BLR. 11 Provision

The bill would have provided that in any court proceeding, if a taxpayer asserts a
reasonable dispute with respect to any item of income reported on an information return (Form
1099) filed by a third party and the taxpayer has fully cooperated with the IRS, the Government
must, in presenting evidence of the deficiency based on the information return, present reasonable
and probative information concerning the deficiency (in addition to the information return itself).

G. Modifications to Penalty for Failure to Collect and Pay Over Tax

1. Preliminary notice requirements

Present Law (as of 1992)

A "responsible person" is subject to a penalty equal to the amount of trust fund taxes that
are not collected or paid to the government on a timely basis. An individual the IRS has identified
as a responsible person is permitted an administrative appeal on the question of responsibility. In
general, anyone who has the authority to direct the payments of money to creditors may be
considered to be a responsible person.

H.R. 11 Provision

The bill would have required the IRS to issue a notice to an individual the IRS had
determined to be a responsible person with respect to unpaid trust fund taxes at least 60 days
prior to issuing a notice and demand for the penalty. The statute of limitations would not have
expired before the date 90 days after the date on which the notice was mailed. The provision
would not have applied if the Secretary found that the collection of the penalty was in jeopardy.

2. No penalty if prompt notification of IRS

Present Law (as of 1992)

A responsible person may be subject to a penalty equal to 100 percent of the amount of
trust fund taxes that are not collected and paid to the Government on a timely basis.

H.R. 11 Provision

The bill would have provided that a responsible person who notifies the IRS within 10
days of the failure to pay over trust fund taxes to the Government is not liable for this penalty, so
long as the notification is made prior to the IRS' contacting the business about the failure to pay
over the taxes, and provided that the person is not a significant owner (of a 5-percent or more
interest) or a highly compensated employee (with compensation in excess of $75,000). The
provision would not have applied if the failure to pay was part of a plan to defraud the
Government. The provision would have applied only once to a taxpayer in that taxpayer's lifetime

-17-



2. Secretary of the Treasury required to specify, on request, regulations implementing
specific taxes

Present Law

Every person liable for any tax (or for the collection of any tax) must keep such records,
render such statements, make such returns, and comply with such rules and regulations as the
Secretary may prescribe.

Description of Provision

The bill would provide that the Secretary must identify in writing the specific kind or type
of tax, and its specific implementing regulations within 14 days, upon the written request from any
person made liable for the payment of any tax.

3. Increase in limit on recovery of civil damages for unauthorized collection actions and
exclusion of these damages from gross income

Present Law

Taxpayers can sue the Federal Government in Federal district court for damages if in
connection with the collection of any Federal tax, an IRS employee recklessly or intentionally
disregards any provision of the Internal Revenue Code or any regulation promulgated thereunder.
The taxpayer may recover the costs of the action plus actual direct economic damages sustained
by the taxpayer as a proximate result of the unlawful actions or inaction of the IRS employee.
The total of actual damages plus the costs of the action recoverable under this provision may not
exceed $100,000.

Description of Provision

The bill would increase the limit on these damages to $1,000,000, and would exclude
these damages from gross income.

~38-



J. Form Modifications; Studies
. Explanation of certain provisions
Same as H.R. 11 provision.
. Improved procedures for notifying IRS of change of address or name
Same as H.R. 11 provision.
. Rights and responsibilities of divorced individuals
Same as H.R. 11 provision.
K. Studies
. Pilot programs for appeal of enforcement actions
Same as H.R. 11 provision.
. Study on taxpayers with special needs
Same as H.R. 11 provision.
. Reports on taxpayer rights education program
Same as H.R. 11 provision.
. Biennial reports on misconduct by IRS employees
Same as H.R. 11 provision.
. Study of notices of deficiency
Same as H.R. 11 provision.
. Notice and form accuracy study
Same as H.R. 11 provision.
. IRS employees' suggestions study

Does not include the H.R. 11 provision.

-34-



2. Extension of interest-free period for payment of tax after notice and demand

Present Law (as of 1992)

In general, a taxpayer must pay interest on late payments of tax. No interest is charged
with respect to taxpayers who pay the tax due within ten days of notice and demand.

H.R. 11 Provision

The bill would have extended the interest-free period provided to taxpayers for the
payment of the tax liability reflected in the notice from 10 days to 21 days, provided that the total
tax liability shown on the notice of deficiency is less than $100,000.

D. Joint Returns

1, Disclosure of collection activities with respect to joint returns

Present Law (as of 1992)

The IRS does not disclose collection information to spouses that have filed a joint return.
HLR. 11 Provision

Ifa tax deficiency with respect to a joint return is assessed, and the individuals filing the
return are no longer married or no longer reside in the same household, the bill would have
permitted the IRS to respond in writing to a written request by an individual whether the IRS has
attempted to collect the deficiency from his or her spouse, the general nature of the collection
activities, and the amount (if any) collected.

2. Joint return may be made after separate returns without full payment of tax

Present Law (as of 1992)

Taxpayers who file separate returns and subsequently determine that their tax liability
would have been less if they had filed a joint return are precluded by statute from reducing their
tax liability by filing jointly if they are unable to pay the entire amount of the joint return liability
before the expiration of the three-year period for making the election to file jointly.

H.R. 11 Provision

The bill would have repealed the requirement of full payment of tax liability as a
precondition to switching from married filing separately status to married filing jointly status.

-11-


I. Other Provisions

1. Required content of certain notices

Present Law (as of 1992)

The Code requires the IRS to describe the basis for and identify the amounts of tax due,
interest, penalties, and any other additional amounts owed in the notice of deficiency sent to
taxpayers.

H.R. 11 Provision

The bill would have required that the IRS set forth the components of and explanation for
each specific adjustment that is the basis for the total tax deficiency. An inadequate description
would not have invalidated the notice.

2. Treatment of substitute returns for purposes of the penalty for failure to pay taxes

Present Law (as of 1992)

Section 6651(a)(2) provides that the IRS may assess a penalty for failure to pay tax from
the due date of the return until the tax is paid. If no return is filed by the taxpayer and the IRS
files a substitute return under section 6020, the tax on which the penalty is measured is considered
a deficiency assessable under section 6212 or 6213, and the failure to pay penalty begins to
accumulate ten days after the IRS sends the taxpayer a notice and demand for payment of the tax.

BLR. 11 Provision

The bill would have applied the failure to file penalty to substitute returns in the same
manner as the penalty applies to delinquent filers.

3. Relief from retroactive application of Treasury Department regulations

Present Law (as of 1992)

Treasury may prescribe the extent (if any) to which regulations shall be applied without
Tetroactive effect.

BLR. 11 Provision
Temporary and proposed regulations would have been required to have an effective date

no earlier than the date of filing with the Federal Register or from the date any notice that
substantially describes the regulation is issued to the public, whichever is earlier. This provision

-21-



The IRS may directly notify a rdepuyer that the taxpayer's representative is responsible for
unreasonable delay or hindrance, request that the taxpayer appear for an interview, and inform the
taxpayer that an administrative summons requiring the taxpayer's attendance at an interview may
be issued. i
|
|
The provisions relating to taxpayer interviews do not apply to criminal investigations or

investigations relating to the integrity of any officer or employee of the IRS.
i

Reasonable time and place.-The 1988 Act required the IRS to publish within one year of
the date of enactment regulations enumerating standards for determining whether the selection of
a time and place for interviewing a taxpayer is reasonable.‘

|
3. Taxpayers may rely on written advice of the Internal Revenue Service (sec. 6404 of the
Code)

i
The IRS is required to abate any portion of any penalty or addition to tax that is
attributable to erroneous written advice ‘furnished by the IRS to a taxpayer, where such advice
was specifically requested in writing by the taxpayer and reasonably relied upon, unless the

taxpayer failed to provide adequate or accurate information when requesting the advice.

4. Taxpayer assistance orders (sec. 7811 of the Code)

The Taxpayer Ombudsman (or any designee of the Ombudsman) is provided statutory
authority to issue a taxpayer assistance order, if, in the determination of the Ombudsman, the
taxpayer is suffering or about to suffer a significant hardship as a result of the manner in which the
IRS is administering the internal revenue laws. The Ombudsman may take action whether or not
a taxpayer has filed an application requesting relief. A taxpayer assistance order may require
remedial actions, such as release from levy of property of the taxpayer. A taxpayer assistance
order is binding on the IRS unless modified or rescinded by the Ombudsman, a district director, a
service center director, a compliance center director, a regional director of appeals, or a superior
of such directors.

