- TXT
-
PDF
(PDF provides a complete and accurate display of this text.)
Tip
?
115th Congress } { Rept. 115-637
HOUSE OF REPRESENTATIVES
2d Session } { Part 1
======================================================================
TAXPAYER FIRST ACT
_______
April 13, 2018.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Brady of Texas, from the Committee on Ways and Means, submitted the
following
R E P O R T
[To accompany H.R. 5444]
The Committee on Ways and Means, to whom was referred the
bill (H.R. 5444) to amend the Internal Revenue Code of 1986 to
modernize and improve the Internal Revenue Service, and for
other purposes, 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................... 14
C. Legislative History................................... 15
II. EXPLANATION OF THE BILL..........................................16
A. Independent Appeals Process........................... 16
1. Establishment of Internal Revenue Service
Independent Office of Appeals (sec. 101 of the
bill and new sec. 7803(e) of the Code)........... 16
B. Improved Service...................................... 19
1. Comprehensive customer service strategy (sec. 201
of the bill)..................................... 19
2. IRS Free File Program (sec. 202 of the bill)...... 21
3. Low-income exception for payments otherwise
required in connection with a submission of an
offer-in-compromise (sec. 203 of the bill and
sec. 7122 of the Code)........................... 22
C. Sensible Enforcement.................................. 23
1. Internal Revenue Service seizure requirements with
respect to structuring transactions (sec. 301 of
the bill)........................................ 23
2. Exclusion of interest received in action to
recover property seized by the Internal Revenue
Service based on structuring transaction (sec.
302 of the bill and new sec. 139G of the Code)... 25
3. Clarification of equitable relief from joint
liability (sec. 303 of the bill and sec. 6105 of
the Code)........................................ 26
4. Modification of procedures for issuance of third-
party summons (sec. 304 of the bill and sec. 7609
of the Code)..................................... 28
5. Establishment of income threshold for referral to
private debt collection (sec. 305 of the bill and
sec. 6306 of the Code)........................... 30
6. Reform of notice of contact of third parties (sec.
306 of the bill and sec. 7602 of the Code)....... 31
7. Modification of authority to issue designated
summons (sec. 307 of the bill and sec. 6503(j) of
the Code)........................................ 32
8. Limitation on access of non-Internal Revenue
Service employees to returns and return
information (sec. 308 of the bill and sec. 7602
of the Code)..................................... 34
D. Organizational Modernization.......................... 36
1. Modification of title of Commissioner of Internal
Revenue and related officials (sec. 401 of the
bill and sec. 7803 of the Code).................. 36
2. Office of the National Taxpayer Advocate (sec. 402
of the bill and sec. 7803(c) of the Code)........ 37
3. Elimination of IRS Oversight Board (sec. 403 of
the bill and sec. 7802 of the Code).............. 40
4. Modernization of Internal Revenue Service
organizational structure (sec. 404 of the bill).. 41
E. Tax Court............................................. 42
1. Disqualification of judge or magistrate judge of
the Tax Court (sec. 501 of the bill and new sec.
7467 of the Code)................................ 42
2. Opinions and judgments (sec. 502 of the bill and
sec. 7459 of the Code)........................... 43
3. Title of special trial judge changed to magistrate
judge of the Tax Court (sec. 503 of the bill and
sec. 7443A of the Code).......................... 44
4. Repeal of deadwood related to Board of Tax Appeals
(sec. 504 of the bill and secs. 7459 and
7447(a)(3) of the Code).......................... 44
III.VOTES OF THE COMMITTEE...........................................44
IV. BUDGET EFFECTS OF THE BILL.......................................45
A. Committee Estimate of Budgetary Effects............... 45
B. Statement Regarding New Budget Authority and Tax
Expenditures Budget Authority........................ 45
C. Cost Estimate Prepared by the Congressional Budget
Office............................................... 45
V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE.......45
A. Committee Oversight Findings and Recommendations...... 45
B. Statement of General Performance Goals and Objectives. 45
C. Information Relating to Unfunded Mandates............. 46
D. Applicability of House Rule XXI 5(b).................. 46
E. Tax Complexity Analysis............................... 46
F. Congressional Earmarks, Limited Tax Benefits, and
Limited Tariff Benefits.............................. 46
G. Duplication of Federal Programs....................... 46
H. Disclosure of Directed Rule Makings................... 47
VI. EXCHANGES OF LETTERS WITH ADDITIONAL COMMITTEES OF REFERRAL......48
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE; ETC.
(a) Short Title.--This Act may be cited as the ``Taxpayer First
Act''.
(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.--The table of contents of this Act is as
follows:
Sec. 1. Short title; etc.
TITLE I--INDEPENDENT APPEALS PROCESS
Sec. 101. Establishment of Internal Revenue Service Independent Office
of Appeals.
TITLE II--IMPROVED SERVICE
Sec. 201. Comprehensive customer service strategy.
Sec. 202. IRS Free File Program.
Sec. 203. Low-income exception for payments otherwise required in
connection with a submission of an offer-in-compromise.
TITLE III--SENSIBLE ENFORCEMENT
Sec. 301. Internal Revenue Service seizure requirements with respect to
structuring transactions.
Sec. 302. Exclusion of interest received in action to recover property
seized by the Internal Revenue Service based on structuring
transaction.
Sec. 303. Clarification of equitable relief from joint liability.
Sec. 304. Modification of procedures for issuance of third-party
summons.
Sec. 305. Establishment of income threshold for referral to private
debt collection.
Sec. 306. Reform of notice of contact of third parties.
Sec. 307. Modification of authority to issue designated summons.
Sec. 308. Limitation on access of non-Internal Revenue Service
employees to returns and return information.
TITLE IV--ORGANIZATIONAL MODERNIZATION
Sec. 401. Modification of title of Commissioner of Internal Revenue and
related officials.
Sec. 402. Office of the National Taxpayer Advocate.
Sec. 403. Elimination of IRS Oversight Board.
Sec. 404. Modernization of Internal Revenue Service organizational
structure.
TITLE V--TAX COURT
Sec. 501. Disqualification of judge or magistrate judge of the Tax
Court.
Sec. 502. Opinions and judgments.
Sec. 503. Title of special trial judge changed to magistrate judge of
the Tax Court.
Sec. 504. Repeal of deadwood related to Board of Tax Appeals.
TITLE I--INDEPENDENT APPEALS PROCESS
SEC. 101. ESTABLISHMENT OF INTERNAL REVENUE SERVICE INDEPENDENT OFFICE
OF APPEALS.
(a) In General.--Section 7803 is amended by adding at the end the
following new subsection:
``(e) Independent Office of Appeals.--
``(1) Establishment.--There is established in the Internal
Revenue Service an office to be known as the `Internal Revenue
Service Independent Office of Appeals'.
``(2) Chief of appeals.--
``(A) In general.--The Internal Revenue Service
Independent Office of Appeals shall be under the
supervision and direction of an official to be known as
the `Chief of Appeals'. The Chief of Appeals shall
report directly to the Administrator of the Internal
Revenue Service and shall be entitled to compensation
at the same rate as the highest rate of basic pay
established for the Senior Executive Service under
section 5382 of title 5, United States Code.
``(B) Appointment.--The Chief of Appeals shall be
appointed by the Administrator of the Internal Revenue
Service without regard to the provisions of title 5,
United States Code, relating to appointments in the
competitive service or the Senior Executive Service.
``(C) Qualifications.--An individual appointed under
subparagraph (B) shall have experience and expertise
in--
``(i) administration of, and compliance with,
Federal tax laws,
``(ii) a broad range of compliance cases, and
``(iii) management of large service
organizations.
``(3) Purposes and duties of office.--It shall be the
function of the Internal Revenue Service Independent Office of
Appeals to resolve Federal tax controversies without litigation
on a basis which--
``(A) is fair and impartial to both the Government
and the taxpayer,
``(B) promotes a consistent application and
interpretation of, and voluntary compliance with, the
Federal tax laws, and
``(C) enhances public confidence in the integrity and
efficiency of the Internal Revenue Service.
``(4) Right of appeal.--The resolution process described in
paragraph (3) shall be generally available to all taxpayers.
``(5) Limitation on designation of cases as not eligible for
referral to independent office of appeals.--
``(A) In general.--If any taxpayer which is in
receipt of notice of deficiency authorized under
section 6212 requests referral to the Internal Revenue
Service Independent Office of Appeals and such request
is denied, the Administrator of the Internal Revenue
Service shall provide such taxpayer a written notice
which--
``(i) provides a detailed description of the
facts involved, the basis for the decision to
deny the request, and a detailed explanation of
how the basis of such decision applies to such
facts, and
``(ii) describes the procedures proscribed
under subparagraph (C) for protesting the
decision to deny the request.
``(B) Report to congress.--The Administrator of the
Internal Revenue Service shall submit a written report
to Congress on an annual basis which includes the
number of requests described in subparagraph (A) which
were denied and the reasons (described by category)
that such requests were denied.
``(C) Procedures for protesting denial of request.--
The Administrator of the Internal Revenue Service shall
prescribe procedures for protesting to the
Administrator of the Internal Revenue Service
(personally and not through any delegate) a denial of a
request described in subparagraph (A).
``(D) Not applicable to frivolous positions.--This
paragraph shall not apply to a request for referral to
the Internal Revenue Service Independent Office of
Appeals which is denied on the basis that the issue
involved is a frivolous position (within the meaning of
section 6702(c)).
``(6) Staff.--
``(A) In general.--All personnel in the Internal
Revenue Service Independent Office of Appeals shall
report to the Chief of Appeals.
``(B) Access to staff of office of the chief
counsel.--The Chief of Appeals shall have authority to
obtain legal assistance and advice from the staff of
the Office of the Chief Counsel. The Chief Counsel
shall ensure that such assistance and advice is
provided by staff of the Office of the Chief Counsel
who were not involved in the case with respect to which
such assistance and advice is sought and who are not
involved in preparing such case for litigation.
``(7) Access to case files.--
``(A) In general.--In the case of any specified
taxpayer with respect to which a conference with the
Internal Revenue Service Independent Office of Appeals
has been scheduled, the Chief of Appeals shall ensure
that such taxpayer is provided access to the
nonprivileged portions of the case file on record
regarding the disputed issues (other than documents
provided by the taxpayer to the Internal Revenue
Service) not later than 10 days before the date of such
conference.
``(B) Taxpayer election to expedite conference.--If
the taxpayer so elects, subparagraph (A) shall be
applied by substituting `the date of such conference'
for `10 days before the date of such conference'.
``(C) Specified taxpayer.--For purposes of this
paragraph--
``(i) In general.--The term `specified
taxpayer' means--
``(I) in the case of any taxpayer who
is a natural person, a taxpayer whose
adjusted gross income does not exceed
$400,000, and
``(II) in the case of any other
taxpayer, a taxpayer whose gross
receipts do not exceed $5,000,000.
``(ii) Aggregation rule.--Rules similar to
the rules of section 448(c)(2) shall apply for
purposes of clause (i)(II).''.
(b) Conforming Amendments.--
(1) The following provisions are each amended by striking
``Internal Revenue Service Office of Appeals'' and inserting
``Internal Revenue Service Independent Office of Appeals'':
(A) Section 6015(c)(4)(B)(ii)(I).
(B) Section 6320(b)(1).
(C) Subsections (b)(1) and (d)(3) of section 6330.
(D) Section 6603(d)(3)(B).
(E) Section 6621(c)(2)(A)(i).
(F) Section 7122(e)(2).
(G) Subsections (a), (b)(1), (b)(2), and (c)(1) of
section 7123.
(H) Subsections (c)(7)(B)(i, and (g)(2)(A) of section
7430.
(I) Section 7522(b)(3).
(J) Section 7612(c)(2)(A).
(2) Section 7430(c)(2) is amended by striking ``Internal
Revenue Service Office of Appeals'' each place it appears and
inserting ``Internal Revenue Service Independent Office of
Appeals''.
(3) The heading of section 6330(d)(3) is amended by inserting
``Independent'' after ``IRS''.
(c) Other References.--Any reference in any provision of law, or
regulation or other guidance, to the Internal Revenue Service Office of
Appeals shall be treated as a reference to the Internal Revenue Service
Independent Office of Appeals.
(d) Savings Provisions.--Rules similar to the rules of paragraphs (2)
through (6) of section 1001(b) of the Internal Revenue Service
Restructuring and Reform Act of 1998 shall apply for purposes of this
section (and the amendments made by this section).
(e) Effective Date.--
(1) In general.--Except as otherwise provided in this
subsection, the amendments made by this section shall take
effect on the date of the enactment of this Act.
(2) Access to case files.--Section 7803(e)(7) of the Internal
Revenue Code of 1986, as added by subsection (a), shall apply
to conferences occurring after the date which is 1 year after
the date of the enactment of this Act.
TITLE II--IMPROVED SERVICE
SEC. 201. COMPREHENSIVE CUSTOMER SERVICE STRATEGY.
(a) In General.--Not later than the date which is 1 year after the
date of the enactment of this Act, the Secretary of the Treasury, after
consultation with the National Taxpayer Advocate, shall submit to
Congress a written comprehensive customer service strategy for the
Internal Revenue Service. Such strategy shall include--
(1) a plan to provide assistance to taxpayers that is secure,
designed to meet reasonable taxpayer expectations, and adopts
appropriate best practices of customer service provided in the
private sector, including online services, telephone call back
services, and training of employees providing customer
services,
(2) a thorough assessment of the services that the Internal
Revenue Service can co-locate with other Federal services or
offer as self-service options,
(3) proposals to improve Internal Revenue Service customer
service in the short term (the current and following fiscal
year), medium term (approximately 3 to 5 fiscal years), and
long term (approximately 10 fiscal years),
(4) a plan to update guidance and training materials for
customer service employees of the Internal Revenue Service,
including the Internal Revenue Manual, to reflect such
strategy, and
(5) identified metrics and benchmarks for quantitatively
measuring the progress of the Internal Revenue Service in
implementing such strategy.
(b) Updated Guidance and Training Materials.--Not later than 2 years
after the date of the enactment of this Act, the Secretary of the
Treasury shall make available the updated guidance and training
materials described in subsection (a)(4) (including the Internal
Revenue Manual). Such updated guidance and training materials
(including the Internal Revenue Manual) shall be written in a manner so
as to be easily understood by customer service employees of the
Internal Revenue Service and shall provide clear instructions.
SEC. 202. IRS FREE FILE PROGRAM.
(a) In General.--
(1) The Secretary of the Treasury, or the Secretary's
delegate, shall continue to operate the IRS Free File Program
as established by the Internal Revenue Service and published in
the Federal Register on November 4, 2002 (67 Fed. Reg. 67247),
including any subsequent agreements and governing rules
established pursuant thereto.
(2) The IRS Free File Program shall continue to provide free
commercial-type online individual income tax preparation and
electronic filing services to the lowest 70 percent of
taxpayers by adjusted gross income. The number of taxpayers
eligible to receive such services each year shall be calculated
by the Internal Revenue Service annually based on prior year
aggregate taxpayer adjusted gross income data.
(3) In addition to the services described in paragraph (2),
and in the same manner, the IRS Free File Program shall
continue to make available to all taxpayers (without regard to
income) a basic, online electronic fillable forms utility.
(4) The IRS Free File Program shall continue to work
cooperatively with the private sector to provide the free
individual income tax preparation and the electronic filing
services described in paragraphs (2) and (3).
(5) The IRS Free File Program shall work cooperatively with
State government agencies to enhance and expand the use of the
program to provide needed benefits to the taxpayer while
reducing the cost of processing returns.
(b) Innovations.--The Secretary of the Treasury, or the Secretary's
delegate, shall work with the private sector through the IRS Free File
Program to identify and implement, consistent with applicable law,
innovative new program features to improve and simplify the taxpayer's
experience with completing and filing individual income tax returns
through voluntary compliance.
SEC. 203. LOW-INCOME EXCEPTION FOR PAYMENTS OTHERWISE REQUIRED IN
CONNECTION WITH A SUBMISSION OF AN OFFER-IN-
COMPROMISE.
(a) In General.--Section 7122(c) is amended by adding at the end the
following new paragraph:
``(3) Exception for low-income taxpayers.--Paragraph (1), and
any user fee otherwise required in connection with the
submission of an offer-in-compromise, shall not apply to any
offer-in-compromise with respect to a taxpayer who is an
individual with adjusted gross income, as determined for the
most recent taxable year for which such information is
available, which does not exceed 250 percent of the applicable
poverty level (as determined by the Secretary).''.
(b) Effective Date.--The amendment made by this section shall apply
to offers-in-compromise submitted after the date of the enactment of
this Act.
