Bill of Rights +
IRS Treatment of Victims +
Exempt Organization Issues
June 10, 2014, the IRS adopted a Taxpayer Bill of Rights (TBOR),
a list of 10 rights that the National Taxpayer Advocate
Nina Olson, has long recommended to help taxpayers and IRS
employees alike gain a better understanding of the dozens of
discrete taxpayer rights scattered throughout the
multi-million word Internal Revenue Code.
A taxpayer survey conducted for the Taxpayer Advocate Service
(TAS) in 2012 found that fewer than half of U.S. taxpayers
believe they have rights before the IRS, and only 11 percent
said they know what those rights are.
"Taxpayer knowledge and education is the best taxpayer
protection there is," the report says. "A comprehensive public
outreach campaign is crucial to overcome taxpayers’ lack of
knowledge about their rights and inform them that the IRS has
adopted a TBOR. These initiatives will require a variety of
communication plans and tools, all with the goal of making
taxpayer rights a part of every IRS communication with the
The IRS has already incorporated the TBOR into a revamped
version of Publication 1, Your Rights as a Taxpayer, which is
the main vehicle for explaining taxpayer rights to taxpayers.
The IRS has also created special sections on its public
website and its internal website to highlight the 10 taxpayer
rights. In addition, TAS has created a webpage that links
existing statutory and administrative remedies to each of the
The TBOR, Olson wrote, "has the potential to be an important
milestone in tax administration." She notes that some
commentators have questioned the significance of a TBOR, given
the lack of enforcement mechanisms. In response, she says that
one benefit of articulating taxpayer rights clearly is that
doing so will bring into focus areas where there are gaps
between rights and remedies, notably with respect to the right
to quality service.
"TAS will be very active in FY 2015 and years to come in
advocating for and working with Congress and the IRS to fill
those gaps, and educating taxpayers about those rights," Olson
wrote. "This activity is central to our mission."
IRS Treatment of
Victims of Return Preparer Fraud
the same time that hundreds of thousands of taxpayers have
become victims of tax-related identify theft, a much smaller
number of taxpayers have been victimized by unscrupulous
preparers who have stolen their refunds by fraudulently
altering information on their returns.
The IRS has been working hard to issue refunds to
identity-theft victims quickly. By contrast, it has generally
declined to issue refunds to victims of preparer fraud at all.
"As I discuss in the Area of Focus, Return Preparer Fraud: A
Sad Story," Olson writes, "the IRS has
consistently dragged its heels, making one excuse after
another, because providing relief to these victims just is not
a high enough priority, or more disturbingly, because the IRS
simply does not want to provide relief."
In a typical preparer fraud case, a taxpayer visits a preparer
to have his or her (or a joint) return prepared. The preparer
completes the return. The taxpayer reviews it, authorizes the
preparer to e-file it, and often pays the preparer’s fee.
After the taxpayer leaves, the preparer alters the return,
often by changing the bank account routing number so the
refund is transmitted to the preparer’s own account.
Olson has covered this subject in three of her Annual Reports
to Congress, issued two proposed Taxpayer Advocate Directives
and two final Taxpayer Advocate Directives, and elevated 25
Taxpayer Assistance Orders involving specific cases to IRS
Commissioners (both appointed and acting). Between 2000 and
2011, the IRS Office of Chief Counsel issued four opinions and
other guidance that, read together, authorize the IRS to issue
replacement refunds to victims of return preparer fraud.
However, no refunds have been issued. The report states that
some taxpayers have been waiting since the filing of their
2008 tax returns. "Nowhere has the IRS failed to abide by the
[recently announced Taxpayer Bill of Rights] more than with
respect to the issue of return preparer refund fraud," Olson
The report states that IRS Commissioner John A. Koskinen
decided on March 14 that the IRS will issue refunds to victims
of preparer fraud who have filed police reports with the
appropriate law enforcement agencies and met certain other
substantiation requirements. To date, the IRS has not
implemented the decision, saying it must first resolve certain
accounting issues and declining to provide a date certain by
which it will issue the refunds.
Exempt Organization Issues
report contains a detailed discussion of several issues
relating to Exempt Organizations (EOs).
In 2013, the National Taxpayer Advocate delivered her mid-year
Objectives Report to Congress the month after the disclosure
that the EO unit was using questionable criteria to screen
applicants for tax-exempt status.
The Advocate’s report contained a separate volume, Special
Report: Political Activity and the Rights of Applicants for
Tax-Exempt Status, that took a broad look at factors that
contributed to the use of the questionable screening criteria
and associated processing delays and offered 16
recommendations to address them.
The report released today provides a status update on those
In this report, the Advocate outlines a proposal that could
provide a clearer test to determine whether an organization
seeking exempt status under IRC § 501(c)(4) is operating
"primarily" for social welfare purposes. There is currently
very little guidance to help make that determination. Among
other unresolved issues, one could focus on the percentage of
the entity’s expenditures, the percentage of the entity’s time
allocations, the percentage of the entity’s advertisements or
The report says that an analogous issue arises for
organizations seeking exempt status under IRC § 501(c)(3),
because if they engage in lobbying activity, the amount of
lobbying must be "insubstantial."
To provide (c)(3) organizations with a bright-line option,
Congress enacted IRC § 501(h), which allows them to use a
numeric test that focuses solely on expenditures. The same
option could be made available to organizations applying under
IRC § 501(c)(4).
"The National Taxpayer Advocate
believes organizations requesting the right to receive
contributions exempt from tax should be evaluated on how they
expend those contributions," the report says. "Under this
analysis, as with the 501(h) election, volunteer time and
activity, which do not generate taxable income for which tax
exemption would be available in the first instance, are
irrelevant to this determination." The National Taxpayer
Advocate plans to refine this proposal and include a
legislative recommendation in her year-end report to Congress.
The report also expresses
concern about the IRS’s recently announced decision to adopt a
new EO application, Form 1023-EZ. Although the Advocate
previously recommended development of a simplified Form
1023-EZ, she objects to the new form because it does not
require organizations to describe their mission and activities
or send in their formation documents for review.
TAS will attempt to monitor the
effects of the streamlined standards and recommend
modifications as needed.
If you have comments or
questions on the information in these articles. as usual feel
free to call our offices at 313-388-0300
Remember you can call our offices if you have any
questions about these or any other accounting, tax,
financial planning or insurance related issues, at
Regards, Philip Schreiber, CPA
Schreiber Advisors, PC