i

CONTENTS

Page

INTRODUCTION .......................................................................................................................... 1

A. Modification to the Chairman’s Mark ................................................................................ 2

1. Modification to GAO study concerning opportunity for hearing by the IRS Office

of Appeals..................................................................................................................... 2

B. Additions to the Chairman’s Mark ..................................................................................... 3

1. Whistleblower reforms.................................................................................................. 3

2. Repeal of substantiation exception for certain charitable contributions reported

by the donee organization ............................................................................................. 4

3. Modifications to user fees requirements for installment agreements ........................... 6

4. TIGTA review of IRS audit criteria.............................................................................. 7

5. Prohibition on rehiring former employees who were involuntarily separated

for misconduct .............................................................................................................. 8

6. Authority to remove or transfer senior executives who fail in their performance

or engage in serious misconduct................................................................................... 9

7. Prohibit the use of IRS funds for political targeting ................................................... 11

8. Limit participation of third-party contractors when IRS takes sworn testimony 

pursuant to a summons................................................................................................ 12

9. Require Internal Revenue Service to notify exempt organizations before revoking 

exempt status for failing to file information returns................................................... 13

10. IRS Future State Accountability and Transparency Act............................................. 17

11. Require the IRS to give sufficient notice to Congress before closing a walk-in

Center or Taxpayer Assistance Centers (TACs)......................................................... 18

12. Sole point of contact for identity theft victims ........................................................... 18

13. Help taxpayers guard against the so-called IRS phone scam ..................................... 19

14. Providing taxpayers ID theft and tax scam information ............................................. 19

15. Recovery of certain improperly withheld severance payments.................................. 20

16. GAO study of Federal employee wage and tax withholding reporting to State

tax agencies................................................................................................................. 21
1

INTRODUCTION

The Senate Committee on Finance has scheduled a markup on April 20, 2016 of the 

Taxpayer Protection Act of 2016. This document,1prepared by the staff of the Joint Committee 

on Taxation, provides a description of the Chairman’s modification to the Chairman’s mark of 

the “Taxpayer Protection Act of 2016.”

2

 

 

1

 This document may be cited as follows: Joint Committee on Taxation, Description of the Chairman’s 

Modification to the Chairman’s Mark of the “Taxpayer Protection Act of 2016” (JCX-33-16), April 20, 2016. This 

document can also be found on the Joint Committee on Taxation website at www.jct.gov. 

2

Joint Committee on Taxation, Description of the Chairman’s Mark of the “Taxpayer Protection Act of 

2016” (JCX-30-16), April 18, 2016. 
2

A. Modification to the Chairman’s Mark

1. Modification to GAO study concerning opportunity for hearing by the IRS Office of 

Appeals

The Chairman’s modification adds to the information required in the U.S. Government 

Accountability Office (“GAO”) study, an examination of taxpayers’ access to Appeals, in 

particular the effect on taxpayers in those States without a permanent Appeals Officer and/or a 

permanent Settlement Officer. GAO is to provide a comparison between taxpayer access to 

Appeals in these States and States with a permanent Appeals or Settlement Officer. GAO is also 

to evaluate wait times, geographic and technological constraints, the time necessary to resolve 

Appeals cases, taxpayer satisfaction with the IRS, and other factors that GAO may deem 

relevant.
3

B. Additions to the Chairman’s Mark

1. Whistleblower reforms

Present Law

In general

Under section 7623 of the Internal Revenue Code (“the Code”),3individuals who submit 

information leading to detection of underpayment of tax or to detection, trial, and punishment of 

persons guilty of violating internal revenue laws, may file a claim for an award of 15 to 30 

percent of recovered funds resulting from such action. 

Disclosure rules for whistleblowers

Section 6103 provides a general rule of confidentiality for returns and return information: 

“returns and return information shall be confidential and except as authorized by this title . . . 

[none of the specified recipients] shall disclose any return or return information obtained by him 

. . .”

4

 One of the exceptions to the general rule of confidentiality permits the IRS to make 

investigative disclosures of return information to third parties. The disclosures, made in 

accordance with regulations, are to be made to the extent necessary to obtain information, which 

is not otherwise reasonably available, with respect to the correct determination of tax, liability 

for tax, the amount to be collected, or with respect to the enforcement of any provision of Title 

26. The third party recipient of the return information furnished during an investigative 

disclosure is not subject to the general rule of confidentiality provided by section 6103.

There is no provision of section 6103 to provide whistleblowers with status updates 

regarding what the IRS has done with the information provided by the whistleblower. Such 

status information would be the return information of the taxpayer being audited/investigated for 

additional tax liability.

A taxpayer can file or sue for civil damages for the unauthorized disclosure and/or 

inspection of returns and return information.5 In addition, criminal penalties apply for the willful 

unauthorized disclosure or inspection of returns and return information.

Protection against retaliation

 

3

 Unless otherwise stated, all section references are to the Internal Revenue Code of 1986, as amended.

4

 Sec. 6103(a).

5

 Sec. 7431.
4

Though other statutes such as the False Claims Act6currently protect some individuals 

from employer retaliation, those who file claims under the Code are not explicitly afforded these 

same protections.

Description of Proposal

To improve IRS communication with whistleblowers, this proposal would amend section 

6103 of the Internal Revenue Code to: (1) specifically allow the IRS to exchange information 

with whistleblowers where doing so would be helpful to an investigation; (2) require the 

Secretary to notify the whistleblower as to the status of their claim at two significant points in the 

review process: (i) when the claim has been referred to an audit or examination; and (ii) at the 

point where the taxpayer makes a payment to settle the tax liability, but before the refund statute 

expires. The Secretary would have the authority, but not be required, to provide status updates at 

other points in the review process. To ensure taxpayer information is protected, whistleblowers 

receiving information under either (1) or (2) would be subject to criminal penalties for 

unauthorized disclosure of taxpayer information.