TITLE III--SENSIBLE ENFORCEMENT
SEC. 301. INTERNAL REVENUE SERVICE SEIZURE REQUIREMENTS WITH RESPECT TO
STRUCTURING TRANSACTIONS.
Section 5317(c)(2) of title 31, United States Code, is amended--
(1) by striking ``Any property'' and inserting the following:
``(A) In general.--Any property''; and
(2) by adding at the end the following:
``(B) Internal revenue service seizure requirements
with respect to structuring transactions.--
``(i) Property derived from an illegal
source.--Property may only be seized by the
Internal Revenue Service pursuant to
subparagraph (A) by reason of a claimed
violation of section 5324 if the property to be
seized was derived from an illegal source or
the funds were structured for the purpose of
concealing the violation of a criminal law or
regulation other than section 5324.
``(ii) Notice.--Not later than 30 days after
property is seized by the Internal Revenue
Service pursuant to subparagraph (A), the
Internal Revenue Service shall--
``(I) make a good faith effort to
find all persons with an ownership
interest in such property; and
``(II) provide each such person with
a notice of the seizure and of the
person's rights under clause (iv).
``(iii) Extension of notice under certain
circumstances.--The Internal Revenue Service
may apply to a court of competent jurisdiction
for one 30-day extension of the notice
requirement under clause (ii) if the Internal
Revenue Service can establish probable cause of
an imminent threat to national security or
personal safety necessitating such extension.
``(iv) Post-seizure hearing.--If a person
with a property interest in property seized
pursuant to subparagraph (A) by the Internal
Revenue Service requests a hearing by a court
of competent jurisdiction within 30 days after
the date on which notice is provided under
subclause (ii), such property shall be returned
unless the court holds an adversarial hearing
and finds within 30 days of such request (or
such longer period as the court may provide,
but only on request of an interested party)
that there is probable cause to believe that
there is a violation of section 5324 involving
such property and probable cause to believe
that the property to be seized was derived from
an illegal source or the funds were structured
for the purpose of concealing the violation of
a criminal law or regulation other than section
5324.''.
SEC. 302. EXCLUSION OF INTEREST RECEIVED IN ACTION TO RECOVER PROPERTY
SEIZED BY THE INTERNAL REVENUE SERVICE BASED ON
STRUCTURING TRANSACTION.
(a) In General.--Part III of subchapter B of chapter 1 is amended by
inserting before section 140 the following new section:
``SEC. 139G. INTEREST RECEIVED IN ACTION TO RECOVER PROPERTY SEIZED BY
THE INTERNAL REVENUE SERVICE BASED ON STRUCTURING
TRANSACTION.
``Gross income shall not include any interest received from the
Federal Government in connection with an action to recover property
seized by the Internal Revenue Service pursuant to section 5317(c)(2)
of title 31, United States Code, by reason of a claimed violation of
section 5324 of such title.''.
(b) Clerical Amendment.--The table of sections for part III of
subchapter B of chapter 1 is amended by inserting before the item
relating to section 140 the following new item:
``Sec. 139G. Interest received in action to recover property seized by
the Internal Revenue Service based on structuring transaction.''.
(c) Effective Date.--The amendments made by this section shall apply
to interest received on or after the date of the enactment of this Act.
SEC. 303. CLARIFICATION OF EQUITABLE RELIEF FROM JOINT LIABILITY.
(a) In General.--Section 6015 is amended--
(1) in subsection (e), by adding at the end the following new
paragraph:
``(7) Standard and scope of review.--Any review of a
determination made under this section shall be reviewed de novo
by the Tax Court and shall be based upon--
``(A) the administrative record established at the
time of the determination, and
``(B) any additional newly discovered or previously
unavailable evidence.'', and
(2) by amending subsection (f) to read as follows:
``(f) Equitable Relief.--
``(1) In general.--Under procedures prescribed by the
Secretary, if--
``(A) taking into account all the facts and
circumstances, it is inequitable to hold the individual
liable for any unpaid tax or any deficiency (or any
portion of either), and
``(B) relief is not available to such individual
under subsection (b) or (c),
the Secretary may relieve such individual of such liability.
``(2) Limitation.--A request for equitable relief under this
subsection may be made with respect to any portion of any
liability that--
``(A) has not been paid, provided that such request
is made before the expiration of the applicable period
of limitation under section 6502, or
``(B) has been paid, provided that such request is
made during the period in which the individual could
submit a timely claim for refund or credit of such
payment.''.
(b) Effective Date.--The amendments made by this section shall apply
to petitions or requests filed or pending on or after the date of the
enactment of this Act.
SEC. 304. MODIFICATION OF PROCEDURES FOR ISSUANCE OF THIRD-PARTY
SUMMONS.
(a) In General.--Section 7609(f) is amended by adding at the end the
following flush sentence:
``The Secretary shall not issue any summons described in the preceding
sentence unless the information sought to be obtained is narrowly
tailored to information that pertains to the failure (or potential
failure) of the person or group or class of persons referred to in
paragraph (2) to comply with one or more provisions of the internal
revenue law which have been identified for purposes of such
paragraph.''.
(b) Effective Date.--The amendments made by this section shall apply
to summonses served after the date of the enactment of this Act.
SEC. 305. ESTABLISHMENT OF INCOME THRESHOLD FOR REFERRAL TO PRIVATE
DEBT COLLECTION.
(a) In General.--Section 6306(d)(3) is amended by striking ``or'' at
the end of subparagraph (C), by adding ``or'' at the end of
subparagraph (D), and by inserting after subparagraph (D) the following
new subparagraph:
``(E) in the case of a tax receivable which is
identified by the Secretary (or the Secretary's
delegate) during the period beginning on the date which
is 180 days after the date of the enactment of this Act
and ending on December 31, 2019, a taxpayer who is an
individual with adjusted gross income, as determined
for the most recent taxable year for which such
information is available, which does not exceed 250
percent of the applicable poverty level (as determined
by the Secretary),''.
(b) Effective Date.--The amendments made by this section shall apply
to tax receivables identified by the Secretary (or the Secretary's
delegate) after the date which is 180 days after the date of the
enactment of this Act.
SEC. 306. REFORM OF NOTICE OF CONTACT OF THIRD PARTIES.
(a) In General.--Section 7602(c)(1) is amended to read as follows:
``(1) General notice.--An officer or employee of the Internal
Revenue Service may not contact any person other than the
taxpayer with respect to the determination or collection of the
tax liability of such taxpayer unless such contact occurs
during a period (not greater than 1 year) which is specified in
a notice which--
``(A) informs the taxpayer that contacts with persons
other than the taxpayer are intended to be made during
such period, and
``(B) except as otherwise provided by the Secretary,
is provided to the taxpayer not later than 45 days
before the beginning of such period.
Nothing in the preceding sentence shall prevent the issuance of
notices to the same taxpayer with respect to the same tax
liability with periods specified therein that, in the
aggregate, exceed 1 year. A notice shall not be issued under
this paragraph unless there is an intent at the time such
notice is issued to contact persons other than the taxpayer
during the period specified in such notice. The preceding
sentence shall not prevent the issuance of a notice if the
requirement of such sentence is met on the basis of the
assumption that the information sought to be obtained by such
contact will not be obtained by other means before such
contact.''.
(b) Effective Date.--The amendment made by this section shall apply
to notices provided, and contacts of persons made, after the date which
is 45 days after the date of the enactment of this Act.
SEC. 307. MODIFICATION OF AUTHORITY TO ISSUE DESIGNATED SUMMONS.
(a) In General.--Clause (i) of section 6503(j)(2)(A) is amended to
read as follows:
``(i) the issuance of such summons is
preceded by a review and written approval of
such issuance by the Administrator of the
relevant operating division of the Internal
Revenue Service and the Chief Counsel which--
``(I) states facts clearly
establishing that the Secretary has
made reasonable requests for the
information that is the subject of the
summons, and
``(II) is attached to such
summons,''.
(b) Establishment That Reasonable Requests for Information Were
Made.--Subsection (j) of section 6503 is amended by adding at the end
the following new paragraph:
``(4) Establishment that reasonable requests for information
were made.--In any court proceeding described in paragraph (3),
the Secretary shall establish that reasonable requests were
made for the information that is the subject of the summons.''.
(c) Effective Date.--The amendments made by this section shall apply
to summonses issued after the date of the enactment of this Act.
SEC. 308. LIMITATION ON ACCESS OF NON-INTERNAL REVENUE SERVICE
EMPLOYEES TO RETURNS AND RETURN INFORMATION.
(a) In General.--Section 7602 is amended by adding at the end the
following new subsection:
``(f) Limitation on Access of Persons Other Than Internal Revenue
Service Officers and Employees.--The Secretary shall not, under the
authority of section 6103(n), provide any books, papers, records, or
other data obtained pursuant to this section to any person authorized
under section 6103(n), except when such person requires such
information for the sole purpose of providing expert evaluation and
assistance to the Internal Revenue Service. No person other than an
officer or employee of the Internal Revenue Service or the Office of
Chief Counsel may, on behalf of the Secretary, question a witness under
oath whose testimony was obtained pursuant to this section.''.
(b) Effective Date.--
(1) In general.--Except as provided in paragraph (2), the
amendment made by this section shall take effect on the date of
the enactment of this Act.
(2) Application to contracts in effect.--The amendment made
by this section shall apply to any contract in effect under
section 6103(n) of the Internal Revenue Code of 1986, pursuant
to temporary Treasury Regulation section 301.7602-1T proposed
in Internal Revenue Bulletin 2014-28, Treasury Regulation
section 301.7602-1(b)(3), or any similar or successor
regulation, that is in effect on the date of the enactment of
this Act.
TITLE IV--ORGANIZATIONAL MODERNIZATION
SEC. 401. MODIFICATION OF TITLE OF COMMISSIONER OF INTERNAL REVENUE AND
RELATED OFFICIALS.
(a) In General.--Section 7803(a)(1)(A) is amended by striking
``Commissioner of Internal Revenue'' and inserting ``Administrator of
the Internal Revenue Service''.
(b) Conforming Amendments Related to Section 7803.--
(1) Subsections (a)(1)(B), (a)(1)(C), (b)(3), (c)(1)(B)(i),
and (c)(1)(B)(ii) of section 7803 are each amended by striking
``Commissioner of Internal Revenue'' and inserting
``Administrator of the Internal Revenue Service''.
(2) Section 7803(b)(2)(A) is amended by striking
``Commissioner's'' and inserting ``Administrator's''.
(3) Subsections (a)(1)(D), (a)(1)(E), (a)(2), (a)(3), (a)(4),
(b)(2)(A), (b)(2)(D), (b)(3), (c)(2)(B)(iii), (c)(2)(C)(iv),
and (c)(3) of section 7803, as amended by the preceding
paragraphs of this subsection, are amended by striking
``Commissioner'' each place it appears therein and inserting
``Administrator''.
(4) The heading of section 7803 is amended by striking
``commissioner of internal revenue'' and inserting
``administrator of the internal revenue service''.
(5) The heading of section 7803(a) is amended by striking
``Commissioner of Internal Revenue'' and inserting
``Administrator of the Internal Revenue Service''.
(6) The heading of section 7803(c)(3) is amended by striking
``Commissioner'' and inserting ``Administrator''.
(7) The table of sections for subchapter A of chapter 80 is
amended by striking the item relating to section 7803 and
inserting the following new item:
``Sec. 7803. Administrator of the Internal Revenue Service; other
officials.''.
(c) Other Conforming Amendments to the Internal Revenue Code of
1986.--
(1) Section 6307(c) is amended by striking ``Commissioner of
Internal Revenue'' and inserting ``Administrator of the
Internal Revenue Service''.
(2) Section 6673(a)(2)(B) is amended by striking
``Commissioner of Internal Revenue'' and inserting
``Administrator of the Internal Revenue Service''.
(3) Section 6707(c) is amended by striking ``Commissioner''
and inserting ``Administrator''.
(4) Section 6707A(d) is amended--
(A) in paragraph (1), by striking ``Commissioner of
Internal Revenue'' and inserting ``Administrator of the
Internal Revenue Service'', and
(B) in paragraph (3), by striking ``Commissioner''
each place it appears and inserting ``Administrator''.
(5)(A) Subsections (a) and (g) of section 7345 are each
amended by striking ``Commissioner of Internal Revenue'' and
inserting ``Administrator of the Internal Revenue Service''.
(B) Section 7345(g) is amended--
(i) by striking ``Deputy Commissioner for Services
and Enforcement'' and inserting ``Deputy Administrator
for Services and Enforcement'', and
(ii) by striking ``Commissioner of an operating
division'' and inserting ``Administrator of an
operating division''.
(C) Subsections (c)(1), (d) and (e)(1) of section 7345 are
each amended by striking ``Commissioner'' each place it appears
therein and inserting ``Administrator''.
(6) Section 7435(e) is amended by striking ``Commissioner''
each place it appears therein and inserting ``Administrator''.
(7) Section 7409(a)(2)(B) is amended by striking
``Commissioner of Internal Revenue'' and inserting
``Administrator of the Internal Revenue Service''.
(8) Section 7608(c) is amended--
(A) in paragraph (1), by striking ``the Commissioner
of Internal Revenue (or, if designated by the
Commissioner, the Deputy Commissioner or an Assistant
Commissioner of Internal Revenue)'' and inserting ``the
Administrator of the Internal Revenue Service (or, if
designated by the Administrator, the Deputy
Administrator or an Assistant Administrator of the
Internal Revenue Service)'', and
(B) in paragraph (2) by striking ``Commissioner'' and
inserting ``Administrator''.
(9) Section 7611(b)(3)(C) is amended by striking ``regional
commissioner'' and inserting ``regional administrator''.
(10) Section 7701(a)(13) is amended to read as follows:
``(13) Administrator.--The term `Administrator', except where
the context clearly indicates otherwise, means the
Administrator of the Internal Revenue Service.''.
(11)(A) Section 7804(a) is amended by striking ``Commissioner
of Internal Revenue'' and inserting ``Administrator of the
Internal Revenue Service''.
(B) Subsections (a), (b)(1), and (b)(2) of section 7804(a),
as amended by subparagraph (A), are each amended by striking
``Commissioner'' each place it appears therein and inserting
``Administrator''.
(12) Section 7811(c)(1) is amended by striking ``the
Commissioner of Internal Revenue, or the Deputy Commissioner of
Internal Revenue'' and inserting ``the Administrator of the
Internal Revenue Service, or the Deputy Commissioner of the
Internal Revenue Service''.
(d) Amendments to Section 8D of the Inspector General Act of 1978.--
(1) Subsections (g)(2), (k)(1)(C), (l)(1), and (l)(2)(A) of
section 8D of the Inspector General Act of 1978 are each
amended by striking ``Commissioner of Internal Revenue'' and
inserting ``Administrator of the Internal Revenue Service''.
(2) Section 8D(l)(2)(B) of such Act is amended by striking
``Commissioner'' each place it appears therein and inserting
``Administrator''.
(e) Other References.--Any reference in any provision of law, or
regulation or other guidance, to the Commissioner of Internal Revenue,
or to any Deputy or Assistant Commissioner of Internal Revenue, or to a
Commissioner of any division or region of the Internal Revenue Service,
shall be treated as a reference to the Administrator of the Internal
Revenue Service, or to the appropriate Deputy or Assistant
Administrator of the Internal Revenue Service, or to the appropriate
Administrator of such division or region, respectively.
(f) Continuity.--In the case of any individual appointed by the
President, by and with the advice and consent of the Senate, as
Commissioner of Internal Revenue under section 7803(a)(1)(A) of the
Internal Revenue Code of 1986, and serving in such position immediately
before the date of the enactment of this Act, the amendments made by
this section shall be construed as changing the title of such
individual and shall not be construed to--
(1) require the reappoint of such individual under such
section, or
(2) alter the remaining term of such person under section
7803(a)(1)(B).
SEC. 402. OFFICE OF THE NATIONAL TAXPAYER ADVOCATE.
(a) Taxpayer Advocate Directives.--
(1) In general.--Section 7803(c) is amended by adding at the
end the following new paragraph:
``(5) Taxpayer advocate directives.--In the case of any
Taxpayer Advocate Directive issued by the National Taxpayer
Advocate pursuant to a delegation of authority from the
Administrator of the Internal Revenue Service--
``(A) the Administrator or a Deputy Administrator
shall modify, rescind, or ensure compliance with such
directive not later than 90 days after the issuance of
such directive, and
``(B) in the case of any directive which is modified
or rescinded by a Deputy Administrator, the National
Taxpayer Advocate may (not later than 90 days after
such modification or rescission) appeal to the
Administrator and the Administrator shall (not later
than 90 days after such appeal is made) ensure
compliance with such directive as issued by the
National Taxpayer Advocate or provide the National
Taxpayer Advocate with a detailed description of the
reasons for any modification or rescission made or
upheld by the Administrator pursuant to such appeal.''.
