[House Report 106-566]
[From the U.S. Government Publishing Office]
106th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 106-566
======================================================================
TAXPAYER BILL OF RIGHTS 2000
_______
April 10, 2000.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Archer, from the Committee on Ways and Means, submitted the
following
R E P O R T
[To accompany H.R. 4163]
[Including cost estimate of the Congressional Budget Office]
The Committee on Ways and Means, to whom was referred the
bill (H.R. 4163) to amend the Internal Revenue Code of 1986 to
provide for increased fairness to taxpayers, having considered
the same, report favorably thereon with an amendment and
recommend that the bill as amended do pass.
CONTENTS
Page
I. Summary and Background..........................................14
A. Purpose and Summary................................. 14
B. Background and Need for Legislation................. 19
C. Legislative History................................. 19
II. Explanation of the Bill.........................................21
Title I--Penalties and Interest.................................21
A. Failure to Pay Estimated Tax (sec. 101)............ 21
B. Exclusion From Gross Income for Interest on
Overpayments of Income Tax by Individuals (sec.
102)............................................... 24
C. Partial Repeal and Reduction in the Penalty for
Failure to Pay Tax (sec. 103)...................... 26
D. Abatement of Interest (sec. 104)................... 28
E. Deposits Made to Stop the Running of Interest on
Potential Underpayments (sec. 105)................. 34
F. Expansion of Interest Netting for Individuals (sec.
106)............................................... 38
Title II--Confidentiality and Disclosure........................39
A. Disclosure and Privacy Rules Relating to Returns and
Return Information (sec. 201)...................... 39
B. Expansion of Type of Advice Available for Public
Inspection (sec. 202).............................. 43
C. Collection of Activities With Respect to Joint
Return Disclosable Based on Oral Request (sec. 203) 45
D. Taxpayer Representatives Not Subject to Examination
Without Supervisor Approval (sec. 204)............. 46
E. Disclosure in Judicial or Administrative Tax
Proceedings of Return and Return Information of
Persons Who Are Not Party to Such Proceedings (sec.
205)............................................... 47
F. Prohibition of Disclosure of Taxpayer Identification
Information With Respect to Disclosure of Accepted
Offers-In-Compromise (sec. 206).................... 49
G. Compliance by State Contractors With Confidentiality
Safeguards (sec. 207).............................. 49
H. Higher Standards for Requests for and Consents to
Disclosure (sec. 208).............................. 51
I. Notice to Taxpayer Concerning Administrative
Determination of Browsing; Annual Report (sec. 209) 54
J. Disclosure of Taxpayer Identity for Tax Refund
Purposes (sec. 210)................................ 55
Title III--Other Requirements...................................56
A. Clarification of Definition of Church Tax Inquiry
(sec. 301)......................................... 56
B. Expansion of Declaratory Judgment Remedy to Tax-
exempt Organizations (sec. 302).................... 57
C. Employee Misconduct Report to Include Summary of
Complaints by Category (sec. 303).................. 59
D. Increase Joint Committee on Taxation Refund Review
Threshold to $2 Million (sec. 304)................. 60
E. Annual Report on Awards of Costs and Certain Fees in
Administrative and Court Proceedings (sec. 305).... 60
F. Annual Report on Abatement of Penalties (sec. 306).. 61
G. Better Means of Communicating with Taxpayers (sec.
307)............................................... 62
H. Information Regarding Statute of Limitations (sec.
308)............................................... 63
III. Votes of the Committee..........................................64
IV. Budget Effects of the Bill......................................65
A. Committee Estimates of Budgetary Effects............ 65
B. Budget Authority and Tax Expenditures............... 67
C. Cost Estimate Prepared by the Congressional Budget
Office............................................. 67
V. Other Matters To Be Discussed Under The rules of the House......69
A. Committee Oversight Findings and Recommendations... 69
B. Summary of Findings and Recommendations of the
Committee on Government Reform and Oversight....... 69
C. Constitutional Authority Statement.................. 69
D. Information Relating to Unfunded Mandates........... 70
E. Applicability of House Rule XXI5(b)................. 70
F. Tax Complexity Analysis............................ 70
VII. Changes in Existing Law Made by the Bill as Reported............73
The amendment is as follows:
Strike out all after the enacting clause and insert in lieu
thereof the following:
SECTION 1. SHORT TITLE; ETC.
(a) Short Title.--This Act may be cited as the ``Taxpayer Bill of
Rights 2000''.
(b) Amendment of 1986 Code.--Except as otherwise expressly provided,
whenever in this Act an amendment or repeal is expressed in terms of an
amendment to, or repeal of, a section or other provision, the reference
shall be considered to be made to a section or other provision of the
Internal Revenue Code of 1986.
(c) Table of Contents.--
Sec. 1. Short title; etc.
TITLE I--PENALTIES AND INTEREST
Sec. 101. Failure to pay estimated tax penalty converted to interest
charge on accumulated unpaid balance.
Sec. 102. Exclusion from gross income for interest on overpayments of
income tax by individuals.
Sec. 103. Reductions of penalty for failure to pay tax.
Sec. 104. Abatement of interest.
Sec. 105. Deposits made to stop the running of interest on potential
underpayments.
Sec. 106. Expansion of interest netting for individuals.
TITLE II--CONFIDENTIALITY AND DISCLOSURE
Sec. 201. Disclosure and privacy rules relating to returns and return
information.
Sec. 202. Expansion of type of advice available for public inspection.
Sec. 203. Collection activities with respect to joint return
disclosable to either spouse based on oral request.
Sec. 204. Taxpayer representatives not subject to examination on sole
basis of representation of taxpayers.
Sec. 205. Disclosure in judicial or administrative tax proceedings of
return and return information of persons who are not party to such
proceedings.
Sec. 206. Prohibition of disclosure of taxpayer identification
information with respect to disclosure of accepted offers-in-
compromise.
Sec. 207. Compliance by State contractors with confidentiality
safeguards.
Sec. 208. Higher standards for requests for and consents to disclosure.
Sec. 209. Notice to taxpayer concerning administrative determination of
browsing; annual report.
Sec. 210. Disclosure of taxpayer identity for tax refund purposes.
TITLE III--OTHER REQUIREMENTS
Sec. 301. Clarification of definition of church tax inquiry.
Sec. 302. Expansion of declaratory judgment remedy to tax-exempt
organizations.
Sec. 303. Employee misconduct report to include summary of complaints
by category.
Sec. 304. Increase in threshold for Joint Committee reports on refunds
and credits.
Sec. 305. Annual report on awards of costs and certain fees in
administrative and court proceedings.
Sec. 306. Annual report on abatement of penalties.
Sec. 307. Better means of communicating with taxpayers.
Sec. 308. Explanation of statute of limitations and consequences of
failure to file.
TITLE I--PENALTIES AND INTEREST
SEC. 101. FAILURE TO PAY ESTIMATED TAX PENALTY CONVERTED TO INTEREST
CHARGE ON ACCUMULATED UNPAID BALANCE.
(a) Penalty Moved to Interest Chapter of Code.--The Internal Revenue
Code of 1986 is amended by redesignating section 6654 as section 6641
and by moving section 6641 (as so redesignated) from part I of
subchapter A of chapter 68 to the end of subchapter E of chapter 67 (as
added by subsection (e)(1) of this section).
(b) Penalty Converted to Interest Charge.--The heading and
subsections (a) and (b) of section 6641 (as so redesignated) are
amended to read as follows:
``SEC. 6641. INTEREST ON FAILURE BY INDIVIDUAL TO PAY ESTIMATED INCOME
TAX.
``(a) In General.--Interest shall be paid on any underpayment of
estimated tax by an individual for a taxable year for each day of such
underpayment. The amount of such interest for any day shall be the
product of the underpayment rate established under subsection (b)(2)
multiplied by the amount of the underpayment.
``(b) Amount of Underpayment; Interest Rate.--For purposes of
subsection (a)--
``(1) Amount.--The amount of the underpayment on any day
shall be the excess of--
``(A) the sum of the required installments for the
taxable year the due dates for which are on or before
such day, over
``(B) the sum of the amounts (if any) of estimated
tax payments made on or before such day on such
required installments.
``(2) Determination of interest rate.--
``(A) In general.--The underpayment rate with respect
to any day in an installment underpayment period shall
be the underpayment rate established under section 6621
for the first day of the calendar quarter in which such
installment underpayment period begins.
``(B) Installment underpayment period.--For purposes
of subparagraph (A), the term `installment underpayment
period' means the period beginning on the day after the
due date for a required installment and ending on the
due date for the subsequent required installment (or in
the case of the 4th required installment, the 15th day
of the 4th month following the close of a taxable
year).
``(C) Daily rate.--The rate determined under
subparagraph (A) shall be applied on a daily basis and
shall be based on the assumption of 365 days in a
calendar year.
``(3) Termination of estimated tax interest.--No day after
the end of the installment underpayment period for the 4th
required installment specified in paragraph (2)(B) for a
taxable year shall be treated as a day of underpayment with
respect to such taxable year.''.
(c) Increase in Safe Harbor Where Tax is Small.--
(1) In general.--Clause (i) of section 6641(d)(1)(B) (as so
redesignated) is amended to read as follows:
``(i) the lesser of--
``(I) 90 percent of the tax shown on
the return for the taxable year (or, if
no return is filed, 90 percent of the
tax for such year), or
``(II) the tax shown on the return
for the taxable year (or, if no return
is filed, the tax for such year)
reduced (but not below zero) by $2,000,
or''.
(2) Conforming amendment.--Subsection (e) of section 6641 (as
so redesignated) is amended by striking paragraph (1) and
redesignating paragraphs (2) and (3) as paragraphs (1) and (2),
respectively.
(d) Conforming Amendments.--
(1) Paragraphs (1) and (2) of subsection (e) (as redesignated
by subsection (c)(2)) and subsection (h) of section 6641 (as so
designated) are each amended by striking ``addition to tax''
each place it occurs and inserting ``interest''.
(2) Section 167(g)(5)(D) is amended by striking ``6654'' and
inserting ``6641''.
(3) Section 460(b)(1) is amended by striking ``6654'' and
inserting ``6641''.
(4) Section 3510(b) is amended--
(A) by striking ``section 6654'' in paragraph (1) and
inserting ``section 6641'',
(B) by amending paragraph (2)(B) to read as follows:
``(B) no interest would be required to be paid (but
for this section) under 6641 for such taxable year by
reason of the $2,000 amount specified in section
6641(d)(1)(B)(i)(II).'',
(C) by striking ``section 6654(d)(2)'' in paragraph
(3) and inserting ``section 6641(d)(2)'', and
(D) by striking paragraph (4).
(5) Section 6201(b)(1) is amended by striking ``6654'' and
inserting ``6641''.
(6) Section 6601(h) is amended by striking ``6654'' and
inserting ``6641''.
(7) Section 6621(b)(2)(B) is amended by striking ``addition
to tax under section 6654'' and inserting ``interest required
to be paid under section 6641''.
(8) Section 6622(b) is amended--
(A) by striking ``Penalty for'' in the heading, and
(B) by striking ``addition to tax under section 6654
or 6655'' and inserting ``interest required to be paid
under section 6641 or addition to tax under section
6655''.
(9) Section 6658(a) is amended--
(A) by striking ``6654, or 6655'' and inserting ``or
6655, and no interest shall be required to be paid
under section 6641,'', and
(B) by inserting ``or paying interest'' after ``the
tax'' in paragraph (2)(B)(ii).
(10) Section 6665(b) is amended--
(A) in the matter preceding paragraph (1) by striking
``, 6654,'', and
(B) in paragraph (2) by striking ``6654 or''.
(11) Section 7203 is amended by striking ``section 6654 or
6655'' and inserting ``section 6655 or interest required to be
paid under section 6641''.
(e) Clerical Amendments.--
(1) Chapter 67 is amended by inserting after subchapter D the
following:
``Subchapter E--Interest on Failure by Individual to Pay Estimated
Income Tax
``Sec. 6641. Interest on failure by
individual to pay estimated
income tax.''.
(2) The table of subchapters for chapter 67 is amended by
adding at the end the following new items:
``Subchapter D. Notice requirements.
``Subchapter E. Interest on failure by
individual to pay estimated
income tax.''.
(3) The table of sections for part I of subchapter A of
chapter 68 is amended by striking the item relating to section
6654.
(f) Effective Date.--The amendments made by this section shall apply
to installment payments for taxable years beginning after December 31,
2000.
SEC. 102. EXCLUSION FROM GROSS INCOME FOR INTEREST ON OVERPAYMENTS OF
INCOME TAX BY INDIVIDUALS.
(a) In General.--Part III of subchapter B of chapter 1 (relating to
items specifically excluded from gross income) is amended by
redesignating section 139 as section 139A and by inserting after
section 138 the following new section:
``SEC. 139. EXCLUSION FROM GROSS INCOME FOR INTEREST ON OVERPAYMENTS OF
INCOME TAX BY INDIVIDUALS.
``(a) In General.--In the case of an individual, gross income shall
not include interest paid under section 6611 on any overpayment of tax
imposed by this subtitle.
``(b) Exception.--Subsection (a) shall not apply in the case of a
failure to claim items resulting in the overpayment on the original
return if the Secretary determines that the principal purpose of such
failure is to take advantage of subsection (a).
``(c) Special Rule for Determining Modified Adjusted Gross Income.--
For purposes of this title, interest not included in gross income under
subsection (a) shall not be treated as interest which is exempt from
tax for purposes of sections 32(i)(2)(B) and 6012(d) or any computation
in which interest exempt from tax under this title is added to adjusted
gross income.''.
(b) Clerical Amendment.--The table of sections for part III of
subchapter B of chapter 1 is amended by striking the item relating to
section 139 and inserting the following new items:
``Sec. 139. Exclusion from gross income
for interest on overpayments of
income tax by individuals.
``Sec. 139A. Cross references to other
Acts.''.
(c) Effective Date.--The amendments made by this section shall apply
to interest received in calendar years beginning after the date of the
enactment of this Act.
SEC. 103. REDUCTIONS OF PENALTY FOR FAILURE TO PAY TAX.
(a) Reductions of Penalty for Failure To Pay Tax.--
(1) Reduction of penalty by 50 percent.--
(A) In general.--Paragraphs (2) and (3) of section
6651(a) are each amended by striking ``0.5'' each place
it appears and inserting ``0.25''.
(B) Conforming amendment.--Paragraph (1) of section
6651(d) is amended by striking ``by substituting `1
percent' for `0.5 percent' '' and inserting ``by
substituting `0.5 percent' for `0.25 percent' ''.
(2) Reduction of penalty to zero during period of installment
agreement.--Subsection (h) of section 6651 is amended by
striking ``by substituting `0.25' for `0.5' '' and inserting
``by substituting `zero' for `0.25' ''.
(3) Effective date.--The amendments made by this subsection
shall apply for purposes of determining additions to tax for
months beginning after December 31, 2000.
(b) Prohibition of Fee for Installment Agreements Using Automated
Withdrawals.--
(1) In general.--Section 6159 (relating to agreements for
payment of tax liability in installments) is amended by
redesignating subsection (e) as subsection (f) and by inserting
after subsection (d) the following new subsection:
``(e) Prohibition of Fee for Installment Agreements Using Automated
Withdrawals.--The Secretary may not charge a taxpayer a fee for
entering into an agreement with the Secretary under this section only
for so long as payments under such agreement are made by means of
electronic transfer or by similar automated means.''.
(2) Effective date.--The amendments made by this subsection
shall apply to installment agreements entered into more than 30
days after the date of the enactment of this Act.
SEC. 104. ABATEMENT OF INTEREST.
(a) Abatement of Interest if Gross Injustice Would Otherwise
Result.--Section 6404 is amended by redesignating subsection (i) as
subsection (j) and by inserting after subsection (h) the following new
subsection:
``(i) Abatement of Interest if Gross Injustice Would Otherwise
Result.-- The Secretary may abate the assessment of all or any part of
interest on any amount of tax imposed by this title for any period if
the Secretary determines that--
``(1) a gross injustice would otherwise result if interest
were to be charged, and
``(2) no significant aspect of the events giving rise to the
accrual of the interest can be attributed to the taxpayer
involved.''.
(b) Abatement of Interest for Periods Attributable to Any
Unreasonable IRS Error or Delay.--Subparagraphs (A) and (B) of section
6404(e)(1) are each amended by striking ``in performing a ministerial
or managerial act''.
(c) Abatement of Interest With Respect to Erroneous Refund Check
Without Regard to Size of Refund.--Paragraph (2) of section 6404(e) is
amended by striking ``unless--'' and all that follows and inserting
``unless the taxpayer (or a related party) has in any way caused such
erroneous refund.''
(d) Abatement of Interest to Extent Interest is Attributable to
Taxpayer Reliance on Written Statements of the IRS.--Subsection (f) of
section 6404 is amended--
(1) in the subsection heading, by striking ``Penalty or
Addition'' and inserting ``Interest, Penalty, or Addition'',
and
(2) in paragraph (1) and in subparagraph (B) of paragraph
(2), by striking ``penalty or addition'' and inserting
``interest, penalty, or addition''.
(e) Effective Date.--The amendments made by this section shall apply
with respect to interest accruing on or after the date of the enactment
of this Act.
SEC. 105. DEPOSITS MADE TO STOP THE RUNNING OF INTEREST ON POTENTIAL
UNDERPAYMENTS.
(a) In General.--Subchapter B of chapter 67 (relating to interest on
overpayments) is amended by redesignating section 6612 as section 6613
and by inserting after section 6611 the following new section:
``SEC. 6612. DEPOSITS MADE TO STOP THE RUNNING OF INTEREST ON POTENTIAL
UNDERPAYMENTS, ETC.
``(a) Authority To Make Deposits Other Than As Payment of Tax.--Any
taxpayer may make a cash bond deposit with the Secretary to offset any
potential underpayment of tax imposed by this title for any taxable
period. Such a deposit shall be made in such manner as the Secretary
shall prescribe.
``(b) Deposits Used To Pay Underpayment Also Offset Running of
Interest on Underpayment.--Any cash bond deposit used to pay tax under
this title shall offset interest under subchapter A during the period
of such deposit on such tax under such procedures as the Secretary
shall prescribe.
``(c) Taxpayer May Request Return of Cash Bond Deposit.--
``(1) In general.--On written request of a taxpayer who made
a cash bond deposit, the Secretary shall return to the taxpayer
any amount of such deposit specified by the taxpayer.
``(2) No interest.--In the case of a deposit which is so
returned--
``(A) the amount returned shall not offset interest
under subchapter A for any period, and
``(B) except as provided in subsection (d), no
interest shall be allowed on such amount.
``(3) Exceptions.--Paragraph (1) shall not apply to any
amount if--
``(A) such amount has been treated by the Secretary
as a payment of tax after a final determination of the
disputed items to which such amount relates,
``(B) such amount has been designated by the taxpayer
as being a payment of tax,
``(C) the Secretary determines that assessment or
collection of tax is in jeopardy, or
``(D) the amount is applied in accordance with
section 6402.
Subparagraph (D) shall not apply to a payment to a taxpayer if
the taxpayer is entitled to be paid interest under subsection
(d) on such payment.
``(d) Interest on Amounts Returned in Certain Circumstances.--
``(1) In general.--Interest shall be allowed and paid on the
amount of any cash bond deposit for a taxable period which is
returned to the taxpayer only if the deposit is attributable to
a dispute reserve account for such period.
``(2) Attribution to dispute reserve account.--For purposes
of paragraph (1), an amount is attributable to a dispute
reserve account for any taxable period only to the extent that
the aggregate of the cash bond deposits for such period
(reduced by the amount of such deposits which has been
previously returned to the taxpayer or treated as a payment of
tax) does not exceed the deposit limit for such period.
``(3) Deposit limit.--For purposes of paragraph (2)--
``(A) In general.--The deposit limit for any taxable
period is the amount specified by the taxpayer at the
time of the deposit as the taxpayer's reasonable
estimate of the potential underpayment for such period
with respect to disputable items identified (at such
time) by the taxpayer with respect to such deposit.
``(B) Safe harbor based on 30-day letter.--In the
case of a taxpayer who is issued a 30-day letter for
any taxable period, the deposit limit for such period
shall not be less than the amount of the proposed
deficiency specified in such letter.
``(4) Definitions.--For purposes of paragraph (3)--
``(A) Disputable item.--The term `disputable item'
means any item if the taxpayer--
``(i) has a reasonable basis for its
treatment of such item, and
``(ii) reasonably believes that the Secretary
also has a reasonable basis for disallowing the
taxpayer's treatment of such item.
``(B) 30-day letter.--The term `30-day letter' means
the first letter of proposed deficiency which allows
the taxpayer an opportunity for administrative review
in the Internal Revenue Service Office of Appeals.
``(5) Rate and period of interest.--
``(A) Rate.--The rate of interest allowable under
this subsection shall be the Federal short-term rate
determined under section 6621(b), compounded daily.
``(B) Period.--Interest under this subsection on any
payment to a taxpayer shall be payable from the date of
the deposit to which such payment is attributable to a
date (to be determined by the Secretary) preceding the
date of the check making such payment by not more than
30 days. For purposes of the preceding sentence, cash
bond deposits for any taxable period shall be treated
as used and returned on a last-in first-out basis.
``(e) Cash Bond Deposit.--For purposes of this section--
``(1) In general.--The term `cash bond deposit' means any
payment which is designated by the taxpayer as being a cash
bond deposit for a specified taxable period.
``(2) Amounts designated or used as payment of tax.--A cash
bond deposit shall cease to be treated as such for purposes of
this section beginning on the date that the taxpayer designates
such deposit as a payment of tax for purposes of this title,
or, if earlier, on the date such deposit is so used.
``(f) Change in Period for Which Deposit Made.--Subject to the
requirements of subsection (d), a taxpayer may change the taxable
period to which a cash bond deposit relates.''
(b) Clerical Amendment.--The table of sections for subchapter B of
chapter 67 is amended by striking the last item and inserting the
following new items:
``Sec. 6612. Deposits made to stop the
running of interest on
potential underpayments, etc.
``Sec. 6613. Cross references.''
(c) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to interest for periods after the date of the enactment
of this Act.
(2) Specification of disputed items.--In the case of amounts
held by the Secretary of the Treasury on the date of the
enactment of this Act as a deposit in the nature of a cash bond
pursuant to Revenue Procedure 84-58, the date that the taxpayer
makes the identification under subsection (d)(3)(A) of section
6612 of the Internal Revenue Code of 1986, as added by this
section) shall be treated as the date such amounts were
deposited for purposes of such section 6612.
SEC. 106. EXPANSION OF INTEREST NETTING FOR INDIVIDUALS.
(a) In General.--Subsection (d) of section 6621 (relating to
elimination of interest on overlapping periods of tax overpayments and
underpayments) is amended by adding at the end the following: ``Solely
for purposes of the preceding sentence, section 6611(e) shall not apply
in the case of an individual.''.
(b) Effective Date.--The amendment made by subsection (a) shall apply
to interest accrued after December 31, 2000.
TITLE II--CONFIDENTIALITY AND DISCLOSURE
SEC. 201. DISCLOSURE AND PRIVACY RULES RELATING TO RETURNS AND RETURN
INFORMATION.
(a) In General.--Subsection (a) of section 6103 (relating to general
rule for confidentiality and disclosure of returns and return
information) is amended by striking ``title--'' and inserting ``title
and notwithstanding any other provision of law--''.
(b) Procedural and Jurisdictional Rules.--Subsection (p) of section
6103 (relating to procedure and recordkeeping) is amended by adding at
the end the following new paragraph:
``(9) Procedural rules applicable to certain disclosures.--
``(A) In general.--The Secretary shall prescribe
regulations for purposes of providing for disclosures
of return and return information under subsections (c),
(e), and (k) (1) and (2). Such regulations shall
include a schedule of fees, and waivers and reductions
of such fees, applicable to the processing of requests
for such disclosures.
``(B) Determinations of whether to comply with
disclosure requests.--
``(i) Initial requests.--In response to a
request that reasonably describes the return or
return information sought and is made in
accordance with the published rules, the
Secretary shall--
``(I) determine within 20 days after
the receipt of any request for
disclosure of return or return
information under subsections (c), (e),
and (k) (1) and (2) whether to comply
with such request, and
``(II) immediately notify the person
making such request of such
determination and the reasons therefor,
and of the right of such person to
appeal to the Commissioner any adverse
determination.
``(ii) Appeal.--The Commissioner shall--
``(I) make a determination with
respect to any appeal of any adverse
determination under clause (i)(I)
within 20 days after the receipt of
such appeal, and
``(II) if on appeal the denial of the
request for disclosure of such return
or return information is in whole or in
part upheld, the Commissioner shall
notify the person making such request
of the provisions for judicial review
of that determination under
subparagraph (D).
``(iii) Extension of periods for unusual
circumstances.--
``(I) In general.--The time limits
prescribed in clause (i) and clause
(ii) (as the case may be) may be
extended for not more than 10 days in
unusual circumstances by providing to
the person making such request for
disclosure written notice which sets
forth the unusual circumstances for
such extension and the date on which a
determination is expected to be
dispatched. No such notice shall
specify a date that would result in an
extension for more than 10 working
days, except as provided in subclause
(II).
``(II) Modification of request or
time period.--If, with respect to a
request for which the time limits are
extended under subclause (I), the
Secretary determines that the request
cannot be processed within the time
limit so specified, the Secretary shall
notify the person making the request
and shall provide the person an
opportunity to limit the scope of the
request so that it may be processed
within that time limit or an
opportunity to arrange with the agency
an alternative time frame for
processing the request or a modified
request. Refusal by the person to
reasonably modify the request or
arrange such an alternative time frame
shall be considered as a factor in
determining whether exceptional
circumstances exist for purposes of
subparagraph (C).
``(iv) Unusual circumstances defined.--For
purposes of clause (iii), the term `unusual
circumstances' means, but only to the extent
reasonably necessary to the proper processing
of the particular requests--
``(I) the need to search for and
collect the requested records from
field facilities or other
establishments that are separate from
the office processing the request,
``(II) the need to search for,
collect, and appropriately examine a
voluminous amount of separate and
distinct records which are demanded in
a single request, or
``(III) the need for consultation,
which shall be conducted with all
practicable speed, with another agency
having a substantial interest in the
determination of the request or among
two or more components of the agency
having substantial subject-matter
interest therein.
``(v) 20-day period excludes certain days.--
The 20-day periods referred to in clauses (i)
and (ii) shall not include Saturdays, Sundays,
and legal public holidays.
``(C) Failure to meet time limits.--
``(i) In general.--Any person making a
request for the disclosure of return or return
information which is subject to this paragraph
shall be deemed to have exhausted his
administrative remedies with respect to such
request if the Secretary fails to comply with
the applicable time limit provisions of this
paragraph. If the Secretary can show exceptional
circumstances exist and that the agency is
exercising due diligence in responding to the
request, the court may retain jurisdiction and
allow the agency additional time to complete
its review of the records. Upon any
determination by the Secretary to comply with
a request for records, the records shall be
made promptly available to such person making
such request. Any notification of denial of
any request for records under this subsection
shall set forth the names and titles or
positions of each person responsible for the
denial of such request.
``(ii) Exceptional circumstances defined.--
For purposes of clause (i), the term
`exceptional circumstances' does not include a
delay that results from a predictable workload
of the Secretary relating to requests subject
to this paragraph, unless the Secretary
demonstrates reasonable progress in reducing
its backlog of pending requests.
``(iii) Refusal to modify request or time
frame.--Refusal by a person to reasonably
modify the scope of a request or arrange an
alternative time frame for processing a request
(or a modified request) under subparagraph
(B)(ii) after being given an opportunity to do
so by the agency to whom the person made the
request shall be considered as a factor in
determining whether exceptional circumstances
exist for purposes of this subparagraph.
``(D) Judicial proceedings.--
``(i) Jurisdiction of the district courts.--
``(I) In general.--On complaint, the
district courts of the United States in
the district in which the complainant
resides, or has his principal place of
business, or in which his return or
return information is situated, or in
the District of Columbia, shall have
jurisdiction to enjoin the Secretary
from withholding return or return
information which is subject to
disclosure under subsection (c), (e),
or (k) (1) or (2), and to order the
production of any return or return
information improperly withheld from
the complainant.
``(II) Expedited processing.--No
district court of the United States
shall have jurisdiction to review a
denial by the Secretary of expedited
processing of a request for return or
return information after the Secretary
has provided a complete response to the
request.
``(ii) Procedural matters.--In a case arising
under clause (i), the court shall determine the
matter de novo (on the record before the
Secretary at the time of the determination in
the case of a request for expedited
processing), and may examine the contents of
such return or return information in camera to
determine whether such return or return
information or any part thereof shall be
withheld under any of the provisions of this
title, and the burden shall be on the Secretary
to sustain its action. In addition to any other
matters to which a court accords substantial
weight, a court shall accord substantial weight
to an affidavit of the Secretary concerning the
Secretary's determination as to technical
feasibility relating to, and reproducibility
of, such return and return information.
