1. Explanation of joint and several liability (Sec. 3501 of the Bill)

Present Law

In general, spouses who file a joint tax return are each fully responsible for the accuracy of the tax return and for the full liability. Spouses who wish to avoid such joint and several liability may file as married persons filing separately. Special rules apply in the case of innocent spouses pursuant to section 6013(e).

Reasons for Change

The Committee believes that married taxpayers need to clearly understand the legal implications of signing a joint return and that it is appropriate for the IRS to provide the information necessary for that understanding.

Explanation of Provision

The provision requires that, no later than 180 days after the date of enactment, the IRS must establish procedures clearly to alert married taxpayers of their joint and several liability on all appropriate tax publications and instructions and of the availability of electing separate liability. It is anticipated that the IRS will make an appropriate cross-reference to these statements near the signature line on appropriate tax forms.

Effective Date

The provision requires that the procedures be established as soon as practicable, but no later than 180 days after the date of enactment.

2. Explanation of taxpayers' rights in interviews with the IRS (Sec. 3502 of the bill)

Present Law

Prior to or at initial in-person audit interviews, the IRS must explain to taxpayers the audit process and taxpayers' rights under that process (Sec. 7521). In addition, prior to or at initial in person collection interviews, the IRS must explain the collection process and taxpayers' rights under that process. If a taxpayer clearly states during an interview with the IRS that the taxpayer wishes to consult with the taxpayer's representative, the interview must be suspended to afford the taxpayer a reasonable opportunity to consult with the representative.

Reasons for Change

The Committee believes that taxpayers should be more fully informed of their rights to representation in dealings with the IRS, and that those rights should be respected.

Explanation of Provision

The provision requires that the IRS rewrite Publication 1 ("Your Rights as a Taxpayer") to more clearly inform taxpayers of their rights (1) to be represented by a representative and (2) if the taxpayer is so represented, that the interview may not proceed without the presence of the representative unless the taxpayer consents.

In addition, the provision requires the Treasury Inspector General for Tax Administration to report annually as to whether IRS employees are directly contacting taxpayers who have indicated that they prefer their representatives be contacted.

Effective Date

The addition to Publication 1 must be made not later than 180 days after the date of enactment. The annual reports would begin in 1999.

3. Disclosure of criteria for examination selection (Sec. 3503 of the Bill)

Present Law

The IRS examines Federal tax returns to determine the correct liability of taxpayers. The IRS selects returns to be audited in a number of ways, such as through a computerized classification system (the discriminant function ("DIF") system).

Reasons for Change

The Committee believes it is important that taxpayers understand the reasons they may be selected for examination.

Explanation of Provision

The provision requires that IRS add to Publication 1 ("Your Rights as a Taxpayer") a statement which sets forth in simple and nontechnical terms the criteria and procedures for selecting taxpayers for examination. The statement must not include any information the disclosure of which would be detrimental to law enforcement. The statement must specify the general procedures used by the IRS, including whether taxpayers are selected for examination on the basis of information in the media or from informants.

Effective Date

The addition to Publication 1 must be made not later than 180 days after the date of enactment.

4. Explanations of appeals and collection process (Sec. 3504 of the Bill)

Present Law

There is no statutory requirement that specific notices be given to taxpayers along with the first letter of proposed deficiency that allows the taxpayer an opportunity for administrative review in the IRS Office of Appeals.

Reasons for Change

The Committee believes it is important that taxpayers understand they have a right to have any assessment reviewed by the IRS Office of Appeals, as well as be informed of the steps they must take to obtain that review.

Explanation of Provision

The provision requires that, no later than 180 days after the date of enactment, a description of the entire process from examination through collections, including the assistance available to taxpayers from the Taxpayer Advocate at various points in the process, be provided with the first letter of proposed deficiency that allows the taxpayer an opportunity for administrative review in the IRS Office of Appeals.

Effective Date

The provision requires that the explanation be included as soon as practicable, but no later than 180 days after the date of enactment.

5. Explanation of reason for refund denial (Sec. 3505 of the Bill and new Sec. 6402(j) of the Code)

Present Law

The Examination Division of the IRS examines claims for refund submitted by taxpayers. The Internal Revenue Manual requires examination or other audit action on refund claims within 30 days after receipt of the claims. The refund claim is preliminarily examined to determine if it should be disallowed because it (1) was untimely filed, (2) was based solely on alleged unconstitutionality of the Revenue Acts, (3) was already waived by the taxpayer as consideration for a settlement, (4) covers a taxable year and issues which were the subject of a final closing agreement or an offer in compromise, or (5) relates to a return closed on the basis of a final order of the Tax Court. In those cases, the taxpayer will receive a form from the IRS stating that the claim for refund cannot be considered. Other cases will be examined as quickly as possible and the disposition of the case, including the reasons for the disallowance or partial disallowance of the refund claim, must be stated in the portion of the revenue agent's report that is sent to the taxpayer.

Reasons for Change

The Committee believes that taxpayers are entitled to an explanation of the reason for the disallowance or partial disallowance of a refund claim so that the taxpayer may appropriately respond to the IRS.

Explanation of Provision

The provision requires the IRS to notify the taxpayer of the specific reasons for the disallowance (or partial disallowance) of the refund claim.

Effective Date

The provision is effective 180 days after the date of enactment.

6. Statements to taxpayers with installment agreements (Sec. 3506 of the Bill)

Present Law

A taxpayer entering into an installment agreement to pay tax liabilities due to the IRS must complete a Form 433-D which sets forth the installment amounts to be paid monthly and the total amount of tax due. The IRS does not provide the taxpayer with an annual statement reflecting the amounts paid and the amount due remaining.

Reasons for Change

The Committee believes that taxpayers who enter into an installment agreement should be kept informed of amounts applied towards the outstanding tax liability and amounts remaining due.

Explanation of Provision

The provision requires the IRS to send every taxpayer in an installment agreement an annual statement of the initial balance owed, the payments made during the year, and the remaining balance.

Effective Date

The provision is effective no later than 180 days after the date of enactment.

7. Notification of change in tax matters partner (Sec. 3507 of the Bill and Sec. 6231(a)(7) of the Code)

Present Law

In general, the tax treatment of items of partnership income, loss, deductions and credits are determined at the partnership level in a unified partnership proceeding rather than in separate proceedings with each partner. In providing notice to taxpayers with respect to partnership proceedings, the IRS relies on information furnished by a party designated as the tax matters partner (TMP) of the partnership. The TMP is required to keep each partner informed of all administrative and judicial proceedings with respect to the partnership (Sec. 6233(g)). Under certain circumstances, the IRS may require the resignation of the incumbent TMP and designate another partner as the TMP of a partnership (Sec. 6231(a)(7)).

Reasons for Change

The Committee is concerned that, in cases where the IRS designates the TMP, that the other partners may be unaware of such designation.

Explanation of Provision

The provision requires the IRS to notify all partners of any resignation of the tax matters partner that is required by the IRS, and to notify the partners of any successor tax matters partner.

Effective Date

The provision applies to selections of tax matters partners made by the Secretary after the date of enactment.