On March 26, 2018, the House of Representatives Committee on Ways and Means Subcommittee on Oversight published a discussion draft entitled “The Taxpayer First Act.” Unlike the recent tax reform legislation, the Act was jointly released by Chairman Lynn Jenkins and Ranking Member John Lewis of this subcommittee in a bipartisan effort to reform tax procedure. It’s nice to see that tax procedure can bring the parties together. The publication of the draft came with an invitation to submit comments and a statement that “Comments would be most helpful if received by April 6, 2018.” That’s a pretty short turnaround time; however the legislation came out just as my clinic class turned to policy. Each semester I try to end with a focus on the policy issues raised by the individual cases on which the students have worked. Writing proposed legislative solutions to policy issues we had encountered seemed like a good way to focus on policy given the invitation from the subcommittee. So, we tried our hand at commenting on the legislation and offering legislative proposals in the tax procedure area that might create a better tax system for the low-income taxpayers we represent. Thanks to Toby Merrill, Sean Akins and Carl Smith who assisted on this project. On April 6, 2018, the clinic submitted comments to the subcommittee.
read more...The proposed Act has six parts roughly described as: 1) Independent Appeals; 2) Improved Service; 3) Sensible Enforcement; 4) Cyber Security; 5) Modernization and 6) Tax Court. The Clinic did not comment on all of the proposals. You can read the 49-page document submitted by the Clinic if you want the details, but I will give you a thumbnail sketch here.
Appeals
The subcommittee was concerned about the independence of Appeals. It almost seemed as if much of the concern stemmed from the issues raised in the ongoing Facebook litigation, about which we have blogged before here and here. Low-income taxpayers do not face the same issues of Appeals independence that large corporate taxpayers face. No one in IRS compliance or in Chief Counsel attempts to influence Appeals on an individual case involving a low-income taxpayer because no one at the IRS has worked their case. Their cases are worked in a group setting at correspondence exam. So, the concerns about the independence of Appeals expressed by the subcommittee’s proposal are not concerns that relate to the issues facing low-income taxpayers.
Low-income taxpayers would, however, like the same opportunity as their higher end counterparts to meet with an Appeals officer to discuss their case when a face-to-face meeting would be appropriate. The Appeals employees who work in local offices typically have worked with the IRS for some time and have achieved high grade levels. Appeals does not want these highly-graded employees to spend time working on cases involving low-income taxpayers. Appeals employees with the lower grades generally reside in the work ghettos generally known as service centers. Because of their location, these employees are not accessible to taxpayers. As a result, low-income taxpayers who do not have an individual assigned to their case as they go through the examination process get assigned to someone they never meet face to face and who may work in a community that is across the country creating time zone and community understanding issues. The Clinic suggested that the concerns of low-income taxpayers with Appeals will not be resolved by creating a more independent Appeals but a more accessible one.
Customer Service
Similar to the problem with Appeals, one of the big issues for low-income taxpayers is access to service. We know that Service is the last name of the IRS but it does not have to be the last aspect of focus. The Clinic identified issues that could improve the ability of taxpayers to deal with tax problems. It praised the subcommittee suggestion allowing IRS employees to make referrals to clinics rather than simply passing out a publication. It suggested making eligibility for clinics indexed to local cost of living so that clinics servicing high cost of living areas did not need to turn away individuals living a marginal lifestyle but one slightly above the national average for qualification. Specifically, the Clinic suggested changing the criteria for requiring entities forgiving debt to allow the non-issuance of Form 1099-C in instances of disputed debt. Sending out tens of thousands of Form 1099-C to individuals, usually low-income individuals, relieved of debt in the settlement of a lawsuit disputing that debt causes havoc for the individuals and for the system. This issue is currently playing out in the for-profit school industry where numerous state attorney generals and private parties have challenged the business model and practices of this industry to assist individuals with high debt and little meaningful education to show for it.
The Clinic also suggested changing the litigation path of assessable penalties so that taxpayers do not face insurmountable obstacles in seeking to litigate their dispute with the IRS because of the Flora rule. It suggested changing and clarifying the operation of the I.R.C. section 32(k) penalty for wrongfully claiming the earned income tax credit, arguing that the current penalty operates more like a penalty imposed in the welfare context rather than one imposed by the tax code which causes the IRS trouble is properly administering the penalty. The Clinic also suggested clarification of the provisions regarding taxation of attorney’s fees so that the fees do not create a barrier for low-income individuals seeking remedies for consumer law violations and other similar provisions where the statutory remedy provides a small recovery amount for the individual coupled with statutory attorney’s fees that could trigger tax to the individual in excess of the award amount, that can trigger loss of other public benefits because of the phantom income, and that creates a system of double taxation of the individual and the attorney.
