IRS Restruction and reform act of 1997

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Offer in Compromise 

Additional Information:

 

 

 

 

59 006

 

105 th Congress

 

Rept. 105 364

 

 

 

HOUSE OF REPRESENTATIVES

 

1st Session

 

Part 1

 

INTERNAL REVENUE SERVICE RESTRUCTURING AND REFORM ACT OF 1997

 

 

 

 

October 31, 1997.--Committed to the Committee of the Whole House on

the State of the Union and ordered to be printed

 

Mr. Archer, from the Committee on Ways and Means, submitted the

following

R E P O R T

 

[To accompany H.R. 2676]

 

[Including cost estimate of the Congressional Budget Office]

 

together with

 

ADDITIONAL AND DISSENTING VIEWS

 

 

The Committee on Ways and Means, to whom was referred the bill (H.R.

2676) to amend the Internal Revenue Code of 1986 to restructure and

reform the Internal Revenue Service, and for other purposes, having

considered the same, report favorably thereon with an amendment and

recommend that the bill as amended do pass.

 

CONTENTS

I. Summary and Background 30

 

A. Purpose and Summary

 

30

 

B. Background and Need for Legislation

 

32

 

C. Legislative History

 

32

 

II.

 

Explanation of the Bill

 

33

 

Title I. Executive Branch Government

 

33

 

A. Creation of IRS Oversight Board (sec. 101)

 

33

 

B. Appointment and Duties of IRS Commissioner (secs. 102 and 103)

 

38

 

C. Structure and Funding of the Employee Plans and Exempt

Organizations Division (sec. 102)

40

 

D. Taxpayer Advocate (sec. 102)

 

42

 

E. Prohibition on Executive Branch Influence Over Taxpayer Audits

(sec. 104)

44

 

F. IRS Personnel Flexibilities (sec. 111)

 

45

 

Title II. Electronic Filing

 

50

 

A. Electronic Filing of Tax and Information Returns (sec. 201)

 

50

 

B. Time for Filing Certain Information Returns With the IRS (sec. 202)

 

51

 

C. Paperless Electronic Filing (sec. 203)

 

52

 

D. Return-Free Tax System (sec. 204)

 

53

 

E. Access to Account Information (sec. 205)

 

54

 

Title III. Taxpayer Bill of Rights 3

 

54

 

A. Burden of Proof (sec. 301)

 

54

 

B. Proceedings by Taxpayers

 

57

 

1. Expansion of authority to award costs and certain fees (sec. 311)

 

57

 

2. Civil damages for negligence in collection actions (sec. 312)

 

59

 

3. Increase in size of cases permitted on small case calendar (sec. 313)

 

60

 

C. Relief for Innocent Spouses and Persons With Disabilities

 

60

 

1. Innocent spouse relief (sec. 321)

 

60

 

2. Suspension of statute of limitations on filing claims during

periods of disability (sec. 322)

62

 

D. Provisions Relating to Interest

 

63

 

1. Elimination of interest differential on overlapping periods of

interest on income tax overpayments and underpayments (sec. 331)

63

 

2. Increase in overpayment rate payable to taxpayers other than

corporations (sec. 332)

65

 

E. Protections for Taxpayers Subject to Audit or Collection

 

65

 

1. Privilege of confidentiality extended to taxpayer's dealings

with non-attorneys authorized to practice before the IRS (sec. 341)

65

 

2. Expansion of authority to issue taxpayer assistance orders (sec.

342)

67

 

3. Limitation on financial status audits (sec. 343)

 

67

 

4. Limitation on authority to require production of computer source

code (sec. 344)

68

 

5. Procedures relating to extensions of statute of limitations by

agreement (sec. 345)

69

 

6. Offers-in-compromise (sec. 346)

 

70

 

7. Notice of deficiency to specify deadlines for filing Tax Court

petition (sec. 347)

71

 

8. Refund or credit of overpayments before final determination

(sec. 348)

72

 

9. Threat of audit prohibited to coerce tip report alternative

committment agreements (sec. 349)

73

 

F. Disclosures to Taxpayers

 

73

 

1. Explanation of joint and several liability (sec. 351)

 

73

 

2. Explanation of taxpayers' rights in interviews with the IRS

(sec. 352)

74

 

 

3. Disclosure of criteria for examination selection (sec. 353)

 

74

 

4. Explanation of appeals and collection process (sec. 354)

 

75

 

G. Low-Income Taxpayer Clinics (sec. 361)

 

75

 

H. Other Taxpayer Rights Provisions

 

76

 

1. Actions for refund with respect to certain estates which have

elected the installment method of payment (sec. 371)

76

 

2. Cataloging complaints (sec. 372)

 

77

 

3. Archive of records of the IRS (sec. 373)

 

78

 

4. Payment of taxes (sec. 374)

 

80

 

5. Clarification of authority of Secretary relating to the making

of elections (sec. 375)

81

 

6. Limitation on penalty on individual's failure to pay for months

during period of installment agreement (sec. 376)

81

 

I. Studies

 

82

 

1. Study of penalty administration (sec. 381)

 

82

 

2. Study of confidentiality of tax return information (sec. 382)

 

82

 

Title IV. Congressional Accountability for the IRS

 

83

 

A. Review of Requests for GAO Investigations of the IRS (sec. 401)

 

83

 

B. Joint Congressional Hearings and Coordinated Oversight Reports

(secs. 401 and 402)

84

 

C. Budget Matters

 

85

 

1. Funding for century date change (sec. 411)

 

85

 

2. Financial management advisory group (sec. 412)

 

85

 

D. Tax Law Complexity Analysis (sec. 422)

 

86

 

Title V. Revenue Offset: Employer Deduction for Vacation Pay (sec. 501)

 

87

 

III.

 

Votes of the Committee

 

91

 

IV.

 

Budget Effects of the Bill

 

92

 

A. Committee Estimates of Budgetary Effects

 

92

 

B. Budget Authority and Tax Expenditures

 

96

 

C. Cost Estimate Prepared by the Congressional Budget Office

 

96

 

 

V.

 

Other Matters to Be Discussed Under the Rules of the House

 

102

 

A. Committee Oversight Findings and Recommendations

 

102

 

B. Summary of Findings and Recommendations of the Committee on

Government Reform and Oversight

102

 

C. Constitutional Authority Statement

 

103

 

D. Information Relating to Unfunded Mandates

 

103

 

E. Applicability of House Rule XXI5(c)

 

103

 

VI.

 

Changes in Existing Law Made by the Bill, as Reported

 

103

 

VII.

 

Correspondence From Other Committees

 

148

 

A. Correspondence from Committee on Government Reform and Oversight

 

148

 

B. Correspondence from Committee on Rules

 

149

 

VIII.

 

Additional Views

 

150

 

IX.

 

Dissenting Views

 

161

 

 

 

The amendment is as follows:

 

Strike out all after the enacting clause and insert in lieu thereof the

following:

 

SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; TABLE OF CONTENTS.

 

(a) Short Title.--This Act may be cited as the ``Internal Revenue

Service Restructuring and Reform Act of 1997''.

(b) Amendment of 1986 Code.--Except as otherwise expressly provided,

whenever in this Act an amendment or repeal is expressed in terms of an

amendment to, or repeal of, a section or other provision, the reference

shall be considered to be made to a section or other provision of the

Internal Revenue Code of 1986.

(c) Table of Contents.--

 

 

 

Sec. 1. Short title; amendment of 1986 Code; table of contents.

 

TITLE I--EXECUTIVE BRANCH GOVERNANCE AND SENIOR MANAGEMENT OF THE

INTERNAL REVENUE SERVICE

SUBTITLE A--EXECUTIVE BRANCH GOVERNANCE AND SENIOR MANAGEMENT

 

Sec. 101. Internal Revenue Service Oversight Board.

 

Sec. 102. Commissioner of Internal Revenue; other officials.

 

Sec. 103. Other personnel.

 

Sec. 104. Prohibition on executive branch influence over taxpayer

audits and other investigations.

SUBTITLE B--PERSONNEL FLEXIBILITIES

 

Sec. 111. Personnel flexibilities.

 

TITLE II--ELECTRONIC FILING

 

Sec. 201. Electronic filing of tax and information returns.

 

Sec. 202. Due date for certain information returns filed electronically.

 

Sec. 203. Paperless electronic filing.

 

Sec. 204. Return-free tax system.

 

Sec. 205. Access to account information.

 

TITLE III--TAXPAYER PROTECTION AND RIGHTS

 

Sec. 300. Short title.

 

SUBTITLE A--BURDEN OF PROOF

 

Sec. 301. Burden of proof.

 

SUBTITLE B--PROCEEDINGS BY TAXPAYERS

 

Sec. 311. Expansion of authority to award costs and certain fees.

 

Sec. 312. Civil damages for negligence in collection actions.

 

Sec. 313. Increase in size of cases permitted on small case calendar.

 

SUBTITLE C--RELIEF FOR INNOCENT SPOUSES AND FOR TAXPAYERS UNABLE TO

MANAGE THEIR FINANCIAL AFFAIRS DUE TO DISABILITIES

Sec. 321. Spouse relieved in whole or in part of liability in

certain cases.

Sec. 322. Suspension of statute of limitations on filing refund

claims during periods of disability.

SUBTITLE D--PROVISIONS RELATING TO INTEREST

 

Sec. 331. Elimination of interest rate differential on overlapping

periods of interest on income tax overpayments and underpayments.

Sec. 332. Increase in overpayment rate payable to taxpayers other

than corporations.

SUBTITLE E--PROTECTIONS FOR TAXPAYERS SUBJECT TO AUDIT OR COLLECTION

ACTIVITIES

Sec. 341. Privilege of confidentiality extended to taxpayer's

dealings with non-attorneys authorized to practice before Internal

Revenue Service.

Sec. 342. Expansion of authority to issue taxpayer assistance orders.

 

Sec. 343. Limitation on financial status audit techniques.

 

Sec. 344. Limitation on authority to require production of

computer source code.

Sec. 345. Procedures relating to extensions of statute of

limitations by agreement.

Sec. 346. Offers-in-compromise.

 

Sec. 347. Notice of deficiency to specify deadlines for filing Tax

Court petition.

Sec. 348. Refund or credit of overpayments before final determination.

 

Sec. 349. Threat of audit prohibited to coerce Tip Reporting

Alternative Commitment Agreements.

SUBTITLE F--DISCLOSURES TO TAXPAYERS

 

Sec. 351. Explanation of joint and several liability.

 

Sec. 352. Explanation of taxpayers' rights in interviews with the

Internal Revenue Service.

Sec. 353. Disclosure of criteria for examination selection.

 

Sec. 354. Explanations of appeals and collection process.

 

SUBTITLE G--LOW INCOME TAXPAYER CLINICS

 

Sec. 361. Low income taxpayer clinics.

 

SUBTITLE H--OTHER MATTERS

 

Sec. 371. Actions for refund with respect to certain estates which

have elected the installment method of payment.

Sec. 372. Cataloging complaints.

 

Sec. 373. Archive of records of Internal Revenue Service.

 

Sec. 374. Payment of taxes.

 

Sec. 375. Clarification of authority of Secretary relating to the

making of elections.

Sec. 376. Limitation on penalty on individual's failure to pay for

months during period of installment agreement.

SUBTITLE I--STUDIES

 

Sec. 381. Penalty administration.

 

Sec. 382. Confidentiality of tax return information.

 

TITLE IV--CONGRESSIONAL ACCOUNTABILITY FOR THE INTERNAL REVENUE SERVICE

 

SUBTITLE A--OVERSIGHT

 

Sec. 401. Expansion of duties of the Joint Committee on Taxation.

 

Sec. 402. Coordinated oversight reports.

 

SUBTITLE B--BUDGET

 

Sec. 411. Funding for century date change.

 

Sec. 412. Financial Management Advisory Group.

 

SUBTITLE C--TAX LAW COMPLEXITY

 

Sec. 421. Role of the Internal Revenue Service.

 

Sec. 422. Tax complexity analysis.

 

TITLE V--CLARIFICATION OF DEDUCTION FOR DEFERRED COMPENSATION

 

Sec. 501. Clarification of deduction for deferred compensation.

 

 

TITLE I--EXECUTIVE BRANCH GOVERNANCE AND SENIOR MANAGEMENT OF

THE INTERNAL REVENUE SERVICE

Subtitle A--Executive Branch Governance and Senior Management

 

SEC. 101. INTERNAL REVENUE SERVICE OVERSIGHT BOARD.

 

(a) In General.--Section 7802 (relating to the Commissioner of

Internal Revenue) is amended to read as follows:

``SEC. 7802. INTERNAL REVENUE SERVICE OVERSIGHT BOARD.

 

``(a) Establishment.--There is established within the Department of

the Treasury the Internal Revenue Service Oversight Board (hereafter in

this subchapter referred to as the `Oversight Board').

``(b) Membership.--

 

``(1) Composition.--The Oversight Board shall be composed of 11

members, as follows:

``(A) 8 members shall be individuals who are not Federal officers or

employees and who are appointed by the President, by and with the advice

and consent of the Senate.

``(B) 1 member shall be the Secretary of the Treasury or, if the

Secretary so designates, the Deputy Secretary of the Treasury.

``(C) 1 member shall be the Commissioner of Internal Revenue.

 

``(D) 1 member shall be an individual who is a representative of an

organization that represents a substantial number of Internal Revenue

Service employees and who is appointed by the President, by and with the

advice and consent of the Senate.

``(2) Qualifications and terms.--

 

``(A) Qualifications.--Members of the Oversight Board described in

paragraph (1) (A) shall be appointed solely on the basis of their

professional experience and expertise in 1 or more of the following

areas:

``(i) Management of large service organizations.

 

``(ii) Customer service.

 

``(iii) Federal tax laws, including tax administration and compliance.

 

``(iv) Information technology.

 

``(v) Organization development.

 

``(vi) The needs and concerns of taxpayers.

 

In the aggregate, the members of the Oversight Board described in

paragraph (1) (A) should collectively bring to bear expertise in all of

the areas described in the preceding sentence.

``(B) Terms.--Each member who is described in paragraph (1) (A) or

(D) shall be appointed for a term of 5 years, except that of the members

first appointed under paragraph (1) (A)--

``(i) 1 member shall be appointed for a term of 1 year,

 

``(ii) 1 member shall be appointed for a term of 2 years,

 

``(iii) 2 members shall be appointed for a term of 3 years, and

 

``(iv) 2 members shall be appointed for a term of 4 years.

 

Such terms shall begin on the date of appointment.

 

``(C) Reappointment.--An individual who is described in paragraph

(1) (A) may be appointed to no more than two 5-year terms on the

Oversight Board.

``(D) Vacancy.--Any vacancy on the Oversight Board shall be filled

in the same manner as the original appointment. Any member appointed to

fill a vacancy occurring before the expiration of the term for which the

member's predecessor was appointed shall be appointed for the remainder

of that term.

``(E) Special government employees.--During the entire period that

an individual appointed under paragraph (1) (A) is a member of the

Oversight Board, such individual shall be treated as--

``(i) serving as a special government employee (as defined in

section 202 of title 18, United States Code) and as described in section

207(c)(2) of such title 18, and

``(ii) serving as an officer or employee referred to in section

101(f) of the Ethics in Government Act of 1978 for purposes of title I

of such Act.

``(3) Quorum.--6 members of the Oversight Board shall constitute a

quorum. A majority of members present and voting shall be required for

the Oversight Board to take action.

``(4) Removal.--

 

``(A) In general.--Any member of the Oversight Board may be removed

at the will of the President.

``(B) Secretary and commissioner.--An individual described in

subparagraph (B) or (C) of paragraph (1) shall be removed upon

termination of employment.

``(C) Representative of internal revenue service employees.--The

member described in paragraph (1)(D) shall be removed upon termination

of employment, membership, or other affiliation with the organization

described in such paragraph.

``(5) Claims.--

 

``(A) In general.--Members of the Oversight Board who are described

in paragraph (1) (A) or (D) shall have no personal liability under

Federal law with respect to any claim arising out of or resulting from

an act or omission by such member within the scope of service as a

member. The preceding sentence shall not be construed to limit personal

liability for criminal acts or omissions, willful or malicious conduct,

acts or omissions for private gain, or any other act or omission outside

the scope of the service of such member on the Oversight Board.

``(B) Effect on other law.--This paragraph shall not be construed--

 

``(i) to affect any other immunities and protections that may be

available to such member under applicable law with respect to such

transactions,

``(ii) to affect any other right or remedy against the United States

under applicable law, or

``(iii) to limit or alter in any way the immunities that are

available under applicable law for Federal officers and employees.

``(c) General Responsibilities.--

 

``(1) In general.--The Oversight Board shall oversee the Internal

Revenue Service in its administration, management, conduct, direction,

and supervision of the execution and application of the internal revenue

laws or related statutes and tax conventions to which the United States

is a party.

``(2) Exceptions.--The Oversight Board shall have no

responsibilities or authority with respect to--

``(A) the development and formulation of Federal tax policy relating

to existing or proposed internal revenue laws, related statutes, and tax

conventions,

``(B) law enforcement activities of the Internal Revenue Service,

including compliance activities such as criminal investigations,

examinations, and collection activities, or

``(C) specific procurement activities of the Internal Revenue Service.

 

``(3) Restriction on disclosure of return information to oversight

board members.--No return, return information, or taxpayer return

information (as defined in section 6103(b)) may be disclosed to any

member of the Oversight Board described in subsection (b)(1) (A) or (D).

Any request for information not permitted to be disclosed under the

preceding sentence, and any contact relating to a specific taxpayer,

made by a member of the Oversight Board so described to an officer or

employee of the Internal Revenue Service shall be reported by such

officer or employee to the Secretary and the Joint Committee on

Taxation.

``(d) Specific Responsibilities.--The Oversight Board shall have the

following specific responsibilities:

``(1) Strategic plans.--To review and approve strategic plans of the

Internal Revenue Service, including the establishment of--

``(A) mission and objectives, and standards of performance relative

to either, and

``(B) annual and long-range strategic plans.

 

``(2) Operational plans.--To review the operational functions of the

Internal Revenue Service, including--

``(A) plans for modernization of the tax system,

 

``(B) plans for outsourcing or managed competition, and

 

``(C) plans for training and education.

 

 

``(3) Management.--To--

 

``(A) recommend to the President candidates for appointment as the

Commissioner of Internal Revenue and recommend to the President the

removal of the Commissioner,

``(B) review the Commissioner's selection, evaluation, and

compensation of senior managers, and

``(C) review and approve the Commissioner's plans for any major

reorganization of the Internal Revenue Service.

``(4) Budget.--To--

 

``(A) review and approve the budget request of the Internal Revenue

Service prepared by the Commissioner,

``(B) submit such budget request to the Secretary of the Treasury, and

 

``(C) ensure that the budget request supports the annual and

long-range strategic plans.

The Secretary shall submit the budget request referred to in paragraph

(4)(B) for any fiscal year to the President who shall submit such

request, without revision, to Congress together with the President's

annual budget request for the Internal Revenue Service for such fiscal

year.

``(e) Board Personnel Matters.--

 

``(1) Compensation of members.--

 

``(A) In general.--Each member of the Oversight Board who is

described in subsection (b)(1)(A) shall be compensated at a rate of

$30,000 per year. All other members of the Oversight Board shall serve

without compensation for such service.

``(B) Chairperson.--In lieu of the amount specified in subparagraph

(A), the Chairperson of the Oversight Board shall be compensated at a

rate of $50,000.

``(2) Travel expenses.--The members of the Oversight Board shall be

allowed travel expenses, including per diem in lieu of subsistence, at

rates authorized for employees of agencies under subchapter I of chapter

57 of title 5, United States Code, while away from their homes or

regular places of business for purposes of attending meetings of the

Oversight Board.

``(3) Staff.--At the request of the Chairperson of the Oversight

Board, the Commissioner shall detail to the Oversight Board such

personnel as may be necessary to enable the Oversight Board to perform

its duties. Such detail shall be without interruption or loss of civil

service status or privilege.

``(4) Procurement of temporary and intermittent services.--The

Chairperson of the Oversight Board may procure temporary and

intermittent services under section 3109(b) of title 5, United States

Code.

``(f) Administrative Matters.--

 

``(1) Chair.--The members of the Oversight Board shall elect for a

2-year term a chairperson from among the members appointed under

subsection (b)(1)(A).

``(2) Committees.--The Oversight Board may establish such committees

as the Oversight Board determines appropriate.

``(3) Meetings.--The Oversight Board shall meet at least once each

month and at such other times as the Oversight Board determines

appropriate.

``(4) Reports.--The Oversight Board shall each year report to the

President and the Congress with respect to the conduct of its

responsibilities under this title.''.

(b) Conforming Amendments.--

 

(1) Section 4946(c) (relating to definitions and special rules for

chapter 42) is amended--

(A) by striking ``or'' at the end of paragraph (5),

 

(B) by striking the period at the end of paragraph (6) and inserting

``, or'', and

(C) by adding at the end the following new paragraph:

 

``(7) a member of the Internal Revenue Service Oversight Board.''.

 

(2) The table of sections for subchapter A of chapter 80 is amended

by striking the item relating to section 7802 and inserting the

following new item:

 

 

``Sec. 7802. Internal Revenue Service Oversight Board.''

 

 

 

(c) Effective Date.--

 

(1) In general.--The amendments made by this section shall take

effect on the date of the enactment of this Act.

(2) Nominations to internal revenue service oversight board.--The

President shall submit nominations under section 7802 of the Internal

Revenue Code of 1986, as added by this section, to the Senate not later

than 6 months after the date of the enactment of this Act.

SEC. 102. COMMISSIONER OF INTERNAL REVENUE; OTHER OFFICIALS.

 

(a) In General.--Section 7803 (relating to other personnel) is

amended to read as follows:

``SEC. 7803. COMMISSIONER OF INTERNAL REVENUE; OTHER OFFICIALS.

 

``(a) Commissioner of Internal Revenue.--

 

``(1) Appointment.--

 

``(A) In general.--There shall be in the Department of the Treasury

a Commissioner of Internal Revenue who shall be appointed by the

President, by and with the advice and consent of the Senate, to a 5-year

term. The appointment shall be made without regard to political

affiliation or activity.

``(B) Vacancy.--Any individual appointed to fill a vacancy in the

position of Commissioner occurring before the expiration of the term for

which such individual's predecessor was appointed shall be appointed

only for the remainder of that term.

``(C) Removal.--The Commissioner may be removed at the will of the

President.

``(2) Duties.--The Commissioner shall have such duties and powers as

the Secretary may prescribe, including the power to--

``(A) administer, manage, conduct, direct, and supervise the

execution and application of the internal revenue laws or related

statutes and tax conventions to which the United States is a party; and

``(B) recommend to the President a candidate for appointment as

Chief Counsel for the Internal Revenue Service when a vacancy occurs,

and recommend to the President the removal of such Chief Counsel.

If the Secretary determines not to delegate a power specified in

subparagraph (A) or (B), such determination may not take effect until 30

days after the Secretary notifies the Committees on Ways and Means,

Government Reform and Oversight, and Appropriations of the House of

Representatives, the Committees on Finance, Government Operations, and

Appropriations of the Senate, and the Joint Committee on Taxation.

``(3) Consultation with board.--The Commissioner shall consult with

the Oversight Board on all matters set forth in paragraphs (2) and (3)

(other than paragraph (3)(A)) of section 7802(d).

``(b) Assistant Commissioner for Employee Plans and Exempt

Organizations.--There is established within the Internal Revenue Service

an office to be known as the `Office of Employee Plans and Exempt

Organizations' to be under the supervision and direction of an Assistant

Commissioner of Internal Revenue. As head of the Office, the Assistant

Commissioner shall be responsible for carrying out such functions as the

Secretary may prescribe with respect to organizations exempt from tax

under section 501(a) and with respect to plans to which part I of

subchapter D of chapter 1 applies (and with respect to organizations

designed to be exempt under such section and plans designed to be plans

to which such part applies) and other nonqualified deferred compensation

arrangements. The Assistant Commissioner shall report annually to the

Commissioner with respect to the Assistant Commissioner's

responsibilities under this section.

``(c) Office of Taxpayer Advocate.--

 

``(1) In general.--

 

``(A) Establishment.--There is established in the Internal Revenue

Service an office to be known as the `Office of the Taxpayer Advocate'.

Such office shall be under the supervision and direction of an official

to be known as the `Taxpayer Advocate' who shall be appointed with the

approval of the Oversight Board by the Commissioner of Internal Revenue

and shall report directly to the Commissioner. The Taxpayer Advocate

shall be entitled to compensation at the same rate as the highest level

official reporting directly to the Commissioner of Internal Revenue.

``(B) Restriction on subsequent employment.--An individual who is an

officer or employee of the Internal Revenue Service may be appointed as

Taxpayer Advocate only if such individual agrees not to accept any

employment with the Internal Revenue Service for at least 5 years after

ceasing to be the Taxpayer Advocate.

``(2) Functions of office.--

 

``(A) In general.--It shall be the function of the Office of

Taxpayer Advocate to--

 

``(i) assist taxpayers in resolving problems with the Internal

Revenue Service,

``(ii) identify areas in which taxpayers have problems in dealings

with the Internal Revenue Service,

``(iii) to the extent possible, propose changes in the

administrative practices of the Internal Revenue Service to mitigate

problems identified under clause (ii), and

``(iv) identify potential legislative changes which may be

appropriate to mitigate such problems.

``(B) Annual reports.--

 

``(i) Objectives.--Not later than June 30 of each calendar year, the

Taxpayer Advocate shall report to the Committee on Ways and Means of the

House of Representatives and the Committee on Finance of the Senate on

the objectives of the Taxpayer Advocate for the fiscal year beginning in

such calendar year. Any such report shall contain full and substantive

analysis, in addition to statistical information.

``(ii) Activities.--Not later than December 31 of each calendar

year, the Taxpayer Advocate shall report to the Committee on Ways and

Means of the House of Representatives and the Committee on Finance of

the Senate on the activities of the Taxpayer Advocate during the fiscal

year ending during such calendar year. Any such report shall contain

full and substantive analysis, in addition to statistical information,

and shall--

``(I) identify the initiatives the Taxpayer Advocate has taken on

improving taxpayer services and Internal Revenue Service responsiveness,

``(II) contain recommendations received from individuals with the

authority to issue Taxpayer Assistance Orders under section 7811,

``(III) contain a summary of at least 20 of the most serious

problems encountered by taxpayers, including a description of the nature

of such problems,

``(IV) contain an inventory of the items described in subclauses

(I), (II), and (III) for which action has been taken and the result of

such action,

``(V) contain an inventory of the items described in subclauses

(I), (II), and (III) for which action remains to be completed and the

period during which each item has remained on such inventory,

``(VI) contain an inventory of the items described in subclauses

(I), (II), and (III) for which no action has been taken, the period

during which each item has remained on such inventory, the reasons for

the inaction, and identify any Internal Revenue Service official who is

responsible for such inaction,

``(VII) identify any Taxpayer Assistance Order which was not

honored by the Internal Revenue Service in a timely manner, as specified

under section 7811(b),

``(VIII) contain recommendations for such administrative and

legislative action as may be appropriate to resolve problems encountered

by taxpayers,

``(IX) identify areas of the tax law that impose significant

compliance burdens on taxpayers or the Internal Revenue Service,

including specific recommendations for remedying these problems,

``(X) in conjunction with the National Director of Appeals,

identify the 10 most litigated issues for each category of taxpayers,

including recommendations for mitigating such disputes, and

``(XI) include such other information as the Taxpayer Advocate may

deem advisable.

``(iii) Report to be submitted directly.--Each report required under

this subparagraph shall be provided directly to the committees described

in clauses (i) and (ii) without any prior review or comment from the

Oversight Board, the Secretary of the Treasury, any other officer or

employee of the Department of the Treasury, or the Office of Management

and Budget.

``(C) Other responsibilities.--The Taxpayer Advocate shall--

 

``(i) monitor the coverage and geographic allocation of problem

resolution officers, and

``(ii) develop guidance to be distributed to all Internal Revenue

Service officers and employees outlining the criteria for referral of

taxpayer inquiries to problem resolution officers.

``(3) Responsibilities of commissioner.--The Commissioner shall

establish procedures requiring a formal response to all recommendations

submitted to the Commissioner by the Taxpayer Advocate within 3 months

after submission to the Commissioner.''.

(b) Conforming Amendments.--

 

(1) The table of sections for subchapter A of chapter 80 is amended

by striking the item relating to section 7803 and inserting the

following new item:

 

 

``Sec. 7803. Commissioner of Internal Revenue; other officials.''

 

 

 

(2) Subsection (b) of section 5109 of title 5, United States Code,

is amended by striking ``7802(b)'' and inserting ``7803(b)''.

(c) Effective Date.--

 

(1) In general.--The amendments made by this section shall take

effect on the date of the enactment of this Act.

(2) Current officers.--

 

(A) In the case of an individual serving as Commissioner of Internal

Revenue on the date of the enactment of this Act who was appointed to

such position before such date, the 5-year term required by section

7803(a)(1) of the Internal Revenue Code of 1986, as added by this

section, shall begin as of the date of such appointment.

(B) Section 7803(c)(1)(B) of such Code, as added by this section,

shall not apply to the individual serving as Taxpayer Advocate on the

date of the enactment of this Act.

SEC. 103. OTHER PERSONNEL.

 

(a) In General.--Section 7804 (relating to the effect of

reorganization plans) is amended to read as follows:

``SEC. 7804. OTHER PERSONNEL.

 

``(a) Appointment and Supervision.--Unless otherwise prescribed by

the Secretary, the Commissioner of Internal Revenue is authorized to

employ such number of persons as the Commissioner deems proper for the

administration and enforcement of the internal revenue laws, and the

Commissioner shall issue all necessary directions, instructions, orders,

and rules applicable to such persons.

``(b) Posts of Duty of Employees in Field Service or

Traveling.--Unless otherwise prescribed by the Secretary--

``(1) Designation of post of duty.--The Commissioner shall determine

and designate the posts of duty of all such persons engaged in field

work or traveling on official business outside of the District of

Columbia.

``(2) Detail of personnel from field service.--The Commissioner may

order any such person engaged in field work to duty in the District of

Columbia, for such periods as the Commissioner may prescribe, and to any

designated post of duty outside the District of Columbia upon the

completion of such duty.

``(c) Delinquent Internal Revenue Officers and Employees.--If any

officer or employee of the Treasury Department acting in connection with

the internal revenue laws fails to account for and pay over any amount

of money or property collected or received by him in connection with the

internal revenue laws, the Secretary shall issue notice and demand to

such officer or employee for payment of the amount which he failed to

account for and pay over, and, upon failure to pay the amount demanded

within the time specified in such notice, the amount so demanded shall

be deemed imposed upon such officer or employee and assessed upon the

date of such notice and demand, and the provisions of chapter 64 and all

other provisions of law relating to the collection of assessed taxes

shall be applicable in respect of such amount.''.

(b) Conforming Amendments.--

 

(1) Subsection (b) of section 6344 is amended by striking ``section

7803(d)'' and inserting ``section 7804(c)''.

(2) The table of sections for subchapter A of chapter 80 is amended

by striking the item relating to section 7804 and inserting the

following new item:

 

 

``Sec. 7804. Other personnel.''

 

 

 

(c) Effective Date.--The amendments made by this section shall take

effect on the date of the enactment of this Act.

 

SEC. 104. PROHIBITION ON EXECUTIVE BRANCH INFLUENCE OVER

TAXPAYER AUDITS AND OTHER INVESTIGATIONS.

(a) In General.--Part I of subchapter A of chapter 75 (relating to

crimes, other offenses, and forfeitures) is amended by adding after

section 7216 the following new section:

``SEC. 7217. PROHIBITION ON EXECUTIVE BRANCH INFLUENCE OVER

TAXPAYER AUDITS AND OTHER INVESTIGATIONS.

``(a) Prohibition.--It shall be unlawful for any applicable person to

request any officer or employee of the Internal Revenue Service to

conduct or terminate an audit or other investigation of any particular

taxpayer with respect to the tax liability of such taxpayer.

``(b) Reporting Requirement.--Any officer or employee of the Internal

Revenue Service receiving any request prohibited by subsection (a) shall

report the receipt of such request to the Chief Inspector of the

Internal Revenue Service.

``(c) Exceptions.--Subsection (a) shall not apply to--

 

``(1) any request made to an applicable person by the taxpayer or a

representative of the taxpayer and forwarded by such applicable person

to the Internal Revenue Service,

``(2) any request by an applicable person for disclosure of return

or return information under section 6103 if such request is made in

accordance with the requirements of such section, or

``(3) any request by the Secretary of the Treasury as a consequence

of the implementation of a change in tax policy.

``(d) Penalty.--Any person who willfully violates subsection (a) or

fails to report under subsection (b) shall be punished upon conviction

by a fine in any amount not exceeding $5,000, or imprisonment of not

more than 5 years, or both, together with the costs of prosecution.

``(e) Applicable Person.--For purposes of this section, the term

`applicable person' means--

``(1) the President, the Vice President, any employee of the

executive office of the President, and any employee of the executive

office of the Vice President, and

``(2) any individual (other than the Attorney General of the United

States) serving in a position specified in section 5312 of title 5,

United States Code.''

(b) Clerical Amendment.--The table of sections for part I of

subchapter A of chapter 75 is amended by adding after the item relating

to section 7216 the following new item:

 

 

``Sec. 7217. Prohibition on executive branch influence over

taxpayer audits and other investigations.''

 

 

(c) Effective Date.--The amendments made by this section shall apply

to requests made after the date of the enactment of this Act.

 

Subtitle B--Personnel Flexibilities

 

SEC. 111. PERSONNEL FLEXIBILITIES.

 

(a) In General.--Part III of title 5, United States Code, is amended

by adding at the end the following new subpart:

``Subpart I--Miscellaneous

 

``CHAPTER 93--PERSONNEL FLEXIBILITIES RELATING TO THE INTERNAL REVENUE

SERVICE

 

``Sec.

 

``9301. General requirements.

 

``9302. Flexibilities relating to performance management.

 

``9303. Staffing flexibilities.

 

``9304. Flexibilities relating to demonstration projects.

 

 

``9301. General requirements

 

``(a) Conformance With Merit System Principles, Etc.--Any

flexibilities under this chapter shall be exercised in a manner

consistent with--

``(1) chapter 23, relating to merit system principles and prohibited

personnel practices; and

``(2) provisions of this title (outside of this subpart) relating to

preference eligibles.

``(b) Requirement Relating to Units Represented by Labor

Organizations.--

``(1) Written agreement required.--Employees within a unit with

respect to which a labor organization is accorded exclusive recognition

under chapter 71 shall not be subject to the exercise of any flexibility

under section 9302, 9303, or 9304, unless there is a written agreement

between the Internal Revenue Service and the organization permitting

such exercise.

``(2) Definition of a written agreement.--In order to satisfy

paragraph (1), a written agreement--

``(A) need not be a collective bargaining agreement within the

meaning of section 7103(8); and

``(B) may not be an agreement imposed by the Federal Service

Impasses Panel under section 7119.

``9302. Flexibilities relating to performance management

 

``(a) In General.--The Commissioner of Internal Revenue shall, within

a year after the date of the enactment of this chapter, establish a

performance management system which--

``(1) subject to section 9301(b), shall cover all employees of the

Internal Revenue Service other than--

``(A) the members of the Internal Revenue Service Oversight Board;

 

``(B) the Commissioner of Internal Revenue; and

 

``(C) the Chief Counsel for the Internal Revenue Service;

 

 

``(2) shall maintain individual accountability by--

 

``(A) establishing standards of performance which--

 

``(i) shall permit the accurate evaluation of each employee's

performance on the basis of the individual and organizational

performance requirements applicable with respect to the evaluation

period involved, taking into account individual contributions toward the

attainment of any goals or objectives under paragraph (3);

``(ii) shall be communicated to an employee before the start of any

period with respect to which the performance of such employee is to be

evaluated using such standards; and

``(iii) shall include at least 2 standards of performance, the

lowest of which shall denote the retention standard and shall be

equivalent to fully successful performance;

``(B) providing for periodic performance evaluations to determine

whether employees are meeting all applicable retention standards; and

``(C) using the results of such employee's performance evaluation as

a basis for adjustments in pay and other appropriate personnel actions;

and

``(3) shall provide for (A) establishing goals or objectives for

individual, group, or organizational performance (or any combination

thereof), consistent with Internal Revenue Service performance planning

procedures, including those established under the Government Performance

and Results Act of 1993, the Information Technology Management Reform

Act of 1996, Revenue Procedure 64 22 (as in effect on July 30, 1997),

and taxpayer service surveys, (B) communicating such goals or objectives

to employees, and (C) using such goals or objectives to make performance

distinctions among employees or groups of employees.

For purposes of this title, performance of an employee during any

period in which such employee is subject to standards of performance

under paragraph (2) shall be considered to be `unacceptable' if the

performance of such employee during such period fails to meet any

retention standard.

``(b) Awards.--

 

 

``(1) For superior accomplishments.--In the case of a proposed award

based on the efforts of an employee or former employee of the Internal

Revenue Service, any approval required under the provisions of section

4502(b) shall be considered to have been granted if the Office of

Personnel Management does not disapprove the proposed award within 60

days after receiving the appropriate certification described in such

provisions.

``(2) For employees who report directly to the commissioner.--

 

``(A) In general.--In the case of an employee of the Internal

Revenue Service who reports directly to the Commissioner of Internal

Revenue, a cash award in an amount up to 50 percent of such employee's

annual rate of basic pay may be made if the Commissioner finds such an

award to be warranted based on such employee's performance.

``(B) Nature of an award.--A cash award under this paragraph shall

not be considered to be part of basic pay.

``(C) Tax enforcement results.--A cash award under this paragraph

may not be based solely on tax enforcement results.

 

``(D) Eligible employees.--Whether or not an employee is an employee

who reports directly to the Commissioner of Internal Revenue shall, for

purposes of this paragraph, be determined under regulations which the

Commissioner shall prescribe, except that in no event shall more than 8

employees be eligible for a cash award under this paragraph in any

calendar year.

``(E) Limitation on compensation.--For purposes of applying section

5307 to an employee in connection with any calendar year to which an

award made under this paragraph to such employee is attributable,

subsection (a)(1) of such section shall be applied by substituting `to

equal or exceed the annual rate of compensation for the Vice President

for such calendar year' for `to exceed the annual rate of basic pay

payable for level I of the Executive Schedule, as of the end of such

calendar year'.

 

``(F) Approval required.--An award under this paragraph may not be

made unless--

``(i) the Commissioner of Internal Revenue certifies to the Office

of Personnel Management that such award is warranted; and

``(ii) the Office approves, or does not disapprove, the proposed

award within 60 days after the date on which it is so certified.

``(3) Based on savings.--

 

``(A) In general.--The Commissioner of Internal Revenue may

authorize the payment of cash awards to employees based on documented

financial savings achieved by a group or organization which such

employees comprise, if such payments are made pursuant to a plan which--

``(i) specifies minimum levels of service and quality to be

maintained while achieving such financial savings; and

``(ii) is in conformance with criteria prescribed by the Office of

Personnel Management.

``(B) Funding.--A cash award under this paragraph may be paid from

the fund or appropriation available to the activity primarily benefiting

or the various activities benefiting.

 

``(C) Tax enforcement results.--A cash award under this paragraph

may not be based solely on tax enforcement results.

``(c) Other Provisions.--

 

``(1) Notice provisions.--In applying sections 4303(b)(1)(A) and

7513(b)(1) to employees of the Internal Revenue Service, `15 days' shall

be substituted for `30 days'.

``(2) Appeals.--Notwithstanding the second sentence of section

5335(c), an employee of the Internal Revenue Service shall not have a

right to appeal the denial of a periodic step increase under section

5335 to the Merit Systems Protection Board.

``9303. Staffing flexibilities

 

``(a) Eligibility to Compete for A Permanent Appointment in the

Competitive Service.--

``(1) Eligibility of qualified veterans.--

 

``(A) In general.--No veteran described in subparagraph (B) shall be

denied the opportunity to compete for an announced vacant competitive

service position within the Internal Revenue Service by reason of--

``(i) not having acquired competitive status; or

 

``(ii) not being an employee of that agency.

 

``(B) Description.--An individual shall, for purposes of a position

for which such individual is applying, be considered a veteran described

in this subparagraph if such individual--

``(i) is either a preference eligible, or an individual (other than

a preference eligible) who has been separated from the armed forces

under honorable conditions after at least 3 years of active service; and

``(ii) meets the minimum qualification requirements for the position

sought.

``(2) Eligibility of certain temporary employees.--

 

``(A) In general.--No temporary employee described in subparagraph

(B) shall be denied the opportunity to compete for an announced vacant

competitive service position within the Internal Revenue Service by

reason of not having acquired competitive status.

``(B) Description.--An individual shall, for purposes of a position

for which such individual is applying, be considered a temporary

employee described in this subparagraph if--

``(i) such individual is then currently serving as a temporary

employee in the Internal Revenue Service;

``(ii) such individual has completed at least 2 years of current

continuous service in the competitive service under 1 or more term

appointments, each of which was made under competitive procedures

prescribed for permanent appointments;

``(iii) such individual's performance under each term appointment

referred to in clause (ii) met all applicable retention standards; and

``(iv) such individual meets the minimum qualification requirements

for the position sought.

``(b) Rating Systems.--

 

``(1) In general.--Notwithstanding subchapter I of chapter 33, the

Commissioner of Internal Revenue may establish category rating systems

for evaluating job applicants for positions in the competitive service,

under which qualified candidates are divided into 2 or more quality

categories on the basis of relative degrees of merit, rather than

assigned individual numerical ratings. Each applicant who meets the

minimum qualification requirements for the position to be filled shall

be assigned to an appropriate category based on an evaluation of the

applicant's knowledge, skills, and abilities relative to those needed

for successful performance in the job to be filled.

``(2) Treatment of preference eligibles.--Within each quality

category established under paragraph (1), preference eligibles shall be

listed ahead of individuals who are not preference eligibles. For other

than scientific and professional positions at or higher than GS 9 (or

equivalent), preference eligibles who have a compensable

service-connected disability of 10 percent or more, and who meet the

minimum qualification standards, shall be listed in the highest quality

category.

``(3) Selection process.--An appointing authority may select any

applicant from the highest quality category or, if fewer than 3

candidates have been assigned to the highest quality category, from a

merged category consisting of the highest and second highest quality

categories. Notwithstanding the preceding sentence, the appointing

authority may not pass over a preference eligible in the same or a

higher category from which selection is made, unless the requirements of

section 3317(b) or 3318(b), as applicable, are satisfied, except that in

no event may certification of a preference eligible under this

subsection be discontinued by the Internal Revenue Service under section

3317(b) before the end of the 6-month period beginning on the date of

such employee's first certification.

``(c) Involuntary Reassignments and Removals of Career Appointees in

the Senior Executive Service.--Neither section 3395(e)(1) nor section

3592(b)(1) shall apply with respect to the Internal Revenue Service.

``(d) Probationary Periods.--Notwithstanding any other provision of

law or regulation, the Commissioner of Internal Revenue may establish a

period of probation under section 3321 of up to 3 years for any position

if, as determined by the Commissioner, a shorter period would be

insufficient for the incumbent to demonstrate complete proficiency in

such position.

``(e) Provisions That Remain Applicable.--No provision of this

section exempts the Internal Revenue Service from--

``(1) any employment priorities established under direction of the

President for the placement of surplus or displaced employees; or

``(2) its obligations under any court order or decree relating to

the employment practices of the Internal Revenue Service.

``9304. Flexibilities relating to demonstration projects

 

``(a) Authority To Conduct.--The Commissioner of Internal Revenue

may, in accordance with this section, conduct 1 or more demonstration

projects to improve personnel management; provide increased individual

accountability; eliminate obstacles to the removal of or imposing any

disciplinary action with respect to poor performers, subject to the

requirements of due process; expedite appeals from adverse actions or

performance-based actions; and promote pay based on performance.

``(b) General Requirements.--Except as provided in subsection (c),

each demonstration project under this section shall comply with the

provisions of section 4703.

``(c) Special Rules.--For purposes of any demonstration project under

this section--

 

``(1) Authority of commissioner.--The Commissioner of Internal

Revenue shall exercise the authority provided to the Office of Personnel

Management under section 4703.

``(2) Provisions not applicable.--The following provisions of

section 4703 shall not apply:

``(A) Paragraphs (3) through (6) of subsection (b).

 

``(B) Paragraphs (1), (2)(B)(ii), and (4) of subsection (c).

 

``(C) Subsections (d) through (g).

 

``(d) Notification Required To Be Given.--

 

``(1) To employees.--The Commissioner of Internal Revenue shall

notify employees likely to be affected by a project proposed under this

section at least 90 days in advance of the date such project is to take

effect.

``(2) To congress and opm.--The Commissioner of Internal Revenue

shall, with respect to each demonstration project under this section,

provide each House of Congress and the Office of Personnel Management

with a report, at least 30 days in advance of the date such project is

to take effect, setting forth the final version of the plan for such

project. Such report shall, with respect to the project to which it

relates, include the information specified in section 4703(b)(1).

``(e) Limitations.--No demonstration project under this section may--

 

``(1) provide for a waiver of any regulation prescribed under any

provision of law referred to in paragraph (2)(B)(i) or (3) of section

4703(c);

``(2) provide for a waiver of subchapter V of chapter 63 or subpart

G of part III (or any regulations prescribed under such subchapter or

subpart);

``(3) provide for a waiver of any law or regulation relating to

preference eligibles as defined in section 2108 or subchapter II or III

of chapter 73 (or any regulations prescribed thereunder);

``(4) permit collective bargaining over pay or benefits, or require

collective bargaining over any matter which would not be required under

section 7106; or

``(5) include a system for measuring performance that provides for

only 1 level of performance at or above the level of fully successful or

better.

``(f) Permissible Projects.--Notwithstanding any other provision of

law, a demonstration project under this section--

``(1) may establish alternative means of resolving any dispute

within the jurisdiction of the Equal Employment Opportunity Commission,

the Merit Systems Protection Board, the Federal Labor Relations

Authority, or the Federal Service Impasses Panel; and

``(2) may permit the Internal Revenue Service to adopt any

alternative dispute resolution procedure that a private entity may

lawfully adopt.

``(g) Consultation and Coordination.--The Commissioner of Internal

Revenue shall consult with the Director of the Office of Personnel

Management in the development and implementation of each demonstration

project under this section and shall submit such reports to the Director

as the Director may require. The Director or the Commissioner of

Internal Revenue may terminate a demonstration project under this

section if either of them determines that the project creates a

substantial hardship on, or is not in the best interests of, the public,

the Federal Government, employees, or qualified applicants for

employment with the Internal Revenue Service.

``(h) Termination.--Each demonstration project under this section

shall terminate before the end of the 5-year period beginning on the

date on which the project takes effect, except that any such project may

continue beyond the end of such period, for not to exceed 2 years, if

the Commissioner of Internal Revenue, with the concurrence of the

Director, determines such extension is necessary to validate the results

of the project. Not later than 6 months before the end of the 5-year

period and any extension under the preceding sentence, the Commissioner

of Internal Revenue shall, with respect to the demonstration project

involved, submit a legislative proposal to the Congress if the

Commissioner determines that such project should be made permanent, in

whole or in part.''

(b) Clerical Amendment.--The analysis for part III of title 5, United

States Code, is amended by adding at the end the following:

 

 

``SUBPART I--MISCELLANEOUS

 

 

 

``93. Personnel Flexibilities Relating to the Internal Revenue Service 9301''.

 

 

 

(c) Effective Date.--This section shall take effect on the date of

enactment of this Act.

 

TITLE II--ELECTRONIC FILING

 

SEC. 201. ELECTRONIC FILING OF TAX AND INFORMATION RETURNS.