(2) Report to certain committees of congress regarding
directives.--Section 7803(c)(2)(B)(ii) is amended by
redesignating subclauses (VIII) through (XI) as subclauses (IX)
through (XII), respectively, and by inserting after subclause
(VII) the following new subclause:
``(VIII) identify any Taxpayer
Advocate Directive which was not
honored by the Internal Revenue Service
in a timely manner, as specified under
paragraph (5);''.
(b) National Taxpayer Advocate Annual Reports to Congress.--
(1) Inclusion of most serious taxpayer problems.--Section
7803(c)(2)(B)(ii)(III) is amended by striking ``at least 20''
and inserting ``the 10''.
(2) Coordination with treasury inspector general for tax
administration.--Section 7803(c)(2) is amended by adding at the
end the following new subparagraph: .
``(E) Coordination with treasury inspector general
for tax administration.--Before beginning any research
or study, the National Taxpayer Advocate shall
coordinate with the Treasury Inspector General for Tax
Administration to ensure that the National Taxpayer
Advocate does not duplicate any action that the
Treasury Inspector General for Tax Administration has
already undertaken or has a plan to undertake.''.
(3) Statistical support.--
(A) In general.--Section 6108 is amended by adding at
the end the following new subsection:
``(d) Statistical Support for National Taxpayer Advocate.--The
Secretary shall, upon request of the National Taxpayer Advocate,
provide the National Taxpayer Advocate with statistical support in
connection with the preparation by the National Taxpayer Advocate of
the annual report described in section 7803(c)(2)(B)(ii). Such
statistical support shall include statistical studies, compilations,
and the review of information provided by the National Taxpayer
Advocate for statistical validity and sound statistical methodology.''.
(B) Disclosure of review.--Section 7803(c)(2)(B)(ii),
as amended by subsection (a), is amended by
redesignating subclause (XII) as subclause (XIII) and
by inserting after subclause (XI) the following new
subclause:
``(XII) with respect to any
statistical information included in
such report, include a statement of
whether such statistical information
was reviewed or provided by the
Secretary under section 6108(d) and, if
so, whether the Secretary determined
such information to be statistically
valid and based on sound statistical
methodology.''.
(C) Conforming amendment.--Section 7803(c)(2)(B)(iii)
is amended by adding at the end the following: ``The
preceding sentence shall not apply with respect to
statistical information provided to the Secretary for
review, or received from the Secretary, under section
6108(d).''.
(c) Salary of National Taxpayer Advocate.--Section 7803(c)(1)(B)(i)
is amended by striking ``, or, if the Secretary of the Treasury so
determines, at a rate fixed under section 9503 of such title''.
(d) Effective Date.--
(1) In general.--Except as otherwise provided in this
subsection, the amendments made by this section shall take
effect on the date of the enactment of this Act.
(2) Salary of national taxpayer advocate.--The amendment made
by subsection (c) shall apply to compensation paid to
individuals appointed as the National Taxpayer Advocate after
the date of the enactment of this Act.
SEC. 403. ELIMINATION OF IRS OVERSIGHT BOARD.
(a) In General.--Subchapter A of chapter 80 is amended by striking
section 7802 (and by striking the item relating to such section in the
table of sections of such subchapter).
(b) Conforming Amendments.--
(1) Section 4946(c) is amended by adding ``or'' at the end of
paragraph (5), by striking ``, or'' at the end of paragraph (6)
and inserting a period, and by striking paragraph (7).
(2) Section 6103(h) is amended by striking paragraph (6).
(3) Section 7803(a) is amended by striking paragraph (4).
(4) Section 7803(c)(1)(B)(ii) is amended by striking ``and
the Oversight Board''.
(5) Section 7803(c)(2)(B)(iii) is amended by striking ``the
Oversight Board,''.
(6) Section 8D of the Inspector General Act of 1978 is
amended--
(A) in subsections (g)(2) and (h), by striking ``the
Internal Revenue Service Oversight Board and'',
(B) in subsection (l)(1), by striking ``or the
Internal Revenue Service Oversight Board'', and
(C) in subsection (l)(2), by striking ``and the
Internal Revenue Service Oversight Board''.
SEC. 404. MODERNIZATION OF INTERNAL REVENUE SERVICE ORGANIZATIONAL
STRUCTURE.
(a) In General.--Not later than September 30, 2020, the Administrator
of the Internal Revenue Service shall submit to Congress a
comprehensive written plan to redesign the organization of the Internal
Revenue Service. Such plan shall--
(1) ensure the successful implementation of the priorities
specified by Congress in this Act,
(2) prioritize taxpayer services to ensure that all taxpayers
easily and readily receive the assistance that they need,
(3) streamline the structure of the agency including
minimizing the duplication of services and responsibilities
within the agency,
(4) best position the Internal Revenue Service to combat
cybersecurity and other threats to the Internal Revenue
Service, and
(5) address whether the Criminal Investigation Division of
the Internal Revenue Service should report directly to the
Administrator.
(b) Repeal of Restriction on Organizational Structure of Internal
Revenue Service.--Paragraph (3) of section 1001(a) of the Internal
Revenue Service Restructuring and Reform Act of 1998 shall cease to
apply beginning 1 year after the date on which the Administrator of the
Internal Revenue Service submits to Congress the plan described in
subsection (a).
TITLE V--TAX COURT
SEC. 501. DISQUALIFICATION OF JUDGE OR MAGISTRATE JUDGE OF THE TAX
COURT.
(a) In General.--Part II of subchapter C of chapter 76 is amended by
adding at the end the following new section:
``SEC. 7467. DISQUALIFICATION OF JUDGE OR MAGISTRATE JUDGE OF THE TAX
COURT.
``Section 455 of title 28, United States Code, shall apply to judges
and magistrate judges of the Tax Court and to proceedings of the Tax
Court.''.
(b) Clerical Amendment.--The table of sections for such part is
amended by adding at the end the following new item:
``Sec. 7467. Disqualification of judge or magistrate judge of the Tax
Court.''.
SEC. 502. OPINIONS AND JUDGMENTS.
(a) In General.--Section 7459 is amended by striking all the precedes
subsection (c) and inserting the following:
``SEC. 7459. OPINIONS AND JUDGMENTS.
``(a) Requirement.--An opinion upon any proceeding instituted before
the Tax Court and a judgment thereon shall be made as quickly as
practicable. The judgment shall be made by a judge in accordance with
the opinion of the Tax Court, and such judgment so made shall, when
entered, be the judgment of the Tax Court.
``(b) Inclusion of Findings of Fact in Opinion.--It shall be the duty
of the Tax Court and of each division to include in its opinion or
memorandum opinion upon any proceeding, its findings of fact. The Tax
Court shall issue in writing all of its findings of fact, opinions, and
memorandum opinions. Subject to such conditions as the Tax Court may by
rule provide, the requirements of this subsection and of section 7460
are met if findings of fact or opinion are stated orally and recorded
in the transcript of the proceedings.''.
(b) Conforming Amendments to Section 7459.--
(1) Subsections (c), (d), (e), and (f) of section 7459 are
each amended by striking ``decision'' each place it appears and
inserting ``judgment''.
(2) The headings of subsections (c), (d), and (e) of section
7459 are each amended by striking ``Decision'' and inserting
``Judgment''.
(3) The item relating to section 7459 in the table of
sections for part II of subchapter C of chapter 76 is amended
to read as follows:
``Sec. 7459. Opinions and judgments.''.
(c) Other Conforming Amendments.--
(1) The following provisions are each amended by striking
``decision'' and inserting ``judgment'':
(A) Section 1313(a)(1).
(B) Section 6213(a).
(C) Section 6214(d).
(D) Section 6225(a)(2).
(E) Section 6226(g).
(F) Section 6228(a)(6).
(G) Subsections (a)(3)(B) and (c)(1)(A)(ii) of
section 6230.
(H) Section 6247(d).
(I) Section 6252(e).
(J) Section 6404(h)(2)(C).
(K) Section 6503(a)(1).
(L) Section 6673(a)(1)(C).
(M) Subsections (c), (f), and (g) of section 6861.
(N) Section 6863(b)(3)(C).
(O) Section 7428(a).
(P) Section 7428(c)(1)(C)(i).
(Q) Section 7430(f)(3).
(R) Section 7436(c)(2).
(S) Section 7461(b)(2).
(T) Subsections (a)(4), (b), and (d) of section 7463.
(U) Subsections (a)(2)(B) and (b)(4) of section 7476.
(V) Section 7477(a).
(W) Section 7478(a)(2).
(X) Subsections (a)(2) and (c) of section 7479.
(2) The following provisions are each amended by striking
``decision'' each place it appears and inserting ``judgment'':
(A) Subsections (a) and (b)(3) of section 6215.
(B) Section 6226(h).
(C) Section 6247(e).
(D) Subsections (d) and (e) of section 6861.
(E) Section 6863(b)(2).
(F) Section 7422.
(G) Subsections (a) and (b) of section 7460.
(H) Subsections (a), (b), (c), and (d) of section
7463.
(I) Section 7482.
(J) Section 7483.
(K) Section 7485(b).
(L) Section 7481.
(3) Sections 7422 and 7482 are each amended by striking
``decisions'' each place it appears and inserting
``judgments''.
(4) Section 7430(f)(1) is amended by striking ``decision or''
both places it appears.
(5) Subsections (a) and (b) of section 7460 are each amended
by striking ``report'' each place it appears and inserting
``opinion''.
(6) Section 7461(a) is amended--
(A) by striking ``reports'' and inserting
``opinions'', and
(B) by striking ``report'' and inserting ``opinion''.
(7) Section 7462 is amended by striking ``reports'' each
place it appears and inserting ``opinions''.
(8) Section 7487(1) is amended by striking ``decisions'' and
inserting ``judgments''.
(9) The headings of sections 6214(b), 7463(b), 7481(a),
7481(b), 7481(d), and 7485(b) are each amended by striking
``Decisions'' and inserting ``Judgments''.
(10) The headings of sections 6226(h), 6247(e), 6861(c),
6861(d), 7443A(c), 7481(a)(2), and 7481(a)(3) are each amended
by striking ``Decision'' and inserting ``Judgment''.
(11) The headings of sections 6863(b)(2), 6863(b)(3),
7430(f)(3), and 7482(a)(2)(B) are each amended by striking
``decision'' and inserting ``judgment''.
(12) The heading of section 7436(c)(2) is amended by striking
``decisions'' and inserting ``judgment''.
(13) The heading of section 7460(a) is amended by striking
``Reports'' and inserting ``Opinions''.
(14) The heading of section 7462 is amended by striking
``reports'' and inserting ``opinions''.
(15) The heading of subchapter D of chapter 76 is amended by
striking ``Decisions'' and inserting ``Judgments''.
(16) The heading of section 7481 is amended by striking
``decision'' and inserting ``judgment''.
(17) The item relating to section 7462 in the table of
sections for part II of subchapter C of chapter 76 is amended
to read as follows:
``Sec. 7462. Publication of opinions.''.
(18) The item relating to subchapter D in the table of
subchapters for chapter 76 is amended to read as follows:
``subchapter d.--court review of tax court judgments''.
(19) The item relating to section 7481 in the table of
sections for part III of subchapter D of chapter 76 is amended
to read as follows:
``Sec. 7481. Date when Tax Court judgment becomes final.''.
(d) Continuing Effect of Legal Documents.--All orders, decisions,
reports, rules, permits, agreements, grants, contracts, certificates,
licenses, registrations, privileges, and other administrative actions,
in connection with the Tax Court, which are in effect at the time this
section takes effect, or were final before the effective date of this
section and are to become effective on or after the effective date of
this section, shall continue in effect according to their terms until
modified, terminated, superseded, set aside, or revoked in accordance
with law by the Tax Court.
SEC. 503. TITLE OF SPECIAL TRIAL JUDGE CHANGED TO MAGISTRATE JUDGE OF
THE TAX COURT.
(a) In General.--Section 7443A is amended--
(1) by striking ``special trial judges'' in subsections (a)
and (e) and inserting ``magistrate judges of the Tax Court'',
(2) by striking ``special trial judges of the court'' in
subsection (b) and inserting ``magistrate judges of the Tax
Court'', and
(3) by striking ``special trial judge'' in subsections (c)
and (d) and inserting ``magistrate judge of the Tax Court''.
(b) Conforming Amendments.--
(1) The heading of section 7443A is amended by striking
``special trial judges'' and inserting ``magistrate judges of
the tax court''.
(2) The heading of section 7443A(b) is amended by striking
``Special Trial Judges'' and inserting ``Magistrate Judges of
the Tax Court''.
(3) The item relating to section 7443A in the table of
sections for part I of subchapter C of chapter 76 is amended to
read as follows:
``Sec. 7443A. Magistrate judges of the Tax Court.''.
(4) The heading of section 7448 is amended by striking
``special trial judges'' and inserting ``magistrate judges of
the tax court''.
(5) Section 7448 is amended--
(A) by striking ``special trial judge's'' each place
it appears in subsections (a)(6), (c)(1), (d), and
(m)(1) and inserting ``magistrate judge of the Tax
Court's'', and
(B) by striking ``special trial judge'' each place it
appears other than in subsection (n) and inserting
``magistrate judge of the Tax Court''.
(6) Section 7448(n) is amended--
(A) by striking ``special trial judge which are
allowable'' and inserting ``magistrate judge of the Tax
Court which are allowable'', and
(B) by striking ``special trial judge of the Tax
Court'' both places it appears and inserting
``magistrate judge of the Tax Court''.
(7) The heading of section 7448(b)(2) is amended by striking
``Special trial judges'' and inserting ``Magistrate judges of
the tax court''.
(8) The item relating to section 7448 in the table of
sections for part I of subchapter C of chapter 76 is amended to
read as follows:
``Sec. 7448. Annuities to surviving spouses and dependent children of
judges and magistrate judges of the Tax Court.''.
(9) Section 7456(a) is amended--
(A) by striking ``special trial judge'' each place it
appears and inserting ``magistrate judge'', and
(B) by striking ``(or by the clerk'' and inserting
``of the Tax Court (or by the clerk''.
(10) Section 7466(a) is amended by striking ``special trial
judge'' and inserting ``magistrate judge''.
(11) Section 7470A is amended by striking ``special trial
judges'' both places it appears in subsections (a) and (b) and
inserting ``magistrate judges''.
(12) Section 7471(a)(2)(A) is amended by striking ``special
trial judges'' and inserting ``magistrate judges''.
(13) Section 7471(c) is amended--
(A) by striking ``Special Trial Judges'' in the
heading and inserting ``Magistrate Judges of the Tax
Court'', and
(B) by striking ``special trial judges'' and
inserting ``magistrate judges''.
SEC. 504. REPEAL OF DEADWOOD RELATED TO BOARD OF TAX APPEALS.
(a) Section 7459 is amended by striking subsection (f) and
redesignating subsection (g) as subsection (f).
(b) Section 7447(a)(3) is amended to read as follows:
``(3) In any determination of length of service as judge or
as a judge of the Tax Court of the United States there shall be
included all periods (whether or not consecutive) during which
an individual served as judge.''.
I. SUMMARY AND BACKGROUND
A. Purpose and Summary
The ``Taxpayer First Act,'' H.R. 5444, as reported by the
Committee on Ways and Means, would redesign the Internal
Revenue Service by improving taxpayer rights, enhancing
customer service, and redesigning the organizational structure
of the agency.
B. Background and Need for Legislation
The last time Congress considered transformative revisions
to the IRS was the Restructuring and Reform Act of 1998 (RRA
98). Two decades later, it is time to redesign the IRS and
return the agency back to its ``service first'' mission.
In RRA 98, Congress directed the agency to create an
independent process for taxpayers to appeal tax disputes. While
the IRS initially established an independent process, over time
the agency has exercised its discretion to prevent certain
taxpayers from accessing the review process. Currently, some
taxpayers do not trust that the IRS's independent review
process is truly independent or accessible. Taxpayers do not
have access to the IRS case against them unless they request it
under the Freedom of Information Act. This process takes time,
and not all taxpayers are aware that it is an option.
