Arizona State: Taxpayer Bill of Rights

A.R.S. §42-2051 through 42-2080. Taxpayers' Bill of Rights

Arizona taxpayer assistance office; taxpayer problem resolution officer; duties
1. The Arizona taxpayer assistance office is established as an office in the department. The employees of the office shall be selected by the director. The manager of the taxpayer assistance office is the taxpayer problem resolution officer. The office reports directly to the director's office. The employees of the office may include employees of the department and may also include residents of this state with knowledge of taxation.
2. The office shall assist taxpayers in:
  1. Obtaining easily understandable tax information and information on audits, corrections and appeals procedures of the department.
  2. Answering questions regarding preparing and filing returns with the department.
  3. Locating documents or payments filed with or submitted to the department by taxpayers.
3. The office shall also:
  1. Receive and evaluate complaints of improper, abusive or inefficient service by employees of the department and recommend to the director appropriate action to correct such service.
  2. Identify policies and practices of the department that might be barriers to the equitable treatment of taxpayers and recommend alternatives to the director.
  3. Provide expeditious service to taxpayers whose problems are not resolved through normal channels.
  4. Negotiate with department personnel to resolve the most complex and sensitive taxpayer problems.
  5. Take action to stop or prohibit the department from taking an action against a taxpayer.
  6. Participate and represent taxpayers' interests and concerns in planning meetings, reviewing instructions and formulating department policies and procedures.
  7. Compile data each year on the number and type of taxpayer complaints and evaluate the actions taken to resolve complaints.
  8. Survey taxpayers each year to obtain their evaluation of the quality of service provided by the department.
  9. Monitor the number and type of seizures of property under chapter 1, article 5 of this title.
  10. Notify and recommend appropriate action to the director if the office determines that a seizure has occurred or will occur which has subjected or will subject the taxpayer to a seizure of property without affording a reasonable opportunity for discussion of alternative methods of payment of the obligation.
  11. Perform other functions which relate to taxpayer assistance as prescribed by the director.
4. Actions taken by the office may be reviewed only by the director upon request of the department or a taxpayer. The director may modify action taken by the office.
Erroneous advice or misleading statements by the department; abatement of penalties and interest; definitions
1. Notwithstanding sections 42-1123 and 42-1125, no interest or penalty may be assessed on an amount assessed as a deficiency if either:
  1. The deficiency assessed is directly attributable to erroneous written advice furnished to the taxpayer by an employee of the department acting in an official capacity in response to a specific request from the taxpayer and not from the taxpayer's failure to provide adequate or accurate information.
  2. All of the following are true:
    1. A tax return form or tax ruling prepared by the department contains a statement that, if followed by a taxpayer, would cause the taxpayer to misapply this title or title 43.
    2. The taxpayer reasonably relies on the statement.
    3. The taxpayer's underpayment directly results from this reliance.
2. Each employee of the department, at the time any oral advice is given to any person, shall inform the person that the department is not bound by such oral advice.
3. For purposes of this section:
  1. "Tax return form" includes the instructions that the department prepares for use with the tax return form whether the form or instructions are provided on paper or by electronic means.
  2. "Tax ruling" means a statement issued by the director and denominated as a tax ruling or a tax procedure.
Procedures involving taxpayer interviews
1. On the request of a taxpayer, and under circumstances prescribed by the department, an employee of the department, in connection with any interview with the taxpayer that relates to a deficiency in payment of any tax owed to the department, shall:
  1. Conduct the interview in the place of business of the taxpayer, or at the department office closest to the taxpayer's residence.
  2. Conduct the interview at a reasonable time which imposes no unusual hardship on the taxpayer.
  3. Allow the taxpayer to record the interview.
2. An employee of the department may record an interview with a taxpayer that relates to a deficiency in payment of any tax owed to the department. The employee shall inform the taxpayer of the recording before the interview begins. On written request by the taxpayer, the department shall provide a transcript of the recording, if the taxpayer reimburses the department for the cost of providing the transcript.
3. Before beginning any interview relating to a deficiency in the payment of any tax owed to the department an employee of the department shall provide the taxpayer with information regarding the taxpayer's rights and the audit, corrections and appeals procedures of the department relating to the taxpayer's deficiency.
Disclosure of taxpayer information
On the written request of a taxpayer, information relating to the taxpayer may be disclosed, if the disclosure does not violate article 1 of this chapter.
Taxpayer assistance orders
1. The problem resolution officer, with or without a formal written request from a taxpayer, may issue a taxpayer assistance order that suspends or stays an action or proposed action by the department if, in the problem resolution officer's determination, a taxpayer is suffering or will suffer a significant hardship due to the manner in which the department administers the tax laws.
2. A taxpayer assistance order may require the department to release the taxpayer's property that has been levied on, cease any action or refrain from taking any action to enforce state tax laws against the taxpayer pending resolution of the issue or issues giving rise to the order.