Any applicable statute of limitations (e.g., the statute of limitations under sec. 6501
relating to the assessment or collection of tax) is suspended starting on the date that the taxpayer
files an application for a taxpayer assistance order with the Ombudsman and ending on the date
that the Ombudsman makes a decision on the taxpayer's application (or a later date if the
Ombudsman's order resulting from a taxpayer's application provides for continued suspension of
the statute of limitations). i

* Pursuant to this requirement, IRS Ish temporary regulations (Treas. Reg. 301.7605-
1T (TD. 8297, 19901 C.B. 190-193)), which were superseded by final regulations (amending
Treas. Reg. 301.7605-1 (T.D. 8469, 1993- 1 C.B. 220-225)).

—


2. Civil damages for fraudulent filing of information returns

Same as H.R. 11 provision, except that an action seeking damages under this provision
must be brought within six years (rather than four years) after the filing of the false or fraudulent
information return, or one year after the false or fraudulent information would have been
discovered by the exercise of reasonable care, whichever is later.
3. Requirement to verify accuracy of information returns

The bill does not include the H.R. 11 provision. The bill, however, would provide that
where a taxpayer asserts a reasonable dispute with respect to any item of income reported on an
information return (such as a Form W-2 or a Form 1099), the IRS will have the burden of proof
in any refund or deficiency proceeding unless the IRS has conducted a reasonable investigation to
corroborate the accuracy of the information return.

G. Modifications To Penalty For Failure To Collect and Pay Over Tax

1. Preliminary notice requirements

Same as H.R. 11 provision.
2. No penalty if prompt notification of IRS

Does not include the H.R. 11 provision.
3. Disclosure of certain information where more than one person subject to penalty

Same as H.R. 11 provision.
4, Penalties relating to failure to collect and pay over tax

a. Public information requirements
Same as H.R. 11 provision.
b. Board members of tax-exempt organizations
Same as H.R. 11 provision.

c. Prompt notification

Same as H.R. 11 provision.

-32-



and once to a business in its existence. The provision would not have applied if the effect would
have been to leave no financially responsible person liable for the penalty.

3. Disclosure of certain information where more than one person subject to penalty

Present Law (as of 1992)

The IRS may not disclose to a responsible person the IRS' efforts to collect unpaid trust
fund taxes from other responsible persons who may also be liable for the same tax liability.

H.R. 11 Provision

The bill would have required the IRS, if requested in writing by a person considered by the
IRS to be a responsible person, to disclose in writing to that person the name of any other person
the IRS has determined to be a responsible person with respect to the tax liability. The IRS
would have been required to disclose in writing whether it had attempted to collect this penalty
from other responsible persons, the general nature of those collection activities, and the amount
(if any) collected.

4. Penalties relating to failure to collect and pay over tax
a. Public information requirements

Present Law (as of 1992)

Under section 6672, a "responsible person" is subject to a penalty equal to the amount of
trust fund taxes that are not collected and paid to the Government on a timely basis.

H.R. 11 Provision
The bill would have required the IRS to print warnings on payroll tax deposit coupon

books and appropriate tax returns indicating that certain employees may be liable for this penalty
and to develop a special information packet relating to this penalty.

b. Board members of tax-exempt organizations

Present Law (as of 1992)

Under section 6672, "responsible persons" of tax-exempt organizations are subject to a
penalty equal to the amount of trust fund taxes that are not collected and paid to the Government
on a timely basis.

~-18-


H.R. 11 Provision

The bill would have required the IRS to include a section on the rights and responsibilities
of divorced individuals in Publication 1, Your Rights As a Taxpayer.

K. Studies

1, Pilot programs for appeal of enforcement actions

Present Law (as of 1992)

A taxpayer who disagrees with an IRS collection action generally can only appeal to
successively higher levels of management in the Collection Division. Certain cases involving the
section 6672 penalty, offers-in-compromise, and employment tax issues may, however, be
appealed to the Appeals Division.

H.R. 11 Provision

The bill would have required the IRS to establish a one-year pilot program to evaluate the
merits of allowing an independent appeal by the taxpayer to the Appeals Division of enforcement
actions (including lien, levy, and seizure actions) where the deficiency was assessed without the
actual knowledge of the taxpayer, where the deficiency was assessed without an opportunity for
administrative appeal, and in other appropriate circumstances.

2. Study on taxpayers with special needs

Present Law (as of 1992)

The IRS is responsible for providing timely and accurate assistance to taxpayers who want
to comply with Federal tax laws.

H.R. 11 Provision
The bill would have required the IRS to conduct a study of ways to assist the elderly,
physically impaired, foreign-language speaking, and other taxpayers with special needs to comply
with the tax laws.
3. Reports on taxpayer rights education program

Present Law (as of 1992)

The IRS is currently conducting a program to educate revenue officers concerning the
Tights of taxpayers.

-24-



“prevailing party." A taxpayer qualifies as a prevailing party if it (1) establishes that the position
of the United States was not substantially justified, (2) substantially prevails with respect to the
amount in controversy or with respect to the most significant issue or set of issues presented, and
(3) meets certain net worth and (if the taxpayer is a business) size requirements.

ELR. 11 Provision

The bill would have provided that, once a taxpayer has substantially prevailed, the
taxpayer could file a motion for an order requiring the disclosure (within a reasonable period of
time specified by the court and subject to the confidentiality restrictions of section 6103) of all
information and copies of relevant records in the possession of the IRS with respect to the
taxpayer's case and the substantial justification for the position taken by the IRS.

2. Increased limit on attorney fees

Present Law (as of 1992)

Attorneys' fees recoverable by prevailing parties as litigation or administrative costs are
limited to a maximum of $75 per hour.

H.R. 11 Provision

The bill would have raised the statutory limit on recoverable attorney's fees to $110 per
hour, indexed for inflation beginning after 1992.

3. Failure to agree to extension not taken into account

Present Law (as of 1992)

To qualify for an award of attorney's fees, the taxpayer must have exhausted the
administrative remedies available within the IRS.

HLR. 11 Provision
The bill would have provided that any failure to agree to an extension of the statute of
limitations could not be taken into account for purposes of determining whether a taxpayer has

exhausted the administrative remedies for purposes of determining eligibility for an award of
attorney's fees.

-20-


H. Awarding of Costs And Certain Fees
1. Motion for disclosure of information

Same as H.R. 11 provision.

N

. Increased limit on attorney fees

Same as H.R. 11 provision.
3. Failure to agree to extension not taken into account
Same as H.R. 11 provision.

4. Authority for court to award reasonable administrative costs

Under present law, the position of the United States must be "not substantially justified" as

a precondition of a taxpayer receiving an award of costs and certain fees. The bill would expand
the "position of the United States" to include the position taken in an administrative proceeding,

without regard to the level in the administrative process at which the position was taken.
I. Other Provisions
1. Required content of certain notices
Same as H.R. 11 provision.
2. Treatment of substitute returns for purposes of the penalty for failure to pay taxes
Same as H.R. 11 provision.
3. Relief from retroactive application of Treasury Department regulations

Same as H.R. 11 provision, except the bill does not include the exception for any
regulation issued within twelve months of the enactment date of the relevant statute.

4. Required notice to taxpayers of certain payments
Same as H.R. 11 provision.
5. Civil damages for unauthorized enticement of information disclosure

Same as H.R. 11 provision.

-33-



Justice) seeks and obtains an order for enforcement in Federal court. In addition, a taxpayer may
petition the court to quash an administrative summons where this is permitted by statute.”

In certain cases, the running of the assessment period is suspended during the period when
the parties are in court to obtain or avoid judicial enforcement of an administrative summons.
Such a suspension is provided in the case of litigation over a third-party summons (sec. 7609(e))
or litigation over a summons regarding the examination of a related party transaction. Such a
suspension can also occur with respect to a corporate tax return if a summons is issued at least 60
days before the day on which the assessment period (as extended) is scheduled to expire. In this
case, suspension is only permitted if the summons clearly states that it is a "designated summons"
for this purpose. Only one summons may be treated as a designated summons for purposes of any
one tax return. The limitations period is suspended during the judicial enforcement period of the
designated summons and of any other summons relating to the same tax return that is issued
within 30 days after the designated summons is issued.

Under current internal procedures of the IRS, no designated summons is issued unless first
reviewed by the Office of Chief Counsel to the IRS, including review by an IRS Deputy Regional
Counsel for the Region in which the examination of the corporation's return is being conducted.

