Housing Law May Provide a Model for Application of the Taxpayer Bill of Rights in Litigation

We welcome first time guest blogger Steve Sharpe, who works for the low-income taxpayer clinic covering Southwest Ohio, including Cincinnati. Steve also has significant experience in housing and consumer advocacy. It’s not unusual for an attorney at a low income tax clinic housed in a legal services organization to arrive in the tax clinic with the type of background Steve possesses rather than a solely tax background. Steve’s cross functional knowledge allows him to provide us with an interesting insight into the importance of the taxpayer bill of rights (TBOR).  

If you read the IRM, you quickly become aware that TBOR is making a difference in tax administration at the IRS in the way it now frames its discussion of many issues concerning taxpayers. You can also find mention of it in GAO reports and TIGTA reports. Since the IRS adoption of TBOR in June of 2014 and its codification in 2015, there has been a debate on whether TBOR will make a difference in case outcomes in litigation. Special Trial Judge Panuthos has mentioned it in a Tax Court case. Facebook mentions it in a complaint it filed in November, 2017, seeking to cause the IRS to allow it the opportunity to meet with Appeals. Maybe over time, other litigants will make more direct arguments about the protections afforded by TBOR and more court opinions will address those protections. Steve provides insight into how TBOR might follow a similar path to an aspirational type of law that exists in the housing arena and provide protections many may not have imagined when TBOR was passed. Keith

As the IRS enters into an intense period of rulemaking and implementation following the passage of the tax overhaul, advocates for taxpayers must be vigilant and ensure that any new rules or other IRS decisions protect our clients’ basic rights.

Advocates will naturally look to the Taxpayer Bill of Rights for guidance, and I suggest we evaluate whether Congress’s decision to codify the Taxpayer Bill of Rights into a statute impacts how the IRS must act. Looking at litigation under Congress’s longstanding national housing policy codified at 42 USC 1441 (hereinafter, the “National Housing Goals”) may be particularly useful and relevant. Under this frame, the Taxpayer Bill of Rights may provide more than general standards and may provide additional legal support for taxpayers challenging IRS decisions, including rulemaking, pursuant to the Administrative Procedure Act (“APA”).

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It is important to note up front that I have not completed a broad survey of recent APA litigation or research into the legislative history for the Taxpayer Bill of Rights. I may be missing something very obvious. The goal of this post is to raise some ideas for people to explore. Obviously, significant research is needed before taking any action.

In 2015, Congress passed the Taxpayer Bill of Rights that were incorporated in 26 U.S.C. 7803(a)(3). The statute codifies basic concepts to ensure that people are treated fairly, pay only the amount of tax they owe, and have the ability address errors, among other things. On their own and divorced from specific procedures, they are important and provide fundamental ideas for the tax system to include.

The impact of the Taxpayer Bill of Rights, however, may reach well beyond overarching goals and should directly impact actions taken by the IRS. This is not an argument without precedent. Rather, the Taxpayer Bill of Rights shares a similar structure with the National Housing Goals, which have been the subject of housing litigation. According to the Taxpayer Bill of Rights,

In discharging his duties, the Commissioner shall ensure that employees of the Internal Revenue Service are familiar with and act in accord with taxpayer rights as afforded by other provisions of this title, including…

26 U.S.C. 7803(a)(3) (emphasis added). The statute then lists the particular rights that the Commissioner must protect when discharging its duties.

Similarly, the National Housing Goals provide directives for federal agencies addressing housing.

The Department of Housing and Urban Development, and any other departments or agencies of the Federal Government having powers, functions, or duties with respect to housing, shall exercise their powers, functions, and duties under this or any other law, consistently with the national housing policy declared by this Act and in such manner as will facilitate sustained progress in attaining the national housing objective hereby established . . .

42 U.S.C. 1441 (emphasis added). As with the Taxpayer Bill of Rights, the National Housing Goals then list specific objectives for housing agencies to attain.

The National Housing Goals have not simply served as lofty goals that lack practical meeting. Rather, Courts have looked to the National Housing Goals in evaluating whether a housing agency has acted appropriately. For example, in United States v. Winthrop Towers, 628 F.2d 1028 (7th Circuit 1980), HUD sued to foreclose on a low-income housing development. The owner of the development argued that the decision to foreclose was not completely committed to agency discretion. Even if there was no law to apply, the owner argued that the agency had to act consistent with National Housing Goals. The court agreed and stated:

In this case the law to be applied includes s 2 of the National Housing Act, 42            U.S.C. s 1441, which contains a detailed statement of national housing objectives, as well as 42 U.S.C. s 1441a, 42 U.S.C. s 1437 and 12 U.S.C. s 1715l (a). Section 1441 specifically provides that HUD shall exercise its powers and perform its duties “consistently with the national housing policy declared by this Act. . . .” This language compels our conclusion that HUD’s decision to foreclose may be reviewed to determine whether it is consistent with national housing objectives.

