Congress Should Ensure Taxpayer Rights Are Protected From IRS Abuse

While bipartisan accomplishments in Washington are slim these days, an area of broad agreement for decades has been the need to keep a close eye on the IRS. Most notably, following media reports of rampant abuse by the tax collecting agency, Congress passed the Internal Revenue Service Restructuring and Reform Act (RRA) of 1998 with only ten dissenting votes in the House and Senate. The legislation instituted stronger oversight of the agency’s powers and sought to put in place guardrails to protect taxpayers from unjust and abusive actions.

Unfortunately, the IRS does not appear to have taken to heart the message from Congress.  A compelling special report from Tax Notes (subscription) last week (“The Troubling Rise of Injunction Suits”) brings to light how the agency is attempting to flout those taxpayer protections through the use of injunction actions it asks the Department of Justice to bring.

As recently as 2015, Congress provided bipartisan support to the reforms initiated by RRA98, importantly codifying the rights of taxpayers to be informed of the IRS position, to appeal an IRS decision, and to have their interactions with the agency kept private and confidential.  However, the IRS takes the position that these codified taxpayer rights only constrain its direct actions, not the injunction lawsuits pursued by the Department of Justice Tax Division on behalf of the IRS. DOJ officials have made clear they do not feel bound by the same standards as the IRS.  Instead of respecting taxpayer confidentiality, DOJ officials publicly broadcast their injunction actions in inflammatory press releases that serve to not just communicate proceedings to the public, but in many cases allege outright wrongdoing, smearing taxpayers in the process.

Congress in 2015 further decreed that taxpayers have a “right to a fair and just tax system.” But the DOJ’s accompaniment of these injunction suits with demands for “disgorgement” contradicts the letter and spirit of the law that protects taxpayers from predatory confiscation of wealth without due process. DOJ frequently demands that an individual or business forfeit any income associated with the government’s injunction claim -- and with no statute of limitations to restrain the agency’s ability to reach back into a taxpayer’s history, a defendant could be responsible for answering charges of alleged misbehavior that is decades old.  In practice, the government is using the power of public exposure to shred due process protections ordinarily afforded taxpayers and the threat of confiscatory disgorgement to coerce taxpayers to surrender before a court can consider the correctness of the IRS/DOJ actions.

NTU has long argued that the statutory barriers that prevent taxpayers from enforcing their rights in courts should be addressed by Congress and testified to that effect as recently as 2015. One of those barriers is named, ironically, the Anti-Injunction Act. Just last year, NTU submitted a friend of the court brief in a case where the IRS’s discriminatory actions contradict the protections enshrined in the 1998 law.

It is obvious that both the IRS and the DOJ have a legitimate interest in maintaining robust tools to root out fraud and abuse in our tax systems. But those tools should be constrained in a way that significantly limits the ability of either agency to pursue capricious litigation (and public vilification of taxpayers). For decades, overwhelming bipartisan majorities in Congress have agreed that the IRS must be held to strict standards of conduct. With the tax-collecting agency increasingly shifting the burden of enforcement to the DOJ, Congress should demand to know how the IRS whose mission statement it changed in 1998 to include “applying the tax law with integrity and fairness to all” is upholding that standard.