Some Internal Revenue Service employees continue to use the term “tax protester” to refer to taxpayers despite a 1998 law prohibiting the use of the designation, according to a new report from the Treasury Inspector General for Tax Administration.

TIGTA found that out of approximately 257 million records and cases, there were 54 instances in which 45 employees referred to taxpayers as “Tax Protester,” “Constitutionally Challenged,” or other similar designations in case narratives on the computer systems analyzed for the report.

Section 3707 of the IRS Restructuring and Reform Act of 1998 prohibits the IRS from labeling taxpayers as Illegal Tax Protesters or any similar designations. However, a few IRS employees continue to refer to taxpayers by these designations in case narratives, according to the report.

Using Illegal Tax Protester or other similar designations may stigmatize taxpayers and may cause employee bias in future contacts with these taxpayers, TIGTA noted.

The audit was initiated because TIGTA is required to annually evaluate compliance with the prohibition against using Illegal Tax Protester or similar designations. Prior to enactment of the 1998 law, the IRS used the Illegal Tax Protester Program to identify individuals and businesses that used methods that were not legally valid to protest the tax laws. IRS employees referred taxpayers to the Illegal Tax Protester Program when their tax returns or correspondence contained specific indicators of noncompliance with the tax law, such as the use of arguments that had been repeatedly rejected by the courts.

The purpose of this audit was to determine whether the IRS complied with RRA 98 Section 3707 and internal guidelines that prohibit officers and employees from referring to taxpayers as Illegal Tax Protesters and similar designations. Congress enacted the prohibition against Illegal Tax Protester designations because it was concerned that some taxpayers were being permanently labeled as Illegal Tax Protesters even though they had subsequently become compliant with the tax laws. The label could bias IRS employees and result in unfair treatment, TIGTA noted. The report acknowledged that the IRS has not reintroduced past Illegal Tax Protester codes or similar designations on taxpayer accounts. 

TIGTA made no recommendations in this report. IRS officials were provided an opportunity to review the draft report, but IRS management did not provide any comments on the report.