After five years of consideration, Congress has finally passed the Taxpayer Bill of
Rights -- the most significant piece of legislation protecting taxpayers from IRS abuses
since the inception of the income tax system. Thanks go to Senator David Pryor (D-AR),
chairman of the Senate Subcommittee on Oversight of the IRS, who led the fight for passage
of the bill, even though he encountered strong resistance from the IRS, which campaigned
hard to defeat the bill and water it down.
The Taxpayer Bill of Rights was included in the Technical and Miscellaneous Revenue
Act of 1988, passed by Congress in the final hours before adjournment.
The major provisions of the bill are:
(1) Upon a taxpayer's request, the IRS is required to allow an audio recording of
any interview at the taxpayer's own expense and with the taxpayer's own equipment. The IRS
is also allowed to record the same interview.
(2) Before an initial interview, the IRS agent is required to provide an explanation
of either the audit or collection process, and the taxpayer's rights under such process.
(3) Taxpayers are guaranteed the right to consult with an attorney, CPA, or Enrolled
Agent, or other person at any time during any interview. And if requested by the taxpayer,
the IRS must suspend the interview to allow the taxpayer the right to consultation.
(4) Taxpayers have the right to representation by a properly authorized
representative and the IRS may not require a taxpayer to accompany the representative to
an interview unless an administrative summons is first served.
(5) The IRS is required to abate any portion of any penalty or additional tax
attributable to erroneous advice provided in writing by the IRS.
(6) The new law gives the IRS Ombudsman the authority to intervene in an enforcement
action if the taxpayer is "suffering or about to suffer a significant hardship as the
result of the manner in which the Internal Revenue laws are being administered."
(7) The IRS is now legally prohibited from evaluating employees based on their
records of tax enforcement results. Supervisors will no longer be allowed to force their
employees to make seizures for the sole purpose of gathering statistics, with the purpose
of enhancing their enforcement quotas.
(8) For the first time in the history of the Internal Revenue Code, taxpayers are
granted the opportunity to pay their taxes in installments if such an arrangement will
facilitate collection of the liability. No longer will IRS collectors be able to say that
the Code doesn't allow installment arrangements. Also, IRS collectors are bound to honor
any installment arrangements they enter into as if the arrangement has the force of a
contract. The IRS may terminate an agreement only under certain stipulated conditions.
This provision prohibits the arbitrary termination of agreements that have plagued many
(9) The law establishes the "Office for Taxpayer Services" under the
supervision and direction of an Assistant Commissioner for Taxpayer Services. The effect
of this provision is to prevent the IRS from de-emphasizing the role of Taxpayer Services
within the organization.
(10) Under previous law, a taxpayer who is a "prevailing party" in a tax
case in any Federal court may be awarded reasonable litigation costs if the position of
the U. S. was not "substantially justified."
The Taxpayer Bill of Rights has expanded this right in a major way. Now any person
who "substantially prevails" in any administrative or court proceeding brought
by or against the U. S. in connection with the determination, collection, or refund of any
tax, interest, or penalty may be awarded reasonable administrative costs incurred before
the IRS and reasonable litigation costs incurred in connection with any court proceeding.
A limitation requires that the prevailing party must first exhaust the administrative
remedies available within the IRS.
The term "administrative proceeding" means any procedure or other action
before the IRS. "Reasonable administrative costs" include reimbursement for fees
of an attorney, CPA, or Enrolled Agent authorized to practice before the Tax Court or
before the IRS. Probably one of the most significant rights ever written into the tax
code, this provision goes a long way to protect defenseless taxpayers against arbitrary
and capricious actions of IRS employees. No longer will taxpayers have to bear the
financial brunt of proving their innocence. Far too many times in the past, taxpayers have
agreed to pay more tax than they owed because they were advised that the costs of fighting
the IRS exceeded the amount of the tax.
(11) Until passage of the Taxpayer Bill of Rights, taxpayers did not have the right
to sue the government for damages sustained because of unreasonable actions taken by an
IRS employee. In another very important provision, taxpayers are now granted the right to
sue the Federal government in Federal District Court for damages, if in connection with
the collection of any Federal tax, an IRS employee "recklessly or intentionally"
disregards any provision of the tax code or any regulation promulgated under the code.
Taxpayers may recover "actual, direct economic damages sustained" as a result of
the IRS action plus the costs of pursuing the action to sue up to $100,000.
