Topical Outline: Taxpayer Bill of Rights II
I. Introduction
II. Consistency Within the Internal Revenue Service
A-Offer in Compromise Example
B-Internal Revenue Manual Suggestion
III. Empowering the IRS to Serve Taxpayers More Quickly
A-Support for Section 501 of S. 258
B-Request for a Limited Power of Attorney Sign Off on Tax Returns
IV. Protection for Practitioners
A-Recognition for Powers of Attorney Before the Internal Revenue Service
B-Request that Paid Preparer's Social Security Number Not Be Included on Returns
V. Knowledge of Examination and Rights Therein
A-Current Examination Examples
B-Recommendation for Specific Notice
VI. Conclusion
I. Introduction
On behalf of the 20,000 members of the National Society of Public Accountants (NSPA)
and the 5 million small businesses and individuals they serve, I would like to thank Madam
Chair and the members of this Subcommittee for the opportunity to express the Society's
views on the development of "Taxpayer Bill of Rights II" (TBRII) legislation.
The Society feels that the current Taxpayer Bill of Rights provides a great deal of
assistance and comfort to the public in dealings with the Internal Revenue Service.
However, our members have identified several areas in which the first bill could be more
effective. First, a new bill of rights should promote consistency within the Internal
Revenue Service in its treatment of similarly situated taxpayers. For example, taxpayers
in Connecticut should be confident that they are treated similarly to taxpayers in
California. Second, TBRII should empower the Internal Revenue Service to act more quickly
in serving the taxpayer. Third, an expanded bill of rights should include protection for
tax practitioners, who work daily to ensure that the proper amount of taxes are reported
and paid. Finally, a new bill of rights should make certain that taxpayers know when they
are being examined and exactly what rights they have in that particular examination.
II. Consistency Within the Internal Revenue Service
Currently, the IRS works in this country through seven regions which are further
subdivided into sixty-three districts. In addition, there are ten service centers around
the country which provide the main contact point for many taxpayers ( Current plans
indicate that these numbers will be subject to change in the near future). These centers
receive most of the returns, letters and phone calls from the general public. Within this
infrastructure, the Service employs over 100,000 individuals, each with a different set of
personal standards and values that influence the way they perceive and serve taxpayers.
This diversity is a vital asset to the organization, creating more insightful decisions by
drawing from varied viewpoints. The problem for the Internal Revenue Service is balancing
this diversity with the expectation of taxpayers that the Internal Revenue Code be
administered consistently throughout the country.
A. Offers in Compromise
The offer-in-compromise (OIC) program provides an example of the difficulty the Service
faces in administering the tax code through its thousands of employees. In 1992, OICs
received a new emphasis at the IRS as a means to reduce the troublesome amount of debts
labelled "currently not collectible." In that year, the program was expanded to
allow those in financial difficulty to pay what they could and settle their federal tax
liability. The procedure involves preparation by the taxpayer of an offer which accurately
reflects his or her ability to pay off a federal tax debt. This offer is then submitted to
the Internal Revenue Service, where it is accepted or rejected depending on the Service's
analysis of the taxpayer's ability to pay.
According to a 1994 survey by Tax Analysts ( Guttman, George, "Compromise Offer
Acceptance Rates Vary by Location," Tax Notes, Vol. 62, Number 3, Monday, January 17,
1994.), taxpayers submitting an offer in compromise in 1993 had anywhere from a 79%
likelihood of acceptance in Mississippi to a 19% likelihood of acceptance in California's
Laguna Niguel district. On average throughout the country, 53% of offers were accepted.
Taxpayers in Utah offered an average of 3 cents on the dollar in order to gain acceptance,
while acceptable offers by taxpayers in New Hampshire averaged 31 cents on the dollar. The
national average required for acceptance was 15 cents on the dollar.
