|
SUMMARY OF THE CONFERENCE
AGREEMENT
ON H.R. 2676, THE INTERNAL REVENUE SERVICE
RESTRUCTURING AND REFORM ACT OF 1998
Prepared by the Staff
of the
JOINT COMMITTEE ON TAXATION
June 24, 1998
JCX-50-98R
CONTENTS
INTRODUCTION
SUMMARY OF PROVISIONS OF THE CONFERENCE AGREEMENT ON H.R.
2676
TITLE I. REORGANIZATION OF STRUCTURE AND MANAGEMENT OF THE IRS
A. IRS Restructuring and Creation of IRS Oversight Board
1. IRS restructuring and mission
2. Establishment and duties of IRS Oversight Board
B. Appointment and Duties of IRS Commissioner and Chief Counsel and
Other Personnel
1. IRS Commissioner and other personnel
2. IRS Chief Counsel
C. Structure and Funding of the Employee Plans and Exempt
Organizations Division ("EP/EO")
D. Taxpayer Advocate and Taxpayer Assistance Orders
E. Treasury Office of Inspector General; IRS Office of the Chief
Inspector
F. Prohibition on Executive Branch Influence Over Taxpayer Audits
G. IRS Personnel Flexibilities
TITLE II. ELECTRONIC FILING
A. Electronic Filing of Tax and Information Returns
B. Due Date for Certain Information Returns
C. Paperless Electronic Filing
D. Return-Free Tax System
E. Access to Account Information
TITLE III. TAXPAYER PROTECTION AND RIGHTS
A. Burden of Proof
B. Proceedings by Taxpayers
1. Expansion of authority to award costs and certain fees
2. Civil damages for collection actions
3. Increase in size of cases permitted on small case calendar
4. Actions for refund with respect to certain estates which have
elected the installment method of payment
5. Review of an adverse IRS determination of a bond issue's
tax-exempt status
6. Civil action for release of erroneous lien
C. Relief for Innocent Spouses and for Taxpayers Unable to Manage
Their Financial Affairs Due to Disabilities
1. Relief for innocent spouses
2. Suspension of statute of limitations on filing refund claims
during periods of disability
D. Provisions Relating to Interest and Penalties
1. Elimination of interest differential on overlapping periods of
interest on income tax overpayments and underpayments
2. Increase in overpayment rate payable to taxpayers other than
corporations
3. Mitigation of penalty for individual's failure to pay during
period of installment agreement
4. Mitigation of failure to deposit penalty
5. Suspension of interest and certain penalties if Secretary fails to
contact individual taxpayer
6. Procedural requirements for imposition of penalties and additions
to tax
7. Personal delivery of notice of penalty under section 6672
8. Notice of interest charges
9. Abatement of interest on underpayments by taxpayers in
Presidentially declared disaster areas
E. Protections for Taxpayers Subject to Audit or Collection
Activities
1. Due process in IRS collection actions
2. Examination activities
a. Uniform application of confidentiality privilege to taxpayer
communications with federally authorized practitioners
b. Limitation on financial status audit techniques
c. Software trade secrets protection
d. Threat of audit prohibited to coerce tip reporting alternative
commitment agreements
e. Taxpayers allowed motion to quash all third-party summonses
f. Service of summonses to third-party recordkeepers permitted by
mail
g. Notice of IRS contact of third parties
3. Collection activities
a. Approval process for liens, levies, and seizures
b. Modifications to certain levy exemption amounts
c. Release of levy upon agreement that amount is uncollectible
d. Levy prohibited during pendency of refund proceedings
e. Approval required for jeopardy and termination assessments and
jeopardy levies
f. Increase in amount of certain property on which lien not valid
g. Waiver of early withdrawal tax for IRS levies on
employer-sponsored retirement plans or IRAs
h. Prohibition of sales of seized property at less than minimum bid
i. Accounting of sales of seized property
j. Uniform asset disposal mechanism
k. Codification of IRS administrative procedures for seizure of
taxpayer's property
l. Procedures for seizure of residences and businesses
4 . Provisions relating to examination and collection activities
a. Procedures relating to extensions of statute of limitations by
agreement
b. Offers-in-compromise
c. Notice of deficiency to specify deadlines for filing Tax Court
petition
d. Refund or credit of overpayments before final determination
e. IRS procedures relating to appeal of examinations and collections
f. Application of certain fair debt collection practices
g. Guaranteed availability of installment agreements
h. Prohibition on requests to taxpayers to waive rights to bring
actions
F. Disclosures to Taxpayers
1. Explanation of joint and several liability
2. Explanation of taxpayers' rights in interviews with the IRS
3. Disclosure of criteria for examination selection
4. Explanation of the appeals and collection process
5. Explanation of reason for refund disallowance
6. Statements to taxpayers with installment agreements
7. Notification of change in tax matters partner
8. Conditions under which taxpayers' returns may be disclosed
9. Disclosure of Chief Counsel advice
G. Low-Income Taxpayer Clinics
H. Other Provisions
1. Cataloging complaints
2. Archive of records of Internal Revenue Service
3. Payment of taxes
4. Clarification of authority of Secretary relating to the making of
elections
5. IRS employee contacts
6. Use of pseudonyms by IRS employees
7. Illegal tax protestor designations
8. Provision of confidential information to Congress by
whistleblowers
9. Listing of local IRS telephone numbers and addresses
10. Identification of return preparers
11. Offset of past-due, legally enforceable State income tax
obligations against overpayments
12. Reporting requirements relating to education tax credits
I. Studies
1. Administration of penalties and interest
2. Confidentiality of tax return information
3. Noncompliance with internal revenue laws by taxpayers
4. Payments for informants
TITLE IV. CONGRESSIONAL ACCOUNTABILITY FOR THE IRS
A. Review of Requests for GAO Investigations of the IRS
B. Joint Congressional Review and Coordinated Oversight Reports
C. Budget Matters
D. Tax Law Complexity Analysis
TITLE V. ADDITIONAL PROVISIONS
A. Elimination of 18-Month Holding Period for Capital Gains
B. Deductibility of Meals Provided for the Convenience of the
Employer
C. Normal Trade Relations
TITLE VI. TAX TECHNICAL CORRECTIONS
TITLE VII. REVENUE OFFSETS
A. Employer Deductions for Vacation and Severance Pay
B. Freeze Grandfathered Status of Stapled REITs
C. Make Certain Trade Receivables Ineligible for Mark-to-Market
Treatment
D. Exclusion of Minimum Required Distributions from AGI for Roth IRA
Conversions
TITLE VIII. LIMITED TAX BENEFITS UNDER THE LINE ITEM VETO ACT
TITLE IX. CORRECTIONS TO THE TRANSPORTATION EQUITY ACT FOR THE 21ST
CENTURY
INTRODUCTION
This document,(1) prepared by the
staff of the Joint Committee on Taxation, provides a summary of the
provisions of the conference agreement on H.R. 2676, the "Internal
Revenue Service Restructuring and Reform Act of 1998." This summary
is prepared for the convenience of the Members and the public. The
official legislative history of the conference agreement is the
conference report on H.R. 2676.
