FROM THE OFFICE OF PUBLIC AFFAIRS

TREASURY ACTING ASSISTANT SECRETARY FOR TAX POLICY

HOUSE WAYS AND MEANS COMMITTEE SUBCOMMITTEE ON OVERSIGHT

I am pleased to be here today to discuss recent legislative and administrative initiatives to enhance the procedural rights and remedies that taxpayers have in their dealings with the Internal Revenue Service ("IRS") under various provisions of the Internal Revenue Code of 1986 ("Code"). In particular, I will be discussing certain taxpayer rights proposals considered by the National Commission on Restructuring the Internal Revenue Service, which are included in the Commission's Report dated June 25, 1997 and in legislation (H.R. 2292) that was recently introduced by Representatives Portman and Cardin. As you know, Secretary Rubin and I have previously testified concerning other portions of the legislation, in particular the governance and electronic tax administration provisions.

The Importance of Taxpayer Rights

Let me begin by emphasizing that this Administration, including the leadership of the Department of the Treasury and the Internal Revenue Service, is thoroughly  dedicated toimproving taxpayer services, protecting taxpayer rights, and enhancing the public's understanding of our system. We believe that this Administration has an exceptionally strong record in enacting taxpayer protections and implementing them administratively. At the Administration's urging, Congress has passed two separate sets of significant taxpayer rights provisions in just the past 15 months, including the Taxpayer Bill of Rights 2, which President Clinton signed into law on July 30, 1996, and many provisions from the Taxpayer Bill of Rights 3 and Tax Simplification Proposals that the Administration announced in April, 1997 and that were enacted this summer as part of the Taxpayer Relief Act of 1997. We expect to be offering additional legislative proposals concerning taxpayer protections in the course of our next budget cycle early next year. We believe that there should be regular and comprehensive re-examination of the tax procedures and taxpayer remedies in the Code. The Treasury Department and the IRS regularly work together to develop new programs to ease taxpayers' contacts with our tax system. This is an area in which sound tax policy and fair and effective tax administration are closely intertwined.

This Administration has also undertaken a number of administrative efforts, such as our Administrative Taxpayer Bill of Rights initiative in January, 1996, and the updating of Publication 1 to include the "Declaration of Taxpayer Rights" in April, 1996. We have stepped up Treasury oversight and management of the IRS, and these efforts have resulted in more resources being devoted to customer service, a new "blueprint" for modernizing the IRS's antiquated computer systems, and our recent request for proposals as to how we can best increase electronic tax administration. Finally, the Administration's proposals for institutionalizing enhanced Executive Branch oversight and outside management advice have been introduced as legislation, H.R. 2428, by Representatives Rangel, Coyne, Matsui, Hoyer, and Waxman, and we would urge you to adopt those proposals.

This Administration's commitment to taxpayer service and procedural protections stems from our belief that treating taxpayers fairly is of paramount importance to our self-assessment system of tax compliance. Our system relies, in large part, on taxpayers' belief that our tax laws are equitable and on their confidence in the fair and impartial administration of the tax laws. 

That confidence in the fair and impartial administration of the tax laws in turn depends on how taxpayers are treated on an everyday basis by the IRS. Poor taxpayer service can foster taxpayers' discontent, with a resulting adverse effect on their willingness to pay taxes voluntarily. Consequently, guaranteeing the fair and uniform application of our tax laws is absolutely critical to good tax administration. As responsible government officials, the members of Congress and the Executive Branch must maintain the continued success of our self-assessment approach to taxation and the ongoing viability of the Governmental functions that it supports.

Although we believe that most IRS employees perform the difficult job of administering our complex tax code in a fair and impartial manner, we also recognize that some IRS employees do not serve taxpayers as well as they expect and deserve. Such lapses are unacceptable to all of us. This week Acting Commissioner Dolan apologized to abused taxpayers whose cases have come to our attention. And Secretary Rubin has personally instructed the IRS to provide him information on the steps IRS plans to take in light of these cases, including possible disciplinary actions, and how we can use these cases as a teaching and prevention tool for the future.