The proposal would also explicitly protect individuals who file claims under section 7623 

of the Code. These protections would be consistent with those currently available under the 

False Claims Act and may expose employers to substantial damages for punishing individuals 

whose conduct is protected, for example through reinstatement, back pay plus interest, and 

compensation for other special damages including litigation costs and reasonable attorneys’ fees. 

Effective Date

The modifications made to disclosure rules apply to disclosures made after the date of 

enactment. The protections from retaliation are effective on the date of enactment. 

2. Repeal of substantiation exception for certain charitable contributions reported by the 

donee organization

Present Law

Substantiation and other formal requirements, in general

A donor who claims a deduction for a charitable contribution must maintain reliable 

written records regarding the contribution, regardless of the value or amount of such 

contribution.7 In the case of a charitable contribution of money, regardless of the amount, 

applicable recordkeeping requirements are satisfied only if the donor maintains as a record of the 

contribution a bank record or a written communication from the donee showing the name of the 

 

6

 31 U.S.C. §3730(h)(2).

7

 Sec. 170(f)(17).
5

donee organization, the date of the contribution, and the amount of the contribution. In such 

cases, the recordkeeping requirements may not be satisfied by maintaining other written records. 

No charitable contribution deduction is allowed for a separate contribution of $250 or 

more unless the donor obtains a contemporaneous written acknowledgement of the contribution 

from the charity indicating whether the charity provided any good or service (and an estimate of 

the value of any such good or service) to the taxpayer in consideration for the contribution.8

In addition, any charity receiving a contribution exceeding $75 made partly as a gift and 

partly as consideration for goods or services furnished by the charity (a “quid pro quo”

contribution) is required to inform the contributor in writing of an estimate of the value of the 

goods or services furnished by the charity and that only the portion exceeding the value of the 

goods or services is deductible as a charitable contribution.9

If the total charitable deduction claimed for noncash property is more than $500, the 

taxpayer must attach a completed Form 8283 (Noncash Charitable Contributions) to the 

taxpayer’s return or the deduction is not allowed.10 In general, taxpayers are required to obtain a 

qualified appraisal for donated property with a value of more than $5,000, and to attach an 

appraisal summary to the tax return.

Exception for certain contributions reported by the donee organization

Subsection 170(f)(8)(D) provides an exception to the contemporaneous written 

acknowledgment requirement described above. Under the exception, a contemporaneous written 

acknowledgment is not required if the donee organization files a return, on such form and in 

accordance with such regulations as the Secretary may prescribe, that includes the same content. 

“[T]he section 170(f)(8)(D) exception is not available unless and until the Treasury Department 

and the IRS issue final regulations prescribing the method by which donee reporting may be 

accomplished.”

11

 No such final regulations have been issued.

In October 2015, the IRS issued proposed regulations that, if finalized, would have 

implemented the section 170(f)(8)(D) exception to the contemporaneous written 

acknowledgment requirement.12 The proposed regulations provided that a return filed by a 

donee organization under section 170(f)(8)(D) must include, in addition to the information 

generally required on a contemporaneous written acknowledgment: (1) the name and address of 

the donee organization; (2) the name and address of the donor; and (3) the taxpayer identification 

 

8

 Such acknowledgement must include the amount of cash and a description (but not value) of any 

property other than cash contributed, whether the donee provided any goods or services in consideration for the 

contribution, and a good faith estimate of the value of any such goods or services. Sec. 170(f)(8).

9

 Sec. 6115.

10

 Sec. 170(f)(11).

11

 See IRS, Notice of Proposed Rulemaking, Substantiation Requirement for Certain Contributions, REG138344-13 (October 13, 2015), I.R.B. 2015-41 (preamble).

12

 See Prop. Treas. Reg. sec 1.170A-13(f)(18).
6

number of the donor. In addition, the return must be filed with the IRS (with a copy provided to 

the donor) on or before February 28 of the year following the calendar year in which the 

contribution was made. Under the proposed regulations, donee reporting would have been 

optional and would have been available solely at the discretion of the donee organization. The 

proposed regulations were withdrawn in January 2016.

Description of Proposal 

The proposal repeals the section 170(f)(8)(D) exception to the contemporaneous written 

acknowledgment requirement. 

Effective Date 

The proposal is effective on the date of enactment. 

3. Modifications to user fees requirements for installment agreements 

Present Law 

The Code authorizes the IRS to enter into written agreements with any taxpayer under 

which the taxpayer agrees to pay taxes owed, as well as interest and penalties, in installments 

over an agreed schedule, if the IRS determines that doing so will facilitate collection of the 

amounts owed. This agreement provides for a period during which payments may be made and 

while other IRS enforcement actions are held in abeyance.13

 An installment agreement generally 

does not reduce the amount of taxes, interest, or penalties owed. However, the IRS is authorized 

to enter into installment agreements with taxpayers which do not provide for full payment of the 

taxpayer’s liability over the life of the agreement. The IRS is required to review such partial 

payment installment agreements at least every two years to determine whether the financial 

condition of the taxpayer has significantly changed so as to warrant an increase in the value of 

the payments being made. 

Taxpayers can request an installment agreement by filing Form 9465, Installment 

Agreement Request.14 If the request for an installment agreement is approved by the IRS, the 

IRS charges a user fee.15 Under sections 300.1 and 300.2 of the Treasury Regulations, the IRS 

currently charges $120 for entering into an installment agreement. If the application is for a 

direct debit installment agreement, whereby the taxpayer authorizes the IRS to request the 

monthly electronic transfer of funds from the taxpayer’s bank account to the IRS, the fee is 

reduced to $52. In addition, regardless of the method of payment, the fee is $43 for low-income 

 

13

 Sec. 6331(k). 

14

 The IRS accepts applications for installment agreements online, from individuals and businesses, if the 

total tax, penalties and interest is below $50,000 for the former, and $25,000 for the latter. 