H.R. 2676 was passed by the House, as amended, on November 5, 1997,(2)
and was passed by the Senate, as amended, on May 7, 1998.(3)
SUMMARY OF PROVISIONS OF THE CONFERENCE AGREEMENT ON H.R.
2676
TITLE I. REORGANIZATION OF STRUCTURE
AND MANAGEMENT OF THE IRS
A. IRS Restructuring and Creation of IRS Oversight Board
1. IRS mission and restructuring
The bill directs the Internal Revenue Service ("IRS") to
revise its mission statement to provide greater emphasis on serving the
public and meeting the needs of taxpayers. The bill directs the
Commissioner of Internal Revenue ("Commissioner") to
restructure the IRS by eliminating or substantially modifying the
present-law three-tier geographic structure and replacing it with an
organizational structure that features operating units serving
particular groups of taxpayers with similar needs.
2. Establishment and duties of IRS Oversight Board
The bill provides for the establishment within the Treasury
Department of the Internal Revenue Service Oversight Board (the
"Board"). The general responsibilities of the Board are to
oversee the IRS in its administration, management, conduct, direction,
and supervision of the execution and application of the internal revenue
laws. The Board also has the authority to recommend candidates for
Commissioner to the President, and to recommend removal of the
Commissioner. The Board has no authority to intervene in (1) specific
taxpayer cases, including compliance activities involving specific
taxpayers such as criminal investigations, examinations, and collection
activities, (2) specific individual personnel matters, or (3) specific
procurement matters. The Board has authority to oversee general law
enforcement matters, and it has the responsibility to ensure that the
organization and operation of the IRS allows the IRS to carry out its
mission.
The Oversight Board is composed of 9 members. Six of the members are
so-called "private-life" members who are not otherwise Federal
officers or employees. The other members are: (1) the Secretary of the
Treasury (or, if the Secretary so designates, the Deputy Secretary); (2)
the Commissioner; and (3) an individual who is a full-time Federal
employee or a representative of employees ("employee
representative"). The private-life members of the Board and the
employee representative are appointed by the President, with the advice
and consent of the Senate. Under the bill, the private-life members of
the Board will be appointed without regard to political affiliation,
based solely on their expertise in the following areas: management of
large service organizations; customer service; the Federal tax laws,
including tax administration and compliance; information technology;
organization development; the needs and concerns of taxpayers; and the
needs and concerns of small business.
Under the bill, Board members would have limited access to
confidential tax return and return information under section 6103. This
limited access would permit the Board to receive section 6103
information from the newly established Treasury Inspector General for
Tax Administration or the Commissioner in connection with reports to the
Board. This access to section 6103 information does not include the
taxpayer's name, address, or taxpayer or employer identification number.
Board members are subject to the anti-browsing rules applicable to IRS
employees under present law.(4) In
addition, the private-life members and the employee representative will
be subject to a number of ethics rules pertaining to representational
activities and compensation matters, post-employment restrictions, and
financial disclosure requirements. The President is granted the
authority to waive the ethics rules for the employee representative
under certain circumstances.
The six private-life Board members will be appointed for five-year
terms. The private-life members (including the employee representative)
may serve no more than two five-year terms. Board member terms will be
staggered, as a result of a special rule providing that some
private-life members first appointed to the Board would serve initial
terms of less than five years. Under this rule, the staggered term of
the initial Board shall be as follows: two members first appointed will
have a term of three years; two members shall have a term of four years;
and two members shall have a term of five years. The terms of the
initial Board members will run from the date of appointment. Subsequent
terms will run from expiration of the previous term. A Board member
appointed to fill a vacancy before the expiration of a term will be
appointed to the remainder of the term. Such a member could be appointed
to a subsequent five-year term.
The members of the Board are to elect a Chair from the private-life
members for a two-year term. Except as otherwise provided by a majority
of the Board, the authority of the Chair includes the authority to hire
appropriate staff, call meetings, establish committees, establish the
agenda for meetings, and develop rules for the conduct of business.
The Board is required to meet on a regular basis (as determined
necessary by the Chair), but no less frequently than quarterly. The
Board can meet privately, and is not subject to public disclosure laws.
A quorum of five members is required in order for the Board to conduct
business. Actions of the Board can be taken by a majority vote of those
members present and voting.
The provisions relating to the Board are effective on the date of
enactment. The President is directed to submit nominations for Board
members to the Senate within six months of the date of enactment. The
bill provides that the provisions relating to the Board are not to be
construed to invalidate the actions and authority of the IRS prior to
the appointment of members of the Board.
B. Appointment and Duties of IRS Commissioner and Chief
Counsel and Other Personnel
1. IRS Commissioner and other personnel
As under present law, the bill provides that the Commissioner is
appointed by the President, with the advice and consent of the Senate,
and may be removed at will by the President. Under the bill, one of the
qualifications of the Commissioner is demonstrated ability in
management. The Commissioner is appointed to a five-year term, beginning
with the date of appointment. The Commissioner may be reappointed for
more than one five-year term. The Board recommends candidates to the
President for the position of Commissioner; however, the President is
not required to nominate for Commissioner a candidate recommended by the
Board. The Board has the authority to recommend the removal of the
Commissioner.
2. IRS Chief Counsel
Under the bill, the IRS Chief Counsel would no longer be an Assistant
General Counsel of the Treasury and would generally report to the IRS
Commissioner, with two exceptions. First, the Chief Counsel would report
to both the Commissioner and the Treasury General Counsel with respect
to (1) legal advice or interpretation of the tax law not relating solely
to tax policy and (2) tax litigation. Second, the Chief Counsel would
report only to the Treasury General Counsel with respect to legal advice
or interpretation of the tax law relating solely to tax policy.
C. Structure and Funding of the Employee Plans
and Exempt Organizations Division ("EP/EO")
To facilitate the reorganization of the IRS into operational units,
the bill eliminates the present-law statutory requirement contained in
section 7802(b) of the Code that there be an "Office of Employee
Plans and Exempt Organizations" under the supervision and direction
of an Assistant Commissioner. In addition, the bill repeals the funding
mechanism for EP/EO set forth in section 7802(b). These provisions are
effective on the date of enactment of the bill.
D. Taxpayer Advocate and Taxpayer Assistance Orders
The bill renames the IRS Taxpayer Advocate as the "National
Taxpayer Advocate." The National Taxpayer Advocate is appointed by
the Secretary of the Treasury after consultation with the Commissioner
and the IRS Oversight Board. The individual appointed to be the National
Taxpayer Advocate cannot have been an officer or employee of the IRS
(other than in the Office of the Taxpayer Advocate) during the two-year
period ending with such individual's appointment, and must agree not to
accept employment with the IRS (other than in the Office of the Taxpayer
Advocate) for at least five years after ceasing to be the National
Taxpayer Advocate.
The present-law problem resolution system is replaced with a system
of local Taxpayer Advocates who report directly to the National Taxpayer
Advocate and who are independent from the IRS examination, collection,
and appeals functions.
The bill expands the circumstances under which a Taxpayer Assistance
Order may be issued if a taxpayer is suffering from or about to suffer
from a significant hardship.
These provisions generally are effective on the date of enactment.
