Taxpayer Bill of Rights

NEW YORK (MainStreet) — The number of audits dropped by 5% to about 1.5 million last year, and the overall chance of being audited this year is only 1%, according to IRS data. That's good news for most, except the prosperous. Earners with incomes of $200,000 or more had an audit rate of 3.26%. Those with incomes of $5 million or more have an 18% chance of being audited, and the odds jump to 27% for taxpayers who earn more than $10 million.

Advice for the average American unlucky enough to get audited is to prepare to write a lot.

"Most communication with taxpayers is now by correspondence," said Jeremy Scott, editor of Tax Analysts.com's Tax Notes. "The IRS's ability to answer phone inquiries is down. The IRS does not do a good job informing taxpayers of their rights during an examination process."

At issue is how effective appeals of audits actually are.

"Appeals are located within the IRS and under the commissioner," said Scott. "However, it is supposed to be independent in terms of its decisions. There is an appearance that it is not."

The IRS has introduced rules on ex parte communications that bar the appeals department from communicating with other parts of the IRS except in limited circumstances with attorneys.

"Many taxpayers doubt whether those safeguards work and an appeal is often viewed as just a repeat of the audit," Scott told MainStreet.

Taxpayer Advocate Nina Olson is trying to change this by proposing to implement a bill of rights that would give the public a shared understanding of how taxpayers should be treated by their tax authorities.

"The bill of rights has been passed by the House and proposed in the Senate, but it has not been passed into law and it is unclear that it will be," Scott said.

Titled the taxpayer bill of rights, TBOR is modeled after the U.S. Constitution's Bill of Rights and is made up of ten principles to address the fact that too few taxpayers know their rights.

"The bill of rights would help make everyone aware from the start about taxpayer rights," Scott said.

Olson has argued that TBOR can be implemented directly by the IRS and includes the right to be informed, the right to quality service and the right to pay no more than the correct amount of tax.

"The theme that we have for the taxpayer bill of rights is that it is your foundation for effective tax administration," Olson said. "Congress needs to have this so that it can hold the commissioner responsible for running an agency in conformity to these foundational rights."

The National Taxpayer Advocate has completed a number of focus groups and surveys that reveal most taxpayers are completely unaware of what rights they have during the tax administration process and when they are aware they have rights they aren't sure what they are.

"The IRS seems to be emphasizing enforcement much more than service, which is partly a conscious decision and partly a result of dwindling resources," said Scott.

Federal budget cuts are reportedly straining the IRS's ability to monitor tax returns. The agency reportedly has fewer auditing agents than at any time since the 1980s.

--Written by Juliette Fairley for MainStreet

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