VI. Taxpayer Protections

A. Burden of Proof

1. Shift the burden of proof in court proceedings if the taxpayer introduces credible evidence with respect to a factual issue relevant to ascertaining income tax liability. As with the House provision, this shift would be subject to net worth limitations (except for individuals) and the taxpayer must comply with current law substantiation requirements and maintenance of records. Taxpayer must also cooperate (rather than "fully cooperate") with the IRS.

2. In any instance in which the IRS uses statistics to determine a taxpayer's income, the burden of proof in court proceedings would shift to the IRS to prove the taxpayer's taxable income.

3. In court proceedings, the IRS would have the burden of establishing that imposition of penalties is appropriate. If neither the IRS nor the taxpayer introduce evidence relating to penalties, the IRS should not be sustained.

B. Proceedings by Taxpayers

1. Expansion of Authority to Award Costs and Certain Fees

a. Allow a taxpayer to recover costs and fees from the time the taxpayer has a right to seek administrative review by the Office of Appeals (House bill);

b. Allow reasonable attorney fees at the prevailing rate in the locality. (House bill provides exceptions to $110/hour limitation);

c. When a taxpayer is represented for free, the IRS should bear the responsibility to pay reasonable costs and fees if the taxpayer substantially prevails and the IRS position was not substantially justified (House bill);

d. In determining whether the IRS was substantially justified, the court must consider whether the IRS has lost in courts of appeal for other circuits on substantially similar issues. (House bill)

2. Allow taxpayers to recover up to $100,000 in civil damages from the IRS due to IRS employee negligence in collection matters. (House bill)

3. Allow up to $1 million in civil damages for willful violations of the Bankruptcy Code relating to automatic stays or discharges. (Administration proposal)

4. Allow civil damages for unauthorized collection actions against persons other than the taxpayer. (Administration proposal).

5. Increase the size of cases in the Tax Court's Small Case Calendar from $10,000 to $50,000. (House bill increased to $25,000)

6. Expand Tax Court jurisdiction to include responsible person penalties and innocent spouse relief.

7. If a taxpayer makes a statutory offer after the taxpayer has a right to an administrative review by Appeals, the IRS rejects the offer, and the IRS obtains a judgment against the taxpayer in an amount equal to or less than the amount of the taxpayer's statutory offer, the IRS must pay the taxpayer's fees and costs incurred from the date of the statutory offer. Subject to net worth limitations for collection of attorney fees.

C.Relief for Innocent Spouses and Persons with Disabilities

1. Innocent Spouse Relief

a. Overhaul the current law innocent spouse relief requirements and replace with proportionate liability. Innocent spouses could elect out of joint and several liability and be liable only for tax attributable to their income. The electing spouse must prove the amount of tax for which they should not be responsible. Community property laws would be disregarded for the purpose of this relief. As in the House bill, provide the Tax Court with jurisdiction to determine the limits of the spouse's liability.

b. Require the Treasury Inspector General to certify that the IRS notifies taxpayers of amount collected from a former spouse.

2. Equitable Tolling (House bill and Administration Proposal).

Allow equitable tolling of the statute of limitations on filing a refund claim for the period of time a taxpayer is unable to manage his affairs due to a physical or mental disability that is expected to result in death or last for more than 12 months. Tolling would not apply if someone was authorized to act on the taxpayer's behalf on financial affairs.

D. Provisions Relating to Interest and Penalties

1. Eliminate the interest rate differential on overlapping periods of interest on income tax overpayments and underpayments (House bill).

2. Eliminate the interest rate differential for non-corporate taxpayers by increasing the interest rate on overpayments from the Federal short-term interest +2% to +3%. (House bill)

3. Do not impose the failure to pay penalty while the taxpayer is in an installment agreement.

4. If IRS does not contact a taxpayer within 1 year after a return is filed, then interest and penalties will be suspended (excluding the failure to file, failure to pay, and civil fraud penalties).

5. Allow the taxpayer to designate deposits for each payroll period rather than using the first-in-first-out ("FIFO") method that results in cascading penalties.

6. Require each notice of penalty to include a computation of the penalty.

7. Require management to approve non-computer generated penalties (excluding failure to file, pay, or estimated tax payment).

E. Protections for Taxpayers Subject to Audit or Collection

1. Extend the attorney client privilege to accountants and other tax practitioners.

2. Expand the Taxpayer Advocate's authority to issue a Taxpayer Assistance Order for "significant hardships" if:

a. There is an immediate threat of adverse action;

b. There has been unreasonable IRS delay in resolving the taxpayer's account problem;

c. The taxpayer will have to pay significant costs (including fees for representation) if relief is not granted; or

d. The taxpayer will suffer irreparable injury or long-term adverse impact if relief is not granted.