 

(a) In General.--It is the policy of the Congress that paperless

filing should be the preferred and most convenient means of filing tax

and information returns, and that by the year 2007, no more than 20

percent of all such returns should be filed on paper.

(b) Strategic Plan.--

 

(1) In general.--Not later than 180 days after the date of the

enactment of this Act, the Secretary of the Treasury or the Secretary's

delegate (hereafter in this section referred to as the ``Secretary'')

shall establish a plan to eliminate barriers, provide incentives, and

use competitive market forces to increase electronic filing gradually

over the next 10 years while maintaining processing times for paper

returns at 40 days. To the extent practicable, such plan shall provide

that all returns prepared electronically for taxable years beginning

after 2001 shall be filed electronically.

(2) Electronic commerce advisory group.--To ensure that the

Secretary receives input from the private sector in the development and

implementation of the plan required by paragraph (1), the Secretary

shall convene an electronic commerce advisory group to include

representatives from the small business community and from the tax

practitioner, preparer, and computerized tax processor communities and

other representatives from the electronic filing industry.

(c) Promotion of Electronic Filing and Incentives.--Section 6011 is

amended by redesignating subsection (f) as subsection (g) and by

inserting after subsection (e) the following new subsection:

``(f) Promotion of Electronic Filing.--

 

``(1) In general.--The Secretary is authorized to promote the

benefits of and encourage the use of electronic tax administration

programs, as they become available, through the use of mass

communications and other means.

``(2) Incentives.--The Secretary may implement procedures to provide

for the payment of appropriate incentives for electronically filed

returns.''

(d) Annual Reports.--Not later than June 30 of each calendar year

after 1997, the Chairperson of the Internal Revenue Service Oversight

Board, the Secretary, and the Chairperson of the electronic commerce

advisory group established under subsection (b)(2) shall report to the

Committees on Ways and Means, Appropriations, and Government Reform and

Oversight of the House of Representatives, the Committees on Finance,

Appropriations, and Government Affairs of the Senate, and the Joint

Committee on Taxation, on--

(1) the progress of the Internal Revenue Service in meeting the goal

of receiving electronically 80 percent of tax and information returns by

2007;

(2) the status of the plan required by subsection (b); and

 

(3) the legislative changes necessary to assist the Internal Revenue

Service in meeting such goal.

SEC. 202. DUE DATE FOR CERTAIN INFORMATION RETURNS FILED ELECTRONICALLY.

 

(a) In General.--Section 6071 (relating to time for filing returns

and other documents) is amended by redesignating subsection (b) as

subsection (c) and by inserting after subsection (a) the following new

subsection:

``(b) Electronically Filed Information Returns.--Returns made under

subparts B and C of part III of this subchapter which are filed

electronically shall be filed on or before March 31 of the year

following the calendar year to which such returns relate.''

 

(b) Effective Date.--The amendment made by this section shall apply

to returns required to be filed after December 31, 1999.

SEC. 203. PAPERLESS ELECTRONIC FILING.

 

(a) In General.--Section 6061 (relating to signing of returns and

other documents) is amended--

(1) by striking ``Except as otherwise provided by'' and inserting

the following:

``(a) General Rule.--Except as otherwise provided by subsection (b)

and'', and

(2) by adding at the end the following new subsection:

 

``(b) Electronic Signatures.--

 

 

``(1) In general.--The Secretary shall develop procedures for the

acceptance of signatures in digital or other electronic form. Until such

time as such procedures are in place, the Secretary may waive the

requirement of a signature for all returns or classes of returns, or may

provide for alternative methods of subscribing all returns,

declarations, statements, or other documents required or permitted to be

made or written under internal revenue laws and regulations.

``(2) Treatment of alternative methods.--Notwithstanding any other

provision of law, any return, declaration, statement or other document

filed without signature under the authority of this subsection or

verified, signed or subscribed under any method adopted under paragraph

(1) shall be treated for all purposes (both civil and criminal,

including penalties for perjury) in the same manner as though signed and

subscribed. Any such return, declaration, statement or other document

shall be presumed to have been actually submitted and subscribed by the

person on whose behalf it was submitted.

``(3) Published guidance.--The Secretary shall publish guidance as

appropriate to define and implement any waiver of the signature

requirements.''

(b) Acknowledgment of Electronic Filing.--Section 7502(c) is amended

to read as follows:

``(c) Registered and Certified Mailing; Electronic Filing.--

 

``(1) Registered mail.--For purposes of this section, if any return,

claim, statement, or other document, or payment, is sent by United

States registered mail--

``(A) such registration shall be prima facie evidence that the

return, claim, statement, or other document was delivered to the agency,

officer, or office to which addressed, and

``(B) the date of registration shall be deemed the postmark date.

 

``(2) Certified mail; electronic filing.--The Secretary is

authorized to provide by regulations the extent to which the provisions

of paragraph (1) with respect to prima facie evidence of delivery and

the postmark date shall apply to certified mail and electronic

filing.''.

(c) Establishment of Procedures for Other Information.--In the case

of taxable periods beginning after December 31, 1998, the Secretary of

the Treasury or the Secretary's delegate shall, to the extent

practicable, establish procedures to accept, in electronic form, any

other information, statements, elections, or schedules, from taxpayers

filing returns electronically, so that such taxpayers will not be

required to file any paper.

(d) Procedures for Communications Between IRS and Preparer of

Electronically-Filed Returns.--The Secretary shall establish procedures

for taxpayers to authorize, on electronically filed returns, the

preparer of such returns to communicate with the Internal Revenue

Service on matters included on such returns.

(e) Effective Date.--The amendments made by this section shall take

effect on the date of the enactment of this Act.

SEC. 204. RETURN-FREE TAX SYSTEM.

 

(a) In General.--The Secretary of the Treasury or the Secretary's

delegate shall develop procedures for the implementation of a

return-free tax system under which appropriate individuals would be

permitted to comply with the Internal Revenue Code of 1986 without

making the return required under section 6012 of such Code for taxable

years beginning after 2007.

(b) Report.--Not later than June 30 of each calendar year after 1999,

such Secretary shall report to the Committee on Ways and Means of the

House of Representatives, the Committee on Finance of the Senate, and

the Joint Committee on Taxation on--

(1) what additional resources the Internal Revenue Service would

need to implement such a system,

(2) the changes to the Internal Revenue Code of 1986 that could

enhance the use of such a system,

(3) the procedures developed pursuant to subsection (a), and

 

(4) the number and classes of taxpayers that would be permitted to

use the procedures developed pursuant to subsection (a).

SEC. 205. ACCESS TO ACCOUNT INFORMATION.

 

Not later than December 31, 2006, the Secretary of the Treasury or

the Secretary's delegate shall develop procedures under which a taxpayer

filing returns electronically would be able to review the taxpayer's

account electronically, but only if all necessary safeguards to ensure

the privacy of such account information are in place.

 

TITLE III--TAXPAYER PROTECTION AND RIGHTS

 

SEC. 300. SHORT TITLE.

 

This title may be cited as the ``Taxpayer Bill of Rights 3''.

 

Subtitle A--Burden of Proof

 

SEC. 301. BURDEN OF PROOF.

 

(a) In General.--Chapter 76 (relating to judicial proceedings) is

amended by adding at the end the following new subchapter:

``SUBCHAPTER E--BURDEN OF PROOF

 

 

``Sec. 7491. Burden of proof.

 

 

``SEC. 7491. BURDEN OF PROOF.

 

``(a) General Rule.--The Secretary shall have the burden of proof in

any court proceeding with respect to any factual issue relevant to

ascertaining the income tax liability of a taxpayer.

``(b) Limitations.--Subsection (a) shall only apply with respect to

an issue if--

``(1) the taxpayer asserts a reasonable dispute with respect to such

issue,

``(2) the taxpayer has fully cooperated with the Secretary with

respect to such issue, including providing, within a reasonable period

of time, access to and inspection of all witnesses, information, and

documents within the control of the taxpayer, as reasonably requested by

the Secretary, and

``(3) in the case of a partnership, corporation, or trust, the

taxpayer is described in section 7430(c)(4)(A)(ii).

``(c) Substantiation.--Nothing in this section shall be construed to

override any requirement of this title to substantiate any item.''

(b) Conforming Amendments.--

 

(1) Section 6201 is amended by striking subsection (d) and

redesignating subsection (e) as subsection (d).

(2) The table of subchapters for chapter 76 is amended by adding at

the end the following new item:

 

 

``Subchapter E. Burden of proof.''

 

 

 

(c) Effective Date.--The amendments made by this section shall apply

to court proceedings arising in connection with examinations commencing

after the date of the enactment of this Act.

Subtitle B--Proceedings by Taxpayers

 

SEC. 311. EXPANSION OF AUTHORITY TO AWARD COSTS AND CERTAIN FEES.

 

(a) Award of Higher Attorney's Fees Based on Complexity of

Issues.--Clause (iii) of section 7430(c)(1)(B) (relating to the award of

costs and certain fees) is amended by inserting ``the difficulty of the

issues presented in the case, or the local availability of tax

expertise,'' before ``justifies a higher rate''.

(b) Award of Administrative Costs Incurred After 30 -Day

Letter.--Paragraph (2) of section 7430(c) is amended by striking the

last sentence and inserting the following:

``Such term shall only include costs incurred on or after whichever

of the following is the earliest: (i) the date of the receipt by the

taxpayer of the notice of the decision of the Internal Revenue Service

Office of Appeals, (ii) the date of the notice of deficiency, or (iii)

the date on which the 1st letter of proposed deficiency which allows the

taxpayer an opportunity for administrative review in the Internal

Revenue Service Office of Appeals is sent.''.

(c) Award of Fees for Certain Additional Services.--Paragraph (3) of

section 7430(c) is amended to read as follows:

``(3) Attorney's fees.--

 

``(A) In general.--For purposes of paragraphs (1) and (2), fees for

the services of an individual (whether or not an attorney) who is

authorized to practice before the Tax Court or before the Internal

Revenue Service shall be treated as fees for the services of an

attorney.

``(B) Pro bono services.--In any case in which the court could have

awarded attorney's fees under subsection (a) but for the fact that an

individual is representing the prevailing party for no fee or for a fee

which (taking into account all the facts and circumstances) is no more

than a nominal fee, the court may also award a judgment or settlement

for such amounts as the court determines to be appropriate (based on

hours worked and costs expended) for services of such individual but

only if such award is paid to such individual or such individual's

employer.''

(d) Determination of Whether Position of United States is

Substantially Justified.--Subparagraph (B) of section 7430(c)(4) is

amended by redesignating clause (iii) as clause (iv) and by inserting

after clause (ii) the following new clause:

``(iii) Effect of losing on substantially similar issues.--In

determining for purposes of clause (i) whether the position of the

United States was substantially justified, the court shall take into

account whether the United States has lost in courts of appeal for other

circuits on substantially similar issues.''

(e) Effective Date.--The amendments made by this section shall apply

to costs incurred (and, in the case of the amendment made by subsection

(c), services performed) more than 180 days after the date of the

enactment of this Act.

SEC. 312. CIVIL DAMAGES FOR NEGLIGENCE IN COLLECTION ACTIONS.

 

(a) In General.--Section 7433 (relating to civil damages for certain

unauthorized collection actions) is amended--

(1) in subsection (a), by inserting ``, or by reason of

negligence,'' after ``recklessly or intentionally'', and

(2) in subsection (b)--

 

(A) in the matter preceding paragraph (1), by inserting ``($100,000,

in the case of negligence)'' after ``$1,000,000'', and

(B) in paragraph (1), by inserting ``or negligent'' after ``reckless

or intentional''.

(b) Requirement That Administrative Remedies Be Exhausted.--Paragraph

(1) of section 7433(d) is amended to read as follows:

``(1) Requirement that administrative remedies be exhausted.--A

judgment for damages shall not be awarded under subsection (b) unless

the court determines that the plaintiff has exhausted the administrative

remedies available to such plaintiff within the Internal Revenue

Service.''

(c) Effective Date.--The amendments made by this section shall apply

to actions of officers or employees of the Internal Revenue Service

after the date of the enactment of this Act.

SEC. 313. INCREASE IN SIZE OF CASES PERMITTED ON SMALL CASE CALENDAR.

 

(a) In General.--Subsection (a) of section 7463 (relating to disputes

involving $10,000 or less) is amended by striking ``$10,000'' each place

it appears and inserting ``$25,000''.

(b) Conforming Amendments.--

 

(1) The section heading for section 7463 is amended by striking ``

$10,000 '' and inserting `` $25,000''.

(2) The item relating to section 7463 in the table of sections for

part II of subchapter C of chapter 76 is amended by striking ``$10,000''

and inserting ``$25,000''.

(c) Effective Date.--The amendments made by this section shall apply

to proceedings commencing after the date of the enactment of this Act.

Subtitle C--Relief for Innocent Spouses and for Taxpayers

Unable To Manage Their Financial Affairs Due to Disabilities

 

SEC. 321. SPOUSE RELIEVED IN WHOLE OR IN PART OF LIABILITY IN

CERTAIN CASES.

(a) In General.--Subpart B of part II of subchapter A of chapter 61

is amended by inserting after section 6014 the following new section:

``SEC. 6015. INNOCENT SPOUSE RELIEF; PETITION TO TAX COURT.

 

``(a) Spouse Relieved of Liability in Certain Cases.--

 

``(1) In general.--Under procedures prescribed by the Secretary, if--

 

 

``(A) a joint return has been made under section 6013 for a taxable

year,

``(B) on such return there is an understatement of tax attributable

to erroneous items of 1 spouse,

``(C) the other spouse establishes that in signing the return he or

she did not know, and had no reason to know, that there was such

understatement,

``(D) taking into account all the facts and circumstances, it is

inequitable to hold the other spouse liable for the deficiency in tax

for such taxable year attributable to such understatement, and

``(E) the other spouse claims (in such form as the Secretary may

prescribe) the benefits of this subsection not later than the date which

is 2 years after the date of the assessment of such deficiency,

then the other spouse shall be relieved of liability for tax

(including interest, penalties, and other amounts) for such taxable year

to the extent such liability is attributable to such understatement.

``(2) Apportionment of relief.--If a spouse who, but for paragraph

(1)(C), would be relieved of liability under paragraph (1), establishes

that in signing the return such spouse did not know, and had no reason

to know, the extent of such understatement, then such spouse shall be

relieved of liability for tax (including interest, penalties, and other

amounts) for such taxable year to the extent that such liability is

attributable to the portion of such understatement of which such spouse

did not know and had no reason to know.

``(3) Understatement.--For purposes of this subsection, the term

`understatement' has the meaning given to such term by section

6662(d)(2)(A).

``(4) Special rule for community property income.--For purposes of

this subsection, the determination of the spouse to whom items of gross

income (other than gross income from property) are attributable shall be

made without regard to community property laws.

``(b) Petition for Review By Tax Court.--In the case of an individual

who has filed a claim under subsection (a) within the period specified

in subsection (a)(1)(E)--

``(1) In general.--Such individual may petition the Tax Court (and

the Tax Court shall have jurisdiction) to determine such claim if such

petition is filed during the 90-day period beginning on the earlier of--

``(A) the date which is 6 months after the date such claim is filed

with the Secretary, or

``(B) the date on which the Secretary mails by certified or

registered mail a notice to such individual denying such claim.

Such 90-day period shall be determined by not counting Saturday,

Sunday, or a legal holiday in the District of Columbia as the last day

of such period.

``(2) Restrictions applicable to collection of assessment.--

 

``(A) In general.--Except as otherwise provided in section 6851 or

6861, no levy or proceeding in court for collection of any assessment to

which such claim relates shall be made, begun, or prosecuted, until the

expiration of the 90-day period described in paragraph (1), nor, if a

petition has been filed with the Tax Court, until the decision of the

Tax Court has become final. Rules similar to the rules of section 7485

shall apply with respect to the collection of such assessment.

``(B) Authority to enjoin collection actions.--Notwithstanding the

provisions of section 7421(a), the beginning of such proceeding or levy

during the time the prohibition under subparagraph (A) is in force may

be enjoined by a proceeding in the proper court, including the Tax

Court. The Tax Court shall have no jurisdiction under this paragraph to

enjoin any action or proceeding unless a timely petition for a

determination of such claim has been filed and then only in respect of

the amount of the assessment to which such claim relates.

``(C) Jeopardy collection.--If the Secretary makes a finding that

the collection of the tax is in jeopardy, nothing in this subsection

shall prevent the immediate collection of such tax.

``(c) Suspension of Running of Period of Limitations.--The running of

the period of limitations in section 6502 on the collection of the

assessment to which the petition under subsection (b) relates shall be

suspended for the period during which the Secretary is prohibited by

subsection (b) from collecting by levy or a proceeding in court and for

60 days thereafter.

``(d) Applicable Rules.--

 

``(1) Allowance of application.--Except as provided in paragraph

(2), notwithstanding any other law or rule of law (other than section

6512(b), 7121, or 7122), credit or refund shall be allowed or made to

the extent attributable to the application of this section.

``(2) Res judicata.--In the case of any claim under subsection (a),

the determination of the Tax Court in any prior proceeding for the same

taxable periods in which the decision has become final, shall be

conclusive except with respect to the qualification of the spouse for

relief which was not an issue in such proceeding. The preceding sentence

shall not apply if the Tax Court determines that the spouse participated

meaningfully in such prior proceeding.

``(3) Limitation on tax court jurisdiction.--If a suit for refund is

begun by either spouse pursuant to section 6532, the Tax Court shall

lose jurisdiction of the spouse's action under this section to whatever

extent jurisdiction is acquired by the district court or the United

States Court of Federal Claims over the taxable years that are the

subject of the suit for refund.''

(b) Separate Form For Applying For Spousal Relief.--Not later than

180 days after the date of the enactment of this Act, the Secretary of

the Treasury shall develop a separate form with instructions for use by

taxpayers in applying for relief under section 6015(a) of the Internal

Revenue Code of 1986, as added by this section.

(c) Conforming Amendments.--

 

(1) Section 6013 is amended by striking subsection (e).

 

(2) Subparagraph (A) of section 6230(c)(5) is amended by striking

``section 6013(e)'' and inserting ``section 6015''.

(d) Clerical Amendment.--The table of sections for subpart B of part

II of subchapter A of chapter 61 is amended by inserting after the item

relating to section 6014 the following new item:

 

 

``Sec. 6015. Innocent spouse relief; petition to Tax Court.''

 

 

 

(e) Effective Date.--The amendments made by this section shall apply

to understatements for taxable years beginning after the date of the

enactment of this Act.

 

SEC. 322. SUSPENSION OF STATUTE OF LIMITATIONS ON FILING

REFUND CLAIMS DURING PERIODS OF DISABILITY.

(a) In General.--Section 6511 (relating to limitations on credit or

refund) is amended by redesignating subsection (h) as subsection (i) and

by inserting after subsection (g) the following new subsection:

``(h) Running of Periods of Limitation Suspended While Taxpayer Is

Unable To Manage Financial Affairs Due to Disability.--

``(1) In general.--In the case of an individual, the running of the

periods specified in subsections (a), (b), and (c) shall be suspended

during any period of such individual's life that such individual is

financially disabled.

``(2) Financially disabled.--

 

``(A) In general.--For purposes of paragraph (1), an individual is

financially disabled if such individual is unable to manage his

financial affairs by reason of his medically determinable physical or

mental impairment which can be expected to result in death or which has

lasted or can be expected to last for a continuous period of not less

than 12 months. An individual shall not be considered to have such an

impairment unless proof of the existence thereof is furnished in such

form and manner as the Secretary may require.

``(B) Exception where individual has guardian, etc.--An individual

shall not be treated as financially disabled during any period that such

individual's spouse or any other person is authorized to act on behalf

of such individual in financial matters.''

(b) Effective Date.--The amendment made by subsection (a) shall apply

to periods of disability before, on, or after the date of the enactment

of this Act but shall not apply to any claim for credit or refund which

(without regard to such amendment) is barred by the operation of any law

or rule of law (including res judicata) as of January 1, 1998.

Subtitle D--Provisions Relating to Interest

 

SEC. 331. ELIMINATION OF INTEREST RATE DIFFERENTIAL ON

OVERLAPPING PERIODS OF INTEREST ON INCOME TAX OVERPAYMENTS AND

UNDERPAYMENTS.

(a) In General.--Section 6621 (relating to determination of rate of

interest) is amended by adding at the end the following new subsection:

 

``(d) Elimination of Interest on Overlapping Periods of Income Tax

Overpayments and Underpayments.--To the extent that, for any period,

interest is payable under subchapter A and allowable under subchapter B

on equivalent underpayments and overpayments by the same taxpayer of tax

imposed by chapters 1 and 2, the net rate of interest under this section

on such amounts shall be zero for such period.''

(b) Conforming Amendment.--Subsection (f) of section 6601 (relating

to satisfaction by credits) is amended by adding at the end the

following new sentence: ``The preceding sentence shall not apply to the

extent that section 6621(d) applies.''

(c) Effective Date.--The amendments made by this section shall apply

to interest for calendar quarters beginning after the date of the

enactment of this Act.

SEC. 332. INCREASE IN OVERPAYMENT RATE PAYABLE TO TAXPAYERS

OTHER THAN CORPORATIONS.

(a) In General.--Subparagraph (B) of section 6621(a)(1) (defining

overpayment rate) is amended to read as follows:

``(B) 3 percentage points (2 percentage points in the case of a

corporation).''

(b) Effective Date.--The amendment made by this section shall apply

to interest for calendar quarters beginning after the date of the

enactment of this Act.

Subtitle E--Protections for Taxpayers Subject to Audit or

Collection Activities

 

SEC. 341. PRIVILEGE OF CONFIDENTIALITY EXTENDED TO TAXPAYER'S

DEALINGS WITH NON-ATTORNEYS AUTHORIZED TO PRACTICE BEFORE INTERNAL

REVENUE SERVICE.

Section 7602 (relating to examination of books and witnesses) is

amended by adding at the end the following new subsection:

``(d) Privilege of Confidentiality Extended to Taxpayer's Dealings

with Non-Attorneys Authorized to Practice Before Internal Revenue

Service.--

``(1) In general.--In any noncriminal proceeding before the Internal

Revenue Service, the taxpayer shall be entitled to the same common law

protections of confidentiality with respect to tax advice furnished by

any qualified individual (in a manner consistent with State law for such

individual's profession) as the taxpayer would have if such individual

were an attorney.

``(2) Qualified individual.--For purposes of paragraph (1), the term

`qualified individual' means any individual (other than an attorney) who

is authorized to practice before the Internal Revenue Service.''

SEC. 342. EXPANSION OF AUTHORITY TO ISSUE TAXPAYER ASSISTANCE ORDERS.

 

Section 7811(a) (relating to taxpayer assistance orders) is amended--

 

(1) by striking ``Upon application'' and inserting the following:

 

``(1) In general.--Upon application'',

 

(2) by moving the text 2 ems to the right, and

 

(3) by adding at the end the following new paragraphs:

 

``(2) Issuance of taxpayer assistance orders.--For purposes of

determining whether to issue a taxpayer assistance order, the Taxpayer

Advocate shall consider the following factors, among others:

``(A) Whether there is an immediate threat of adverse action.

 

``(B) Whether there has been an unreasonable delay in resolving

taxpayer account problems.

``(C) Whether the taxpayer will have to pay significant costs

(including fees for professional representation) if relief is not

granted.

``(D) Whether the taxpayer will suffer irreparable injury, or a

long-term adverse impact, if relief is not granted.

``(3) Standard where administrative guidance not followed.--In cases

where any Internal Revenue Service employee is not following applicable

published administrative guidance (including the Internal Revenue

Manual), the Taxpayer Advocate shall construe the factors taken into

account in determining whether to issue a taxpayer assistance order in

the manner most favorable to the taxpayer.''

SEC. 343. LIMITATION ON FINANCIAL STATUS AUDIT TECHNIQUES.

 

Section 7602 is amended by adding at the end the following new

subsection:

``(e) Limitation on Examination on Unreported Income.--The Secretary

shall not use financial status or economic reality examination

techniques to determine the existence of unreported income of any

taxpayer unless the Secretary has a reasonable indication that there is

a likelihood of such unreported income.''

SEC. 344. LIMITATION ON AUTHORITY TO REQUIRE PRODUCTION OF

COMPUTER SOURCE CODE.

(a) In General.--Section 7602 is amended by adding at the end the

following new subsection:

``(f) Limitation on Authority To Require Production of Computer

Source Code.--

``(1) In general.--No summons may be issued under this title, and

the Secretary may not begin any action under section 7604 to enforce any

summons, to produce or examine any tax-related computer source code.

``(2) Exception where information not otherwise available to verify

correctness of item on return.--Paragraph (1) shall not apply to any

portion of a tax-related computer source code if--

``(A) the Secretary is unable to otherwise reasonably ascertain the

correctness of any item on a return from--

``(i) the taxpayer's books, papers, records, or other data, or

 

``(ii) the computer software program and the associated data which,

when executed, produces the output to prepare the return for the period

involved, and

``(B) the Secretary identifies with reasonable specificity such

portion as to be used to verify the correctness of such item.

The Secretary shall be treated as meeting the requirements of

subparagraphs (A) and (B) after the 90th day after the Secretary makes a

formal request to the taxpayer and the owner or developer of the

computer software program for the material described in subparagraph

(A)(ii) if such material is not provided before the close of such 90th

day.

``(3) Other exceptions.--Paragraph (1) shall not apply to--

 

``(A) any inquiry into any offense connected with the administration

or enforcement of the internal revenue laws, and

``(B) any tax-related computer source code developed by (or

primarily for the benefit of) the taxpayer or a related person (within

the meaning of section 267 or 707(b)) for internal use by the taxpayer

or such person and not for commercial distribution.

``(4) Tax-related computer source code.--For purposes of this

subsection, the term `tax-related computer source code' means--

``(A) the computer source code for any computer software program for

accounting, tax return preparation or compliance, or tax planning, or

``(B) design and development materials related to such a software

program (including program notes and memoranda).

``(5) Right to contest summons.--The determination of whether the

requirements of subparagraphs (A) and (B) of paragraph (2) are met or

whether any exception under paragraph (3) applies may be contested in

any proceeding under section 7604.

``(6) Protection of trade secrets and other confidential

information.--In any court proceeding to enforce a summons for any

portion of a tax-related computer source code, the court may issue any

order necessary to prevent the disclosure of trade secrets or other

confidential information with respect to such source code, including

providing that any information be placed under seal to be opened only as

directed by the court.''

(b) Application of Special Procedures for Third-Party

Summonses.--Paragraph (3) of section 7609(a) (defining third-party

recordkeeper) is amended by striking ``and'' at the end of subparagraph

(H), by striking a period at the end of subparagraph (I) and inserting

``, and'', and by adding at the end the following:

``(J) any owner or developer of a tax-related computer source code

(as defined in section 7602(f)(4)).

Subparagraph (J) shall apply only with respect to a summons requiring

the production of the source code referred to in subparagraph (J) or the

program and data described in section 7602(f)(2)(A)(ii) to which such

source code relates.''

(c) Effective Date.--The amendments made by this section shall apply

to summonses issued more than 90 days after the date of the enactment of

this Act.

SEC. 345. PROCEDURES RELATING TO EXTENSIONS OF STATUTE OF

LIMITATIONS BY AGREEMENT.

(a) In General.--Paragraph (4) of section 6501(c) (relating to the

period for limitations on assessment and collection) is amended--

(1) by striking ``Where'' and inserting the following:

 

``(A) In general.--Where'',

 

 

(2) by moving the text 2 ems to the right, and

 

(3) by adding at the end the following new subparagraph:

 

``(B) Notice to taxpayer of right to refuse or limit extension.--The

Secretary shall notify the taxpayer of the taxpayer's right to refuse to

extend the period of limitations, or to limit such extension to

particular issues, on each occasion when the taxpayer is requested to

provide such consent.''

(b) Effective Date.--The amendments made by this section shall apply

to requests to extend the period of limitations made after the date of

the enactment of this Act.

SEC. 346. OFFERS-IN-COMPROMISE.

 

(a) Allowances For Basic Living Expenses.--Section 7122 (relating to

offers-in-compromise) is amended by adding at the end the following new

subsection:

``(c) Allowances For Basic Living Expenses.--The Secretary shall

develop and publish schedules of national and local allowances designed

to provide that taxpayers entering into a compromise have an adequate

means to provide for basic living expenses.''

(b) Preparation of Statement Relating to Offers-in-Compromise.--The

Secretary of the Treasury shall prepare a statement which sets forth in

simple, nontechnical terms the rights of a taxpayer and the obligations

of the Internal Revenue Service relating to offers-in-compromise. Such

statement shall--

(1) advise taxpayers who have entered into a compromise agreement of

the advantages of promptly notifying the Internal Revenue Service of any

change of address or marital status, and

(2) provide notice to taxpayers that in the case of a compromise

agreement terminated due to the actions of 1 spouse or former spouse,

the Internal Revenue Service will, upon application, reinstate such

agreement with the spouse or former spouse who remains in compliance

with such agreement.

SEC. 347. NOTICE OF DEFICIENCY TO SPECIFY DEADLINES FOR FILING

TAX COURT PETITION.

(a) In General.--The Secretary of the Treasury or the Secretary's

delegate shall include on each notice of deficiency under section 6212

of the Internal Revenue Code of 1986 the date determined by such

Secretary (or delegate) as the last day on which the taxpayer may file a

petition with the Tax Court.

(b) Later Filing Deadlines Specified on Notice of Deficiency To Be

Binding.--Subsection (a) of section 6213 (relating to restrictions

applicable to deficiencies; petition to Tax Court) is amended by adding

at the end the following new sentence: ``Any petition filed with the Tax

Court on or before the last date specified for filing such petition by

the Secretary in the notice of deficiency shall be treated as timely

filed.''

(c) Effective Date.--Subsection (a) and the amendment made by

subsection (b) shall apply to notices mailed after December 31, 1998.

SEC. 348. REFUND OR CREDIT OF OVERPAYMENTS BEFORE FINAL DETERMINATION.

 

(a) Tax Court Proceedings.--Subsection (a) of section 6213 is

amended--

(1) by striking ``, including the Tax Court.'' and inserting ``,

including the Tax Court, and a refund may be ordered by such court of

any amount collected within the period during which the Secretary is

prohibited from collecting by levy or through a proceeding in court

under the provisions of this subsection.'', and

(2) by striking ``to enjoin any action or proceeding'' and inserting

``to enjoin any action or proceeding or order any refund''.

(b) Other Proceedings.--Subsection (a) of section 6512 is amended by

striking the period at the end of paragraph (4) and inserting ``, and'',

and by inserting after paragraph (4) the following new paragraphs:

``(5) As to any amount collected within the period during which the

Secretary is prohibited from making the assessment or from collecting by

levy or through a proceeding in court under the provisions of section

6213(a), and

``(6) As to overpayments the Secretary is authorized to refund or

credit pending appeal as provided in subsection (b).''

(c) Refund or Credit Pending Appeal.--Paragraph (1) of section

6512(b) is amended by adding at the end the following new sentence: ``If

a notice of appeal in respect of the decision of the Tax Court is filed

under section 7483, the Secretary is authorized to refund or credit the

overpayment determined by the Tax Court to the extent the overpayment is

not contested on appeal.''

(d) Effective Date.--The amendments made by this section shall take

effect on the date of the enactment of this Act.

SEC. 349. THREAT OF AUDIT PROHIBITED TO COERCE TIP REPORTING

ALTERNATIVE COMMITMENT AGREEMENTS.

The Secretary of the Treasury or the Secretary's delegate shall

instruct employees of the Internal Revenue Service that they may not

threaten to audit any taxpayer in an attempt to coerce the taxpayer into

entering into a Tip Reporting Alternative Commitment Agreement.

Subtitle F--Disclosures to Taxpayers

 

SEC. 351. EXPLANATION OF JOINT AND SEVERAL LIABILITY.

 

The Secretary of the Treasury or the Secretary's delegate shall, as

soon as practicable, but not later than 180 days after the date of the

enactment of this Act, establish procedures to clearly alert married

taxpayers of their joint and several liabilities on all appropriate

publications and instructions.

SEC. 352. EXPLANATION OF TAXPAYERS' RIGHTS IN INTERVIEWS WITH

THE INTERNAL REVENUE SERVICE.

The Secretary of the Treasury or the Secretary's delegate shall, as

soon as practicable, but not later than 180 days after the date of the

enactment of this Act, revise the statement required by section 6227 of

the Omnibus Taxpayer Bill of Rights (Internal Revenue Service

Publication No. 1) to more clearly inform taxpayers of their rights--

(1) to be represented at interviews with the Internal Revenue

Service by any person authorized to practice before the Internal Revenue

Service, and

(2) to suspend an interview pursuant to section 7521(b)(2) of the

Internal Revenue Code of 1986.

SEC. 353. DISCLOSURE OF CRITERIA FOR EXAMINATION SELECTION.

 

(a) In General.--The Secretary of the Treasury or the Secretary's

delegate shall, as soon as practicable, but not later than 180 days

after the date of the enactment of this Act, incorporate into the

statement required by section 6227 of the Omnibus Taxpayer Bill of

Rights (Internal Revenue Service Publication No. 1) a statement which

sets forth in simple and nontechnical terms the criteria and procedures

for selecting taxpayers for examination. Such statement shall not

include any information the disclosure of which would be detrimental to

law enforcement, but shall specify the general procedures used by the

Internal Revenue Service, including whether taxpayers are selected for

examination on the basis of information available in the media or on the

basis of information provided to the Internal Revenue Service by

informants.

(b) Transmission to Committees of Congress.--The Secretary shall

transmit drafts of the statement required under subsection (a) (or

proposed revisions to any such statement) to the Committee on Ways and

Means of the House of Representatives, the Committee on Finance of the

Senate, and the Joint Committee on Taxation on the same day.

SEC. 354. EXPLANATIONS OF APPEALS AND COLLECTION PROCESS.

 

The Secretary of the Treasury or the Secretary's delegate shall, as

soon as practicable but not later than 180 days after the date of the

enactment of this Act, include with any 1st letter of proposed

deficiency which allows the taxpayer an opportunity for administrative

review in the Internal Revenue Service Office of Appeals an explanation

of the appeals process and the collection process with respect to such

proposed deficiency.

Subtitle G--Low Income Taxpayer Clinics

 

SEC. 361. LOW INCOME TAXPAYER CLINICS.

 

(a) In General.--Chapter 77 (relating to miscellaneous provisions) is

amended by adding at the end the following new section:

``SEC. 7525. LOW INCOME TAXPAYER CLINICS.

 

``(a) In General.--The Secretary shall make grants to provide

matching funds for the development, expansion, or continuation of

qualified low income taxpayer clinics.

``(b) Definitions.--For purposes of this section--

 

``(1) Qualified low income taxpayer clinic.--

 

 

``(A) In general.--The term `qualified low income taxpayer clinic'

means a clinic that--

``(i) does not charge more than a nominal fee for its services

(except for reimbursement of actual costs incurred), and

``(ii)(I) represents low income taxpayers in controversies with the

Internal Revenue Service, or

``(II) operates programs to inform individuals for whom English is a

second language about their rights and responsibilities under this

title.

``(B) Representation of low income taxpayers.--A clinic meets the

requirements of subparagraph (A)(ii)(I) if--

``(i) at least 90 percent of the taxpayers represented by the clinic

have incomes which do not exceed 250 percent of the poverty level, as

determined in accordance with criteria established by the Director of

the Office of Management and Budget, and

``(ii) the amount in controversy for any taxable year generally does

not exceed the amount specified in section 7463.

``(2) Clinic.--The term `clinic' includes--

 

``(A) a clinical program at an accredited law school in which

students represent low income taxpayers in controversies arising under

this title, and

``(B) an organization described in section 501(c) and exempt from

tax under section 501(a) which satisfies the requirements of paragraph

(1) through representation of taxpayers or referral of taxpayers to

qualified representatives.

``(3) Qualified representative.--The term `qualified representative'

means any individual (whether or not an attorney) who is authorized to

practice before the Internal Revenue Service or the applicable court.

``(c) Special Rules and Limitations.--

 

``(1) Aggregate limitation.--Unless otherwise provided by specific

appropriation, the Secretary shall not allocate more than $3,000,000 per

year (exclusive of costs of administering the program) to grants under

this section.

``(2) Limitation on annual grants to a clinic.--The aggregate amount

of grants which may be made under this section to a clinic for a year

shall not exceed $100,000.

``(3) Multi-year grants.--Upon application of a qualified low income

taxpayer clinic, the Secretary is authorized to award a multi-year grant

not to exceed 3 years.

 

``(4) Criteria for awards.--In determining whether to make a grant

under this section, the Secretary shall consider--

``(A) the numbers of taxpayers who will be served by the clinic,

including the number of taxpayers in the geographical area for whom

English is a second language,

``(B) the existence of other low income taxpayer clinics serving the

same population,

``(C) the quality of the program offered by the low income taxpayer

clinic, including the qualifications of its administrators and qualified

representatives, and its record, if any, in providing service to low

income taxpayers, and

``(D) alternative funding sources available to the clinic, including

amounts received from other grants and contributions, and the endowment

and resources of the institution sponsoring the clinic.

``(5) Requirement of matching funds.--A low income taxpayer clinic

must provide matching funds on a dollar for dollar basis for all grants

provided under this section. Matching funds may include--

``(A) the salary (including fringe benefits) of individuals

performing services for the clinic, and

``(B) the cost of equipment used in the clinic.

 

Indirect expenses, including general overhead of the institution

sponsoring the clinic, shall not be counted as matching funds.''

(b) Clerical Amendment.--The table of sections for chapter 77 is

amended by adding at the end the following new section:

 

 

``Sec. 7525. Low income taxpayer clinics.''

 

 

 

(c) Effective Date.--The amendments made by this section shall take

effect on the date of the enactment of this Act.

Subtitle H--Other Matters

 

SEC. 371. ACTIONS FOR REFUND WITH RESPECT TO CERTAIN ESTATES

WHICH HAVE ELECTED THE INSTALLMENT METHOD OF PAYMENT.

(a) In General.--Section 7422 is amended by redesignating subsection

(j) as subsection (k) and by inserting after subsection (i) the

following new subsection:

``(j) Special Rule for Actions With Respect to Estates for Which An

Election Under Section 6166 Is Made.--

``(1) In general.--The district courts of the United States and the

United States Court of Federal Claims shall have jurisdiction over any

action brought by the representative of an estate to which this

subsection applies to determine the correct amount of the estate tax

liability of such estate (or for any refund with respect thereto) even

if the full amount of such liability has not been paid.

``(2) Estates to which subsection applies.--This subsection shall

apply to any estate if, as of the date the action is filed--

``(A) an election under section 6166 is in effect with respect to

such estate,

``(B) no portion of the installments payable under such section have

been accelerated, and

``(C) all installments the due date for which is on or before the

date the action is filed have been paid.

``(3) Prohibition on collection of disallowed liability.--If the

court redetermines under paragraph (1) the estate tax liability of an

estate, no part of such liability which is disallowed by a decision of

such court which has become final may be collected by the Secretary, and

amounts paid in excess of the installments determined by the court as

currently due and payable shall be refunded.''

(b) Extension of Time To File Refund Suit.--Section 7479 (relating to

declaratory judgments relating to eligibility of estate with respect to

installment payments under section 6166) is amended by adding at the end

the following new subsection:

``(c) Extension of Time To File Refund Suit.--The 2-year period in

section 6532(a)(1) for filing suit for refund after disallowance of a

claim shall be suspended during the 90-day period after the mailing of

the notice referred to in subsection (b)(3) and, if a pleading has been

filed with the Tax Court under this section, until the decision of the

Tax Court has become final.''

(c) Effective Date.--The amendments made by this section shall apply

to any claim for refund filed after the date of the enactment of this

Act.

SEC. 372. CATALOGING COMPLAINTS.

 

In collecting data for the report required under section 1211 of

Taxpayer Bill of Rights 2 (Public Law 104 168), the Secretary of the

Treasury or the Secretary's delegate shall maintain records of taxpayer

complaints of misconduct by Internal Revenue Service employees on an

individual employee basis.

SEC. 373. ARCHIVE OF RECORDS OF INTERNAL REVENUE SERVICE.

 

(a) In General.--Subsection (l) of section 6103 (relating to

confidentiality and disclosure of returns and return information) is

amended by adding at the end the following new paragraph:

``(17) Disclosure to national archives and records

administration.--The Secretary shall, upon written request from the

Archivist of the United States, disclose or authorize the disclosure of

returns and return information to officers and employees of the National

Archives and Records Administration for purposes of, and only to the

extent necessary in, the appraisal of records for destruction or

retention. No such officer or employee shall, except to the extent

authorized by subsections (f), (i)(7), or (p), disclose any return or

return information disclosed under the preceding sentence to any person

other than to the Secretary, or to another officer or employee of the

National Archives and Records Administration whose official duties

require such disclosure for purposes of such appraisal.''

(b) Conforming Amendments.--Section 6103(p) is amended--

 

(1) in paragraph (3)(A), by striking ``or (16)'' and inserting

``(16), or (17)'',

(2) in paragraph (4), by striking ``or (14)'' and inserting ``,

(14), or (17)'' in the matter preceding subparagraph (A), and

(3) in paragraph (4)(F)(ii), by striking ``or (15)'' and inserting

``, (15), or (17)''.

 

(c) Effective Date.--The amendments made by this section shall apply

to requests made by the Archivist of the United States after the date of

the enactment of this Act.

SEC. 374. PAYMENT OF TAXES.

 

The Secretary of the Treasury or the Secretary's delegate shall

establish such rules, regulations, and procedures as are necessary to

allow payment of taxes by check or money order made payable to the

United States Treasury.

SEC. 375. CLARIFICATION OF AUTHORITY OF SECRETARY RELATING TO

THE MAKING OF ELECTIONS.

Subsection (d) of section 7805 is amended by striking ``by

regulations or forms''.

SEC. 376. LIMITATION ON PENALTY ON INDIVIDUAL'S FAILURE TO PAY

FOR MONTHS DURING PERIOD OF INSTALLMENT AGREEMENT.

(a) In General.--Section 6651 (relating to failure to file tax return

or to pay tax) is amended by adding at the end the following new

subsection:

``(h) Limitation on Penalty on Individual's Failure To Pay for Months

During Period of Installment Agreement.--No addition to the tax shall be

imposed under paragraph (2) or (3) of subsection (a) with respect to the

tax liability of an individual for any month during which an installment

agreement under section 6159 is in effect for the payment of such tax to

the extent that imposing an addition to the tax under such paragraph for

such month would result in the aggregate number of percentage points of

such addition to the tax exceeding 9.5.''

(b) Effective Date.--The amendment made by this section shall apply

for purposes of determining additions to the tax for months beginning

after the date of the enactment of this Act.

Subtitle I--Studies

 

SEC. 381. PENALTY ADMINISTRATION.

 

The Joint Committee on Taxation shall conduct a study--

 

(1) reviewing the administration and implementation by the Internal

Revenue Service of the penalty reform provisions of the Omnibus Budget

Reconciliation Act of 1989, and

(2) making any legislative and administrative recommendations it

deems appropriate to simplify penalty administration and reduce taxpayer

burden.

Such study shall be submitted to the Committee on Ways and Means of

the House of Representatives and the Committee on Finance of the Senate

not later than 9 months after the date of enactment of this Act.

SEC. 382. CONFIDENTIALITY OF TAX RETURN INFORMATION.

 

The Joint Committee on Taxation shall conduct a study of the scope

and use of provisions regarding taxpayer confidentiality, and shall

report the findings of such study, together with such recommendations as

it deems appropriate, to the Congress not later than one year after the

date of the enactment of this Act. Such study shall examine the present

protections for taxpayer privacy, the need for third parties to use tax

return information, and the ability to achieve greater levels of

voluntary compliance by allowing the public to know who is legally

required to file tax returns, but does not file tax returns.

 

TITLE IV--CONGRESSIONAL ACCOUNTABILITY FOR THE INTERNAL REVENUE SERVICE

 

Subtitle A--Oversight

 

SEC. 401. EXPANSION OF DUTIES OF THE JOINT COMMITTEE ON TAXATION.

 

(a) In General.--Section 8021 (relating to the powers of the Joint

Committee on Taxation) is amended by adding at the end the following new

subsections:

``(e) Investigations.--The Joint Committee shall review all requests

(other than requests by the chairman or ranking member of a Committee or

Subcommittee) for investigations of the Internal Revenue Service by the

General Accounting Office, and approve such requests when appropriate,

with a view towards eliminating overlapping investigations, ensuring

that the General Accounting Office has the capacity to handle the

investigation, and ensuring that investigations focus on areas of

primary importance to tax administration.

``(f) Relating to Joint Hearings.--

 

``(1) In general.--The Chief of Staff, and such other staff as are

appointed pursuant to section 8004, shall provide such assistance as is

required for joint hearings described in paragraph (2).

``(2) Joint hearings.--On or before April 1 of each calendar year

after 1997, there shall be a joint hearing of two members of the

majority and one member of the minority from each of the Committees on

Finance, Appropriations, and Government Affairs of the Senate, and the

Committees on Ways and Means, Appropriations, and Government Reform and

Oversight of the House of Representatives, to review the strategic plans

and budget for the Internal Revenue Service. After the conclusion of the

annual filing season, there shall be a second annual joint hearing to

review the other matters outlined in section 8022(3)(C).''

(b) Effective Dates.--

 

(1) Subsection (e) of section 8021 of the Internal Revenue Code of

1986, as added by subsection (a) of this section, shall apply to

requests made after the date of enactment of this Act.

(2) Subsection (f) of section 8021 of the Internal Revenue Code of

1986, as added by subsection (a) of this section, shall take effect on

the date of the enactment of this Act.

SEC. 402. COORDINATED OVERSIGHT REPORTS.

 

(a) In General.--Paragraph (3) of section 8022 (relating to the

duties of the Joint Committee on Taxation) is amended to read as

follows:

``(3) Reports.--

 

``(A) To report, from time to time, to the Committee on Finance and

the Committee on Ways and Means, and, in its discretion, to the Senate

or House of Representatives, or both, the results of its investigations,

together with such recommendations as it may deem advisable.

``(B) To report, annually, to the Committee on Finance and the

Committee on Ways and Means on the overall state of the Federal tax

system, together with recommendations with respect to possible

simplification proposals and other matters relating to the

administration of the Federal tax system as it may deem advisable.

``(C) To report, annually, to the Committees on Finance,

Appropriations, and Government Affairs of the Senate, and to the

Committees on Ways and Means, Appropriations, and Government Reform and

Oversight of the House of Representatives, with respect to--

``(i) strategic and business plans for the Internal Revenue Service;

 

``(ii) progress of the Internal Revenue Service in meeting its

objectives;

``(iii) the budget for the Internal Revenue Service and whether it

supports its objectives;

``(iv) progress of the Internal Revenue Service in improving

taxpayer service and compliance;

``(v) progress of the Internal Revenue Service on technology

modernization; and

``(vi) the annual filing season.''

 

(b) Effective Date.--The amendment made by this section shall take

effect on the date of the enactment of this Act.

Subtitle B--Budget

 

SEC. 411. FUNDING FOR CENTURY DATE CHANGE.

 

It is the sense of Congress that the Internal Revenue Service efforts

to resolve the century date change computing problems should be funded

fully to provide for certain resolution of such problems.

SEC. 412. FINANCIAL MANAGEMENT ADVISORY GROUP.

 

The Commissioner shall convene a financial management advisory group

consisting of individuals with expertise in governmental accounting and

auditing from both the private sector and the Government to advise the

Commissioner on financial management issues, including--

(1) the continued partnership between the Internal Revenue Service

and the General Accounting Office;

 

(2) the financial accounting aspects of the Internal Revenue

Service's system modernization;

(3) the necessity and utility of year-round auditing; and

 

(4) the Commissioner's plans for improving its financial management

system.