15

 31 U.S.C. sec. 9701; Treas. reg. sec. 300.1. The Independent Offices Appropriations Act of 1952 

(IOAA), 65 Stat. B70, (June 27, 1951). A discussion of the IRS practice regarding user fees and a list of actions for 

which fees are charged is included in the Internal Revenue Manual. See “User Fees,” paragraph 1.32.19 IRM, 

available at https://www.irs.gov/irm/part1/irm 01-032-019.html. 
7

taxpayers. For this purpose, low-income is defined as a person who falls below 250 percent of 

the Federal poverty guidelines published annually. Finally, there is no user fee if the agreement 

qualifies for a short term agreement (l20 days or less).

Description of Proposal

The proposal generally prohibits increases in the amount of user fees charged by the IRS 

for installment agreements. For low-income taxpayers (those whose income falls below 250 

percent of the Federal poverty guidelines), it alleviates the user fee requirement in two ways. 

First, it waives the user fee if the low-income taxpayer enters into an installment agreement 

under which the taxpayer agrees to make automated installment payments through a debit 

account. Second, it provides that low-income taxpayers who are unable to agree to make 

payments electronically remain subject to the required user fee, but the fee is reimbursed upon 

completion of the installment agreement. 

Effective Date

The proposal applies to agreements entered into on or after the date that is 60 days after 

the date of enactment. 

4. TIGTA review of IRS audit criteria

Present Law

The Treasury Inspector General for Tax Administration (“TIGTA”) is not currently 

required to consult with the IRS on the criteria it uses to select tax returns for audits, 

assessments, criminal investigations, or report any instances where the IRS’s criteria 

discriminate on the basis of race, religion, or political ideology.

Description of Proposal

In an effort to ascertain whether taxpayers may be targeted for audits, assessments, 

criminal investigations, or any heightened scrutiny or review by the IRS because of their political 

ideology, race, religion, or other factors, TIGTA is required to perform an audit of the criteria the 

IRS uses to select tax returns for audit, assessments, criminal investigation, or heightened 

scrutiny or review.

TIGTA shall provide a report of its findings within two years of the date of enactment.

Effective Date

The proposal is effective on the date of enactment. 
8

5. Prohibition on rehiring former employees who were involuntarily separated for 

misconduct

Present Law

Employees of the Internal Revenue Service are subject to rules governing Federal 

employment generally,16 as well as rules of conduct specific to Department of the Treasury and 

the IRS. Standards of Ethical Conduct for Employees of the Executive Branch are supplemented 

by additional rules applicable to employees of the Department of the Treasury.17

The Code18 provides that the Commissioner of the IRS has such duties and powers as 

prescribed by the Secretary. Unless otherwise specified by the Secretary, such duties and powers 

include the power to administer, manage, conduct, direct, and supervise the execution and 

application of the internal revenue laws or related statutes and tax conventions to which the 

United States is a party, and to recommend to the President a candidate for Chief Counsel (and 

recommend the removal of the Chief Counsel). Unless otherwise specified by the Secretary, the 

Commissioner is authorized to employ such persons as the Commissioner deems proper for the 

administration and enforcement of the internal revenue laws and is required to issue all necessary 

directions, instructions, orders, and rules applicable to such persons,19 including determination 

and designation of posts of duty. 

The IRS Restructuring and Reform Act of 1998 (the “Restructuring Act”)

20 requires the 

IRS to terminate an employee for certain proven violations committed by the employee in 

connection with the performance of official duties. The violations include: (1) willful failure to 

obtain the required approval signatures on documents authorizing the seizure of a taxpayer’s 

home, personal belongings, or business assets; (2) providing a false statement under oath 

material to a matter involving a taxpayer; (3) with respect to a taxpayer, taxpayer representative, 

or other IRS employee, the violation of any right under the U.S. Constitution, or any civil right 

established under titles VI or VII of the Civil Rights Act of 1964, title IX of the Educational 

Amendments of 1972, the Age Discrimination in Employment Act of 1967, the Age 

Discrimination Act of 1975, sections 501 or 504 of the Rehabilitation Act of 1973 and title I of 

the Americans with Disabilities Act of 1990; (4) falsifying or destroying documents to conceal 

mistakes made by any employee with respect to a matter involving a taxpayer or a taxpayer 

representative; (5) assault or battery on a taxpayer or other IRS employee, but only if there is a 

criminal conviction or a final judgment by a court in a civil case, with respect to the assault or 

 

16

 Part III of Title 5 of the United States Code prescribes rules for Federal employment, including 

employment, retention, and management and employee issues.

17

 Standards of Ethical Conduct for Employees of the Executive Branch, 5 C.F.R. 735. 5 CFR 3101, 

Supplemental Standards of Ethical Conduct for Employees of the Department of the Treasury; 31 CFR Part 0, 

Department of the Treasury Employee Rules of Conduct. 

18

 Sec. 7803(a).

19

 Sec. 7804.

20

 Pub. L. No. 105-206, sec. 1203(b), July 22, 1998.
9

battery; (6) violations of the Internal Revenue Code, Treasury Regulations, or policies of the IRS 

(including the Internal Revenue Manual) for the purpose of retaliating or harassing a taxpayer or 

other IRS employee; (7) willful misuse of section 6103 for the purpose of concealing data from a 

Congressional inquiry; (8) willful failure to file any tax return required under the Code on or 

before the due date (including extensions) unless failure is due to reasonable cause; (9) willful 

understatement of Federal tax liability, unless such understatement is due to reasonable cause; 

and (10) threatening to take an official action, such as an audit, or delay or fail to take official 

action with respect to a taxpayer for political purposes or for the purpose of extracting personal 

gain or benefit.

The Act provides non-delegable authority to the Commissioner to determine that 

mitigating factors exist, that, in the Commissioner’s sole discretion, mitigate against terminating 

the employee. The Act also provides that the Commissioner, in his sole discretion, may establish 

a procedure to determine whether an individual should be referred for such a determination by 

the Commissioner. The Treasury Inspector General (“IG”) is required to track employee 

terminations and terminations that would have occurred had the Commissioner not determined 

that there were mitigation factors and include such information in the IG’s annual report to 

Congress.

