Tax Lawyer's Blog

We have written extensively about the three Taxpayer Bills of Rights that have been signed into law in the last twenty years.

This article carves out for discussion the applicable provisions of the Bills that apply to the IRS Audit process and grades the IRS’s performance with respect to each taxpayer right using the following scale:

A = Excellent; B = Good; C = Fair; D = Poor; F = Horrendous

Right to Counsel

GRADE = D

The IRS Declaration of Rights provides that:

You have the right to appear yourself before the IRS or have someone else represent you in your place. Your representative must be a person that is approved to appear before the IRS, namely an enrolled agent, an attorney or a CPA. If you are in an interview and you ask to consult with such a person, the IRS must stop the interview and allow you time to talk to the person or to re-schedule the interview.

That’s the theory.

But in practice we find that many IRS auditors and agents don’t like it when a taxpayer, in the middle of an interview or in the middle of the audit process in general, says she wants to consult a lawyer or CPA.

The IRS does a poor job here.

For example, here are some of the statements IRS officials have made to our clients after they had informed them that they intended to exercise their statutory right to counsel:

Instead of paying a lawyer, why don’t you just pay the IRS?

What are you going to hire a lawyer for, he won’t be able to help you?

Lawyers will just take your money and you’ll end up in the same place you’re in now.

Why waste your money?

Each of these statements is an express and egregious violation of your right to legal representation. They are clearly designed to intimidate the taxpayer into NOT exercising his rights by making him or her believe that doing so will hurt his chances of a favorable outcome with the IRS agent.

What good are rights if those specifically charged with ensuring that those rights are protected are permitted to openly (and some times hostilely) discourage you from their exercise?

Don’t let an IRS auditor or collection agent intimidate you. If you get so much as a roll of the eyes when you tell an IRS officer that you’re going to hire a representative, immediately report the agent’s conduct to his or her supervisor.

It’s illegal.

Right to Payment of Only the Correct Amount of Tax

GRADE = B

The IRS Declaration of Rights provides that:

You are responsible for paying only the correct amount of tax due under the law – and no more, no less. If you cannot pay all of your tax when it is due, you may be able to make monthly installment payments.

The IRS does a good job here.

If you cooperate in the audit process and provide the appropriate documentary support for your expenses the IRS will issue a “no change” letter indicating that your return is correct as filed.

And if you provide evidence of deductions that were understated or omitted from your return, the IRS will adjust your return in your favor and issue a refund.

Remember, the primary purpose of the IRS audit function is not to raise money for the IRS, but to determine the correct amount of tax, interest and penalties the taxpayer should have paid.

Right to Information and Tax Return Help from the IRS

GRADE = F

The Declaration of Rights states that:

You have the right to information and help from the IRS in preparing your return.

The IRS is so bad here I recommend that the right be eliminated altogether.

Not because you shouldn’t have the right to IRS assistance in determining the correct amount of your tax liability, but because in too many cases the IRS gives the wrong assistance and in almost all cases won’t allow you to rely on that assistance.

So what good is having the right, then?

None.

Let’s face it, the reason the IRS doesn’t allow taxpayers to rely on the advice it gives to taxpayers is because it knows that its own, “highly trained,” employees are often wrong.

Listen to what Jeff Schnepper of MSN.Money says:

In a 2005 test of the system by the Treasury Inspector General, 35% of answers were incorrect. The Treasury Inspector General tested the system again to measure the quality of the taxpayer assistance during the 2005 filing season. The bad news, according to a Nov. 15 Government Accountability Office report: The accuracy rate for responding to tax law questions was basically unchanged from 2004. The poor performance was attributed to the representatives not using the prepared guide scripts or not interpreting the law correctly.

If you are compelled to ask an IRS official for tax advice – and we advise that you instead ask a competent tax lawyer, CPA or IRS Enrolled Agent – get the answer in writing. If the advice is written, you at least have a chance of avoiding penalties if it turns out to be wrong.

And if the IRS advisor doesn’t want to give you the advice in writing, at least you’ll know what it’s worth.

Nada. Zip. Zilch. Nothing.

Privacy and Confidentiality

GRADE = A

The Declaration of Rights says:

You have the right to expect that the IRS will keep your personal and financial information confidential. You have the right to know why the IRS is asking for information, how they will use it and what happens if you do not provide the requested information.

The IRS performs well here and we give it a grade of “A.”

If I have any criticism of the IRS in this area it is that it often goes too far in attempting to ensure a taxpayer’s privacy.

For instance, we have had occasions where the IRS agent knew we were the duly authorized power of attorney for our client but still, because of some minor technicality on the POA form, refused to talk to us about a specific tax matter until the technical error was corrected.

Professional and Courteous Service

GRADE = C

The IRS states that,

You have the right to courteous and considerate treatment by IRS personnel. If you believe that an IRS employee has not treated you in a professional manner, you should tell that employee’s supervisor, you should write to the District Director or the IRS Center where you file your return.

The IRS is just average here and we give it a grade of “C.”

Most auditors are cordial and courteous at the beginning of the audit process. As the audit drags out and they begin to get downward pressure from their group managers to close the case, their attitudes sometimes change.

To be fair, however, I don’t believe their frustration has anything to do with the taxpayer owing money to the government, but, rather, more to do with the fact that they have many cases to handle and are required to resolve them in a specified time period.

If you believe an IRS auditor or agent is treating you with disrespect (i.e. calling you a liar, making personal comments about your life or lifestyle, threatening you or getting angry with you) you should immediately ask to speak with his or her group manager or supervisor.

Right to Help with Unresolved Tax Problems

GRADE = A

The Declaration of Rights states that:

The Taxpayer Advocate Service can help you if you have tried unsuccessfully to resolve a problem with the IRS. Your local Taxpayer Advocate can offer you special help if you have a significant hardship as a result of a tax problem.

Nina Olson is the National Taxpayer Advocate and presides over the Taxpayer Advocate’s office.

She is terrific and actively and aggressively seeks to protect taxpayer rights.

The IRS gets an “A” here.

We have found, since Ms. Olson’s appointment, that the Taxpayer Advocate office is very helpful in investigating unresolved tax problems and providing solutions to those problems.

Note, you should not solicit the help of the Taxpayer Advocate until you have tried to resolve the matter at the level at which it was created. This means speaking with an agent’s supervisor and/or formally appealing an IRS action or determination.

Right to Appeals and Judicial Review

GRADE = B

The IRS states that:

If you don’t agree with the examiner’s findings or certain collection actions, you have the right to appeal the decision.

The IRS is very good about granting taxpayers their appeals rights.

Right to Relief From Certain Penalties and Interest

GRADE = B

The Declaration of Rights states:

You have the right to request certain penalties (but not interest) be abated if you can show reasonable cause for the failure that led to the penalty. The IRS will waive penalties when allowed by law if you can show you acted reasonably and in good faith or relied on the incorrect advice of an IRS employee. The IRS will only waive interest that is the result of certain errors or delays caused by the IRS.

This right merely means that the IRS is compelled to let you request a reduction or abatement of penalties.

The IRS does a very good job of allowing these requests, but a not so good job of evaluating them.