The IRS need not establish that the taxpayer had been uncooperative or dilatory in
responding to earlier requests for documents in order to issue an enforceable designated:
summons.’°

H.R. 11 Provision

The bill would have required that issuance of any designated summons with respect to a
corporation's tax return must be preceded by review of such issuance by the Regional Counsel,
Office of Chief Counsel to the IRS, for the Region in which the examination of the corporation's
return was being conducted.

In addition, the bill would have required that the corporation whose return was in issue be
promptly notified in writing in any case where the Secretary issued a designated summons (or
another summons, the litigation over which suspends the running of the assessment period under
the designated summons procedure) to a third party.

° Petitions to quash are permitted, for example, in connection with the examination of certain
related party transactions under section 6038A(e)(4) and in the case of certain third-party
summonses under section 7609(b)(2).

See US. vs. K. T. Derr, 968 F.2d 943 (9th Cir., 1992).
=- 1 5-


disclosure or use, up to a maximum of $10,000 per calendar year. The penalty shall not be
imposed if disclosure or use of return information was made pursuant to a court order or one of
the provisions of the Internal Revenue Code that permit disclosure under specified circumstances.

17, Jurisdiction to restrain certain premature assessments (sec. 6213 of the Code)

The Tax Court is granted jurisdiction (concurrent with Federal district courts) to restrain
the assessment and collection of any tax by the IRS if the tax is the subject of a timely filed
petition pending before the Tax Court.

18. Jurisdiction to enforce overpayment determinations (sec. 6512 of the Code)

The Tax Court has jurisdiction to order the refund of an overpayment plus interest if,
within 120 days after a Tax Court decision has become final, the IRS fails to refund to a taxpayer
an overpayment determined by the Tax Court.

19. Jurisdiction to review certain sales of seized property (sec. 6863 of the Code)

The Tax Court has jurisdiction during the pendency of proceedings before it to review the
IRS' determination to sell seized property under one of the exceptions to the stay of sale.

20. Jurisdiction to redetermine interest on deficiencies (sec. 7481 of the Code)

Ifa dispute arises over the IRS' computation of the interest due on a deficiency, then
within one year from the date the Tax Court decision becomes final the taxpayer may move to
reopen the Tax Court proceeding for a determination of interest due. The taxpayer is required to
pay the entire deficiency redetermined by the Tax Court and the interest determined by the IRS
before challenging the IRS’ computation of interest in the Tax Court.

21. Jurisdiction to modify decisions in certain estate tax cases (sec. 7481 of the Code)

The Tax Court has authority to modify a final decision in an estate tax case solely to
reflect the estate's entitlement to a deduction for interest paid during an extended-payment period
on the Federal or State estate tax liability. Thus, the Tax Court may enter a final decision in an
estate tax case in which an extended-payment period is elected and subsequently, if necessary,
modify the decision at the end of the extended-payment period to reflect interest actually paid by
the estate. The Tax Court has discretion to hold a hearing on this matter at the end of the
extended-payment period.


2. Running of failure to pay penalty suspended during period installment agreement in
effect

The bill would suspend the running of the failure to pay penalty under Code section
6651(b) and (c) during the period an installment agreement is in effect provided that the taxpayer
requests the agreement by the due date (including extensions) of the tax return.

3. Notification of reasons for termination or denial of installment agreements

Same as H.R. 11 provision. In addition, the notice of a proposed denial of an installment
agreement would include a statement of the taxpayer's right to an administrative review.

4, Administrative review of denial of requests for, or termination of, installment
agreements

Same as H.R. 11 provision.
C. Interest

1. Expansion of authority to abate interest

The bill would expand the authority of the IRS to abate interest with respect to any
unreasonable error or delay by an officer or employee of the IRS. It also would require the
abatement of all interest prior to the date demand for payment is made for individuals with net
worths of $2,000,000 or less and for businesses with net worths of $7,000,000 or less.
2. Extension of interest-free period for payment of tax after notice and demand

Same as H.R. 11 provision.

D. Joint Returns

1. Disclosure of collection activities with respect to joint returns

Same as H.R. 11 provision.

2. Joint return may be made after separate returns without full payment of tax

Same as H.R. 11 provision.

-30-



If. DESCRIPTION OF TAXPAYER BILL OF RIGHTS ACT OF 1991,
H.R. 3838, 102d CONGRESS”

H.R. 3838 (102d Congress) was one of several bills upon which the Taxpayer Bill of
Rights 2 provisions of H.R. 11 (103d Congress) were based. Many of the provisions in HR.
3838 were incorporated into H.R. 11, some with and some without modifications. A description
of the seven provisions in H.R. 3838 that were not incorporated into H.R. 11 follows.

1, Equalization of interest rates

The bill would have eliminated the then-existing one percent differential between the
overpayment and underpayment rates by raising the overpayment rate.

2. Waiver of interest on all overpayments refunded within 45 Days after return is filed

The bill would have made applicable to all taxes the present-law income-tax-only rule that
waives interest on overpayments if the refund is made within 45 days after the return is filed.?

3. Treatment of spouses under deficiency procedures

Present law provides that the IRS must send duplicate original deficiency notices to both
spouses when the IRS has been notified that separate residences have been established. The bill
would have applied this rule to all instances in which the spouses did not file a joint return for the
most recent taxable year.

4. Attorney's fees: Definition of prevailing party

The bill would have deleted the requirement that the taxpayer establish that the position of
the United States was not substantially justified.

5. Attorney's fees: Treatment of prevailing party who represents himself

The bill would have permitted a taxpayer who represents himself to receive an award for
the value of the taxpayer's time in representing himself.

” Introduced on November 21, 1991 by Mr. Pickle, Mr. Schulze, Mr. Archer, Mr. Anthony,
Mr. Ford of Tennessee, Mr. Rangel, Mr. Jacobs, Mr. Jenkins, Mr. Russo, Mr. Shaw, Mr.
Sundquist, and Mr. Bunning.

** A modified version of this provision was enacted in section 13271 of the Omnibus Budget
Reconciliation Act of 1993 (Pub. L. 103-66, August 10, 1993).

-27-



In addition, the IRS may alter, modify or terminate an installment payment agreement if
the IRS determines that the financial condition of the taxpayer has significantly changed. This
action may be taken only if the IRS notifies the taxpayer of the determination at least 30 days
prior to the date of the action and provides the reason for such determination in the notification.

9, Assistant Commissioner for Taxpayer Services (sec. 7802 of the Code)

The statute establishes statutorily an Assistant Commissioner for Taxpayer Services who
is responsible for taxpayer services as designated by the Commissioner, such as telephone,
walk-in, and taxpayer educational services, and the design and production of tax and
informational forms.

10. Levy and distraint (secs. 6331, 6332, 6334, and 6343 of the Code)

Notice.--The period from the date the IRS provides written notice to a taxpayer to the
first permissible date of the collection of tax by levy was extended by the Act to 30 days. The
notice and waiting period requirements do not apply if the IRS finds that collection of the tax is in
jeopardy. The notice preceding levy must be a brief statement in simple and nontechnical terms,
and is required to contain a description of Code provisions and administrative procedures and
appeals applicable to specific aspects of collection, as well as a description of the alternatives
available to taxpayers that may prevent levy on the taxpayers’ property.

Property subject to levy.--The type of property exempt from levy was expanded under the
Act. First, the exemption from levy for fuel, provisions, furniture, and personal household effects
is $1,650 for 1990 and years thereafter. Second, the exemption from levy for books, tools,
machinery, or equipment that are necessary for the trade, business, or profession of the taxpayer is
$1,100 for 1990 and years thereafter. Third, the provision exempts from levy a taxpayer's
principal residence, unless an IRS district director or assistant director personally approves the
levy in writing or the collection of the tax is found to be in jeopardy. In cases where tangible
personal property essential to a taxpayer's trade or business is levied upon by the IRS, an
accelerated appeals process must be provided by the IRS in order to determine whether the levy
should be released due to any of the statutory grounds that govern release of levy (e.g., the IRS.
determines that release of such levy will facilitate the collection of tax, the IRS determines that
such levy is creating an economic hardship due to the financial condition of the taxpayer, or the
fair market value of the property exceeds such liability and release of the levy on a part of such
property could be made without hindering the collection of such liability). Fourth, the Act
exempts from levy certain AFDC, SSI, State and local welfare, and Job Training Partnership Act
benefits. No levy may be made on property if the estimated expenses of levy and sale exceed the
fair market value of the property.

