Recent events

History reverberates with brazen efforts by crooks to mislead the honest and tax paying public. Therefore, the recent events in Pune, India with news items of bogus call centres and their attempts to threaten U S tax payers was no surprise. However, since the inception of taxation system in U.S.A, the Internal Revenue Service, the governmental wing of the U S Government, which collects the taxes and has been one of the most prominent face of the world civilization has regularly been guiding its tax payers of their rights and duties. I perhaps thought of reiterating its instructions for the common man who might have forgotten the same. Also, curiosity made me to refer the noble efforts of Indian Income Tax authorities who have been travelling extra miles to help its constituents.

Since most of us forget and remember only our views about tax systems and often mumble feebly our views which have no relevance until they are compared with the realities, this article has arisen. It is expected to serve an average tax payer with a feel good factor. Why not?

U S Taxation – Your rights as a Tax Payer

Internal Revenue Service, the governmental wing of the U S Government (IRS), vide its publication Number 1, has explained one’s rights as a tax payer and the processes for examination, appeal, collection, and refunds. The following information is based on above publication.

Taxpayer Bill of Rights 

It contains 10 rights which are exactly reproduced as under:

1. The Right to Be Informed

Taxpayers have the right to know what they need to do to comply with the tax laws. They are entitled to clear explanations of the laws and IRS procedures in all tax forms,instructions, publications, notices, and correspondence. They have the right to be informed of IRS decisions about their tax- accounts and to receive clear explanations of the outcomes.

2. The Right to Quality Service

Taxpayers have the right to receive prompt, courteous, and professional- assistance in their dealings with the IRS, to bespoken to in a way they can easily understand, to receive clear and easily understandable communications from the IRS, and to speak to a supervisor about inadequate service.

3. The Right to Pay No More than the Correct Amount of Tax

Taxpayers have the right to pay only the amount of tax legally due, including interest and penalties, and to have the IRS apply all tax payments properly.

4. The Right to Challenge the IRS’s Position and be heard

Taxpayers have the right to raise objections and provide additional- documentation in response to formal IRS actions or proposed actions, to expect that the IRS will consider their timely objections and documentation promptly and fairly, and to receive a response if the IRS does not agree with their position.

5. The Right to Appeal an IRS Decision in an Independent Forum

Taxpayers are entitled to a fair and impartial administrative appeal of most IRS decisions, including many penalties, and have the right to receive a written response regarding the

Office of Appeals’ decision. Taxpayers generally have the right to take their cases to court

6. The Right to Finality

Taxpayers have the right to know the maximum amount of time they have to challenge the IRS’s position as well as the maximum amount of time the IRS has to audit a particular tax year or collect a tax debt. Taxpayers have the right to know when the IRS has finished an audit.

7. The Right to Privacy

Taxpayers have the right to expect that any IRS inquiry,examination, or enforcement action will comply with the law and be no more intrusive than necessary, and will respect all due process rights, including search and seizure protections and will provide, where applicable, a collection due process-hearing.

8. The Right to Confidentiality

Taxpayers have the right to expect that any information they provide to the IRS will not be disclosed unless authorized by the taxpayer or by law. Taxpayers have the right to expect appropriate action will be taken against employees, return preparers, and others who wrongfully use or disclose taxpayer return information.

9. The Right to Retain Representation

Taxpayers have the right to retain an authorized representative of their choice to represent them in their dealings with the IRS. Taxpayers have the right to seek assistance from a Low

Income Taxpayer Clinic if they cannot afford representation.

10. The Right to a Fair and Just Tax System

Taxpayers have the right to expect the tax system to consider facts and circumstances that might affect their underlying liabilities, ability to pay, or ability to provide information timely.Taxpayers have the right to receive assistance from the Taxpayer Advocate Service if they are experiencing financial difficulty or if the IRS has not resolved their tax issues properly.

A careful study of above Bill of Rights clears many unambiguous doubts and makes the tax payer well informed.

Let us look at other information on examinations(audits), usage of mail for correspondence, refunds or potential third party contacts.

Examinations (Audits)

One often hears the words that one gets his returns easily filed by electronic means and mostly the refunds are credited to the account for which details had been provided at the time of filing the returns. Is it that simple? Many enquire what would happen if the facts given are not correct. The simple answer may be derived by the statement of IRS that they accept the returns as filed. If they enquire about some information, it is not necessarily implying that the tax payers are dishonest. Rather, some of the information given might not be on the basis of the documents like W-2, or forms like 1099 whose copies are invariably sent to IRS at the time of submission to tax payers. IRS has the history of nearly 100 years of tax returns (technically it started working from 1930s onwards) receipt and analysis which has left it with the best information about behavior of tax filing, authenticity of tax returns or attempts to fudge the information. With the most advanced computers at its command, it can easily predict the normal ones from improper ones. Called red flagged, letters are sent thereafter with the corrections required for the returns. Ideally, the tax payer can easily answer the queries and send the reply to the address invariably indicated in the letter.

