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
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
Overview
U.S.
citizens and residents and
U.S.
corporations are taxed currently by the
United States
on their worldwide income, subject to a credit
against
U.S.
tax on foreign-source income for foreign income
taxes paid with respect to such income. A foreign
corporation generally is not subject to
U.S.
tax on its income from operations outside the
United States
.
Income of a foreign corporation generally is taxed
by the
United States
when it is repatriated to the
United States
through payment to the corporation's
U.S.
shareholders, subject to a foreign tax credit.
However, various regimes imposing current
U.S.
tax on income earned through a foreign corporation
are reflected in the Code. One anti-deferral regime
set forth in the Code is the controlled foreign
corporation rules of subpart F (secs. 951-964).
A controlled foreign corporation ("CFC")
is defined generally as any foreign corporation if
U.S. persons own more than 50 percent of the
corporation's stock (measured by vote or value),
taking into account only those U.S. persons that own
at least 10 percent of the stock (measured by vote
only) (sec. 957). Stock ownership includes not only
stock owned directly, but also stock owned
indirectly or constructively (sec. 958).
The
United States
generally taxes the
U.S.
10-percent shareholders of a CFC currently on their
pro rata shares of certain income of the CFC
(so-called "subpart F income") (sec. 951).
In effect, the Code treats those shareholders as
having received a current distribution out of the
CFC's subpart F income. Such shareholders also are
subject to current
U.S.
tax on their pro rata shares of the CFC's earnings
invested in
U.S.
property (sec. 951). The foreign tax credit may
reduce the
U.S.
tax on these amounts.
Subpart F income includes, among other items,
foreign base company income (sec. 952). Foreign base
company income, in turn, includes foreign personal
holding company income, foreign base company sales
income, foreign base company services income,
foreign base company shipping income and foreign
base company oil related income (sec. 954). Foreign
personal holding company income includes, among
other items, dividends, interest, rents and
royalties. An exception from foreign personal
holding company income applies to certain dividends
and interest received from a related person which is
created or organized in the same country as the CFC
and which has a substantial part of its assets in
that country, and to certain rents and royalties
received from a related person for the use of
property in the same country in which the CFC was
created or organized (the so-called
"same-country exception").
Foreign base company sales income includes income
derived by a CFC from certain related-party
transactions, including the purchase of personal
property from a related person and its sale to any
person, the purchase of personal property from any
person and its sale to a related person, and the
purchase or sale of personal property on behalf of a
related person, where the property which is
purchased or sold is manufactured outside the
country in which the CFC was created or organized
and the property is purchased or sold for use or
consumption outside such foreign country. A special
branch rule applies for purposes of determining a
CFC's foreign base company sales income. Under this
rule, a branch of a CFC is treated as a separate
corporation (only for purposes of determining the
CFC's foreign base company sales income) where the
activities of the CFC through the branch outside the
CFC's country of incorporation have substantially
the same effect as if such branch were a subsidiary.
Because of differences in
U.S.
and foreign laws, it is possible for a taxpayer to
enter into transactions that are treated in one
manner for
U.S.
tax purposes and in another manner for foreign tax
purposes. These transactions are referred to as
hybrid transactions. For example, a hybrid
transaction may involve the use of an entity that is
treated as a corporation for purposes of the tax law
of one jurisdiction but is treated as a branch or
partnership for purposes of the tax law of another
jurisdiction.
Notice
98-11 and the regulations issued thereunder
Notice 98-11, issued on January 16, 1998, addresses
the treatment of hybrid branches under the subpart F
provisions of the Code. The Notice states that the
Treasury Department and the Internal Revenue Service
have concluded that the use of certain arrangements
involving hybrid branches is contrary to the policy
and rules of subpart F. The hybrid branch
arrangements identified in Notice 98-11 involve
structures that are characterized for
U.S.
tax purposes as part of a CFC but are characterized
for purposes of the tax law of the country in which
the CFC is incorporated as a separate entity. The
Notice states that regulations will be issued to
prevent the use of hybrid branch arrangements to
reduce foreign tax while avoiding the corresponding
creation of subpart F income. The Notice states that
such regulations will provide that the branch and
the CFC will be treated as separate corporations for
purposes of subpart F. The Notice also states that
similar issues raised under subpart F by certain
partnership or trust arrangements will be addressed
in separate regulation projects.