Tax Court
The subcommittee proposals would rename court orders and rename the special trial judges to bring the names more into line with other federal courts. The Clinic made proposals seeking to open up the Tax Court both from a jurisdictional and information perspective. Consistent with the litigation the Clinic has pursued regarding the jurisdiction of the Tax Court, the Clinic suggests that Congress make clear it did not intend the time periods for filing a petition in Tax Court to be jurisdictional. Regarding information availability, the Clinic proposes that all notices giving a taxpayer the right to petition the Tax Court contain the last date for filing the petition, as the notices of deficiency do after the 1998 amendment regarding those notices. Additionally, the Clinic has some suggestions on accessing the Tax Court’s records and other matters.
Conclusion
Although it is now past the requested deadline set by the subcommittee for comments on its legislation, if you agree with any of the proposals of the Clinic, you might consider submitting comments yourself. The portal for sending comments is irsreform@mail.house.gov. Happy commenting.
I am glad Harvard submitted these comments, but I don’t expect them to get the legislative proposals contained therein into the Taxpayer First Act (at least until Senate consideration). If past is prologue, the House wants to pass a taxpayer rights bill on the due date for filing this year’s returns, April 18. It has passed taxpayer rights bills on the filing date many times in the past. That would explain the short period to comment given for the Taxpayer First Act. My guess is that the W & M Committee votes out the Taxpayer First Act sometime this week — with no changes — then sends it to the House floor. But, maybe the Senate will take up the bill later in the year and address at least some of Harvard’s concerns. Keith, maybe after the House passes the bill, you should send the comments again to the Senate Finance Committee chairs.
Frankly, I don’t expect any tax bill to pass this year before the election because even a minor procedure bill would become a Christmas tree for all the other changes that Congress feels a need to make to the big substantive tax bill passed last year. But, it would be good to have an expanded Finance Committee Taxpayer First Act sitting around for the time the next tax Christmas tree heads through the Congress, as I expect the Taxpayer First Act will be tacked on to that bill as a final title.
I think the due date for filing this year’s returns is April 17, but maybe that’s just what I have been telling my clients because I want to take the rest of that week off.
As far as the April Publicity First Act is concerned: Just another collection of unfunded mandates.
Bob,
Oops. You are right about the filing date being the 17th. I mixed my years with my dates.
“Low-income taxpayers do not face the same issues of Appeals independence that large corporate taxpayers face.”
Large corporate taxpayers can afford lawyers. Lawyers know to be suspicious if the IRS doesn’t issue a Notice CP-2000 when it should. Lawyers know to be suspicious when a correspondence exam didn’t take place when it should have. Lawyers know to be suspicious when an IRS administrative record shows no return on file after the return used to be on file. Appeals ought to know to be suspicious but they don’t tell a low-income taxpayer.
What about issues of Tax Court independence? A low-income taxpayer can tell the court that IRS Appeals refused to discuss the underlying liability even though Appeals said that the IRS didn’t issue a Notice of Deficiency, but a low-income taxpayer can’t make the court care. A low-income taxpayer can point out how the Settlement Officer’s declarations signed under penalty of perjury under 28 USC 1746 were perjured, and the day after calendar call the IRS can remove the Settlement Officer’s declarations from the stipulation, and the court does not care. A low-income taxpayer can provide evidence to disprove lies by the IRS, the IRS can tell the court to block filing of rebuttal evidence because it’s irrelevant, and the court blocks the evidence.
I think large corporate taxpayers don’t face the same issues of Appeals independence that low-income taxpayers face.
“As a result, low-income taxpayers who do not have an individual assigned to their case as they go through the examination process get assigned to someone they never meet face to face and who may work in a community that is across the country”
Across “the country”? Does the committee propose legislation to overturn Cook v. Tait?
“It suggested making eligibility for clinics indexed to local cost of living so that clinics servicing high cost of living areas did not need to turn away individuals living a marginal lifestyle but one slightly above the national average for qualification.”
The “national average”? Does the committee propose legislation to overturn Cook v. Tait?