Taxpayers frequently view the IRS as an enforcement-first
agency, not simply the agency responsible for administering the
Tax Code. The Subcommittee's oversight work revealed areas
where the IRS's use of enforcement tools exceeded Congressional
intent. For example, while the IRS has the ability to seize
assets of taxpayers suspected to be involved in criminal
activity, the IRS has used that authority to seize assets from
small businesses without proving that the taxpayers engaged in
criminal activity. Similarly, the agency used a different
seizure authority to seize and sell on the same day, property
such as bridal gowns, sports memorabilia, and workout
equipment. These needlessly accelerated sales subverted routine
notice requirements and have in some cases resulted in the
devastation of small businesses.
The IRS currently lacks a satisfactory comprehensive
customer service strategy with metrics and benchmarks for
measuring success. Additionally, the organizational structure
of the IRS is 20 years old and needs updating. RRA 98 directed
the Commissioner of Internal Revenue to restructure the IRS by
eliminating or substantially modifying the three-tier
geographic structure (national, regional, and district) in
place at the time and replacing it with an organizational
structure that features operating units serving particular
groups of taxpayers with similar needs. Given that 20 years has
passed since RRA 98, the mandated organization according to
particular taxpayer groups no longer allows the IRS to organize
itself efficiently to best meet its mission and address the
cyber security and efficiency challenges it faces.
C. Legislative History
BACKGROUND
H.R. 5444 was introduced on April 10, 2018 and was referred
to the Committee on Financial Services and the Committee on
Ways and Means.
COMMITTEE ACTION
The Committee on Ways and Means marked up H.R. 5444, the
``Taxpayer First Act'' on April 11, 2018, and ordered the bill,
as amended, favorably reported (with a quorum being present).
COMMITTEE HEARINGS AND ROUNDTABLES
During the 114th and 115th Congresses, the Ways and Means
Oversight Subcommittee has held seven hearings and two
roundtables on reforming the IRS focusing on improving the
taxpayer experience, enhancing customer service, and limiting
civil asset forfeiture authority by the agency. Oversight
Subcommittee hearings included:
February 11, 2015: Protecting Small
Businesses from IRS Abuse (Part I);
May 25, 2016: Protecting Small Businesses
from IRS Abuse (Part II);
April 26, 2017: Examining the 2017 Tax
Filing Season;
May 19, 2017: IRS Reform: Lessons Learned
from the National Taxpayer Advocate;
September 13, 2017: IRS Reform: Resolving
Taxpayer Disputes;
December 13, 2017: IRS Reform: The Taxpayer
Experience; and
January 30, 2018: Member Day Hearing on
Legislation to Improve Tax Administration.
Roundtables included:
June 22, 2017: Reforming the IRS--Lessons
Learned from 1998, Roundtable Part I; and
July 12, 2017: Reforming the IRS--Lessons
Learned from 1998, Roundtable Part II.
II. EXPLANATION OF THE BILL
A. Independent Appeals Process
1. ESTABLISHMENT OF INTERNAL REVENUE SERVICE INDEPENDENT OFFICE OF
APPEALS (SEC. 101 OF THE BILL AND NEW SEC. 7803(E) OF THE CODE\1\)
---------------------------------------------------------------------------
\1\All section references herein are to the Internal Revenue Code
of 1986, as amended (herein ``Code''), unless otherwise stated.
---------------------------------------------------------------------------
PRESENT LAW
The IRS Reform and Restructuring Act of 1998 (``RRA98'')
directed the Commissioner of Internal Revenue to restructure
the Internal Revenue Service (``IRS'') by establishing and
implementing an organizational structure that features
operating units serving particular groups of taxpayers with
similar needs and ensures an independent appeals function
within the IRS.\2\ Although the Code does not mandate the
existence of an independent office within the IRS to review
administrative determinations, it does require an independent
administrative review of certain determinations,\3\ and further
requires that the Commissioner ensure that the duties of IRS
employees are executed in a manner consistent with rights
inferred from other Code provisions.\4\
---------------------------------------------------------------------------
\2\Pub. L. No. 105-206, sec. 1001(a).
\3\See, e.g., sections 6320 (notice and opportunity for hearing
upon filing of notice of lien), 6330 (notice and opportunity for
hearing before levy), 7122 (rejection of a proposed offer-in-compromise
or installment agreement), as well as 7123 (alternative dispute
resolution procedures).
\4\Section 7803, as amended in 2015, embraces the taxpayer rights
as general principles to be included in the training and evaluation of
all employees.
---------------------------------------------------------------------------
Under the general authority of the Secretary to interpret
the Code and that of the Commissioner to administer the Code
and to employ the persons necessary to do so,\5\ the IRS
includes an Office of Appeals (``Appeals'') headed by a Chief,
Appeals.\6\ That office traditionally functions as the
settlement arm of the IRS. In doing so, it reviews
administrative determinations arising both from collection and
examination activities, and attempts to resolve them without
need for litigation, including by using alternative dispute
resolution methods such as arbitration or mediation. As a
result, review of administrative actions is generally available
prior to payment of any tax underlying the controversy.
Exceptions occur, such as cases in which inadequate time
remains on the limitations period for assessment and collection
and the taxpayer refuses to extend the limitations period, or
in which the only arguments raised by the taxpayer are
frivolous positions\7\ that were previously identified as such
in published guidance.
---------------------------------------------------------------------------
\5\Secs. 7803(a) (The duties and powers include the power to
administer, manage, conduct, direct, and supervise the execution and
application of the internal revenue laws or related statutes and tax
conventions to which the United States is a party, and to recommend to
the President a candidate for Chief Counsel (and recommend the removal
of the Chief Counsel)) and 7804 (The Commissioner is authorized to
employ such persons as the Commissioner deems proper for the
administration and enforcement of the internal revenue laws and is
required to issue all necessary directions, instructions, orders, and
rules applicable to such persons, including determination and
designation of posts of duty), and 7805 (Secretary authority to
interpret the Code).
\6\According to its website, the Office of Appeals and its
predecessors have existed since 1927. https://www.irs.gov/compliance/
appeals/appeals-an-independent-organization.
\7\Sec. 6702(c).
---------------------------------------------------------------------------
Similarly, if a case has reached a point at which
litigation is initiated, the availability of consideration by
Appeals may be limited. First, authority to settle cases
referred to the Department of Justice for defense or initiation
of litigation rests solely with that Department. Therefore such
cases are not eligible for referral to Appeals.\8\ The terms
under which a case pending in the United States Tax Court
(``Tax Court'') may be referred to Appeals are described in
detail in published guidance that centralizes the decision to
withhold a case from Appeals to assure consistent standards are
applied.\9\
---------------------------------------------------------------------------
\8\Sec. 7122.
\9\Rev. Proc. 2016-22, 26 C.F.R. sec. 601.106. Exceptions to the
general rule in favor of requiring Appeals consideration include cases
that are withheld in the interests of sound tax administration, among
other reasons.
---------------------------------------------------------------------------
Employees of Appeals are compensated in accordance with the
rules governing Federal employment generally.\10\
---------------------------------------------------------------------------
\10\Part III of Title 5 of the United States Code prescribes rules
for Federal employment, including employment, retention, and management
and employee issues.
---------------------------------------------------------------------------
REASONS FOR CHANGE
The Committee is aware that the Code does not currently
require that all taxpayers be provided an opportunity to
contest an administrative decision in the Appeals Office,
although many taxpayers are afforded that opportunity. In order
to foster confidence in the integrity of the IRS and the
independence of its administrative proceedings, as well as to
encourage voluntary compliance, the Committee believes it is
advisable to codify the role of an independent administrative
function within the IRS and establish a new Independent Office
of Appeals. In doing so, the Committee seeks to reassure
taxpayers of the independence of the persons providing the
administrative review.
In addition, the Committee is aware of several instances in
which a taxpayer's request for Appeals consideration was denied
but the taxpayer was not clearly advised of the reasoning that
resulted in the denial. Accordingly, the Committee believes it
is advisable to provide guidelines for administrative
procedures that the IRS must follow in denying requests for an
independent administrative review. By restricting these
procedures to those taxpayers who have received a notice of
deficiency, the Committee intends to restrict and provide
oversight of the current published guidance on this
subject.\11\ The Committee intends to exercise its oversight of
the implementation of the new procedures by requiring that the
IRS submit annual written reports on the number and type of
cases that are denied independent administrative review.
---------------------------------------------------------------------------
\11\Rev. Proc. 2016-22, supra.
---------------------------------------------------------------------------
EXPLANATION OF PROVISION
The provision codifies the requirement of an independent
administrative appeals function by establishing within the
Internal Revenue Service an office to be known as the Internal
Revenue Service Independent Office of Appeals (``Independent
Appeals'') and to be headed by an official known as the Chief
of Appeals, as described below. The purposes and duties of the
office as well as the taxpayers' general right to seek
consideration by that office, subject to certain limitations,
are described below.
Chief of Appeals and staff
The provision grants authority to the Administrator of the
IRS\12\ to appoint the Chief of Appeals, who is to be
compensated at the same rate as the highest rate of basic pay
established for the Senior Executive Service.\13\ The
appointment is not subject to the rules under Title 5 of the
United States Code that govern competitive service or the
Senior Executive Service. The Chief of Appeals reports directly
to the Administrator of the IRS. The person appointed to the
position is required to have experience in a broad range of
Federal tax law controversies and management of large service
organizations.
---------------------------------------------------------------------------
\12\``Administrator'' is used in lieu of ``Commissioner'' to
reflect the proposed change made at section 401 of H.R. 5444, as
described infra.
\13\5 U.S.C. sec. 5382.
---------------------------------------------------------------------------
The provision also confirms that the Chief of Appeals and
her employees are to have access to legal assistance and advice
from attorneys within the Office of Chief Counsel about cases
pending at Independent Appeals. Chief Counsel is responsible
for ensuring that the attorneys are able to provide independent
advice, i.e., that the attorneys assigned to answer inquiries
from Independent Appeals were not involved in advising the IRS
employees working on the case prior to its referral to
Independent Appeals, nor are they involved in preparation of
the case for litigation.
Functions of Independent Appeals
Independent Appeals is intended to continue to resolve tax
controversies and review administrative decisions of the IRS in
a fair and impartial manner, for the purposes of enhancing
public confidence, promoting voluntary compliance, and ensuring
consistent application and interpretation of Federal tax laws.
Resolution of tax controversies in this manner is generally
available to all taxpayers, subject to reasonable exceptions
that the Secretary may provide. Thus, cases of a type that are
referred to Appeals under present law remain eligible for
referral to Independent Appeals.
The provision includes a savings clause that requires
application of rules similar to those in RRA98 to ensure
continuity of the validity of administrative and legal
proceedings, including legal documents related to such
proceedings and existing delegations of authority.
Taxpayer access to case files
The provision requires that the administrative case file
referred to Independent Appeals be available to certain
individual and small business taxpayers. Eligible taxpayers are
individuals with adjusted gross incomes below $400,000 and
entities with gross receipts below $5 million. Under the
provision, eligible taxpayers must be able to review the non-
privileged portions of materials developed by the IRS for its
administrative case file not later than ten days prior to the
first conference with Independent Appeals. In providing the
materials, the IRS need not produce for the taxpayer the
documents that were initially provided to the IRS by the
taxpayer. In addition, the taxpayer may elect to waive the ten-
day period and accept access to the materials on the date of
the scheduled conference.
Cases not referred to Independent Appeals
In cases in which the IRS has issued a notice of deficiency
to a taxpayer, the provision requires that the Administrator
prescribe notice and protest procedures for taxpayers whose
request for Independent Appeals consideration is denied. Such
protest procedures will be available to taxpayers who have
received a notice of deficiency in cases other than those
involving only frivolous positions within the meaning of the
Code.\14\ The procedures must include a requirement that the
Administrator notify a taxpayer of the denial in a written
statement that includes a statement of the facts underlying the
basis for the denial of the request together with a detailed
explanation of the reasons for denying the request for referral
to Independent Appeals. In addition, the written notice must
advise the taxpayer of the right to protest the denial of the
request to the Administrator and include information about how
to lodge such a protest.
---------------------------------------------------------------------------
\14\Sec. 6702(c).
---------------------------------------------------------------------------
The Administrator must provide to Congress an annual
written report detailing the number of denials of access to
Independent Appeals and the reasons for such denials.
EFFECTIVE DATE
The provision is generally effective upon the date of
enactment, except with regard to the portion of the provision
allowing taxpayer access to case files, which is effective for
cases in which the conference is held more than one year after
the date of enactment.
B. Improved Service
1. COMPREHENSIVE CUSTOMER SERVICE STRATEGY (SEC. 201 OF THE BILL)
PRESENT LAW
The Code provides that the Commissioner of the Internal
Revenue Service (``the Commissioner'') has such duties and
powers as prescribed by the Secretary.\15\ Unless otherwise
specified by the Secretary, such duties and powers include the
power to administer, manage, conduct, direct, and supervise the
execution and application of the internal revenue laws or
related statutes. In executing these duties, the Commissioner
depends upon strategic plans that prioritize goals and manage
its resources. In the current strategic plan, the delivery of
high quality and timely service to reduce taxpayer burden and
encourage compliance is identified as Goal I.\16\
---------------------------------------------------------------------------
\15\Sec. 7803(a).
\16\See Internal Revenue Service Strategic Plan FY2014-2017,
Publication 3744 (Rev. 6-2014), available at https://www.irs.gov/pub/
irs-pdf/p3744.pdf.
---------------------------------------------------------------------------
Within the IRS, the Office of the Taxpayer Advocate
(``OTA'') is expected to represent taxpayer interests
independently in disputes with the IRS. The OTA has four
principal functions: (1) to assist taxpayers in resolving
problems with the IRS; (2) to identify areas in which taxpayers
have problems in dealing with the IRS; (3) to propose changes
in the administrative practices of the IRS to mitigate problems
in areas in which taxpayers have issues in dealing with the
IRS; and (4) to identify potential legislative changes which
may be appropriate to mitigate such problems.\17\ The National
Taxpayer Advocate (``NTA'') supervises the OTA. The NTA reports
directly to the Commissioner.
---------------------------------------------------------------------------
\17\Sec. 7703(c).
---------------------------------------------------------------------------
REASONS FOR CHANGE
The Committee believes that it is important for the IRS to
set priorities, align activities with mission-related goals and
objectives, assign accountability, and develop and use
information to monitor progress and evaluate results. The
Committee believes that this information will provide the IRS
with tools the IRS can use to monitor and evaluate how
efficiently and effectively programs are achieving their
intended purposes. The Committee further believes this
provision is necessary to help determine whether public
resources have been used to achieve the purposes for which they
were appropriated.
EXPLANATION OF PROVISION
The provision requires the Secretary, in consultation with
the National Taxpayer Advocate (``NTA''), to develop a
comprehensive strategy for customer service and to submit such
plan to Congress not later than the date which is one year
after the date of enactment. The strategy will include: (1) a
plan to determine appropriate levels of online services,
telephone call back services, and training of employees
providing customer services, based on best practices of
businesses and customer expectations; (2) an assessment of all
services that the IRS can co-locate with other Federal services
or offer as self-service options; (3) provisions for long-term
improvements over the next 10 fiscal years, with appropriate
short-term goals over the current and following fiscal year and
mid-term goals over the next three to five fiscal years; (4) a
plan to update in a user friendly fashion and within two years
of the date of enactment, guidance and training materials,
including the Internal Revenue Manual, for customer service
employees of the IRS to reflect such strategy; and (5) metrics
for measuring the IRS's progress in implementing its strategy.
EFFECTIVE DATE
The provision is effective on the date of enactment.
2. IRS FREE FILE PROGRAM (SEC. 202 OF THE BILL)
PRESENT LAW
The IRS has entered into cooperative relationships with
commercial return preparation service providers (known as the
Free File Alliance) to provide free Federal tax preparation and
electronic filing services to eligible low-income or elderly
taxpayers. Some of these providers also offer free State tax
preparation. This arrangement is commonly known as the Free
File Program. Taxpayers generally must select a designated
service provider through the IRS's website to access commercial
online software provided by the Free File Alliance companies to
prepare and file their tax returns. To qualify, taxpayers must
have adjusted gross income (AGI) of $66,000 or less (for 2017
returns). Each participating company sets its own eligibility
requirements and not all taxpayers will qualify to use the
software of all companies. There is no fee for taxpayers using
the Free File Program, and Free File Alliance companies also do
not pay any fee to the IRS to participate in the program.
REASONS FOR CHANGE
The Committee believes that the IRS Free File program
should be maintained and enhanced because the program increases
e-file participation, provides more free online options to
taxpayers, eases tax preparation and filing, and provides
greater access to taxpayers. The Committee also believes that
identifying and implementing innovative new program features
will be helpful in continuing to reduce the burden on
taxpayers.
