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Taxes: Taxpayer Bill of Rights

By James W. Rinier, CPA, EA, and Anthony P. Curatola, Ph.D.
September 1, 2022

At the federal level, the Taxpayer Bill of Rights describes an individual’s rights before the government, while at the state level, it’s about limiting tax increases by the government.

 

The taxpayer bill of rights (TBOR) is a broad term that refers to federal and state government initiatives that detail taxpayer rights in paying and disputing tax obligations. Under federal law, the TBOR spells out 10 rights for an individual when dealing with the Internal Revenue Service (IRS). At the state level, a TBOR typically seeks to limit tax increases by the state government. Thus, it’s important to be mindful that the term “TBOR” has a different meaning at the federal level (i.e., taxpayer rights) and the state level (i.e., restriction on legislators’ revenue-raising authority).

 

STATE TAX LAW

 

Colorado appears to be the only state that has passed a TBOR (also called TABOR) law. Five states have put a TBOR constitutional amendment up for approval by voters, but the amendment was rejected in all five cases. Proponents in other states have attempted to gain support for such legislation but have been unsuccessful in getting the amendment before the voters.

 

Why is there so much difficulty getting a TBOR amendment before voters, and why have voters in some states rejected it? The name itself is misleading. The Center on Budget and Policy Priorities (CBPP) provides the following description of a TBOR:

 

A Taxpayer Bill of Rights…is a constitutional measure that limits the annual growth in state (and sometimes local) revenues or spending to the sum of the annual inflation rate and the annual percentage change in the state’s population. (For example, if the general inflation rate is 2 percent and the state’s population grows by 1 percent, state revenue available for expenditures can increase by 3 percent. The balance must be refunded to taxpayers.) Overriding these limits requires voters’ approval or some other high bar, such as a supermajority vote of the legislature.

 

In general, this type of provision appears to severely limit the state’s spending. Opponents argue that it hinders a state government’s ability to provide the necessary or expected public services. The CBPP reported that Colorado’s national rankings on several critical public services plummeted in the years after it adopted a TBOR in 1992 because of the TBOR’s forced deep spending cuts. Hence, the TBOR was viewed as a limit on government fundraising rather than as a list of taxpayers’ rights.

 

FEDERAL TAX LAW

 

A TBOR at the federal level is as its name implies: a taxpayer’s list of rights for fair treatment when dealing with the IRS. The TBOR 2 (P.L. 104-168) included provisions that are intended to provide increased protection of taxpayers’ rights in complying with the Internal Revenue Code (IRC) and in dealing with the IRS.

 

Its first provision was the creation of the Office of the Taxpayer Advocate. The purpose of this office was to assist taxpayers in resolving problems with the IRS, identify areas in which taxpayers have problems dealing with the IRS, propose changes in administrative practices of the IRS that will mitigate those problems, and identify potential legislative changes that may mitigate those problems.

 

Nina E. Olson, former head of the Office of the Taxpayer Advocate, was a major advocate of the TBOR. In the 2007 annual report to Congress, Olson listed the TBOR as the number-one legislative recommendation. But it was the IRS that announced in IR-2014-72 the adoption of a TBOR, which appears in IRS Publication 1, as a cornerstone document to provide the nation’s taxpayers with a better understanding of their rights.

 

The rights that appear in IRS Publication 1 are multiple existing rights embedded and scattered throughout the tax code and organized into 10 broad categories. The objective was to make the rights visible and easier for taxpayers to track and understand. They are:

 

  1. The right to be informed
  2. The right to quality service
  3. The right to pay no more than the correct amount of tax
  4. The right to challenge the IRS’s position and be heard
  5. The right to appeal an IRS decision in an independent forum
  6. The right to finality
  7. The right to privacy
  8. The right to confidentiality
  9. The right to retain representation
  10. The right to a fair and just tax system

 

Congress enacted the TBOR under IRC §7803(a)(3) in 2015, which is the same list of rights appearing in IRS Publication 1. IRC §7803 also added some teeth to the TBOR by stating the Commissioner of Internal Revenue is expected to execute his or her duties in accordance with the taxpayers’ rights. In addition, the commissioner must ensure that employees of the IRS are familiar with and act in accordance with listed taxpayer rights (i.e., the TBOR) as well as other provisions of the IRC.

 

NATIONAL TAXPAYER ADVOCATE

 

Congress also expanded on the functions of the Office of the Taxpayer Advocate. In particular, the national taxpayer advocate is required to carry out the same responsibilities as the Office of the Taxpayer Advocate.

 

With respect to the insight of the taxpayer advocate, IRC §7803(c)(2)(B) requires the taxpayer advocate to report to the Committee on Ways and Means of the U.S. House of Representatives and the U.S. Senate Committee on Finance on the objectives of the taxpayer advocate no later than June 30 of each calendar year.

 

These reports shall contain full and substantive analysis including statistical information. In addition, the reports are provided directly to the committees without any prior review or comments from the Commissioner of Internal Audit, the Secretary of the Treasury, any other officer or employee of the Department of the Treasury, or the Office of Management and Budget. In other words, Congress wants unfiltered information.

 

Being under audit by the IRS can be a daunting experience for any taxpayer. Having the TBOR available can make sure that taxpayers know their rights for an examination, appeal, collection, and refund as they deal with the IRS. IRS Publication 1 is now published in at least 20 different languages in addition to English ranging, in alphabetical order, from an Arabic version to a Vietnamese version.

 

© 2022 A.P. Curatola

 

James W. Rinier, CPA, EA, is an assistant clinical professor of accounting at Drexel University. He can be reached at jwr29@drexel.edu.
Anthony P. Curatola, Ph.D., is editor of the Taxes column for Strategic Finance, the Joseph F. Ford Professor of Accounting at Drexel University, and a member of IMA’s Greater Philadelphia Chapter. You can reach Tony at curatola@drexel.edu.
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