3. The director or the problem resolution officer may modify, reverse or rescind a taxpayer assistance order. A taxpayer assistance order is binding on the department until it is reversed or rescinded.
4. The running of the applicable period of limitations for any action that is the subject of a taxpayer assistance order is suspended from the date the taxpayer applies for the order or the date the order is issued, whichever is earlier, until the order's expiration date, modification date or rescission date, if any. Interest that would otherwise accrue on an outstanding tax obligation is not affected by the issuance of a taxpayer assistance order.
5. A taxpayer assistance order may not be used:
  1. To contest the merits of a tax liability.
  2. As a substitute for informal protest procedures or administrative or judicial proceedings to review a deficiency assessment, collection action or denial of a refund claim.
Closing agreements in cases of extensive taxpayer misunderstanding or misapplication; attorney general approval; rules; definition
1. If the department determines that noncompliance with tax obligations results from extensive misunderstanding or misapplication of provisions of this title or title 43 it may enter into closing agreements with those taxpayers under the following terms and conditions:
  1. Extensive misunderstanding or misapplication of the tax laws occurs if the department determines that more than sixty per cent of the persons in the affected class have failed to properly account for their taxes owing to the same misunderstanding or misapplication of the tax laws.
  2. The department shall make an initial determination as to the existence of an affected class of taxpayers. After a review of the taxpayer's request, the department may determine that there has not been an extensive misunderstanding or misapplication of the tax laws by an affected class of taxpayers. At that time, the department will notify the taxpayer that the request is denied.
  3. The department shall publicly declare the nature of the possible misunderstanding or misapplication and the proposed definition of the class of affected taxpayers and shall conduct a public hearing to hear testimony regarding the extent of the misunderstanding or misapplication and the definition of the affected class. Within sixty days after close of the public hearing, the department shall notify the attendees at the public hearing and publish a public notice on its website stating whether relief will be granted.
  4. If, after the public hearing, the department determines that a class of affected taxpayers has failed to comply with their tax obligations because of extensive misunderstanding or misapplication of the tax laws it shall issue a tax ruling announcing that finding and publish the ruling in a newspaper of general circulation.
  5. A closing agreement under this section may abate some or all of the penalties, interest and tax that the taxpayers have failed to remit, or the agreement may provide for the prospective treatment of the matter as to the class of affected taxpayers. Notwithstanding section 42-1113, all taxpayers in the class shall be offered the opportunity to enter into a similar agreement for the same tax periods.
  6. Taxpayers in the affected class who have properly accounted for their tax obligations for these tax periods shall be offered the opportunity to enter into a similar closing agreement providing for a pro rata credit or refund of their taxes previously paid, subject to section 42-1104, subsection A and section 42-1106, subsection A.
  7. The closing agreement shall require the taxpayers to properly account for and pay such taxes in the future. If a taxpayer fails to comply with that requirement, the agreement is voidable by the department and the department may assess the taxpayer for the delinquent taxes. The department may issue such a proposed assessment within six months after the date that it declares the agreement void or within the period prescribed by section 42-1104, whichever is later.
2. A person who filed a written request for relief under this section but has been denied relief as the result of the department's determination that the elements of subsection A, paragraph 3 of this section have not been established may appeal that determination pursuant to the same procedure as provided in chapter 1, article 6 of this title. A person who files an appeal under this subsection, who also has another appeal pending pursuant to chapter 1, article 6 of this title on a matter solely related to the matter at issue in the department's determination under this section, may petition the relevant appellate forum to hold that appeal in abeyance pending the resolution of the person's appeal pursuant to this section, and the agency, tribunal or court must grant the petition.
3. Before entering into closing agreements pursuant to this section, the department shall secure the approval of the attorney general of the tax ruling and the agreements. The department may not enter into the agreements without such approval from the attorney general.
4. After a closing agreement has been signed pursuant to this section, and subject to the taxpayer's compliance with the requirements of subsection A, paragraph 6 of this section, it is final and conclusive except on a showing of fraud, malfeasance or misrepresentation of a material fact. The case shall not be reopened as to the matters agreed on, and the agreement shall not be modified by any officer, employee or agent of the state. The agreement or any determination, assessment, collection, payment abatement, refund or credit made pursuant to the agreement shall not be annulled, modified, set aside or disregarded in any suit, action or proceeding.
5. The department shall report in writing its activities under this section to the governor, the president of the senate and the speaker of the house of representatives on or before February 1 of each year.
6. The department may adopt rules to implement this section.
7. For the purposes of this section, "affected class" means taxpayers who are similarly situated and directly affected by the department's position in a tax matter. For transaction privilege or use tax purposes, affected class may include taxpayers in the same industry code under the North American industrial classification system code, if applicable to the tax matter or taxpayers that directly compete with each other. For the purposes of this section, affected class shall not be broadly described unless such description increases the number of taxpayers who are eligible for relief.
