Taxpayer Protection Program Sidesteps Right to Representation

We welcome guest blogger Barbara Heggie. Barb is the Coordinator and Staff Attorney for the Low-Income Taxpayer Project of the New Hampshire Pro Bono Referral System. In the most recent Annual Report to Congress, the National Taxpayer Advocate identified the high false positive rate associated with the IRS’s fraud detection systems as the fifth most serious problem affecting taxpayers. The IRS took steps to improve its refund fraud program for the 2019 filing season; the results were not fully in at the time of the National Taxpayer Advocate’s 2020 Objectives Report. In today’s post, Barb walks us through a recent false positive case from her clinic. She identifies IRS procedures that pose a high barrier to successfully passing through the verification process, particularly for taxpayers who need assistance from a representative. Barb suggests the IRS ought to make changes to comport with a taxpayer’s right to representation. Christin

I had my first encounter with the IRS’s Integrity & Verification Operations (IVO) function last month. It did not go well.

I had prepared a 2017 return a few weeks earlier for a disabled, fifty-something client in recovery from substance abuse, and he’d been anticipating receipt of a small overpayment. His main source of income that year had been Social Security, but he’d also had a few hundred dollars in wages. His payroll withholding, plus a bit of the Earned Income Credit, had added up to an early fall heating bill here in New Hampshire.

Instead of a refund notice, we each received a copy of a Letter 4883C from the IVO Taxpayer Protection Program; his return had been flagged, and he needed to verify his identity. Given this client’s severe anxiety concerning the IRS, I studied the letter and prepared to make the call alone. I anticipated no issues; I had all the documentation the letter required, including the flagged return, the prior year’s return, and all supporting forms and schedules for each.

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Once on the line with IVO, however, things quickly got strange. Following the preliminary, “normal” authentication, the customer service representative (CSR) asked me to answer these questions three: “What is your client’s place of birth? What is his mother’s maiden name? And what is his father’s middle name?” I had none of this information and have never asked such things of my clients, save for the place of birth for an ITIN application. I don’t collect birth certificates as a matter of course.

Interestingly, Letter 4883C did warn of “questions to verify your identity” – but then listed the documents to have on hand. Hence, I believed those documents would be the basis for the verification questions. The letter “encourage[s]” the client “to be available . . . on the call” with an authorized representative, but it fails to explain why that might, in fact, be essential.

Had I studied more than the 4883C letter, I would have realized that the call would involve “high risk authentication procedures,” necessitating “Additional Taxpayer Authentication.” IRM 21.1.3.2.3(2); 21.1.3.2.4(2); 25.25.6.4. Once in the land of Additional Taxpayer Authentication, the caller is subject to the TPP HRA IAT disclosure tool; that is, the Taxpayer Protection Program High Risk Authentication Integrated Automation Technologies Disclosure tool. IRM 25.25.6.4(2). This tool, in turn, generates a series of authentication questions for the taxpayer, the answers to which cannot easily be guessed by anyone else, including the taxpayer’s authorized representative. Tantalizingly, the IRM provides a long list of possible questions to ask in the ITIN identity theft context – possibly the same as those asked of SSN holders – but they’re all masked against public consumption. IRM 25.25.6.4(8).

Thus, if I had thought to read the IRM before placing the verification call, I wouldn’t have had a clue what questions might be asked. But I would have realized the futility of making the call without my client on the line.

And, so, I flunked the call. When I explained my client’s situation and offered to call right back with the answers, the CSR informed me that I had already used up my “one chance” to resolve the issue “the easy way.” The two hard ways were: (1) attending an in-person meeting with the client at a Taxpayer Assistance Center (TAC), or (2) verifying his identity by mail. Both methods required the authentication documentation originally requested, as well as two forms of identification. The CSR stated that he was making the mail-in option available to my client only because of his severe anxiety.

My client did, eventually, verify his identity at a TAC with the help of a volunteer attorney who was kindly working with him to reduce his anxiety about the IRS. Fortunately, both the client and the volunteer had only a few minutes’ drive to reach the TAC. But conversations with practitioners on the ABA Low-Income Taxpayer Clinic (LITC) listserv reminded me that this is often not the case. To receive a legitimately-claimed refund – already months late – a rural client may need to jump through ever-more burdensome hoops, such as an unpaid day off from work and an expensive tank of gas.

