Understanding The Taxpayer Bill of Rights With Guam, the CNMI, and the IRS

by Tina Azarvand, Esq., LL.M. | Columnist 

Every year, countless taxpayers have their rights trampled—and most never even know it happened. They accept aggressive collection tactics, waive their right to appeal, or pay penalties and interest they don't actually owe, all because they assume challenging the local tax authority is futile or impossibly complicated. But here's what many taxpayers don't realize: the Taxpayer Bill of Rights is federal law under IRC § 7803, not some administrative nicety subject to the government's discretion. These are statutory rights, and when violated in Guam or the CNMI, it's just as illegal as if it happened with the IRS.

Guam and the CNMI operate under a "mirror code" system for income tax, meaning these territories have adopted the Internal Revenue Code (“IRC”) wholesale as their local income tax law. Under federal law, when applying the IRC as these territories' income tax, the law substitutes "Guam" or "CNMI" for "United States" and "Governor or his delegate" for "Secretary or his delegate," along with other necessary nomenclature changes. But what gets mirrored isn't just the income tax provisions—the entire framework of taxpayer protections comes along for the ride.

This means Guam and CNMI residents aren't subject to a completely different tax system. They're subject to the same IRC provisions that apply to mainland taxpayers, just administered locally by the Guam Department of Revenue and Taxation and the CNMI Division of Revenue and Taxation rather than the IRS. The Taxpayer Bill of Rights, codified in the IRC, applies at the local level. Employees of these territorial tax departments are bound by the same requirement to respect taxpayer rights as IRS employees. Every procedural safeguard, every right to appeal, every prohibition on abusive collection practices applies with equal force.

When tax officials trample these federal rights, when collection notices violate proper procedure, when taxpayers are denied their day in court, there are remedies. The bad actors in any bureaucracy count on taxpayers not knowing their rights and on confusion about whether federal protections really apply in the territories. They count on you giving up.

1. Your Ten Fundamental Rights Under the Taxpayer Bill of Rights

The IRS Taxpayer Bill of Rights groups existing rights in the tax code into ten fundamental rights. Because of the mirror code system, these same rights protect you when dealing with Guam and CNMI tax authorities:

1. The Right to Be Informed—You have the right to know what you need to do to comply with tax laws and are entitled to clear explanations of laws and procedures in all forms, instructions, publications, notices, and correspondence.

2. The Right to Quality Service—You have the right to receive prompt, courteous, and professional assistance, to be spoken to in a way you can easily understand, and to speak to a supervisor about inadequate service.

3. The Right to Pay No More than the Correct Amount of Tax—You have the right to pay only the amount of tax legally due, including penalties, and to have all tax payments properly applied.

4. The Right to Challenge the Tax Authority's Position and Be Heard—You have the right to raise objections and provide additional documentation in response to formal actions or proposed actions, and to expect your timely objections and documentation to be considered promptly and fairly.

5. The Right to Appeal in an Independent Forum—You are entitled to a fair and impartial administrative appeal of most decisions, including many penalties, and generally have the right to take your cases to court.

6. The Right to Finality—You have the right to know the maximum amount of time you have to challenge the tax authority's position as well as the maximum amount of time the authority has to audit a particular tax year or collect a tax debt.

7. The Right to Privacy—You have the right to expect that any inquiry, examination, or enforcement action will comply with the law and be no more intrusive than necessary, respecting all due process rights.

8. The Right to Confidentiality—You have the right to expect that any information you provide will not be disclosed unless authorized by you or by law, and that 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—You have the right to retain an authorized representative of your choice to represent you in your dealings with the tax authority.

10. The Right to a Fair and Just Tax System—You have the right to expect the tax system to consider facts and circumstances that might affect your underlying liabilities, ability to pay, or ability to provide information timely.

While there are countless ways tax employees can violate taxpayer rights, understanding a few examples can help taxpayers recognize when their rights are being violated and when to take action.

1. Stonewalling and Unreasonable Delays

Tax employees engage in stonewalling when they impose unreasonable delays that needlessly prolong matters for months or years. Examples include taking nearly a year to schedule a hearing despite numerous taxpayer inquiries, transferring taxpayers endlessly between employees without any path toward resolution, and failing to respond to legitimate requests for extended periods.