Description of Proposal

An employee of the Internal Revenue Service who is involuntarily separated due to 

misconduct under subchapter B of Chapter 80 of the Code, under chapters 43 or 75 of title 5 of 

the United States Code, or section 1203 of the IRS Restructuring Act of 1998, cannot be 

reemployed by the IRS. 

Effective Date

The proposal is effective with respect to any employee removed from employment 

before, on or after the date of enactment. 

6. Authority to remove or transfer senior executives who fail in their performance or 

engage in serious misconduct

Present Law

Employees of the IRS are subject to rules governing Federal employment generally,21 as 

well as rules of conduct specific to Department of the Treasury and Internal Revenue Service. 

 

21

 Part III of Title 5 of the United States Code prescribes rules for Federal employment, including 

employment, retention, and management and employee issues.
10

Standards of Ethical Conduct for Employees of the Executive Branch are supplemented by 

additional rules applicable to employees of the Department of the Treasury.22

The Code23 provides that the Commissioner of the IRS has such duties and powers as 

prescribed by the Secretary. Unless otherwise specified by the Secretary, such duties and powers 

include the power to administer, manage, conduct, direct, and supervise the execution and 

application of the internal revenue laws or related statutes and tax conventions to which the 

United States is a party, and to recommend to the President a candidate for Chief Counsel (and 

recommend the removal of the Chief Counsel). Unless otherwise specified by the Secretary, the 

Commissioner is authorized to employ such persons as the Commissioner deems proper for the 

administration and enforcement of the internal revenue laws and is required to issue all necessary 

directions, instructions, orders, and rules applicable to such persons,24 including determination 

and designation of posts of duty. 

The IRS Restructuring and Reform Act of 1998 (the “Restructuring Act”)

25 requires the 

IRS to terminate an employee for certain proven violations committed by the employee in 

connection with the performance of official duties. The violations include: (1) willful failure to 

obtain the required approval signatures on documents authorizing the seizure of a taxpayer’s 

home, personal belongings, or business assets; (2) providing a false statement under oath 

material to a matter involving a taxpayer; (3) with respect to a taxpayer, taxpayer representative, 

or other IRS employee, the violation of any right under the U.S. Constitution, or any civil right 

established under titles VI or VII of the Civil Rights Act of 1964, title IX of the Educational 

Amendments of 1972, the Age Discrimination in Employment Act of 1967, the Age 

Discrimination Act of 1975, sections 501 or 504 of the Rehabilitation Act of 1973 and title I of 

the Americans with Disabilities Act of 1990; (4) falsifying or destroying documents to conceal 

mistakes made by any employee with respect to a matter involving a taxpayer or a taxpayer 

representative; (5) assault or battery on a taxpayer or other IRS employee, but only if there is a 

criminal conviction or a final judgment by a court in a civil case, with respect to the assault or 

battery; (6) violations of the Internal Revenue Code, Treasury Regulations, or policies of the IRS 

(including the Internal Revenue Manual) for the purpose of retaliating or harassing a taxpayer or 

other IRS employee; (7) willful misuse of section 6103 for the purpose of concealing data from a 

Congressional inquiry; (8) willful failure to file any tax return required under the Code on or 

before the due date (including extensions) unless failure is due to reasonable cause; (9) willful 

understatement of Federal tax liability, unless such understatement is due to reasonable cause; 

and (10) threatening to take an official action, such as an audit, or delay or fail to take official 

action with respect to a taxpayer for political purposes or for the purpose of extracting personal 

gain or benefit.

 

22

 Standards of Ethical Conduct for Employees of the Executive Branch, 5 C.F.R. 735. 5 CFR 3101, 

Supplemental Standards of Ethical Conduct for Employees of the Department of the Treasury; 31 CFR Part 0, 

Department of the Treasury Employee Rules of Conduct. 

23

 Sec. 7803(a).

24

 Sec. 7804.

25

 Pub. L. No. 105-206, sec. 1203(b), July 22, 1998.
11

The Act provides non-delegable authority to the Commissioner to determine that 

mitigating factors exist, that, in the Commissioner’s sole discretion, mitigate against terminating 

the employee. The Act also provides that the Commissioner, in his sole discretion, may establish 

a procedure to determine whether an individual should be referred for such a determination by 

the Commissioner. The Treasury Inspector General (“IG”) is required to track employee 

terminations and terminations that would have occurred had the Commissioner not determined 

that there were mitigation factors and include such information in the IG’s annual report to 

Congress.

Adverse personnel actions may be reviewed by the Merit Systems Protection Board, (“the 

Board”) under its appellate jurisdiction.26 Members of the Senior Executive Service (“SES”) 

have additional rights to seek informal hearings of the Board after notice of proposed adverse 

action by the IRS.27

Description of Proposal

If the Commissioner determines that the conduct or performance of a member of the SES 

warrants removal, the Commissioner may remove the person from the civil service or reassign or 

transfer the individual from the SES position to another position for which the person is qualified 

and which the Commissioner determines is appropriate. Streamlined appeal rights of the 

employee are provided that are similar in scope to those applicable to removal of executives of 

the Department of Veterans Affairs.28 No judicial review is permitted. 

Effective Date

The proposal is effective on the date of enactment. 

7. Prohibit the use of IRS funds for political targeting

Present Law

No provision.

Description of Proposal

The proposal would prohibit the use of any funds by the Internal Revenue Service to 

target citizens of the United States for exercising any right guaranteed under the First 

Amendment of the U.S. Constitution.

 

26 Title 5 C.F.R, Part 1201-Practices and Procedures.

27

 5 U.S.C. sec. 3592 and related regulations.

28

 Section 707 of “Veterans Access, Choice and Accountability Act of 2014,” Pub. L. No. 113-146, 

(August 7, 2014).
12

Effective Date

The proposal is effective on the date of enactment. 