``(E) Deadline for secretary to answer complaint.--
Notwithstanding any other provision of law, the
Secretary shall serve an answer or otherwise plead to
any complaint made under this paragraph within 30 days
after service upon the Secretary of the pleading in
which such complaint is made, unless the court
otherwise directs for good cause shown.''.
(c) Attorney Fees.--Subsection (a) of section 7430 (relating to
general rule for awarding of costs and certain fees) is amended by
inserting after ``title,'' the following: ``and in any court proceeding
in connection with the disclosure of return and return information
under section 6103(p)(9),''.
(d) Effective Date.--The amendments made by this section shall apply
to requests made after the date of the enactment of this Act.
SEC. 202. EXPANSION OF TYPE OF ADVICE AVAILABLE FOR PUBLIC INSPECTION.
(a) In General.--Subparagraph (A) of section 6110(i)(1) is amended--
(1) by striking ``national office component of the Office of
Chief Counsel'' and inserting ``component of the Office of
Chief Counsel or of the Service'', and
(2) in clause (i) by striking ``field or service center
employees of the Service or regional or district'' and
inserting ``employees of the Service or''.
(b) Conforming Amendments.--
(1) Section 6110(i)(2) is amended by inserting ``or the
Service'' after ``Office of Chief Counsel''.
(2) The following provisions of section 6110 are amended by
striking ``Chief Counsel advice'' each place it appears and
inserting ``official advice'':
(A) Paragraph (1) of subsection (b).
(B) Subparagraph (A) of subsection (i)(1).
(C) Paragraphs (3) and (4) of subsection (i).
(3) Subparagraph (A) of section 6110(g)(5) is amended by
inserting ``official advice and'' before ``technical advice''.
(4) The heading for subsection (i) of section 6110 is amended
by striking ``Chief Counsel'' and inserting ``Official''.
(5) The heading for paragraph (1) of section 6110(i) is
amended by striking ``Chief counsel'' and inserting
``Official''.
(6) The headings for paragraphs (2) and (3) of section
6110(i), and for subparagraphs (A) and (B) of paragraph (4) of
such section, are each amended by striking ``chief counsel''
and inserting ``official''.
(c) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to any official advice issued more than 90 days after the
date of the enactment of this Act.
(2) Documents treated as official advice.--If the Secretary
of the Treasury by regulation provides pursuant to section
6110(i)(2) of the Internal Revenue Code of 1986, that any
additional advice or instruction issued by the Office of Chief
Counsel shall be treated as official advice, such additional
advice or instruction shall be made available for public
inspection pursuant to section 6110 of such Code, as amended by
this section, only in accordance with the effective date set
forth in such regulation.
(3) Official advice to be available electronically.--The
Internal Revenue Service shall make any official advice issued
more than 90 days after the date of the enactment of this Act
and made available for public inspection pursuant to section
6110 of the Internal Revenue Code of 1986, as amended by this
section, also available by computer telecommunications within 1
year after issuance.
SEC. 203. COLLECTION ACTIVITIES WITH RESPECT TO JOINT RETURN
DISCLOSABLE TO EITHER SPOUSE BASED ON ORAL REQUEST.
(a) In General.--Paragraph (8) of section 6103(e) (relating to
disclosure of collection activities with respect to joint return) is
amended by striking ``in writing'' the first place it appears.
(b) Effective Date.--The amendment made by this section shall apply
to requests made after the date of the enactment of this Act.
SEC. 204. TAXPAYER REPRESENTATIVES NOT SUBJECT TO EXAMINATION ON SOLE
BASIS OF REPRESENTATION OF TAXPAYERS.
(a) In General.--Subsection (h) of section 6103 (relating to
disclosure to certain Federal officers and employees for purposes of
tax administration, etc.) is amended by adding at the end the following
new paragraph:
``(7) Taxpayer representatives.--Notwithstanding paragraph
(1), the return of the representative of a taxpayer whose
return is being examined by an officer or employee of the
Department of the Treasury shall not be open to inspection by
such officer or employee on the sole basis of the
representative's relationship to the taxpayer unless a
supervisor of such officer or employee has approved the
inspection of the return of such representative on a basis
other than by reason of such relationship.''.
(b) Effective Date.--The amendment made by this section shall take
effect on the date of the enactment of this Act.
SEC. 205. DISCLOSURE IN JUDICIAL OR ADMINISTRATIVE TAX PROCEEDINGS OF
RETURN AND RETURN INFORMATION OF PERSONS WHO ARE
NOT PARTY TO SUCH PROCEEDINGS.
(a) In General.--Paragraph (4) of section 6103(h) (relating to
disclosure to certain Federal officers and employees for purposes of
tax administration, etc.) is amended by adding at the end the following
new subparagraph:
``(B) Disclosure in judicial or administrative tax
proceedings of return and return information of persons
not party to such proceedings.--
``(i) Notice.--Return or return information
of any person who is not a party to a judicial
or administrative proceeding described in
paragraph (4) shall not be disclosed under
clause (ii) or (iii) of subparagraph (A) until
after the Secretary makes a reasonable effort
to give notice to such person and an
opportunity for such person to request the
deletion of matter from such return or return
information, including any of the items
referred to in paragraphs (1) through (7) of
section 6110(c). Such notice shall include a
statement of the issue or issues the resolution
of which is the reason such return or return
information is sought. In the case of S
corporations, partnerships, estates, and trusts,
such notice shall be made at the entity level.
``(ii) Disclosure limited to pertinent
portion.--The only portion of a return or
return information described in clause (i)
which may be disclosed under subparagraph (A)
is that portion of such return or return
information that directly relates to the
resolution of an issue in such proceeding.
``(iii) Exceptions.--Clause (i) shall not
apply to--
``(I) any ex parte proceeding for
obtaining a search warrant, order for
entry on premises or safe deposit
boxes, or similar ex parte proceeding,
``(II) disclosure of third party
return information by indictment or
criminal information, or
``(III) if the Secretary determines
that the application of such clause
would seriously impair a criminal tax
investigation.''.
(b) Conforming Amendments.--Paragraph (4) of section 6103(h) is
amended by--
(1) by striking ``proceedings.--A return'' and inserting
``proceedings.--
``(A) In general.--Except as provided in subparagraph
(B), a return'',
(2) by redesignating subparagraphs (A), (B), (C), and (D)
clauses (i), (ii), (iii), and (iv), respectively, and
(3) in the matter following clause (iv) (as so redesignated),
by striking ``subparagraph (A), (B), or (C)'' and inserting
``clause (i), (ii) or (iii)'' and by moving such matter two ems
to the right.
(c) Effective Date.--The amendments made by this section shall apply
to proceedings commenced after the date of the enactment of this Act.
SEC. 206. PROHIBITION OF DISCLOSURE OF TAXPAYER IDENTIFICATION
INFORMATION WITH RESPECT TO DISCLOSURE OF ACCEPTED
OFFERS-IN-COMPROMISE.
(a) In General.--Paragraph (1) of section 6103(k) (relating to
disclosure of certain returns and return information for tax
administrative purposes) is amended by inserting ``(other than address
and TIN)'' after ``Return information''.
(b) Effective Date.--The amendment made by this section shall apply
to disclosures made after the date of the enactment of this Act.
SEC. 207. COMPLIANCE BY STATE CONTRACTORS WITH CONFIDENTIALITY
SAFEGUARDS.
(a) In General.--Paragraph (8) of section 6103(p) (relating to State
law requirements) is amended by redesignating subparagraph (B) as
subparagraph (C) and by inserting after subparagraph (A) the following
new subparagraph:
``(B) Disclosure to contractors.--Notwithstanding any
other provision of this section, no return or return
information shall be disclosed by any officer or
employee of any State to any contractor of the State
unless such State--
``(i) has requirements in effect which
require each contractor of the State which
would have access to returns or return
information to provide safeguards (within the
meaning of paragraph (4)) to protect the
confidentiality of such returns or return
information,
``(ii) agrees to conduct an annual, on-site
review (mid-point review in the case of
contracts of less than 1 year in duration) of
each contractor to determine compliance with
such requirements,
``(iii) submits the findings of the most
recent review conducted under clause (ii) to
the Secretary as part of the report required by
paragraph (4)(E), and
``(iv) certifies to the Secretary for the
most recent annual period that all contractors
are in compliance with all such requirements.
The certification required by clause (iv) shall include
the name and address of each contractor, a description
of the contract of the contractor with the State, and
the duration of such contract.''.
(b) Conforming Amendment.--Subparagraph (C) of section 6103(p)(8), as
amended by subsection (a), is amended by striking ``subparagraph (A)''
and inserting ``subparagraphs (A) and (B)''.
(c) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to disclosures made after December 31, 2001.
(2) The first certification under section 6103(p)(8)(B)(iv)
of the Internal Revenue Code of 1986, as added by subsection
(a), shall be made with respect to calendar year 2002.
SEC. 208. HIGHER STANDARDS FOR REQUESTS FOR AND CONSENTS TO DISCLOSURE.
(a) In General.--Subsection (c) of section 6103 (relating to
disclosure of returns and return information to designee of taxpayer)
is amended by adding at the end the following new paragraphs:
``(2) Requirements for valid requests and consents.--A
request for or consent to disclosure under paragraph (1) shall
only be valid for purposes of this section or sections 7213,
7213A, or 7431 if--
``(A) at the time of execution, such request or
consent designates a recipient of such disclosure and
is dated, and
``(B) at the time such request or consent is
submitted to the Secretary, the submitter of such
request or consent certifies, under penalty of perjury,
that such request or consent complied with subparagraph
(A).
``(3) Restrictions on persons obtaining information.--Any
person shall, as a condition for receiving return or return
information under paragraph (1)--
``(A) ensure that such return and return information
is kept confidential,
``(B) use such return and return information only for
the purpose for which it was requested, and
``(C) not disclose such return and return information
except to accomplish the purpose for which it was
requested, unless a separate consent from the taxpayer
is obtained.
``(4) Requirements for form prescribed by secretary.--For
purposes of this subsection, the Secretary shall prescribe a
form for requests and consents which shall--
``(A) contain a warning, prominently displayed,
informing the taxpayer that the form should not be
signed unless it is completed,
``(B) state that if the taxpayer believes there is an
attempt to coerce him to sign an incomplete or blank
form, the taxpayer should report the matter to the
Treasury Inspector General for Tax Administration, and
``(C) contain the address and telephone number of the
Treasury Inspector General for Tax Administration.''.
(b) Report.--Not later than 18 months after the date of the enactment
of this Act, the Treasury Inspector General for Tax Administration
shall submit a report to the Congress on compliance with the
designation and certification requirements applicable to requests for
or consent to disclosure of returns and return information under
section 6103(c) of the Internal Revenue Code of 1986, as amended by
subsection (a). Such report shall--
(1) evaluate (on the basis of random sampling) whether--
(A) the amendments made by subsection (a) are
achieving the purposes of this section,
(B) requesters and submitters for such disclosure are
continuing to evade the purposes of this section and,
if so, how, and
(C) the sanctions for violations of such requirements
are adequate, and
(2) include such recommendations that the Treasury Inspector
General for Tax Administration considers necessary or
appropriate to better achieve the purposes of this section.
(c) Conforming Amendment.--Section 6103(c) is amended by striking
``Taxpayer.--The Secretary'' and inserting ``Taxpayer.--
``(1) In General.--The Secretary''.
(d) Effective Date.--The amendments made by this section shall apply
to requests and consents made after 3 months after the date of the
enactment of this Act.
SEC. 209. NOTICE TO TAXPAYER CONCERNING ADMINISTRATIVE DETERMINATION OF
BROWSING; ANNUAL REPORT.
(a) Notice to Taxpayer.--Subsection (e) of section 7431 (relating to
notification of unlawful inspection and disclosure) is amended by
adding at the end the following: ``The Secretary shall also notify such
taxpayer if the Treasury Inspector General for Tax Administration
determines that such taxpayer's return or return information was
inspected or disclosed in violation of any of the provisions specified
in paragraph (1), (2), or (3).''.
(b) Reports.--Subsection (p) of section 6103 (relating to procedure
and recordkeeping), as amended by section 201(b), is further amended by
adding at the end the following new paragraph:
``(10) Report on unauthorized disclosure and inspection.--As
part of the report required by paragraph (3)(C) for each
calendar year, the Secretary shall furnish information
regarding the unauthorized disclosure and inspection of returns
and return information, including the number, status, and
results of--
``(A) administrative investigations,
``(B) civil lawsuits brought under section 7431
(including the amounts for which such lawsuits were
settled and the amounts of damages awarded), and
``(C) criminal prosecutions.''.
(c) Effective Date.--
(1) Notice.--The amendment made by subsection (a) shall apply
to determinations made after the date of the enactment of this
Act.
(2) Reports.--The amendment made by subsection (b) shall
apply to calendar years ending after the date of the enactment
of this Act.
SEC. 210. DISCLOSURE OF TAXPAYER IDENTITY FOR TAX REFUND PURPOSES.
Paragraph (1) of section 6103(m) (relating to disclosure of taxpayer
identity information for tax refunds) is amended by inserting ``, and
through any other means of mass communication,'' after ``media''.
TITLE III--OTHER REQUIREMENTS
SEC. 301. CLARIFICATION OF DEFINITION OF CHURCH TAX INQUIRY.
Subsection (i) of section 7611 (relating to section not to apply to
criminal investigations, etc.) is amended by striking ``or'' at the end
of paragraph (4), by striking the period at the end of paragraph (5)
and inserting ``, or'', and by inserting after paragraph (5) the
following:
``(6) information provided by the Secretary related to the
standards for exemption from tax under this title and the
requirements under this title relating to unrelated business
taxable income.''.
SEC. 302. EXPANSION OF DECLARATORY JUDGMENT REMEDY TO TAX-EXEMPT
ORGANIZATIONS.
(a) In General.--Paragraph (1) of section 7428(a) (relating to
creation of remedy) is amended--
(1) in subparagraph (B) by inserting after ``509(a))'' the
following: ``or as a private operating foundation (as defined
in section 4942(j)(3))'', and
(2) by amending subparagraph (C) to read as follows:
``(C) with respect to the initial qualification or
continuing qualification of an organization as an
organization described in section 501(c) (other than
paragraph (3)) which is exempt from tax under section
501(a), or''.
(b) Court Jurisdiction.--Subsection (a) of section 7428 is amended in
the material following paragraph (2) by striking ``United States Tax
Court, the United States Claims Court, or the district court of the
United States for the District of Columbia'' and inserting the
following: ``United States Tax Court (in the case of any such
determination or failure) or the United States Claims Court or the
district court of the United States for the District of Columbia (in
the case of a determination or failure with respect to an issue
referred to in subparagraph (A) or (B) of paragraph (1)),''.
(c) Failure of Service To Act on Determinations Treated as Exhaustion
of Remedies.--The second sentence of paragraph (2) of section 7428(b)
(relating to exhaustion of administrative remedies) is amended to read
as follows: ``An organization requesting the determination of an issue
referred to in subsection (a)(1) shall be deemed to have exhausted its
administrative remedies with respect to--
``(A) a failure by the Secretary to make a
determination with respect to such issue at the
expiration of 270 days after the date on which the
request for such determination was made if the
organization has taken, in a timely manner, all
reasonable steps to secure such determination, and
``(B) a failure by any office of the Service (other
than the office which is responsible for initial
determinations with respect to such issue (hereinafter
in this subparagraph referred to as the `initial
office'), to make a determination with respect to such
issue at the expiration of 180 days after the date on
which any request for such determination was made by
the initial office if the organization has taken, in a
timely manner, all reasonable steps to secure such
determination.''.
(d) Effective Dates.--
(1) Declaratory judgment.--The amendments made by subsections
(a) and (b) shall apply to pleadings filed with respect to
determinations (or requests for determinations) made after the
date of the enactment of this Act.
(2) Failure of service to act.--The amendments made by
subsection (c) shall apply to applications received in the
national office of the Internal Revenue Service after the date
of the enactment of this Act.
SEC. 303. EMPLOYEE MISCONDUCT REPORT TO INCLUDE SUMMARY OF COMPLAINTS
BY CATEGORY.
(a) In General.--Clause (ii) of section 7803(d)(2)(A) is amended by
inserting before the semicolon at the end the following: ``, including
a summary (by category) of the 10 most common complaints made and the
number of such common complaints''.
(b) Effective Date.--The amendment made by subsection (a) shall apply
with respect to reporting periods ending after the date of the
enactment of this Act.
SEC. 304. INCREASE IN THRESHOLD FOR JOINT COMMITTEE REPORTS ON REFUNDS
AND CREDITS.
(a) General Rule.--Subsections (a) and (b) of section 6405 are each
amended by striking ``$1,000,000'' and inserting ``$2,000,000''.
(b) Effective Date.--The amendment made by subsection (a) shall take
effect on the date of the enactment of this Act, except that such
amendment shall not apply with respect to any refund or credit with
respect to a report that has been made before such date of the
enactment under section 6405 of the Internal Revenue Code of 1986.
SEC. 305. ANNUAL REPORT ON AWARDS OF COSTS AND CERTAIN FEES IN
ADMINISTRATIVE AND COURT PROCEEDINGS.
Not later than 3 months after the close of each Federal fiscal year
after fiscal year 1999, the Treasury Inspector General for Tax
Administration shall submit a report to Congress which specifies for
such year--
(1) the number of payments made by the United States pursuant
to section 7430 of the Internal Revenue Code of 1986 (relating
to awarding of costs and certain fees),
(2) the amount of each such payment,
(3) an analysis of any administrative issue giving rise to
such payments, and
(4) changes (if any) which will be implemented as a result of
such analysis and other changes (if any) recommended by the
Treasury Inspector General for Tax Administration as a result
of such analysis.
SEC. 306. ANNUAL REPORT ON ABATEMENT OF PENALTIES.
Not later than 6 months after the close of each Federal fiscal year
after fiscal year 1999, the Treasury Inspector General for Tax
Administration shall submit a report to Congress on abatements of
penalties under the Internal Revenue Code of 1986 during such year,
including information on the reasons and criteria for such abatements.
SEC. 307. BETTER MEANS OF COMMUNICATING WITH TAXPAYERS.
Not later than 18 months after the date of the enactment of this Act,
the Treasury Inspector General for Tax Administration shall submit a
report to Congress evaluating whether technological advances, such as
e-mail and facsimile transmission, permit the use of alternative means
for the Internal Revenue Service to communicate with taxpayers.
SEC. 308. EXPLANATION OF STATUTE OF LIMITATIONS AND CONSEQUENCES OF
FAILURE TO FILE.
The Secretary of the Treasury or the Secretary's delegate shall, as
soon as practicable but not later than 180 days after the date of the
enactment of this Act, revise the statement required by section 6227 of
the Omnibus Taxpayer Bill of Rights (Internal Revenue Service
Publication No. 1), and any instructions booklet accompanying a general
income tax return form for taxable years beginning in 2000 and later
(including forms 1040, 1040A, 1040EZ, and any similar or successor
forms relating thereto), to provide for an explanation of--
(1) the limitations imposed by section 6511 of the Internal
Revenue Code of 1986 on credits and refunds, and
(2) the consequences under such section 6511 of the failure
to file a return of tax.
I. SUMMARY AND BACKGROUND
A. Purpose and Summary
PURPOSE
The bill, H.R. 4163, as amended, (the ``Taxpayer Bill of
Rights 2000'') provides increased fairness to taxpayers and
enhances the confidentiality of returns and return information.
SUMMARY
TITLE I--PENALTIES AND INTEREST
A. Convert Penalty for Failure To Pay Estimated Tax into an Interest
Provision and Increase and Modify Threshold
The provision converts the present-law penalty for failure
to pay estimated tax into an interest provision for
individuals, estates, and trusts; increases the threshold for
underpayment of estimated tax from $1,000 to $2,000; and allows
both tax withheld and estimated tax paid equally throughout the
year to be considered in determining whether the threshold has
been met.
B. Simplify Estimated Tax Calculation for Individuals, Estates, and
Trusts
The provision provides one interest rate per underpayment
period for individuals, estates, and trusts. The provision also
simplifies the calculation of estimated tax by eliminating the
requirement to track each underpayment separately and providing
that underpayment balances are cumulative. In addition, under
the provision, a 365-day year is used for all estimated tax
underpayment calculations regardless of whether the taxable
year is a leap year.
C. Exclude Interest on Individual Federal Income Tax Overpayments
The bill excludes from gross income interest that is paid
by the IRS to individual taxpayers on overpayments of Federal
income tax. However, the exclusion will not apply if the
taxpayer's principal purpose in filing a claim for refund or
amended return is to take advantage of the exclusion.
D. Partial Repeal and Reduction in Penalty for Failure To Pay Tax
The bill repeals the present-law penalty for failure to pay
tax for taxpayers for whom an installment payment agreement
with the IRS is in effect, provided that the taxpayer filed the
tax return in a timely manner (including extensions). For all
other taxpayers, the rate of the penalty is cut in half. For
those taxpayers who agree to an automated withdrawal of each
installment payment directly from their bank account, the $43
fee on installment agreements is waived.
E. Abatement of Interest
The bill expands the circumstances in which interest on an
underpayment of tax may be abated. Interest is required to be
abated on any erroneous refund that was not caused by the
taxpayer and on underpayments that are attributable to
erroneous written advice furnished by the IRS. Abatement also
is authorized to the extent the interest is attributable to any
unreasonable IRS error or delay or if a gross injustice would
result if interest were to be charged.
F. Qualified Dispute Reserve Accounts
The bill would allow taxpayers to limit their exposure to
underpayment interest through the use of a qualified reserve
account. Amounts deposited in a qualified reserve account could
either be withdrawn with interest or used to offset an
underpayment of tax. The use of a qualified reserve account
would not affect the ability of the taxpayer to be heard by the
Tax Court.
G. Modification of Interest Netting Rules for Individuals
For individual taxpayers, the bill would apply the interest
netting rules without regard to the 45-day period in which the
Secretary may refund an overpayment of tax without the payment
of interest under section 6611(e). Solely for the purpose of
applying the interest netting rules, individual taxpayers may
treat such period as a period for which interest is allowable
on an overpayment at a zero percent rate.
TITLE II--CONFIDENTIALITY AND DISCLOSURE
A. Disclosure and Privacy Rules Relating to Returns and Return
Information
The provision clarifies that the Internal Revenue Code
exclusively governs the disclosure and inspection of returns
and return information. Under the provision, administrative and
judicial appeal process are available with respect to requests
made to the IRS for returns and return information.
B. Expansion of Type of Advice Available for Public Inspection
The provision requires the IRS to disclose all advice or
instructions (``official advice'') issued by a component of the
IRS or Chief Counsel to IRS or Chief Counsel employees. To
qualify as official advice, such advice must convey (1) a legal
interpretation of a revenue provision, (2) an IRS or Chief
Counsel policy concerning a revenue provision, or (3) a legal
interpretation of State law, foreign law, or other Federal law
relating to the assessment or collection of any liability under
a revenue provision. The IRS and Chief Counsel are permitted to
delete certain matters, such as deliberative material, from
official advice prior to disclosure. Such deletions are subject
to challenge via judicial review.
C. Disclosure Upon Oral Request of Collection Activities with Respect
to a Joint Return
The provision eliminates the requirement that requests of
former spouses be made in writing for disclosure of collection
activities with respect to a joint return.
D. Taxpayer Representatives Not Subject to Inspection Without
Supervisor Approval
The provision clarifies that an IRS employee conducting an
examination of a taxpayer is not authorized to inspect a
taxpayer representative's return or return information solely
on the basis of the representative relationship to the
taxpayer. Under the provision, the supervisor of the IRS
employee would have to approve such inspection after making a
determination that other grounds justified such an inspection.
E. Restrictions on Disclosure in Judicial or Administrative Tax
Proceedings of Return and Return Information of Persons Who Are
Not Party to Such Proceedings
The provision requires that only the portions of a nonparty
return or return information that directly relate to the
resolution of an issue in the proceeding would be disclosed in
such proceeding. The nonparty is to be given reasonable notice
prior to the disclosure and the opportunity to request that
certain material be deleted from the information to be
disclosed.
F. Prohibition in Disclosing Taxpayer Identification Information with
Respect to Disclosure of Accepted Offers-in-Compromise
The provision prohibits the disclosure of the taxpayer's
address and taxpayer identification number as part of the
publicly available summaries of accepted offers-in-compromise.
G. Compliance By State Contractors With Confidentiality Safeguards
The provision requires that a State conduct annual on-site
reviews of all contractors receiving Federal returns and return
information as agents of the State tax administration agency.
The reviews are to assess the contractors' efforts to safeguard
Federal returns and return information. The State is required
to submit a report of its findings to the IRS and certify
annually that all contractors are in compliance with the
requirements to safeguard the confidentiality of Federal
returns and return information.
H. Requests and Consents to Disclosure Must Contain Recipient and Be
Dated When Executed
The provision renders invalid a consent that does not
designate a recipient or is not dated at the time of execution.
The person submitting the consent to the IRS is required to
verify under penalties of perjury that the form was complete
and dated at the time it was signed by the taxpayer. The
provision requires the consent form to contain a warning,
prominently displayed, informing the taxpayer that he or she
should not sign the form unless it is complete and dated. The
provision requires the consent form to state that the taxpayer
should report any attempts to coerce the signing of an
incomplete form to the Treasury Inspector General for Tax
Administration. The telephone number for the Treasury Inspector
General for Tax Administration is required to be included on
the form. All third parties receiving returns and return
information by consent are required to: (1) ensure that the
information received will be kept confidential; (2) use the
information only for the purpose for which it was requested;
and (3) not further disclose the information except to
accomplish that purpose, unless a separate consent from the
taxpayer is obtained. The Treasury Inspector General for Tax
Administration is required to investigate a random sampling of
consents and report on the effectiveness of the provision
eighteen months after the date of enactment.
I. Notice to Taxpayer Concerning Administrative Determination of
Browsing; Annual Report
The IRS is required to notify a taxpayer after the Treasury
Inspector General for Tax Administration determines that a
taxpayer's return or return information has been disclosed or
inspected without authorization. The IRS is required to provide
information on unauthorized disclosures or inspections of
return and return information in its public annual report to
the Joint Committee on Taxation.
J. Disclosure of Taxpayer Identity for Tax Refund Purposes
The provision allows the IRS to use any means of ``mass
communication,'' including the Internet, to notify the taxpayer
of an undelivered refund.
TITLE III--OTHER REQUIREMENTS
A. Clarification of Definition of Church Tax Inquiry
The bill clarifies that the church tax inquiry procedures
do not apply to contacts made by the IRS for the purpose of
educating churches with respect to the law governing tax-exempt
organizations. For example, the bill clarifies that the IRS
would not violate the church tax inquiry procedures when
written materials are provided to a church for the purpose of
educating the church with respect to the types of activities
that are not permissible under section 501(c)(3).
B. Extension of Declaratory Judgment Procedures to Non-501(c)(3) Tax-
exempt Organizations and Failure of IRS To Act on
Determinations Treated as Exhaustion of Remedies
The provision extends declaratory judgment procedures
similar to those currently available only to charities under
section 7428 to other section 501(c) determinations. In
addition, the provision modifies the present-law declaratory
judgment procedures to provide that an organization is deemed
to have exhausted its administrative remedies under the
declaratory judgment procedures at the expiration of (1) 270
days after the date on which the request for a determination
was made if the organization has taken, in a timely manner, all
reasonable steps to secure such determination, or (2) in the
case of a failure by any office of the IRS (other than the
office responsible for initial determinations with respect to
the organization (the ``initial office''), 180 days after any
request with respect to such determination was made by the
initial office if the organization has taken, in a timely
manner, all reasonable steps to secure such determination.
C. Treasury Inspector General for Tax Administration Semi-Annual Report
on Employee Misconduct
The bill modifies the present-law requirement that the
Treasury Inspector General for Tax Administration include a
summary of allegations of employee misconduct in its semi-
annual report. Under the bill, the Treasury Inspector General
for Tax Administration, in its semi-annual report, is required
to include a description of the ten most common complaints of
employee misconduct and the number of complaints made in each
such category.
D. Increase Joint Committee Refund Review Threshold to $2 million
The bill increases the threshold above which refunds must
be submitted to the Joint Committee on Taxation for review from
$1 million to $2 million.
E. Annual Report on IRS Payment of Attorney's Fees
The bill directs the Treasury Inspector General for Tax
Administration to submit to Congress annually a report on
awards of costs and certain fees (such as attorney's fees) in
administrative and court proceedings. The report must include
an analysis of administrative issues giving rise to such
payments and changes that would be made as a result of such
analysis.
F. Annual Report on Abatement of Penalties
The bill directs the Treasury Inspector General for Tax
Administration to submit to Congress annually a report on
abatements of penalties under the Internal Revenue Code.