EXPLANATION OF PROVISION
The provision requires the Secretary (or the Secretary's
delegate) in cooperation with the private sector, to maintain
the current IRS Free File Program that provides free individual
income tax preparation and electronic filing services to the
lowest 70 percent of taxpayers by adjusted gross income as
ranked by the prior year taxpayer adjusted gross income data.
The provision requires the IRS Free File Program to continue to
make available to taxpayers at all income levels a basic,
online electronic fillable forms utility. The provision further
requires the IRS Free File Program work with State government
agencies to enhance and expand the use of the program to
provide needed benefits to taxpayers while reducing the cost of
processing returns.
The proposal also requires the Secretary, or the
Secretary's delegate, in cooperation with the private sector,
to identify and implement innovative new program features to
improve and simplify the taxpayer experience with completing
and filing individual tax returns.
EFFECTIVE DATE
The provision is effective on the date of enactment.
3. LOW-INCOME EXCEPTION FOR PAYMENTS OTHERWISE REQUIRED IN CONNECTION
WITH A SUBMISSION OF AN OFFER-IN-COMPROMISE (SEC. 203 OF THE BILL AND
SEC. 7122 OF THE CODE)
PRESENT LAW
The IRS is authorized to enter into offers-in-compromise
under which the taxpayer and Federal government agree that a
tax liability may be satisfied by payment of less than the full
amount owed.\18\ An offer-in-compromise may be accepted on one
of three grounds: (1) doubt as to liability, available in cases
in which the validity of the actual tax liability is in
question; (2) doubt as to collectability based on lack of
sufficient assets from which the tax, interest, and penalties
can be paid in full; or (3) effective tax administration,
applicable in a case in which collection in full would cause
the taxpayer economic hardship such that compromise rather than
collection would better encourage tax compliance.\19\ If the
unpaid tax liabilities total $50,000 or more, an offer-in-
compromise can be accepted only if a public report is filed,
supported by a written opinion from the IRS Chief Counsel,
stating the reasons for the compromise, the amounts of assessed
tax, penalties and interest, and the amounts actually paid
pursuant to the offer-in-compromise.\20\
---------------------------------------------------------------------------
\18\Sec. 7122.
\19\Treas. Reg. sec. 1.7122-1(b). For this purpose, economic
hardship is defined under Treas. Reg. sec. 301.6343-1.
\20\Sec. 7122(b); Treas. Reg. sec. 1.7122-1(e)(6). The $50,000
threshold was raised from $500 in 1996. Sec. 503 of the Taxpayer Bill
of Rights 2, Pub. L. No. 104-168.
---------------------------------------------------------------------------
Taxpayers making a lump sum offer-in-compromise must
include a nonrefundable payment of 20 percent of the lump sum
with the initial offer (herein, ``upfront partial
payment'').\21\ The IRS waives this upfront partial payment
when an offer is submitted by a low-income taxpayer, defined as
an individual who falls at or below 250 percent of the poverty
guidelines published by the Department of Health and Human
Services, or such other measure that is adopted by the
Secretary (herein, ``low-income taxpayer'').\22\ Taxpayers
seeking an offer-in-compromise involving periodic payments must
provide a nonrefundable payment of the first installment that
would be due if the offer were accepted.\23\
---------------------------------------------------------------------------
\21\Sec. 7122(c)(1)(A).
\22\Notice 2006-68, 2006-31 I.R.B. 105, July 31, 2006.
\23\Sec. 7122(c)(1)(B).
---------------------------------------------------------------------------
In general, a taxpayer is required to provide a user fee
for processing the offer-in-compromise.\24\ However, no fee
will be charged if an offer either is based solely on doubt as
to liability or is made by a low-income taxpayer.\25\
---------------------------------------------------------------------------
\24\Treas. reg. sec. 300.3(b). The fee for processing an offer to
compromise on or after January 1, 2014, is $186.
\25\Treas. reg. sec. 300.3(b)(i) and (ii).
---------------------------------------------------------------------------
REASONS FOR CHANGE
The Committee believes that the offer-in-compromise program
has been successful in raising revenue both from the offers and
by bringing taxpayers back into the system. The Committee
believes that, without the low-income taxpayer exception,
access to the program would be substantially reduced, making it
more difficult and costly to obtain the collectable portion of
existing tax liabilities. The Committee believes that codifying
the exception helps ensure that there will be no decrease in
the number of legitimate offers submitted, the number of offers
accepted, and the number of individuals reentering the tax
system.
EXPLANATION OF PROVISION
The provision codifies the current low-income taxpayer
exception with respect to any user fee or upfront partial
payment imposed with respect to any offer-in-compromise. The
provision makes clear that the determination of low-income is
based on the individual's adjusted gross income as determined
for the most recent tax year for which such information is
available.
EFFECTIVE DATE
The provision applies to offers-in-compromise submitted
after the date of enactment.
C. Sensible Enforcement
1. INTERNAL REVENUE SERVICE SEIZURE REQUIREMENTS WITH RESPECT TO
STRUCTURING TRANSACTIONS (SEC. 301 OF THE BILL)
PRESENT LAW
The Bank Secrecy Act (``BSA'') mandates a reporting and
recordkeeping system that assists Federal law enforcement and
regulatory agencies in the detection, monitoring, and tracing
of certain monetary transactions.\26\ The reporting
requirements are imposed on individuals, financial
institutions, and non-financial trades and businesses that act
similar to financial institutions.\27\ The requirements include
reporting currency transactions exceeding $10,000.
---------------------------------------------------------------------------
\26\The Bank Secrecy Act, 31 U.S.C. secs. 5311-5332.
\27\31 U.S.C. sec. 5312(a)(1).
---------------------------------------------------------------------------
To circumvent these reporting requirements, persons
sometimes structure cash transactions to fall below the $10,000
reporting threshold (referred to as ``structuring''). In other
words, instead of conducting a single transaction in currency
in an amount that would require a report to be filed or record
made by a financial institution, an individual conducts a
series of currency transactions, willfully keeping each
individual transaction at an amount below applicable thresholds
to evade reporting or recording. Structuring can be used to
conceal illegal cash-generating activities, such as the selling
of narcotics, and to conceal income earned legally in order to
evade the payment of taxes. Structuring (or attempts to
structure) for the purpose of evading the reporting and record
keeping requirements\28\ is subject to both civil and criminal
penalties.\29\
---------------------------------------------------------------------------
\28\31 U.S.C. sec. 5324(a); 31 U.S.C. sec 5322.
\29\A person who willfully violates the law is subject to a fine of
not more than $250,000, or imprisonment for not more than five years,
or both. 31 U.S.C. sec. 5324(a); 31 U.S.C. sec. 5322.
---------------------------------------------------------------------------
Present law authorizes forfeiture of property involved in
transactions or attempted transactions\30\ in violation of
these rules in accordance with the procedures governing civil
forfeitures in money laundering cases.\31\
---------------------------------------------------------------------------
\30\31 U.S.C. sec. 5317(c)(2).
\31\See 18 U.S.C. sec. 981.
---------------------------------------------------------------------------
The Secretary has delegated responsibility for implementing
and enforcing the BSA to the Director, Financial Crimes
Enforcement (``FinCEN''), who in turn re-delegated
responsibility for civil compliance with the law to various
Federal agencies including the IRS.\32\ The scope of that
delegation of authority was expanded by the USA PATRIOT Act of
2001,\33\ and includes authority to determine and enforce civil
penalties.\34\ The IRS administers its delegated authority
under the BSA through the IRS Small Business/Self-Employed
Division, with assistance from the IRS Criminal Investigation
Division (``IRS-CID'').
---------------------------------------------------------------------------
\32\Treasury Directive 15-41 (December 1, 1992). At the time of the
initial delegation, FinCEN was an entity created by regulatory action,
but has since been explicitly authorized by statute. 31 U.S.C. sec.
310.
\33\Treasury Order 180-01, available at https://www.treasury.gov/
about/role-of-treasury/orders-directives/Pages/to180-01.aspx,
delegating authority to FinCEN. For a discussion of the relationship
between FinCEN and the agencies to which it re-delegated authority,
see, Office of Inspector General, ``TERRORIST FINANCING/MONEY
LAUNDERING: Responsibility for Bank Secrecy Act Is Spread Across Many
Organizations,'' OIG-08-030 (April 9, 2008), available at https://
www.treasury.gov/about/organizational-structure/ig/Documents/
oig08030.pdf.
\34\A penalty may be assessed before the end of the six-year period
beginning on the date of the transaction with respect to which the
penalty is assessed. 31 U.S.C. sec. 5321(b)(1). A civil action for
collection may be commenced within two years of the later of the date
of assessment and the date a judgment becomes final in any a related
criminal action. 31 U.S.C. sec. 5321(b)(2).
---------------------------------------------------------------------------
If a person prevails in a civil forfeiture proceeding
involving seizure of currency, the United States is liable for
reasonable attorney fees and other litigation costs reasonably
incurred by the claimant, post-judgment interest, and interest
actually paid to the United States from the date of seizure or
arrest of the property that resulted from the investment of the
property in an interest-bearing account or instrument as well
as imputed interest for any period for which no interest was
paid.\35\
---------------------------------------------------------------------------
\35\28 U.S.C. sec. 2465(b)(1). The imputed interest that may be
paid under that section is the amount that such currency, instruments,
or proceeds would have earned at the rate applicable to the 30-day
Treasury Bill, for any period for which no interest was paid (not
including any period when the property reasonably was in use as
evidence in an official proceeding or in conducting scientific tests
for the purpose of collecting evidence), commencing 15 days after the
property was seized by a Federal law enforcement agency, or was turned
over to a Federal law enforcement agency by a State or local law
enforcement agency.
---------------------------------------------------------------------------
Prior to October 2014, the IRS provided partial relief in
structuring transactions involving a first offense, a
legitimate funding source, and no criminal conviction. The IRS
procedures also required its criminal investigation division to
consider additional mitigating or aggravating factors. On
October 17, 2014, IRS-CID issued guidance on how it will
conduct seizures and forfeitures in its structuring cases.\36\
Pursuant to this guidance, the IRS will not pursue seizure and
forfeiture of funds associated only with so-called ``legal
source'' structuring unless (1) there are exceptional
circumstances justifying the seizure and forfeiture and (2) the
case is approved by the Director of Field Operations.
---------------------------------------------------------------------------
\36\Memorandum for Special Agents in Charge Criminal Investigation,
October 17, 2014, available at http://ij.org/wp-content/uploads/2015/
07/IJ068495.pdf. Written Testimony of John A. Koskinen and Richard
Weber, House Committee on Ways and Means Subcommittee on Oversight on
``Financial Transaction Structuring,'' May 25, 2016, available at
https://www.irs.gov/uac/newsroom/written-testimony-of-john-a-koskinen-
and-richard-weber-before-the-house-committee-on-ways-and-means-
subcommittee-on-oversight-on-financial-transaction-structuring-may-25-
2016; New IRS Special Procedure to Allow Property Owners to Request
Return of Property, Funds in Specific Structuring Cases, June 16, 2016,
available at https://www.irs.gov/uac/newsroom/new-irs-special-
procedure-to-allow-property-owners-to-request-return-of-property-funds-
in-specific-structuring-cases; Letter to Chairman Roskam and Ranking
Member Lewis summarizing planned actions, June 10, 2016, available at
http://waysandmeans.house.gov/wp-content/uploads/2016/06/6.9-Roskam-
Lewis-Response-Letter-and-Enclosure.pdf.
---------------------------------------------------------------------------
REASONS FOR CHANGE
The Committee has been informed that persons sometimes
structure a series of cash transactions, each of which falls
below $10,000, in order to circumvent the BSA reporting and
recordkeeping requirements (referred to as ``structuring'').
Structuring (or attempts to structure) for the purpose of
evading the BSA reporting and record keeping requirements\37\
is subject to both civil and criminal penalties because
structuring may represent an attempt to conceal illegal
activities such as the selling of narcotics or evasion of
taxes, for example.
---------------------------------------------------------------------------
\37\31 U.S.C. secs. 5313(a), 5324(a).
---------------------------------------------------------------------------
The Committee has learned of numerous instances in which
the assets of taxpayers were seized by the IRS in civil asset
forfeiture actions on the basis of suspected structuring in
violation of BSA reporting and recordkeeping rules. The
Committee believes it is necessary to limit the authority of
the IRS by requiring that the IRS show probable cause that
funds subject to forfeiture for structuring were derived from
an illegal source or connected to other criminal activity
before the IRS can seize funds. The Committee also believes it
is necessary to implement new procedural protections for
persons whose assets the IRS has seized in such forfeiture
actions, including a post-seizure hearing.
EXPLANATION OF PROVISION
In the case of a suspected structuring violation, the IRS
may only pursue seizure or forfeiture of assets if either the
property to be seized was derived from an illegal source or the
transactions were structured for the purpose of concealing a
violation of a criminal law or regulation other than rules
against structuring.
The provision establishes post-seizure notice and review
procedures for IRS seizures based on suspected structuring
violations. The IRS must, within 30 days, make a good faith
effort to find the owner of the property seized and inform him
or her of certain post-seizure hearing rights provided under
the provision. This 30-day notice requirement may be extended
if the IRS can establish probable cause of an imminent threat
to national security or personal safety. If a notice recipient
requests a court hearing within 30 days of the notice, the
property is required to be returned unless the court finds that
there is probable cause to believe that the property to be
seized was derived from an illegal source or the funds were
structured for the purpose of concealing the violation of a
criminal law or regulation other than the structuring
provisions of the BSA.
EFFECTIVE DATE
The provision is effective on the date of enactment.
2. EXCLUSION OF INTEREST RECEIVED IN ACTION TO RECOVER PROPERTY SEIZED
BY THE INTERNAL REVENUE SERVICE BASED ON STRUCTURING TRANSACTION (SEC.
302 OF THE BILL AND NEW SEC. 139G OF THE CODE)
PRESENT LAW
Nothing in the Bank Secrecy Act (``BSA'') or the
administrative guidance issued by the IRS affects the Federal
tax treatment of the interest that may be paid to a successful
litigant in civil asset forfeiture proceedings. The Code
provides no specific exclusion from gross income or deduction
from adjusted gross income for interest received by a
successful litigant pursuant to an action to recover property
seized by the IRS pursuant to the BSA. Accordingly, the
interest received is includable in gross income under the Code.
REASONS FOR CHANGE
The Committee believes interest received from the Federal
government on wrongly seized property should be exempt from
income tax if a court determines the Government must return the
funds and interest accrued to the victim of IRS abuse.
EXPLANATION OF PROVISION
The provision amends the Code to exclude from gross income
any interest received from the Federal Government in connection
with an action to recover property seized by the IRS pursuant
to a claimed violation of the structuring provisions of the
BSA.
EFFECTIVE DATE
The provision applies to interest received on or after the
date of enactment.
3. CLARIFICATION OF EQUITABLE RELIEF FROM JOINT LIABILITY (SEC. 303 OF
THE BILL AND SEC. 6105 OF THE CODE)
PRESENT LAW
If a married couple elects to file a tax return on which
they report their income jointly, they are generally jointly
and severally liable for the entire tax liability that should
have been reported on the joint return.\38\ A spouse may be
entitled to relief from joint liability, in whole or in part,
under the innocent spouse relief provisions of the Code.
---------------------------------------------------------------------------
\38\Sec. 6103(d).
---------------------------------------------------------------------------
Grounds for relief from joint liability
There are three types of relief: general innocent spouse
relief; relief for spouses no longer married or legally
separated (separation of liabilities); and equitable relief.
The grounds for relief and its scope differ among these three
types of relief. In addition, the first two types of relief
must be sought no later than two years after the date the IRS
began collection activities against the electing spouse. For
equitable relief, there is no limitations period in the
statute.
General relief from joint liability with respect to an
understatement of tax is available to all joint filers who make
a timely election for such relief and are able to establish the
following.\39\ First, the electing spouse must establish that
the underpayment is attributable to the erroneous items of the
other spouse. Second, the electing spouse must show that at the
time of signing the return, he or she did not know or have
reason to know there was an understatement of tax. Finally,
relief is granted only if it is inequitable to hold the
electing spouse liable for the deficiency in tax, based on all
facts and circumstances.
---------------------------------------------------------------------------
\39\Sec. 6015(b).
---------------------------------------------------------------------------
Separation of liabilities relief from joint liability with
respect to a deficiency is available to persons who are no
longer married, are legally separated, or were no longer living
together in the 12 months ending with the date innocent spouse
relief is elected.\40\ The individual electing relief on this
basis must establish the portion of any deficiency that is
appropriately allocable to him or her. Special rules are
provided in the Code for determining allocation of items that
benefit one spouse more than the other, property transfers, and
children's liability. Relief otherwise available is not
permitted with respect to items of which a spouse was aware at
the time the return was signed and which contributed to a
deficiency.