We should recognize, however, that the IRS in fact serves most taxpayers very well and very successfully. For millions of Americans, the payment of taxes is straightforward. For many, contact with the IRS consists of nothing more than an amount withheld from their weekly or monthly paycheck and the once-a-year filing of a simple Form 1040EZ or 1040A, frequently followed by the receipt of a refund check a few weeks later. Through such withholding and self-assessment, we receive approximately 84 percent of what we believe is the proper amount of taxes due, and another 3.5 percent is obtained through the IRS's collection efforts. Each year, the IRS examines the returns of only one or two percent of individual American taxpayers.

As a result, our tax administration system is very highly regarded by other nations -- indeed, Kenneth Kies, Chief of Staff of the Joint Committee on Taxation, recently described it as "the envy of countries and governments" around the world -- and the Department of the Treasury and IRS are frequently called upon to provide advice to other countries about improvements that they can make in their systems. I served as Director of Treasury's Tax Advisory Program for almost two years, advising the countries of Eastern Europe and the former Soviet Union concerning their tax systems as part of their transition to market economies and free societies.

This experience left me with a heightened appreciation for the truly "world class" fairness and effectiveness of our own system of taxation. It embodies some fundamental features -- such as periodic self-reporting and self-assessment, withholding, information reporting, and collections strictly in accordance with statutory and constitutional protections -- that many nations are struggling to copy.

Along with Americans' historic respect for democratic values and the rule of law, our system has given us a high level of tax compliance at a relatively low cost. While we must continually renew our commitment to improve efficiency and maintain correct and fair treatment of all taxpayers, we should be very careful not to discredit unfairly the efforts of the many dedicated public servants who administer and enforce our revenue laws in an independent and non-partisan fashion. We should work together in a constructive dialog and do our utmost to ensure that taxpayers' rights are protected.

Recent Taxpayer Rights Initiatives

The past decade has seen a series of significant Congressional and Executive Branch actions to maintain and enhance the rights of taxpayers in their dealings with the IRS. I will review this history briefly, in order to illustrate how far we have come in a short while.

Omnibus Taxpayer Bill of Rights ("TBOR 1").

After years of thorough study and hard work by many dedicated Representatives and Senators, including Members of this Subcommittee, Congress enacted the first Omnibus Taxpayer Bill of Rights in 1988. Among its many important provisions, TBOR 1:  created the Office of Ombudsman and the Taxpayer Assistance Order procedure; required written notice to taxpayers of their rights;  prescribed procedures for taxpayer interviews; specified the content of tax due, deficiency, and other notices; revised the levy and jeopardy assessment procedures; expanded the Tax Court's jurisdiction; created new administrative appeal remedies, enhanced taxpayers' ability to collect attorneys' fees, and instituted new civil causes of action for failure to release a lien and for certain unauthorized collection actions; and prohibited use of tax enforcement results to evaluate collection employees and their supervisors, or to impose or suggest production quotas or goals for them.

These provisions substantially increased the protections taxpayers have in their dealings with the IRS, and we believe that they have operated successfully. I would note, however, that a few of the proposals in H.R. 2292, which I will discuss in a moment, were considered by Congress but after thorough bipartisan study were not included in TBOR 1.

"Administrative TBOR". In 1995, Treasury and the IRS worked to develop proposals for a Taxpayer Bill of Rights 2 ("TBOR 2") in a bipartisan, cooperative effort with the staff and Members of the Committee on Ways and Means, in particular this Subcommittee on Oversight, and the Senate Committee on Finance and Joint Committee on Taxation. Many of those proposals were ultimately included in the Revenue Reconciliation Act of 1995, which as you know was vetoed for other reasons. Nonetheless, the IRS announced on January 4, 1996, over two dozen administrative proposals to improve taxpayer rights. Through administrative actions such as revenue procedures, delegation orders, formal announcements, Internal Revenue Manual provisions, and similar vehicles, the IRS was able to implement roughly one-third of the TBOR 2 proposals without new legislation. These included, for example:

• several enhancements of the authority and power of the Taxpayer Ombudsman;

• new procedures to allow taxpayers to appeal liens, levies, and seizures;

• additional notice rules for overpayment situations, section 6672 "responsible person"

• cases, and cases involving divorced or separated spouses; and

• voluntary limits on certain investigative techniques such as the use of designated

• summonses and the investigation of disputed information returns.

