The IRS should avoid to a soon-to-be distressing event for taxpayers. Professor Keith Fogg of Harvard Law (and head of its Tax Clinic) recently wrote an article discussing a time-bomb blog post by Erin M. Collins, the National Taxpayer Advocate. Professor Fogg details in good order her comments concerning the IRS’s upcoming issuance of 20M Tax Notices with expired due dates and action dates and deadlines that have passed (“Expired Notices”). The Expired Notices are set to arrive in taxpayer mailboxes starting July 15th and over the following months. This is due to IRS computer-generated tax notices while IRS personnel were furloughed. At this time, the IRS has chosen the path of least resistance, but it is a path with the greatest potential for taxpayer harm. It decided – in lieu of destroying the old and creating new tax notices – to include an insert in the back of the Expired Notices with new applicable due dates.
Communication to the public is poor at best. Many taxpayers, and even practitioners, are unaware the inserts exist. Professor Fogg correctly highlights some of the unintended consequences of this approach. There are several:
First, IRS official transcripts (its official “business records”) will now bear incorrect dates – making IRS “official” transcripts or its official “business records” unreliable (as evidence in court and other contexts);
Second, there is also a trickledown effect – with incorrect assessment dates, incorrect timelines and the possibility of premature collection actions and tax lien filings;
Third, there is the last known address problem. For an IRS Notice and demand letter to be valid, it must use the taxpayer’s last address on his or hers most recently filed tax return. As of March 1st, 2020, some 60M taxpayers (many more now) had filed their 2019 tax returns. Now, there is a disconnect between any new address changes on 2019 tax returns and the Expired Notices set to mail in a couple weeks – thus, creating invalid notice and demand letters; and,
Fourth, taxpayer confusion may lead to important deadlines missed – from CDP rights deadlines and deadlines to respond to IRS mathematical adjustments, and others.
The IRS itself however is not immune to the impact of the Expired Notices. Professor Fogg notes that taxpayers may challenges the notices and “lean on a rights-based ‘Failure to Inform’ argument as grounds to invalidate [a] proposed collection action.” He is referring to the first Right under The Taxpayer Bill of Rights (TABOR). And he is correct; and because TABOR is codified, the IRS should be fitted for battle.
There are ten codified taxpayer rights under TABOR. The Expired Notices (with expired deadline dates) potentially implicates eight of the ten taxpayer rights: (1) the right to be informed; (2) the right to quality service; (3) the right to pay no more tax than the correct amount of tax; (4) the right to challenge the position of the IRS and to be heard; (5) the right to appeal a decision of the IRS in an independent forum; (6) the right to finality; (7) the right to retain representation; and (8) the right to a fair and just tax system. These taxpayer rights, the “Late Eight”, are all potentially activated by the Expired Notices.
Nina Olson, former National Taxpayer Advocate, worked years – and surely late nights – to get TABOR passed by Congress in 2015. On the House floor in 2015, Former U.S. Rep. Peter Roskam (Illinois) spoke with imagery eerily similar to the issues of today. He describes a taxpayer’s feelings about receiving IRS Notices in the mail generally:
“It is a very sobering thing to get a letter from the Internal Revenue Service and to not know what is inside. It is one thing if you go to the mailbox, and it is one of those ones that is a little bit colorful, and you say, Hey, that is a tax refund in there, and isn’t that a delightful piece of mail? Everybody is happy to see that. Yet, when you get one of those other ones that is black and white and has all of that sort of nefarious print — and you know the kind I mean — it sends a chill through you.”
One can imagine those feelings magnified when a taxpayer receives an Expired IRS Notice with critical deadlines long passed. Rep. Roskam goes on to make clear the intention of TABOR. Specifically, he highlights the statements by Ms. Olson to Congress. Namely, her vision: “to restore taxpayer trust in both the IRS and the tax system” and to “provide taxpayers with critical information to assist them in their dealings with the IRS…” Rep. Roskam describes fear and Professor Fogg forecasts confusion. When coupled together, it is hard to image fear and confusion fulfilling TABOR’s intent and maintaining the institutional integrity of the IRS.
One need not look further than the descriptions of the “Late Eight” themselves.
To Be Informed. … taxpayers are entitled to clear explanations of the laws and IRS procedures in all tax… notices, and correspondence. They have the right to be informed… and to receive clear explanations of the outcomes.
Clarity cannot be achieved by inserts at the back of an ominous IRS notice. The failures as to this taxpayer right are self-evident.
