPAs and attorneys as "third party record keepers." This provision allows EAs to challenge the validity of the summons in a court of competent jurisdiction.

IRS Misconduct

Taxpayers may sue the United States for damages if their representative is coerced by the IRS to compromise the determination or collection of any tax due. For example, a rogue auditor may try to entice Enrolled Agents by relieving them of a personal audit if their fiduciary responsibility is compromised to the detriment of the taxpayer.

Notice And information Reporting

Beginning January 1, 1997, the IRS must contact taxpayers within 60 days of receipt of payment when it cannot match it with a liability. The Service is required to send taxpayers an annual statement as to the current amount of past delinquencies. This provision will generate telephone calls to practitioners from those clients whose accounts were declared "currently not collectible."

We now must include a telephone number on all 1099s and other payee statements of the individual providing the statement. The list does not include W-2s.

Miscellaneous Provisions

The retroactive application of regulations has been all but eliminated. Naturally, there are a few exceptions. The IRS has been given authority to designate qualifying delivery services. Based on the requirements built into the legislation, it appears United Parcel Service, Federal Express, and other similar companies will be qualified. Using private delivery services could save money as we will be getting the benefit of a signature without having to use certified and return receipt cards.

The requirement of a taxpayer's signature on a power of attorney or authorization form is no longer required. In fact, the request to release information to third parties no longer needs to be in writing. We've been asking the IRS to include an authorization line on all tax returns. This line would authorize the Commissioner or designee to discuss the return with the preparer. The Service indicated legislation was needed to make such a change. It appears the opportunity is at hand to make it simpler to discuss taxpayer problems without having to file a power of attorney.

Penalties For Failure To File And Pay Tax

Substitute for returns and regularly filed delinquent returns will be assessed penalties in the same manner. This provision eliminates the favorable treatment received by substitute returns.

Tax-Exempt Organizations

There are several esoteric provisions dealing with tax-exempts; one impacts the practitioner community on a large scale. The penalty for failure to file a Form 990 or a complete Form 990 is increased to $20 per day to a maximum of $10,000. Organizations with $1,000,000 or more in receipts are subject to a $100 per day fine with a maximum of $50,000. The penalty can be abated due to reasonable cause.


There are numerous new weapons we can add to our taxpayer representation arsenal. However, we caution practitioners to check the actual legislation before any of them are implemented.
COPYRIGHT 1997 National Society of Public Accountants
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1997 Gale, Cengage Learning. All rights reserved.

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Author:Stevenson, William
Publication:The National Public Accountant
Date:Aug 1, 1997
Previous Article:Implementing SFAS No. 125: accounting for transfers and servicing of financial assets and extinguishment of liabilities.
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