On March 23, 1998, temporary and proposed
regulations were issued to address the issues raised
in Notice 98-11 and to address certain partnership
and other issues raised under subpart F. Under the
regulations, certain payments between a CFC and its
hybrid branch or between hybrid branches of the CFC
(so-called "hybrid branch payments") are
treated as giving rise to subpart F income. The
regulations generally provide that non-subpart F
income of the CFC, in the amount of the hybrid
branch payment, is recharacterized as subpart F
income of the CFC if: (1) the hybrid branch payment
reduces the foreign tax of the payor, (2) the hybrid
branch payment would have been foreign personal
holding company income if made between separate
CFCs, and (3) there is a disparity between the
effective tax rate on the payment in the hands of
the payee and the effective tax rate that would have
applied if the income had been taxed in the hands of
the payor. The regulations also apply to other
hybrid branch arrangements involving a partnership,
including a CFC's proportionate share of any hybrid
branch payment made between a partnership in which
the CFC is a partner and a hybrid branch of the
partnership or between hybrid branches of such a
partnership. Under the regulations, if a partnership
is treated as fiscally transparent by the CFC's
taxing jurisdiction, the recharacterization rules
are applied by treating the hybrid branch payment as
if it had been made directly between the CFC and the
hybrid branch, or as if the hybrid branches of the
partnership were hybrid branches of the CFC, as
applicable. If the partnership is treated as a
separate entity by the CFC's taxing jurisdiction,
the recharacterization rules are applied to treat
the partnership as if it were a CFC.
The regulations also address the application of the
same-country exception to the foreign personal
holding company income rules under subpart F in the
case of certain hybrid branch arrangements. Under
the regulations, the same-country exception applies
to payments by a CFC to a hybrid branch of a related
CFC only if the payment would have qualified for the
exception if the hybrid branch had been a separate
CFC incorporated in the jurisdiction in which the
payment is subject to tax (other than a withholding
tax). The regulations provide additional rules
regarding the application of the same-country
exception in the case of certain hybrid arrangements
involving a partnership.
The regulations generally apply to amounts paid or
accrued pursuant to hybrid branch arrangements
entered into or substantially modified on or after
January 16, 1998. As a result, the regulations
generally do not apply to amounts paid or accrued
pursuant to hybrid branch arrangements entered into
before January 16, 1998 and not substantially
modified on or after that date.
In the case of certain hybrid arrangements involving
partnerships, the regulations generally apply to
amounts paid or accrued pursuant to such
arrangements entered into or substantially modified
on or after March 23, 1998. As a result, the
regulations generally do not apply to amounts paid
or accrued pursuant to such arrangements entered
into before March 23, 1998 and not substantially
modified on or after that date.
Reasons
for Change
Notice 98-11 and the regulations issued thereunder
address complex international tax issues relating to
the treatment of hybrid transactions under the
subpart F provisions of the Code. The impact of such
administrative guidance on
U.S.
businesses operating abroad may be substantial. The
Committee believes that it is appropriate to place a
moratorium on the implementation of the regulations
with respect to Notice 98-11 so that these important
issues can be considered by the Congress.
Explanation
of Provision
The bill provides that no temporary or final
regulations with respect to Notice 98-11 may be
implemented prior to six months after the date of
enactment of this provision. This moratorium applies
to the regulations with respect to hybrid branches
and to the regulations with respect to hybrid
arrangements involving partnerships. It is intended
that the moratorium delaying implementation of the
regulations would not require a modification to the
effective dates of the regulations. No inference is
intended regarding the authority of the Department
of the Treasury or the Internal Revenue Service to
issue the Notice or the regulations.
Effective
Date
The provision is effective on the date of enactment.
14.
Sense of the Senate regarding Notices 98-5 and 98-11
(secs. 3713(a)(2) and (b) of the bill)
Present
Law
Overview
U.S.
citizens and residents and
U.S.
corporations are taxed currently by the
United States
on their worldwide income.
