FOR IMMEDIATE RELEASE, Contact: (202) 225-3625
October 24, 1997
No. FC 19-A
Congressman Bill Archer (R-TX), Chairman of the Committee on Ways and Means, today announced that on Wednesday, October 22, 1997, the Committee ordered favorably reported, as amended, H.R. 2676, the "Internal Revenue Service Restructuring and Reform Act of 1997," by a recorded vote of 33-4.
DESCRIPTION OF H.R. 2676 AS APPROVED:
The "Internal Revenue Service Restructuring and Reform Act of 1997" is designed to modernize and improve the performance of the Internal Revenue Service (IRS) and its services to the nation's taxpayers. The bill addresses four broad areas for reforms: (1) executive branch governance of the IRS and personnel flexibilities, (2) electronic filing, (3) taxpayer rights, and (4) Congressional oversight of the IRS. The following is a description of the major features of the bill:
Title I--Executive Branch Governance
A. Internal Revenue Service Oversight Board. The bill would provide for the establishment within the U.S. Department of the Treasury of an Internal Revenue Service Oversight Board (the "Board") which would be responsible for overseeing the IRS in the administration, management, conduct, direction, and supervision of the execution and application of the internal revenue laws. The Board's specific responsibilities would include: (1) review and approval of strategic plans of the IRS, (2) review of the operational functions of the IRS, (3) review of the Commissioner's selection, evaluation, and compensation of senior managers, and (4) review and approval of the Commissioner's plans for major reorganizations of the IRS. In addition, the Board would review and approve the budget request of the IRS prepared by the Commissioner and would ensure that the budget request supports the IRS's annual and long-range strategic plans. However, the Board would have no responsibilities or authority with respect to: (1) the development and formulation of Federal tax policy, (2) law enforcement activities of the IRS, and (3) specific IRS procurement activities.
The 11-member Board would consist of the Secretary of the Treasury or his delegate, 8 "private-life" members who are not Federal officers or employees, the IRS Commissioner, and a representative from a union representing a substantial number of IRS employees. The private-life members would be considered "special government employees" under Title 18 U.S. Code sec. 202. They would be appointed based on their expertise in: (1) management of large service organizations, (2) customer service, (3) the Federal tax laws, including administration and compliance, (4) information technology, (5) organization development, and (6) the needs and concerns of taxpayers. The Board would be required to report each year to the President and Congress regarding the conduct of its responsibilities.
B. Commissioner of Internal Revenue. As under present law, the Commissioner would be appointed by the President with the advice and consent of the Senate. The appointment would be for a 5-year term beginning with the date of the appointment. The Board would recommend candidates to the President for Commissioner (although the President would not be required to nominate a Commissioner from among the candidates recommended by the Board) and would have the authority to recommend the removal of the Commissioner. The powers of the Commissioner with respect to the administration and enforcement of the internal revenue laws would be very similar to powers currently delegated to the Commissioner under Treasury Order 150-10 (April 22, 1982).
C. Funding of the Employee Plans and Exempt Organizations (EP/EO) Division. The bill would repeal the current funding formula for EP/EO set forth in section 7802(b)(2) and would instead provide that, as is the case for other functions within the IRS, funding for EP/EO would be subject to annual Congressional appropriations.
D. Taxpayer Advocate. The bill would provide that the Taxpayer Advocate would be appointed by the Commissioner, subject to the approval of the Board. It is expected that candidates for Taxpayer Advocate would have either substantial experience representing taxpayers before the IRS or, if the Taxpayer Advocate was an officer or employee of the IRS before being appointed, the individual would be required to agree not to accept any employment with the IRS for a least 5 years after ceasing to be the Taxpayer Advocate. The bill would modify the information to be included in the Taxpayer Advocate's December 31 report to the tax-writing committees. The Taxpayer Advocate would also be required to monitor the coverage and geographic allocation of problem resolution officers and develop guidance to be used by IRS employees in referring taxpayer inquiries to problem resolution officers.
E. Prohibition on Executive Branch Influence Over Taxpayer Audits and Collection Activity. The bill would make it unlawful for the President, Vice President, or employees of their executive offices, and all Cabinet heads (other than the Attorney General) to request any officer or employee of the IRS to conduct or terminate an audit or begin or terminate an investigation with respect to a particular taxpayer. Anyone convicted of violating this provision would be punished by imprisonment of up to 5 years or a fine of $5,000 (or both). The prohibition would not apply to: (1) requests for assistance made by the taxpayer or his representative which are forwarded to the IRS, (2) requests for disclosure of return information under section 6103 if the request complies with the requirements of section 6103, and (3) a request made by the Secretary as a consequence of a change in tax policy.