Agreement for installment payments of tax
1. The department may enter into an agreement with a taxpayer to allow the taxpayer to satisfy a liability for any tax by means of installment payments. The department may require a taxpayer who requests an installment payment agreement to complete a financial report in such form and manner as the department may prescribe.
2. The department, without notice, may alter, modify or terminate an installment payment agreement if the taxpayer:
  1. Fails to pay an installment at the time the installment payment is due under the agreement.
  2. Fails to pay any other tax liability at the time the liability is due.
  3. Fails to file any tax report or return at the time the report or return is due.
  4. Fails to furnish any information requested by the department within thirty days after the request.
  5. Fails to notify the department of a material improvement in the taxpayer's financial condition above the income previously reported in the most recent income statement within thirty days after the material improvement.
  6. Provides inaccurate, false or incomplete information to the department.
3. Notwithstanding any installment payment agreement, the department may offset any tax refunds against the liabilities provided for in the installment payment agreement, may file and fully enforce any tax liens and may engage in collection activities involving the sale of assets.
4. The department, without notice, may terminate an installment payment agreement if the department believes that the collection of tax to which the payment agreement pertains is in jeopardy.
5. If the department determines that the financial condition of a taxpayer has improved, the department may alter, modify or terminate the agreement by providing notice to the taxpayer at least thirty days before the effective date of the action. The notice shall include the reasons why the department believes the alteration, modification or termination is appropriate.
6. An installment payment agreement shall remain in effect for the term of the agreement except as otherwise provided in this section.
7. A taxpayer who is aggrieved by a decision of the department to refuse to enter into an installment payment agreement or to alter, modify or terminate an agreement entered into pursuant to this section may petition the office of taxpayer assistance to review that determination. The office of taxpayer assistance may stay such alteration, modification or termination pending its review and may modify or nullify the determination.
8. The department and the taxpayer may modify any installment payment agreement at any time by entering into a new or modified agreement.
9. The department may adopt rules to implement this section.
Basis for evaluating employee performance
1. The department shall establish procedures to monitor the performance of department employees that include, if applicable, using evaluations obtained from taxpayers.
2. Fair and equitable treatment of taxpayers is a criterion for evaluating employee performance, including being free of favoritism or bias, reasonable and consistent with the laws of this state and the rules, procedures and rulings of the department.
3. The department shall not evaluate an employee on the basis of taxes assessed or collected by that employee.
Additional audits or proposed assessments prohibited; exceptions
1. When the department completes an audit or the findings of a managed audit are accepted by the director or approved on appeal and a deficiency has been completely determined under section 42-1108 or chapter 1, article 6 of this title, the taxpayer's liability for the particular tax for the period subjected to the audit is fixed and determined, and an additional audit may not be conducted except under the following circumstances:
  1. A taxpayer files a claim for refund under section 42-1251, subsection C or any other provision authorizing a claim for refund. Any departmental audit of the claim is limited to the issues presented on the claim for refund.
  2. Changes or corrections are required to be reported to the department by section 43-327. The department may audit any such reports or any periods for which a report was required notwithstanding this section and may determine a tax deficiency or a refund.
  3. If the taxpayer failed to disclose material information during the audit, or falsified books or records or otherwise engaged in an action that prevented the department from conducting an accurate audit, the applicability of this subsection may be part of a subsequent protest and may be contested by the taxpayer pursuant to chapter 1, article 6 of this title.
  4. If a managed audit is completed under the terms of a limited managed audit agreement, the department may audit the issues not covered by the limited managed audit agreement within the statute of limitations prescribed by section 42-1104.
2. If the department issues a notice of proposed assessment of taxes imposed by chapter 5, article 1 or 4 of this title or title 43, chapter 10, the department may not increase the amount of the proposed assessment except in one or more of the following circumstances:
  1. The taxpayer made a material misrepresentation of facts.
  2. The taxpayer failed to disclose a material fact to the auditor.
  3. The department requested information and the taxpayer fails to provide that information to the department.
  4. After issuing the notice of proposed assessment but before the assessment becomes final the tax court, court of appeals or supreme court issues a decision, the application of which causes the tax initially proposed to increase.
3. Subsection B of this section does not apply to changes or corrections that are required to be reported to the department by section 43-327.
Refund if items of income transfer from one year to another
1. Notwithstanding any statute of limitations provided in this title or title 43:
  1. Any overpayment of taxes that is paid pursuant to title 43, that is due a taxpayer for any year and that results from a transfer of items of income or deductions, or both, to or from another year for the same taxpayer, or for the same year for a related taxpayer described in sections 42-1120, 42-1121 and 43-645, shall be allowed as an offset in computing any deficiency in tax for any year resulting from the transfer of such income or deductions, or both, but no refund shall be allowed unless the overpayment is certified to the director of the department of administration or a claim for refund is filed within the time otherwise provided for in this title.
