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TIGTA Scolds IRS for Name-calling…Again

The office of the Treasury Inspector General for Tax Administration has released a report showing that IRS employees continue to use now prohibited language like “tax protester” and (our personal favorite) “Constitutionally-challenged” in reference to non-compliant taxpayers, despite being barred from doing so since 1998.

Congress enacted the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA 98) Section 3707 to prohibit the IRS from labeling taxpayers as “Illegal Tax Protesters” or any similar designations. However, IRS employees continue to refer to taxpayers by these designations in case narratives. Using “Illegal Tax Protester” or other similar designations may stigmatize taxpayers and may cause employee bias in future contacts with these taxpayers.

Prior to enactment of the RRA 98, the IRS used the Illegal Tax Protester Program to identify individuals and businesses that were using methods that were not legally valid to protest the tax laws. Employees identified taxpayers for referral to the program when their tax returns or correspondence contained specific indicators of noncompliance with the tax law, such as the use of arguments that had been repeatedly rejected by the courts. There were tax protester coordinators who were responsible for determining whether a taxpayer should be included in the Illegal Tax Protester Program; if a taxpayer was classified as an Illegal Tax Protester, the taxpayer’s record was coded as such on the Master File. Once a taxpayer’s account was coded, certain tax enforcement actions were accelerated. The designation was also intended to alert employees to be cautious so they would not be drawn into confrontations with taxpayers.

The IRS has not reintroduced past Illegal Tax Protester codes or similar designations on taxpayer accounts. In addition, the Internal Revenue Manual no longer contains any Illegal Tax Protester references. However, TIGTA found that out of approximately 3.6 million records and cases, there were 38 instances in which 34 employees had referred to taxpayers as “Tax Protester,” “Constitutionally Challenged,” or other similar designations in case narratives on the computer systems analyzed.

The TIGTA made no recommendations after their report, as the IRS has continued to use the term “tax protester” in taxpayer case files when it sees fit, despite the fact that the TIGTA feels this is not in compliance with RRA 98 § 3707 for obvious reasons.

It appears they do this once a year:
The TIGTA Would Prefer It if the IRS Could Use a Nicer Term Than “Tax Protester”

“Even liars and hucksters have First Amendment rights”

A horrible fate must await an attorney when a judge has these things to say about him:

“Just because other accountants and professionals were doing something wrong does not excuse Defendant’s misconduct.”

“Defendant’s reasoning is so specious that he should have known it was wrong.”

“Defendant has been quite adept at hiding his involvement in these activities in an effort to develop what he believes is plausible deniability. Ultimately, his denials are implausible.”

“As stated earlier, the Court believes that promotion of tax schemes and structures is now Defendant’s modus operandi. These were not isolated occurrences, and the nature of his preferred method of business indicates it will continue to ng business.”

“Defendant describes himself as a “rainmaker,” and the Court finds that practically everything he has done in that capacity has been improper. The Court has no reason to believe he would not concoct and promote some other scheme of doubtful validity.”

So this led to…maybe a referral to the local attorney disciplinary board? A broad and sweeping injunction against doing further tax work?

Well, a Kansas City judge barred defendant A. Blair Stover from promoting three “schemes” he no longer promotes anyway. The judge also required him to run any other tax planning ideas by the IRS before marketing them. No disbarment. No banishment. Just “sin no more.”

Why the seeming leniency?

An injunction prohibiting Defendant from providing tax advice raises serious First Amendment concerns. The Government has a strong and valid interest in preventing fraud, and the First Amendment does not protect fraudulent statements. However, the Government has no interest in preventing true statements, and even liars and hucksters have First Amendment rights. Conceivably, Defendant could provide lawful and accurate tax advice, and the Court is unwilling (and probably unable) to prevent him from doing so.

I like the First Amendment. Without it I might have been moved to an oubliette underneath IRS Headquarters long ago. Yet the first in line in the bill of rights hasn’t stopped other judges from shutting down tax scheme promoters. For example, a federal judge enjoined tax protest guru Bill Benson from:

promoting, organizing, or selling (or helping others to promote, organize, or sell) any other tax shelter, plan, or arrangement that incites or assists others to attempt to violate the internal revenue laws or unlawfully evade the assessment or collection of their federal tax liabilities or unlawfully claim improper tax refunds.

Benson appealed on First Amendment grounds. The Seventh Circuit turned him down:

Benson purported to be selling a way to avoid tax liability; what he was actually selling was a way to increase tax and criminal liability for failing to pay taxes. That is false advertising, which may be banned consistent with the First Amendment.

Some years back a Des Moines gentleman vigorously promoted Employee Stock Ownership Plans as a tax cure-all, which had a number of unfortunate consequences. The Eighth Circuit didn’t let the First Amendment get in the way from permanently enjoining him and his CPA practice “…from acting as a service provider to any ERISA plan.”

Perhaps there’s something in ERISA that overrides the First Amendment the same way “ERISA preemption” keeps states from regulating many features of pension plans. Maybe the Eighth Circuit was wrong. But if the Kansas City judge’s opinion gets it right, you can get away with a lot in tax practice before you are drummed out altogether.

The TIGTA Would Prefer It if the IRS Could Use a Nicer Term Than “Tax Protester”

Back in 1998 when some of you were just starting your careers, some of you were discovering alcohol and some of you still hadn’t hit puberty, Congress enacted the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA 98). In Section 3707 of this piece of legislative ingenuity, the IRS is prohibited from using the term “illegal tax protesters or any similar designations.”

Why no name calling? The TIGTA claims it “may stigmatize taxpayers and may cause employee bias in future contacts with these taxpayers.” Plus, it really hurst people’s feelings.

This latest edition of government-mandated IRS bashing especially seems like a stretch since this “problem” of calling a spade a spade isn’t that widespread:

We found that, out of approximately 80.6 million records and cases, there were 196 instances in which employees had labeled taxpayers as “Tax Protester,” “Constitutionally Challenged,” or other similar designations in case narratives on the following computer systems during the period of October 2008 through September 2009[.]

For starters, “Constitutionally Challenged” sounds like something you might apply to a Tea Party member. Secondly, you can do the math on the 196 instances out of 80-odd million but the concern on the part of the Inspector General might be overblown.

Luckily for us citizens, we can throw around any term we want with reckless abandon and there’s no repercussions. That being said, the TIGTA didn’t make any recommendations to the IRS on how to curb the usage of axtay rotestorpay and the IRS didn’t buy the Inspector’s story that the 196 instances were, in fact, violations. So, if you’ve come to the conclusion that this TIGTA report was the biggest waste of time and tax dollars in the history of the Treasury Department, you probably wouldn’t be far off.