Taxpayer Bill of Rights  

Section 8

Interest & Penalties (Continued) & Protections for
Taxpayers Subject to Audit or Collection

7. Management approval required for certain penalties

Present Law

Under present law, penalties may be imposed on a taxpayer without management approval of the specific penalty imposed.

Description of Proposal

The proposal would require the specific approval of IRS management to assess all non computer generated penalties unless excepted. The proposal would not apply to failure to file penalties, failure to pay penalties, or to penalties for failure to pay estimated tax.

Effective Date

The proposal would be effective for penalties assessed more than 180 days after date of enactment.

E. Protections for Taxpayers Subject to Audit or Collection

1. Due process in IRS collection actions

Present Law

Levy is the IRS's administrative authority to seize a taxpayer's property to pay the taxpayer's tax liability. The IRS is entitled to seize a taxpayer's property by levy if the Federal tax lien has attached to such property. The Federal tax lien arises automatically where (1) a tax assessment has been made; (2) the taxpayer has been given notice of the assessment stating the amount and demanding payment; and (3) the taxpayer has failed to pay the amount assessed within ten days after the notice and demand.

The IRS may collect taxes by levy upon a taxpayer's property or rights to property (including accrued salary and wages) if the taxpayer neglects or refuses to pay the tax within 10 days after notice and demand that the tax be paid. Notice of the IRS's intent to collect taxes by levy must be given no less than 30 days (90 days in the case of a life insurance contract) before the day of the levy. The notice of levy must describe the property that will be the subject of the levy, the procedures that will be used, the administrative appeals available to the taxpayer and the procedures relating to such appeals, the alternatives available to the taxpayer that could prevent levy, and the procedures for redemption of property and release of liens.

The effect of a levy on salary or wages payable to or received by a taxpayer is continuous from the date the levy is first made until it is released.

If the IRS district director finds that the collection of any tax is in jeopardy, collection by levy may be made without regard to either notice period. A similar rule applies in the case of termination assessments.

Description of Proposal

The proposal would establish formal procedures designed to insure due process where the IRS seeks to collect taxes by levy (including by seizure). The due process procedures apply after the Federal tax lien attaches and notice of the Federal tax lien or the notice of the intent to levy has been given to the taxpayer.

As under present law, notice of the intent to levy must be given at least 30 days (90 days in the case of a life insurance contract) before property can be seized or salary and wages garnished. During the 30-day (90-day) notice period, the taxpayer may demand a hearing to take place before an appeals officer who has had no prior involvement in the taxpayer's case. If the taxpayer demands a hearing, the proposed collection action may not proceed until the hearing has concluded and the appeals officer has issued his or her determination.

During the hearing, the IRS would be required to verify that all statutory, regulatory, and administrative requirements for the proposed collection action have been met. IRS verifications would be expected to include (but not be limited to) showings that:

(1)the revenue officer recommending the collection action has verified the taxpayer's liability;

(2)the estimated expenses of levy and sale will not exceed the value of the property to be seized;

(3)a consent or writ of entry has been obtained if the property to be seized is on private property;

(4)the revenue officer has determined that there is sufficient equity in the property to be seized to yield net proceeds from sale to apply to the unpaid tax liabilities; and

(5)with respect to the seizure of the assets of a going business, the revenue officer recommending the collection action has thoroughly considered the facts of the case, including the availability of alternative collection methods, before recommending the collection action.

The taxpayer (or affected third party) would be allowed to raise any relevant issue at the hearing. Issues eligible to be raised are expected to include (but not be limited to):

(1)challenges to the underlying liability as to existence or amount;

(2)appropriate spousal defenses;

(3)challenges to the appropriateness of collection actions; and

(4)collection alternatives, which could include the posting of a bond, substitution of other assets, an installment agreement or an offer-in-compromise.

The determination of the appeals officer is expected to address whether the proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the taxpayer that the collection action be no more intrusive than necessary. It is expected that a proposed collection action will not be approved solely because the IRS shows that it has followed appropriate procedures.

The taxpayer may contest the determination of the appellate officer in Tax Court by filing a petition within 30 days of the date of the determination. The taxpayer's contest may be based on IRS abuse of discretion and also may raise procedural issues, as under present law. The IRS may not take any collection action pursuant to the determination during such 30 day period or while the taxpayer's contest is pending in Tax Court.

