CPE/CE. 1 Credit Hour. Taxpayer Rights. Know Your Options Tax Year. Interactive Self-Study CPE/CE Course

Transcription

1 CPE/CE 1 Credit Hour Taxpayer Rights Know Your Options 2013 Tax Year Interactive Self-Study CPE/CE Course

2 Course Overview Taxpayer Rights Self-Study CPE/CE Program Content: Content includes information about a taxpayer s rights to privacy, confidentiality, professional service by IRS personnel, representation, help with unresolved problems, appeals, and judicial review. Information about IRS procedures and responses available to taxpayers is included in the information presented. This course provides continuing professional education (CPE/CE) to enhance a preparer s competence in assisting clients in dealings with the IRS and satisfies education requirements for one hour of federal tax law. Publication Date: September Expiration Date: The Final Exam must be completed online within one year from your date of purchase or shipment. See the Final Examination Instructions on the next page for information regarding final exam completion. Field of Study: Taxes. Program Level: Overview. This course provides a general overview of the subject area from a broad perspective. It is appropriate for tax professionals at all organization levels. Recommended Participants: This course is recommended for tax professionals who assist clients in dealing with the IRS. Prerequisites: None. Advance Preparation: No advanced preparation is needed to complete this course. Type of Delivery Method: Interactive self-study. CPE/CE Credit Hours: 1 Credit Hour. One 50-minute period equals one CPE/CE Credit Hour. Passing Grade: Participants who answer a minimum of 70% correct on the final exam will receive a Certificate of Completion. See the Final Examination Instructions on the next page for further information regarding passing requirements and acquiring the Certificate of Completion. Record Retention: As an IRS-approved provider of continuing education, Tax Materials, Inc. will report successful completion of this course to the IRS. According to the IRS, at some point in the future, you will be able to view your completed continuing education credits through your online PTIN account. Complaint Resolution Policy: Please contact our customer service department toll-free at Refund Policy: 30-day money-back guarantee. For information about our refund, complaint, and/or program cancellation policies, visit our website at Tax Materials, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: National Registry of CPE Sponsors ID Number Tax Materials, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a Quality Assurance Service (QAS) sponsor of continuing professional education. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding QAS program sponsors may be submitted to NASBA through its website: Our sponsor number is 054 In accordance with the standards set forth in Circular 230, section 10.6, CPE/CE credits have been granted based on a 50-minute hour. IRS Program Number is 7VT8K-T S Tax Materials, Inc. has been approved by the California Tax Education Council to offer the Taxpayer Rights Self-Study CPE/CE Course 6193-CE-0021, which provides 1 hour of federal credit and 0 hours of state credit towards the annual continuing education requirement imposed by the State of California. A listing of additional requirements to register as a tax preparer may be obtained by contacting CTEC at P.O. Box 2890, Sacramento, CA, , toll-free by phone at , or on the internet at CTEC Course ID Number 6193-CE-0021 Copyright 2013 Tax Materials, Inc. All Rights Reserved TheTaxReview Taxpayer Rights i

3 Taxpayer Rights Self-Study CPE/CE Course Completion Instructions Helpful Hint: Attempt to relate your tax preparation experience with the information you are studying. By doing so, you will increase retention and maximize your results. Also, utilize the Notes sections to jot down reminders and information that will be helpful to you in your tax practice. Follow the instructions below: 1) Start each chapter by reading the Learning Objectives. 2) Read the course materials in the chapter. Pay close attention to: a) Key Facts: Information that is particularly pertinent to the Learning Objective. b) Examples: Review the examples to associate the information to real-world application. c) Notes: Many of the main points of the chapter are highlighted. Review the notes and try to relate the content with your experience. 3) Complete the Self-Quiz at the end of the chapter. The questions are broken out by Learning Objective. Review the Learning Objectives before completing each set of questions. Determine your progress by comparing your answers to the correct ones on the pages that follow. 4) After completing the study material, and taking the Self-Quiz, complete the Final Exam located at the back of this instruction booklet. Final Examination Instructions Expiration Date Reminder: The Final Exam must be completed online within one year from your date of purchase or shipment. CPE/CE credits are not available more than one year after your date of purchase or shipment. All Final Exams are administered online at It is recommended that you review the Final Exam at the end of the course before taking it online. Final Exams mailed in will not be graded. Follow the instructions below: 1) Go to 2) Click on Take CPE/CE Final Exams, where you will find a location to log in to the Final Exam. 3) Enter your User Name in the self-study CPE/CE login location. The address associated with your account at Tax Materials, Inc. is your User Name. If you do not have an address, or have not provided one, please call our toll-free number at to be assigned a User Name. 4) Enter your Password. The zip code associated with your account is your password. If you are having difficulty logging onto the Final Exam, please call our toll-free number at ) Select the Taxpayer Rights Exam and click the Take Exam button. 6) You will be taken to the Final Exam. First confirm your First Name and Last Name are correct. This is how your name will appear on your Certificate of Completion should you achieve a score of 70% or higher. Take the Final Exam. Read the questions carefully and answer them to the best of your ability. At the bottom of the exam, click on Submit Answers when finished. You will instantly know if you have passed the test. If you failed, you are able to retake the test. If you passed, the Certificate of Completion will be available for you to print. Complete Evaluation Form Please provide suggestions and feedback regarding this CPE/CE course. The last page contains an Evaluation Form. After completion, please mail to: Tax Materials, Inc Minnetonka Ind. Rd., Ste. 221 Minnetonka, MN Thank you for helping us improve our CPE/CE course offerings! ii TheTaxReview Taxpayer Rights

