Understanding Tax Law: Your Rights, Responsibilities, and Potential Consequences


Tax law is the body of statutes, regulations and other legal materials that govern the assessment, collection and payment of taxes.
Tax laws are enforced by tax authorities such as the Internal Revenue Service (IRS) in the United States and Canada Revenue Agency (CRA) in Canada.
The benefits of understanding tax law include:

Your Rights as a Taxpayer

You have the right to fair treatment. This means that the IRS should not discriminate against you based on age, race or gender. You also have a right to privacy and confidentiality when dealing with the IRS. The agency cannot disclose information about your tax return without your permission unless required by law or court order (see below).
Your rights as a taxpayer include:

  • Right to Representation – You may represent yourself at an audit if you choose; however, it’s recommended that you seek professional help from an experienced tax attorney or CPA who can explain all aspects of your case in detail before deciding whether representation is necessary for your situation. If someone else represents you during an audit, then they must be authorized by law (for example: attorneys)

The Taxpayer Bill of Rights

  • Right to Challenge the IRS’s Position
    You have the right to appeal an IRS decision if you disagree with it. You may also ask for a hearing before a Tax Court judge, or file suit in federal court.
  • Right to Finality
    The IRS must decide your case within three years after it was filed or two years after the date you paid your tax, whichever is later. If the IRS does not make a decision on your case within this time frame, you can request an extension of time from them by filing Form 843 (Request for Extension of Time To File).

Taxpayer Responsibilities

As a taxpayer, it’s important to understand your rights and responsibilities. You have the right to:

  • Report income on your tax return.
  • Pay taxes in a timely manner.
  • Keep records of all transactions that may be relevant for tax purposes.

Tax Planning

  • Tax Planning Strategies
  • Tax Saving Tips
  • Tax Benefits of Retirement Accounts

Tax Preparation

  • Filing Tax Returns
  • Deductions
  • Credits
  • Exemptions
    You should also be aware of your rights as a taxpayer and what to do if you have a problem with the IRS.

Audits and Other IRS Actions

The IRS can audit your tax return for a variety of reasons. Some audits are random, while others are triggered by something you’ve reported on your return.
Audits can be either correspondence (mailed) or office (in-person) audits, depending on how much information the IRS has about your situation and what type of issue they believe needs further investigation. The most common types of correspondence audits are:

  • Math error–an error in math calculations made on the return that results in an underpayment or overpayment
  • Identity theft–when someone uses another person’s Social Security number to file a fraudulent return
  • Earned income credit–if you’re claiming this refundable credit but don’t meet all eligibility requirements

Tax Penalties and Interest

There are two types of penalties that you may be subject to:

  • Failure-to-file penalty. If you don’t file your return on time, the IRS will charge you a failure-to-file penalty. This is 5% per month (or partial month) for not filing and paying your taxes. The maximum amount is 25% of what’s due, but only if it’s more than $1,000.
  • Late payment penalty. If you owe taxes when they’re due and don’t pay them within 10 days after receiving notice from the IRS that they’ve been assessed against you, then there’ll be an additional 0.5% per month added onto whatever amount remains unpaid after those 10 days have passed–up to 25%.

Tax Fraud and Evasion

Tax fraud is the intentional misrepresentation of facts to the government in order to avoid paying taxes. Tax evasion, on the other hand, is the illegal act of not reporting income or expenses.
Both types of fraud can have serious consequences for you and your business if you’re caught. Here are some examples:

  • If you’re convicted of tax evasion, you could face up to five years in prison and fines up to $250K (or both).
  • If someone else does it for you–like an accountant–they could get up to three years behind bars along with those same penalties (or both).
    If this sounds scary enough already…it gets worse! In addition to criminal prosecution from federal authorities like IRS agents or state attorneys general offices who prosecute their own cases against suspected criminals every year across America; there’s also civil litigation that happens concurrently with criminal prosecutions where plaintiffs sue defendants directly under certain circumstances such as breach contracts/agreements made between parties prior
Thomas Elliott

Education: Brooklyn Law School, Brooklyn, New York. Pace University, White Plains, New York.
Professional Associations and Memberships: American Bar Association, New York State Bar, The Association of the Bar of the City of New York, Brooklyn Bar Association, National Academy of Elder Law Attorneys (NAELA).

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