G. Better Means of Communicating with Taxpayers
The bill requires the Treasury Inspector General for Tax
Administration to submit to Congress a report evaluating
whether technological advances, such as e-mail and facsimile
transmission, permit the use of alternative means for the IRS
to communicate with taxpayers.
H. Information Regarding Statute of Limitations
The bill requires the IRS to revise Publication 1 (``Your
Rights as a Taxpayer'') and the instructions for Form 1040
packages to add a description of the statute of limitations and
an explanation of the consequences of failing to file within
the prescribed time period.
B. Background and Need for Legislation
The provisions approved by the Committee reflect the need
for providing increased fairness to taxpayers and enhancing the
confidentiality of returns and return information.
C. Legislative History
COMMITTEE ACTION
The Committee on Ways and Means marked up the provisions of
the bill on April 5, 2000, and approved the provisions, as
amended, by a voice vote with a quorum present.
COMMITTEE HEARINGS
The following Subcommittee hearings related to provisions
in the bill were held during the 106th Congress.
Subcommittee hearings
The Oversight Subcommittee held related hearings as
follows:
Annual Report of the Internal Revenue Service National
Taxpayer Advocate (February 10, 1999).
1999 Tax Return Filing Season and the IRS Budget for Fiscal
Year 2000 (April 13, 1999).
Impact of Complexity in the Tax Code on Individual
Taxpayers and Small Businesses (May 25, 1999).
Implementation of the Internal Revenue Service
Restructuring and Reform Act of 1998 (July 22, 1999).
Penalty and Interest Provisions in the Internal Revenue
Code (January 27, 2000).
2000 Tax Return Filing Season and the IRS Budget for Fiscal
Year 2001 (March 28, 2000).
Reports and studies
The following reports and studies assisted the Committee in
developing the Taxpayer Bill of Rights 2000:
National Taxpayer Advocate's Annual Report to Congress for
Fiscal Year 1998 (January 8, 1999).
Joint Committee on Taxation, Study of Present-Law Penalty
and Interest Provisions as Required by Section 3801 of the
Internal Revenue Service Restructuring and Reform Act of 1998
(July 22, 1999).
Department of the Treasury, Report to the Congress on
Penalty and Interest Provisions of the Internal Revenue Code
(October 25, 1999).
National Taxpayer Advocate's Annual Report to Congress for
Fiscal Year 1999 (January 4, 2000).
Joint Committee on Taxation, Study of Present-Law Taxpayer
Confidentiality and Disclosure Provisions as Required by
Section 3802 of the Internal Revenue Service Restructuring and
Reform Act of 1998 (January 28, 2000).
Joint Committee on Taxation, Report of Investigation of
Allegations Relating to Internal Revenue Service Handling of
Tax-Exempt Organization Matters (March 16, 2000).
Requests for comments
The Committee on Ways and Means solicited written comments
as follows:
Request for Written Comments on Recent Recommendations on
Tax Penalty and Interest Provisions (November 15, 1999).
Request for Written Comments on Joint Committee on Taxation
Disclosure Study (February 3, 2000).
II. EXPLANATION OF THE BILL
TITLE I--PENALTIES AND INTEREST
A. Failure to Pay Estimated Tax (Sec. 101 of the Bill and New Sec. 6641
of the Code)
1. Convert estimated tax penalty into an interest provision for
individuals, estates, and trusts
Present Law
The Federal income tax system is designed to ensure that
taxpayers pay taxes throughout the year based on their income
earned and expenses. To the extent that tax is not collected
through withholding, taxpayers are required to make quarterly
estimated payments of tax. If an individual fails to make the
required estimated tax payments under the rules, a penalty is
imposed under section 6654. The amount of the penalty is
determined by applying the underpayment interest rate to the
amount of the underpayment for the period of the underpayment.
The amount of the underpayment is the excess of the required
payment over the amount (if any) of the installment paid on or
before the due date of the installment. The period of the
underpayment runs from the due date of the installment to the
earlier of (1) the 15th day of the fourth month following the
close of the taxable year or (2) the date on which each portion
of the underpayment is made. The penalty for failure to pay
estimated tax is literally interest, which is based on the time
value of money.
Reasons for Change
The present-law penalties for failure to pay estimated tax
are essentially a time value of money calculation which is not
punitive in nature, but rather compensatory. Because the
penalties for failure to pay estimated tax are calculated as
interest charges, the Committee believes that conforming their
title to the substance of the provision will improve taxpayers'
perceptions of the fairness of the estimated tax payment
system. Therefore, the Committee finds that the effect of the
estimated tax penalties for individuals, estates, and trusts is
more appropriately described as interest.
Explanation of Provision
The penalty for failure to pay estimated tax is converted
into an interest provision for individuals, estates, and
trusts.
Effective Date
The provision is effective for estimated tax payments made
for taxable years beginning on or after December 31, 2000.
2. Increase and revise estimated tax threshold
Present Law
Taxpayers are not liable for a penalty for the failure to
pay estimated tax when the tax shown on the return for the
taxable year (or, if no return is filed, the tax), reduced by
withholding, is less than $1,000. This safe harbor does not
apply, however, when a taxpayer has paid tax throughout the
year solely through estimated tax payments. For such taxpayers,
any tax shown on the return for the taxable year, net of
estimated tax paid, could subject the taxpayer to the penalty
for failure to pay estimated tax (unless another safe harbor
applies).
Reasons for Change
The Committee believes that by increasing the estimated tax
payment threshold, fewer taxpayers will be required to make
estimated tax payments. In addition, by including equally-paid
estimated tax in the threshold calculation, the de minimis safe
harbor will be available to more taxpayers, such as those who
pay throughout the year exclusively through estimated tax.
Explanation of Provision
Under the provision, there is no interest charged for
underpayments of estimated tax if the tax shown on the return
for the taxable year (or, if no return is filed, the tax),
reduced by both withholding and/or equally-paid estimated tax
is less than $2,000.
Effective Date
The provision is effective for estimated tax payments made
for taxable years beginning on or after December 31, 2000.
3. Apply one interest rate per estimated tax underpayment period for
individuals, estates, and trusts
Present Law
The present-law penalty for failure to pay estimated tax is
equal to the underpayment interest rate multiplied by the
number of days the underpayment is outstanding, which is the
number of days between when the taxpayer should have made the
estimated payment and the earlier of (1) the 15th day of the
fourth month following the close of the taxable year or (2) the
date on which each portion of the underpayment is made. The
interest rate, which equals the Federal short-term rate plus
three percentage points, is subject to change on the first day
of each quarter, which is January 1, April 1, July 1, and
October 1.
If interest rates change while an underpayment of estimated
tax is outstanding, then taxpayers are required to make
separate calculations for the periods before and after the
interest rate change. Such calculations generally are needed to
cover 15-day periods. For example, the July 1 interest rate
occurs 15 days after the June 15 payment date (for calendar-
year taxpayers). A change in interest rates, which occurs on
the first day of each calendar quarter, would require the use
of different interest rates during one estimated tax
underpayment period and would increase the number of
calculations that a taxpayer must make in calculating a penalty
for failure to pay estimated tax.
Reasons for Change
When interest rates change during an underpayment period,
taxpayers must perform multiple calculations to account for the
change in interest rate. Thus, the Committee finds that, if
only one interest rate applied per underpayment period,
complexity would be reduced because there generally would be
only one interest calculation required per underpayment period.
Explanation of Provision
The interest rates are aligned so that, for any given
estimated tax underpayment period, only one interest rate will
apply. The underpayment interest rate in effect on the first
day of the quarter in which the pertinent estimated payment due
date arises is the interest rate that will apply during an
entire underpayment period.
Effective Date
The provision is effective for estimated tax payments made
for taxable years beginning on or after December 31, 2000.
4. Provide that underpayment balances are cumulative
Present Law
Section 6654(b)(1) defines ``underpayment'' as the amount
of an installment due over the amount of any installment paid
(including withholding) on or before the due date of the
installment. In determining an underpayment penalty for a
calendar year taxpayer, the period of underpayment runs for
each underpayment from the payment's due date through the
earlier of the date on which any portion of the payment is made
or the 15th day of the fourth month following the close of the
taxable year. Underpayment balances are not cumulative and must
be tracked separately for each estimated tax underpayment
period.
Reasons for Change
Tracking underpayments separately results in additional
complexity in calculating interest on underpayments of
estimated tax. The Committee thus finds that the calculation of
interest on underpayments of estimated tax would be simplified
by providing that underpayment balances would roll into the
next estimated tax period so that interest would be calculated
once per cumulative underpayment, per period.
explanation of provision
The definition of ``underpayment'' is changed to allow
existing underpayment balances to be used in underpayment
calculations for succeeding estimated payment periods.
Taxpayers will now calculate a cumulative underpayment at the
end of each underpayment period.
effective date
The provision is effective for estimated tax payments made
for taxable years beginning on or after December 31, 2000.
5. Require 365-day year for all estimated tax interest calculations for
individuals, estates, and trusts
present law
Under current IRS procedures, taxpayers with outstanding
underpayment balances that extend from a leap year through a
non-leap year are required to make separate calculations solely
to account for the different number of days in the two
different years. For example, if a taxpayer has an underpayment
outstanding from September 15, 2000, through January 15, 2000,
then the taxpayer must account for the period from September
15, 2000, through December 31, 2000, by using a 366-day
formula.\1\ The taxpayer then must account for the period from
January 1, 2001, through January 15, 2001, under a 365-day
formula. This calculation is required regardless of whether the
interest rate changes on January 1, 2001.
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\1\ The year 2000 is a leap year; the year 2001 is not.
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reasons for change
The Committee finds that complexity in calculating interest
on underpayments of estimated tax would be reduced by
eliminating the extra calculation that is required for
underpayment balances that extend from a leap year to a non-
leap year or from a non-leap year to a leap year.
explanation of provision
A 365-day year will be used for all individual, estate, and
trust estimated tax interest calculations.
effective date
The provision is effective for estimated tax payments made
for taxable years beginning on or after December 31, 2000.
B. Exclusion From Gross Income for Interest on Overpayments of Income
Tax by Individuals (Sec. 102 of the Bill and New Sec. 139 of the Code)
present law
Overpayment interest
Interest is included in the list of items that are required
to be included in gross income (sec. 61(a)(4)). Interest on
overpayments of Federal income tax is required to be included
in taxable income in the same manner as any other interest that
is received by the taxpayer.\2\
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\2\ Treas. Reg. sec. 1.61-7.
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Cash basis taxpayers are required to report overpayment
interest as income in the period the interest is received.
Accrual basis taxpayers are required to report overpayment
interest as income when all events fixing the right to the
receipt of the overpayment interest have occurred and the
amount can be estimated with reasonable accuracy.\3\ Generally,
this occurs on the date the appropriate IRS official signs the
pertinent schedule of overassessments.\4\
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\3\ Treas. Reg. sec. 1.451-1(a).
\4\ Rev. Rul. 62-160, 1962-2 C.B. 451.
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Underpayment interest
A corporate taxpayer is allowed to currently take into
account interest paid on underpayments of Federal income tax as
an ordinary and necessary business expense. Typically, this
results in a current deduction. However, the deduction may be
deferred if the interest is required to be capitalized \5\ or
may be disallowed if and to the extent it is determined to be a
cost of earning tax exempt income under section 265.
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\5\ Interest may be required to be capitalized under section 263A
and similar sections.
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Section 163(h) of the Code prohibits the deduction of
personal interest by taxpayers other than corporations.
Noncorporate taxpayers, including individuals, generally are
not allowed to deduct interest on the underpayment of Federal
income taxes.
Temporary regulations \6\ provide that personal interest
includes interest paid on underpayments of individual Federal,
State or local income taxes, regardless of the source of the
income generating the tax liability. This is consistent with
the statement in the General Explanation of the Tax Reform Act
of 1986 that ``(p)ersonal interest also includes interest on
underpayments of individual Federal, State, or local income
taxes notwithstanding that all or a portion of the income may
have arisen in a trade or business, because such taxes are not
considered derived from conduct of a trade or business.'' \7\
The validity of the temporary regulation has been upheld in
those Circuits that have considered the issue, including the
Fourth,\8\ Sixth,\9\ Eighth,\10\ and Ninth Circuits.\11\
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\6\ Treas. Regs. sec. 1.163-9T.
\7\ Joint Committee on Taxation, General Explanation of the Tax
Reform Act of 1986 (JCS-10-87), p. 266.
\8\ Allen v. U.S., 173 F. 3d 533 (1999).
\9\ McDonnell v. U.S., 1999 U.S. App. LEXIS 10842 (1999).
\10\ Miller v. U.S., 65 F. 3d 687 (1995).
\11\ Redlark v. U.S., 141 F. 3d 936 (1998).
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Personal interest also includes interest that is paid by a
trust, S corporation, or other pass-through entity on
underpayments of State or local income taxes. Personal interest
does not include interest that is paid with respect to sales,
excise or similar taxes that are incurred in connection with a
trade or business or an investment activity.\12\
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\12\ Treas. Regs. sec. 1.163-9T(b)(2)(iii)(A).
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reasons for change
The Committee believes that there should be consistency in
the treatment of interest paid by the Federal government to an
individual taxpayer and interest paid by an individual taxpayer
to the Federal government. Allowing individual taxpayers to
exclude interest on overpayments will treat all individual
taxpayers consistently, whether or not they itemize deductions.
explanation of provision
The provision excludes overpayment interest that is paid to
individual taxpayers on overpayments of Federal income tax from
gross income. Interest excluded under the provision is not
considered disqualified income that could limit the earned
income credit. Interest excluded under the provision is also
not considered in determining what portion of a taxpayer's
social security or tier 1 railroad retirement benefits are
subject to tax (sec. 86), whether a taxpayer has sufficient
taxable income to be required to file a return (sec. 6012(d)),
or for any other computation in which interest exempt from tax
is otherwise required to be added to adjusted gross income.
The exclusion from income of overpayment interest does not
apply if the Secretary determines that the taxpayer's principal
purpose for overpaying his or her tax is to take advantage of
the exclusion.
For example, a taxpayer prepares his return without taking
into account significant itemized deductions of which he is, or
should be, aware. Before the expiration of the statute of
limitations, the taxpayer files an amended return claiming
these itemized deductions and requesting a refund with
interest. Unless the taxpayer can establish a principle purpose
for originally overpaying the tax other than collecting
excludible interest, the Secretary may determine that the
principal purpose of waiting to claim the deductions on an
amended return was to earn interest that would be excluded from
income. In that case, the interest on the underpayment could
not be excluded from income.
It is expected that the Secretary will indicate whether the
interest is eligible to be excluded from income on the Form
1099 it provides that taxpayer for taxable year in which the
underpayment interest is paid.
effective date
The provision is effective for interest that would
otherwise be required to be included in income in calendar
years beginning after the date of enactment.
C. Partial Repeal and Reduction in the Penalty for Failure To Pay Tax
(Sec. 103 of the Bill and Sec. 6651 of the Code)
present law
Taxpayers who fail to pay their taxes are generally subject
to a penalty of 0.5 percent per month on the unpaid amount, up
to a maximum of 25 percent.\13\ If a penalty for failure to
file and a penalty for failure to pay tax shown on a return
both apply for the same month, the amount of the penalty for
failure to file for such month is reduced by the amount of the
penalty for failure to pay tax shown on a return. If a return
is filed more than 60 days after its due date, then the penalty
for failure to pay tax shown on a return may not reduce the
penalty for failure to file below the lesser of $100 or 100
percent of the amount required to be shown on the return. For
any month in which an installment payment agreement with the
IRS is in effect, the rate of the penalty is half the usual
rate (0.25 percent instead of 0.5 percent), provided that the
taxpayer filed the tax return in a timely manner (including
extensions).\14\ The rate of the penalty is twice the usual
rate (1.0 percent instead of 0.5 percent) for months beginning
after the IRS notifies the taxpayer that the IRS will levy upon
the assets of the taxpayer.\15\
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\13\ Sec. 6651(a)(2) and (3).
\14\ Sec. 6651(h). This provision was added by sec. 3303 of the IRS
Reform Act, effective for purposes of determining additions to the tax
for months beginning after December 31, 1999.
\15\ Sec. 6651(d). This provision was added by sec. 1502 of the Tax
Reform Act of 1986.
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reasons for change
The Committee believes that, in general, it is
inappropriate to apply the penalty for failure to pay taxes to
taxpayers who are in fact paying their taxes through an
installment agreement. The repeal of the penalty for failure to
pay tax for taxpayers with respect to whom an installment
payment agreement with the IRS is in effect, provided that the
taxpayer filed the tax return in a timely manner (including
extensions), continues a policy initiative begun by the IRS
Reform Act, in which this penalty was reduced by half for these
taxpayers.\16\
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\16\ Sec. 6651(h).
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The elimination of the $43 user fee for installment
agreements for taxpayers who both enter into installment
agreements and who agree to use automated mechanisms to pay
their installment payments is designed to increase the
certainty of timely payment, simplify the payment process for
taxpayers, and decrease administrative costs of collection for
the IRS.\17\
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\17\ The cost to the IRS of administering these automated payment
mechanisms is less than a dollar a payment. See, Tax Notes, June 14,
1999, at 1544.
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explanation of provision
The bill partially repeals and reduces the penalty for
failure to pay tax. The first element of the bill repeals the
penalty for failure to pay tax for taxpayers for whom an
installment payment agreement with the IRS is in effect,
provided that the taxpayer filed the tax return in a timely
manner (including extensions). Thus, for any month in which an
installment payment agreement with the IRS is in effect, the
rate of the penalty is zero (instead of 0.25 percent), provided
that the taxpayer filed the tax return in a timely manner
(including extensions).
The second element of the bill reduces by half the failure
to pay tax penalty for all other taxpayers (generally, those
who have not entered into an installment payment agreement with
the IRS). Thus, in general, the rate of the penalty is 0.25
percent per month instead of 0.5 percent per month. The special
rate for months beginning after the IRS notifies the taxpayer
that the IRS will levy upon the assets of the taxpayer is also
reduced by half (0.5 percent per month instead of 1.0 percent
per month).
The third element of the bill provides that taxpayers who
enter into installment agreements are not required to pay the
present-law $43 fee for installment agreements \18\ while
automated withdrawals of installment payments are made directly
from their bank account.
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\18\ The IRS charges a user fee of $43 upon approval of an
application to enter into an installment agreement.
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effective date
The repeal of the penalty for failure to pay tax for
taxpayers for whom an installment payment agreement with the
IRS is in effect, provided that the taxpayer filed the tax
return in a timely manner (including extensions), is effective
for purposes of determining additions to tax for months
beginning after December 31, 2000.
The reduction by half of the failure to pay tax penalty for
all other taxpayers also is effective for purposes of
determining additions to tax for months beginning after
December 31, 2000.
The prohibition on the fee for installment agreements using
automated withdrawals is effective for installment agreements
entered into more than 30 days after the date of enactment.
D. Abatement of Interest (Sec. 104 of the bill and Sec. 6404 of the
Code)
present law
In general
The Secretary of the Treasury can abate or suspend the
accrual of interest in a number of situations. In general, the
Secretary is authorized to abate interest that is not owed by
the taxpayer, either because the interest was erroneously or
illegally assessed, or because the interest was assessed after
the expiration of the period of limitations. The Secretary also
may abate interest that is attributable to certain unreasonable
errors and delays by the Internal Revenue Service. The
Secretary may abate interest where, in his judgment, the
administration and collection costs involved do not warrant the
collection of the amount due.
The Secretary is required to abate interest in the case of
a declared disaster or certain erroneous refunds attributable
solely to errors made by the IRS. The Secretary is required to
suspend the accrual of interest if the IRS fails to contact the
taxpayer in a timely manner and in the case of taxpayers
serving in a combat zone.
Interest that is abated is not owed by the taxpayer and
does not accrue additional interest through compounding or
result in any additional penalties. If the accrual of interest
is suspended for a period, then that period is not taken into
account in determining the interest owed on an underpayment.
Abatement of interest that is erroneously or illegally assessed
Most abatements of interest are a result of adjustments to
the underlying tax liability. Underpayment interest is assessed
any time an underpayment is assessed. If the underlying tax
liability is later adjusted, resulting in a reduction in the
amount of the underpayment, the portion of the interest
attributable to such adjustment must be abated.
Abatements due to unreasonable error or delay by the IRS
If any part of an underpayment of a tax described in
section 6212(a) \19\ is attributable to an unreasonable error
or delay by an officer or employee of the Internal Revenue
Service, acting in his official capacity, in the performance of
a ministerial or managerial act, the Secretary may abate all or
a part of the interest on the underpayment. Similarly, if a
delay in the payment of tax is attributable to such an officer
or employee being erroneous or dilatory in performing a
ministerial or managerial act, the Secretary may abate all the
interest that would otherwise accrue for that period.
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\19\ The taxes described in section 6212(a) are those with respect
to which a deficiency may be assessed. These include the income,
estate, gift, generation skipping, and certain excise taxes.
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Prior to 1986, the IRS generally did not have the authority
to abate interest charges that were properly calculated and
based on a correctly determined underpayment. This was the case
even if the IRS errors or delays had prevented the earlier
satisfaction of the taxpayer's underpayment and resulted in the
accrual of additional interest. The Tax Reform Act of 1986
provided the IRS the authority to abate interest where an IRS
official fails either to perform a ministerial act in a timely
manner or makes an error in performing a ministerial act. The
term `ministerial act' means ``a nondiscretionary act when all
of the prerequisites to the (a)ct, such as fact gathering,
analysis, decision-making, and conferencing and review by
supervisors, have taken place.'' \20\ Abatement is available
under this authority only where ``no significant aspect of the
error or delay can be attributable to the taxpayer'' \21\ and
relates only to periods after the taxpayer has been contacted
for examination.\22\ The rule authorizes, but does not require
the abatement of interest. Abatement is at the discretion of
the Secretary. ``Congress did not intend that this provision be
used routinely to avoid the payment of interest; rather, it
intended that the provision be utilized in instances where
failure to perform a ministerial act results in the imposition
of interest, and the failure to abate the interest would be
widely perceived as grossly unfair.'' \23\
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\20\ Joint Committee on Taxation, General Explanation of the Tax
Reform Act of 1986 (``Bluebook'') (JCS-10-87), at 1310.
\21\ H.Rept. No. 99-841 (Conference Report on the Tax Reform Act of
1986), at II-811.
\22\ Id.
\23\ Joint Committee on Taxation, General Explanation of the Tax
Reform Act of 1986 (``Bluebook'') (JCS-10-87), at 1310.
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In 1996, the authority to abate interest was expanded to
permit the IRS to abate interest with respect to any
unreasonable error or delay resulting from the managerial as
well as ministerial acts. A managerial act is an administrative
act that occurs during the processing of a taxpayer's case
involving the temporary or permanent loss of records or the
exercise of judgement or discretion relating to the management
of personnel.\24\ This allows interest to be abated where
extensive delays result from managerial acts such as the loss
of records by the IRS, IRS personnel transfers, extended
illnesses, extended personnel training, or extended leave.
``For this purpose, delays resulting from managerial acts do
not include delays resulting from general administrative
decisions. For example, the taxpayer could not claim that the
IRS's decision on how to organize the processing of tax returns
or its delay in implementing an improved computer system
resulted in an unreasonable delay in the Service's action on
the taxpayer's tax return, and so the interest on any
subsequent deficiency should be waived.'' \25\
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\24\ Treas. Regs. sec. 301.6404-2(b).
\25\ H.Rept. 104-506 (Taxpayer Bill of Rights 2).
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The authority to abate interest under this rule does not
apply where an underpayment or delay in payment of tax is
attributable to an error or delay by an officer or employee of
the IRS in the performance of an act that is not managerial or
ministerial. Ministerial and managerial acts do not include a
decision as to the application of any Federal or state law,
including any Federal tax law.\26\
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\26\ Treas. Reg. sec. 301.6404-2(b).
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The proposed regulations provide a number of examples of
situations in which abatement of interest under this rule would
or would not be allowed. Abatement is generally limited to
situations where resolution of the taxpayer's liability is
delayed because the IRS has failed to assign appropriate
personnel to a taxpayer's case (a managerial act), there is an
unaccountable delay in the issuance of a notice by the IRS (a
ministerial act), an IRS employee requests an insufficient
amount of payment because he misreads the amount on the
taxpayer's master file (a ministerial act), or the IRS loses or
misplaces vital information (a managerial act). Abatement is
not available where the delay in resolving the taxpayer's
liability is attributable to excessive time spent by the IRS in
interpreting the tax laws, to erroneous interpretations and
calculations made by the IRS, to the IRS' decision to examine
other returns prior to the examination of the taxpayer's
return, or to other failures to resolve a taxpayer's liability
in a timely manner.
Abatement of interest on erroneous refunds
The Secretary is required to abate interest on an erroneous
refund for the period from the issuance of the refund until its
return is demanded.\27\ Since the taxpayer has 21 days from the
date of demand to pay without interest,\28\ no interest must be
paid as the result of an erroneous refund if the taxpayer
repays the refund within 21 days of the IRS asking for its
return. If the taxpayer does not repay the refund within the 21
day grace period, interest must be paid from the date the
return of the refund is demanded. The rule abating interest in
the case of erroneous refunds does not apply if the taxpayer
(or a related party) has in any way caused the erroneous refund
or if the amount of the erroneous refund exceeds $50,000.
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\27\ 27 Sec. 6404(e)(2).
\28\ Sec. 6601(e)(3).
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Abatement of penalties and additions to tax attributable to erroneous
written advice given by the IRS
The Secretary is required to abate any portion of any
penalty or addition to tax attributable to erroneous advice
furnished to the taxpayer in writing by an officer or employee
of the IRS acting in his or her official capacity. The
abatement applies only if (1) the advice is given in response
to a specific written request made by the taxpayer, (2) the
taxpayer reasonably relied on the advice, and (3) the taxpayer
provided adequate and accurate information.\29\
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\29\ Sec. 6404(f).
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Only penalties and additions to tax that are attributable
to erroneous written advice given by the IRS are abated under
this rule. Interest is abated only to the extent that it is
attributable to abated penalties and additions to tax. Interest
attributable to an underpayment of tax, where such underpayment
is the result of the taxpayer's proper reliance on written
advice of the IRS, is not eligible for abatement.
Suspension of the accrual of interest for taxpayers serving in a combat
zone \30\
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\30\ The relief available to taxpayers serving in combat zones is
discussed more fully in Joint Committee on Taxation, Description of
Present Law and a Proposal Relating to Tax Relief for Personnel in the
Federal Republic of Yugoslavia (Serbia/Montenegro), Albania, the
Adriatic Sea, and the Northern Ionian Sea (JCX-18-99).
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Taxpayers serving in a combat zone generally are not
required to file tax returns or pay taxes until 180 days after
their service in the combat zone is completed. Accordingly, the
accrual of interest on any underpayment is suspended during
that period.\31\ This suspension of interest applies to the
underpayment of any tax, whether or not related to a return
that would otherwise have been due while the taxpayer was
serving in the combat zone.
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\31\ Sec. 7508.
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A taxpayer is serving in a combat zone if serving in the
Armed Forces of the United States in an area designated as a
``combat zone'' during the period of combatant activities. An
individual who becomes a prisoner of war is considered to
continue in such active service. An individual serving in
support of the Armed Forces of the United States in the combat
zone, such as Red Cross personnel, accredited correspondents,
and civilian personnel acting under the direction of the Armed
Forces, are also considered to be serving in the combat zone
for this purpose. The designation of a combat zone may be made
by the President in an Executive Order, or may be declared
legislatively by the Congress. The President must also
designate the period of combatant activities in the combat zone
(the starting date and the termination date of combat).
The suspension of interest applies during the period of
combatant activities in the combat zone, as well as (1) any
time of continuous qualified hospitalization resulting from
injury received in the combat zone or (2) time in missing in
action status, plus the next 180 days.
Taxpayers located in a Presidentially declared disaster area
In the case of a Presidentially declared disaster, the
Secretary of the Treasury has the authority to extend the
filing date for returns of taxpayers that are located in the
disaster area. The Secretary may also extend the payment date
for any taxes shown on such an extended return. If the
Secretary extends the filing and payment dates, any interest
that would otherwise be accrued during the period of the
extension must be abated.\32\
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\32\ Sec. 6404(h).
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Suspension of interest where the Secretary fails to contact a taxpayer
For individual taxpayers who have filed a timely Federal
income tax return, the accrual of interest is suspended after 1
year if the IRS has not sent the taxpayer a notice specifically
stating the taxpayer's liability and the basis for the
liability within the specified period. With respect to taxable
years beginning before January 1, 2004, the 1-year period is
increased to 18 months. Interest and penalties resume 21 days
after the IRS sends the required notice to the taxpayer. The
rule applies separately with respect to each item or adjustment
\33\ and does not apply where a taxpayer has self-assessed the
tax. The suspension does not apply in the case of fraud.\34\
Any interest that is assessed with respect to the suspension
period is required to be abated.