---------------------------------------------------------------------------
\40\Sec. 6015(c).
---------------------------------------------------------------------------
Equitable relief from joint liability may be available to
those spouses who are ineligible under the provisions for
general relief or separation of liabilities relief.\41\ Such
relief is granted only if, taking into account all facts and
circumstances, it is inequitable to hold the individual liable
for the unpaid portion of tax or for a deficiency with respect
to the joint return.
---------------------------------------------------------------------------
\41\Sec. 6015(f).
---------------------------------------------------------------------------
Availability and scope of judicial review
If an individual elects to have the general relief
provisions or the separation of liabilities relief provisions
apply with respect to a deficiency, the individual may petition
the United States Tax Court (the ``Tax Court'') to review
unfavorable determinations by the IRS with respect to the
claimed relief. The Tax Court has held that its authority to
review such IRS determinations is under a de novo standard.\42\
---------------------------------------------------------------------------
\42\Sec. 6015(e)(1).
---------------------------------------------------------------------------
The claim for relief from joint liability must be filed no
later than 90 days after the notice of final determination on
relief from joint liability and no earlier than the earlier of
the mailing of such notice of final determination or the date
which is six months after electing such relief. During the
pendency of the Tax Court proceeding, or during the period in
which a petition may be filed, collection action is restricted.
In contrast to the above, the extent to which a denial of a
claim for equitable relief from joint liability is also subject
to judicial review by the Tax Court, the scope of that review,
and the standard for any review have been the subject of
conflicting appellate decisions. An abuse of discretion
standard based on court review of the administrative record was
held to be the correct standard in some instances,\43\ but
other courts have permitted review of information beyond the
administrative record while applying an abuse of discretion
standard.\44\ Still others have applied a de novo standard to
both the scope of the review and the standard of review.\45\
---------------------------------------------------------------------------
\43\Jonson v. Commissioner, 118 T.C. 106, 125 (2002), aff'd on
other grounds, 353 F.3d 1181 (10th Cir. 2003); Mitchell v.
Commissioner, 292 F.3d 800, 807 (D.C. Cir. 2002); Cheshire v.
Commissioner, 282 F.3d 326, 337-38 (5th Cir. 2002).
\44\Commissioner v. Neal, 557 F.3d 1262 (11th Cir. 2009).
\45\Wilson v. Commissioner, 705 F.3d 980 (9th Cir. 2013); Porter v.
Commissioner, 132 T.C. 203, 132 T.C. No. 11 (2009).
---------------------------------------------------------------------------
REASONS FOR CHANGE
The Committee is aware that the extent to which a denial of
a claim for equitable relief from joint liability is subject to
judicial review by the Tax Court and the scope of any such
review have been the subject of conflicting appellate
decisions. As a result, persons residing in different states
but whose circumstances are otherwise similar may be accorded
different rights to judicial review under the Code. The
Committee believes that such disparity of treatment can be
avoided if the statute is clarified to confer a right to
judicial review in all cases, and to specify the scope of such
review.
EXPLANATION OF PROVISION
Under the provision, Tax Court review of innocent spouse
equitable relief cases is not limited to the administrative
record, but it may consider evidence that is newly discovered
or was previously unavailable. The provision also clarifies
that the Tax Court has jurisdiction to review a denials of
equitable claims for relief from joint liability, and is not
limited to a review for abuse of discretion by the IRS.
The provision allows taxpayers to request equitable relief
with respect to any unpaid liability before the expiration of
the collection period or, if paid, before the expiration of the
time for claiming a refund or credit.
EFFECTIVE DATE
The provision applies to petitions or requests filed or
pending on or after the date of enactment.
4. MODIFICATION OF PROCEDURES FOR ISSUANCE OF THIRD-PARTY SUMMONS (SEC.
304 OF THE BILL AND SEC. 7609 OF THE CODE)
PRESENT LAW
The IRS has broad statutory authority to require production
of information in the course of an examination.\46\ A request
for information in the form of an administrative summons is
enforceable if the IRS establishes its good faith, as evidenced
by the four factors enunciated by the Supreme Court in United
States v. Powell.\47\ The Powell factors require that the
information is sought for a legitimate law enforcement purpose,
is of a type that will shed light on the subject of the
examination, is not already in the possession of the IRS, and
that the IRS has complied with all applicable statutory
requirements such as service of process. Subsequent to United
States v. Powell, the legitimacy of using an administrative
summons in furtherance of an investigation into criminal
violations was validated in United States v. LaSalle National
Bank,\48\ in which the Supreme Court determined that the dual
civil and criminal purpose was legitimate, so long as there had
not yet been a commitment to refer the case for prosecution.
---------------------------------------------------------------------------
\46\Sec. 7602.
\47\United States v. Powell, 379 U.S. 48 (1964).
\48\437 U.S. 298 (1978); codified in section 7609(c).
---------------------------------------------------------------------------
The use of this summons authority to obtain information
from third-parties is subject to greater procedural
safeguards,\49\ but otherwise the same good faith elements are
analyzed to determine whether the summons should be enforced.
When the existence of a possibly non-compliant taxpayer is
known but not his identity, as in the case of holders of
offshore bank accounts or investors in particular abusive
transactions, the IRS is able to issue a summons (referred to
as a ``John Doe'' summons) to learn the identity of the
taxpayer, but must first meet significantly greater statutory
requirements to guard against fishing expeditions.
---------------------------------------------------------------------------
\49\Sec. 7609.
---------------------------------------------------------------------------
An effort to learn the identity of unnamed John Does
requires that the United States seek judicial review in an ex
parte proceeding prior to issuance of the John Doe summons. In
its application and supporting documents,\50\ the United States
must establish that the information sought pertains to an
ascertainable group of persons, that there is a reasonable
basis to believe that taxes have been avoided, and that the
information is not otherwise available.\51\ The reviewing court
does not determine whether the John Doe summons will ultimately
be enforceable. Once a court has determined that the predicate
for issuance of a summons is met, the summons is served, and
the summoned party served may challenge enforcement of the
summons, based on the Powell factors. It is not entitled to
judicial review of the ex parte ruling that permitted issuance
of the summons.\52\ Nevertheless, enforcement of a John Doe
summons is likely to be subject to time-consuming challenges,
possibly warranting an extension of the limitations period.
---------------------------------------------------------------------------
\50\Sec. 7609(h)(2) provides that the determination will be made ex
parte, solely on the pleadings.
\51\Sec. 7609(f).
\52\United States v. Samuels, Kramer & Co., and First Western
Government Securities, Inc., 712 F.2d 1342 (9th Cir. 1983), which
affirmed a lower court determination that the issuance of the John Doe
summons was not subject to review, but reversed and remanded to permit
a limited evidentiary hearing on whether the Powell standard was met.
---------------------------------------------------------------------------
The limitations period for the tax year under investigation
is suspended beginning six months after the service of a John
Does summons, and ends with the final resolution of the
response to the summons.\53\
---------------------------------------------------------------------------
\53\Sec. 7609(e)(2).
---------------------------------------------------------------------------
REASONS FOR CHANGE
The Committee believes that the John Doe summons is a
useful tool, but that it is important that the information
sought in the summons be at least potentially relevant to the
tax liability of an ascertainable group.
The Committee also believes that the use of this important
tool has at times potentially exceeded its intended purpose. A
John Doe summons is not intended to be an opening bid for
information from the party being served nor is it intended to
be used for the purposes of a fishing expedition. Given the
IRS's past use of this authority, the Committee feels it is
necessary to clarify its intended usage.
EXPLANATION OF PROVISION
The provision prevents the Secretary from issuing a John
Doe summons unless the information sought to be obtained
pertains to the failure (or potential failure) of the person or
group or class of persons referred to in the statute to comply
with one or more provisions of the Code which have been
identified. The provision is not intended to change the Powell
standard or otherwise affect the IRS's burden of proof.
EFFECTIVE DATE
The provision applies to summonses served after the date of
enactment.
5. ESTABLISHMENT OF INCOME THRESHOLD FOR REFERRAL TO PRIVATE DEBT
COLLECTION (SEC. 305 OF THE BILL AND SEC. 6306 OF THE CODE)
PRESENT LAW
The Code permits the IRS to use private debt collection
companies to locate and contact taxpayers owing outstanding tax
liabilities of any type\54\ and to arrange payment of those
taxes by the taxpayers.\55\ It requires the Secretary to enter
into qualified tax collection contracts for the collection of
inactive tax receivables. Inactive tax receivables are defined
as any tax receivable (i) removed from the active inventory for
lack of resources or inability to locate the taxpayer, (ii) for
which more than 1/3 of the applicable limitations period has
lapsed and no IRS employee has been assigned to collect the
receivable; and (iii) for which, a receivable has been assigned
for collection but more than 365 days have passed without
interaction with the taxpayer or a third party for purposes of
furthering the collection. Tax receivables are defined as any
outstanding assessment which the IRS includes in potentially
collectible inventory.
---------------------------------------------------------------------------
\54\This provision generally applies to any type of tax imposed
under the Internal Revenue Code.
\55\Sec. 6306.
---------------------------------------------------------------------------
Certain tax receivables are not eligible for collection
under qualified tax collection contracts, specifically a
contract that: (i) is subject to a pending or active offer-in-
compromise or installment agreement; (ii) is classified as an
innocent spouse case; (iii) involves a taxpayer identified by
the Secretary as being (a) deceased, (b) under the age of 18,
(c) in a designated combat zone, or (d) a victim of identity
theft; (iv) is currently under examination, litigation,
criminal investigation, or levy; or (v) is currently subject to
a proper exercise of a right of appeal.
REASONS FOR CHANGE
The Committee believes that an exception from collection of
tax receivables from low-income individual taxpayers is
necessary to protect such taxpayers from entering into payment
plans they cannot afford, which ultimately does not result in
an increase in actual payments recovered. The Committee intends
that by eliminating low-income taxpayers from the private debt
collection program the IRS can focus its efforts on collecting
debts from taxpayers with an ability to pay as well as
taxpayers with higher dollar debts.
EXPLANATION OF PROVISION
The provision makes certain tax receivables of individual
taxpayers ineligible for collection under qualified tax
collection contracts through December 31, 2019. Such
receivables are those of an individual taxpayer whose adjusted
gross income does not exceed 250 percent of the applicable
poverty level (as determined by the Secretary).
EFFECTIVE DATE
The provision applies to tax receivables identified by the
Secretary (or the Secretary's delegate) six months after the
date of enactment.
6. REFORM OF NOTICE OF CONTACT OF THIRD PARTIES (SEC. 306 OF THE BILL
AND SEC. 7602 OF THE CODE)
PRESENT LAW
The IRS may not contact any person other than the taxpayer
with respect to the determination or collection of the tax
liability of the taxpayer without providing reasonable notice
in advance to the taxpayer that the IRS may contact persons
other than the taxpayer. The IRS is required to provide
periodically to the taxpayer a record of persons contacted
during the prior period by the IRS with respect to the
determination or collection of that taxpayer's tax liability.
This record is also required to be provided upon request of the
taxpayer. This notice requirement does not apply to criminal
tax matters, if the collection of the tax liability is in
jeopardy, if the Secretary determines for good cause shown that
disclosure may involve reprisal against any person, or if the
taxpayer authorized the contact.
REASONS FOR CHANGE
The Committee believes that the current notification
requirement before the IRS contacts third parties regarding
examination or collection activities is insufficient.\56\ Such
contacts may have a chilling effect on the taxpayer's business
and could damage the taxpayer's reputation in the community.
The Committee believes that the provision's notification
requirements will provide taxpayers more of an opportunity to
resolve issues and volunteer information before the IRS
contacts third parties.
---------------------------------------------------------------------------
\56\Testimony of Kathy Petronchak, House Committee on Ways and
Means, Subcommittee on Oversight Hearing on ``Resolving Taxpayer
Disputes,'' September 13, 2017, pg. 9, available at https://
waysandmeans.house.gov/wp-content/uploads/2017/09/20170913-OS-
Testimony-Petronchak.pdf (``Such notice is useless and does not
effectively apprise taxpayers that such contact will be made, to whom
it will be made, or that the taxpayer can request a third party contact
report from the IRS.'').
---------------------------------------------------------------------------
EXPLANATION OF PROVISION
The provision replaces the requirement that the IRS provide
reasonable notice in advance to the taxpayer with a requirement
that the taxpayer be provided, at least 45 days before the
beginning of the period of contact, notice that contacts with
persons other than the taxpayer are intended. The period of
contact may not be greater than one year. However, notices are
permitted to be issued to the same taxpayer with respect to the
same tax liability with periods specified that, in the
aggregate, exceed one year. The provision requires the notice
to be provided only if there is a present intent at the time
such notice is given for the IRS to make such contacts. This
intent can be met on the basis of the assumption that the
information sought to be obtained will not be obtained by other
means before such contact.
EFFECTIVE DATE
The provision applies to notices provided, and contacts
made, after the date which is 45 days after the date of
enactment.
7. MODIFICATION OF AUTHORITY TO ISSUE DESIGNATED SUMMONS (SEC. 307 OF
THE BILL AND SEC. 6503(J) OF THE CODE)
PRESENT LAW
During an audit, the IRS may informally request that the
taxpayer provide additional information necessary to arrive at
a fair and accurate audit adjustment, if any adjustment is
warranted. Not all taxpayers cooperate with such requests,
whether by failing to respond or by providing inadequate or
incomplete responses. In such cases, if the necessary
information cannot be developed from other witnesses or
sources, the IRS seeks information by issuing an administrative
summons.\57\ If the taxpayer does not cooperate with the
request in the summons, the IRS may refer the summons to the
Department of Justice to seek and obtain an order for
enforcement in Federal court. If the summons in question was
issued to a third-party rather than the taxpayer, the taxpayer
may petition the court to quash an administrative summons.\58\
---------------------------------------------------------------------------
\57\Sec. 7602.
\58\Sec. 7609.
---------------------------------------------------------------------------
In United States v. Powell,\59\ the U.S. Supreme Court
articulated four basic elements necessary to establish that the
government issued a summons in good faith: (1) the
investigation must be conducted for a legitimate purpose; (2)
the information sought is relevant to and ``may shed light on''
that legitimate purpose; (3) the requested information is not
already in the possession of the IRS; and (4) the IRS complied
with all statutorily required administrative steps. All
petitions to enforce an administrative summons must include
allegations and supporting declarations to establish that the
good faith standards are met.\60\ Although the good faith
standards established in United States v. Powell apply to all
administrative summonses, they are not the sole source of
limitations on the IRS ability to compel production of
information during an examination.\61\
---------------------------------------------------------------------------
\59\United States v. Powell, 379 U.S. 48, (1964), at pages 57-58.
\60\Department of Justice, Tax Division, Summons Enforcement
Manual, (updated through July 2011), available at https://
www.justice.gov/sites/default/files/tax/legacy/2011/08/31/
SumEnfMan_July2011.pdf.
\61\See, e.g., secs. 7602 (summonses in furtherance of a criminal
investigation may be issued, provided that the IRS has not referred the
investigation to the Department of Justice for prosecution of the
taxpayer whose tax liability is the subject of the summons), 7609
(summons issued to a third-party record-keeper), 7611 (examinations of
churches), 7612 (summons for computer software). Summonses to obtain
information responsive to a request for exchange of information under a
tax treaty present special enforcement issues, both procedural and
substantive as well. Mazurek v. United States, 271 F.3d 226 (5th Cir.
2001).
---------------------------------------------------------------------------
Neither service of an administrative summons nor
government-initiated action for judicial enforcement is
sufficient to suspend the limitations period.\62\ As a result,
in the case of an examination of complicated issues of a large
corporation, involving voluminous records, numerous witness
interviews and possible expert reports, the general three year
period for assessment may be inadequate to allow for completion
of an examination.\63\ In such cases, the limitations period is
often but not always extended by agreement of the parties. An
uncooperative taxpayer could force a premature conclusion to an
audit by delaying responses and allowing the statute to expire.
To guard against such situations in cases in which the IRS
requires additional information and time to complete its
work,\64\ the Code authorizes issuance of a designated summons
that triggers suspension of the limitations period if judicial
enforcement proceedings are initiated.
---------------------------------------------------------------------------
\62\In the case of third-party summonses, the limitations period is
suspended if a taxpayer named in the summons initiates a proceeding to
quash the summons, or if compliance with the summons remains unresolved
as of the date which is six months after service of the summons.