  2. An overpayment due an S corporation, as defined in section 1361 of the internal revenue code, for any year that results from an improper inclusion of income is allowed as an offset in computing any deficiency in an overlapping year for the shareholders of the S corporation.
2. The offsets provided by subsection A of this section shall not be allowed after the expiration of seven years from the due date of the return on which the overpayment is determined.
Expedited review of jeopardy assessments
1. Within thirty days after the day on which the department furnishes the written notice described in section 42-1111, subsection A, the taxpayer may request the department to review the action taken as provided in section 42-1251. Within fifteen days after the request for review, the department shall determine whether both the jeopardy determination and the amount assessed are reasonable.
2. Within thirty days after the department notifies the taxpayer of the determination under subsection A of this section, the taxpayer may bring a civil action in tax court for a determination under this subsection. Within twenty days after service of process is made on the state, the tax court shall determine whether both the jeopardy determination and the amount assessed are reasonable. If the taxpayer requests an extension of the twenty day period and establishes reasonable grounds why an extension should be granted, the court may grant an extension of not more than forty additional days. If the court determines that either the jeopardy determination or the amount assessed is unreasonable, the court may order the department to abate the assessment, to redetermine any part of the amount assessed or to take such other action as the court finds to be appropriate. A determination made by the tax court under this subsection is final except as provided in section 12-170, subsection C.
Abatement of penalties and fees; definition
1. If a taxpayer has been assessed a penalty or fee pursuant to section 42-1107, 42-1125, 42-1126, 43-581 or 43-582, the department, on written application by the taxpayer, shall abate the penalty or fee if it determines that the conduct, or lack of conduct, that caused the assessment to be imposed was due to reasonable cause and not due to wilful neglect.
2. If, before an assessment is issued, a taxpayer applies in writing requesting waiver of a penalty or fee that may be assessed pursuant to section 42-1107, 42-1125, 42-1126, 43-581 or 43-582, the department shall not assess that penalty or fee if it determines that the conduct, or lack of conduct, that would cause the assessment was due to reasonable cause and not due to wilful neglect.
3. For the purpose of this section, and only as applied to the taxes imposed by chapter 5, articles 1 through 6 and chapter 6, article 3 of this title, "reasonable cause" includes situations in which the taxpayer had a reasonable basis to believe that the tax did not apply to the business activity or the storage, use or consumption of the taxpayer's tangible personal property in this state.
Department responsibilities; decision deadlines; definition
1. The department shall attempt to issue a decision from the hearing officer within ninety days after the date of a formal hearing or after the last post-hearing brief is due, whichever is later. If the department expects the decision to be delayed, the department shall notify the taxpayer or his designated representative of the proposed issue date.
2. The department shall attempt to issue a decision by the director on any pending appeal to the director within ninety days after the last brief is due. If the department expects the decision to be delayed, the department shall notify the taxpayer or his designated representative of the proposed issue date.
3. The department shall provide a written document to each new transaction privilege tax licensee that provides information regarding the collection, reporting and payment of taxes in the appropriate tax classification.
4. For purposes of this section "designated representative" means an individual who has been authorized in writing to represent another person before the department of revenue.
Reimbursement of fees and other costs; definitions
1. A taxpayer who is a prevailing party may be reimbursed for reasonable fees and other costs related to an administrative proceeding that is brought by or against the department in connection with an assessment, determination, collection or refund of any tax listed in section 42-1101. For the purposes of this subsection, a taxpayer is considered to be a prevailing party only if both of the following are true:
  1. The department's position was not substantially justified.
  2. The taxpayer prevails as to the most significant issue or set of issues.
2. Reimbursement under this section may be denied if any of the following circumstances apply:
  1. During the course of the proceeding the taxpayer unduly and unreasonably protracted the final resolution of the matter.
  2. The reason that the taxpayer prevailed is due to an intervening change in the applicable law.
3. The taxpayer shall present an itemization of the reasonable fees and other costs to the taxpayer problem resolution officer within thirty days after the conclusion of the administrative proceedings. The taxpayer problem resolution officer shall determine the validity of the fees and other costs within thirty days after receiving the itemization. The taxpayer problem resolution officer's decision is considered the department's final decision or order and is subject to appeal to the state board under section 42-1253.
4. The department of revenue shall pay the fees and other costs awarded as provided in this section from any monies appropriated for such purpose. If the department of revenue does not pay the fees and other costs within thirty days after demand by a person who has received an award pursuant to this section, and if no further review or appeals of the award are pending, the person may file a claim for the fees and other costs with the department of administration, which shall pay the claim within thirty days, in the same manner as an uninsured property loss under title 41, chapter 3.1, article 1. If, at the time the department of revenue failed to pay the award, it had appropriated monies either designated or assignable for the purpose of paying such awards, the legislature shall reduce the department of revenue's operating appropriation for the following year by the amount of the award and appropriate the amount of the reduction to the department of administration, risk management division, as reimbursement for the loss.
