IRS Restructuring and Reform Act of
1998
Senate
Report page5
 
4. Explanations of appeals and collection process (sec. 3504
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 provision requires that, no later than 180 days
after the date of enactment, a description of the
entire process from examination through collections,
including the assistance available to taxpayers from
the Taxpayer Advocate at various points in the
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 provision requires that the explanation be
included as soon as practicable, but no later than
180 days after the date of enactment.
5.
Explanation of reason for refund denial (sec. 3505
of the bill and new sec. 6402(j) of the Code)
Present
Law
The Examination Division of the IRS examines claims
for refund submitted by taxpayers. The Internal
Revenue Manual requires examination or other audit
action on refund claims within 30 days after receipt
of the claims. The refund claim is preliminarily
examined to determine if it should be disallowed
because it (1) was untimely filed, (2) was based
solely on alleged unconstitutionality of the Revenue
Acts, (3) was already waived by the taxpayer as
consideration for a settlement, (4) covers a taxable
year and issues which were the subject of a final
closing agreement or an offer in compromise, or (5)
relates to a return closed on the basis of a final
order of the Tax Court. In those cases, the taxpayer
will receive a form from the IRS stating that the
claim for refund cannot be considered. Other cases
will be examined as quickly as possible and the
disposition of the case, including the reasons for
the disallowance or partial disallowance of the
refund claim, must be stated in the portion of the
revenue agent's report that is sent to the taxpayer.
Reasons
for Change
The Committee believes that taxpayers are entitled
to an explanation of the reason for the disallowance
or partial disallowance of a refund claim so that
the taxpayer may appropriately respond to the IRS.
Explanation
of Provision
The provision requires the IRS to notify the
taxpayer of the specific reasons for the
disallowance (or partial disallowance) of the refund
claim.
Effective
Date
The provision is effective 180 days after the date
of enactment.
6.
Statements to taxpayers with installment agreements
(sec. 3506 of the bill)
Present
Law
A taxpayer entering into an installment agreement to
pay tax liabilities due to the IRS must complete a
Form 433-D which sets forth the installment amounts
to be paid monthly and the total amount of tax due.
The IRS does not provide the taxpayer with an annual
statement reflecting the amounts paid and the amount
due remaining.
Reasons
for Change
The Committee believes that taxpayers who enter into
an installment agreement should be kept informed of
amounts applied towards the outstanding tax
liability and amounts remaining due.
Explanation
of Provision
The provision requires the IRS to send every
taxpayer in an installment agreement an annual
statement of the initial balance owed, the payments
made during the year, and the remaining balance.
Effective
Date
The provision is effective no later than 180 days
after the date of enactment.
7.
Notification of change in tax matters partner (sec.
3507 of the bill and sec. 6231(a)(7) of the Code)
Present
Law
In general, the tax treatment of items of
partnership income, loss, deductions and credits are
determined at the partnership level in a unified
partnership proceeding rather than in separate
proceedings with each partner. In providing notice
to taxpayers with respect to partnership
proceedings, the IRS relies on information furnished
by a party designated as the tax matters partner (TMP)
of the partnership. The TMP is required to keep each
partner informed of all administrative and judicial
proceedings with respect to the partnership (sec.
6233(g)). Under certain circumstances, the IRS may
require the resignation of the incumbent TMP and
designate another partner as the TMP of a
partnership (sec. 6231(a)(7)).
Reasons
for Change
The Committee is concerned that, in cases where the
IRS designates the TMP, that the other partners may
be unaware of such designation.
Explanation
of Provision
The provision requires the IRS to notify all
partners of any resignation of the tax matters
partner that is required by the IRS, and to notify
the partners of any successor tax matters partner.
Effective
Date
The provision applies to selections of tax matters
partners made by the Secretary after the date of
enactment.
G.
Low-Income Taxpayer Clinics (sec. 3601 of the bill
and new sec. 7526 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 is authorized to provide up to
$3,000,000 per year in matching grants to certain
low-income taxpayer clinics. No clinic could receive
more than $100,000 per year.
Eligible clinics would be 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.
A "clinic" would include (1) a clinical
program at an accredited law school, an accredited
business school, or an accredited accounting school,
in which students represent low-income taxpayers, or
(2) an organization exempt from tax under Code
section 501(c) which either represents low-income
taxpayers or provides referral to qualified
representatives.
