A Call For Expansion and Enforcement of Minnesota's Current "Taxpayer Bill of Rights"

Guest contributor Jerry Geis examines the state's 25-year history with ensuring adequate procedural protections for taxpayers, examines why changing times have created new needs, and offers a series of proposals to begin the discussion.

 

Jerry Geis is a graduate of Saint John’s University with a law degree from the University of Notre Dame and holds an LLM in taxation from New York University.  He is a tax attorney with the Twin Cities law firm of Briggs and Morgan, P.A., where he has been for the last 38 years.  The views expressed are his own and do not represent the views of his law firm or any tax organization or association of which he is a member.

In recent years, the phrase “taxpayer bill of rights” (or “TBOR”) has been synonymous with the contentious topic of state constitutional tax and spending limitations.  But long before the phrase was co-opted as a marketing slogan by smaller government advocates, the idea had a much more substantive and meaningful interpretation: procedural protections for taxpayers to assure that all taxpayers would be accorded basic rights of fair and equitable treatment. 

Such procedural protections are a critical, but often unappreciated, dimension of sound tax policy.  They enhance fairness, ensure transparency, maintain faith in the system, and promote understandability.  Minnesota has long recognized this important truth.  The foundation of Minnesota’s tax administration is strong and acknowledged as one of the best in the nation.  This year the Council on State Taxation gave Minnesota a grade of “A-“ in tax appeals and procedural requirements.  

Building on this foundation was the impetus behind TBOR.  Under the leadership of then-Revenue Commissioner John James, Minnesota embarked on a two-year, multi-stakeholder process which resulted in Minnesota being one of the first states to enact a Taxpayer Bill of Rights in 1990.

Twenty-five years later, Minnesota’s TBOR provisions have not been substantially changed.  The Department of Revenue does a fine job of administering them.  However the agency can only administer the laws as they are written.  Meanwhile, several developments and trends have made existing provisions inadequate thus meriting attention from our elected officials.

The Taxpayer Bill of Rights in Minnesota is in significant need of an upgrade and update to address new problems that have surfaced and old problems that have new aspects not anticipated.  Here we look at the history of federal and Minnesota TBOR, the problems requiring attention, and the enhancements and provisions that, in the opinion of the author, need to be enacted.

The Federal Precedent

Although the United States Constitution does not contain a taxpayer bill of rights, Congress has passed three separate taxpayer “bills of rights” (1988, 1996, and 1998), and the IRS administratively issued a fourth in 2004.  As the name implies, these statutory bills of rights focus on procedural protections for taxpayers.  For example, among other things, the initial 1988 legislation required IRS employees to apprise taxpayers of their rights before conducting formal interviews.  It also authorized taxpayer reliance on written advice from the IRS. 

The second taxpayer bill of rights, enacted in 1996, established the Office of the Taxpayer Advocate, an independent entity charged with assisting taxpayers and identifying problem areas where the IRS should improve its administrative practices.  Today the Office is known at the Taxpayer Advocate System and is managed by the National Taxpayer Advocate, who oversees local taxpayer advocates dispersed in cities nationwide.  This second bill of rights also expanded the IRS’s authority to abate interest and penalties in certain situations. 

The third iteration, part of the Internal Revenue Service Restructuring and Reform Act of 1998, introduced a variety of new protective measures.  For example, it provided that before the IRS seizes a personal residence to satisfy a tax lien, the agency must first obtain written approval from a Federal judge.  It also included  protections applicable to penalties and interest, such as zero rate of interest during periods of overlapping overpayments and underpayments. 

The most recent federal TBOR is the first to be issued by the IRS.  It is also the first to follow the form of the Constitutional Bill of Rights.  The IRS TBOR recognizes basic principles that should govern the relationship between taxpayers and the IRS.  Among these principles, are taxpayers’ rights to be informed, their right to quality service, their right to challenge the IRS’s position, and their right to privacy and confidentiality.  This IRS effort may score well on rhetoric and symbolism, but it fails on substance.  The IRS Bill of Rights is purely aspirational and does not endow taxpayers with any legally enforceable rights.1  