Subtitle C--Tax Law Complexity

 

SEC. 421. ROLE OF THE INTERNAL REVENUE SERVICE.

 

It is the sense of Congress that the Internal Revenue Service should

provide the Congress with an independent view of tax administration, and

that during the legislative process, the tax writing committees of the

Congress should hear from front-line technical experts at the Internal

Revenue Service with respect to the administrability of pending

amendments to the Internal Revenue Code of 1986.

SEC. 422. TAX COMPLEXITY ANALYSIS.

 

(a) In General.--Chapter 92 (relating to powers and duties of the

Joint Committee on Taxation) is amended by adding at the end the

following new section:

``SEC. 8024. TAX COMPLEXITY ANALYSIS.

 

``(a) In General.--If--

 

``(1) legislation is reported by the Committee on Finance of the

Senate, the Committee on Ways and Means of the House of Representatives,

or any committee of conference, and

``(2) such legislation includes any provision amending the Internal

Revenue Code of 1986,

the report or statement accompanying such legislation shall contain a

Tax Complexity Analysis prepared by the staff of the Joint Committee on

Taxation.

``(b) Content of Complexity Analysis.--Each Tax Complexity Analysis

shall identify the provisions, if any, adding significant complexity or

providing significant simplification, as determined by the staff of the

Joint Committee on Taxation, and shall include the basis for such

determination.

``(c) Legislation Subject to Point of Order.--It shall not be in

order in the Senate or the House of Representatives to consider any

legislation described in subsection (a) required to be accompanied by a

Tax Complexity Analysis that does not contain a Tax Complexity Analysis.

``(d) Responsibilities of the Commissioner.--The Commissioner shall

provide the Joint Committee on Taxation with such information as is

necessary to prepare Tax Complexity Analyses.''

(b) Clerical Amendment.--The table of sections for chapter 92 is

amended by adding at the end the following new item:

 

 

``Sec. 8024. Tax complexity analysis.''

 

 

 

(c) Effective Date.--The amendments made by this section shall apply

to legislation considered on or after January 1, 1998.

 

TITLE V--CLARIFICATION OF DEDUCTION FOR DEFERRED COMPENSATION

 

 

SEC. 501. CLARIFICATION OF DEDUCTION FOR DEFERRED COMPENSATION.

 

(a) In General.--Subsection (a) of section 404 is amended by adding

at the end the following new paragraph:

``(11) Determinations relating to deferred compensation.--

 

``(A) In general.--For purposes of determining under this section--

 

``(i) whether compensation of an employee is deferred compensation, and

 

``(ii) when deferred compensation is paid,

 

no amount shall be treated as received by the employee, or paid,

until it is actually received by the employee.

``(B) Exception.--Subparagraph (A) shall not apply to severance pay.''

 

(b) Sick Leave Pay Treated Like Vacation Pay.--Paragraph (5) of

section 404(a) is amended by inserting ``or sick leave pay'' after

``vacation pay''.

(c) Effective Date.--

 

(1) In general.--The amendments made by this section shall apply to

taxable years ending after October 8, 1997.

(2) Change in method of accounting.--In the case of any taxpayer

required by this section to change its method of accounting for its

first taxable year ending after October 8, 1997--

(A) such change shall be treated as initiated by the taxpayer,

 

(B) such change shall be treated as made with the consent of the

Secretary of the Treasury, and

(C) the net amount of the adjustments required to be taken into

account by the taxpayer under section 481 of the Internal Revenue Code

of 1986 shall be taken into account in such first taxable year.

 

I. SUMMARY AND BACKGROUND

 

A. PURPOSE AND SUMMARY

 

H.R. 2676, as amended, modifies the structure and procedures of the

Internal Revenue Service (``IRS''), provides IRS personnel

flexibilities, encourages electronic filing, provides additional

taxpayer rights and protections, modifies Congressional oversight of the

IRS, and provides a revenue offset relating to the treatment of the

employer deduction for vacation pay.

Title I--Executive branch governance

 

The bill establishes within the Treasury Department the Internal

Revenue Service Oversight Board (the ``Board''). The general

responsibility of the Board is to oversee the IRS in the administration,

management, conduct, direction, and supervision of the execution and

application of the internal revenue laws. The Board is to have the

following specific responsibilities: to review and approve strategic

plans of the IRS; to review the operational functions of the IRS; to

provide for the review of the Commissioner's selection, evaluation and

compensation of senior managers; to review and approve plans for major

reorganizations; and to review and approve the budget of the IRS

prepared by the Commissioner. The Board is to be composed of 8

private-life members appointed by the President with the advice and

consent of the Senate, plus the Secretary of the Treasury (or the Deputy

Secretary), the IRS Commissioner, and a representative of a union

representing a significant number of IRS employees (who would be

appointed by the President, with the advice and consent of the Senate).

The bill provides that the IRS Commissioner is appointed as under

present law by the President, with the advice and consent of the Senate.

However, the Board has the authority to recommend candidates for

Commissioner to the President, and to recommend removal of the

Commissioner. The Commissioner has such duties and powers as prescribed

by the Secretary. Unless otherwise prescribed by the Secretary, such

duties include certain statutorily enumerated duties. The Secretary must

notify the Congress of any changes in the duties delegated to the

Commissioner.

The bill deletes the present-law funding mechanism for the employee

plans and exempt organizations division of the IRS in Code section

7802(b)(2). Such funding mechanism has never been utilized under present

law.

The bill makes changes relating to the Taxpayer Advocate designed to

strengthen the office, and prohibits Executive Branch influence over

taxpayer audits and collection activity.

The bill also makes certain changes to facilitate IRS personnel

flexibilities.

Title II. Electronic filing

 

The bill provides rules designed to facilitate and encourage

electronic filing of tax returns, whenever feasible. Under the bill,

electronic filing is encouraged by the use of advertising, development

of incentives, and setting a goal of 80 percent of returns to be

electronically filed by the year 2007. With respect to information

returns, submitters are encouraged to use electronic filing by extending

the due date for filing from February 28 to March 31. The bill requires

development of procedures to facilitate electronic filing, including

those that would permit the Secretary to accept returns without a manual

signature. The bill also requires the IRS to study and develop

procedures to implement a return free system. The IRS also must develop

procedures that would permit, to the extent feasible, taxpayers who use

electronic filing to review their account information electronically.

Title III. Taxpayer bill of rights 3

 

The bill contains a number of provisions designed to strengthen the

rights of taxpayers in their dealings with the Internal Revenue Service.

Among the more significant of these provisions are modifying the burden

of proof, providing more generous innocent spouse relief, protecting the

confidentiality of tax advice, expanding the conditions under which

taxpayers can receive awards of attorney's fees in disputes with the

IRS, permitting taxpayers to receive civil damages for negligence by the

IRS in collection actions, and suspending the statute of limitations on

filing refund claims during periods of disability.

Title IV. Congressional accountability for the Internal Revenue Service

 

The bill provides that all requests for studies of the IRS by the

General Accounting Office (other than requests by the Chair or ranking

member of a committee or subcommittee) must be approved by the Joint

Committee on Taxation. The bill provides for two joint hearings a year

of the 6 Congressional Committees with oversight jurisdiction over the

IRS. The Joint Committee on Taxation is required to report annually to

the tax-writing committees on the state of the Federal tax system, and

at the joint hearings.

The bill provides that a committee report or conference report on tax

legislation is to include a Tax Complexity Analysis prepared by the

staff of the Joint Committee on Taxation.

Title V. Clarification of deduction for vacation pay

 

The bill overrules a Tax Court decision by providing that vacation

pay that is actually received by employees more than 2\1/2\ months after

the end of the year is not deductible until paid by the employer. Under

the bill, amounts are not considered received by employees or paid

unless they are actually received. Letters of credit, trusts, and

similar mechanisms will not constitute payment or receipt.

 

B. BACKGROUND AND NEED FOR LEGISLATION

 

The National Commission on Restructuring the Internal Revenue Service

(the ``Commission'') was established to review the present practices of

the Internal Revenue Service (``IRS'') and to make recommendations for

modernizing and improving its efficiency and taxpayer services. The

Commission's report, issued June 25, 1997\1\

contains recommendations relating to executive branch governance and

management of the IRS, Congressional oversight of the IRS, personnel

flexibilities, customer service and compliance, technology

modernization, electronic filing, tax law simplification, taxpayer

rights, and financial accountability. H.R. 2292, introduced on July 30,

1997, by Mr. Portman and Mr. Cardin, generally mirrors the

recommendations of the Commission.

\1\Report of the National Commission on Restructuring the Internal

Revenue Service, ``A Vision For a New IRS,'' June 25, 1997.

H.R. 2676 builds on the Commission's report and recommendations and

the provisions of H.R. 2292 to provide for a more effective IRS in its

administration of the tax laws and in improving the IRS's service and

responsiveness to taxpayers.

C. LEGISLATIVE HISTORY

 

Committee bill

 

H.R. 2676\2\

 

was introduced by Chairman Archer and Messrs. Portman and Cardin on

October 21, 1997, and was amended by the Committee in a markup on

October 22, 1997. An amendment in the nature of a substitute (offered by

Chairman Archer) was adopted by a voice vote, with a quorum present. The

bill, as amended, was ordered favorably reported by a roll call of 33

yeas and 4 nays on October 22, 1997, with a quorum present.

\2\An earlier, related proposal was introduced by Messrs. Portman and

Cardin on July 30, 1997, as H.R. 2292.

Committee hearings

 

Full Committee .--The Committee held public hearings on September 16

17, 1997, on the recommendations of the National Commission on

Restructuring the Internal Revenue Service.

Subcommittee on Oversight .--The Subcommittee on Oversight held

public hearings on IRS-related topics in 1997 as follows:

Annual Report of the Internal Revenue Service Taxpayer Advocate

(February 25, 1997).

``High-Risk'' Programs Within the Jurisdiction of the Committee on

Ways and Means (March 4, 1997).

IRS Budget for Fiscal Year 1998 and the 1997 Tax Return Filing

Season (March 18, 1997).

Electronic Federal Tax Payment System (April 16, 1997).

 

Report of the National Commission on Restructuring the Internal

Revenue Service (July 24, 1997).

Recommendations of the National Commission on Restructuring the

Internal Revenue Service to Expand Electronic Filing of Tax Returns

(September 9, 1997).

Recommendations of the National Commission on Restructuring the

Internal Revenue Service on Taxpayer Protections and Rights (September

26, 1997).

In addition, the Subcommittee on Oversight submitted recommendations

on October 20, 1997, to the Full Committee relating to (1) electronic

filing and (2) taxpayer rights and protections. These Subcommittee

recommendations are the basis for the provisions in Title II and Title

III, respectively, of the Committee bill. Chairman Archer had directed

the Subcommittee on Oversight to review these two areas of the

Commission's report and to make recommendations to the Full Committee.

 

II. EXPLANATION OF THE BILL

 

TITLE I. EXECUTIVE BRANCH GOVERNANCE

 

A. CREATION OF IRS OVERSIGHT BOARD

 

(SEC. 101 OF THE BILL AND SEC. 7802 OF THE CODE)

 

Present Law

 

Under present law, the administration and enforcement of the internal

revenue laws are performed by or under the supervision of the Secretary

of the Treasury.\3\

 

\3\Code sec. 780(a).

 

Present law imposes standards of ethical conduct on Federal employees

in order to avoid conflicts of interest. Criminal penalties are imposed

on violations of these standards. In some cases, less strict standards

apply to special government employees than to regular, full-time Federal

government employees. In general, a special government employee is an

individual who is expected to serve no more than 130 days during any

365-day period.

In general, the ethical conduct rules (1) prohibit a Federal employee

from accepting compensation for representing clients before the agency

in which the employee serves or against the United States;\4\

(2) prohibit a Federal employee from acting as agent or attorney for

anyone in a claim against the United States;\5\

(3) impose post-employment restrictions on senior employees in order to

prohibit the unfair use of prior Government employment;\6\

and (4) prohibit a Federal employee from participating personally and

substantially in matters that affect his or her own financial interest

or that of persons with certain relationships to the employee.\7\

 

\4\18 U.S.C. sec. 203.

 

\5\18 U.S.C. sec. 205.

 

\6\18 U.S.C. sec. 207.

 

\7\18 U.S.C. sec. 208.

 

In the case of a special government employee who serves less than 60

days in the preceding 365 days, the restrictions in (1) and (2) above

only apply with respect to matters in which the special government

employee personally and substantially participated in his or her

official capacity.

One of the post-employment restrictions prohibits senior government

employees from representing parties other than the United States before

their former department or agency for one year after employment. This

restriction does not apply to special government employees who serve

less than 60 days in the final 1-year period of service.

Federal government employees compensated at certain pay grades are

subject to public financial disclosure requirements. Special government

employees who serve less than 60 days in a year are not subject to the

public financial disclosure requirements, but are subject to

confidential financial disclosure requirements.

Reasons for Change

 

The Committee believes that a well-run IRS is critical to the

operation of our tax system. Public confidence in the IRS must be

restored so that our system of voluntary compliance will not be

compromised. The Committee believes that most Americans are willing to

pay their fair share of taxes, and that public faith in the IRS is key

to maintaining that willingness.

The National Commission on Restructuring the IRS (the ``Restructuring

Commission''), which conducted a year-long study of the IRS, found that

a number of factors contribute to current IRS management problems,

including the following. While the Treasury is responsible for IRS

oversight, it has generally provided little consistent strategic

oversight or guidance to the IRS. The Secretary and Deputy Secretary

have many other broad responsibilities, and generally leave the IRS

largely independent. The average tenure of an IRS Commissioner is under

3 years, as is the average tenure of senior Treasury officials

responsible for IRS oversight. Many of the issues that need to be

addressed by the IRS will require expertise in various areas,

particularly management and technology.

The Restructuring Commission concluded that ``problems throughout the

IRS cannot be solved without focus, consistency and direction from the

top. The current structure, which includes Congress, the President, the

Department of the Treasury, and the IRS itself, does not allow the IRS

to set and maintain consistent long-term strategy and priorities, nor to

develop and execute focused plans for improvement. Additionally, the

structure does not ensure that the IRS budget, staffing and technology

are targeted toward achieving organizational success.''

The Committee shares the concerns of the Commission, and agrees that

fundamental change in IRS management and oversight is essential. The

Committee believes that a new management structure that will bring

greater expertise in more areas, focus, and continuity will help the IRS

on the path toward becoming an efficient, responsive, and respected

agency that always acts appropriately in carrying out its functions.

The Committee believes that private sector input is a necessary part

of any new management structure. The Committee believes that the ethics

rules applicable to special government employees (without regard to

exceptions for length of service or pay grade) should be applied to the

private sector members of the new IRS management. These rules will

enhance the ability of such members to demonstrate impartiality in the

performance of their duties, while not unduly restricting the available

pool of potential candidates.

The Committee is aware that the taxpaying public may never relish

contacts with the agency responsible for collecting taxes. Nevertheless,

by establishing a new management

 

structure that will better enable the IRS to develop and

fulfill long-term goals, the Committee believes that the IRS will be

able to gain public support, and will make contacts with the IRS as

infrequent and as pleasant as possible. The Committee is also aware that

changes being made to IRS management structure are not the final step,

and that continued oversight of the IRS, by Congress as well as the

Administration, is necessary in order to ensure long-term progress.

EXPLANATION OF PROVISION

 

Duties, responsibilities, and powers of the IRS Oversight Board

 

The bill provides for the establishment within the Treasury

Department of the Internal Revenue Service Oversight Board (referred to

as the ``Board''). The general responsibilities of the Board are to

oversee the Internal Revenue Service (the ``IRS'') in its

administration, management, conduct, direction, and supervision of the

execution and application of the internal revenue laws. The Board has no

responsibilities or authority with respect to (1) the development and

formulation of Federal tax policy relating to existing or proposed

internal revenue laws, (2) law enforcement activities of the IRS,

including compliance activities such as criminal investigations,

examinations, and collection activities,\8\

and (3) specific procurement activities of the IRS (e.g., selecting

vendors or awarding contracts). As discussed more fully in Part B.,

below, the Board also has the authority to recommend candidates for IRS

Commissioner to the President, and to recommend removal of the

Commissioner. The members of the Board do not have authority to receive

confidential taxpayer return information.\9\

 

\8\This provision is not intended to limit the Board's authority with

respect to the review and approval of strategic plans and the budget of

the Commissioner or to preclude the Board from review of IRS operations

generally.

\9\The bill does not affect the extent to which the Secretary of the

Treasury (or the Deputy Secretary) and the IRS Commissioner have

authority to receive confidential taxpayer return information under

present law by virtue of such positions. Any request for information

that cannot be disclosed to Board members and any contact relating to a

specific tax payer made by a private-life Board member or the union

representative to an employee of the IRS must be reported by such

employee to the Secretary and Joint Committee on Taxation.

The Board has the following specific responsibilities: (1) to review

and approve strategic plans of the IRS, including the establishment of

mission and objectives (and standards of performance) and annual and

long-range strategic plans; (2) to review the operational functions of

the IRS, including plans for modernization of the tax system, out

sourcing or managed competition, and training and education; (3) to

provide for the review of the Commissioner's selection, evaluation and

compensation of senior managers; and (4) to review and approve the

Commissioner's plans for major reorganization of the IRS. It is intended

that major reorganizations subject to the Board's review and approval

are limited to major changes in organizational structure, such as the

1995 IRS reorganization that combined 7 regions into 4 and 63 districts

into 33. In addition, the Board will review and approve the budget

request of the IRS prepared by the Commissioner, submit such budget

request to the Secretary, and ensure that the budget request supports

the annual and long-range strategic plans of the IRS. The Secretary is

required to submit the budget request approved by the Board to the

President, who is required to submit such request, without revision, to

the Congress together with the President's annual budget request for the

IRS. The bill does not affect the ability of the President to include,

in addition, his own budget request relating to the IRS.

It is intended that the Board will reach a formal decision on all

matters subject to its review. With respect to those matters over which

the Board has approval authority, the Board's decisions are

determinative. It is fully expected that, with respect to those matters

over which the Board has approval authority (other than as relates to

the development of the budget), the Secretary will exert his or her

oversight responsibility over the IRS by working through and with the

Board.\10\

 

\10\The budget is excepted from this expectation because the bill

provides a separate mechanism through which the Secretary may act. The

procedures relating to the Board permit the President to submit his own

budget in addition to that approved by the Board.

The Board is required to report each year to the President and the

Congress regarding the conduct of its responsibilities.

It is expected that the Treasury Department will no longer utilize

the IRS Management Board once the new Board created by the bill is in

place, as the functions of the IRS Management Board would be taken over

by the new Board.

Composition of the Board

 

The Board is composed of 11 members. Eight of the members are

so-called ``private-life'' members who are not Federal officers or

employees. These private-life members will be appointed by the

President, with the advice and consent of the Senate. The remaining

members are (1) the Secretary of the Treasury (or, if the Secretary so

designates, the Deputy Secretary of the Treasury), (2) a representative

from a union representing a substantial number of IRS employees, who

will be appointed by the President with the advice and consent of the

Senate, and\11\

(3) the Commissioner of the IRS.

 

\11\In appointing the union representative, the President is not

constrained to choose an individual recommended by a union covering IRS

employees, but may choose whoever the President determines to be an

appropriate representative of the union.

The private-life members of the Board are to be appointed based on

their expertise in the following areas: management of large service

organizations; customer service; the Federal tax laws, including

administration and compliance; information technology; organization

 

development; and the needs and concerns of taxpayers. In the

aggregate, the members of the Board should collectively bring to bear

expertise in all these enumerated areas.

The private-life members are considered special government employees

during the entire period of their appointment. That is, they will be

considered to be performing services as a special government employee on

each day during their appointment, not just on those days on which they

actually perform services. Thus, they will be subject to the ethical

conduct rules applicable to special government employees who serve more

than 60 days during any 365-day period. Thus, for example, private-life

Board members would not be able to represent clients before the IRS on

matters during their term as a Board member. Private-life Board members

would also be subject to the 1-year post-employment restriction

applicable to senior-level employees. Finally, private-life members

would be subject to the public financial disclosure rules generally

applicable to special government employees above certain pay grades.

Compensation of Board members

 

The private-life members of the Board will be compensated at a rate

of $30,000 per year, except that the Chair will be compensated at a rate

of $50,000 a year. Other members of the Board will receive no

compensation for their services as Board members. The members of the

Board will be entitled to travel expenses for purposes of attending

meetings of the Board.

Administrative matters

 

The 8 private-life Board members and the union representative

generally will be appointed for 5-year terms. The private-life members

may serve no more than two 5-year terms. Each 5-year term begins upon

appointment. Board member terms are staggered, as a result of a special

rule providing that some private-life members first appointed to the

Board will serve initial terms of less than 5 years. The members of the

Board are to elect a chairperson from among the private-life Board

members for a 2-year term. Any member of the Board can be removed at the

will of the President. In addition, the Secretary of the Treasury (or,

if so delegated, the Deputy Secretary) and the IRS Commissioner are

removed from the Board upon termination of employment in such positions

and the representative of IRS employees is removed from the Board upon

termination of their employment, membership, or other affiliation with

the organization representing IRS employees.

The Board is required to meet at least once a month, and can meet at

such other times as the Board determines appropriate.

A quorum of 6 members is required in order for the Board to conduct

business. Actions of the Board are taken by a majority vote of those

members present and voting.

The Board will not have its own permanent staff, but will have such

staff as detailed by the Commissioner at the request of the Chair of the

Board. The Chair can procure temporary and intermittent services under

section 3109(b) of title 5 of the U.S. Code.

Claims against Board members

 

The private-life members of the Board and the union representative

have no personal liability under Federal law with respect to any claim

arising out of or resulting from an act or omission by such Board member

within the scope of service as a Board member. The bill does not limit

personal liability for criminal acts or omissions, wilful or malicious

conduct, acts or omissions for private gain, or any other act or

omission outside the scope of service of the Board member.

The bill does not affect any other immunities and protections that

may be available under applicable law or any other right or remedy

against the United States under applicable law, or limit or alter the

immunities that are available under applicable law for Federal officers

and employees.

EFFECTIVE DATE

 

The provisions of the bill relating to the Board are effective on the

date of enactment. The President is directed to submit nominations for

Board members to the Senate within 6 months of the date of enactment.

 

B. APPOINTMENT AND DUTIES OF IRS COMMISSIONER

 

(SECS. 102 AND 103 OF THE BILL AND SECS. 7803 AND 7804 OF THE CODE)

 

PRESENT LAW

 

Within the Department of the Treasury is a Commissioner of Internal

Revenue, who is appointed by the President, with the advice and consent

of the Senate. The Commissioner has such duties and powers as may be

prescribed by the Secretary.\12\

The Secretary has delegated to the Commissioner the administration and

enforcement of the internal revenue laws.\13\

The Commissioner generally does not have authority with respect to

policy matters.\14\

 

\12\Code sec. 7802(a).

 

\13\Treasury Order 150 10 (April 22, 1982).

 

\14\See, e.g., Treasury Order 111 2 (March 16, 1981), which delegates to

the Assistant Secretary (Tax Policy) the exclusive authority to make the

final determination of the Treasury Department's position with respect

to issues of tax policy arising in connection with regulations,

published Revenue Rulings and Revenue Procedures, and tax return forms

and to determine the time, form and manner for the public communication

of such position.

The Secretary is authorized to employ such persons as the Secretary

deems appropriate for the administration and enforcement of the internal

revenue laws and to assign posts of duty.

REASONS FOR CHANGE

 

The Committee believes that the duties and responsibilities of the

Commissioner are of such significance that the Commissioner should

continue to be appointed by the President.\15\

However, the frequency with which the Commissioner changes--the average

tenure in office is under 3 years--is one of the factors contributing to

lack of IRS management continuity. The Committee believes (as did the

National Commission on Restructuring the IRS) that providing a statutory

term for the Commissioner to serve would help ensure greater continuity

of IRS management.

\15\Retaining present law also eliminates any constitutional issues that

may arise if the Commissioner is appointed by someone other than the

President, such as by the Board, as suggested by the National Commission

on Restructuring the IRS.

The Committee believes that it is appropriate to preserve the

present-law structure under which the duties of the Commissioner are

delegated by the Secretary of the Treasury. Modifying this structure may

unnecessarily interfere with the operations of the IRS and other

agencies withing the Treasury. In order to enable the Congress to

properly fulfill its oversight responsibilities with respect to the IRS,

the Committee believes that the Congress should be notified of changes

in the delegation of authority to the Commissioner.

EXPLANATION OF PROVISION

 

As under present law, the Commissioner will be appointed by the

President, with the advice and consent of the Senate, and can be removed

at will by the President. The Commissioner will be appointed to a 5-year

term, beginning with the date of appointment. The Board has the power to

recommend candidates to the President for Commissioner. The Board has

the authority to recommend the removal of the Commissioner. Although the

President is not required to nominate for Commissioner a candidate

recommended by the Board (or to remove a Commissioner when the Board so

recommends), it is expected that the President will generally give

deference to the Board's expertise and familiarity with the needs and

functions of the IRS and will act in accordance with the Board's

recommendations.

The Commissioner has such duties and powers as prescribed by the

Secretary. Unless otherwise specified by the Secretary, such duties and

powers include the power to administer, manage, conduct, direct, and

supervise the execution and application of the internal revenue laws or

related statutes and tax conventions to which the United States is a

party and to recommend to the President a candidate for Chief Counsel

(and recommend the removal of the Chief Counsel). It is intended that

the listed duties codify present delegations. However, if the Secretary

changes such orders, they may be subject to the notice requirement of

the bill, described below.

If the Secretary determines not to delegate the specified duties to

the Commissioner, such determination will not take effect until 30 days

after the Secretary notifies the House Committees on Ways and Means,

Government Reform and Oversight, and Appropriations, the Senate

Committees on Finance, Government Operations, and Appropriations, and

the Joint Committee on Taxation.

This provision is not intended to alter the Secretary's existing

authority to delegate to agencies other than the IRS the authority to

administer and enforce certain portions of the internal revenue laws.

For example, the Secretary currently has delegated to the Bureau of

Alcohol, Tobacco and Firearms the authority to administer and enforce

the taxes under section 4181 and chapters 51, 52, and 53 of the Internal

Revenue Code (regarding excise and other taxes on alcohol, tobacco,

firearms, and destructive devices).

The Commissioner is to consult with the Board on all matters within

the Board's authority (other than the recommendation of candidates for

Commissioner and the recommendation to remove the Commissioner). With

respect to those matters within the Board's approval authority (other

than with respect to the development of the budget), it is fully

expected that the Secretary will exert his or her oversight

responsibility over the IRS by working through and with the Board.\16\

 

\16\The budget is excepted from this expectation because the bill

provides a separate mechanism through which the Secretary may act.

Unless otherwise specified by the Secretary, the Commissioner is

authorized to employ such persons as the Commissioner deems proper for

the administration and enforcement of the internal revenue laws and

would be required to issue all necessary directions, instructions,

orders, and rules applicable to such persons. Unless otherwise provided

by the Secretary, the Commissioner will determine and designate the

posts of duty.

The Commissioner is compensated as under present law.

 

EFFECTIVE DATE

 

The provisions of the bill relating to the Commissioner generally are

effective on the date of enactment. The provision relating to the 5-year

term of office applies to the Commissioner in office on the date of

enactment. This 5-year term runs from the date of appointment.

 

C. STRUCTURE AND FUNDING OF THE EMPLOYEE PLANS AND EXEMPT ORGANIZATIONS

(``EP/EO'') DIVISION

(SEC. 102 OF THE BILL AND SEC. 7802(B) OF THE CODE)

 

Present Law

 

Prior to 1974, no one specific office in the IRS had primary

responsibility for employee plans and tax-exempt organizations. As part

of the reforms contained in the Employee Retirement Income Security Act

of 1974 (``ERISA''), Congress statutorily created the Office of Employee

Plans and Exempt Organizations (``EP/EO'') under the direction of an

Assistant Commissioner.\17\

EP/EO was created to oversee deferred compensation plans governed by

sections 401 414 of the Code and organizations exempt from tax under

Code section 501(a).

\17\Code section 7802(b).

 

In general, EP/EO was established in response to concern about the

level of IRS resources devoted to oversight of employee plans and exempt

organizations. The legislative history of Code section 7802(b) states

that, with respect to administration of laws relating to employee plans

and exempt organizations, ``the natural tendency is for the Service to

emphasize those areas that produce revenue rather than those areas

primarily concerned with maintaining the integrity and carrying out the

purposes of exemption provisions.''\18\

 

\18\S. Rept. 93 383, 108 (1973). See also H. Rept. 93 807, 104 (1974).

 

To provide funding for the new EP/EO office, ERISA authorized the

appropriation of an amount equal to the sum of the section 4940 excise

tax on investment income of private foundations (assuming a rate of 2

percent) as would have been collected during the second preceding year

plus the greater of the same amount or $30 million.\19\

However, amounts raised by the section 4940 excise tax have never been

dedicated to the administration of EP/EO, but are transferred instead to

general revenues. Thus, the level of EP/EO funding, like that of the

rest of the IRS, is dependent on annual Congressional appropriations to

the Treasury Department.

\19\Code section 7802(b)(2).

 

Reasons for Change

 

The Committee believes that it is important to retain the Office of

Employee Plans and Exempt Organizations under the supervision and

direction of an Assistant Commissioner of the Internal Revenue. Because

of EP/EO's expertise in the area of retirement benefits, the Committee

believes that its responsibilities should be expanded to include

nonqualified deferred compensation arrangements. In addition, the

inclusion of an annual reporting mechanism in the bill is designed to

ensure that the Commissioner is adequately informed regarding the

activities of EP/EO.

The funding formula for EP/EO set forth in section 7802(b)(2) would,

if utilized, result in an unstable level of funding that may bear little

or no relation to the amount of financial resources actually required by

the EP/EO division. In repealing the funding mechanism, however, the

Committee notes that, given the magnitude of the sectors EP/EO is

charged with regulating, as well as the unique nature of its mandate, an

adequately funded EP/EO is extremely important to the efficient and fair

administration of the Federal tax system. Accordingly, financial

resources for EP/EO should not be constrained on the basis that EP/EO is

a ``non-core'' IRS function; rather, EP/EO, like all functions of the

IRS, should be funded so as to promote the efficient and fair

administration of the Federal tax system.

Explanation of Provision

 

The bill retains the Office of Employee Plans and Exempt

Organizations under the supervision and direction of an Assistant

Commissioner of the Internal Revenue. As under present law, EP/EO is

responsible for carrying out functions and duties associated with

organizations designed to be exempt from tax under section 501(a) of the

Code and with respect to plans designed to be qualified under section

401(a). In addition, however, EP/EO's responsibilities are expanded to

include nonqualified deferred compensation arrangements. The bill also

provides that the Assistant Commissioner shall report annually to the

Commissioner on EP/EO operations.

In addition, the bill repeals the funding mechanism for EP/EO set

forth in section 7802(b). Thus, the appropriate level of funding for

EP/EO is, consistent with current practice, subject to annual

Congressional appropriations, as are other functions within the IRS.

Effective Date

 

The provision is effective on the date of enactment.

 

 

D. TAXPAYER ADVOCATE

 

(SEC. 102 OF THE BILL AND SEC. 7803 OF THE CODE)

 

Present Law

 

In 1996, the Taxpayer Bill of Rights 2 (``TBOR 2'')\20\

 

established the position of Taxpayer Advocate, which replaced the

position of Taxpayer Ombudsman, created in 1979 by the IRS. Before the

creation of the Taxpayer Advocate, the Taxpayer Ombudsman was a career

civil servant selected by and serving at the pleasure of the IRS

Commissioner. The Taxpayer Advocate is appointed by and reports directly

to the IRS Commissioner.

\20\Public Law 104 168 (July 30, 1996).

 

TBOR 2 also created the office of the Taxpayer Advocate. The

functions of the office are (1) to assist taxpayers in resolving

problems with the IRS, (2) to identify areas in which taxpayers have

problems in dealings with the IRS, (3) to propose changes (to the extent

possible) in the administrative practices of the IRS that will mitigate

those problems, and (4) to identify potential legislative changes that

may mitigate those problems.

The Taxpayer Advocate is required to submit two annual reports to the

tax-writing committees, one, due by June 30, that describes the

objectives of the Taxpayer Advocate for the next fiscal year and

another, due by December 31, that describes the activities of the

Taxpayer Advocate for the previous fiscal year. The December 31 report

must identify what the Taxpayer Advocate has done to improve taxpayer

services and IRS responsiveness, contain recommendations received from

individuals who have the authority to issue a Taxpayer Assistance Order,

describe in detail the progress made in implementing those

recommendations, contain a summary of at least 20 of the most serious

problems encountered by taxpayers in dealing with the IRS, include

recommendations for such administrative and legislative action as may be

appropriate to resolve such problems, describe the extent to which

regional problem resolution officers participate in the selection and

evaluation of local problem resolution officers, and include other such

information as the Taxpayer Advocate may deem advisable. The reports are

submitted without review by the Commissioner, the Secretary of the

Treasury, or any other officer or employee of the Department of Treasury

or the Office of Management and Budget.

Reasons for Change

 

The Committee believes that the Taxpayer Advocate serves an important

role within the IRS in terms of preserving taxpayer rights and solving

problems that taxpayers encounter in their dealings with the IRS. To

that end, it is appropriate that the IRS Oversight Board have input in

the selection of the Taxpayer Advocate. In addition, the Committee

believes that the Taxpayer Advocate should have experience appropriate

to the position and that the Taxpayer Advocate's objectivity would be

best preserved by limiting future employment with the IRS. The Committee

also believes that the reporting requirements of the Taxpayer Advocate

should be targeted not only towards solving problems with the IRS but

also towards preventing problems before they arise.

Explanation of Provision

 

The bill requires the Commissioner to obtain the approval of the IRS

Oversight Board on the selection of the Taxpayer Advocate. A candidate

for the Taxpayer Advocate must have either substantial experience

representing taxpayers before the IRS or have substantial experience

within the IRS. If the prospective Taxpayer Advocate was an officer or

an employee of the IRS before being appointed as the Taxpayer Advocate,

the individual is required to agree not to accept any employment with

the IRS for at least 5 years after ceasing to be the Taxpayer Advocate.

The bill modifies the information to be included in the December 31

report to the tax-writing committees. The report no longer needs to

include information about the extent to which regional problem

resolution officers participate in the selection and evaluation of local

problem resolution officers. The report identifies areas of the tax law

that impose significant compliance burdens on taxpayers or the IRS,

including specific recommendations for solving these problems. The

Taxpayer Advocate also is required to work in conjunction with the

National Director of Appeals to identify the 10 most litigated issues

for each category of taxpayers, and include the list of issues and

recommendations for mitigating such disputes in the report. Categories

of taxpayers include, for example, individuals, self-employed

individuals, small businesses, etc.

As under present law, the reports are submitted directly to the

tax-writing committees, without review by the IRS Oversight Board, the

Secretary of the Treasury, or any other officer or employee of the

Department of the Treasury or the Office of Management and Budget.

In addition, the bill imposes new responsibilities on the Taxpayer

Advocate. The Taxpayer Advocate is requested to monitor the coverage and

geographical allocation of problem resolution officers and develop

guidance that outlines criteria to be used by IRS employees in referring

taxpayer inquiries to problem resolution officers. In connection with

these responsibilities, it is anticipated that the Taxpayer Advocate

will work with the IRS District Offices to ensure convenient taxpayer

access to the local problem resolution officer. For example, the local

telephone number for the problem resolution officer in each district

should be published and available to taxpayers.

It is intended that the Taxpayer Advocate will work with the

Commissioner in developing career paths for local problem resolution

officers, so that individuals can progress through the General Schedule

in the same manner as examination employees, without having to leave the

problem resolution system. In that regard, it is contemplated that the

compensation levels of local and regional problem resolution officers

should be the same as those of IRS personnel operating in other

functional units. Under the current system, local problem resolution

officers generally must return to an audit or collection function to

achieve promotion. This lack of a career path within the problem

resolution system reduces the independence of the system. It is

contemplated that, to the extent feasible, regional problem resolution

officers should be selected from the available pool of local problem

resolution officers.

Effective Date

 

This provision is effective on the date of enactment, except that the

post-employment restrictions on the Taxpayer Advocate do not apply to an

individual holding that position on the date of enactment.

 

E. PROHIBITION ON EXECUTIVE BRANCH INFLUENCE OVER TAXPAYER AUDITS

 

(SEC. 104 OF THE BILL AND NEW SEC. 7217 OF THE CODE)

 

Present Law

 

There is no explicit prohibition in the Code on high-level Executive

Branch influence over taxpayer audits and collection activity.

The Internal Revenue Code prohibits disclosure of tax returns and

return information, except to the extent specifically authorized by the

Internal Revenue Code (sec. 6103). Unauthorized disclosure is a felony

punishable by a fine not exceeding $5,000 or imprisonment of not more

than five years, or both (sec. 7213). An action for civil damages also

may be brought for unauthorized disclosure (sec. 7431).

Reasons for Change

 

The Committee believes that the perception that it is possible that

high-level Executive Branch influence over taxpayer audits and

collection activity could occur has a negative influence on taxpayers'

views of the tax system. Accordingly, the Committee believes that it is

appropriate to prohibit such influence.

Explanation of Provision

 

The bill makes it unlawful for a specified person to request that any

officer or employee of the IRS conduct or terminate an audit or

otherwise investigate or terminate the investigation of any particular

taxpayer with respect to the tax liability of that taxpayer. The

prohibition applies to the President, the Vice President, and employees

of the executive offices of either the President or Vice President, as

well as any individual (except the Attorney General) serving in a

position specified in section 5312 of Title 5 of the United States Code

(these are generally Cabinet-level positions). The prohibition applies

to both direct requests and requests made through an intermediary.

Any request made in violation of this rule must be reported by the

IRS employee to whom the request was made to the Chief Inspector of the

IRS. The Chief Inspector has the authority to investigate such

violations and to refer any violations to the Department of Justice for

possible prosecution, as appropriate. Anyone convicted of violating this

provision will be punished by imprisonment of not more than 5 years or a

fine not exceeding $5,000 (or both).

Three exceptions to the general prohibition apply. First, the

prohibition does not apply to a request made to a specified person by a

taxpayer or a taxpayer's representative that is forwarded by the

specified person to the IRS. This exception is intended to cover two

types of situations. The first situation is where a taxpayer (or a

taxpayer's representative) writes to a specified person seeking

assistance in resolving a difficulty with the IRS. This exception

permits the specified person who receives such a request to forward it

to the IRS for resolution without violating the general prohibition. The

second situation that this first exception is intended to cover is an

audit or investigation by the IRS of a Presidential nominee. Under

present law (sec. 6103(c)), nominees for Presidentially appointed

positions consent to disclosure of their tax returns and return

information so that background checks may be conducted. Sometimes an

audit or other investigation is initiated as part of that background

check. The Committee anticipates that any such audit or investigation

that is part of such a background check will be encompassed within this

first exception.

The second exception to the general prohibition applies to requests

for disclosure of returns or return information under section 6103 if

the request is made in accordance with the requirements of section 6103.

The third exception to the general prohibition applies to requests

made by the Secretary of the Treasury as a consequence of the

implementation of a change in tax policy.

Effective Date

 

The provision applies to violations occurring after the date of

enactment.

 

F. IRS PERSONNEL FLEXIBILITIES

 

(SEC. 111 OF THE BILL AND NEW SECS. 9301 9304 OF TITLE 5, U.S.C.)

 

Present Law

 

The Internal Revenue Service, like almost all other federal agencies,

is subject to the personnel rules and procedures set forth in title 5,

United States Code. As such, its employees generally are classified

under the General Schedule or the Senior Executive Service.

Reasons for Change

 

Under the existing personnel rules and procedures set forth in title

5, hiring, evaluating, promoting, and firing employees is subject to

extensive regulation. Given the role of the IRS in the federal

government, its unique needs in terms of skilled tax, technology, and

service personnel, and its present needs to motivate its managers and

employees to embrace continuous improvements and cost savings while

maintaining adequate levels of service for taxpayers, the Committee

finds that certain flexibilities are appropriate and will facilitate the

efforts of the IRS to better manage its workforce.

The Committee finds that the vast majority of IRS employees are

competent professionals who perform their jobs as well as can be

expected under existing organizational constraints. However, over the

past decade, the quality of IRS interaction with taxpayers and the

public has deteriorated, in part due to lower personnel qualifications,

pay levels, and training quality. In addition, the stovepipe nature of

IRS operations, in which functional units such as taxpayer services,

exam, collection, and appeals set and implement their own priorities and

objectives, which often are disconnected from the other functions and

the organization as a whole, adds to the problem of decreased taxpayer

service. Moreover, the risk averse nature of the IRS, which provides

minimal incentive for managers or front-line employees for achieving

mission, stifles creativity, innovation, and quick problem resolution.

Consistent with the rest of this bill, the Committee intends section

111 to lead to increased accountability on the part of IRS managers and

employees and increased focus on the IRS mission, goals, and objectives.

At the core of this accountability and focus lies increased attention on

providing adequate levels of service to taxpayers. The Committee

believes that taxpayers should deal only with IRS employees who are

trained adequately and possess the skills and tools necessary to do

their jobs well. To provide such service to taxpayers, the Committee

expects the IRS to use the flexibilities provided by this section to

hire and promote qualified professionals, to provide incentives for

employees to treat taxpayers with the service and respect that they

deserve, and to discipline employees who cannot or will not treat

taxpayers fairly. In short, the Committee expects the IRS to hold all

workers--from senior managers to front-line employees--accountable for

carrying out the IRS mission.

Explanation of Provision

 

In general

 

Section 111 of the bill would amend title 5, United States Code, by

inserting a new chapter 93 providing certain personnel flexibilities to

the IRS. By providing these flexibilities in this manner, the Committee

intends for the IRS to remain subject to all of the rules and procedures

of title 5, except to the extent that the exercise of flexibilities

provided under this new chapter 93 is inconsistent with prior law.

The bill clarifies that the personnel flexibilities for the IRS are

intended to be exercised consistently with existing rules relating to

merit system principles, prohibited personnel practices, and preference

eligibles. Moreover, the Committee believes that the employees of the

IRS should be involved in the reinvention of the bureaucracies in which

they work. Accordingly, the bill provides that the flexibilities

provided to the IRS must be negotiated between the IRS and the

employees' union. Such negotiations need not address all of the

flexibilities provided under this provision. The written agreement

should be a consensus document, but is not a contract that can be

appealed to the federal services impasse panel, or otherwise create

additional appeal rights. To the extent that the exercise of any

flexibility, such as that provided by new section 9303(c), would not

affect members of the employees' union, then no written agreement is

required.

Performance management

 

The bill would require the IRS to establish a new performance

management system within one year from the date of enactment. The

Committee expects that this system will refocus the IRS's personnel

system on the overall mission of the IRS and how each employee's

performance relates to that mission. The new performance standards are

premised on the notion of retention--performance at the retention

standard indicates that an employee has performed fully successfully, no

better or worse. Failure to meet this standard indicates that the

employee has not performed adequately, and managers should use the tools

available to encourage the employee to improve performance, or if such

efforts do not lead to improved performance, to remove the employee. The

performance standard above the retention standard is intended to

encourage employees to perform at a higher level, and to allow managers

to make performance distinctions among employees.

The Committee encourages the IRS to redesign its performance measures

to more appropriately align employee behavior with organizational goals.

One of the most significant efforts that the IRS must undertake in this

regard is to design internal measures that will encourage behavior which

makes it easier for taxpayers to interact with the IRS. While this will

involve significant effort, the Committee expects that these measures

will bring the organizational goals and objectives, including those

established under the Government Performance and Results Act of 1993 and

Revenue Procedure 64-22, down to the individual employee level. In

addition, the Committee expects the IRS to develop taxpayer service

surveys that will gauge the level of service that taxpayers actually

receive, for use in evaluating organizational and group performance. In

no case should measures be used which rank employees or groups of

employees based solely on enforcement results, establish dollar goals

for assessments or collections, or otherwise undermine fair treatment of

taxpayers. While any system of measures must reflect the efficiency and

productivity of employees, the Committee expects that the IRS will

establish a balanced system of measures that will ensure that taxpayer

satisfaction is paramount throughout all IRS functions.

Awards

 

There are three types of awards specifically referenced in the bill.

First, certain awards for superior accomplishments will continue to

require certification to the Office of Personnel Management (OPM), but

absent objection from OPM within 60 days, the Commissioner's

recommendations for such awards will take effect. As with all awards,

these awards should be made based on performance under the new

performance management system, and in no case should awards be made (or

performance measured) based solely or principally on tax enforcement

results.

The second category of awards relates to the most senior managers in

the IRS. The Commissioner will have discretion, upon consultation with

the IRS Oversight Board established under section 101 of this bill, to

make awards of up to 50 percent of salary to such managers, so long as

the total compensation for an employee as a result of such an award does

not equal or exceed the annual rate of compensation for the Vice

President for such calendar year. As with awards for superior

accomplishments, OPM will have 60 days to object. The Commissioner will

be required to prescribe regulations defining how determinations will be

made as to whether an employee is eligible for such awards. In no case,

however, will more than 8 employees be eligible to receive such awards

in any calendar year. Moreover, it is not expected that all of the

eligible pool will receive such awards each year, or that the full 50

percent would be appropriate, except in cases of extraordinary

performance.

Finally, the third category of awards--based on savings--is intended

to encourage the practice of rewarding employees for developing more

efficient methods of administration. The Committee encourages the IRS to

establish programs that encourage employee input into reorganizing

business processes leading to efficiency gains, and sharing resultant

savings with employees. Provided that taxpayers receive adequate levels

of service, the Committee expects that such gainsharing awards will help

to improve the efficiency of the IRS.

Streamlined procedures

 

The bill provides two tools to streamline the process of taking

certain adverse actions for poor performance. First, the notice period

for taking adverse actions is reduced from 30 days to 15 days. At the

discretion of the IRS, and in accordance with regulations issued by OPM,

this period can be extended.

 

Second, the bill prohibits appeals of the denial of a step increase

to the Merit Systems Protections Board. Aggrieved employees nonetheless

can appeal such actions pursuant to internal agency procedures,

including any procedures agreed to pursuant to collective bargaining

agreements or pursuant to the written agreement under section 9301(b)

authorizing the use of this flexibility.

Staffing flexibilities

 

The bill provides the IRS with flexibility in filling certain

permanent appointments in the competitive service by authorizing the IRS

to fill such vacancies with either qualified veterans or qualified

temporary employees. For purposes of this provision, a qualified veteran

is an individual who is either a preference eligible or has been

separated from the armed forces under honorable conditions after at

least three years of active service, and who meets the minimum

qualifications for the vacant position. A qualified temporary employee

is defined under the bill as a temporary employee of the IRS with at

least two years of continuous service, who has met all applicable

retention standards and who meets the minimum qualifications for the

vacant position.

The bill also authorizes the IRS to establish category rating systems

for evaluating job applicants, under which qualified candidates are

divided into two or more quality categories on the basis of relative

degrees of merit, rather than assigned individual numerical ratings.

Managers would be authorized to select any candidate from the highest

quality category, and would not be limited to the three highest ranked

candidates, as is the case under existing law. In administering these

category rating systems, the IRS generally will be required to list

preference eligibles ahead of other individuals within each quality

category. Nonetheless, the appointing authority can select any candidate

from the highest quality category, as long as existing requirements

relating to passing over preference eligibles are satisfied.

