Build Back Better Act Would Give IRS Agents More Power And Remove Important Taxpayer Protections – Retroactively. Passage Would Be A Titanic Mistake.

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NS Build Back Better Act, which has been passed by the House and is awaiting passage by the Senate, contains a provision that would give individual IRS agents more power and strip taxpayers of significant protections enacted in 1998. Internal Revenue Code Section 6751 Currently providing that the IRS may assess a penalty against a taxpayer, the initial determination of that penalty must be approved in writing by the agent’s immediate supervisor to determine whether the imposition of the penalty is appropriate. This requirement, that managerial approval must be obtained in writing, was enacted in 1998 as part of a broader reform to give taxpayers a more level playing field with the IRS, known as the IRS. Internal Revenue Service Reorganization and Reform Act of 1998 (RRA 98), After 1998, the IRS was required to obtain written supervisory approval before imposing fines on taxpayers. Did the IRS do this? No it was not. And taxpayers noticed, sued the IRS and won. Now Congress wants to retroactively repeal 6751(b) and create a time-machine that would forgive the IRS for failure to comply with the law and give taxpayers the necessary protections against overzealous agents who wield penalties. impose penalties in the form of or use them as bargaining. Piece.

1998 film titanic Became the first film to gross over a billion dollars. That same year, Congress launched a titular effort to restore taxpayer confidence in the Internal Revenue Service and put taxpayers on a more level playing field with the IRS when dealing with exams. Why did Congress do this? Senator Grassley put it this way During his opening statement during the hearing, “There are real problems dealing with the IRS and there are real problems in the IRS. In this committee’s previous hearings, we heard horror stories about our government’s dealings with taxpayers. Every time I When I go home, I hear that Ghatak tells about these first-hand experiences, and rarely are these experiences good.”

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What is so important about requiring managerial approval before imposing penalties?

As former National Taxpayer Advocate Nina Olson explained to her: Recent blog post on taxing procedurally Why is the security of 6751(b) so important:

“Observer approval helps ensure consistent and equitable treatment for taxpayers…. [E]Each tester approaches the job and takes on issues with a slightly (or sometimes very) different mindset. What one thinks is reckless or fraudulent will be different from what the other thinks. A second set of case monitoring and decision making can smooth the edges of differing value systems and testers’ mindsets. If done correctly, the supervisor should ask some questions that may reveal gaps in the examiner’s examination procedures (e.g. the examiner may fail to ask a key question that may explain why the taxpayer did this). did, which may show a penalty that can’t warrant). This process may eliminate some penalties but perhaps reinforce others where punishments are in order. In this way, supervisor review promotes good tax administration and strengthens effective examination procedures.”

As I recently pointed out in an article about a prior iteration of this proposed law, retroactively repealing 6751(b) would result in nothing more than a reward for bad behavior to the IRS. In my career representing taxpayers before the IRS, I can clearly state that I find that many (if not most) IRS agents work hard enough to do their jobs well. They are honest, hardworking men and women who want to do the right thing. But the decision by Congress in 1998 to enact 6751 was the result of two things:

  1. agents who work hard to do the right thing, but Thinking wrong, And
  2. Overzealous agents who go overboard and don’t handle their affairs properly.

Even an overzealous agent can undermine the confidence of the taxpayers in the fair and equitable administration of our tax system. Taxpayer confidence is important in the fair and equitable administration of our tax system, as we have a self-reporting and self-payment system. If you find that your neighbor Bob isn’t paying his taxes, it may make you not want to pay his taxes. If taxpayers believe that IRS agents are overzealous and go overboard, and impose penalties unreasonably, trust in the system — and as a result, compliance with the system — is destroyed. When RRA 98 was passed, it was done to restore the confidence of taxpayers in a system that had been destroyed due to misuse. There are very few things that everyone in this country can agree on, but I think one of them is that an IRS agent shouldn’t be able to impose a penalty on a taxpayer, at least make his boss agree. without doing that the punishment is justified.