5. Reimbursement to a taxpayer under this section shall not exceed seventy-five thousand dollars or actual monies spent, whichever is less. The reimbursable attorney or other representative fees shall not exceed three hundred fifty dollars per hour or actual monies spent, whichever is less, unless the state board of tax appeals determines that an increase in the cost of living or a special factor such as the limited availability of qualified attorneys for the proceeding involved justifies a higher fee.
6. For each calendar year beginning from and after December 31, 2015, the income dollar amounts for maximum awards made pursuant to subsection E of this section shall be adjusted by the attorney general according to the average annual change in the metropolitan phoenix consumer price index published by the United States bureau of labor statistics. The revised dollar amounts shall be raised to the nearest whole dollar. The income dollar amounts may not be revised below the amounts prescribed in the prior calendar year.
7. The department shall adopt administrative rules to implement this section.
8. Notwithstanding any provision of title 12, chapter 3, article 5, a taxpayer who is a prevailing party may only be reimbursed pursuant to this section.
9. For the purposes of this section:
  1. "Administrative proceeding" means any review proceeding or appeal pursuant to section 42-1251 that is conducted under the authority of section 42-1003 and an appeal to the state board of tax appeals pursuant to section 42-1253.
  2. "Reasonable fees and other costs" means fees and other costs that are based on prevailing market rates for the kind and quality of the furnished services, but not exceeding the amounts actually spent for expert witnesses, the cost of any study, analysis, report, test or project that is found to be necessary to prepare the party's case and necessary fees for attorneys or other representatives.
Abatement of interest for errors or delays caused by the department
1. The director, in the director's discretion, may abate all or part of any assessment if additional interest has accrued on:
  1. A deficiency due to any unreasonable error or delay by an officer or employee of the department acting in the employee's official capacity.
  2. Any payment of tax to the extent that any error or delay in the payment is attributable to an officer or employee of the department being unreasonably erroneous or dilatory.
2. The director may consider an error or delay only if no significant aspect of the error or delay can be attributed to the taxpayer and after the department has contacted the taxpayer in writing with respect to the deficiency or payment.
3. The director's decision is considered to be the department's final decision or order and is subject to appeal to the state board pursuant to section 42-1253.
Statute of limitations on tax debts
A taxpayer's obligations for any tax, interest or penalty required to be collected by the department for any tax period are extinguished, if not previously satisfied, ten years after the amount of tax determined to be due becomes final unless one of the following circumstances applies:
1. The department has commenced a suit to collect the debt pursuant to section 42-1114.
2. The taxpayer has agreed in writing to extend this time period before the time period expires.
3. Enforced collection has been stayed by the operation of federal or state law during the period. The period of limitations prescribed by this section is extended by the period of time that the department was stayed from engaging in enforced collections.
Limitation on the use of pseudonyms by department employees
1. Employees of the department shall not use pseudonyms when interacting with the public unless the director or the director's designee first determines on written request that the use of the pseudonym is appropriate. The employee's request must include adequate justification for the use of a pseudonym, such as protection of personal safety.
2. The director shall maintain a list of the persons who are authorized to use pseudonyms.
Suspension of running of period of limitations during taxpayer disability
1. Notwithstanding section 42-1106, the running of the statute of limitations for refunds is suspended if an individual, as defined in section 43-104, is financially disabled and eligible for equitable tolling of the statute of limitations for refunds under section 6511(h) of the internal revenue code. The department shall suspend the statute of limitations during any period of a qualifying individual's life that the individual is financially disabled.
2. A determination under this section may be appealed pursuant to section 42-1251 or 42-1253.
Taxpayer communications with practitioners; confidentiality; definitions
1. With respect to tax advice, the same common law protections of confidentiality that apply to a communication between a taxpayer and an attorney also apply to a communication between a taxpayer and a federally authorized tax practitioner to the extent that the communication would be considered to be a privileged communication if it were between a taxpayer and an attorney.
2. Subsection A of this section may only be asserted in:
  1. A noncriminal tax matter before the department.
  2. A proceeding before the state board of tax appeals.
  3. A noncriminal tax proceeding in court.
3. The department may deny an individual coverage under this privilege if it determines that a practitioner has engaged in activities or practices involving matters before the department that, if they involved matters before the United States internal revenue service, would result in the practitioner losing the authorization to practice before the internal revenue service. A practitioner aggrieved by a determination to deny the privilege may appeal that determination pursuant to section 42-1253 or 42-1254.
