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Audits, collections, tax levies and liens: These terms can strike fear in the hearts of taxpayers everywhere.
You may fear that making a mistake on your tax return will have dire consequences. But the IRS strives for fairness when it comes to taxes. Its Taxpayer Bill of Rights outlines your rights as a taxpayer and how the IRS conducts audits, hears appeals, collects taxes and issues refunds.
Let’s look at the Taxpayer Bill of Rights and some of the most common situations in which you may need to understand and apply your rights as a taxpayer.
What is the Taxpayer Bill of Rights?
The IRS first adopted a bill of 10 fundamental taxpayer rights in 2014. A year later, Congress placed those rights into the Internal Revenue Code, the foundation of federal tax law. Since then, the IRS has worked to inform taxpayers about the Taxpayers Bill of Rights and continually shares the rights internally with its employees.
You can read the full list of taxpayer rights here, but let’s cover each briefly.
1. The Right to be Informed — Ignorance of the law may not get you off the hook if you run afoul of tax laws. But having access to information about what you need to do to comply with tax laws could help keep you out of trouble. This right is intended to ensure you have the information you need to be a law-abiding taxpayer, as well as information pertaining to IRS decisions and outcomes about your tax account.
2. The Right to Quality Service — It may seem like customer service isn’t what it used to be in a lot of industries, but this right requires that IRS employees treat you with courtesy, promptness and professionalism. This means they must speak with you in a way you can understand and be reasonable about when and where they contact you. For example, they shouldn’t call you before 8 a.m. or after 9 p.m., or contact you at work if they know your employer doesn’t allow personal calls.
3. The Right to Pay No More than the Correct Amount of Tax — As a responsible taxpayer, you may be willing to pay your fair share, but not more than that. This right says you shouldn’t have to pay more than what you actually owe. For example, if the IRS decides you owe additional tax, you can challenge their assessment in Tax Court without paying the added tax first. However, be aware that time limits apply, and you’ll need to file a petition to have your case heard in tax court within those limits.
4. The Right to Challenge the IRS Position and be Heard — If the IRS takes action against you, or informs you it’s intending to act, you have the right to object and to argue your case with documentation that supports your side of the disagreement. The IRS has to consider your objection — as long as you were timely in making it — promptly and fairly, and explain in writing if it decides you still owe more tax.
5. The Right to Appeal an IRS Decision in an Independent Forum — Your right to challenge an IRS decision extends outside the service. This right ensures you can also appeal an IRS decision to an independent IRS Office of Appeals outside the IRS office that first reviewed your case. For certain situations, the IRS Office of Appeals has the full authority to settle your case, plus you can challenge an IRS decision in court.
6. The Right to Finality — This right ensures that you know and understand how much time you have for challenging an IRS position in addition to understanding the timeline for an IRS audit.
7. The Right to Privacy — This right requires the IRS to be as unobtrusive as possible when conducting an inquiry, examination or enforcement. Further, the IRS must follow due process, including search and seizure protections. This means the IRS can’t seize certain personal items (like clothing or undelivered mail) or take your home without first getting court approval and showing it has no other way of collecting the tax you owe.
8. The Right to Confidentiality — Unless you or the law authorize it to do so, the IRS can’t share your tax information with third parties. This right also applies to your interaction with tax return preparers, who could face criminal fines and prison if they disclose or use your information improperly for any purpose other than for tax preparation unless authorized by the taxpayer or by law. Plus this right makes confidential the communications between you and any tax professional authorized to practice before the IRS if you’ve hired one to represent you.
9. The Right to Retain Representation — Just as you have the right to be represented by an attorney when dealing with law enforcement, you have the right to have someone (for example, an attorney, CPA or enrolled agent) represent you in dealings with the IRS. If you can’t afford to pay someone, the IRS must make you aware that you might be able to get help from a Low Income Taxpayer Clinic. And if you do pay for someone to represent you in a disagreement with the IRS, and you win in court, you might be able to recover some of the costs.
10. The Right to a Fair and Just Tax System — This right basically ensures you’re not just a number — or a tax bill — when you’re dealing with the IRS. This means the IRS must consider your entire life circumstances, including factors like your ability to pay or provide information in a timely manner, your mental and physical health, and any economic hardships you face. It also provides the added security of knowing your tax preparer may be subject to penalties if they take a unreasonable or reckless position that results in underreporting your tax on your tax return. Plus this right prohibits the IRS from seizing all your wages if you owe a tax debt; they must leave you enough to cover basic living expenses.
Common tax rights questions
Now that we’ve reviewed your rights as a taxpayer, let’s look at some common tax scenarios and how your rights could apply in each situation.
What are your rights when you can’t pay your taxes?
