Provision allowing IRS to levy retroactive penalties still alive in Democrat budget talks
While the idea of allowing the IRS to go spelunking through your bank activity looking for cash Uncle Sam thinks he deserves is on the rocks, others very bad ideas are clinging to life.
Including one that should send shivers through the spines of anyone who has tangled with the IRS over penalties. As Forbes’ Guinevere Moore writes:
In 1998, Congress enacted Section 6751 as part of the Internal Revenue Service Restructuring and Reform Act of 1998 (“Restructuring Act”), Pub. L. No. 105-206, sec. 3306, 112 Stat. 685, 744. The statute imposed two new obligations on the IRS. It imposed the written supervisory approval requirement that Neal has proposed repealing, and it mandated that the IRS “shall include with each notice of penalty under [the Internal Revenue Code] the name of the penalty, the section of [the Internal Revenue Code] under which the penalty is imposed, and a computation of the penalty.”
When the law was passed in 1998, the Senate Finance Committee explained the legislation was needed to correct glaring problems in tax administration and provide much-needed taxpayer protections.
The Democratic plan now is to remove those protections and, as former Taxpayer Advocate Nina Olson said:
“Repeal of this provision rewards the IRS for its bad behavior of ignoring the provision for the first 15 years or so of its existence.” Olson went on, “The fact that some taxpayers who appeared to warrant penalties had their penalties abated because the IRS did not follow this statutory requirement is not sufficient reason to repeal the provision and give the IRS a green light to apply penalties without review of the taxpayer’s specific facts and circumstances. Such a review is required by the right to a fair and just tax system, as explained in the Taxpayer Bill of Rights. That the IRS is supporting an outright repeal shows that it has not changed its approach to penalty administration over the last 23 years since RRA 98.”
The National Taxpayers Union’s Joe Bishop-Henchman writes that most people aren’t aware of this proposal, nor of the much more ominous – and legal – practice of retroactive taxation:
Government likes retroactivity because it extracts revenue from past periods when taxpayers cannot change their behavior to avoid increased tax. The U.S. Supreme Court in 1995, when they last considered the issue, came close to deciding that anything beyond one year of retroactivity violates due process. A newer Court with new justices may decide differently and more favorably to taxpayers.
We should hope a proposal like this never sees the light of day, let alone becomes law. But if does, groups like NTU will be among the first to challenge it.