4 Learning Objectives / Table of Contents Learning Objective A Learning Objective A Recognize the principles in the IRS Declaration of Taxpayer Rights and contrast with the taxpayer rights proposed by the National Taxpayer Advocate. B Learning Objective B Evaluate the taxpayer appeals process within the IRS and the court system. C Learning Objective C Identify how the Taxpayer Advocate Service facilitates taxpayer rights while taxpayers navigate the IRS system. Final Exam Course Evaluation TheTaxReview Taxpayer Rights iii

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6 Taxpayer Rights CPE/CE Learning Objectives Successful completion of this course will enable the participant to: A Recognize the principles in the IRS Declaration of Taxpayer Rights and contrast with the taxpayer rights proposed by the National Taxpayer Advocate. B Evaluate the taxpayer appeals process within the IRS and the court system. C Identify how the Taxpayer Advocate Service facilitates taxpayer rights while taxpayers navigate the IRS system. Glossary Terms Taxpayer Advocate Service. The Taxpayer Advocate Service is an independent organization within the IRS whose goal is to help taxpayers resolve problems with the IRS and also recommend changes to the IRS that will prevent problems. The Taxpayer Advocate Service should be contacted when the taxpayer has an ongoing issue with the IRS that has not been resolved through normal processes, or the taxpayer has suffered, or is about to suffer, a significant hardship as a result of the administration of the tax laws. Appeals conference. Appeals conferences are informal meetings that may be conducted by telephone, correspondence, or at a local Appeals Office, which is independent of the IRS office that proposed the disputed action. Burden of proof. The responsibility to prove entries, deductions, and statements made on a taxpayer s tax return is known as the burden of proof. Taxpayers must be able to prove or substantiate certain elements of expenses to deduct them. Generally, taxpayers meet their burden of proof by having the information and receipts for expenses. Learning Objective A Recognize the principles in the IRS Declaration of Taxpayer Rights and contrast with the taxpayer rights proposed by the National Taxpayer Advocate. National Taxpayer Advocate s Annual Report On January 11, 2012, the National Taxpayer Advocate released her annual report to Congress identifying the combination of the IRS expanding workload and declining resources as the most serious problem facing taxpayers. The result, the report says, is inadequate taxpayer service, erosion of taxpayer rights, and reduced tax compliance. The Advocate expressed her concern that the IRS expanding use of automated processes to adjust tax liabilities is causing harm to taxpayers and recommended that Congress enact a comprehensive Taxpayer Bill of Rights. TheTaxReview Taxpayer Rights 1

7 NOTES The U.S. tax system is based on a social contract between the government and its taxpayers. Taxpayer Bill of Rights (TBOR) The report urges Congress to codify a Taxpayer Bill of Rights that would clearly list the major rights and responsibilities of taxpayers. The U.S. tax system is based on a social contract between the government and its taxpayers, the Advocate wrote. Taxpayers agree to report and pay the taxes they owe and the government agrees to provide the service and oversight necessary to ensure that taxpayers can and will do so. Key Fact Over the past two decades, Congress has enacted three significant taxpayer rights bills, but the number of bills and the lack of publicity have muddled the message. The report describes a recent taxpayer survey in which 55% of respondents said they did not believe they had rights before the IRS and 61% did not know what their rights are. The report recommends that Congress organize taxpayer rights under the following 10 broad principles. 1) Right to be informed, 2) Right to be assisted, 3) Right to be heard, 4) Right to pay no more than the correct amount of tax, 5) Right to appeal, 6) Right to certainty, 7) Right to privacy, 8) Right to confidentiality, 9) Right to representation, and 10) Right to a fair and just tax system. To help taxpayers understand what the law requires of them, the report further recommends that Congress organize taxpayer responsibilities under the following five principles. 1) Obligation to be honest, 2) Obligation to be cooperative, 3) Obligation to provide accurate information and documents on time, 4) Obligation to keep records, and 5) Obligation to pay taxes on time. The report summarized recommendations the Advocate has made in past reports to create additional taxpayer rights and recommends that those rights be incorporated into Taxpayer Bill of Rights legislation. Three pieces of legislation provide the basis for most taxpayer rights. Taxpayer Rights Currently Three pieces of legislation provide the basis for most taxpayer rights. The Technical and Miscellaneous Revenue Act of 1988 (includes TBOR 1) The Taxpayer Bill of Rights 2 (TBOR 2) Restructuring and Reform Act of 1998 (includes TBOR 3) The most current fact sheet relating to taxpayer rights was released in September Fact Sheet 97-20, Protecting Taxpayers Rights, contains the IRS position on protecting taxpayers rights. The Problem Resolution Office, referenced in Fact Sheet 97-20, has been replaced by the Taxpayer Advocate Service. 2 TheTaxReview Taxpayer Rights

