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IRS Restruction and reform act of 1997

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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

B. Background and Need for Legislation

C. Legislative History

II.

Explanation of the Bill

Title I. Executive Branch Government

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

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

C. Structure and Funding of the Employee Plans and Exempt

Organizations Division (sec. 102)

D. Taxpayer Advocate (sec. 102)

E. Prohibition on Executive Branch Influence Over Taxpayer Audits

(sec. 104)

F. IRS Personnel Flexibilities (sec. 111)

Title II. Electronic Filing

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

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

C. Paperless Electronic Filing (sec. 203)

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

E. Access to Account Information (sec. 205)

Title III. Taxpayer Bill of Rights 3

A. Burden of Proof (sec. 301)

B. Proceedings by Taxpayers

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

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

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

C. Relief for Innocent Spouses and Persons With Disabilities

1. Innocent spouse relief (sec. 321)

2. Suspension of statute of limitations on filing claims during

periods of disability (sec. 322)

D. Provisions Relating to Interest

1. Elimination of interest differential on overlapping periods of

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

2. Increase in overpayment rate payable to taxpayers other than

corporations (sec. 332)

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 the IRS (sec. 341)

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

342)

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

4. Limitation on authority to require production of computer source

code (sec. 344)

5. Procedures relating to extensions of statute of limitations by

agreement (sec. 345)

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

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

petition (sec. 347)

8. Refund or credit of overpayments before final determination

(sec. 348)

9. Threat of audit prohibited to coerce tip report alternative

committment agreements (sec. 349)

F. Disclosures to Taxpayers

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

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

(sec. 352)

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

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

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

H. Other Taxpayer Rights Provisions

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

elected the installment method of payment (sec. 371)

2. Cataloging complaints (sec. 372)

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

4. Payment of taxes (sec. 374)

5. Clarification of authority of Secretary relating to the making

of elections (sec. 375)

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

during period of installment agreement (sec. 376)

I. Studies

1. Study of penalty administration (sec. 381)

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

Title IV. Congressional Accountability for the IRS

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

B. Joint Congressional Hearings and Coordinated Oversight Reports

(secs. 401 and 402)

C. Budget Matters

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

2. Financial management advisory group (sec. 412)

D. Tax Law Complexity Analysis (sec. 422)

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

III.

Votes of the Committee

IV.

Budget Effects of the Bill

A. Committee Estimates of Budgetary Effects

B. Budget Authority and Tax Expenditures

C. Cost Estimate Prepared by the Congressional Budget Office

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.

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

``(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.''

(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)''.

(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.''

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.''

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''.

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.

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 Chairp