Taxpayers are abut to get an array of new weapons for dealing with the Internal Revenue Service, thanks to a measure recently approved by Congress and headed for President Clinton’s expected signature.
The “Taxpayer Bill of Rights,” which cleared both houses without a dissenting vote, makes it easier for taxpayers to sue the IRS if the agency undertakes unwarranted collection action against them, boosts to $1 million the maximum damage that can be awarded in such suits and improves the chances that a taxpayer who wins a case against the agency will be able to recover attorneys’ fees and other out-of-pocket expenses.
It also expands the authority of the IRS’ internal ombudsman to assist taxpayers in resolving problems. In the past, the ombudsman’s powers have been restricted to halting agency actions against a taxpayer; under the bill, the office would have the authority to make the agency do things for the taxpayer as well.
“I think the bill is a good bill,” said former IRS Commissioner Donald Alexander, now a lawyer in private practice in Washington. He said provisions will encourage the IRS to speed up issuance of regulations and “to be more selective in the quality of their cases” that they bring against taxpayers.
The IRS has supported the bill generally, and some of its requirements have already been instituted.
Sen. David Pryor (D-Ark.), who along with Sen. Charles E. Grassley (R-Iowa), was a principal backer of the measure, said he believes the measure, said he believes the measure will help rein I overzealous agents and make others make doubly certain they are right before proceeding against a taxpayer.
“I would say it’s going to be an attitude thing as much as anything,” he said of the legislation’s overall impact.
Key provisions in the bill would:
• Make it easier to recover costs:
Current law allows the taxpayer to recover attorney’s fees and the like, but requires the taxpayer to prove that the IRS’ position in the case was not substantially justified. In practice, that has turned out be extremely difficult. Under the new law, the taxpayer’s victory creates a presumption that the government’s position was not substantially justified and leaves it up to the IRS to show otherwise.
It also boosts the allowable rate for attorney’s hourly fees to $110 from $75.
• Improve taxpayer protections under Installment Agreements:
Taxpayers who can’t pay what they owe right away but could over time can often work out a time payment plan. However, the agency can suddenly terminate such a plan if the taxpayer falls behind on payments or the agency thinks the taxpayer’s circumstances have improved and he or she could pay all at once. The measure would require the agency to notify a taxpayer if it plans to terminate an installment plan, explain why and give him or her time to respond. “They can’t just hit you out of the blue,” said a Pryor aide.
• Require the IRS to notify former or separated spouses when it begins action to collect jointly owed back taxes from the other spouse:
There have been many cases where the agency has sometimes proceeded against one spouse and obtained a judgment that applies to both–all unknown to the other spouse.
• Provide protection for volunteer board members:
If you are and unpaid, volunteer board member of a museum, or other tax-exempt association not involved in the financial details of the group, the new law limits your responsibility for errors in tax payments or reports. Some board members have worried abut having to pay penalties in such situations.
Also in the bill are provisions to make it easier for the IRS to remove liens from taxpayers’ property, require the IRS to notify taxpayers annually of overdue taxes and give taxpayers the right to sue someone who files false tax information on them, such as a phony W-2 or 1099.
Some minor provisions clean up areas that were not serious problems but could trap someone—for example, taxpayers will be able to use a receipt from any qualified private delivery service to prove a tax return was filed on time, instead of having to the U.S. Postal Service.
Despite the large number of issues addressed in the legislation, most taxpayers will probably not notice the new law, IRS Commissioner Margaret Milner Richardson said.