8 Protecting Taxpayers Rights The Internal Revenue Service touches the lives of almost every American. The IRS is striving to ensure that all taxpayer contacts are conducted in a courteous, respectful manner. The most important consideration for the IRS in these contacts is the protection of a taxpayer s rights. The IRS has taken many steps in written rules, in policies, in training, in guidance and in evaluations to ensure taxpayers rights are protected. All IRS employees who have contact with taxpayers are trained in the IRS commitment to the fair and impartial treatment of taxpayers. IRS employees in collection, examination and customer service all receive training on the provision of both the first and the second Taxpayer Bill of Rights, as well as training in quality customer service. Customer service representatives who answer taxpayers questions on both tax law and on individual accounts are regularly monitored, not just for the accuracy of their answers, but also for how courteously they treat taxpayers. Publication 1, Your Rights as a Taxpayer, is given to every taxpayer selected for an audit. This publication outlines a taxpayer s right to privacy and confidentiality, to professional and courteous service, to representation, to help from the Problem Resolution Office, and to administrative and judicial review. These rights are guaranteed by law. IRS Policy Statement P-1-20, approved in 1973 and used for all enforcement officers, appeals officers, and reviewers, strictly prohibits the use of enforcement results and statistics to evaluate those officers. The Taxpayer Bill of Rights (TBOR 1), passed in 1988, made this policy law. Taxpayers who have encountered difficulties resolving problems through normal IRS channels may be helped by the Problem Resolution Program (PRP). Generally, if the IRS has not resolved a problem within a reasonable amount of time, or after a couple of inquiries by the taxpayer, the problem qualifies for PRP handling. The enactment of the Taxpayer Bill of Rights authorized Taxpayer Assistance Orders, which provide relief for taxpayers who might suffer hardships as a result of a planned enforcement action by the IRS. In 1996, the IRS received approximately 30,000 requests for relief. More than 35% of these requests were initiated by IRS employees who recognized the potential hardship and took steps to stop the enforcement action. Enforcement managers are required to prepare quarterly certifications for the district director to report any violations of the proper use of statistics. These certifications must give a detailed description of the violation and what corrective action was taken. The district director must then send this certification forward to the Commissioner. Revenue officers and revenue agents are evaluated on a variety of job standards that include customer relations. This standard requires agents to conduct themselves in a courteous, firm and professional manner. In addition, this standard requires agents to ensure that they fully explain to taxpayers their rights under the law. The Collection Appeals process allows certain collection actions, such as filing of liens or seizures, to be appealed either before or after the action occurs. Normally, the IRS will stop the collection action until the appeal is settled. NOTES This standard requires agents to ensure that they fully explain to taxpayers their rights under the law. TheTaxReview Taxpayer Rights 3

9 NOTES The training, the policies, and the procedures that the IRS has put in place contribute to ensuring that taxpayers are treated with respect and dignity and that their rights are protected. These rights are guaranteed by law. Many of these laws are contained within the Internal Revenue Code. Some of those sections covered by the code are as follows: Section 6331(d) (added by TBOR 1): Requires notice in writing 30 days prior to making a levy. Section 6343(d) (added by TBOR 2): Authorizes the return of levied property in certain cases. Section 6323(j) (added by TBOR 2): Authorizes the release of filed lien in certain cases. Section 6326: Allows for the administrative appeal of liens. Section 7605: Protects taxpayers from being subject to unnecessary audits. Section 7609: Requires notice to taxpayer when summons is made to third party. Section 7811: Authorizes Taxpayer Assistance Orders. Section 7430: Allows for awards of reasonable administrative costs and reasonable litigation costs when IRS advances unreasonable positions. Section 7431: Authorizes civil action for damages for disclosure of return and return information. Section 7432: Authorizes civil action for damages for failure to properly release lien. Section 7433: Authorizes civil action for damages for certain unauthorized collection actions. Declaration of Taxpayer Rights I. Protection of Your Rights. IRS employees will explain and protect taxpayers rights throughout all contact with the IRS. II. Privacy and Confidentiality. The IRS will not disclose to anyone information given to the IRS, except as authorized by law. Taxpayers have the right to know why the IRS is asking for information, how it will be used, and what happens if the taxpayer does not provide requested information. III. Professional and Courteous Service. If the taxpayer believes that an IRS employee has not treated him or her in a professional, fair, and courteous manner, the taxpayer should tell that employee s supervisor. If the supervisor s response is not satisfactory, the taxpayer should write to the IRS director for the area or the center where the return was filed. IV. Representation. A taxpayer may either represent him or herself or, with proper written authorization, have someone else represent him or her. The taxpayer s representative must be a person allowed to practice before the IRS, such as an attorney, certified public accountant, or enrolled agent. In most cases, if the taxpayer is in an interview and asks to consult such a person, then the IRS must stop and reschedule the interview. The taxpayer can have someone accompany him or her at an interview. The taxpayer may make sound recordings of any meeting with IRS examination, appeal, or collection personnel, provided the taxpayer tells the IRS in writing 10 days before the meeting. 4 TheTaxReview Taxpayer Rights