E. Treasury Office of Inspector General; IRS
Office of the Chief Inspector
Under the bill, a new, independent Treasury Inspector General for Tax
Administration ("Treasury IG for Tax Administration") is
established within the Department of Treasury. The IRS Office of the
Chief Inspector is eliminated, and all of its powers and
responsibilities are transferred to the Treasury IG for Tax
Administration, except for employee background checks and protection of
employees against physical threats. The Treasury IG for Tax
Administration has the powers and responsibilities generally granted to
Inspectors General under the IG Act of 1978, without the limitations
that currently apply to the Treasury IG under section D of that Act. The
role of the existing Treasury IG is redefined to exclude responsibility
for the IRS. The Treasury IG for Tax Administration is under the
supervision of the Secretary of Treasury, with certain additional
reporting to the IRS Oversight Board and the Congress.
The provision is effective 180 days after the date of enactment.
F. Prohibition on Executive Branch Influence
Over Taxpayer Audits
The bill makes it unlawful for the President, the Vice President,
employees of the executive offices of the President or Vice President,
as well as any individual (other than the Attorney General) serving in a
Cabinet-level position to request that any officer or employee of the
IRS conduct or terminate an audit or otherwise investigate or terminate
the investigation of any particular taxpayer with respect to the tax
liability of that taxpayer. This prohibition applies to both direct and
indirect requests. Anyone convicted of violating this provision will be
punished by imprisonment of not more than 5 years or a fine not
exceeding $5,000 (or both). This provision is effective for violations
after the date of enactment.
G. IRS Personnel Flexibilities
The bill requires the IRS to exercise the personnel flexibilities
consistently with existing rules relating to merit system principles,
prohibited personnel practices, and preference eligibles. In those cases
where the exercise of personnel flexibilities would affect members of
the employees' union, such employees would not be subject to the
exercise of any flexibility unless there is a written agreement between
the IRS and the employees' union.
The bill addresses issues relating to senior management and technical
positions, the establishment of a performance management system, the
granting of awards to IRS employees, staffing flexibilities, and
mandatory terminations of employees for certain proven violations.
TITLE II. ELECTRONIC FILING
A. Electronic Filing of Tax and Information
Returns
Under the bill, the policy of the Congress is to promote paperless
filing, with a long-range goal of providing for the filing of at least
80 percent of all tax returns in electronic form by the year 2007.
B. Due Date for Certain Information Returns
The bill provides an incentive to filers of information returns to
use electronic filing by extending the due date for filing such returns
with the IRS from February 28 (under present law) to March 31 of the
year following the calendar year to which the return relates. The bill
also requires the Treasury to issue a study evaluating the merits and
disadvantages, if any, of extending the deadline for providing taxpayers
with copies of information returns (other than Forms W-2) from January
31 to February 15, which is due by June 30, 1999.
C. Paperless Electronic Filing
To facilitate the filing of electronic returns, the Secretary is
required to develop procedures that would eliminate the need to file a
paper form relating to signature information. In addition, the Secretary
is to establish procedures, to the extent practicable, to receive all
forms electronically for taxable periods beginning after December 31,
1999. The bill also provides rules for determining when electronic
returns are deemed filed and for authorization for return preparers to
communicate with the IRS on matters included on electronically filed
returns.
D. Return-Free Tax System
The bill requires the Secretary or his delegate to study the
feasibility of, and develop procedures for, the implementation of a
return-free tax system for appropriate individuals for taxable years
beginning after 2007.
E. Access to Account Information
Under the bill, the Secretary is required to develop procedures not
later than December 31, 2006, under which a taxpayer filing returns
electronically could review the taxpayer's own account electronically,
but only if all necessary privacy safeguards are in place by that date.
TITLE III. TAXPAYER PROTECTION AND RIGHTS
A. Burden of Proof
The bill provides that the Secretary shall have the burden of proof
in any court proceeding with respect to a factual issue if the taxpayer
introduces credible evidence with respect to the factual issue relevant
to ascertaining the taxpayer's tax liability. Four conditions apply.
First, the taxpayer must comply with the requirements of the Internal
Revenue Code and the regulations issued thereunder to substantiate any
item (as under present law). Second, the taxpayer must maintain records
required by the Code and regulations (as under present law). Third, the
taxpayer must cooperate with reasonable requests by the Secretary for
meetings, interviews, witnesses, information, and documents. Fourth,
taxpayers other than individuals must meet the net worth limitations
that apply for awarding attorney's fees. The provision applies to
income, estate, gift, and generation-skipping transfer taxes.
The provision applies to court proceedings arising in connection with
examinations commencing (or taxable periods or events beginning or
occurring) after the date of enactment.
B. Proceedings by Taxpayers
1. Expansion of authority to award costs and certain fees
The bill increases the hourly fee cap on attorneys fees and expands
the circumstances under which attorneys fees and administrative costs
may be awarded to taxpayers, effective for costs incurred and services
performed more than 180 days after the date of enactment.
2. Civil damages for collection actions
The bill permits up to $100,000 in civil damages caused by an officer
or employee of the IRS who negligently disregards provisions of the Code
or Treasury regulations in connection with the collection of Federal tax
with respect to the taxpayer. The bill also permits up to $1 million in
civil damages caused by an officer or employee of the IRS who willfully
violates provisions of the Bankruptcy Code relating to automatic stays
or discharges. These provisions are effective for actions of officers or
employees of the IRS occurring after the date of enactment.
3. Increase in size of cases permitted on small case calendar
The bill increases the cap for small case treatment in the Tax Court
from $10,000 to $50,000, effective for proceedings commenced after the
date of enactment.
4. Actions for refund with respect to certain estates which
have elected the installment method of payment
The bill grants the U.S. Court of Federal Claims and the U.S.
district courts jurisdiction to determine the correct amount of estate
tax liability (or refund) in actions brought by taxpayers deferring
estate tax payments under section 6166, as long as certain conditions
are met. The bill further provides that once a final judgment has been
entered by a district court or the U.S. Court of Federal Claims, the IRS
is not permitted to collect any amount disallowed by the court, and any
amounts paid by the taxpayer in excess of the amount the court finds to
be currently due and payable are refunded to the taxpayer, with
interest. The provision is effective for claims for refunds filed after
the date of enactment.
5. Review of an adverse IRS determination of a bond issue's
tax-exempt status
The bill directs the Internal Revenue Service to modify its
administrative procedures to allow tax-exempt bond issuers examined by
the IRS to appeal adverse examination determinations to the Appeals
Division of the IRS as a matter of right. Such an appeal is to be
considered by senior personnel with experience in tax-exempt bonds
issues. The direction to the IRS is effective on the date of enactment.
6. Civil action for release of erroneous lien
The bill establishes an administrative procedure permitting a record
owner of property against which a Federal tax lien has been filed to
obtain a certificate of discharge of property from the lien as a matter
of right if such record owner is not the person whose unsatisfied
liability gave rise to the lien. The record owner is required to apply
to the Secretary of the Treasury for such a certificate and either to
deposit cash or to furnish a bond sufficient to protect the lien
interest of the United States. The provision is effective on the date of
enactment.
C. Relief for Innocent Spouses and for Taxpayers Unable to
Manage Their Financial Affairs Due to Disabilities
1. Relief for innocent spouses
The bill generally makes innocent spouse relief easier to obtain. The
bill eliminates all of the understatement thresholds and requires only
that the understatement of tax be attributable to an erroneous (and not
just a grossly erroneous) item of the other spouse.
