A View from the Inside: The Taxpayer Bill of Rights

April 14, 2015


This is the second in a series of articles from my view during my IRS career.  Today we will be reviewing the newer version of the Taxpayer Bill of Rights.

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. The IRS website states, “Explore your rights and our obligations to protect them”.  So let’s take a tour and grade IRS using the old fashion grades of my ancient school days, “A-F”. This may take two to three columns to clear the air as many of these rights are currently being violated.

The Right to Be Informed. “Taxpayers have the right to know what they need to do to comply with the tax laws. They are entitled to clear explanations of the laws and IRS procedures in all tax forms, instructions, publications, notices, and correspondence. They have the right to be informed of IRS decisions about their tax accounts and to receive clear explanations of the outcomes.”  Sounds pretty good doesn’t it? But, I am not sure any agency could comply 100% with this aspirational goal. 

Comply with the laws. Well, I have to pick on Congress on this one. There has been many a time I have looked at the law or changes in the law and thought, “ What mind thought up this mess?”  I am trying to be nice here, but you all know what I mean.  Congress has made our laws so complex.  I used to think it was all the “special interest groups,” but I myself and every citizen is a special interest group.  We want to protect our deductions like mortgage interest. Charitable groups want Congress to keep the deduction for charitable contributions. And then there are those special tax procedures like the old fashion Income Averaging that is now defunct. It was created due to Dwight D. Eisenhower’s  memoir’s, so he could save on the royalties from his book. So we as a country and citizenry cannot place the blame solely on Congress. We all have a stake of some kind when it comes to “special interest.”

Overall, the tax code has become so complex that the majority of individuals have made hiring a tax preparer the best way to comply with the law and stay under the IRS radar, hopefully.  Grade D, I am being generous here.  

Clear Explanations. Well we have a recent court case that throws this one out the window.   In Bobrow v. Comm’r, T.C. Memo 2014-21, the taxpayer relied on Publication 590 to rollover their IRA distributions. The Tax Court relied on I.R.C. §408(d)(3)(B) regarding the limits and frequency of a nontaxable rollover contribution. There are two ways a person can play with their IRA accounts, one is a rollover the other is a transfer.  Publication 590 explained tax-free rollovers and provided an example that clearly demonstrated that more than one of the taxpayer’s IRA’s could be rolled over in a year, but only one rollover was allowed per account. This is what Bobrow did, and was very careful not to make more than one rollover per account.

IRS argued that the one tax free rollover per year should be applied on an aggregate basis to all of the taxpayer's IRA’s and not on an account by account basis. The Tax Court agreed and Bobrow lost. Note: A transfer can still be made in multiples and this case had no impact on transfers of IRA’s from one account to another.

What makes this case so unsettling is the person involved was an attorney and the court upheld an accuracy related penalty even though Bobrow followed the “clear explanation” in Publication 590. 

As a result of this case, IRS issued an announcement 2014-15 with the NEW rules. So, even though IRS has the publications and forms with instructions and we as common taxpayers follow those guidelines and try to understand and apply the “rules,” this can happen.

One more example and I will get off my soap box.  The Affordable Care Act. “CLEAR EXPLANATIONS” were a good idea that did not develop very well. Need I say more? Most people are clueless when it comes to ACA.  IRS kept the information so close to its vest that there were only “select” people within IRS who could speak nationally on the subject. The Volunteer Income Tax Assistance program that assists the lower income individual, who ACA would likely apply to, received NO TRAINING. It was out of scope. I took six of the tests and was shocked that not even the basics were provided.

I am not sure what the big secret was, but we as individuals and tax professional are fighting our way through the new mess Congress created. The learning curve for this part of the tax law, coupled with the new repair regulations, have made the 2015 tax season a nightmare for tax professionals.  Grade F and F.

The last one we will cover today under the Right to be Informed is Clear Explanations and Outcomes when it comes to Correspondence and Notices.

When I came to the IRS in 1986, the training was fabulous. We received training on the current law and also the Tax Reform Act of 1986. This was before the internet, before I could look up a notice or letter to see just what it looked like and what it stated.  In those first years, I was a 1-800-829-1040 telephone assistor. Yes one of those that answered taxpayer’s questions via the telephone.  Correspondence and Notice training was learned “on-the-job.”  Taxpayer would describe the notice or letter and it would be up to the IRS assistor to advise them on how to proceed.

I am sure there have been some changes, and the notices or letters (some) are now on the internet and they can be viewed, which is helpful. In addition, IRS has attempted to make the correspondence more understandable. But it is a long way from providing the information taxpayers need and can understand in order to respond. Let’s not even go to responding.  IRS has not met is 45-day response window in months.  Even tax professionals have issues understanding what the notice is saying, or in some cases how to respond to the notice. Grade F

Though we are getting into Quality of Service here, I absolutely need to discuss IRS help, which is nonexistent. You’re lucky to get into the IRS via phone without getting a message that they "are too busy, try again later”  or instead hold for two hours, get cut off or actually get a live person to talk to who may or may not be able to help. That’s an issue for next time. 

Perhaps we'll have to start grading on the curve next week...

keywords: taxpayer bill of rights, bobrow v. comm'r, i.r.c. §408(d)(3)(B), publication 590, affordable care act 

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CALT does not provide legal advice. Any information provided on this website is not intended to be a substitute for legal services from a competent professional. CALT's work is supported by fee-based seminars and generous private gifts. Any opinions, findings, conclusions or recommendations expressed in the material contained on this website do not necessarily reflect the views of Iowa State University.

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