4. For the purposes of this section:
  1. "Federally authorized tax practitioner" means an individual who is authorized under federal law to practice before the United States internal revenue service if the practice is subject to federal regulation under 31 United States Code section 330. Federally authorized tax practitioner includes any person who is engaged in practice with one or more federally authorized tax practitioners and who is subject to the same standards of practice and ethics requirements as a federally authorized tax practitioner.
  2. "Tax advice" means advice given by an individual with respect to a matter that is within the scope of the individual's authority to practice as a federally authorized tax practitioner.
Prohibited audit techniques
The department shall not use financial status or economic reality examination techniques to determine the existence of unreported income of any taxpayer, except in the following circumstances:
1. The director may authorize the use of financial status or economic reality examination techniques in criminal investigations.
2. The director may accept amended returns due after any federal adjustment required pursuant to section 43-327 in which the change or correction was determined by the commissioner of internal revenue or other officer of the United States or other competent authority using financial status or economic reality techniques.
3. The director may authorize a deficiency assessment pursuant to section 42-1108 if the taxpayer fails to report a change or correction pursuant to section 43-327 in which the commissioner of internal revenue or other officer of the United States or other competent authority used financial status or economic reality techniques and the department receives the change or correction through its exchange agreement with the internal revenue service.
Reimbursement of bank costs caused by erroneous tax levies
1. If the department of revenue issues a levy in error, or erroneously causes one or more checks or other negotiable instruments to be returned to the issuer by the issuer's bank or financial institution, the taxpayer is entitled to reimbursement for reasonable bank charges, not to exceed five hundred dollars per incident.
2. A taxpayer who claims reimbursement under this section shall file a claim with the department of revenue. The department of revenue shall transmit the claim to the department of administration where it shall be evaluated and paid, if verified, pursuant to title 41, chapter 3.1.
3. By filing a claim under this section, a taxpayer authorizes the department of revenue to provide the department of administration with any relevant information regarding the circumstances and events that are relevant to the claim. The department of administration is subject to the requirements of article 1 of this chapter.
Stay of enforcement actions pending offer in compromise
1. A taxpayer who is unable to pay all of a liability may make an offer in compromise for abatement of part of the liability on the grounds that the remainder is uncollectible pursuant to section 42-1004, subsection B, paragraph 1.
2. While the offer is under consideration by the department and the attorney general, the department shall not levy on the taxpayer or any holder of the taxpayer's assets unless the department finds that collection otherwise possibly would be jeopardized by a delay. A taxpayer who is aggrieved by a decision to levy while an offer in compromise is pending may appeal that decision to the problem resolution officer, and the decision of the problem resolution officer is final as to both the department and the taxpayer.
Report of employee misconduct; definition
1. On or before March 1 of each year, beginning in 2001, the director shall submit a detailed report of employee misconduct verified as valid to the governor, the speaker of the house of representatives and the president of the senate. The report shall include:
  1. All categories of instances involving the misconduct of employees of the department during the preceding calendar year.
  2. The disposition during the preceding calendar year of any instances of misconduct, without regard to the year of misconduct.
  3. The primary activity the employee was engaged in when the misconduct occurred.
  4. The nature of the misconduct,
  5. The number of incidents received by category and the disposition of those incidents, including the number of employees reprimanded, terminated or prosecuted.
2. Incidents that are subject to reporting include only written complaints and complaints received by telephone through management channels.
3. In collecting data for the report, the director or the director's designee shall maintain records of taxpayer complaints of misconduct verified as valid by department employees on an individual basis. The individual employee records shall be used to prepare the report but shall not be listed in the report. The department shall use the individual records in evaluating the performance of the individual employee.
4. The director shall create and adopt a uniform procedure by which the department shall evaluate complaints of employee misconduct for the purposes of verifying the complaint as valid.
5. For purposes of this section "verified as valid" means any report of employee misconduct that has been reviewed pursuant to subsection D and determined by the department to be in violation of any one of the following:
  1. The laws of the United States or this state.
  2. Policies adopted by the state of Arizona.
  3. Policies adopted by the department.
Equitable relief from joint and several liability
1. The director may relieve an individual from joint and several liability under the following circumstances:
  1. Taking into account all of the facts and circumstances, it is inequitable to hold the individual liable for all or part of any unpaid tax or any deficiency.
  2. Relief is not available to the individual under section 42-2201 or 42-2202.
2. The director's decision is considered to be the department's final decision or order and is subject to appeal to the state board of tax appeals under section 42-1253.
Audit duration; applicability; initial audit contact
1. An audit of a taxpayer's return or claim for refund shall not exceed two years after the date of initial audit contact to the issuance of a notice of proposed deficiency assessment or proposed overpayment, except:
  1. An audit of a fraudulent tax return.
  2. An audit delayed as the result of the taxpayer's bankruptcy proceeding.
  3. An audit in which the department has issued a letter to the taxpayer or the taxpayer's representative citing the potential imposition of the penalty described in section 42-1125, subsection C for the taxpayer's failure or refusal to provide information pursuant to the department's written request.