Minnesota’s Current TBOR

Minnesota taxpayers have numerous rights that are set forth in various provisions of the statutes, which are commonly called "Taxpayers' Bill of Rights Act."  These rights are restated on the Commissioner’s website under “Taxpayer Rights” and the appeal rights are included as part of all tax orders and bills sent to taxpayers.  By law the Commissioner is required to prepare and distribute to all taxpayers who are contacted their rights with respect to the tax determinations or to tax collection matters.  (Minn. Stat. § 270C.28, Subd. 2 and http://www.revenue.state.mn.us/taxpayer_rights)2

The Commissioner must prepare statements that set forth in simple and non-technical terms: 

  • The rights and obligations of the Commissioner and the taxpayer during an audit;
  • The procedures by which a taxpayer may appeal an adverse decision of the Commissioner, including administrative and judicial appeals;
  • The procedures for filing refund claims and filing of taxpayer complaints; and
  • The procedures that the Commissioner may use in enforcing the tax laws, including assessment, jeopardy assessment, levy and distraint, and the filing of liens (Minn. Stat. § 270C.28, Subd. 1.)

Prior to an interview in an audit or collection matter, the Commissioner’s representative is required to explain to the taxpayer the audit or collection process and his or her rights under the process.  The taxpayer may then request a delay of up to 30 days to consult with an attorney, accountant, or other tax representative, who may be present at the interview. (Minn. Stat. § 270C.285, Subd. 2.) 

The Taxpayer Rights Advocate is employed by the Commissioner to help taxpayers, who feel aggrieved by the way in which the tax administrative process is working in their cases.  The Taxpayer Rights Advocate has the authority to issue a taxpayer assistance order if he or she determines that the actions or proposed actions of the Commissioner would create an unjust or inequitable result to the taxpayer.  The Advocate can issue a taxpayer assistance order directing the Commissioner to take, or refrain from taking, certain actions.  Taxpayer assistance orders can be overturned only by the Commissioner (Minn. Stat. § 270C.37. )

These four remedies can be enforced in Court by taxpayers:

  1. The Tax Court may award attorneys' fees to taxpayers for both administrative and judicial actions if the Commissioner's position was not substantially justified. (Minn. Stat. § 271.19);
  2. Taxpayers may sue for damages if a Commissioner employee knowingly or negligently fails to release a lien after that taxpayer has paid the lien. (Minn. Stat. § 270C.27);
  3. Taxpayers may sue for damages if a Commissioner employee recklessly or intentionally disregards a state law or rule to collect delinquent taxes. (Minn. Stat. § 270C.275); and
  4. The Commissioner may be liable for attorneys' fees and damages if a lien is filed erroneously and is not released within 14 days.  (Minn. Stat. § 270C.63, Subd. 15).3

Changing Times, Changing Needs

These tax code provisions provide real and substantive rights to protect taxpayers from unfair and unjust treatment and enable them to challenge arbitrary and capricious government action.  But several considerations and developments raise questions about the adequacy of these provisions in their current form.

First is the increasing number of self-representative, or “pro se” taxpayers.  The number of these taxpayers filing appeals or engaged in audits and collection activities has continued to increase.  While the DOR has taken significant steps in providing information to self-representative taxpayers via printed information or the DOR’s website, the fact remains that because of the complexity of our tax system and the difficulty of the administrative tax process, taxpayers are often overwhelmed with the prospect of prosecuting their own cases.

The situation is similar for taxpayers filing appeals in the Minnesota Tax Court.  Approximately 55% of Commissioner-filed cases are conducted by self-representative taxpayers.  The S calendar or small claims division has 100% pro se representation.  Unrepresented taxpayers navigating through the administrative appeals process can only be further confused and overwhelmed when prosecuting their own cases in the Tax Court.  This is so even though the Tax Court was established to provide quick, efficient, and less costly litigation than the District Court.

The problem of pro se representation is compounded by the fact that Minnesota’s TBOR is highly fragmented.  Currently, there is no consolidated statement of core taxpayer rights and responsibilities in the Minnesota tax chapters.  Instead, key provisions and rights are scattered throughout Minnesota tax laws.  Because taxpayers have no simple way to identify or locate them, taxpayers may not take advantage of them.  Adding to this confusing and uncertain landscape is the fact that, despite general recognition that federal conformity is an important tax policy objective, Minnesota has not conformed to provisions from the 1996 and 1998 federal taxpayer bill of rights.