10 V. Payment of Only the Correct Amount of Tax. The taxpayer is responsible for paying only the correct amount of tax due under the law no more, no less. If the taxpayer cannot pay all of the tax when it is due, he or she may be able to make monthly installment payments. VI. Help With Unresolved Tax Problems. The Taxpayer Advocate Service can help if the taxpayer has tried unsuccessfully to resolve a problem with the IRS. The local Taxpayer Advocate can offer special help if the taxpayer has a significant hardship as a result of a tax problem. For more information, call toll free ( for TTY/TDD) or write to the Taxpayer Advocate at the IRS office that last contacted the taxpayer. VII. Appeals and Judicial Review. If the taxpayer disagrees with the IRS about the amount of the tax liability or certain collection actions, he or she has the right to ask the Appeals Office to review the case. The taxpayer may also ask a court to review the case. VIII. Relief From Certain Penalties and Interest. The IRS will waive penalties when allowed by law if the taxpayer can show he or she acted reasonably and in good faith or relied on the incorrect advice of an IRS employee. The IRS will waive interest that is the result of certain errors or delays caused by an IRS employee. NOTES The IRS will waive penalties when allowed by law if the taxpayer can show he or she acted reasonably and in good faith or relied on the incorrect advice of an IRS employee. Learning Objective B Evaluate the taxpayer appeals process within the IRS and the court system. Appeal Rights The IRS has an appeals system. Most differences can be settled within this system without expensive and time-consuming court trials. However, the taxpayer s reasons for disagreeing must come within the scope of the tax laws. For example, the taxpayer cannot appeal his or her case based only on moral, religious, political, constitutional, conscientious, or similar grounds. In most instances, the taxpayer may take his or her case to court if an agreement is not reached at the appeals conference, or if the taxpayer does not want to appeal the case to the IRS Office of Appeals. The taxpayer cannot appeal his or her case based only on moral, religious, political, constitutional, conscientious, or similar grounds. Appeal Within the IRS The taxpayer can appeal an IRS tax decision to a local Appeals Office, which is separate from and independent of the IRS office taking the action the taxpayer disagrees with. The Appeals Office is the only level of appeal within the IRS. Conferences with Appeal Office personnel are held in an informal manner by correspondence, by telephone, or at a personal conference. To request an appeals conference, follow the instructions in the letter the taxpayer received. The request will be sent to the Appeals Office to arrange a conference. The taxpayer or taxpayer s representative should be prepared to discuss all disputed issues at the conference. Most differences are settled at this level. If an agreement is not reached at the appeals conference, the taxpayer may be eligible to take his or her case to court. TheTaxReview Taxpayer Rights 5

11 NOTES If the total amount for any tax period is not more than $25,000, the taxpayer may make a small case request instead of filing a formal written protest. The United States Tax Court, the United States Court of Federal Claims, or the United States District Court courts are independent of the IRS. Protests and small case requests. When the taxpayer requests an appeals conference, the taxpayer may also need to file either a formal written protest or a small case request. Written protest. File a written protest in the following cases. All employee plan and exempt organization cases without regard to the dollar amount at issue. All partnership and S corporation cases without regard to the dollar amount at issue. All other cases, unless the taxpayer qualifies for the small case request procedure, or other special appeal procedures such as requesting appeals consideration of liens, levies, seizures, or installment agreements. If a written protest must be submitted, see the instructions in IRS Pub. 5, Your Appeal Rights and How to Prepare a Protest if you Don t Agree, for the information to provide. The IRS urges the taxpayer to provide as much information as possible as it will speed up the appeal. Small case request. If the total amount for any tax period is not more than $25,000, the taxpayer may make a small case request instead of filing a formal written protest. In figuring the total amount, include a proposed increase or decrease in tax, including penalties, or claimed refund. If the taxpayer is making an offer in compromise, include total unpaid tax, penalty, and interest due. For a small case request, follow the instructions in the IRS letter sent to the taxpayer by sending a letter: Requesting appeals consideration, Indicating the changes the taxpayer does not agree with, and Indicating the reasons why the taxpayer does not agree. Appeals to the Courts If the taxpayer and the IRS still disagree after the appeals conference, the taxpayer may be entitled to take his or her case to the United States Tax Court, the United States Court of Federal Claims, or the United States District Court. These courts are independent of the IRS. If the taxpayer elects to bypass the IRS appeals system, the taxpayer may be able to take his or her case to one of the courts listed above. However, a case petitioned to the United States Tax Court will normally be considered for settlement by an Appeals Office before the Tax Court hears the case. If the taxpayer unreasonably fails to pursue the IRS appeals system, or if the case is intended primarily to cause a delay, or the taxpayer s position is frivolous or groundless, the Tax Court may impose a penalty of up to $25,000. Court Case The IRS determined a deficiency in the taxpayer s 2007 income tax on the basis of wages that the taxpayer did not report. At trial, the taxpayer admitted, I exchanged my skilled labor and knowledge for pay. In a bench opinion, the court held for the IRS, ruled that the taxpayer s arguments were frivolous and imposed on the taxpayer a penalty of $1,000 pursuant to IRC section 6673(a). The court also warned the taxpayer that if he repeated his frivolous positions, 6 TheTaxReview Taxpayer Rights

