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This article was published in 41 Houston Law Rev 1145, 2004.

Abstract

This article defends one of the more controversial parts of the Internal Revenue Service (IRS) Restructuring and Reform Act of 1998 (RRA 98) the collection due process (CDP) provisions. CDP gives taxpayers the right to independent administrative and judicial review of IRS decisions to use its awesome administrative collection powers, powers that have long made the IRS a feared creditor.

Prior to CDP’s enactment, the IRS had the power to collect taxes from taxpayers without judicial review of administrative collection determinations. This power, atypical for creditors which often must get judicial approval for summary collection action, led many observers to criticize the IRS’s powers as dangerous to individuals, even when there was no dispute that taxpayers owed back taxes. Notwithstanding this criticism, CDP’s formalizing parts of the administrative collection process and interposing judicial review of certain IRS collection actions has itself been controversial for its draining of administrative resources from compliance, an issue of even greater importance in times of budget deficits. This article reveals how administrative and constitutional law principles that provide checks on arbitrary government determinations have largely been absent from tax collection adjudications. The adoption of CDP serves as a progression toward adopting broader rule of law principles in the tax system. Fidelity to rule of law has come to dominate the American legal landscape in the past century, but has been slow to make inroads in the tax system.

The article addresses this challenging topic by considering IRS collection procedures, and the changes that CDP brought to that process. Second, it examines principles from administrative and constitutional law, and reveals how tax adjudications have largely been outside the mainstream of these two important external checks on agency behavior. In light of the tax law’s isolation from these disciplines, it reveals that Congress and the Supreme Court have implicitly and explicitly overstated the government’s interest in the collection process and understated the individual’s interest. Third, in light of these administrative and constitutional law principles, it makes specific proposals to improve CDP, including a consideration of the proper standard of review that courts should employ in review of collection determinations. These proposals, provide the means for policymakers to appreciate the potential for CDP to provide more meaningful taxpayer protections and minimize the aspects of CDP that are imposing significant systemic costs and straining valuable tax compliance resources.

Disciplines

Administrative Law | Constitutional Law | Tax Law

Date of this Version

December 2004

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