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

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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.

 

Comments

  1. Norman Diamond says:

    I wonder if the TBOR might be upheld by Tax Court in cases where Tax Court has jurisdiction, but it’s already useless in other courts where the DOJ is not bound by this statute.

    “(A) the right to be informed” … such as, during a CDP hearing the IRS might have to tell the person what position the IRS held frivolous? The IRS’s non-compliance might be a harmless error, but in other court’s the DOJ’s non-compliance is standard practice.

    “(C) the right to pay no more than the correct amount of tax” … overturned by Greene-Thapedi’s case, and in other courts the DOJ’s non-compliance is standard practice.

    “(E) the right to appeal a decision of the Internal Revenue Service in an independent forum” … the IRS’s deletion of administrative records of a filed return has to be litigated in other courts, where the DOJ persuades courts that they lack jurisdiction.

    “(G) the right to privacy,
    (H) the right to confidentiality”

    Would one of those suggest that the DOJ’s position, published in its Criminal Tax Manual, that social security numbers should only be disclosed TO the DOJ and not FROM the DOJ to the public, might be upheld? Nope, the DOJ already persuaded the 9th Circuit to overrule the DOJ’s published position and rule that the DOJ and IRS are supposed to disclose SSNs to the public.

    “(J) the right to a fair and just tax system” … embezzlement by identity thieves in the IRS (as reported by TIGTA) might be covered, but there’s no right to a fair and just Department of Justice or court. In any lawsuit between justice and Justice, Justice wins because justice can’t afford a lawyer.

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