IRS employees continue to refer to some people who refuse to pay taxes to the federal government as “illegal tax protesters,” despite a 1998 law prohibiting use of the term.

A report by the Treasury Inspector General for Tax Administration found that out of approximately 3.6 million records and cases, there were 38 instances in which 34 employees had referred to taxpayers as “tax protester,” “constitutionally challenged,” or other similar designations in case narratives on the computer systems analyzed.

Congress enacted Section 3707 of the Internal Revenue Service Restructuring and Reform Act of 1998 to prohibit the IRS from labeling taxpayers as “illegal tax protesters” or any similar designations. However, IRS employees continue to refer to taxpayers by these designations in case narratives, TIGTA found in a report it released Wednesday. Using “illegal tax protester” or other similar designations may stigmatize taxpayers and may cause employee bias in future contacts with these taxpayers.

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 using methods that were not legally valid to protest the tax laws.

IRS employees referred taxpayers to the Illegal Tax Protester Program when their 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.
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 acknowledged that the IRS has not reintroduced past Illegal Tax Protester codes or similar designations on taxpayer accounts. In addition, the Internal Revenue Manual no longer contains any Illegal Tax Protester references.

TIGTA made no new recommendations in the report because the IRS has long disagreed with TIGTA’s determination that in order to comply with RRA 98 Section 3707, IRS employees should not designate taxpayers as illegal tax protesters or similar designations in case histories. Moreover, TIGTA has previously elevated this disagreement to the Assistant Secretary for Management and Chief Financial Officer of the Department of the Treasury, but it has yet to be resolved.

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

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