The bill authorizes the Commissioner to reassign or remove career

appointees in the Senior Executive Service immediately upon taking

office. While the Committee does not intend for any Commissioner to make

wholesale management changes without thorough evaluations, the Committee

believes that if the Commissioner is to be held accountable, then the

Commissioner must have the flexibility to recruit his own management

team.

The bill authorizes the Commissioner to establish probation periods

for IRS employees of up to 3 years, when the Commissioner determines

that a shorter period is not sufficient for an employee to demonstrate

proficiency in a position.

Demonstration projects

 

The bill makes it easier for the IRS to establish demonstration

projects under title 5. The Committee expects that the IRS will use this

flexibility to establish demonstration projects to improve personnel

management, particularly to the extent that such projects lead to

increased individual accountability. For example, the IRS might use this

flexibility to establish demonstration projects involving broad-banded

pay systems or alternative classification systems, to provide for

variations in the existing rules regarding grade and pay retention, or

to provide for variations from existing provisions relating to payment

of recruitment, relocation, and retention bonuses. In addition, the

Committee expects that the IRS will use this flexibility to develop more

efficient means of handling employee appeals of personnel actions. No

flexibility can be exercised under this provision that does not preserve

due process for employees, however.

To allow the IRS the flexibility to establish these and other

demonstration projects, as appropriate, the bill authorizes any number

of projects, and exempts the IRS from many of the requirements

applicable to demonstration projects under section 4703 of title 5,

United States Code. Specifically, the bill eliminates the requirement

that the IRS submit plans to establish demonstration projects to a

public hearing, and streamlines the advance notice requirements of

section 4703. In addition, the bill allows the IRS to establish

demonstration projects for any number of its employees, and gives the

Commissioner greater latitude in working with OPM to develop and

implement demonstration projects. The bill maintains a number of the

existing prohibitions on demonstration projects, including the

prohibition on using demonstration projects to waive any requirement of

title 5 relating to family and medical leave. As with the other

personnel flexibilities provided under this section, the bill requires

the IRS to negotiate a written agreement with the employees' union to

the extent that the implementation of a demonstration project affects

such employees.

The bill establishes a general time limitation of 5 years on the

duration of any demonstration project established under this section.

However, if the Commissioner and the Director of OPM concur, a

demonstration project may be extended for an additional 2 years if

necessary to validate the results of the project. Not later than 6

months prior to the termination of a project, the bill requires the

Commissioner to submit a legislative proposal to the Congress if the

Commissioner determines that such project should be made permanent.

Effective Date

 

The provisions shall take effect on the date of the enactment of this

Act.

 

TITLE II. ELECTRONIC FILING

 

A. ELECTRONIC FILING OF TAX AND INFORMATION RETURNS

 

(SEC. 201 OF THE BILL AND SEC. 6011 OF THE CODE)

 

Present Law

 

Treas. Reg. section 1.6012 5 provides that the Commissioner may

authorize, at the option of a person required to make a return, the use

of a composite return in lieu of a paper return. An electronically filed

return is a composite return consisting of electronically transmitted

data and certain paper documents that cannot be electronically

transmitted. Form 8453 is a paper form that must be received by the IRS

before any electronically filed return is complete. Form 8453 provides

signature information to the IRS.

The IRS conducted the first test of electronic filing in 1986, for a

limited number of tax year 1985 returns.\21\

In 1990, the IRS permitted nationwide electronic filing of returns that

had refunds owing.\22\

In 1991, the IRS accepted electronically filed returns that had

balances due.\23\

In 1993, the IRS established an electronic filing goal of 80 million

tax returns by 2001. During the 1997 tax filing season, the IRS received

approximately 20 million individual tax returns electronically.

\21\Rev. Proc. 86 4, 1986 1 C.B. 423.

 

\22\Rev. Proc. 90 62, 1990 2 C.B. 659.

 

\23\Rev. Proc. 91 69, 1991 2 C.B. 893.

 

Reasons for Change

 

The Committee believes that the implementation of a comprehensive

strategy to encourage electronic filing of tax and information returns

holds significant potential to benefit taxpayers and make the IRS

returns processing function more efficient. For excample, the error rate

associated with processing paper tax returns is approximately 20

percent, half of which is attributable to the IRS and half to error in

taxpayer data. Because electronically-filed returns usually are prepared

using computer software programs with built-in accuracy checks, undergo

pre-screening by the IRS, and experience no key punch errors, electronic

returns have an error rate of less than one percent. Thus, the Committee

believes that an expansion of electronic filing will significantly

reduce errors (and the resulting notices that are triggered by such

errors). In addition, taxpayers who file their returns electronically

receive confirmation from the IRS that their return was received.

Explanation of Provision

 

The bill states that the policy of Congress is to promote paperless

filing, with a long-range goal of providing for the filing of at least

80 percent of all tax returns in electronic form by the year 2007. The

bill requires the Secretary of the Treasury to establish a strategic

plan to eliminate barriers, provide incentives, and use competitive

market forces to increase taxpayer use of electronic filing. The

strategic plan initially targets returns prepared in electronic form but

filed in paper form, such as a return prepared by the taxpayer using

return preparation software, which the taxpayer then printed and filed

in paper form. The bill requires all such returns to be filed

electronically, to the extent feasible, by the year 2002.

The bill requires the Secretary to create an electronic commerce

advisory group comprised of representatives from the small business, tax

practitioner, preparer, and computerized tax processor communities and

other representatives from the electronic filing industry. Under the

bill, the Chair of the IRS Oversight Board, together with the Secretary

and the Chair of the electronic commerce advisory group, are required to

report annually to the tax-writing committees on the IRS's progress in

implementing its plan to meet the goal of 80 percent electronic filing

by 2007.

To promote electronic filing, the bill authorizes the Secretary to

publicize the benefits of electronic filing by using mass communications

and other means. In addition, the bill authorizes the Secretary to

implement procedures for paying appropriate incentives for

electronically filed returns. This provision is not intended to override

section 1205 of the Taxpayer Relief Act of 1997,\24\

which prohibits the IRS from paying fees to credit card companies in

connection with receiving tax payments by credit card.

\24\Public Law 105 34 (August 5, 1997).

 

Effective Date

 

The provision is effective on the date of enactment.

 

 

B. TIME FOR FILING CERTAIN INFORMATION RETURNS WITH THE IRS

 

(SEC. 202 OF THE BILL AND SEC. 6071 OF THE CODE)

 

Present Law

 

Information such as the amount of dividends, partnership

distributions, and interest paid during the tax year must be supplied to

taxpayers by the payors by January 31 of the year following the calendar

year for which the return must be filed. The payors must file an

information return with the IRS with the information by February 28 of

the year following the calendar year for which the return must be filed.

Under present law, the due date for information returns is the same

whether such returns are filed on paper, on magnetic media, or

electronically. Most information returns are filed on magnetic media

(such as computer tapes) which must be physically shipped to the IRS.

Reasons for Change

 

The Committee believes that encouraging information return filers to

file electronically will substantially increase the efficiency of the

tax system by avoiding the need to convert the information from magnetic

media or paper to electronic form before return matching.

Explanation of Provision

 

The bill provides an incentive to filers of information returns to

use electronic filing by extending the due date for filing such returns

from February 28 (under present law) to March 31 of the year following

the calendar year to which the return relates. The bill does not change

the requirement that payors must supply taxpayers with the applicable

information by January 31. The Committee anticipates that the IRS will

cooperate with interested private sector filers of information returns

in facilitating to the maximum extent feasible the utilization of

electronic filing for such forms.

Effective Date

 

The provision applies to information returns required to be filed

after December 31, 1999.

C. PAPERLESS ELECTRONIC FILING

 

(SEC. 203 OF THE BILL AND SEC. 6061 OF THE CODE)

 

Present Law

 

Code section 6061 requires that tax forms be signed as required by

the Secretary. The IRS will not accept an electronically filed return

unless it has received a Form 8453 providing signature information on

the filer.

Generally, a return is considered timely filed when it is received by

the IRS on or before the due date of the return. If the requirements of

Code section 7502 are met, timely mailing is treated as timely filing.

If the return if mailed by registered mail, the dated registration

statement is prima facie evidence of delivery. As an electronically

filed return is not mailed, section 7502 does not apply.

The IRS periodically publishes a list of the forms and schedules that

may be electronically transmitted, as well as a list of forms,

schedules, and other information that cannot be electronically filed.

Reasons for Change

 

Electronically filed returns cannot provide the maximum efficiency

for taxpayers and the IRS under current rules that require signature

information to be filed on paper. Also, taxpayers need to know how the

IRS will determine the filing date of a return filed electronically. The

Committee believes that more types of returns could be filed

electronically if proper procedures were in place.

Explanation of Provision

 

The bill requires the Secretary to develop procedures that would

eliminate the need to file a paper form relating to signature

information. The Secretary is required to develop procedures for the

acceptance of signatures in digital or other electronic form. Until the

procedures are in place, the bill authorizes the Secretary to waive the

requirement of a signature or to provide for alternative methods of

subscribing all returns, declarations, statements, or other documents.

The bill treats documents subscribed under such alternative methods as

signed for all purposes, both civil and criminal, and provides a

rebuttable presumption that any such return, declaration, statement or

other document was actually submitted and subscribed by the person on

whose behalf it was submitted. It is contemplated that the IRS will

establish procedures for rebuttal of the presumption.

The bill also provides rules for determining when electronic returns

are deemed filed, and for authorization for return preparers to

communicate with the IRS on matters included on electronically filed

returns.

The bill also requires that the Secretary establish procedures, to

the extent practicable, to receive all tax forms electronically by

December 31, 1998.

Effective Date

 

The provision is effective on the date of enactment.

 

 

D. RETURN-FREE TAX SYSTEM

 

(SEC. 204 OF THE BILL)

 

Present Law

 

Under present law, taxpayers are required to calculate their own tax

liabilities and submit returns showing their calculations.

Reasons for Change

 

The Committee believes that it would benefit taxpayers to be

relieved, to the extent feasible, from the burden of determining tax

liability and filing returns.

Explanation of Provision

 

The bill requires the Secretary or his delegate to study the

feasibility of and develop procedures for the implementation of a

return-free tax system for taxable years beginning after 2007. The

Secretary is required annually to report to the tax-writing committees

on the progress of the development of such system, including what

additional resources the IRS would need to implement the system, the

changes to the Internal Revenue Code that would facilitate the system,

the procedures developed to date, and the number and classes of

taxpayers who would be permitted to use such a system. The Secretary is

required to make the first report on the development of the return-free

filing system to the tax-writing committees on June 30, 1999. It is

contemplated that the return-free filing system would initially be

targeted at taxpayers who had taxable income from wages, interest,

dividends, pensions, and unemployment compensation; did not itemize

deductions; and did not take any tax credits other than the earned

income tax credit.\25\

 

\25\See ``The President's Tax Proposals to Congress for Fairness,

Growth, and Simplicity,'' at 115 (May 1985) and The GAO Report on Tax

Administration Alternative Filing Systems (October 1996).

Effective Date

 

The provision is effective on the date of enactment.

 

E. ACCESS TO ACCOUNT INFORMATION

 

(SEC. 205 OF THE BILL)

 

Present Law

 

Taxpayers who file their returns electronically cannot review their

accounts electronically.

Reasons for Change

 

The Committee believes, to the extent feasible, that taxpayers should

have access to their account information held by the IRS. If taxpayers

file electronically, they should be able to review the information

electronically, to the extent feasible.

Explanation of Provision

 

The bill requires the Secretary to develop procedures under which a

taxpayer filing returns electronically could review the taxpayer's

account electronically not later than December 31, 2006, but only if all

necessary privacy safeguards are in place by that date.

Effective Date

 

The provision is effective on the date of enactment.

 

 

TITLE III. TAXPAYER BILL OF RIGHTS 3

 

A. BURDEN OF PROOF

 

(SEC. 301 OF THE BILL AND NEW SEC. 7491 OF THE CODE)

 

Present Law

 

Under present law, a rebuttable presumption exists that the

Commissioner's determination of tax liability is correct.\26\

``This presumption in favor of the Commissioner is a procedural device

that requires the plaintiff to go forward with prima facie evidence to

support a finding contrary to the Commissioner's determination. Once

this procedural burden is satisfied, the taxpayer must still carry the

ultimate burden of proof or persuasion on the merits. Thus, the

plaintiff not only has the burden of proof of establishing that the

Commissioner's determination was incorrect, but also of establishing the

merit of its claims by a preponderance of the evidence''.\27\

 

\26\ Welch v. Helvering, 290 U.S. 111, 115 (1933).

 

\27\ Danville Plywood Corp. v. U.S., U.S. Cl. Ct., 63 AFTR 2d 89 1036,

1043 (1989); citations omitted.

The general rebuttable presumption that the Commissioner's

determination of tax liability is correct is a fundamental element of

the structure of the Internal Revenue Code. Although this presumption is

judicially based, rather than legislatively based, there is considerable

evidence that the presumption has been repeatedly considered and

approved by the Congress. This is the case because the Internal Revenue

Code contains a number of civil provisions that explicitly place the

burden of proof on the Commissioner in specifically designated

circumstances. The Congress would have enacted these provisions only if

it recognized and approved of the general rule of presumptive

correctness of the Commissioner's determination. A list of these civil

provisions follows.

(1) Fraud. --Any proceeding involving the issue of whether the

taxpayer has been guilty of fraud with intent to evade tax (secs.

7454(a) and 7422(e)).

(2) Required reasonable verification of information returns. --In any

court proceeding, if a taxpayer asserts a reasonable dispute with

respect to any item of income reported on an information returned filed

with the Secretary by a third party and the taxpayer has fully

cooperated with the Secretary (including providing, within a reasonable

period of time, access to and inspection of all witnesses, information,

and documents within the control of the taxpayer as reasonably requested

by the Secretary), the Secretary has the burden of producing reasonable

and probative information concerning such deficiency in addition to such

information return (sec. 6201(d)).

(3) Foundation managers.-- Any proceeding involving the issue of

whether a foundation manager has knowingly participated in prohibited

transactions (sec. 7454(b)).

(4) Transferee liability.-- Any proceeding in the Tax Court to show

that a petitioner is liable as a transferee of property of a taxpayer

(sec. 6902(a)).

(5) Review of jeopardy levy or assessment procedures.-- Any

proceeding to review the reasonableness of a jeopardy levy or jeopardy

assessment (sec. 7429(g)(1)).

(6) Property transferred in connection with performance of

services.-- In the case of property subject to a restriction that by its

terms will never lapse and that allows the transferee to sell only at a

price determined under a formula, the price is deemed to be fair market

value unless established to the contrary by the Secretary (sec.

83(d)(1)).

(7) Illegal bribes, kickbacks, and other payments.-- As to whether a

payment constitutes an illegal bribe, illegal kickback, or other illegal

payment (sec. 162(c)(1) and (2)).

(8) Golden parachute payments.-- As to whether a payment is a

parachute payment on account of a violation of any generally enforced

securities laws or regulations (sec. 280G(b)(2)(B)).

(9) Unreasonable accumulation of earnings and profits.-- In any Tax

Court proceeding as to whether earnings and profits have been permitted

to accumulate beyond the reasonable needs of the business, provided that

the Commissioner has not fulfilled specified procedural requirements

(sec. 534).

(10) Expatriation.-- As to whether it is reasonable to believe that

an individual's loss of citizenship would result in a substantial

reduction in the individual's income taxes or transfer taxes (secs.

877(e), 2107(e), 2501(a)(4)).

(11) Public inspection of written determinations.-- In any proceeding

seeking additional disclosure of information (sec. 6110(f)(4)(A)).

(12) Penalties for promoting abusive tax shelters, aiding and

abetting the understatement of tax liability, and filing a frivolous

income return.-- As to whether the person is liable for the penalty

(sec. 6703(a)).

(13) Income tax return preparers' penalty.-- As to whether a preparer

has willfully attempted to understate tax liability (sec. 7427).

 

(14) Status as employees.-- As to whether individuals are employees

for purposes of employment taxes (pursuant to the safe harbor provisions

of section 530 of the Revenue Act of 1978).\28\

 

\28\Public Law 95 600 (November 6, 1978), as amended by section 1122 of

the Small Business Job Protection Act of 1996 (Public Law 104 188;

August 20, 1996).

Reasons for Change

 

The Committee is concerned that individual and small business

taxpayers frequently are at a disadvantage when forced to litigate with

the Internal Revenue Service. The Committee believes that the present

burden of proof rules contribute to that disadvantage. The Committee

believes that, all other things being equal, facts asserted by

individual and small business taxpayers who fully cooperate with the IRS

and satisfy all relevant substantiation requirements should be accepted.

The Committee believes that shifting the burden of proof to the

Secretary in such circumstances will create a better balance between the

IRS and such taxpayers, without encouraging tax avoidance.

Explanation of Provision

 

The bill provides that the Secretary shall have the burden of proof

in any court proceeding with respect to a factual issue if the taxpayer

asserts a reasonable dispute with respect to any such issue relevant to

ascertaining the taxpayer's income tax liability. Two conditions apply.

First, the taxpayer must fully cooperate at all times with the Secretary

(including providing, within a reasonable period of time, access to and

inspection of all witnesses, information, and documents within the

control of the taxpayer, as reasonably requested by the Secretary).\29\

Full cooperation also includes providing reasonable assistance to the

Secretary in obtaining access to and inspection of witnesses,

information, or documents not within the control of the taxpayer

(including any witnesses, information, or documents located in foreign

countries\30\

). A necessary element of fully cooperating with the Secretary is that

the taxpayer must exhaust his or her administrative remedies (including

any appeal rights provided by the IRS). The taxpayer is not required to

agree to extend the statute of limitations to be considered to have

fully cooperated with the Secretary. Second, certain taxpayers must meet

the net worth limitations that apply for awarding attorney's fees. In

general, corporations, trusts, and partnerships whose net worth exceeds

$7 million are not eligible for the benefits of the provision. The

taxpayer has the burden of proving that it meets each of these

conditions, because they are necessary prerequisites to establishing

that the burden of proof is on the Secretary.

\29\This requirement parallels the present-law provision relating to

reasonable verification of information returns (sec. 6201(d)).

\30\Full cooperation also includes providing English translations, as

reasonably requested by the Secretary.

The provision explicitly states that nothing in the provision shall

be construed to override any requirement under the Code or regulations

to substantiate any item. Accordingly, taxpayers must meet all

applicable substantiation requirements, whether generally imposed\31\

or imposed with respect to specific items, such as charitable

contributions\32\

or meals, entertainment, travel, and certain other expenses.\33\

 

Substantiation requirements include any requirement of the Code or

regulations that the taxpayer establish an item to the satisfaction of

the Secretary.\34\

Taxpayers who fail to substantiate any item in accordance with the

legal requirement of substantiation will not have satisfied all of the

legal conditions that are prerequisite to claiming the item on the

taxpayer's tax return and will accordingly be unable to avail themselves

of this provision regarding the burden of proof. Thus, if a taxpayer

required to substantiate an item fails to do so in the manner required

(or destroys the substantiation), this burden of proof provision is

inapplicable.\35\

 

\31\See e.g., Sec. 6001 and Treas. Reg. sec. 1.6001 1 requiring every

person liable for any tax imposed by this Title to keep such records as

the Secretary may from time to time prescribe, and secs. 6038 and 6038A

requiring United States persons to furnish certain information the

Secretary may prescribe with respect to foreign businesses controlled by

the U.S. person.

\32\Sec. 170(a)(1) and (f)(8) and Treas. Reg. sec. 1.170A 13.

 

\33\Sec. 274(d) and Treas. Reg. sec. 1.274(d) 1, 1.274 5T, and 1.274 5A.

 

\34\For example, sec. 905(b) of the Code provides that foreign tax

credits shall be allowed only if the taxpayer establishes to the

satisfaction of the Secretary all information necessary for the

verification and computation of the credit. Instructions for meeting

that requirement are set forth in Treas. Reg. sec. 1.905 2.

\35\If, however, the taxpayer can demonstrate that he had maintained the

required substantiation but that it was destroyed or lost through no

fault of the taxpayer, such as by fire or flood, existing tax rules

regarding reconstruction of those records would continue to apply.

Effective Date

 

The provision applies to court proceedings arising in connection with

examinations commencing after the date of enactment.

 

B. PROCEEDINGS BY TAXPAYERS

 

1. Expansion of Authority to Award Costs and Certain Fees

(sec. 311 of the bill and sec. 7430 of the Code)

Present Law

 

Any person who substantially prevails in any action by or against the

United States in connection with the determination, collection, or

refund of any tax, interest, or penalty may be awarded reasonable

administrative costs incurred before the IRS and reasonable litigation

costs incurred in connection with any court proceeding. In general, only

an individual whose net worth does not exceed $2 million is eligible for

an award, and only a corporation or partnership whose net worth does not

exceed $7 million is eligible for an award.

Reasonable litigation costs include reasonable fees paid or incurred

for the services of attorneys, except that the attorney's fees will not

be reimbursed at a rate in excess of $110 per hour (indexed for

inflation) unless the court determines that a special factor, such as

the limited availability of qualified attorneys for the proceeding,

justifies a higher rate. Awards of reasonable litigation costs and

reasonable administrative costs cannot exceed amounts paid or incurred.

Once a taxpayer has substantially prevailed over the IRS in a tax

dispute, the IRS has the burden of proof to establish that it was

substantially justified in maintaining its position against the

taxpayer. A rebuttable presumption exists that provides that the

position of the United States is not considered to be substantially

justified if the IRS did not follow in the administrative proceeding (1)

its published regulations, revenue rulings, revenue procedures,

information releases, notices, or announcements, or (2) a private letter

ruling, determination letter, or technical advice memorandum issued to

the taxpayer.

Reasons for Change

 

The Committee believes that taxpayers should be allowed to recover

the reasonable administrative costs they incur where the IRS takes a

position against the taxpayer that is not substantially justified,

beginning at the time that the IRS establishes its initial position by

issuing a letter of proposed deficiency which allows the taxpayer an

opportunity for administrative review in the IRS Office of Appeals. In

determining what constitutes reasonable costs, the Committee believes

that either the difficulty of issues or the limited local availability

of tax expertise may justify the payment of higher hourly rates.

The Committee believes that the pro bono publicum representation of

taxpayers should be encouraged and the value of the legal services

rendered in these situations should be recognized. Where the IRS takes

positions that are not substantially justified, it should not be

relieved of its obligation to bear reasonable administrative and

litigation costs because representation was provided the taxpayer on a

pro bono basis.

The Committee is concerned that the IRS may continue to litigate

issues that have previously been decided in favor of taxpayers in other

circuits. The Committee believes that this places an undue burden on

taxpayers that are required to litigate such issues. Accordingly, the

Committee believes it is important that the court take into account

whether the IRS has lost in the courts of appeals of other circuits on

similar issues in determining whether the IRS has taken a position that

is not substantially justified and thus liable for reasonable

administrative and litigation costs.

Explanation of Provision

 

The bill: (1) provides that the difficulty of the issues presented or

the unavailability of local tax expertise can be used to justify an

award of attorney's fees of more than the statutory limit of $110 per

hour; (2) moves the point in time after which reasonable administrative

costs can be awarded to the date on which the first letter of proposed

deficiency which allows the taxpayer an opportunity for administrative

review in the IRS Office of Appeals is sent; (3) permits the award of

attorney's fees (in amounts up to the statutory limit determined to be

appropriate) to specified persons who represent for no more than a

nominal fee a taxpayer who is a prevailing party; and (4) provides that

in determining whether the position of the United States was

substantially justified, the court shall take into account whether the

United States has lost in courts of appeal for other circuits on

substantially similar issues. The court may also take into account

whether the United States has won in courts of appeal for other circuits

on substantially similar issues.

Effective Date

 

The provision applies to costs incurred and services performed more

than 180 days after the date of enactment.

2. Civil Damages for Negligence in Collection Actions (sec.

312 of the bill and sec. 7433 of the Code)

Present Law

 

A taxpayer may sue the United States for up to $1 million of civil

damages caused by an officer or employee of the IRS who recklessly or

intentionally disregards provisions of the Internal Revenue Code or

Treasury regulations in connection with the collection of Federal tax

with respect to the taxpayer.

Reasons for Change

 

The Committee believes that taxpayers should also be able to recover

economic damages they incur as a result of the negligent disregard of

the Code or regulations by an officer or employee of the IRS in

connection with a collection matter.

 

Explanation of Provision

 

The bill provides for up to $100,000 in civil damages caused by an

officer or employee of the IRS who negligently disregards provisions of

the Internal Revenue Code or Treasury regulations in connection with the

collection of Federal tax with respect to the taxpayer. Inadvertent

errors in IRS functions, such as in computer programming, do not trigger

the application of this provision. No person is entitled to seek civil

damages for negligent, reckless, or intentional disregard of the Code or

regulations in a court of law unless he first exhausts his

administrative remedies.

Effective Date

 

The provision is effective with respect to actions of officers or

employees of the IRS occurring after the date of enactment.

3. Increase in Size of Cases Permitted on Small Case

Calendar (sec. 313 of the bill and sec. 7463 of the Code)

Present Law

 

Taxpayers may choose to contest many tax disputes in the Tax Court.

Special small case procedures apply to disputes involving $10,000 or

less, if the taxpayer chooses to utilize these procedures (and the Tax

Court concurs).

Reasons for Change

 

The Committee believes that use of the small case procedures should

be expanded.

Explanation of Provision

 

The bill increases the cap for small case treatment from $10,000 to

$25,000.

Effective Date

 

The provision applies to proceedings commenced after the date of

enactment.

C. RELIEF FOR INNOCENT SPOUSES AND PERSONS WITH DISABILITIES

 

1. Innocent Spouse Relief (sec. 321 of the bill and new sec.

6015 of the Code)

Present law

 

Spouses who file a joint tax return are each fully responsible for

the accuracy of the return and for the full tax liability. This is true

even though only one spouse may have earned the wages or income which is

shown on the return. This is ``joint and several'' liability. A spouse

who wishes to avoid joint liability may file as a ``married person

filing separately.''

Relief from liability for tax, interest and penalties is available

for ``innocent spouses'' in certain limited circumstances. To qualify

for such relief, the innocent spouse must establish: (1) that a joint

return was made; (2) that an understatement of tax, which exceeds the

greater of $500 or a specified percentage of the innocent spouse's

adjusted gross income for the preadjustment (most recent) year, is

attributable to a grossly erroneous item\36\

of the other spouse; (3) that in signing the return, the innocent

spouse did not know, and had no reason to know, that there was an

understatement of tax; and (4) that taking into account all the facts

and circumstances, it is inequitable to hold the innocent spouse liable

for the deficiency in tax. The specified percentage of adjusted gross

income is 10 percent if adjusted gross income is $20,000 or less.

Otherwise, the specified percentage is 25 percent.

\36\Grossly erroneous items include items of gross income that are

omitted from reported income and claims of deductions, credits, or basis

in an amount for which there is no basis in fact of law (code sec.

6013(e)(2)).

It is unclear under present law whether a court may grant partial

innocent spouse relief. The Ninth Circuit Court of Appeals in Wiksell v.

Commissioner \37\

has allowed partial innocent spouse relief where the spouse did not

know, and had no reason to know, the magnitude of the understatement of

tax, even though the spouse knew that the return may have included some

understatement.

\37\90 F.3d 1459 (9th Cir. 1997).

 

The proper forum for contesting a denial by the Secretary of innocent

spouse relief is determined by whether an underpayment is asserted or

the taxpayer is seeking a refund of overpaid taxes. Accordingly, the Tax

Court may not have jurisdiction to review all denials of innocent spouse

relief.

No form is currently provided to assist taxpayers in applying for

innocent spouse relief.

 

Reasons for Change

 

The Committee is concerned that the innocent spouse provisions of

present law are inadequate. The Committee believes it is inappropriate

to limit innocent spouse relief only to the most egregious cases where

the understatement is large and the tax position taken is grossly

erroneous. The Committee also believes that partial innocent spouse

relief should be considered in appropriate circumstances, and that all

taxpayers should have access to the Tax Court in resolving disputes

concerning their status as an innocent spouse. Finally, the Committee

believes that taxpayers need to be better informed of their right to

apply for innocent spouse relief in appropriate cases and that the IRS

is the best source of that information.

Explanation of Provision

 

The bill generally makes innocent spouse status easier to obtain. The

bill eliminates all of the understatement thresholds and requires only

that the understatement of tax be attributable to an erroneous (and not

just a grossly erroneous) item of the other spouse.

The bill provides that innocent spouse relief may be provided on an

apportioned basis. That is, the spouse may be relieved of liability as

an innocent spouse to the extent the liability is attributable to the

portion of an understatement of tax which such spouse did not know of

and had no reason to know of.

The bill specifically provides that the Tax Court has jurisdiction to

review any denial (or failure to rule) by the Secretary regarding an

application for innocent spouse relief. The Tax Court may order refunds

as appropriate where it determines the spouse qualifies for relief and

an overpayment exists as a result of the innocent spouse qualifying for

such relief. The taxpayer must file his or her petition for review with

the Tax Court during the 90-day period that begins on the earlier of (1)

6 months after the date the taxpayer filed his or her claim for innocent

spouse relief with the Secretary or (2) the date a notice denying

innocent spouse relief was mailed by the Secretary. Except for

termination and jeopardy assessments (secs. 6851, 6861), the Secretary

may not levy or proceed in court to collect any tax from a taxpayer

claiming innocent spouse status with regard to such tax until the

expiration of the 90-day period in which such taxpayer may petition the

Tax Court or, if the Tax Court considers such petition, before the

decision of the Tax Court has become final. The running of the statute

of limitations is suspended in such situations with respect to the

spouse claiming innocent spouse status.

The bill also requires the Secretary of the Treasury to develop a

separate form with instructions for taxpayers to use in applying for

innocent spouse relief within 180 days from the date of enactment. An

innocent spouse seeking relief under this provision must claim innocent

spouse status with regard to any assessment not later than two years

after the date of such assessment.

Effective Date

 

The provision is effective for understatements with respect to

taxable years beginning after the date of enactment.

2. Suspension of Statute of Limitations on Filing Refund

Claims During Periods of Disability (sec. 322 of the bill and sec. 6511

of the Code)

Present Law

 

In general, a taxpayer must file a refund claim within three years of

the filing of the return or within two years of the payment of the tax,

whichever period expires later (if no return is filed, the two-year

limit applies) (sec. 6511(a)). A refund claim that is not filed within

these time periods is rejected as untimely.

There is no explicit statutory rule providing for equitable tolling

of the statute of limitations. Several courts have considered whether

equitable tolling implicitly exists. The First, Third, Fourth, and

Eleventh Circuits have rejected equitable tolling with respect to tax

refund claims. The Ninth Circuit has permitted equitable tolling.

However, the U.S. Supreme Court has reversed the Ninth Circuit in U.S.

v. Brockamp, \38\

holding that Congress did not intend the equitable tolling doctrine to

apply to the statutory limitations of section 6511 on the filing of tax

refund claims.

REASONS FOR CHANGE

 

\38\117 S. Ct. 849 (1997), reversing 67 F. 3d 260 and 70 F. 3d 120.

 

The Committee believes that, in cases of severe disability, equitable

tolling should be considered in the application of the statutory

limitations on the filing of tax refund claims.

Explanation of Provision

 

The bill permits equitable tolling of the statute of limitations for

refund claims of an individual taxpayer during any period of the

individual's life in which he or she is unable to manage his or her

financial affairs by reason of a medically determinable physical or

mental impairment that can be expected to result in death or to last for

a continuous period of not less than 12 months. Proof of the existence

of the impairment must be furnished in the form and manner required by

the Secretary. It is anticipated that, in applying the medically

determinable test, the Secretary will evaluate whether a medical opinion

that a physical or mental impairment exists has been offered by a person

qualified to do so with respect to that particular type of impairment.

Tolling does not apply during periods in which the taxpayer's spouse or

another person is authorized to act on the taxpayer's behalf in

financial matters.

Effective Date

 

The provision applies to periods of disability before, on, or after

the date of enactment but would not apply to any claim for refund or

credit which (without regard to the provision) is barred by the statute

of limitations as of January 1, 1998.

 

D. PROVISIONS RELATING TO INTEREST

 

1. Elimination of Interest Differential on Overlapping

Periods of Interest on Income Tax Overpayments and Underpayments (sec.

331 of the bill and sec. 6621 of the Code)

Present Law

 

A taxpayer that underpays its taxes is required to pay interest on

the underpayment at a rate equal to the Federal short term interest rate

plus three percentage points. A special ``hot interest'' rate equal to

the Federal short term interest rate plus five percentage points applies

in the case of certain large corporate underpayments.

A taxpayer that overpays its taxes receives interest on the

overpayment at a rate equal to the Federal short term interest rate plus

two percentage points. In the case of corporate overpayments in excess

of $10,000, this is reduced to the Federal short term interest rate plus

one-half of a percentage point.

If a taxpayer has an underpayment of tax from one year and an

overpayment of tax from a different year that are outstanding at the

same time, the IRS will typically offset the overpayment against the

underpayment and apply the appropriate interest to the resulting net

underpayment or overpayment. However, if either the underpayment or

overpayment have been satisfied, the IRS will not typically offset the

two amounts, but rather will assess or credit interest on the full

underpayment or overpayment at the underpayment or overpayment rate.

This has the effect of assessing the underpayment at the higher

underpayment rate and crediting the overpayment at the lower overpayment

rate. This results in the taxpayer being assessed a net interest charge,

even if the amounts of the overpayment and underpayment are the same.

The Secretary has the authority to credit the amount of any

overpayment against any liability under the Code.\39\

Congress has previously directed the Internal Revenue Service to

consider procedures for ``netting'' overpayments and underpayments and,

to the extent a portion of tax due is satisfied by a credit of an

overpayment, not impose interest.\40\

 

\39\Code sec. 6402

 

\40\Pursuant to TBOR2 (1996), the Secretary conducted a study of the

manner in which the IRS has implemented the netting of interest on

overpayments and underpayments and the policy and administrative

implications of global netting. The legislative history to the General

Agreement on Trade and Tariffs (GATT) (1994) stated that the Secretary

should implement the most comprehensive crediting procedures that are

consistent with sound administrative practice, and should do so as

rapidly as is practicable. A similar statement was included in the

Conference Report to the Omnibus Budget Reconciliation Act of 1990.

Reasons for Change

 

The Committee believes that taxpayers should be charged interest only

on the amount they actually owe, taking into account overpayments and

underpayments from all open years. The Committee does not believe that

the different interest rates provided for overpayments and underpayments

were ever intended to result in the charging of the differential on

periods of mutual indebtedness.

The Committee is also concerned that current practices provide an

incentive to taxpayers to delay the payment of underpayments they do not

contest, so that the underpayments will be available to offset any

overpayments that are later determined. The Committee believes that this

is contrary to sound tax administrative practice and that taxpayers

should not be disadvantaged solely because they promptly pay their tax

bills.

Explanation of Provision

 

The bill establishes a net interest rate of zero on equivalent

amounts of overpayment and underpayment that exist for any period. Each

overpayment and underpayment is to be considered only once in

determining whether equivalent amounts of overpayment and underpayment

exist. The special rules that increase the interest rate paid on large

corporate underpayments and decrease the interest rate received on

corporate underpayments in excess of $10,000 do not prevent the

application of the net zero rate. The bill applies to income taxes and

self-employment taxes.

For example, following an examination of his 1998 return, a corporate

taxpayer is determined to have overpaid its 1998 taxes by $5,000.

Previously, the taxpayer established by an amended return that it had

underpaid its 1999 taxes by $7,000. The taxpayer has paid the 1999

underpayment, plus interest determined at the underpayment rate. The

statute of limitations has not run with respect to either 1998 or 1999.

In determining the amount of the refund owed the taxpayer with regard to

the 1998 overpayment, the period for which the 1999 underpayment was

outstanding must be taken into account. For all periods in which the

underpayment and overpayment run concurrently (i.e., from the due date

of the 1999 return until the underpayment was paid), the interest rate

on the $5,000 overpayment and $5,000 of the underpayment must be the

same so that the net interest rate of zero applies.\41\

The interest rate on the remaining $2,000 of the underpayment that was

originally calculated at the short term Federal rate plus three percent

would not be affected.

\41\In this case, it is assumed that the interest rate on $5,000 of

overpayment will be set equal to the underpayment rate for the period

that both the underpayment and overpayment are outstanding in order to

achieve the required net interest rate of zero. However, the Secretary

may use other procedures or methodologies that he deems appropriate, so

long as a zero net interest rate is achieved.

 

Effective Date

 

The provision applies to interest for calendar quarters beginning

after the date of enactment. Until such time as procedures are

implemented that allow for the automatic application of this provision

by the IRS, the Committee expects that the Secretary will promptly and

carefully consider any taxpayer's request to have interest charges

recalculated in accordance with this provision. It is expected that the

Secretary will extend the statute of limitations where necessary to

allow for the consideration of such requests.

In light of past Congressional statements urging the Secretary to

eliminate interest rate differentials in these circumstances, and taking

into consideration Congress' belief that the Secretary may do so, the

Committee continues to expect that the Secretary will implement the most

comprehensive crediting procedures that are consistent with sound

administrative practice, and not only those affected by this provision.

2. Increase in Overpayment Rate Payable to Taxpayers Other

than Corporations (sec. 332 of the bill and sec. 6621 of the Code)

Present Law

 

A taxpayer that underpays its taxes is required to pay interest on

the underpayment at a rate equal to the Federal short-term interest rate

(AFR) plus three percentage points. A taxpayer that overpays its taxes

receives interest on the overpayment at a rate equal to the Federal

short-term interest rate (AFR) plus two percentage points.

Reasons for Change

 

The Committee believes that the interest differential for

noncorporate taxpayers should be eliminated.

Explanation of Provision

 

The bill provides that the overpayment interest rate will be AFR plus

three percentage points, except that for corporations, the rate will

remain at AFR plus two percentage points.

Effective Date

 

The provision applies to interest for calendar quarters beginning

after the date of enactment.

E. PROTECTIONS FOR TAXPAYERS SUBJECT TO AUDIT OR COLLECTION

 

1. Privilege of Confidentiality Extended to Taxpayer's

Dealings with Non-attorneys Authorized to Practice Before IRS (sec. 341

of the bill and sec. 7602 of the Code)

Present Law

 

A common law privilege of confidentiality exists for communications

between an attorney and client with respect to the legal advice the

attorney gives the client. Communications protected by the

attorney-client privilege must be based on facts of which the attorney

is informed by the taxpayer, without the presence of strangers, for the

purpose of securing the advice of the attorney. The privilege may not be

claimed where the purpose of the communication is the commission of a

crime or tort. The taxpayer must be, or be seeking to become, a client

of the attorney.

The privilege of confidentiality applies only where the attorney is

advising the client on legal matters. It does not apply in situations

where the attorney is acting in other capacities. Thus, a taxpayer may

not claim the benefits of the attorney-client privilege simply by hiring

an attorney to perform some other function. For example, if an attorney

is retained to prepare a tax return, the attorney-client privilege will

not automatically apply to communications and documents generated in the

course of preparing the return. The privilege of confidentiality also

does not apply where an attorney that is licensed to practice another

profession is performing such other profession. For example, if a

taxpayer retains an attorney who is also licensed as a certified public

accountant (CPA), the taxpayer may not assert the attorney-client

privilege with regard to communications made and documents prepared by

the attorney in his role as a CPA.

The attorney-client privilege is limited to communications between

taxpayers and attorneys. No equivalent privilege is provided for

communications between taxpayers and other professionals authorized to

practice before the Internal Revenue Service, such as accountants or

enrolled agents.

Reasons for Change

 

The Committee believes that a right to privileged communications

between a taxpayer and his or her advisor should be available in

noncriminal proceedings before the Internal Revenue Service, so long as

the advisor is authorized to practice before the Internal Revenue

Service. A right to privileged communications in such situations should

not depend upon whether the advisor is also licensed to practice law.

The Committee believes that it is appropriate to provide for this right

within the Committee's jurisdiction, by applying it to noncriminal

proceedings before the IRS.

 

Explanation of Provision

 

The bill extends the present law attorney-client privilege of

confidentiality to tax advice that is furnished by any individual who is

authorized to practice before the Internal Revenue Service, acting in a

manner consistent with State law for such individual's profession, to a

client-taxpayer (or potential client-taxpayer) in any noncriminal

proceeding before the Internal Revenue Service.

The provision will allow taxpayers to consult with other qualified

tax advisors in the same manner they currently may consult with tax

advisors that are licensed to practice law. The provision does not

modify the attorney-client privilege. Accordingly, except for criminal

proceedings, the privilege of confidentiality under this provision

applies in the same manner and with the same limitations as the

attorney-client privilege of present law. The provision does not extend

the privilege of confidentiality to communications that would not be

eligible for the privilege if prepared by an attorney.

The provision applies to individuals authorized to practice before

the Internal Revenue Service, regardless of the method pursuant to which

they are so authorized. Some, such as accountants, are authorized to

practice by fulfilling State licensing requirements. Others, such as

enrolled agents and enrolled actuaries, are authorized to practice by

passing a Treasury Department examination.

Effective Date

 

The provision is effective on the date of enactment.

 

2. Expansion of Authority to Issue Taxpayer Assistance

Orders (sec. 342 of the bill and sec. 7811 of the Code)

Present Law

 

Taxpayers can request that the Taxpayer Advocate in the Internal

Revenue Service (''IRS'') issue a taxpayer assistance order (``TAO'') if

they are suffering or about to suffer a significant hardship as a result

of the manner in which the internal revenue laws are being administered

(sec. 7811). A TAO may require the IRS to release property of the

taxpayer that has been levied upon, or to cease any action, take any

action as permitted by law, or refrain from taking any action with

respect to the taxpayer.

Reasons for Change

 

The Committee believes that certain factors should generally be

considered by the Taxpayer Advocate in determining whether a taxpayer

assistance order should be issued.

Explanation of Provision

 

The bill provides that in determining whether to issue a TAO, the

Taxpayer Advocate shall consider, among others, the following four

factors: (1) whether there is an immediate threat of adverse action; (2)

whether there has been an unreasonable delay in resolving the taxpayer's

account problems; (3) whether the taxpayer will have to pay significant

costs (including fees for professional representation) if relief is not

granted; and (4) whether the taxpayer will suffer irreparable injury, or

a long-term adverse impact, if relief is not granted. In addition, in

cases where an IRS employee to whom the order would be issued is not

following applicable published administrative guidance, including the

Internal Revenue Manual (``IRM''), the Taxpayer Advocate shall construe

the factors taken into account in determining whether to issue a TAO in

the manner most favorable to the taxpayer.

Effective Date

 

The provision is effective on the date of enactment.

 

3. Limitation on Financial Status Audit Techniques (sec. 343

of the bill and sec. 7602 of the Code)

Present Law

 

The IRS examines Federal tax returns to determine the correct

liability of taxpayers. The IRS selects returns to be audited in a

number of ways, such as through a computerized classification system

(the discriminant function (``DIF'') system).

Reasons for Change

 

The Committee believes that financial status audit techniques are

intrusive, and that their use should be limited to situations where the

IRS already has indications of unreported income.

Explanation of Provision

 

The bill prohibits IRS from using financial status or economic

reality examination techniques to determine the existence of unreported

income of any taxpayer unless the IRS has a reasonable indication that

there is a likelihood of unreported income.

Effective Date

 

The provision is effective on the date of enactment.

 

 

4. Limitation on Authority to Require Production of Computer

Source Code (sec. 344 of the bill and sec. 7602 of the Code)

Present Law

 

The Secretary of the Treasury is authorized to examine any books,

papers, records, or other data that may be relevant or material to an

inquiry into the correctness of any Federal tax return. The Secretary

may issue and serve summonses necessary to obtain such data, including

summonses on certain third-party record keepers. There are no specific

statutory restrictions on the ability of the Secretary to demand the

production of computer records, programs, code or similar materials.

Reasons for Change

 

The Committee believes that the intellectual property rights of the

developers and owners of computer programs should be respected and is

concerned that the examination of third-party tax-related computer

source code by the IRS could lead to the diminution of those rights

through the inadvertent disclosure of trade secrets. The Committee also

believes that the indiscriminate examination of computer source code by

the IRS to identify issues on a taxpayer's return would be

inappropriate. Accordingly, the Committee believes that a summons for

the production of third-party tax-related computer source code should

only be issued where the IRS has not otherwise been able to ascertain

through reasonable efforts the manner in which a taxpayer has arrived at

the entry on a return and has identified with specificity the portion of

the computer source code it seeks to examine.

Explanation of Provision

 

The Secretary is generally prohibited from issuing (or beginning an

action to enforce) a summons in a civil action for any portion of any

third-party tax-related computer source code unless (1) the Secretary is

unable to otherwise reasonably ascertain the correctness of an item on a

return from the taxpayer's other books, papers, records, other data, or

the computer software program and associated data itself and (2) the

Secretary first identifies with reasonable specificity the portion of

the computer source code to be used to verify the correctness of the

item.

The Secretary would be considered to have satisfied these

requirements with regard to the identified portion of the source code if

the Secretary makes a formal request for such materials to both the

taxpayer and the owner or developer of the software that is not

satisfied within 90 days. Such formal request must clearly state that

one of the consequences of failure to respond to the request will be the

waiver of any prohibition on the summons of tax-related computer source

code that might otherwise apply.

The Secretary's determination that the identified portion of the

third-party tax-related computer source code may be summoned may be

contested in any proceeding to enforce the summons, by any person to

whom the summons is addressed. For this purpose, the special procedures

for third-party summonses\42\

will apply. In any such proceeding, the court may issue any order that

is necessary to prevent the disclosure of trade secrets or other

confidential information.

\42\Sec. 7609

 

For these purposes, tax-related computer source code includes the

human readable instructions for any computer software program that is

used for accounting, tax return preparation, tax compliance or tax

planning, along with the design and development materials related to

such software program, including any relevant program notes and

memoranda.

The prohibition on issuing summons for tax-related computer source

code does not apply in connection with any inquiry into any offense

connected with the administration or enforcement of the internal revenue

laws. A computer software program will not be treated as tax advice for

the purpose of the professional-client privilege contained in section

341 of this bill.

The prohibition applies only in the case of tax-related computer

software that is intended for commercial distribution. Source code

related to computer software that was developed by, or primarily for the

benefit of, the taxpayer or a related person (within the meaning of

section 267 or 707(b)) for the internal use of the taxpayer or such

related person may continue to be summonsed by the Secretary to the

extent allowed under present law.

Effective Date

 

The provision is effective for summonses issued more than 90 days

after the date of enactment. It is expected that the Secretary will not

use the 90 day period between the date of enactment and the effective

date in a manner that would circumvent the intent of the provision.

5. Procedures Relating to Extensions of Statute of

Limitations by Agreement (sec. 345 of the bill and sec. 6501 of the

Code)

Present Law

 

The statute of limitations within which the IRS may assess additional

taxes is generally three years from the date a return is filed (sec.

6501).\43\

Prior to the expiration of the statute of limitations, both the

taxpayer and the IRS may agree in writing to extend the statute, using

Form 872 or 872-A. An extension may be for either a specified period or

an indefinite period. The statute of limitations within which a tax may

be collected after assessment is 10 years after assessment (sec. 6502).

Prior to the expiration of the statute of limitations, both the taxpayer

and the IRS may agree in writing to extend the statute, using Form 900.

\43\For this purpose, a return filed before the due date is considered

to be filed on the due date.

 

Reasons for Change

 

The Committee believes that taxpayers should be fully informed of

their rights with respect to the statute of limitations.

Explanation of Provision

 

The bill requires that, on each occasion on which the taxpayer is

requested by the IRS to extend the statute of limitations, the IRS must

notify the taxpayer of the taxpayer's right to refuse to extend the

statute of limitations or to limit the extension to particular issues.

Effective Date

 

The provision applies to requests to extend the statute of

limitations made after the date of enactment.

