A practitioners' roundtable on the Taxpayer Bill of Rights 2.

• Author: Herskovitz, Donald L.
• Position: Panel Discussion

Moderator:

Don Herskovitz, J.D., LL.M Senior Technical Advisor Washington National Tax Group Deloitte & Touche LLP Washington, D.C.

Jim Dougherty

Director Washington National Tax Group Deloitte & Touche LLP Washington, D.C.

Panelists:

Bruce K. Gribens, J.D., CPA

Manager Washington National Tax Group Deloitte & Touche LLP Washington, D.C.

This article is an adaptation of an interview on the Taxpayer Bill of Rights 2. The interview is part of an audiotape series produced by the Deloitte & Touche LLP Washington National Tax Group on various tax topics.

Overview

DON: Jim, what does the Taxpayer Bill of Rights 2 (TBR2) mean for taxpayers?

JIM: It's an important piece of legislation. Many of the items in the TBR2 are an expansion of rights contained in the original Taxpayer Bill of Rights (TBR). One important TBR2 provision is the title change from the Taxpayer Ombudsman to the Taxpayer Advocate (TA). This sends a clear signal throughout the IRS, and to all taxpayers, that this person is an advocate for the taxpayer. The TBR2 also imposes an important new requirement on installment agreements. Generally, the IRS must now give taxpayers 30 days' prior notification of revocation of an installment agreement. Before the TBR2, in certain circumstances, the ORS could revoke an installment agreement without notification. There is also an expansion of many of the rights that taxpayers were initially granted in the TBR; finally, the TBR2 codified a number of administrative changes that were made on Jan. 1, 1996 by the IRS Commissioner.

DON: Bruce, what's your opinion of the TBR2;

BRUCE: The TBR2 assists taxpayers in three broad categories:

First, it reduces the financial burden on taxpayers who are already complying with the tax laws. For example, there are provisions that (1) expand the IRS's ability to abate interest, (2) extend the interest-free period within which a taxpayer can pay a deficiency after notice and demand without accruing additional interest and (3) allow the IRS to abate penalties for a first-time depositor's inadvertent failure to deposit payroll taxes.

Second, it eases some of the IRS's collection procedures. For example, it (1) allows the IRS to return levied property in certain circumstances, (2) allows the IRS to withdraw a public notice of lien, (3) increases the levy exemption amount and (4) increases the amount the IRS may accept as an offer-incompromise without having to obtain the IRS Chief Counsel's consent.

Third, it increases the IRS's communication with taxpayers. Specifically, it requires a preliminary notice be sent to persons subject to the trust fund provisions; employers who withhold employment taxes must receive a preliminary notice at least 60 days before the IRS can issue a notice and demand and impose a penalty. The TBR2 also requires that an annual notice be sent to taxpayers with outstanding Federal tax liabilities. Under prior law, the IRS was not required to send annual notices to such taxpayers; because the IRS had 10 years to collect the tax, a number of years would go by, and a taxpayer would forget the debt. Now a taxpayer will be sent an annual reminder that the IRS is still actively seeking payment.

DON: Jim, could you comment on the TBR2's procedural provisions?

JIM: There has been an expansion of the TA's authority to affirmatively take any lawful action (via issuance of a Taxpayer Assistance Order (TAO)) as to taxpayers who would otherwise suffer hardship from the IRS's administration of the tax laws. The filing of Form 911, Application for Taxpayer Assistance Order to Relieve Hardship, with the TA or a Problem Resolution Officer, puts a stay on any matter before the IRS for a 24-hour period.

DON: Do you think the TBR2 will give tax practitioners more flexibility and options in dealing with the IRS? Will tax professionals be able to deal with more experienced personnel at the IRS, who have a more reasonable approach to the taxpayer's problem?

JIM: The TBR2 provides for better communication between taxpayers and the IRS. Sometimes, practitioners have to deal with inexperienced personnel at the lower levels of the IRS. Some of the TBR2's provisions, such as expansion of the use of TAOs, will move a matter to a higher level, ensuring more experienced personnel will review the matter before a potentially harmful action is taken against the taxpayer.

DON: Bruce, what are the more important TBR2 provisions, in your view?

BRUCE: One of the TBR2's revenue offsets is the creation of intermediate sanctions, an excise tax that can be imposed on certain activities of tax-exempt organizations. In general, prior to the TBR2, the IRS could penalize a tax-exempt organization only by revoking its exempt status (or threatening to).

However, the IRS would not want to revoke the exemption of, for example, a hospital, which might hurt a community. Further, there are practical reasons why the IRS may not be able to penalize a tax-exempt organization that is violating the Code's restrictions. With intermediate sanctions, the IRS can assess an excise tax penalty on those organizations participating in an "excess benefit transaction" -- a transaction not at arm's-length or not at fair market value between the organization and a disqualified person (i.e., a person who has influence over the organization, such as an officer or director).

JIM: The IRS has always been reluctant to revoke an exemption. The availability of intermediate sanctions should generate a lot of IRS activity in this area.

DON: Jim, what's your opinion of the TBR2 provisions allowing designated private delivery services (PDSs) to deliver tax returns and other filings to the IRS? This is quite a departure from prior procedure, isn't it?

JIM: It certainly is. Under the TBR2, the IRS can designate qualified PDSs that will meet Sec. 7502(f)s "timely mailing as timely filing" rule.

DON: Could a local delivery service qualify?

JIM: Absolutely. The TBR2 provides that the IRS can designate a delivery service if the...