8. Limit participation of third-party contractors when IRS takes sworn testimony 

pursuant to a summons 

Present Law

The Secretary has primary authority to administer and enforce the Code.29 The Code also 

creates the appointment of the Commissioner and Chief Counsel of the IRS and enumerates the 

powers of the Secretary that the Secretary is expected to delegate to those officers. 

The duties of the Commissioner are the application and execution of the tax laws, 

including tax treaties to which the United States is a party, to the extent delegated by the 

Secretary.30 The Commissioner is authorized to employ other persons to carry out his work, 

unless prohibited by the Secretary.31 The Chief Counsel is the chief law officer for the IRS, and 

serves as the legal adviser to the Commissioner and his officers and employees. The enumerated 

duties of the Chief Counsel and his or her employees includes the representation of the 

Commissioner in cases before the Tax Court and the determination of which civil actions should 

be litigated or recommended to the Department of Justice for action.32 Persons employed by the 

Chief Counsel report to the Chief Counsel, who reports directly to the Commissioner except that 

for matters of tax policy, Chief Counsel reports directly to the General Counsel, and for matters 

involving of tax law or litigation not solely related to tax policy, reports to both the 

Commissioner and the General Counsel for the Secretary. 

Employees of either the Commissioner or the Chief Counsel are employees of an 

executive agency,33 subject to the criminal and civil conflict of interest statutes, the Standards of 

Ethical Conduct for Employees of the Executive Branch. Such provisions are also applicable to 

“special government employees,” persons who are hired for a limited period.34 In contrast, 

outside contractors are generally not subject to the same ethics standards and regulations as 

government employees, and do not perform the same duties as an employee. 

 

29

 Secs. 7801 and 7805.

30

 Sec. 7803(a).

31

 Sec. 7804. 

32

 Sec. 7803(b).

33

 Title 5 of the U.S. Code provides general rules for government organizations and employees, including 

section 105 (defines “executive agency” as any Executive department, government corporation, or independent 

establishment agency); sec. 2105 (defines employee) and sections 9501 through 9510 (permitting flexibility in 

workforce staffing, compensation and staffing). 

34

 18 U.S.C. sec. 202.
13

In the IRS, such contractors have generally been limited to persons needed to perform 

technical support functions, or to provide expert advice on nontax aspects in factual development 

of tax controversies.35 In order to provide such assistance, the persons under contract may be 

authorized to receive return information,36 and, pursuant to a temporary regulation published in 

2014, may participate fully in the conduct of an examination, including questioning of witnesses 

responding to an administrative summons. In the preamble to the temporary regulation, the 

Secretary stated that “The assistance of persons from outside the IRS or Chief Counsel promotes 

efficient administration and enforcement of laws administered by the IRS, by providing 

specialized knowledge, skills, or abilities that the IRS officers or employees assigned to the case 

may not possess[,]” but goes on to say that the contractors’ role is “limited to functions that are 

not inherently governmental, such as taking testimony by asking questions, reviewing books or 

papers, or analyzing other data.”

37

 

Description of Proposal

The proposal bars the IRS from delegating to third-party contractors the authority under 

section 7602 to examine books and records, summons persons, or take sworn testimony related 

to a tax matter. 

Effective Date

The proposal is effective on date of enactment for contracts in effect on or after that date. 

9. Require Internal Revenue Service to notify exempt organizations before revoking 

exempt status for failing to file information returns

Present Law

Applications for tax exemption

Section 501(c)(3) organizations

Section 501(c)(3)38 organizations (with certain exceptions) are required to seek formal 

recognition of tax-exempt status by filing an application with the IRS (Form 1023 (Application 

for Recognition of Exemption under Section 501(c)(3) of the Internal Revenue Code) or Form 

1023-EZ (Streamlined Application for Recognition of Exemption under Section 501(c)(3) of the 

 

35

 See Internal Revenue Manual paragraph 35.4.8.5 (08-11-2004) “Expert Witnesses.”

36

 Sec. 6103(n); Treas. Reg. sec. 301.6103(n)-1(a).

37

 See Treasury Decision 9669, “Summons Interview Regulations under section 7602,” Internal Revenue 

Bulletin, 2014-298 (July 7, 2014); Treas. Reg. Sec. 301.7602-1T “Examination of books and witnesses 

(temporary).”

38

 All section references are to the Internal Revenue Code of 1986, as amended (the “Code”), unless 

otherwise noted. 
14

Internal Revenue Code)).39 In response to the application, the IRS issues a determination letter 

or ruling either recognizing the applicant as tax-exempt or not. Certain organizations are not 

required to apply for recognition of tax-exempt status in order to qualify as tax-exempt under 

section 501(c)(3) but may do so. These organizations include churches, certain church-related 

organizations, organizations (other than private foundations) the gross receipts of which in each 

taxable year are normally not more than $5,000, and organizations (other than private 

foundations) subordinate to another tax-exempt organization that are covered by a group 

exemption letter.

A favorable determination by the IRS on an application for recognition of tax-exempt 

status generally will be retroactive to the date that the section 501(c)(3) organization was created 

if it files a completed Form 1023 within 15 months of the end of the month in which it was 

formed.40 If the organization does not file Form 1023 or files a late application, it will not be 

treated as tax-exempt under section 501(c)(3) for any period prior to the filing of an application

for recognition of tax exemption.41 Contributions to section 501(c)(3) organizations that are 

subject to the requirement that the organization apply for recognition of tax-exempt status 

generally are not deductible from income, gift, or estate tax until the organization receives a 

determination letter from the IRS.42

Other section 501(c) organizations

Most other types of section 501(c) organizations – including organizations described 

within sections 501(c)(4) (social welfare organizations, etc.), 501(c)(5) (labor organizations, 

etc.), or 501(c)(6) (business leagues, etc.) – are not required to seek formal recognition of taxexempt status from the IRS. Rather, organizations are exempt under these provisions if they 

satisfy the requirements applicable to such organizations. However, in order to obtain certain 

benefits such as public recognition of tax-exempt status, exemption from certain State taxes, and 

nonprofit mailing privileges, such organizations voluntarily may request a formal recognition of 

exempt status by filing a Form 1024 (Application for Recognition of Exemption under Section 

501(a)). 