Id. at 1034-35 (emphasis added). Simply put, the National Housing Goals went beyond providing general standards – the goals impacted review of agency action. As the Seventh Circuit stated, “the language of s 1441 ‘is not precatory; HUD is obliged to follow these policies. Action taken without consideration of them, or in conflict with them, will not stand.’” Id. at 1035 (emphasis added) (quoting Commonwealth of Pennsylvania v. Lynn, 501 F.2d 848, 855 (D.C.Cir.1974)); see also Russell v. Landrieu, 621 F.2d 1037 (9th Cir. 1980); Lee v. Kemp, 731 F.Supp. 1101 (D.D.C. 1989).

The National Housing Goals have specifically limited agency action in rulemaking as well. In United States v. Garner, 767 F.2d 104 (5th Cir. 1985), borrowers with loans from the Farmers Home Administration (“FmHA”), a subdivision of the USDA, challenged the validity of a regulation that prevented the agency from refinancing its own loans. In reviewing whether the agency acted in an arbitrary and capricious manner, the Fifth Circuit noted that

[I]n enacting the section 502 loan program and its amendments, Congress generally intended the Secretary to exercise his refinancing authority in accordance with the goals of national housing policy as defined in the Act. For our purposes, the most important among these is providing government credit to responsible rural borrowers in jeopardy of losing their homes through no fault of their own. See 42 U.S.C. § 1441.”

Id. at 121. After considering the record, the Fifth Circuit held “the government has failed to demonstrate that regulation 7 C.F.R. § 1944.22(a), prohibiting the FmHA from refinancing its own loans, is a product of reasoned decision making.” Id. at 123.

Again, a substantial amount of research is necessary before advocates start raising these issues. That said, advocates should at least consider the impact of codifying the Taxpayer Bill of Rights on the IRS, and the National Housing Goals provide a useful first step.

 

Taxpayer Rights: Measuring IRS Performance

There is a lot to digest in the 2016 National Taxpayer Advocate Annual Report that was released earlier this month. One of the new parts of the 2016 report was the creation of a taxpayer rights assessment, which reviews IRS performance measures and data organized around the ten taxpayer rights embedded in the Taxpayer Bill of Rights. The general idea is to further cement the notions of taxpayer rights into the calculus of good tax administration.

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As the report discusses, this is a work in progress, both in identifying what are the appropriate ways to illustrate IRS performance relating to taxpayer rights and in ensuring that IRS or an outside group can observe and report on those tasks.

The initial assessment compares and reports on FY 2015 and 2016 metrics, including the following:

  • percentage of phone calls to IRS answered,
  • the no change, agreed and non response rate for correspondence, field and office exams,
  • the numbers of e-filed and paper filed returns by preparers and taxpayers directly,
  • numbers of returns submitted through the Free File consortium, by VITA and other volunteer groups,
  • the average days needed to resolve EITC and other correspondence examinations,
  • the numbers of submitted and accepted collection alternatives like offers and installment agreements,
  • and the number of tax clinics and volunteers hours at those clinics.

There are lots of items identified where there was no data available, such as numbers of math error adjustments that were abated, the percentage of taxpayers who felt their issues were resolved after contacting IRS by phone, and satisfaction relating to a variety of Appeals functions.

A taxpayer rights assessment is a great idea. One of the common critiques of taxpayer rights provisions is that in some cases an agency that violates a taxpayer’s rights may not lead to the taxpayer enjoying a specific remedy. No doubt when Congress wants to get an agency’s attention it can be specific in providing a consequence, such as monetary damages or a shift in the burden of proof if a dispute finds its way in court.

Yet the absence of a remedy does not mean that there are no other ways to encourage good agency practice. My research in the ways that agencies interact with regulated parties outside the tax system suggests that softer notions like employee training and mission statements that specifically address aspirational conduct and respect for the rights of those who are regulated can have an impact on rights that agencies should aspire to protect. In addition, transparency surrounding agency performance can influence agency conduct. An annual taxpayer rights assessment has the potential for  encouraging the IRS to do the right thing in the absence of a specific statutory consequence for failing to do so.

I am working on a paper discussing the role of taxpayer rights and compliance. Part of my paper focuses on how IRS metrics on its audits justifiably key in on revenue protected and on important metrics like the percentage of taxpayers who fail to respond to IRS correspondence audits and agree with IRS proposed adjustments. Absent from the equation has been the percentage of taxpayers who following an adjustment understand why in fact their return as filed was incorrect or whether the taxpayer felt that she had a fair shake in presenting information to justify a tax return position or explain why the taxpayer may have taken a position on a return.

To be sure, measuring taxpayer reaction is costly, and IRS has lots on its plate. It seems to me that good administration includes trying to assess more methodically how IRS is doing around the rights that are reflected in the 2014 Taxpayer Bill of Rights. I look forward to this hopefully becoming a regular part of the annual reports and more importantly it becoming inculcated in how IRS thinks it is doing in administering the tax laws.

For our prior post on the 2016 Report generally as well as links to the different volumes of the Report see NTA Releases Annual Report.

Sidebar: Taxpayer Rights Conference

The Institute for Austrian and International Tax Law at WU (Vienna University of Economics and Business) is hosting the second international taxpayer rights conference in Vienna on March 13 and 14. The conference is convened by the National Taxpayer Advocate and is sponsored in part by Tax Analysts. The conference promises to bring together an eclectic group of scholars and tax administrators. Details on the conference can be found here.