This program points out the need for an IRS focus on consistency from the inception of
a regulation or a program, rather than after a problem has arisen. It should be noted that
since the publication of the above-mentioned survey, the Service has taken steps to
promote consistency in the offer-in-compromise program. NSPA would like to suggest a
provision for TBRII that could enhance consistency before such wide disparities come to
light. Give the Internal Revenue Manual the force and effect of law, an action that would
require IRS personnel around the country to follow the same guide.
B. The Internal Revenue Manual
Today, the IRS invests substantial amounts of money every year in updating and revising
the Internal Revenue Manual. It provides guidance to Service employees on every facet of
the revenue collection process. Generally, it is available for public inspection. Millions
of Americans are directly affected by the provisions of the manual and the interpretations
thereof. However, in a line of precedent dating back to Sullivan v. U.S., 384 U.S. 170
(1954) and recently restated in Capitol Federal S&L, 96 T.C. 204 (1991),
"[G]eneral statements of policy and rules governing internal agency operations or
'housekeeping' matters, which do not have the force and effect of law, are not binding on
the agency issuing them and do not create substantive rights in the public."
Consequently, if a taxpayer goes to court solely because an Internal Revenue Service
employee failed to follow the manual, the taxpayer will lose that claim.
The Capitol Federal S&L case goes on to say that, "Generally, agencies are
bound by regulations having the force and effect of law." In order to bind the IRS to
the guidelines it sets forth in its manual, NSPA asks this Subcommittee to initiate
legislation to give the Internal Revenue Manual the force and effect of law.
The manual's current lack of regulation status leads to inconsistency in the tax system
because individual districts develop different methods for handling similar problems.
Those methods do not necessarily agree with the national office policy as set forth in the
Internal Revenue manual. To use the offer-in-compromise program again as an example, I
know from personal experience of at least one district that has its own separate manual
for offers in compromise. In that same district, when I reminded a revenue agent that an
action he was about to take violated a national office policy, I was told, "That may
be national policy, but it's not the policy in [this] district. " Such
inconsistencies are unfair to the taxpayer. The best solution to the problem is to require
the IRS to live by the rules it puts forth for itself in the same manner that taxpayers
are required to live by the rules that the IRS puts forth for them.
This is not to say that districts should not be allowed some flexibility. Clearly, in
an organization as large as the IRS, not all solutions will work effectively for all parts
of the country. If this subcommittee should agree that the manual should have the weight
of regulation, we would also request that a process should be created whereby districts
can petition the national office and be granted a right to develop their own guidelines on
certain projects. These guidelines should then be released to the public. With public
access allowed, taxpayers would have an opportunity to be aware of differences between
national office policies and district policies before relying on either one. And, once a
taxpayer relies on an IRS policy, he or she would have the comfort of knowing that it
would stand up in court.
It is not NSPA's intention to handcuff Internal Revenue Service with either of these
proposals. In a system where diverse individuals analyze an Internal Revenue Code that is
at times ambiguous and subject to varying interpretations, strict uniformity is obviously
unattainable and to some extent even undesirable. However, a federal law should be
administered as uniformly as is practical throughout the country. Today, that does not
always happen. To remedy the current difficulty, NSPA respectfully recommends that this
subcommittee consider giving the Internal Revenue Manual the force and effect of law. This
would help to move the Internal Revenue Service toward a more consistent application of
the tax law throughout the country.
III. Empowering the IRS to Serve Taxpayers More Quickly
Many taxpayers dread the receipt of an IRS notice not only for the possible monetary
penalties that it may entail, but also for the loss of productivity that invariably
follows as efforts are made to rectify the problem. This drain on resources is a
substantial component of the cost of compliance, whether the money is spent on staff time,
representation fees, or both. As a result, taxpayer rights that allow certain issues to be
resolved quickly while still being fair to both sides are worthy of support. S. 258
contains a provision that is particularly helpful in this area and NSPA would like to
submit another for your consideration.
