TITLE III. TAXPAYER PROTECTION AND RIGHTS
- Burden of Proof
- Proceedings by Taxpayers
- Expansion of authority to award costs and certain fees
- Civil damages for collection actions
- Increase in size of cases permitted on small case calendar
- Actions for refund with respect to certain estates which have elected the installment method of payment
- Review of an adverse IRS determination of a bond issue's tax-exempt status
- Civil action for release of erroneous lien
- Relief for Innocent Spouses and for Taxpayers Unable to Manage Their Financial Affairs Due to Disabilities
- Relief for innocent spouses
- Suspension of statute of limitations on filing refund claims during periods of disability
- Provisions Relating to Interest and Penalties
- Elimination of interest differential on overlapping periods of interest on income tax overpayments and underpayments
- Increase in overpayment rate payable to taxpayers other than corporations
- Mitigation of penalty for individual's failure to pay during period of installment agreement
- Mitigation of failure to deposit penalty
- Suspension of interest and certain penalties if Secretary fails to contact individual taxpayer
- Procedural requirements for imposition of penalties and additions to tax
- Personal delivery of notice of penalty under section 6672
- Notice of interest charges
- Abatement of interest on underpayments by taxpayers in Presidentially declared disaster areas
- E. Protections for Taxpayers Subject to Audit or Collection Activities
- Due process in IRS collection actions
- Examination activities
- Uniform application of confidentiality privilege to taxpayer communications with federally authorized practitioners
- Limitation on financial status audit techniques
- Software trade secrets protection
- Threat of audit prohibited to coerce tip reporting alternative commitment agreements
- Taxpayers allowed motion to quash all third-party summonses
- Service of summonses to third-party recordkeepers permitted by mail
- Notice of IRS contact of third parties
- Collection activities
- Approval process for liens, levies, and seizures
- Modifications to certain levy exemption amounts
- Release of levy upon agreement that amount is uncollectible
- Levy prohibited during pendency of refund proceedings
- Approval required for jeopardy and termination assessments and jeopardy levies
- Increase in amount of certain property on which lien not valid
- Waiver of early withdrawal tax for IRS levies on employer-sponsored retirement plans or IRAs
- Prohibition of sales of seized property at less than minimum bid
- Accounting of sales of seized property
- Uniform asset disposal mechanism
- Codification of IRS administrative procedures for seizure of taxpayer's property
- Procedures for seizure of residences and businesses
- Provisions relating to examination and collection activities
- Procedures relating to extensions of statute of limitations by agreement
- Notice of deficiency to specify deadlines for filing Tax Court petition
- Refund or credit of overpayments before final determination
- IRS procedures relating to appeal of examinations and collections
- Application of certain fair debt collection practices
- Guaranteed availability of installment agreements
- Prohibition on requests to taxpayers to waive rights to bring actions
- Disclosures to Taxpayers
- Explanation of joint and several liability
- Explanation of taxpayers' rights in interviews with the IRS
- Disclosure of criteria for examination selection
- Explanation of the appeals and collection process
- Explanation of reason for refund disallowance
- Statements to taxpayers with installment agreements
- Notification of change in tax matters partner
- Conditions under which taxpayers' returns may be disclosed
- Disclosure of Chief Counsel advice
- Low-Income Taxpayer Clinics
- Other Provisions
- Cataloging complaints
- Archive of records of Internal Revenue Service
- Payment of taxes
- Clarification of authority of Secretary relating to the making of elections
- IRS employee contacts
- Use of pseudonyms by IRS employees
- Illegal tax protestor designations
- Provision of confidential information to Congress by whistleblowers
- Listing of local IRS telephone numbers and addresses
- Identification of return preparers
- Offset of past-due, legally enforceable State income tax obligations against overpayments
- Reporting requirements relating to education tax credits
- Administration of penalties and interest
- Confidentiality of tax return information
- Noncompliance with internal revenue laws by taxpayers
- Payments for informants
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
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
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
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
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
D. Provisions Relating to Interest and
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
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
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,
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
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
The provision is effective with regard to communications made on or after the date
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
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
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
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,
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
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
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
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
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
a. Procedures relating to extensions of statute of limitations
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.
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
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,
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
e. IRS procedures relating to appeal of examinations and
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
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
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,
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
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
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.
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.