Chalk up the "taxpayer bill of rights" as a victory for millions of hardworking, individual Americans.
The bipartisan law - enacted by a Republican-led Congress with overwhelming support from Democrats and signed into law last week by President Clinton - expands the rights of taxpayers as they grapple with the labyrinthine complexity of the US federal tax system.
The law stops short of providing full equality for taxpayers vis--vis the bureaucratic muscle of the Internal Revenue Service, but it does redress the balance somewhat, says an aide to Rep. Nancy Johnson (R) of Connecticut, one of the law's primary backers. Taxpayers will now find it easier to enter into negotiated settlements with the IRS, sue the agency for as much as $1 million for overzealous collection methods, and even win reimbursement of legal fees.
Although the IRS is widely considered one of the most efficient tax-collection agencies among industrial democracies, critics have become increasingly outspoken that the agency has become far too intrusive. To meet complaints, Congress first enacted a taxpayer bill of rights in 1988. But grumbling has continued to pour into congressional offices: about alleged intimidation, liens quickly slapped on homes and business properties in tax disputes, and in some cases, outright confiscation of property. Thus, Congress has expanded taxpayer rights.
For a nation literally born in tax revolt, the fact that more than 100 million returns are voluntarily filed on time each year is remarkable. But many lawmakers want the IRS subjected to the same type of public debate that has overtaken - and led to reforms in - such powerful federal bureaucracies as the FBI and the CIA in past decades.
The IRS is largely a product of the postwar era. A modest income tax was enacted during the Civil War, but ended in 1872. Another small tax was enacted in 1894, but the law was quickly declared unconstitutional by the US Supreme Court.
After a constitutional amendment opened the way, Congress finally enacted a graduated income tax in 1913. But most Americans paid little. Payroll-tax withholding did not begin until World War II.
Downsizing is under way at the IRS. For the current fiscal year, the agency has 106,000 employees, down its high of 116,000 in fiscal year 1992. Its current budget is $7.3 billion, down from $7.5 billion last year.
IRS officials say they need more, not less, public support.
Third-Party Tax Harassers Can Be Sued
IT will now be harder for individuals to use IRS forms to harass or intimidate other people.
In recent years, a number of persons, including tax protesters angry at the IRS, have filled out IRS forms - such as dividend, interest, or withholding forms - claiming that they apply to another person, and then mailed them to the IRS. Sometimes the targets are IRS agents involved in difficult collection cases. Thus, some agents have been hauled in by their own superiors to explain why they have "unreported interest" that has turned up on an interest form from another party but was not included on their own tax return. Under a new provision, anyone who willfully files fraudulent tax information can be sued by the person against whom the information is directed.
Less Liability for Volunteer Board Members
ONE key beneficiary of the law will be volunteer board members of such civic groups as museums, churches, and other tax-exempt enterprises. Current law allows the IRS to seek penalties from responsible officials of such groups, including board members, even though the volunteer may not be involved in day-to-day financial activities.
The new law will effectively exempt volunteer, honorary, unpaid board members who are not involved in daily financial management and who do not know of specific indiscretions or mistakes made by employees (such as if the group fails to collect and transmit required withholding taxes to the IRS). But active, nonhonorary, board members "may not be off the hook," an IRS spokesman says.
The new provision is expected to make it easier for wary volunteers to once again start serving on boards. That is expected to benefit not just the volunteers but also the civic organizations.
What the Rules Will Do ...
The taxpayer-protection legislation provides important new legal safeguards for taxpayers:
1. You can sue the IRS for up to $1 million for reckless collection. That's 10 times the current ceiling of $100,000.
2. The IRS must notify both spouses if it decides to collect jointly owed back taxes.
3. You can now legally send tax documents to the IRS via private delivery systems, as well as by the US Postal Service.
4. It will now be easier to enter into a compromise agreement if you owe back taxes.
5. The IRS must give 30 days written notice before canceling an existing installment agreement.
6. The IRS is required to notify you annually if you owe back taxes, rather than letting the interest/penalty amounts accumulate.
7. Your grace period on taxes owed without accruing interest grows from 10 days to 21 days.
8. The IRS gets greater flexibility to remove a lien from your property if it decides it no longer needs or wants the lien.
9. You can sue third parties for sending the IRS false information.
10. The taxpayer advocate, a sort of independent ombudsman located in the IRS, will have broader powers to help you.
... And Who They Will Help
*More than 2.5 million taxpayers who currently have installment agreements with the Internal Revenue Service.
*Taxpayers entering into negotiated settlements. On May 1, for example, the IRS was considering settlements in some 36,000 "offer and compromise" cases.
*Hundreds of thousands of taxpayers who must undergo an audit. Now, auditors will presumably be more careful, less zealous, in their dealings.
*People who, for whatever reason, cannot pay, but want to pay, all or part of their back taxes.
*Divorced people who may be swept up in an IRS probe of a delinquent former spouse.
*Accountants and tax lawyers, who have complained that IRS resolution programs are vague, or weighted against taxpayers.
*The IRS, since it can now say it is seeking to be as responsive as possible to legitimate complaints from taxpayers. An IRS spokesman says the agency had adopted about a third of the law's provisions before it was signed by the president.
*Congress and the White House, which score political points for helping taxpayers.