Behavioral economists have a term to describe the cognitive bias that flows from the first information that one is given about a topic: anchoring bias. What one experiences or learns first about a topic is often influential, as we tend to interpret newer information from that anchoring point.
What does that have to do with tax procedure? I think it helps explain some of the resistance to the collection due process provisions, one of the most significant and controversial parts of the 1998 IRS Restructuring and Reform Act and the topic of my contribution to the Pittsburgh Tax Review’s outstanding symposium issue commemorating RRA 98’s 25th anniversary.
In Collection Due Process At Twenty-Five: A Still Important and Needed Check on IRS Collection Power I discuss how CDP, by allowing for limited judicial review in the tax collection process, radically nudged the IRS toward the mainstream of administrative agencies. Most final agency actions that have a significant impact on a regulated party’s rights, including property, are subject to limited judicial review.
Prior to RRA 98, that was not the case for much of the tax collection landscape; sure, there were some exceptions that allowed taxpayers access to court when the IRS did something really rotten, but barriers like the still formidable Anti-Injunction Act deprived courts of jurisdiction to consider things like perhaps an arbitrary denial of a collection alternative or the decision to levy on a taxpayer despite experiencing extreme financial hardship.
When I work with nontax practitioners in pro bono litigation or research projects, they are often shocked at the process in the tax world. “What—the IRS can deny a person’s claim for a refundable credit without clearly explaining why and burying notice of the right to challenge on the bottom of a hard to read notice?” (See, e.g., math error process). “What, the IRS can impose a ten-year ban on someone claiming a tax benefit without an established process for challenging that ban administratively or a clear path to court review?” (See. e.g., the ban on claiming a host of credits following a determination of fraud).
When RRA 98 through CDP opened the door, albeit just a crack, to allow a court to see if the IRS followed the law when it sought to use its vast administrative collection powers, it seemed radical. After all, our starting point in the tax world had been that following an assessment, the IRS had almost unfettered discretion to collect and to deny a taxpayer’s request for a collection alternative.
My article in the Pittsburgh Tax Review builds on the work of others, like Professor Christopher Walker, who have explored how limited abuse of discretion judicial review, backstopped by a court’s ability to order a remand, provides a needed form of oversight to check on arbitrary agency actions (Professors Walker and Stephanie Hoffer explored similar themes in an article they discussed in a series on PT The Somewhat Counterintuitive Policy Case Against Tax Court Exceptionalism). Viewed from that light, what was radical was not that CDP exposed some IRS collection actions to court review, but that prior to CDP the IRS was exempt from the kind of oversight that other agencies routinely experience.
IS CDP perfect? Of course not. Did it inject some additional costs for the IRS at a time when it was hamstrung with tight budgets and much on its plate? Yes. But CDP represents progress for a tax system that often 1) ignored the legitimate interest that taxpayers have in the tax collection process and 2) failed to balance the government’s interest with the individual’s interest.