Effective
Date
The provision is effective on the date of enactment.
H.
Other Provisions
1.
Cataloging complaints (sec. 3701 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. The report must identify the nature of
the misconduct or complaint, the number of instances
received by category, and the disposition of the
complaints.
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 provision requires that, in collecting data for
this report, records of taxpayer complaints of
misconduct by IRS employees must be maintained on an
individual employee basis. These individual records
are not to be listed in the report.
Effective
Date
The requirement is effective on the date of
enactment.
2.
Archive of records of Internal Revenue Service (sec.
3702 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.37
Federal agencies are required to deposit significant
and historical records with NARA.38
The head of each Federal agency must also establish
safeguards against the removal or loss of records.39
Authority
of
NARA
NARA is authorized, under the Federal Records Act,
to establish standards for the selective retention
of records of continuing value.40
NARA has the statutory authority to inspect records
management practices of Federal agencies and to make
recommendations for improvement.41
The head of each Federal agency must submit to NARA
a list of records to be destroyed and a schedule for
such destruction.42
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.43
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.44
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.45
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.46
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 6103.47
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.48
Section 6103 does not authorize the disclosure of
confidential return information to
NARA
.
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").49
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 provision 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 U.S. Archivist, for
purposes of the appraisal of such records for
destruction or retention. The present-law
prohibitions on and penalties for disclosure of tax
information would generally apply to
NARA
.
Effective
Date
The provision is effective for requests made by the
Archivist after the date of enactment.
3.
Payment of taxes (sec. 3703 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 state that
checks or money orders should be made payable to the
Internal Revenue Service.
Reasons
for Change
The Committee believes that it more appropriate that
checks be made payable to the United States
Treasury.
Explanation
of Provision
The provision 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.
4.
Clarification of authority of Secretary relating to
the making of elections (sec. 3704 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.
5.
IRS employee contacts (sec. 3705 of the bill)
Present
Law
The IRS sends many different notices to taxpayers.
Some (but not all) of these notices contain a name
and telephone number of an IRS employee who the
taxpayer may call if the taxpayer has any questions.
Reasons
for Change
The Committee believes that it is important that
taxpayers receive prompt answers to their questions
about their tax liability. Many taxpayers report
frustration because they cannot determine the
appropriate IRS employee to contact for information.
Explanation
of Provision
The provision requires that all IRS notices and
correspondence contain a name and telephone number
of an IRS employee whom the taxpayer may call. In
addition, to the extent practicable and where it is
advantageous to the taxpayer, the IRS should assign
one employee to handle a matter with respect to a
taxpayer until that matter is resolved.
Effective
Date
The provision is effective 60 days after the date of
enactment.
6.
Use of pseudonyms by IRS employees (sec. 3706 of the
bill)
Present
Law
The Federal Service Impasses Panel has ruled that if
an employee believes that use of the employee's last
name only will identify the employee due to the
unique nature of the employee's last name, and/or
nature of the office locale, then the employee may
"register" a pseudonym with the employee's
supervisor.
Reasons
for Change
The Committee is concerned that IRS employees may
use pseudonyms in inappropriate circumstances.
Explanation
of Provision
The provision provides that an IRS employee may use
a pseudonym only if (1) adequate justification, such
as protecting personal safety, for using the
pseudonym was provided by the employee as part of
the employee's request and (2) management has
approved the request to use the pseudonym prior to
its use.
Effective
Date
The provision is effective with respect to requests
made after the date of enactment.
7.
Conferences of right in the National Office of IRS
(sec. 3707 of the bill)
Present
Law
In any matter involving the submission of a
substantive legal matter involving a specific
taxpayer to the National Office of the IRS, the
taxpayer is entitled to at least one conference (the
"conference of right") at which it can
explain its position.
Reasons
for Change
The Committee is concerned that the presence of the
IRS employee with whom the taxpayer has previously
dealt may hinder efficient resolution of the issue
in the National Office.
Explanation
of Provision
The provision gives a taxpayer the right to limit
participation in its conference of right to IRS
national office personnel.
Effective
Date
The provision is effective with respect to requests
made after the date of enactment.
8.
Illegal tax protester designations (sec. 3708 of the
bill)
Present
Law
The IRS designates individuals who meet certain
criteria as "illegal tax protesters" in
the IRS Master File.