12 he faced the risk of a steeper penalty. After the court entered its decision, the taxpayer moved for reconsideration on the grounds that the court had not adequately addressed his arguments. At trial, the taxpayer s only argument was that his wages were not subject to income tax. The courts usually do not discuss and refute in detail frivolous arguments. The court noted that when a litigant is willing to take a position that is frivolous, the chances are good that he or she will be unmoved by explanations of why the position is frivolous. A court that undertakes such explanations is often wasting its time. The taxpayer disregarded the explicit warning when he filed his subsequent motion for reconsideration. That motion made it clear that the taxpayer did not have new points to make, he simply repeated arguments that had already been ruled frivolous. The filing of a motion for reconsideration had the effect of delaying the taxpayer s deadline for filing a notice of appeal and thereby delaying the date on which the IRS could assess the tax deficiency which the court had upheld. The court determined the motion for reconsideration was filed primarily for delay and was frivolous. Therefore the court increased the taxpayer s penalty to $5,000 in the hope that the greater penalty would have the effect of deterring further frivolous litigation. (Wnuck, 136 T.C. No. 24) Key Fact Prohibition on requests to taxpayers to give up rights to bring civil action. The government cannot ask the taxpayer to waive his or her right to sue the United States or a government officer or employee for any action taken in connection with the tax laws. However, the taxpayers right to sue can be waived if: The taxpayer knowingly and voluntarily waives that right. The request to waive that right is made in writing to the taxpayer s attorney or other federally authorized practitioner, or The request is made in person and the taxpayer s attorney or other representative is present. NOTES Burden of proof. For court proceedings, resulting from examinations started after July 22, 1998, the IRS generally has the burden of proof for any factual issue if the taxpayer has met the following requirements. The taxpayer introduced credible evidence relating to the issue. The taxpayer complied with all substantiation requirements of the Internal Revenue Code. The taxpayer maintained all records required by the Internal Revenue Code. The taxpayer cooperated with all reasonable requests by the IRS for information regarding the preparation and related tax treatment of any item reported on the tax return. The taxpayer had a net worth of $7 million or less and not more than 500 employees at the time the tax liability is contested in any court proceeding if the tax return is for a corporation, partnership, or trust. The burden of proof does not change on an issue when another provision of the tax laws requires a specific burden of proof with respect to that issue. TheTaxReview Taxpayer Rights 7

13 NOTES The taxpayer will not be treated as the prevailing party if the United States established that its position was substantially justified. Use of statistical information. In the case of an individual, the IRS has the burden of proof in court proceedings based on any IRS reconstruction of income solely through the use of statistical information on unrelated taxpayers. Penalties. The IRS has the burden of initially producing evidence in court proceedings with respect to the liability of any individual taxpayer for any penalty, addition to tax, or additional amount imposed by the tax laws. Recovering litigation or administrative costs. Reasonable expenses paid to defend the taxpayer s position to the IRS or the courts may be recovered if all the following conditions apply. The taxpayer is the prevailing party. The taxpayer exhausts all administrative remedies within the IRS. The taxpayer s net worth is below a certain limit. The taxpayer does not unreasonably delay the proceeding. The taxpayer applies for administrative costs within 90 days of the date on which the final decision of the IRS Office of Appeals as to the determination of the tax, interest, or penalty was mailed to the taxpayer. The taxpayer applies for litigation costs within the time frames provided by Tax Court Rule 231. If the IRS denies the taxpayer s award of administrative cost, and the taxpayer wants to appeal, the taxpayer should petition the Tax Court within 90 days of the date on which the IRS mails the denial notice. Prevailing party. Generally, the taxpayer is the prevailing party if they: Substantially prevail with respect to the amount in controversy or on the most significant tax issue or set of issues in question, and Meet the net worth requirements. The taxpayer will not be treated as the prevailing party if the United States established that its position was substantially justified. The position of the United States is presumed not to be substantially justified if the IRS: Did not follow its applicable published guidance (such as regulations, revenue rulings, notices, announcements, private letter rulings, technical advice memoranda, and determination letters issued to the taxpayer) in the proceeding (this presumption can be overcome by evidence), or Has lost in courts of appeal for other circuits on substantially similar issues. The court will generally decide who the prevailing party is. Reasonable litigation costs. These include the following costs. Reasonable court costs. Reasonable costs of studies, analyses, engineering reports, tests, or projects found by the court to be necessary for the preparation of the case. Reasonable costs of expert witnesses. Attorney fees that generally may not exceed $190 per hour for calendar year The hourly rate is indexed for inflation. Reasonable administrative costs. These include the following costs. Any administrative fees or similar charges imposed by the IRS. Reasonable costs of studies, analyses, engineering reports, tests, or projects. Reasonable costs of expert witnesses. 8 TheTaxReview Taxpayer Rights