6. Offers-in-Compromise (sec. 346 of the bill and sec. 7122

of the Code)

Present Law

 

Section 7122 of the Code permits the IRS to compromise a taxpayer's

tax liability. In general, this occurs when a taxpayer submits an

offer-in-compromise to the IRS. An offer-in-compromise is a proposal to

settle unpaid tax accounts for less than the full amount of the assessed

balance due. An offer-in-compromise may be submitted for all types of

taxes, as well as interest and penalties, arising under the Internal

Revenue Code.

Taxpayers submit an offer-in-compromise on Form 656. There are two

bases on which an offer can be made. The first is doubt as to the

liability for the amount owed. The second is doubt as to the taxpayer's

ability fully to pay the amount owed. An application can be made on

either or both of these grounds. Taxpayers are required to submit

background information to the IRS substantiating their application. If

they are applying on the basis of doubt as to the taxpayer's ability

fully to pay the amount owed, the taxpayer must complete a financial

disclosure form enumerating assets and liabilities.

As part of an offer-in-compromise made on the basis of doubt as to

ability fully to pay, taxpayers must agree to comply with all provisions

of the Internal Revenue Code relating to filing returns and paying taxes

for five years from the date the IRS accepts the offer. Failure to

observe this requirement permits the IRS to begin immediate collection

actions for the original amount of the liability.

Reasons for Change

 

The Committee believes that taxpayers should be fully informed of the

offer-in-compromise procedures, including the responsibilities created

by those procedures. In determining whether there is doubt as to the

taxpayer's ability fully to pay the amount owed, the Committee believes

that the Secretary should take into consideration a taxpayer's need to

provide for the basic living expenses of his or her family, based on the

cost of living in the taxpayer's locality.

Explanation of Provision

 

The bill requires the IRS to develop and publish schedules of

national and local allowances designed to provide taxpayers entering

into an offer-in-compromise with adequate means to provide for basic

living expenses. The bill also provides that, in the case of a

compromise agreement that is terminated due to the actions of one spouse

or former spouse, the spouse or former spouse remaining in compliance

with the agreement may obtain reinstatement of such agreement on

application. All payments required under the offer-in-compromise must be

current for either spouse or former spouse to be in compliance with the

agreement. Finally, the bill requires the IRS to prepare a publication

or statement providing guidance to taxpayers on the rights and

obligations of taxpayers and the IRS relating to offers in compromise.

This statement will include materials explaining to married taxpayers

their responsibilities should their marital status change and

instructions for applying to have an offer-in-compromise reinstated

under the circumstances discussed above. It is expected that this

publication or statement will be provided to taxpayers considering an

offer in compromise at appropriate times.

Effective Date

 

The provision is effective on the date of enactment. It is expected

that the materials required by this provision will be published as soon

as practicable, but no later than 180 days after the date of enactment.

It is expected that offers-in-compromise based on this provision will be

available as of the date of enactment.

7. Notice of Deficiency to Specify Deadlines for Filing Tax

Court Petition (sec. 347 of the bill and sec. 6213 of the Code)

Present Law

 

Taxpayers must file a petition with the Tax Court within 90 days

after the deficiency notice is mailed (150 days if the person is outside

the United States) (sec. 6213). If the petition is not filed within that

time period, the Tax Court does not have jurisdiction to consider the

petition.

 

Reasons for Change

 

The Committee believes that taxpayers should receive assistance in

determining the time period within which they must file a petition in

the Tax Court and that taxpayers should be able to rely on the

computation of that period by the IRS.

Explanation of Provision

 

The bill requires that the IRS include on each deficiency notice the

date determined by the IRS as the last day on which the taxpayer may

file a petition with the Tax Court. It is expected that the last day on

which a taxpayer who is outside the United States may file a petition

with the Tax Court will be shown as an alternative. The bill provides

that a petition filed with the Tax Court by this date shall be treated

as timely filed.

Effective Date

 

The provision would apply to notices mailed after December 31, 1998.

 

8. Refund or Credit of Overpayments Before Final

Determination (sec. 348 of the bill and sec. 6213 of the Code)

Present Law

 

A taxpayer may petition the Tax Court for a redetermination of a

deficiency within 90 days (150 days if the notice is addressed to a

person outside the United States) from the date the notice of deficiency

is mailed by the IRS. Generally, the Secretary may not make any

assessment or commence any levy or other proceeding to collect the

deficiency during such period or, if the taxpayer petitions the Tax

Court, until the decision of the Tax Court has become final. The making

of any such assessment, or the commencing of any proceeding or levy,

during the prohibited period may be enjoined by a proceeding in the

proper court (including the Tax Court). However, no authority is

provided for ordering the refund of any amount collected within the

prohibited period.

If a taxpayer contests a deficiency in the Tax Court, no credit or

refund of income tax for the contested taxable year generally may be

made, except in accordance with a decision of the Tax Court that has

become final. Where the Tax Court determines that an overpayment has

been made and a refund is due the taxpayer, and a party appeals a

portion of the decision of the Tax Court, no provision exists for the

refund of any portion of any overpayment that is not contested in the

appeal.

Reasons for Change

 

The Committee believes that the Secretary should be allowed to refund

the uncontested portion of an overpayment of taxes, without regard to

whether other portions of the overpayment are contested.

Explanation of Provision

 

The bill provides that where a timely petition in respect of a

deficiency is filed in the Tax Court, the proper court (including the

Tax Court) may order a refund of any amount that was collected within

the period during which the Secretary is prohibited from collecting the

deficiency by levy or other proceeding.

The bill also allows the refund of that portion of any overpayment

determined by the Tax Court to the extent the overpayment is not

contested on appeal.

Effective Date

 

The provision applies on the date of enactment.

 

9. Threat of Audit Prohibited to Coerce Tip Reporting

Alternative Commitment Agreements (sec. 349 of the bill)

Present Law

 

Restaurants may enter into Tip Reporting Alternative Commitment

(TRAC) agreements. A restaurant entering into a TRAC agreement is

obligated to educate its employees on their tip reporting obligations,

to institute formal tip reporting procedures, to fulfill all filing and

record keeping requirements, and to pay and deposit taxes. In return,

the IRS agrees to base the restaurant's liability for employment taxes

solely on reported tips and any unreported tips discovered during an IRS

audit of an employee.

Reasons for Change

 

The Committee believes that it is inappropriate for the Secretary to

use the threat of an Internal Revenue Service audit to induce

participation in voluntary programs.

Explanation of Provision

 

The bill requires the IRS to instruct its employees that they may not

threaten to audit any taxpayer in an attempt to coerce the taxpayer to

enter into a TRAC agreement.

Effective Date

 

The provision is effective on the date of enactment.

 

 

F. DISCLOSURES TO TAXPAYERS

 

1. Explanation of Joint and Several Liability (sec. 351 of the bill)

 

Present Law

 

In general, spouses who file a joint tax return are each fully

responsible for the accuracy of the tax return and for the full

liability. This is true even though only one spouse may have earned the

wages or income which is shown on the return. This is ``joint and

several'' liability. Spouses who wish to avoid joint and several

liability may file as a married person filing separately. Special rules

apply in the case of innocent spouses pursuant to section 6013(e).

Reasons for Change

 

The Committee believes that married taxpayers need to clearly

understand the legal implications of signing a joint return and that it

is appropriate for the IRS to provide the information necessary for that

understanding.

Explanation of Provision

 

The bill requires that, no later than 180 days after the date of

enactment, the IRS must establish procedures clearly to alert married

taxpayers of their joint and several liability on all appropriate tax

publications and instructions. It is anticipated that the IRS will make

an appropriate cross-reference to these statements near the signature

line on appropriate tax forms.

Effective Date

 

The bill requires that the procedures be established as soon as

practicable, but no later than 180 days after the date of enactment.

2. Explanation of Taxpayers' Rights in Interviews With the

IRS (sec. 352 of the bill)

Present Law

 

Prior to or at initial in-person audit interviews, the IRS must

explain to taxpayers the audit process and taxpayers' rights under that

process (sec. 7521). In addition, prior to or at initial in-person

collection interviews, the IRS must explain the collection process and

taxpayers' rights under that process. If a taxpayer clearly states

during an interview with the IRS that the taxpayer wishes to consult

with the taxpayers' representative, the interview must be suspended to

afford the taxpayer a reasonable opportunity to consult with the

representative.

Reasons for Change

 

The Committee believes that taxpayers should be more fully informed

of their rights to representation in dealings with the IRS and that

those rights should be respected.

Explanation of Provision

 

The bill requires that the IRS rewrite Publication 1 (``Your Rights

as a Taxpayer'') to more clearly inform taxpayers of their rights (1) to

be represented by a representative and (2) if the taxpayer is so

represented, that the interview may not proceed without the presence of

the representative unless the taxpayer consents.

Effective Date

 

The addition to Publication 1 must be made not later than 180 days

after the date of enactment.

3. Disclosure of Criteria for Examination Selection (sec.

353 of the bill)

Present Law

 

The IRS examines Federal tax returns to determine the correct

liability of taxpayers. The IRS selects returns to be audited in a

number of ways, such as through a computerized classification system

(the discriminant function (``DIF'') system).

Reasons for Change

 

The Committee believes it is important that taxpayers understand the

reasons they may be selected for examination.

Explanation of Provision

 

The bill requires that IRS add to Publication 1 (``Your Rights as a

Taxpayer'') a statement which sets forth in simple and nontechnical

terms the criteria and procedures for selecting taxpayers for

examination. The statement must not include any information the

disclosure of which would be detrimental to law enforcement. The

statement must specify the general procedures used by the IRS, including

whether taxpayers are selected for examination on the basis of

information in the media or from informants. Drafts of the statement or

proposed revisions to the statement are required to be submitted to the

House Committee on Ways and Means, the Senate Committee on Finance, and

the Joint Committee on Taxation.

Effective Date

 

The addition to Publication 1 must be made not later than 180 days

after the date of enactment.

4. Explanations of Appeals and Collection Process (sec. 354

of the bill)

Present Law

 

There is no statutory requirement that specific notices be given to

taxpayers along with the first letter of proposed deficiency that allows

the taxpayer an opportunity for administrative review in the IRS Office

of Appeals.

Reasons for Change

 

The Committee believes it is important that taxpayers understand they

have a right to have any assessment reviewed by the IRS Office of

Appeals, as well as be informed of the steps they must take to obtain

that review.

Explanation of Provision

 

The bill requires that, no later than 180 days after the date of

enactment, an explanation of the appeals process and the collection

process be provided with the first letter of proposed deficiency that

allows the taxpayer an opportunity for administrative review in the IRS

Office of Appeals.

Effective Date

 

The bill requires that the explanation be included as soon as

practicable, but no later than 180 days after the date of enactment.

 

G. LOW-INCOME TAXPAYER CLINICS

 

(SEC. 361 OF THE BILL AND NEW SEC. 7525 OF THE CODE)

 

Present Law

 

There are no provisions in present law providing for assistance to

clinics that assist low-income taxpayers.

Reasons for Change

 

The Committee believes that the provision of tax services by

accredited nominal fee clinics to low-income individuals and those for

whom English is a second language will improve compliance with the

Federal tax laws and should be encouraged.

Explanation of Provision

 

The Secretary shall make matching grants for the development,

expansion, or continuation of certain low-income taxpayer clinics.

Eligible clinics are those that charge no more than a nominal fee to

either represent low-income taxpayers in controversies with the IRS or

provide tax information to individuals for whom English is a second

language. The term ``clinic'' includes (1) a clinical program at an

accredited law school in which students represent low-income taxpayers,

and (2) an organization exempt from tax under Code section 501(c) which

either represents low-income taxpayers or provides referral to qualified

representatives.

A clinic is treated as representing low-income taxpayers if at least

90 percent of the taxpayers represented by the clinic have incomes which

do not exceed 250 percent of the poverty level and amounts in

controversy of $25,000 or less.

The aggregate amount of grants to be awarded each year is limited to

$3,000,000. No taxpayer clinic could receive more than $100,000 per

year. The clinic must provide matching funds on a dollar-for-dollar

basis. Matching funds may include the allocable portion of both the

salary (including fringe benefits) of individuals performing services

for the clinic and clinic equipment costs, but not general institutional

overhead.

The following criteria are to be considered in making awards: (1)

number of taxpayers served by the clinic, including the number of

taxpayers in the geographical area for whom English is a second

language; (2) the existence of other taxpayer clinics serving the same

population; (3) the quality of the program; and (4) alternative funding

sources available to the clinic.

Effective Date

 

The provision is effective on the date of enactment.

 

H. OTHER TAXPAYER RIGHTS PROVISIONS

 

1. Actions for Refund with respect to Certain Estates which

have Elected the Installment Method of Payment (sec. 371 of the bill and

sec. 7422 of the Code)

Present Law

 

In general, the U.S. Court of Federal Claims and the U.S. district

courts have jurisdiction over suits for the refund of taxes, as long as

full payment of the assessed tax liability has been made. Flora v.

United States, 357 U.S. 63 (1958), aff'd on reh'g, 362 U.S. 145 (1960).

Under Code section 6166, if certain conditions are met, the executor of

a decedent's estate may elect to pay the estate tax attributable to

certain closely-held businesses over a 14-year period. Courts have held

that U.S. district courts and the U.S. Court of Federal Claims do not

have jurisdiction over claims for refunds by taxpayers deferring estate

tax payments pursuant to section 6166 unless the entire estate tax

liability has been paid (i.e., timely payment of the installments due

prior to the bringing of an action is not sufficient to invoke

jurisdiction). See, e.g., Rocovich v. United States, 933 F.2d 991 (Fed.

Cir. 1991), Abruzzo v. United States, 24 Ct. Cl. 668 (1991).

Reasons for Change

 

The Committee believes that the refund jurisdiction of the U.S. Court

of Federal Claims and the U.S. district courts should apply without

regard to whether the taxpayer has elected, and the Secretary accepted,

the payment of that tax in installments.

Explanation of Provision

 

The bill grants the U.S. Court of Federal Claims and the U.S.

district courts jurisdiction to determine the correct amount of estate

tax liability (or for any refund) in actions brought by taxpayers

deferring estate tax payments under section 6166, as long as certain

conditions are met. In order to qualify for the provision, the estate

must have made an election pursuant to section 6166, fully paid each

installment of principal and/or interest due before the date the suit is

filed (as long as one or more installments are not yet due), and no

portion of the payments due may have been accelerated. The bill further

provides that once a final judgment has been entered by a district court

or the U.S. Court of Federal Claims, the IRS would not be permitted to

collect any amount disallowed by the court, and any amounts paid by the

taxpayer in excess of the amount the court finds to be currently due and

payable would be refunded to the taxpayer. Lastly, the bill provides

that the 2-year statute of limitations for filing a refund action would

be suspended during the pendency of any action brought by a taxpayer

pursuant to section 7479 for a declaratory judgment as to an estate's

eligibility for section 6166.

Effective Date

 

The provision is effective for claims for refunds filed after the

date of enactment.

 

2. Cataloging Complaints (sec. 372 of the bill)

 

Present Law

 

The IRS is required to make an annual report to the Congress,

beginning in 1997, on all categories of instances involving allegations

of misconduct by IRS employees, arising either from internally

identified cases or from taxpayer or third-party initiated

complaints.\44\

The report must identify the nature of the misconduct or complaint, the

number of instances received by category, and the disposition of the

complaints.

\44\Section 1211 of the Taxpayer Bill of Rights 2 (Public Law 104 168;

July 30, 1996).

Reasons for Change

 

The Committee believes that all allegations of misconduct by IRS

employees must be carefully investigated. The Committee also believes

that the annual report to Congress will help develop a public perception

that the IRS takes such allegations of misconduct seriously. The

Committee is concerned that, in the absence of records detailing

taxpayer complaints of misconduct on an individual employee basis, the

IRS will not be able to adequately investigate such allegations or

properly prepare the required report.

Explanation of Provision

 

The bill requires that, in collecting data for this report, records

of taxpayer complaints of misconduct by IRS employees shall be

maintained on an individual employee basis. These individual records are

not to be listed in the report, but they will be useful in preparing the

report. The Committee intends that these records be used in evaluating

individual employees.

Effective Date

 

The requirement is effective on the date of enactment.

 

3. Archive of Records of the IRS (sec. 373 of the bill and

sec. 6103 of the Code)

Present Law

 

The IRS is obligated to transfer agency records to the National

Archives and Records Administration (``NARA'') for retention or

disposal. The IRS is also obligated to protect confidential taxpayer

records from disclosure. These two obligations have created conflict

between NARA and the IRS. Under present law, the IRS determines whether

records contain taxpayer information. Once the IRS has made that

determination, NARA is not permitted to examine those records. NARA has

expressed concern that the IRS may be using the disclosure prohibition

to improperly conceal agency records with historical significance.

IRS obligation to archive records

 

The IRS, like all other Federal agencies, must create, maintain, and

preserve agency records in accordance with section 3101 of title 44 of

the United States Code. NARA is the Government agency responsible for

overseeing the management of the records of the Federal government.\45\

Federal agencies are required to deposit significant and historical

records with NARA.\46\

The head of each Federal agency must also establish safeguards against

the removal or loss of records.\47\

 

\45\44 U.S.C. sec. 2904.

 

\46\5 U.S.C. sec. 552a(b)(6).

 

\47\44 U.S.C. sec. 3105.

 

Authority of NARA

 

NARA is authorized, under the Federal Records Act, to establish

standards for the selective retention of records of continuing

value.\48\

NARA has the statutory authority to inspect records management

practices of Federal agencies and to make recommendations for

improvement.\49\

The head of each Federal agency must submit to NARA a list of records

to be destroyed and a schedule for such destruction.\50\

NARA examines the list to determine if any of the records on the list

have sufficient administrative, legal research, or other value to

warrant their continued preservation. In many cases, the description of

the record on the list is sufficient for NARA to make the determination.

For example, NARA does not need to inspect Presidential tax returns to

determine that they have historical value and should be retained. In

some cases, NARA may find it helpful to examine a particular record.

NARA has general authority to inspect records solely for the purpose of

making recommendations for the improvement of records management

practices.\51\

However, tax returns and return information can only be disclosed under

the authority provided in section 6103 of the Internal Revenue Code.

There is no exception to the disclosure prohibition for records

management inspection by NARA.\52\

 

\48\44 U.S.C. sec. 2905.

 

\49\44 U.S.C. sec. 2904(c)(7).

 

\50\44 U.S.C. sec. 3303.

 

\51\44 U.S.C. sec. 2906.

 

\52\ American Friends Service Committee v. Webster, 720 F.2d 29 (D.C.

Cir. 1983).

 

In connection with its evaluation of the records management system of

the IRS, NARA noted several instances where the disclosure prohibitions

of Code section 6103 complicated their review of many IRS records.

NARA is also responsible for the custody, use and withdrawal of

records transferred to it.\53\

Statutory provisions that restrict public access to the records in the

hands of the agency from which the records were transferred also apply

to NARA. Thus, if a confidential record, such as a Presidential tax

return, is transferred to NARA for archival storage, NARA is not

permitted to disclose it. In general, the application of such

restrictions to records in the hands of NARA expire after the records

have been in existence for 30 years.\54\

The issue of whether the specific disclosure prohibition of section

6103 takes precedence over the general 30-year expiration of

restrictions generally applicable to records in the hands of NARA has

not been addressed by a court, but an informal advisory opinion from the

Office of Legal Counsel of the Attorney General concluded that the

30-year expiration provision would not reach records subject to section

6103.\55\

 

\53\44 U.S.C. sec. 2108.

 

\54\44 U.S.C. sec. 2108.

 

\55\Department of Justice, Office of Legal Counsel, Memorandum to

Richard K. Willard, Assistant Attorney General (Civil Division)

(February 27, 1986).

Confidentiality requirements

 

The IRS must preserve the confidentiality of taxpayer information

contained in Federal income tax returns. Such information may not be

disclosed except as authorized under Code section 6103. Section 6103 was

substantially revised in 1976 to address Congress' concern that tax

information was being used by Federal agencies in pursuit of objectives

unrelated to administration and enforcement of the tax laws. Congress

believed that the wide-spread use of tax information by agencies other

than the IRS could adversely affect the willingness of taxpayers to

comply voluntarily with the tax laws and could undermine the country's

self-assessment tax system.\56\

Section 6103 does not authorize the disclosure of confidential return

information to NARA.

\56\S. Rept. 94 938, p. 317 (1976).

 

Section 6103 restricts the disclosure of returns and return

information only. Return means any tax or information return,

declaration of estimated tax, or claim for refund, including schedules

and attachments thereto, filed with the IRS. Return information includes

the taxpayer's name; nature and source or amount of income; and whether

the taxpayer's return is under investigation. Section 6103(b)(2)

provides that ``nothing in any other provision of law shall be construed

to require the disclosure of standards used or to be used for the

selection of returns for examination, or data used or to be used for

determining such standards, if the Secretary determines that such

disclosure will seriously impair assessment, collection, or enforcement

under the internal revenue laws.'' Section 6103 does not restrict the

disclosure of other records required to be maintained by the IRS, such

as records documenting agency policy, programs and activities, and

agency histories. Such records are required to be made available to the

public under the Freedom of Information Act (``FOIA'').\57\

 

\57\FOIA does not require disclosure of records or information that

would frustrate law enforcement efforts. 5 U.S.C. sec. 552(b)(7).

The Internal Revenue Code prohibits disclosure of tax returns and

return information, except to the extent specifically authorized by the

Internal Revenue Code (sec. 6103). Unauthorized disclosure is a felony

punishable by a fine not exceeding $5,000 or imprisonment of not more

than five years, or both (sec. 7213). An action for civil damages also

may be brought for unauthorized disclosure (sec. 7431).

Reasons for Change

 

The Committee believes that it is appropriate to permit disclosure to

NARA for purposes of scheduling records for destruction or retention,

while at the same time preserving the confidentiality of taxpayer

information in those documents.

Explanation of Provision

 

The bill provides an exception to the disclosure rules to require IRS

to disclose IRS records to officers or employees of NARA, upon written

request from the Archivist, for purposes of the appraisal of such

records for destruction or retention in the National Archives. The

present-law prohibitions on and penalties for disclosure of tax

information will generally apply to NARA.

Effective Date

 

The provision is effective for requests made by the Archivist after

the date of enactment.

4. Payment of Taxes (sec. 374 of the bill)

 

Present Law

 

The Code provides that it is lawful for the Secretary to accept

checks or money orders as payment for taxes, to the extent and under the

conditions provided in regulations prescribed by the Secretary (sec.

6311). Those regulations\58\

state that checks or money orders should be made payable to the

Internal Revenue Service.

\58\Treas. Reg. Sec. 301.6311 1(a)(1).

 

 

Reasons for Change

 

The Committee believes that it more appropriate that checks be made

payable to the United States Treasury.

Explanation of Provision

 

The bill requires the Secretary or his delegate to establish such

rules, regulations, and procedures as are necessary to allow payment of

taxes by check or money order to be made payable to the United States

Treasury.

Effective Date

 

The provision is effective on the date of enactment.

 

5. Clarification of Authority of Secretary Relating to the

Making of Elections (sec. 375 of the bill and sec. 7805 of the Code)

Present Law

 

Except as otherwise provided, elections provided by the Code are to

be made in such manner as the Secretary shall by regulations or forms

prescribe.

Reasons for Change

 

The Committee wishes to eliminate any confusion over the type of

guidance in which the Secretary may prescribe the manner of making any

election.

Explanation of Provision

 

The provision clarifies that, except as otherwise provided, the

Secretary may prescribe the manner of making of any election by any

reasonable means.

Effective Date

 

The provision is effective as of the date of enactment.

 

6. Limitation on Penalty on Individual's Failure to Pay for

Months During Period of Installment Agreement (sec. 376 of the bill and

sec. 6651 of the Code)

Present Law

 

Taxpayers who fail to pay their taxes are subject to a penalty of

one-half percent per month on the unpaid amount, up to a maximum of 25

percent (sec. 6651(a)). Taxpayers who make installment payments pursuant

to an agreement with the IRS (under sec. 6159) are also subject to this

penalty.

Reasons for Change

 

The Committee believes that it is inappropriate to apply the full

penalty for failure to pay taxes to taxpayers who are in fact paying

their taxes through an installment agreement.

Explanation of Provision

 

The bill provides that the penalty for failure to pay taxes is not

imposed with respect to the tax liability of an individual with respect

to any month in which an installment payment agreement with the IRS

(under sec. 6159) is in effect to the extent that doing so would result

in the cumulative penalty percentage exceeding 9.5 percent (instead of

25 percent).

Effective Date

 

The provision is effective for installment agreement payments made

after the date of enactment.

I. STUDIES

 

1. Study of Penalty Administration (sec. 381 of the bill)

 

Present Law

 

The last major revision of the overall penalty structure in the

Internal Revenue Code was the Improved Penalty Administration and

Compliance Tax Act, part of the Omnibus Budget Reconciliation Act of

1989.\59\

 

\59\Subtitle G of Title 7 of the Omnibus Budget Reconciliation Act of

1989 (Public Law 101 239).

Reasons for Change

 

The Committee believes that it is appropriate to undertake a study of

penalty administration, which will permit the Committee whether the

current penalty structure could be improved.

Explanation of Provision

 

The bill requires the Joint Committee on Taxation to conduct a study

reviewing the administration and implementation of the penalty reform

provisions of the Omnibus Budget Reconciliation Act of 1989, and making

any legislative and administrative recommendations it deems appropriate

to simplify penalty administration and reduce taxpayer burden.

Effective Date

 

The report must be provided not later than nine months after the date

of enactment.

2. Study of Confidentiality of Tax Return Information (sec.

382 of the bill)

Present Law

 

The Internal Revenue Code prohibits disclosure of tax returns and

return information, except to the extent specifically authorized by the

Internal Revenue Code (sec. 6103). Unauthorized disclosure is a felony

punishable by a fine not exceeding $5,000 or imprisonment of not more

than five years, or both (sec. 7213). An action for civil damages also

may be brought for unauthorized disclosure (sec. 7431). No tax

information may be furnished by the IRS to another agency unless the

other agency establishes procedures satisfactory to the IRS for

safeguarding the tax information it receives (sec. 6103(p)).

Reasons for Change

 

The Committee believes that a study of the confidentiality provisions

will be useful in assisting the Committee in determining whether

improvements can be made to these provisions.

Explanation of Provision

 

The bill requires the Joint Committee on Taxation to conduct a study

on provisions regarding taxpayer confidentiality. The study is to

examine present-law protections of taxpayer privacy, the need for third

parties to use tax return information, and the ability to achieve

greater levels of voluntary compliance by allowing the public to know

who is legally required to file tax returns but does not do so.

Effective Date

 

The findings of the study, along with any recommendations, are

required to be reported to the Congress no later than one year after the

date of enactment.

 

TITLE IV. CONGRESSIONAL ACCOUNTABILITY FOR THE IRS

 

A. REVIEW OF REQUESTS FOR GAO INVESTIGATIONS OF THE IRS

 

(SEC. 401 OF THE BILL AND SEC. 8021(E) OF THE CODE)

 

There is presently no specific statutory requirement that requests

for investigations by the General Accounting Office (``GAO'') relating

to the IRS be reviewed by the Joint Committee on Taxation (the ``Joint

Committee''). However, some of the studies that GAO conducts relating to

taxation and oversight of the IRS require access under section 6103 of

the Code to confidential tax returns and return information. Under

section 6103, the GAO may inform the Joint Committee of its initiation

of an audit of the IRS and obtain access to confidential taxpayer

information unless, within 30 days, three-fifths of the Members of the

Joint Committee disapprove of the audit. This provision has not been

utilized; the GAO generally seeks advance access to confidential

taxpayer return information from the Joint Committee.

Reasons for Change

 

The Restructuring Commission recommended changes to the approval

process for GAO reports based on its findings that the GAO conducts

myriad audits of the IRS, many of which relate to lesser matters and

which are not integrated into a constructive, focused package. The

Committee believes that GAO audits and reports can be helpful as an

oversight tool, but that they should be coordinated so as to ensure

appropriate allocation of resources, both of the IRS and the GAO.

Explanation of Provision

 

Under the bill, the Joint Committee on Taxation reviews all requests

(other than requests by the chair or ranking member of a Committee or

Subcommittee of the Congress) for investigations of the IRS by the GAO

and approves such requests when appropriate. In reviewing such requests,

the Joint Committee is to eliminate overlapping investigations, ensure

that the GAO has the capacity to handle the investigation, and ensure

that investigations focus on areas of primary importance to tax

administration.

The provision does not change the present-law rules under section 6103.

 

Effective Date

 

The provision is effective with respect to requests for GAO

investigations made after the date of enactment.

B. JOINT CONGRESSIONAL HEARINGS AND COORDINATED OVERSIGHT REPORTS

 

(SECS. 401 AND 402 OF THE BILL AND SECS. 8021(F) AND 8022 OF THE CODE)

 

Present Law

 

Under the present Congressional committee structure, a number of

committees have jurisdiction with respect to IRS oversight. The

committees most responsible for IRS oversight are the House Committees

on Ways and Means, Appropriations, Government Reform and Oversight, the

corresponding Senate Committees on Finance, Appropriations, and

Governmental Affairs, and the Joint Committee on Taxation. While these

Committees have a shared interest in IRS matters, they typically act

independently, and have separate hearings and make separate

investigations into IRS matters. Each committee also has jurisdiction

over certain issues. For example, the House Ways and Means Committee and

the Senate Finance Committee have exclusive jurisdiction over changes to

the tax laws. Similarly, the House and Senate Appropriations Committees

have exclusive jurisdiction over IRS annual appropriations. The Joint

Committee does not have legislative jurisdiction, but has significant

responsibilities with respect to tax matters and IRS oversight.

Reasons for Change

 

The Restructuring Commission found that the Congressional committees

responsible for IRS oversight ``focus on different issues that change

from year to year. While these issues are important, there is a lack of

coordinated focus on high level and strategic matters. Because the IRS

tries to satisfy requests from Congress, this nonintegrated approach to

oversight further blurs the ability to set strategic direction and focus

on priorities.''

The committee believes that Congressional oversight of the IRS should

be more coordinated, and should include long-term objectives.

Explanation of Provision

 

Under the bill, there will be two annual joint hearings of two

majority and one minority members of each of the Senate Committees on

Finance, Appropriations, and Governmental Affairs and the House

Committees on Ways and Means, Appropriations, and Government Reform and

Oversight. The first annual hearing is to take place before April 1 of

each calendar year and is to review the strategic plans and budget for

the IRS (including whether the budget supports IRS objectives). The

second annual hearing is to be held after the conclusion of the annual

tax filing season, and is to review the progress of the IRS in meeting

its objectives under the strategic and business plans, the progress of

the IRS in improving taxpayer service and compliance, progress of the

IRS on technology modernization, and the annual filing season. The bill

does not modify the existing jurisdiction of the Committees involved in

the joint hearings.

The bill provides that the Joint Committee is to make annual reports

to the Committee on Finance and the Committee on Ways and Means on the

overall state of the Federal tax system,

 

together with recommendations with respect to possible

simplification proposals and other matters relating to the

administration of the Federal tax system as it may deem advisable. The

Joint Committee also is to report annually to the Senate Committees on

Finance, Appropriations, and Governmental Affairs and the House

Committees on Ways and Means, Appropriations, and Government Reform and

Oversight with respect to the matters that are the subject of the annual

joint hearings of members of such Committees.

Effective Date

 

The provision is effective on the date of enactment.

 

C. BUDGET MATTERS

 

1. Funding for century date change (sec. 411 of the bill)

 

Present Law

 

No specific provision.

 

Reasons for Change

 

The Committee believes that adequate funding of efforts to resolve

this problem is essential.

Explanation of Provision

 

The bill provides that it is the sense of the Congress that the IRS

efforts to resolve the century date change computing problems should be

fully funded to provide for certain resolution of such problems.

Effective Date

 

The provision is effective on the date of enactment.

 

2. Financial management advisory group (sec. 412 of the bill)

 

Present Law

 

No provision.

 

Reasons for Change

 

The Committee believes that the IRS Commissioner could benefit from

input from experts in governmental accounting and auditing.

Explanation of Provision

 

The bill directs the Commissioner to convene a financial management

advisory group consisting of individuals with expertise in governmental

accounting and auditing from both the private sector and the Government

to advise the Commissioner on financial management issues.

Effective Date

 

The provision is effective on the date of enactment.

 

D. TAX LAW COMPLEXITY ANALYSIS

 

(SEC. 421 AND 422 OF THE BILL AND SEC. 8024 OF THE CODE)

 

Present Law

 

Present law does not require a formal complexity analysis with

respect to changes to the tax laws.

Reasons for Change

 

The Restructuring Commission found a clear connection between the

complexity of the Internal Revenue Code and the difficulty of tax law

administration and taxpayer frustration. The Committee shares the

concern that complexity is a serious problem with the Federal tax

system. Complexity and frequent changes in the tax laws create burdens

for both the IRS and taxpayers. Failure to address complexity may

ultimately reduce voluntary compliance.

The Committee is aware that it may not be possible or desirable to

eliminate all complexity in the tax system. There are many objectives of

a tax system and particular tax provisions, and simplicity is only one.

In some cases other policies, such as fairness, may outweigh concerns

about complexity.

Nevertheless, the Committee believes it essential to try to reduce

the complexity of the tax system whenever possible. Accordingly, the

Committee believes it appropriate to introduce new procedural rules that

will help to focus attention on complexity as an issue. Such rules are

an important step, but do not take the place of the most effective way

to address complexity--that is for the Congress and the Administration

to make reducing complexity a priority when drafting tax legislation.

The Committee also believes that encouraging the participation of IRS

personnel in drafting legislation will help to highlight administrative

and complexity issues while legislation is being developed.

Explanation of Provision

 

IRS participation in drafting legislation

 

The bill provides that it is the sense of the Congress that the IRS

should provide the Congress with an independent view of tax

administration and that the tax-writing committees should hear from

front-line technical experts at the IRS during the legislative process

with respect to the administrability of pending amendments to the

Internal Revenue Code.

 

Complexity analysis

 

The bill requires the staff of the Joint Committee on Taxation to

provide a ``Tax Complexity Analysis'' for legislation reported by the

Senate Committee on Finance and the House Committee on Ways and Means

and conference reports amending the tax laws. The Tax Complexity

Analysis is to identify those provisions in the bill or conference

report that, as determined by the staff of the Joint Committee, add

significant complexity to the tax laws, or provide significant

simplification. The Complexity Analysis is required to include a

discussion of the basis for the determination by the staff of the Joint

Committee. It is expected that, in general, the Complexity Analysis will

be limited to no more than 20 provisions. If the staff of the Joint

Committee determines that a bill or conference report does not contain

any provisions that add significant complexity or simplification to the

tax laws, then the Complexity Analysis is to contain a statement to that

effect.

Factors that may be taken into account by the staff of the Joint

Committee in preparing the Complexity Analysis include the following:

(1) whether the provision is new, modifies or replaces existing law, and

whether hearings were held to discuss the proposal and whether the IRS

provided input as to its administrability; (2) when the provision

becomes effective and corresponding compliance requirements on

taxpayers; (3) whether new IRS forms or worksheets are needed, whether

existing forms or worksheets must be modified, and whether the effective

date allows sufficient time for the IRS to prepare such forms and

educate taxpayers; (4) necessity of additional interpretive guidance

(e.g., regulations, rulings, notices); (5) the extent to which the

proposal relies on concepts contained in existing law, including

definitions; (6) effect on existing record keeping requirements and the

activities of taxpayers, complexity of calculations and likely

behavioral response, and standard business practices and resource

requirements; (7) number, type, and sophistication of affected

taxpayers; and (8) whether the proposal requires the IRS to assume

responsibilities not directly related to raising revenue which could be

handled through another Federal agency.

The bill requires the Commissioner to provide the Joint Committee

with such information as is necessary to prepare each required Tax

Complexity Analysis.

A point of order arises with respect to the floor consideration of a

bill or conference report that does not contain the required Complexity

Analysis. The point of order may be waived by a majority vote.

It is hoped that the Administration will include a similar complexity

analysis when submitting proposed legislation.

Effective Date

 

The requirement for a Tax Complexity Analysis is effective with

respect to legislation considered on or after January 1, 1998.

TITLE V. REVENUE OFFSET: EMPLOYER DEDUCTION FOR VACATION PAY

 

(SEC. 501 OF THE BILL AND SEC. 404 OF THE CODE)

 

Present Law

 

For deduction purposes, any method or arrangement that has the effect

of a plan deferring the receipt of compensation or other benefits for

employees is treated as a deferred compensation plan (sec. 404(b)). In

general, contributions under a deferred compensation plan (other than

certain pension, profit-sharing and similar plans) are deductible in the

taxable year in which an amount attributable to the contribution is

includible in income. However, vacation pay which is treated as deferred

compensation is deductible for the taxable year of the employer in which

the vacation pay is paid to the employee (sec. 404(a)(5)).

Temporary Treasury regulations provide that a plan, method, or

arrangement defers the receipt of compensation or benefits to the extent

it is one under which an employee receives compensation or benefits more

than a brief period of time after the end of the employer's taxable year

in which the services creating the right to such compensation or

benefits are performed. A plan, method or arrangement is presumed to

defer the receipt of compensation for more than a brief period of time

after the end of an employer's taxable year to the extent that

compensation is received after the 15th day of the 3rd calendar month

after the end of the employer's taxable year in which the related

services are rendered (the ``2\1/2\ month'' period). A plan, method or

arrangement is not considered to defer the receipt of compensation or

benefits for more than a brief period of time after the end of the

employer's taxable year to the extent that compensation or benefits are

received by the employee on or before the end of the applicable 2\1/2\

month period. (Temp. Treas. Reg. Sec. 1.404(b) 1T A 2.)

The Tax Court recently addressed the issue of when vacation pay and

severance pay are considered deferred compensation in Schmidt Baking

Co., Inc., 107 T.C. 271 (1996). In Schmidt Baking, the taxpayer was an

accrual basis taxpayer with a fiscal year that ended December 28, 1991.

The taxpayer funded its accrued vacation and severance pay liabilities

for 1991 by purchasing an irrevocable letter of credit on March 13,

1992. The parties stipulated that the letter of credit represented a

transfer of substantially vested interest in property to employees for

purposes of section 83, and that the fair market value of such interest

was includible in the employees' gross incomes for 1992 as a result of

the transfer.\60\

The Tax Court held that the purchase of the letter of credit, and the

resulting income inclusion, constituted payment of the vacation and

severance pay within the 2\1/2\ month period. Thus, the vacation and

severance pay were treated as received by the employees within the

2\1/2\ month period and were not treated as deferred compensation. The

vacation pay and severance pay were deductible by the taxpayer for its

1991 fiscal year pursuant to its normal accrual method of accounting.

\60\While the rules of section 83 may govern the income inclusion,

section 404 governs the deduction if the amount involved is deferred

compensation.

 

Reasons for Change

 

Prior to the Tax Reform Act of 1986, an employer could make an

election to deduct an amount representing a reasonable addition to a

reserve account for vacation pay earned by employees before the close of

the current year and expected to be paid by the close of that year or

within 12 months thereafter. As a result of concerns that this rule

provided more favorable tax treatment for vacation pay than other types

of compensation or deductible items, the Tax Reform Act of 1986 limited

this special rule to vacation pay that is paid during the current

taxable year or within 8\1/2\ months after the close of the taxable year

of the employer with respect to which the vacation pay was earned by

employees.

The tax treatment of vacation pay was again changed in the Omnibus

Budget Reconciliation Act of 1987 (``OBRA 1987''). At that time, the

Congress was concerned that then-present law provided more favorable tax

treatment for vacation pay that was deferred by employees beyond the end

of the year than was provided for other deferred benefits. The House and

Senate bills would have repealed the reserve for accrued vacation pay

and would have provided that deductions for vacation pay generally would

be allowed in any taxable year for amounts paid during the year, plus

vested vacation amounts paid or funded within 2\1/2\ months after the

end of the year. The conference agreement followed a different approach,

and provided that ``vacation pay earned during any taxable year, but not

paid to employees on or before the date that is 2\1/2\ months after the

end of the taxable year, is deductible for the taxable year of the

employer in which it is paid to employees.''\61\

The key difference between the House and Senate provisions and the

conference agreement to OBRA 1987 is that the conference agreement does

not allow a deduction for amounts merely because they are vested and

funded (i.e., are includible in income) within 2\1/2\ months after the

end of the employer's taxable year.

\61\H. Rept. 100 495, at 921 (December 21, 1987).

 

The Committee believes that the decision in Schmidt Baking reaches an

inappropriate result and represents an incorrect interpretation of the

intent of the Congress in adopting the vacation pay provision in OBRA

1987. The Committee believes that the intent of that provision was

clearly to provide that a deduction for vacation pay is not available

for the current taxable year unless the vacation pay is actually paid to

employees within 2\1/2\ months after the end of the year. Moreover, OBRA

1987 reflects Congressional intent and understanding that compensation

actually paid beyond the 2\1/2\ month period is deferred compensation.

Further, the Committee is concerned that taxpayers may

inappropriately extend the rationale of Schmidt Baking to other

situations in which a deduction or other tax consequences are contingent

upon an item being paid. The Committee does not believe that, as a

general rule, letters of credit and similar mechanisms should be

considered payment for any purposes of the Code.

Explanation of Provision

 

The bill provides that, for purposes of determining whether an item

of compensation (other than severance pay),\62\

is deferred compensation (under Code sec. 404), the compensation is not

considered to be paid or received until actually received by the

employee. In addition, an item of deferred compensation is not

considered paid to an employee until actually received by the employee.

The bill is intended to overrule the result in Schmidt Baking. For

example, with respect to the determination of whether vacation pay is

deferred compensation, the fact that the value of the vacation pay is

includible in the income of employees within the applicable 2\1/2\ month

period is not relevant. Rather, the vacation pay must have been actually

received by employees within the 2\1/2\ month period in order for the

compensation not to be treated as deferred compensation.

\62\This provision is also included in H.R. 2646, the ``Education

Savings Act for Public and Private Schools Act'' as passed by the House

on October 23, 1997 (See H. Rept. 105 332, October 21, 1997). A

provision that overrules Schmidt Baking with respect to severance pay

was included in H.R. 2644, the ``United States-Caribbean Trade

Partnership Act,'' as ordered reported by the Committee on Ways and

Means on October 9, 1997.

It is intended that similar arrangements, in addition to the letter

of credit approach used in Schmidt Baking, do not constitute actual

receipt by the employee, even if there is an income inclusion. Thus, for

example, actual receipt does not include the furnishing of a note or

letter or other evidence of indebtedness of the taxpayer, whether or not

the evidence is guaranteed by any other instrument or by any third

party. As a further example, actual receipt does not include a promise

of the taxpayer to provide service or property in the future (whether or

not the promise is evidenced by a contract or other written agreement).

In addition, actual receipt does not include an amount transferred as a

loan, refundable deposit, or contingent payment. Amounts set aside in a

trust for employees generally are not considered to be actually received

by the employee.

Under the bill, sick pay that is deferred compensation is treated the

same as vacation pay that is deferred compensation, and is not

deductible until paid to employees. The bill does not change the rule

under which deferred compensation (other than vacation pay and sick pay

and deferred compensation under qualified plans) is deductible in the

year includible in the gross income of employees participating in the

plan if separate accounts are maintained for each employee.

While Schmidt Baking involved only vacation pay and severance pay,

there is concern that this type of arrangement may be tried to

circumvent other provisions of the Code where payment is required in

order for a deduction to occur. Thus, it is intended that the Secretary

will prevent the use of similar arrangements. No inference is intended

that the result in Schmidt Baking is present law beyond its immediate

facts or that the use of similar arrangements is permitted under present

law.

 

The bill does not affect the determination of whether an item is

includible in income. Thus, for example, using the mechanism in Schmidt

Baking for vacation pay would still result in income inclusion to the

employees, but the employer would not be entitled to a deduction for the

vacation pay until actually paid to and received by the employees.

Effective Date

 

The provision is effective for taxable years ending after October 8,

1997. Any change in method of accounting required by the proposal will

be treated as initiated by the taxpayer with the consent of the

Secretary of the Treasury. Any adjustment required by section 481 as a

result of the change will be taken into account in the year of the

change.

III. VOTES OF THE COMMITTEE

 

In compliance with clause 2( l )(2)(B) of rule XI of the Rules of the

House of Representatives, the following statements are made concerning

the votes of the Committee in its consideration of the bill, H.R. 2676.

Motion to report the bill

 

The bill, H.R. 2676, as amended, was ordered favorably reported by a

roll call vote of 33 yeas to 4 nays (with a quorum being present). The

vote was as follows:

 

 

Representatives Yea Nay Representatives Yea Nay

 

Mr. Archer X Mr. Rangel X

Mr. Crane X Mr. Stark X

Mr. Thomas X Mr. Matsui X

Mr. Shaw X Mrs. Kennelly X

Mrs. Johnson X Mr. Coyne X

Mr. Bunning X Mr. Levin X

Mr. Houghton X Mr. Cardin X

Mr. Herger X Mr. McDermott X

Mr. McCrery X Mr. Kleczka X

Mr. Camp X Mr. Lewis X

Mr. Ramstad X Mr. Neal X

Mr. Nussle X Mr. McNulty

Mr. Johnson X Mr. Jefferson X

Ms. Dunn X Mr. Tanner X

Mr. Collins X Mr. Becerra\1\

Mr. Portman X Mrs. Thurman X

Mr. English X

Mr. Ensign X

Mr. Christensen X

Mr. Watkins X

Mr. Hayworth X

Mr. Weller X

Mr. Hulshof X

 

\1\Mr. Becerra passed.

 

Vote on amendment

 

A roll call vote was conducted on the following amendment to the

Chairman's amendment in the nature of a substitute.

An amendment by Mr. Stark that would impose conflict of interest

requirements on the Board members from the private sector was defeated

by a roll call vote of 14 yeas to 23 nays. The vote was as follows:

 

 

Representatives Yea Nay Representatives Yea Nay

 

Mr. Archer X Mr. Rangel X

Mr. Crane X Mr. Stark X

Mr. Thomas X Mr. Matsui

Mr. Shaw X Mrs. Kennelly X

Mrs. Johnson X Mr. Coyne X

Mr. Bunning X Mr. Levin X

Mr. Houghton X Mr. Cardin X

Mr. Herger X Mr. McDermott X

Mr. McCrery X Mr. Kleczka X

Mr. Camp X Mr. Lewis X

Mr. Ramstad X Mr. Neal X

Mr. Nussle X Mr. McNulty

Mr. Johnson X Mr. Jefferson X

Ms. Dunn X Mr. Tanner X

Mr. Collins X Mr. Becerra X

Mr. Portman X Mrs. Thurman X

Mr. English X

Mr. Ensign X

Mr. Christensen X

Mr. Watkins X

Mr. Hayworth X

Mr. Weller X

Mr. Hulshof X

 

 

IV. BUDGET EFFECTS OF THE BILL

 

A. COMMITTEE ESTIMATES

 

In compliance with clause 7(a) of rule XIII of the Rules of the House

of Representatives, the following statement is made concerning the

estimated budget effects of H.R. 2676 as reported.

The bill, as reported, is estimated to have the following effect on

the budget:

 

Offset Folios 117 to 119 Insert here

 

 

B. BUDGET AUTHORITY AND TAX EXPENDITURES

 

Budget authority

 

With respect to subdivision (B) of clause 2(l)(3) of rule XI of the

Rules of the House of Representatives (relating to budget authority),

see the statement of the Congressional Budget Office.

Tax expenditures

 

In compliance with subdivision (B) of clause 2(l)(3) of rule XI of

the Rules of the House of Representatives, the Committee states that the

provisions of the bill as reported involve a reduction in tax

expenditures for the amounts for the vacation pay provision shown in the

revenue table in IV.A., above.