Restrictions on Seizures & Liens
The restrictions on IRS seizures as provided in the Taxpayer Bill of Rights
constitute the most sweeping protections ever afforded taxpayers, and the most
comprehensive set of limitations on the seizure power ever imposed on the IRS. Until now,
there has been almost no limit to that power. The following provisions were deemed
necessary by Congress after years of listening to taxpayers who suffered abuses by IRS's
indiscriminate use of the seizure power:
(1) Formerly, the IRS had to provide taxpayers with a notice of its intent to seize
at least 10 days before making the seizure. This period was often too short for those
taxpayers who needed additional time to borrow money, particularly if the Collection
Division made an arbitrary determination that enforcement action was necessary
immediately. Now the IRS must wait at least 30 days from the date the Notice of Intent to
Seize is provided before they can make a seizure. This extended period is provided so that
taxpayers have more time to raise money to pay the IRS.
(2) The Notice of Intent to levy must provide the following information in simple,
- the provisions of the Code relating to seizure and sale;
- the procedures applicable to the seizure and sale process;
- the administrative appeals available with respect to seizures and sale and the
procedures relating to such appeals;
- the alternatives available to taxpayers that could prevent a seizure, including the
use of installment agreements;
- the provisions of the Code relating to redemption of the property, and the release of
liens on the property; and
- the IRS procedures applicable to the redemption of the property.
(3) The minimum exemptions from levy were increased nominally. Fuel, provisions,
furniture, and personal effects are exempted at a value of $1,650. Books and tools of the
trade are exempted at $1,100. The figures increase slightly in 1989. Above those limits is
fair game for the IRS. The bankruptcy laws still give taxpayers more protection.
(4) Formerly, if the IRS seized your paycheck you were allowed to keep $75 a week
for yourself and an additional $25 a week for each dependent and spouse. Now the minimum
exemptions have been raised with the following formula: the amount of the taxpayer's
standard deduction is added to the amount of personal exemption (now at $1,900) and that
sum is divided by 52 to reach the weekly amount of salary or wages exempted by IRS levy
(5) A taxpayer's principal residence is exempted from levy unless the seizure has
first been approved by a District Director or Assistant District Director, or collection
of the tax has been deemed to be in jeopardy.
(6) The IRS is prohibited from making a seizure on property where the expenses
incurred by the seizure and sale exceed the fair market value of the property at the time
of levy. This provision is to keep the IRS from making purely harassment seizures of
property that has so little value that it could not be sold. In the past IRS Revenue
officers have made uneconomical seizures but kept the taxpayer's property under
impoundment for a length of time before finally releasing it to the taxpayer.
(7) In the past, the IRS could walk into a bank and by simple service of a Notice of
Levy wipe out a taxpayer's entire bank account -- even if the taxpayer had protested the
accuracy of the tax assessment or the amount owed. Now banks are required to wait 21 days
before turning the taxpayer's money over to the IRS in order to allow the taxpayer time to
go to the IRS and raise any objections or enter into an installment agreement.
(8) For the first time, the tax code provides several meaningful provisions under
which a levy or seizure may be released. Now the IRS "shall release" a levy for
the following reasons: - the liability has been paid or the statute of limitations on
collections has expired;
- the release of the levy will facilitate collection of the tax;
- the taxpayer has entered into an installment agreement;
- the IRS has determined that the levy is creating an economic hardship due to the
financial condition of the taxpayer, and the fair market value of the property exceeds the
tax liability and the release of the levy on part of the property could be made without
hindering the collection of the tax.
(9) In cases where tangible personal property essential to a taxpayer's trade or
business is levied on by the IRS, an accelerated appeals process must be provided by the
IRS in order to determine whether the levy should be released due to any of the statutory
grounds that govern release (see #8 above).
(10) The owner of any property seized by the IRS may request that the property be
sold within 60 days of the request. The IRS must comply with the request unless it
determines that such compliance would not be in the best interests of the U. S.
(11) Under IRS's jeopardy authority, enforcement may be taken without regard for the
10-day notice and demand period, or the 30-day period after serving the Notice of Intent
to Seize, if collection of the tax is deemed to be in jeopardy. Formerly, there was no
appeal procedure for taxpayers to protest this determination. Now the Congress has
extended appeals procedures to these situations.
(12) Taxpayers are now granted the right to appeal after the filing of a notice of
tax lien for the release of the lien when there has been an error in the filing of the
(13) If any officer or employee of the IRS knowingly, or by reason of negligence,
fails to release a lien, the taxpayer may bring a civil action for damages against the U.
The Taxpayer's Bill of Rights is the most pro-taxpayer provision ever adopted into the Internal Revenue Code. It is substantial piece of
legislation that cuts to the nitty- gritty of IRS abuses. For far too long IRS's seizure
power has gone unchecked. While this bill will not stop all cases of abusive actions, it
certainly creates a whole new relationship between taxpayers and the IRS, provided of
course, that IRS employees abide by the letter and spirit of the law.