14 Attorney fees that generally may not exceed $190 per hour for calendar year The hourly rate is indexed for inflation. Net worth requirements. A taxpayer may be able to recover litigation or administrative costs if the following requirements are met. Individuals whose net worth does not exceed $2 million as of the filing date of the petition for review. For this purpose, individuals filing a joint return are treated as separate individuals. Estates whose net worth does not exceed $2 million as of the date of the decedent s death. Charities and certain cooperatives that do not have more than 500 employees as of the filing date of the petition for review. For all other taxpayers, as of the filing date of the petition for review, the net worth does not exceed $7 million, and that do not have more than 500 employees. Tax Court. A taxpayer can take his or her case to the United States Tax Court if the disagreement with the IRS is over: Income tax, Estate tax, Gift tax, or Certain excise taxes of private foundations, public charities, qualified pension and other retirement plans, or real estate investment trusts. The case cannot be taken to the Tax Court before the IRS sends a notice of deficiency. A case can be appealed only if a petition is filed within 90 days from the date the notice is mailed (150 days if it is addressed to a taxpayer outside the United States). Generally, the Tax Court hears cases before any tax has been assessed and paid; however, the taxpayer can pay the tax after the notice of deficiency has been issued and still petition the Tax Court for review. If the petition is not filed on time, the proposed tax will be assessed, a bill will be sent, and the taxpayer will not be able to take the case to the Tax Court. Under law, the tax must be paid within 21 days (10 business days if the amount is $100,000 or more). Collection can proceed even if the taxpayer thinks the amount is excessive. If the petition is filed on time, the Tax Court will schedule the case for trial at a convenient location. The taxpayer can represent himself or herself before the Tax Court or can be represented by anyone admitted to practice before the Tax Court. Small case procedure. If the amount of the case is $50,000 or less for any one tax year or period, the taxpayer can request that the case be handled under the small tax case procedure. If the Tax Court approves, the taxpayer can present the case to the Tax Court for a decision that is final and that cannot be appealed. Motion to request redetermination of interest. In certain cases, a motion can be filed asking the Tax Court to redetermine the amount of interest on either an underpayment or an overpayment. This can be done only in a situation that meets all of the following requirements. The IRS has assessed a deficiency that was determined by the Tax Court. The assessment included interest. NOTES The case cannot be taken to the Tax Court before the IRS sends a notice of deficiency. The taxpayer can represent himself or herself before the Tax Court or can be represented by anyone admitted to practice before the Tax Court. TheTaxReview Taxpayer Rights 9

15 NOTES Generally, the District Court and the Court of Federal Claims hear tax cases only after the taxpayer has paid the tax and filed a claim for credit or refund. The entire amount of the deficiency, plus the interest claimed by the IRS, was paid. The Tax Court has found that the taxpayer made an overpayment. The motion must be filed within one year after the decision of the Tax Court becomes final. District Court and Court of Federal Claims. Generally, the District Court and the Court of Federal Claims hear tax cases only after the taxpayer has paid the tax and filed a claim for credit or refund. A claim for credit or refund can be filed with the IRS if the taxpayer believes that the tax paid is incorrect or excessive. If the claim is totally or partially disallowed by the IRS, the taxpayer should receive a notice of claim disallowance. Generally, taxpayers must file suit for a credit or refund no later that two years after being informed by the IRS that the claim has been rejected. However, taxpayers can file suit if it has been six months since the claim was filed and the IRS has not yet delivered a decision. Taxpayers can file suit for a credit or refund in the United States District Court or in the United States Court of Federal Claims. However, taxpayers cannot appeal to the United States Court of Federal Claims if the claim is for credit or refund of a penalty that relates to promoting an abusive tax shelter or to aiding and abetting the understatement of tax liability on someone else s return. Learning Objective C Identify how the Taxpayer Advocate Service facilitates taxpayer rights while taxpayers navigate the IRS system. The Taxpayer Advocate Service (TAS) is an independent organization within the IRS. Taxpayer Advocate Service (TAS) The Taxpayer Advocate Service (TAS) is an independent organization within the IRS. The TAS helps taxpayers who are experiencing economic harm, such as not being able to provide necessities like housing, transportation, or food, taxpayers who are seeking help in resolving problems with the IRS, and individuals who believe an IRS system or procedure is not working as it should. Among the things that the TAS believes every taxpayer should know about include: The Taxpayer Advocate Service is the taxpayers voice at the IRS. The service is free and tailored to meet the taxpayer s needs. The taxpayer may be eligible for TAS help if he or she has tried to resolve the tax problem through normal IRS channels and gotten nowhere, or believes an IRS procedure isn t working as it should. The worst thing a taxpayer can do is nothing at all. The TAS helps taxpayers whose problems are causing financial difficulty or significant cost, including the cost of professional representations. This includes businesses, as well as individuals. If the taxpayer qualifies for TAS help, the TAS will do everything it can to get the taxpayers problem resolved. The taxpayer will be assigned to one advocate who will be with the taxpayer at every turn. There is at least one local taxpayer advocate office in every state, the District of Columbia, and Puerto Rico. 10 TheTaxReview Taxpayer Rights

