Substantive Rights or Normative Policy? The TBOR’s contribution to federal tax compliance and enforcement

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Today we welcome Guest Blogger Christina Thompson. Christina teaches at Michigan State and assists in running the low income taxpayer clinic there. Today she writes about a recent article published that addresses the importance of the Taxpayer Bill of Rights Congress passed in 2015. Her review of this article dovetails nicely with yesterday’s post on the possible uses of those rights in litigation. This is also an opportunity to point out that you can find a discussion of those rights in the National Taxpayer Advocate’s annual reports here, here, here and here. The NTA is hosting the third conference on Taxpayer Rights in Amsterdam in May. You can find out more about that conference here. Les and I will be joining the NTA and Judge Panuthos to talk about taxpayer rights at the upcoming Tax Court Judicial conference at the end of March. The ABA Tax Section is hosting panels on this topic in their upcoming February meeting next week. I suspect we will be talking about the impact of the passage of the rights for years to come. Keith

In Embracing the TBOR (Taxpayer Bill of Rights), Alice G. Abreu and Richard K. Greenstein grapple with the question of whether the TBOR adds anything to the tax code. Their answer is yes – but with qualifications. Instead, Abreu and Greenstein appear to be making a normative argument, i.e., that the TBOR enhances compliance by fostering taxpayer confidence and enhancing the demand for remedies.

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The Value of the TBOR

The authors counter two criticisms of the TBOR: it does not introduce new rights, and does not provide remedies for violation of those rights. It is true that the TBOR does not purport to add rights to the code (or does it? That is one of the questions I will explore later in this post). It gathers taxpayers’ existing rights into one easy-to-understand document. The TBOR was originally championed by the Taxpayer Advocate Nina Olson. In her proposal to Congress, Ms. Olson argued that because the rights already existed elsewhere in the code, there should be no objection to gathering those rights together in a Bill of Rights. Abreu and Greenstein point out that while that argument likely led to a speedy codification, practitioners may have seen it as merely a reminder to the commissioner to do his job. But the authors of this article suggest there is more to it.

The authors give three reasons demonstrating the value of the TBOR: it supports voluntary compliance, it creates a normative basis for enforcement, and it may create new rights.

Supporting Voluntary Compliance

Nina Olson discussed how the TBOR supports voluntary compliance in her 2013 annual report to Congress:

“Taxpayer rights are central to voluntary compliance. If taxpayers believe they are treated, or can be treated, in an arbitrary and capricious manner, they will mistrust the tax system and be less likely to comply with the laws voluntarily. If taxpayers have confidence in the fairness and integrity of the tax system, they will be more likely to comply.”

Abreu and Greenstein list three ways the TBOR can enhance voluntary compliance. The first way is through taxpayer awareness of their rights (and not merely awareness that the rights exist, but also an awareness of how to use them), an essential ingredient in achieving better taxpayer outcomes.

The second way the TBOR enhances voluntary compliance is through the use of the language of “rights.” As the authors pointed out earlier, the TBOR does not create new rights – it is a compendium of rights that already exist in the code. These “rights” come from legal obligations imposed on the Treasury. The use of the word “rights” turns a Treasury obligation into a taxpayer’s entitlement – listing the rights in terms of a Bill of Rights likens the document to the Constitution’s Bill of Rights, giving the TBOR greater legitimacy.

Finally, the TBOR enhances voluntary compliance by allowing the taxpayer to demand procedural justice. It assures taxpayers that outcomes should be fair and just for both sides.

Creating A Normative Basis for Enforcement

After discussing how the TBOR can enhance voluntary compliance, Abreu and Greenstein examine how the rights create a normative basis for enforcement. Even though no remedies are provided, the very fact that the rights exist creates a more welcoming environment for the taxpayer to demand a remedy, i.e., enforcement of enumerated rights. And using the language of positive taxpayer rights, as opposed to mere duties of officials, emphasizes that those rights are connected to procedural protections (and ultimately, justice). Thus, linking the rights to notions of justice means that the failure to enforce a taxpayer right is a failure of justice itself.

Abreu and Greenstein argue that the lack of remedy now does not mean the lack of remedy in the future. Perhaps a future court will see fit to craft a remedy. Indeed, Facebook cited in a district court complaint the taxpayer’s right to appeal an IRS decision in an independent forum. Another taxpayer cites his right to challenge an IRS decision and be heard under §7803a)(3) in his reply to a supplemental brief in US Tax Court. Lawrence G. Graev & Lorna Graev v. Commissioner of Internal Revenue, Docket No. 30638-08 (2017). The authors do not suggest that a remedy is appropriate for every violation, but the rights’ codification allows a taxpayer to demand a remedy.