U.S.
persons may credit foreign taxes against
U.S.
tax on foreign-source income. The amount of foreign
tax credits that can be claimed in a year is subject
to a limitation that prevents taxpayers from using
foreign tax credits to offset
U.S.
tax on U.S.-source income. Separate limitations are
applied to specific categories of income.
A foreign corporation generally is not subject to
U.S.
tax on its income from operations outside the
United States
. Income of a foreign corporation generally is taxed
by the
United States
when it is repatriated to the
United States
through payment to the corporation's
U.S.
shareholders, subject to a foreign tax credit.
However, various regimes imposing current
U.S.
tax on income earned through a foreign corporation
are reflected in the Code. One anti-deferral regime
set forth in the Code is the controlled foreign
corporation rules of subpart F (secs. 951-964).
A controlled foreign corporation ("CFC")
is defined generally as any foreign corporation if
U.S. persons own more than 50 percent of the
corporation's stock (measured by vote or value),
taking into account only those U.S. persons that own
at least 10 percent of the stock (measured by vote
only) (sec. 957). Stock ownership includes not only
stock owned directly, but also stock owned
indirectly or constructively (sec. 958).
The
United States
generally taxes the
U.S.
10-percent shareholders of a CFC currently on their
pro rata shares of certain income of the CFC
(so-called "subpart F income") (sec. 951).
In effect, the Code treats those shareholders as
having received a current distribution out of the
CFC's subpart F income. Such shareholders also are
subject to current
U.S.
tax on their pro rata shares of the CFC's earnings
invested in
U.S.
property (sec. 951). The foreign tax credit may
reduce the
U.S.
tax on these amounts.
Subpart F income includes, among other items,
foreign base company income (sec. 952). Foreign base
company income, in turn, includes foreign personal
holding company income, foreign base company sales
income, foreign base company services income,
foreign base company shipping income and foreign
base company oil related income (sec. 954). Foreign
personal holding company income includes, among
other items, dividends, interest, rents and
royalties. An exception from foreign personal
holding company income applies to certain dividends
and interest received from a related person which is
created or organized in the same country as the CFC
and which has a substantial part of its assets in
that country, and to certain rents and royalties
received from a related person for the use of
property in the same country in which the CFC was
created or organized (the so-called
"same-country exception").
Foreign base company sales income includes income
derived by a CFC from certain related-party
transactions, including the purchase of personal
property from a related person and its sale to any
person, the purchase of personal property from any
person and its sale to a related person, and the
purchase or sale of personal property on behalf of a
related person, where the property which is
purchased or sold is manufactured outside the
country in which the CFC was created or organized
and the property is purchased or sold for use or
consumption outside such foreign country. A special
branch rule applies for purposes of determining a
CFC's foreign base company sales income. Under this
rule, a branch of a CFC is treated as a separate
corporation (only for purposes of determining the
CFC's foreign base company sales income) where the
activities of the CFC through the branch outside the
CFC's country of incorporation have substantially
the same effect as if such branch were a subsidiary.
Because of differences in
U.S.
and foreign laws, it is possible for a taxpayer to
enter into transactions that are treated in one
manner for
U.S.
tax purposes and in another manner for foreign tax
purposes. These transactions are referred to as
hybrid transactions. For example, a hybrid
transaction may involve the use of an entity that is
treated as a corporation for purposes of the tax law
of one jurisdiction but is treated as a branch or
partnership for purposes of the tax law of another
jurisdiction.
Notices
98-5 and 98-11
Notice 98-5, issued on December 23, 1997, addresses
the treatment of certain types of transactions under
the foreign tax credit provisions of the Code. The
Notice states that the Treasury Department and the
Internal Revenue Service have concluded that the use
of certain transactions creates the potential for
foreign tax credit abuse. The Notice states that
such transactions typically involve either: (1) the
acquisition of an asset that generates an income
stream (e.g., royalties or interest) subject to a
foreign withholding tax, or (2) the effective
duplication of tax benefits through the use of
certain structures designed to exploit
inconsistencies between
U.S.
and foreign tax laws. The Notice includes five
specific transactions as illustrations of
arrangements creating the potential for foreign tax
credit abuse. The Notice states that it is intended
that regulations will be issued to disallow foreign
tax credits for abusive transactions in cases where
the reasonably expected economic profit from the
transaction is insubstantial compared to the value
of the foreign tax credits expected to be obtained
as a result of the arrangement. The Notice further
states that it is intended that regulations
generally will apply with respect to such
transactions for taxes paid or accrued on or after
December 23, 1997. Regulations have not yet been
issued under Notice 98-5.