The IRS is prohibited from levying on property of any person on any day on which the
person is required to appear in response to a summons issued by the IRS, unless the IRS
determines that the collection of tax is in jeopardy. In addition, banks and other financial
institutions are required to hold accounts garnished by the IRS for 21 days after receiving the IRS

~4-


5. Basis for evaluation of IRS employees (sec. 6231 of the 1988 Act)

The IRS is prohibited from using records of tax enforcement results to evaluate IRS
employees directly involved in collection activities and their immediate supervisors or to impose
or suggest production quotas or goals with respect to those employees. Each district director
must certify quarterly that enforcement results are not being used in a prohibited manner.

6. Procedures relating to IRS regulations (secs. 7805(e) and (f) of the Code)

The IRS is required to solicit comments from the Chief Counsel for Advocacy of the Small
Business Administration (SBA) after the publication of proposed and temporary regulations. If
the IRS issues final regulations directly (without the issuance of proposed regulations), the IRS
must solicit comments from the SBA prior to the promulgation of final regulations. The SBA is
allowed four weeks after the receipt of the regulations to provide its comments on the impact of
the regulations on small businesses. IRS must consider any comments submitted by the SBA and
discuss any response to those comments in the preamble of the final regulations.

In addition, each time the IRS issues temporary regulations, the IRS must simultaneously
issue those regulations in proposed form. The IRS may issue proposed regulations by
cross-reference at the time temporary regulations are issued. Temporary regulations are
permitted to remain in effect for no more than three years after the date of their issuance. The
expiration of temporary regulations at the end of this three-year period is not to affect the validity
of those regulations during the three-year period.

7. Content of tax due and deficiency notices (sec. 7522 of the Code)

All specified tax due notices or deficiency notices must describe the basis for, and identify
the amounts (if any) of, tax due, interest, additions to tax, and penalties. The specified notices are
tax due or deficiency notices described in sections 6155, 6212, and 6303, notices generated out of
information reporting matching programs, or the first letter of proposed deficiency that allows the
taxpayer an opportunity for administrative review in the IRS Office of Appeals. An inadequate
description in a notice of deficiency or tax due does not invalidate the notice.

8. Instaliment payment of tax liability (sec. 6159 of the Code)

The IRS has statutory authority to enter into a written installment payment agreement if
the IRS determines that an agreement will facilitate collection of the tax owed. The agreement is
to remain in effect for the term of the agreement unless (1) the taxpayer provided inaccurate or
incomplete information, (2) the taxpayer fails to pay an installment when due, (3) the taxpayer
fails to pay any other tax liability when due, (4) the taxpayer fails to respond to any reasonable
request by the IRS to supply updated financial information, or (5) the IRS determines that the
collection of any tax to which an agreement relates is in jeopardy.


F. Information Returns

1, Phone numbers of person providing payee statement required to be shown on such
statement

Present Law (as of 1992)
Information returns must contain the name and address of the payor.
H.R. 11 Provision

The bill would have required that information returns contain the name, address, and
phone number of the payor's information contact.

2. Civil damages for fraudulent filing of information returns

Present Law (as of 1992)

Federal law provides no private cause of action to a taxpayer who is injured because a
false or fraudulent information return has been filed with the IRS asserting that payments have
been made to the taxpayer.

H.R. 11 Provision

The bill would have provided that if any person willfully files a false or fraudulent
information return with respect to payments purported to have been made to another person, the
other person may bring a civil action for damages against the person filing that return.
Recoverable damages would have been limited to the greater of $5,000 or the amount of actual
damages (including the costs of the action). A copy of the complaint initiating the action would
have been required to be provided to the IRS. The court would have been required to specify in
its judgment the correct amount (if any) that should have been reported on the information return.
An action seeking damages under this provision would have been required to be brought within
four years after the filing of the false or fraudulent information return, or one year after the false
or fraudulent information would have been discovered by the exercise of reasonable care,
whichever was later.

3. Requirement to verify accuracy of information returns

Present Law (as of 1992)

Deficiencies determined by the IRS are generally afforded a presumption of correctness.

-16-


interest, or penalty may be awarded recoverable costs. Recoverable costs include only reasonable
litigation costs plus reasonable administrative costs incurred after the earlier of (1) the date of the
receipt by the taxpayer of the notice of the decision of the IRS Office of Appeals, or (2) the date
of the notice of deficiency.

Position of the United States.--In determining whether the position of the United States
was substantially justified, the position of the United States is determined as of the earlier of (1)
the date of the receipt by the taxpayer of the notice of the decision of the IRS Office of Appeals,
or (2) the date of the notice of deficiency. If neither is applicable, the position of the United
States is that taken in the litigation.

Administrative settlement of claims for administrative costs and litigation costs.--The IRS

has the authority to settle claims for administrative costs and litigation costs. A decision by the
IRS granting or denying an award of costs is appealable to the Tax Court under the small case
procedures.

14. Civil cause of action for damages sustained due to failure to release lien (sec. 7432 of
the Code)

Taxpayers may sue the Federal Government in Federal district court if any IRS employee
knowingly or negligently fails to release a lien on the taxpayer's property as required under the
Code. Taxpayers may recover the costs of the action plus actual, direct economic damages
sustained by the taxpayer which, but for the actions of the IRS, would not have been sustained.
The damages recoverable under this provision are to be reduced to the extent that the damages
could reasonably have been mitigated by the taxpayer.

15. Civil cause of action for damages sustained due to certain unauthorized actions by IRS
(sec. 7433 of the Code)

Taxpayers may sue the Federal Government in Federal district court for damages if, in
connection with the collection of any Federal tax, an IRS employee recklessly or intentionally
disregards any provision of the Internal Revenue Code or any regulation promulgated thereunder.
The taxpayer may recover the costs of the action plus actual, direct economic damages sustained
by the taxpayer as a proximate result of the unlawful actions or inaction of the IRS employee.

The total of actual damages plus the costs of the action recoverable under this provision may not
exceed $100,000. The damages recoverable under this provision are to be reduced to the extent
that the damages could reasonably have been mitigated by the taxpayer.

16. Penalty for improper disclosure or use of information by preparers of returns (sec.
6713 of the Code)

If a tax return preparer discloses any information furnished to him or her in connection
with the preparation of an income tax return, or uses such information for any purpose other than
to prepare the return, then the preparer is subject to a civil penalty of $250 for each such

76>


could have been superseded by a legislative grant authorizing the Treasury to prescribe the
effective date with respect to a statutory provision. The Treasury would have been permitted to
issue retroactive temporary or proposed regulations to prevent abuse of the statute. The Treasury
also would have been permitted to issue retroactive temporary, proposed, or final regulations to
correct a procedural defect in the issuance of a regulation. The Treasury would have been
permitted to provide that taxpayers may elect to apply a temporary or proposed regulation
retroactively from the date of publication of the regulation. Final regulations would have been
permitted to take effect from the date of publication of the temporary or proposed regulation to
which they relate. The provision would not have applied to any regulation issued within 12
months of the enactment date of the relevant statute. The provision would not have applied to
regulations relating to internal Treasury Department policies, practices, or procedures.

4. Required notice to taxpayers of certain payments

Present Law (as of 1992)

If the IRS receives a payment without sufficient information to properly credit it to a
taxpayer's account, the IRS may attempt to contact the taxpayer. If contact cannot be made, the
IRS places the payment in an unidentified remittance file.

H.R. 11 Provision

The bill would have required the IRS to make reasonable efforts to notify, within 60 days,
those taxpayers who have made payments that the IRS cannot associate with any outstanding tax
liability.

5. Civil damages for unauthorized enticement of information disclosure

Present Law (as of 1992)

There is no statutory disincentive for enticing a tax professional to disclose information
about clients in exchange for forgiving the taxes of the professional.