IRS Appeals would retain jurisdiction over its determinations. An order could be entered requiring the IRS collection division to adhere to the original determination. In addition, the taxpayer would be allowed to return to IRS Appeals to seek a modification of the original determination based on any change of circumstances.

In the case of a continuous levy, the due process procedures would apply to the original imposition of the levy. Except in jeopardy and termination cases, continuous levy would not be allowed to begin without notice and an opportunity for a hearing. A determination allowing the continuous levy to proceed entered at the conclusion of a hearing would be subject to post determination adjustment on application by the taxpayer. Thus, taxpayers would have the right to have IRS Appeals review any continuous levy and take any changes in circumstances into account.

This proposal does not apply in the case of jeopardy and termination assessments. Jeopardy and termination assessments would subject to post-seizure review as part of the Appeals determination hearing as well as through any existing judicial procedure. A jeopardy or termination assessments must be approved by the IRS District Counsel responsible for the case. Failure to obtain District Counsel approval would render the jeopardy or termination assessment void.

Effective Date

The proposed due process procedures would apply to collection actions initiated more than six months after the date of enactment.

2. Privilege of confidentiality extended to taxpayer's dealings with non-attorneys authorized to practice before IRS

Present Law

A common law privilege of confidentiality exists for communications between an attorney and client with respect to the legal advice the attorney gives the client.

The privilege of confidentiality applies only where the attorney is advising the client on legal matters. It does not apply in situations where the attorney is acting in other capacities. The privilege of confidentiality also does not apply where an attorney that is licensed to practice another profession is performing such other profession. Further, the privilege of confidentiality does not apply where an attorney is engaged in a non-legal matter, such as the preparation of an income tax return.

The attorney-client privilege is limited to communications between taxpayers and attorneys. No equivalent privilege is provided for communications between taxpayers and other professionals authorized to practice before the Internal Revenue Service, such as accountants or enrolled agents.

Description of Proposal

The proposal would extend the present law attorney-client privilege of confidentiality to tax advice that is furnished to a client-taxpayer (or potential client-taxpayer) by any individual who is authorized under Federal law to practice before the Internal Revenue Service if such practice is subject to regulation under section 330 of title 31, United States Code. Tax advice means advice that is within the scope of authority for such individual's practice in respect to matters under Title 26 (The Internal Revenue Code).

The privilege of confidentiality extended by the proposal could be asserted in any noncriminal tax proceeding before the Internal Revenue Service and in noncriminal tax proceedings in the Federal Courts with regard to noncriminal tax matters.

The proposal would allow taxpayers to consult with other qualified tax advisors in the same manner they currently may consult with tax advisors that are licensed to practice law. The proposal would not modify the attorney-client privilege of confidentiality, other than to extend it to other authorized practitioners.

Effective Date

The proposal would be effective on the date of enactment.

3. Expansion of authority to issue taxpayer assistance orders

Present Law

Taxpayers can request that the Taxpayer Advocate in the Internal Revenue Service ("IRS") issue a taxpayer assistance order ("TAO") if they are suffering or about to suffer a significant hardship as a result of the manner in which the internal revenue laws are being administered (Sec. 7811). A TAO may require the IRS to release property of the taxpayer that has been levied upon, or to cease any action, take any action as permitted by law, or refrain from taking any action with respect to the taxpayer.

Description of Proposal

The proposal would provide that, in addition to current law requirements, the Taxpayer Advocate would issue a TAO for "significant hardship" if one of the following four factors exists: (1) there is an immediate threat of adverse action; (2) there has been a delay of more than 30 days in resolving the taxpayer's account problems; (3) the taxpayer will have to pay significant costs if relief is not granted; or (4) the taxpayer will suffer irreparable injury, or a long-term adverse impact, if relief is not granted.

In addition, the proposal would provide that, in cases in which the IRS failed to follow applicable published guidance (including procedures set forth in the Internal Revenue Manual), the Taxpayer Advocate would construe the matter in a manner most favorable to the taxpayer.

Effective Date

The proposal would be effective on the date of enactment.

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