\63\Sec. 6501(income taxes are generally required to be assessed
within three years after a taxpayer's return is filed, whether or not
it was timely filed); sec. 6501(c)(several circumstances under which
the general three-year limitations period does not begin to run,
include failure to file a return or filing a false or fraudulent return
with the intent to evade tax, extensions by agreement of the taxpayer
and IRS, substantial omissions of income, or failure to disclose or
report a listed transaction as required under section 6011 on any
return or statement for a taxable year); sec. 6503 (there are also
circumstances under which the three-year limitations period is supended
including the issuance of a designated summons).
\64\In describing the provision when it was first enacted, the
Conference report for the Omnibus Reconciliation Act of 1990 explained,
``This provision is designed to preserve the ability of the IRS to
conclude the audit and assess any taxes that may be due regardless of
the length of time that it might take to obtain judicial resolution of
the summons enforcement lawsuit.'' H. Rept. 101-964, p. 1073. Omnibus
Budget Reconciliation Act of 1990, Conf. Rept. to Accompany H.R. 5835.
---------------------------------------------------------------------------
A designated summons is an administrative summons that is
issued to a large corporation (or person to whom the
corporation has transferred the requested books and records)
with respect to one or more taxable periods currently under
examination in the coordinated industry case program and meets
three conditions. First, it must be reviewed and approved by
the Division Commissioner and Division Counsel of the relevant
operating division or organization with jurisdiction over the
return. Second, it must be issued at least 60 days before the
expiration of the assessment limitations period (as extended).
Finally, it must clearly state that it is a ``designated
summons.''\65\ No more than one designated summons may be
issued with respect to a return under examination.
---------------------------------------------------------------------------
\65\Section 6503(j) refers to the regional officials and the
Coordinated Examination Program or their successors. The Division
Counsel and Commissioner of the relevant office with jurisdiction over
the return have been identified in regulation as the appropriate
successor officials. Treas. Reg. sec. 301.6503(j)-1. In addition, the
Coordinated Industry Case program is the successor to the Coordinated
Examination Program.
---------------------------------------------------------------------------
If a designated summons is issued, and the taxpayer
complies, without any judicial enforcement proceeding, no
suspension of the limitations period occurs. If the government
initiates enforcement proceedings, the limitations period is
suspended for the judicial enforcement period of that summons
and any related summonses, i.e., summonses relating to the same
return and issued within 30 days after the issuance of the
designated summons. If the court proceeding results in an order
to comply with the summons, the limitations period is also
suspended for a period of 120 days from the first day after the
close of the judicial enforcement period. In addition, the
limitations period expires no earlier than 60 days after the
close of the judicial enforcement period, if the court does not
order compliance with the summons.
Since enactment of the designated summons provision in
1990, few such summonses have been issued, resulting in several
published opinions.\66\ The IRS is now required to submit
annual reports to Congress on the number of designated
summonses issued each year.\67\ Since 1995, three have been
issued, most recently in 2014.\68\
---------------------------------------------------------------------------
\66\The earliest designated summons, involving a request to require
testimony from an officer of Chevron Corporation, was enforced. United
States v. Derr, 968, F 2d 943 (Cir. 9th 1992). See also, United States
v. Norwest, 116 F.3d 1227 (8th Cir. 1997) (court enforced IRS request
to produce tax preparation software licensed to Norwest); but see
United States v. Caltex Petroleum, 12 F. Supp. 2d 545 (N.D. Tex. 1998)
(denied IRS request to produce the software code used to calculate
foreign tax credits).
\67\Sec. 1002(b) Taxpayers Bill of Rights Act 2, Pub. L. 104-168
(1996).
\68\United States v. Microsoft, Case No. C15-00102-RSM (W.D. Wash.
May 5, 2017) (ruling on validity of privileges, orders further document
production in compliance with the designated summons and related
summonses, pursuant to the earlier opinion enforcing the designated
summons, at United States v. Microsoft, 154 F. Supp. 3d 1134(W.D. Wash.
2015)).
---------------------------------------------------------------------------
REASONS FOR CHANGE
The Committee recognizes that issuance of a designated
summons is a serious step in the examination of a tax return,
given the fact that litigation over the summons would suspend
the running of the period for assessing additional tax against
the taxpayer under audit. The Committee also recognizes that
the mere threat of the use of this tool can cause concern for
taxpayers. The Committee is also cognizant of the need for such
summonses due to the complexity of audits and lack of
cooperation that the IRS sometimes, but rarely, faces in the
largest and most complex cases. In recognition of these
competing concerns, the Committee believes that tightening the
administrative process for approval and review of such summons
is warranted, without disturbing the good-faith standards of
United States v. Powell.
EXPLANATION OF PROVISION
Under the provision, issuance of a designated summons must
be preceded by review and written approval of the summons by
both the head of the relevant operating division and its
division counsel. The written approval must state facts
establishing that the IRS had previously made reasonable
requests for the information and must be attached to the
summons. In subsequent judicial proceedings concerning the
enforceability of the summons, the IRS must establish that the
prior reasonable requests for information were made.
EFFECTIVE DATE
The provision applies to summonses issued after the date of
enactment.
8. Limitation on Access of Non-Internal Revenue Service Employees to
Returns and Return Information (sec. 308 of the bill and sec. 7602 of
the Code)
PRESENT LAW
Returns and return information
General rule of confidentiality
As a general rule, returns and return information are
confidential and cannot be disclosed unless authorized by the
Code.\69\ The definition of return information is very broad
and generally includes any information received or collected by
the IRS with respect to liability under the Code of any person
for any tax, penalty, interest or offense. The term ``return
information'' includes, among other items:
---------------------------------------------------------------------------
\69\Sec. 6103(a).
a taxpayer's identity, the nature, source, or amount
of his 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 . . . \70\
---------------------------------------------------------------------------
\70\Sec. 6103(b)(2)(A).
---------------------------------------------------------------------------
Disclosure exception for tax administration contracts
(section 6103(n))
There are several exceptions to the general rule of
confidentiality. One exception permits the disclosure of
returns and return information in connection with written
contracts or agreements for the acquisition of property or
services for tax administration purposes (``tax administration
contractor'').\71\
---------------------------------------------------------------------------
\71\Sec. 6103(n).
---------------------------------------------------------------------------
Summons authority
In general
For the purposes of ascertaining the correctness of any
return, making a return when none has been made, determining
the liability of any person for any internal revenue tax, and
certain other purposes, the Secretary is authorized to examine
any books, records, or other data which may be relevant or
material to such inquiry, and to take such testimony of the
person concerned, under oath, as may be relevant or material to
such inquiry. The Secretary also is authorized to issue
summonses to appear before the Secretary at the time and place
named in the summons to produce books, records and other data
and to give testimony, under oath, as may be relevant or
material to such inquiry.
Summons interview regulations
Under the Treasury regulations, a person authorized to
receive returns and return information as a tax administration
contractor may receive and examine books, papers, records, or
other data produced to comply with the summons, and, in the
presence and under the guidance of an IRS officer or employee,
participate fully in the interview of a witness summoned by the
IRS to provide testimony under oath.\72\
---------------------------------------------------------------------------
\72\Treas. Reg. sec. 301.7602-1(b)(3).
---------------------------------------------------------------------------
Proposed Treasury regulations would narrow this authority
by excluding non-government attorneys from receiving summoned
books, papers, records, or other data, or from participating in
the interview of a witness summoned by the IRS to provide
testimony under oath.\73\ An exception to this general
exclusion is provided with respect to non-government attorneys
hired for their expertise in an area other than Federal tax
law. The proposed regulations would allow the IRS to hire an
attorney who has specialized knowledge of foreign, state, or
local law, or in non-tax substantive law, such as patent law,
property law, or environmental law. It would not permit the IRS
to hire an attorney for non-substantive specialized knowledge,
such as civil litigation skills. These changes are proposed to
be effective for examinations begun and summonses served by the
IRS on or after the date the proposed regulations were
published in the Federal Register (March 28, 2018).
---------------------------------------------------------------------------
\73\Prop. Treas. Reg. sec. 3017602-1(b)(3), 83 Fed. Reg. 13208
(March 28, 2018).
---------------------------------------------------------------------------
REASONS FOR CHANGE
The IRS's ability to hire outside attorneys as contractors
and have them question witnesses during a summons interview has
raised many concerns. While the Committee recognizes the IRS
need for specialized expertise in certain substantive areas,
the Committee is concerned that the statutorily prescribed
roles of Chief Counsel and the Department of Justice may be
circumvented when outside lawyers are permitted to conduct the
questioning of summoned witnesses on behalf of the government.
Such questioning is a government function that should be
performed by government employees. The Committee believes that
only IRS employees or employees of the Office of Chief Counsel
should question summoned witnesses on behalf of the government
and restricts the contractor authority accordingly. The
Committee does not intend to restrict the Office of Chief
Counsel's ability to use court reports, translators, photocopy
services, and other similar ancillary contractors.
EXPLANATION OF PROVISION
The Secretary shall not, under the authority of section
6103(n) (relating to tax administration contracts), provide to
a tax administration contractor any books, papers, records or
other data obtained by summons, except when such person
requires such information for the sole purpose of providing
expert evaluation and assistance to the IRS. Further, no person
other than an officer or employee of the IRS or Office of Chief
Counsel may on behalf of the Secretary question a witness under
oath whose testimony was obtained by summons.
EFFECTIVE DATE
The provision is generally effective on the date of
enactment and applies to any tax administration contracts in
effect on the date of enactment.
D. Organizational Modernization
1. MODIFICATION OF TITLE OF COMMISSIONER OF INTERNAL REVENUE AND
RELATED OFFICIALS (SEC. 401 OF THE BILL AND SEC. 7803 OF THE CODE)
PRESENT LAW
The Code explicitly prescribes the position of two
officials at the IRS requiring appointment by the President and
confirmation by the Senate, i.e., the Commissioner of Internal
Revenue and a Chief Counsel to the IRS.\74\ The duties and
powers of the Commissioner include the power to administer,
manage, conduct, direct, and supervise the execution and
application of the internal revenue laws or related statutes
and tax conventions to which the United States is a party, and
to recommend to the President a candidate for Chief Counsel
(and recommend the removal of the Chief Counsel). The
Commissioner is also authorized to employ such persons as the
Commissioner deems proper for the administration and
enforcement of the internal revenue laws and is required to
issue all necessary directions, instructions, orders, and rules
applicable to such persons, including determination and
designation of posts of duty.
---------------------------------------------------------------------------
\74\Sec. 7803.
---------------------------------------------------------------------------
REASONS FOR CHANGE
The Committee believes that the title ``Commissioner of
Internal Revenue'' reflects only the enforcement aspects of the
duties of that official, and is not consistent with a position
that involves responsibility for providing assistance and
customer service to taxpayers.
EXPLANATION OF PROVISION
The provision replaces the title ``Commissioner of Internal
Revenue'' with ``Administrator of Internal Revenue,'' and makes
necessary conforming changes to all references in the Code to
the title of the head of the Internal Revenue Services or
subordinate officials. It also specifies that the change in
title is not to be construed to require reappointment of an
incumbent Commissioner, nor would it shorten the term of
office.
EFFECTIVE DATE
The provision is effective upon the date of enactment.
2. Office of the National Taxpayer Advocate (sec. 402 of the bill and
sec. 7803(c) of the Code)
PRESENT LAW
In general
The Office of the Taxpayer Advocate is expected to
represent taxpayer interests independently in disputes with the
IRS. The National Taxpayer Advocate (``NTA'') supervises the
Office of the Taxpayer Advocate. The NTA reports directly to
the Commissioner of Internal Revenue and is entitled to
compensation at the same rate as the highest rate of basic pay
established for the Senior Executive Service under section 5382
of Title 5 of the United States Code, or if the Secretary of
the Treasury so determines, at a rate fixed under section 9503
of such title.
The Office of the Taxpayer Advocate has four principal
functions:
1. to assist taxpayers in resolving problems with the IRS;
2. to identify areas in which taxpayers have problems in
dealing with the IRS;
3. to propose changes in the administrative practices of
the IRS to mitigate problems identified in (2); and
4. to identify potential legislative changes which may be
appropriate to mitigate such problems.
Taxpayer Assistance Orders
A taxpayer can request a Taxpayer Assistance Order
(``TAO'') if the taxpayer is suffering or about to suffer a
``significant hardship'' as a result of the manner in which the
internal revenue laws are being administered by the IRS.\75\ A
TAO may require the IRS within a specified time period, to
release property of the taxpayer that has been levied upon, or
to cease any action, take any action as permitted by law, or
refrain from taking any action with respect to the taxpayer
under specified provisions.\76\
---------------------------------------------------------------------------
\75\Sec. 7811(a)(1)(A). Significant hardship is deemed to occur if
one of four factors exists: (1) there is an immediate threat of adverse
action; (2) there has been a delay of more than 30 days in resolving
the taxpayer's problems; (3) the taxpayer will have to pay significant
costs (including fees for professional services) if relief is not
granted; or (4) the taxpayer will suffer irreparable injury, or a long
term adverse impact if relief is not granted. Sec. 7811(a)(2). The NTA
may also issue a TAO if the taxpayer meets requirements to be set forth
in regulations. Sec. 7811(a)(1)(B).
\76\Sec. 7811(b). A TAO or action taken by the NTA applies to
persons performing services under a qualified tax collection contract
to the same extent and to the same manner as such order applies to the
IRS.
---------------------------------------------------------------------------
The Commissioner of Internal Revenue, or the Deputy
Commissioner of Internal Revenue may rescind a TAO issued by
the NTA, only if a written explanation of the reasons for the
modification or rescission is provided to the NTA.\77\
---------------------------------------------------------------------------
\77\Sec. 7811(c). The NTA also may modify or rescind a TAO issued
by the NTA.
---------------------------------------------------------------------------
Taxpayer Assistance Directives
While a TAO is specific to a particular taxpayer, a
Taxpayer Assistance Directive (``TAD'') is systemic, intended
to address groups of taxpayers. Delegation Order 13-3
authorizes the NTA to issue Taxpayer Advocate Directives to
mandate administrative or procedural changes to improve the
operation of a functional process or to grant relief to groups
of taxpayers (or all taxpayers) when implementation will
protect the rights of taxpayers, prevent undue burden, ensure
equitable treatment or provide an essential service to
taxpayers.\78\ The authority to modify or rescind a TAD is
delegated to Deputy Commissioner for Operations Support, Deputy
Commissioner for Services and Enforcement, and to the National
Taxpayer Advocate.
---------------------------------------------------------------------------
\78\Delegation Order 13-3, Internal Revenue Manual 1.2.50.4
(January 17, 2001).
---------------------------------------------------------------------------
Annual Reports
The NTA is required to submit two reports annually to the
House Committee on Ways and Means and to the Senate Finance
Committee.\79\ One report, due June 30 of each year, covers the
Office of the Taxpayer Advocate's objectives for the fiscal
year beginning in that calendar year. Besides statistical
information, the report must contain a full and substantive
analysis of the objectives.
---------------------------------------------------------------------------
\79\Sec. 7803(c)(2)(B).
---------------------------------------------------------------------------
The other report, due December 31 of each year, concerns
the activities of the Office of the Taxpayer Advocate. The
content of this report is set by statute.\80\ Generally, the
report must cover initiatives taken to improve taxpayer
services and problems encountered, as well as the actions taken
to resolve them and the results. Specifically, the report must
cover the twenty most serious problems experienced by
taxpayers. The report also must identify the ten most litigated
issues for each category of taxpayer and the areas of the tax
law that impose significant compliance burdens on taxpayers or
the IRS. Recommendations received from individuals with the
authority to issue Taxpayer Assistance Orders, and any Taxpayer
Assistance Order not promptly honored by the IRS, must also be
included in the report. The report must also set forth
recommendations for administrative and legislative action to
resolve problems encountered by taxpayers.
---------------------------------------------------------------------------
\80\Sec. 7803(c)(2)(B)(ii)(I) through (XI).
---------------------------------------------------------------------------
The NTA, is required by statute to submit the reports
directly to the Congressional committees without prior review
of the Commissioner, the Secretary, or any officer or employee
of the Treasury, the Oversight Board, or the Office of
Management and Budget.\81\
---------------------------------------------------------------------------
\81\Sec. 7803(c)(2)(B)(iii).