Notice 98-11, issued on January 16, 1998, addresses
the treatment of hybrid branches under the subpart F
provisions of the Code. The Notice states that the
Treasury Department and the Internal Revenue Service
have concluded that the use of certain arrangements
involving hybrid branches is contrary to the policy
and rules of subpart F. The hybrid branch
arrangements identified in Notice 98-11 involve
structures that are characterized for
U.S.
tax purposes as part of a CFC but are characterized
for purposes of the tax law of the country in which
the CFC is incorporated as a separate entity. The
Notice states that regulations will be issued to
prevent the use of hybrid branch arrangements to
reduce foreign tax while avoiding the corresponding
creation of subpart F income. The Notice states that
such regulations will provide that the branch and
the CFC will be treated as separate corporations for
purposes of subpart F. The Notice also states that
similar issues raised under subpart F by certain
partnership or trust arrangements will be addressed
in separate regulation projects.
On March 23, 1998, temporary and proposed
regulations were issued to address the issues raised
in Notice 98-11 and to address certain partnership
and other issues raised under subpart F. Under the
regulations, certain payments between a CFC and its
hybrid branch or between hybrid branches of the CFC
(so-called "hybrid branch payments") are
treated as giving rise to subpart F income. The
regulations generally provide that non-subpart F
income of the CFC, in the amount of the hybrid
branch payment, is recharacterized as subpart F
income of the CFC if: (1) the hybrid branch payment
reduces the foreign tax of the payor, (2) the hybrid
branch payment would have been foreign personal
holding company income if made between separate
CFCs, and (3) there is a disparity between the
effective tax rate on the payment in the hands of
the payee and the effective tax rate that would have
applied if the income had been taxed in the hands of
the payor. The regulations also apply to other
hybrid branch arrangements involving a partnership,
including a CFC's proportionate share of any hybrid
branch payment made between a partnership in which
the CFC is a partner and a hybrid branch of the
partnership or between hybrid branches of such a
partnership. Under the regulations, if a partnership
is treated as fiscally transparent by the CFC's
taxing jurisdiction, the recharacterization rules
are applied by treating the hybrid branch payment as
if it had been made directly between the CFC and the
hybrid branch, or as if the hybrid branches of the
partnership were hybrid branches of the CFC, as
applicable. If the partnership is treated as a
separate entity by the CFC's taxing jurisdiction,
the recharacterization rules are applied to treat
the partnership as if it were a CFC.
The regulations also address the application of the
same-country exception to the foreign personal
holding company income rules under subpart F in the
case of certain hybrid branch arrangements. Under
the regulations, the same-country exception applies
to payments by a CFC to a hybrid branch of a related
CFC only if the payment would have qualified for the
exception if the hybrid branch had been a separate
CFC incorporated in the jurisdiction in which the
payment is subject to tax (other than a withholding
tax). The regulations provide additional rules
regarding the application of the same-country
exception in the case of certain hybrid arrangements
involving a partnership.
The regulations generally apply to amounts paid or
accrued pursuant to hybrid branch arrangements
entered into or substantially modified on or after
January 16, 1998. As a result, the regulations
generally do not apply to amounts paid or accrued
pursuant to hybrid branch arrangements entered into
before January 16, 1998 and not substantially
modified on or after that date.
In the case of certain hybrid arrangements involving
partnerships, the regulations generally apply to
amounts paid or accrued pursuant to such
arrangements entered into or substantially modified
on or after March 23, 1998. As a result, the
regulations generally do not apply to amounts paid
or accrued pursuant to such arrangements entered
into before March 23, 1998 and not substantially
modified on or after that date.