But perhaps the fundamental reason to look at amending the Minnesota Taxpayer Bill of Rights is that times change, and revisiting and reexamining TBOR is quite simply overdue.  Rights can lose their influence and functionality over time when they are not updated to reflect the current environment or fine-tuned to account for changes in tax administration.  Gaps in coverage result and the development of new situations create new needs.  Much has changed in the world of taxation since the 1990’s, but TBOR has not.

An Agenda for Reform: Some Proposed Amendments

What should TBOR amendments and TBOR expansion focus on?  Simply put, it should provide for additional protections for taxpayers in audit, appeals, collection, and the procurement of information.

Embedded in TBOR expansion is the important and very legitimate question regarding balancing additional taxpayer protections with placing additional burdens on tax administration.  The proposals listed below are, in the author’s opinion, beneficial and needed, but reasonable people can disagree on the need, efficacy, policy, or burden of the provisions.  These are only offered to begin this important discussion. 

TBOR Provision

Additional Notes and Comments

1.       The establishment of a core group of rights accorded and afforded to each taxpayer.  These rights would be similar to the Federal proposed core taxpayer rights propounded by the IRS and other interested parties.  They would include (a) the right to be informed, (b) the right to be assisted, (c) the right to be heard, (d) the right to pay not more than the current amount of tax, (e) the right to appeal, (f) the right to certainty, (g) the right to privacy, (h) the right to confidentiality, (i) the right to representation, (j) the right to a fair and just tax system, and (k) the right to quality DOR service.

 

2.       Impose an affirmative statutory duty on the Commissioner to ensure that DOR employees are instructed and  familiar with, and act in accordance with all taxpayer rights protections

 

3.       Establish that the DOR may not make a sales tax assessment in the course of a current audit of the taxpayer’s returns, if no assessment was made in a prior return and the taxpayer’s practices have not changed.  Specifically, the DOR is estopped from assessing additional tax resulting from the use of a previously audited method for any period prior to the notification by the Commissioner or his agent during the current audit that the use of the previously audited method would result in additional tax being due. 

Such estoppel is contingent on a determination that (i) the method at issue was previously audited with no additional tax assessed, (ii) the method under consideration in the current audit is the same as the method used in the prior audit, (iii) there has been no applicable statutory or regulatory change in the interim, and (iv) the taxpayer has detrimentally relied on the fact that the method resulted in no additional tax in the previous audit

4.       In an audit, the auditor must, at the request of the taxpayer, provide written information as to what records constitute the minimum requirements for record-keeping.  If the auditor recommends changes in the record-keeping process, these recommendations must be provided in writing to the taxpayer.

 

5.       The DOR would be required to furnish copies of the agent’s audit papers and the written narrative explaining the reasons for the assessment to the taxpayer.

 

6.       The taxpayer would be guaranteed the right to request a meeting with the auditor and, if there is disagreement to the auditor’s findings, to discuss the auditor’s proposed assessment.

 

7.       The right to request a supervisor to be involved in resolving a matter if the initiating DOR auditor is unwilling or unable to resolve an issue.

 

8.       The right to have one DOR representative deal with a tax issue from start to finish until the issue is resolved.

 

9.       The DOR must waive interest and penalty assessed against a taxpayer when it is determined by the DOR that the negligence or unreasonable error of an employee of the DOR resulted in undue delay either in assessing the tax or notifying the taxpayer of the liability owned or in resolving an appeal.

 

10.    Appeals to the DOR would be timely if electronically transmitted by midnight of the due date for such filing, based on the local time zone of the recipient. 

If the due date for any appeal falls on a Saturday, Sunday, or official State holiday, or other date in which the DOR is closed, the due date for the filing is the next business day.

11.    Establish statutes providing the authority to issue written responses to taxpayers' tax inquiries, including issuing a ruling specific to the taxpayer making the inquiry similar to Wisconsin’s and the IRS private letter ruling process.

 

12.    Limit the DOR employee communication with the taxpayer with respect to collection of taxes, if the taxpayer has representation.