16 How the TAS helps. The TAS is the taxpayer s voice at the IRS. The job of the TAS is to ensure that every taxpayer is treated fairly and that the taxpayer knows and understands his or her rights. The TAS offers free help to guide taxpayers through the often confusing process of resolving tax problems that the taxpayer has not been able to solve on their own. When to go to the TAS. First the taxpayer needs to try to resolve the problem with the IRS. If the taxpayer is not able to do so, then he or she should go to the TAS. TAS can help if: The problem with the IRS is causing financial difficulties for the taxpayer, taxpayer s family, or business. The taxpayer faces (or the business faces) an immediate threat of adverse action. The taxpayer has tried repeatedly to contact the IRS, but no one has responded, or the IRS has not responded by the date promised. Key Fact As of October 1, 2012, TAS is limiting its acceptance of cases when the taxpayer s problem solely involves an IRS delay in processing certain tax documents. If the taxpayer is not currently facing imminent threat of enforcement action or otherwise experiencing economic burden, TAS will refer the taxpayer to the appropriate IRS function specializing in return processing issues. NOTES First the taxpayer needs to try to resolve the problem with the IRS. How to reach a Taxpayer Advocate. A Taxpayer Advocate can be reached by: Calling the phone number listed in IRS Pub. 1546, Taxpayer Advocate Service Your Voice at the IRS, at the office nearest the taxpayer. Calling the TAS toll-free line at Filing Form 911, Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order) with the TAS. Form 911 is available by phone or on the IRS website at What can the taxpayer expect from a Taxpayer Advocate? If the taxpayer qualifies for TAS help, the taxpayer will be assigned to one advocate who will be with the taxpayer at every turn. The advocate will listen to the taxpayer, help the taxpayer understand what needs to be done, and stay with the taxpayer until the problem is resolved. The taxpayer can expect from the advocate: His or her name, phone number, and employee number. Courteous and confidential service. Timely acknowledgement. An impartial and independent review of the taxpayer s problem. Timeframes for action. Updates on progress. Advice on how to prevent future federal tax problems. What information should the taxpayer provide to his or her advocate? The taxpayer should provide the following information to the advocate. Taxpayer name, address, and Social Security number, or the employer identification number issued by the IRS. Phone number and best times to call. TheTaxReview Taxpayer Rights 11

17 NOTES The type of tax return and tax year(s) involved. A description of the problem or hardship, how the taxpayer previously tried to resolve the problem, and the IRS office(s) contacted by the taxpayer. If the taxpayer wants to authorize another person to discuss or receive information about his or her case, send Form 2848, Power of Attorney and Declaration of Representative, or Form 8821, Tax Information Authorization. Key Fact Is information the taxpayer provides to the TAS confidential? The TAS is independent within the IRS. The law requires each TAS office to secure and maintain means of communication independent of other IRS offices. Each local office has a separate phone, fax, and mailing address. The TAS has the discretion to not disclose taxpayer information to the IRS. In general, however, to provide the taxpayer with assistance or relief, TAS will likely have to disclose the information to an IRS employee or employees. While case advocacy fulfills the TAS mission of resolving taxpayer problems, systemic advocacy completes the TAS mission by recommending changes that prevent the problems from happening again. Other TAS Programs Systemic advocacy. The Office of Systemic Advocacy is the organization within the TAS that addresses systemic problems. While case advocacy fulfills the TAS mission of resolving taxpayer problems, systemic advocacy completes the TAS mission by recommending changes that prevent the problems from happening again. Systemic advocacy: Addresses the issues that impact multiple taxpayers. Works with individuals, businesses, and nonprofits. Analyzes IRS systems, policies, and procedures. Assesses taxpayer burden and taxpayer rights. Proposes solutions or legislative changes. Monitors the solutions. The Office of Systemic Advocacy works with the IRS to resolve issues through a variety of initiatives. For example, in collaboration with the IRS, the Office of Systemic Advocacy has addressed problems with IRS procedures relating to identity theft, penalties, and collection actions. If a taxpayer is aware of an IRS process or procedure that may be causing problems for many taxpayers, contact the Office of Systemic Advocacy to report the issue. Low Income Taxpayer Clinics. Low Income Taxpayer Clinics (LITCs) are independent from the IRS. Some clinics service individuals who need to resolve a tax problem and whose income is below a certain level. These LITCs provide professional representation before the IRS or in court on audits, appeals, tax collection disputes, and other issues for free or for a small fee. Some clinics provide information about taxpayer rights and responsibilities in many different languages for individuals who speak English as a second language. 12 TheTaxReview Taxpayer Rights