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\33\ For example, if the IRS sends a math error notice to a
taxpayer 2 months after the return is filed and also sends a notice of
deficiency related to a different item 2 years later, the suspension of
interest applies to the item reflected on the second notice
(notwithstanding that the first notice was sent within the applicable
time period).
\34\ Sec. 6404(g).
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Procedures for the abatement of interest
Taxpayers may apply for the abatement of interest by filing
a claim on Form 843 with the Internal Revenue Service Center
that has assessed the interest the taxpayer seeks to have
abated.\35\
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\35\ Rev. Proc. 87-43, 1987-2 C.B. 590.
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Typically, interest is abated when the amount of tax
assessed is reduced. Thus, any procedure that may result in the
reduction of assessed tax may also result in an abatement of
interest.
Where abatement of interest is sought separate from any
redetermination of tax the availability of judicial review
depends upon the basis on which abatement is sought. If the IRS
is required to abate the interest, judicial review is available
to determine if the facts exist that mandate abatement. The
Taxpayer Bill of Rights 2 specifically granted jurisdiction to
the Tax Court to review for abuse of discretion any decision by
the IRS not to abate interest that is attributable to
unreasonable error or delay by Service employees in the
performance of a ministerial or managerial act, effective for
requests for abatement filed after July 30, 1996.\36\
Otherwise, review of the Secretary's failure to use his or her
discretion to abate interest may not be available. The courts
have held that judicial review of the IRS' failure to use its
discretion to abate interest is generally not available, unless
jurisdiction is specifically granted by statute or a standard
for review has been established.\37\
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\36\ Sec. 6404 (as amended by section 301 of the Taxpayer Bill of
Rights 2).
\37\ Horton Homes, Inc. v. United States, 727 F. Supp. 1450 (M.D.
Ga. 1990) aff'd., 936 F.2d 548 (11th Cir. 1991).
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Reasons for Change
The Committee believes that there are additional situations
in which it is not appropriate for the Secretary to collect
interest on an underpayment of tax.
Explanation of Provision
Allow the abatement of interest if a gross injustice would otherwise
result if interest were to be charged
The bill grants the Secretary the authority to abate
interest if a gross injustice would otherwise result if
interest were to be charged and no significant aspect of the
events giving rise to the accrual of the interest can be
attributed to the taxpayer. This authority is intended to allow
the Secretary to address those extraordinary situations where
normally appropriate rules could result in a gross injustice if
strictly applied. It is anticipated that such authority will be
used infrequently and will be determined on a case-by-case
basis.
Abatement under this authority is solely within the
discretion of the Secretary.
Allow the abatement of interest for periods attributable to any
unreasonable IRS error or delay
The bill grants the Secretary the authority to abate
interest for any period that is attributable to unreasonable
IRS errors or delays, whether or not related to managerial or
ministerial acts. Abatement is not expected to be available to
the extent the taxpayer contributes to the delay by providing
erroneous information or failing to provide reasonably
requested information within a reasonable period, or otherwise
failing to timely disclose information or cooperate with
reasonable IRS requests.
The bill allows the Secretary to consider abatement of
interest in situations where unreasonable errors or delays
occur in the context of the consideration of a legal position.
Forexample, an IRS field agent refers a complicated issue to
the IRS National Office. The National Office attorney misplaces the
file and is then transferred to a different branch without either
notifying his superiors that the file is missing or arranging for the
transfer of the issue to his replacement. Some time later, the file is
found and the issue reassigned. Assuming that this results in an
unreasonable delay in the resolution of the taxpayer's liability,
interest for the period from the original misplacing of the file until
the issue is reassigned may be abated.
The bill also allows the Secretary to consider abatement in
situations where an IRS employee gives erroneous advice or
information that the employee knows, or should know, will cause
the taxpayer to believe that his liability is resolved. For
example, an IRS employee tells a taxpayer by telephone that a
payment will be satisfactory to settle his liability for a
taxable year. In fact, the IRS employee has made a error in
calculating the amount owed by the taxpayer and the amount he
requests is insufficient.\38\ The taxpayer makes the requested
payment and is surprised some time later to discover that the
IRS is seeking an additional payment for the year. The bill
allows the Secretary to abate the interest attributable to the
period that occurs after the taxpayer had made the payment he
was led to believe would satisfy his liability, provided the
taxpayer did not contribute to the error in any significant
way, such as by providing erroneous information that was used
by the IRS employee to determine the insufficient payment
amount.
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\38\ Abatement could be allowed under present law if the error were
in the performance of a ministerial act, such as reading the taxpayer's
transcript.
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It is not expected that this expansion of authority will
result in an abatement of interest solely because the taxpayer
is not able to resolve its tax liability as quickly as the
taxpayer would like. Interest owed by a taxpayer will not be
abated because other taxpayers have their returns examined
first, or because the determination of the taxpayer's liability
proves difficult and requires additional time. Abatement is
expected to be available only where the additional time needed
to resolve the taxpayer's liability is the result of
unreasonable error or delay by the IRS, considering all the
facts and circumstances applicable to the taxpayer's case.
Allow for the abatement of interest in situations where the taxpayer is
repaying an excessive refund based on IRS calculations without
regard to the size of the refund
The bill eliminates the $50,000 threshold for abatement of
interest on erroneous refunds. Under the bill, the Secretary is
required to abate interest on any erroneous refund, provided
the taxpayer has not in any way caused the erroneous refund to
occur.
Allow the abatement of interest to the extent the interest is
attributable to taxpayer reliance on written statements of the
IRS
The bill requires the Secretary to abate interest on an
underpayment where the underpayment is attributable to
erroneous advice furnished to the taxpayer in writing by an
officer or employee of the IRS acting in his or her official
capacity. It is anticipated that the abatement would apply to
interest attributable to the period of time from the issuance
of the erroneous advice through the day that is 21 days (10
days in the case of an underpayment in excess of $100,000)
after the day the IRS gives written notice that its advice was
erroneous. The bill does not eliminate the taxpayer's
obligation to satisfy any underpayment of tax attributable to
such erroneous advice.
Effective Date
The changes made by these provisions are effective with
respect to interest accruing on or after the date of enactment.
E. Deposits To Stop the Running of Interest on Potential Underpayments
(Sec. 105 of the Bill and New Sec. 6612 of the Code)
Present Law
Generally, interest on underpayments and overpayments
continues to accrue during the period that a taxpayer and the
IRS dispute a liability. The accrual of interest on an
underpayment is suspended if the IRS fails to notify an
individual taxpayer in a timely manner,\39\ but interest will
begin to accrue once the taxpayer is properly notified. No
similar suspension is available for other taxpayers.
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\39\ Sec. 6404(g).
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A taxpayer that wants to limit its exposure to underpayment
interest has a limited number of options. The taxpayer can
continue to dispute the amount owed and risk paying a
significant amount of interest. If the taxpayer continues to
dispute the amount and ultimately loses, the taxpayer will be
required to pay interest on the underpayment from the original
due date of the return until the date of payment.
In order to avoid the accrual of underpayment interest, the
taxpayer may choose to pay the disputed amount and immediately
file a claim for refund. Payment of the disputed amount will
prevent further interest from accruing if the taxpayer loses
(since there is no longer any underpayment) and the taxpayer
will earn interest on the resultant overpayment if it wins.
However, the taxpayer will generally lose access to the Tax
Court if it follows this alternative.\40\ Amounts paid
generally cannot be recovered by the taxpayer on demand, but
must await final determination of the taxpayer's liability.
Even if an overpayment is ultimately determined, overpaid
amounts may not be refunded if they are eligible to be offset
against other liabilities of the taxpayer.\41\
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\40\ The taxpayer may, however, sue the IRS for the refund in
either the U.S. District Court or the U.S. Court of Federal Claims.
\41\ The amount of any overpayment, including interest thereon, may
be credited against any other internal revenue tax liability of the
taxpayer (sec. 6402(a)). In addition, the overpayment and any
overpayment interest may be used to offset past due support payments
(sec. 6402(c)), debts owed to other Federal agencies (sec. 6402(d)),
and past due, legally enforceable State income tax obligations of
residents of the same State (sec. 6402(e)).
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The taxpayer may also make a deposit in the nature of a
cash bond. The procedures for making a deposits in the nature
of a cash bond are provided in Rev. Proc. 84-58.\42\
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\42\ 1984-2 C.B. 501.
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A deposit in the nature of a cash bond will stop the
running of interest on an amount of underpayment equal to the
deposit, but the deposit does not itself earn interest. A
deposit in the nature of a cash bond is not a payment of tax
and is not subject to a claim for credit or refund. A deposit
in the nature of a cash bond may be made for all or part of the
disputed liability and generally may be recovered by the
taxpayer prior to a final determination. However, a deposit in
the nature of a cash bond need not be refunded to the extent
the Secretary determines that the assessment or collection of
the tax determined would be in jeopardy, or that the deposit
should be applied against another liability of the taxpayer in
the same manner as an overpayment of tax.\43\ If the taxpayer
recovers the deposit prior to final determination and a
deficiency is later determined, the taxpayer will not receive
credit for the period in which the funds were held as a
deposit. The taxable year to which the deposit in the nature of
a cash bond relates must be designated, but the taxpayer may
request that the deposit be applied to a different year under
certain circumstances.\44\
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\43\ Rev. Proc. 84-58, sec. 4.02(1).
\44\ Id. sec. 4.02(4).
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Reasons for Change
The Committee believes that an improved deposit system that
allows for the payment of interest on amounts that are not
ultimately needed to offset tax liability when the taxpayer's
position is upheld, as well as allowing for the offset of tax
liability when the taxpayer's position fails, will provide a
more effective way for taxpayers to manage their exposure to
underpayment interest. However, the Committee believes that
such an improved deposit system should be reserved for the
issues that are known to both parties, either through IRS
examination or voluntary taxpayer disclosure.
Explanation of Provision
In general
The bill allows a taxpayer to deposit funds in a qualified
dispute reserve account. The taxpayer may subsequently
designate all or a part of such deposit to offset an
underpayment of tax. Interest will not be charged on the
portion of the underpayment that is offset by the designated
amount for the period the amount designated as an offset was on
deposit. Generally, funds deposited in a qualified dispute
reserve account may be withdrawn at any time and will earn
interest at the applicable Federal rate if they are not used to
offset underpayments of tax.
The amount of funds that may be deposited in a qualified
dispute reserve account is generally limited to the amount
potentially in dispute with respect to disclosed issues for the
taxable year. Amounts deposited in excess of this limit will be
treated in the same manner as a deposit in the nature of a cash
bond under present law.
Use of a qualified dispute reserve fund to offset underpayments of tax
The taxpayer may designate any amounts in a qualified
dispute reserve account to offset an underpayment of tax that
is ultimately determined for the taxable year to which the
deposit relates. If an underpayment is offset in this manner,
the taxpayer will not be charged underpayment interest on the
portion of the underpayment that is offset for the period the
funds were on deposit in a qualified dispute reserve account.
For example, a calendar year individual taxpayer identifies
sufficient disputable issues and deposits $20,000 in a dispute
reserve account that relates to taxable year 2000 on May 15,
2001. On April 15, 2003, an examination of the taxpayer's
return is completed, the taxpayer and the IRS agree that the
taxable year 2000 taxes were underpaid by $25,000, the taxpayer
designates the amount in the qualified dispute reserve account
as an offset to the underpayment, and the taxpayer pays the
balance. In this case, the taxpayer will owe underpayment
interest from April 15, 2001 (the original due date of the
return) to the date of payment (April 15, 2003) only with
respect to the $5,000 of the underpayment that is not offset by
the dispute reserve account. The taxpayer will owe underpayment
interest on the remaining $20,000 of the underpayment only from
April 15, 2001 to May 15, 2001, the date the $20,000 was
deposited in the qualified dispute reserve account.
Withdrawal of amounts
A taxpayer may request the withdrawal of any amount in a
qualified dispute reserve account at any time. The Secretary
must comply with the withdrawal request unless the amount has
already been designated to offset an underpayment of tax or the
Secretary properly determines that assessment and collection of
tax is in jeopardy. Interest is paid on amounts that are
withdrawn from a dispute reserve account at a rate equal to the
short-term applicable Federal rate for the period from the date
of deposit to a date not more than 30-days preceding the date
of the check paying the withdrawal.\45\
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\45\ This 30-day period is consistent with other determinations of
interest owed to a taxpayer.
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For example, a calendar year individual taxpayer receives a
30-day letter showing a deficiency of $20,000 for taxable year
2000 and deposits $20,000 in a qualified dispute reserve
account that relates to taxable year 2000 on May 15, 2002. On
April 15, 2003, an administrative appeal is completed, the
taxpayer and the IRS agree that the 2000 taxes were underpaid
by $15,000, and the taxpayer designates $15,000 of the amount
in the qualified dispute reserve account as an offset to the
underpayment. In this case, the taxpayer will owe underpayment
interest from April 15, 2001 (the original due date of the
return) to May 15, 2002, the date the $20,000 was deposited in
the dispute reserve account. Simultaneously with the
designation of the $15,000 to offset the deficiency, the
taxpayer requests the return of the remaining $5,000 in the
qualified dispute reserve account. This amount must be returned
to the taxpayer with interest determined at the short-term
applicable Federal rate from the May 15, 2002 to a date not
more than 30 days preceding the date of the check repaying the
$5,000 to the taxpayer.
Limitations on amounts deposited in a qualified dispute reserve account
The amount on deposit in a qualified dispute reserve
account for any taxable year may not exceed the amount
necessary to offset the disputable items for the taxable year
that have been identified by the taxpayer. A disputable item is
any item for which the taxpayer (1) has a reasonable basis for
the treatment used on its return and (2) reasonably believes
that the Secretary also has a reasonable basis for disallowing
the taxpayer's treatment of such item. The taxpayer must
include a reasonable estimate of the potential underpayment as
part of its identification of the disputable item. The amount
on deposit in the qualified dispute reserve account for the
taxable year may not exceed the sum of such reasonable
estimates.
All items included in a 30-day letter to a taxpayer are
deemed to be identified for this purpose. Thus, once a 30-day
latter has been issued, the deposit limit cannot be less than
the amount of the deficiency shown in the 30-day letter. A 30-
day letter is the first letter of proposed deficiency that
allows the taxpayer an opportunity for administrative review in
the Internal Revenue Service Office of Appeals.
If the taxpayer deposits an amount in excess of the limit,
that amount will be a cash bond deposit that is not part of a
qualified dispute reserve account. Such amounts will be treated
in the same manner as deposits in the nature of a cash bond
under present law.
Deposits in dispute reserve accounts are not payments of tax
An amount deposited in a dispute reserve account is not a
payment of tax prior to the time it is designated to offset an
underpayment. Thus, the interest earned on withdrawn amounts
would not be eligible for the proposed exclusion from income of
an individual. Similarly, withdrawal of an amount from a
qualified dispute reserve account will not establish a period
for which interest was allowable at the short-term applicable
Federal rate for the purpose of establishing a net zero rate
interest rate on a similar amount of underpayment for the same
period.
Application of amounts to different years
A taxpayer may change the taxable year to which an amount
in a qualified dispute reserve account relates. Such an amount
will continue to be considered to have been deposited on its
original deposit date for the purpose of determining the period
of interest on any underpayment it is designated to offset or
the period for which interest is owed to the taxpayer should
the deposit be withdrawn.
For example, a calendar year individual taxpayer receives a
30-day letter showing a deficiency of $20,000 of taxable year
2000 and deposits $20,000 in a qualified dispute reserve
account that relates to taxable year 2000 on May 15, 2002. On
April 15, 2003, an administrative appeal is completed, the
taxpayer and the IRS agree that the 2000 taxes were underpaid
by $15,000, and the taxpayer designates $15,000 of the amount
in the qualified dispute reserve account as an offset to the
underpayment. Simultaneously with the designation of the
$15,000 to offset the deficiency, the taxpayer requests the
remaining $5,000 in the qualified dispute reserve account
relate to taxable year 2001, and identifies sufficient
disputable items for taxable year 2001. This $5,000 amount will
be considered to have been deposited on May 15, 2002, the date
of original deposit, for the purpose of offsetting underpayment
interest owed with respect to taxable year 2001, or for
determining the interest owed the taxpayer should the amount be
withdrawn.
Effective Date
The provision applies to periods after the date of
enactment. Amounts already on deposit as of the date of
enactment will be treated as deposited in a qualified dispute
reserve account as of the date the disputable issues are
identified by the taxpayer.
F. Expansion of Interest Netting for Individuals (Sec. 106 of the Bill
and Sec. 6404 of the Code)
Present Law
A special net interest rate of zero applies to the extent
that, for any period, interest is payable under subchapter A
and allowable under subchapter B on equivalent underpayments
and overpayments by the same taxpayer.\46\ If both the
underpayment and overpayment are unsatisfied, the interest rate
applied to both will be zero. If either the underpayment or
overpayment has previously been satisfied, the interest rate
applicable to the unsatisfied amount will be equal to the
interest rate applicable to the satisfied amount to the extent
that interest was allowable or payable on both the underpayment
and the overpayment for the same period.
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\46\ This provision was enacted in section 3301 of the IRS Reform
Act.
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Interest must be both payable and allowable for interest
netting to apply. If interest is not payable by the taxpayer
with respect to an underpayment of tax, or interest is not
allowable to the taxpayer on an overpayment of tax, the
interest netting rules will not apply.
For example, on July 1, 2003, a deficiency of $1,500 is
determined with respect to an individual taxpayer's 2000
Federal income tax return, which the taxpayer pays within 21
days. In the meantime, the taxpayer has filed returns for 2001
and 2002, showing a refund due to overwithholding each year of
$1,000. The IRS issues the appropriate refund checks on May 15
of each year, within 45 days of the due date of the return.
Thus, interest is not allowable to the taxpayer with respect to
either 2001 or 2002.\47\ In this case, the taxpayer owes
interest on the $1500 year 2000 underpayment from the original
due date of the return (April 15, 2001) until the underpayment
is satisfied.\48\ Although, there are offsetting periods of
overpayment (April 15, 2002 to May 15, 2002 and April 15, 2003
to May 15, 2003), there is no offsetting period for which
interest is allowable on an overpayment.
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\47\ Sec. 6611(e)(1) provides that no interest will be allowable if
any overpayment of tax is refunded within 45 days after the return is
filed.
\48\ If the underpayment is satisfied within 21 days of the
determination on July 1, 2003, the taxpayer does not owe interest for
any portion of time after that date (sec. 6601(e)(3)).
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Reasons for Change
The Committee believes that individual taxpayers should be
allowed to consider the period of time the Secretary is allowed
to process a refund in determining a net interest rate.
Explanation of Provision
In the case of an individual taxpayer, the interest netting
rules are to be applied without regard to the 45-day period in
which the Secretary may refund an overpayment of tax without
the payment of interest under section 6611(e). Solely for the
purpose of the interest netting computation, the portion of the
45-day period before repayment of the overpayment will be
considered as a period for which overpayment interest was
allowable at a zero rate. The bill does not modify the period
for which interest is payable or allowable for any other
purpose.
In the example discussed as part of present law, above, a
net interest rate of zero would be applied to $1,000 of the
taxpayer's year 2000 underpayment for the periods between the
due date of the 2002 and 2003 returns and the dates on which
the refunds are made. The taxpayer in the example would owe
interest at the underpayment rate for the periods from April
16, 2001 to April 16, 2002; May 16, 2002 to April 16, 2003; and
from May 16, 2003 to July 1, 2003. For the periods April 16 to
May 15, 2002 and April 16, 2003 to May 15, 2003, a zero net
interest rate will apply.
Effective Date
The provision is effective for interest accrued for periods
beginning on or after the date of enactment.
TITLE II--CONFIDENTIALITY AND DISCLOSURE
A. Disclosure and Privacy Rules Relating to Returns and Return
Information (Sec. 201 of the Bill and Sec. 6103(a) and New Sec.
6103(p)(9) of the Code)
Present Law
Section 6103
Under section 6103, returns and return information are
confidential and cannot be disclosed unless authorized by the
Internal Revenue Code.\49\ The Code defines return information
broadly. Return information includes:
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\49\ Sec. 6103(a).
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a taxpayer's identity, the nature, source or
amount of income, payments, receipts, deductions, exemptions,
credits, assets, liabilities, net worth, tax liability, tax
withheld, deficiencies, overassessments, or tax payments;
whether the taxpayer's return was, is being, or
will be examined or subject to other investigation or
processing; or
any other data, received by, recorded by, prepared
by, furnished to, or collected by the Secretary with respect to
a return or with respect to the determination of the existence,
or possible existence, of liability (or the amount thereof) of
any person under this title for any tax, penalty, interest,
fine, forfeiture, or other imposition, or offense,
any part of any written determination or any
background file document relating to such written determination
which is not open to public inspection under section 6110; and
any advance pricing agreement entered into by a
taxpayer and the IRS and any background information related to
such agreement or any application for an advance pricing
agreement.\50\
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\50\ Sec. 6103(b)(2)(A)-(C).
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Section 6103 contains a number of exceptions to the general
rule of confidentiality, which authorize disclosure in
particular circumstances.\51\ The IRS may disclose returns and
return information to, among others, the taxpayer, the
taxpayer's designee, and to certain other persons having a
material interest.\52\ The IRS may withhold return information
when disclosure would ``seriously impair federal tax
administration.'' \53\
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\51\ Sec. 6103(c) through (o).
\52\ Sec. 6103(c) and (e).
\53\ Sec. 6103(c) and (e)(7).
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Freedom of Information Act
The Freedom of Information Act (``FOIA''), enacted in 1966,
established a statutory right to access government
information.\54\ While the purpose of section 6103 is to
restrict access to returns and return information, the basic
purpose of the FOIA is to ensure that the public has access to
government documents. In general, the FOIA provides that any
person has a right of access to Federal agency records, except
to the extent that such records (or portions thereof) are
protected from disclosure by one of nine exemptions or by one
of three special law enforcement record exclusions. Returns and
return information that cannot be disclosed under section 6103
are exempt from disclosure under the FOIA.\55\ However, persons
seeking access to information have used the FOIA as a method to
attempt to compel disclosure of information arguably protected
under section 6103.
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\54\ 5 U.S.C. sec. 552.
\55\ Courts use two approaches to reach this result. Some courts
have held that section 6103 preempts the FOIA. Most courts, however,
have held that section 6103 meets the requirements of exemption 3 of
the FOIA, which allows the withholding of information prohibited from
disclosure by another statute if certain requirements are met.
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Under the FOIA, the IRS (as do other agencies) has twenty
days (excluding Saturdays, Sundays, and legal holidays) to
respond to a FOIA request. The IRS can respond either by
providing the records sought or by notifying the requestor of
the reasons why the IRS is denying access and the right to
appeal such denial.\56\ If the requestor appeals, the IRS has
twenty days to rule on such appeal.\57\ If the IRS upholds the
denial on administrative appeal, the IRS then notifies the
requestor of his or her right to seek judicial review in a
United States District Court.\58\
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\56\ 5 U.S.C. sec. 552(a)(6)(A)(i).
\57\ 5 U.S.C. sec. 552(a)(4)(A)(ii). The average FOIA request to
the IRS takes six months to process and appeals can take nearly a year.
National Commission on Restructuring the Internal Revenue Service,
Report of the National Commission on Restructuring the Internal Revenue
Service: A Vision for a New IRS at 47 (June 25, 1997).
\58\ 5 U.S.C. sec. 552(a)(4)(A)(ii).
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The Privacy Act
The Privacy Act was enacted in 1974 to regulate the
collection, use, dissemination, and maintenance of personal
information about individuals by Federal agencies.\59\ The
Privacy Act applies only to the records of individuals. Thus,
the Privacy Act does not protect records of corporations. The
Privacy Act has four principal provisions. These provisions:
(1) restrict the disclosure of personally identifiable records
maintained by agencies; (2) allow individuals to access agency
records maintained about the individual; (3) allow an
individual to request amendment of agency records pertaining to
the individual if the individual believes the records are not
accurate, relevant, timely, or complete; and (4) require
agencies to comply with statutory guidelines for collection,
maintenance, and dissemination of records. In general, the
provisions of the Privacy Act prohibit the disclosure of an
individual's records without the consent of the individual.
Section 7852(e) of the Code provides that certain provisions of
the Privacy Act cannot be applied directly or indirectly to the
determination of the existence or possible existence of
liability (or amount thereof) of any person for any tax,
penalty interest, fine forfeiture, or other imposition or
offense to which the Code applies. The Privacy Act provisions
specified by section 7852(e) are (d)(2), (3) and (4) (amendment
provisions), and (g) (civil remedies for an agency's failure to
comply with a provision of the Privacy Act). The Privacy Act
predated section 6103 by two years. Courts disagree on whether
the Privacy Act is preempted by section 6103.
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\59\ 5 U.S.C. sec. 552a.
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Reasons for Change
Present law states that no disclosures of returns and
return information can be made unless authorized by Title 26.
However, the FOIA, the Privacy Act and other laws have sought
to authorize disclosure. The Committee believes that it should
be clarified that the Code is the sole authority for the
disclosure of returns and return information.
The purpose of the FOIA is to shed light on the operations
of government. The FOIA presumes that records are subject to
disclosure unless they fall within certain exemptions. Section
6103 takes the opposite approach. It presumes that returns and
return information are confidential unless disclosure is
authorized by the Code. Section 6103 provides a comprehensive
system for releasing information to discrete identified parties
under section 6103. In contrast, the general rule under the
FOIA is to release information to the public at large with no
showing of need. The Committee recognizes that the FOIA
contains significant administrative and judicial review
mechanisms not available under section 6103. The Committee
believes it is appropriate to incorporate those mechanisms into
section 6103.
The purpose of the Privacy Act is to safeguard an
individual's personal privacy against unwarranted invasions
through the misuse of Federal records, and, among other things,
to provide an individual with access to agency records
concerning that individual.\60\ Generally, with specified
exceptions, the Privacy Act prohibits an agency from disclosing
an individual's records without that individual's consent. A
comparison of the Privacy Act and section 6103 reveals that
while similar, the disclosure provisions of section 6103 are
more detailed and allow less disclosure than the Privacy Act.
Thus, section 6103 provides more protection for the privacy of
a taxpayer's return or return information. The Committee
believes that the confidentiality provisions and restrictions
on disclosure contained in section 6103 preempt the Privacy Act
as to access and restriction on disclosure.
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\60\ Pub. L. No. 93-579, sec. 2(b) (1974).
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The Committee believes that centralizing the authority for
the disclosure of returns and return information in the Code
will reduce conflicts over the governing law. For example, as
noted above, section 6103 provides that no disclosures of
returns and return information are to be made unless authorized
by the Code. To verify information reported by applicants on
student financial aid applications, the Higher Education Act
Amendments of 1998 (``the Higher Education Act'') authorized
the Department of Education to confirm with the IRS four
discrete items of return information.\61\ The Higher Education
Act, however, did not amend the Code to permit disclosures for
this purpose. This has caused the two agencies to disagree as
to whether the required disclosures can be made by the IRS.
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\61\ Pub. L. No. 105-244, sec. 483 (1998).
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Centralizing the disclosure authority in the Code will also
ensure consistent application of privacy and confidentiality
principles to returns and return information. For example, when
a statute authorizes the disclosure of returns and return
information notwithstanding the provisions of section 6103, it
relieves an agency from having to comply with the safeguards
and record keeping requirements for returns and return
information provided by that section.\62\
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\62\ See generally sec. 6103(p).
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Explanation of Provision
The provision clarifies that the Internal Revenue Code
exclusively governs the disclosure and inspection of returns
and return information. The effect of the provision would be to
provide that the Internal Revenue Code provision preempts the
FOIA, the Privacy Act, and other laws solely with respect to
the confidentiality and disclosure of returns and return
information. The provision would not affect the ability of
persons to make a FOIA request for information that does not
fall within the definition of a return or return information.
Such FOIA requests would still be made of the IRS under the
FOIA. The provision would not affect the disclosure of written
determinations under section 6110.
The provision provides a 20-day period in which the IRS
must respond to requests by the taxpayer, and persons with a
material interest in such information, and an administrative
appeal process to contest the IRS decision to withhold
information. Under the provision, de novo judicial review of
the IRS decision to withhold returns and return information is
provided.Attorneys fees to the prevailing party under section
7430 are also available. The provision authorizes the Secretary of the
Treasury to issue regulations to implement the provision and to set
fees applicable to the processing of requests for disclosure.
effective date
The provision is effective for requests made after the date
of enactment.