 

13.    Abate taxes, penalties, and interest assessed based on erroneous or incorrect written information or advice given by the DOR.  Any taxpayer that received written advice from the DOR on the taxability of transactions would be allowed to rely on such advice when filing tax returns.  The DOR could not maintain an inconsistent position with a prior written opinion issued to the same taxpayer that was not rescinded by the DOR prior to audit, provided that all facts were provided by the taxpayer and the law did not change or the courts did not issue a ruling to the contrary. 

 

14.    Taxpayers could make a voluntary payment along with a request in writing that the payment be designated and applied to taxes for tax periods he or she specifies. This right would not apply when the DOR makes a jeopardy assessment or it collects the payment through enforced means, such as asset seizures or garnishments. 

Allocation of payments in Minn. Stat. §270C.51 would be amended to reflect the IRS position on designation of payments found in Revenue Procedure 2002-26.

15.    Prohibit DOR's officers and employees from using personal e-mail accounts to conduct official business.

 

16.    Significantly increase civil damages and criminal penalties for the unauthorized disclosure or inspection of tax return information and significantly increase civil damages for improper DOR collection activities.  

 

17.    Clarify the statute and codify the DOR’s position that if the income tax statute of limitation is open on the Federal level, pursuant to Minn. Stat. § 289A.38, Subds. 8 and 9, the period for filing income refund claims by the taxpayer is also open.

 

18.    Conform the deadline for filing post-trial motions in the Tax Court (currently 15 days under Minn. Stat. § 271.08, Subd. 1) to the deadline under Minnesota Rule of Civil Procedure 59 and 60 for filing post-trial motions in the District Court (once also 15 days, but increased to 30 days in the 1990s).

 

19.    Increase the jurisdictional amount for seeking relief in the Tax Court’s Small Claims Division (currently $5,000 under Minn. Stat. § 271.21, Subd. 2) to the jurisdictional limit for Conciliation Court (also once $5,000 but currently $15,000).

 

20.    Clarify that a “responsible person” may file a claim for refund under Minn. Stat. § 270C.56, Subd. 3(b), as long as his or her claim has not been the “subject of an administrative or Tax Court appeal”. 

The fact that the business or company conducted an administrative or Tax Court appeal would not preclude the “responsible person’s” appeal rights.

21.    Clarify that the time for the appeal to the Minnesota Tax Court is the “notice date” designated by the Commissioner on the order for assessment.

This change would amend Minn. Stat. § 271.06, Subd. 2 and 7 to conform to the same time period found in Minn. Stat. § 270C.35, Subd. 3 on administrative appeals from orders (60 days plus a 30-day extension). 

22.    Clarify that the taxpayer, on an appeal to the Tax Court, would be allowed to introduce evidence to show that he or she had complied with the “mailbox rule” of Minn. Stat. § 271.06, Subd. 2(a) in the situation where the envelope was sent through the United States Post Office but contained no postmark.  An evidentiary hearing would be allowed on the fact issue of whether the envelope was mailed on or before the 60th day the appeal period expired.

 

23.    Establish parallel rights to IRC Code § 6320 and IRC Code § 6330 for collection due process (“CDP”) hearings, when the DOR files a notice of tax lien or issues a notice of intent to levy upon a taxpayer. 

On the Federal level, the taxpayer in these situations is provided a right to an administrative appeal and a CDP hearing.  The taxpayer would also have an appeal right to a judicial form from the appeals office decision in a CDP hearing.

24.    Establish, similar to the Federal law, a Collection Appeals Program (“CAP”) for termination or proposed termination of an installment agreement, rejection of an installment agreement, or modification or proposed modification of an installment agreement.  Like the Federal law, no judicial appeal would be granted.

 

25.    Provide that personal assessments for secondary liability, such as officer liability (Minn. Stat. § 270C.56), transferee or fiduciary liability (Minn. Stat. § 270C.58), transferee liability for estate tax (Minn. Stat. § 270C.585), personal liability for failure to honor a levy (Minn. Stat. § 270C.70), and successor liability (Minn. Stat. § 270C.57) would be assessed by certified mail sent to the taxpayer, similar to the Federal procedure on assessing personal assessments. 

