IRS Violated 'Taxpayer Bill of Rights' With 2019 Crypto Letters: Watchdog

Jul 14, 2020 at 05:42 UTCUpdated Jul 14, 2020 at 11:58 UTC.The IRS's Taxpayer Advocate Service says a group of letters the agency sent to taxpayers last year may have violated its own code.

The letters did not spell out to these taxpayers that they were not yet under IRS examination.

Nearly a year later, the agency's own Taxpayer Advocate Service is alleging that letter violated the Taxpayer Bill of Rights, adopted by the IRS under pressure from Congress.

The little-noticed controversy over Letter 6173 is part of an emerging struggle over codified rights supposedly guaranteed to every federal taxpayer in the United States.

In 2014, the IRS adopted 10 U.S. Constitution's Bill of Rights-like safeguards in an attempt to educate and protect a U.S public skeptical they had any rights before the IRS, according to WeiserMazars LLP. The Taxpayer Bill of Rights is codified in the Internal Revenue Code.According to Erin M. Collins, the National Taxpayer Advocate, an independent office within the IRS that combines the roles of an ombudsman and a public defender, Letter 6173 ran roughshod over those rights.

The virtual currency letter smashed through two tenets of the Taxpayer Bill of Rights - the right to privacy and the right to be informed - when it ordered taxpayers who were not under audit to submit examination-esque information to the IRS, she argued.

Among Letter 6173's demands: the taxpayer's entire crypto trading history; a "Statement of facts"; an explanation of how they got their crypto books clean; and copies of tax documents from 2013 through 2017, even though the statute of limitations caps the number of reviewable years at three.

Letter 6173 "Appears to be a threat directed at taxpayers who believe they are compliant," she said, and identified it as part of a larger pattern of the IRS using soft letters to "Bypass" examinations and the procedural protections they afford.

Collins said in her report to Congress that the Taxpayer Advocate Service will "Continue to work with the" IRS on eliminating these types of demands from soft letters, even though the agency has already refused such requests.

"It could potentially lead to litigation from taxpayers who, if they're in a dispute with the IRS for not fulfilling the request from this letter, could say, 'Oh no, this letter is a violation of the Taxpayer Bill of Rights.'".