taxpayer rights Archives - TAX CONTROVERSY 360

IRS Roundup January 20 – 31, 2025

by Evan Walters, Samuel F. Hamer, Edward L. Froelich and Michael J. Scarduzio | Feb 13, 2025 | Court Procedure Matters, IRS Appeals, IRS Guidance, Tax Reform, Tax Refunds

Check out our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the weeks of January 20, 2025 – January 24, 2025, and January 27, 2025 – January 31, 2025.

TAX-CONTROVERSY-RELATED DEVELOPMENTS

January 22, 2025: The IRS reminded taxpayers that they have rights – outlined in the Taxpayer Bill of Rights – any time they interact with the IRS. These rights cover a wide range of topics and issues and lay out what taxpayers can expect when interacting with the IRS. Taxpayers should also know that the Taxpayer Advocate Service (TAS) is an independent organization within the IRS that helps taxpayers and protects their rights for free. TAS can help if assistance is needed to resolve an IRS problem, if a problem is causing financial difficulty, or if an IRS system or procedure isn’t working as it should.

January 24, 2025: Alarm Concepts Inc. filed a class action lawsuit against the IRS and Booz Allen Hamilton Inc. after being notified that its tax data was stolen and leaked by Charles Littlejohn, a Booz Allen employee contracted to work at the IRS. Littlejohn pled guilty in October 2023 to unlawfully disclosing confidential tax returns and return information between 2018 and 2020. The breach appears to have affected tens of thousands of taxpayers.

The lawsuit alleges that the IRS failed to implement adequate cybersecurity measures despite repeated warnings, and that Booz Allen neglected to protect the data. The stolen information includes sensitive details from Forms 1099 and Schedule K-1. The lawsuit highlights ongoing risks of identity theft and fraud for the affected taxpayers.

The lawsuit asserts that Alarm Concepts and class members are entitled to statutory damages of $1,000 for each unauthorized inspection or disclosure, as well as punitive damages because the disclosures were willful or the result of gross negligence.

January 30, 2025: The US Senate Committee on Finance released a bipartisan discussion draft of legislation aimed at improving IRS procedures and administration. The proposed bill, named the Taxpayer Assistance Service Act (TAS Act), seeks to enhance the taxpayer experience by facilitating better communication with the IRS, streamlining tax compliance and dispute processes, and ensuring timely expert assistance. Key provisions include improving “math error” notices, expanding US Tax Court jurisdiction, simplifying foreign bank account report compliance, and expanding access to the IRS Independent Office of Appeals. The draft also aims to expand the independence of the National Taxpayer Advocate (NTA) from the IRS and strengthen the IRS whistleblower program while protecting the confidentiality of taxpayer information.

The proposed bill reflects nonpartisan recommendations and seeks to address challenges faced by taxpayers within the current tax system. Proponents of the proposed bill include the current NTA Erin Collins and the long-serving former NTA Nina Olson. Olson described the TAS Act as a “sweeping piece of legislation that promises to improve federal tax administration and increase taxpayer protections.”

TAX RETURN FILING SEASON DEVELOPMENTS

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IRS Holding 2017 Overpayments to Satisfy Future Section 965 Liabilities

by David G. Noren, Lowell D. Yoder and Sandra P. McGill | May 9, 2018 | IRS Guidance, Uncategorized
In a surprising development, the Internal Revenue Service (IRS) has announced that if a taxpayer’s 2017 payments, including estimated tax payments, exceed its 2017 net income tax liability described under Internal Revenue Code (Code) Section 965(h)(6)(A)(ii) (its net income tax determined without regard to Code Section 965) and the first annual installment (due in 2018) pursuant to an election under Code Section 965(h), the taxpayer may not receive a refund or credit of any portion of properly applied 2017 tax payments unless—and until—the amount of payments exceeds the entire unpaid 2017 income tax liability, including all amounts to be paid in installments under Code Section 965(h) in subsequent years. Thus, for taxpayers making an election under Code Section 965(h) to pay the transition tax over 8 years through installment payments, any overpayments of 2017 tax liabilities cannot be used as credits for 2018 estimated tax payments or refunded, unless and until the overpayment amount exceeds the full 8 years of installment payments.

The IRS’s position, announced on April 13, 2018 (the last business day before the normal due date for the filing of 2018 individual income tax returns), effectively allows the IRS to deprive taxpayers of the use of funds and credits for overpayments for a potentially multi-year period. This position is at odds with the normal practice of allowing refunds or credits of overpayments and arguably violates Code Section 7803(a), which provides for certain taxpayer rights. This position also would seem to be in conflict with Code Section 965(h) itself, allowing the Code Section 965 transition tax liability to be paid in eight backloaded installments rather than immediately. The AICPA sent a letter to the IRS on April 19, 2018, urging the IRS to change its position to avoid the “detrimental impact on all affected taxpayers, including individuals, small businesses and large corporations.” We are hopeful that the IRS will reconsider this misguided policy, but in the meantime, taxpayers need to be aware of it. Please contact one of McDermott’s lawyers if you think you might be affected by the IRS’s position on this subject.

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Taxpayer Rights Around the World (Follow-Up)

by McDermott Will & Emery | May 4, 2017 | Court Procedure Matters, IRS Guidance, Transfer Pricing Resource, Uncategorized
We previously wrote two blog posts about the 2nd International Conference on Taxpayer Rights held in Vienna, Austria in March 2017 here and here. Videos of each panel discussion are now available for viewing here. Planning is currently underway for the 3rd International Conference on Taxpayer Rights, which will be held in The Netherlands on May 3-4.

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Taxpayer Rights Around the World (Part 2)

by McDermott Will & Emery | Mar 24, 2017 | Court Procedure Matters, IRS Guidance, Transfer Pricing Resource, Uncategorized
We previously posted on Day One of the 2nd International Conference on Taxpayer Rights in Vienna, Austria. Below, we summarize the panels and issues discussed on Day Two.

Four panels were held on March 14: (1) Penalties and General Anti-Avoidance Rules; (2) The Role of Intergovernmental Actors in Furthering and Protecting Taxpayer Rights: A Conversation; (3) Building Trust I: Transforming Cultures of Tax Agencies; and (4) Building Trust II: Safeguards on Tax Agency Power.

Penalties and General Anti-Avoidance Rules

This panel looked at current research on the use of penalties and general anti-avoidance rules in tax administration from the perspectives of legal and economic theory and taxpayer behavior. Studies were discussed that found that delayed feedback on tax audit often results in increased tax compliance but reduces the perception of procedural fairness and diminishes trust in the taxing authorities. Participants in the studies viewed receiving delayed feedback and increasing the probability of audits and the potential for more fines. One conclusion presented was that the delay resulted in longer periods of uncertainty and may yield higher levels of honesty in the short term, but might undermine tax compliance in the long term. (more…)

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Taxpayer Rights Around the World (Part 1)

by McDermott Will & Emery | Mar 22, 2017 | Court Procedure Matters, IRS Guidance, Transfer Pricing Resource, Uncategorized
On March 13 and 14, the 2nd International Conference on Taxpayer Rights was held in Vienna, Austria. More than 150 individuals from more than 40 countries attended the conference, which connects government official, scholars and practitioners from around the world to explore how taxpayer rights globally serve as the foundation for effective tax administration. This is the first of two posts recapping the issues discussed at the conference.

Four panels were held on March 13: (1) The Framework and Justification for Taxpayer Rights; (2) Privacy and Transparency; (3) Protection of Taxpayer Rights in Multi-Jurisdictional Disputes; and (4) Access to Rights: the Right to Quality Service in an Era of Reduced Agency Budgets.

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