If such an organization voluntarily requests a determination letter by filing Form 1024 

within 27 months of the end of the month in which it was formed, its determination of exempt 

 

39

 See sec. 508(a). 

40

 Pursuant to Treas. Reg. sec. 301.9100-2(a)(2)(iv), organizations are allowed an automatic 12-month 

extension as long as the application for recognition of tax exemption is filed within the extended, i.e., 27-month, 

period. The IRS also may grant an extension beyond the 27-month period if the organization is able to establish that 

it acted reasonably and in good faith and that granting relief will not prejudice the interests of the government. 

Treas. Reg. secs. 301.9100-1 and 301.9100-3.

41

 Treas. Reg. sec. 1.508-1(a)(1).

42

 Sec. 508(d)(2)(B). Contributions made prior to receipt of a favorable determination letter may be 

deductible prior to the organization’s receipt of such favorable determination letter if the organization has timely 

filed its application to be recognized as tax-exempt. Treas. Reg. secs. 1.508-1(a) and 1.508-2(b)(1)(i)(b).
15

status, once provided, generally will be effective as of the organization’s date of formation.43 If, 

however, the organization files Form 1024 after the 27-month deadline has passed, its exempt 

status will be formally recognized only as of the date the organization filed Form 1024.

Notwithstanding the foregoing, a section 501(c)(4) organization must provide to the 

Secretary notice of its formation and intent to operate as such an organization. 44 The notice

generally must be provided no later than 60 days following the organization’s establishment. 

Within 60 days of receipt of a notice of an organization’s formation and intent to operate as an 

organization described in section 501(c)(4), the Secretary must issue to the organization an 

acknowledgment of the notice. The notice requirement is generally effective for organizations 

organized after December 18, 2015.

Annual information returns

Exempt organizations are required to file an annual information return, Form 990 (Return 

of Organization Exempt From Income Tax), stating specifically the items of gross income, 

receipts, disbursements, and such other information as the Secretary may prescribe.45 Exempt

from the requirement are churches, their integrated auxiliaries, and conventions or associations 

of churches; the exclusively religious activities of any religious order; certain State institutions 

whose income is excluded from gross income under section 115; an interchurch organization of 

local units of a church; certain mission societies; certain church-affiliated elementary and high 

schools; and certain other organizations, including some that the IRS has relieved from the filing 

requirement pursuant to its statutory discretionary authority.46

An organization that is required to file an information return, but that has gross receipts 

of less than $200,000 during its taxable year, and total assets of less than $500,000 at the end of 

its taxable year, may file Form 990-EZ. If an organization normally has gross receipts of 

$50,000 or less, it must file Form 990-N (“e-postcard”), if it chooses not to file Form 990 or 

Form 990-EZ. Private foundations are required to file Form 990-PF rather than Form 990.

Revocation of exempt status

In general

An organization that has received a favorable tax-exemption determination from the IRS 

generally may continue to rely on the determination as long as “there are no substantial changes 

 

43

 Rev. Proc. 2016-5, sec. 11.

44

 See sec. 506. 

45

 Sec. 6033(a). An organization that has not received a determination of its tax-exempt status, but that 

claims tax-exempt status under section 501(a), is subject to the same annual reporting requirements and exceptions 

as organizations that have received a tax-exemption determination.

46

 Sec. 6033(a)(3); Treas. Reg. secs. 1.6033-2(a)(2)(i) and (g)(1).
16

in the organization’s character, purposes, or methods of operation.”

47

 A ruling or determination 

letter concluding that an organization is exempt from tax may, however, be revoked or modified: 

(1) by notice from the IRS to the organization to which the ruling or determination letter was 

originally issued; (2) by enactment of legislation or ratification of a tax treaty; (3) by a decision 

of the United States Supreme Court; (4) by issuance of temporary or final Regulations by the 

Treasury Department; (5) by issuance of a revenue ruling, a revenue procedure, or other 

statement in the Internal Revenue Bulletin; or (6) automatically, in the event the organization 

fails to file a required annual return or notice for three consecutive years (discussed in greater 

detail below).48 A revocation or modification of a determination letter or ruling may be 

retroactive if, for example, there has been a change in the applicable law, the organization 

omitted or misstated a material fact, or the organization has operated in a manner materially 

different from that originally represented.49

Upon revocation of tax-exemption or change in the classification of an organization (e.g., 

from public charity to private foundation status), the IRS publishes an announcement of such 

revocation or change in the Internal Revenue Bulletin. Contributions made to organizations by 

donors who are unaware of the revocation or change in status ordinarily will be deductible if 

made on or before the date of publication of the announcement.

Automatic revocation for failure to file information returns

If an organization fails to file a required Form 990-series return or notice for three 

consecutive years, the organization’s tax-exempt status is automatically revoked.50 A revocation 

for failure to file is effective from the date that the Secretary determines was the last day the 

organization could have timely filed the third required information return or notice. To again be 

recognized as tax-exempt, the organization must apply to the Secretary for recognition of taxexemption, irrespective of whether the organization was required to make an application for 

recognition of tax-exemption in order to gain tax-exemption originally. 

If, upon application for tax-exempt status after an automatic revocation for failure to file 

information returns, the organization shows to the satisfaction of the Secretary reasonable cause 

for failing to file the required annual notices or returns, the organization’s tax-exempt status may, 

in the discretion of the Secretary, be reinstated retroactive to the date of revocation. An 

organization may not challenge under the Code’s declaratory judgment procedures (section 

7428) a revocation of tax-exemption made for failure to file annual information returns. 

The Secretary is authorized to publish a list of organizations whose exempt status is 

automatically revoked.

 

47

 Treas. Reg. sec. 1.501(a)-1(a)(2). 

48

 Rev. Proc. 2016-5, sec. 12.

49

 Ibid.

