IRS Restructuring and Reform Act of
1998
Conference Report page4
 
Procedures
for reviews of rejections of offers-in-compromise
and installment agreements
The provision requires that the IRS implement
procedures to review all proposed IRS rejections of
taxpayer offers-in-compromise and requests for
installment agreements prior to the rejection being
communicated to the taxpayer. The provision requires
the IRS to allow the taxpayer to appeal any
rejection of such offer or agreement to the IRS
Office of Appeals. The IRS must notify taxpayers of
their right to have an appeals officer review a
rejected offer-in-compromise on the application form
for an offer-in-compromise.
Publication
of taxpayer's rights with respect to
offers-in-compromise
The provision requires the IRS to publish guidance
on the rights and obligations of taxpayers and the
IRS relating to offers in compromise, including a
compliant spouse's right to apply to reinstate an
agreement that would otherwise be revoked due to the
nonfiling or nonpayment of the other spouse,
providing all payments required under the compromise
agreement are current.
Liberal
acceptance policy
It is anticipated that the IRS will adopt a liberal
acceptance policy for offers-in-compromise to
provide an incentive for taxpayers to continue to
file tax returns and continue to pay their taxes.
Effective
Date
The provision is generally effective for
offers-in-compromise submitted after the date of
enactment. The provision suspending levy is
effective with respect to offers-in-compromise
pending on or made after the 60th day after the date
of enactment.
iii.
Notice of deficiency to specify deadlines for filing
Tax Court petition (sec. 3463 of the bill and sec.
6213(a) 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 provision requires the IRS to 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. The provision provides
that a petition filed with the Tax Court by this
date is treated as timely filed.
Effective
Date
The provision applies to notices mailed after
December 31, 1998.
iv.
Refund or credit of overpayments before final
determination (sec. 3464 of the bill and sec.
6213(a) of the Code)
Present
Law
Generally, the IRS may not take action to collect a
deficiency during the period a taxpayer may petition
the Tax Court, or if the taxpayer petitions the Tax
Court, until the decision of the Tax Court becomes
final. Actions to collect a deficiency attempted
during this period may be enjoined, but there is no
authority for ordering the refund of any amount
collected by the IRS during 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, as
well as amounts that were collected during a period
in which collection is prohibited.
Explanation
of Provision
The provision provides that a 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 provision 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 is effective on the date of enactment.
v.
IRS procedures relating to appeal of examinations
and collections (sec. 3465 of the bill and new sec.
7123 of the Code)
Present
Law
IRS Appeals operates through regional Appeals
offices which are independent of the local District
Director and Regional Commissioner's offices. The
regional Directors of Appeals report to the National
Director of Appeals of the IRS, who reports directly
to the Commissioner and Deputy Commissioner. In
general, IRS Appeals offices have jurisdiction over
both pre-assessment and post-assessment cases. The
taxpayer generally has an opportunity to seek
Appeals jurisdiction after failing to reach
agreement with the Examination function and before
filing a petition in Tax Court, after filing a
petition in Tax Court (but before litigation), after
assessment of certain penalties, after a claim for
refund has been rejected by the District Director's
office, and after a proposed rejection of an
offer-in-compromise in a collection case (Treas.
Reg. sec. 601.106(a)(1)).
In certain cases under Coordinated Examination
Program procedures, the taxpayer has an opportunity
to seek early Appeals jurisdiction over some issues
while an examination is still pending on other
issues (Rev. Proc. 96-9, 1996-1 C.B. 575). The early
referral procedures also apply to employment tax
issues on a limited basis (Announcement 97-52).
A mediation or alternative dispute resolution (ADR)
process is also available in certain cases. ADR is
used at the end of the administrative process as a
final attempt to resolve a dispute before
litigation. ADR is currently only available for
cases with more than $10 million in dispute. ADR
processes are also available in bankruptcy cases and
cases involving a competent authority determination.
In April 1996, the IRS implemented a Collections
Appeals Program within the Appeals function, which
allows taxpayers to appeal lien, levy, or seizure
actions proposed by the IRS. In January 1997,
appeals for installment agreements proposed for
termination were added to the program.
The local IRS Offices of Appeals are generally
located in the same area as the District Director's
Offices. The IRS has videoconferencing capability.
The IRS does not have any program to provide for
Appeals conferences by videoconferencing techniques.
Reasons
for Change
The Committee believes that the IRS should be
statutorily bound to follow the procedures that the
IRS has developed to facilitate settlement in the
IRS Office of Appeals. The Committee also believes
that mediation, binding arbitration, early referral
to Appeals, and other procedures would foster more
timely resolution of taxpayers' problems with the
IRS.
In addition, the Committee believes that the ADR
process is valuable to the IRS and taxpayers and
should be extended to all taxpayers.
The Committee believes that all taxpayers should
enjoy convenient access to Appeals, regardless of
their locality.