If the IRS is not following applicable published guidance (including the Internal Revenue Manual), the Taxpayer Advocate shall construe this in a manner most favorable to the taxpayer. (House bill - modified)

3. Prohibit the IRS from using financial status or economic reality audit techniques to determine the existence of unreported income unless the IRS has a reasonable indication there is a likelihood of unreported income. (House bill)

4. Limit IRS authority to require the production of computer source code.

5. Statute of Limitations

a. Prohibit individual taxpayers from extending the 10 year collection statute of limitations.

b. Require the IRS to provide notice of the taxpayer's rights if the IRS requests an extension of the statute of limitations. (House bill). Require Treasury Inspector General to track.

6. Offers-in-Compromise

a. Modify the House provision to require the IRS to consider the facts and circumstances of a particular taxpayer's case. The IRS should develop and publish schedules of national and local allowances designed to provide taxpayers with adequate living expenses. If the facts warrant, the taxpayer should not be limited by the standards.

b. Require the IRS to prepare a statement setting forth the terms and rights of a taxpayer relating to an offer-in-compromise. (House bill)

c. Specify that offers made by low income taxpayers will be considered even if the amount of the offer is low. This is not intended to allow others to make low-ball offers.

d. Prohibit the IRS from requiring a financial statement if the taxpayer makes an offer based upon dispute as to liability (rather than based upon ability to pay).

e. The IRS should implement liberal offer in compromise acceptance procedures to keep taxpayers in the system.

f. Prohibit the IRS from collecting a tax liability by levy if: (1) an offer in compromise is being processed; (2) within 30 days following rejection of an offer; and (3) during appeal of a rejection of an offer. (Administration proposal)

g. Offer in compromises must be reviewed by a higher level before being rejected on the merits.

h. If the IRS lost the taxpayer's file, prohibit the IRS from rejecting the taxpayer's offer-in-compromise based upon doubt as to the taxpayer's liability.

7. Require the IRS to include on each deficiency notice, the date the IRS determines is the last day for the taxpayer to file a Tax Court petition. A petition filed by the specified date would be deemed timely filed. (House bill)

8. Allow courts to order a refund of any amount that was collected during a period in which the IRS is prohibited from collecting against the taxpayer. Allow refunds of the portion of the overpayment determined by the Tax Court that is not contested on appeal. (House bill)

9. Prohibit the use of threats of audits to obtain a Tip Reporting Alternative Commitment Agreement. (House bill)

10. Ensure availability of installment agreements if the liability is $10,000 or less. (Administration proposal)

F. Additional Taxpayer Protections Relating to Liens, Levies, and Seizures

1. Due Process for IRS Collection Actions

a. Require the IRS to provide notice to taxpayers 30 days (90 days in case of life insurance) before the IRS liens, levies, or seizes a taxpayer's property.

b. The taxpayer would have 30 days to request a hearing by IRS Appeals. No collection activity (other than in jeopardy situations) would be allowed until after the hearing. The taxpayer could raise any issue as to why collection should not continue.

c. The taxpayer could petition the Tax Court to contest the Appeal's decision.

2. Provide taxpayers with an enhanced mechanism to appeal an audit. Codify existing IRS procedures which allow a taxpayer to request early referral to Appeals. Also, codify procedures relating to the existing alternative dispute resolution program but reduce the threshold from $10 million to $1 million.

3. Direct IRS to establish an independent appeals function. Prohibit ex parte communication between Appeals and other IRS personnel (collection or audit) as to a particular taxpayer's case.

4. Require two supervisors to sign under penalty of perjury that they have reviewed the taxpayer's information, verified that a balance is due, and believe a lien, levy, or seizure is appropriate given the taxpayer's circumstances (including the amount due and the value of the asset). Require the Treasury Inspector General to collect this information and annually report to the tax writing committees.

5. Clarify that the IRS cannot sell a taxpayer's property for less than the minimum bid price and cross reference to civil damages provision for unauthorized collection actions.

6. Require the IRS to provide an accounting and receipt to the taxpayer (including the amount credited to the taxpayer's account) when the IRS seizes and sells the taxpayer's property.

7. Require the IRS to implement, within 2 years, a uniform asset disposal mechanism (which may include consideration of outsourcing) for sales of seized property to prevent revenue officers from conducting sales.

8. Increase the amount exempt from levy to $10,000 for personal property and $5,000 for books and tools of trade indexed for inflation.

9. Require the IRS to immediately release a levy upon agreement that the amount is "currently not collectible".

10. Current law prohibits the IRS from levying property if the amount of IRS expenses of levy and sale exceed the fair market value of such property at the time of the levy. Codify portions of the Internal Revenue Manual which require the IRS to investigate the status of the property prior to levy. Require the Treasury Inspector General to certify IRS compliance.