50

 Sec. 6033(j).
17

Description of Proposal

The proposal requires that the IRS provide notice to an organization that fails to file a 

Form 990-series return or notice for two consecutive years not later than 270 days after the date 

of the second failure. The notice must state that the IRS has no record of having received such a 

return or notice from the organization for two consecutive years and inform the organization 

about the consequences of failing to file such a return or notice by the date of the next filing

deadline. The notice must also contain information about how to comply with the annual 

information return and notice requirements under sections 6033(a)(1) and 6033(i).

The proposal also provides that the Secretary may reinstate the exempt status of an 

organization that had its exempt status automatically revoked for failing to file an information 

return or notice for three consecutive years if (1) the organization demonstrates to the satisfaction 

of the Secretary that it did not receive the above-described notice from the IRS, and (2) files an 

annual return or notice for the current year. Under such circumstances, the exempt status is 

reinstated as of the date of revocation.

Effective Date

The proposal is effective for notices and returns required to be filed after December 31, 

2015.

10. IRS Future State Accountability and Transparency Act

Present Law

No provision.

Description of Proposal

In recent years, the IRS has begun to develop the Future State Initiative, which would 

increase electronic filing and payment options, as well as expand services available on the IRS 

website. Many of these changes depend on investments in information technologies and the goal 

of the initiative is to integrate systems that can provide self-service options on line, identify 

errors and issues, route work to the right employees, track inventory, and prompt interactions 

with taxpayers in a timely manner. 

The proposal would require the IRS to submit annual progress reports on the status of the 

Future State Initiative, including a thorough assessment of which services are proposed to be 

shifted to self-services options. 

The proposal also requires the GAO to identify and report on the extent of phone and inperson services currently being provided to taxpayers residing in rural cities, towns, or 

unincorporated areas with populations of 50,000 or less. In addition, GAO would provide 

recommendations on steps the IRS could take to protect rural taxpayers, as the Future State 

Initiative is developed. 
18

Effective Date

The first IRS report is required to be submitted to the Senate Finance Committee and 

House Ways and Means Committee within one year of the date of enactment, with subsequent 

reports to follow at annual intervals. The GAO report is required to be submitted to the Senate 

Finance Committee and House Ways and Means Committee within one year of the date of 

enactment. 

11. Require the IRS to give sufficient notice to Congress before closing a walk-in Center or 

Taxpayer Assistance Centers (TACs)

Present Law

The IRS is not currently required to give notice to Congress before closing a walk-in 

center or Taxpayer Assistance Center (TAC). 

Description of Proposal

The proposal requires IRS to report to Congress 90 days in advance, the reasons for a 

proposed closure of a walk-in center or TAC and an explanation of how taxpayers located in 

rural areas will be served in the event of a closing. Depending on facts and circumstances, 

Congress will be authorized to deny the closure.

Effective Date

The proposal is effective on the date of enactment.

12. Sole point of contact for identity theft victims

Present Law

In October 2008, the IRS established the Identity Protection Specialized Unit (IPSU), a 

unit dedicated to assisting victims of identity theft. The IPSU coordinated with various IRS 

functions to handle identity theft cases.51 Subsequently reorganized and now known as the 

Identity Theft Victim Assistance organization, it is staffed with specially trained employees who 

are able to assess the case, identify issues, and assist the taxpayer in getting the correct return 

filed, refunds issued, etc.52 If a victim thinks he or she is not being properly served by the IRS or 

the IPSU, the taxpayer may be eligible for assistance from the Taxpayer Advocate Service (TAS) 

as in the case of economic hardship caused by the theft. In such instances, the TAS will assign a 

case advocate to the taxpayer’s account.

 

51

 TIGTA, Ref. No. 2012-40-050, Most Taxpayers Whose Identities Have Been Stolen to Commit Refund 

Fraud Do Not Receive Quality Customer Service (May 2012). 

52

 A description of the services provided by the IDTVA is available at 

https://www.irs.gov/uac/Newsroom/IRS-Identity-Theft-Victim-Assistance-How-It-Works
19

Description of Proposal

The proposal requires the Secretary of the Treasury (or his or her delegate) to establish 

procedures to implement a sole point of contact for taxpayers adversely affected by identity theft. 

The sole point of contact may be a team or subset of specially trained employees who can work 

across functions to resolve problems for the victim and who can be held accountable for handling 

the case to completion. The makeup of the team may change as required to meet IRS needs, but 

the procedures must ensure continuity of records and case history and may require notice to the 

taxpayer in appropriate instances. 

Effective Date

The provision is effective on date of enactment.

13. Help taxpayers guard against the so-called IRS phone scam

Present Law

TIGTA is not currently required to report on potential technological solutions to help 

protect consumers from the so-called IRS phone scam.

Description of Proposal

The proposal requires TIGTA to issue a report, in consultation with the Federal 

Communications Commission and the Federal Trade Commission, identifying potential 

technological solutions to help protect consumers from the so-called IRS phone scam. The 

report would also identify phone companies that offer services designed to help taxpayers protect 

themselves from such scams. The report is required within one year of the date of enactment.

Effective Date

The proposal is effective on the date of enactment. 

14. Providing taxpayers ID theft and tax scam information

Present Law

No provision.

Description of Proposal

The proposal requires the IRS to provide the following information over the phone, while 

taxpayers are on hold with the IRS call center: basic information about common tax scams, 

direction to the taxpayer on where to report such activity, and tips on how to protect against ID 

theft and tax scams. 

Effective Date

The proposal is effective on date of enactment.
20

15. Recovery of certain improperly withheld severance payments

Present Law

Under present law, certain payments made as compensation for injuries or sickness are 

excluded from a taxpayer’s gross income.53 Such payments include amounts received as a 

pension, annuity or similar allowance for personal injuries or sickness resulting from active 

service in the armed forces of any country.54

Description of Proposal

The proposal requires that, not later than one year after the date of enactment, the 

Secretary of Defense identify certain disability severance payments made to veterans from which 

income taxes were improperly withheld. Each individual so identified shall receive a notice of 

the amount of severance payments which were improperly withheld upon, and other information 

determined to be necessary by the Secretary of Treasury to carry out the purposes of the 

proposal. Each individual will receive instructions for filing an amended return to recover the 

improperly withheld amounts.

