I’ve been practicing tax law for more than 30 years helping businesses and individuals resolve disputes with the IRS and I can’t tell you how many times a new client has complained about how they were mistreated by the IRS and that IRS employees can do whatever they want because they have lifetime employment. In 1998, in response to the congressional testimony regarding perceived IRS abuse of taxpayers, Congress enacted the 1998 Revenue Reform Act (RRA 98) which, many of us will recall, was intended to make for a kinder and gentler IRS. Taxpayers became “customers” and tax professionals became “partners”. I’ll leave for another post my thoughts about RRA 98 and whether the IRS became kinder and gentler. What I am addressing today is Section 1203 of RRA 98, a list of 10 actions by an IRS employee that can result in automatic termination of employment, with appeal only to the IRS Commissioner, i.e., the Ten Deadly Sins.
The 10 offenses in Section 1203 are:
- Willful failure to obtain the required approval signatures on documents authorizing a seizure of a taxpayer’s home, personal belongings, or business assets;
- Providing a false statement under oath with respect to a material matter involving a taxpayer or taxpayer representative;
- Violating the rights protected under the Constitution or the civil rights established under six specifically identified laws with respect to a taxpayer, taxpayer representative, or other employee of the IRS;
- Falsifying or destroying documents to conceal mistakes made by any employee with respect to a matter involving a taxpayer or taxpayer representative;
- Assault or battery of a taxpayer, taxpayer representative, or employee of the IRS, but only if there is a criminal conviction, or a final judgment by a court in a civil case, with respect to the assault or battery;
- Violating the Internal Revenue Code, Department of Treasury regulations, or policies of the IRS (including the Internal Revenue Manual) for the purpose of retaliating against, or harassing, a taxpayer, taxpayer representative, or other employee of the IRS;
- Willful misuse of the provisions of Section 6103 of the Internal Revenue Code for the purpose of concealing information from a congressional inquiry;
- Willful failure to file any return of tax required under the Internal Revenue Code on or before the date prescribed therefore (including any extensions), unless such failure is due to reasonable cause and not to willful neglect;
- Willful understatement of federal tax liability, unless such understatement is due to reasonable cause and not to willful neglect; and
- Threatening to audit a taxpayer for the purpose of extracting personal gain or benefit.
While this sounds like a wonderful opportunity for mistreated taxpayers, history shows otherwise. Despite numerous complaints regarding violations of Section 1203 since its enactment, the statistics reveal that most Section 1203 terminations are not for harassment or abuse of taxpayers, but instead are related to IRS employees who either failed to timely file their tax return or who understated their tax liability. In February 2003, five years after RRA 1998, the General Accounting Office (GAO) released a report entitled “Tax Administration-IRS and TIGTA Should Evaluate Their Processing of Employee Misconduct under Section 1203”. According to the GAO report, the Tax Inspector General for Tax Administration (TIGTA) investigated 3,582 allegations of misconduct and found 419 violations that resulted in investigations. Those investigations resulted in 71 terminations for violations of the 10 deadly sins, 55 that were for either late filed returns or understatement of tax liability. I could not find a more recent report, similar to the detailed 2004 GAO report, but the TIGTA semiannual report to Congress includes some information regarding Section 1203 violations. Page 71 of the TIGTA Semiannual Report to Congress October 1, 2020 - March 31, 2021 shows a total of 295 substantiated Section 1203 inquiries of which, 287 were related to an IRS employee who either filed a late tax return or understated their tax. The remaining eight included one for a civil rights violation, one for a violation of the Internal Revenue Code, etc. for purposes of retaliation or harassment, two for making a false statement, two for concealing a work error and two for threatening to audit a taxpayer for personal gain. As of the date of the report, 31 of the employees subject to investigation had been either fired, resigned/retired or had been removed on other grounds.
For questions regarding this blog post or any other civil or criminal tax related matter, please feel free to contact Joel Crouch at (214) 749-2456 or firstname.lastname@example.org.