Title II--Electronic Filing
A. Electronic Filing of Tax and Information Returns. The bill would: (1) establish a long-range goal that 80 percent of all returns should be filed electronically by the year 2007, (2) require the Secretary to establish a strategic plan to accomplish the goal by eliminating barriers and providing incentives to increase electronic filing, (3) require the Secretary to create an Electronic Commerce Advisory Group composed of representatives from the small business community and from the tax practitioner, preparer, and computerized tax processor communities, (4) require an annual report to Congress on the IRS's progress in implementing the strategic plan, and (5) authorize the Secretary to market the benefits of electronic filing and pay appropriate incentives for electronically filed returns.
B. Time for Filing Certain Information Returns with the IRS. The bill would extend the due date for filing information returns with the IRS from February 28 to March 31 for such returns which are filed electronically. The proposal would not change the present law requirement that payors must supply taxpayers with the applicable information by January 31.
C. Paperless Electronic Filing. The bill would: (1) require the Secretary to develop procedures to eliminate the need to file a paper signature form and to develop procedures for the acceptance of digital signatures, (2) authorize the Secretary to waive signature requirements, (3) provide rules for determining when electronic returns are deemed filed, and (4) authorize the IRS to establish procedures for return preparers to communicate with the IRS electronically.
D. Return-Free Tax Administration. The bill would require the Secretary to develop procedures for implementation of a return-free tax system for taxable years beginning after 2007, and to report annually to the tax-writing committees on the development of such a system.
E. Access to Accounts for Taxpayers Filing Electronically. The bill would require the Secretary to develop procedures under which a taxpayer filing electronically could review his or her own tax account electronically, subject to necessary privacy safeguards.
Title III--Taxpayer Bill of Rights 3
1. Burden of Proof. The bill would provide that the Secretary shall have the burden of proof in any court proceeding with respect to a factual issue if the taxpayer asserts a reasonable dispute with respect to such issue and fully cooperates with reasonable IRS requests to examine books, records, witnesses, and documents within the control of the taxpayer. The provision would apply to all individuals and to partnerships and corporations whose net worth is $7 million or less. The proposal would not override any requirement of the Code or regulations requiring the taxpayer to substantiate any item.
2. Expansion of Authority to Award Costs and Certain Fees. The bill would: (1) provide that the difficulty of the issues presented or the local availability of tax expertise can be used to justify an award of attorneys' fees of more than the statutory limit of $110, (2) move the point in time at which both the position of the United States is determined and after which reasonable administrative costs can be awarded to the date on which the first letter of proposed deficiency which allows the taxpayer an opportunity to administrative review in the IRS Office of Appeals is sent (i.e., the date of the "30-day letter"), (3) permit the award of attorneys' fees to specified persons who represent taxpayers on a "pro bono" basis, and (4) provide that in determining whether the IRS's position was substantially justified, a court should take into account whether the United States has lost in courts of appeal for other circuits on substantially similar issues.
3. Civil Damages for Negligence in Collection Actions. The bill would allow taxpayers to sue for up to $100,000 in civil damages caused by an officer or employee of the IRS who negligently disregards provisions of the Code or regulations in connection with the collection of Federal taxes. In order to bring an action under this provision, taxpayers would first be required to exhaust their administrative remedies.
4. Increase in Size of Cases Permitted on Small Case Calendar. The bill would increase the dollar cap for small case treatment for disputes in the Tax Court from $10,000 to $25,000.
5. Innocent Spouse Relief. The bill would eliminate the understatement thresholds applicable to eligibility for innocent spouse relief under present law. Thus, relief would be available for any underpayment of tax, provided other applicable standards are met. The bill also would allow such relief to be considered where the understatement of income relates to an item that is erroneous (rather than "grossly" erroneous, as under present law). In addition, the bill would allow innocent spouse relief to be provided on an apportioned basis, and would provide the Tax Court with jurisdiction to review any denial by the Secretary of an application for innocent spouse relief.
6. Suspension of Statute of Limitations on Filing Refund Claims During Periods of Disability. The bill would allow the statute of limitations for refund claims to be suspended for periods where the taxpayer is suffering from a physical or medical impairment which can be expected to result in death or to last for a continuous period of at least 1 year.