C. COST ESTIMATE PREPARED BY THE CONGRESSIONAL BUDGET OFFICE

 

In compliance with subdivision (C) of clause 2(l)(3) of rule XI of

the Rules of the House of Representatives, requiring cost estimate

prepared by the Congressional Budget Office, the Committee advises that

the Congressional Budget Office has submitted the following statement on

this bill.

 

U.S. Congress,

 

Congressional Budget Office,

 

Washington, DC, October 31, 1997.

 

 

 

Hon. Bill Archer, Chairman, Committee on Ways and Means,

 

House of Representatives, Washington, DC.

 

Dear Mr. Chairman: The Congressional Budget Office has prepared the

enclosed cost estimate for H.R. 2676, the Internal Revenue Service

Restructuring and Reform Act of 1997.

If you wish further details on this estimate, we will be pleased to

provide them. The CBO staff contacts are John R. Righter and Mary

Maginniss (for federal costs), Marc Nicole (for the impact on state and

local governments), and Matthew Eyles (for the impact on the private

sector).

Sincerely,

 

James L. Blum

 

(For June E. O'Neill, Director).

 

Enclosure.

 

H.R. 2676--Internal Revenue Service Restructuring and Reform Act of 1997

 

Summary: H.R. 2676 would make a number of changes to the management

and oversight of the Internal Revenue Service (IRS), add or amend 28

taxpayer rights, and require the IRS to implement several changes

designed to increase the amount of forms filed electronically by

taxpayers. The Joint Committee on Taxation (JCT) estimates that this

bill would increase governmental receipts (revenues) by $327 million in

fiscal year 1998 but would have no net effect on such receipts over the

1998 2002 period. Over the 1998 2007 period, JCT estimates that enacting

this bill would decrease governmental receipts by $2.9 billion.

In addition, CBO estimates that enacting H.R. 2676 would increase

direct spending by $5 million in fiscal year 1998, $25 million over the

1998 2002 period, and $50 million over the 1998 2007 period. Because

enacting the bill would increase both direct spending and receipts,

pay-as-you-go procedures would apply. H.R. 2676 also would affect

discretionary spending, subject to the availability of funds. Because of

the uncertainty of efforts by the Treasury and the IRS under current law

to increase the availability and use of electronic filing by taxpayers,

CBO cannot estimate the bill's total effect on discretionary spending at

this time.

JCT has determined that H.R. 2676 contains one new private-sector

mandate, as defined in the Unfunded Mandates Reform Act of 1995 (UMRA).

JCT estimates that the provision clarifying employer deductions for

vacation pay would increase tax revenue by $2.65 billion over the 1998

2002 period, which is the estimated cost to the private sector to comply

with the mandate. The bill contains no intergovernmental mandates as

defined in UMRA and would impose no costs on state, local, or tribal

governments.

 

Description of major provisions: H.R. 2676 would make a number of

changes to the management oversights of the IRS and to the rights of

taxpayers. Specifically, the bill would:

Establish an 11-member Internal Revenue Service Oversight board

within the Department of the Treasury to oversee the service's planning,

budgeting, and operations;

Require the IRS to begin developing a paperless tax return system

and authorize it to offer certain incentives to encourage taxpayers to

file tax returns electronically;

Require the IRS, subject to the proper safeguards, to create a

system under which taxpayers could review their own IRS files

electronically by fiscal year 2007;

Add or amend 28 provisions affecting taxpayer rights, including

shifting the burden from the taxpayer to the IRS in certain court cases,

making it easier for taxpayers to recover court costs and to sue the IRS

for civil damages, eliminating the threshold and allowing for partial

relief from the tax bills owed by innocent spouses, suspending the time

limit for disabled individuals to file for a refund, and requiring that

the IRS provide additional notification to taxpayers of certain rights

and deadlines;

Make several congressional reforms to discourage the Congress from

adding further complexity to the tax code and to coordinate the

oversight functions of the various committees that have jurisdiction

over the IRS; and

Clarify employer deductions for vacation pay to raise governmental

receipts and offset the cost of other provisions.

Estimated cost to the Federal Government: The estimated budgetary

impact of H.R. 2676 is shown in Table 1. The costs of this bill fall

within budget function 800 (general government). The legislation would

also affect revenues.

 

TABLE 1. ESTIMATED COST TO THE FEDERAL GOVERNMENT

[By fiscal year, in millions of dollars]

 

1998 1999 2000 2001 2002

 

CHANGES IN DIRECT SPENDING AND REVENUES\1\

Direct spending: 3 3 5 5 6

Revenues: 327 602 43 -480 -493

 

\1\Implementing the bill would also require increases in spending subject to appropriation, but CBO cannot estimate these costs at this time.

 

Basis of estimate

 

H.R. 2676 would affect both revenues and direct spending. JCT

estimates the bill would increase revenues by nearly $1 billion over the

fiscal year 1998 2000 period, but decrease such receipts by an equal

amount over fiscal years 2001 and 2002. For the 1998 2007 period, JCT

estimates that enacting H.R. 2676 would decrease governmental receipts

by about $2.9 billion. CBO estimates that enacting the bill would

increase direct spending, on average, by about $5 million in each of

fiscal years 1998 through 2002, for a total of about $25 million. For

fiscal years 1998 through 2007, CBO estimates the bill would increase

direct spending by a total of about $50 million.

Subject to the availability of funds, the bill also would increase

costs at the IRS and JCT to perform various requirements of the bill and

those increases would probably be significant. But, because of the

Treasury's plans for increasing the availability and use of electronic

filing by taxpayers are uncertain, CBO cannot estimate the bill's likely

effect on discretionary spending at this time. The bill's major

provisions that could affect discretionary spending are discussed in

detail below.

This estimates assumes the bill would be enacted by the middle of

fiscal year 1998.

Revenues

 

H.R. 2676 would make several changes to the Internal Revenue code.

The major provisions affecting receipts are summarized in Table 2.

 

TABLE 2. ESTIMATED CHANGES IN REVENUES

[By fiscal year, in millions of dollars]

 

1998 1999 2000 2001 2002

 

Clarify deduction for accrued vacation pay 705 1,111 584 120 126

Failure to pay penalty capped at 9.5 percent for individuals -176 -196 -209 -220 -231

Burden of proof -80 -166 -174 -183 -192

Increase refund interest rate to AFR plus 3 percent for individuals -49 -51 -54 -56 -59

Suspension of statute of limitations on filing refund claims during periods of disability -40 -50 -25 -15 -16

Elimination of interest rate differential on overlapping periods of interest on income tax overpayments and underpayments -1 -9 -28 -42 -54

All Other Provisions Affecting Revenues -32 -35 -51 -84 -67

-------- -------- -------- -------- --------

Total Estimated Revenues 327 602 43 -480 -493

 

Direct spending

 

Low-Income Taxpayer Clinics. --H.R. 2676 would require the Secretary

of the Treasury to make grants on a matching basis to clinics that

provide services to low-income taxpayers. The bill would limit the total

amount of such grants in any one year to $3 million. Thus, CBO estimates

that enacting this provision would increase direct spending by $3

million in each of fiscal years 1998 through 2002, or by a total of $15

million.

Taxpayer Bill of Rights. --The bill also would increase the amount

of penalties--attorney's fees and administrative costs--and civil

damages that courts could award to taxpayers in certain cases brought

against the federal government. In particular, the bill would provide

for up to $100,000 in civil damages to taxpayers in cases where a court

finds that officers or employees of the IRS negligently disregarded

provisions of the Internal Revenue Code.

 

Courts could award damages only after the taxpayer had

exhausted all administrative remedies at the IRS. Under current law,

taxpayers may receive damages only for cases where a court finds that an

IRS officer or employee has recklessly or internationally disregarded

provisions of the Internal Revenue Code. The government would pay the

additional amounts from the permanent, indefinite appropriation for

claims and judgments.

Although considerable uncertainty exists as to how the courts would

determine and award damages based on negligent behavior CBO estimates

that the provisions would increase direct spending, on average, by $10

million over the 1998 2007 period and by $28 million over the 1998 2007

period. That estimate assumes that lowering the standard for civil

damages would result in courts awarding additional damages to taxpayers.

Because the provision would apply only to actions that occur after

enactment and would require taxpayers to first exhaust administrative

remedies. CBO expects the provision initially would have no significant

impact on direct spending, but would result in a steady increase in

damages awarded after 1999. On average, we estimate that the provision

would increase direct spending annually by $2 million over the 1998 2002

period and by $3 million over the 1998 2007 period.

Spending subject to appropriation

 

Electronic Filing. --The bill's biggest potential impact on

discretionary spending involves its requirements to increase the

availability and use of electronic filing. H.R. 2676 would generally

require the IRS to study and implement several major changes to the way

taxpayers file their returns each year. Specifically, the bill would:

(1) require the Secretary of the Treasury to develop a strategic plan to

eliminate barriers and provide incentives to increase the number of

returns filed electronically, (2) beginning in fiscal year 2000, extend

the due date for electronic filers of information returns from February

28 to March 31, (3) require the Treasury to develop procedures for

accepting signature information from electronic filers in a digital or

other electronic form, (4) require the Treasury to develop procedures

for implementing a return-free tax system beginning with tax years that

begin after 2007, and (5) provided the necessary safeguard are in place,

require the Treasury to develop procedures to enable taxpayers to review

their account information electronically by 2007.

The Treasury is already developing or studying most of these

proposals. For instance, according to the Department of the Treasury,

the IRS currently is using some signature alternatives and studying

others. The Treasury also has already awarded a contract to design and

develop a large educational campaign to encourage taxpayers to file

electronically. The IRS is also implementing new payment methods and

preparing its systems to accept new forms that should reduce the amount

of paper filed by taxpayers each year. Finally, the Treasury is studying

alternatives for allowing taxpayers to eventually review account

information electronically. Thus, even though CBO expects that

implementing the bill's procedures would increase costs for the

Treasury, subject to the availability of funds, we cannot estimate the

amount that such costs would increase. The amount of the costs would

depend, in part, on the overall effort at the IRS to modernize its

information systems, for which the Congress has appropriated about $4

billion over the last decade.

In general, receiving and processing forms electronically should

reduce costs at the IRS in the long run. The IRS is currently analyzing

the per-unit costs of processing tax forms electronically. In the past,

the IRS has estimated that it costs at least two and one-half times more

to process such forms by paper, since the data must be input manually

into IRS's systems, the error rate in processing such forms is

significantly higher, and the papers require handing and storage. Thus,

if enacting the bill results in an increase in the number of taxpayers

that file electronically with the IRS each year--in fiscal year 1997,

19.1 million of the estimated 120 million individual income tax returns

were filed with the IRS by computer or phone--then the bill should

eventually reduce the government's annual costs to process tax

information.

IRS Oversight Board. --H.R. 2676 would establish an 11-member

management board within the Department of the Treasury to oversee the

management and operations of the IRS, including reviewing and approving

the agency's strategic plans and annual budget request. The board would

consist of eight members from outside the federal government, the

Secretary of the Treasury, a union representative, and the IRS

Commissioner. The bill would compensate the nonfederal members at a rate

of $30,000 per year, except for the chair, who would receive an annual

salary of $50,000. The members also could receive reimbursement for any

travel expenses incurred in attending official board meetings. The bill

would not provide the board with its own permanent staff. The bill would

require that the board meet at least once a month. Upon enactment, the

President would have six months to submit nominations to the Senate.

Based on the bill's requirements and compensation, CBO estimates that

the board would cost about $400,000 in each of fiscal years 1999 through

2002. That estimate assumes the board would not meet until the beginning

of fiscal year 1999.

Taxpayer Bill of Rights. --H.R. 2676 would add or amend 28 taxpayers

rights. In general, the new rights would result in minimal additional

costs for the IRS to write regulations, provide additional training to

employees, and create or amend tax forms and other tax-related

documents. CBO estimates that these provisions would increase costs at

the IRS over fiscal years 1998 and 1999 by between $5 million and $10

million. In later years, we expect such costs would not be significant.

 

Congressional Accountability. --H.R. 2676 would expand the

responsibilities of the Joint Committee on Taxation (JCT) and streamline

Congressional procedures for overseeing the IRS. It would require JCT to

coordinate joint Congressional oversight hearings and various reports

related to IRS matters, report annually on the overall state of the

federal tax system, prepare a detailed ``Tax Complexity Analysis'' for

proposed legislation amending tax laws, and conduct two studies within

one year from the date of enactment. The bill also would require JCT to

review all Congressional requests (other than requests by the chairman

or ranking member of a Congressional committee or subcommittee) for

General Accounting Office (GAO) investigations that access confidential

information under section 6103 of the U.S. Code.

Under the current structure, several committees have jurisdiction

over the IRS. Assuming enactment of H.R. 2676, the Congress, with the

assistance of JCT, would hold two joint hearings each year on the IRS.

The first would review the strategic plans and budget for the IRS; the

second would focus on the status of the IRS in meeting its budgetary and

policy goals. The bill would require the JCT to prepare annual reports

on the overall state of the federal tax system, along with

recommendations for simplification and other matters. The JCT also would

be responsible for providing a tax complexity analysis for legislation

resulting in changes in tax law. This review would identify and analyze

proposals in a bill or conference report that would add or reduce

complexity in the tax laws.

CBO estimates that enacting H.R. 2676 would cost JCT approximately

$200,000 in 1998 and $400,000 beginning in 1999 and each year

thereafter, assuming appropriation of the necessary amounts. Depending

upon the amount and nature of tax legislation considered by the

Congress, analyzing the complexity of legislative initiatives could

increase this cost somewhat. According to the GAO, securing JCT approval

for certain tax investigations would affect perhaps one study annually,

and thus would have no significant budgetary effect. Streamlining the

legislative process for overseeing the IRS could result in some savings

to Congressional committees, but any such savings is not expected to be

significant.

Pay-as-you-go considerations: The Balanced Budget and Emergency

Deficit Control Act of 1985 specifies procedures for legislation

affecting direct spending and receipts. The projected changes in direct

spending and receipts are shown in the following table for fiscal years

1998 through 2007. For purposes of enforcing pay-as-you-go procedures,

however, only the effects in the budget year and the succeeding four

years are counted.

 

SUMMARY OF EFFECTS ON DIRECT SPENDING AND RECEIPTS

[By fiscal year, in millions of dollars]

 

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

 

Changes in outlays 3 3 5 5 6 6 7 7 8 8

Changes in receipts 327 602 43 -480 -493 -517 -542 -570 -597 -627

 

Estimated impact on State, Local, and Tribal Governments: H.R. 2676

contains no intergovernmental mandates as defined in UMRA and would

impose no costs on state, local, or tribal governments. The bill would

provide $3 million a year for low-income taxpayer clinics that could be

operated by accredited law schools (public or private) or certain

tax-exempt organizations.

Estimated impact on the private sector: JCT has determined that H.R.

2676 contains one new private-sector mandate as defined in UMRA. The

provision relating to clarification of deduction for accrued vacation

pay is estimated to increase tax revenue by $2.65 billion over fiscal

years 1998 through 2002, which is the estimated amount that the private

sector would be required to spend in order to comply with this mandate.

The revenue provision would offset the budgetary cost of the Internal

Revenue Service restructuring provisions of the bill. The revenue

provision would not impose a federal intergovernmental mandate on state,

local, or tribal governments, as such governmental entities are

generally exempt from the federal income tax.

Estimate prepared by: Federal costs: John R. Righter and Mary

Maginniss; Impact on State, local, and tribal governments: Marc Nicole;

Impact on the private sector: Matthew Eyles.

Estimate approved by: Paul N. Van de Water, Assistant Director for

Budget Analysis.

 

V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE

 

A. COMMITTEE OVERSIGHT FINDINGS AND RECOMMENDATIONS

 

With respect to subdivision (A) of clause 2(l)(3) of Rule XI of the

Rules of the House of Representatives (relating to oversight findings),

the Committee advises that it was the result of the Committee's

oversight activities concerning the need to restructure and reform the

IRS, additional taxpayer rights and protections, greater Congressional

oversight of the IRS, and a revenue offset provision relating to the tax

treatment of employer deduction for vacation pay that the Committee

concluded that it is appropriate to enact the provisions contained in

the bill as reported.

For a listing of the Committee and Subcommittee hearings relating to

the provisions of the bill, see Part I.C of this report.

B. SUMMARY OF FINDINGS AND RECOMMENDATIONS OF THE COMMITTEE ON

GOVERNMENT REFORM AND OVERSIGHT

With respect to subdivision (D) of clause 2(l)(3) of Rule XI of the

Rules of the House of Representatives, the Committee advises that no

specific oversight findings or recommendations have been submitted to

this Committee by the Committee on Government Reform and Oversight with

respect to the provisions contained in the bill. (However, see

correspondence received from the Chairman, Committee on Government

Reform and Oversight, regarding the bill in Part VII of this report.)

C. CONSTITUTIONAL AUTHORITY STATEMENT

 

With respect to clause 2(l)(4) of Rule XI of the Rules of the House

of Representatives (relating to Constitutional Authority), the Committee

states that the Committee's action in reporting this bill is derived

from Article I of the Constitution, Section 7 (``All bills for raising

revenue shall originate in the House of Representatives'') and Section 8

(``The Congress shall have power to lay and collect taxes, duties,

imposts and excises, to pay the debts . . . of the United States''), and

from the 16th Amendment to the Constitution.

D. INFORMATION RELATING TO UNFUNDED MANDATES

 

This information is provided in accordance with section 423 of the

Unfunded Mandates Act of 1995 (P.L. 104 4).

The Committee has determined that the provision of the bill relating

to the tax treatment of employer deduction for vacation pay will impose

a Federal mandate on the private sector in the amount shown in the

revenue table in IV.A., above. This revenue is needed to offset the

budget cost of the IRS restructuring and reform provisions. This

provision of the bill will not impose a Federal intergovernmental

mandate on State, local, or tribal governments.

E. APPLICABILITY OF HOUSE RULE XXI5(C)

 

Rule XXI5(c) of the Rules of the House of Representatives provides,

in part, that ``No bill or joint resolution, amendment, or conference

report carrying a Federal income tax rate increase shall be considered

as passed or agreed to unless so determined by a vote of not less than

three-fifths of the Members.'' The Committee has carefully reviewed the

provisions of the bill, and states that the provisions of the bill do

not involve any Federal income tax rate increase within the meaning of

the rule.

VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

 

In compliance with clause 3 of rule XIII of the Rules of the House of

Representatives, changes in existing law made by the bill, as reported,

are shown as follows (existing law proposed to be omitted is enclosed in

black brackets, new matter is printed in italic, existing law in which

no change is proposed is shown in roman).

 

INTERNAL REVENUE CODE OF 1986

 

Subtitle A--Income Taxes

 

* * * * * * *

 

CHAPTER 1--NORMAL TAXES AND SURTAXES

 

* * * * * * *

 

Subchapter D--Deferred Compensation, Etc.

 

* * * * * * *

 

PART I--PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.

 

* * * * * * *

 

SUBPART A--GENERAL RULE

 

* * * * * * *

 

SEC. 404. DEDUCTION FOR CONTRIBUTIONS OF AN EMPLOYER TO AN

EMPLOYEES' TRUST OR ANNUITY PLAN AND COMPENSATION UNDER A

DEFERRED-PAYMENT PLAN.

(a) General Rule.--If contributions are paid by an employer to or

under a stock bonus, pension, profit-sharing, or annuity plan, or if

compensation is paid or accrued on account of any employee under a plan

deferring the receipt of such compensation, such contributions or

compensation shall not be deductible under this chapter; but, if they

would otherwise be deductible, they shall be deductible under this

section, subject, however, to the following limitations as to the

amounts deductible in any year:

(1) * * *

 

* * * * * * *

 

(5) Other plans.--If the plan is not one included in paragraph (1),

(2), or (3), in the taxable year in which an amount attributable to the

contribution is includible in the gross income of employees

participating in the plan, but, in the case of a plan in which more than

one employee participates only if separate accounts are maintained for

each employee. For purposes of this section, any vacation pay or sick

leave pay which is treated as deferred compensation shall be deductible

for the taxable year of the employer in which paid to the employee.

* * * * * * *

 

 

(11) Determinations relating to deferred compensation.--

 

(A) In general.--For purposes of determining under this section--

 

(i) whether compensation of an employee is deferred compensation, and

 

(ii) when deferred compensation is paid,

 

no amount shall be treated as received by the employee, or paid,

until it is actually received by the employee.

(B) Exception.--Subparagraph (A) shall not apply to severance pay.

 

 

* * * * * * *

 

Subtitle D--Miscellaneous Excise Taxes

 

* * * * * * *

 

CHAPTER 42--PRIVATE FOUNDATIONS AND CERTAIN OTHER TAX-EXEMPT

ORGANIZATIONS

* * * * * * *

 

Subchapter A--Private Foundations

 

* * * * * * *

 

SEC. 4946. DEFINITIONS AND SPECIAL RULES.

 

(a) * * *

 

(c) Government Official.--For purposes of subsection (a)(1)(I) and

section 4941, the term ``government official'' means, with respect to an

act of self-dealing described in section 4941, an individual who, at the

time of such act, holds any of the following offices or positions (other

than as a ``special Government employee'', as defined in section 202(a)

of title 18, United States Code):

(1) * * *

 

* * * * * * *

 

(5) an elective or appointive public office in the executive,

legislative, or judicial branch of the government of a State, possession

of the United States, or political subdivision or other area of any of

the foregoing, or of the District of Columbia, held by an individual

receiving gross compensation at an annual rate of $20,000 or more, or

(6) a position as personal or executive assistant or secretary to

any of the foregoing. , or

(7) a member of the Internal Revenue Service Oversight Board.

 

* * * * * * *

 

 

Subtitle F--Procedure and Administration

 

* * * * * * *

 

CHAPTER 61--INFORMATION AND RETURNS

 

* * * * * * *

 

Subchapter A--Returns and Records

 

* * * * * * *

 

PART II--TAX RETURNS OR STATEMENTS

 

* * * * * * *

 

SUBPART B--INCOME TAX RETURNS

 

 

Sec. 6012. Persons required to make returns of income.

 

* * * * * * *

 

Sec. 6015. Innocent spouse relief; petition to Tax Court.

 

* * * * * * *

 

 

SEC. 6011. GENERAL REQUIREMENT OF RETURN, STATEMENT, OR LIST.

 

(a) * * *

 

* * * * * * *

 

 

(f) Promotion of Electronic Filing.--

 

(1) In general.--The Secretary is authorized to promote the benefits

of and encourage the use of electronic tax administration programs, as

they become available, through the use of mass communications and other

means.

(2) Incentives.--The Secretary may implement procedures to provide

for the payment of appropriate incentives for electronically filed

returns.

 

(f) (g) Income, Estate, and Gift Taxes.--For requirement that returns

of income, estate, and gift taxes be made whether or not there is tax

liability, see subparts B and C.

* * * * * * *

 

SEC. 6013. JOINT RETURNS OF INCOME TAX BY HUSBAND AND WIFE.

 

(a) * * *

 

* * * * * * *

 

(e) Spouse Relieved of Liability in Certain Cases.--

 

(1) In general.--Under regulations prescribed by the Secretary, if--

 

(A) a joint return has been made under this section for a taxable year,

 

(B) on such return there is a substantial understatement of tax

attributable to grossly erroneous items of one spouse,

(C) the other spouse establishes that in signing the return he or

she did not know, and had no reason to know, that there was such

substantial understatement, and

(D) taking into account all the facts and circumstances, it is

inequitable to hold the other spouse liable for the deficiency in tax

for such taxable year attributable to such substantial understatement,

then the other spouse shall be relieved of liability for tax (including

interest, penalties, and other amounts) for such taxable year to the

extent such liability is attributable to such substantial

understatement.

(2) Grossly erroneous items.--For purposes of this subsection, the

term ``grossly erroneous items'' means, with respect to any spouse--

(A) any item of gross income attributable to such spouse which is

omitted from gross income, and

(B) any claim of a deduction, credit, or basis by such spouse in an

amount for which there is no basis in fact or law.

(3) Substantial understatement.--For purposes of this subsection,

the term ``substantial understatement'' means any understatement (as

defined in section 6662(d)(2)(A)) which exceeds $500.

(4) Understatement must exceed specified percentage of spouse's

income.--

(A) Adjusted gross income of $20,000 or less.--If the spouse's

adjusted gross income for the preadjustment year is $20,000 or less,

this subsection shall apply only if the liability described in paragraph

(1) is greater than 10 percent of such adjusted gross income.

(B) Adjusted gross income of more than $20,000.--If the spouse's

adjusted gross income for the preadjustment year is more than $20,000,

subparagraph (A) shall be applied by substituting ``25 percent'' for

``10 percent''.

(C) Preadjustment year.--For purposes of this paragraph, the term

``preadjustment year'' means the most recent taxable year of the spouse

ending before the date the deficiency notice is mailed.

(D) Computation of spouse's adjusted gross income.--If the spouse is

married to another spouse at the close of the preadjustment year, the

spouse's adjusted gross income shall include the income of the new

spouse (whether or not they file a joint return).

(E) Exception for omissions from gross income.--This paragraph shall

not apply to any liability attributable to the omission of an item from

gross income.

(5) Special rule for community property income.--For purposes of

this subsection, the determination of the spouse to whom items of gross

income (other than gross income from property) are attributable shall be

made without regard to community property laws.

* * * * * * *

 

 

SEC. 6015. INNOCENT SPOUSE RELIEF; PETITION TO TAX COURT.

 

(a) Spouse Relieved of Liability in Certain Cases.--

 

 

(1) In general.--Under procedures prescribed by the Secretary, if--

 

(A) a joint return has been made under section 6013 for a taxable year,

 

(B) on such return there is an understatement of tax attributable to

erroneous items of 1 spouse,

(C) the other spouse establishes that in signing the return he or

she did not know, and had no reason to know, that there was such

understatement,

(D) taking into account all the facts and circumstances, it is

inequitable to hold the other spouse liable for the deficiency in tax

for such taxable year attributable to such understatement, and

(E) the other spouse claims (in such form as the Secretary may

prescribe) the benefits of this subsection not later than the date which

is 2 years after the date of the assessment of such deficiency,

then the other spouse shall be relieved of liability for tax

(including interest, penalties, and other amounts) for such taxable year

to the extent such liability is attributable to such understatement.

(2) Apportionment of relief.--If a spouse who, but for paragraph

(1)(C), would be relieved of liability under paragraph (1), establishes

that in signing the return such spouse did not know, and had no reason

to know, the extent of such understatement, then such spouse shall be

relieved of liability for tax (including interest, penalties, and other

amounts) for such taxable year to the extent that such liability is

attributable to the portion of such understatement of which such spouse

did not know and had no reason to know.

(3) Understatement.--For purposes of this subsection, the term

``understatement'' has the meaning given to such term by section

6662(d)(2)(A).

(4) Special rule for community property income.--For purposes of

this subsection, the determination of the spouse to whom items of gross

income (other than gross income from property) are attributable shall be

made without regard to community property laws.

(b) Petition for Review By Tax Court.--In the case of an individual

who has filed a claim under subsection (a) within the period specified

in subsection (a)(1)(E)--

(1) In general.--Such individual may petition the Tax Court (and the

Tax Court shall have jurisdiction) to determine such claim if such

petition is filed during the 90-day period beginning on the earlier of--

(A) the date which is 6 months after the date such claim is filed

with the Secretary, or

(B) the date on which the Secretary mails by certified or registered

mail a notice to such individual denying such claim.

Such 90-day period shall be determined by not counting Saturday,

Sunday, or a legal holiday in the District of Columbia as the last day

of such period.

(2) Restrictions applicable to collection of assessment.--

 

(A) In general.--Except as otherwise provided in section 6851 or

6861, no levy or proceeding in court for collection of any assessment to

which such claim relates shall be made, begun, or prosecuted, until the

expiration of the 90-day period described in paragraph (1), nor, if a

petition has been filed with the Tax Court, until the decision of the

Tax Court has become final. Rules similar to the rules of section 7485

shall apply with respect to the collection of such assessment.

(B) Authority to enjoin collection actions.--Notwithstanding the

provisions of section 7421(a), the beginning of such proceeding or levy

during the time the prohibition under subparagraph (A) is in force may

be enjoined by a proceeding in the proper court, including the Tax

Court. The Tax Court shall have no jurisdiction to enjoin any action or

proceeding under this paragraph unless a timely petition for a

determination of such claim has been filed and then only in respect of

the amount of the assessment to which such claim relates.

(C) Jeopardy collection.--If the Secretary makes a finding that the

collection of the tax is in jeopardy, nothing in this subsection shall

prevent the immediate collection of such tax.

(c) Suspension of Running of Period of Limitations.--The running of

the period of limitations in section 6502 on the collection of the

assessment to which the petition under subsection (b) relates shall be

suspended for the period during which the Secretary is prohibited by

subsection (b) from collecting by levy or a proceeding in court and for

60 days thereafter.

(d) Applicable Rules.--

 

(1) Allowance of application.--Except as provided in paragraph (2),

notwithstanding any other law or rule of law (other than section

6512(b), 7121, or 7122), credit or refund shall be allowed or made to

the extent attributable to the application of this section.

(2) Res judicata.--In the case of any claim under subsection (a),

the determination of the Tax Court in any prior proceeding for the same

taxable periods in which the decision has become final, shall be

conclusive except with respect to the qualification of the spouse for

relief which was not an issue in such proceeding. The preceding sentence

shall not apply if the Tax Court determines that the spouse participated

meaningfully in such prior proceeding.

(3) Limitation on tax court jurisdiction.--If a suit for refund is

begun by either spouse pursuant to section 6532, the Tax Court shall

lose jurisdiction of the spouse's action under this section to whatever

extent jurisdiction is acquired by the district court or the United

States Court of Federal Claims over the taxable years that are the

subject of the suit for refund.

 

SEC. 6061. SIGNING OF RETURNS AND OTHER DOCUMENTS.

 

Except as otherwise provided by

 

 

(a) General Rule.--Except as otherwise provided by subsection (b) and

sections 6062 and 6063, any return, statement, or other document

required to be made under any provision of the internal revenue laws or

regulations shall be signed in accordance with forms or regulations

prescribed by the Secretary.

 

(b) Electronic Signatures.--

 

(1) In general.--The Secretary shall develop procedures for the

acceptance of signatures in digital or other electronic form. Until such

time as such procedures are in place, the Secretary may waive the

requirement of a signature for all returns or classes of returns, or may

provide for alternative methods of subscribing all returns,

declarations, statements, or other documents required or permitted to be

made or written under internal revenue laws and regulations.

(2) Treatment of alternative methods.--Notwithstanding any other

provision of law, any return, declaration, statement or other document

filed without signature under the authority of this subsection or

verified, signed or subscribed under any method adopted under paragraph

(1) shall be treated for all purposes (both civil and criminal,

including penalties for perjury) in the same manner as though signed and

subscribed. Any such return, declaration, statement or other document

shall be presumed to have been actually submitted and subscribed by the

person on whose behalf it was submitted.

(3) Published guidance.--The Secretary shall publish guidance as

appropriate to define and implement any waiver of the signature

requirements.

 

* * * * * * *

 

PART V--TIME FOR FILING RETURNS AND OTHER DOCUMENTS

 

* * * * * * *

 

SEC. 6071. TIME FOR FILING RETURNS AND OTHER DOCUMENTS.

 

(a) General Rule.--When not otherwise provided for by this title, the

Secretary shall by regulations prescribe the time for filing any return,

statement, or other document required by this title or by regulations.

 

(b) Electronically Filed Information Returns.--Returns made under

subparts B and C of part III of this subchapter which are filed

electronically shall be filed on or before March 31 of the year

following the calendar year to which such returns relate.

 

(b) (c) Special Taxes.--For payment of special taxes before engaging

in certain trades and businesses, see section 4901 and section 5142.

* * * * * * *

 

Subchapter B--Miscellaneous Provisions

 

* * * * * * *

 

SEC. 6103. CONFIDENTIALITY AND DISCLOSURE OF RETURNS AND

RETURN INFORMATION.

(a) * * *

 

* * * * * * *

 

(l) Disclosure of Returns and Return Information for Purposes Other

Than Tax Administration.--

(1) * * *

 

* * * * * * *

 

 

(17) Disclosure to national archives and records

administration.--The Secretary shall, upon written request from the

Archivist of the United States, disclose or authorize the disclosure of

returns and return information to officers and employees of the National

Archives and Records Administration for purposes of, and only to the

extent necessary in, the appraisal of records for destruction or

retention. No such officer or employee shall, except to the extent

authorized by subsections (f), (i)(7), or (p), disclose any return or

return information disclosed under the preceding sentence to any person

other than to the Secretary, or to another officer or employee of the

National Archives and Records Administration whose official duties

require such disclosure for purposes of such appraisal.

 

* * * * * * *

 

(p) Procedure and Recordkeeping.--

 

(1) * * *

 

* * * * * * *

 

(3) Records of inspection and disclosure.--

 

(A) System of recordkeeping.--Except as otherwise provided by this

paragraph, the Secretary shall maintain a permanent system of

standardized records or accountings of all requests for inspection or

disclosure of returns and return information (including the reasons for

and dates of such requests) and of returns and return information

inspected or disclosed under this section. Notwithstanding the

provisions of section 552a(c) of title 5, United States Code, the

Secretary shall not be required to maintain a record or accounting of

requests for inspection or disclosure of returns and return information,

or of returns and return information inspected or disclosed, under the

authority of subsections (c), (e), (h)(1), (3)(A), or (4), (i)(4), or

(7)(A)(ii), (k)(1), (2), (6), or (8), (l)(1), (4)(B), (5), (7), (8),

(9), (10), (11), (12), (13), (14), (15), or (16) (16), or (17) , (m) or

(n). The records or accountings required to be maintained under this

paragraph shall be available for examination by the Joint Committee on

Taxation or the Chief of Staff of such joint committee. Such record or

accounting shall also be available for examination by such person or

persons as may be, but only to the extent, authorized to make such

examination under section 552a(c)(3) of title 5, United States Code.

* * * * * * *

 

(4) Safeguards.--Any Federal agency described in subsection (h)(2),

(h)(6), (i)(1), (2), (3), or (5), (j)(1) or (2), (k)(8), (l)(1), (2),

(3), (5), (11), (13), or (14) , (14), or (17) or (o)(1), the General

Accounting Office, or any agency, body, or commission described in

subsection (d), (i)(3)(B)(i) or (l)(6), (7), (8), (9), (10), (12) or

(15) shall, as a condition for receiving returns or return information--

(A) * * *

 

* * * * * * *

 

(F) upon completion of use of such returns or return information--

 

(i) * * *

 

(ii) in the case of an agency described in subsections (h)(2),

(h)(6), (i)(1), (2), (3), or (5), (j)(1) or (2), (k)(8), (l)(1), (2),

(3), (5), (10), (11), (12), (13), (14), or (15) , (15), or (17) or

(o)(1), or the General Accounting Office, either--

(I) * * *

 

* * * * * * *

 

CHAPTER 63--ASSESSMENT

 

* * * * * * *

 

Subchapter A--In General

 

* * * * * * *

 

SEC. 6201. ASSESSMENT AUTHORITY.

 

(a) * * *

 

* * * * * * *

 

(d) Required Reasonable Verification of Information Returns.--In any

court proceeding, if a taxpayer asserts a reasonable dispute with

respect to any item of income reported on an information return filed

with the Secretary under subpart B or C of part III of subchapter A of

chapter 61 by a third party and the taxpayer has fully cooperated with

the Secretary (including providing, within a reasonable period of time,

access to and inspection of all witnesses, information, and documents

within the control of the taxpayer as reasonably requested by the

Secretary), the Secretary shall have the burden of producing reasonable

and probative information concerning such deficiency in addition to such

information return.

(e) (d) Deficiency Proceedings.--For special rules applicable to

deficiencies of income, estate, gift, and certain excise taxes, see

subchapter B.

* * * * * * *

 

 

Subchapter B--Deficiency Procedures in the Case of Income,

Estate, Gift, and Certain Excise Taxes

SEC. 6213. RESTRICTIONS APPLICABLE TO DEFICIENCIES; PETITION

TO TAX COURT.

(a) Time for Filing Petition and Restriction on Assessment.--Within

90 days, or 150 days if the notice is addressed to a person outside the

United States, after the notice of deficiency authorized in section 6212

is mailed (not counting Saturday, Sunday, or a legal holiday in the

District of Columbia as the last day), the taxpayer may file a petition

with the Tax Court for a redetermination of the deficiency. Except as

otherwise provided in section 6851, 6852, or 6861 no assessment of a

deficiency in respect of any tax imposed by subtitle A, or B, chapter

41, 42, 43, or 44 and no levy or proceeding in court for its collection

shall be made, begun, or prosecuted until such notice has been mailed to

the taxpayer, nor until the expiration of such 90-day or 150-day period,

as the case may be, nor, if a petition has been filed with the Tax

Court, until the decision of the Tax Court has become final.

Notwithstanding the provisions of section 7421(a), the making of such

assessment or the beginning of such proceeding or levy during the time

such prohibition is in force may be enjoined by a proceeding in the

proper court, including the Tax Court. , including the Tax Court, and a

refund may be ordered by such court of any amount collected within the

period during which the Secretary is prohibited from collecting by levy

or through a proceeding in court under the provisions of this

subsection. The Tax Court shall have no jurisdiction to enjoin any

action or proceeding to enjoin any action or proceeding or order any

refund under this subsection unless a timely petition for a

redetermination of the deficiency has been filed and then only in

respect of the deficiency that is the subject of such petition. Any

petition filed with the Tax Court on or before the last date specified

for filing such petition by the Secretary in the notice of deficiency

shall be treated as timely filed.

* * * * * * *

 

Subchapter C--Tax Treatment of Partnership Items

 

* * * * * * *

 

SEC. 6230. ADDITIONAL ADMINISTRATIVE PROVISIONS.

 

(a) * * *

 

* * * * * * *

 

(c) Claims arising out of erroneous computations, etc..--

 

(1) * * *

 

* * * * * * *

 

(5) Rules for seeking innocent spouse relief.--

 

(A) In general.--The spouse of a partner may file a claim for refund

on the ground that the Secretary failed to relieve the spouse under

section 6013(e) 6015 from a liability that is attributable to an

adjustment to a partnership item.

* * * * * * *

 

CHAPTER 64--COLLECTION

 

* * * * * * *

 

Subchapter D--Seizure of Property for Collection of Taxes

 

* * * * * * *

 

SEC. 6344. CROSS REFERENCES.

 

(a) * * *

 

(b) Delinquent Collection Officers.--

 

 

For distraint proceedings against delinquent internal revenue

officers, see section 7803(d) section 7804(c) .

* * * * * * *

 

 

CHAPTER 66--LIMITATIONS

 

* * * * * * *

 

Subchapter A--Limitations on Assessment and Collection

 

* * * * * * *

 

SEC. 6501. LIMITATIONS ON ASSESSMENT AND COLLECTION.

 

(a) * * *

 

* * * * * * *

 

(c) Exceptions.--

 

(1) * * *

 

* * * * * * *

 

(4) Extension by agreement.--Where

 

(A) In general .--Where , before the expiration of the time

prescribed in this section for the assessment of any tax imposed by this

title, except the estate tax provided in chapter 11, both the Secretary

and the taxpayer have consented in writing to its assessment after such

time, the tax may be assessed at any time prior to the expiration of the

period agreed upon. The period so agreed upon may be extended by

subsequent agreements in writing made before the expiration of the

period previously agreed upon.

 

(B) Notice to taxpayer of right to refuse or limit extension.--The

Secretary shall notify the taxpayer of the taxpayer's right to refuse to

extend the period of limitations, or to limit such extension to

particular issues, on each occasion when the taxpayer is requested to

provide such consent.

 

* * * * * * *

 

 

Subchapter B--Limitations on Credit or Refund

 

* * * * * * *

 

SEC. 6511. LIMITATIONS ON CREDIT OR REFUND.

 

(a) * * *

 

* * * * * * *

 

 

(h) Running of Periods of Limitation Suspended While Taxpayer Is

Unable To Manage Financial Affairs Due to Disability.--

(1) In general.--In the case of an individual, the running of the

periods specified in subsections (a), (b), and (c) shall be suspended

during any period of such individual's life that such individual is

financially disabled.

(2) Financially disabled.--

 

(A) In general.--For purposes of paragraph (1), an individual is

financially disabled if such individual is unable to manage his

financial affairs by reason of his medically determinable physical or

mental impairment which can be expected to result in death or which has

lasted or can be expected to last for a continuous period of not less

than 12 months. An individual shall not be considered to have such an

impairment unless proof of the existence thereof is furnished in such

form and manner as the Secretary may require.

(B) Exception where individual has guardian, etc.--An individual

shall not be treated as financially disabled during any period that such

individual's spouse or any other person is authorized to act on behalf

of such individual in financial matters.

 

(h) (i) Cross References.--

 

 

(1) * * *

 

* * * * * * *

 

 

SEC. 6512. LIMITATIONS IN CASE OF PETITION TO TAX COURT.

 

(a) Effect of Petition to Tax Court.--If the Secretary has mailed to

the taxpayer a notice of deficiency under section 6212(a) (relating to

deficiencies of income, estate, gift, and certain excise taxes) and if

the taxpayer files a petition with the Tax Court within the time

prescribed in section 6213(a) (or 7481(c) with respect to a

determination of statutory interest or section 7481(d) solely with

respect to a determination of estate tax by the Tax Court), no credit or

refund of income tax for the same taxable year, of gift tax for the same

calendar year or calendar quarter, of estate tax in respect of the

taxable estate of the same decedent, or of tax imposed by chapter 41,

42, 43, or 44 with respect to any act (or failure to act) to which such

petition relates, in respect of which the Secretary has determined the

deficiency shall be allowed or made and no suit by the taxpayer for the

recovery of any part of the tax shall be instituted in any court

except--

(1) * * *

 

* * * * * * *

 

(4) As to overpayments attributable to partnership items, in

accordance with subchapter C of chapter 63. , and

 

(5) As to any amount collected within the period during which the

Secretary is prohibited from making the assessment or from collecting by

levy or through a proceeding in court under the provisions of section

6213(a), and

(6) As to overpayments the Secretary is authorized to refund or

credit pending appeal as provided in subsection (b).

 

(b) Overpayment Determined by Tax Court.--

 

(1) Jurisdiction to determine.--Except as provided by paragraph (3)

and by section 7463, if the Tax Court finds that there is no deficiency

and further finds that the taxpayer has made an overpayment of income

tax for the same taxable year, of gift tax for the same calendar year,

or calendar quarter, of estate tax in respect of the taxable estate of

the same decedent, or of tax imposed by chapter 41, 42, 43, or 44 with

respect to any act (or failure to act) to which such petition relates,

in respect of which the Secretary determined the deficiency, or finds

that there is a deficiency but that the taxpayer has made an overpayment

of such tax, the Tax Court shall have jurisdiction to determine the

amount of such overpayment, and such amount shall, when the decision of

the Tax Court has become final, be credited or refunded to the taxpayer.

If a notice of appeal in respect of the decision of the Tax Court is

filed under section 7483, the Secretary is authorized to refund or

credit the overpayment determined by the Tax Court to the extent the

overpayment is not contested on appeal.

* * * * * * *

 

CHAPTER 67--INTEREST

 

* * * * * * *

 

Subchapter A--Interest on Overpayments

 

* * * * * * *

 

SEC. 6601. INTEREST ON UNDERPAYMENT, NONPAYMENT, OR EXTENSIONS

OF TIME FOR PAYMENT, OF TAX.

(a) * * *

 

* * * * * * *

 

(f) Satisfaction by Credits.--If any portion of a tax is satisfied by

credit of an overpayment, then no interest shall be imposed under this

section on the portion of the tax so satisfied for any period during

which, if the credit had not been made, interest would have been

allowable with respect to such overpayment. The preceding sentence shall

not apply to the extent that section 6621(d) applies.

* * * * * * *

 

Subchapter C--Determination on Interest Rate, Compounding of Interest

 

* * * * * * *

 

 

SEC. 6621. DETERMINATION OF RATE OF INTEREST.

 

(a) General Rule.--

 

(1) Overpayment rate.--The overpayment rate established under this

section shall be the sum of--

(A) the Federal short-term rate determined under subsection (b), plus

 

(B) 2 percentage points.

 

(B) 3 percentage points (2 percentage points in the case of a

corporation).

To the extent that an overpayment of tax by a corporation for any

taxable period (as defined in subsection (c)(3), applied by

substitiuting ``overpayment'' for ``underpayment'') exceeds $10,000,

subparagraph (B) shall be applied by substituting ``0.5 percentage

point'' for ``2 percentage points''.

* * * * * * *

 

 

(d) Elimination of Interest on Overlapping Periods of Income Tax

Overpayments and Underpayments.--To the extent that, for any period,

interest is payable under subchapter A and allowable under subchapter B

on equivalent underpayments and overpayments by the same taxpayer of tax

imposed by chapters 1 and 2, the net rate of interest under this section

on such amounts shall be zero for such period.

 

* * * * * * *

 

CHAPTER 68--ADDITIONS TO THE TAX, ADDITIONAL AMOUNT, AND

ASSESSABLE PENALTIES

* * * * * * *

 

Subchapter A--Additions to the Tax and Additional Amounts

 

* * * * * * *

 

PART I--GENERAL PROVISIONS

 

* * * * * * *

 

SEC. 6651. FAILURE TO FILE TAX RETURN OR TO PAY TAX.

 

(a) * * *

 

* * * * * * *

 

 

(h) Limitation on Penalty on Individual's Failure To Pay for Months

During Period of Installment Agreement.--No addition to the tax shall be

imposed under paragraph (2) or (3) of subsection (a) with respect to the

tax liability of an individual for any month during which an installment

agreement under section 6159 is in effect for the payment of such tax to

the extent that imposing an addition to the tax under such paragraph for

such month would result in the aggregate number of percentage points of

such addition to the tax exceeding 9.5.

 

* * * * * * *

 

CHAPTER 74--CLOSING AGREEMENTS AND COMPROMISES

 

* * * * * * *

 

SEC. 7122. COMPROMISES.

 

(a) * * *

 

* * * * * * *

 

 

(c) Allowances For Basic Living Expenses.--The Secretary shall

develop and publish schedules of national and local allowances designed

to provide that taxpayers entering into a compromise have an adequate

means to provide for basic living expenses.

 

* * * * * * *

 

CHAPTER 75--CRIMES, OTHER OFFENSES, ABD FORFEITURES

 

* * * * * * *

 

Subchapter A--Crimes

 

* * * * * * *

 

PART I--GENERAL PROVISIONS

 

 

Sec. 7201. Attempt to evade or defeat tax.

 

* * * * * * *

 

Sec. 7217. Prohibition on executive branch influence over

taxpayer audits and other investigations.

* * * * * * *

 

 

SEC. 7217. PROHIBITION ON EXECUTIVE BRANCH INFLUENCE OVER

TAXPAYER AUDITS AND OTHER INVESTIGATIONS.

(a) Prohibition.--It shall be unlawful for any applicable person to

request any officer or employee of the Internal Revenue Service to

conduct or terminate an audit or other investigation of any particular

taxpayer with respect to the tax liability of such taxpayer.

(b) Reporting Requirement.--Any officer or employee of the Internal

Revenue Service receiving any request prohibited by subsection (a) shall

report the receipt of such request to the Chief Inspector of the

Internal Revenue Service.

(c) Exceptions.--Subsection (a) shall not apply to--

 

(1) any request made to an applicable person by the taxpayer or a

representative of the taxpayer and forwarded by such applicable person

to the Internal Revenue Service,

(2) any request by an applicable person for disclosure of return or

return information under section 6103 if such request is made in

accordance with the requirements of such section, or

(3) any request by the Secretary of the Treasury as a consequence of

the implementation of a change in tax policy.