It is not that the authors see codification of these rights as meaningless or devoid of content, but rather that the TBOR may not add anything new. Their suggestion invites the reader to question whether the TBOR accomplishes what the authors suggest, or if barriers remain between taxpayers and full realization of their rights. And even if taxpayers are aware of their rights as such, one might also ask whether they have a sufficient understanding of their mechanical operation.

The suggestion that the TBOR’s contribution is strictly normative is a fine argument on its own. Indeed, there is reason to think that it is true – both in its description of taxpayer/government relationships and prescription for stronger tax compliance. But the authors appear to reach for more – i.e., assert that the TBOR adds substantive legal rights.

Creating New Rights

Abreu and Greenstein next tackle the idea that perhaps the TBOR does not simply restate rights found elsewhere in the code, but actually creates new rights. The authors argue that the answer depends on how the relationship between the taxpayer and the taxing authority is conceived. Here, the authors set up competing poles for understanding the TBOR’s value. On the one hand, they seem to suggest that the world of tax enforcement/compliance is Hegelian, which is to say, a world of mutual recognition by taxpayers and the taxing authority of their respective rights and obligations. In this world, positive rights are implied by governmental duties and need no separate/affirmative declaration.

At the other end of spectrum, they describe a distinctly American conception of tax compliance and enforcement. That is to say: a world in which the primary ingredient is distrust. In this world, there is no mutual recognition and no rights by implication: the individual requires procedural protection from the levies of government. The government poses a constant threat to individual liberty, and rights must exist to protect from government abuses of power. It is necessarily government over-against the individual, i.e., the taxing authority over-against the taxpayer. Rights are not left to contingency: they must be specifically and affirmatively articulated, in the absence of which the “duties” of the taxing authority are no more than ostensible.  The authors cite Supreme Court case of Richardson as an example: while a government official had the constitutional duty to keep a particular record, that duty did not give rise to a substantive right for the individual. United States v. Richardson, 418 U.S. 166 (1974). Thus, something more is needed to actually confer rights.

The First Amendment, for example, states in part “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof.” The authors note the absence of a “right” to anything. No positive right is conferred by that language. It restricts the government’s actions – it is a negative obligation. Other rights in the Bill of Rights do not contain the word “right.” The Amendments need ‘something more’ – and Abreu and Greenstein argue the Ninth Amendment is that ‘something more.’ The Ninth Amendment states that the “enumeration in the Constitution of certain rights, shall not be construed to deny or disparage others reserved by the people.” The Ninth Amendment designates the previous eight amendments “rights.” It confers positive rights. Similarly, the TBOR seeks to codify certain rights as positive rights, i.e., not merely implied or based on a negative formulation, but instead actionable as such. In sum: the authors assert the value of the TBOR is that it supports voluntary compliance, creates a normative basis for enforcement, and may even create new rights.

Taxpayer Obligations

The authors conclude by noting that the adopted TBOR does not contain a list of taxpayer obligations. Ms. Olson’s original vision included not only rights but obligations for the taxpayer. The obligations included the obligation to be honest, cooperative, provide accurate and timely information and documents, keep records, and pay on time. Her reason for including them was simple: it put forth a partnership between the taxpayer, advisor, and tax administrator – working together in a balanced and constructive relationship. The obligations laid out taxpayers’ legal obligations but also remind them of what they ought to do. But these obligations did not make it into the final codified language and Abreu and Greenstein give two reasons.

The Failure to Internalize Sharing Norms 

The first reason is our failure to internalize sharing norms. Abreu and Greenstein believe that unlike other areas of law, the norms that define income taxation have not generally been internalized by taxpayers. “Internalizing” means that people develop a psychological need or motive to conform to a set of shared norms. Acting in accordance with those norms is “good,” and acting outside those norms is “bad,” and people follow social norms not only because they want to but because it is consistent with their values.

The authors argue that tax laws are not internalized – these laws seem external, and compliance feels coerced. Public legal norms of tax do not coincide with personal moral norms. The authors use the example of murder. Laws against murder are reinforced by an internalized moral norm against killing. Tax sharing norms are not internalized to the same extent. For example, most people would not voluntarily transfer property to the government if no legal obligation exists. The two social norms involved with tax laws are the sharing of resources (sharing wealth for the public good) and the sharing of private information (sharing information with the government for the collection of tax). Abreu and Greenstein believe Americans are ingrained with notions of private property and privacy, which prevent tax law norms from being internalized.