HLR. 11 Provision

Ifa Government employee intentionally compromises the determination or collection of
any tax due from a tax professional in exchange for certain information concerning a taxpayer
who is the professional's client, the taxpayer to whom such information pertains would have been
permitted to bring a civil action for damages against the United States in a district court of the
United States without regard to the amount in controversy. The taxpayer would have been
required to bring such an action within two years after the date the right of action accrues. Upon
a finding of liability, damages would have been limited to the lesser of $500,000 or the sum of (i)
actual economic damages sustained by the taxpayer as a proximate result of the information
disclosure, and (ii) the costs of the action. The district court would have been required to stay

-22-



BACKGROUND AND INFORMATION
RELATING TO THE TAXPAYER
BILL OF RIGHTS

Scheduled for a Public Hearing

Before the

SUBCOMMITTEE ON OVERSIGHT
of the
HOUSE COMMITTEE ON WAYS AND MEANS

on March 24, 1995

Prepared by the Staff
of the

JOINT COMMITTEE ON TAXATION

March 21, 1995

JCX-15-95



(1) to assist taxpayers in resolving problems with the IRS, (2) to identify areas in which taxpayers
have problems in dealings with the IRS, (3) to propose changes (to the extent possible) in the
administrative practices of the IRS that will mitigate those problems, and (4) to identify potential
legislative changes that may mitigate those problems.

2. Expansion of authority to issue taxpayer assistance orders

Present Law (as of 1992)

Section 7811(a) authorizes the Taxpayer Ombudsman to issue a Taxpayer Assistance
Order (TAO). TAOs may order the release of taxpayer property levied upon by the IRS and may
require the IRS to cease any action or refrain from taking any action if, in the determination of the
Taxpayer Ombudsman, the taxpayer is suffering or is about to suffer a significant hardship as a
result of the manner in which the internal revenue laws are being administered.

H.R. 11 Provision

The bill would have provided the Taxpayer Advocate with broader authority to
affirmatively take any action permitted by law with respect to taxpayers who would otherwise
suffer a significant hardship as a result of the manner in which the IRS is administering the tax
laws.

B. Modifications to Installment Agreement Provisions

1, Notification of reasons for termination or denial of installment agreements

Present Law (as of 1992)

Section 6159 authorizes the IRS to enter into written installment agreements with
taxpayers to facilitate the collection of tax liabilities. In general, the IRS has the right to terminate
(or in some instances, alter or modify) such agreements if the taxpayer provided inaccurate or
incomplete information before the agreement was entered into, if the taxpayer fails to make a
timely payment of an installment or another tax liability, if the taxpayer fails to provide the IRS
with a requested update of financial condition, if the IRS determines that the financial condition of
the taxpayer has changed significantly, or if the IRS believes collection of the tax liability is in
jeopardy. If the IRS determines that the financial condition of a taxpayer who has entered into an
installment agreement has changed significantly, the IRS must provide the taxpayer with a written
notice that explains the IRS determination at least 30 days before altering, modifying or
terminating the installment agreement. No notice is statutorily required if the installment
agreement is altered, modified, or terminated for other reasons.


IL DESCRIPTION OF TAXPAYER BILL OF RIGHTS 2, AS CONTAINED IN
THE CONFERENCE REPORT TO H.R. 11,° 102d CONGRESS,° AND
AS CONTAINED IN HLR. 22,’ 103d CONGRESS®

A. Taxpayer Advocate

1. Establishment of position of Taxpayer Advocate within Internal Revenue Service

Present Law (as of 1992)

The Office of the Taxpayer Ombudsman was created by the IRS in 1979. The Taxpayer
Ombudsman's duties are to serve as the primary advocate, within the IRS, for taxpayers. As the
taxpayers’ advocate, the Taxpayer Ombudsman participates in an ongoing review of IRS policies
and procedures to determine their impact on taxpayers, receives ideas from the public concerning
tax administration, identifies areas of the tax law that confuse or create an inequity for taxpayers,
and supervises cases handled under the Problem Resolution Program. Under current procedures,
the Taxpayer Ombudsman is selected by the Commissioner of the IRS and serves at his or her
discretion.

H.R. 11 Provision

The bill would have established a new position, Taxpayer Advocate, within the IRS. This
would have replaced the position of Taxpayer Ombudsman. The Taxpayer Advocate would have
been nominated by the President, by and with the advice and consent of the Senate. The Taxpayer
Advocate would have reported directly to the Commissioner.

The bill also would have established the Office of Taxpayer Advocate within the IRS. All
problem resolution officers would have been part of that office, and would have been under the
supervision and direction of the Taxpayer Advocate. The functions of the office would have been

* Title V of H.R. 11 (102d Congress).

° HR. 11 was vetoed by President Bush for reasons unrelated to the Taxpayer Bill of Rights 2
on November 4, 1992.

7 Title V of H.R. 22 (103d Congress). In general, H.R. 22 (103d Congress) updates the
effective dates of identical provisions from H.R. 11 (102d Congress). Effective dates are not
generally discussed in this pamphlet with respect to either H.R. 11 (102d Congress) or H.R. 22
(103d Congress). H.R. 22 (103d Congress) is identical to H.R. 11 (102d Congress) except for (a)
effective date changes and (b) the omission of the IRS Employees' Suggestions Study.

* Introduced by Mr. Pickle, Mr. Rostenkowski, Mr. Stark, Mr. Rangel, Mr. Jacobs, Mr. Ford
of Tennessee, Mr. Thomas of California, Mr. Sundquist, and Mr. Shaw.

-8-


IV. DESCRIPTION OF TAXPAYER BILL OF RIGHTS 2, H.R. 661,
104TH CONGRESS," AND S. 258, 104TH CONGRESS”

A. Taxpayer Advocate
1. Establishment of position of Taxpayer Advocate within Internal Revenue Service
Same as H.R. 11 provision,’* except the bill would delete the requirement that the
Taxpayer Advocate be nominated by the President, by and with the advice and consent of the
Senate.

2. Expansion of authority to issue taxpayer assistance orders

Same as H.R. 11 provision. In addition, the bill would delete the requirement for issuing a
Taxpayer Assistance Order that the hardship suffered by the taxpayer must be "significant."

B. Modifications to Installment Agreement Provisions
1. Taxpayer's right to installment agreement

The bill would provide that any taxpayer (other than a corporation) has an automatic right
to enter into an installment payment agreement with the IRS, provided that (a) the taxpayer
requests the agreement, (b) the tax liability is for income taxes in an amount less than $10,000,
and (c) the taxpayer has paid any tax liability for the three preceding taxable years at the time it
was due. The IRS would also be required to include a description of this right and how to
exercise it in all Form 1040 instructional booklets.

“ HR. 661 was introduced by Mr. Thomton on January 24, 1995.

* S_ 258 was introduced by Senators Pryor, Grassley, Reid, Bryan, Hatch, Baucus,
Murkowski, Breaux, Nickles, Exon, Cochran, Glenn, Cohen, Johnston, Lott, Kerry, Smith,
Mikulski, Sarbanes and Simon on January 23, 1995.

6 In general, H.R. 661 (104th Congress) and S. 258 (104th Congress) update the effective
dates of similar or identical provisions from H.R. 11 (102d Congress). Effective dates are not
generally discussed in this pamphlet with respect to H.R. 11 (102d Congress), H.R. 661 (104th
Congress) and S. 258 (104th Congress).

-29-



6. IRS employees personally liable

The bill would have made IRS employees personally liable for taxpayer's attorney's fees if
the court determines that the litigation "resulted from any arbitrary, capricious, or malicious act of
such employee."

7. Protection for taxpayers who rely on certain IRS guidance

The bill would have provided that if a taxpayer takes a position or other action in
reasonable reliance on IRS guidelines in a press release, information release, or revenue ruling, the
position taken by the taxpayer is to be treated as being consistent with the guidance. Any
subsequent IRS guidance would not have caused the taxpayer's position to be considered
inconsistent for any period before the publication of the subsequent guidance.

-28-



notice of levy, in order to provide taxpayers an opportunity to notify the IRS of errors with
respect to garnished accounts. Any interest accruing on the accounts during the 21-day period is
to be surrendered to the IRS at the end of the 21-day period. The levy on any account may be
released before the expiration of the 21-day period with the permission of the IRS.

Levy on wages.--The amount of wages exempt from levy for each week was increased by
the Act to an amount equal to the taxpayer's standard deduction and personal exemptions
allowable for the taxable year in which the levy occurs, divided by 52.

Release of levy.--The IRS must release a levy on property if (1) the liability for which the
levy was made is satisfied or becomes unenforceable due to the lapse of time, (2) the IRS
determines that release will facilitate the collection of the liability, (3) an installment payment
agreement has been executed with respect to such liability, (4) the IRS has determined that the
levy is creating an economic hardship due to the taxpayer's financial condition, or (5) the fair
market value of the property exceeds the liability and partial release would not hinder collection of
the tax and related costs owed to the IRS. The release of a levy under this provision is not to
prevent a subsequent levy on the same property. Also, a taxpayer may request that the IRS sell
levied property.