(d) Penalty.--Any person who willfully violates subsection (a) or

fails to report under subsection (b) shall be punished upon conviction

by a fine in any amount not exceeding $5,000, or imprisonment of not

more than 5 years, or both, together with the costs of prosecution.

(e) Applicable Person.--For purposes of this section, the term

``applicable person'' means--

(1) the President, the Vice President, any employee of the executive

office of the President, and any employee of the executive office of the

Vice President, and

(2) any individual (other than the Attorney General of the United

States) serving in a position specified in section 5312 of title 5,

United States Code.

 

* * * * * * *

 

CHAPTER 76--JUDICIAL PROCEEDINGS

 

 

Subchapter A. Crimes.

 

* * * * * * *

 

Subchapter E. Burden of proof.

 

* * * * * * *

 

 

Subchapter B--Proceedings by Taxpayers and Third Parties

 

* * * * * * *

 

SEC. 7422. CIVIL ACTIONS FOR REFUND.

 

(a) * * *

 

* * * * * * *

 

 

(j) Special Rule for Actions With Respect to Estates for Which An

Election Under Section 6166 Is Made.--

(1) In general.--The district courts of the United States and the

United States Court of Federal Claims shall have jurisdiction over any

action brought by the representative of an estate to which this

subsection applies to determine the correct amount of the estate tax

liability of such estate (or for any refund with respect thereto) even

if the full amount of such liability has not been paid.

(2) Estates to which subsection applies.--This subsection shall

apply to any estate if, as of the date the action is filed--

(A) an election under section 6166 is in effect with respect to such

estate,

(B) no portion of the installments payable under such section have

been accelerated, and

(C) all installments the due date for which is on or before the date

the action is filed have been paid.

(3) Prohibition on collection of disallowed liability.--If the court

redetermines under paragraph (1) the estate tax liability of an estate,

no part of such liability which is disallowed by a decision of such

court which has become final may be collected by the Secretary, and

amounts paid in excess of the installments determined by the court as

currently due and payable shall be refunded.

 

(j) (k) Cross References.--

 

 

(1) * * *

 

 

* * * * * * *

 

SEC. 7430. AWARDING OF COSTS AND CERTAIN FEES.

 

(a) * * *

 

* * * * * * *

 

(c) Definitions.--For purposes of this section--

 

(1) Reasonable litigation costs.--The term ``reasonable litigation

costs'' includes--

(A) reasonable court costs, and

 

(B) based upon prevailing market rates for the kind or quality of

services furnished--

(i) * * *

 

* * * * * * *

 

(iii) reasonable fees paid or incurred for the services of attorneys

in connection with the court proceeding, except that such fees shall not

be in excess of $110 per hour unless the court determines that a special

factor, such as the limited availability of qualified attorneys for such

proceeding, the difficulty of the issues presented in the case, or the

local availability of tax expertise, justifies a higher rate.

In the case of any calendar year beginning after 1996, the dollar

amount referred to in clause (iii) shall be increased by an amount equal

to such dollar amount multiplied by the cost-of- living adjustment

determined under section 1(f)(3) for such calendar year, by substituting

``calendar year 1995'' for ``calendar year 1992'' in subparagraph (B)

thereof. If any dollar amount after being increased under the preceding

sentence is not a multiple of $10, such dollar amount shall be rounded

to the nearest multiple of $10.

(2) Reasonable administrative costs.--The term ``reasonable

administrative costs'' means--

(A) any administrative fees or similar charges imposed by the

Internal Revenue Service, and

(B) expenses, costs, and fees described in paragraph (1)(B), except

that any determination made by the court under clause (ii) or (iii)

thereof shall be made by the Internal Revenue Service in cases where the

determination under paragraph (4)(C) of the awarding of reasonable

administrative costs is made by the Internal Revenue Service.

Such term shall only include costs incurred on or after the earlier

of (i) the date of the receipt by the taxpayer of the notice of the

decision of the Internal Revenue Service Office of Appeals, or (ii) the

date of the notice of deficiency. Such term shall only include costs

incurred on or after whichever of the following is the earliest: (i) the

date of the receipt by the taxpayer of the notice of the decision of the

Internal Revenue Service Office of Appeals, (ii) the date of the notice

of deficiency, or (iii) the date on which the 1st letter of proposed

deficiency which allows the taxpayer an opportunity for administrative

review in the Internal Revenue Service Office of Appeals is sent.

(3) Attorney's fees.--For purposes of paragraphs (1) and (2), fees

for the services of an individual (whether or not an attorney) who is

authorized to practice before the Tax Court or before the Internal

Revenue Service shall be treated as fees for the services of an

attorney.

 

(3) Attorney's fees.--

 

(A) In general.--For purposes of paragraphs (1) and (2), fees for

the services of an individual (whether or not an attorney) who is

authorized to practice before the Tax Court or before the Internal

Revenue Service shall be treated as fees for the services of an

attorney.

(B) Pro bono services.--In any case in which the court could have

awarded attorney's fees under subsection (a) but for the fact that an

individual is representing the prevailing party for no fee or for a fee

which (taking into account all the facts and circumstances) is no more

than a nominal fee, the court may also award a judgment or settlement

for such amounts as the court determines to be appropriate (based on

hours worked and costs expended) for services of such individual but

only if such award is paid to such individual or such individual's

employer.

 

(4) Prevailing party.--

 

(A) * * *

 

(B) Exception if United States establishes that its position was

substantially justified.--

(i) * * *

 

* * * * * * *

 

 

(iii) Effect of losing on substantially similar issues.--In

determining for purposes of clause (i) whether the position of the

United States was substantially justified, the court shall take into

account whether the United States has lost in courts of appeal for other

circuits on substantially similar issues.

 

(iii) (iv) Applicable published guidance.--For purposes of clause

(ii), the term ``applicable published guidance'' means--

(I) regulations, revenue rulings, revenue procedures, information

releases, notices, and announcements, and

(II) any of the following which are issued to the taxpayer: private

letter rulings, technical advice memoranda, and determination letters.

* * * * * * *

 

SEC. 7433. CIVIL DAMAGES FOR CERTAIN UNAUTHORIZED COLLECTION ACTIONS.

 

(a) In General.--If, in connection with any collection of Federal tax

with respect to a taxpayer, any officer or employee of the Internal

Revenue Service recklessly or intentionally , or by reason of

negligence, disregards any provision of this title, or any regulation

promulgated under this title, such taxpayer may bring a civil action for

damages against the United States in a district court of

 

the United States. Except as provided in section 7432, such

civil action shall be the exclusive remedy for recovering damages

resulting from such actions.

(b) Damages.--In any action brought under subsection (a), upon a

finding of liability on the part of the defendant, the defendant shall

be liable to the plaintiff in an amount equal to the lesser of

$1,000,000 ($100,000, in the case of negligence) or the sum of--

(1) actual, direct economic damages sustained by the plaintiff as a

proximate result of the reckless or intentional or negligent actions of

the officer or employee, and

* * * * * * *

 

(d) Limitations.--

 

(1) Award for damages may be reduced if administrative remedies not

exhausted.--The amount of damages awarded under subsection (b) may be

reduced if the court determines that the plaintiff has not exhausted the

administrative remedies available to such plaintiff within the Internal

Revenue Service.

 

(1) Requirement that administrative remedies be exhausted.--A

judgment for damages shall not be awarded under subsection (b) unless

the court determines that the plaintiff has exhausted the administrative

remedies available to such plaintiff within the Internal Revenue

Service.

 

* * * * * * *

 

Subchapter C--The Tax Court

 

* * * * * * *

 

PART II--PROCEDURE

 

 

Sec. 7451. Fee for filing petition.

 

* * * * * * *

 

Sec. 7463. Disputes involving $10,000 $25,000 or less.

 

* * * * * * *

 

 

SEC. 7463. DISPUTES INVOLVING $10,000 $25,000 OR LESS.

 

(a) In General.--In the case of any petition filed with the Tax Court

for a redetermination of a deficiency where neither the amount of the

deficiency placed in dispute, nor the amount of any claimed overpayment,

exceeds--

(1) $10,000 $25,000 for any one taxable year, in the case of the

taxes imposed by subtitle A,

(2) $10,000 $25,000 , in the case of the tax imposed by chapter 11,

 

(3) $10,000 $25,000 for any one calendar year, in the case of the

tax imposed by chapter 12, or

(4) $10,000 $25,000 for any 1 taxable period (or, if there is no

taxable period, taxable event) in the case of any tax imposed by

subtitle D which is described in section 6212(a) (relating to a notice

of deficiency), at the option of the taxpayer concurred in by the Tax

Court or a division thereof before the hearing of the case, proceedings

in the case shall be conducted under this section. Notwithstanding the

provisions of section 7453, such proceedings shall be conducted in

accordance with such rules of evidence, practice, and procedure as the

Tax Court may prescribe. A decision, together with a brief summary of

the reasons therefor, in any such case shall satisfy the requirements of

sections 7459(b) and 7460.

* * * * * * *

 

PART IV--DECLARATORY JUDGMENTS

 

* * * * * * *

 

SEC. 7479. DECLARATORY JUDGMENTS RELATING TO ELIGIBILITY OF

ESTATE WITH RESPECT TO INSTALLMENT PAYMENTS UNDER SECTION 6166.

(a) * * *

 

* * * * * * *

 

 

(c) Extension of Time To File Refund Suit.--The 2-year period in

section 6532(a)(1) for filing suit for refund after disallowance of a

claim shall be suspended during the 90-day period after the mailing of

the notice referred to in subsection (b)(3) and, if a pleading has been

filed with the Tax Court under this section, until the decision of the

Tax Court has become final.

* * * * * * *

 

SUBCHAPTER E--BURDEN OF PROOF

 

 

Sec. 7491. Burden of proof.

 

 

SEC. 7491. BURDEN OF PROOF.

 

(a) General Rule.--The Secretary shall have the burden of proof in

any court proceeding with respect to any factual issue relevant to

ascertaining the income tax liability of a taxpayer.

(b) Limitations.--Subsection (a) shall only apply with respect to an

issue if--

(1) the taxpayer asserts a reasonable dispute with respect to such

issue,

(2) the taxpayer has fully cooperated with the Secretary with

respect to such issue, including providing, within a reasonable period

of time, access to and inspection of all witnesses, information, and

documents within the control of the taxpayer, as reasonably requested by

the Secretary, and

(3) in the case of a partnership, corporation, or trust, the

taxpayer is described in section 7430(c)(4)(A)(ii).

(c) Substantiation.--Nothing in this section shall be construed to

override any requirement of this title to substantiate any item.

 

CHAPTER 77--MISCELLANEOUS PROVISIONS

 

 

Sec. 7501. Liability for texes withheld or collected.

 

* * * * * * *

 

 

Sec. 7525. Low income taxpayer clinics.

 

 

* * * * * * *

 

 

SEC. 7502. TIMELY MAILING TREATED AS TIMELY FILING AND PAYING.

 

(a) * * *

 

* * * * * * *

 

(c) Registered and Certified Mailing.--

 

(1) Registered mail.--For purposes of this section, if any such

return, claim, statement, or other document, or payment, is sent by

United States registered mail--

(A) such registration shall be prima facie evidence that the return,

claim, statement, or other document was delivered to the agency,

officer, or office to which addressed, and

(B) the date of registration shall be deemed the postmark date.

 

(2) Certified mail.--The Secretary is authorized to provide by

regulations the extent to which the provisions of paragraph (1) of this

subsection with respect to prima facie evidence of delivery and the

postmark date shall apply to certified mail.

 

(c) Registered and Certified Mailing; Electronic Filing.--

 

(1) Registered mail.--For purposes of this section, if any return,

claim, statement, or other document, or payment, is sent by United

States registered mail--

(A) such registration shall be prima facie evidence that the return,

claim, statement, or other document was delivered to the agency,

officer, or office to which addressed, and

(B) the date of registration shall be deemed the postmark date.

 

(2) Certified mail; electronic filing.--The Secretary is authorized

to provide by regulations the extent to which the provisions of

paragraph (1) with respect to prima facie evidence of delivery and the

postmark date shall apply to certified mail and electronic filing.

 

* * * * * * *

 

 

SEC. 7525. LOW INCOME TAXPAYER CLINICS.

 

(a) In General.--The Secretary shall make grants to provide matching

funds for the development, expansion, or continuation of qualified low

income taxpayer clinics.

(b) Definitions.--For purposes of this section--

 

(1) Qualified low income taxpayer clinic.--

 

(A) In general.--The term ``qualified low income taxpayer clinic''

means a clinic that--

(i) does not charge more than a nominal fee for its services (except

for reimbursement of actual costs incurred), and

(ii)(I) represents low income taxpayers in controversies with the

Internal Revenue Service, or

(II) operates programs to inform individuals for whom English is a

second language about their rights and responsibilities under this

title.

(B) Representation of low income taxpayers.--A clinic meets the

requirements of subparagraph (A)(ii)(I) if--

(i) at least 90 percent of the taxpayers represented by the clinic

have incomes which do not exceed 250 percent of the poverty level, as

determined in accordance with criteria established by the Director of

the Office of Management and Budget, and

(ii) the amount in controversy for any taxable year generally does

not exceed the amount specified in section 7463.

(2) Clinic.--The term ``clinic'' includes--

 

(A) a clinical program at an accredited law school in which students

represent low income taxpayers in controversies arising under this

title, and

(B) an organization described in section 501(c) and exempt from tax

under section 501(a) which satisfies the requirements of paragraph (1)

through representation of taxpayers or referral of taxpayers to

qualified representatives.

(3) Qualified representative.--The term ``qualified representative''

means any individual (whether or not an attorney) who is authorized to

practice before the Internal Revenue Service or the applicable court.

(c) Special Rules and Limitations.--

 

(1) Aggregate limitation.--Unless otherwise provided by specific

appropriation, the Secretary shall not allocate more than $3,000,000 per

year (exclusive of costs of administering the program) to grants under

this section.

(2) Limitation on annual grants to a clinic.--The aggregate amount

of grants which may be made under this section to a clinic for a year

shall not exceed $100,000.

(3) Multi-year grants.--Upon application of a qualified low income

taxpayer clinic, the Secretary is authorized to award a multi-year grant

not to exceed 3 years.

(4) Criteria for awards.--In determining whether to make a grant

under this section, the Secretary shall consider--

(A) the numbers of taxpayers who will be served by the clinic,

including the number of taxpayers in the geographical area for whom

English is a second language,

(B) the existence of other low income taxpayer clinics serving the

same population,

(C) the quality of the program offered by the low income taxpayer

clinic, including the qualifications of its administrators and qualified

representatives, and its record, if any, in providing service to low

income taxpayers, and

(D) alternative funding sources available to the clinic, including

amounts received from other grants and contributions, and the endowment

and resources of the institution sponsoring the clinic.

(5) Requirement of matching funds.--A low income taxpayer clinic

must provide matching funds on a dollar for dollar basis for all grants

provided under this section. Matching funds may include--

(A) the salary (including fringe benefits) of individuals performing

services for the clinic, and

(B) the cost of equipment used in the clinic.

 

 

Indirect expenses, including general overhead of the institution

sponsoring the clinic, shall not be counted as matching funds.

 

CHAPTER 78--DISCOVERY OF LIABILITY AND ENFORCEMENT OF TITLE

 

* * * * * * *

 

Subchapter A--Examination and Inspection

 

* * * * * * *

 

SEC. 7602. EXAMINATION OF BOOKS AND WITNESSES.

 

(a) * * *

 

* * * * * * *

 

 

(d) Privilege of Confidentiality Extended to Taxpayer's Dealings with

Non-Attorneys Authorized to Practice Before Internal Revenue Service.--

(1) In general.--In any noncriminal proceeding before the Internal

Revenue Service, the taxpayer shall be entitled to the same common law

protections of confidentiality with respect to tax advice furnished by

any qualified individual (in a manner consistent with State law for such

individual's profession) as the taxpayer would have if such individual

were an attorney.

(2) Qualified individual.--For purposes of paragraph (1), the term

``qualified individual'' means any individual (other than an attorney)

who is authorized to practice before the Internal Revenue Service.

(e) Limitation on Examination on Unreported Income.--The Secretary

shall not use financial status or economic reality examination

techniques to determine the existence of unreported income of any

taxpayer unless the Secretary has a reasonable indication that there is

a likelihood of such unreported income.

(f) Limitation on Authority To Require Production of Computer Source

Code.--

(1) In general.--No summons may be issued under this title, and the

Secretary may not begin any action under section 7604 to enforce any

summons, to produce or examine any tax-related computer source code.

(2) Exception where information not otherwise available to verify

correctness of item on return.--Paragraph (1) shall not apply to any

portion of a tax-related computer source code if--

(A) the Secretary is unable to otherwise reasonably ascertain the

correctness of any item on a return from--

(i) the taxpayer's books, papers, records, or other data, or

 

(ii) the computer software program and the associated data which,

when executed, produces the output to prepare the return for the period

involved, and

(B) the Secretary identifies with reasonable specificity such

portion as to be used to verify the correctness of such item.

The Secretary shall be treated as meeting the requirements of

subparagraphs (A) and (B) after the 90th day after the Secretary makes a

formal request to the taxpayer and the owner or developer of the

computer software program for the material described in subparagraph

(A)(ii) if such material is not provided before the close of such 90th

day.

(3) Other exceptions.--Paragraph (1) shall not apply to--

 

(A) any inquiry into any offense connected with the administration

or enforcement of the internal revenue laws, and

(B) any tax-related computer source code developed by (or primarily

for the benefit of) the taxpayer or a related person (within the meaning

of section 267 or 707(b)) for internal use by the taxpayer or such

person and not for commercial distribution.

(4) Tax-related computer source code.--For purposes of this

subsection, the term ``tax-related computer source code'' means--

(A) the computer source code for any computer software program for

accounting, tax return preparation or compliance, or tax planning, or

(B) design and development materials related to such a software

program (including program notes and memoranda).

(5) Right to contest summons.--The determination of whether the

requirements of subparagraphs (A) and (B) of paragraph (2) are met or

whether any exception under paragraph (3) applies may be contested in

any proceeding under section 7604.

(6) Protection of trade secrets and other confidential

information.--In any court proceeding to enforce a summons for any

portion of a tax-related computer source code, the court may issue any

order necessary to prevent the disclosure of trade secrets or other

confidential information with respect to such source code, including

providing that any information be placed under seal to be opened only as

directed by the court.

 

* * * * * * *

 

SEC. 7609. SPECIAL PROCEDURES FOR THIRD-PARTY SUMMONSES.

 

(a) Notice.--

 

(1) * * *

 

* * * * * * *

 

(3) Third-party recordkeeper defined.--For purposes of this

subsection, the term ``third-party recordkeeper'' means--

(A) * * *

 

* * * * * * *

 

(H) any regulated investment company (as defined in section 851) and

any agent of such regulated investment company when acting as an agent

thereof, and

(I) any enrolled agent. , and

 

 

(J) any owner or developer of a tax-related computer source code (as

defined in section 7602(f)(4)).

 

Subparagraph (J) shall apply only with respect to a summons requiring

the production of the source code referred to in subparagraph (J) or the

program and data described in section 7602(f)(2)(A)(ii) to which such

source code relates.

 

* * * * * * *

 

CHAPTER 80--GENERAL RULES

 

* * * * * * *

 

Subchapter A--Application of Internal Revenue Laws

 

 

Sec. 7801. Authority of Department of the Treasury.

 

Sec. 7802. Commissioner of Internal Revenue; Assistant

Commissioners; Taxpayer Advocate.

Sec. 7803. Effect of reorganization plans.

 

Sec. 7804. Rules and regulations.

 

 

Sec. 7802. Internal Revenue Service Oversight Board.

 

Sec. 7803. Commissioner of Internal Revenue; other officials.

 

Sec. 7804. Other personnel.

 

 

* * * * * * *

 

SEC. 7802. COMMISSIONER OF INTERNAL REVENUE; ASSISTANT.

 

(a) Commissioner of Internal Revenue.--There shall be in the

Department of the Treasury a Commissioner of Internal Revenue, who shall

be appointed by the President, by and with the advice and consent of the

Senate. The Commissioner of Internal Revenue shall have such duties and

powers as may be prescribed by the Secretary of the Treasury.

(b) Assistant Commissioner for Employee Plans and Exempt

Organizations.--

(1) Establishment of Office.--There is established within the

Internal Revenue Service an office to be known as the ``Office of

Employee Plans and Exempt Organizations'' to be under the supervision

and direction of an Assistant Commissioner of Internal Revenue. As head

of the Office, the Assistant Commissioner shall be responsible for

carrying out such functions as the Secretary may prescribe with respect

to organizations exempt from tax under section 501(a) and with respect

to plans to which part I of subchapter D of chapter 1 applies (and with

respect to organizations designed to be exempt under such section and

plans designed to be plans to which such part applies).

(2) Authorization of appropriations.--There is authorized to be

appropriated to the Department of the Treasury to carry out the

functions of the Office an amount equal to the sum of--

(A) so much of the collections from taxes imposed under section 4940

(relating to excise tax based on investment income) as would have been

collected if the rate of tax under such section was 2 percent during the

second preceding fiscal year; and

(B) the greater of--

 

(i) an amount equal to the amount described in paragraph (A); or

 

(ii) $30,000,000.

 

(c) Assistant Commissioner (Taxpayer Services).--There is established

within the Internal Revenue Service an office to be known as the

``Office for Taxpayer Services'' to be under the supervision and

direction of an Assistant Commissioner of the Internal Revenue. The

Assistant Commissioner shall be responsible for taxpayer services such

as telephone, walk-in, and taxpayer educational services, and the design

and production of tax and informational forms.

(d) Office of Taxpayer Advocate.--

 

(1) In general.--There is established in the Internal Revenue

Service an office to be known as the ``Office of the Taxpayer

Advocate''. Such office shall be under the supervision and direction of

an official to be known as the ``Taxpayer Advocate'' who shall be

appointed by and report directly to the Commissioner of Internal

Revenue. The Taxpayer Advocate shall be entitled to compensation at the

same rate as the highest level official reporting directly to the Deputy

Commissioner of the Internal Revenue Service.

(2) Functions of office.--

 

(A) In general.--It shall be the function of the Office of Taxpayer

Advocate to--

(i) assist taxpayers in resolving problems with the Internal Revenue

Service,

(ii) identify areas in which taxpayers have problems in dealings

with the Internal Revenue Service,

(iii) to the extent possible, propose changes in the administrative

practices of the Internal Revenue Service to mitigate problems

identified under clause (ii), and

(iv) identify potential legislative changes which may be appropriate

to mitigate such problems.

(B) Annual reports.--

 

(i) Objectives.--Not later than June 30 of each calendar year after

1995, the Taxpayer Advocate shall report to the Committee on Ways and

Means of the House of Representatives and the Committee on Finance of

the Senate on the objectives of the Taxpayer Advocate for the fiscal

year beginning in such calendar year. Any such report shall contain full

and substantive analysis, in addition to statistical information.

(ii) Activities.--Not later than December 31 of each calendar year

after 1995, the Taxpayer Advocate shall report to the Committee on Ways

and Means of the House of Representatives and the Committee on Finance

of the Senate on the activities of the Taxpayer Advocate during the

fiscal year ending during such calendar year. Any such report shall

contain full and substantive analysis, in addition to statistical

information, and shall--

 

(I) identify the initiatives the Taxpayer Advocate has taken on

improving taxpayer services and Internal Revenue Service responsiveness,

(II) contain recommendations received from individuals with the

authority to issue Taxpayer Assistance Orders under section 7811,

(III) contain a summary of at least 20 of the most serious problems

encountered by taxpayers, including a description of the nature of such

problems,

(IV) contain an inventory of the items described in subclauses (I),

(II), and (III) for which action has been taken and the result of such

action,

(V) contain an inventory of the items described in subclauses (I),

(II), and (III) for which action remains to be completed and the period

during which each item has remained on such inventory,

(VI) contain an inventory of the items described in subclauses (II)

and (III) for which no action has been taken, the period during which

each item has remained on such inventory, the reasons for the inaction,

and identify any Internal Revenue Service official who is responsible

for such inaction,

(VII) identify any Taxpayer Assistance Order which was not honored

by the Internal Revenue Service in a timely manner, as specified under

section 7811(b),

(VIII) contain recommendations for such administrative and

legislative action as may be appropriate to resolve problems encountered

by taxpayers,

(IX) describe the extent to which regional problem resolution

officers participate in the selection and evaluation of local problem

resolution officers, and

(X) include such other information as the Taxpayer Advocate may

deem advisable.

(iii) Report to be submitted directly.--Each report required under

this subparagraph shall be provided directly to the Committees referred

to in clauses (i) and (ii) without any prior review or comment from the

Commissioner, the Secretary of the Treasury, any other officer or

employee of the Department of the Treasury, or the Office of Management

and Budget.

(3) Responsibilities of Commissioner.--The Commissioner of Internal

Revenue shall establish procedures requiring a formal response to all

recommendations submitted to the Commissioner by the Taxpayer Advocate

within 3 months after submission to the Commissioner.

SEC. 7803. OTHER PERSONNEL.

 

(a) Appointment and Supervision.--The Secretary is authorized to

employ such number of persons as the Secretary deems proper for the

administration and enforcement of the internal revenue laws, and the

Secretary shall issue all necessary directions, instructions, orders,

and rules applicable to such persons.

(b) Posts of Duty of Employees in Field Service or Traveling.--

 

(1) Designation of post of duty.--The Secretary shall determine and

designate the posts of duty of all such persons engaged in field work or

traveling on official business outside of the District of Columbia.

(2) Detail of personnel from field service.--The Secretary may order

any such person engaged in field work to duty in the District of

Columbia, for such periods as the Secretary may prescribe, and to any

designated post of duty outside the District of Columbia upon the

completion of such duty.

(c) Delinquent Internal Revenue Officers and Employees.--If any

officer or employee of the Treasury Department acting in connection with

the internal revenue laws fails to account for and pay over any amount

of money or property collected or received by him in connection with the

internal revenue laws, the Secretary shall issue notice and demand to

such officer or employee for payment of the amount which he failed to

account for and pay over, and, upon failure to pay the amount demanded

within the time specified in such notice, the amount so demanded shall

be deemed imposed upon such officer or employee and assessed upon the

date of such notice and demand, and the provisions of chapter 64 and all

other provisions of law relating to the collection of assessed taxes

shall be applicable in respect of such amount.

SEC. 7804. EFFECT OF REORGANIZATION PLANS

 

(a) Application.--The provisions of Reorganization Plan Numbered 26

of 1950 and Reorganization Plan Numbered 1 of 1952 shall be applicable

to all functions vested by this title, or by any act amending this title

(except as otherwise expressly provided in such amending act), in any

officer, employee, or agency, of the Department of the Treasury.

(b) Preservation of existing rights and remedies.--Nothing in

Reorganization Plan Numbered 26 of 1950 or Reorganization Plan Numbered

1 of 1952 shall be considered to impair any right or remedy, including

trial by jury, to recover any internal revenue tax alleged to have been

erroneously or illegally assessed or collected, or any penalty claimed

to have been collected without authority, or any sum alleged to have

been excessive or in any manner wrongfully collected under the internal

revenue laws. For the purpose of any action to recover any such tax,

penalty, or sum, all statutes, rules, and regulations referring to the

collector of internal revenue, the principal officer for the internal

revenue district, or the Secretary, shall be deemed to refer to the

officer whose act or acts referred to in the preceding sentence gave

rise to such action. The venue of any such action shall be the same as

under existing law.

 

SEC. 7802. INTERNAL REVENUE SERVICE OVERSIGHT BOARD.

 

(a) Establishment.--There is established within the Department of the

Treasury the Internal Revenue Service Oversight Board (hereafter in this

subchapter referred to as the ``Oversight Board'').

 

(b) Membership.--

 

(1) Composition.--The Oversight Board shall be composed of 11

members, as follows:

(A) 8 members shall be individuals who are not Federal officers or

employees and who are appointed by the President, by and with the advice

and consent of the Senate.

(B) 1 member shall be the Secretary of the Treasury or, if the

Secretary so designates, the Deputy Secretary of the Treasury.

(C) 1 member shall be the Commissioner of Internal Revenue.

 

(D) 1 member shall be an individual who is a representative of an

organization that represents a substantial number of Internal Revenue

Service employees and who is appointed by the President, by and with the

advice and consent of the Senate.

(2) Qualifications and terms.--

 

(A) Qualifications.--Members of the Oversight Board described in

paragraph (1)(A) shall be appointed solely on the basis of their

professional experience and expertise in 1 or more of the following

areas:

(i) Management of large service organizations.

 

(ii) Customer service.

 

(iii) Federal tax laws, including tax administration and compliance.

 

(iv) Information technology.

 

(v) Organization development.

 

(vi) The needs and concerns of taxpayers.

 

In the aggregate, the members of the Oversight Board described in

paragraph (1)(A) should collectively bring to bear expertise in all of

the areas described in the preceding sentence.

(B) Terms.--Each member who is described in paragraph (1)(A) or (D)

shall be appointed for a term of 5 years, except that of the members

first appointed under paragraph (1)(A)--

(i) 1 member shall be appointed for a term of 1 year,

 

(ii) 1 member shall be appointed for a term of 2 years,

 

(iii) 2 members shall be appointed for a term of 3 years, and

 

(iv) 2 members shall be appointed for a term of 4 years.

 

Such terms shall begin on the date of appointment.

 

(C) Reappointment.--An individual who is described in paragraph

(1)(A) may be appointed to no more than two 5-year terms on the

Oversight Board.

(D) Vacancy.--Any vacancy on the Oversight Board shall be filled in

the same manner as the original appointment. Any member appointed to

fill a vacancy occurring before the expiration of the term for which the

member's predecessor was appointed shall be appointed for the remainder

of that term.

(E) Special government employees.--During the entire period that an

individual appointed under paragraph (1)(A) is a member of the Oversight

Board, such individual shall be treated as--

(i) serving as a special government employee (as defined in section

202 of title 18, United States Code) and as described in section

207(c)(2) of such title 18, and

(ii) serving as an officer or employee referred to in section 101(f)

of the Ethics in Government Act of 1978 for purposes of title I of such

Act.

(3) Quorum.--6 members of the Oversight Board shall constitute a

quorum. A majority of members present and voting shall be required for

the Oversight Board to take action.

(4) Removal.--

 

(A) In general.--Any member of the Oversight Board may be removed at

the will of the President.

(B) Secretary and commissioner.--An individual described in

subparagraph (B) or (C) of paragraph (1) shall be removed upon

termination of employment.

(C) Representative of internal revenue service employees.--The

member described in paragraph (1)(D) shall be removed upon termination

of employment, membership, or other affiliation with the organization

described in such paragraph.

(5) Claims.--

 

(A) In general.--Members of the Oversight Board who are described in

paragraph (1)(A) or (D) shall have no personal liability under Federal

law with respect to any claim arising out of or resulting from an act or

omission by such member within the scope of service as a member. The

preceding sentence shall not be construed to limit personal liability

for criminal acts or omissions, willful or malicious conduct, acts or

omissions for private gain, or any other act or omission outside the

scope of the service of such member on the Oversight Board.

(B) Effect on other law.--This paragraph shall not be construed--

 

(i) to affect any other immunities and protections that may be

available to such member under applicable law with respect to such

transactions,

(ii) to affect any other right or remedy against the United States

under applicable law, or

(iii) to limit or alter in any way the immunities that are available

under applicable law for Federal officers and employees.

(c) General Responsibilities.--

 

(1) In general.--The Oversight Board shall oversee the Internal

Revenue Service in its administration, management, conduct, direction,

and supervision of the execution and application of the internal revenue

laws or related statutes and tax conventions to which the United States

is a party.

 

(2) Exceptions.--The Oversight Board shall have no responsibilities

or authority with respect to--

(A) the development and formulation of Federal tax policy relating

to existing or proposed internal revenue laws, related statutes, and tax

conventions,

(B) law enforcement activities of the Internal Revenue Service,

including compliance activities such as criminal investigations,

examinations, and collection activities, or

(C) specific procurement activities of the Internal Revenue Service.

 

(3) Restriction on disclosure of return information to oversight

board members.--No return, return information, or taxpayer return

information (as defined in section 6103(b)) may be disclosed to any

member of the Oversight Board described in subsection (b)(1)(A) or (D).

Any request for information not permitted to be disclosed under the

preceding sentence, and any contact relating to a specific taxpayer,

made by a member of the Oversight Board so described to an officer or

employee of the Internal Revenue Service shall be reported by such

officer or employee to the Secretary and the Joint Committee on

Taxation.

(d) Specific Responsibilities.--The Oversight Board shall have the

following specific responsibilities:

(1) Strategic plans.--To review and approve strategic plans of the

Internal Revenue Service, including the establishment of--

(A) mission and objectives, and standards of performance relative to

either, and

(B) annual and long-range strategic plans.

 

(2) Operational plans.--To review the operational functions of the

Internal Revenue Service, including--

(A) plans for modernization of the tax system,

 

(B) plans for outsourcing or managed competition, and

 

(C) plans for training and education.

 

(3) Management.--To--

 

(A) recommend to the President candidates for appointment as the

Commissioner of Internal Revenue and recommend to the President the

removal of the Commissioner,

(B) review the Commissioner's selection, evaluation, and

compensation of senior managers, and

(C) review and approve the Commissioner's plans for any major

reorganization of the Internal Revenue Service.

(4) Budget.--To--

 

(A) review and approve the budget request of the Internal Revenue

Service prepared by the Commissioner,

(B) submit such budget request to the Secretary of the Treasury, and

 

(C) ensure that the budget request supports the annual and

long-range strategic plans.

The Secretary shall submit the budget request referred to in paragraph

(4)(B) for any fiscal year to the President who shall submit such

request, without revision, to Congress together with the President's

annual budget request for the Internal Revenue Service for such fiscal

year.

(e) Board Personnel Matters.--

 

(1) Compensation of members.--

 

(A) In general.--Each member of the Oversight Board who is described

in subsection (b)(1)(A) shall be compensated at a rate of $30,000 per

year. All other members of the Oversight Board shall serve without

compensation for such service.

(B) Chairperson.--In lieu of the amount specified in subparagraph

(A), the Chairperson of the Oversight Board shall be compensated at a

rate of $50,000.

(2) Travel expenses.--The members of the Oversight Board shall be

allowed travel expenses, including per diem in lieu of subsistence, at

rates authorized for employees of agencies under subchapter I of chapter

57 of title 5, United States Code, while away from their homes or

regular places of business for purposes of attending meetings of the

Oversight Board.

(3) Staff.--At the request of the Chairperson of the Oversight

Board, the Commissioner shall detail to the Oversight Board such

personnel as may be necessary to enable the Oversight Board to perform

its duties. Such detail shall be without interruption or loss of civil

service status or privilege.

(4) Procurement of temporary and intermittent services.--The

Chairperson of the Oversight Board may procure temporary and

intermittent services under section 3109(b) of title 5, United States

Code.

(f) Administrative Matters.--

 

(1) Chair.--The members of the Oversight Board shall elect for a

2-year term a chairperson from among the members appointed under

subsection (b)(1)(A).

(2) Committees.--The Oversight Board may establish such committees

as the Oversight Board determines appropriate.

(3) Meetings.--The Oversight Board shall meet at least once each

month and at such other times as the Oversight Board determines

appropriate.

(4) Reports.--The Oversight Board shall each year report to the

President and the Congress with respect to the conduct of its

responsibilities under this title.

SEC. 7803. COMMISSIONER OF INTERNAL REVENUE; OTHER OFFICIALS.

 

(a) Commissioner of Internal Revenue.--

 

(1) Appointment.--

 

(A) In general.--There shall be in the Department of the Treasury a

Commissioner of Internal Revenue who shall be appointed by the

President, by and with the advice and consent of the Senate, to a 5-year

term. The appointment shall be made without regard to political

affiliation or activity.

(B) Vacancy.--Any individual appointed to fill a vacancy in the

position of Commissioner occurring before the expiration of the term for

which such individual's predecessor was appointed shall be appointed

only for the remainder of that term.

(C) Removal.--The Commissioner may be removed at the will of the

President.

 

(2) Duties.--The Commissioner shall have such duties and powers as

the Secretary may prescribe, including the power to--

(A) administer, manage, conduct, direct, and supervise the execution

and application of the internal revenue laws or related statutes and tax

conventions to which the United States is a party; and

(B) recommend to the President a candidate for appointment as Chief

Counsel for the Internal Revenue Service when a vacancy occurs, and

recommend to the President the removal of such Chief Counsel.

If the Secretary determines not to delegate a power specified in

subparagraph (A) or (B), such determination may not take effect until 30

days after the Secretary notifies the Committees on Ways and Means,

Government Reform and Oversight, and Appropriations of the House of

Representatives, the Committees on Finance, Government Operations, and

Appropriations of the Senate, and the Joint Committee on Taxation.

(3) Consultation with board.--The Commissioner shall consult with

the Oversight Board on all matters set forth in paragraphs (2) and (3)

(other than paragraph (3)(A)) of section 7802(d).

(b) Assistant Commissioner for Employee Plans and Exempt

Organizations.--There is established within the Internal Revenue Service

an office to be known as the ``Office of Employee Plans and Exempt

Organizations'' to be under the supervision and direction of an

Assistant Commissioner of Internal Revenue. As head of the Office, the

Assistant Commissioner shall be responsible for carrying out such

functions as the Secretary may prescribe with respect to organizations

exempt from tax under section 501(a) and with respect to plans to which

part I of subchapter D of chapter 1 applies (and with respect to

organizations designed to be exempt under such section and plans

designed to be plans to which such part applies) and other nonqualified

deferred compensation arrangements. The Assistant Commissioner shall

report annually to the Commissioner with respect to the Assistant

Commissioner's responsibilities under this section.

(c) Office of Taxpayer Advocate.--

 

(1) In general.--

 

(A) Establishment.--There is established in the Internal Revenue

Service an office to be known as the ``Office of the Taxpayer

Advocate''. Such office shall be under the supervision and direction of

an official to be known as the ``Taxpayer Advocate'' who shall be

appointed with the approval of the Oversight Board by the Commissioner

of Internal Revenue and shall report directly to the Commissioner. The

Taxpayer Advocate shall be entitled to compensation at the same rate as

the highest level official reporting directly to the Commissioner of

Internal Revenue.

(B) Restriction on subsequent employment.--An individual who is an

officer or employee of the Internal Revenue Service may be appointed as

Taxpayer Advocate only if such individual agrees not to accept any

employment with the Internal Revenue Service for at least 5 years after

ceasing to be the Taxpayer Advocate.

(2) Functions of office.--

 

(A) In general.--It shall be the function of the Office of Taxpayer

Advocate to--

(i) assist taxpayers in resolving problems with the Internal Revenue

Service,

(ii) identify areas in which taxpayers have problems in dealings

with the Internal Revenue Service,

(iii) to the extent possible, propose changes in the administrative

practices of the Internal Revenue Service to mitigate problems

identified under clause (ii), and

(iv) identify potential legislative changes which may be appropriate

to mitigate such problems.

(B) Annual reports.--

 

(i) Objectives.--Not later than June 30 of each calendar year, the

Taxpayer Advocate shall report to the Committee on Ways and Means of the

House of Representatives and the Committee on Finance of the Senate on

the objectives of the Taxpayer Advocate for the fiscal year beginning in

such calendar year. Any such report shall contain full and substantive

analysis, in addition to statistical information.

(ii) Activities.--Not later than December 31 of each calendar year,

the Taxpayer Advocate shall report to the Committee on Ways and Means of

the House of Representatives and the Committee on Finance of the Senate

on the activities of the Taxpayer Advocate during the fiscal year ending

during such calendar year. Any such report shall contain full and

substantive analysis, in addition to statistical information, and

shall--

(I) identify the initiatives the Taxpayer Advocate has taken on

improving taxpayer services and Internal Revenue Service responsiveness,

(II) contain recommendations received from individuals with the

authority to issue Taxpayer Assistance Orders under section 7811,

(III) contain a summary of at least 20 of the most serious problems

encountered by taxpayers, including a description of the nature of such

problems,

(IV) contain an inventory of the items described in subclauses (I),

(II), and (III) for which action has been taken and the result of such

action,

(V) contain an inventory of the items described in subclauses (I),

(II), and (III) for which action remains to be completed and the period

during which each item has remained on such inventory,

(VI) contain an inventory of the items described in subclauses (I),

(II), and (III) for which no action has been taken, the period during

which each item has remained on such inventory, the reasons for the

inaction, and identify any Internal Revenue Service official who is

responsible for such inaction,

(VII) identify any Taxpayer Assistance Order which was not honored

by the Internal Revenue Service in a timely manner, as specified under

section 7811(b),

(VIII) contain recommendations for such administrative and

legislative action as may be appropriate to resolve problems encountered

by taxpayers,

(IX) identify areas of the tax law that impose significant

compliance burdens on taxpayers or the Internal Revenue Service,

including specific recommendations for remedying these problems,

(X) in conjunction with the National Director of Appeals, identify

the 10 most litigated issues for each category of taxpayers, including

recommendations for mitigating such disputes, and

(XI) include such other information as the Taxpayer Advocate may

deem advisable.

(iii) Report to be submitted directly.--Each report required under

this subparagraph shall be provided directly to the committees described

in clauses (i) and (ii) without any prior review or comment from the

Oversight Board, the Secretary of the Treasury, any other officer or

employee of the Department of the Treasury, or the Office of Management

and Budget.

(C) Other responsibilities.--The Taxpayer Advocate shall--

 

(i) monitor the coverage and geographic allocation of problem

resolution officers, and

(ii) develop guidance to be distributed to all Internal Revenue

Service officers and employees outlining the criteria for referral of

taxpayer inquiries to problem resolution officers.

(3) Responsibilities of commissioner.--The Commissioner shall

establish procedures requiring a formal response to all recommendations

submitted to the Commissioner by the Taxpayer Advocate within 3 months

after submission to the Commissioner.

SEC. 7804. OTHER PERSONNEL.

 

(a) Appointment and Supervision.--Unless otherwise prescribed by the

Secretary, the Commissioner of Internal Revenue is authorized to employ

such number of persons as the Commissioner deems proper for the

administration and enforcement of the internal revenue laws, and the

Commissioner shall issue all necessary directions, instructions, orders,

and rules applicable to such persons.

(b) Posts of Duty of Employees in Field Service or Traveling.--Unless

otherwise prescribed by the Secretary--

(1) Designation of post of duty.--The Commissioner shall determine

and designate the posts of duty of all such persons engaged in field

work or traveling on official business outside of the District of

Columbia.

 

(2) Detail of personnel from field service.--The Commissioner may

order any such person engaged in field work to duty in the District of

Columbia, for such periods as the Commissioner may prescribe, and to any

designated post of duty outside the District of Columbia upon the

completion of such duty.

(c) Delinquent Internal Revenue Officers and Employees.--If any

officer or employee of the Treasury Department acting in connection with

the internal revenue laws fails to account for and pay over any amount

of money or property collected or received by him in connection with the

internal revenue laws, the Secretary shall issue notice and demand to

such officer or employee for payment of the amount which he failed to

account for and pay over, and, upon failure to pay the amount demanded

within the time specified in such notice, the amount so demanded shall

be deemed imposed upon such officer or employee and assessed upon the

date of such notice and demand, and the provisions of chapter 64 and all

other provisions of law relating to the collection of assessed taxes

shall be applicable in respect of such amount.

 

SEC. 7805. RULES AND REGULATIONS.

 

(a) * * *

 

* * * * * * *

 

(d) Manner of Making Elections Prescribed by Secretary.--Except to

the extent otherwise provided by this title, any election under this

title shall be made at such time and in such manner as the Secretary

shall by regulations or forms prescribe.

* * * * * * *

 

SEC. 7811. TAXPAYER ASSISTANCE ORDERS.

 

(a) Authority to Issue.--Upon application

 

(1) In general .--Upon application filed by a taxpayer with the

Office of the Taxpayer Advocate (in such form, manner, and at such time

as the Secretary shall by regulations prescribe), the Taxpayer Advocate

may issue a Taxpayer Assistance Order if, in the determination of the

Taxpayer Advocate, the taxpayer is suffering or about to suffer a

significant hardship as a result of the manner in which the internal

revenue laws are being administered by the Secretary.

 

(2) Issuance of taxpayer assistance orders.--For purposes of

determining whether to issue a taxpayer assistance order, the Taxpayer

Advocate shall consider the following factors, among others:

(A) Whether there is an immediate threat of adverse action.

 

(B) Whether there has been an unreasonable delay in resolving

taxpayer account problems.

(C) Whether the taxpayer will have to pay significant costs

(including fees for professional representation) if relief is not

granted.

(D) Whether the taxpayer will suffer irreparable injury, or a

long-term adverse impact, if relief is not granted.

(3) Standard where administrative guidance not followed.--In cases

where any Internal Revenue Service employee is not following applicable

published administrative guidance (including the Internal Revenue

Manual), the Taxpayer Advocate shall construe the factors taken into

account in determining whether to issue a taxpayer assistance order in

the manner most favorable to the taxpayer.

 

* * * * * * *

 

CHAPTER 92--POWERS AND DUTIES OF JOINT COMMITTEE

 

 

Sec. 8021. Powers.

 

* * * * * * *

 

 

Sec. 8024. Tax complexity analysis.

 

 

* * * * * * *

 

SEC. 8021. POWERS.

 

(a) * * *

 

* * * * * * *

 

 

(e) Investigations.--The Joint Committee shall review all requests

(other than requests by the chairman or ranking member of a Committee or

Subcommittee) for investigations of the Internal Revenue Service by the

General Accounting Office, and approve such requests when appropriate,

with a view towards eliminating overlapping investigations, ensuring

that the General Accounting Office has the capacity to handle the

investigation, and ensuring that investigations focus on areas of

primary importance to tax administration.

(f) Relating to Joint Hearings.--

 

(1) In general.--The Chief of Staff, and such other staff as are

appointed pursuant to section 8004, shall provide such assistance as is

required for joint hearings described in paragraph (2).

(2) Joint hearings.--On or before April 1 of each calendar year

after 1997, there shall be a joint hearing of two members of the

majority and one member of the minority from each of the Committees on

Finance, Appropriations, and Government Affairs of the Senate, and the

Committees on Ways and Means, Appropriations, and Government Reform and

Oversight of the House of Representatives, to review the strategic plans

and budget for the Internal Revenue Service. After the conclusion of the

annual filing season, there shall be a second annual joint hearing to

review the other matters outlined in section 8022(3)(C).

 

SEC. 8022. DUTIES.

 

It shall be the duty of the Joint Committee--

 

(1) * * *

 

* * * * * * *

 

(3) Reports.--To report, from time to time, to the Committee on

Finance and the Committee on Ways and Means, and, in its discretion, to

the Senate or the House of Representatives, or both, the results of its

investigations, together with such recommendations as it may deem

advisable.

 

(3) Reports.--

 

(A) To report, from time to time, to the Committee on Finance and

the Committee on Ways and Means, and, in its discretion, to the Senate

or House of Representatives, or both, the results of its investigations,

together with such recommendations as it may deem advisable.

(B) To report, annually, to the Committee on Finance and the

Committee on Ways and Means on the overall state of the Federal tax

system, together with recommendations with respect to possible

simplification proposals and other matters relating to the

administration of the Federal tax system as it may deem advisable.

(C) To report, annually, to the Committees on Finance,

Appropriations, and Government Affairs of the Senate, and to the

Committees on Ways and Means, Appropriations, and Government Reform and

Oversight of the House of Representatives, with respect to--

(i) strategic and business plans for the Internal Revenue Service;

 

(ii) progress of the Internal Revenue Service in meeting its

objectives;

(iii) the budget for the Internal Revenue Service and whether it

supports its objectives;

(iv) progress of the Internal Revenue Service in improving taxpayer

service and compliance;

(v) progress of the Internal Revenue Service on technology

modernization; and

(vi) the annual filing season.

