Section 3707 of the IRS Restructuring and Reform Act of 1998 prohibits the IRS from designating taxpayers as “illegal tax protesters (or any similar designation).” I.R.C. § 7803(d)(1)(A)(v) requires the Treasury Inspector General for Tax Administration to annually audit the IRS’s compliance with § 3707. The TIGTA today released Fiscal Year 2010 Statutory Audit of Compliance With Legal Guidelines Prohibiting the Use of Illegal Tax Protester and Similar Designations (2010-30-073):
Congress was concerned that some taxpayers were being permanently labeled and stigmatized by the Illegal Tax Protester designation. The concern was that this label could bias IRS employees and result in unfair treatment of the taxpayer. …We found that, out of approximately 80.6 million records and cases, there were 196 instances in which employees had labeled taxpayers as “Tax Protester,” “Constitutionally Challenged,” or other similar designations … We believe the 196 instances we did identify in the various systems previously listed are prohibited by law.
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