The bill also provides a separate liability election for a taxpayer
who, at the time of the election, is no longer married to, is legally
separated from, or has been living apart for at least 12 months from the
person with whom the taxpayer originally filed a joint return. Such
taxpayers may elect to have the liability for any deficiency limited to
the portion of the deficiency that is attributable to items allocable to
the taxpayer. The election is not available if the Secretary
demonstrates that assets were transferred between individuals filing a
joint return as part of a fraudulent scheme of the individuals or if
both individuals had actual knowledge of the understatement of tax.
Expanded innocent spouse relief and the separate liability election
must be elected no later than two years after the date on which the
Secretary has begun collection activities with respect to the individual
seeking the relief. The bill provides that the Tax Court has
jurisdiction with respect to disputes about innocent spouse relief.
The bill further authorizes the Secretary to relieve an individual of
liability if relief is not available under the expanded innocent spouse
rule or the separate liability election, but it would be inequitable to
hold the individual liable for any unpaid tax or any deficiency.
The expanded innocent spouse relief, separate liability election, and
authority to provide equitable relief apply to liabilities for tax
arising after the date of enactment, as well as any liability for tax
arising on or before the date of enactment that remains unpaid on the
date of enactment.
2. Suspension of statute of limitations on filing refund
claims during periods of disability
The bill permits equitable tolling of the statute of limitations for
refund claims of an individual taxpayer during any period of the
individual's life in which he or she is unable to manage his or her
financial affairs by reason of a medically determinable physical or
mental impairment that can be expected to result in death or to last for
a continuous period of not less than 12 months. Tolling does not apply
during periods in which the taxpayer's spouse or another person is
authorized to act on the taxpayer's behalf in financial matters. The
provision applies to periods of disability before, on, or after the date
of enactment but does not apply to any claim for refund or credit which
(without regard to the provision) is barred by the statute of
limitations as of the date of enactment.
D. Provisions Relating to Interest and Penalties
1. Elimination of interest differential on overlapping
periods of interest on income tax overpayments and underpayments
The bill establishes a net interest rate of zero when interest is
payable and allowable on equivalent amounts of overpayment and
underpayment of any taxes imposed by Title 26 (the Internal Revenue
Code) that exist for any period. Each overpayment and underpayment is
considered only once in determining whether equivalent amounts of
overpayment and underpayment exist. The special rules that increase the
interest rate paid on large corporate underpayments and decrease the
interest rate received on corporate underpayments in excess of $10,000
do not prevent the application of the net zero rate. The provision
applies to income taxes and self-employment taxes. The provision applies
to interest for periods beginning before the date of enactment if: (1)
the statute of limitations has not expired with respect to either the
underpayment or overpayment; (2) the taxpayer identifies the periods of
underpayment and overpayment for which the zero rate applies; and (3) on
or before December 31, 1999, the taxpayer asks the Secretary to apply
the zero rate.
2. Increase in overpayment rate payable to taxpayers other
than corporations
The bill provides that the overpayment interest rate will be AFR plus
three percentage points, except that for corporations, the rate remains
at AFR plus two percentage points. The provision is effective for
interest for the second and succeeding calendar quarters beginning after
the date of enactment.
3. Mitigation of penalty for individual's failure to pay
during period of installment agreement
The bill provides that the penalty for failure to pay taxes is one
half of the usual rate (.25 percent instead of .50 percent) imposed with
respect to the tax liability of an individual for any month in which an
installment payment agreement with the IRS is in effect, provided that
the individual filed the tax return in a timely manner (including
extensions). The provision is effective for installment agreement
payments made after December 31, 1999.
4. Mitigation of failure to deposit penalty for payroll taxes
The bill allows the taxpayer to designate the period to which each
deposit is applied. The designation must be made no later than 90 days
of the related IRS penalty notice. The provision extends the
authorization to waive the failure to deposit penalty to the first
deposit a taxpayer is required to make after the taxpayer is required to
change the frequency of the taxpayer's deposits. The provision is
effective for deposits required to be made more than 180 days after the
date of enactment. The bill also provides that, for deposits required to
be made after December 31, 2001, any deposit is to be applied to the
most recent period to which the deposit relates, unless the taxpayer
explicitly designates otherwise.
5. Suspension of interest and certain penalties if Secretary
fails to contact individual taxpayer
The bill suspends the accrual of certain penalties and interest after
one year if the IRS has not sent the taxpayer a notice specifically
stating the taxpayer's liability for additional taxes (and the basis for
the liability) within one year following the date which is the later of
(1) the original due date of the return or (2) the date on which the
individual taxpayer timely filed the return. The suspension only applies
to individuals who file a timely tax return and does not apply to the
failure to pay penalty, in the case of fraud, or with respect to
criminal penalties. The provision is effective for taxable years ending
after the date of enactment. With respect to taxable years beginning
before January 1, 2004, the one-year period is increased to 18 months.
Interest and penalties resume 21 days after the IRS sends a notice to
the taxpayer specifically stating the taxpayer's liability and the basis
for the liability. The provision is applied separately with respect to
each item or adjustment.
6. Procedural requirements for imposition of penalties and
additions to tax
The bill requires that each notice imposing a penalty include the
name of the penalty, the Code section imposing the penalty, and a
computation of the penalty. The bill also requires the specific approval
of IRS management to assess all non-computer generated penalties unless
excepted. This provision does not apply to failure to file penalties,
failure to pay penalties, or to penalties for failure to pay estimated
tax. The provision is effective with respect to notices issued, and
penalties assessed, after December 31, 2000.
7. Personal delivery of notice of penalty under section 6672
The bill permits in-person delivery, as an alternative to delivery by
mail, of a preliminary notice that the IRS intends to assess a
100-percent penalty, effective on the date of enactment.
8. Notice of interest charges
The bill requires every IRS notice that includes an amount of
interest required to be paid by the taxpayer that is sent to an
individual taxpayer to include a detailed computation of the interest
charged and a citation to the Code section under which such interest is
imposed, effective for notices issued after December 31, 2000.
9. Abatement of interest on underpayments by taxpayers in
Presidentially declared disaster areas
The bill provides that taxpayers located in a Presidentially declared
disaster area do not have to pay interest on taxes due for the length of
any extension for filing their tax returns granted by the Secretary of
the Treasury, effective for disasters declared after December 31, 1997,
with respect to taxable years beginning after December 31, 1997. The
provision is designated as emergency legislation under section 252(e) of
the Balanced Budget and Emergency Deficit Control Act.
E. Protections for Taxpayers Subject to Audit or Collection
Activities
1. Due process in IRS collection actions
The bill establishes formal procedures designed to insure due process
where the IRS seeks to collect taxes by levy (including by seizure). The
due process procedures also apply after notice of a Federal tax lien has
been filed.
The IRS would be required to notify the taxpayer that a Notice of
Lien had been filed. During the 30-day period beginning with the mailing
or delivery of such notification, the taxpayer may demand a hearing
before an appeals officer who has had no prior involvement with the
taxpayer's case.
Before the IRS can levy against a taxpayer's property, it would be
required to provide the taxpayer with a "Notice of Intent to
Levy," similar to that currently required under section 6331(d).