The Administration also announced a number of further initiatives, including new administrative appeals processes, electronic filing and storage rules, a procedure for obtaining advance valuations of art, and new relief provisions for obtaining automatic extensions of time for payment or for changes in methods of accounting. The appendix to my testimony contains a complete list of these Administrative TBOR initiatives.

Also in January, 1996, the Administration directed the IRS to develop a new, concise statement of the rights that taxpayers have under our system. In April, 1996, we released a simple and straightforward 8-paragraph "Declaration of Taxpayer Rights," which is now included at the front of Publication 1. Publication 1 is the pamphlet that goes to all taxpayers who are audited or have other controversies with the IRS. Thus, every taxpayer subject to a potential dispute with the IRS is now reminded in writing, at the outset of contacts with the IRS, of the fundamental rights and remedies that are available under the Internal Revenue Code and Treasury Regulations. The Administration wants citizens to understand that they are entitled to fair treatment by the IRS, and to recognize that we are committed to operating the tax system in an equitable and impartial fashion.

Taxpayer Bill of Rights 2. With the strong support of the Administration, a bipartisan TBOR 2 containing over 40 taxpayer rights provisions was eventually enacted as separate legislation by Congress and signed by President Clinton on July 30, 1996. In addition to codifying the administrative TBOR actions that the IRS had already taken, TBOR 2 made many other procedural changes, such as:

• changing the title of the Ombudsman to Taxpayer Advocate and statutorily enhancing that office's powers;

• providing additional statutory authority to abate interest and some penalties, to withdraw notices of federal tax lien, and to return seized property;

• increasing, and indexing for inflation, the amounts of certain property exempt from levy

• and the amount of attorneys' fees that can be recovered, as well as making several other

• changes in the attorneys' fees procedure; and

• creating or amending several causes of action, including remedies for unauthorized

• collection actions, for fraudulent information returns, and for contribution between

• persons responsible for withholding taxes.

The appendix contains a full list of these provisions. Again, it should be noted that in developing TBOR 2, Congress considered but rejected some of the same proposals that are now contained in H.R. 2292.

Immediately after TBOR 2's enactment, Treasury and the IRS began implementing those new taxpayer rights provisions that had not already been effected administratively. We proposed the simplest regulatory changes before year-end in 1996, and we included ten TBOR 2-related projects on our 1997 Treasury - IRS Priority Guidance Plan. The completion of these important implementation projects is underway.

Taxpayer Bill of Rights 3. Most recently, in April, 1997, the Administration announced a package of 59 additional Taxpayer Bill of Rights 3 ("TBOR 3") and Tax Simplification Proposals. We were pleased that Congress adopted most of these proposals in the Taxpayer Relief Act of 1997 this summer. Two of our TBOR 3 proposals -- to enhance the rights of disabled persons by providing for equitable tolling of the statutes of limitation on refunds, and to treat taxpayers more fairly by allowing "global" interest netting on under- and overpayments -- have not been enacted, however. We would urge this Subcommittee to include our global netting and equitable tolling proposals in your recommendations to the full Committee. Both proposals would benefit taxpayers by relaxing some unnecessarily rigid rules in the Code in an administratively feasible manner. Some of our other proposals that would significantly enhance the efficiency and fair operation of our system, such as our proposed legislation authorizing federal and state tax authorities to streamline their contacts with taxpayers, also await Congressional action.

As this brief history shows, this Administration remains deeply committed to enhancing taxpayer rights and remedies through legislative and administrative actions. These actions, along with the passage of the original TBOR 1 legislation, have already had a profound and lasting impact on the IRS's administration of the tax law. In reviewing this record, the Restructuring Commission stated as follows:

The Commission found that the passage of the Omnibus Taxpayer Bill of Rights and Taxpayer Bill of Rights 2 have had an important effect on changing the culture of the IRS. The agency spends significant resources educating personnel to treat taxpayers fairly, and the Commission found very few examples of IRS personnel abusing power.

Report page 43 (emphasis added).

Policy Criteria for Further Action

Our efforts to maintain and improve the treatment of taxpayers under our system cannot stop with these prior initiatives. Because we are all working toward the common goal of a fairer and more efficient tax system, the Administration is pleased to join with Congress and this Subcommittee in considering and developing additional taxpayer rights proposals. Let me discuss for a moment what I believe to be the sound tax policy criteria against which each proposal should be evaluated.