The consequences of such conduct can be severe for government agencies. The Ninth Circuit addressed unreasonable delays in tax refund issuances in Paeste v. Government of Guam, a class action lawsuit in which taxpayers challenged Guam's systematic delays and its arbitrary "expedited refund" program that devolved into favoritism and political patronage. The district court granted summary judgment to the taxpayers, finding violations of both the Organic Act of Guam and the Equal Protection Clause. The court entered a permanent injunction requiring Guam to pay refunds within six months and awarded substantial attorneys' fees.  The Ninth Circuit affirmed the decision in August 2015, finding that Guam's practice of withholding refunds to balance its budget was illegal, even before Congress further strengthened the legitimacy and enforceability of these taxpayer rights by codifying the Taxpayer Bill of Rights into the Internal Revenue Code through the Consolidated Appropriations Act of 2016.

The financial impact was substantial. Guam was ordered to pay approximately $1.7 million in attorneys' fees alone to the attorneys representing the taxpayer class, plus additional costs and the delayed refunds themselves. This outcome demonstrates that adherence to taxpayer rights protections serves the interests of both taxpayers and the government. Respecting these rights maintains public confidence in the tax system, avoids costly litigation, and prevents the waste of taxpayer dollars on legal fees that could have been avoided through proper administration.

2. Refusing to Consider Evidence or Review Applicable Law

A particularly egregious form of employee misconduct occurs when tax employees prejudge cases and refuse to consider the evidence presented or review the applicable provisions of the IRC. This includes employees who openly state they have already made up their mind while declining to review the applicable IRC provisions cited by the taxpayer or their counsel, or refusing to look at documentation that contradicts their predetermined conclusion.

This conduct directly violates the Right to Challenge the Tax Authority's Position and Be Heard, which requires that the tax authority consider timely objections and documentation promptly and fairly. It also violates the Right to a Fair and Just Tax System. Because the IRC is mirrored into territorial law, tax employees who refuse to apply or even review the IRC are violating their legal duties.

3. Bypassing Your Representative

The Right to Retain Representation means nothing if tax employees can simply ignore your representative and contact you directly. This prohibited conduct includes scheduling hearings without informing your power of attorney, sending notice only to the taxpayer, or pressuring you to discuss your case without your representative present. This unscrupulous behavior is designed to catch taxpayers without professional representation, making them vulnerable to agreeing to something they shouldn't. When tax employees bypass your power of attorney by scheduling hearings and only notifying you directly while excluding your representative, they violate the Right to Retain Representation.

2. Taking Action to Enforce Your Rights as a Taxpayer

When territorial tax authorities or the IRS violate your rights through employee misconduct, you have numerous remedies available, such as: 

1. Administrative Appeals—File protests and use the administrative appeals process. Because the IRC's procedural provisions are mirrored in Guam and the CNMI, taxpayers have the same appeal rights as with the IRS. When employee misconduct is involved, specifically identify the employees and document their violations.

2. Federal Court Litigation—Under federal law, the District Court of Guam has exclusive original jurisdiction over all judicial proceedings in Guam with respect to the Guam Territorial income tax. The CNMI District Court has similar jurisdiction for CNMI tax matters. These courts can hear cases involving improper assessments, wrongful collection actions, refund claims, and other disputes. The Paeste case demonstrates that federal courts will enforce taxpayer rights when territorial governments fail to comply with mirrored IRC provisions.

Taxpayers in Guam and the CNMI possess the same fundamental rights as those dealing with the IRS, thanks to the mirror code system. These rights aren't aspirational—they're legally enforceable through administrative appeals, court, and civil rights actions.

When territorial tax employees engage in misconduct—whether through stonewalling, unreasonable delays, refusing to review applicable law, bypassing designated representation, or otherwise—they're violating provisions of federal law incorporated into territorial law. This provides strong grounds for challenging violations and seeking remedies, including actions against individual employees.

The territorial tax authorities have teams of attorneys and accountants protecting their interests. Taxpayers deserve the same level of professional representation, particularly when facing employees who don't respect taxpayer rights.

3. Not Sure If Your Taxpayer Rights Have Been Infringed?

Understanding whether your rights have been violated can be complex, especially when dealing with the nuances of the mirror code system. That's why Azarvand Tax Law offers free 30-minute consultations to help you evaluate your situation and understand your options.

Our consultations are available from 7:00 AM to 5:30 PM Chamorro Standard Time and can be easily scheduled by emailing info@azarvandtaxlaw.com or online at azarvandtaxlaw.com.

During your consultation, we'll review your case, explain how the Taxpayer Bill of Rights applies to your specific situation, and help you determine the best course of action. Whether you're dealing with the Guam Department of Revenue and Taxation, the CNMI Division of Revenue and Taxation, or the IRS, we have the experience and knowledge to protect your rights.

Don't wait until it's too late. Tax disputes often have strict deadlines, and early intervention can make all the difference. Contact Azarvand Tax Law today for your free consultation.