Taxpayer Representative Bill of Rights.
The following is a work-in-progess draft of the Taxpayer Representative Bill Of Rights as it was presented to the the Commissioner's Advisory Group by the Federal Taxation Committee of the National Society Of Accountants.
NSA was represented at this hearing by Douglas C. Burnette (then NSA President) and William Stevenson, Chair of NSA's Federal Taxation Committee on July 15,1998.
The Internal Revenue Service Restructuring and Reform Act of 1998 (H.R. 2676) recently passed by Congress should do much to make the federal tax collection agency more responsive and efficient. The legislation will go a long way towards improving a taxpayer's rights in IRS collection matters as well as improving agency oversight. Congress and the Clinton Administration should be commended for their vigorous support for H.R. 2676 and their commitment to the bill's passage.
With the passage of H.R. 2676, Congress and the Administration must continue to be vigilant in the pursuit of finding additional ways to improve the tax administration process and to foster tax compliance. The National Society of Accountants and its collegial organizations believe the next critical stage of IRS reform should include adoption of a Taxpayer Representative Bill of Rights. This document discusses the importance of a Taxpayer Representative Bill of Rights to the tax administration process.
Towards a Taxpayer Representative Bill of Rights
Taxpayers, taxpayer representatives and the IRS must confront the immensity and complexity of federal tax law and regulations on a daily basis. In fact, this complexity causes a large percentage of taxpayers to utilize the skills of tax professionals to file tax returns, or to respond to audit examinations or collection proceedings.
Enrolled Agents, Certified Public Accountants (CPAs) and attorneys are already subject to various ethical rules or standards imposed by Circular 230 (the regulations governing practice before the IRS).(1) The statutory basis for promulgation of Circular 230 is 31 U.S.C. Section 330. This statute requires the taxpayer's representative to demonstrate such traits as good character, good reputation and competence in advising and assisting persons. Further, the statute states Treasury may suspend or disbar from practice a representative (after notice and opportunity for a proceeding) who is incompetent, disreputable, violates pertinent regulations or acts with intent to defraud or mislead.
It is the goal of taxpayer representatives to resolve their clients' problems and disputes with the IRS in the fairest and most efficient manner that is possible. While the IRS has a right to expect a representative to operate within the framework of a highlevel ethical construct, the practitioner community expects no less from the employees of the IRS. Unfortunately, even though the IRS has many options in terms of punishing a disreputable taxpayer representative, IRS employees are not subject to comparable disciplinary actions should the government employee violate an ethical rule or precept.
A Taxpayer Representative Bill of Rights is needed to better define the relationship between taxpayers, their tax representatives, and the IRS. By better defining this relationship, Congress and the Treasury would be taking critical steps towards lessening the adversarial nature of the current tax system. The net result of these steps should be significant enhancements and efficiencies for the tax collection and administrative processes.
By affirmatively defining the rights of representatives, taxpayers will develop a greater degree of respect and confidence in the tax system. Taxpayers need to know that those who are retained to represent them will be treated with respect and professionalism by the IRS. Taxpayers need to know the IRS is prepared to quickly, fairly and competently work with their representatives to resolve their problems. Taxpayers need to know the IRS welcomes the participation of competent and ethical representatives. Everyone can benefit when taxpayers are fully assured that their rights are protected by competent professionals.
Adoption of a Taxpayer Representative Bill of Rights should result in confidence in the tax system by American and international taxpayers, thereby increasing compliance. Other benefits from adoption of this initiative include more effective taxpayer representation by practitioners and higher levels of job satisfaction and productivity for IRS employees.
Tax Practitioners Are an Integral Component of the Tax Administration Process
According to an April 22, 1998 information release, the IRS received more than 100 million tax returns during the 1998 tax filing season and processed more than $84 billion in refunds to taxpayers. With respect to electronically filed tax returns (i.e. by computer and telephone), the IRS revealed that electronic returns increased in 1998 by more than 28% over 1997 to more than 24.2 million returns.
The above 1998 filing season statistics only briefly highlight the critical governmental mission served by IRS employees to the nation. For purposes of fiscal 1999, the IRS projects the agency's 100,000 employees will respond to 120 million telephone calls from taxpayers and will examine 1.3 million individual tax returns.
The practitioner community appreciates and understands the heavy burdens placed on IRS employees, as highlighted by these statistics. However, the above statistics don't directly reveal the critical role tax practitioners play in terms of ensuring the relative success of a single tax filing season or of the overall tax administration process.
