Senate Finance Committee approves legislation to protect taxpayer privacy rights

WASHINGTON, D.C. – Recently, the United States Senate Finance Committee approved the bipartisan Taxpayer Protection Act, which includes legislation authored by U.S. Senator Portman (R-Ohio) that he introduced earlier this month.

“It’s bad enough that American workers, families, and businesses have been saddled with a complicated, out-of-date tax code,” Portman said. “Even worse is that many Americans have lost trust in an IRS that has recently targeted conservative groups and failed to be good stewards of taxpayers’ money and our tax laws. My provision in this legislation will protect the rights of taxpayers by ensuring that the IRS can’t outsource an audit.”

Portman’s provision added to the Taxpayer Protection Act today protects taxpayer privacy by preventing the IRS from using external legal counsel to conduct IRS examinations. Under current regulations, external non-IRS attorneys can receive, review, and use summoned books, papers, records, or other data of taxpayers, and be present during taxpayer interviews. The amendment effectively rescinds these temporary regulations, helping to ensure that taxpayer information is not misused or unlawfully disclosed by outside counsel.

The Committee also added an amendment to the Taxpayer Protection Act today based on another provision of Portman’s bill. This provision requires the nonpartisan Government Accountability Office to identify and report on all of the IRS’s reasons for not allowing taxpayers an opportunity for administrative review in appeals.

Portman’s legislation added to the Taxpayer Protection Act prevents the IRS from denying the right to appeal by:

  • preventing the IRS from issuing a statutory notice of deficiency (90-day letter) without first issuing a 30-day letter, which provides the taxpayer with the opportunity to resolve their case with Appeals before filing a Tax Court petition.
  • ensuring that cases “designated for litigation” are truly only those that present recurring, significant legal issues that affect a large number of taxpayers by mandating that the IRS publicly identify the types of cases that will be designated.
  • ensuring that “designated summons” that extend the statute of limitations are only used in cases where taxpayers are uncooperative and withholding information by putting the onus on the IRS to prove that taxpayers are being uncooperative and requiring the Office of the Chief Counsel to approve the use of the designated summons.

Portman’s legislation has received support from groups such as the National Association of Manufacturers, the Coalition for Effective and Efficient Tax Administration, the Small Business and Entrepreneurship Council, National Taxpayers Union, Citizens Against Government Waste, and the Taxpayer Protection Alliance.

BACKGROUND: The IRS Restructuring and Reform Act of 1998 requires that the Commissioner of the IRS ensure taxpayers have the right to appeal to the IRS Office of Appeals. However, recent IRS tactics have sought to deny taxpayers the right to appeal, forcing them to pay the IRS’s initial tax assessment or go to court. The IRS also recently retained a private law firm to conduct an audit of a private taxpayer – a practice unprecedented in the history of the IRS. Portman’s new bill gives taxpayers the ability to appeal to the IRS Office of Appeals and ensures that the IRS can’t farm out audits of private taxpayer information to outside law firms.

Portman has been a leader in the effort to rein in IRS abuses. The year-end tax extenders legislation included three Portman-authored bills designed to help in this effort to stop IRS abuses:

  • The Taxpayer Bill of Rights Act provides transparency, assistance, and clearly defined rights for taxpayers when dealing with the IRS. Specifically, the law says that taxpayers have the right to be informed; the right to be assisted; the right to be heard; the right to pay not more than the correct amount of tax; the right to appeal; the right to certainty; the right to privacy; the right to confidentiality; the right to representation; and the right to a fair and just tax system.
  • The Prevent Targeting at the IRS Act authorizes the IRS to terminate employees who target individuals based on their political beliefs. This law allows the IRS to terminate any employee who, for political purposes, undertakes official action with respect to a taxpayer or, depending on the circumstance, delays or fails to take action.
  • The Fair Treatment for All Donations Act permanently ensures donations to nonprofit organizations are not subject to the gift tax. Since the gift tax’s enactment in 1932, it has been inconsistently applied to donations to tax-exempt organizations. This law codifies the IRS’s current interpretation that the tax does not apply to these donations, giving taxpayers certainty and ensuring that the tax can’t be applied based on a donor’s political beliefs.

Staff report