Quality Service. Taxpayers have the right to receive prompt, courteous, and professional assistance in their dealings with the IRS, to be spoken to in a way they can easily understand, to receive clear and easily understandable communications from the IRS…
Notices with two conflicting deadline dates, built on a foundation of fear, present many difficulties. It makes little difference that one date supersedes the other. The “two-date” deadline dates are not inherently understandable and clear. This misunderstanding will increase traffic to IRS call centers, lengthen lines at taxpayer assistance offices, further overwhelm TAS and result in taxpayers foregoing professional advice they may need. Complication is not quality service.
Pay No More than the Correct Amount of Tax. Taxpayers have the right to pay only the amount of tax legally due, including interest and penalties, and to have the IRS apply all tax payments properly.
There is a high potential for taxpayers to pay tax due prematurely, before it has been legally assessed.
Challenge the IRS’s Position and Be Heard. Taxpayers have the right to raise objections and provide additional documentation in response to formal IRS actions or proposed actions, to expect that the IRS will consider their timely objections and documentation promptly and fairly, and to receive a response if the IRS does not agree with their position.
A lone insert is inadequate to ensure taxpayers may support their positions with thoughtful objections and additional documentation. In fact, they may miss that opportunity entirely. Documentation is the foundation of a taxpayer’s objection. In this regard, statutory legal rights are at stake, and the inserts offer a risk that does not outweigh its reward. Missed deadlines and no documentary support for taxpayer positions is akin to the IRS winning summary judgement after summary judgement on each collection action it proposes. Such a result is directly opposed to the intention of TABOR.
Right to Appeal an IRS Decision. Taxpayers are entitled to a fair and impartial administrative appeal of most IRS decisions, including many penalties, and have the right to receive a written response regarding the Office of Appeals’ decision. Taxpayers generally have the right to take their cases to court.
A taxpayer’s right to judicial review cannot be gambled upon a slip-sheet. Such a wager offends our most fundamental notions of Due Process.
Finality. Taxpayers have the right to know the maximum amount of time they have to challenge the IRS’s position as well as the maximum amount of time the IRS has to audit a particular tax year or collect a tax debt.
“Time is of the essence” is one of the most overused legal terms of art. But in the tax world, it carries critical meaning. If it cannot be said with high degree of certainty that a slither of an insert achieves clarity, then it cannot be said that the right of finality is fulfilled.
Retain Representation. Taxpayers have the right to retain an authorized representative of their choice to represent them in their dealings with the IRS.
The right to representation is fundamental to the greatness of our legal system. Any danger to it, like mistakenly believing representation is futile, must be avoided. In this instance, a taxpayer may believe his or her time to challenge an IRS assessment is lost and representation would be a sunk cost.
Fair and Just Tax System. Taxpayers have the right to expect the tax system to consider facts and circumstances that might affect their underlying liabilities, ability to pay, or ability to provide information timely.
The Expired Notices make it unduly burdensome to readily and reliably comprehend timelines, if see them at all. In a tax system based on voluntary reporting, notions of fairness are indispensable. But a high potential for untimeliness – not the fault of the taxpayer – will be perceived as unjust, and where expectations of fairness erode, so does taxpayer compliance.
Courts may too interrupt the Expired Notices as running afoul of TABOR. Courts traditionally begin with the plain meaning of words used in a statute. Words like “clear”, “easily understandable”, “timely” and “right” would be under the microscope in a court challenge. It is easy to image an allegation, for example, of unauthorized collection action by the IRS because of a misleading and muzzy notice of intent to seize or levy property. Courts then would be asked to answer questions about whether a simple slip of an insert, in the back of a portentous IRS Letter, rises to the level of having meaningful effect. Asking the court whether it protects taxpayer rights in a clear and easy to understand manner. This may prove to be a tall order for the IRS.
Further still, courts may look to other persuasive authority, like the Internal Revenue Manual, in making its determination. In it, they will find Sections discussing, for example, audit requirements to send taxpayers clear and concise and easy to understand correspondence. The idea that taxpayers should know their legal rights with an expectation of simplicity is not novel. Professors Fogg’s sentiment that “the IRS should throw away these letters” is spot-on. The inserts lack meaningfulness and they fail the most important piece of taxpayer legislation to date. The potential harm tramples on taxpayer rights and the public resources required to defend challenges to the Expired Notices may outweigh the costs of a correction and reprint.
The anxiety over COVID 19 is quite enough. Throw away the inserts. They may prove to be no more value than the coupons in a Sunday paper.
 161 Cong Rec H 2230, Vol. 161, No. 54, April 15, 2015