11. Review of jeopardy levy and assessment procedures (sec. 7429 of the Code)

The rules relating to the review of jeopardy assessments were extended by the Act to the
review of jeopardy levies. The Act also provided the Tax Court with jurisdiction concurrent with
Federal district courts regarding challenges to a jeopardy assessment or jeopardy levy if the
taxpayer has filed a petition with the Tax Court prior to the making of the assessment or levy with
respect to any deficiency covered by the jeopardy assessment or jeopardy levy notice. In all other
cases, the appropriate district court continues to have exclusive jurisdiction over such an action.

12. Administrative appeal of liens (sec. 6326 of the Code)

The IRS must provide taxpayers with an administrative procedure to obtain review of the
filing of a notice of lien in the public record and an opportunity to petition for the release of such
lien. If the IRS determines that filing of a notice of lien was erroneous, the IRS is required to
issue immediately a certificate of release of the lien and include in the certificate a statement that
the filing of the lien was erroneous. This certificate of release of an erroneous lien must be issued
whether or not the lien was challenged in an administrative review procedure. The IRS must issue
a certificate of release of lien expeditiously (and, to the extent practicable, within 14 days) after
determining that the filing of the notice of lien was erroneous.

13. Awarding of costs and certain fees in administrative and civil actions (sec. 7430 of the
Code)

Recoverable costs.--Any person who substantially prevails in any action brought by or
against the United States in connection with the determination, collection, or refund of any tax,

-5-


H.R. 11 Provision

The bill would have clarified that the section 6672 responsible person penalty is not to be
imposed on volunteer, unpaid members of any board of trustees or directors of a tax-exempt
organization to the extent such members are solely serving in an honorary capacity and do not
participate in the day-to-day or financial activities of the organization. To be exempt, an honorary
board member could not have had actual knowledge of the failure to deposit taxes and the
provision would not have operated in such a way as to eliminate all responsible persons from
responsibility. The bill would have required the IRS to develop materials to better inform board
members of tax-exempt organizations (including voluntary or honorary members) that they may
be treated as responsible persons. The IRS would have been required to make such materials
routinely available to tax-exempt organizations. The bill also would have required the IRS to
clarify its instructions to IRS employees on application of the responsible person penalty with
regard to honorary or volunteer members of boards of trustees or directors of tax-exempt
organizations.

c. Prompt notification

Present Law (as of 1992)

The IRS is not required to notify promptly taxpayers who fall behind in depositing trust
fund taxes.

ELR. 11 Provision

The bill would have required the IRS, to the maximum extent practicable, to notify all
taxpayers with delinquent trust fund deposits within 30 days of the first indication that there has
been a failure to make a timely and complete deposit. The notice requirement would have been
limited to delinquent taxes described under section 6672 of the Code. Notification would have
been required to be within 30 days after the return was filed reflecting the delinquency or within
30 days of the first indication that there has been a failure to make a timely and complete deposit,
whichever is earlier. A taxpaying entity notified by the Secretary of a failure to pay such taxes
would have been required to notify, within 15 days of such notification by the Secretary, all of the
entity's officers, general partners, trustees or other managers of the failure to make a timely and
complete deposit.

H. Awarding of Costs And Certain Fees
1, Motion for disclosure of information

Present Law (as of 1992)

A taxpayer who successfully challenges a determination of deficiency by the IRS may
recover attorneys’ fees and other administrative and litigation costs if the taxpayer qualifies as a

-19-



VL DESCRIPTION OF H.R. 390, 104TH CONGRESS”
1, Burden of proof
Present Law

There is a rebuttable presumption that the Commissioner's determination of tax liability is
correct.’ "This presumption in favor of the Commissioner is a procedural device that requires the
plaintiff to go forward with prima facie evidence to support a finding contrary to the
Commissioner's determination. Once this procedural burden is satisfied, the taxpayer must still
carry the ultimate burden of proof or persuasion on the merits. Thus, the plaintiff not only has the
burden of proof of establishing that the Commissioner's determination was incorrect, but also of
. establishing the merit of its claims by a preponderance of the evidence" ”°

The following civil provisions in the Code explicitly place the burden of proof on the
Commissioner in specifically designated circumstances:

(a) Fraud. Any proceeding involving the issue of whether the taxpayer has been guilty of
fraud with intent to evade tax (secs. 7454(a); 7422(e)).

(b) Foundation managers. Any proceeding involving the issue of whether a foundation
manager has knowingly participated in prohibited transactions (sec. 7454(b)).

(c) Transferee liability. Any proceeding in the Tax Court to show that a petitioner is
liable as a transferee of property of a taxpayer (sec. 6902(a)).

(d) Review of jeopardy levy or assessment procedures. Any proceeding to review the
reasonableness of a jeopardy levy or jeopardy assessment (sec. 7429(g)(1)).

(e) Property transferred in connection with performance of services. In the case of

property subject to a restriction that by its terms will never lapse and that allows the transferee to
sell only at a price determined under a formula, the price is deemed to be fair market value unless
established to the contrary by the Secretary (sec. 83(d)(1)).

(£) Illegal bribes, kickbacks, and other payments. As to whether a payment constitutes an
illegal bribe, illegal kickback, or other illegal payment (sec. 162(c)(1) and (2)).

** LR. 390 was introduced by Mr. Traficant on January 4, 1995.
° Welch v. Helvering, 290 U.S. 111, 115 (1933).

* Danville Plywood Corp. v. U.S. , U.S. Cl. Ct., 63 AFTR 2d 89-1036, 1043 (1989);
citations omitted.

-36-



(g) Golden parachute payments. As to whether a payment is a parachute payment on
account of a violation of any generally enforced securities laws or regulations (sec.

280G(b)(2)(B)).

(h) Unreasonable accumulation of earnings and profits. In any Tax Court proceeding as
to whether earnings and profits have been permitted to accumulate beyond the reasonable needs

of the business, provided that the Commissioner has not fulfilled specified procedural
requirements (sec. 534).

(i) Expatriation. As to whether it is reasonable to believe that an individual's loss of
citizenship would result in a substantial reduction in the individual's income taxes or transfer taxes
(secs. 877(e); 2107(e); 2501(a)(4)).

@) Public inspection of written determinations. In any proceeding seeking additional
disclosure of information (sec. 6110(f)(4)(A)).

(k) Penalties for promoting abusive tax shelters, aiding and abetting the understatement of
tax liability, and filing a frivolous income return. As to whether the person is liable for the penalty
(sec. 6703(a)).

(1) Income tax return preparers’ penalty. As to whether a preparer has willfully attempted
to understate tax liability (sec. 7427).

(m) Bankruptcy claims. As to whether the IRS has a valid claim against the debtor's
assets in any bankruptcy proceeding (11 U.S.C. 3001(f).”"

(n) Status as employees. As to whether individuals are employees for purposes of
employment taxes (sec. 530 of the Revenue Act of 1978).”

Description of Provision

The bill would provide that, in the case of any court proceeding, the burden of proof with
respect to all issues shall be upon the Secretary.

7! Also see In re Fidelity Holding Company, Ltd., 837 F.2d 696 (Sth Cir. 1988) (holding that
burden of proof does not change because Government is claimant).

» Pub. L. 95-600, November 6, 1978.

-37-



H.R. 11 Provision

The bill would have required the IRS to report to the tax-writing Committees on its
taxpayer rights education program for its officers and employees, including the scope and content
of the program, and on the effectiveness of the program.

4. Biennial reports on misconduct by IRS employees

Present Law (as of 1992)

As mandated by the Inspector General Act, every six months the Inspector General of the
Department of the Treasury receives information from the IRS for the Secretary of the Treasury's
semiannual report to Congress on employee misconduct. The Inspector General Act, in part,
requires that these reports include summary information and descriptions of significant
investigative activities and a summary of matters referred to prosecuting authorities and the
prosecutions and convictions that have resulted.

HR. 11 Provision

The bill would have required the IRS to report to the tax-writing committees every two
years on all cases involving complaints about IRS employee misconduct and on the disposition of
those complaints.

5. Study of notices of deficiency

Present Law (as of 1992)

Under section 6212, the IRS is required to send a notice of tax deficiency to taxpayers by
registered or certified mail.

H.R. 11 Provision

The bill would have required the GAO to study the effectiveness of current IRS efforts to
notify taxpayers with regard to tax deficiencies under section 6212, the number of registered or
certified letters and other notices returned to the IRS as undeliverable, any follow-up action taken
by the IRS to locate the taxpayers, the effect that failures to receive actual notice have on
taxpayers, and recommendations on how the IRS can better notify taxpayers of tax deficiencies.