  4. An audit involving proceedings concerning the enforcement or validity of a subpoena or subpoena duces tecum issued pursuant to section 42-1006, subsection C.
  5. An audit involving a proceeding under section 42-2056.
  6. An audit in which a taxpayer has filed a petition pursuant to section 43-1148, but only in relation to the effect of the petition request.
  7. An audit in which the taxpayer provides a written request to extend the audit beyond the two-year period. A request for extension under this paragraph is not a substitute for a waiver of the statute of limitations pursuant to section 42-1104, subsection B, paragraph 9. However, a waiver of the statute of limitations is considered to be a written request to extend the audit beyond the two-year period under this paragraph.
2. This section applies to audits conducted by the department and to audits conducted by the department and cities and towns pursuant to section 42-6002.
3. For the purposes of subsection A of this section, an initial audit contact occurs:
  1. For a field audit, on the date of the first meeting between the taxpayer or the taxpayer's representative and a member of the department's audit staff.
  2. For a desk or office audit or a review conducted pursuant to section 42-1109, on the date of the first letter to the taxpayer regarding the audit or review. A letter is not considered to be regarding the audit or review if the letter is only requesting one or more of the following:
    1. The required filing of a tax return.
    2. A copy of the taxpayer's federal return.
    3. Required documents that the taxpayer failed to include with the return.
    4. Documentation to resolve an inconsistency within the return or a discrepancy between the return and other information that is received from a third party or that is otherwise already in the department's possession, if the adjustment of the return due to the inconsistency or discrepancy would be considered a nonaudit adjustment under section 42-1108, subsection G or H.
    5. Information that was left out of the taxpayer's return because a submitted form was incomplete.
    6. Replacements for documents that are not legible.
Audit results; documentation
At the time when the department issues a deficiency assessment or denies all or part of a claim for refund, the department shall also provide the taxpayer and, if applicable, the taxpayer's authorized representative with a written explanation of all adjustments made, including the specific statutory, regulatory and judicial bases for the adjustments.
Distribution of tax decisions; definitions
1. Beginning October 1, 2006, the agencies listed in this section shall provide tax decisions to the law libraries of Maricopa county, the Arizona state university college of law, the university of Arizona college of law, the state law library and the Arizona state library, archives and public records as follows:
  1. Each redacted tax decision issued during the preceding calendar quarter shall be provided by:
    - The department of revenue.
    - The office of administrative hearings.
    - The municipal tax hearing office or any other city or town tax hearing office.
    - The department of economic security.
    - The department of transportation.
  2. Each tax decision issued during the preceding calendar quarter shall be provided by the state board of tax appeals.
2. At the same time as the decisions are issued pursuant to subsection A, each agency shall publish the decisions on its official web site.
3. Any person may file an original action in tax court, or in superior court in any county against an agency listed in subsection A, paragraphs 1 and 2, to enforce this section.
4. The supreme court shall adopt rules to establish a procedure to distribute tax memorandum decisions to the general public and determine what memorandum decisions are appropriate for distribution. A memorandum decision is a written disposition of a matter by a court in this state that is not intended for publication as defined by rule 28(2)(4) of the Arizona rules of civil appellate procedure.
5. For the purposes of this section:
  1. "Redacted tax decision" means a tax decision that has the name, identification number and address of the taxpayer, the amount of tax, penalty and interest in dispute and other information that will allow identification of the taxpayer deleted from the text of the decision.
  2. "Tax" includes any tax arising under title 5, chapters 1, 2, 3 and 4, title 23, chapters 4 and 6, titles 20, 28, 43 and 48 and this title.
  3. "Tax decision" means a ruling, decision, opinion, minute entry, under advisement ruling, memorandum decision or any other written resolution of a state, county or municipal tax dispute or appeal that involves a substantive or significant technical or procedural issue and includes actions taken by:
    1. The department of revenue hearing officer.
    2. The office of administrative hearings.
    3. The municipal tax hearing officer or any other city or town hearing officer.
    4. The state board of tax appeals.
    5. The department of economic security appeals board.
    6. The department of transportation.
New interpretation or application of law; affirmative defense; definition
1. Unless expressly authorized by law, the department shall not apply any newly enacted law retroactively or in a manner that will penalize a taxpayer for complying with prior law.
2. If the department adopts a new interpretation or application of any provision of this title or title 43 or determines that any of those provisions applies to a new or additional category or type of taxpayer, and the change in interpretation or application is not due to a change in the law:
  1. The change in interpretation or application applies prospectively unless it is favorable to taxpayers.
  2. The department shall not assess any tax, penalty or interest retroactively based on the change in interpretation or application.
  3. The change is an affirmative defense in any administrative or judicial action for retroactive assessment of tax, interest and penalties to taxable periods before the new interpretation or application was adopted.