---------------------------------------------------------------------------
REASONS FOR CHANGE
The Committee appreciates the work of the Taxpayer Advocate
Service, under the direction of the NTA, and its role in
elevating both taxpayer-specific and systemic problems to the
attention of the Commissioner. The Committee is aware that the
NTA has raised concerns about the extent to which issues
identified by the NTA are given adequate attention, especially
in the case of Taxpayer Advocate Directives. In order to
evaluate the responsiveness of the agency to such concerns, to
help ensure that the research underlying some proposals and
issues identified in the NTA annual report to Congress is
supported by appropriate statistical methodology, and to ensure
that oversight is not unnecessarily duplicative or burdensome,
the Committee proposes several changes. First, it modifies the
handling of Taxpayer Advocate Directives to require greater
transparency and ensure timely responses to concerns raised by
the Taxpayer Advocate. Next, the Committee believes that IRS
Statistics of Income should assist the NTA in her work to
provide meaningful statistics. Further, the Committee notes
that there are several entities overseeing the IRS, namely
Congress, the Government Accountability Office, and the
Treasury Inspector General for Tax Administration (``TIGTA'').
To avoid duplication of efforts, the Committee believes it is
appropriate to require the NTA to coordinate with TIGTA. To
further streamline and focus the NTA annual report, the
Congress believes it is appropriate that the annual report
discuss the 10 most serious problems encountered by taxpayers.
EXPLANATION OF PROVISION
Taxpayer Advocate Directives
In the case of any TAD issued by the NTA pursuant to a
delegation of authority from the Administrator of the IRS, the
Administrator or Deputy Administrator shall modify, rescind or
ensure compliance with such directive not later than 90 days
after issuance of such directive. If the TAD is modified or
rescinded by a Deputy Administrator, the NTA may (not later
than 90 days after such modification or rescission) appeal to
the Administrator and the Administrator must (not later than 90
days after such appeal is made) either (1) ensure compliance
with such directive as issued by the NTA, or (2) provide the
NTA with a description of the reasons for any modification or
rescission made or upheld by the Administrator pursuant to such
appeal.
The NTA's annual report is to identify any TAD that is not
honored by the IRS in a timely manner.
Annual Reports to Congress
The provision modifies requirements of the annual report on
NTA activities to require a summary of the 10 most serious
problems encountered by taxpayers. To avoid duplication of
efforts on the same subject matter, before beginning any
research or study, the NTA is required to coordinate with TIGTA
to ensure that the NTA does not duplicate any action that the
TIGTA has already undertaken or has a detailed plan to
undertake. The provision requires the IRS provide the NTA, upon
request, with statistical support in connection with the
preparation of the annual report on NTA activities. Such
support is to include statistical studies, compilations and the
review of information provided by the NTA for statistical
validity and sound statistical methodology. With respect to any
statistical information included in such report, the report is
to include a statement of whether such statistical information
was reviewed or provided by the IRS, and if so whether the IRS
determined such information to be statistically valid and based
on sound statistical methodology. The IRS review and provision
of statistical support does not violate the requirement that
the report be submitted directly without prior review or
comment from any officer or employee of the Department of the
Treasury or specified other persons.
Salary of the National Taxpayer Advocate
The provision eliminates the provision relating to the
determination of the NTA's salary under 5 U.S.C. sec. 9503. As
under present law, the NTA is entitled to compensation at the
same rate as the highest rate of basic pay established for the
Senior Executive Service under section 5382 of Title 5 of the
United States Code.
EFFECTIVE DATE
The provision is generally effective on the date of
enactment. The provision as it relates to the salary of the NTA
applies to appointments to the position of the National
Taxpayer Advocate made after the date of enactment.
3. Elimination of IRS Oversight Board (sec. 403 of the bill and sec.
7802 of the Code)
PRESENT LAW
The Code has established the IRS Oversight Board and has
given that board general oversight responsibilities for the
IRS, as well as specific oversight responsibilities with
respect to the IRS strategic plans, operational plans,
management, budget, and taxpayer protections.\82\ Among these
responsibilities, the Board is required to review the
Commissioner's selection, evaluation, and compensation of IRS
senior executives and to review and approve the IRS budget
request (having ensured that the budget request supports the
annual and long-range strategic plans of the IRS). The Board
must report annually to the Congress with respect to the
conduct of its responsibilities.
---------------------------------------------------------------------------
\82\Sec. 7802. Pub. L. No. 105-206, sec. 1101(a) (July 22, 1998).
---------------------------------------------------------------------------
REASONS FOR CHANGE
Although well intended, the Committee believes that the
Board does not provide the IRS with meaningful guidance and
direction as the Board was intended to do upon its creation in
RRA98. The Committee further believes that the Board's
oversight role of the IRS overlaps greatly with the
responsibilities of other oversight entities. Accordingly, the
Committee is unable to find sufficient justification for its
continued existence.
EXPLANATION OF PROVISION
The proposal repeals the Code section that provides for the
establishment of the IRS Oversight Board.
EFFECTIVE DATE
The proposal is effective on the date of enactment.
4. Modernization of Internal Revenue Service Organizational Structure
(sec. 404 of the bill)
PRESENT LAW
The RRA98 directed the Commissioner of Internal Revenue to
restructure the IRS by eliminating or substantially modifying
the three-tier geographic structure (national, regional, and
district) in place at the time and replacing it with an
organizational structure that features operating units serving
particular groups of taxpayers with similar needs.\83\
---------------------------------------------------------------------------
\83\Pub. L. No. 105-206, sec. 1001(a).
---------------------------------------------------------------------------
REASONS FOR CHANGE
The Committee believes that the current IRS organizational
structure is one of the factors contributing to the inability
of the IRS to properly serve taxpayers. The Committee believes
that the current structure needs to be modernized and
streamlined to help enable the IRS to better serve taxpayers
and provide the necessary level of services and accountability
to taxpayers in an efficient manner. Accordingly, the Committee
believes it appropriate to require the IRS to submit a
comprehensive reorganization plan. The Committee believes that
the revised structure should ensure taxpayers' rights are
protected, information is kept secure, and that the IRS is
approachable for taxpayers to ask questions and get assistance.
Thus, the Committee seeks to provide flexibility to the IRS to
reorganize its operations after the Administrator determines
that another organizational structure, different from past
structures, would better serve taxpayers.
EXPLANATION OF PROVISION
The Administrator of the IRS (``Administrator'') is
required to submit to Congress by September 30, 2020 a
comprehensive written plan to redesign the organization of the
IRS. The comprehensive will (1) ensure the successful
implementation of the priorities specified by Congress in this
bill; (2) prioritize taxpayer services to ensure that all
taxpayers easily and readily receive the assistance they need;
(3) streamline the structure of the agency including minimizing
the duplication of services and responsibilities; (4) best
position the IRS to combat cybersecurity and other threats to
the IRS; and (5) address whether the Criminal Division of the
IRS should report directly to the Administrator.
Beginning one year after the date on which the
Administrator submits to Congress a comprehensive plan to
modify the organization of the IRS, the proposal removes the
RRA98 requirement of an organizational structure that features
operating units serving particular groups of taxpayers with
similar needs.
EFFECTIVE DATE
The proposal is effective on the date of enactment.
E. Tax Court
1. Disqualification of Judge or Magistrate Judge of the Tax Court (sec.
501 of the bill and new sec. 7467 of the Code)
PRESENT LAW
Section 455 of Title 28 of the United States Code
establishes grounds for disqualification of any justice, judge,
or magistrate judge. It specifies that any justice, judge or
magistrate judge of the United States shall disqualify himself
in any proceeding in which his impartiality might reasonably be
questioned, and also in the following circumstances: 1) the
judge has a personal bias or prejudice concerning a party, or
personal knowledge of disputed evidentiary facts concerning the
proceeding; 2) the judge served as a lawyer in private practice
or as a material witness in the case in controversy; 3) the
judge served in governmental employment and in a capacity as
counsel, adviser, or material witness concerning the case in
controversy; 4) the judge has a financial interest in the
subject matter in controversy or in a party to the proceeding;
or 5) the judge, his or her spouse, or a person within the
third degree of relationship to either of them, or the spouse
of such a person is a party to the proceeding, acting as a
lawyer in the proceeding, has a personal interest in the
outcome, or is likely to be a material witness in the
proceeding.
A judge should inform himself about his personal financial
interests and those of his spouse and minor children residing
in his household. A judge may not accept a waiver for
disqualification from the parties to the proceeding, except in
limited cases. If a judge to whom a matter has been assigned
discovers that he, a spouse, or a minor child residing in his
household has a financial interest in a party, disqualification
is not required if the judge, spouse, or minor divests himself
of the interest that provides the grounds for disqualification.
These grounds for disqualification do not expressly apply
to judges or magistrate judges of the Tax Court.
REASONS FOR CHANGE
The Committee believes it will promote public confidence in
the independence and impartiality of Tax Court judges to
clarify that judges or magistrate judges of the Tax Court are
held to the same standards for disqualification as any justice,
judge, or magistrate judge of the United States, as established
under Section 455 of Title 28 of the United States Code.
EXPLANATION OF PROVISION
The proposal provides that Tax Court judges and magistrate
judges are subject to the same statutory grounds for
disqualification as other Federal judges.
EFFECTIVE DATE
This proposal is effective on the date of enactment.
2. Opinions and Judgments (sec. 502 of the bill and sec. 7459 of the
Code)
PRESENT LAW
The Code requires that a report be issued on any proceeding
instituted by the Tax Court, and that as quickly as
practicable, a decision be made by a judge in accordance with
such report, which will be the decision of the Tax Court.\84\
---------------------------------------------------------------------------
\84\Sec. 7459.
---------------------------------------------------------------------------
Any findings of fact, opinion, or memorandum opinion must
be included in such report. The Tax Court must report in
writing all of its findings of fact, opinions, and memorandum
opinions, unless these findings of fact or opinion are stated
orally and are recorded in the transcript of the proceedings.
REASONS FOR CHANGE
The Committee believes the use of the terms, ``reports''
and ``decisions'' in the Code, as they relate to Tax Court
proceedings is confusing to taxpayers. Since Tax Court opinions
are not agency ``reports'' but judicial opinions with
precedential status, and Tax Court final decrees are not
``decisions'' on issues, but rather judicial judgments that
carry the force of the law, the Committee believes the
consistent use of ``opinions'' and ``judgments'' will resolve
any confusion relating to the use of these terms.
EXPLANATION OF PROVISION
The proposal provides that the word ``report'' be replaced
by ``opinion,'' and ``decision'' be replaced by ``judgment.''
EFFECTIVE DATE
This proposal is effective on the date of enactment.
3. Title of Special Trial Judge Changed to Magistrate Judge of the Tax
Court (sec. 503 of the bill and sec. 7443A of the Code)
PRESENT LAW
The chief judge of the Tax Court may appoint special trial
judges to handle certain cases.\85\ Special trial judges serve
for an indefinite term. Special trial judges receive a salary
of 90 percent of the salary of a Tax Court judge. Special trial
judges do not have authority to impose punishment in the case
of contempt of the authority of the Tax Court.\86\
---------------------------------------------------------------------------
\85\Sec. 7443A.
\86\Sec. 7456(c) deals with contempt authority.
---------------------------------------------------------------------------
REASONS FOR CHANGE
The Committee believes that special trial judges have a
role similar to magistrate judges of U.S. District Courts and
their title should be changed to magistrate judges of the Tax
Court.
EXPLANATION OF PROVISION
Under the provision, the position of special trial judge of
the Tax Court is renamed as magistrate judge of the Tax Court.
EFFECTIVE DATE
The proposal is effective on the date of enactment.
4. Repeal of Deadwood Related to Board of Tax Appeals (sec. 504 of the
bill and secs. 7459 and 7447(a)(3) of the Code)
PRESENT LAW
Sections 7459(f) and 7447(a)(3) of the Code refer to the
Board of Tax Appeals.
REASONS FOR CHANGE
The Committee believes it is appropriate to remove language
from the Code that no longer has effect.
EXPLANATION OF PROVISION
The proposal repeals as deadwood section 7459(f) and
deletes the reference to the Board of Tax Appeals in section
7447(a)(3).
EFFECTIVE DATE
This proposal is effective on the date of enactment.
III. VOTES OF THE COMMITTEE
In compliance with clause 3(b) of rule XIII of the House of
Representatives, the following statement is made concerning the
vote of the Committee on Ways and Means during the markup
consideration of H.R. 5444, the ``Taxpayer First Act,'' on
April 11, 2018.
The bill, H.R. 5444, as amended, was ordered favorably
reported to the House of Representatives by a voice vote (with
a quorum being present).
IV. BUDGET EFFECTS OF THE BILL
A. Committee Estimate of Budgetary Effects
In compliance with clause 3(d) of rule XIII of the Rules of
the House of Representatives, the following statement is made
concerning the effects on the budget of the bill, H.R. 5444, as
reported.
The bill, as reported, is estimated to reduce Federal
fiscal year budget receipts by $52 million dollars for the
period 2018 through 2028.
Pursuant to clause 8 of rule XIII of the Rules of the House
of Representatives, the following statement is made by the
Joint Committee on Taxation with respect to the provisions of
the bill amending the Internal Revenue Code of 1986: The gross
budgetary effect (before incorporating macroeconomic effects)
in any fiscal year is less than 0.25 percent of the current
projected gross domestic product of the United States for that
fiscal year; therefore, the bill is not ``major legislation''
for purposes of requiring that the estimate include the
budgetary effects of changes in economic output, employment,
capital stock and other macroeconomic variables.
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. The
Committee further states that the revenue-reducing tax
provision involves a new tax expenditure. See 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, the Committee advises that the
Congressional Budget Office did not provide a cost estimate for
the resolution.
V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE
A. Committee Oversight Findings and Recommendations
Pursuant to clause 3(c)(1) of rule XIII of the Rules of the
House of Representatives, the Committee advises that the
findings and recommendations of the Committee, based on
oversight activities under clause 2(b)(1) of rule X of the
Rules of the House of Representatives, are incorporated into
the description portions of this report.
B. Statement of General Performance Goals and Objectives
With respect to clause 3(c)(4) of rule XIII of the Rules of
the House of Representatives, the Committee advises that the
bill contains no measure that authorizes funding, so no
statement of general performance goals and objectives for which
any measure authorizes funding is required.
C. Information Relating to Unfunded Mandates
This information is provided in accordance with section 423
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
The Committee has determined that the bill does not contain
Federal mandates on the private sector. The Committee has
determined that the bill does not impose a Federal
intergovernmental mandate on State, local, or tribal
governments.
D. Applicability of House Rule XXI 5(b)
Rule XXI 5(b) of the Rules of the House of Representatives
provides, in part, that ``A bill or joint resolution,
amendment, or conference report carrying a Federal income tax
rate increase may not be considered as passed or agreed to
unless so determined by a vote of not less than three-fifths of
the Members voting, a quorum being present.'' The Committee has
carefully reviewed the bill and states that the bill does not
involve any Federal income tax rate increases within the
meaning of the rule.
E. Tax Complexity Analysis
Section 4022(b) of the Internal Revenue Service
Restructuring and Reform Act of 1998 (``IRS Reform Act'')
requires the staff of the Joint Committee on Taxation (in
consultation with the Internal Revenue Service and the Treasury
Department) to provide a tax complexity analysis. The
complexity analysis is required for all legislation reported by
the Senate Committee on Finance, the House Committee on Ways
and Means, or any committee of conference if the legislation
includes a provision that directly or indirectly amends the
Internal Revenue Code of 1986 and has widespread applicability
to individuals or small businesses.
Pursuant to clause 3(h)(1) of rule XIII of the Rules of the
House of Representatives, the staff of the Joint Committee on
Taxation has determined that a complexity analysis is not
required under section 4022(b) of the IRS Reform Act because
the bill contains no provisions that amend the Internal Revenue
Code of 1986 and that have ``widespread applicability'' to
individuals or small businesses, within the meaning of the
rule.
F. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff
Benefits
With respect to clause 9 of rule XXI of the Rules of the
House of Representatives, the Committee has carefully reviewed
the provisions of the bill and states that the provisions of
the bill do not contain any congressional earmarks, limited tax
benefits, or limited tariff benefits within the meaning of the
rule.
G. Duplication of Federal Programs
In compliance with Sec. 3(c)(5) of rule XIII of the Rules
of the House of Representatives, the Committee states that no
provision of the bill establishes or reauthorizes: (1) a
program of the Federal Government known to be duplicative of
another Federal program, (2) a program included in any report
from the Government Accountability Office to Congress pursuant
to section 21 of Public Law 111-139, or (3) a program related
to a program identified in the most recent Catalog of Federal
Domestic Assistance, published pursuant to section 6104 of
title 31, United States Code.
H. Disclosure of Directed Rule Makings
In compliance with Sec. 3(i) of H. Res. 5 (115th Congress),
the following statement is made concerning directed rule
makings: The Committee advises that the bill requires no
directed rule makings within the meaning of such section.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[all]