-25-



I, DESCRIPTION OF TAXPAYER BILL OF RIGHTS, AS ENACTED IN 19887
1. Disclosure of rights of taxpayers (sec. 6227 of the 1988 Act)

When the Internal Revenue Service (IRS) contacts a taxpayer concerning the
determination or collection of any tax, the IRS is required to provide a written statement of the
rights of the taxpayer and the obligations of the IRS during the audit, appeal, refund, and
collection processes. The statement is not required to be included with tax forms.

2. Procedures involving taxpayer interviews (secs. 7521 and 7605 of the Code’)

Recordings.--A taxpayer is permitted, upon advance notice to the IRS, to make an audio
recording of an in-person interview at the taxpayer's own expense. IRS employees also are
authorized to record taxpayer interviews, provided the taxpayer receives prior notice of such
recording and is supplied a copy or a transcript of the recording upon request and payment of the
costs of the copy or transcript.

IRS explanation.--Prior to initial in-person audit interviews, the IRS must explain to
taxpayers the audit process and taxpayers’ rights under that process. In addition, prior to initial
in-person collection interviews, the IRS must explain the collection process and taxpayers’ rights
under that process. For this purpose, routine telephone conversations initiated by either the
taxpayer or the IRS are not considered initial interviews. A written statement handed to the
taxpayer at an audit or collection interview or within a short time before the interview is
sufficient. The explanation must provide that the taxpayer has the right to suspend the interview
to consult with a qualified representative.

Taxpayer representatives.--A taxpayer may be represented during a taxpayer interview by
an attorney, certified public accountant, enrolled agent, enrolled actuary, or any other person
permitted to represent a taxpayer before the IRS, who is not disbarred or suspended from practice
before the IRS and who has a properly executed power of attorney from the taxpayer.

If a taxpayer clearly states during an interview with the IRS (other than an interview
pursuant to an administrative summons) that the taxpayer wishes to consult with that
representative, the interview must be suspended to afford the taxpayer a reasonable opportunity
to consult with the representative. Absent an administrative summons, a taxpayer cannot be
required to accompany the representative to an interview.

? Subtitle J of Title VI of the Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100-
647, November 10, 1988 ("the 1988 Act").

3 References to the "Code" are reférences to the Internal Revenue Code of 1986, as amended.

-1l-


E. Collection Activities
1. Modifications to lien and levy provisions

a. Withdrawal of public notice of lien

Present Law (as of 1992)

The IRS must file a notice of lien in the public record in order to protect the priority of a
tax lien. A notice of tax lien provides public notice that a taxpayer owes the Federal Government
money. The IRS has discretion in filing such a notice, but may withdraw a filed notice only if the
notice (and the underlying lien) was erroneously filed or if the underlying lien has been paid,
bonded, or become unenforceable.

H.R. 11 Provision

The bill would have allowed the IRS to withdraw a public notice of tax lien prior to
payment in full by the indebted taxpayer if the Secretary determined that (1) the filing of the
notice was premature or otherwise not in accordance with the administration procedures of the
IRS, (2) the taxpayer had entered into an installment agreement to satisfy the tax liability with
respect to which the lien was filed, (3) the withdrawal of the lien would facilitate collection of the
tax liability, or (4) the withdrawal of the lien would be in the best interests of the taxpayer (as
determined by the Taxpayer Advocate) and the United States (with the consent of the taxpayer or
the Taxpayer Advocate). The bill also would have required that, at the written request of the
taxpayer, the IRS make reasonable efforts to give notice of the withdrawal of a lien to creditors,
credit reporting agencies, or financial institutions specified by the taxpayer, if their addresses were
supplied by the taxpayer to the IRS. A copy of the notice of withdrawal would have to be
provided to the taxpayer.

b. Return of levied property

Present Law (as of 1992)

The IRS is authorized to return levied property to a taxpayer only when the taxpayer has
overpaid its liability to tax, interest, and penalty.

H.R. 11 Provision

The bill would have allowed the IRS to return property (including money deposited in the
Treasury) that had been levied upon if the Secretary determined that (1) the levy was premature
or otherwise not in accordance with the administrative procedures of the IRS, (2) the taxpayer
had entered into an installment agreement to satisfy the tax liability, (3) the return of the property
would have facilitated collection of the tax liability, or (4) the return of the property would have

-12-


H.R. 11 Provision

The bill would have required the IRS to notify a taxpayer in writing prior to commencing
an examination under all subtitles of the Code and to provide the taxpayer with an explanation of
the examination process prior to commencing the examination. The notice would have been
required to include an explanation of the process as described in section 7521. The bill would
have exempted from this requirement any examination with respect to which the Secretary
determined (1) that it was in connection with a criminal investigation, (2) that the collection of the
tax was in jeopardy, (3) that the requirements were inconsistent with national security needs, or
(4) that the requirements would interfere with the effective conduct of a confidential law
enforcement or foreign counterintelligence activity.

4. Modification of certain limits on recovery of civil damages for unauthorized collection
activities

Present Law (as of 1992)

A taxpayer may sue the United States for up to $100,000 of damages caused by an officer
or employee of the IRS who, with respect to the collection of any Federal tax with respect to the
taxpayer, recklessly or intentionally disregards provisions of the Code or the Treasury regulations
promulgated thereunder.

H.R. 11 Provision

The bill would have increased the cap to $1 million with respect to reckless or intentional
acts,

5. Designated summons

Present Law (as of 1992)

The period for assessment of additional tax with respect to most tax returns, corporate or
otherwise, is three years. The IRS and the taxpayer can together agree to extend the period,
either for a specified period of time or indefinitely. The taxpayer may terminate an indefinite
agreement to extend the period by providing notice to the IRS.

During an audit, the IRS may informally request that the taxpayer provide additional
information necessary to arrive at a fair and accurate audit adjustment, if any adjustment is
warranted. Not all taxpayers cooperate by providing the requested information on a timely basis.
In some cases the IRS seeks information by issuing an administrative summons. Such a summons
will not be judicially enforced unless the Government (as a practical matter, the Department of

~14-


INTRODUCTION
This document,’ prepared by the staff of the Joint Committee on Taxation, provides a
description of present-law Taxpayer Bill of Rights provisions (as enacted in 1988), and of
subsequent Taxpayer Bill of Rights proposals from the 102d, 103d, and 104th Congresses. The
Subcommittee on Oversight of the House Committee on Ways and Means has scheduled a public

hearing to explore the development of Taxpayer Bill of Rights II legislation. The hearing will b
held on March 24, 1995. .

Part I of the pamphlet describes the provisions of the Taxpayer Bill of Rights as enacted in
the Technical and Miscellaneous Revenue Act of 1988 (‘the 1988 Act"). Part II is a description
of the Taxpayer Bill of Rights 2 provisions as contained in the conference report on H.R. 11
(102d Cong.), as vetoed by President Bush, for reasons unrelated to the Taxpayer Bill of Rights
2, and as contained in H.R. 22 (103d Cong.). Part Ill is a description of the Taxpayer Bill of
Rights Act of 1991 (H.R. 3838, 102d Cong.). Part IV is a description of the provisions of the
Taxpayer Bill of Rights 2 as contained in H.R. 661 (104th Cong.) and S. 258 (104th Cong.). Part
V describes the Attorney Accountability, Act of 1995 (H.R. 988, 104th Cong.) as passed by the
House of Representatives on March 7, 1995. Part VI is a description of H.R. 390 (104th Cong.).

' This document may be cited as follows: Joint Committee on Taxation, Background and

Information Relating to the Taxpayer Bill of Rights (}CX-15-95), March 21, 1995.
)


V. DESCRIPTION OF ATTORNEY ACCOUNTABILITY ACT OF 1995, H.R. 988,
104TH CONGRESS, PASSED BY THE HOUSE OF REPRESENTATIVES”

1, Award of costs and attorney's fees in Federal civil diversity litigation after an offer of
settlement

The bill would allow a party to make a formal offer to settle any or all claims in a suit for a
specified amount by filing a written offer with the court and serving it on an adverse party, at any
time up to 10 days before trial. If the offer of settlement is accepted, the claim or claims would be
resolved pursuant to the terms of the agreement. If the offer is rejected and the offeree does not
obtain a judgment, order, or verdict more favorable than that offered on the applicable claims, the
offeree would be liable for the costs and attorney's fees of the offeror for those claims from the
date the last offer was made by the adverse party. This provision would apply only to suits
brought under a Federal court's diversity jurisdiction. The bill would provide two exceptions to
the general rule.

