1976] JEOPARDY AND TERMINATION ASSESSMENTS 357 The committee's proposal recognizes the need for review which is both independent from the Service and includes an examination of the Service's reasons for making the assessment. Although the bill fails to specify whether an assessment should be rescinded where the Service obtains information justifying the assessment subsequent to its being levied, the proposal may prevent abuses which have occurred from happening again. However, because the bill calls for review after a taxpayer's assets have been seized, it does not eliminate irreparable injury which may occur upon the seizure of assets or while review is pending. 177 Remedies for Illegal Seizure of Assets Because the exclusionary rule can only operate to prevent the introduction of illegally seized evidence in a later judicial proceeding it is inapplicable to the problem of fashioning a remedy for summary tax seizure violations. However, the concomitant rule requiring the return of illegally seized assets to their owner is relevant.178 Unlike mere evidence which is seized for later use in a criminal proceeding, assets either seized or encumbered under a tax assessment are almost always financially of great value to their owner.17 Consequently, there is greater justification for requiring the return of illegally seized assets in the tax context than there is in the criminal setting. However, since the invalidity of one assessment does not prevent additional assessments from being made, this remedy alone cannot fully protect the taxpayer from abuse; the Service could still make spurious assessments with the hope of obtaining information to justify the summary seizure prior to review in the Tax Court or in a refund suit. may review the commissioners' decisions. However, once the Tax Court reviews the decision, it may not be appealed or reviewed by any other court. The committee report makes clear that the determination indicated above has no effect upon the determination of the correct tax liability: A determination made under new section 6866 will have no effect upon the determination of the correct tax liability in a subsequent proceeding. The proceeding under the new provision is to be a separate proceeding which is unrelated, substantively and procedurally, to any subsequent proceeding to deter mine the correct tax liability, either by an action for refund in a Federal district court or the Court of Claims or by a proceeding in the Tax Court. H.R. REP. No. 94-658, 94th Cong., 1st Sess. (1975). 177 However, under existing case law, the invalidity of one assessment does not prevent additional assessments from being made. See N. 27 supra. 178 See, e.g., Go-Bart Importing Co. v. United States, 282 U.S. 344, 355 (1931); Weeks v. United States, 232 U.S. 383, 398 (1914) ("That papers wrongfully seized should be turned over to the accused has been frequently recognized in the early as well as later decisions of the courts."). 179 Although contraband may also be of great value to its owner, it is not subject to return to its owner even if it is obtained illegally. 358 TAX LAW REVIEW [Vol. 31: A second potential remedy for illegal summary tax seizures is an action for damages against officials who violate taxpayer's fourth amendment rights." 180 This solution would compensate the taxpayer for damages incurred as a result of official illegality and, in addition, would discourage Service agents from making assessments without determining whether there is probable cause to believe that the tax payment is in jeopardy.181 Because the chance of succeeding in such a suit would depend on the degree to which the Service pursued the assessment in good faith, and not merely on the substantive legality of the tax,182 this solution would discourage the Service from seizing or levying upon a taxpayer's assets before it has justification for such an assessment.183 180 See Bivens v. Six Unknown Named Agents of Fed. Bureau of Narcotics, 403 U.S. 388 (1971). The Court held that an individual could recover damages for any injuries which he has suffered as a result of official misconduct which violated his fourth amendment rights. See also Miloszewski v. Sears Roebuck & Co., 346 F. Supp. 119 (W.D. Mich. 1972) (damage action for official misconduct pursuant to a state replevin action resulting in fourth amendment violation). 181 Although section 421 (c) of the Federal Tort Claims Act, 28 U.S.C. § 2680 (c) (1964), might foreclose a suit against the Service for damages, the taxpayer would still be able to sue the individual agents responsible for carrying out the assessment. However, even the agents themselves would be immune from suit whenever they perform 'discretionary acts at those levels of government where the concept of duty encompasses the sound exercise of discretionary authority . . . .' Once an official is found to be exercising this kind of discretion, the act complained of must be 'within the outer perimeter of [his] line of duty,' before the official will be granted immunity." Bivens v. Six Unknown Named Agents of Fed. Bureau of Narcotics, 456 F.2d 1339, 1342-43 (2d Cir. 1972), on remand from 403 U.S. 388 (1971). 182 Bivens v. Six Unknown Named Agents of Fed. Bureau of Narcotics, 456 F.2d 1339 (2d Cir. 1972), on remand from 403 U.S. 388 (1971), held that officials charged with violating fourth amendment rights would not have to show that probable cause for the search or seizure existed, but would have a valid defense to the claim for damages if they could "allege and prove [that they] acted in the matter complained of in good faith and with a reasonable belief in the validity of the arrest and search and in the necessity for carrying out the arrest and search in the way that the arrest was made and the search was conducted." 