Everyone has heard the horror stories of overreach by the IRS—freezing bank accounts, improper levies, mathematical errors that won’t go away—some true, some maybe exaggerated. Two powerful members of Congress want these stories to stop. Their solution? A proposed a new set of taxpayer protections, including an enhanced ability of taxpayers to sue the IRS. Their proposal allows taxpayers to get civil damages for unauthorized disclosure of their return information and for improper IRS collection activities.
“The IRS has never been anyone’s favorite agency.” This truism was offered by Sen. Chuck Grassley (R-Iowa) upon his introduction along with Sen. John Thune (R-S.D.) of S. 1793, a beefed-up taxpayer protections bill. “Taxpayers shouldn’t be at a disadvantage with an agency that has tremendous power over their money,” Grassley added. The far-reaching bill, entitled the Taxpayer Bill of Rights Enhancement (TBORE) Act of 2017,
Includes the following provisions:
- Damages for Unauthorized Disclosure. Increases from $1,000 to $5,000 the statutory damages for unauthorized inspection of taxpayer information. It also raises to $10,000 the available damages for unauthorized disclosure of taxpayer information and allows taxpayers to seek punitive damages for willful conduct or gross negligence by the IRS. Finally, Treasury would be required to notify taxpayers if any disciplinary action is taken against an IRS employee for unauthorized inspection or disclosure of a taxpayer’s information.
- Longer Time to Sue, Higher Damages. Enhances a taxpayer’s ability to get civil damages from the IRS by delaying the two-year time limit for suing the IRS for improper collection activities. The two years only would begin once the taxpayer reasonably could have discovered the collection was unauthorized. The two-year period also is suspended while the taxpayer pursues administrative appeals. The bill increases the maximum damages from $100,000 to $150,000 for negligent actions and from $1 million to $1.5 million for willful actions. Taxpayers also would be able to seek punitive damages.
- Proceeds from Property Levies. Increases from 9 months to two years the time period that taxpayers have to make the IRS return to them the proceeds from the sale of property that the IRS wrongfully levied.
- Waiver of Installment User Fees. Waives the user fee now charged for taxpayers who use automated withdrawals to pay under installment agreements.
- Wrongful Levies on Retirement Accounts. Protects a taxpayer’s retirement nest egg where the IRS improperly levied on a taxpayer’s IRA or employer-sponsored retirement plan. The bill would permit the taxpayer to recontribute wrongfully levied amounts without regard to contribution limits, abates any tax on distributions, and makes the IRS pay interest on amounts that it has to return to the taxpayer.
- Easier Offers-in-Compromise. Streamlines the process of getting offers-in-compromise approved by eliminating the requirement that the IRS Office of Chief Counsel sign off on offers to compromise liabilities of $50,000 or more. Offers-in-compromise allow taxpayers who are unable to pay a federal tax debt due to financial hardship to settle their tax debt for less than the full tax liability.
- Estimated Tax Penalties. Raises the threshold from $1,000 to $2,000 before a penalty can be being imposed for the underpayment of estimated taxes for both individuals and corporations.
- Simplifies Estimated Taxes. Increases the taxable income threshold for businesses to be able to use a simplified method for determining estimated tax payments. Under current law, companies with taxable income under $1 million may base their estimated tax payments on the previous year’s tax while corporations with taxable income of $1 million or more may not. This bill would increase the threshold to $1.5 million.
- Failure to Deposit Penalty Reduction. Reduces from 10% to 2% the penalty on a taxpayer for failure to deposit payroll taxes for taxpayers who make a deposit on time but not in the manner required.
- Former Spouses Access to Information. Allows former spouses to obtain information about collection activities related to joint returns filed during their marriage by oral request rather than making them submit a written request.
- Free Services for Low-Income, Elderly. Requires that the IRS provide access to free services for low-income and elderly taxpayers to file their annual tax returns.
- IRS Offices in Each State. Requires that the IRS locate at least one appeals officer and one settlement officer in each state. Iowa and South Dakota, the states of the sponsoring Senators, are among the states lacking in this area.
- Tax-Exempt Organization Filings. Requires tax-exempt organizations to file Form 990 electronically and mandates that the IRS make tax information for these organizations available to the public in a timely manner.
- Interest Owed to Taxpayers. Expands interest netting for interest that the IRS has to pay taxpayers.
According to Sen. Grassley, the new taxpayer rights bill “updates and strengthens” provisions enacted in the prior Grassley-Thune legislation that was made a part of the PATH Act (Public Law 114-113), which became law in December 2015. “Our [new] bill sends a clear message to the IRS–Congress is not going to tolerate poor service and the systematic abuse of taxpayer rights,” Sen. Grassley explained on the Senate floor when introducing the bill. Giving taxpayers enhanced rights to sue the IRS for bad behavior is a significant step in the right direction.