First, new proposals in the area of taxpayer rights and remedies should be subject to the same rigorous analysis we apply to all tax proposals. We should not forget the other many considerations that go into making good tax policy. Certainly maintaining and enhancing taxpayer protections is an essential element of sound tax policy. For the important reasons I discussed above, taxpayers must be treated fairly, courteously, and consistently by the IRS, and they must have legal and administrative remedies readily available to them to ensure such fair, courteous, and consistent treatment.

Another element of sound tax policy is that everyone should pay his or her fair share of taxes due. This requires the IRS to have the strong legal and administrative tools it needs to enforce and collect the correct amount of taxes from those taxpayers who, unfortunately, choose not to comply voluntarily. Responsible and appropriate enforcement action also results in a smaller financial burden on those taxpayers who do pay voluntarily. Thus, voluntary compliance and adequate enforcement mechanisms go hand in hand.

Thus, in evaluating taxpayer rights proposals, we must balance the rights and remedies available to taxpayers with the need for fair yet efficient IRS enforcement mechanisms. Each proposal must be evaluated separately in such a balancing process.

Specific Proposals in H.R. 2292

Many, but not all, of the proposals in H.R. 2292 meet these criteria. Many of these provisions need some drafting improvements, and Treasury wants to work with the Members and staffs of the tax-writing committees to improve them. I will focus my remarks in this testimony on only a few of the more significant proposals.

Taxpayer Advocate. With the Administration's support, Congress just last year enacted several enhancements to the Taxpayer Advocate's powers, including adding the power to use a Taxpayer Assistance Order ("TAO") to direct the IRS to take affirmative actions and limiting the IRS officials who can overrule the Advocate to only the Commissioner and Deputy Commissioner. TBOR 2 also added new requirements for the Taxpayer Advocate to make independent reports to Congress, and we look forward to analyzing and discussing with this Committee the recommendations that the Advocate will make in his report due in December, 1997, the first full year of the new requirements.

Under the statute, the Taxpayer Advocate's office has authority to issue TAOs in cases of "significant hardship." The Restructuring Commission's report (page 45) criticized the IRS for interpreting the statutory term "significant hardship" "so narrowly" that "very few cases are eligible for relief." We believe this criticism is unfair, and that the regulation promulgated by Treasury and the IRS interprets the term in close accordance with the legislative history of the provision in which it was enacted. Nonetheless, we believe the Taxpayer Advocate should find some additional substantive standards useful in determining whether a TAO is appropriate.

Therefore, Treasury supports enacting some additional defining criteria to the determination of whether a taxpayer is suffering a "significant hardship."

Section 301 of the bill proposes several such criteria, namely:

1) whether the IRS is following "applicable published guidance, including the Internal Revenue Manual";

2) whether there is an immediate threat of adverse action;

3) whether there has been a delay of more than 30 days in resolving taxpayer account problems; and

4) the prospect that the taxpayer will have to pay significant professional fees for representation.

We will suggest certain modifications in the wording of these standards. In particular, however, the first should be deleted. It would require the Taxpayer Advocate to interpret the substantive tax law to determine whether the IRS employee is acting appropriately, which arguably is irrelevant to the amount or "significance" of the hardship the taxpayer is allegedly suffering.

Moreover, including reference to the Internal Revenue Manual is inappropriate and might be viewed as elevating the Manual to the status of binding legal authority in the interpretation of Congressional intent, contrary to the uniform holdings of the courts.

Taxpayer privacy. Several provisions of H.R. 2292 address the taxpayer privacy and confidentiality policy that is embodied in section 6103 of the Internal Revenue Code. As you know, Treasury and the IRS have strongly supported this policy, and we continue to do so, even when that provision unavoidably restricts our ability to respond publicly to inquiries concerning particular taxpayers or allegations of taxpayer abuse. In general, we believe that the Code should continue to provide for strict confidentiality of taxpayer returns and return information.

Section 305 of H.R. 2292 would provide an exception to section 6103 that would clearly authorize the disclosure of IRS records to the National Archives and Records Administration for archival purposes. We do not oppose clarifying section 6103 this way. However, returns and return information should remain private; they should never be published in the New York Times, as occurred last year when some records containing such information were released by the Archives. We would urge Congress to eliminate the sentence authorizing the Archives to re-disclose information with the Secretary's consent and instead to add appropriate safeguards on the ultimate disposition of the records. These could include a permanent ban on re-disclosure of returns or return information by the Archives, non-disclosure for a specified period of years, or other safeguard terms in accordance with the remainder of section 6103's confidentiality policy.