The Taxpayer Bill of Rights includes the right to have your financial situation taken into account, such as your ability to pay (Right No. 10). So if you know you’re going to owe more in taxes than you can pay by Tax Day, explore your options.
It’s best to be proactive. Contact the IRS right away and look into getting more time to pay or arranging monthly payment installments. In the case of severe financial hardship, the IRS may consider an offer in compromise, which could reduce the amount you owe.
However, be aware that when you can’t pay your taxes on time, you could face interest charges on the unpaid amount plus penalties and fees, even if you’ve made other payment arrangements, like monthly installments.
And if you suspect you’ll have some trouble paying any taxes you might owe, be sure to file your return on time, even if you’re not making a payment — the IRS could also ding you for filing a late return in addition to not paying on time.
Can the IRS seize your property without due process?
If you owe a tax debt, the IRS does have the ability to legally seize your property to satisfy the debt. They can garnish your wages, take money from your bank account or other financial account, and seize and sell any real estate, vehicles or other personal property you own. This is done through a tax levy, either a one-time or continuous levy.
However, a levy doesn’t just fall on you out of the blue. Plus you have protections under the Taxpayer Bill of Rights that apply when you’re facing a tax levy.
The IRS must follow an established process to collect taxes you owe, and it will start by sending you a bill. Per Right No. 1, the bill will clearly state how much you owe. If you don’t respond to IRS notices informing you of your tax debt and requesting you to pay or make payment arrangements, or you refuse to pay the tax, then the IRS can issue a levy.
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Before seizing money from your wages or bank account, the IRS should send you a Final Notice of Intent to Levy and Notice of Your Right to a Hearing at least 30 days before they take action. On that notice, the IRS will give you a window of time in which you can request a Collection Due Process hearing with the IRS Office of Appeals (Right No. 5). Using your hearing, you can challenge the levy or seek a compromise or payment plan with the IRS to halt or release the levy.
What the IRS cannot do is issue a levy without first going through the collection process that gives you notice and informs you of your right to a hearing. If this happens, you may be able to have the levy released and any proceeds returned to you. There’s a time limit though — requests for return of levy proceeds have to be made within nine months of the levy start date.
The best course of action, however, is to address any adjustments or debts with the IRS before it comes to risking a levy. Always make sure to keep the IRS up to date with your current address so that you never miss important notices.
What are your rights when you’re in collections with the IRS?
If you’re in the process of collections, you have the right to challenge the IRS and be heard (Right No. 4). There are several options to explore before your situation escalates.
If you don’t agree with the tax bill or notice you received, begin communicating with the IRS as soon as possible, and take action to minimize any fees or penalties. The notice you got should include information for how to pay and how to challenge or provide more information. Of course, we know from Taxpayer Right No. 9 that you’re entitled to representation from a tax attorney, enrolled agent or certified public accountant (or advice from the Low Income Taxpayer Clinic). If you can’t pay the amount requested, then you may have options for installments, delayed payment or even a compromise.
What are your rights when there’s a tax lien against your home?
Unlike a tax levy, a federal tax lien doesn’t seize your property. A tax lien is a legal claim against the property (real estate, personal property or financial assets) that you must satisfy if you sell it.
Like a levy, a lien only occurs after a set process. Typically, when you owe unpaid taxes, the IRS will send you a bill. If you don’t pay the bill in full and on time, or fail to make payment arrangements, the IRS can place a tax lien on your property, usually filing a Notice of Federal Tax Lien in the public record when it does so. You’ll typically receive a notice five days after the filing, notifying you of your right to a Collection Due Process hearing with the IRS Office of Appeals.How does a tax lien affect my credit?
When you’re facing a tax lien, your immediate rights as a taxpayer include the following:
- The right to request a Collection Due Process hearing to have your stance heard and even ask for an audit reconsideration (Rights No. 4 and 5).
- You also have the right to hire and involve an attorney, enrolled agent, certified public accountant or a representative from the Low Income Taxpayer Clinic (Right No. 9).
- You also may have the option to get a Notice of a Federal Tax Lien removed from your credit history if you satisfy some of the requirements.
- You have the right to have your ability to pay considered and explore other options, including to pay in installments or seek a compromise with the IRS to settle your bill (Rights No. 3 and 10).
The Taxpayer Bill of Rights ensures U.S. taxpayers aren’t powerless when dealing with the IRS. That said, the IRS does have the ability to require you to pay your taxes — if you’re able — and if you don’t pay, to hit you with fines, penalties and fees, or even seize your property and sell it.
To get the most benefit from your rights as a taxpayer, it’s important to always be proactive and responsive when dealing with the IRS. Showing the IRS you’re willing to work with them may encourage the agency and its representatives to be more willing to work with you toward resolving any tax issues you may have.