Some estimates suggest that professional tax preparers are responsible for the filing of over 50% of all federal tax returns. These professionally prepared returns generally are the most complex of all the filed returns. Tax practitioners are the "glue" holding the tax administration process together. Without practitioners providing professional services to large numbers of taxpayers, the tax collection system would likely collapse of its own weight.
As a result of the passage of the Taxpayer Relief Act of 1997, the 1998 filing season hit tax practitioners with a vengeance. Practitioners and taxpayers alike found the 1997 tax act a hopelessly complex set of provisions. For this reason, many taxpayer representatives found themselves during the 1998 filing season falling behind the pace set by the 1997 filing season.
The tax chair of one professional society recently stated accountants are seeing about a 10 to 15% increase in persons wanting their returns prepared professionally due to the complexity of the 1997 law.
The IRS Reorganization Plan
Commissioner Rossotti has proposed a $25 million long-term reorganization plan for the IRS. The plan calls for a reorganization of IRS business practices into four operating units, split into practice areas where IRS employees will be better able to understand and more quickly resolve taxpayer problems. The IRS would be split into individual business units for the purpose of addressing the needs of (1) persons with wage and investment income, (2) small businesses and self-employed individuals, (3) large corporate businesses, and (4) employee plans and exempt organizations.
Under this reorganization plan, the IRS will move away from the current administrative framework commonly known as IRS district offices and towards a new configuration known as practice units. Practitioners are generally in agreement with the conceptual overriding objective of the new reorganization. The plan has the potential of significantly improving the IRS's relationship with its customers - America's taxpayers. Commissioner Rossotti should be given the opportunity and the proper tools to implement his ambitious plans for the agency during fiscal 1999. We're pleased that Congress included language in the Restructuring legislation that requires the IRS to place a high priority on employee training and to adequately fund employee training programs.
Tax professionals understand that the details for the business unit concept have not been fully flushed out by the IRS. For purposes of helping the agency with implementation of the plan, the IRS has hired a consulting firm to evaluate the plan's details. Practitioners look forward to working closely with the IRS on the plan's development. Nevertheless, practitioners also believe the IRS cannot hope to be successful in implementing the new reorganization plan unless the agency actively seeks out the input and support of the nation's taxpayer representative community. This is particularly true because of the plan's stated intention of moving away from geographic boundaries like the IRS district offices.
Preamble for a Taxpayer Representative's Bill of Rights
The following is the proposed preamble setting out the basis for a Taxpayer Representative's Bill of Rights. Immediately following the preamble, this document details specific technical issues for implementation with respect to the Bill of Rights.
"Congress has provided taxpayers with a right of consultation whereby taxpayers interviewed by the IRS may state they want to consult with a person permitted to represent taxpayers before the IRS. This also includes the right to have that professional represent him or her without being required to accompany the representative to meetings or scheduled appointments with the tax agency. Attorneys and certified public accountants licensed by the various states and territories and enrolled agents licensed by the federal government are permitted to represent taxpayers before the IRS.
Persons permitted to represent taxpayers before the IRS are regulated by 31 CFR 10, commonly known as Treasury Department Circular 230. These regulations contain the rules governing the authority to practice, duties and restrictions relating to practice, and rules applicable to disciplinary proceedings.
Circular 230 does not address the protocol of the IRS-Taxpayer Representative relationship. Therefore, legislation should be enacted (or where appropriate, regulations promulgated) to establish and define the protocol."
The specific technical issues which need to be considered for establishing and defining the protocol, are as follows:
Administrative procedures already prescribe that IRS employees should treat taxpayers with courtesy and respect. In an analogous fashion, regulations or administrative pronouncements should be drafted to extend similar courtesy and respect to the taxpayer's representative.
By issuing this type of regulation or administrative pronouncement, the IRS Service would be recognizing a taxpayer's representative has unique knowledge and that he or she can facilitate faster resolution of the case. An expedited resolution of the case provides benefits for all parties involved. The Service benefits from cases closed and money collected in a more timely manner. The taxpayer benefits from reduced penalties and interest when a case is solved in an expeditious manner. A taxpayer who saves time and money and receives courteous and respectful treatment for his or her position and representative will, in turn, have respect for and confidence in the tax system.
2) Standards of Taxpayer Representation
Legislation and/or regulations should be championed by the IRS that require all tax professionals to practice under the same established and clearly defined general standards.
As stated above, attorneys, CPAs, and enrolled agents are generally provided with a full right of representation of taxpayers before the IRS. The scope of authority provided by Circular 230 to these professionals includes all matters connected with presentations to the IRS on behalf of clients, such as the preparation and filing of necessary documents, correspondence and communications and representation of clients at conferences, hearings and meetings. Coupled with the authority provided to attorneys, CPAs, and enrolled agents under Circular 230 are certain duties, restrictions and rules applicable to disciplinary proceedings.
