In 1996, Congress revisited the Taxpayer Bill of Rights (T1), originally passed in 1988. The new law, Taxpayer Bill of Rights 2 (T2), adds about 40 new procedural rights. These laws were meant to address perceived abuses of auditing and collection procedures by the IRS. They are meant to improve accountability and oversight. Some are technical and have limited applications, while others constitute significant additions to the rights of taxpayers. The following are among the more significant changes.
Taxpayer Advocate
The Taxpayer Ombudsman has been renamed the Taxpayer Advocate and given enhanced powers. The Taxpayer Advocate is an independent representative of taxpayers' interests before the Internal Revenue Service. The duties of the office are to:
- assist individual taxpayers in resolving problems with the IRS;
- identify areas in which taxpayers commonly have difficulties dealing with the IRS; and
- propose possible administrative and legislative changes that may mitigate such problems.
The Taxpayer Advocate must make annual reports to Congress containing, among other things, a summary of at least 20 of the most serious problems affecting taxpayers. This annual report card on the IRS by an independent source may grease the legislative machinery and result in still more sequels.
Abatement of Interest
Generally, taxpayers must pay interest on tax liabilities, even for time periods in which the IRS caused the delays. T1 authorized the abatement of interest where error or delay in resolving a taxpayer dispute was caused by ministerial actions by the IRS. T2 expands this abatement to include delays from managerial acts, including the loss of records; transfers of IRS personnel; and extended illness, personal training, or leave of IRS employees.
Collection Powers
Claims of abusive practices of the IRS often arise from the exercise of its broad collection powers. For example, it is sometimes next to impossible to have a tax lien removed or to have levied property returned for any reason short of full payment of the claimed tax liability.
T2 gives the IRS authority to loosen this grip on taxpayer property for various reasons, including IRS noncompliance with administrative procedures, the execution of an installment payment agreement, or general findings that withdrawing the lien or returning the property would facilitate collection of the tax or would be in the best interests of the taxpayer and the government.
Taxpayer Lawsuits
When taxpayers do resort to suing the IRS for reckless and intentional disregard of statutory and regulatory provisions concerning the collection of taxes, they will carry more ammunition into battle. T2 increased the maximum amount of actual damages which the taxpayer can recover from $100,000 to $1 million.
Failure to exhaust all possible administrative remedies will now result only in a possible reduction in damages awarded, not the dismissal of the lawsuit. T2 also created a new cause of action for taxpayers against any federal officer or employee who intentionally entices a lawyer, accountant, or agent to disclose information supplied by a taxpayer to obtain tax advice. The wronged taxpayer can recover up to $500,000 in actual damages, plus costs.