NEWSLETTER
2008/2009

IRS Taxpayer Bill of Rights: Procedural Guidelines Must Be Enacted to Protect Taxpayer Rights and Avoid the Appearance of a Mere Toll-Free Zone

Ricky Thomas, Esq.
Jacksonville, Florida

As a result of the passage of the Taxpayer Bill of Rights ("Bill of Rights"), taxpayers, who are unable to pay owed taxes to Internal Revenue Service ("Service"), are now provided certain collection rights as part of the tax collection procedure.  In 1989, Congress enacted the Bill of Rights, which specified taxpayer's rights in dealing with the Service.  The Bill of Rights II (enacted in 1996) and the Bill of Rights III (enacted in 1998on) further expanded those taxpayer rights. The objective of the Bill of Rights is to require the Service to advice the taxpayer of the tax effect of its action and how the taxpayer can proceed and protect these tax collection rights in accordance with the Internal Revenue Code ("Code") and the Bill of Rights.

The Service is to be commended for its tax collection paradigm in dealing with taxpayers:

Every taxpayer has the right to prompt service and to be treated fairly, professionally, and courteously by IRS employees. The IRS has trained its collection personnel to ensure that taxpayer rights are protected and respected according to the Internal Revenue Code and the Taxpayer Bill of Rights.

As a former Service employee in the rulings division in Washington, D.C., I observed the application of a set of procedural guidelines that effectively governed the private letter ruling ("PLR") process .  In contrast to tax collection procedure, PLR procedure is governed by a set of procedural rules and regulations, which are generally applied to practitioners (e.g., attorneys, accountants, etc.) dealing directly with the Service as opposed to taxpayers.  In contrast, my tax collection practice reflects the opposite application with respect to tax collection procedure.  Usually, the taxpayer has had initial contact with the Service prior to retaining a practitioner.  Accordingly, there is a greater need to have procedures and guidelines to protect taxpayer rights.  In the final analysis, both tax collection and PLR procedure act to protect taxpayer rights under the Code.   

In tax collection cases, taxpayers and tax practitioners may contact the Service to discuss or disagree with a tax liability.  Both may call, write, or visit the local office for assistance. 

• Individuals may call 1-800-829-1040;
• Business taxpayers may call 1-800-829-4933; and 
• Practitioners may call the Practitioner Priority Service at 1-866-860-4259. 

It has been my experience that the majority of the contact with the Service is conducted through the above 800 numbers.  At times, my tax collection practice takes on the appearance of becoming an Automated Collection Service ("ACS") toll-free zone.  As a result, there was little or no consistency in dealing with different ACS representatives, since one ACS representative was not privy to the case summary or notes of a previous ACS representative.  Unfortunately, the only consistency that I have found in the current collection procedure is that each ACS representative will provide an employee ID number.

As a practitioner, I would suggest that the Service do away with Practitioner Priority Service and replace it with a more substantive collection procedure.  The hold time to talk to an ACS representative in too long (i.e., 30 minutes or longer) and some practitioners may bill taxpayers for this hold time.  Obviously, the Service is over burden with the servicing of other customers and every tax case is priority. 

In summary, the collection procedure conducted through the toll-free telephone numbers by ACS representatives and other representatives require a major overhaul to better protect taxpayer rights.  First, Service representatives should be assigned taxpayer cases to foster consistency of result; Second, Service representatives should be given better access to technology (e.g., facsimile, email, etc.) to communicate with taxpayers to resolve tax issues; Third, Service representatives should have access to the summaries or notes of  other representatives to avoid providing erroneous taxpayer information, and Fourth, Service representatives should not only be required to provide an employee ID number, but more importantly, be required to timely respond to taxpayer inquires.

 

As year 2006 closes, many taxpayers are eagerly anticipating the receipt of their W-2s and a refund check from the Internal Revenue Service (“IRS”). The year 2006 should be noteworthy to taxpayers for an entirely different reason. In September of 2006, the IRS implemented the first phase of a new private debt collection program to allow private debt collection agencies to collect delinquent federal taxes.   

 

Under the 2004 American Jobs Creation Act, Congress authorized the IRS to hire private collection agencies (“PCAs”) to collect the back taxes of delinquent taxpayers. In the initial phase of this new debt collection program, the IRS has contracted with three PCAs to contact approximately 12,500 taxpayers who owe back taxes. In the program’s second phase, the IRS will contract with up to 10 additional PCAs to contact approximately 40,000 taxpayers by the end of year 2008.   

 

Unfortunately, many taxpayers may not be aware of the new debt collection program and its far reaching implications with respect to the IRS tax collection process. Generally, PCAs serve three specific functions:

·         Locating and contacting taxpayers with delinquent IRS tax debts;

·         Requesting payment of specified taxes in a lump sum; and

·         Obtaining taxpayer financial information specified by the IRS.

 

IRS Commissioner Mark W. Everson has emphasized that the new debt collection program has been structured with tough safeguards and guidelines to protect taxpayer rights and privacy. “We’re going to implement this program very carefully so we have a good program on sound footing,” Commissioner Everson said. To its credit, the IRS has developed and implemented many procedures and safeguards (e.g., background checks, etc.) applicable to PCAs that should hold both the IRS and PCAs accountable for any violations of taxpayer rights and privacy.

 

Under the new private debt collection program, a taxpayer has the option to request that a delinquent tax account be handled or resolved by the IRS (i.e., opt-out) rather than by a PCA. Once the delinquent account has been transferred back to the IRS for resolution, the taxpayer has all the normal IRS collection and privacy protections under the law. For example, an IRS employee, in contrast to a PCA employee, has the legal authority to discuss and explore the entire list of IRS collection procedures, including innocent spouse relief (an innocent spouse granted relief of part or all of the joint tax liability); penalty abatement (avoidance of certain tax penalties and interest); installment agreement (full payment of an outstanding tax liability over time); offer in compromise   (payment of a reduced or deferred amount of an outstanding tax liability), etc.  Finally, because the IRS collection process is time sensitive from the date of the filing of the tax liability or collection action, the taxpayer may be disadvantaged or harmed as the collection clock continues to run during the period in which a delinquent debt is being handled by a PCA. 

 

There are a number of additional reasons for taxpayers to opt-out of the new debt collection program and place reliance upon the efficiencies of IRS collection process. First, PCAs are contracted to “collect overdue tax accounts” and not to act as a counsel or representative to resolve the taxpayer’s unpaid tax liability in the best interest of the taxpayer. Second, PCAs lack legal authority and training to resolve or recommend to taxpayers the appropriate tax collection options (e.g., innocent spouse relief, penalty abatement, installment agreement, offer in compromise, etc.) that are available to resolve IRS collection controversies and disputes.  Third, PCAs are unable to access the simplicity or complexity of the issues surrounding the taxpayer’s unpaid tax liability. Finally, PCAs are paid up to 24 percent of the collected tax debt and have a direct financial stake in the collection process. Also, opting-out of the new debt collection program protects vulnerable taxpayers (e.g., elderly or any indebted consumer) from scam artists taking advantage of the new debt collection program. 

 

In conclusion, taxpayers should give serious consideration to opting out to allow the IRS (not a PCA) to collect the unpaid tax debt and place reliance upon the normal IRS collection process or representation by a tax professional. In the interim, taxpayers should monitor the current Congressional action (S. 3887) that opposes the new debt collection program.