In addition to the attorneys, CPAs, and enrolled agents who practice before the IRS, there are tens of thousands of unenrolled or commercial tax return preparers who professionally prepare tax returns for taxpayers. However, these unenrolled and commercial tax return preparers are generally not subject to the same level of scrutiny and standards of practice as attorneys, CPAs, and enrolled agents.
One of the major precepts of this bill of rights is that taxpayers have the right to the same level of competency and professionalism from each and every taxpayer representative, whether that representative be an attorney, CPA, enrolled agent or a commercial tax return preparer. Taxpayers are entitled to expect representatives to be subject to the same standards and to be subject to the same sanctions when they violate those standards. The tax system will only benefit from a requirement that taxpayer representatives be held accountable to specific standards. In this manner, taxpayers can be fully assured that their rights are protected by competent professionals.
According to the report of the National Commission on Restructuring the IRS, uniform requirements of this kind "will increase professionalism, encourage continuing education, improve ethics, and better enable the IRS to prevent unscrupulous tax preparers from operating."
Regulations should be enacted to require the IRS to notify the taxpayer's representative at the same time a taxpayer is notified that his or her tax return has been selected for examination.
This proposal protects both the rights of a taxpayer and the rights of his or her representative. With full knowledge of IRS action, the representative will be able to ensure his or her client's rights are fully protected and that the taxpayer has the choice of representation he or she is entitled to under Taxpayer Bill of Rights I and II, and (H.R. 2676) the Internal Revenue Service Restructuring and Reform Act of 1998. This would enable the taxpayer's representative to arrange a suitable time and place for an audit, ensure the process will be fair to all parties, and ensure the problem will have a timely resolution.
4) Request to Transfer an Audit
In general, an audit examination is conducted in the IRS district where the tax return was filed by the taxpayer. Under Income Tax Regulation Section 301.7605-(1)(e), a taxpayer or his or her representative may file a written request for a change in the place where the IRS conducts the audit. While the regulation states the IRS will consider these requests on a case-by-case basis, it also establishes certain factors for the IRS to take into account when reviewing the transfer requests. These factors include the (1) location of the taxpayer's current residence, (2) the location of the taxpayer's current principal place of business, (3) the location at which the taxpayer's books and records are maintained, (4) the location at which the IRS can most efficiently perform the examination, (5) the level and availability of resources to the IRS with respect to the location the taxpayer is requesting a transfer, and (6) other factors which could pose an undue inconvenience to the taxpayer.
Despite the pro-taxpayer features of the regulation, taxpayer representatives have found that IRS districts often remain reluctant to transfer an audit examination from one IRS field office to another. Practitioners have found that this reluctance on the part of the IRS (to transfer cases) has often resulted in audits lasting longer than necessary, and causing the taxpayer to expend larger sums of money to comply with the audit than is necessary.
Quite often, even though a taxpayer may have moved to a different part of the country, the taxpayer may still use the tax accountant who is located within the geographic vicinity of the taxpayer's old residence. On the other hand, even if these taxpayers do not want to continue using the original accountant, the taxpayers are likely to want the original accountant to handle the audit, particularly because the original accountant is familiar with the return under audit.
In order to overcome many of these unnecessary burdens placed on taxpayers, legislation should be enacted to require the IRS, as a general policy matter, to honor a taxpayer's request (or that of his or her representative) to transfer the audit from one IRS office to another. Obviously, taxpayers and practitioners appreciate that there could be circumstances wherein a transfer may in fact prove burdensome to the IRS and a hindrance to the tax administration system overall.
Factors could be built into the regulations to protect the tax compliance process from placing undue burdens on the IRS. Possible policy grounds for not granting a transfer may include situations where the request for transfer was only filed a short period of time prior to the expiration of the applicable statute of limitations for assessment or collections, physical danger to IRS employees or others exists, or if there is a possibility the proposed office for transfer has insufficient resources to handle the new case.
5) Professional Protocol
The United States tax system principally operates as a self-assessment system. Because of this self-assessment structure, U.S. taxpayers have significant responsibilities under the law. Every American taxpayer liable for any tax (or the reporting of any tax) is required to file a return on forms prescribed by the IRS. The IRS's responsibilities under the law are no less daunting. The IRS is responsible for the administration and enforcement of the federal revenue laws. Congress has provided the IRS with wide discretion to examine any books, papers or records which could be relevant to determining the correctness of a tax return or a person's tax liability.
