On April 4, Birmingham attorney and State Representative Paul DeMarco led the effort to pass the 2013 version of the Alabama Taxpayers’ Bill of Rights II, HB 264. The House of Representatives voted 96-2 in favor of the bill. It now goes to the Senate, whose Fiscal Responsibility & Accountability Committee has already passed a similar version of the bill sponsored by Prattville/Montgomery attorney and Senator Bryan Taylor. Readers may recall that a previous version of the bill was passed near unanimously during the 2012 legislative session but was pocket vetoed by Governor Robert Bentley due to last minute technical glitches in the bill that mistakenly deleted some of his requested amendments. The Governor’s office has indicated that he supports the revised version.

This landmark legislation reflects the work of members of the Alabama State Bar Tax Section in cooperation with the Alabama Society of CPAs (ASCPA) and the Alabama Department of Revenue (ADOR) over the past decade. To date, the Alabama State Bar, the 30-member Business Associations’ Tax Coalition, the Business Council of Alabama, the ASCPA, the Council On State Taxation (COST), the Tax Executives Institute, the American Bar Association, and, most recently, the American Institute of CPAs, have endorsed this bill.

  1. The bill creates the Alabama Tax Appeals Commission (ATAC) by abolishing the current Administrative Law Division of the ADOR and transferring both its personnel and equipment to a newly formed state agency under the executive branch. Alabama is now in the minority of states that lack an independent tax appeals tribunal, and it received a “D” on COST’s latest State Tax Due Process Scorecard primarily for this reason. The ATAC provisions essentially track the ABA’s Model State Administrative Tax Tribunal Act, except that appeals from the ATAC will continue to be filed with the circuit courts and tried on a de novo basis.

    In addition to handling all ADOR-administered taxes other than ad valorem property tax assessments, the bill would allow taxpayers to appeal final assessments of sales, use, rental, and lodgings taxes issued by self-administered cities and countries (and their private auditing firms) to the ATAC unless the governing body of the city or county opts out. This provision represents a major step toward addressing the frustration of the business community and tax advisers with the differing interpretations and appeals procedures of the many self-administered localities or their contract-auditing firms.

    Major changes were made to the ATAC judge selection process at the request of the Governor. Now, the nominating committee develops a list of five nominees and the governor must select one of them or reject all five and ask for a new slate. Once he or she selects a nominee, it is final. Unlike previous versions of the bill and the ABA Model Act, there is no requirement of Senate confirmation.

  2. Except in limited instances, the bill extends the period during which the taxpayer can appeal both a preliminary and final assessment from 30 days to 60 days after issuance of the assessment. The ADOR’s legal division is also given 60 days to file its answer with the ATAC, plus a 30-day extension if requested.

  3. HB 264 clarifies that the failure-to-pay penalty of 1 percent per month, which was included in the 2009 film incentives legislation, applies to the “correct” amount of tax required to be shown on a return, only begins to accrue 30 days after the first written notice and demand, and only applies to the “net” amount of underpaid tax. Additionally, the bill clarifies that neither failure-to-pay penalty will apply to estimated tax payments, consistent with federal law.

  4. The bill clarifies that taxpayers have the option to appeal to the ATAC any proposed adjustments by the ADOR to their net-operating-loss carryovers.

  5. At the request of the ADOR, HB 264 increases the penalty amounts for negligence, fraud, frivolous tax returns, and frivolous appeals to the ATAC to more closely conform to current federal law.

  6. At the request of the ADOR, the bill amends the revenue agent’s report (RAR) statute regarding assessments and refund claims resulting from IRS audit changes. The statute of limitations on assessments may not close until the taxpayer files an amended return and reports the IRS audit adjustment. Taxpayers would be required to file the amended return within 6 months after a final determination of their federal tax liability (they have one year under current law). However, taxpayers will continue to have one year after the grant of an IRS refund to file an equivalent refund claim with the ADOR. This provision is based on the Multistate Tax Commission’s model RAR act.

  7. The bill conforms to two intervening changes to the “innocent spouse” rules under the Internal Revenue Code to expand the scope of this defense for spouses who filed a joint return.

  8. The bill automatically nullifies any preliminary assessment that has been outstanding more than five years as of October 1, 2013 (i.e., issued prior to October 1, 2008), unless it is withdrawn before that date, a final assessment is issued thereon, or the parties agree to extend the time period. For any other preliminary assessment, the taxpayer has the option to appeal the preliminary assessment to the ATAC or appropriate circuit court if assessment has been dormant for three or more years.

  9. Finally, the bill requires the Taxpayer Advocate to contact the taxpayer or his/her representative before issuing a denial of their request for an interest abatement or waiver of penalties. It also grants authority to the Taxpayer Advocate to review and correct a final order of the ATAC if the judge so requests and if there is newly discovered evidence that indicates the taxpayer was incorrectly assessed.