Tax payer has the right to refute the information but with authentic proof, accept the contention and pay the extra amount requested. History says that it is very unlikely IRS would waste its time on unnecessary matter. IRS sometimes gets information from outside sources indicating the returns with incorrect amounts. But sleeping over the matter would not wish away the queries of IRS. Prompt action is always expected.

By Mail

Often one hears that the tax payer got an email or telephone enquiring about his tax return by IRS authorities. IRS as a professional organization never telephones any one or asks submission by email or other means. It is the fear or ignorance which has resulted in many frauds. The immediate response of the tax payers could have been to keep quiet and wait for written communication from IRS rather than give unnecessary information to the culprits who played the criminal acts. The exact language used by IRS authorities in their publication Number 1 is reproduced below:

We handle many examinations and inquiries by mail. We will send you a letter with either a request for more information or a reason why we believe a change to your return may be needed. You can respond by mail or you can request a personal interview with an examiner. If you mail us the requested information provide an explanation, we may or may not agree with you, and we will explain the

reasons for any changes. Please do not hesitate to write to us about anything you do not understand.”

Repeatedly, IRS has emphasized that it would only initiate inquiries by mail. Since many Indian professionals work in U.S.A. and also handle their returns at their levels, these instructions are highly relevant and easily applicable to them.

Some more relevant information are given as under:

  • Tax payers have the right to have personal interviews duly organized at mutually convenient dates in case of IRS had asked them to be interviewed in connection with their returns.
  • In case of repeat examination of returns consecutively for two years but without any change of liability, tax payers have the right to point out this practice for discontinuing the examination.
  • Publication 5 and Publication 556, explain the examination of returns, appeal rights, and claims for refunds.
  • One can file claim for refunds within 3 years from the date of one filed the original return or 2 years from the date one paid the tax whichever is later.

What is the ideal way to handle the examination or inquiries from IRS., or State revenue authorities can be summed up by the statement that professional help such from an experienced CPA who is registered with IRS authorities or lawyers who too have similar registration with IRS would save the situation since improper handling or refusal to pay the additional tax demanded by IRS or state authorities may result in garnishing of bank accounts till the additional amounts demanded are paid.

Now the time has come to handle the rights of an income tax payer in India. With computerization and result of continued professionalization of tax department in India, the tax payers are experiencing pleasant times. The refunds are handled faster, replies could be submitted electronically provided the prescribed safe way of handling the communication from Indian tax authorities through proper password or prior registration of emails could be established.  Let us quote extensively from the Indian income tax authorities explaining the rights of its tax payers.

From the website of www.incometaxindia.gov.in, the following information has been verbatim reproduced. “ Citizen’s charter(Declaration of our commitment to the tax payers), Income tax department, Government of India”

To partner in the nation building process through progressive tax policy, efficient and effective administration and improved voluntary compliance.

Mission

  • To formulate progressive tax policies
  • To make compliance easy
  • To enforce tax laws with fairness
  • To deliver quality services
  • To continuously upgrade skills and build a professional and motivated workforce

We believe in

  • Equity and transparency
  • Promoting taxpayer awareness towards voluntary compliance
  • Elective deterrence against tax evasion
  • Continuous research as the foundation of tax policy and administration
  • Adopting technology as an enabler for improved service delivery

This charter is issued on 24th of July 2010, revisiting the earlier charter issued in July 2007. In the preparation of this charter, consultations have been held with all stakeholders. This charter reacts the best endeavor of the Department. The Department intends to review the charter within a period of three years.

Service Delivery Standards

We aspire to provide the following key services within specified timelines:

Key Services

Sl. No. Key services Timelines ( from the end of the month in which return/application is received/cause of action arises)
1 Issue of refund along with interest u/s 143(1) of the I.T. Act
a) in case of electronically filed returns 6 months
b) other returns 9 months
2 Issue of refund including interest from proceedings other than section 143(1) of the I.T. Act 1 month
3 Decision on rectification of application 2 months
4 Giving effect to appellate/revision order 1 month
5 Acknowledgement of communication received through electronic media or by hand Immediate
6 Decision on application seeking extension of time for tax payment or for grant of installment 1 month
7 Issue of Tax Clearance Certificate u/s 230 of the I.T. Act Within 3 working days from the date of receipt of application
8 Decision on application for recognition/approval to provident fund/superannuation fund/gratuity fund 3 months
9 Decision on application for grant of exemption or continuance thereof to institutions (University, School, Hospital etc.) under section 10(23C) of the I.T. Act 12 months
10 Decision on application for approval to a fund under section 10(23AAA) of the I.T. Act 3 months
11 Decision on application for registration of charitable or religious trust or institution 3 months
12 Decision on application for approval of hospitals in respect of medical treatment of prescribed diseases 3 months
13 Decision on application for grant of approval to institution or fund under section 80G(5)(vi) of the I.T. Act 4 months
14 Decision on application for no deduction of tax or deduction of tax at lower rate 1 month
15 Reprisal of grievance 2 months
16 Decision on application for transfer of case from one charge to another 2 months