The notice would not be required to itemize the property the Secretary
seeks to levy on. Service by registered or certified mail, return
receipt requested, would be required.
Subject to the exceptions noted below, no levy could occur within the
30-day period beginning with the mailing of the "Notice of Intent
to Levy." During that 30-day period, the taxpayer may demand a
pre-levy hearing before an appeals officer who generally has had no
prior involvement with the taxpayer's case.
If a return receipt is not returned, the Secretary may proceed to
levy against the taxpayer 30 days after the Notice of Intent to Levy was
mailed. The Secretary must provide a hearing equivalent to the pre-levy
hearing if later requested by the taxpayer. However, the Secretary is
not required to suspend the levy process pending the completion of a
hearing that is not requested within 30 days of the mailing of the
Notice.
An exception to the general rule prohibiting levies during the 30-day
period would apply in the case of State tax offset procedures, and in
the case of jeopardy or termination assessments.
No seizure of a dwelling that is the principal residence of the
taxpayer or the taxpayer's spouse, former spouse, or minor child would
be allowed without prior judicial approval. Notice of the judicial
hearing must be provided to the taxpayer and relevant family member. At
the judicial hearing, the Secretary would be required to demonstrate (1)
that the requirements of any applicable law or administrative procedure
relevant to the levy have been met, (2) that the liability is owed, and
(3) that no reasonable alternative for the collection of the taxpayer's
debt exists.
The provision is effective for collection actions initiated more than
180 days after the date of enactment.
2. Examination activities
a. Uniform application of confidentiality privilege to
taxpayer communications with federally authorized practitioners
The bill extends the present law attorney-client privilege of
confidentiality to communications between taxpayers and individuals who
are authorized under Federal law to practice before the IRS. The
privilege of confidentiality created by this provision does not apply to
a written communication between federally authorized tax practitioner
and any director, shareholder, officer, employee, agent, or
representative of a corporation in connection with the promotion of any
tax shelter (as defined in section 6662(d)(2)(C)(iii)) with respect to
which such corporation is a direct or indirect participant.
The provision is effective with regard to communications made on or
after the date of enactment.
b. Limitation on financial status audit techniques
The bill prohibits the IRS from using financial status or economic
reality examination techniques to determine the existence of unreported
income of any taxpayer unless the IRS has a reasonable indication that
there is a likelihood of unreported income, effective on the date of
enactment.
c. Software trade secrets protection
The bill prohibits the Secretary from issuing (or beginning an action
to enforce) a summons in a civil action for any portion of any
third-party tax-related computer source code unless certain requirements
are satisfied. The bill also establishes a number of protections against
the disclosure and improper use of software and source code obtained by
the IRS in the course of an examination. The bill specifically provides
that computer software or source code that is obtained by the IRS in the
course of the examination of a taxpayer's return is included in the
definition of return information under section 6103.
The provision does not change or eliminate any other requirement of
the Code. A summons for third-party tax-related computer source code
that meets the standards established by the provision will not be
enforced if it would not be enforced under present law.
The provision is effective with respect to summons issued and
software acquired after the date of enactment. In addition, 90 days
after the date of enactment, the protections against the disclosure and
improper use of trade secrets and confidential information added by the
provision (except for the requirement that the Secretary provide a
written agreement from non-U.S. government officers and employees) apply
to software and source code acquired on or before the date of enactment.
d. Threat of audit prohibited to coerce tip reporting
alternative commitment
agreements
The bill requires the IRS to instruct its employees that they may not
threaten to audit any taxpayer in an attempt to coerce the taxpayer to
enter into a tip reporting alternative commitment ("TRAC")
agreement, effective on the date of enactment.
e. Taxpayers allowed motion to quash all third-party
summonses
The bill generally expands the current "third-party recordkeeper"
procedures to apply to summonses issued to persons other than the
taxpayer. Thus, the taxpayer whose liability is being investigated
receives notice of the summons and is entitled to bring an action in the
appropriate U.S. District Court to quash the summons. The provision is
effective for summonses served after the date of enactment.
f. Service of summonses to third-party recordkeepers
permitted by mail
The bill allows the IRS the option of serving any summons either in
person or by certified or registered mail, effective for summonses
served after the date of enactment.
g. Notice of IRS contact of third parties
The bill provides that the IRS may not contact any person other than
the taxpayer with respect to the determination or collection of the tax
liability of the taxpayer without providing reasonable notice to the
taxpayer that contacts with persons other than the taxpayer may be made.
The provision is effective with respect to contacts made after 180 days
after the date of enactment.
3. Collection activities
a. Approval process for liens, levies, and seizures
The bill requires the IRS to implement an approval process under
which any lien, levy or seizure would, when appropriate, be approved by
a supervisor, who would review the taxpayer's information, verify that a
balance is due, and affirm that a lien, levy or seizure is appropriate
under the circumstances. Circumstances to be considered include the
amount due and the value of the asset. The provision is effective for
collection actions commenced after date of enactment, except in the case
of any action under the automated collection system, the provision
applies to actions initiated after December 31, 2000.
b. Modifications to certain levy exemption amounts
The bill increases the value of personal effects exempt from levy to
$6,250 and the value of books and tools exempt from levy to $3,125.
These amounts are indexed for inflation, effective for levies issued
after the date of enactment.
c. Release of levy upon agreement that amount is
uncollectible
The bill requires the IRS to immediately release a wage levy upon
agreement with the taxpayer that the tax is not collectible, effective
for levies imposed after December 31, 1999.
d. Levy prohibited during pendency of refund proceedings
The bill requires the IRS to withhold collection by levy of
liabilities that are the subject of a refund suit during the pendency of
the litigation, effective for refund suits brought with respect to tax
years beginning after December 31, 1998. Proceedings related to a
proceeding under this provision include, but are not limited to, civil
actions or third-party complaints initiated by the United States or
another person with respect to the same kinds of tax (or related taxes
or penalties) for the same (or overlapping) tax periods.
e. Approval required for jeopardy and termination assessments
and jeopardy levies
The bill requires IRS Chief Counsel review and approval before the
IRS can make a jeopardy assessment, a termination assessment, or a
jeopardy levy. If the Chief Counsel's approval is not obtained, the
taxpayer is entitled to obtain abatement of the assessment or release of
the levy, and, if the IRS fails to offer such relief, to appeal first to
IRS Appeals under the new due process procedure for IRS collections and
then to court. The provision is effective for taxes assessed and levies
made after the date of enactment.
f. Increase in amount of certain property on which lien not
valid
The bill increases the dollar limit for purchasers at a casual sale
from $250 to $1,000, and further increases the dollar limit from $1,000
to $5,000 for mechanics lienors providing home improvement work for
owner-occupied personal residences and indexes these dollar amounts for
inflation. The provision is effective on the date of enactment.
g. Waiver of early withdrawal tax for IRS levies on
employer-sponsored retirement plans or IRAs
The bill provides an exception from the 10-percent early withdrawal
tax for amounts withdrawn from an employer-sponsored retirement plan or
an IRA that are subject to a levy by the IRS. The exception applies only
if the plan or IRA is levied; it does not apply, for example, if the
taxpayer withdraws funds to pay taxes in the absence of a levy, in order
to release a levy on other interests. The provision is effective for
withdrawals after the date of enactment.