B. Expansion of Type of Advice Available for Public Inspection (Sec.
202 of the Bill and Sec. 6110(i) of the Code)
present law
Section 6110 makes the text of any written determination
issued by the IRS (and related background file document)
available for public inspection. A written determination is any
ruling, determination letter, technical advice memorandum, or
Chief Counsel advice. Before making written determinations and
background file documents available for public inspection,
section 6110 requires the IRS to delete specific categories of
information. Any part of a written determination or background
file that is not disclosed under section 6110 constitutes
confidential ``return information'' under section 6103.\63\
Section 6110 also provides administrative and judicial
procedures to resolve disputes over the scope of the
information the IRS will disclose.\64\
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\64\ 63 Section 6103(b)(2)(B) provides that the term ``return
information'' means any part of any written determination or any
background file document relating to such written determination (as
such terms are defined in section 6110(b)) which is not open to public
inspection under section 6110.
\64\ Sec. 6110(d)(3), (d)(4), (f), and (j).
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Section 6110 defines Chief Counsel advice as that issued by
the national office component of the Office of Chief Counsel to
IRS field or service center employees, or regional or district
employees of the Office of Chief Counsel.\65\ By definition,
Chief Counsel advice conveys: (1) a legal interpretation of a
revenue provision, (2) the IRS or Chief Counsel position or
policy concerning a revenue provision, or (3) a legal
interpretation of any law (Federal, State, or foreign) relating
to the assessment or collection of liability under a revenue
provision.\66\ The definition of Chief Counsel advice does not
encompass advice issued from one National Office component of
the Office of Chief Counsel to another. Nor does it encompass
advice issued by the regional or district office of the Office
of Chief Counsel to IRS employees. The term ``Chief Counsel
advice'' also does not encompass any advice or instructions
issued by persons other than Chief Counsel personnel. The
Secretary is permitted to delete certain material, and such
deletions can be challenged judicially.
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\65\ Sec. 6110(i)(A)(i).
\66\ Sec. 6110(i)(A)(ii).
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Reasons for Change
The Committee believes that the working law of the IRS
should be publicly available. Such interpretations should not
be limited to issuances from certain IRS offices (such as the
national office of IRS Chief Counsel) but should also include
issuances from other offices, such as from District Counsel to
IRS administrative personnel in the field, which are currently
not covered by the definition of Chief Counsel advice. The
Committee also believes that when one division of the IRS
Office of the Chief Counsel requests legal advice on a subject
matter within the jurisdiction of another Chief Counsel
division, that intra-office advice should be disclosed once the
final advice is given if it was incorporated in or served as
the basis of the outgoing advice. The Committee recognizes the
necessity of free flow of information and opinions in the
decision-making process. However, once a decision is made, it
affects a member of the public. The public is entitled to know
of the rules being applied in its dealings with the IRS and the
underlying rationale for the course of action. The public is
also entitled to know whether the laws are being applied
uniformly.
Explanation of Provision
Definition of official advice
The bill modifies the current provision relating to Chief
Counsel advice. It removes the limitation that advice be issued
by a national office component of the Office of Chief Counsel.
It also eliminates the requirement that the recipient of the
advice be either an IRS field or service center employee or an
Office of Chief Counsel district or regional employee.
The bill requires disclosure of all advice and instructions
(``official advice'') that meet certain substantive
requirements and are issued by a component of the Office of
Chief Counsel or Internal Revenue Service to an employee. A
``component'' is any IRS or Chief Counsel component above
front-line employee, unless such employee is authorized to act
on behalf of the component above him in providing a legal
interpretation to another employee. For example, a District
counsel office would be a component, whereas an individual
district counsel attorney ordinarily would not. One exception
is for an individual district counsel attorney who had the
authority to issue legal advice without securing the approval
of the District Counsel. In that capacity he would be acting on
behalf of the District Counsel component. In the national
office, a component would be the branch chief. Under the
provision, official advice is issued when the advice is signed
or otherwise approved for distribution by the person authorized
to do so, and sent to the employee.
The bill is designed to reach legal analysis and
interpretation of the tax laws to be applied to a taxpayer or
group of taxpayers. Thus, in order to qualify as official
advice such advice must convey: (1) a legal interpretation of a
revenue provision, (2) an IRS or Chief Counsel policyconcerning
a revenue provision, or (3) a legal interpretation of State law,
foreign law, or other Federal law relating to the assessment or
collection of any liability under a revenue provision. Under this rule,
a communication would not be required to be disclosed if it concerns
factual issues with regard to a particular taxpayer and does not
discuss the interpretation of and the application of law to those
facts. The provision is not intended to cover documents that are
largely administrative without legal analysis. In addition, for
purposes of this provision ``any Internal Revenue Service or Office of
Chief Counsel position or policy concerning a revenue provision'' means
positions or policies of the organization, adopted formally or
informally, which function as guidance to IRS or Chief Counsel
employees.
The Committee notes that the IRS is in the process of a
reorganization. Thus, the bill allows the Secretary with
authority to promulgate regulations providing that additional
types of advice or instructions will be treated as official
advice and subject to public inspection under this provision.
Redaction process
The provision retains the present law redaction
process.\67\ Under the bill, as under present law, the IRS and
the Office of Chief Counsel will be able to delete identifying
details under section 6110(c)(1), and material that would be
exempt under subsections (b) and (c) of the FOIA (except with
respect to 5 U.S.C. sec. 552(b)(3), only that material required
to be withheld under a Federal statute other than title 26, may
be redacted). This includes the ability to redact material that
would be protected by the deliberative process privilege or
other privileges encompassed in Exemption 5 of the FOIA. The
deliberative process privilege protects material which is pre-
decisional and deliberative. It protects material that reflects
the give and take of the consultative process prior to a final
decision. The bill does not encompass deliberative and pre-
decisional material to the extent it does not provide the basis
for a final decision. Thus, legal arguments that are rejected
during the consultative process would not be required to be
disclosed. As under current section 6110, an opportunity is
afforded to challenge judicially the redaction determinations.
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\67\ Sec. 6110(i)(3).
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effective date
The provision is effective for official advice issued more
than 90 days after the date of enactment. Under the provision,
if by regulation the Secretary determined that additional
advice or instructions would be treated as official advice,
such additional official advice would be made available for
public inspection in accordance with the effective date set
forth in the regulation.
C. Collection Activities with Respect to a Joint Return Disclosable
Based on Oral Request (Sec. 203 of the Bill and Sec. 6103(e)(8) of the
Code)
present law
Section 6103(e) concerns disclosures to persons with a
material interest. Section 6103(e)(7) permits the IRS to
disclose return information to the same persons who may have
access to a return under the other provisions of section
6103(e). Pursuant to this section 6103(e)(7) and section
6103(e)(1)(B), either spouse may obtain return information
regarding a joint return. This includes collection information.
Requests for information pursuant to this section do not have
to be in writing.
In response to concerns that former spouses were not able
to obtain information regarding collection activities relating
to a joint return, the Taxpayer Bill of Rights 2 added section
6103(e)(8).\68\ When a deficiency is assessed with respect to a
joint return, upon written request, section 6103(e)(8) permits
the IRS to disclose: (1) whether the IRS has attempted to
collect such deficiency from the other individual; (2) the
general nature of such collection activities; and (3) the
amount collected.\69\ This provision applies if individuals who
filed the joint return are no longer married or no longer
reside in the same household. Requests under this section must
be in writing.
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\68\ ``The IRS does not routinely disclose collection information
to a former spouse that relates to tax liabilities attributable to a
joint return that was filed when married.'' Joint Committee on
Taxation, General Explanation of Tax Legislation Enacted in the 104th
Congress (JCS-12-96), December 18, 1996 at 29.
\69\ Sec. 6103(e)(8).
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reasons for change
The Committee believes that former spouses should be able
to receive collection information with respect to a joint
return in the same manner as if they were current spouses.
Thus, a former spouse should not be required to make a written
request because if the spouses were still married, a written
request would not be required.
explanation of provision
The provision eliminates the requirement for former spouses
to make a written request for disclosure of collection
activities with respect to a joint return.
effective date
The provision applies to requests made after the date of
enactment.
D. Taxpayer Representatives Not Subject to Examination Without
Supervisor Approval (Sec. 204 of the Bill and Sec. 6103(h)(1) of the
Code)
Present Law
Under section 6103(h)(1), returns and return information
are, without written request, open to inspection by or
disclosure to officers and employees of the Department of the
Treasury, including IRS employees, whose official duties
require such inspection or disclosure for tax administration
purposes. The Office of Chief Counsel issued an opinion stating
that it was appropriate for a local IRS employee to examine tax
records to determine whether taxpayer representatives who
submit Form 2848 (Power of Attorney) are current in their tax
obligations.\70\ The opinion concluded that section 6103(h)(1)
permits local IRS employees to access the Integrated Data
Retrieval System \71\ to determine whether a taxpayer's
representative is current in his or her tax obligations.
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\70\ Internal Revenue Service, IRS Legal Memorandum ILM 199941038
(August 19, 1999) reprinted in Disclosure Provisions Don't Bar IRS
Access to Integrated Data Retrieval System, Tax Notes Today, 1999 TNT
200-54 (October 18, 1999).
\71\ The Integrated Data Retrieval System (commonly referred to as
``IDRS'') is the IRS' primary computer database for return information.
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reasons for change
The Committee believes that the official duties of the IRS
employee examining a taxpayer concern the tax affairs of the
taxpayer, not the taxpayer's representative. The taxpayer is
under audit, not the taxpayer's representative. Whether the
representative has filed his or her returns ordinarily has no
bearing on the IRS's determination of the liability of the
taxpayer. An IRS employee should make a referral to the
Director of Practice, if the employee has reason to believe the
taxpayer's representative has engaged in inappropriate
behavior.
explanation of provision
The provision clarifies that an IRS employee conducting an
examination of a taxpayer is not authorized to inspect a
taxpayer representative's return or return information solely
on the basis of the representative relationship to the
taxpayer. Under the provision, the supervisor of the IRS
employee must approve such inspection after making a
determination that other grounds justified such an inspection.
The provision does not affect the ability of employees of the
IRS Director of Practice, or other employees whose assigned
duties concern the regulation of practice before the IRS, to
access returns and return information of a representative.
effective date
The provision is effective on the date of enactment.
E. Disclosure in Judicial or Administrative Tax Proceedings of Return
and Return Information of Persons Who Are Not Party to Such Proceedings
(Sec. 205 of the Bill and Sec. 6103(h)(4) of the Code)
present law
Under section 6103(h)(4), a return or return information
may be disclosed in a Federal or State judicial or
administrative proceeding pertaining to tax administration
under certain circumstances. Under section 6103(h)(4)(A), such
information may be disclosed if the taxpayer is a party to the
proceeding or if the proceeding arose out of, or in connection
with, determining the taxpayer's liability with respect to any
tax. Under section 6103(h)(4)(B), such information may be
disclosed if the treatment of an item reflected on a return is
directly related to the resolution of an issue in the
proceeding. Under section 6103(h)(4)(C), such information may
be disclosed if the return or return information directly
relates to a transactional relationship between a person who is
a party to the proceeding and the taxpayer which directly
affects the resolution of an issue in the proceeding. Thus, the
returns and return information of a nonparty taxpayer may be
disclosed if one of these requirements are met. The statute
does not require that the nonparty taxpayer be given notice or
be consulted prior to disclosure.
reasons for change
The Committee believes that nonparty taxpayers should be
afforded notice of when their returns or return information is
disclosed in a judicial or administrative proceeding pertaining
to tax administration. The Committee also believes that such
nonparty taxpayers should be consulted regarding the disclosure
of sensitive information in such a proceeding. The purpose of
the provision is to give notice to a nonparty prior to the
disclosure of a return or return information. The nonparty
notification requirements are not intended to adversely affect
the parties to the litigation.
explanation of provision
The provision requires that only the portions of a nonparty
return or return information that directly relate to the
resolution of an issue in the proceeding would be disclosed in
such proceeding. When nonparty returns and return information
are to be disclosed under section 6103(h)(4) (B) and (C) \72\,
the provision requires that an effort be made to give notice to
the taxpayer prior to the disclosure. The notice would include
a statement of the issue or issues for which such return or
return information affects resolution. Finally, the nonparty
taxpayer is given an opportunity to request the deletion of
certain matters from the return or return information that
would be disclosed. For purposes of S corporations,
partnerships, estates, and trusts, the notice is to be made at
the entity level.
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\72\ Under the proposal these provisions would be redesignated as
clauses ii and iii of section 6103(h)(4)(A).
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The provision does not afford a right to intervene or for
judicial review of the requested redactions. The notification
requirements are not intended to apply to ex parte proceedings
for securing a search warrant, orders for entry on premises or
safe deposit boxes, or similar ex parte proceedings. The
notification requirements do not apply to the disclosure of
third party return information by indictment or criminal
information. The notice provision is also not intended to apply
if it would seriously impair a criminal tax investigation.
effective date
The provision applies to proceedings commenced after the
date of enactment.
F. Prohibition of Disclosure of Taxpayer Identification Information
With Respect to Disclosure of Accepted Offers-in-Compromise (Sec. 206
of the Bill and Sec. 6103(k)(1) of the Code)
present law
Section 6103 permits the IRS to disclose return information
to members of the general public to permit inspection of
accepted offers in compromise.\73\ The IRS makes summaries of
the accepted offers in compromise, Form 7249--Offer Acceptance
Report, available for public inspection in the IRS district
offices. Currently, this form contains the taxpayer
identification number of the taxpayer, e.g., the social
security number in the case of an individual taxpayer, along
with the taxpayer's name and full address.
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\73\ Sec. 6103(k)(1).
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reasons for change
Summaries of accepted offers in compromise, Form 7249--
Offer Acceptance Report, are available for public inspection in
the IRS district offices. Currently, this form contains the
taxpayer identification number of the taxpayer, e.g., the
social security number in the case of an individual taxpayer,
along with the taxpayer's name and full address. The Committee
believes that the disclosure of a taxpayer's taxpayer
identification number and address is unnecessary and an
unwarranted invasion of privacy. In addition, the Committee
believes such disclosure provides an opportunity for identity
fraud and abuse.
explanation of provision
The provision prohibits the disclosure of the taxpayer's
address and taxpayer identification number as part of the
publicly available summaries of accepted offers in compromise.
effective date
The provision applies to disclosures made after the date of
enactment.
G. Compliance By State Contractors With Confidentiality Safeguards
(Sec. 207 of the Bill and Sec. 6103(p)(8) of the Code)
Present Law
Section 6103(d) permits the disclosure of returns and
return information to State tax agencies. Section 6103(p)(4)
requires, as conditions of receiving returns and return
information, that State agencies (and others) provide
safeguards as prescribed the Secretary of the Treasury by
regulation to be necessary or appropriate to protect the
confidentiality of returns or return information.\74\ It also
requires that a report be furnished to the Secretary at such
time and containing such information as prescribed by the
Secretary regarding the procedures established and utilized for
ensuring the confidentiality of returns and return
information.\75\ After an administrative review, the Secretary
may take such actions as are necessary to ensure these
requirements are met, including the refusal to disclose returns
and return information.\76\
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\74\ Sec. 6103(p)(4)(D).
\75\ Sec. 6103(p)(4)(E).
\76\ Sec. 6103(p)(4) (flush language) and (7); Treas. Reg. sec.
301.6103(p)(7)-1.
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Under present law, employees of a State tax agency may
disclose returns and return information to contractors for tax
administration purposes.\77\ These disclosures can be made only
to the extent necessary to procure contractually equipment,
other property, or the providing of services, related to tax
administration.\78\
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\77\ Sec. 6103(n) and Treas. Reg. sec. 301.6103(n)-1(a). ``Tax
administration'' includes ``the administration, management, conduct,
direction, and supervision of the execution and application of internal
revenue laws or related statutes (or equivalent laws and statutes of a
State) * * *'' Sec. 6103(b)(4).
\78\ Treas. Reg. sec. 301.6103(n)-1(a). Such services include the
processing, storage, transmission or reproduction of such returns or
return information, the programming, maintenance, repair, or testing of
equipment or other property, or the providing of other services for
purposes of tax administration.
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The contractors can make redisclosures of returns and
return information to their employees as necessary to
accomplish the tax administration purposes of the contract, but
only to contractor personnel whose duties require
disclosure.\79\ Treasury regulations prohibit redisclosure to
anyone other than contractor personnel without the written
approval of the IRS.\80\
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\79\ Treas. Reg. sec. 301.6103(n)-1(a) and (b). A disclosure is
necessary if such procurement or the performance of such services
cannot otherwise be reasonably, properly, or economically accomplished
without such disclosure. Treas. Reg. sec. 301.6103(n)-1(b). The
regulations limit the quantity of information to that needed to perform
the contract.
\80\ Treas. Reg. sec. 301.6103(n)-1(a).
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By regulation, all contracts must provide that the
contractor will comply with all applicable restrictions and
conditions for protecting confidentiality prescribed by
regulation, published rules or procedures, or written
communication to the contractor.\81\ Failure to comply with
such restrictions or conditions may cause the IRS to terminate
or suspend the duties under the contract or the disclosures of
returns and return information to the contractor.\82\ In
addition, the IRS can suspend disclosures to the State tax
agency until the IRS determines that the conditions are or will
be satisfied.\83\ The IRS may take such other actions as deemed
necessary to ensure that such conditions or requirements are or
will be satisfied.\84\
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\81\ Treas. Reg. sec. 301.6103(n)-1(d).
\82\ Treas. Reg. sec. 301.6103(n)-1(d)(1).
\83\ Treas. Reg. sec. 301.6103(n)-1(d)(2).
\84\ Treas. Reg. sec. 301.6103(n)-1(d).
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Reasons for Change
The Committee notes the increasing use of contractors by
government agencies to perform the work of the government.
Twenty-nine IRS district offices have responsibilities for
overseeing safeguard reviews at State and local agencies.\85\
As of June 1999, there were 230 professional and 24 support
staff assigned to IRS national and district disclosure
offices.\86\ In addition to overseeing the safeguard program,
disclosure offices conduct a variety of other disclosure
activities. In the Committee's view, the IRS has insufficient
resources to monitor the compliance of every contractor of
every State tax agency in addition to its other duties.
Further, the Committee finds that it is appropriate to require
that the States monitor and certify that their contractors have
in place adequate safeguards to protect this information.
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\85\ General Accounting Office, Taxpayer Confidentiality: Federal,
State, and Local Agencies Receiving Taxpayer Information (GAO-GGD-99-
164, August 1999) at 13.
\86\ Id.
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Explanation of Provision
The provision requires that a State conduct annual on-site
reviews of all of its contractors receiving Federal returns and
return information. If the duration of the contract is less
than one year, a review is required at the mid-point of the
contract. The purpose of the review is to assess the
contractor's efforts to safeguard Federal returns and return
information. The Committee intends that such review cover
secure storage, restricting access, computer security, and
other safeguards deemed appropriate by the Secretary. Under the
provision, the State is required to submit a report of its
findings to the IRS and certify annually that all contractors
are in compliance with the requirements to safeguard the
confidentiality of Federal returns and return information. The
certification includes the name and address of each contractor,
the duration of the contract, and a description of its contract
with the State.
This provision does not alter or affect in any way the
right of the IRS to conduct safeguard reviews of State
contractors. It also does not affect the right of the IRS to
initially approve the safeguard language in the contract and
the safeguards in place prior to any disclosures made in
connection with such contracts.
Effective Date
The provision is effective for disclosures made after
December 31, 2001. The first certification is required to be
made with respect to calendar year 2002.
H. Higher Standards for Requests for and Consents to Disclosure (Sec.
208 of the Bill and Sec. 6103(c) of the Code)
Present Law
Under section 6103(c), a taxpayer may designate in a
request or consent to the disclosure by the IRS of his or her
return or return information to a third party. Treasury
regulations set forth the requirements for such consent.\87\
The Treasury regulations require that the taxpayer sign and
date the consent. The taxpayer must also indicate in the
written document: (1) the taxpayer's taxpayer identity
information; (2) the identity of the person to whom disclosure
is to be made; (3) the type of return (or specified portion of
the return) or return information (and the particular data)
that is to be disclosed; and (4) the taxable year covered by
the return or return information. The regulations also require
that the consent be submitted within 60 days of the date signed
and dated, however, at the time of submission, the IRS
generally is unaware of whether a consent form was completed or
dated after the taxpayer signs it. Present law does not require
that a recipient receiving returns or return information by
consent maintain the confidentiality of the information
received. Under present law, the recipient is also free to use
the information for purposes other than for which the
information was solicited from the taxpayer.
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\87\ Treas. Reg. 301.6103(c)-1.
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Section 6103(c) consents are often used in connection with
mortgage loan applications. Mortgage originators qualify loan
applicants as meeting or not meeting the requirements for loan
approval. This process involves the verification and
investigation of information and conditions. If the loan is
granted, the mortgage originator may use its own money to fund
the loan. Alternatively, another entity, an ``investor,'' may
buy the loan and provide the money. Investors typically perform
a re-investigation of loans received for funding. Such re-
investigations may include verification through the IRS of the
tax return provided by the taxpayer to the mortgage originator.
Usually the mortgage originator does not know which
investor will ultimately fund the loan. Thus, at the time of
application, the originator asks the borrower/taxpayer to sign
a consent (Form 4506) designating the originator as the third
party to receive the taxpayer's returns. Subsequently, at
closing, the investor may request that the originator obtain
another Form 4506 naming the investor as the third party to
receive the taxpayer's return.
Ostensibly to avoid confusion over why the taxpayer would
be authorizing a party other than the originator to receive his
tax return, the taxpayer may be asked to sign a blank Form 4506
at closing. In some cases, mortgage originators ask taxpayers
not to date the Form 4506. This allows the form to be submitted
to the IRS at a later date, often months or years later, for
purposes of mortgage resale.
Under section 7206, it is a felony to willfully make and
subscribe any document that contains or is verified by a
written declaration that it is made under penalties of perjury
and which such person does not believe to be true and correct
as to every material matter.\88\ Upon conviction, such person
may be fined up to $100,000 ($500,000 in the case of a
corporation) or imprisoned up to 3 years, or both, together
with the costs of prosecution.
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\88\ Sec. 7206(1).
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Reasons for Change
The Committee does not believe that the practice of asking
taxpayers to sign blank or undated consent forms is
appropriate. While recognizing that investors may want to
minimize their risks in buying a loan, the Committee finds that
these practices can abuse the taxpayer consent process. It is
doubtful that a taxpayer is aware that by not dating the form,
it could be used months or years after the date it is executed.
Taxpayers may be unaware that a blank consent form which does
not designate a recipient can be used for purposes other than
those related to the transaction under which the request for
consent arose.
In addition, the IRS does not have the resources to verify
that the return information was used solely for the stated
purpose. The IRS estimates that it receives annually more than
800,000 requests from taxpayers directing that their returns or
return information be sent to a third party. Examples of third
party entities to which the IRS provides information include
financialinstitutions (including the mortgage banking
industry), colleges and universities, and Federal, State, and local
governmental entities.
The Committee believes that to preserve the integrity of
the consent process, a penalty must be placed on the third
party soliciting a taxpayer to sign an undated or otherwise
incomplete consent. Consistent with a taxpayer's reasonable
expectation of privacy, the Committee believes that limitations
should be placed on the use of returns and return information
obtained by consent.
Explanation of Provision
The provision renders invalid a consent that does not
designate a recipient or is not dated at the time of execution.
The person submitting the consent to the IRS is required to
verify under penalties of perjury that the form was complete
and dated at the time it was signed by the taxpayer. Inspection
or disclosure of a return or return information pursuant to an
invalid consent will be unauthorized under section 6103. Thus,
a person making such unauthorized disclosure or inspection
could be liable for civil damages under section 7431, and
criminal penalties under section 7213 or 7213A for willful
unauthorized disclosure or inspection. The Committee does not
intend to validate consents that do not otherwise comply with
the Treasury regulations. For example, a consent that does not
contain tax years or type of tax at the time of execution is
not valid, and this provision does not authorize disclosures
pursuant to such consents.
The provision requires the consent form prescribed by the
IRS to contain a warning, prominently displayed, informing the
taxpayer that he or she should not sign the form unless it is
complete. The provision requires the consent form to state that
if the taxpayer believes there is an attempt to coerce him to
sign an incomplete or blank form, the taxpayer should report
the matter to the Treasury Inspector General for Tax
Administration. The telephone number and address for the
Treasury Inspector General for Tax Administration would be
included on the form. Under the provision, all third parties
receiving returns and return information by consent would be
required to: (1) ensure that the information received will be
kept confidential; (2) use the information only for the purpose
for which it was requested; and (3) not further disclose the
information except to accomplish that purpose, unless a
separate consent from the taxpayer is obtained.
The Treasury Inspector General for Tax Administration is
required to submit a report to Congress on compliance with the
designation and certification requirements no later than 18
months after the date of enactment. Such report will evaluate
(on the basis of random sampling) whether the proposal is
achieving its purpose, whether requesters and submitters are
continuing to evade the purpose of the proposal, whether the
sanctions are adequate, and such recommendations as considered
necessary or appropriate to better achieve the purposes of the
proposal.
Effective Date
The provision applies to requests and consents made after
six months after the date of enactment.
I. Notice to Taxpayer Concerning Administrative Determination of
Browsing; Annual Report (Sec. 209 of the Bill and Sec. 7431(e) and New
Sec. 6103(p)(10) of the Code)
Present Law
Present law requires the IRS to notify a taxpayer that an
unlawful disclosure or inspection of the taxpayer's return or
return information has occurred when the offender has been
charged by criminal indictment or information.\89\ If the
offender is not so charged, present law does not require the
IRS to give notice to the taxpayer, even though the Treasury
Inspector General for Tax Administration has concluded that an
inspection or disclosure in violation of section 6103 has
occurred.
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\89\ Sec. 7431(e).
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The IRS is required under present law to provide, for
disclosure to the public, an annual report to the Joint
Committee on Taxation regarding authorized disclosures of
returns and return information \90\ The IRS is not required to
submit a report to Congress on unauthorized disclosures or
inspections of returns and return information.
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\90\ See sec. 6103(p)(3)(C).
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Reasons for Change
Currently, the IRS is not required to notify a taxpayer
that an unlawful disclosure or inspection of the taxpayer's
return or return information has occurred until the offender
has been charged by criminal indictment or information.\91\ The
Treasury Inspector General for Tax Administration investigates
and substantiates more unlawful access (browsing) and
disclosure cases than are accepted for prosecution by U.S.
Attorneys.\92\ The staff of the Joint Committee on Taxation
recently reported that the U.S. Attorneys declined to prosecute
more than 80 percent of the cases referred.\93\
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\91\ Sec. 7431(e).
\92\ See Joint Committee on Taxation, Study of Present-Law Taxpayer
Confidentiality and Disclosure Provisions as Required by Section 3802
of the Internal Revenue Service Restructuring and Reform Act of 1998,
Volume I: Study of General Disclosure Provisions (JCS-1-00) January 28,
2000 at 175-176.
\93\ Id.
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Notwithstanding the lack of a criminal prosecution, the
Committee believes that the IRS should make taxpayers aware
that their returns or return information has been unlawfully
accessed or disclosed. Thus, the IRS should notify the taxpayer
at the time Treasury Inspector General for Tax Administration
administratively determines that returns and return information
have been unlawfully accessed or disclosed.
The Committee also believes that the IRS should provide as
part of its public annual report to the Joint Committee on
Taxation information on unauthorized disclosures or inspections
of return and return information. The Committee believes such
information will allow review of the enforcement efforts in
this area and the extent to which taxpayer privacy is being
protected.
Explanation of Provision
Under the provision, the IRS is required to notify a
taxpayer at the point the Treasury Inspector General for Tax
Administration determines that a taxpayer's return or return
information has been disclosed or inspected without
authorization. The provision further requires the IRS to
provide information on unauthorized disclosures or inspections
of return and return information in its public annual report to
the Joint Committee on Taxation.
Effective Date
The provision is effective upon date of enactment as it
relates to notifying the taxpayer determinations of an unlawful
disclosure or inspection. As to the annual report requirement,
the provision is effective for calendar years ending after the
date of enactment.
J. Disclosure of Taxpayer Identity for Tax Refund Purposes (Sec. 210 of
the Bill and Sec. 6103(m)(1) of the Code)
Present Law
When the IRS is unable to find a taxpayer due a refund,
present law provides that the IRS may use ``the press or other
media'' to notify the taxpayer of the refund.\94\ Section
6103(m) allows the IRS to give the press taxpayer identity
information for this purpose.\95\
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\94\ Sec. 6103(m)(1). This section provides: The Secretary may
disclose taxpayer identity information to the press or other media for
purposes of notifying persons entitled to tax refunds when the
Secretary, after reasonable effort and lapse of time, has been unable
to locate such persons.
\95\ Sec. 6103(m)(1), and (b)(6) (definition of ``taxpayer
identity'').
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The IRS believes that the current statutory framework of
``press and other media'' does not permit disclosures via the
Internet. The legislative history of the present-law provision
does not address the meaning of ``press and other media.'' At
the time of the statute's enactment in 1976, the press
(newspapers and periodicals) and other traditional media were
the only means available for the IRS to distribute undelivered
refund information to the public. Thus, the IRS interprets the
term ``other media'' to exclude the Internet.