Note: The above timelines will apply to cases where returns/applications are complete in all aspects.

We Endeavor

  • to promote voluntary compliance
  • to educate tax payers and citizens about tax laws
  • to provide information, forms and other assistance at the facilitation counters and also on websiteincometaxindia.gov.in
  • to continuously improve service delivery
  • to induct state-of-the-art and green technology with a user friendly interface & and
  • to inculcate a healthy tax culture where the taxpayers and the tax collectors discharge their obligations with a sense of responsibility towards nation building

Expectations from Taxpayers

We expect our taxpayers:

  • to be truthful and prompt in meeting all legal obligations
  • to pay taxes in time
  • to obtain PAN and quote it in all documents and correspondence
  • to obtain TAN for every unit and quote it in all documents and correspondence
  • to quote correct tax payment/deduction particulars in tax returns
  • to verify credits in tax credit statements
  • to file complete & correct returns, within the due dates and in appropriate tax jurisdictions
  • to quote correctly Bank Account Number, MICR Code and other Bank details in the returns of income
  • to intimate change of address to the tax authorities concerned
  • to intimate any change in PAN particulars to designated agency & and
  • to quote PAN of all deductees in the TDS Statements

Grievance Redressal

  • All grievances received will be redressed within two months from the end of the month of their receipt
  • Petitions on un-redressed grievances led before next higher authority will be decided within 15 working days of receipt
  • The taxpayer can approach the Income Tax Ombudsman in case of un-redressed grievance
  • The grievance redressal mechanism including contact details of Public Grievance Officers are available on the website incometaxindia.gov.in

Source: www.incometaxindia.gov.in

It is a pleasure to read the most beautiful way of representing the role of income tax department,

Time span for key services as well the expectations from Indian income tax payers. Perhaps the Indian income tax department ranks among the best Government departments in the world for having undertaken a massive overhaul of the functioning and updating its services to meet the demands of 21st century. It is now left to Indian income tax payers to take advantage of the remarkable growth of Indian income tax authorities and help the nation to grow faster while availing all legal remedies available to reduce the taxes.

Conclusion

The recent spate of irregular activities noted in Pune, India and other parts of the world in relation to American tax payers made me to think about the basic instructions which have been issued and available for the common tax payers in America. Interestingly, being a truly global country, its Green card holders or Citizens live around the globe and this has made the task of protecting their tax information very complex and the latest techniques used by criminals have also made me to write this article. Incidentally, the remarkable job undertaken by Indian Income tax authorities has also made my task easier for conveying the message. I congratulate both the tax authorities from USA as well as India who are taking the most- timely steps to protect the safety, security and longevity of the tax information collected from the tax payers. It is my fervent request that the tax professionals may read the above information which would help them to serve their clients better. Even for an Indian tax payer, the wealth of information provided may help them to demand the best services from the tax authorities.

Reference

  • IRS publication 1 “ Your Rights as a Taxpayer”
  • IRS publication 556, Examination of Returns, Appeal Rights, and Claims of Refund
  • IRS publication 594, The IRS collection Process
  • IRS publication 1660, Collection Appeal rights
  • incometaxindia.gov.in

About the author : Subramanian Natarajan C.P.A. (USA), M.Sc., CAIIB took voluntary retirement in 2000 from Punjab National Bank after handling various facets of banking like deposit mobilization, foreign exchange, auditing and borrower accounts. After living in USA for 12 years during which period he worked in international auditing firms specializing in international tax, auditing, IFRS etc., he continues his practice in New Delhi, India. He can be reached at subcpa@gmail.com. Tel: 7503562701, 9015613229. He currently lives in Delhi. His name appears as tax consultant in web site of American embassy, New Delhi. He is thankful to various suggestions received from readers and is delighted to see the enormous enthusiasm of readers.

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One response to “U.S. Taxation – One’s rights as a Tax Payer vis-à-vis an Indian Tax payer & his enshrined role in Indian Income Tax”

  1. Dushyant Trivedi says:

    Fantastic article in a first class language. Thanks!

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