3. Tax liabilities, penalties and interest paid before a new interpretation or application of chapter 5 of this title by the department shall not be refunded unless the taxpayer requesting the refund provides evidence satisfactory to the department that the amounts will be refunded to the person who paid an added charge to cover the tax.
4. For the purposes of this section, "new interpretation or application" includes policies and procedures adopted by administrative rule, tax ruling, tax procedure or instructions to a tax return.
Suspension of liabilities by reason of disasters, terroristic or military actions or states of emergency; definitions
1. Notwithstanding sections 42-1107 and 42-1123, the director shall specify a period of up to one year to extend any due date and suspend any penalty or interest that would ordinarily accrue during that time for any affected taxpayer in any of the following circumstances:
  1. Section 7508A of the internal revenue code relating to disasters and terroristic and military actions applies.
  2. The governor has declared a state of emergency pursuant to section 26-303, subsection D.
2. Notwithstanding section 42-1123, interest shall not accrue on any unpaid tax during the time determined under subsection A of this section for any affected taxpayer.
3. For the purposes of this section:
  1. "Affected taxpayer" means:
    1. An individual whose principal residence is located in a covered area.
    2. A business entity or sole proprietor whose principal place of business is located in a covered area.
    3. An individual who is a relief worker affiliated with a recognized government or philanthropic organization and who is assisting in a covered area.
    4. An individual, business entity or sole proprietor whose records necessary to meet a tax filing or paying deadline are maintained in a covered area.
    5. The spouse of an affected taxpayer, solely with regard to a joint return of the husband and wife.
    6. Any other person determined by the director to be affected pursuant to subsection A of this section.
  2. "Covered area" means a geographical area to which subsection A of this section applies.
Rulings, procedures, notices and other administrative announcements; notice; public comment; records; confidentiality; exceptions
1. The department may issue draft rulings, procedures, notices and administrative announcements that apply to tax laws and regulations, either generally or for a specific set of facts, and that otherwise do not change the substance and meaning of a statute or rule. Except for private taxpayer rulings issued pursuant to section 42-2101, the department shall allow for and accept written public comments on the draft ruling, procedure, notice or administrative announcement as prescribed by this section. A ruling, procedure, notice or administrative announcement becomes final and effective thirty days after the ruling, procedure, notice or administrative announcement is issued for public comment and review unless the department withdraws the ruling, procedure, notice or administrative announcement. The department may amend the draft ruling, procedure, notice or administrative announcement in response to public comments received during the thirty-day period.
2. The department shall establish and maintain on its website a publicly accessible record of all draft and final rulings, procedures, notices and administrative announcements and shall prominently announce additions, modifications and other changes to this record on the department website's home page.
3. A draft ruling, procedure, notice or administrative announcement that applies to tax laws and regulations is not considered final and effective unless the ruling, procedure, notice or administrative announcement contains all of the following:
  1. The subject matter of the draft ruling, procedure, notice or administrative announcement.
  2. A citation to all statutes, rules and published administrative rulings relating to the draft ruling, procedure, notice or administrative announcement.
  3. The name and contact information of department personnel with whom persons may communicate regarding the draft ruling, procedure, notice or administrative announcement.
  4. The date on which the draft ruling, procedure, notice or administrative announcement was proposed.
  5. The date on which the draft ruling, procedure, notice or administrative announcement will become final and effective.
  6. A statement of whether public comments on the draft ruling, procedure, notice or administrative announcement were received and where the written comments and the department's response to those comments are available for inspection.
  7. The signature of the director.
4. Before a draft ruling, procedure, notice or administrative announcement is effective and final pursuant to subsection A of this section, the department shall consider any public comments received on the draft ruling, procedure, notice or administrative announcement. If the department chooses not to incorporate a public comment into the final ruling, procedure, notice or administrative announcement, the department shall respond to the comment explaining the basis for the department's decision and preserve that response as a public record.
5. The director shall ensure that any public records required by this section comply with the confidentiality requirements prescribed by article 1 of this chapter.
6. This section does not apply to department actions that are subject to title 41, chapters 6 and 6.1, private taxpayer rulings issued pursuant to section 42-2101, tax forms and instructions, routine notices that remind taxpayers of normal filing obligations and other routine department communications that do not substantively apply to and interpret tax laws and regulations.
7. The court shall decide all questions of law without deference to any determination that is made by the department. Notwithstanding section 41-1092, paragraph 3, any final agency action taken pursuant to this section is an appealable agency action under title 41, chapter 6, article 10 that may be appealed within thirty days after the effective date of the ruling, procedure, notice or administrative announcement.

Sources

Arizona Legislature.Arizona Revised Statues- Title 42 - Taxation, Chapter 2 - Taxpayer Protection and Services [42-2051 through 42-2080]. Retrieved April 29, 2025 from https://www.azleg.gov/arsDetail/?title=42