The proposal extends the statute of limitations on claims for refund, such that individuals 

who receive notice of improper withholding will have one year from the date of notice in which 

to file a refund. 

The proposal provides that the Secretary of Defense shall take such actions as may be 

necessary to ensure that amounts are not withheld for tax purposes from severance payments 

made by the Secretary of Defense to individuals when such payments are not considered gross 

income pursuant to section 104(a)(4) of the Code. The proposal requires the Secretary of 

Defense to submit a report to Congress, specifying the number of individuals identified as having 

been improperly withheld upon, the aggregate amount improperly withheld, and a description of 

the actions to be taken to ensure that future payments are not improperly withheld.

Effective Date

The proposal is effective on the date of enactment.

 

53 Sec. 104.

54 Sec. 104(a)(4).
21

16. GAO study of Federal employee wage and tax withholding reporting to State tax 

agencies

Present Law

Information returns concerning certain payments 

Present law requires persons to file an information return concerning certain transactions 

with other persons.55 These returns are intended to assist taxpayers in preparing their income tax 

returns and to help the IRS determine whether such income tax returns are correct and complete. 

One of the primary provisions requires every person engaged in a trade or business who 

makes payments aggregating $600 or more in any taxable year to a single payee in the course of 

the payor’s trade or business to file a return reporting these payments.56 Payments subject to this 

reporting requirement include fixed or determinable income or compensation, but do not include

payments for goods or certain enumerated types of payments that are subject to other specific 

reporting requirements. Other reporting requirements are provided for various types of 

investment income, including interest, dividends, and gross proceeds from brokered transactions 

(such as a sale of stock) paid to U.S. persons.57 

The person filing an information return with respect to payments described above is 

required to provide the recipient of the payment with a written payee statement showing the 

aggregate payments made and contact information for the payor.58 The statement must be 

supplied to payees by the payors by January 31 of the following calendar year.59 Payors 

generally must file the information return with the IRS on or before the last day of February of 

the year following the calendar year for which the return must be filed.60 

Information returns regarding wages paid employees

Payors must report wage amounts paid to employees on information returns and provide 

the employee with an annual statement showing the aggregate payments made and contact 

 

55

 Secs. 6041-6050W. If the payment is by the U.S. or a State, or political subdivision, or any agency or 

instrumentality of any of these, the information reporting requirements for Forms 1096 and 1099 apply to officers or 

employees appropriately designated to make such returns. Treas. sec. 1.6041-1(i). 

56

 Sec. 6041(a). The information return generally is submitted electronically as a Form 1099 (e.g., Form 

1099-MISC, Miscellaneous Income) or Form 1096, Annual Summary and Transmittal of U.S. Information Returns, 

although certain payments to beneficiaries or employees may require use of Forms W-3 or W-2, respectively. Treas. 

Reg. sec. 1.6041-1(a)(2).

57

 Secs. 6042 (dividends), 6045 (broker reporting) and 6049 (interest) and the Treasury regulations 

thereunder.

58

 Sec. 6041(d).

59

 Sec. 6041(d).

60

 Treas. Reg. sec. 31.6071(a)-1(a)(3)(i).
22

information for the payor by January 31 of the following calendar year.61 For wages paid to, and 

taxes withheld from, employees, the payors must file an information return with the Social 

Security Administration (“SSA”) by January 31 of the year following the calendar year for which 

the return must be filed.62

Under the combined annual wage reporting (“CAWR”) system, the SSA and the IRS 

have an agreement, in the form of a Memorandum of Understanding, to share wage data and to 

resolve, or reconcile, the differences in the wages reported to them. Employers submit Forms 

W-2, Wage and Tax Statement (listing Social Security wages earned by individual employees), 

and W-3, Transmittal of Wage and Tax Statements (providing an aggregate summary of wages 

paid and taxes withheld) directly to SSA.63 After it records the Forms W-2 and W-3 wage 

information in its individual Social Security wage account records, SSA forwards the Forms W-2 

and W-3 information to IRS.64

Description of Proposal

The proposal requires the GAO to review and prepare a report (with recommendations 

for improvements where appropriate) to the Senate Committee on Finance and the House 

Committee on Ways and Means on the process and timeline by which State tax agencies 

currently receive Federal employee wage and tax withholding information produced by the 

Agriculture Department’s National Finance Center, the Pentagon’s Defense Finance and 

Accounting Service, the Interior Department’s National Business Center, and the General 

Service Administration’s National Payroll Branch.

Effective Date

The proposal is effective on the date of enactment.

 

61

 Sec. 6051(a). If the payment is by the U.S. or a State, or political subdivision, or any agency or 

instrumentality of any of these, the information reporting requirements for Forms W-3 and W-2 apply to officers or 

employees appropriately designated to make such returns. Treas. sec. 1.6041-1(i). 

62

 Pub. L. No. 114-114, PATH Act, Div. Q, sec. 201. For returns and statements relating to calendar years 

after 2015, the information returns containing wages reportable on Form W-2 and nonemployee compensation are 

due on the same date as the due date for employee and payee statements, and such returns are no longer eligible for 

the extended filing date for electronically filed returns under section 6071(b). For this purpose, Nonemployee 

compensation generally includes fees for professional services, commissions, awards, travel expense 

reimbursements, or other forms of payments for services performed for the payor’s trade or business by someone 

other than in the capacity of an employee. 

63

 Pub. L. No. 94-202, sec. 232, 89 Stat. 1135 (1976) (effective with respect to statements reporting income 

received after 1977).

64

 Employers submit quarterly reports to IRS on Form 941, Employer’s Quarterly Federal Tax Return, 

regarding aggregate quarterly totals of wages paid and taxes due. IRS then compares the W-3 wage totals to the 

Form 941 wage totals.