The Biden budget not only imposes dozens of tax increases totaling $5.1 trillion and it not only further supersizes the IRS with another $104 billion: It also scraps a key taxpayer protection against rogue IRS agents who use the threat of penalties as an intimidation tactic against taxpayers, to get them to give up or settle.
Last year the Biden IRS got caught illegally backdating penalty documents and signatures in U.S. Tax Court in order to run up the bills on taxpayers. The court caught the IRS lying. U.S. Tax Court is generally very deferential to IRS neglect but in this case the court was rightly furious.
While testifying to congress in late 2023, IRS Commissioner Werfel declined to say whether anyone has been fired for this practice. It is suspected the backdating incident was not an isolated occurrence within the IRS. Another indication that the IRS has a severe accountability problem that is only going to get worse.
Due to reforms enacted by Republicans in 1998, IRS agents are currently required to get written approval from their immediate supervisor before imposing penalties on taxpayers. This is designed to protect taxpayers from agent chicanery.
Congressional investigators discovered years of abuse by IRS agents running up the penalty score as an intimidation tactic against taxpayers. Agents would use the threat of penalties as a bargaining chip. The IRS has a history of targeting people who do not have the means to fight back, and unethical agents at employee review time could point to all the penalties they imposed on people who perhaps did not deserve it. So, in 1998 congressional Republicans enacted a taxpayer protection (Section 6751) which requires agents to get personal written approval from their immediate supervisor before sending written penalty letters to taxpayers.
But the Biden budget allows IRS agents to shop around for sympathetic supervisors anywhere in the building. Biden also wants to scrap the written approval requirement altogether for many penalty scenarios. Agents will abuse this and taxpayers will be the victim.
From the Biden budget: “In addition, the proposal would expand approval authority from an ‘immediate supervisor’ to any supervisory official, including those that are at higher levels in the management chain or others responsible for review of a potential penalty.”
Won’t be long before agents just go directly to the taxpayer-hostile supervisor on, say, the fourth floor who will sign off on anything. Good luck to taxpayers without the resources to defend themselves in court against an agency with a near-unlimited budget.