7. Elimination of Interest Differential on Refunds Payable to Taxpayers. The bill would provide that the interest rate applicable to individual overpayments and underpayments would be the Federal short-term interest rate, plus 3 percentage points. In the case of corporations, the bill would establish a net interest rate of zero on equivalent amounts of overpayments and underpayments that exist for any period.
8. Privilege of Confidentiality Extended to Taxpayer's Dealings with Non-Attorneys Authorized to Practice Before the IRS. The bill would extend the present law attorney-client privilege of confidentiality to tax advice that is provided in a manner consistent with State law and furnished by an individual who is authorized to practice before the IRS.
9. Expansion of Authority to Issue Taxpayer Assistance Orders (TAOs). The bill would provide that in determining whether to issue a TAO, the Taxpayer Advocate should consider, among others, the following factors: (1) whether there is an immediate threat of adverse action, (2) whether there has been an unreasonable delay in resolving the taxpayer's problem, (3) whether the taxpayer may incur significant professional fees if relief is not granted, and (4) whether the taxpayer will suffer irreparable injury if relief is not granted.
10. Limitation on Financial Status Audits. The bill would prohibit the IRS from using financial status or economic reality auditing techniques in the audit of a taxpayer, unless the IRS has a reasonable indication that there is a likelihood of unreported income.
11. Limitation on Authority to Require Production of Computer Source Code. The Secretary would generally be prohibited from issuing (or beginning an action to enforce) a summons in a civil action for any third-party tax-related computer source code unless: (1) the Secretary is unable to otherwise reasonably ascertain the correctness of an item on a return from the taxpayer's other books, papers, records, other data, or the computer software program and associated data itself, and (2) the Secretary first identifies with reasonable specificity the portion of the computer source code to be used to verify the correctness of the item. The prohibition would apply only in the case of tax-related computer software intended for commercial distribution, and would not apply in connection with any criminal inquiry.
12. Procedures Relating to Extensions of the Statute of Limitations by Agreement. The bill would require the IRS to inform taxpayers of their right not to extend the statute of limitations whenever it requests an extension from taxpayers.
13. Offers-in-Compromise. The bill would require the IRS to: (1) develop national and local living allowances for use in offers-in-compromise cases to ensure that the taxpayers who enter into these agreements would be able to maintain basic living expenses, and (2) prepare guidance to be provided to taxpayers at the time they enter into offers-in-compromise explaining their rights and obligations.
14. Notice of Deficiency to Specify Deadlines for Filing Tax Court Petition. The bill would require the IRS to put the date for the expiration of the 90-day or 150-day filing period (whichever is applicable) in the statutory deficiency notice which it sends to the taxpayer.
15. Refund or Credit of Overpayments Before Final Determination. The bill would provide that, where a timely petition with respect to a deficiency is filed in the Tax Court, the 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.
16. Prohibition on Improper Threat of Audit Activity. The bill would prohibit IRS employees from using threats of audit activity to obtain a taxpayer's consent to enter a Tip Reporting Alternative Commitment agreement.
17. Explanation of Joint and Several Liability. The bill would require the IRS to establish procedures to clearly alert married taxpayers filing joint returns of their joint and several liability for taxes in all appropriate tax publications and instructions.
18. Explanation of Taxpayers' Rights in Interviews with the IRS. The bill would require the IRS to rewrite Publication 1 ("Your Rights as a Taxpayer") to more clearly inform taxpayers of their rights: (1) to be represented during an examination, and (2) if the taxpayer is so represented, that the interview may not proceed without the presence of the representative unless the taxpayer consents.
19. Disclosure of Criteria for Examination Selection. The bill would require the IRS to include in the revised Publication 1 a statement which sets forth in simple and nontechnical terms the criteria and procedures used to select taxpayers for an examination.
20. Explanation of Appeals and Collection Process. The bill would require the IRS to provide taxpayers with an explanation of the appeals process and the collection process with the first letter of proposed deficiency that allows the taxpayer an opportunity for administrative review in the IRS Office of Appeals (i.e., the "30-day letter").
21. Low-Income Taxpayer Clinics. The bill would require the Secretary to make matching grants of up to $100,000 each for the development, expansion, or continuation of certain low-income taxpayer clinics that represent low-income taxpayers in controversies with the IRS or that provide tax information to non-English speaking individuals.