h. Prohibition of sales of seized property at less than
minimum bid
The bill prohibits the IRS from selling seized property for less than
the minimum bid price, effective for sales occurring after the date of
enactment.
i. Accounting of sales of seized property
The bill requires the IRS to provide a written accounting of all
sales of seized property, whether real or personal, to the taxpayer. The
accounting must include a receipt for the amount credited to the
taxpayer's account. The provision is effective for seizures occurring
after the date of enactment.
j. Uniform asset disposal mechanism
The bill requires the IRS to implement a uniform asset disposal
mechanism for sales of seized property within two years from the date of
enactment.
k. Codification of IRS administrative procedures for seizure
of taxpayer's property
The bill codifies the IRS administrative procedures which require the
IRS to investigate the status of certain property prior to levy,
effective on the date of enactment.
l. Procedures for seizure of residences and businesses
The bill prohibits the IRS from seizing any real property used as a
residence by the taxpayer or any nonrental real property of the taxpayer
used by any other individual as a residence to satisfy an unpaid
liability of $5,000 or less, including penalties and interest. The bill
requires the IRS to exhaust all other payment options before seizing the
taxpayer's business assets or principal residence. For this purpose,
future income that may be derived by a taxpayer from the commercial sale
of fish or wildlife under a specified State permit must be considered in
evaluating other payment options before seizing the taxpayer's business
assets. A levy is permitted on a principal residence only if a judge or
magistrate of a United States district court approves (in writing) of
the levy. The provision is effective on the date of enactment.
4. Provisions relating to examination and collection
activities
a. Procedures relating to extensions of statute of
limitations by agreement
The bill eliminates the provision of present law that allows the
statute of limitations on collections to be extended by agreement
between the taxpayer and the IRS. Extensions of the statute of
limitations on collection may be made as part of an installment
agreement; the extension is only for the period for which the
installment agreement by its terms extends beyond the end of the
otherwise applicable 10-year period, plus 90 days.
The bill also requires that, on each occasion on which the taxpayer
is requested by the IRS to extend the statute of limitations on
assessment, the IRS must notify the taxpayer of the taxpayer's right to
refuse to extend the statute of limitations or to limit the extension to
particular issues.
The provision is effective for requests to extend the statute of
limitations made after December 31, 1999. If, in any request to extend
the period of limitations made on or before December 31, 1999, a
taxpayer agreed to extend that period beyond the 10-year statute of
limitations on collection, that extension shall expire on the latest of:
the last day of such 10-year period, December 31, 2002, or the 90th
day after the end of the term of the installment agreement related to
such request.
b. Offers-in-compromise
The bill expands the authority for the IRS to accept
offers-in-compromise.
The bill requires the IRS to develop and publish schedules of
national and local allowances that will provide taxpayers entering into
an offer-in-compromise with adequate means to provide for basic living
expenses. The IRS is required to consider the facts and circumstances of
a particular taxpayer's case in determining whether the national and
local schedules are adequate for that particular taxpayer. The bill
prohibits the IRS from rejecting an offer-in-compromise from a
low-income taxpayer solely on the basis of the amount of the offer.
The bill prohibits the IRS from collecting a tax liability by levy
(1) during any period that a taxpayer's offer-in-compromise for that
liability is being processed, (2) during the 30 days following rejection
of an offer, (3) during any period in which an appeal of the rejection
of an offer is being considered, and (4) while an installment agreement
is pending.
The bill 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 bill provides 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.
The provisions are 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
December 31, 1999.
c. Notice of deficiency to specify deadlines for filing Tax
Court petition
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. The provision is effective for notices mailed after December 31,
1998.
d. Refund or credit of overpayments before final
determination
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 allows the refund of any
overpayment determined by the Tax Court to the extent the overpayment is
not contested on appeal. The provision is effective on the date of
enactment.
e. IRS procedures relating to appeal of examinations and
collections
The bill codifies existing IRS procedures with respect to early
referrals to Appeals and the Collections Appeals Process. The bill also
codifies the existing Alternative Dispute Resolution ("ADR")
procedures, as modified by eliminating the dollar threshold. The
provision is effective on the date of enactment.
f. Application of certain fair debt collection practices
The bill applies to the IRS certain restrictions relating to
communication with taxpayer/debtors and the prohibitions on harassing or
abusing a debtor. 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). The provision is effective on the date of enactment.
g. Guaranteed availability of installment agreements
The bill 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. The provision is effective on the date of enactment.
h. Prohibition on requests to taxpayers to waive rights to
bring actions
The bill provides that the Government may not request a taxpayer to
waive the taxpayer's right to sue the United States or one of its
employees for any action taken in connection with the tax laws, unless
(1) the taxpayer knowingly and voluntarily waives that right, or (2) the
request is made to the taxpayer's attorney or other representative,
effective on the date of enactment.
F. Disclosures to Taxpayers
1. Explanation of joint and several liability
The bill requires that the IRS establish procedures to clearly alert
married taxpayers of their joint and several liability, the availability
of electing separate liability, and an individual's right to relief
under section 6015 of the Code on all appropriate tax publications and
instructions. The IRS will make an appropriate cross reference to these
statements near the signature line on appropriate tax forms. The bill
requires that the procedures be established as soon as practicable, but
no later than 180 days after the date of enactment.
2. Explanation of taxpayers' rights in interviews with the
IRS
The bill requires that the IRS rewrite Publication 1 ("Your
Rights as a Taxpayer") to inform taxpayers more clearly of their
rights (1) to be represented by a representative and (2) if the taxpayer
is so represented, that interviews with the IRS may not proceed without
the presence of the representative unless the taxpayer consents. The
revisions are required no later than 180 days after the date of
enactment.
3. Disclosure of criteria for examination selection
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 is required to be included not later than
180 days after the date of enactment.
4. Explanation of the appeals and collection process
The bill 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.
5. Explanation of reason for refund disallowance
The bill requires the IRS to notify the taxpayer of the specific
reasons for the disallowance (or partial disallowance) of a refund
claim, effective for 180 days after the date of enactment.
6. Statements to taxpayers with installment agreements
The bill 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 July 1, 2000.
7. Notification of change in tax matters partner
The bill 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 for
selections of tax matters partners made by the Secretary after the date
of enactment.
8. Conditions under which taxpayers' returns may be disclosed
The bill requires that general tax forms instruction booklets include
a description of conditions under which tax return information may be
disclosed outside the IRS (including to States), effective on the date
of enactment.
9. Disclosure of Chief Counsel advice
The provision amends section 6110 of the Code, establishing a
structured process by which the IRS will make certain work products,
designated as "Chief Counsel Advice," open to public
inspection on an ongoing basis. It is designed to protect taxpayer
privacy while allowing the public inspection of these documents in a
manner generally consistent with the mechanism of section 6110 for the
public inspection of written determinations. In general, the provision
operates by establishing that Chief Counsel Advice are written
determinations subject to the public inspection provisions of section
6110. The provision applies to Chief Counsel Advice issued more than 90
days after enactment.
G. Low-Income Taxpayer Clinics
The bill provides that the Secretary is authorized to provide up to
$6,000,000 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.
The provision is effective on the date of enactment.