A. Support for Section 501 of S. 258
Section 501 of S. 258 would allow the Internal Revenue Service to withdraw certain
notices of NSPA liens. Under current law, once the IRS places a lien on a taxpayer, it
cannot be released until the full debt is settled. Often this hinders the taxpayer's
ability to repay the money, as it limits the funds available through borrowing. Section
501 would allow the withdrawal of such a notice by the Service for several reasons,
including facilitating the collection of the tax liability. NSPA supports this provision
because of its common sense approach to removing liens where they hinder the taxpayer's
ability to repay a debt.
B. Request for a Limited Power of Attorney Sign Off on Tax
Returns
Another item which is currently in limited use by the Internal Revenue Service but
which could be expanded to all returns is a limited power of attorney sign off directly on
a form. Today, taxpayers who file electronically sign a Form 8453. In addition to meeting
the signature requirement for the taxpayer's individual return, this form also allows the
IRS to call the practitioner who transmitted the return in the event that any problems
arise which delay the taxpayer's refund. The Form 706 estate tax return also includes a
signature line which allows a practitioner to act as the estate's representative before
the Internal Revenue Service.
Similar authorizations could save time and otherwise reduce taxpayer burden if they
were included on all tax returns. Currently, practitioners who prepare returns for their
clients sign the forms, but they are not empowered by that signature to discuss the return
with the IRS. When taxpayers receive notices from the Service, their first call is usually
to the person who prepared the return. The preparer in turn calls an IRS agent who asks,
"Do you have a power of attorney on file?" Most often, this is not the case and
the resolution of the problem is delayed while the proper form is completed and filed. If
the taxpayer could assign a limited power of attorney on the return at the time of filing,
the notice would still be sent to the taxpayer and the taxpayer would still, most likely,
call the practitioner. The difference would be that the limited power of attorney would
enable the practitioner to discuss the return with the Service immediately and to begin
taking whatever steps are necessary to resolve the problem.
Provisions like these, which allow the Service and/or the practitioner community to
more quickly resolve taxpayer problems when they arise are valuable elements of a taxpayer
bill of rights. By saving taxpayer time, these provisions reduce the drain on taxpayer
resources that can be caused by IRS notices. NSPA requests that this subcommittee consider
section 501 and a limited power of attorney for inclusion in a taxpayer bill of tights.
IV. Protection for Practitioners
Within the tax system, practitioners provide many services to the taxpayer. Among the
most important functions a practitioner performs is that of liaison between the IRS and
the taxpayer As a result, any discussion of taxpayer rights will, of necessity, include
issues that impact the practitioner community. NSPA would like to raise two concerns with
respect to practitioner rights in relation to the Internal Revenue Service.
A. Recognition of Powers of Attorney Before the Internal Revenue
Service
First, many practitioners routinely experience difficulty in having IRS field personnel
honor the valid powers of attorney described above. All too often, IRS employees make
direct contact with taxpayers, even after receiving a power of attorney authorizing
representation by an attorney, CPA or enrolled agent. In such instances, the taxpayer
generally is either unaware that such conduct is improper or is afraid to question the
propriety of the contact for fear of alienating the IRS employee.
NSPA recognizes that legitimate circumstances may on occasion necessitate a direct
taxpayer interview. Nevertheless, where a power of attorney is on file, such an interview
should be arranged through the authorized representative and conducted in that
representative's presence.
This improper disregard of a power of attorney compromises the rights of both
practitioners and taxpayers. NSPA believes that safeguards should be established, such as
some appropriate form of sanction, to discourage this practice.
B. Removal of Preparer's Social Security Number from Tax Returns
Second, the practitioner community is becoming increasingly concerned with the
requirement that a paid preparer's social security number must appear on returns.
Currently, practitioners are required to include their social security number on every
return they prepare. In today's world of instant access to volumes of sensitive
information about an individual, the social security number is often the key to obtaining
this information. Preparers feel that the requirement that they include their social
security number on returns violates their privacy, as it provides the client with the
opportunity to acquire certain records that would not otherwise be available. NSPA
suggests that this committee review this requirement with the Internal Revenue Service and
develop a separate system for identifying tax preparers.