Reasons for Change
The National Taxpayer Advocate noted that ``[e]very year
many taxpayers move, do not give the IRS their new address, and
thousands of refund checks are returned by the post office
because they are undeliverable.'' \96\ In November 1999, the
IRS announced that the U.S. Postal Service returned 102,840
more refund checks as undeliverable.\97\ These checks totaled
$72 million, averaging almost $700 per check.\98\
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\96\ Internal Revenue Service, Publication 2104, FY 1999: National
Taxpayer Advocate's Annual Report to Congress, at IV-30 (December
1999).
\97\ Internal Revenue Service, Information Release IR-999-91
(November 9, 1999).
\98\ Id.
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Based on the National Taxpayer Advocate's report, it is the
understanding of the Committee that the current method of
notification, by newspaper, is ineffective.\99\ The Committee
believes that the IRS should be able to use any method of mass
communication, including the Internet, to reach a taxpayer who
is due a refund.
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\99\ Internal Revenue Service, Publication 2104, FY 1999: National
Taxpayer Advocate's Annual Report to Congress, at IV-31 (December
1999).
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Explanation of Provision
The provision allows the IRS to use any means of ``mass
communication,'' including the Internet, to notify the taxpayer
of an undelivered refund.
Effective Date
The provision would be effective upon date of enactment.
TITLE III--OTHER REQUIREMENTS
A. Clarification of Definition of Church Tax Inquiry (Sec. 301 of the
Bill and Sec. 7611 of the Code)
Present Law
Under present law, the IRS may begin a church tax inquiry
only if the IRS regional commissioner (or a higher official)
reasonably believes, on the basis of facts and circumstances
recorded in writing, that an organization (1) may not qualify
for tax exemption as a church, (2) may be carrying on an
unrelated trade or business, or (3) otherwise may be engaged in
taxable activities.\100\ A church tax inquiry is defined as any
inquiry to a church (other than an examination) that serves as
a basis for determining whether the organization qualified for
tax exemption as a church or whether it is carrying on an
unrelated trade or business or otherwise is engaged in taxable
activities. An inquiry is considered to commence when the IRS
request information or materials from a church or a type
contained in church records, other than routine requests for
information or inquiries regarding matters that do not
primarily concern the tax status or liability of the church
itself.
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\100\ Sec. 7611.
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reasons for change
The Committee believes that the present-law church tax
inquiry procedures provide important safeguards against the IRS
engaging in unnecessary and intrusive examinations of churches.
However, the church tax inquiry procedures also have the effect
of hampering IRS efforts to educate churches with respect to
actions that are not permissible under section 501(c)(3). The
Committee believes that a clarification of the scope of the
church tax inquiry procedures to make it clear that the IRS may
undertake educational outreach efforts with respect to specific
churches (e.g., initiating meetings with representatives of a
particular church to discuss the rules that apply to such
church) will improve compliance with the law by churches.
explanation of provision
The provision clarifies that the present-law church tax
inquiry procedures do not apply to contacts made by the IRS for
the purpose of educating churches with respect to the law
governing tax-exempt organizations. For example, the provision
clarifies that the IRS does not violate the church tax inquiry
procedures when written materials are provided to a church or
churches for the purpose of educating such church or churches
with respect to the types of activities that are not
permissible under section 501(c)(3).
effective date
The provision is effective on the date of enactment.
B. Extension of Declaratory Judgment Procedures to Non-501(c)(3) Tax-
Exempt Organizations and Failure of IRS To Act on Determinations
Treated as Exhaustion of Remedies (Sec. 302 of the Bill and Sec. 7428
of the Code)
Present Law
In order for an organization to be granted tax exemption as
a charitable entity described in section 501(c)(3), it
generally must file an application for recognition of exemption
with the IRS and receive a favorable determination of its
status. Similarly, for most organizations, a charitable
organization's eligibility to receive tax-deductible
contributions is dependent upon its receipt of a favorable
determination from the IRS. In general, a section 501(c)(3)
organization can rely on a determination letter or ruling from
the IRS regarding its tax-exempt status, unless there is a
material change in its character, purposes, or methods of
operation. In cases in which an organization violates one or
more of the requirements for tax exemption under section
501(c)(3), the IRS is authorized to revoke an organization's
tax exemption, notwithstanding an earlier favorable
determination.
In situations in which the IRS denies an organization's
application for recognition of exemption under section
501(c)(3) or fails to act on such application, or in which the
IRS informs a section 501(c)(3) organization that it is
considering revoking or adversely modifying its tax-exempt
status, present law authorizes the organization to seek a
declaratory judgment regarding its tax status (sec. 7428).
Section 7428 provides a remedy in the case of a dispute
involving a determination by the IRS with respect to: (1) the
initial qualification or continuing qualification of an
organization as a charitable organization for tax exemption
purposes or for charitable contribution deduction purposes; (2)
the initial classification or continuing classification of an
organization as a private foundation; (3) the initial
classification or continuing classification of an organization
as a private operating foundation; or (4) the failure of the
IRS to make a determination with respect to (1), (2), or (3). A
``determination'' in this context generally means a final
decision by the IRS affecting the tax qualification of a
charitable organization, although it also can include a
proposed revocation of an organization's tax-exempt status or
public charity classification. Section 7428 vests jurisdiction
over controversies involving such a determination in the U.S.
District Court for the District of Columbia, the U.S. Court of
Federal Claims, and the U.S. Tax Court.
Prior to utilizing the declaratory judgment procedure, an
organization must have exhausted all administrative remedies
available to it within the IRS. An organization is deemed to
have exhausted its administrative remedies at the expiration of
270 days after the date on which the request for a
determination was made if the organization has taken, in a
timely manner, all reasonable steps to secure such
determination.
If an organization (other than a section 501(c)(3)
organization) files an application for recognition of exemption
and receives a favorable determination from the IRS, the
determination of tax-exempt status is usually effective as of
the date of formation of the organization if its purposes and
activities during the period prior to the date of the
determination letter were consistent with the requirements for
exemption. However, if the organization files an application
for recognition of exemption and later receives an adverse
determination from the IRS, the IRS may assert that the
organization is subject to tax on some or all of its income for
open taxable years. In addition, as with charitable
organizations, the IRS may revoke or modify an earlier
favorable determination regarding an organization's tax-exempt
status.
Under present law, a non-charity (i.e., an organization not
described in section 501(c)(3)) may not seek a declaratory
judgment with respect to an IRS determination regarding its
tax-exempt status. The only remedies available to such an
organization are to petition the U.S. Tax Court for relief
following the issuance of a notice of deficiency or to pay any
tax owed and sue for refund in federal district court or the
U.S. Court of Federal Claims.
reasons for change
The Committee believes that it is important to provide
certainty for organizations that have sought a determination of
their tax-exempt status. Thus, the Committee finds it
appropriate to extend the present-law declaratory judgment
procedures to all organizations that apply for tax-exempt
status as organizations described in section 501(c). In
addition, the Committee is aware that certain issues relating
to determinations of tax-exempt status are forwarded to the IRS
National Office and certain of these determinations may take
extensive time to resolve by the IRS National Office. The
Committee finds it appropriate to permit an organization to
seek a declaratory judgment if a determination has been pending
in the IRS National Office for more than 180 days after the
organization has taken, in a timely manner, all reasonable
steps to secure such determination, if that period is shorter
than the normal 270 day period.
explanation of provision
The provision extends declaratory judgment procedures
similar to those currently available only to charities under
section 7428 to other section 501(c) determinations. The
provision limits jurisdiction over controversies involving such
determinations to the United States Tax Court.\101\
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\101\ This limitation currently applies to declaratory judgments
relating to tax qualification for certain employee retirement plans
(sec. 7476).
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In addition, the provision modifies the present-law
declaratory judgment procedures to provide that an organization
is deemed to have exhausted its administrative remedies under
the declaratory judgment procedures at the expiration of (1)
270 days after the date on which the request for a
determination was made if the organization has taken, in a
timely manner, all reasonable steps to secure such
determination, or (2) in the case of a failure by any office of
the IRS (other than the office responsible for initial
determinations with respect to the organization (the ``initial
office'')), 180 days after any request with respect to such
determination was made by the initial office if the
organization has taken, in a timely manner, all reasonable
steps to secure such determination.
effective date
The extension of the declaratory judgment procedures to
organizations other than section 501(c)(3) organizations is
effective for pleadings with respect to determinations made
after the date of enactment. The provision modifying the time
that an organization is deemed to have exhausted it
administrative remedies is effective on the date of enactment.
C. Employee Misconduct Report To Include Summary of Complaints by
Category (Sec. 303 of the Bill and Sec. 7803(d)(2) of the Code)
present law
The Treasury Inspector General for Tax Administration is
subject to the semi-annual reporting requirements set forth in
section 5 of the Inspector General Act of 1978. Under present
law, reports are made to the Committees on Government Reform
and Oversight and Ways and Means in the House of
Representatives and the Committees on Governmental Affairs and
Finance in the Senate. Each semi-annual report is required to
include information regarding the source, nature and status of
taxpayer complaints and allegations of serious misconduct by
IRS employees received by the IRS or by the Treasury Inspector
General for Tax Administration.
reasons for change
The Committee believes that the information available to
the Congress and the public under present law would be enhanced
by additional reporting of the types of allegations made with
respect to IRS employee misconduct and the number of complaints
made with respect to the most common types of allegations.
explanation of provision
The provision modifies the semi-annual reporting
requirement for the Treasury Inspector General for Tax
Administration to require that the reporting with respect to
allegations of serious IRS employee misconduct include a
summary (by category) of the 10 most common complaints made and
the number of such common complaints (by category).
effective date
The provision is effective for reporting periods ending
after the date of enactment.
D. Increase Joint Committee on Taxation Refund Review Threshold to $2
Million (Sec. 304 of the Bill and Sec. 6405 of the Code)
Present Law
No refund or credit in excess of $1,000,000 of any income
tax, estate or gift tax, or certain other specified taxes, may
be made until 30 days after the date a report on the refund is
provided to the Joint Committee on Taxation (sec. 6405). A
report is also required in the case of certain tentative
refunds. Additionally, the staff of the Joint Committee on
Taxation conducts post-audit reviews of large deficiency cases
and other select issues.
Reasons for Change
The Committee believes that it is appropriate to increase
the refund review threshold, which has been set at $1,000,000
since 1990. Increasing it will accelerate the issuance of
refunds between $1,000,000 and $2,000,000 to the taxpayers
involved. In addition, this increase will free up significant
resources of both the Internal Revenue Service and the staff of
the Joint Committee on Taxation, without materially impairing
the ability to monitor problems in the administration of the
tax laws.
Explanation of Provision
The provision increases the threshold above which refunds
must be submitted to the Joint Committee on Taxation for review
from $1,000,000 to $2,000,000. The staff of the Joint Committee
on Taxation would continue to exercise its existing statutory
authority to conduct a program of expanded post-audit reviews
of large deficiency cases and other select issues, and the IRS
is expected to cooperate fully in this expanded program.
Effective Date
The provision is effective on the date of enactment, except
that the higher threshold does not apply to a refund or credit
with respect to which a report was made before the date of
enactment.
E. Annual Report on Awards of Costs and Certain Fees in Administrative
and Court Proceedings (Sec. 305 of the Bill)
Present Law
The Code requires that the IRS pay a taxpayer's reasonable
administrative and litigation expenses under specified
circumstances.\102\ Among other requirements, the IRS is not
required to pay these amounts if the IRS can demonstrate that
its position was substantially justified.
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\102\ Sec. 7430.
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Reasons for Change
The fact that the IRS paid these expenses may be an
indication that its position was not substantially justified,
as well as an indication that the IRS may be inappropriately
pursuing an issue. The lack of published statistics and
analytical information hinders the Congress and taxpayers from
assessing the extent to which the IRS may be inappropriately
pursuing an issue and from pursuing potential remedies to
alleviate this problem.
Explanation of Provision
The bill requires TIGTA to publish annually statistics on
the number of payments (whether as a result of a settlement or
judicial decision) made pursuant to section 7430 and the amount
of each such payment. TIGTA would also be required to publish
an analysis of the administrative issues that gave rise to the
necessity of making these payments and the changes (if any)
that will be implemented by the IRS as a result of TIGTA's
analysis, as well as any other changes that TIGTA recommends on
the basis of its analysis. This will permit the Congress to
assess the extent to which the IRS may be inappropriately
pursuing an issue and to pursue potential remedies to alleviate
this problem.
Effective Date
The first annual report is required for fiscal year 2000.
The reports must be published no later than three months
following the close of the fiscal year.
F. Annual Report on Abatements of Penalties (Sec. 306 of the Bill)
Present Law
Some penalties in the Code are imposed automatically (such
as for failure to file or failure to pay), while others are
imposed in response to the specific factual situation presented
on a tax return (such as negligence). In addition, some
penalties can be abated automatically, while others are abated
in response to a specific factual presentation made by the
taxpayer. In general, most penalties can be abated for
reasonable cause, but the details of what constitutes
reasonable cause can vary somewhat from penalty to penalty as a
reflection of the differences in the types of behaviors that
the different penalties are designed to deter.
Reasons for Change
Both the manner in which penalties are imposed and the
manner in which they are abated can present issues for
consideration with respect to the uniformity of penalty
administration. The system of penalty administration has a
number of goals and it is not always possible to reconcile them
completely. One goal is uniformity of application of penalties
(both in their original imposition and in their abatement) for
similarly situated taxpayers. Another goal is to reflect the
individual circumstances surrounding the failure for which the
taxpayer is being penalized. Another goal is to provide rapid
resolution for taxpayers of disputes with the IRS, including
disputes over penalties. Accomplishing this goal entails giving
``front line'' IRS employees the authority to resolve disputes
(within certain parameters) on their own authority.
One challenge in providing proper tax administration is
balancing all of these goals so that one does not predominate
at the expense of the others. For example, one theoretical way
to maximize uniformity might be to centralize the
administration of penalties in one office. This would, however,
make it more difficult for taxpayers to reach a rapid
resolution of their disputes with the IRS, because it could be
more difficult for taxpayers to deal with a centralized penalty
administration structure than with the current locally-based
structure. It could also present administrative difficulties,
such as divorcing decisions concerning penalties from decisions
concerning the underlying liability, when in reality the two
may be inextricably interconnected. On the other hand, the
maximization of the goal of reflecting individual circumstances
could adversely affect both uniformity and the rapid resolution
of disputes. Similarly, maximizing the rapid resolution of
disputes could adversely affect both uniformity and
individualization.
Balancing these goals necessarily means that any one of
them will not be maximized. Accordingly, a balanced approach
means that some compromises will have to be made to permit the
most appropriate balancing of these goals.
Explanation of Provision
The bill requires TIGTA to report to the Congress annually
on penalty abatements and the reasons and criteria for
abatements. Better statistical information will enable more
rigorous analysis of the systems to occur, which will provide
the opportunity for problems to surface and be dealt with in a
systematic manner.
Effective Date
The first annual report is required for fiscal year 2000.
The reports must be provided to the Congress no later than six
months following the close of the fiscal year.
G. Better Means of Communicating with Taxpayers (Sec. 307 of the Bill)
Present Law
The IRS generally communicates with taxpayers (or their
designated representatives) in one of three methods: by mail,
by telephone, or in person. Many telephone or in person
contacts are initiated by the taxpayer, whereas many mail
contacts are initiated by the IRS.
Reasons for Change
Many of the difficulties taxpayers encounter in the course
of communicating with the IRS are inherent to mail
communications: documents missing in the mail, difficulties in
forwarding documents, maintaining updated address records, etc.
The Committee believes that it will be beneficial to receive an
evaluation of whether technological advances, such as e-mail
and the fax, could permit the utilization of alternate means of
communicating with taxpayers, which in turn could eliminate
some of the difficulties with the present system.
Explanation of Provision
The bill requires TIGTA to issue a report to the Congress
evaluating whether technological advances, such as e-mail and
the fax, permit the utilization of alternate means of
communicating with taxpayers to eliminate some of the
difficulties with the present system.
Effective Date
The report must be issued no later than 18 months after the
date of enactment.
H. Information Regarding Statute of Limitations (Sec. 308 of the Bill)
Present Law
In general, a taxpayer must file a refund claim within
three years of the filing of the return or within two years of
the payment of the tax, whichever period expires later (if no
return is filed, the two-year limit applies).\103\ A refund
claim that is not filed within these time periods is rejected
as untimely.
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\103\ Sec. 6511(a).
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A special rule applies during periods of disability.
Equitable tolling of the statute of limitations for refund
claims of an individual taxpayer applies during any period in
which an individual is unable to manage his or her financial
affairs by reason of a medically determinable physical or
mental impairment that can be expected to result in death or to
last for a continuous period of not less than 12 months.
Equitable tolling does not apply during periods in which the
taxpayer's spouse or another person is authorized to act on the
taxpayer's behalf in financial matters.
There is no requirement that IRS publications contain
information that both describes this statute of limitations
provision and explains the consequences of failing to file
within the time period prescribed by the statute of
limitations.
Reasons for Change
Some taxpayers who are due refunds fail to file tax returns
by the due date. Several years later they realize that they owe
additional taxes to the IRS for that later year and attempt to
offset the amount that they owe against the refund that they
were due for the earlier year. They are unable to do so,
however, if their claim for the refund is filed beyond the
statutorily specified deadline. The Committee recognizes that
in general statutes of limitations promote important policy
goals of repose and certainty. The Committee also believes that
it is important that taxpayers be adequately informed of the
operation of these provisions so that they are not
inadvertently disadvantaged by consequences that they did not
foresee.
Explanation of Provision
The bill requires the IRS to revise Publication 1 (``Your
Rights as a Taxpayer'') by adding an explanation of the
consequences of failing to file within the time period
prescribed by the statute of limitations to the section on
refunds that describes the statute of limitations. The bill
also requires the IRS to revise the instructions that accompany
all of the Form 1040 packages (including 1040A and 1040EZ) in a
similar manner to add a description of this statute of
limitations and an explanation of the consequences of failing
to file within the time period prescribed by the statute of
limitations.
Effective Date
The revisions to Publication 1 are required to be made as
soon as practicable, but not later than 180 days after the date
of enactment. The revisions to the Form 1040 instructional
packages are required to be made for instructions for taxable
years beginning after December 31, 1999.
III. VOTES OF THE COMMITTEE
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the following statements are made
concerning the votes of the Committee on Ways and Means in its
consideration of the bill, H.R. 4163.
MOTION TO REPORT THE BILL
The bill, H.R. 4163, as amended, was ordered favorably
reported by voice vote.
VOTES ON AMENDMENTS
A rollcall vote was conducted on the following amendment to
the Chairman's amendment in the nature of a substitute.
An amendment by Mr. Doggett, relating to disclosure
requirements for political organizations under Section 527 of
the Internal Revenue Code, was defeated by a rollcall vote of
15 yeas to 21 nays. The vote was as follows:
----------------------------------------------------------------------------------------------------------------
Representatives Yea Nay Present Representatives Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Archer..................... ........ X ......... Mr. Rangel....... X ........ .........
Mr. Crane...................... ........ ........ ......... Mr. Stark........ X ........ .........
Mr. Thomas..................... ........ X ......... Mr. Matsui....... X ........ .........
Mr. Shaw....................... ........ X ......... Mr. Coyne........ X ........ .........
Mrs. Johnson................... ........ X ......... Mr. Levin........ X ........ .........
Mr. Houghton................... ........ X ......... Mr. Cardin....... X ........ .........
Mr. Herger..................... ........ X ......... Mr. McDermott.... X ........ .........
Mr. McCrery.................... ........ X ......... Mr. Kleczka...... X ........ .........
Mr. Camp....................... ........ X ......... Mr. Lewis (GA)... X ........ .........
Mr. Ramstad.................... ........ X ......... Mr. Neal......... ........ ........ .........
Mr. Nussle..................... ........ X ......... Mr. McNulty...... X ........ .........
Mr. Johnson.................... ........ ........ ......... Mr. Jefferson.... X ........ .........
Ms. Dunn....................... ........ X ......... Mr. Tanner....... X ........ .........
Mr. Collins.................... ........ X ......... Mr. Becerra...... X ........ .........
Mr. Portman.................... ........ X ......... Mrs. Thurman..... X ........ .........
Mr. English.................... ........ X ......... Mr. Doggett...... X ........ .........
Mr. Watkins.................... ........ X .........
Mr. Hayworth................... ........ X .........
Mr. Weller..................... ........ X .........
Mr. Hulshof.................... ........ X .........
Mr. McInnis.................... ........ X .........
Mr. Lewis (KY)................. ........ X .........
Mr. Foley...................... ........ X .........
----------------------------------------------------------------------------------------------------------------
IV. BUDGET EFFECTS OF THE BILL
A. Committee Estimate of Budgetary Effects
In compliance with clause 3(d)(2) of rule XIII of the Rules
of the House of Representatives, the following statement is
made concerning the effects on the budget of the revenue
provisions of the bill, H.R. 4163, as reported.
The bill is estimated to have the following effects on
budget receipts for fiscal years 2000-2005:
ESTIMATED BUDGET EFFECTS OF THE ``TAXPAYER BILL OF RIGHTS 2000,'' AS ORDERED TO BE REPORTED BY THE COMMITTEE ON
WAYS AND MEANS ON APRIL 5, 2000
[Fiscal years 2000-2005 in [millions of dollars]
----------------------------------------------------------------------------------------------------------------
Provision Effective 2000 2001 2002 2003 2004 2005 2000-05
----------------------------------------------------------------------------------------------------------------
Penalties and Interest
Provisions:
1. Convert penalty for tyba 12/31/00..... ...... -66 -68 -70 -72 -74 -348
failure to pay
estimated tax into an
interest provision and
increase and mostly
threshold.
2. Simplify estimated tyba 12/31/00..... Negligible Revenue Effect
tax calculation.
3. Exclude interest on ipi cyba DOE...... ...... 1,902 -85 -87 -88 -91 1,552
individual Federal
income tax overpayments.
4. Failure to pay
penalty:
a. Repeal penalty in pma 12/31/00...... ...... -144 -178 -184 -189 -195 -890
installment agreements.
b. Reduce penalty by one pma 12/31/00...... ...... -145 -458 -472 -486 -501 -2,362
half for all other
taxpayers.
5. Abatement of interest iao/a DOE......... ...... -3 -6 -10 -15 -23 -56
6. Qualified reserve ipa DOE........... 100 49 -4 -4 -4 -4 137
account.
7. Apply interest iao/a 12/31/00.... ...... -25 -26 -27 -28 -28 -134
netting to individuals
without regard to 45-
day period of section
6611(e).
---------------------------------------------------------------
Total of Penalties and .................. ...... 1,319 -772 -854 -882 -916 -2,101
Interest Provisions.
Confidentiality and .................. No Revenue Effect
Disclosure Provisions.
Other Requirements
Provisions:
1. Expansion of generally DOE..... Negligible Revenue Effect
declaratory judgment
remedy to tax-exempt
organizations.
2. Increase in threshold DOE............... Negligible Revenue Effect
for Joint Committee
reports on refunds and
credits.
3. Other provisions..... .................. Negligible Revenue Effect
Total of Other .................. Negligible Revenue Effect
Requirements
Provisions.
Net Total............. .................. ...... 1,319 -772 -854 -882 -916 -2,101
----------------------------------------------------------------------------------------------------------------
Legend for ``Effective'' column: DOE=date of enactment; cyba=calendar years beginning after; iao/a=interest
accruing on or after; ipa=interest for periods after; ipi=interest paid in; pma=payments made after;
tyba=taxable years beginning after.
Note.--Details may not add to totals due to rounding.
Source: Joint Committee on Taxation.
B. Statement Regarding New Budget Authority and Tax Expenditures
Budget authority
In compliance with clause 3(c)(2) of Rule XIII of the Rules
of the House of Representatives, the Committee states that the
bill involves no new or increased budget authority.
Tax expenditures
In compliance with clause 2(c)(2) of Rule XIII of the Rules
of the House of Representatives, the Committee states that the
revenue-reducing income tax provisions involve increased tax
expenditures. (See amounts in table in Part IV.A., above.)
C. Cost Estimate Prepared by the Congressional Budget Office
In compliance with clause 3(c)(3) of Rule XIII of the Rules
of the House of Representatives, requiring a cost estimate
prepared by the Congressional Budget Office (``CBO''), the
following statement by CBO is provided.
U.S. Congress,
Congressional Budget Office,
Washington, DC, April 10, 2000.
Hon. Bill Archer,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 4163, the Taxpayer
Bill of Rights 2000.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contacts are Hester
Grippando (for revenues) and John Righter (for direct
spending).
Sincerely,
Barry B. Anderson
(For Dan L. Crippen, Director).
Enclosure.
H.R. 4163--Taxpayer Bill of Rights 2000
Summary: H.R. 4163 would impose new confidentiality and
disclosure requirements on the government with regard to
taxpayer information. In addition, the bill would reduce or
repeal certain penalties for failure to pay taxes; allow
taxpayers to exclude interest earned from overpayments of
federal income tax from their income; allow the Secretary of
Treasury to abate interest on overdue tax payments in certain
additional situations; allow taxpayers to create dispute-
reserve accounts whose funds may be applied to offset a tax
underpayment; and apply interest netting rules without regard
to the 45-day period during which the Treasury may refund
overpayments without interest.
The Joint Committee on Taxation (JCT) estimates that the
bill would increase revenues by $1.3 billion in 2001, reduce
revenues by about $2.1 billion over the 2001-2005 period, and
reduce revenues by about $7.3 billion over the 2001-2010
period. In addition, the bill would affect direct spending, but
CBO estimates that such amounts would total less than $500,000
each year. Because the bill would affect direct spending and
receipts, pay-as-you-go procedures would apply.
H.R. 4163 contains one new intergovernmental mandate, the
costs of which would not exceed the threshold for
intergovernmental mandates ($55 million in fiscal year 2000,
adjusted annually for inflation) established in the Unfunded
Mandates Reform Act (UMRA). H.R. 4163 contains no private-
sector mandates as defined in UMRA.
Estimated cost to the Federal Government: The estimated
budgetary impact of H.R. 4163 is shown in the following table.
----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-----------------------------------------------------
2000 2001 2002 2003 2004 2005
----------------------------------------------------------------------------------------------------- -------------
CHANGES IN REVENUES
Estimated revenues............................. 0 1,319 -772 -854 -882 -916
CHANGES IN DIRECT SPENDING
Estimated budget authority..................... 0 (\1\) (\1\) (\1\) (\1\) (\1\)
Estimated outlays.............................. 0 (\1\) (\1\) (\1\) (\1\) (\1\)
----------------------------------------------------------------------------------------------------------------
\1\ Less than $500,000.
Sources: Joint Committee on Taxation and Congressional Budget Office.
Basis of Estimate
Revenues
Estimates of all revenue provisions in H.R. 4163 were
provided by JCT.
direct spending
In addition to the bill's estimated effect on revenues,
enacting H.R. 4163 would affect direct spending, but CBO
estimates that the net effect of such changes would be less
than $500,000 each year.
Under current law, taxpayers can elect to pay their taxes
through installments. The Internal Revenue Service (IRS)
charges a fee of $43 for each installment agreement, which it
can retain and spend without further appropriation action. For
those taxpayers who allow the IRS to automatically withdraw
each installment payment directly from their bank account, H.R.
4163 would waive the payment of the processing fee. Because the
IRS can retain and spend such amounts, the loss of offsetting
receipts (a form of direct spending) from not collecting the
fees would be offset by an equivalent reduction in spending,
resulting in a net budgetary impact of less than $500,000 each
year.
In addition, enacting H.R. 4613 could increase the amount
of penalties awarded taxpayers in administrative or court
proceedings. CBO estimates that the amount of such penalties,
which would be paid for from the permanent, indefinite
appropriation for claims and judgments, would total less than
$500,000 each year.
Pay-as-you-go consideration: The Balanced Budget and
Emergency Deficit Control Act sets up pay-as-you-go procedures
for legislation affecting direct spending or receipts. The net
changes in outlays and governmental receipts that are subject
to pay-as-you-go procedures are shown in the following table.
For the purposes of enforcing pay-as-you-go procedures, only
the effects in the current year, the budget year, and the
succeeding four years are counted.
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-----------------------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in outlays................................ 0 0 0 0 0 0 0 0 0 0 0
Changes in receipts............................... 0 1,319 -772 -854 -882 -916 -953 -993 -1,040 -1.090 -1,146
--------------------------------------------------------------------------------------------------------------------------------------------------------
Estimated impact on State, local and tribal governments:
The provision in H.R. 4163 that would ensure compliance by
state contractors with confidentiality safeguards on tax return
information would impose a mandate on state, local, and tribal
governments. JCT estimates the costs of this mandate would not
exceed the threshold for intergovernmental mandates ($55
million in fiscal year 2000, adjusted annually for inflation)
established in UMRA.