Coupled with these broad powers, IRS employees are charged with certain professional and ethical responsibilities. For purposes of strengthening these rules, regulations should be adopted to expand these professional and ethical requirements for IRS employees. An ethical responsibility should be imposed on IRS employees (through the enactment of regulations) to require agency employees to resolve audit, collection and other taxpayer service problems in a timely manner.
New regulations should also include a requirement for the IRS to respect the right of the taxpayer to have a representative and to treat the representative as the agent of the taxpayer. In specific, once a power of attorney has been filed, the IRS should be required to deal with the taxpayer's representative, including situations wherein an offer-in-compromise has been submitted on behalf of a taxpayer. This means IRS employees should not in any way denigrate the statutory right of the taxpayer to retain representation. Furthermore, severe penalties should be applied to those IRS employees who violate taxpayers right to representation.
For the purpose of ensuring the enactment of an effective professional protocol, the new regulations should further spell out that the time and place for an audit must generally be decided upon by consultation between the IRS and the taxpayer representative. Naturally, appeal rights should be built into the process.
In addition to procedures set out by the tax law and regulations, IRS officials and employees rely on the Internal Revenue Manual (IRM) as a compendium of appropriate procedures or guidance for administering the tax compliance process. While the IRM is available to the public through the operations of the Freedom of Information Act, the Manual is intended to be used for internal IRS use only. Federal court decisions have established the principal that the policies of the IRM are not legally binding on IRS employees even though the Manual serves as a reference guide for the day-today operations of the tax agency.
As a partial response to these court decisions, the Internal Revenue Restructuring and Reform Act of 1998 includes provisions which mandate greater adherence by IRS employees to several sections of the Internal Revenue Manual. First, the 1998 Act includes a measure providing the National Taxpayer Advocate with broader authority to issue Taxpayer Assistance Orders in situations where an IRS employee has not followed the Internal Revenue Manual and other published administrative guidance. Secondly, the 1998 Act provides the IRS Commissioner with expanded authority to fire an agency employee when the employee has committed one or more specified acts or omissions, including violations of the Internal Revenue Code, Treasury Regulations, or the Internal Revenue Manual for the purpose of retaliating against, or harassing, a taxpayer, taxpayer representative, or other IRS employee.
These provisions of the IRS restructuring bill, requiring IRS employees to more closely adhere to the Internal Revenue Manual, are excellent measures and should do much to increase professionalism among IRS employees. Nevertheless, it is not clear whether routine violations (something more than a minor infraction) of the Internal Revenue Manual are covered within the scope statutory language of the 1998 IRS restructuring bill. Therefore, Congress should consider further legislation which mandates IRS officials and employees to follow "routine or mainstream" rules, policies, procedures and guidelines published in the Internal Revenue Manual. Under the legislation, to the extent an IRS employee decides to deviate from routine policies of Internal Revenue Manual, the taxpayer and his or her representative should receive notice of such deviation from agency procedures and the taxpayer should be provided an opportunity to file an objection with the Taxpayer Advocate.
A commitment made by an IRS employee cannot be reversed at a later date unless the commitment is contingent on an action by the taxpayer or approval by higher authority. If approval by a higher authority is required, the representative should be informed.
The above legislative and regulatory proposals on professional protocol would foster a situation where cases are closed at the earliest possible time - resulting in higher levels of tax compliance overall.
6) Racial and Cultural Diversity
One of the cornerstones of any Taxpayer Representatives' Bill of Rights must be a dialogue in the area of racial and cultural diversity among taxpayers, practitioners, and the IRS. This issue is extremely important, especially with Commissioner Rossotti's initiative to reorganize the IRS along business units and to do away with the current, longstanding geographic divisions of the agency.
As part of the agency's training programs for these business units, IRS employees should receive instruction and become sensitive to language, cultural and ethnic barriers which exist in the United States. Through this kind of enlightened instruction, IRS employees will acquire the special expertise and appropriate perspectives to deal with language, cultural and ethical diversity among America's taxpayers.
7) Technical or Substantive Training of IRS Employees
Under Commissioner Rossotti's reorganization plan, the IRS will be revamped into four practice units. These business units will address the needs of (1) persons with wage and investment income, (2) small businesses and self-employed individuals, (3) large corporate businesses, and (4) employee plans and exempt organizations.
This reorganization is dependent on IRS employees becoming specialized in terms of certain market segments of the economy like small business or large corporate businesses. Thus, IRS employees will find themselves needing specialized technical or substantive training in order to become effective and responsive to the needs of taxpayers under the reorganization plan. Funding for training programs for IRS personnel should be deployed to give these workers the special expertise or broader perspectives necessary to make the Commissioner's reorganization plan work.