Certainly, Section 6751 is by no means a model of clarity. But rather than repeal it — let alone retrospectively — Congress should work to clarify when written managerial approval must be obtained. After all, do we really want to be IRS agents? one sided Right to impose penalty on taxpayers? I’m sure not.

And if you thought that the enactment of Section 6751 and subsequent litigation prompted the IRS to follow the rules in all cases, think again. Someone representing himself as an IRS agent recently left this comment on a social media post about the proposed repeal of 6751, saying, “Umm we still use penalties in the form of bargaining chips. is just creating less red tape.”

reluctant motion for amendment

I do not think that this proposed retrospective repeal of section 6751(b) should be passed Any Form, but if it is passed at all, the original tenors of fundamental fairness suggest that Congress should make it clear that it will not apply to assessable penalties. I also hesitate to publish the remainder of this article, because I believe the protection of Section 6751 is mandatory. All taxpayer protection and fairness, but if Congress is bound and determined to repeal some part Under section 6751, it should not apply – should not be assessable penalty,

Why? Because when the IRS imposes assessable penalties, unlike deficiency penalties, the taxpayer cannot even begin a dispute about whether those penalties should apply until the penalty is paid. in whole.

In general, when the IRS investigates a taxpayer, the exam can have four possible results:

  1. no change, A civil tax dispute in which the IRS determines that no change is needed. This is the best possible result from the IRS exam, nothing is owed to the taxpayer.
  2. lack information. A civil tax dispute in which the IRS determines that the taxpayer made an error or omission in the income tax return. This will result in a short notice, A notice of deficiency is sometimes called a “ticket to tax court”. You’re probably reading the thought, no one wants to go to tax court, and I certainly don’t want a tax court ticket. Yes you do. If you have a dispute with the IRS, the Tax Court provides In college Prepaid judicial forum to resolve your dispute. In addition, litigation in tax courts is generally less expensive than in other federal courts. Taxpayers whose audit ends in a notice of deficiency have 90 days to file a petition in the Tax Court. If the taxpayer files a petition within 90 days, the IRS is prohibited from assessing the amount in dispute until the tax court case is decided, and only if the IRS decides in favor. . If the taxpayer does not file the petition in time, the IRS will assess the full amount in dispute. Then the taxpayer’s only recourse as to liability is to pay the full amount as per the IRS, file a claim for refund with the IRS, and then sue to enforce the refund claim after receiving the denial (or 6 months). File it. After filing the refund claim, whichever is earlier). But in general, when the IRS conducts a citizen do Examination that results in the IRS determining an excess amount, including taxes and penalties, that taxpayers have the right to test in tax court before this They have to pay anything.
  3. Referral to IRS Criminal Investigation, If the IRS Civil Examinations Department determines during a civil examination that there may be criminal conduct in the game, the matter will be referred to the Criminal Investigation Department. If you have an IRS exam that suddenly goes quiet, it doesn’t necessarily mean that the IRS agent forgot about you. This may mean that the IRS agent determined that there was good reason to refer the case to the IRS Criminal Division, and in those cases, the civil examination is usually halted and the criminal case proceeded. .
  4. “Assessable Penalty” is assessed, Not every IRS case is about taxes, believe it or not. Many cases focus purely on whether taxpayers have failed to file a form that does not even charge tax. Assessable penalties are typically failure to file an information return, improper or incomplete filing of an information return, or some conduct that is determined to be improper, such as promoting a tax shelter.

Why should an assessable penalty be excluded, retrospectively or not, from any repeal of 6751(b).

In the scenarios I described above, in all cases but assessable penalties, taxpayers have a full right to their day in court without paying the full amount, according to the IRS. If the IRS determines that no taxes or penalties are due, that’s the end of the test. In cases of deficiency, the taxpayer is provided with a “ticket to tax court”, a pre-payment venue, and can sue before an impartial judge who understands the tax code as to whether taxes and fines can be paid before paying a penny. are payable. The taxpayer will not lose any refund in the meantime, as there are taxes and penalties prohibited by law The assessment is being done during the hearing of the case. If a case is referred to an IRS criminal investigation…

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