A previous article introduced the IRS’s TaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. payer Bill of Rights and applauded the attempt to make the tax system more transparent. However, informing taxpayers of their rights and making a mindful effort to uphold these rights are separate issues. On the latter charge, it appears the IRS may have some areas for improvement.
The following list enumerates the taxpayer rights and analyzes how the IRS has upheld them in the past.
1. The Right to Be Informed
Taxpayers have a right to know what they need to do in order to comply with tax laws. Part of the ability to be informed may lend itself to the need for a more simplistic tax code—taxpayers who file without the help of a professional rely on their own ability to understand tax laws.
A 2009 survey by Harris Interactive found that 85 percent of adults felt the federal tax code is complex. This sentiment is supported by the facts and figures of federal tax code: the Internal Revenue Code and Regulations word count grew 18.9 percent from 1995-2005 and a previous Tax Foundation article found that Americans spent 3.24 billion hours filing tax returns annually. Much of the high word count and complexity comes from the various adjustments for different groups.
Obviously an intricate tax code isn’t entirely the fault of the IRS. It will take a lot of work between the IRS and lawmakers to enact tax reform that offers a more simplistic code, i.e., one that does not undermine the taxpayer’s ability to understand and comply.
2. The Right to Quality Service
The IRS has 17 different hotlines and toll-free numbers for various complaints, including specific lines for individuals, businesses and refunds. The hours vary, but most hotlines are open from 7am to 7pm. Their service model also allows people to find their local office and meet face-to-face with a representative.
While the opportunities for outreach seem robust, in 2012, only 66 percent of taxpayers trying to call the IRS reached a representative, and callers waited on average of 17 minutes, up from 12 minutes in 2011. An article from April of 2014 stated the wait time was up to 30 minutes, largely due to budget cuts.
3. The Right to Pay No More than the Correct Amount of Tax
The correct amount of tax is defined as the amount of tax owed by law. The IRS website provides guidance for what to do in the case of an overpayment. The IRS also has a “Where’s My Refund” tool online, which shows taxpayers the reason they haven’t received their refund. If the IRS is late in issuing a refund, they must also pay interest.
4. The Right to Challenge the IRS’s Position and Be Heard and 5. Appeal a Decision in an Independent Forum
Taxpayers generally have two options for appealing an IRS decision. For a Collection Due Process, after receiving a notice of intent to levy or notice of federal tax lien, a taxpayer has 30 days to request a hearing to preserve their right to go to court. The second option is the Collection Appeals Program, which follows after a notice of federal tax lien, notice of levy, notice of seizure, or denial or termination of installment agreement. Taxpayers may not go to court on this type of appeal decision.
If the taxpayer were to receive a notice of deficiency, they must file a complaint by the date listed on the notice. The U.S. Tax Court is established by Congress and is the only forum that does not require a taxpayer to pay the disputed tax before going to trial.
6. The Right to Finality
Taxpayers should know the maximum amount of time they have to challenge the IRS’s position as well as the maximum amount of time the IRS has to auditA tax audit is when the Internal Revenue Service (IRS) conducts a formal investigation of financial information to verify an individual or corporation has accurately reported and paid their taxes. Selection can be at random, or due to unusual deductions or income reported on a tax return. a particular tax year. The appeals deadlines are listed above and are relatively easy to find on the IRS website or through a simple Google search.
Audits are a bit trickier; in most cases, the IRS has three years to audit after the taxpayer files. However, they get six years if the taxpayer omits more than 25 percent of their income and an indefinite amount of time if no return is filed. This information can also be easily found on the IRS website or through a Google search.
7. The Right to Privacy
The IRS promises that an investigation will be no more intrusive than necessary. While law prevents the IRS from inquiring about social, political, and religious beliefs, it has infamously been accused of unfairly targeting political groups.
8. The Right to Confidentiality
Any information disclosed to the IRS may not be shared with anyone else unless authorized by the taxpayer or by law. The IRS struggles with protecting the confidentiality of taxpayers. Numerous information scandals have plagued the IRS, including the posting of 100,000 names and social security numbers on their website and an unencrypted thumb drive loaded with social security numbers being taken home by an employee.
In the first six months of 2013, 1.6 million taxpayers were affected by identity theft, compared to 271,000 in 2010. Thefts have resulted in billions of dollars in potentially fraudulent refunds, as the IRS issues refunds before they’re sure the filing was done by the person whose name is on the form. In 2011, fraudulent refunds totaled $3.6 billion. Serious improvements in security measures need to occur in order for taxpayers to feel confident that the IRS can protect their information.
9. The Right to Retain Representation
In a tax case, the IRS doesn’t have the right to interview the taxpayer. Low income taxpayers can be represented by Low Income Taxpayer Clinics for free or for a nominal fee. Supplying free representation ensures that taxpayers of all income levels may exercise this right.
10. The Right to a Fair and Just Tax System
The tax system currently suffers from many instances of double taxationDouble taxation is when taxes are paid twice on the same dollar of income, regardless of whether that’s corporate or individual income. , including the estate taxAn estate tax is imposed on the net value of an individual’s taxable estate, after any exclusions or credits, at the time of death. The tax is paid by the estate itself before assets are distributed to heirs. , capital gains taxA capital gains tax is levied on the profit made from selling an asset and is often in addition to corporate income taxes, frequently resulting in double taxation. These taxes create a bias against saving, leading to a lower level of national income by encouraging present consumption over investment. , and dividend tax. These policies allow for the same chunk of earnings to be taxed multiple times, which discourages investment or encourages taxpayers to try to disguise their income.
The Right to Privacy plays into fairness as well; the IRS should be ensuring that all filers are being treated equally under the law. It was mentioned previously that the IRS has been accused of unfairly targeting certain groups.
The good news is that the IRS seems to be making an effort to secure a fair system. A new voluntary program for tax preparers imposes minimum standards that are supposed to protect taxpayers from unreliable preparers, while Disaster Relief Programs help individuals and businesses recently affected by natural disasters to recover financially. These are small steps, but ones that certainly show progress in regards to fairness.
The IRS has room to improve in protecting the rights of taxpayers, but the implementation of the Taxpayer Bill of Rights is a great first step in this process. A clear outline of rights is also highly beneficial to the IRS and taxpayers as a means setting expectations for the function of the IRS.
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