This might be an appropriate subject for the Joint Committee on Taxation's study of section 6103 that is proposed in section 306 of the bill. 

Other positive provisions. Other provisions of H.R. 2292 that we believe generally reflect sound tax policy, and which we support subject to some drafting changes, include:

• section 306, providing for a study by the Joint Committee on Taxation of the general

• policy of confidentiality inherent in section 6103;

• section 308, relating to allowances for offers-in-compromise;

• section 312, providing for payment of taxes to the "Treasurer, United States of America";

• section 314, relating to Tax Court jurisdiction (although provisions similar to subsections

• (a) and (b) were proposed by the Administration in April, 1997 and have already been

• enacted in the Taxpayer Relief Act of 1997);

• section 315, relating to taxpayer complaints; and

• sections 319, 320, and 321, requiring studies of, respectively, penalty administration,

• separate filing for married taxpayers, and burden of proof issues.

We believe that our respective staffs should be able to reach agreement on the technical drafting issues relating to these provisions relatively quickly and easily. Areas of concern. In our judgment, however, some of the proposals that the Restructuring Commission considered and that are incorporated into H.R. 2292 raise serious   concerns and need closer scrutiny. Many of these proposals reflect prior ideas that Congress has already fully and carefully considered and chosen not to adopt in the course of enacting TBOR 1 or TBOR 2. Again, I will focus my testimony principally on those provisions that in our view are most clearly contrary to sound tax policy.

One provision of great concern to Treasury is section 302, which would further amend the attorneys' fees provision in the Code, section 7430, that Congress just amended last year in TBOR 2 and this year in the Taxpayer Relief Act. This provision would: allow higher fees because of difficult issues or the local availability of tax expertise; allow attorneys' fees during proceedings before the IRS Office of Appeals; authorize fees in cases where the attorney has been paid only a "nominal" fee (essentially pro bono cases); increase the "net worth" caps to $5 million for individuals and $35 million for corporations; and provide automatic attorneys' fees for taxpayers who prevail on an issue that the IRS has already lost in three circuit courts of appeal. We strongly support the pro bono proposal, and we could support the three-circuit rule, if certain important modifications were made.

We cannot support some of the other provisions. In particular, proposals to make attorneys' fees available during the Appeals process have repeatedly failed to receive approval from Congress, and have been opposed by Treasury and the IRS in both this and previous Administrations, because the Appeals process should not be considered an adversary proceeding like a court case. Appeals is supposed to be a forum for the compromise of disputes between taxpayers and the IRS, and it is the first stage within the IRS at which proposed adjustments are fully reviewed, expressly taking into account the hazards of litigation. The informal process of Appeals contrasts with formal litigation, in which the parties must thoroughly develop their legal cases and conduct discovery to ascertain the full facts. Payment of attorneys' fees at the Appeals stage, before the IRS had taken a final position on an issue, could jeopardize open communications between taxpayers and Revenue Agents, for taxpayers might withhold material favorable to their position until they commence an appeal (at which attorneys' fees would be available). We likewise believe that enhanced fees for certain issues or areas would be extremely difficult to administer fairly and consistently, and, like the increased net worth caps, would direct tax dollars to upper-income taxpayers and their representatives.

Section 303 of H.R. 2292 would amend section 7433 of the Code, which provides a civil remedy against the United States for certain unauthorized collection actions by IRS agents. Claims currently may be sustained only if an IRS officer or employee "recklessly or intentionally disregards" applicable statutory or regulatory provisions. This proposal would add "negligence" as grounds for relief. Treasury's serious concerns about this provision have consistently led us to strongly oppose this proposal, for it could seriously jeopardize IRS collections and subject the United States to numerous frivolous lawsuits. The "reckless or intentional" standard was consciously chosen by Congress in TBOR 1 in order to discourage wasteful litigation over "foot faults" or good-faith, but erroneous, actions by Revenue Officers in the course of collection activities. Similar proposals to relax these rules were considered, and rejected, just last year in connection with TBOR 2, which instead increased the maximum damages from $100,000 to $1 million. Treasury concurred in that approach, and we continue to believe that taxpayers have adequate remedies available to them without clogging the courts with allegations of negligence.

