Third Party Contacts

The IRS has the right to contact third parties in an attempt to collect your taxes, penalties, and/or missing tax returns.  A third party is someone other than yourself (besides your tax attorney or duly authorized representative) who may have information that would assist the IRS in their investigation.  But it is important to know that there are certain restrictions on this right so that we don’t allow the IRS to take advantage.

Notice Requirements

The IRS must first give you notice that they are going to be contacting third parties.  Notice typically comes in the form of a very simple letter (Letter 3164).  There are three versions of this letter:

  • 3164-A: for Trust Fund Recovery Penalty investigations
  • 3164-B: for balance due investigations
  • 3164-C: for delinquent return investigations

The IRS revenue officer must wait 10 days after mailing the letter before initiating any third party contact.  In cases where the taxpayer was provided with a Publication 1 Your Rights as a Taxpayer, which is a majority of cases, the 3164 letter is usually not required because the third party contact language is included in Pub 1.  There are also some blanket exceptions to the notice requirement, such as where there are pending criminal investigations, where a third party contact may jeopardize collection of the tax, and where the taxpayer authorizes third party contact.

Providing Third Party Lists

The IRS is required to provide the taxpayer with a list of all third party contacts periodically, and whenever requested by the taxpayer.  Revenue officers must carefully maintain a list of all third party contacts, which should be updated after each contact in order to keep it current.  As you can see, the language (“periodically”) is just vague enough to allow the IRS to only send the list a couple times a year unless the taxpayer requests to see it more frequently.

Right to Representation Threatened by IRS Carelessness

Didn’t I just write about taxpayer rights?  Didn’t I say something about how the IRS is not interested in protecting taxpayer rights?  The Treasury Inspector General for Tax Administration (TIGTA) released a report today that exposes IRS’ disgregard for taxpayers’ right to representation.  I usually like being right, but not when it’s something like this that threatens access to tax relief.

There are procedures in place that are supposed to ensure that the tax attorney, or other representative, is kept in the loop with regard to certain key actions.  For example, an IRS Revenue Officer is not supposed to contact the taxpayer directly when there is a Power of Attorney on file, and a Revenue Officer is supposed to send copies of correspondence to the authorized representative.  However, the procedures are not being followed by some revenue officers and the procedures are not being enforced by some key management personnel.

I realize this is not a direct denial of the right to representation, but any action (or inaction) that would weaken the benefits associated with this right is troubling and should be viewed as a significant threat.  TIGTA’s report mentions that nobody complained about the infringements on their right to representation in any of the sample cases in it’s study, and I find this equally troubling.

Know Your Taxpayer Rights

Taxpayer rights are listed in Publication 1 as follows:

  1. Privacy and Confidentiality
  2. Professional and Courteous Service
  3. Representation
  4. Payment of Only the Correct Amount of Tax
  5. Help with Unresolved Tax Problems
  6. Appeals and Judicial Review
  7. Relief from Certain Penalties and Interest

There are actually 8 taxpayer rights, but the first one is a complete farce.  The first is entitled “Protection of Your Rights” in Pub 1, and it is described as follows:

IRS employees will explain and protect your rights as a taxpayer throughout your contact with us.

If that were really true then you would not need right #3 — you would never need a tax attorney — because the IRS would have your back every step of the way.  You wouldn’t need right #5 because there would be no unresolved tax problems.  And you wouldn’t need rights #6 or #7 because the IRS would always get it right the first time.

The truth is the IRS’ top priority is to collect 100% of the tax due, not protect your rights.   And they will make this abundantly clear throughout your contact with them.  That’s why the most important right is to have professional representation — just as tax relief is not automatic, your taxpayer rights are not self-enforcing.

IRS Seeks to Cut Spending with Employee Buyouts

The National Taxpayer Advocate released its annual report to Congress earlier this week. Their top complaint is that the IRS is severely underfunded, which is causing a number of problems, including an erosion of customer service and a dwindling of taxpayer rights.

One way the IRS is dealing with a smaller budget is by offering early retirements and employee buyouts. This practice really illustrates the IRS’ dilemma. The more seasoned, higher-paid IRS employees are the only ones being offered buyouts because they are the only ones that qualify for early retirement, and the IRS can make a bigger dent in their payroll by shedding tenured employees. So the IRS will be losing some of their best people and filling empty spots with new employees. I know that the TAS is of the opinion that the problems at the IRS are primarily due to them being understaffed, but I have to believe that part of it is due to a large number of new employees who are still learning their job duties.

It seems like a lose-lose situation for the IRS. Under current budget constraints, if they keep their seasoned employees then they can’t afford to hire enough staff. But if they allow them to retire early then they would be, in effect, trading their MVPs for rookies.