22. Estates Holding Closely Held Businesses. The proposal would grant jurisdiction to the U.S. Claims Court and the U.S. district courts to determine the correct amount of estate tax liability (or for any refund) in actions brought by taxpayers deferring estate tax payments under section 6166, as long as certain conditions are met.
23. Cataloging Complaints. The bill would require the IRS, in collecting data for the annual report to the Congress regarding misconduct of IRS employees as required by Section 1211 of the Taxpayer Bill of Rights 2 (P.L. 104-168), to maintain records of taxpayer complaints of such misconduct on an individual employee basis.
24. Archives of Records of the IRS. The bill would provide an exception to the disclosure rules of section 6103 to require the IRS to disclose IRS records to the National Archives and Records Administration (NARA), upon written request of the Archivist, for purposes of scheduling such records for destruction or retention in the National Archives. The current prohibitions on disclosure of tax information generally would apply to NARA.
25. Payment of Taxes. The bill would require the Secretary to establish such rules, regulations, and procedures as are necessary to allow payment of taxes by check or money order made payable to the United States Treasury.
26. Study of Penalty Administration. The bill would require the Joint Committee on Taxation to conduct a study reviewing the administration and implementation of the penalty reform provisions of the Omnibus Budget Reconciliation Act of 1989 (P.L. 101-239), and to make legislative and administrative recommendations to simplify penalty administration and reduce taxpayer burden.
27. Study of Confidentiality of Tax Return Information. The bill would require the Joint Committee on Taxation to conduct a study regarding taxpayer confidentiality, including examination of present-law protections of taxpayer privacy, the need for third parties to use tax information, and the ability to improve compliance with the tax laws by allowing the public to know who is legally required to file tax returns but does not do so.
28. Penalty for Failure to Pay Taxes Capped for Individuals Making Installment Payments. The bill would place a cap on the "failure to pay" penalty of 9.5 percent (which, under present law, is equal to 1/2 percent per month on the unpaid amount, up to a maximum of 25 percent) for taxpayers who have entered into installment agreements with the IRS for the payment of taxes due.
Title IV--Congressional Oversight
A. Review of Requests for U.S. General Accounting Office (GAO) Investigations of the IRS. The bill would require the Joint Committee on Taxation to review all requests (other than those requested by the chair or ranking member of a committee or subcommittee) for investigations of the IRS by the GAO, and approve the requests when appropriate in order to eliminate overlapping investigations and ensure that investigations focus on areas of primary importance to tax administration.
B. Joint Congressional Hearings and Coordinated Oversight Reports. The bill would provide for two annual joint hearings of two majority and one minority members of each of the House Committees on Ways and Means, Appropriations, and Government Reform and Oversight, and the Senate Committees on Finance, Appropriations, and Government Affairs. The first hearing would take place before April 1 of each year and would review the strategic plans and budget for the IRS. The second hearing would be held after the conclusion of the annual tax filing season and would review the progress of the IRS in meeting its objectives under the strategic and business plans, the process of the IRS in improving taxpayer service and compliance, technology modernization, and the success of the annual filing season. The bill also would require the Joint Committee on Taxation to make annual reports to the tax-writing committees on the overall of state of the Federal tax system, along with recommendations for tax simplification.
C. Budget Matters. The bill would provide that it is the sense of the Congress that the IRS efforts to resolve the century date change computing problems be fully funded. The bill also would require the Secretary to establish a Financial Management Advisory group to advise the Commissioner on financial management issues.
D. Tax Law Complexity Analysis. The bill would require the Joint Committee on Taxation to provide a "tax complexity analysis" for legislation reported out by the House Committee on Ways and Means and the Senate Committee on Finance and all conference reports that would amend the tax laws. The analysis would identify those provisions in a bill or conference report that the staff of the Joint Committee on Taxation determines would add significant complexity or simplification to the tax laws.
Title V--Revenue Offset
Employer Deductions for Vacation Pay. The bill would provide that, for purposes of determining whether an item of compensation (other than severance pay) is deferred compensation, the compensation is not considered to be paid until it has actually received by the employee. In addition, the bill would provide that for purposes of determining whether an item of deferred compensation has been paid, the item is not considered paid until it actually has been received by the employee. The provision would, in effect, overturn the Tax Court's decision in Schmidt Baking Co, Inc. which had permitted a letter of credit backing accrued vacation pay to be treated as a payment which would allow the employer to deduct the vacation pay in the year that the letter of credit was purchased. The provision would be effective for taxable years ending after October 8, 1997.