H. Other Provisions
1. Cataloging complaints
The bill requires that, in collecting data for the annual report to
the Congress on allegations of IRS employee misconduct, records of
taxpayer complaints of misconduct by IRS employees must be maintained on
an individual employee basis, effective January 1, 2000.
2. Archive of records of Internal Revenue Service
The bill provides an exception to the disclosure rules to require IRS
to disclose IRS records to officers or employees of National Archives
and Records Administration ("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. The
provision is effective for requests made by the Archivist after the date
of enactment.
3. Payment of taxes
The bill requires the Secretary or his delegate to establish such
rules, regulations, and procedures as are necessary to allow payment of
taxes by check or money order to be made payable to the United States
Treasury, rather than to the IRS, effective on the date of enactment.
4. Clarification of authority of Secretary relating to the
making of elections
The bill clarifies that, except as otherwise provided, the Secretary
may prescribe the manner of making any election under the Code by any
reasonable means, effective on the date of enactment.
5. IRS employee contacts
The bill requires any manually generated correspondence received by a
taxpayer from the IRS to include in a prominent manner the name,
telephone number, and unique identifying number of an IRS employee the
taxpayer may contact with respect to the correspondence. Any other
correspondence or notice received by a taxpayer from the IRS must
include in a prominent manner a telephone number that the taxpayer may
contact. An IRS employee must give a taxpayer during a telephone or
personal contact the employee's telephone number and unique identifying
number. The requirements for a unique identifying number are effective
six months after the date of enactment.
6. Use of pseudonyms by IRS employees
The bill 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 to use a pseudonym, and (2) IRS management has
approved the request to use the pseudonym prior to its use. This
provision is effective for requests made after the date of enactment.
7. Illegal tax protester designations
The bill 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. The
provision is effective on the date of enactment, except that the removal
of any designation from the master file, is not required to begin before
January 1, 1999.
8. Provision of confidential information to Congress by
whistleblowers
The bill provides that any person (i.e., a whistleblower) who
otherwise has or had access to any return or return information under
section 6103 may disclose such return or return information to the House
Ways and Means Committee, the Senate Finance Committee, or the Joint
Committee on Taxation or to any individual authorized by one of those
committees to receive or inspect any return or return information if
such person (the whistleblower) believes such return or return
information relates to evidence of possible misconduct,
maladministration, or taxpayer abuse. The provision is effective on the
date of enactment.
9. Listing of local IRS telephone numbers and addresses
The bill requires the IRS, as soon as is practicable, to publish
addresses and local telephone numbers of local IRS offices in
appropriate local telephone directories.
10. Identification of return preparers
The bill authorizes the IRS to approve alternatives to Social
Security numbers to identify tax return preparers, effective on the date
of enactment.
11. Offset of past-due, legally enforceable State income tax
obligations against overpayments
The bill permits States to participate in the IRS refund offset
program for specified past-due, legally enforceable State income tax
debts, providing the person making the Federal tax overpayment has shown
on the Federal return for the taxable year of the overpayment an address
that is within the State seeking the tax offset. The provision is
effective for Federal income tax refunds payable after December 31,
1999.
12. Reporting requirements in connection with education tax
credits
The bill modifies the information reporting requirements applicable
to certain educational institutions in connection with the HOPE
Scholarship and Lifetime Learning credits. In addition to reporting the
aggregate amount of payments for qualified tuition and related expenses
received by the educational institution with respect to a student, the
institution must report any grant amount received by the student and
processed through the institution during the applicable calendar year.
An educational institution also must report only the aggregate amount of
reimbursements or refunds paid to a student by the institution (and not
by any other party). The bill further clarifies that the definition of
term "qualified tuition and related expenses" shall be as set
forth in section 25A, determined without regard to section 25A(g)(2)
(which requires adjustments for certain scholarships). The provision
applies to returns required to be filed with respect to taxable years
beginning after December 31, 1998.
I. Studies
1. Administration of penalties and interest
The bill requires the Joint Committee on Taxation and the Treasury to
each conduct a separate study reviewing the interest and penalty
provisions of the Code, and make any legislative and administrative
recommendations deemed appropriate to simplify penalty administration
and reduce taxpayer burden. The reports must be provided not later than
one year after the date of enactment.
2. Confidentiality of tax return information
The bill requires the Joint Committee on Taxation and Treasury to
each conduct a separate study on provisions regarding taxpayer
confidentiality. The studies are to examine: (1) present-law protections
of taxpayer privacy; (2) the need, if any, for third parties to use tax
return information; (3) 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; (4) 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); (5) the impact on taxpayer privacy of sharing tax
information for the purposes of enforcing State and local tax laws
(other than income tax laws) and (6) an examination of whether the
public interest would be served by greater disclosure of information
relating to tax-exempt organizations (described in section 501 of the
Code). The findings of the studies, along with any recommendations, are
required to be reported to the Congress no later than 18 months after
the date of enactment.
3. Noncompliance with internal revenue laws by taxpayers
The bill provides that the Secretary of the Treasury and the
Commissioner, in consultation with the Joint Committee on Taxation, must
conduct a study of noncompliance with the tax law, including tax law
complexity and willful noncompliance or other factors. The study must be
reported to the Congress within one year of the date of enactment.
4. Payments for informants
The bill requires a study and report by the Secretary of the Treasury
to the Congress of the present-law informant reward program (including
results) and any legislative or administrative recommendations regarding
the program and its application. The study must be reported to the
Congress within one year of the date of enactment.
TITLE IV. CONGRESSIONAL ACCOUNTABILITY FOR THE IRS
A. Review of Requests for GAO Investigations
of the IRS
Under the bill, the Joint Committee on Taxation is to review all
requests (other than requests by the chair or ranking member of a
Committee or Subcommittee of the Congress) for investigations of the IRS
by the General Accounting Office ("GAO") and approve such
requests when appropriate. In reviewing such requests, the Joint
Committee on Taxation is to eliminate overlapping investigations, ensure
that the GAO has the capacity to handle the investigation, and ensure
that investigations focus on areas of primary importance to tax
administration. The provision is effective with respect to requests for
GAO investigations made after the date of enactment.
B. Joint Congressional Review and Coordinated Oversight
Reports
Under the bill, there will be one annual joint review which shall
include two majority and one minority members of each of the Senate
Committees on Finance, Appropriations, and Government Affairs and the
House Committees on Ways and Means, Appropriations, and Government
Reform and Oversight. The review is to be held before June 1 on the
progress of the IRS in meeting its objectives under the strategic and
business plans, the progress of the IRS in improving taxpayer service
and compliance, the progress of the IRS on technology modernization, and
the annual filing season. The annual review will be called by the
Chairman of the Joint Committee on Taxation and will take place in each
of calendar years 1999-2003.
The bill provides that the Joint Committee on Taxation is to make a
report once during each Congress to the Committee on Finance and the
Committee on Ways and Means on the overall state of the Federal tax
system, together with recommendations with respect to possible
simplification proposals and other matters relating to the
administration of the Federal tax system as it may deem advisable. This
report will be required only if amounts necessary to carry out this
requirement are specifically appropriated to the Joint Committee on
Taxation. The Joint Committee on Taxation also is to report annually to
the Senate Committees on Finance, Appropriations, and Government Affairs
and the House Committees on Ways and Means, Appropriations, and
Government Reform and Oversight with respect to the matters that are the
subject of the annual joint hearings of members of such Committees. This
reporting requirement will apply only for calendar years 1999-2003.