Reasons
for Change
The subpart F provisions of the Code reflect a
balancing of various policy objectives. Any
modification or refinement to that balance should be
the subject of serious and thoughtful debate. It is
the Committee's view that any significant policy
developments with respect to the subpart F
provisions, such as those addressed by Notice 98-11
and the regulations issued thereunder, should be
considered by the Congress as part of the normal
legislative process. The Committee also believes
that any regulations issued under Notice 98-5 should
be limited to the specific transactions described
therein. Moreover, the Committee is concerned about
the potential disruptive effect of the issuance of
an administrative notice that describes general
principles to be reflected in regulations that will
be issued in the future, but provides that such
future regulations will be effective as of the date
of issuance of the notice.
Explanation
of Provision
The bill provides that it is the sense of the Senate
that the Department of the Treasury and the Internal
Revenue Service should withdraw Notice 98-11 and the
regulations issued thereunder, and that the
Congress, and not the Department of the Treasury nor
the Internal Revenue Service, should determine the
international tax policy issues relating to the
treatment of hybrid transactions under the subpart F
provisions of the Code.
The bill further provides that it is the sense of
the Senate that the Department of the Treasury and
the Internal Revenue Service should limit any
regulations issued under Notice 98-5 to the specific
transactions described therein. In addition, such
regulations should: (a) not affect transactions
undertaken in the ordinary course of business, (b)
not have an effective date any earlier than the date
of issuance of proposed regulations, and (c) be
issued in accordance with normal regulatory
procedures which include an opportunity for comment.
Nothing in this sense of the Senate should be
construed to limit the ability of the Department of
the Treasury or the Internal Revenue Service to
address abusive transactions.
Effective
Date
The provision is effective on the date of enactment.
I.
Studies
1.
Administration of penalties and interest (sec. 3801
of the bill)
Present
Law
The last major comprehensive revision of the overall
penalty structure in the Internal Revenue Code was
the "Improved Penalty Administration and
Compliance Tax Act," enacted as part of the
Omnibus Budget Reconciliation Act of 1989.
Reasons
for Change
The Committee believes that it is appropriate to
undertake a study of penalty and interest
administration, which will provide the Committee
with legislative and administrative recommendations
for improvement of the current penalty and interest
structure.
Explanation
of Provision
The provision requires the Joint Committee on
Taxation and the Treasury to each conduct a separate
study reviewing the interest and penalty provisions
of the Code (including the administration and
implementation of the penalty reform provisions of
the Omnibus Budget Reconciliation Act of 1989), and
making any legislative and administrative
recommendations it deems appropriate to simplify
penalty administration and reduce taxpayer burden.
The studies must also include an analysis of the
interest provisions in the Code, including
legislative and administrative recommendations
deemed appropriate to simplify the administration of
the interest provisions and to reduce taxpayer
burden.
Effective
Date
The reports must be provided not later than nine
months after the date of enactment.
2.
Confidentiality of tax return information (sec. 3802
of the bill)
Present
Law
The Internal Revenue Code prohibits disclosure of
tax returns and return information, except to the
extent specifically authorized by the Internal
Revenue Code (sec. 6103). Unauthorized disclosure is
a felony punishable by a fine not exceeding $5,000
or imprisonment of not more than five years, or both
(sec. 7213). An action for civil damages also may be
brought for unauthorized disclosure (sec. 7431). No
tax information may be furnished by the IRS to
another agency unless the other agency establishes
procedures satisfactory to the IRS for safeguarding
the tax information it receives (sec. 6103(p)).
Reasons
for Change
The Committee believes that a study of the
confidentiality provisions will be useful in
assisting the Committee in determining whether
improvements can be made to these provisions.
Explanation
of Provision
The provision requires the Joint Committee on
Taxation and Treasury to each conduct a separate
study on provisions regarding taxpayer
confidentiality. The studies are to examine
present-law protections of taxpayer privacy, the
need, if any, for third parties to use tax return
information, whether greater levels of voluntary
compliance can be achieved by allowing the public to
know who is legally required to file tax returns but
does not do so, and the interrelationship of the
taxpayer confidentiality provisions in the Internal
Revenue Code with those elsewhere in the United
States Code (such as the Freedom of Information
Act).
Effective
Date
The findings of the studies, along with any
recommendations, are required to be reported to the
Congress no later than one year after the date of
enactment.
|