2. Admissibility of scientific and technical evidence

The bill would amend the Federal Rules of Evidence to make an expert scientific opinion
inadmissible unless it (a) is scientifically valid and reliable, (b) has a valid scientific connection to
the fact it is offered to prove, and (c) is sufficiently reliable so that the probative value outweighs
the dangers of unfair prejudice, confusion of the issues, or misleading the jury.

3. Sanctions against attorneys

The bill would strengthen the sanctions that can be imposed against lawyers who file
frivolous lawsuits or engage in abusive litigation tactics under rule 11 of the Federal Rules of Civil
Procedure.

17 HR. 988, as reported by the Committee on the Judiciary, was passed by the House of
Representatives on March 7, 1995.

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any proceedings with respect to such an action pending completion of any ongoing investigation
or prosecution of the taxpayer (which the Commissioner has certified is ongoing to the court).

J. Form Modifications; Studies

1. Explanation of certain provisions

Present Law (as of 1992)

Section 6159 authorizes the IRS to enter into written installment agreements with any
taxpayer. Section 7122 authorizes the IRS to accept offers in compromise from taxpayers in
certain situations. Section 6161 authorizes the IRS to extend the time for payment of tax.

H.R. 11 Provision

The bill would have required the IRS to take such actions as may be appropriate
(including improved publicity) to ensure that taxpayers are aware of the availability of installment
agreements, offers in compromise, and the extension of time to pay tax. The IRS would have been
required to do so in both the income tax return instructions and collection notices.

2. Improved procedures for notifying IRS of change of address or name

Present Law (as of 1992)

Generally, the IRS posts the new address of a taxpayer only upon the filing of the
subsequent tax return that contains a new address or if the taxpayer submits a Form 8822, Change
of Address, to the IRS.

H.R. 11 Provision

The bill would have required the IRS to provide improved procedures for taxpayers to
notify the IRS of changes in names or addresses. In addition, the bill would have required that the
IRS institute procedures for the timely updating of all IRS records with change of address
information provided to the IRS by taxpayers.

3. Rights and responsibilities of divorced individuals

Present Law (as of 1992)

The IRS provides information on the rights and responsibilities of divorced individuals in

Publication 504, Tax Information for Divorced or Separated Individuals. This publication is not
as widely utilized as Publication 1, Your Rights As a Taxpayer.

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Page

INTRODUCTION ..... 2.0.0.0 ccc cece cece tees e eee ii
L DESCRIPTION OF TAXPAYER BILL OF RIGHTS, AS ENACTED

IN 1988 2 cece cece rece eeveeneenes 1
I. DESCRIPTION OF TAXPAYER BILL OF RIGHTS 2, AS CONTAINED

IN THE CONFERENCE REPORT TO H.R. 11, 102d CONGRESS,

AND AS CONTAINED IN H.R. 22, 103d CONGRESS ............. 8
I. DESCRIPTION OF TAXPAYER BILL OF RIGHTS ACT OF 1991,

HR. 3838, 102d CONGRESS .............0.00.0 00. c cece eee 27
IV. DESCRIPTION OF TAXPAYER BILL OF RIGHTS 2, H.R. 661,

104th CONGRESS, AND S. 258, 104th CONGRESS .............. 29
Vv. DESCRIPTION OF ATTORNEY ACCOUNTABILITY ACT OF 1995,

HR. 988, 104th CONGRESS, PASSED BY THE HOUSE OF

REPRESENTATIVES 2.0.0.0... 0 cece cece cent eee aes 35
VI. DESCRIPTION OF H.R. 390, 104th CONGRESS .................. 36

@)


E. Collection Activities
1, Modifications to lien and levy provisions
a. Withdrawal of public notice of lien
Same as H.R. 11 provision.
b. Return of levied property
Same as H.R. 11 provision.
c. Modifications in certain levy exemption amounts
The bill would increase the exemption amounts to $1,750 for personal property and
$1,250 for books and tools. Both these amounts would be indexed for inflation commencing with
calendar year 1997.
2. Offers-in-compromise
Same as H.R. 11 provision.
3. Notification of examination

Same as H.R. 11 provision.

4. Modification of certain limits on recovery of civil damages for unauthorized collection
activities

Same as H.R. 11 Provision.
5. Designated summons
Same as H.R. 11 provision.
F. Information Returns

1. Phone numbers of person providing payee statement required to be shown on such
statement

Same as H.R. 11 provision.

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6. Notice and form accuracy study

Present Law (as of 1992)

The IRS is responsible for providing accurate and instructive notices, forms, and
instructions to taxpayers to assist them in complying with Federal tax laws.

ELR. 11 Provision

The bill would have required the GAO to study annually the accuracy of 25 of the most
commonly used IRS forms, notices, and publications. In conducting its review, the GAO would
have been required to seek and consider the comments of organizations representing taxpayers,
employers, and tax professionals.

7. IRS employees’ suggestions study"

Present Law (as of 1992)

The IRS maintains several programs to encourage and reward employees who make
suggestions for improving the administration of the tax system.

H.R. 11 Provision

The bill would have required the GAO to conduct a review of the IRS employee
suggestion programs. The study was to include a review of all suggestions that were accepted
and rewarded by the IRS, an analysis as to how many of these suggestions were implemented, and
why the remaining suggestions were not implemented.

TM This provision was not included in H.R. 22 (103d Congress).
-2 6-



H.R. 11 Provision

The bill would have required the IRS to notify taxpayers 30 days before altering,
modifying, or terminating any installment agreement for any reason other than that the collection
of tax is determined to be in jeopardy. The IRS would have been required to include in the
notification an explanation of why the IRS intends to take this action. The bill also would have
required that the IRS notify taxpayers 30 days before denying any installment agreement for any
reason other than that the collection of tax is determined to be in jeopardy.

2. Administrative review of denial of requests for, or termination of, installment
agreements

Present Law (as of 1992)

A taxpayer whose request for an installment agreement is denied can appeal to
successively higher levels of Collection Division management, including the District Director.

H.R. 11 Provision
The bill would have required the IRS to establish additional procedures for administrative
review of denials of requests for installment agreements and terminations of installment
agreements.

C. Interest

1. Expansion of authority to abate interest

Present Law (as of 1992)

Any assessment of interest on any deficiency attributable in whole or in part to any error
or delay by an officer or employee of the IRS (acting in his official capacity) in performing a
ministerial act may be abated.

H.R. 11 Provision
The bill would have expanded the authority of the IRS to abate interest with respect to

any unreasonable error or delay by an officer or employee of the IRS with respect to managerial
acts, as well as ministerial acts.

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been in the best interests of the taxpayer (as determined by the Taxpayer Advocate) and the
United States (with the consent of the taxpayer or the Taxpayer Advocate).

¢. Modifications in certain levy exemption amounts

Present Law (as of 1992)

Property exempt from levy includes personal property with a value of up to $1,650, and
books and tools necessary for the taxpayer's trade, business, or profession with a value of up to
$1,100.

ELR. 11 Provision

The bill would have increased the exemption amounts to $1,700 for personal property and
$1,200 for books and tools. Both of these amounts would have been indexed for inflation
commencing with calendar year 1997.

2. Offers-in-compromise

Present Law (as of 1992)

The IRS has the authority to settle a tax debt pursuant to an offer-in-compromise. IRS
regulations provide that such offers can be accepted if the taxpayer is unable to pay the full
amount of the tax liability and it is doubtful that the tax, interest, and penalties can be collected, or
there is doubt as to the validity of the actual tax liability. Amounts over $500 can only be
accepted if the reasons for the acceptance are documented in detail and supported by an opinion
of the IRS Chief Counsel.

H.R. 11 Provision

The bill would have allowed acceptance of an offer-in-compromise where the compromise
would be in the best interest of the Government. The bill also would have increased from $500 to
$50,000 the threshold for requiring a written opinion from the Office of Chief Counsel.
Compromises below the $50,000 threshold would have been subject to continuing quality review
by the IRS.

3. Notification of examination

Present Law (as of 1992)

In general, the IRS notifies taxpayers in writing prior to commencing an examination and
encloses a copy of Publication 1, "Your Rights as a Taxpayer,” with the notice. Sometimes,
however, the IRS uses the telephone to schedule an examination.

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