C. Budget Matters
The bill provides that it is the sense of the Congress that the IRS
efforts to resolve the century date change computing problems should be
fully funded to provide for certain resolution of such problems, and it
is the sense of the Congress that the IRS should place resolving the
century date change computing problems as a high priority.
D. Tax Law Complexity Analysis
The bill provides that it is the sense of the Congress that the IRS
should provide the Congress with an independent view of tax
administration and that the tax-writing committees should hear from
front-line technical experts at the IRS during the legislative process
with respect to the administrability of pending amendments to the
Internal Revenue Code. In addition, the IRS is required to report by
March 1 of each year to the House Committee on Ways and Means and the
Senate Committee on Finance regarding sources of complexity in the
administration of the Federal tax laws.
The bill requires the Joint Committee on Taxation (in consultation
with the IRS and Treasury) to provide an analysis of complexity or
administrability concerns raised by tax legislation provisions of
widespread applicability to individuals or small businesses. The
analysis is to be included in any Committee Report of the House
Committee on Ways and Means or Senate Committee on Finance or Conference
Report containing tax provisions, or provided to the Members of the
relevant Committee or Committees as soon as practicable after the report
is filed. A point of order is established with respect to the floor
consideration by the House of Representatives of a bill or conference
report that does not contain the required tax complexity analysis. The
point of order may be waived by a majority vote.
TITLE V. ADDITIONAL PROVISIONS
A. Elimination of 18-Month Holding Period for
Capital Gains
The Taxpayer Relief Act of 1997 Act ("the 1997 Act")
provided lower capital gains rates for individuals. Generally, the 1997
Act reduced the maximum rate on the adjusted net capital gain of an
individual from 28 percent to 20 percent and provided a 10-percent rate
for the adjusted net capital gain otherwise taxed at a 15-percent rate.
Under the bill, property held more than one year (rather than more than
18 months) will be eligible for the lower capital gain rates provided by
the 1997 Act. The provision applies to amounts properly taken into
account on or after January 1, 1998.
B. Deductibility of Meals Provided for the Convenience of the
Employer
The bill provides that all meals furnished to employees at a place of
business for the convenience of the employer are treated as provided for
the convenience of the employer under section 119 if more than one half
of employees to whom such meals are furnished on the premises are
furnished such meals for the convenience of the employer under section
119. If these conditions are satisfied, the value of all such meals
would be excludable from the employee's income and fully deductible to
the employer.
The provision is effective for taxable years beginning before, on, or
after the date of enactment.
C. Normal Trade Relations
The bill changes the terminology used in U.S. trade statutes from
"most-favored-nation" (MFN) to "normal trade
relations" (NTR) in order more accurately to reflect the nature of
the trade relationship in question. The bill does not change the tariff
treatment received by any country.
TITLE VI. TAX TECHNICAL CORRECTIONS
The bill contains technical, clerical, and conforming amendments to
the Taxpayer Relief Act of 1997 and other recently enacted legislation.
The provisions generally are effective as if enacted in the original
legislation to which each provision relates.
TITLE VII. REVENUE OFFSETS
A. Employer Deductions for Vacation and Severance Pay
The bill provides that, for purposes of determining whether an item
of compensation is deferred compensation, the compensation is not
considered to be paid or received until actually received by the
employee. The bill is intended to overrule the result in Schmidt
Baking. The provision is effective for taxable years ending after
date of enactment, with a three-year spread under section 481.
B. Freeze Grandfathered Status of Stapled REITs
The bill treats activities and gross income of a stapled REIT group
with respect to real property interests acquired after March 26, 1998,
by any member of a stapled REIT group as activities and income of the
REIT for certain purposes. There is an exception to this treatment for
certain grandfathered real property interests. The provision is
effective for taxable years ending after March 26, 1998.
C. Make Certain Trade Receivables Ineligible for
Mark-to-Market Treatment
The bill provides that certain trade receivables are not eligible for
mark-to-market treatment under section 475. The provision generally is
effective for taxable years ending after the date of enactment, with a
four-year spread under section 481.
D. Exclusion of Minimum Required Distributions from AGI for
Roth IRA Conversions
The bill excludes minimum required distributions from IRAs from the
definition of AGI solely for purposes of determining eligibility to
convert from an IRA to a Roth IRA. The provision is effective for
taxable years beginning after December 31, 2004.
TITLE VIII. LIMITED TAX BENEFITS UNDER THE LINE ITEM VETO ACT
The Line Item Veto Act amended the Congressional Budget and
Impoundment Act of 1974 to grant the President the limited authority to
cancel specific dollar amounts of discretionary budget authority,
certain new direct spending, and limited tax benefits. The Line Item
Veto Act provides that the Joint Committee on Taxation is required to
examine any revenue or reconciliation bill or joint resolution that
amends the Internal Revenue Code of 1986 prior to its filing by a
conference committee in order to determine whether or not the bill or
joint resolution contains any "limited tax benefits," and to
provide a statement to the conference committee that either (1)
identifies each limited tax benefit contained in the bill or resolution,
or (2) states that the bill or resolution contains no limited tax
benefits.
Pursuant to section 1027(a) of the Congressional Budget and
Impoundment Act of 1974 (as amended by the Line Item Veto Act), the
Joint Committee on Taxation has determined that the conference agreement
to H.R. 2676, the Internal Revenue Service Restructuring and Reform Act
of 1998, contains the following provisions that constitute limited tax
benefits within the meaning of the Line Item Veto Act:
- Section 3105 (relating to administrative appeal of adverse IRS
determination of tax-exempt status of bond issue); and
- Section 3445(c) (relating to State fish and wildlife permits).
TITLE IX. CORRECTIONS TO THE TRANSPORTATION
EQUITY ACT FOR THE 21st CENTURY
The conference agreement includes corrections to the Transportation
Equity Act for the 21st Century.
1. This document may be cited as follows: Joint
Committee on Taxation, Summary of the Conference Agreement on H.R.
2676, the Internal Revenue Service Restructuring and Reform Act of 1998
(JCX-50-98R), June 24, 1998.
2. For a description of H.R. 2676 as reported by
the House Committee on Ways and Means, see H. Rept. 105-364, Part I.
H.R. 2676 was amended by the House by adding (as new Title VI) the
provisions of H.R. 2645 ("Tax Technical Corrections Act") as
reported by the Committee on Ways and Means. (See H. Rept. 105-356,
October 29, 1997.)
3. H.R. 2676, as amended, was reported by the
Senate Committee on Finance on April 22, 1998 (S. Rept. 105-174).
4. The provision does not affect the Secretary's
(or Deputy Secretary's) or the Commissioner's access to section 6103
information or the application of the anti-browsing rules to the
Secretary (or Deputy Secretary) or the Commissioner.
=========================
Source of Above (historic link): http://www.house.gov/jct/x-50-98.htm
| The above limited information is intended for
informational purposes only. If legal advice or other expert
assistance is required, the services of a competent professional should
be sought, and this general information should not be relied upon
without such professional assistance. |
|