Estimated impact on the private sector: As estimated by
JCT, the bill contains no private-sector mandates as defined in
UMRA.
Estimate prepared by: Federal revenues: Hester Grippando;
Federal spending: John Righter.
Estimate approved by: Peter H. Fontaine, Deputy Assistant
Director for Budget Analysis; G. Thomas Woodward, Assistant
Director for Tax Analysis.
V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE
A. Committee Oversight Findings and Recommendations
With respect to clause 3(c)(1) of rule XIII of the Rules of
the House of Representatives (relating to oversight findings),
the Committee advises that it was a result of the Committee's
oversight review concerning fairness to individual taxpayers
that the Committee concluded that it is appropriate and timely
to enact the revenue provisions included in the bill as
reported.
B. Summary of Findings and Recommendations of the Committee on
Government Reform
With respect to clause 3(c)(4) of rule XII of the Rules of
the House of Representatives, the Committee advises that no
oversight findings or recommendations have been submitted to
this Committee by the Committee on Government Reform with
respect to the provisions contained in the bill.
C. Constitutional Authority Statement
With respect to clause 3(d)(1) of rule XIII of the Rules of
the House of Representatives (relating to Constitutional
Authority), the Committee states that the Committee's action in
reporting this bill is derived from Article I of the
Constitution, Section 8 (``The Congress shall have Power To lay
and collect Taxes, Duties, Imposts and Excises * * *''), and
from the 16th Amendment to the Constitution.
D. Information Relating to Unfunded Mandates
This information is provided in accordance with section 423
of the Unfunded Mandates Act of 1995 (P.L. 104-4).
The Committee has determined that the bill does not contain
Federal mandates on the private sector. The provision that
ensures compliance by State contractors with confidentiality
safeguards (sec. 207) imposes Federal intergovernmental
mandates on State, local and tribal governments. The staff of
the Joint Committee on Taxation estimates that the direct costs
of complying with these Federal intergovernmental mandates will
not exceed $50,000,000 in either the first fiscal year or in
any of the 4 fiscal years following the first fiscal year.
E. Applicability of House Rule XXI5(b)
Rule XXI5(b) of the Rules of the House of Representatives
provides, in part, that ``No bill or joint resolution,
amendment, or conference report carrying a Federal income tax
rate increase shall be considered as passed or agreed to unless
determined by a vote of not less than three-fifths of the
Members.'' The Committee has carefully reviewed the provisions
of the bill, and states that the provisions of the bill do not
involve any Federal income tax rate increase within the meaning
of the rule.
F. Tax Complexity Analysis
The following tax complexity analysis is provided pursuant
to section 4022(b) of the Internal Revenue Service Reform and
Restructuring Act of 1998, which requires the staff of the
Joint Committee on Taxation (in consultation with the Internal
Revenue Service (``IRS'') and the Treasury Department) to
provide a complexity analysis of tax legislation reported by
the House Committee on Ways and Means, the Senate Committee on
Finance, or a Conference Report containing tax provisions. The
complexity analysis is required to report on the complexity and
administrative issues raised by provisions that directly or
indirectly amend the Internal Revenue Code and that have
widespread applicability to individuals or small businesses.
For each such provision identified by the staff of the Joint
Committee on Taxation, a summary description of the provision
is provided, along with an estimate of the number and the type
of affected taxpayers, and a discussion regarding the relevant
complexity and administrative issues.
Following the analysis of the staff of the Joint Committee
on Taxation are the comments of the IRS regarding each of the
provisions included in the complexity analysis, including a
discussion of the likely effect on IRS forms and any expected
impact on the IRS.
1. Partial Repeal and Reduction in the Penalty for Failure to Pay Tax
Summary description of provision
The bill repeals the penalty for failure to pay tax for
taxpayers with respect to whom an installment payment agreement
with the IRS is in effect, provided that the taxpayer filed the
tax return in a timely manner (including extensions). The bill
also reduces by half the failure to pay tax penalty for all
other taxpayers (generally, those who have not entered into an
installment payment agreement with the IRS). In addition, the
bill provides that taxpayers who enter into installment
agreements are not required to pay the present-law $43 fee for
installment agreements while automated withdrawals of
installment payments are made directly from their bank account.
Number of affected taxpayers
It is estimated that the provision will affect
approximately thirteen million taxpayers.
Discussion
The provision should not result in an increase in disputes
with the IRS. Regulatory guidance may be useful to taxpayers in
explaining this provision. In addition, the provision should
not increase individuals' tax preparation costs.
In general, the provision either eliminates or reduces by
half the penalty for failure to pay tax. It does not increase
the penalty for any taxpayer. Accordingly, taxpayers are
directly benefitted by the provision.
It is anticipated that some individuals will need to keep
additional records due to this provision. There are two reasons
for this. First, the provision repeals the penalty for failure
to pay tax for taxpayers with respect to whom an installment
payment agreement with the IRS is in effect, provided that the
taxpayer filed the tax return in a timely manner (including
extensions). Thus, taxpayers will have an added incentive to
enter into an installment payment agreement with the IRS.
Accordingly, taxpayers who respond to the provision by entering
into installment agreements who would not otherwise have done
so will be required to complete and keep the additional
paperwork that is prerequisite to obtaining an installment
agreement. It is anticipated that these taxpayers will view the
benefit of eliminating the penalty for failure to pay tax as
outweighing the recordkeeping requirement. Second, the bill
provides that taxpayers who enter into installment agreements
are not required to pay the present-law $43 fee for installment
agreements while automated withdrawals of installment payments
are made directly from their bank account. To avail themselves
of this provision, taxpayers will have to complete and keep the
additional paperwork that is prerequisite to establishing the
automated withdrawal of payments. It is anticipated that
taxpayers will view the benefit of not having to pay the $43
fee (and of not having to write and mail monthly checks) as
outweighing the recordkeeping requirement.
Department of the Treasury,
Internal Revenue Service,
Washington, DC, April 6, 2000.
Ms. Lindy L. Paull,
Chief of Staff, Joint Committee on Taxation,
Washington, DC.
Dear Ms. Paull: Enclosed are the combined comments of the
Internal Revenue Service and the Treasury Department on the
amendments to the failure to pay penalty in the House Committee
on Ways and Means markup of the ``Taxpayer Bill of Rights
2000,'' that you identified for complexity analysis in your
letter of April 4, 2000. Our comments are based on the
description of those amendments in JCX-43-00, Joint Committee
on Taxation, An Amendment in the Nature of a Substitute to the
Provisions of the ``Taxpayer Bill of Rights 2000,'' April 4,
2000.
Due to the short turnaround time, our comments are
provisional and subject to change upon a more complete and in-
depth analysis of the provisions.
Sincerely,
Charles O. Rossotti.
Enclosure.
COMPLEXITY ANALYSIS OF FAILURE TO PAY AMENDMENTS IN THE TAXPAYER BILL
OF RIGHTS 2000
Provisions
Reduce the current 0.5 percent per month failure to pay
penalty and 1.0 percent a month special rate for months after
the IRS informs the taxpayer that IRS will levy upon the
taxpayer's assets, to 0.25 and 0.5 percent per month,
respectively. Reduce to zero the current 0.25 percent per month
failure to pay penalty for individuals during periods an
installment agreement is in effect. Prohibit the IRS from
charging taxpayers a fee for entering into an installment
agreement so long as payments under the agreement are made by
means of electronic transfer or by similar automated means. The
reduced penalty rates apply to months beginning after December
31, 2000. The prohibition on fees for installment agreements
using automated withdrawals applies to agreements entered into
more than 30 days after date of enactment.
IRS and Treasury comments
All tax form instructions that currently mention the
failure to pay rates would have to be modified to reflect the
reduced rates. In addition, the instructions to Form 9465,
Installment Agreement Request, would have to be revised to
reflect the prohibition on installment agreement user fees
(i.e., a zero user fee) where taxpayers agreed to make payments
by means of electronic transfer or by similar automated means.
The provisions would not require new tax forms.
All taxpayer notices, Internal Revenue manuals, and
taxpayer information materials that currently mention the
failure to pay rates or installment agreement user fees, would
have to be revised to reflect the reduced failure to pay rates
and zero user fees for installment agreements where the
taxpayer agrees to make payments by means of electronic
transfer. Regulations or other published guidance may be
needed.
The programming changes needed to reflect the failure to
pay reductions are comprehensive and affect a significant
number of MasterFile and Compliance systems programs. Current
programming resources are fully allocated to implementation of
other legislatively mandated changes, including those required
by the IRS Restructuring and Reform Act of 1998. To fully test
and implement the programming changes for the failure to pay
reductions, IRS would need at least 12 months lead time. Since
most MasterFile and Compliance systems program updates reflect
calendar changes, IRS recommends that the failure to pay
reductions be effective at the beginning of a calendar year.
VII. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italics, existing law in which no change
is proposed is shown in roman):
INTERNAL REVENUE CODE OF 1986
* * * * * * *
Subtitle A--Income Taxes
* * * * * * *
CHAPTER 1--NORMAL TAXES AND SURTAXES
* * * * * * *
Subchapter B--Computation of Taxable Income
* * * * * * *
PART III--ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
Sec. 101. Certain death benefits.
* * * * * * *
[Sec. 139. Cross References to other Acts.]
Sec. 139. Exclusion from gross income for interest on
overpayments of income tax by individuals.
Sec. 139A. Cross references to other Acts.
* * * * * * *
SEC. 139. EXCLUSION FROM GROSS INCOME FOR INTEREST ON OVERPAYMENTS OF
INCOME TAX BY INDIVIDUALS.
(a) In General.--In the case of an individual, gross income
shall not include interest paid under section 6611 on any
overpayment of tax imposed by this subtitle.
(b) Exception.--Subsection (a) shall not apply in the case of
a failure to claim items resulting in the overpayment on the
original return if the Secretary determines that the principal
purpose of such failure is to take advantage of subsection (a).
(c) Special Rule for Determining Modified Adjusted Gross
Income.--For purposes of this title, interest not included in
gross income under subsection (a) shall not be treated as
interest which is exempt from tax for purposes of sections
32(i)(2)(B) and 6012(d) or any computation in which interest
exempt from tax under this title is added to adjusted gross
income.
SEC. [139.] 139A. CROSS REFERENCES TO OTHER ACTS.
(a) For exemption of--
* * * * * * *
PART IV--TAX EXEMPTION REQUIREMENT FOR STATE AND LOCAL BONDS
* * * * * * *
SEC. 167. DEPRECIATION.
(a) * * *
* * * * * * *
(g) Depreciation Under Income Forecast Method.--
(1) * * *
* * * * * * *
(5) Special rules.--
(A) * * *
* * * * * * *
(D) Collection of interest.--For purposes of
subtitle F (other than sections [6654] 6641 and
6655), any interest required to be paid by the
taxpayer under paragraph (1) for any
recomputation year shall be treated as an
increase in the tax imposed by this chapter for
such year.
* * * * * * *
Subchapter E--Accounting Periods and Methods of Accounting
* * * * * * *
PART II--METHODS OF ACCOUNTING
* * * * * * *
Subpart B--Taxable Year for Which Items of Gross Income Included
* * * * * * *
SEC. 460. SPECIAL RULES FOR LONG-TERM CONTRACTS.
(a) * * *
(b) Percentage of Completion Method.--
(1) Requirements of percentage of completion
method.--Except as provided in paragraph (2), in the
case of any long-term contract with respect to which
the percentage of completion method is used--
(A) * * *
* * * * * * *
For purposes of subtitle F (other than sections [6654]
6641 and 6655) any interest required to be paid by the
taxpayer under subparagraph (B) shall be treated as an
increase in the tax imposed by this chapter for the
taxable year in which the contract is completed (or, in
the case of interest payable with respect to any amount
properly taken into account after completion of the
contract, for the taxable year in which the amount is
so properly taken into account).
* * * * * * *
Subtitle C--Employment Taxes
* * * * * * *
CHAPTER 25--GENERAL PROVISIONS RELATING TO EMPLOYMENT TAXES
* * * * * * *
SEC. 3510. COORDINATION OF COLLECTION OF DOMESTIC SERVICE EMPLOYMENT
TAXES WITH COLLECTION OF INCOME TAXES.
(a) * * *
* * * * * * *
(b) Domestic Service Employment Taxes Subject to Estimated
Tax Provisions.--
(1) In general.--Solely for purposes of [section
6654] section 6641, domestic service employment taxes
imposed with respect to any calendar year shall be
treated as a tax imposed by chapter 2 for the taxable
year of the employer which begins in such calendar
year.
(2) Employers not otherwise required to make
estimated payments.--Paragraph (1) shall not apply to
any employer for any calendar year if--
(A) no credit for wage withholding is allowed
under section 31 to such employer for the
taxable year of the employer which begins in
such calendar year, and
[(B) no addition to tax would (but for this
section) be imposed under section 6654 for such
taxable year by reason of section 6654(e).]
(B) no interest would be required to be paid
(but for this section) under 6641 for such
taxable year by reason of the $2,000 amount
specified in section 6641(d)(1)(B)(i)(II).
(3) Annualization.--Under regulations prescribed by
the Secretary, appropriate adjustments shall be made in
the application of [section 6654(d)(2)] section
6641(d)(2) in respect of the amount treated as tax
under paragraph (1).
[(4) Transitional rule.--In the case of any taxable
year beginning before January 1, 1998, no addition to
tax shall be made under section 6654 with respect to
any underpayment to the extent such underpayment was
created or increased by this section.]
* * * * * * *
Subtitle F--Procedure and Administration
* * * * * * *
CHAPTER 61--INFORMATION AND RETURNS
* * * * * * *
Subchapter B--Miscellaneous Provisions
* * * * * * *
SEC. 6103. CONFIDENTIALITY AND DISCLOSURE OF RETURNS AND RETURN
INFORMATION.
(a) General Rule.--Returns and return information shall be
confidential, and except as authorized by this [title--] title
and notwithstanding any other provision of law--
(1) * * *
* * * * * * *
(c) Disclosure of Returns and Return Information to Designee
of Taxpayer.--[The Secretary]
(1) In General.--The Secretary may, subject to such
requirements and conditions as he may prescribe by
regulations, disclose the return of any taxpayer, or
return information with respect to such taxpayer, to
such person or persons as the taxpayer may designate in
a request for or consent to such disclosure, or to any
other person at the taxpayer's request to the extent
necessary to comply with a request for information or
assistance made by the taxpayer to such other person.
However, return information shall not be disclosed to
such person or persons if the Secretary determines that
such disclosure would seriously impair Federal tax
administration.
(2) Requirements for valid requests and consents.--A
request for or consent to disclosure under paragraph
(1) shall only be valid for purposes of this section or
sections 7213, 7213A, or 7431 if--
(A) at the time of execution, such request or
consent designates a recipient of such
disclosure and is dated, and
(B) at the time such request or consent is
submitted to the Secretary, the submitter of
such request or consent certifies, under
penalty of perjury, that such request or
consent complied with subparagraph (A).
(3) Restrictions on persons obtaining information.--
Any person shall, as a condition for receiving return
or return information under paragraph (1)--
(A) ensure that such return and return
information is kept confidential,
(B) use such return and return information
only for the purpose for which it was
requested, and
(C) not disclose such return and return
information except to accomplish the purpose
for which it was requested, unless a separate
consent from the taxpayer is obtained.
(4) Requirements for form prescribed by secretary.--
For purposes of this subsection, the Secretary shall
prescribe a form for requests and consents which
shall--
(A) contain a warning, prominently displayed,
informing the taxpayer that the form should not
be signed unless it is completed,
(B) state that if the taxpayer believes there
is an attempt to coerce him to sign an
incomplete or blank form, the taxpayer should
report the matter to the Treasury Inspector
General for Tax Administration, and
(C) contain the address and telephone number
of the Treasury Inspector General for Tax
Administration.
* * * * * * *
(e) Disclosure to Persons Having Material Interest.--
(1) * * *
* * * * * * *
(8) Disclosure of collection activities with respect
to joint return.--If any deficiency of tax with respect
to a joint return is assessed and the individuals
filing such return are no longer married or no longer
reside in the same household, upon request [in writing]
by either of such individuals, the Secretary shall
disclose in writing to the individual making the
request whether the Secretary has attempted to collect
such deficiency from such other individual, the general
nature of such collection activities, and the amount
collected. The preceding sentence shall not apply to
any deficiency which may not be collected by reason of
section 6502.
* * * * * * *
(h) Disclosure to Certain Federal Officers and Employees for
Purposes of Tax Administration, Etc.--
(1) * * *
* * * * * * *
(4) Disclosure in judicial and administrative tax
proceedings.--[A return]
(A) In general.--Except as provided in
subparagraph (B), a return or return
information may be disclosed in a Federal or
State judicial or administrative proceeding
pertaining to tax administration, but only--
[(A)] (i) if the taxpayer is a party
to the proceeding, or the proceeding
arose out of, or in connection with,
determining the taxpayer's civil or
criminal liability, or the collection
of such civil liability, in respect of
any tax imposed under this title;
[(B)] (ii) if the treatment of an
item reflected on such return is
directly related to the resolution of
an issue in the proceeding;
[(C)] (iii) if such return or return
information directly relates to a
transactional relationship between a
person who is a party to the proceeding
and the taxpayer which directly affects
the resolution of an issue in the
proceeding; or
[(D)] (iv) to the extent required by
order of a court pursuant to section
3500 of title 18, United States Code,
or rule 16 of the Federal Rules of
Criminal Procedure, such court being
authorized in the issuance of such
order to give due consideration to
congressional policy favoring the
confidentiality of returns and return
information as set forth in this title.
However, such return or return information
shall not be disclosed as provided in
[subparagraph (A), (B), or (C)] clause (i),
(ii) or (iii) if the Secretary determines that
such disclosure would identify a confidential
informant or seriously impair a civil or
criminal tax investigation.
(B) Disclosure in judicial or administrative
tax proceedings of return and return
information of persons not party to such
proceedings.--
(i) Notice.--Return or return
information of any person who is not a
party to a judicial or administrative
proceeding described in paragraph (4)
shall not be disclosed under clause
(ii) or (iii) of subparagraph (A) until
after the Secretary makes a reasonable
effort to give notice to such person
and an opportunity for such person to
request the deletion of matter from
such return or return information,
including any of the items referred to
in paragraphs (1) through (7) of
section 6110(c). Such notice shall
include a statement of the issue or
issues the resolution of which is the
reason such return or return
information is sought. In the case of S
corporations, partnerships, estates,
and trusts, such notice shall be made
at the entity level.
(ii) Disclosure limited to pertinent
portion.--The only portion of a return
or return information described in
clause (i) which may be disclosed under
subparagraph (A) is that portion of
such return or return information that
directly relates to the resolution of
an issue in such proceeding.
(iii) Exceptions.--Clause (i) shall
not apply to--
(I) any ex parte proceeding
for obtaining a search warrant,
order for entry on premises or
safe deposit boxes, or similar
ex parte proceeding,
(II) disclosure of third
party return information by
indictment or criminal
information, or
(III) if the Secretary
determines that the application
of such clause would seriously
impair a criminal tax
investigation.
* * * * * * *
(7) Taxpayer representatives.--Notwithstanding
paragraph (1), the return of the representative of a
taxpayer whose return is being examined by an officer
or employee of the Department of the Treasury shall not
be open to inspection by such officer or employee on
the sole basis of the representative's relationship to
the taxpayer unless a supervisor of such officer or
employee has approved the inspection of the return of
such representative on a basis other than by reason of
such relationship.
* * * * * * *
(k) Disclosure of Certain Returns and Return Information for
Tax Administration Purposes.--
(1) Disclosure of accepted offers-in-compromise.--
Return information (other than address and TIN) shall
be disclosed to members of the general public to the
extent necessary to permit inspection of any accepted
offer-in-compromise under section 7122 relating to the
liability for a tax imposed by this title.
* * * * * * *
(m) Disclosure of taxpayer identity information.--
(1) Tax refunds.--The Secretary may disclose taxpayer
identity information to the press and other media, and
through any other means of mass communication, for
purposes of notifying persons entitled to tax refunds
when the Secretary, after reasonable effort and lapse
of time, has been unable to locate such persons.
* * * * * * *
(p) Procedure and recordkeeping.--
(1) * * *
* * * * * * *
(8) State law requirements.--
(A) * * *
(B) Disclosure to contractors.--
Notwithstanding any other provision of this
section, no return or return information shall
be disclosed by any officer or employee of any
State to any contractor of the State unless
such State--
(i) has requirements in effect which
require each contractor of the State
which would have access to returns or
return information to provide
safeguards (within the meaning of
paragraph (4)) to protect the
confidentiality of such returns or
return information,
(ii) agrees to conduct an annual, on-
site review (mid-point review in the
case of contracts of less than 1 year
in duration) of each contractor to
determine compliance with such
requirements,
(iii) submits the findings of the
most recent review conducted under
clause (ii) to the Secretary as part of
the report required by paragraph
(4)(E), and
(iv) certifies to the Secretary for
the most recent annual period that all
contractors are in compliance with all
such requirements.
The certification required by clause (iv) shall
include the name and address of each
contractor, a description of the contract of
the contractor with the State, and the duration
of such contract.
[(B)] (C) Disclosure of returns or return
information in State returns.--Nothing in
[subparagraph (A)] subparagraphs (A) and (B)
shall be construed to prohibit the disclosure
by an officer or employee of any State of any
copy of any portion of a Federal return or any
information on a Federal return which is
required to be attached or included in a State
return to another officer or employee of such
State (or political subdivision of such State)
if such disclosure is specifically authorized
by State law.
(9) Procedural rules applicable to certain
disclosures.--
(A) In general.--The Secretary shall
prescribe regulations for purposes of providing
for disclosures of return and return
information under subsections (c), (e), and (k)
(1) and (2). Such regulations shall include a
schedule of fees, and waivers and reductions of
such fees, applicable to the processing of
requests for such disclosures.
(B) Determinations of whether to comply with
disclosure requests.--
(i) Initial requests.--In response to
a request that reasonably describes the
return or return information sought and
is made in accordance with the
published rules, the Secretary shall--
(I) determine within 20 days
after the receipt of any
request for disclosure of
return or return information
under subsections (c), (e), and
(k) (1) and (2) whether to
comply with such request, and
(II) immediately notify the
person making such request of
such determination and the
reasons therefor, and of the
right of such person to appeal
to the Commissioner any adverse
determination.
(ii) Appeal.--The Commissioner
shall--
(I) make a determination with
respect to any appeal of any
adverse determination under
clause (i)(I) within 20 days
after the receipt of such
appeal, and
(II) if on appeal the denial
of the request for disclosure
of such return or return
information is in whole or in
part upheld, the Commissioner
shall notify the person making
such request of the provisions
for judicial review of that
determination under
subparagraph (D).
(iii) Extension of periods for
unusual circumstances.--
(I) In general.--The time
limits prescribed in clause (i)
and clause (ii) (as the case
may be) may be extended for not
more than 10 days in unusual
circumstances by providing to
the person making such request
for disclosure written notice
which sets forth the unusual
circumstances for such
extension and the date on which
a determination is expected to
be dispatched. No such notice
shall specify a date that would
result in an extension for more
than 10 working days, except as
provided in subclause (II).
(II) Modification of request
or time period.--If, with
respect to a request for which
the time limits are extended
under subclause (I), the
Secretary determines that the
request cannot be processed
within the time limit so
specified, the Secretary shall
notify the person making the
request and shall provide the
person an opportunity to limit
the scope of the request so
that it may be processed within
that time limit or an
opportunity to arrange with the
agency an alternative time frame for
processing the request or a modified
request. Refusal by the person to
reasonably modify the request or arrange
such an alternative time frame shall be
considered as a factor in determining
whether exceptional circumstances exist
for purposes of subparagraph (C).
(iv) Unusual circumstances defined.--
For purposes of clause (iii), the term
``unusual circumstances'' means, but
only to the extent reasonably necessary
to the proper processing of the
particular requests--
(I) the need to search for
and collect the requested
records from field facilities
or other establishments that
are separate from the office
processing the request,
(II) the need to search for,
collect, and appropriately
examine a voluminous amount of
separate and distinct records
which are demanded in a single
request, or
(III) the need for
consultation, which shall be
conducted with all practicable
speed, with another agency
having a substantial interest
in the determination of the
request or among two or more
components of the agency having
substantial subject-matter
interest therein.
(v) 20-day period excludes certain
days.--The 20-day periods referred to
in clauses (i) and (ii) shall not
include Saturdays, Sundays, and legal
public holidays.
(C) Failure to meet time limits.--
(i) In general.--Any person making a
request for the disclosure of return or
return information which is subject to
this paragraph shall be deemed to have
exhausted his administrative remedies
with respect to such request if the
Secretary fails to comply with the
applicable time limit provisions of
this paragraph. If the Secretary can
show exceptional circumstances exist
and that the agency is exercising due
diligence in responding to the request,
the court may retain jurisdiction and
allow the agency additional time to
complete its review of the records.
Upon any determination by the Secretary
to comply with a request for records,
the records shall be made promptly
available to such person making such
request. Any notification of denial of
any request for records under this
subsection shall set forth the names
and titles or positions of each person
responsible for the denial of such
request.
(ii) Exceptional circumstances
defined.--For purposes of clause (i),
the term ``exceptional circumstances''
does not include a delay that results
from a predictable workload of the
Secretary relating to requests subject
to this paragraph, unless the Secretary
demonstrates reasonable progress in
reducing its backlog of pending
requests.
(iii) Refusal to modify request or
time frame.--Refusal by a person to
reasonably modify the scope of a
request or arrange an alternative time
frame for processing a request (or a
modified request) under subparagraph
(B)(ii) after being given an
opportunity to do so by the agency to
whom the person made the request shall
be considered as a factor in
determining whether exceptional
circumstances exist for purposes of
this subparagraph.
(D) Judicial proceedings.--
(i) Jurisdiction of the district
courts.--
(I) In general.--On
complaint, the district courts
of the United States in the
district in which the
complainant resides, or has his
principal place of business, or
in which his return or return
information is situated, or in
the District of Columbia, shall
have jurisdiction to enjoin the
Secretary from withholding
return or return information
which is subject to disclosure
under subsection (c), (e), or
(k) (1) or (2), and to order
the production of any return or
return information improperly
withheld from the complainant.
(II) Expedited processing.--
No district court of the United
States shall have jurisdiction
to review a denial by the
Secretary of expedited
processing of a request for
return or return information
after the Secretary has
provided a complete response to
the request.
(ii) Procedural matters.--In a case
arising under clause (i), the court
shall determine the matter de novo (on
the record before the Secretary at the
time of the determination in the case
of a request for expedited processing),
and may examine the contents of such
return or return information in camera
to determine whether such return or
return information or any part thereof
shall be withheld under any of the
provisions of this title, and the
burden shall be on the Secretary to
sustain its action. In addition to any
other matters to which a court accords
substantial weight, a court shall
accord substantial weight to an
affidavit of the Secretary concerning
the Secretary's determination as to
technical feasibility relating to, and
reproducibility of, such return and
return information.
(E) Deadline for Secretary to answer
complaint.--Notwithstanding any other provision
of law, the Secretary shall serve an answer or
otherwise plead to any complaint made under
this paragraph within 30 days after service
upon the Secretary of the pleading in which
such complaint is made, unless the court
otherwise directs for good cause shown.
(10) Report on unauthorized disclosure and
inspection.--As part of the report required by
paragraph (3)(C) for each calendar year, the Secretary
shall furnish information regarding the unauthorized
disclosure and inspection of returns and return
information, including the number, status, and results
of--
(A) administrative investigations,
(B) civil lawsuits brought under section 7431
(including the amounts for which such lawsuits
were settled and the amounts of damages
awarded), and
(C) criminal prosecutions.
* * * * * * *
SEC. 6110. PUBLIC INSPECTION OF WRITTEN DETERMINATIONS.
(a) * * *
(b) Definitions.--For purposes of this section--
(1) Written determination.--The term ``written
determination'' means a ruling, determination letter,
technical advice memorandum, or [Chief Counsel advice]
official advice. Such term shall not include any
advance pricing agreement entered into by a taxpayer
and the Secretary and any background information
related to such agreement or any application for an
advance pricing agreement.