 

 

* * * * * * *

 

 

SEC. 8024. TAX COMPLEXITY ANALYSIS.

 

(a) In General.--If--

 

(1) legislation is reported by the Committee on Finance of the

Senate, the Committee on Ways and Means of the House of Representatives,

or any committee of conference, and

(2) such legislation includes any provision amending the Internal

Revenue Code of 1986,

the report or statement accompanying such legislation shall contain a

Tax Complexity Analysis prepared by the staff of the Joint Committee on

Taxation.

(b) Content of Complexity Analysis.--Each Tax Complexity Analysis

shall identify the provisions, if any, adding significant complexity or

providing significant simplification, as determined by the staff of the

Joint Committee on Taxation, and shall include the basis for such

determination.

(c) Legislation Subject to Point of Order.--It shall not be in order

in the Senate or the House of Representatives to consider any

legislation described in subsection (a) required to be accompanied by a

Tax Complexity Analysis that does not contain a Tax Complexity Analysis.

(d) Responsibilities of the Commissioner.--The Commissioner shall

provide the Joint Committee on Taxation with such information as is

necessary to prepare Tax Complexity Analyses.

 

* * * * * * *

 

 

 

TITLE 5, UNITED STATES CODE

 

* * * * * * *

 

PART III--EMPLOYEES

 

* * * * * * *

 

Subpart D--Pay and Allowances

 

CHAPTER 51--CLASSIFICATION

 

* * * * * * *

 

5109. Positions classified by statute

 

(a) * * *

 

(b) The position held by the employee appointed under section 7802(b)

7803(b) of the Internal Revenue Code of 1954 shall be considered a

position classified above GS 15 pursuant to section 5108.

* * * * * * *

 

PART III--EMPLOYEES

 

SUBPART A--GENERAL PROVISIONS

 

 

Chap.

 

Sec.

 

 

21.

 

Definitions

 

2101

 

* * * * * * *

 

 

SUBPART I--MISCELLANEOUS

 

 

93.

 

Personnel Flexibilities Relating to the Internal Revenue Service

 

9301

 

 

* * * * * * *

 

 

Subpart I--Miscellaneous

 

CHAPTER 93--PERSONNEL FLEXIBILITIES RELATING TO THE INTERNAL REVENUE

SERVICE

 

Sec.

 

9301. General requirements.

 

9302. Flexibilities relating to performance management.

 

9303. Staffing flexibilities.

 

9304. Flexibilities relating to demonstration projects.

 

 

9301. General requirements

 

(a) Conformance With Merit System Principles, Etc.--Any flexibilities

under this chapter shall be exercised in a manner consistent with--

(1) chapter 23, relating to merit system principles and prohibited

personnel practices; and

(2) provisions of this title (outside of this subpart) relating to

preference eligibles.

(b) Requirement Relating to Units Represented by Labor

Organizations.--

(1) Written agreement required.--Employees within a unit with

respect to which a labor organization is accorded exclusive recognition

under chapter 71 shall not be subject to the exercise of any flexibility

under section 9302, 9303, or 9304, unless there is a written agreement

between the Internal Revenue Service and the organization permitting

such exercise.

(2) Definition of a written agreement.--In order to satisfy

paragraph (1), a written agreement--

(A) need not be a collective bargaining agreement within the meaning

of section 7103(8); and

(B) may not be an agreement imposed by the Federal Service Impasses

Panel under section 7119.

9302. Flexibilities relating to performance management

 

(a) In General.--The Commissioner of Internal Revenue shall, within a

year after the date of the enactment of this chapter, establish a

performance management system which--

(1) subject to section 9301(b), shall cover all employees of the

Internal Revenue Service other than--

(A) the members of the Internal Revenue Service Oversight Board;

 

(B) the Commissioner of Internal Revenue; and

 

(C) the Chief Counsel for the Internal Revenue Service;

 

(2) shall maintain individual accountability by--

 

(A) establishing standards of performance which--

 

(i) shall permit the accurate evaluation of each employee's

performance on the basis of the individual and organizational

performance requirements applicable with respect to the evaluation

period involved, taking into account individual contributions toward the

attainment of any goals or objectives under paragraph (3);

(ii) shall be communicated to an employee before the start of any

period with respect to which the performance of such employee is to be

evaluated using such standards; and

(iii) shall include at least 2 standards of performance, the lowest

of which shall denote the retention standard and shall be equivalent to

fully successful performance;

(B) providing for periodic performance evaluations to determine

whether employees are meeting all applicable retention standards; and

 

(C) using the results of such employee's performance evaluation as a

basis for adjustments in pay and other appropriate personnel actions;

and

(3) shall provide for (A) establishing goals or objectives for

individual, group, or organizational performance (or any combination

thereof), consistent with Internal Revenue Service performance planning

procedures, including those established under the Government Performance

and Results Act of 1993, the Information Technology Management Reform

Act of 1996, Revenue Procedure 64 22 (as in effect on July 30, 1997),

and taxpayer service surveys, (B) communicating such goals or objectives

to employees, and (C) using such goals or objectives to make performance

distinctions among employees or groups of employees.

For purposes of this title, performance of an employee during any

period in which such employee is subject to standards of performance

under paragraph (2) shall be considered to be ``unacceptable'' if the

performance of such employee during such period fails to meet any

retention standard.

(b) Awards.--

 

(1) For superior accomplishments.--In the case of a proposed award

based on the efforts of an employee or former employee of the Internal

Revenue Service, any approval required under the provisions of section

4502(b) shall be considered to have been granted if the Office of

Personnel Management does not disapprove the proposed award within 60

days after receiving the appropriate certification described in such

provisions.

(2) For employees who report directly to the commissioner.--

 

(A) In general.--In the case of an employee of the Internal Revenue

Service who reports directly to the Commissioner of Internal Revenue, a

cash award in an amount up to 50 percent of such employee's annual rate

of basic pay may be made if the Commissioner finds such an award to be

warranted based on such employee's performance.

(B) Nature of an award.--A cash award under this paragraph shall not

be considered to be part of basic pay.

(C) Tax enforcement results.--A cash award under this paragraph may

not be based solely on tax enforcement results.

(D) Eligible employees.--Whether or not an employee is an employee

who reports directly to the Commissioner of Internal Revenue shall, for

purposes of this paragraph, be determined under regulations which the

Commissioner shall prescribe, except that in no event shall more than 8

employees be eligible for a cash award under this paragraph in any

calendar year.

(E) Limitation on compensation.--For purposes of applying section

5307 to an employee in connection with any calendar year to which an

award made under this paragraph to such employee is attributable,

subsection (a)(1) of such section shall be applied by substituting ``to

equal or exceed the annual rate of compensation for the Vice President

for such calendar year'' for ``to exceed the annual rate of basic pay

payable for level I of the Executive Schedule, as of the end of such

calendar year''.

(F) Approval required.--An award under this paragraph may not be

made unless--

(i) the Commissioner of Internal Revenue certifies to the Office of

Personnel Management that such award is warranted; and

(ii) the Office approves, or does not disapprove, the proposed award

within 60 days after the date on which it is so certified.

(3) Based on savings.--

 

(A) In general.--The Commissioner of Internal Revenue may authorize

the payment of cash awards to employees based on documented financial

savings achieved by a group or organization which such employees

comprise, if such payments are made pursuant to a plan which--

(i) specifies minimum levels of service and quality to be maintained

while achieving such financial savings; and

(ii) is in conformance with criteria prescribed by the Office of

Personnel Management.

(B) Funding.--A cash award under this paragraph may be paid from the

fund or appropriation available to the activity primarily benefiting or

the various activities benefiting.

(C) Tax enforcement results.--A cash award under this paragraph may

not be based solely on tax enforcement results.

(c) Other Provisions.--

 

(1) Notice provisions.--In applying sections 4303(b)(1)(A) and

7513(b)(1) to employees of the Internal Revenue Service, ``15 days''

shall be substituted for ``30 days''.

(2) Appeals.--Notwithstanding the second sentence of section

5335(c), an employee of the Internal Revenue Service shall not have a

right to appeal the denial of a periodic step increase under section

5335 to the Merit Systems Protection Board.

9303. Staffing flexibilities

 

(a) Eligibility to Compete for A Permanent Appointment in the

Competitive Service.--

(1) Eligibility of qualified veterans.--

 

(A) In general.--No veteran described in subparagraph (B) shall be

denied the opportunity to compete for an announced vacant competitive

service position within the Internal Revenue Service by reason of--

(i) not having acquired competitive status; or

 

(ii) not being an employee of that agency.

 

(B) Description.--An individual shall, for purposes of a position

for which such individual is applying, be considered a veteran described

in this subparagraph if such individual--

(i) is either a preference eligible, or an individual (other than a

preference eligible) who has been separated from the armed forces under

honorable conditions after at least 3 years of active service; and

(ii) meets the minimum qualification requirements for the position

sought.

(2) Eligibility of certain temporary employees.--

 

(A) In general.--No temporary employee described in subparagraph (B)

shall be denied the opportunity to compete for an announced vacant

competitive service position within the Internal Revenue Service by

reason of not having acquired competitive status.

(B) Description.--An individual shall, for purposes of a position

for which such individual is applying, be considered a temporary

employee described in this subparagraph if--

(i) such individual is then currently serving as a temporary

employee in the Internal Revenue Service;

(ii) such individual has completed at least 2 years of current

continuous service in the competitive service under 1 or more term

appointments, each of which was made under competitive procedures

prescribed for permanent appointments;

(iii) such individual's performance under each term appointment

referred to in clause (ii) met all applicable retention standards; and

(iv) such individual meets the minimum qualification requirements

for the position sought.

(b) Rating Systems.--

 

(1) In general.--Notwithstanding subchapter I of chapter 33, the

Commissioner of Internal Revenue may establish category rating systems

for evaluating job applicants for positions in the competitive service,

under which qualified candidates are divided into 2 or more quality

categories on the basis of relative degrees of merit, rather than

assigned individual numerical ratings. Each applicant who meets the

minimum qualification requirements for the position to be filled shall

be assigned to an appropriate category based on an evaluation of the

applicant's knowledge, skills, and abilities relative to those needed

for successful performance in the job to be filled.

(2) Treatment of preference eligibles.--Within each quality category

established under paragraph (1), preference eligibles shall be listed

ahead of individuals who are not preference eligibles. For other than

scientific and professional positions at or higher than GS 9 (or

equivalent), preference eligibles who have a compensable

service-connected disability of 10 percent or more, and who meet the

minimum qualification standards, shall be listed in the highest quality

category.

(3) Selection process.--An appointing authority may select any

applicant from the highest quality category or, if fewer than 3

candidates have been assigned to the highest quality category, from a

merged category consisting of the highest and second highest quality

categories. Notwithstanding the preceding sentence, the appointing

authority may not pass over a preference eligible in the same or a

higher category from which selection is made, unless the requirements of

section 3317(b) or

 

3318(b), as applicable, are satisfied, except that in no event

may certification of a preference eligible under this subsection be

discontinued by the Internal Revenue Service under section 3317(b)

before the end of the 6-month period beginning on the date of such

employee's first certification.

(c) Involuntary Reassignments and Removals of Career Appointees in

the Senior Executive Service.--Neither section 3395(e)(1) nor section

3592(b)(1) shall apply with respect to the Internal Revenue Service.

(d) Probationary Periods.--Notwithstanding any other provision of law

or regulation, the Commissioner of Internal Revenue may establish a

period of probation under section 3321 of up to 3 years for any position

if, as determined by the Commissioner, a shorter period would be

insufficient for the incumbent to demonstrate complete proficiency in

such position.

(e) Provisions That Remain Applicable.--No provision of this section

exempts the Internal Revenue Service from--

(1) any employment priorities established under direction of the

President for the placement of surplus or displaced employees; or

(2) its obligations under any court order or decree relating to the

employment practices of the Internal Revenue Service.

9304. Flexibilities relating to demonstration projects

 

(a) Authority To Conduct.--The Commissioner of Internal Revenue may,

in accordance with this section, conduct 1 or more demonstration

projects to improve personnel management; provide increased individual

accountability; eliminate obstacles to the removal of or imposing any

disciplinary action with respect to poor performers, subject to the

requirements of due process; expedite appeals from adverse actions or

performance-based actions; and promote pay based on performance.

(b) General Requirements.--Except as provided in subsection (c), each

demonstration project under this section shall comply with the

provisions of section 4703.

(c) Special Rules.--For purposes of any demonstration project under

this section--

(1) Authority of commissioner.--The Commissioner of Internal Revenue

shall exercise the authority provided to the Office of Personnel

Management under section 4703.

(2) Provisions not applicable.--The following provisions of section

4703 shall not apply:

(A) Paragraphs (3) through (6) of subsection (b).

 

(B) Paragraphs (1), (2)(B)(ii), and (4) of subsection (c).

 

(C) Subsections (d) through (g).

 

(d) Notification Required To Be Given.--

 

(1) To employees.--The Commissioner of Internal Revenue shall notify

employees likely to be affected by a project proposed under this section

at least 90 days in advance of the date such project is to take effect.

(2) To congress and opm.--The Commissioner of Internal Revenue

shall, with respect to each demonstration project under this section,

provide each House of Congress and the Office of Personnel Management

with a report, at least 30 days in advance of the date such project is

to take effect, setting forth the final version of the plan for such

project. Such report shall, with respect to the project to which it

relates, include the information specified in section 4703(b)(1).

(e) Limitations.--No demonstration project under this section may--

 

(1) provide for a waiver of any regulation prescribed under any

provision of law referred to in paragraph (2)(B)(i) or (3) of section

4703(c);

(2) provide for a waiver of subchapter V of chapter 63 or subpart G

of part III (or any regulations prescribed under such subchapter or

subpart);

(3) provide for a waiver of any law or regulation relating to

preference eligibles as defined in section 2108 or subchapter II or III

of chapter 73 (or any regulations prescribed thereunder);

(4) permit collective bargaining over pay or benefits, or require

collective bargaining over any matter which would not be required under

section 7106; or

(5) include a system for measuring performance that provides for

only 1 level of performance at or above the level of fully successful or

better.

(f) Permissible Projects.--Notwithstanding any other provision of

law, a demonstration project under this section--

(1) may establish alternative means of resolving any dispute within

the jurisdiction of the Equal Employment Opportunity Commission, the

Merit Systems Protection Board, the Federal Labor Relations Authority,

or the Federal Service Impasses Panel; and

(2) may permit the Internal Revenue Service to adopt any alternative

dispute resolution procedure that a private entity may lawfully adopt.

(g) Consultation and Coordination.--The Commissioner of Internal

Revenue shall consult with the Director of the Office of Personnel

Management in the development and implementation of each demonstration

project under this section and shall submit such reports to the Director

as the Director may require. The Director or the Commissioner of

Internal Revenue may terminate a demonstration project under this

section if either of them determines that the project creates a

substantial hardship on, or is not in the best interests of, the public,

the Federal Government, employees, or qualified applicants for

employment with the Internal Revenue Service.

(h) Termination.--Each demonstration project under this section shall

terminate before the end of the 5-year period beginning on the date on

which the project takes effect, except that any such project may

continue beyond the end of such period, for not to exceed 2 years, if

the Commissioner of Internal Revenue, with the concurrence of the

Director, determines such extension is necessary to validate the results

of the project. Not later than 6 months before the end of the 5-year

period and any extension under the preceding sentence, the Commissioner

of Internal Revenue shall, with respect to the demonstration project

involved, submit a legislative proposal to the Congress if the

Commissioner determines that such project should be made permanent, in

whole or in part.

* * * * * * *

 

 

VII. CORRESPONDENCE FROM OTHER COMMITTEES

 

A. CORRESPONDENCE FROM COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT

 

The following correspondence was received from Representative Dan

Burton, Chairman, Committee on Government Reform and Oversight,

regarding the bill, H.R. 2676:

 

House of Representatives,

 

Committee on Government Reform and Oversight,

 

Washington, DC, October 31, 1997.

 

 

 

Hon. Bill Archer, Chairman, Committee on Ways and Means,

 

Washington, DC.

 

Dear Mr. Chairman: After several months of negotiation with the

interested parties, the Committee on Government Reform and Oversight

agrees to the provisions of H.R. 2676, a bill to restructure and reform

the Internal Revenue Service. The Government Reform and Oversight

Committee does not object to the current legislation, and therefore does

not intend to exercise its jurisdiction over H.R. 2676.

The Committee initially had concerns about the Freedom of Information

Act and civil service related provisions included within the original

text. Through negotiation, we were able to draft language in these areas

that protects the interests of taxpayers and institutes employee

performance measures that provide the IRS Commissioner with the tools

necessary to make it easier to fire poor performers and people who

engage in misconduct. I would particularly like to thank Rep. Rob

Portman, the sponsor of H.R. 2292, and the National Commission on

Restructuring the Internal Revenue Service in helping with our efforts.

As you know, House Rule X, ``Establishment and Jurisdiction of

Standing Committees'', grants the Government Reform and Oversight

Committee jurisdiction over legislation related to government

information management and the civil service. Although the Committee

will not mark up H.R. 2676, this does not in any way waive this

Committee's jurisdiction over the bill or related legislation, nor over

the general subject matters contained in the bill which fall within this

Committee's jurisdiction. Further, I request that members of the

Government Reform and Oversight Committee be appointed to serve on any

conference committee appointed with respect to this legislation.

I look forward to working with you on this and other issues

throughout the 105th Congress.

Sincerely,

 

Dan Burton, Chairman.

 

B. CORRESPONDENCE FROM COMMITTEE ON RULES

 

The following correspondence was received from Representative Gerald

B. Solomon, Chairman, Committee on Rules, regarding the bill, H.R. 2676:

 

House of Representatives,

 

Committee on Rules,

 

Washington, DC, October 28, 1997.

 

 

 

Hon. Bill Archer, Chairman, Committee on Ways and Means,

 

Washington, DC.

 

Dear Mr. Chairman: I am writing concerning H.R. 2676, The Internal

Revenue Service Restructuring and Reform Act of 1997, which your

committee ordered reported on October 22 by a vote of 33 4.

This legislation contains provisions in Title IV, Congressional

Accountability for the Internal Revenue Service, which fall within the

jurisdiction of the Committee on Rules.

The Committee on Rules does not intend to consider this bill as a

matter of original jurisdiction. It is the intention of the Committee to

address several concerns with the proposed language in Title IV during

the Rules Committee's consideration of an appropriate rule for this

legislation.

I reserve jurisdiction of the Committee on Rules over all bills

relating to the rules, joint rules, and the order of business of the

House. It would also be my intention to be represented on the conference

committee on this bill. Thank you for your consideration.

Sincerely,

 

Gerald B. Solomon, Chairman.

 

 

VIII. ADDITIONAL VIEWS

 

We provide the following additional views and comments regarding H.R.

2676, the Internal Revenue Service Restructuring and Reform Act of 1997.

Importantly, this legislation would restructure the Internal Revenue

Service to provide better oversight, greater continuity of leadership,

improved access to expert advice from the private sector, additional

management flexibility, incentives for expansion of electronic tax

filing, taxpayer of safeguards in dealing with the IRS, and increased

Congressional accountability.

We support the important goals of this legislation and have worked on

several of its components over the last several years. In addition, we

are pleased to have participated, on a bipartisan basis, in

incorporating significant improvements to this bill from its original

form.

Over the past year, there has been much heated debate over the

provisions of various IRS reform bills. We believe that the debate was

necessary and resulted in many IRS reforms which we support.

Importantly, expressing our differences in opinion confirms our belief

that the legislative process can work effectively, to the benefit of the

public, where there is a true commitment to bipartisanship and

cooperation.

There has long been agreement on the need for fundamental reform of

the IRS. In fact, even back when the Members of the National Commission

on Restructuring the Internal Revenue Service were discussing which

recommendations to make to the Congress, there was uniform agreement

that fundamental reform of the IRS was in order, and a consensus on the

dozens of specific reform measures the Congress should be asked to

adopt. The Democratic Members of the Committee on Ways and Means have

continued to support wholeheartedly the vast majority of recommendations

put forward by the National Commission, which were reflected in both

H.R. 2428, to improve the operations and governance of the Internal

Revenue Service, introduced on September 8, 1997, and H.R. 2292, the

Internal Revenue Service Restructuring and Reform Act, introduced on

July 30, 1997.

H.R. 2292, as introduced on governance

 

There were several aspects of H.R. 2292, legislation introduced

originally by Rep. Rob Portman and others in response to the National

Commission's report, which caused us great concern and to which we

strongly objected. That bill, which was the subject of numerous

Committee and Subcommittee hearings while it was pending before the

Committee for over three months, remained unchanged by its sponsors

before the Committee markup. After much bipartisan discussion and

debate, a clean new version of the bill, H.R. 2676, which reflected

responses to many of our concerns, was introduced and became the focus

of the Committee's action. (During this period, many of us sponsored an

alternative bill, H.R. 2428, which was supported by the Administration,

to improve the structure of IRS management, operations, and oversight).

Our major concern with the original IRS reform bill was that it

failed to insure (1) effective and constitutional governance of the IRS,

and (2) full accountability of the IRS to the public (directly and

through their elected officials.) The original bill would have

established an IRS Board of Directors, consisting primarily of

private-sector appointees, with significant powers and authority to run

the IRS. For example, the bill would have the private-sector Board

members the authority to hire and fire the IRS Commissioner and would

have eliminated the current Internal Revenue Code rules that place the

IRS Commissioner under the control of the Secretary of the Treasury (and

ultimately the President). Such an approach would not have solved any

problem that has been enumerated by the National Commission or any abuse

highlighted by recent Senate Committee on Finance hearings. Rather, such

proposals would have made it more difficult for the IRS to function

effectively in its efforts to collect Federal revenues and provide

taxpayer services.

We believe that handing overall control of the IRS to a board

composed primarily of private citizens (taxpayers themselves) would have

reduced significantly the accountability of the IRS to the taxpaying

public. In our view, the Constitution requires that the IRS Commissioner

be appointed, hired, and, if necessary, fired by the President. The

public expects the IRS Commissioner to be accountable to them through

their elected representatives. Further, we believe that efforts to

increase the IRS's accountability should not blur or eliminate the

existing chain of command that runs from the IRS Commissioner, through

the Secretary of the Treasury, and ultimately to the President.

Moreover, we believe that turning effective control of the IRS over

to a part-time board, dominated by private sector individuals, raises

significant conflict-of-interest problems. Such conflict of interest,

whether real or perceived, undoubtedly would undermine further the

public's support for our voluntary Federal income tax system.

Accordingly, we believe that it would be inappropriate to grant--to a

relatively small groups of private interests--autonomy and broad powers

to run the IRS, while they serve as part-time public servants with

full-time obligations to private sector employers or private interest

clients.

Bipartisan negotiations and agreement on governance

 

Because of our strong commitment to an IRS that works fairly for

taxpayers and effectively in collecting the country's tax revenues, we

entered into intense bipartisan negotiations with numerous Members of

this Committee, the House Leadership, and the Administration to improve

the original legislation. As a result, several critically important

improvements were made to H.R. 2292. While each of us would have made

additional modifications, an acceptable compromise was reached.

Under the revised bill adopted by the Committee, the President--not a

Board of private-sector individuals--would have the authority to

appoint, hire, and fire the IRS Commissioner. As under current law, this

Nation's highest-elected official would remain ultimately responsible

for the actions of the IRS and the decisions of its commissioner.

 

Also, under the revised bill, the lines of authority from the

Secretary of the Treasury to the IRS Commissioner have been defined

clearly. Overall management of the IRS, including tax policy, tax

administration, and tax law enforcement activities, would continue to be

coordinated through Treasury, as would overall responsibility for

oversight and management of the IRS.

Once these two fundamental concerns of ours were addressed, we joined

our colleagues in supporting H.R. 2676.

As H.R. 2676 moves forward in the House, we note that the bill grants

the newly-create IRS Oversight Board members authority to review and

approve the strategic plans of the IRS, authority to review and approve

the Commissioner's annual budget, and authority to reveiw and approve

the Commissioner's plans for major reorganization of the IRS. While many

of us are not in favor of transferring even this much power to an

independent body, we believe that, on the whole, it constitutes an

acceptable compromise. Unfortunately, the bill is not clear about what

happens to our tax administration system under these new Board

authorities if a consensus is not reached among the Board members of the

the IRS Commissioner and Treasury Secretary disagree with the views of

the private-sector individuals. We intend to continue to work on

resolution of these issues in the coming months before a final IRS

reform bill is enacted into law.

Electronic filing of tax returns

 

H.R. 2676 contains important provisions to enhance the electronic

filing of tax returns and other documents with the IRS. These provisions

were developed by the Subcommittee on Oversight, on a bipartisan basis,

for inclusion in the revised IRS reform bill. The two underlying IRS

reform bills, H.R. 2428 and H.R. 2292 contained provisions to improve

electronic tax filing and served as the basis for the Subcommittee's

recommendations. We believe that these statutory changes are critical to

bringing the IRS into the modern age of technology and strongly support

the goal of having 80 percent of all tax returns filed electronically

within the next ten years.

Taxpayer rights 3

 

Of great significance to taxpayers nationwide are the provisions in

the bill, as approved by the Committee, to provide taxpayers with new

statutory protections and other assistance to millions of Americans in

their dealings with the IRS. Again, these provisions were developed by

the Subcommittee on Oversight, on a bipartisan basis, for inclusion in

the revised IRS reform bill. The Subcommittee's recommendations reflect

a combination of proposals from H.R. 2292, proposals advanced by the

Department of the Treasury, and new initiatives identified during the

Subcommittee's hearings on taxpayer rights.

Of particular importance are the provisions to expand ``innocent

spouse'' tax relief and provide tax refund relief to taxpayers during

periods of disability. Also, contained in the bill are provisions to

expand relief for taxpayers through issuance of ``taxpayer assistance

orders'' by the Taxpayer Advocate, grants for low-income tax clinics,

and penalty relief for taxpayers in installment agreements with the IRS.

However, we continue to have serious concerns about the provision in

the bill that shifts the burden of proof from taxpayers to the IRS in

certain court proceedings with respect to factual issues. This provision

was not considered by the Subcommittee on Oversight, nor was it a

recommendation of the National Commission.

We are concerned that the provision may have unintended negative

consequences for both taxpayers and the tax administrative system.

Currently, as a result of long-standing judicial decisions, a taxpayer

in civil tax matters is generally required to maintain records

substantiating the calculation of his or her income tax liability. The

courts created this rule to facilitate the finding of fact, and thus the

burden of proof is placed on the taxpayer simply because the taxpayer

controls the underlying facts and the records. We are concerned that at

least 15 percent of the revenue loss (and we believe more) attributable

to the provision is due to anticipated additional taxpayer

noncompliance. Further, we are not persuaded by the view of the Chief of

Staff of the Joint Committee on Taxation, as stated at the markup, that,

while the proposal will not do anything for most taxpayers, the public

will find great comfort in knowing that the burden shifts to the IRS for

some taxpayers in litigation. We similarly are concerned that shifting

the burden of proof could result in the necessity of more intrusive and

aggressive IRS examinations, more third-party summonses, and more

thorough discovery. Also, this provision could assist aggressive

taxpayers avoid taxation, or induce some taxpayers not to keep records

at all. We believe that the tax laws should make it easier for taxpayers

to deal with the IRS. However, we do not think the laws should make it

easier for someone to evade taxes. The vast majority of citizens who

obey the law deserve more. We intend to work toward improving the

burden-of-proof provision in this bill in order to insure that it does

not increase noncompliance and does not serve as an incentive for

taxpayers to cease retention of appropriate records.

Finally, it would be wrong not to point out the Internal Revenue

Service's many substantial accomplishments. As we work to reform the

IRS, it is understandable that we focus on the agency's failings.

However, it is easy in such circumstances to lose our sense of

perspective about this much-disparaged but indispensable government

agency. In such times, we must recognize the difficulty of the mission

that the IRS undertakes--and the success that it has had in carrying out

that mission. The IRS processes roughly 200 million forms each year and

collects nearly one and a half trillion dollars annually from over 100

million Americans--all with relatively few complaints. That is by no

means a small accomplishment. We are proud that this Nation has a very

high voluntary compliance rate--one that is the envy of the world. We

must not forget that the vast majority of IRS employees are dedicated,

hard-working civil servants who want to do a good job.

 

Charles B. Rangel,

 

Barbara B. Kennelly,

 

Sander Levin,

 

Richard E. Neal,

 

William J. Jefferson,

 

William J. Coyne,

 

Xavier Becerra,

 

Michael R. McNulty,

 

Karen L. Thurman.

 

 

ADDITIONAL VIEWS OF HON. BENJAMIN CARDIN AND HON. JOHN TANNER

 

H.R. 2676, the Internal Revenue Service Restructuring Act of 1997,

represents strong, bipartisan legislation to reform the Internal Revenue

Service. The bill builds on the recommendations of the National

Commission on Restructuring the IRS. Under the leadership of our

colleague Rob Portman and Sen. Bob Kerrey, the National Commission

undertook a year-long study of the IRS, and has made a tremendous

difference already in raising the level of concern and awareness of the

problems that plague the agency.

We are very proud to have joined Rep. Portman in cosponsoring H.R.

2292, which has had strong bipartisan support in this House. H.R. 2676

takes that very good bill and makes it even better. We are especially

pleased with two changes in the bill. First, it restores the appointment

of the Commissioner to the President, and second, it clarifies the lines

of authority from the Secretary of the Treasury to the Commissioner.

With the support of the Clinton Administration, this bill is poised to

move very quickly through the House.

The problems in the management and culture of the IRS are not a new

revelation to anyone on this committee. While recent publicity has

brought new media attention to these issues, those of us on this

committee know that the problems are of long duration.

While these problems are stubborn and deeply-rooted, they are not

beyond our reach. The legislation before us marks the first fundamental

reform of the IRS in nearly half a century. It will bring a new

structure to the IRS, a structure that is designed to change the way the

IRS treats its customers, the American taxpayers.

The litany of problems at the IRS is familiar to all of us--billions

of dollars squandered on a bungled computer modernization effort,

telephones unanswered, taxpayers too often treated with disrespect or

suspicion, an agency that is unable to balance its own books. These

problems have not emerged recently--they are not the legacy of one

administration, but of decades.

In fact, this administration, and particularly this Treasury

Secretary, have been more attentive to the problems of the IRS and more

dedicated in seeking solutions than any in recent years. Secretary Rubin

has made important changes in the management of the IRS, and those

efforts have begun to show results.

But much more remains to be done, and it is not realistic to expect

that IRS reform can be accomplished without legislation and without

bringing new expertise to the management of the Service. The solution

proposed in this bill is the creation of an Oversight Board that will

bring private sector expertise in the areas where the IRS needs it most.

The creation of this Board, with real authority to approve the strategic

plans, major reorganizations, and the budgets of the IRS, is the crucial

element in bringing real reform to this troubled agency.

The Board members, appointed by the President and confirmed by the

Senate, will work with the Secretary and the Commissioner to help reform

the IRS in the areas of customer service, information technology,

organizational development, and meeting the needs and concerns of

taxpayers. The Oversight Board will bring the expertise the IRS lacks,

and it will have the authority to help turn this agency around.

Under this bill, the Commissioner's budget, as approved by the Board,

will be forwarded to the Congress along with the president's budget for

the entire government. The Board-approved budget will not have legal

force--Congress will still control the purse strings. But the Board's

budget will give us a clear view of the needs and requirements of the

IRS, and will be tremendously helpful as we implement the reforms of the

agency.

Just as it is not realistic to expect that IRS reform can be

accomplished without a new management structure, it is not realistic to

expect the Oversight Board to do this work along. IRS reform will

require a committed partnership between the Board, the Secretary, and

the Commissioner, as well as the more constructive involvement from

those of us here in Congress.

Legislative oversight of the IRS is too unfocused, too scattered,

with too many masters and not enough coordination among committees. The

bill masters and not enough coordination among committees. The bill

attempts to bring some order and structure to the current system.

In addition to the governance and oversight provisions, the bill

contains a new set of provisions to be added to the Taxpayer Bill of

Rights. These provisions, when they are enacted, will mark the third

TBOR. The provisions address many problems that taxpayers have

encountered in dealing with the IRS, and their enactment will help solve

those problems.

We would add, however, that the broader objective of this bill must

be to change the culture of the IRS to make it a taxpayer-friendly

organization to that future Taxpayer Bills of Rights will not be

necessary.

The Internal Revenue Service is charged with the vital task of

collecting the revenue needed to fund the basic and essential operations

of government. When the IRS is mismanaged in ways that create fear and

anxiety among taxpayers, the result is to undermine the confidence of

the American people in their government. The purpose of this legislation

is to reform the IRS so that we can begin to restore that badly damaged

confidence.

 

Ben Cardin.

 

John Tanner.

 

 

ADDITIONAL VIEWS OF HON. XAVIER BECERRA

 

The Pharisee stood and prayed thus with himself,

``God, I thank thee that I am not like other men,

extortioners, unjust, adulterers, or even like this tax

collector.''

--Luke, Ch. 8, v. 11

 

 

Taxes are what we pay for civilized society.

 

--Justice Oliver Wendell Holmes

 

 

No one likes paying taxes; however, an effective tax system is

fundamental to the health and stability of our nation. Reconciling these

competing principles is a difficult balancing act that necessitates

respect for both individual taxpayers and the Treasury (i.e. taxpayers

collectively). In many respects, the Internal Revenue Service

Restructuring and Reform Act of 1997 achieves the goal of transforming

the IRS into a world class service agency. Unfortunately, it contains

several troublesome provisions.

It is encouraging that both Republican and Democratic tax writers, in

conjunction with the Administration, have committed themselves to

reforming and improving the IRS. It would have been all too simple for

either side to not engage in the difficult policy deliberations, and

score political points by bashing the IRS. In today's world of

sound-bite politics, that party would have scored easy points at the

expense of America's taxpayers.

I remain vitally committed to the process of bringing many of these

overdue reforms to the IRS. The Internal Revenue Service Restructuring

and Reform Act is a workable bill, but several important changes can and

should be made to it before it is signed into law by the President. I am

hopeful that these changes will be made.

Shifting of the burden of proof

 

Section 301 of the Committee-passed bill contains a provision that,

on a superficial reading, seems rather innocuous: shifting the burden of

proof in civil tax cases from the taxpayer to the Internal Revenue

Service. While this makes for good bumper sticker politics, it is bad

tax policy, and poses the specter of a more, not less, intrusive tax

collection agency.

Taxpayers have the burden of proof under current law in civil tax

cases because they possess the relevant records and documents. It is a

relatively simple matter for them to come forward with those records and

disprove IRS's position in a tax dispute. Section 301 may provide an

incentive for aggressive taxpayers, seeking the benefit of the burden

shift, not to settle their disputes at the administrative level and

litigate their disputes in court. Some taxpayers might be tempted not to

keep records at all, effectively making it impossible for the IRS to

verify whether a taxpayer's position is justified. In fact, the Joint

Committee on Taxation has estimated that shifting the burden of proof

will lead to a significant amount of reduced taxpayer compliance.

 

The overwhelming majority of tax experts reject this provision as

unwise and unworkable. To quote at length from a former Republican

Commissioner of the Internal Revenue Service, Fred Goldberg:

 

Most of us believe that the IRS is far too

intrusive today, and that tax administration is far too

cumbersome, contentious, and burdensome. Well, as the saying

goes, ``you ain't seen nothing yet.'' Change the burden of

proof and IRS tactics of today will seem like child's play. Of

necessity, the IRS would be forced to resort to far more

aggressive techniques in auditing taxpayers and developing

cases. Summonses, including third party summonses, would

become routine. Expanded record-keeping requirements and

increased litigation over discovery issues would be standard

fare. In addition, the number of revenue agents and audits of

taxpayers would likely increase dramatically. In the world of

tax administration, it's hard to imagine a more

well-intentioned idea that would have more undesirable

consequences.

 

This is a frightening vision of the future of the IRS which runs

counter to the spirit behind the Internal Revenue Restructuring and

Reform Act. For that simple reason, it is imperative that the burden of

proof provision be removed from the bill.

Board member's conflicts of interest

 

Another important area in which the Internal Revenue Restructuring

and Reform Act should be improved is in its conflict of interest rules

for the private-sector members of the newly minted IRS Oversight Board.

The American people deserve a tax collection agency with the highest

ethical standards; even the mere appearance of impropriety cannot be

tolerated. In that vein, section 104 of this legislation contains a

prohibition on executive branch interference in the collection and audit

practices of the IRS. Quite simply, politics should not play a role in

the important business of collecting the revenue necessary to fund the

functions of government. I would note as an aside that there has been no

credible allegations that this has been a problem at the IRS since the

early 1970s; nevertheless, this is a meritorious provision which I

support.

Unfortunately, similar rigorous standards of conduct were not imposed

for the IRS Oversight Board members. The Ways and Means Committee failed

to adopt an amendment offered by my fellow Californian, Rep. Stark. The

Stark amendment would have prohibited Board members from representing

clients in tax matters before the IRS or in court while a member of the

Board and for a limited time thereafter. This proposal simply recognizes

the impropriety--or, more importantly, the appearance of impropriety--of

those charged with governing the IRS having an interest, or representing

a party in a tax controversy, before the IRS. As most working Americans

probably can attest (or guess), it would be difficult to be an impartial

judge in a case involving your boss. While I have every confidence in

the honesty and integrity of future Board members, the defeat of the

Stark amendment opens the possibility for improper dealing, threatening

to erode the public's confidence in the integrity of our nation's tax

collection system and, by extension, our high voluntary taxpayer

compliance rate.

Disclosure of audit selection criteria

 

I am troubled by section 353 of the Internal Revenue Service

Restructuring and Reform Act, which calls upon the Treasury Secretary to

reveal the procedures by which returns are selected for audit by the

IRS. Audits are an unfortunate--but necessary--element of our tax

collection system; an element that recognizes that a not inconsequential

minority of taxpayers do not fully comply with our nation's tax laws,

and thereby force the vast majority of honest taxpayers to shoulder a

greater load.

Section 353 contains a caveat that ``[s]uch statement shall not

include any information the disclosure of which would be detrimental to

law enforcement.'' The provision would have been strengthened by the

further recognition that such disclosure by the Treasury should not lead

to a reduction involuntary tax compliance.

Joint committee on taxation approval of GAO studies

 

The Internal Revenue Service Restructuring and Reform Act contains

many worthy provisions designed to streamline Congressional oversight of

the IRS. All too often in the past, the IRS has had to answer to too

many parties, draining valuable agency resources from the important

business of collecting the proper amount of revenues while treating

taxpayers with the respect and courtesy they deserve. The more that

Congress speaks with one voice, the more the Service will be able to

better prioritize its mission.

At the same time, oversight of the Executive branch is one of

Congress's most important Constitutional functions. Great care must be

taken in retooling these procedures. Accordingly, I believe that one of

these oversight provisions in the IRS restructuring bill should be

modified. Section 401 of the legislation requires the Joint Committee on

Taxation (JCT) to approve all Congressional requests of the General

Accounting Office (GAO) to conduct investigations into the IRS, except

in the case of Chairman and Ranking Members of all Congressional

Committees and Subcommittees. I would note that if this provision were

law today, neither of the principal House sponsors of the instant

legislation--Reps. Portman and Cardin--would be able to secure a GAO

report on the IRS without JCT approval. Quite simply, I do not believe

that members of Congressional committees with substantive jurisdiction

over the nation's tax laws should be denied access to GAO's resources.

Conclusion

 

American taxpayers deserve a world class tax agency. There is no

dispute on that point. The dispute arises in how to achieve that

laudatory goal. In many respects, the Internal Revenue Service

Restructuring and Reform Act accomplishes its purpose. However, the bill

has a few serious defects--most notably, the provision shifting the

burden of proof--that may lead to a more intrusive IRS, which is exactly

the wrong direction to take our nation's tax collection agency. I trust

that these problems can be worked out in the bill as it makes its way

through the legislative process.

 

Xavier Becerra.

 

 

IX. DISSENTING VIEWS

 

We submit our dissenting views on H.R. 2676, the Internal Revenue

Service Restructuring and Reform Act of 1997, with the goal of improving

the bill in several critical areas as it proceeds through the Congress

this year and next. We refuse to join in the Republican stampede to use

this legislation as the forerunner to their efforts to ``tear the IRS

out by its roots'' or as a political step in their year-long efforts to

attack the IRS for the purpose of pursuing a campaign issue for the 1998

elections.

We should be clear that the examples of taxpayer abuse highlighted by

the recent Senate Committee on Finance hearings are unacceptable and

must be addressed. However, the IRS restructuring bill before the

Committee had nothing to do with these cases. In fact, the IRS Oversight

Board created by the bill would be specifically precluded from involving

itself, in any manner, in the ``law enforcement activities of the IRS,

including criminal investigations, examinations, and collection

activities.'' The issue debated by the Committee focused on overall

governance of the IRS, not abuses of the system in individual cases. In

fact, administrative actions already have begun to be taken by the IRS

and Treasury to provide relief to the taxpayers appearing before the

Congress and to hundreds of other taxpayers, nationwide, which will

resolve the problem cases--long before H.R. 2676 is enacted into law.

Nonetheless, there is much about which we all agree. The IRS needs to

improve its customer service, training of employees, and development and

application of technology; oversight of the IRS needs to be enhanced,

with significant input from the Department of the Treasury and the

advice of the private sector; the IRS Commissioner needs to have

flexibility in hiring a topnotch team, and to remain as head of the IRS

for at least 5 years; electronic tax filings need to be enhanced and

encouraged; protections for taxpayers, in their efforts to comply with

the tax laws, need to be expanded; and, the Congress needs to better

coordinate and focus its oversight and funding responsibilities with

regard to the IRS. To the extent the bill addresses these issues, it has

our support.

However, there are several fundamental problems with the focus and

direction of H.R. 2676 which should not go unnoted. These serve as the

basis for our dissent.

Executive branch governance

 

We believe that mechanisms should be established to provide for

consistent direction of a long-term strategy at the IRS and for holding

IRS management accountable for its decisions and operations. Similarly,

it is important that the IRS have systematic input from the Department

of the Treasury and the private sector on critical aspects of IRS

management, operations, and taxpayer services.

However, we do not believe that individual taxpayers from the private

sector should have final decision-making authority over any fundamental

aspect of the IRS's administration of the tax laws. Allowing eight

private-sector individuals to make final decisions about the IRS's

strategic plans, reorganization plans, and annual budget, raises basic

and fundamental questions of accountability.

Under the bill, it is clear that the new private-sector Board would

be integrally involved in the most ``taxpayer sensitive'' aspects of

IRS's administration of the tax laws. Specifically, the Board would be

given ``decisive approval'' authority over the agency-wide strategic

plan, budget, and organizational structure. These key management tools

define the priorities and goals of the IRS--particularly the IRS's

priorities in the area of compliance, examinations and collections. We

think that the result of H.R. 2676 is unacceptable, and that the bill's

governance plans would result in an unprecedented transfer of

governmental authority to individual taxpayers.

The bill also is flawed fundamentally in its failure to address the

fact that the Oversight Board largely will be comprised of

private-sector individuals. These Board members will be private-citizen

taxpayers for 353 days a year and quasi-government employees 12 days a

year. The potential for conflict of interest (both real and perceived)

is guaranteed, since the Board members will be given real authorities

and powers, not just expert advisory responsibilities.

In fact, during the Committee debate on the bill, clarification was

requested concerning whether a Board member would be able to represent a

client or employer in a tax dispute with the IRS during his or her

tenure on the Board. There was agreement that the bill language was not

intended to allow such conflict of interest. However, an amendment

offered by Rep. Pete Stark--to insure that the statutory language would

be changed to reflect the Committee's intent--was defeated by the

Republicans. Included in this amendment was clarification that Board

members would be subject to post-employment rules similar to those

applicable to an IRS Commissioner.

The conflict-of-interest problems in the bill go even deeper--and

have been conveniently ignored. What are the Board members' ethical

obligations with regard to disclosure of financial interests, such as

stock holdings? Under the bill, Board members would not be required to

file annual reports under the Ethics in Government Act. Also, the

Republicans have gone to great lengths to publicize that the present

nominee for IRS Commissioner appropriately will divest his holdings in

interests which may conflict with his duties to administer properly the

tax laws. What are the Board members' ethical obligations to divest

conflicting assets? Under the bill, there is no requirement that any of

the eight private-sector Board members divest conflicting holdings, yet

they would have fundamental approval authority over the IRS's direction,

mission, and accountability to the public.

 

Tax simplification

 

We all agree that the tax laws are too complex and must be

simplified. However, simplifying the tax laws takes more than political

rhetoric and blaming those merely trying to administer the tax laws.

Many of those arguing that the IRS cannot effectively administer the tax

rules are the same people responsible for making the tax system worse.

An easy example is the myriad of miscellaneous credits, phase-outs,

phase-ins, floors, and income limits contained in the Taxpayer Relief

Act of 1997.

Ironically, the Republicans could not even pass their prize

accomplishment in simple form--capital gains tax relief. The IRS

estimates that claiming capital gains tax relief now will take over four

hours to calculate and that the IRS will not even be able to process the

required capital gains forms for tax year 1997 until February 1998.

It is clear to us that much of the current debate is no more than

hollow political rhetoric. For example, during the Committee's debate on

the Taxpayer Relief Act, Rep. Jim McDermott offered an amendment which

would have reduced the marriage penalty of prior law (where some married

couples who both have relatively equal incomes pay more income tax than

they would as two single taxpayers filing individual returns). The

amendment was defeated by Republicans on a party-line vote. The bill, as

enacted, worsened the marriage penalty. Now, a number of the same

Members of Congress who helped develop the many new inequities and

complexities of the 1997 Act decry the IRS's inability to easily

administer the law. In the case of the marriage penalty, some of those

same Members now have announced that solving the marriage penalty is

their highest priority. Unfortunately, it is all too easy to understand

taxpayers' cynicism as they see the games played by many of their

elected officials.

Burden of proof

 

We continue to have serious concerns about the provision in the bill

that shifts the burden of proof from taxpayers to the IRS. We believe

that the provision will have unintended negative consequences for both

taxpayers and the tax administration system. The burden of proof is the

result of long-standing judicial decisions to facilitate the finding of

fact. Taxpayers in civil tax matters are required to justify their

income tax liabilities because the taxpayers control the underlying

facts and the records. We believe that most of the revenue loss

attributable to the provision is due to additional taxpayer

noncompliance. We believe that shifting the burden of proof will require

the IRS to conduct more intrusive and aggressive examinations, and that

the provision will assist aggressive taxpayers avoid taxation and induce

some taxpayers not to keep records at all. We intend to work toward

improving the burden of proof provision to insure that it does not

increase noncompliance and that it does not serve as an incentive for

taxpayers to cease retention of appropriate records.

Influencing IRS audits

 

We find it intriguing that the bill imposes criminal sanctions on the

President, Vice President, and Cabinet officials (with limited

exceptions) for requesting that the IRS conduct or terminate an audit of

a specific taxpayer. While the Republican Committee Members went to

great lengths to clarify that they knew of no such abuse by the

Executive Branch, they seem to have intentionally excluded those

individuals in a clear position to influence taxpayer audits and

collection activity--Members of Congress--particularly those in

positions of great power.

Conclusion

 

The Republicans are in the process of perfecting the political

``perpetual motion'' machine, and are going through their political

consultant's dance steps with unusual skill. We have not been fooled.

The public will not be fooled, either.

 

Pete Stark,

 

Robert T. Matsui,

 

Jim McDermott,

 

John Lewis.

 

 

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