 

26.    Provide that the period for filing income and sales tax refund claims would be two years from payment rather than the existing one-year period from an order for assessment in Minn. Stat. § 289A.40, Subd. 1

This restores the law to the two-year period from payment prior to the 1995 amendment.

27.    Add two provisions to the Minnesota tax statutes on penalties to require the DOR to: (i) include detailed information about the basis for penalties as well as the penalty calculation, similar to IRC Code § 6751(a); and (ii) have superiors approve, in writing, all discretionary penalties imposed similar to IRC Code § 6751(b)(1), and (b)(2).

 

The proposals themselves are based on the existing or proposed Federal rights changes and the provisions of TBOR laws in other states.  Many of these would not require new legislation, but rather could be accomplished through administrative action by the Department itself.  As noted previously, the 1990 Minnesota TBOR took two years of discussions with the DOR, legislators, and interested groups before consensus was reached on the correct approach.  I envision a similar process here. 

One More Requirement: Give TBOR Teeth

After the establishment of these additional rights, a remaining consideration is whether there is a meaningful mechanism by which to enforce the provisions of the State Taxpayer Bill of Rights if they are violated.  If non-compliance with a TBOR provision fails to generate repercussions or penalties, the whole purpose of having a TBOR can be called into question because there is no remedy for the aggrieved taxpayer.  

This is an issue because under current Minnesota law the failure to comply with a TBOR provision that does not provide for a remedy has no repercussion as the violation is without penalty.  That was not always the case.  But in 2005, in response to a court case concerning the timeliness of a refund claim5, the legislature passed a law in which a violation of a TBOR provision has no consequences unless the statute specifically provides for a remedy.6

The whole purpose of the TBOR is to assure that all taxpayers will be accorded basic rights of fair and equitable treatment.  In order to carry through on that objective, violations of TBOR must have consequences.  Government generally, and in this case the DOR specifically, must be held to a high standard of conduct in dealing with taxpayers.  The statutory provisions governing substantive standards and procedures for taxation, including the administrative review process, are premised on the concept that government will act scrupulously, correctly, efficiently, and honestly.  It is assumed that the DOR will exercise its governmental responsibilities in the field of taxation conscientiously and in good faith. 

The primary obligation is for the DOR to comport itself with compunction and integrity, and in so doing the agency will carry out the guiding principles of fundamental fairness in dealing with taxpayers.  If taxpayers are required to submit to deadlines and procedures, and their failure to comply incurs substantial penalties, the DOR should also have consequences for failure to carry out the TBOR provisions to the fullest extent.  This is what should be required and expected of our government. 

To put teeth into TBOR some remedies or protections to the taxpayers can be directly incorporated into the applicable statutes.  Examples would be the abatement of tax, interest, and penalty for reliance on erroneous written DOR advice or the abatement of interest and penalty for the DOR’s negligence or unreasonable error causing delay in assessment or audit or appeal.  As indicated, these remedies would be incorporated in the applicable statute mandating a course of action by the DOR.

Other violations of TBOR rights may not lend themselves as readily to new and specific statutory remedies.  For these TBOR violation enforcements a return to the previously mentioned 2005 case law is in order.  This established the rule that, in a situation where the statute is silent as to a remedy, a violation of TBOR would stay the action until the violation or infraction is cured by the DOR.  Such an approach would necessitate the repeal of statutory provisions found in Minn. Stat. § 270C.28, Subd. 2 (“Failure to receive the statement does not invalidate the determination or collection actions, nor does it affect, modify, or alter any statutory time limits applicable to the determination of collection action, including the time limit for filing a claim for refund.”) and Minn. Stat. § 270C.33, Subd. 2(b) (“Failure to provide all of the required information does not invalidate the assessment, determination, or order for purposes of satisfying statutory notice requirements if the assessment, determination, or order contain sufficient information to advise the taxpayer that an assessment has been made.”). 

Yet another alternative would be to establish a statutory right to sue the DOR, if any officer or employee recklessly or intentionally disregards any tax laws or DOR-published procedures by permitting an action for damages to be filed in the District Court or the Tax Court.  This would be an expansion of the existing right to sue now found in the case of the collection of delinquent taxes under Minn. Stat. § 270C.275.

TBOR without enforcement mechanisms is aspiration, not policy.  Reasonable persons can disagree about what those appropriate remedies or enforcement mechanisms should be, but the need of an actual remedy for a violation cannot be questioned or disputed.