456 F.2d at 1341. 183 However, see Bivens v. Six Unknown Agents of Fed. Bureau of Narcotics, 403 U.S. 388 (1971) (Burger, C.J., dissenting): The problems of both error and deliberate misconduct by law enforcement officials call for a workable remedy. Private damage actions against individual police officers concededly have not adequately met this requirement, and it would be fallacious to assume today's work of the Court in creating a remedy will really accomplish its stated objective. There is some validity to the claims that juries will not return verdicts against individual officers except in those unusual cases where the violation has been flagrant or where the error has been complete, as in the arrest of the wrong person or the search of the wrong house. 403 U.S. at 421. Accord, Wolf v. Colorado, 338 U.S. 25, 41 (1949) (Murphy, J., dissenting). See Laing v. United States, 96 S. Ct. 473 (1976); United States v. Hall, 96 1976] JEOPARDY AND TERMINA TION ASSESSMENTS Conclusion 359 Unless the Service is required to obtain judicial review prior to carrying out each seizure, the assessment power will continue unchecked. The ready availability of procedures which allow the government to summarily seize "every meaningful asset" a taxpayer may own destroys for all taxpayers the security inherent in the right to privacy guaranteed by the fourth amendment. Mere governmental self-restraint, which has not worked in the past, is not sufficient to protect personal rights guaranteed by the Constitution. Merely interposing an independent magistrate between the Service and the taxpayer cannot prevent all abuses which are possible under the statutory scheme. Rather, review by a neutral and detached magistrate is proposed because it involves only minimal interference with the lawful duties of the Service yet it presents a means of eliminating the errors in judgment which sometimes arise when virtually uncontrolled power is vested within one agency. Because a magistrate may on occasion act as a rubber stamp, the solution does not ignore the need for self control on the part of the government in using its power. Nevertheless, review of summary tax assessments by a neutral and detached magistrate, coupled with the possibility of an action for damages against Service agents abusing their power, are necessary limitations and should substantially curb misuses of the summary jeopardy and termination power. S. Ct. 473, 497 n.14 (1976) (Blackmun, J., dissenting). Justice Blackmun's opinion suggests the view that a damage action would be an appropriate remedy for abuses of the jeopardy or termination assessment power: I do not condone abuse in tax collection. The records of these two cases do not convincingly demonstrate abuse, although Mrs. Hall's situation, as it developed after the initial critical moves by the Service, makes one wonder. I have no such concern whatsoever about Mr. Laing. In any event, abuse is subject to rectification otherwise, and Congress and the courts surely will not be unsympathetic. Cf. Bivens v. Six Unknown Fed. Narcotics Agents, 403 U.S. 388 (1971). 80-321 O-77-37 The taxpayers' bill of rights Amid all the furor over the dollar and cents effect of the current tax reform provisions, a little-noticed bill may be progressing toward enactment. This bill, entitled "The Federal Taxpayers' Rights Act of 1975" (H.R. 9599), was introduced on September 15, 1975, by Rep. Charles Vanik, Chairman of the House Ways and Means Subcommittee on Oversight of the IRS. The bill's four co-sponsors are also members of that subcommittee. The proposal also has support on the Senate side as evidenced by its companion, S. 2342, which was introduced by Sen. Magnuson and a bipartisan group of senators. While this bill cannot be evaluated by the public in terms of a cost benefit or hardship, there is no doubt that it could have far-reaching effects on tax administration. The Ways and Means Committee has already agreed that its reform bill will include a number of provisions relating to tax administration. Upon introducing the bill, Mr. Vanik indicated that he was hopeful that this legislation would be included within the general tax reform bill. While the tentative decisions now being formulated by the Ways and Means Committee at this point do not include all of the proposals included in H.R. 9599, there seems a good chance that some action on this bill will be taken, if not in the general tax reform bill then perhaps as a separate item. Pressure for legislation of this type has been building for quite a while. For instance, separate bills presently exist which would authorize the GAO to conduct oversight audits of the IRS or 730 restrict the use of tax returns for investigative purposes. In addition, the Treasury has recently transmitted proposed legislation to Congress which would amend Sec. 6103 and related Code sections having to do with disclosure of federal tax returns and tax return information. Since H.R. 9599 would accomplish in one sweep most of what these other bills would do separately, and since it has strong backing in both the House and Senate, it could become the principal vehicle for administrative tax reform. Basically, the bill provides the following: • Require IRS to fully inform the taxpayer of his rights during any audit or tax appeal procedure. • Establish a taxpayer Service and Complaint Assistance Office to monitor improper behavior by IRS agents. • Authorize a pilot project of independent legal assistance to taxpayers in audits and appeals. • Protect