Reasons
for Change
The Committee is concerned that taxpayers may be
stigmatized by a designation as an "illegal tax
protester."
Explanation
of Provision
The provision prohibits the use by the IRS of the
"illegal tax protester" designation. Any
extant designation in the individual master file
(the main computer file) must be removed and any
other extant designation (such as on paper records
that have been archived) must be disregarded. The
IRS is, however, permitted to designate appropriate
taxpayers as nonfilers. The IRS must remove the
nonfiler designation once the taxpayer has filed
valid tax returns for two consecutive years and paid
all taxes shown on those returns.
Effective
Date
The provision is effective on the date of enactment.
9.
Provision of confidential information to Congress by
whistleblowers (sec. 3709 of the bill and sec.
6103(f) of the Code)
Present
Law
Tax return information generally may not be
disclosed, except as specifically provided by
statute. The Secretary of the Treasury may furnish
tax return information to the Committee on Finance,
the Committee on Ways and Means and the Joint
Committee on Taxation upon a written request from
the chairmen of such committees. If the information
can be associated with, or otherwise identify,
directly or indirectly, a particular taxpayer, the
information may by furnished to the committee only
while sitting in closed executive session unless
such taxpayer otherwise consents in writing to such
disclosure.
Reasons
for Change
The Committee believes that it is appropriate to
have the opportunity to receive tax return
information directly from whistleblowers.
Explanation
of Provision
The provision allows any person who is (or was)
authorized to receive confidential tax return
information to disclose tax return information
directly to the Chairman of the Senate Committee on
Finance, the Chairman of the House Committee on Ways
and Means or the Chief of Staff of the Joint
Committee on Taxation provided: (1) such disclosure
is for the purpose of disclosing an incident of IRS
employee or taxpayer abuse, and (2) the Chairman of
the committee to which the information will be
disclosed gives prior approval for the disclosure in
writing.
Effective
Date
The provision is effective on the date of enactment.
10.
Listing of local IRS telephone numbers and addresses
(sec. 3710 of the bill)
Present
Law
The IRS is not statutorily required to publish the
local telephone number or address of its local
offices, and generally does not do so.
Reasons
for Change
The Committee believes that every taxpayer should
have convenient access to the IRS.
Explanation
of Provision
The provision requires the IRS, as soon as is
practicable but no later than 180 days after the
date of enactment, to publish addresses and local
telephone numbers of local IRS offices in
appropriate local telephone directories.
Effective
Date
The provision is effective on the date of enactment.
11.
Identification of return preparers (sec. 3711 of the
bill and sec. 6109(a) of the Code)
Present
Law
Any return or claim for refund prepared by an income
tax return preparer must bear the social security
number of the return preparer, if such preparer is
an individual (sec. 6109(a)).
Reasons
for Change
The Committee is concerned that inappropriate use
might be made of a preparer's social security
number.
Explanation
of Provision
The provision authorizes the IRS to approve
alternatives to Social Security numbers to identify
tax return preparers.
Effective
Date
The provision is effective on the date of enactment.
12.
Offset of past-due, legally enforceable State income
tax obligations against overpayments (sec. 3712 of
the bill and new sec. 6402(e) of the Code)
Present Law
Overpayments of Federal tax may be used to pay
past-due child support and debts owed to Federal
agencies (sec. 6402), without the consent of the
taxpayer. Such amount for past-due child support may
be paid directly to a State. Present law provides
that offsets are made in the following priority: (1)
child support; and (2) other Federal debts, in the
order in which such debts accrued.
Reasons
for Change
The Committee believes that it is appropriate to
permit States to collect past-due, legally
enforceable income tax debts that have been reduced
to judgment from Federal tax overpayments.
Explanation
of Provision
The provision permits States to participate in the
IRS refund offset program for past-due, legally
enforceable State income tax debts that have been
reduced to judgment, providing the person making the
Federal tax overpayment has shown on the return
establishing the overpayment an address that is
within the State seeking the tax offset. The offset
applies after the offsets provided in present law
for internal revenue tax liabilities, past-due
support, and past-due, legally enforceable
obligations owed a Federal agency. The offset occurs
before the designation of any refund toward future
Federal tax liability.
Effective
Date
The provision applies to Federal income tax refunds
payable after December 31, 1998.
13.
Moratorium regarding regulations under Notice 98-11
(sec. 3713(a)(1) of the bill)
Present
Law
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