Starting the Discussion

Minnesota has a solid base of taxpayer rights that have existed since 1990, but additional protections for taxpayers in auditing, appeals, and tax collection are needed.  Gaps in coverage, the development of new situations, the continued increase of self-represented taxpayers, and federal conformity all suggest a renewed investment in TBOR is warranted.

What would we get out of such an effort?  First, procedural fairness would be ensured.  All taxpayers would be treated the same from a procedural point of view.  This is not a guarantee of results but a promise that laws would be applied equally across the board to all taxpayers. 

Second, there would be complete transparency between the DOR and the taxpayer and his/her representatives.  The audit, appeal, and collection processes would be open and easy to navigate.

Third, an enhancement or amendment of TBOR would increase faith in the tax system.  The voluntary system is based on taxpayers’ belief that the system is inherently fair and provides a mechanism for resolving tax disputes that is quick and cost efficient.  The current tax system is a partnership of the taxpayer, his or her representatives, and the DOR based on cooperation and trust.  These proposed amendments would further that ideal.

Fourth, and perhaps most importantly, greater clarity for the ordinary taxpayer.  Tax laws are complex and technical.  Most taxpayers are not equipped to navigate the system.  All taxpayers should have an opportunity to resolve disputes without a procedural footfault, forfeiting his or her right to win a case on a technicality.

Legislative changes are needed to improve and update TBOR.  On TBOR’s 25th anniversary taxpayers, their representatives, tax administrators, and interested groups should once again come together to discuss these as well as other proposals, engage their local legislators, and begin the push for reform.

Endnotes
  • 1 "[A]s a general rule, informal treasury publications and pamphlets . . . . do not bind the government.  They are simply guides, and a taxpayer who relies on them does so at its own peril.")  See Gehl Co. v. Commissioner, 795 F.2d 1324 (7th Cir. 1986)
  • 2 At one time, the DOR would provide taxpayers with a flyer that contained all of the rights in one document but that had now apparently been discontinued.  The website lists three taxpayer rights publications that address specific rights: Collection Actions, Taxpayer Rights, and What's an Audit?
  • 3 For a more detailed summary of the 1990 TBOR in Minnesota, see Geis, "Leveling the Playing Field: Minnesota's Taxpayer Bill of Rights" The Bench and Bar of Minnesota, pps 20-25 (October 1990).
  • 4 The suggested legislative changes are not meant to be “exhaustive.”  There may be other procedural changes that should be enacted.  For instance, the IRC Code Section 7491 and the shifting of the burden of proof or a prohibition of ex parte communications between appeals officers and other DOR employees would be examples.  The intent here is to engender discussion and review.
  • 5 See MBNA America Bank, N.A. & Associated v. Commissioner of Revenue, 694 NW2d 778 (Minn. 2005), reversing Tax Court Docket No. 7589-R (Minn. T. Ct. July 27, 2004). The Minnesota Supreme Court held that the Commissioner’s assessment order did not explain the procedures for filing refund claims, as clearly required by the Taxpayer Bill of Rights and, therefore, the taxpayer’s refund claim was timely, even though filed 21 days after the statute of limitation for filing claims had expired. While the TBOR provision was silent as to what effect nonconformity should have on the statute of limitations for the taxpayer's refund claim there was an ambiguity, and any ambiguities in the law must be interpreted in favor of the taxpayer.  As a result of this nonconformity, MBNA’s refund claim did not trigger the 1-year period for filing a refund claim provided under Minn. Stat. § 289A.40, Subd. 1, until the DOR properly instructed the taxpayer on its refund rights.  But the legislature subsequently amended the statutory law in 2005 and the result in MBNA was reversed and the effect of the amendment was confirmed by the courts.    Failure to comply with a provision contained in the Taxpayer Bill of Rights does not invalidate the assessment or refund determination after the 2005 legislative amendment.  See Deanna L. Byers v. Commissioner of Revenue, 741 N.W.2d 101 (Minn. 2007).
  • 6 Laws 2005, 1st Sp. Chapter 3, Article 11, § 3 and Laws 2005, Chapter 151, Article 1, § 36