The Prejudice Against Affirmative Duties 

The second reason is a prejudice against affirmative duties. Put simply, Americans do not like being told what to do. As the authors point out, requiring a person to do something limits liberty more than prohibiting an individual from doing something. Thus, Americans’ sense of liberty militates against affirmative duties.

The authors suggest that the fact that the taxpayer obligations did not make it into the final bill portends the “contentious” relationship between the taxing authority and the taxpayer, which resonates with deep cultural, political, and legal traditions in the US. The focus on rights implies an imbalance in power and infringement of liberty.

In short: The authors link the lack of taxpayer obligations to integral American values.

Conclusion

In conclusion, Abreu and Greenstein believe Ms. Olson accomplished more than she realized. Whether you carry the paradigm of a “cooperative” or “contentious” relationship, the codified TBOR is helpful to both. With increased taxpayer awareness, the TBOR fosters voluntary compliance and may change the taxpayer’s view of the taxing system – in addition to facilitating an environment wherein taxpayers can more readily enforce their rights. Tax professionals should be aware of these rights, help inform the public of their existence and proper usage, and lead the charge in demanding remedies in court for their violation.

 

Comments

  1. Norman Diamond says:

    Ms. Olson’s public statements are highly respectable, for example:

    “Taxpayer rights are central to voluntary compliance. If taxpayers believe they are treated, or can be treated, in an arbitrary and capricious manner, they will mistrust the tax system and be less likely to comply with the laws voluntarily.”

    The next question is why Ms. Olson’s offices is equally arbitrary and capricious as others. Years passed before I accidentally learned about Notice CP-2000 and figured out that the IRS owes me several notices, but I still could not figure out where to send a demand for the notices, so I wrote to the TAS. The TAS answers letters more frequently than other IRS offices, but was still unhelpful. When (as reported by TIGTA) IRS employees alter records of Forms 1099, the IRS has no records of withholding that actually belongs to the victims, so the IRS is required to issue Notices CP-2000 but it still refuses to do so.

    “Abreu and Greenstein list three ways the TBOR can enhance voluntary compliance. The first way is through taxpayer awareness of their rights (and not merely awareness that the rights exist, but also an awareness of how to use them),”

    The IRS persuades Tax Court to deny having jurisdiction, and the DOJ persuades other courts to deny having jurisdiction.

    More than 90% of the US’s diaspora do not comply with US tax law. I used to wonder why. In 2011 Ms. Olson reported to Congress about record numbers of renunciations by honest taxpayers who tried to comply but found it impossible. I do not think compliance is voluntary, I agree with the practice of penalizing people who call it voluntary, but we have learned why 90% of the diaspora do not volunteer. Those who don’t have indicia such as birthplace in the US can “fly under the radar” and avoid complying, but the rest of us do get treated in an arbitrary and capricious manner and we have to renounce.

  2. Christina – I thoroughly enjoyed reading your thoughtful analysis of the legal and philosophical underpinnings of TBOR. It’s not common to include a reference to Hegel in a tax article or blog. 🙂 Well done!

  3. Norman Diamond says:

    As far as I’ve been able to find, section 7803(a)(3)(C) “the right to pay no more than the correct amount of tax” is new. The IRS had listed these rights in documents titled “TBOR” that it sent taxpayers, but as Abreu and Greenstein point out, courts overturn the IRS’s written documents all the time. Taxpayers could not rely on this right until Congress legislated it.

    Of course refund suits existed earlier, but they had to rely on something other than “the right to pay no more than the correct amount of tax”. Courts invented all kinds of reasons for refusing to take jurisdiction over refund suits. Of course a court still can invent a reason to deny jurisdiction, but now they’ll have to overturn section 7803(a)(3)(C) as well.

    • Scott R. Martin says:

      “…but now they’ll have to overturn section 7803(a)(3)(C) as well.”
      Oh, but they have. I filed a Mandamus action at USDC Reno seeking an order for Nina Olson, NTA, to provide “clear explanations”.
      The court dismissed my suit – “Plaintiff did not cite a statute or regulation creating a duty for NTA to provide clear explanations.”
      I then amended the complaint to include the Commissioner, citing IRC 7803.
      This too was dismissed – “IRC 7803 creates no duty to Plaintiff”.
      Like the Soviet Constitution of the USSR, it looks good on paper.
      If you have Pacer you can look it up: Martin vs. Olson 3:17-cv-00474, USDC Reno – Civil

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