Despite a provision enacted by Congress prohibiting the Internal Revenue Service from labeling taxpayers as "illegal tax protesters" or similar designations, the IRS is still using the term, according to a new report.

The Treasury Inspector General for Tax Administration said the IRS has eliminated most uses of this and similar designations, but in some instances IRS employees continued to refer to taxpayers by these labels in the case narratives it compiles on accused tax evaders. TIGTA said the label could stigmatize taxpayers and cause bias among IRS employees in future contacts with the taxpayers.

Congress enacted Section 3707 of the IRS Restructuring and Revenue Reform Act of 1998 to prohibit the use of the term "illegal tax protester" and similar labels by the IRS. Before the law was enacted, the IRS used the Illegal Tax Protester Program to identify individuals and business that used methods to protest against tax laws the IRS did not consider legally valid. IRS employees referred taxpayers to the program when they used such protest arguments.

Congress enacted the law because it was concerned that some taxpayers were being permanently labeled and stigmatized by the designation, even when they subsequently complied with the tax laws. TIGTA found that the IRS had not reintroduced the codes or similar designations on taxpayer accounts and the Internal Revenue Manual no longer contained any illegal tax protester references.

Nevertheless. TIGTA found that out of approximately 65.2 million records and cases, there were 430 instances in which 349 employees had referred to employees as illegal tax protesters or similar designations in IRS case narratives.

The IRS said in response to the report that it continues to discourage the use of such designations in its casework. Still, the IRS has continued to vigorously pursue tax protest schemes and punish taxpayers who use them. The most recent high-profile case has been actor Wesley Snipes, who was sentenced to three years in prison.

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