A small Central American nation has achieved such a clear victory for taxpayer rights, it should make the Internal Revenue Service blush.

Costa Rica not only prohibits the taking of assets in tax audits, the Constitutional Court has struck down the collection of penalties and adjustments in the absence of a trial and conviction in the Administrative Tax Court. As reported in El Financiero, the ruling came on August 31 and nullified Article 144 of the national Tax Code.

This problematic article came into force in September 2012 and gave tax authorities the power to collect or confiscate “presumed tax debts before time,” says Paulo Doninelli of KPMG in Costa Rica. A graduate of the New York University School of Law and a dispute-resolution specialist, Doninelli explains that the Tax Administration could simply write up the debts and take hold of the money.

Then the burden of proof was on the taxpayers to get it back, even though they were financially weakened from the confiscation. To make matters worse, the queue for that administrative process was up to four years long.

In 2014, the Deloitte consulting firm challenged the constitutionality of Article 144. Other firms, such as KPMG, subsequently joined the case and that alone pressured the Tax Administration to at least ease up on use of these powers.

Now these firms and their clients are celebrating a victory over what they interpreted as a shortcut by the agency. In other words, the tax agency had become so slow and inefficient with their court process that officials wanted to just bypass it, individual rights and protections be damned.

This is not a matter of whether or not taxes can be collected, Doninelli explains: “It’s more a timing issue.… The tax authorities were taking too long to resolve their processes, and they were trying to make the taxpayer pay for the amount of time that they [took] to make the decisions.”

With the ruling of the Constitutional Court, the tax agency will “have to work a little bit faster, but they can definitely collect.”

Now there will be due process, and the Costa Rican Congress must pass legislation to clarify how the Tax Administration should abide by the ruling. Decisions from auditors must at least be “reviewed by the higher level of the Tax Administration and even more by the Administrative Tax Court … to make sure that this tax auditor is actually right in his assessment.” Previously, it was just “the perception of the tax auditor against the interpretation of the taxpayer.”

These two layers of property protections — during and after the audit, as upheld by the Constitutional Court — stand in stark contrast to the brazen strategies of the IRS.

Few actions could be more infuriating than the confiscation of one’s assets without trial or charge. Yet, as reported here at the Tax Revolution Institute (TRI), the IRS has in recent years confiscated tens of millions of dollars without ever laying charges. Further, even an admission of wrongdoing from them has only slowed down these activities, and left the rightful owners struggling to get their money back. The apology rings hollow when there is no compensation for damaged parties and the property is not returned automatically.

For whatever reason — perhaps a lack of awareness and understanding of the problem — there is neither a legislative nor a constitutional barrier holding the IRS back, and we should not be so naive as to believe that they will restrain themselves. The Taxpayer Advocate, the supposed voice for constituents within the IRS, has proved incapable of being that necessary check. In the absence of a constitutional defense, that means we need to garner sufficient constituent pressure to pass legislation that changes the rules of the game.

There is, in fact, the bipartisan Due Process Bill (H.R.5283), which was introduced into the US House by Representative James Sensenbrenner (R-WI) in May. However, despite 24 cosponsors, it appears to be dormant.

And even that, as explained by TRI Legal Director Robert Rodrigo, would only raise the standard for confiscations to “clear and convincing.” Rodrigo asserts that we cannot accept any taking of property without due process and a guilty verdict of a statutory criminal violation.

If Costa Rica has the strength of character to defend taxpayers and the rule of law, why not the land of the free?

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