11. Suspend collection by levy during refund suit. (Administration proposal)

12. Require district counsel review of jeopardy and termination assessments and jeopardy levies. (Administration proposal)

13. Codify certain fair debt collection practices (e.g., prohibit late night calls to taxpayers, harassment, etc.). (Administration proposal)

14. Increase superpriority limits (e.g., mechanics liens from $1,000 to $5,000 and casual sales from $250 to $1,000). (Administration proposal)

15. Allow personal delivery (as an alternative to US Mail) of a preliminary notice that the IRS intends to assess a 100 percent penalty. (Administration proposal)

16. Allow taxpayers to bring an action to quash all third-party summonses (taxpayers would receive notice of the summons). (Administration proposal)

17. Allow service of summons by mail. (Administration proposal)

18. Provide a new remedy for third-parties who claim the IRS filed an erroneous lien to obtain a certificate of discharge of property from lien as a matter of right. This would enable the third-party to post a bond and sell the property free and clear of the Federal tax lien. Also, allow third-parties to challenge a lien in court. The statute of limitations on collecting from the taxpayer would not be stayed during the third-party litigation. (Modified Administration Proposal)

19. Waive the 10% addition to tax for early withdrawal from an IRA or other qualified plan if the IRS levies.

20. Prohibit the IRS from seizing real property used as a residence to satisfy unpaid liabilities less than $5,000.

G. Disclosures to Taxpayers (House bill)

Require the IRS to provide the following disclosures to taxpayers:

1. Clearly alert married taxpayers of their joint and several liability on all appropriate publications and instructions;

2. Clearly inform taxpayers of their rights to be represented at an IRS interview and to suspend an interview to allow the taxpayer to consult with his/her representative;

3. Explain in simple non-technical terms the criteria and procedures for selecting taxpayers for audit. The statement shall not include any information which would be detrimental to law enforcement;

4. Include with the first letter of proposed deficiency which allow the taxpayer an opportunity for administrative review by the Office of Appeals, an explanation of the appeals process and the collection process.

H. Low Income Taxpayer Clinics (House bill)

Require the Treasury to make matching grants for the development, expansion, or continuation of certain low-income taxpayer clinics. Various requirements must be satisfied. The aggregate amount of grants would be limited to $3 million each year. Expand "clinic" to include an accredited business school (not just law schools).

I. Other Matters

1. Grant jurisdiction to U.S. District Courts and the U.S. Claims Court to determine the correct amount of estate tax liability in actions brought by taxpayers paying estate tax in installments as long as certain requirements are met. (House bill)

2. Require the IRS to maintain complaints of IRS employee misconduct on an individual employee basis. (House bill)

3. Provide an exception to the disclosure rules to require the IRS to disclose IRS records to the National Archives. (House bill)

4. Require Treasury to establish rules to allow payment of taxes by check or money order payable to the "United States Treasury". (House bill)

5. Clarify that the Secretary of Treasury may prescribe the manner of making any election by any reasonable means. (House bill)

6. Require the Joint Tax Committee and Treasury to separately study the administration and implementation of penalties. The report is due 9 months after date of enactment. (House bill - modified)

7. Require the Joint Tax Committee and Treasury to separately study the scope and use of taxpayer confidentiality provisions including the Freedom of Information Act. The report is due within 1 year after date of enactment. (House bill - modified)

8. Require the Treasury to study the effect of extending from January 31st to February 15th, the deadline for providing taxpayers with information returns. The report is due 9 months after date of enactment.

9. Expand the prohibition on the use of enforcement statistics to evaluate individual employees to all IRS employees. Require the Treasury Inspector General to annually report to the tax writing committees on whether the law is being followed.

10. Require the IRS to place a priority on employee training and adequately fund employee training programs

Within 90 days after enactment, require the IRS to provide to the tax writing committees a comprehensive multi year plan to: (1) ensure adequate customer service training; (2) review the organizational design of customer service; (3) implement a performance development system; and (4) provide in fiscal year 1999, 16-24 hours of conflict management training for collection employees.

11. Require all IRS notices and correspondence to include the name, phone number, and address of an IRS employee the taxpayer should contact regarding the notice.

12. Modify section 6103 to allow the tax writing committees to obtain data from IRS employees regarding employee and taxpayer abuse.

13. Require the Treasury Inspector General to review and report on whether IRS employees are following the law and not directly contacting taxpayers who are represented.

14. Provide that it is the Sense of the Congress that achieving success on the Year 2000 computer conversion problem is a high priority.

15. Provide that the use of pseudonyms by IRS employees may not be approved merely at the employee's request. The employee must provide justification and management must agree.

16. Provide that in any matter involving the submission of a substantive legal matter involving a specific taxpayer to the national office by the field (e.g., Technical Advice), the taxpayer may exclude field office personnel from the taxpayer's conference of right with the national office.

17. In order to protect innocent taxpayers who may be mislabeled as "illegal tax protesters", prohibit the IRS from labeling taxpayers as "illegal tax protesters" (or any similar label) and from maintaining lists of such individuals. This proposal does not affect the ability of the IRS to label a taxpayer as a "potentially dangerous taxpayer". Require the Treasury Inspector General to annually report to Congress on whether the IRS is in compliance.