Present Law

The last major comprehensive revision of the overall penalty structure in the Internal Revenue Code was the "Improved Penalty Administration and Compliance Tax Act," enacted as part of the Omnibus Budget Reconciliation Act of 1989.

Reasons for Change

The Committee believes that it is appropriate to undertake a study of penalty and interest administration, which will provide the Committee with legislative and administrative recommendations for improvement of the current penalty and interest structure.

Explanation of Provision

The provision requires the Joint Committee on Taxation and the Treasury to each conduct a separate study reviewing the interest and penalty provisions of the Code (including the administration and implementation of the penalty reform provisions of the Omnibus Budget Reconciliation Act of 1989), and making any legislative and administrative recommendations it deems appropriate to simplify penalty administration and reduce taxpayer burden. The studies must also include an analysis of the interest provisions in the Code, including legislative and administrative recommendations deemed appropriate to simplify the administration of the interest provisions and to reduce taxpayer burden.

Effective Date

The reports must be provided not later than nine months after the date of enactment.

2. Confidentiality of tax return information (Sec. 3802 of the Bill)

Present Law

The Internal Revenue Code prohibits disclosure of tax returns and return information, except to the extent specifically authorized by the Internal Revenue Code (Sec. 6103). Unauthorized disclosure is a felony punishable by a fine not exceeding $5,000 or imprisonment of not more than five years, or both (Sec. 7213). An action for civil damages also may be brought for unauthorized disclosure (Sec. 7431). No tax information may be furnished by the IRS to another agency unless the other agency establishes procedures satisfactory to the IRS for safeguarding the tax information it receives (Sec. 6103(p)).

Reasons for Change

The Committee believes that a study of the confidentiality provisions will be useful in assisting the Committee in determining whether improvements can be made to these provisions.

Explanation of Provision

The provision requires the Joint Committee on Taxation and Treasury to each conduct a separate study on provisions regarding taxpayer confidentiality. The studies are to examine present-law protections of taxpayer privacy, the need, if any, for third parties to use tax return information, 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, and 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).

Effective Date

The findings of the studies, along with any recommendations, are required to be reported to the Congress no later than one year after the date of enactment.

TITLE IV. CONGRESSIONAL ACCOUNTABILITY FOR THE IRS

A. Century Date Change (Sec. 4001 of the Bill)

Present Law

No specific provision.

Reasons for Change

Operations of the IRS computer systems are critical to the viability of the Federal tax system.

Explanation of Provision

The bill provides that it is the sense of the Congress that the IRS should place resolving the century date change computing problems as a high priority. The bill also provides that the Commissioner shall expeditiously submit a report to the Congress on the overall impact of the Bill on the ability of the IRS to resolve the century date change computing problems and the provisions of the Bill that will require significant amounts of computer programming changes prior to December 31, 1999, in order to carry out the provisions. It is expected that this report will be submitted within 14 days of the date of Committee action on the bill.

Effective Date

The provision is effective on the date of enactment.

B. Tax Law Complexity Analysis (Sec. 4002 of the Bill)

Present Law

Present law does not require a formal complexity analysis with respect to changes to the tax laws.

Reasons for Change

The National Commission on Restructuring the IRS found a clear connection between the complexity of the Internal Revenue Code and the difficulty of tax law administration and taxpayer frustration. The Committee shares the concern that complexity is a serious problem with the Federal tax system. Complexity and frequent changes in the tax laws create burdens for both the IRS and taxpayers. Failure to address complexity may ultimately reduce voluntary compliance.

The Committee is aware that it may not be possible or desirable to eliminate all complexity in the tax system. There are many objectives of a tax system and particular tax provisions, and simplicity is only one. In some cases other policies, such as fairness, may outweigh concerns about complexity. Nevertheless, the Committee believes complexity of the tax system should be reduced whenever possible. Accordingly, the Committee believes it appropriate to introduce new procedural rules that will focus attention on complexity. The Committee also believes that the tax writing committees should receive periodic input from the IRS regarding areas of the law that cause problems for taxpayers. This input will be valuable in developing future legislation.

Explanation of Provision

IRS report on complexity

The IRS is to report to the House Ways and Means Committee and the Senate Finance Committee annually regarding sources of complexity in the administration of the Federal tax laws. Factors the IRS may take into account include: (1) frequently asked questions by taxpayers; (2) common errors made by taxpayers in filling out returns; (3) areas of the law that frequently result in disagreements between taxpayers and the IRS; (4) major areas in which there is no or incomplete published guidance or in which the law is uncertain; (5) areas in which revenue agents make frequent errors in interpreting or applying the law; (6) impact of recent legislation on complexity; (7) information regarding forms, including a listing of IRS forms, the time it takes for taxpayers to complete and review forms, the number of taxpayers who use each form, and how the time required changed as a result of recently enacted legislation; and (8) recommendations for reducing complexity in the administration of the Federal tax system.

Complexity analysis with respect to current legislation

The bill requires the Joint Committee on Taxation (in consultation with the IRS and Treasury) to provide an analysis of complexity or administrability concerns raised by tax provisions of widespread applicability to individuals or small businesses. The analysis is to be included in any Committee Report of the House Ways and Means Committee or Senate Finance Committee or Conference Report containing tax provisions, or provided to the Members of the relevant Committee or Committees as soon as practicable after the report is filed. The analysis is to include: (1) an estimate of the number and type of taxpayers affected; and (2) if applicable, the income level of affected individual taxpayers. In addition, such analysis should include, if determinable, the following: (1) the extent to which existing tax forms would require revision and whether a new form or forms would be required; (2) whether and to what extent taxpayers would be required to keep additional records; (3) the estimated cost to taxpayers to comply with the provision; (4) the extent to which enactment of the provision would require the IRS to develop or modify regulatory guidance; (5) whether and to what extent the provision can be expected to lead to disputes between taxpayers and the IRS; and (6) how the IRS can be expected to respond to the provision (including the impact on internal training, whether the Internal Revenue Manual would require revision, whether the change would require reprogramming of computers, and the extent to which the IRS would be required to divert or redirect resources in response to the provision).

Effective Date

The provision requiring the Joint Committee on Taxation to provide a complexity analysis is effective with respect to legislation considered on or after January 1, 1999. The provision requiring the IRS to report on sources of complexity is effective on the date of enactment.