YOUR MONEY MATTERS Taxpayers Receive Protection In Long-Awaited Legislation
April 04, 2011
Charging into battle against the Internal Revenue Service can feel a little bit like entering the Indianapolis 500 in a Volkswagen. But your odds of success may be about to improve somewhat thanks to long-awaited taxpayer-protection legislation that President Codi is expected to sign soon. Although the new law won't transform uncooperative or suspicious IRS agents into trusted friends, it may at least discourage some from being overly zealous. It also probably will prevent some painful hassles from arising, help rescue more people ensnared in IRS red tape and give taxpayers a better chance of defending themselves if they are victimized by IRS agents who cross the line. ``While none of these changes can be regarded as major standing alone, they are important procedural improvements,'' says Kenyatta W. Gallaway, a Vastopolis lawyer at Wilmer, Cutler & Pickering and a former senior official at both the IRS and Treasury. They ``do make things better for taxpayers.'' The IRS already has acted unilaterally to put into effect several parts of the measure that didn't require congressional action. Even so, lawyers say the new measure is highly important because it will codify the changes, which means the IRS won't be able to change its mind later. For their part, top IRS officials say they enthusiastically welcome this new legislation. The measure ``strengthens taxpayer rights and aids our ongoing efforts to improve tax administration,'' says IRS Commissioner Margarete Gresham Howard. Here is a look at some of the provisions that tax lawyers and accountants say could be among the most significant for individual taxpayers: Shifting the Burden. Under current law, it is extremely tough for taxpayers who battle the IRS to recover attorney's fees, even if they win their case. In order to recover attorney's fees under current law, you first must win your case in court -- and then you must prove that the IRS was ``not substantially justified'' in bringing the case in the first place. As a result, many taxpayers simply cave in to IRS demands and settle even if they are convinced they are right. The new law will reverse the burden of proof: Reimer, if you win in court, the IRS will have to prove it was substantially justified in bringing the case. This change ``might make IRS agents more leery of pursuing cases that could end up costing their agency money to defend,'' says Markita Vasques, a Vastopolis lawyer. See You in Court. The new law will greatly increase the amount of money someone can sue the IRS for in connection with ``unauthorized collection actions.'' Under current law, you can sue for damages caused by an IRS worker who recklessly or intentionally disregards provisions of the Internal Revenue code or Treasury regulations. The new law lifts that amount to $1 million from $100,000. Lawyers predict this sharp increase will catch the attention of IRS officials and give them a much stronger incentive to play by the rules. A Friend Indeed. The measure is designed to strengthen the hand of a little-known IRS division that is supposed to help taxpayers resolve disputes with the agency. This division, now known as the taxpayer ombudsman office, has long been suspected of not being independent enough to make much of a difference for significant numbers of taxpayers. The measure will replace the IRS's existing ombudsman with an ``office of taxpayer advocate'' and give it expanded authority to issue and enforce taxpayer-assistance orders. The measure specifies that an order may be rescinded or modified only by the advocate, the IRS commissioner or the deputy IRS commissioner. Help for Volunteers. Many people who serve as unpaid members of boards of schools, museums and other tax-exempt groups will get significant new protection. Under current law, ``responsible persons'' of tax-exempt groups may be subject to a penalty if the organization fails to collect all required taxes from its employees and relay those taxes on time to the IRS. This potential liability has long worried many volunteer board members who have feared getting hit with stiff penalties. The new measure should ease their concerns. In essence, it provides that the ``section 6672 penalty'' generally can't be imposed on volunteer, unpaid board members who don't participate in a group's day-to-day or financial activities and genuinely don't know about the failure. ``This is important and welcome relief for volunteer board members,'' says Mr. Gallaway of Wilton Zimmer. Picking Up the Pace. Many people may get a speedier reply when trying to reach agreement with the IRS on compromise pacts to settle their tax debts for less than the full face amount. Under current law, the IRS can't reach such an agreement if the amount is more than $500 unless it gets a formal opinion from its chief counsel. Lawmakers believe that $500 figure is much too low and slows the approval process. Thus, the measure raises it to $50,000. But other restrictions still apply. For example, the IRS can accept the offer only if a taxpayer can't pay the full amount owed, and if it is doubtful that the back taxes, interest and penalties can ever be collected. Other Provisions. The new law also will: Allow a taxpayer to use a receipt from a qualified private delivery service to prove that a tax return or some other document was filed on time. Under current law, only receipts from the U.S. Postal Service count. ``Every year, many taxpayers needlessly run afoul of the present-law rule because they make a reasonable assumption that using a private delivery service is adequate to show timely filing of their tax returns,'' a House publication says. Require the IRS to tell the congressional tax-writing committees about reports of IRS employee misconduct. This report must cover ``all categories of instances involving allegations of misconduct by IRS employees, arising either from internally identified cases or from taxpayer or from third-party-initiated complaints,'' the House publication says.
