Nina Olson, National Taxpayer Advocate, has vocally castigated the IRS in an annual report to Congress. She states in her report that the penalties charged to offshore accounts are unfair. She also states that the IRS treats American expats who have innocently made errors in their tax reporting disparately. She is asking that any offshore activity stopped being treated illegal by the IRS.
National Taxpayer Advocate is determined to help American Expats
In her report, Ms. Olson also states that in addition to changes being needed by the IRS, action is needed by Congress as well. She states that the FBAR penalties are totally out of proportion and is asking for legislation to reduce them. As well, she claims that the IRS main offshore program is unfair and that innocent taxpayers are often stuck with outrageous penalties. She supports this by citing that the intended ‘amnesty’ penalties are more than eight times the unreported tax. In this report, Ms. Olson also stated that the penalty for civil tax fraud is over ten times the 75%.
While those penalties do not make any sense, according to Ms. Olson’s report, taxpayers without any representation paid even more. As well, she states that taxpayers are still being penalized by earlier IRS program even though there is the Streamlined deal available now. According to Ms. Olson’s report, this is an unfair treatment when those taxpayers have followed the IRS’s requirements.
Confidence in the IRS is eroded because the interpretations of their FAQs are one sided. As well, in regards to the post-opt-out examination, the FAQs are not appealable, explainable and are unpublished. Under the 2014 Streamlined program, benign actors are now allowed by the IRS to pay a smaller penalty, yet the taxpayers that have a signed closing agreement are not allowed any benefits from the recent changes.
In the vaunted Taxpayer Bill of Rights from the IRS, taxpayers do not have to pay no more than the correct amount of tax. They also have the right to be heard and to challenge the IRS’s position as well as to file an appeal on an IRS decision using an independent forum. Taxpayers also have the right to be informed and have a tax system that is fair and just.
The report presented by Ms. Olson asks if those rights are real and true as well as it asks, where are they? It is believed by this tax advocate that taxpayers should be allowed to discuss and even appeal the interpretations of the IRS. It is also believed that taxpayers should benefit from recent changes by amending their closing agreements with the IRS. The following is in regards to the Taxpayer Bill of Rights.
The Taxpayer Advocate has requested legislation that will reduce the civil penalties on the FBAR as well cap them. Also, no penalties must be assessed if the FBAR account is located in the country where the taxpayer resides. This account is not considered a “foreign account” for this taxpayer.
The Taxpayer Advocate has also asked that even when FBAR penalties are appropriate, they should be waived if there is no proof of connection between the account and a crime. The IRS must have to prove willfulness instead of making the taxpayer prove they had not willfully violated any IRS rules. The 1970 FBAR threshold of $10,000 should be raised to $50,000, according to the Advocate. This would put it in line with Form 8938 threshold of $50,000. It is also proposed by the Advocate that duplicated forms like FBAR and 8938 be combined.
Overview of Taxpayer Bill of Rights
The IRS is working to assure taxpayers that they do have some rights when faced with daunting issues in the tax process. Twice in the 1990s, Congress passed taxpayer bill of rights, and while many believe they should do this again, it is the IRS itself that has taken action instead.
Such as their adoption of a “Taxpayer Bill of Rights” that they have designed by taking the existing taxpayer rights and break them into 10 categories. The IRS believes that along with the extensive discussions that have been held with the Taxpayer Advocate Service, they have reached out to give taxpayers more confidence. Nina Olson, the National Taxpayer Advocate, listed this at the top of her recent Annual Report to Congress.
Ms. Olson has been quoted as saying “Congress has passed multiple pieces of legislation with the title of ‘Taxpayer Bill of Rights. However, taxpayer surveys conducted by my office have found that most taxpayers do not believe they have rights before the IRS,” She continues saying “…. and even fewer can name their rights.” Ms. Olson believes that what the IRS announced as core taxpayer rights will help taxpayers have a better understanding of their rights in regards to how they can deal with the tax system.
Taxpayer Bill of Rights
Similar to the U.S. Constitution’s Bill of Rights, there are 10 provisions in the Taxpayer Bill of Rights, which are as follows:
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
The IRS Publication 1, “Your Rights as a Taxpayer,” has these rights incorporated and has been sent out to millions of taxpayers that received notices from the IRS. Those notices ranged from issues such as audits to collections. Taxpayers and employees can find these rights in all IRS facilities and are currently available in English and Spanish.
There will be updated versions forth coming in Chinese, Korean, Russian and Vietnamese. A section has been set up on the IRS website to highlight these 10 taxpayer rights.
John Koskinen, IRS Commissioner was quoted as saying “While these rights have always been there for taxpayers,” and continued with “… we think the time is right to highlight and showcase these rights for people to plainly see.” Mr. Koskinen also said “I also want to emphasize that the concept of taxpayer rights is not a new one for IRS employees; they embrace it in their work every day. But our establishment of the Taxpayer Bill of Rights is also a clear reminder that all of the IRS takes seriously our responsibility to treat taxpayers fairly.”
Do you know of the Taxpayer Bill of Rights? Did you reach to the National Taxpayer Advocate with expat questions?