8) Referral of Civil Audit Cases to the Criminal Investigation Division
The Internal Revenue Manual provides procedures for how IRS Revenue Agents are to handle incidents of suspected fraud during an audit examination and how such cases might ultimately be transferred to the IRS Criminal Investigation Division for further review. If a Revenue Agent concludes that there is a "firm indication" of fraud, the Manual requires the Revenue Agent to suspend the civil audit without giving the taxpayer a reason for the suspension.
The Manual provides for specified procedures as to how a case is reviewed for referral to the CID. However, if there is further contact between the Revenue Agent and the taxpayer (or his or her representative) after the point of suspension of the audit, the Agent is required to tell the taxpayer that he or she should take steps to protect his or her rights. Court cases prohibit the Revenue Agent from deliberately delaying referral of the case to conduct a criminal investigation under the pretext of a civil audit.
In order to protect the constitutional rights of taxpayers, more clear guidance needs to be provided to IRS Revenue Agents as to how a civil audit should be handled when there is suspicion of fraud. It is preferable for such guidance to be covered through the enactment of legislation. Among other matters, such guidance should mandate that the taxpayer representative be informed as soon as the IRS begins consideration of referring a taxpayer's case to CID.
9) Right to Privacy
The IRS Restructuring and Reform Act of 1998 includes a positive provision which "authorizes" the IRS to approve alternatives to Social Security numbers to identify tax return preparers. The IRS should take steps to immediately implement this provision. Furthermore, any new tax law or regulation should include measures designed to protect a taxpayer representative's right to privacy and the tax preparation community in general.
10) Checkoff Authorization Box on All Tax Returns
The 1998 Act includes a very positive provision involving a checkoff authorization box on electronically filed tax returns. Under this checkoff provision, the IRS is required to establish procedures for taxpayers to authorize the preparer of electronically filed returns to communicate with the IRS on matters included on such returns. Further legislation or regulations should be enacted to expand this concept to include a checkoff authorization box on all paper-filed tax returns as well.
11) Sanctions for Failure to Honor the Provisions of the Taxpayer Representative Bill of Rights
a) The IRS Restructuring and Reform Act of 1998 includes a measure which generally requires the IRS Commissioner to terminate an IRS employee who has committed certain acts or omissions in the performance of the employee's official duties. As discussed above, these acts or omissions include (among others) circumstances when an IRS employee has provided a false statement under oath or certain situations when he or she has violated the tax law, regulations or the Internal Revenue Manual. In an analogous fashion, IRS employees should be subject to sanction for failure to honor the provisions of the Taxpayer Representative Bill of Rights. As part of this new procedure, any aggrieved taxpayer or taxpayer representative should be duly notified of such sanction against the IRS employee.
b) As stated earlier, the 1998 Act provides the IRS Commissioner with expanded authority to fire an agency employee when the employee has committed one or more specified acts or omissions. One of the grounds for dismissal under the 1998 Act includes the providing of a false statement under oath with respect to a material matter involving a taxpayer or taxpayer representative. While this particular measure is very laudatory, tax professionals are concerned that the provision will only have limited affect. There are numerous opportunities when an IRS employee can act in an untruthful way towards a taxpayer or tax professional, but such untruthful acts are more apt to occur when an IRS employee is not under oath. Thus, regulations should be promulgated to make routine acts of untruthfulness by IRS employee subject to sanction.
12) Stay of Enforced Collections
When an initial contact is made by a representative with the IRS Division of Collections and it appears that progress can be made in resolving the taxpayer's situation, upon request, tax levies should generally be lifted and enforced collection actions stayed.
Finally, while beyond the scope of this bill of rights, any penalty reform study completed by the Joint Committee on Taxation or the Treasury should address the negative impacts of preparer penalties on the tax administration system.
1. In addition to Enrolled Agents, Certified Public Accountants, and attorneys, enrolled actuaries are also subject to the various ethical rules imposed by Circular 230. However, any discussion regarding the rights of enrolled actuaries to practice before the IRS (or the ethical obligations of those professionals) is considered beyond the scope of this memorandum.
2. Smith v. U.S., 478 F.2d 398 (5th Cir. 1973).
|Printer friendly Cite/link Email Feedback|
|Title Annotation:||proposed legislation being drafted by National Society of Accountants' Federal Taxation Committee|
|Publication:||The National Public Accountant|
|Date:||Nov 1, 1998|
|Previous Article:||SFAS 132.|
|Next Article:||Writing skills for accountants: avoid the "top ten" writing errors.|