Why we need a Taxpayer Bill of Rights

Last year, in a nationwide survey of U.S. taxpayers who had filed a 2010 tax return, the Taxpayer Advocate Service asked whether respondents believed they had rights before the IRS.

We also asked if they knew what their rights as a taxpayer were when dealing with the IRS. Astonishingly (to me, at least), only 55% of respondents said they believed they had rights before the IRS. Nine percent said they believed they had no rights and another 21% said they weren’t sure. (Fifteen percent didn’t answer the question.)

As the chart below indicates, as incomes rise, so does taxpayers’ belief that they have no rights before the IRS and their ignorance of those rights. On the other hand, taxpayers at the lowest income levels (under $25,000 annually) are the least likely to believe they have rights before the IRS (41%) or know what those rights are (10%).

As a taxpayer, do you believe you have rights before the IRS?

Do you know what your rights are as a taxpayer when dealing with the IRS?

Source: Forrester research survey of taxpayers nationwide, 2011.

Even worse, only 13% of taxpayers say they know what their rights are. These beliefs don’t bode well for a tax system that is based on voluntary compliance. Yes, I know every time I say this, someone says it isn’t voluntary – we are required to file and pay taxes and the IRS can do terrible things to us if we don’t. Okay, maybe that is true, but my point here is that taxpayers actually abide by the laws. They don’t have to, but they do. They consent to abide by laws that require them to pay over their money to the government.

Why do they do that? Partly, of course, out of fear that if they didn’t comply, they would get caught and face some sort of punishment. That’s what we call the classic economic model of compliance – that compliance depends upon the risk (or perception of risk) of being caught and the cost (punishment) if caught.

But this model doesn’t really explain our high compliance rate in the tax system. Even accounting for people’s inflated fears about being “caught” by the IRS, U.S. taxpayers are generally very compliant. Something else is at work here. Some commentators have called this factor “tax morale” — a combination of how taxpayers view themselves, how they want to behave in the world, how they want the world to perceive them, and how they feel about their government. (For an introduction to the concept of tax morale, see “Normative and Cognitive Aspects of Tax Compliance: Literature Review and Recommendations for the IRS Regarding Individual Taxpayers.”)

I personally believe that part of the reason taxpayers comply is because at some level they believe in a “greater good,” even if their definition of that term may differ from their neighbor’s. There is some evidence of this in the IRS Oversight Board’s recurring survey of taxpayer attitudes. When taxpayers are asked why they comply with the tax laws, 79% say they are greatly influenced by their sense of personal integrity, as compared to 34% who say they are greatly influenced by their fear of an audit.

Factors Influencing Whether You Report and Pay Your Taxes Honestly

Source: IRS Oversight Board, 2011 Taxpayer Attitude Survey.

At any rate, in general, U.S. taxpayers willingly meet their obligation to come in and tell their government about their filing status and family structure, their earnings and investments, and their expenses and losses. This places a heavy responsibility on the IRS to treat these taxpayers well – in ways that comport with our concepts of procedural justice. Failure to do so reduces our tax system to one based on compulsion alone. Hence, taxpayer rights are an essential and necessary component of our voluntary tax system.

Since 2007, I have advocated for Congress to enact a formal Taxpayer Bill of Rights (TBOR). (In this report, we discuss how other countries and states have addressed this issue.) Sure, over the years, we’ve had three pieces of legislation called TBORs, but as our survey shows, taxpayers overwhelmingly do not believe they have rights. As a result of legislation, we have taxpayer rights, but no one knows what they are. And if taxpayers don’t know what their rights are, how can they claim them?

So, in last year’s Annual Report to Congress, I again proposed that Congress pass a TBOR. At the end of this posting, I list my suggestion for the Taxpayer Bill of Rights. I’ve also added a list of taxpayer obligations, because it is always a good idea to remind folks about the social contract between a government and its citizenry – that rights imply responsibilities.

I’m not suggesting that a Taxpayer Bill of Rights, in and of itself, creates any new rights. As I noted above, we’ve had three major pieces of taxpayer rights legislation that enacted significant taxpayer protections.

Rather, I believe Congress can help taxpayers better understand their existing rights by grouping taxpayer rights into simple, easy-to-understand categories. I am recommending ten broad categories to emulate the Bill of Rights to the U.S. Constitution, because I think that will be easier for taxpayers to learn, appreciate, understand, and remember. If taxpayers understand they have rights before the IRS and what those rights are, they can avail themselves of those rights when they need them. And so the taxpayers feel like they are actually being respected for voluntarily complying with the tax laws.

And who wouldn’t want that? TAXPAYER BILL OF RIGHTS Taxpayer Rights:

1. The right to be informed.
2. The right to be assisted.
3. The right to be heard.
4. The right to pay the correct amount of tax due.
5. The right to an appeal (administrative and judicial).
6. The right to certainty.
7. The right to privacy (to be free from unreasonable searches and seizures).
8. The right to confidentiality.
9. The right to representation.
10. The right to a fair and just tax system.

Taxpayer Obligations:

1. The obligation to be honest.
2. The obligation to be cooperative.
3. The obligation to provide accurate information and documents on time.
4. The obligation to keep records.
5. The obligation to pay taxes on time.

For more detail on these categories and which rights fit within each category, see Enact the Recommendations of the National Taxpayer Advocate to Protect Taxpayer Rights from our 2011 report. See also Appendix 1, Partial Analysis of Subordinate Rights and Obligations.