10 Rights You Should Have as a Taxpayer
Believe it or not, you have a voice with the Internal Revenue Service. It may not be the loudest voice and it may sometimes get drowned out in the cacophony of bureaucracy that characterizes much of U.S. government, but it’s a voice nonetheless, and most of the time, it’s saying good things. The voice is called the Taxpayer Advocate Service, an independent office within the IRS that was created in 1996 set up to assist taxpayers in resolving problems with the IRS, as well as to identify problems with the tax system and propose solutions to those problems.
Over the years, responding to the sometimes abusive nature of the tax system and its agents, the Office of the Taxpayer Advocate has helped codify a taxpayer bill of rights. But the taxpayer bill of rights, currently in its third iteration, is nearly 150 pages long and prescribes the rights with characteristically dense verbiage that is difficult to decipher. “These rights are scattered throughout the Code and are not presented in a coherent way,” said the Taxpayer Advocate in its 2013 Annual Report to Congress. “Consequently, most taxpayers have no idea what their rights are and therefore often cannot take advantage of them.”
Case in point, the Taxpayer Advocate cites a survey it conducted in 2012 that revealed that less than half of U.S. taxpayers believed they had any rights before the IRS at all. Of those who did believe they had rights, only 11% said they know what those rights are.
Because of this, the Taxpayer Advocate has been pushing for a straightforward, thematic bill of rights, similar to the one amended to the U.S. Constitution. “The simplicity and clarity of a thematic Bill of Rights help Americans understand their rights in general terms, and this knowledge empowers them to assert their rights and learn the nuances when the need arises,” said the Taxpayer Advocate. “A thematic Taxpayer Bill of Rights would serve the same purpose and its value can scarcely be overstated.”
Codifying a taxpayer bill of rights would require congressional action, but the IRS could “articulate by adopting a TBOR on its own.” To that end, the Taxpayer Advocate has proposed 10 rights. Click through to see what they are.
1. The right to be informed
“Taxpayers have the right to know what they need to do to comply with the tax laws. They are entitled to clear explanations of the law and IRS procedures in all tax forms, instructions, publications, notices, and correspondence. They have the right to be informed of IRS decisions about their tax accounts and to receive clear explanations of the outcomes.”
The Taxpayer Advocate argues that because the U.S. tax system is built on voluntary compliance, it is essential that compliance be as easy as possible. The IRS estimates that it collects only about 85.5% of all taxes owed, and of that, about 2% has to be collected through enforcement. While enforcement of bad actors will always be an issue, the IRS has a lot of room to improve in the collections department. Better information, the Taxpayer Advocate argues, could help increase the share of taxes owed that are actually collected.
2. The right to quality service
“Taxpayers have the right to receive prompt, courteous, and professional assistance in their dealings with the IRS, to be spoken to in a way they can easily understand, to receive clear and easily understandable communications from the IRS, and to have a way to file complaints about inadequate service.”
Etiquette is good form everywhere, and the important part of this proposed right is its insistence on clear communication. Understanding will lead to decreased friction and increased compliance. This proposal echoes many of the issues raised by groups like the Plain English Campaign, which calls for clear public communication free of “gobbledygook, jargon and legalese.”
3. The right to pay no more than the correct amount of tax
“Taxpayers have the right to pay only the amount of tax legally due and to have the IRS apply all tax payments properly.”
This proposal covers a wide range of possible abuses but could also address a more common — though less severe — issue that taxpayers have with the system: refunds. Taxpayers can have estimated taxes withheld form their paychecks. If the amount of withholding is too low, they pay the difference after they file; if the amount is too high, they receive a refund for the difference.
The system is pretty straightforward, but some people take issue with the idea of the refund. In theory, that refund money acts kind of like an interest-free loan to the government. Taxpayers whose withholding is too high are effectively robbed of the opportunity to put that money to productive use for the term of the loan. Although a cash windfall can have its benefits, some people would prefer to settle up at the end of the year and use their income as they see fit during the year.
4. The right to challenge the IRS’s position and be heard
“Taxpayers have the right to raise objections and provide additional documentation in response to IRS actions or proposed actions, to expect that the IRS will consider their objections and documentation promptly and impartially, and to receive a written response if the IRS finds them insufficient.”
Spring-boarding off the issue above, there is room for redress to the withholding issue. Taxpayers who want to edit their withholding have the power to do so — that is, they have an iteration of the right proposed here. The Taxpayer Advocate’s proposal gives the right to redress broad and formal scope.
5. The right to appeal an IRS decision in an independent forum
“Taxpayers are entitled to a prompt and impartial administrative appeal of IRS actions and have the right to receive a written response explaining the Appeals Division’s decision. Taxpayers generally have the right to take their cases to court to challenge an adverse final determination.”
This is a fairly straightforward but absolutely necessary provision in any bill of rights. Taxpayers must have an effective way to appeal decisions that they believe were unjust or made in error. Again, this is a right that already exists to a degree, but the Taxpayer Advocate’s argument is that this right needs to be clarified and demystified in order to be meaningful.
6. The right to finality
“Taxpayers have the right to 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 audit a particular tax year. Taxpayers have the right to know when the IRS has finished an audit.”
From one angle, finality appears like an issue that should be covered in the first proposed right, the right to be informed. The finality of an appeal or an audit should qualify as basic information that a taxpayer has the right to. The Taxpayer Advocate appears to agree, but the fact that this right is itemized speaks volumes about the current system.
7. The right to privacy
“Taxpayers have the right to expect that any IRS inquiry, examination, or enforcement action will comply with the law and be no more intrusive than necessary, and will respect all due process rights, including search and seizure protections and a collection due process hearing where applicable.”
It’s unlikely that the IRS and the National Security Agency swap notes, but privacy is a hot issue right now and the government is, well, in the hot seat. Audits in particular can get messy, and the Taxpayer Advocate argues that — as is true in every instance of interaction between a person and the government — there should be basic safeguards and rules in place that guide the process and ensure that privacy is respected within reason.
8. The right to confidentiality
“Taxpayers have the right to expect that any information they provide to the IRS will not be disclosed unless authorized by the taxpayer or by law. Taxpayers have the right to expect the IRS to investigate and take appropriate action against its employees, return preparers, and others who wrongfully use or disclose taxpayer return information.”
This almost seems derivative of the right to privacy, but it is meaningfully different. One deals primarily with collection while the other deals primarily with disclosure or sharing. Even some of the most trivial data collected by the IRS in the process of tax collection are sensitive. The data can be used maliciously by bad actors, and the NSA snafu left many Americans skeptical of the government’s privacy etiquette.
9. The right to retain representation
“Taxpayers have the right to retain an authorized representative of their choice to represent them in their dealings with the IRS. Taxpayers have the right to be told that if they cannot afford to hire a representative they may be eligible for assistance from a Low Income Taxpayer Clinic.”
This is pretty much the Miranda warning of the tax world. Hopefully you never have to do battle with the IRS, but if push comes to shove, taxpayers won’t be forced to go it alone.
10. The right to a fair and just tax system, including access to the Taxpayer Advocate service
“Taxpayers have the right to expect the tax system to consider facts and circumstances that might affect their underlying liabilities, ability to pay, or ability to provide information timely. Taxpayers have the right to receive assistance from the Taxpayer Advocate Service if they are experiencing financial difficulty or if the IRS has not resolved their tax issues properly and timely through its normal channels.”
This is a “play nice” provision, and it’s hard to guess how it would actually pan out if codified. The Taxpayer Advocate found that just 16% of taxpayers believe the tax code is fair. That’s a lot of negative sentiment to turn around, and the changes that would be necessary are monumental.