taxpayers from arbitrary IRS procedures by placing limits on the power of jeopardy assessment and termination of a tax year. • Establish safeguards against the political misuse of the IRS and place limits on nontax related surveillance activities. • Place new limitations on disclosure of tax return information, and would permit taxpayers to recover civil damages for unauthorized disclosure of personal tax data. • Provide General Accounting Office oversight authority of the IRS. Following is a detailed analysis of all the sections contained in the bill with the exception of Sections 1 and 2 which are definitional in scope. THE TAX ADVISER, DECEMBER 1975 Disclosure of rights and obligations of taxpayers .Section 3 would require the IRS to develop a series of booklets which describe in clear and simple language the -rights and obligations of a taxpayer and the Service during an audit; -procedures by which a taxpayer may appeal any adverse decision of the Service (including administrative and judicial appeals); -procedures for prosecuting refund claims and filing of taxpayer complaints; and -procedures which the Service may use in enforcing the internal revenue laws (including assessment, jeopardy assessment, levy and distraint, and enforcement of liens). This information would be transmitted to the taxpayer with the taxpayer's first communication from the Service regarding his liability for a taxable year. In other words, the taxpayer would automatically be advised of his rights in all of his dealings with the IRS. The bill would also require that the congressional tax-writing committees be given an opportunity to comment on all of the proposed publications prior to their release by the Treasury Department. Office of taxpayer services Section 4 would establish an Office of Taxpayer. Services under the direction of a new Assistant Commissioner for Taxpayer Services. This office would be responsible for -helping taxpayers to obtain easily understandable tax information and information on audits, corrections, and appeals procedures (in addition, it would provide assistance in answering questions on tax liability, preparing and filing returns, and in locating documents or payments such as lost refund checks or unrecorded tax payments); -providing personnel in local offices of the IRS to receive, evaluate, complaints on, and take corrective action against, improper, abusive, or inefficient service by IRS personnel; -surveying taxpayers to obtain their evaluation of the quality of the service provided by the IRS; and -compiling data on the number and type of taxpayer complaints in each internal revenue district and evaluating the actions taken to resolve these complaints. One very important aspect of this office would be its authority to issue "Taxpayer Assistance Orders (TAO)," a new vehicle for taxpayer relief. The issuance of a TAO would occur, after application by the taxpayer, if the Assistant Commissioner for Taxpayer Services determined that the taxpayer was suffering from an unusual, unnecessary or irreparable loss resulting from administration of the internal revenue laws. If a TAO is issued, the IRS would be prevented THE TAX ADVISER, DECEMBER 1975 Legal representation for taxpayers Section 5 would establish a 3-year pilot project for the legal representation of taxpayers in tax matters. The pilot project authorizes the Legal Services Corp. (an agency established under the Legal Services Corporation Act of 1974 to provide legal assistance to lower-income citizens) to set up Taxpayer Representation Offices in 4 cities. These offices would provide legal representatives, for individuals desiring their services, in all administrative matters before the Service and in any litigation involving tax matters. Fees for these services would be set in accordance with the individual's ability to pay and the type of service provided. The fees would be returned to the U.S. Treasury as miscellaneous receipts. It is hoped that the project will be useful in determining whether the treatment of lowerand middle-income taxpayers can be improved through more readily available legal assistance. Jeopardy and termination assessments Section 6 of the proposed legislation would amend Secs. 6851 and 6861 concerning the termination of taxable years and jeopardy assessments. Under existing law, when the Service decides to use its assessment powers under these sections, there is no provision affording taxpayers immediate access to the courts. H.R. 9599 provides for access to the District Courts within 10 days if petitioned by the taxpayer. If the court determines that the IRS, by a preponderance of the evidence, did not have reasonable cause for making the assessment or terminating the taxable period, then the assessment will be abated or the year reopened. In the event a jeopardy assessment is found to be an unreasonable amount, the IRS will be ordered to release the portion found unreasonable. Furthermore, Section 7 would provide for an increase, as a result of inflation, in the amount of property exempt from assessment. It is intended to provide an assessed taxpayer with enough income to meet daily needs. For instance, it would raise the amount of the exemption for personal effects from $500 to $1,500 and for tools of a trade or profession from $250 to $1,000. In addition, it would grant a taxpayer an exemption for salary received in the amount of $100 per week for personal needs plus so much of his income as might be necessary to comply with a judgement to contribute to the support of his minor children. Formerly, there was no specific salary exemption for the taxpayer's personal needs. 731 |