Explanation
of Provision
The provision codifies existing IRS procedures with
respect to early referrals to Appeals and the
Collections Appeals Process. The provision also
codifies the existing ADR procedures, as modified by
eliminating the dollar threshold.
In addition, the IRS is required to establish a
pilot program of binding arbitration for disputes of
all sizes. Under the pilot program, binding
arbitration must be agreed to by both the taxpayer
and the IRS.
The provision requires the IRS to make Appeals
officers available on a regular basis in each State,
and consider videoconferencing of Appeals
conferences for taxpayers seeking appeals in rural
or remote areas.
Effective
Date
The provision is effective as of the date of
enactment.
vi.
Application of certain fair debt collection
practices (sec. 3466 of the bill and new sec. 6304
of the Code)
Present
Law
The Fair Debt Collection Practices Act provides a
number of rules relating to debt collection
practices. Among these are restrictions on
communication with the consumer, such as a general
prohibition on telephone calls outside the hours of
8:00 a.m. to 9:00 p.m. local time, and prohibitions
on harassing or abusing the consumer. In general,
these provisions do not apply to the Federal
Government.
Reasons
for Change
The Committee believes that the IRS should be at
least as considerate to taxpayers as private
creditors are required to be with their customers.
Accordingly, the Committee believes that it is
appropriate to require the IRS to comply with
applicable portions of the Fair Debt Collection
Practices Act, so that both taxpayers and the IRS
are fully aware of these requirements.
Explanation
of Provision
The provision makes the restrictions relating to
communication with the taxpayer/debtor and the
prohibitions on harassing or abusing the debtor
applicable to the IRS by incorporating these
provisions into the Internal Revenue Code. The
restrictions relating to communication with the
taxpayer/debtor are not intended to hinder the
ability of the IRS to respond to taxpayer inquiries
(such as answering telephone calls from taxpayers).
Effective
Date
The provision is effective on the date of enactment.
vii.
Guaranteed availability of installment agreements
(sec. 3467 of the bill and sec. 6159 of the Code)
Present
Law
Section 6159 of the Code authorizes the IRS to enter
into written agreements with any taxpayer under
which the taxpayer is allowed to pay taxes owed, as
well as interest and penalties, in installment
payments if the IRS determines that doing so will
facilitate collection of the amounts owed. An
installment agreement does not reduce the amount of
taxes, interest, or penalties owed. However, it does
provide for a longer period during which payments
may be made during which other IRS enforcement
actions (such as levies or seizures) are held in
abeyance. Many taxpayers can request an installment
agreement by filing form 9465. This form is
relatively simple and does not require the
submission of detailed financial statements. The IRS
in most instances readily approves these requests if
the amounts involved are not large (in general,
below $10,000) and if the taxpayer has filed tax
returns on time in the past. Some taxpayers are
required to submit background information to the IRS
substantiating their application. If the request for
an installment agreement is approved by the IRS, a
user fee of $43 is charged. This user fee is in
addition to the tax, interest, and penalties that
are owed.
Reasons
for Change
The Committee believes that the ability to make
payments of tax liability by installment enhances
taxpayer compliance. In addition, the Committee
believes that the IRS should be flexible in finding
ways to work with taxpayers who are sincerely trying
to meet their obligations. Accordingly, the
Committee believes that the IRS should make it
easier for taxpayers to enter into installment
agreements.
Explanation
of Provision
The provision requires the Secretary to enter an
installment agreement, at the taxpayer's option, if:
(1) the liability is $10,000, or less (excluding
penalties and interest);
(2) within the previous 5 years, the taxpayer has
not failed to file or to pay, nor entered an
installment agreement under this provision;
(3) if requested by the Secretary, the taxpayer
submits financial statements, and the Secretary
determines that the taxpayer is unable to pay the
tax due in full;
(4) the installment agreement provides for full
payment of the liability within 3 years; and
(5) the taxpayer agrees to continue to comply with
the tax laws and the terms of the agreement for the
period (up to 3 years) that the agreement is in
place.
Effective
Date
The provision is effective on the date of enactment.
F.
Disclosures to Taxpayers
1.
Explanation of joint and several liability (sec.
3501 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. Spouses who wish
to avoid such joint and several liability may file
as married persons 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 provision 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 and of the
availability of electing separate liability. 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 provision 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. 3502 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 taxpayer's 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 provision 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.
In addition, the provision requires the Treasury
Inspector General for Tax Administration to report
annually as to whether IRS employees are directly
contacting taxpayers who have indicated that they
prefer their representatives be contacted.
Effective
Date
The addition to Publication 1 must be made not later
than 180 days after the date of enactment. The
annual reports would begin in 1999.
3.
Disclosure of criteria for examination selection
(sec. 3503 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 provision 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.
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.
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
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