* * * * * * *
(g) Time for Disclosure.--
(1) * * *
* * * * * * *
(5) Special rules for certain written determinations,
etc.--Notwithstanding the provisions of paragraph (1),
the Secretary shall not be required to make available
to the public--
(A) any official advice and technical advice
memorandum and any related background file
document involving any matter which is the
subject of a civil fraud or criminal
investigation or jeopardy or termination
assessment until after any action relating to
such investigation or assessment is completed,
or
* * * * * * *
(i) Special Rules for Disclosure of [Chief Counsel] Official
Advice.--
(1) [Chief counsel] Official advice defined.--
(A) In general.--For purposes of this
section, the term ``[Chief Counsel advice]
official advice'' means written advice or
instruction, under whatever name or
designation, prepared by any [national office
component of the Office of Chief Counsel]
component of the Office of Chief Counsel or of
the Service which--
(i) is issued to [field or service
center employees of the Service or
regional or district] employees of the
Service or employees of the Office of
Chief Counsel; and
* * * * * * *
(2) Additional documents treated as [chief counsel]
official advice.--The Secretary may by regulation
provide that this section shall apply to any advice or
instruction prepared and issued by the Office of Chief
Counsel or the Service which is not described in
paragraph (1).
(3) Deletions for [chief counsel] official advice.--
In the case of [Chief Counsel advice] official advice
open to public inspection pursuant to this section--
* * * * * * *
(4) Notice of intention to disclose.--
(A) Nontaxpayer-specific [chief counsel]
official advice.--In the case of [Chief Counsel
advice] official advice which is written
without reference to a specific taxpayer or
group of specific taxpayers--
(i) subsection (f)(1) shall not
apply; and
(ii) the Secretary shall, within 60
days after the issuance of the [Chief
Counsel advice] official advice,
complete any deletions described in
subsection (c)(1) or paragraph (3) and
make the [Chief Counsel advice]
official advice, as so edited, open for
public inspection.
(B) Taxpayer-specific [chief counsel]
official advice.--In the case of [Chief Counsel
advice] official advice which is written with
respect to a specific taxpayer or group of
specific taxpayers, the Secretary shall, within
60 days after the issuance of the [Chief
Counsel advice] official advice, mail the
notice required by subsection (f)(1) to each
such taxpayer. The notice shall include a copy
of the [Chief Counsel advice] official advice
on which is indicated the information that the
Secretary proposes to delete pursuant to
subsection (c)(1). The Secretary may also
delete from the copy of the text of the [Chief
Counsel advice] official advice any of the
information described in paragraph (3), and
shall delete the names, addresses, and other
identifying details of taxpayers other than the
person to whom the advice pertains, except that
the Secretary shall not delete from the copy of
the [Chief Counsel advice] official advice that
is furnished to the taxpayer any information of
which that taxpayer was the source.
* * * * * * *
CHAPTER 62--TIME AND PLACE FOR PAYING TAX
* * * * * * *
Subchapter A--In General
* * * * * * *
SEC. 6159. AGREEMENTS FOR PAYMENT OF TAX LIABILITY IN INSTALLMENTS.
(a) * * *
* * * * * * *
(e) Prohibition of Fee for Installment Agreements Using
Automated Withdrawals.--The Secretary may not charge a taxpayer
a fee for entering into an agreement with the Secretary
underthis section only for so long as payments under such agreement are
made by means of electronic transfer or by similar automated means.
[(e)] (f) Cross Reference.--
For rights to administrative review and appeal, see section
7122(d).
* * * * * * *
CHAPTER 63--ASSESSMENT
* * * * * * *
Subchapter A--In General
* * * * * * *
SEC. 6201. ASSESSMENT AUTHORITY.
(a) * * *
* * * * * * *
(b) Amount Not to Be Assessed.--
(1) Estimated income tax.--No unpaid amount of
estimated income tax required to be paid under section
[6654] 6641 or 6655 shall be assessed.
* * * * * * *
CHAPTER 65--ABATEMENTS, CREDITS, AND REFUNDS
* * * * * * *
Subchapter A--Procedure in General
* * * * * * *
SEC. 6404. ABATEMENTS.
(a) * * *
* * * * * * *
(e) Abatement of Interest Attributable to Unreasonable Errors
and Delays by Internal Revenue Service.--
(1) In general.--In the case of any assessment of
interest on--
(A) any deficiency attributable in whole or
in part to any unreasonable error or delay by
an officer or employee of the Internal Revenue
Service (acting in his official capacity) [in
performing a ministerial or managerial act], or
(B) any payment of any tax described in
section 6212(a) to the extent that any
unreasonable error or delay in such payment is
attributable to such officer or employee being
erroneous or dilatory [in performing a
ministerial or managerial act],
the Secretary may abate the assessment of all or any
part of such interest for any period. For purposes of
the preceding sentence, an error or delay shall be
taken into account only if no significant aspect of
such error or delay can be attributed to the taxpayer
involved, and after the Internal Revenue Service has
contacted the taxpayer in writing with respect to such
deficiency or payment.
(2) Interest abated with respect to erroneous refund
check.--The Secretary shall abate the assessment of all
interest on any erroneous refund under section 6002
until the date demand for repayment is made, [unless--
[(A) the taxpayer (or a related party) has in
any way caused such erroneos refund, or
[(B) such erroneous refund exceeds $50,000.]
unless the taxpayer (or a related party) has in
any way caused such erroneous refund.
(f) Abatement of Any [Penalty or Addition] Interest, Penalty,
or Addition to Tax Attributable to Erroneous Written Advice by
the Internal Revenue Service.--
(1) In general.--The Secretary shall abate any
portion of any [penalty or addition] interest, penalty,
or addition to tax attributable to erroneous advice
furnished to the taxpayer in writing by an officer or
employee of the Internal Revenue Service, acting in
such officer's or employee's official capacity.
(2) Limitations.--Paragraph (1) shall apply only if--
(A) * * *
(B) the portion of the [penalty or addition]
interest, penalty, or addition to tax did not
result from a failure by the taxpayer to
provide adequate or accurate information.
* * * * * * *
(i) Abatement of Interest if Gross Injustice Would Otherwise
Result.-- The Secretary may abate the assessment of all or any
part of interest on any amount of tax imposed by this title for
any period if the Secretary determines that--
(1) a gross injustice would otherwise result if
interest were to be charged, and
(2) no significant aspect of the events giving rise
to the accrual of the interest can be attributed to the
taxpayer involved.
[(i)] (j) Review of Denial of Request for Abatement of
Interest.--
(1) * * *
* * * * * * *
SEC. 6405. REPORTS OF REFUNDS AND CREDITS.
(a) By Treasury to Joint Committee.--No refund or credit of
any income, war profits, excess profits, estate, or gift tax,
or any tax imposed with respect to public charities, private
foundations, operators' trust funds, pension plans, or real
estate investment trusts under chapter 41, 42, 43, or 44, in
excess of [$1,000,000] $2,000,000 shall be made until after the
expiration of 30 days from the date upon which a report giving
the name of the person to whom the refund or credit is to be
made, the amount of such refund or credit, and a summary of the
facts and the decision of the Secretary, is submitted to the
Joint Committee on Taxation.
(b) Tentative Adjustments.--Any credit or refund allowed or
made under section 6411 shall be made without regard to the
provisions of subsection (a) of this section. In any such case,
if the credit or refund, reduced by any deficiency in such tax
thereafter assessed and by deficiencies in any other tax
resulting from adjustments reflected in the determination of
the credit or refund, is in excess of [$1,000,000] $2,000,000,
there shall be submitted to such committee a report containing
the matter specified in subsection (a) at such time after the
making of the credit or refund as the Secretary shall determine
the correct amount of the tax.
* * * * * * *
CHAPTER 67--INTEREST
Subchapter A. Interest on underpayments.
* * * * * *
Subchapter D. Notice requirements.
Subchapter E. Interest on failure by individual to pay estimated
income tax.
* * * * * * *
Subchapter A--Interest on Underpayments
* * * * * * *
SEC. 6601. INTEREST ON UNDERPAYMENT, NONPAYMENT, OR EXTENSIONS OF TIME
FOR PAYMENT, OF TAX.
(a) * * *
* * * * * * *
(h) Exception as to Estimated Tax.--This section shall not
apply to any failure to pay any estimated tax required to be
paid by section [6654] 6641 or 6655.
* * * * * * *
Subchapter B--Interest on Overpayments
Sec. 6611. Interest on overpayments.
[Sec. 6612. Cross references.]
Sec. 6612. Deposits made to stop the running of interest on
potential underpayments, etc.
Sec. 6613. Cross references.
* * * * * * *
SEC. 6612. DEPOSITS MADE TO STOP THE RUNNING OF INTEREST ON POTENTIAL
UNDERPAYMENTS, ETC.
(a) Authority To Make Deposits Other Than As Payment of
Tax.--Any taxpayer may make a cash bond deposit with the
Secretary to offset any potential underpayment of tax imposed
by this title for any taxable period. Such a deposit shall be
made in such manner as the Secretary shall prescribe.
(b) Deposits Used To Pay Underpayment Also Offset Running of
Interest on Underpayment.--Any cash bond deposit used to pay
tax under this title shall offset interest under subchapter A
during the period of such deposit on such tax under such
procedures as the Secretary shall prescribe.
(c) Taxpayer May Request Return of Cash Bond Deposit.--
(1) In general.--On written request of a taxpayer who
made a cash bond deposit, the Secretary shall return to
the taxpayer any amount of such deposit specified by
the taxpayer.
(2) No interest.--In the case of a deposit which is
so returned--
(A) the amount returned shall not offset
interest under subchapter A for any period, and
(B) except as provided in subsection (d), no
interest shall be allowed on such amount.
(3) Exceptions.--Paragraph (1) shall not apply to any
amount if--
(A) such amount has been treated by the
Secretary as a payment of tax after a final
determination of the disputed items to which
such amount relates,
(B) such amount has been designated by the
taxpayer as being a payment of tax,
(C) the Secretary determines that assessment
or collection of tax is in jeopardy, or
(D) the amount is applied in accordance with
section 6402.
Subparagraph (D) shall not apply to a payment to a
taxpayer if the taxpayer is entitled to be paid
interest under subsection (d) on such payment.
(d) Interest on Amounts Returned in Certain Circumstances.--
(1) In general.--Interest shall be allowed and paid
on the amount of any cash bond deposit for a taxable
period which is returned to the taxpayer only if the
deposit is attributable to a dispute reserve account
for such period.
(2) Attribution to dispute reserve account.--For
purposes of paragraph (1), an amount is attributable to
a dispute reserve account for any taxable period only
to the extent that the aggregate of the cash bond
deposits for such period (reduced by the amount of such
deposits which has been previously returned to the
taxpayer or treated as a payment of tax) does not
exceed the deposit limit for such period.
(3) Deposit limit.--For purposes of paragraph (2)--
(A) In general.--The deposit limit for any
taxable period is the amount specified by the
taxpayer at the time of the deposit as the
taxpayer's reasonable estimate of the potential
underpayment for such period with respect to
disputable items identified (at such time) by
the taxpayer with respect to such deposit.
(B) Safe harbor based on 30-day letter.--In
the case of a taxpayer who is issued a 30-day
letter for any taxable period, the deposit
limit for such period shall not be less than
the amount of the proposed deficiency specified
in such letter.
(4) Definitions.--For purposes of paragraph (3)--
(A) Disputable item.--The term ``disputable
item'' means any item if the taxpayer--
(i) has a reasonable basis for its
treatment of such item, and
(ii) reasonably believes that the
Secretary also has a reasonable basis
for disallowing the taxpayer's
treatment of such item.
(B) 30-day letter.--The term ``30-day
letter'' means the first letter of proposed
deficiency which allows the taxpayer an
opportunity for administrative review in the
Internal Revenue Service Office of Appeals.
(5) Rate and period of interest.--
(A) Rate.--The rate of interest allowable
under this subsection shall be the Federal
short-term rate determined under section
6621(b), compounded daily.
(B) Period.--Interest under this subsection
on any payment to a taxpayer shall be payable
from the date of the deposit to which such
payment is attributable to a date (to be
determined by the Secretary) preceding the date
of the check making such payment by not more
than 30 days. For purposes of the preceding
sentence, cash bond deposits for any taxable
period shall be treated as used and returned on
a last-in first-out basis.
(e) Cash Bond Deposit.--For purposes of this section--
(1) In general.--The term ``cash bond deposit'' means
any payment which is designated by the taxpayer as
being a cash bond deposit for a specified taxable
period.
(2) Amounts designated or used as payment of tax.--A
cash bond deposit shall cease to be treated as such for
purposes of this section beginning on the date that the
taxpayer designates such deposit as a payment of tax
for purposes of this title, or, if earlier, on the date
such deposit is so used.
(f) Change in Period for Which Deposit Made.--Subject to the
requirements of subsection (d), a taxpayer may change the
taxable period to which a cash bond deposit relates.
SEC. [6612.] 6613. CROSS REFERENCES.
(a) * * *
* * * * * * *
Subchapter C--Determination of Interest Rate; Compounding of Interest
SEC. 6621. DETERMINATION OF RATE OF INTEREST.
(a) * * *
(b) Federal Short-Term Rate.--For purposes of this section--
(1) * * *
(2) Period during which rate applies.--
(A) * * *
(B) Special rule for individual estimated
tax.--In determining the [addition to tax under
section 6654] interest required to be paid
under section 6641 for failure to pay estimated
tax for any taxable year, the Federal short-
term rate which applies during the 3rd month
following such taxable year shall also apply
during the first 15 days of the 4th month
following such taxable year.
* * * * * * *
(d) Elimination of Interest on Overlapping Periods of Tax
Overpayments and Underpayments.--To the extent that, for any
period, interest is payable under subchapter A and allowable
under subchapter B on equivalent underpayments and overpayments
by the same taxpayer of tax imposed by this title, the net rate
of interest under this section on such amounts shall be zero
for such period. Solely for purposes of the preceding sentence,
section 6611(e) shall not apply in the case of an individual.
* * * * * * *
SEC. 6622. INTEREST COMPOUNDED DAILY.
(a) * * *
(b) Exception for [Penalty for] Failure to File Estimated
Tax.--Subsection (a) shall not apply for purposes of computing
the amount of any [addition to tax under section 6654 or 6655]
interest required to be paid under section 6641 or addition to
tax under section 6655.
* * * * * * *
Subchapter E--Interest on Failure by Individual to Pay Estimated Income
Tax
Sec. 6641. Interest on failure by individual to pay estimated
income tax.
[SEC. 6654. FAILURE BY INDIVIDUAL TO PAY ESTIMATED INCOME TAX.
[(a) Addition to the Tax.--Except as otherwise provided in
this section, in the case of any underpayment of estimated tax
by an individual, there shall be added to the tax under chapter
1 and the tax under chapter 2 for the taxable year an amount
determined by applying--
[(1) the underpayment rate established under section
6621,
[(2) to the amount of the underpayment,
[(3) for the period of the underpayment.
[(b) Amount of Underpayment; Period of Underpayment.--For
purposes of subsection (a)--
[(1) Amount.--The amount of the underpayment shall be
the excess of--
[(A) the required installment, over
[(B) the amount (if any) of the installment
paid on or before the due date for the
installment.
[(2) Period of underpayment.--The period of the
underpayment shall run from the due date for the
installment to whichever of the following dates is the
earlier--
[(A) the 15th day of the 4th month following
the close of the taxable year, or
[(B) with respect to any portion of the
underpayment, the date on which such portion is
paid.
[(3) Order of crediting payments.--For purposes of
paragraph (2)(B), a payment of estimated tax shall be
credited against unpaid required installments in the
order in which such installments are required to be
paid.]
SEC. 6641. INTEREST ON FAILURE BY INDIVIDUAL TO PAY ESTIMATED INCOME
TAX.
(a) In General.--Interest shall be paid on any underpayment
of estimated tax by an individual for a taxable year for each
day of such underpayment. The amount of such interest for any
day shall be the product of the underpayment rate established
under subsection (b)(2) multiplied by the amount of the
underpayment.
(b) Amount of Underpayment; Interest Rate.--For purposes of
subsection (a)--
(1) Amount.--The amount of the underpayment on any
day shall be the excess of--
(A) the sum of the required installments for
the taxable year the due dates for which are on
or before such day, over
(B) the sum of the amounts (if any) of
estimated tax payments made on or before such
day on such required installments.
(2) Determination of interest rate.--
(A) In general.--The underpayment rate with
respect to any day in an installment
underpayment period shall be the underpayment
rate established under section 6621 for the
first day of the calendar quarter in which such
installment underpayment period begins.
(B) Installment underpayment period.--For
purposes of subparagraph (A), the term
`installment underpayment period' means the
period beginning on the day after the due date
for a required installment and ending on the
due date for the subsequent required
installment (or in the case of the 4th required
installment, the 15th day of the 4th month
following the close of a taxable year).
(C) Daily rate.--The rate determined under
subparagraph (A) shall be applied on a daily
basis and shall be based on the assumption of
365 days in a calendar year.
(3) Termination of estimated tax interest.--No day
after the end of the installment underpayment period
for the 4th required installment specified in paragraph
(2)(B) for a taxable year shall be treated as a day of
underpayment with respect to such taxable year.
* * * * * * *
(d) Amount of Required Installments.--For purposes of this
section--
(1) Amount.--
(A) In general.--Except as provided in
paragraph (2), the amount of any required
installment shall be 25 percent of the required
annual payment.
(B) Required annual payment.--For purposes of
subparagraph (A), the term ``required annual
payment'' means the lesser of--
[(i) 90 percent of the tax shown on
the return for the taxable year (or, if
no return is filed, 90 percent of the
tax for such year), or]
(i) the lesser of--
(I) 90 percent of the tax
shown on the return for the
taxable year (or, if no return
is filed, 90 percent of the tax
for such year), or
(II) the tax shown on the
return for the taxable year
(or, if no return is filed, the
tax for such year) reduced (but
not below zero) by $2,000, or
* * * * * * *
(e) Exceptions.--
[(1) Where tax is small amount.--No addition to tax
shall be imposed under subsection (a) for any taxable
year if the tax shown on the return for such taxable
year (or, if no return is filed, the tax), reduced by
the credit allowable under section 31, is less than
$1,000.]
[(2)] (1) Where no tax liability for preceding
taxable year.--No [addition to tax] interest shall be
imposed under subsection (a) for any taxable year if--
(A) the preceding taxable year was a taxable
year of 12 months,
(B) the individual did not have any liability
for tax for the preceding taxable year, and
(C) the individual was a citizen or resident
of the United States throughout the preceding
taxable year.
[(3)] (2) Waiver in certain cases.--
(A) In general.--No [addition to tax]
interest shall be imposed under subsection (a)
with respect to any underpayment to the extent
the Secretary determines that by reason of
casualty, disaster, or other unusual
circumstances the imposition of such addition
to tax would be against equity and good
conscience.
(B) Newly retired or disabled individuals.--
No [addition to tax] interest shall be imposed
under subsection (a) with respect to any
underpayment if the Secretary determines that--
(i) * * *
* * * * * * *
(h) Special Rule Where Return Filed on or Before January
31.--If, on or before January 31 of the following taxable year,
the taxpayer files a return for the taxable year and pays in
full the amount computed on the return as payable, then no
[addition to tax] interest shall be imposed under subsection
(a) with respect to any underpayment of the 4th required
installment for the taxable year.
CHAPTER 68--ADDITIONS TO THE TAX, ADDITIONAL AMOUNTS, AND ASSESSABLE
PENALTIES
* * * * * * *
Subchapter A--Additions to the Tax and Additional Amounts
* * * * * * *
PART I--GENERAL PROVISIONS
Sec. 6651. Failure to file tax return or to pay tax.
* * * * * * *
[Sec. 6654. Failure by individual to pay estimated income tax.]
* * * * * * *
SEC. 6651. FAILURE TO FILE TAX RETURN OR TO PAY TAX.
(a) Addition to the Tax.--In case of failure--
(1) * * *
(2) to pay the amount shown as tax on any return
specified in paragraph (1) on or before the date
prescribed for payment of such tax (determined with
regard to any extension of time for payment), unless it
is shown that such failure is due to reasonable cause
and not due to willful neglect, there shall be added to
the amount shown as tax on such return [0.5] 0.25
percent of the amount of such tax if the failure is for
not more than 1 month, with an additional [0.5] 0.25
percent for each additional month or fraction thereof
during which such failure continues, not exceeding 25
percent in the aggregate; or
(3) to pay any amount in respect of any tax required
to be shown on a return specified in paragraph (1)
which is not so shown (including an assessment made
pursuant to section 6213(b)) within 21 calendar days
from the date of notice and demand therefor (10
business days if the amount for which such notice and
demand is made equals or exceeds $100,000), unless it
is shown that such failure is due to reasonable cause
and not due to willful neglect, there shall be added to
the amount of tax stated in such notice and demand
[0.5] 0.25 percent of the amount of such tax if the
failure is for not more than 1 month, with an
additional [0.5] 0.25 percent for each additional month
or fraction thereof during which such failure
continues, not exceeding 25 percent in the aggregate.
* * * * * * *
(d) Increase in Penalty for Failure To Pay Tax in Certain
Cases.--
(1) In general.--In the case of each month (or
fraction thereof) beginning after the day described in
paragraph (2) of this subsection, paragraphs (2) and
(3) of subsection (a) shall be applied [by substituting
``1 percent'' for ``0.5 percent''] by substituting
``0.5 percent'' for ``0.25 percent'' each place it
appears.
* * * * * * *
(h) Limitation on Penalty on Individual's Failure To Pay for
Months During Period of Installment Agreement.--In the case of
an individual who files a return of tax on or before the due
date for the return (including extensions), paragraphs (2) and
(3) of subsection (a) shall each be applied [by substituting
``0.2'' for ``0.5''] by substituting ``zero'' for ``0.25'' each
place it appears for purposes of determining the addition to
tax for any month during which an installment agreement under
section 6159 is in effect for the payment of such tax.
* * * * * * *
SEC. 6658. COORDINATION WITH TITLE 11.
(a) Certain Failures to Pay Tax.--No addition to the tax
shall be made under section 6651, [6654, or 6655] or 6655, and
no interest shall be required to be paid under section 6641,
for failure to make timely payment of tax with respect to a
period during which a case is pending under title 11 of the
United States Code--
(1) if such tax was incurred by the estate and the
failure occurred pursuant to an order of the court
finding probable insufficiency of funds of the estate
to pay administrative expenses, or
(2) if--
(A) such tax was incurred by the debtor
before the earlier of the order for relief or
(in the involuntary case) the appointment of a
trustee, and
(B)(i) the petition was filed before the due
date prescribed by law (including extensions)
for filing a return of such tax, or
(ii) the date for making the addition to the
tax or paying interest occurs on or after the
day on which the petition was filed.
* * * * * * *
PART III--APPLICABLE RULES
* * * * * * *
SEC. 6665. APPLICABLE RULES.
(a) * * *
(b) Procedure for assessing certain additions to tax.--For
purposes of subchapter B of chapter 63 (relating to deficiency
procedures for income, estate, gift, and certain excise taxes),
subsection (a) shall not apply to any addition to tax under
section 6651[, 6654,] or 6655; except that it shall apply--
(1) in the case of an addition described in section
6651, to that portion of such addition which is
attributable to a deficiency in tax described in
section 6211; or
(2) to an addition described in section [6654 or]
6655, if no return is filed for the taxable year.
* * * * * * *
CHAPTER 76--JUDICIAL PROCEEDINGS
* * * * * * *
Subchapter B--Proceedings by Taxpayers and Third Parties
* * * * * * *
SEC. 7428. DECLARATORY JUDGMENTS RELATING TO STATUS AND CLASSIFICATION
OF ORGANIZATIONS UNDER SECTION 501(C)(3), ETC.
(a) Creation of Remedy.--In a case of actual controversy
involving--
(1) a determination by the Secretary--
(A) with respect to the initial qualification
or continuing qualification of an organization
as an organization described in section
501(c)(3) which is exempt from tax under
section 501(a) or as an organization described
in section 170(c)(2),
(B) with respect to the initial
classification or continuing classification of
an organization as a private foundation (as
defined in section 509(a)) or as a private
operating foundation (as defined in section
4942(j)(3)), or
[(C) with respect to the initial
classification or continuing classification of
an organization as a private operating
foundation (as defined in section 4942(j)(3)),
or]
(C) with respect to the initial qualification
or continuing qualification of an organization
as an organization described in section 501(c)
(other than paragraph (3)) which is exempt from
tax under section 501(a), or
(2) a failure by the Secretary to make a
determination with respect to an issue referred to in
paragraph (1),
upon the filing of an appropriate pleading, the [United States
Tax Court, the United States Claims Court, or the district
court of the United States for the District of Columbia] United
States Tax Court (in the case of any such determination or
failure) or the United States Claims Court or the district
court of the United States for the District of Columbia (in the
case of a determination or failure with respect to an issue
referred to in subparagraph (A) or (B) of paragraph (1)), may
make a declaration with respect to such initial qualification
or continuing qualification or with respect to such initial
classification or continuing classification. Any such
declaration shall have the force and effect of a decision of
the Tax Court or a final judgment or decree of the district
court or the Claims Court, as the case may be, and shall be
reviewable as such. For purposes of this section, a
determination with respect to a continuing qualification or
continuing classification includes any revocation of or other
change in a qualification or classification.
(b) Limitations.--
(1) Petitioner.--A pleading may be filed under this
section only by the organization the qualification or
classification of which is at issue.
(2) Exhaustion of administrative remedies.--A
declaratory judgment or decree under this section shall
not be issued in any proceeding unless the Tax Court,
the Claims Court, or the district court of the United
States for the District of Columbia determines that the
organization involved has exhausted administrative
remedies available to it within the Internal Revenue
Service. [An organization requesting the determination
of an issue referred to in subsection (a)(1) shall be
deemed to have exhausted its administrative remedies
with respect to a failure by the Secretary to make a
determination with respect to such issue at the
expiration of 270 days after the date on which the
request for such determination was made if the
organization has taken, in a timely manner, all
reasonable steps to secure such determination.] An
organization requesting the determination of an issue
referred to in subsection (a)(1) shall be deemed to
have exhausted its administrative remedies with respect
to--
(A) a failure by the Secretary to make a
determination with respect to such issue at the
expiration of 270 days after the date on which
the request for such determination was made if
the organization has taken, in a timely manner,
all reasonable steps to secure such
determination, and
(B) a failure by any office of the Service
(other than the office which is responsible for
initial determinations with respect to such
issue (hereinafter in this subparagraph
referred to as the ``initial office''), to make
a determination with respect to such issue at
the expiration of 180 days after the date on
which any request for such determination was
made by the initial office if the organization
has taken, in a timely manner, all reasonable
steps to secure such determination.
* * * * * * *
SEC. 7430. AWARDING OF COSTS AND CERTAIN FEES.
(a) In General.--In any administrative or court proceeding
which is brought by or against the United States in connection
with the determination, collection, or refund of any tax,
interest, or penalty under this title, and in any court
proceeding in connection with the disclosure of return and
return information under section 6103(p)(9), the prevailing
party may be awarded a judgment or a settlement for--
(1) * * *
* * * * * * *
SEC. 7431. CIVIL DAMAGES FOR UNAUTHORIZED INSPECTION OR DISCLOSURE OF
RETURNS AND RETURN INFORMATION.
(a) * * *
* * * * * * *
(e) Notification of unlawful inspection and disclosure.--If
any person is criminally charged by indictment or information
with inspection or disclosure of a taxpayer's return or return
information in violation of--
(1) * * *
The Secretary shall also notify such taxpayer if the Treasury
Inspector General for Tax Administration determines that such
taxpayer's return or return information was inspected or
disclosed in violation of any of the provisions specified in
paragraph (1), (2), or (3).
CHAPTER 78--DISCOVERY OF LIABILITY AND ENFORCEMENT OF TITLE
* * * * * * *
Subchapter A--Examination and Inspection
* * * * * * *
SEC. 7611. RESTRICTIONS ON CHURCH TAX INQUIRIES AND EXAMINATIONS.
(a) * * *
* * * * * * *
(i) Section Not to Apply to Criminal Investigations, Etc.--
This section shall not apply to--
(1) * * *
* * * * * * *
(4) any willful attempt to defeat or evade any tax
imposed by this title, [or]
(5) any knowing failure to file a return of tax
imposed by this title[.], or
(6) information provided by the Secretary related to
the standards for exemption from tax under this title
and the requirements under this title relating to
unrelated business taxable income.
* * * * * * *
CHAPTER 80--GENERAL RULES
* * * * * * *
Subchapter A--Application of Internal Revenue Laws
* * * * * * *
SEC. 7803. COMMISSIONER OF INTERNAL REVENUE; OTHER OFFICIALS.
(a) * * *
* * * * * * *
(d) Additional Duties of the Treasury Inspector General for
Tax Administration.--
(1) * * *
(2) Semiannual reports.--
(A) In general.--The Treasury Inspector
General for Tax Administration shall include in
each semiannual report under section 5 of the
Inspector General Act of 1978--
(i) the number of taxpayer complaints
during the reporting period;
(ii) the number of employee
misconduct and taxpayer abuse
allegations received by the Internal
Revenue Service or the Inspector
General during the period from
taxpayers, Internal Revenue Service
employees, and other sources, including
a summary (by category) of the 10 most
common complaints made and the number
of such common complaints;
* * * * * * *