18 Taxpayer Advocacy Panel. Taxpayers have an opportunity to provide direct input to the IRS through the Taxpayer Advocacy Panel (TAP). TAP is an independent panel of citizen volunteers who listen to taxpayers, identify taxpayers issues, and make suggestions for improving IRS service and customer satisfaction. TAS Assisted Success Stories TAS helps taxpayer get levy released. A local TAS office received a frantic call from a taxpayer who had just been notified the IRS had levied on his wages. The IRS told the taxpayer he needed to submit unfiled tax returns for two years before it would release the levy. TAS researched the account and discovered that if the IRS levied, the taxpayer would experience economic hardship because he could not meet his basic reasonable living expenses. TAS also learned the taxpayer had no income for one year and had filed an extension of time to file for the second year so the return wasn t due yet. TAS asked the IRS to release the levy the same day the taxpayer called, citing the recent court case, Vinatieri, 133 T.C. No. 392, for the proposition that if economic hardship is present, a levy must be released even if the taxpayer has not filed all required returns. By the end of that day, the IRS released the levy. TAS helps unemployed taxpayer recover car seized by the IRS. The IRS seized an unemployed taxpayer s vehicle, leaving the taxpayer unable to look for work. The taxpayer contacted TAS for assistance in getting the vehicle returned. TAS conducted research and found the taxpayer was living on unemployment benefits and help from relatives. The IRS planned to place the account into uncollectible status after selling the vehicle. TAS issued a Taxpayer Assistance Order (TAO) to the IRS for the return of the vehicle and reimbursement of towing and storage fees. The IRS complied and returned the vehicle. TAS uncovers identity theft and helps victim fund medical expenses. A couple, anxiously awaiting a tax refund to pay medical expenses, became concerned when the refund was significantly delayed. When they contacted the IRS, they were told to wait 180 days. When this time passed and the refund had not yet arrived, they contacted TAS for assistance. The TAS case advocate discovered the refund was delayed because another person had stolen their identity, using the husband s Social Security number to file a tax return. TAS convinced the IRS the return filed by the couple was valid. They received their refund and were able to pay the medical bills. TAS helps lower installment agreement payments. The taxpayers attempted to renegotiate monthly payments of an installment agreement based on their actual expenses in a high cost of living area. The IRS would not allow these costs and demanded an unrealistic payment based on national standards. Working on the taxpayers behalf, TAS stepped in and successfully negotiated with the IRS. Because of TAS, the taxpayers are now making a lower payment and are able to meet necessary living and medical expenses. NOTES TAP is an independent panel of citizen volunteers who listen to taxpayers, identify taxpayers issues, and make suggestions for improving IRS service and customer satisfaction. TheTaxReview Taxpayer Rights 13

19 NOTES Self-Quiz True/False 1) Revenue officers and revenue agents are trained and evaluated on a variety of job standards that include customer relations. True False 2) Most differences between the taxpayer and the IRS are settled at court trials. True False 3) Taxpayer information provided to the Taxpayer Advocate Service (TAS) is always confidential. True False Multiple Choice 1) All the following are taxpayer rights cited in the Declaration of Taxpayer Rights except: a) Right to privacy and confidentiality. b) Right to representation. c) Right to appeal. d) Right to a fair and just tax system. 2) In certain situations, the Tax Court may impose a taxpayer penalty up to $25,000. In which of the following situations would the Tax Court not have grounds to impose the penalty? a) After the appeals conference, the taxpayer and IRS still disagree so the taxpayer files with the Tax Court. b) The taxpayer files with the Tax Court, intending to primarily cause a delay. c) The taxpayer s position in the case is frivolous. d) The taxpayer unreasonably fails to pursue the IRS appeals system. 3) The Taxpayer Advocate Service (TAS) has multiple services and programs through which it helps taxpayers resolve issues with the IRS. Which of the following is not one of the TAS services or programs? a) Case advocacy. b) Taxpayer Advocacy Panel. c) Appeals conference. d) Systemic advocacy. 14 TheTaxReview Taxpayer Rights

20 NOTES TheTaxReview Taxpayer Rights 15

21 NOTES Self-Quiz Answers True/False 1) Revenue officers and revenue agents are trained and evaluated on a variety of job standards that include customer relations. True Correct. All IRS employees who have contact with taxpayers are trained in the IRS commitment to the fair and impartial treatment of taxpayers, including training in quality customer service. IRS employees are required to conduct themselves in a courteous, firm and professional manner. False Incorrect. The IRS is striving to ensure that all taxpayer contacts are conducted in a courteous and respectful manner. IRS employees receive training on the Taxpayer Bill of Rights, as well as training in quality customer service. 2) Most differences between the taxpayer and the IRS are settled at court trials. True Incorrect. Generally, the taxpayer may take his or her case to court if an agreement is not reached at the appeals conference, or if the taxpayer does not want to appeal the case to the IRS Office of Appeals. However, most differences are settled within the IRS appeals system. False Correct. The IRS has an appeals system in which most differences can be settled without expensive and time-consuming trials. 3) Taxpayer information provided to the Taxpayer Advocate Service (TAS) is always confidential. True Incorrect. The TAS is independent within the IRS and each office is required to maintain secure means of communication independent of other IRS offices. Even though the TAS is independent, it will likely have to disclose taxpayer information to the IRS in order to assist the taxpayer. False Correct. The TAS has the discretion to not disclose taxpayer information to the IRS. In general, however, to provide the taxpayer with assistance or relief, TAS will likely have to disclose information to an IRS employee or employees. 16 TheTaxReview Taxpayer Rights