V. Knowledge of Examination and Rights Therein
The first taxpayer's bill of rights focused heavily on making sure that taxpayers were
aware of their rights in an examination and that those rights were protected. Since
passage of the first bill, the IRS has created several new types of examinations.
Questions have arisen regarding what a taxpayer's rights are under these new exams and
often practitioners hear various answers. Two examples come to mind which illustrate the
continuing need for legislation to protect basic taxpayer rights.
A. Current Examination Examples
First, the Internal Revenue Service now conducts electronic filing (ELF) compliance
checks. This check often consists of a revenue agent and a member of the Service's
criminal investigations division arriving at a practitioner's office, sometimes announced.
The Service personnel are there to monitor compliance with the revenue procedures that
govern electronic filing. The problem is that there are no clear guidelines on what these
Service employees are supposed to be reviewing. Some agents ask only to see basic
paperwork, while others demand the entire supporting file on the return. In addition, it
can involve a review of taxpayer returns and supporting documents without notice to the
taxpayer.
Another example of this problem is an examination known as an employment tax compliance
check. In this procedure, the IRS sends a notice to a taxpayer stating that the Service
will arrive at the taxpayer's place of business on a specific date to review compliance
with employment laws. The notice requests that the taxpayer provide copies of all current
employment-related returns, all of which the taxpayer has already filed with the IRS. When
NSPA asked the Internal Revenue Service whether or not a taxpayer who received a notice of
this examination was required to comply, the answer was no. Taxpayers can refuse to
provide the information and basically tell the IRS, "If you want to audit me, do
so." Nowhere in the letter for this examination is the taxpayer informed of the right
of refusal.
B. Recommendation for Specific Notice
Taxpayers and practitioners undergoing these examinations have a right to know exactly
what is required of them under the circumstances. The Service has in some cases been
responsive to NSPA concerns about explaining the rights of a taxpayer in every examination
situation. However, Service action often comes after the programs are already implemented.
To correct the problem, NSPA suggests that this Subcommittee include in a new taxpayer
bill of rights a requirement that any notice of any type of examination or compliance
check include a specific explanation of the affected individual's rights under that
particular examination. If an examination is unannounced, those conducting the examination
should have an affirmative duty to inform the taxpayer or practitioner of their rights
before beginning the examination. The explanation of rights should specifically describe
what a taxpayer or practitioner is required to show to the Service personnel. It should
also tell taxpayers whether they are required to submit to the examination or not. If
there is a right to refuse the examination, taxpayers should be informed of the
consequences of refusal.
Before concluding, please permit me to point out that the issues raised here today are
in no way intended to detract from the efforts of Commissioner of Internal Revenue
Richardson and her dedicated staff. They work tirelessly to administer the tax system in
the United States, one of the most difficult and thankless jobs in the realm of public
service. The National Society of Public Accountants hopes that the remedies sought here
today will improve the current system, making it easier to administer and easing the
burden on the Internal Revenue Service as well as the taxpayer.
VI. Conclusion
In dosing, Madam Chairman, I would like to again thank you for the invitation to appear
before the Subcommittee today. The National Society of Public Accountants applauds your
leadership and that of the members of this Subcommittee in addressing the important issue
of taxpayer rights. NSPA stands ready to assist you in your efforts in every way possible.
Respectfully submitted,
Dr. William Stevenson
Chairman of Federal Taxation
National Society of Public Accountants
Financial Services of Long Island
34 Merrick Avenue
Merrick, NY 11566
Phone: 516-378-2121
Fax: 516-378-0463
On Behalf of the National Society of Public Accountants
For Further Information, Please Contact:
Jeffrey A. Lear
Director of Federal Affairs
National Society of Public Accountants
1010 N. Fairfax Street
Alexandria, VA 22314
Phone: 703-543-6400
Fax: 703-549-2984