Clients lacking English fluency doubtless find further barriers standing in their way in such a system. One LITC colleague recalled an incident with IVO in which she and her low-English client participated in the call together via speaker phone, yet the CSR forbade this attorney from speaking for her client. Other LITC staff have recounted similar experiences. All such scenarios seem contrary to the authentication provisions of IRM 25.25.6.3.1(3)(1), which explicitly states that “the POA is authorized to act on behalf of the taxpayer.”

My client’s identity verification scenario was arguably less egregious than these. Moreover, in the context of the enormously costly, vastly complex problem of identity theft, overbroad rule-writing is understandable, if not optimal. Getting it right is as difficult as it is critical. And yet, as retired National Taxpayer Advocate Nina Olson wrote in her June 20, 2019, NTA blog post, “the soundness and effectiveness of any tax administration is measured by the trust its taxpayers have that they will be treated fairly and justly.” Overbroad IRM provisions can lead to an erosion of this trust in the system – a system which relies primarily on voluntary compliance.

More particularly, the procedures that led to my authentication difficulty violate the client’s right to retain representation. The right to retain representation implies, of course, the right to have a representative speak and act for the taxpayer. Any limitation on this right should come with justification, such as the need for a taxpayer to sign certain documents under penalties of perjury. Even then, the taxpayer holds the right to authorize a representative in certain exigent circumstances. See 26 CFR 1.6012-1(a)(5).

In the case of an IVO identity verification, IRM 25.25.6.3.1(3)(1) has the practical effect of limiting the representative’s authority, but without justification. This provision directs the CSR to “follow all instructions in the IRM as if the POA is the taxpayer.” (Emphasis added.) However, because the POA is not, in fact, the taxpayer, the POA cannot answer questions specifically designed to be answerable solely by the taxpayer. Thus, this IRM provision deprives the taxpayer of the chance to have a representative resolve the identity verification issue. Given the misleading nature of Letter 4883C, a taxpayer and representative may lose their “one chance” to make a speedy verification over the telephone and instead be forced to do so in person at an IRS office.

Security concerns provide no justification for this provision. A high level of security can be maintained by asking the representative to answer such questions as only the representative can answer. After all, the only two people addressed in a Letter 4883C are the taxpayer and the representative. And, presumably, if the IRS knows your client’s place of birth, mother’s maiden name, and father’s middle name, the IRS has the same information on you. As Sir Galahad discovered – alas, too late – the only correct answers to personal questions are your own personal answers.

The right to retain representation is part of the Taxpayer Bill of Rights (TBOR), found in IRC §7803(a)(3) and IRS Publication 1. As last year’s Facebook case emphasized, however, Section 7803(a)(3) specifies that various “other provisions” of the Code afford these rights. Thus, the Facebook court concluded, “no right was a new right created by the TBOR itself.” Rather, TBOR is more concerned with training and management of IRS employees, according to the United States District Court, N.D. California, San Francisco Division. Keith Fogg takes the discussion a few steps further in his forthcoming Temple Law Review article:

Perhaps more important than litigation is the role TBOR can play in shaping policy decisions at the IRS. It could play a major role in the regulations issued and in the sub-regulatory guidance that governs everyday life at the IRS. . . TBOR also has a role to play in internal discussions at the IRS which shape so much of the administrative process. If TBOR can alter the culture at the IRS to incorporate taxpayer rights as a major component of each policy decision, it will become an important part of tax administration whether or not it becomes an important part of litigation.

Several discussions on this topic can be found in Procedurally Taxing here, here, and here.

It may be that a bit of policy-shaping and culture-altering may come of the authentication tribulation my client and I experienced. I submitted a request on the representation issue in the Systemic Advocacy Management System (SAMS), #41352, and got a sympathetic reply from the analyst assigned to it. After a couple of weeks, she reported back that the issue had been elevated to the Revenue Protection Team, with the goal of finding ways “to make the system move more smoothly.” Moreover, she said, the issue would be added to the CSRs’ training package. With luck, all changes will be made with an eye to TBOR.