As the IRS has suggested, however, it might be appropriate to broaden the current provision inanother way, to make the remedy for "reckless or intentional" actions available to affected persons other than the taxpayer. We would prefer to work with the Subcommittee on this approach. It might be appropriate to broaden the current provision in another way, to make the remedy for "reckless or intentional" actions available to affected persons other than the taxpayer.  We would prefer to work with the Subcommittee on this approach. 

Another provision of H.R. 2292, section 304, would require adding to Publication 1 an explanation "in simple and nontechnical terms" of the "criteria and procedures for selecting taxpayers for examination." Section 7521 of the Code, which was enacted by TBOR 1, already requires explanations of the audit or collection processes and the taxpayer's rights. We agree that the IRS could insert in Publication 1 some further discussion, in general terms, of the its examination processes, and we would support the intent of this provision. We have concerns, however, about the harm that might result to our overall tax system from disclosing to taxpayers detailed information concerning the sorts of return positions or items of income, deduction, credit, etc. that may trigger an examination -- in effect, giving taxpayers a potential road map to the least risky avenues of tax avoidance or evasion. We are unaware of any other Federal law enforcement agency that promulgates its enforcement criteria in a detailed fashion. We would like to work with you to develop a suitable formulation for these disclosures.

Treasury is similarly concerned about section 316 of the bill, which would set out new procedures for taxpayer interviews, and we recommend further study. These new procedures would require:

1) A Miranda-type warning that the taxpayer is permitted a representative --which Publication 1 already contains -- and an automatic suspension of the interview if the desired representative is not present;

2) An explanation that the taxpayer has the right to have an interview at a "reasonable place" -- which, again, the regulations already require -- and that it need not be the taxpayer's home;

3) An explanation of why the taxpayer's return has been selected for examination;

4) An explanation of applicable burdens of proof.

Most of this information is already included in Publication 1, and, although these explanations sound innocuous, they may in some cases hinder IRS investigations of non-compliant taxpayers. For example, the third requirement could lead to disclosure of examination methods or criteria or the existence of informants, and the first provision might make taxpayers perceive every contact to be a hostile, adversary proceeding. Comparable procedures were passed over for similar reasons in connection with TBOR 1, and section 7521 was enacted instead, which already permits a taxpayer to suspend an interview by asking for representation. We have heard no reason for adding these new requirements to the existing carefully balanced scheme that was only recently enacted and seems to be working well for all parties. (The text of the Restructuring Commission's Report does not discuss any taxpayer concerns in this area, relegating this proposal to the appendix.)

Conclusion

As demonstrated by the history of taxpayer rights provisions that I discussed earlier, Congress, Treasury, and the IRS all share a commitment to treat taxpayers fairly in our administration of the internal revenue laws. In the past we have cooperated to develop important procedural remedies and guarantees in the context of sound tax policy and efficient administration. We are confident that we can again work with you and your staff regarding the important issue of taxpayer rights and needed improvements in the tax law in respect of this issue. The Administration will be making additional taxpayer rights proposals in our next budget, and we look forward to working with you on those as well. Our common goal is to ensure that American taxpayers get the best tax service in the world.

I would be happy to entertain questions or discuss particular provisions with you.

APPENDIX -- RECENT TAXPAYER RIGHTS INITIATIVES

"Administrative TBOR" initiatives. These are measures that the Administration implemented administratively, without the need for legislation, in 1996.

1. Increased Taxpayer Ombudsman Authority to Address Taxpayer Concerns. This was initially accomplished via additional Delegation Orders from the Commissioner.

2. Commissioner's Directive to Track IRS Response to Taxpayer Ombudsman Annual Reports. This was also accomplished through a Delegation Order.

3. Greater Protection for Taxpayer Assistance Orders. A temporary Delegation Order, and regulations proposed in 1996, voluntarily limited the IRS officials who can overturn TAOs.

4. Increased Stature of Taxpayer Ombudsman Within the IRS. The salary and grade level of the Ombudsman (now the Taxpayer Advocate) were enhanced administratively.

5. Greater Participation of Ombudsman in Selection of Local Problem Resolution Officers. This was accomplished through a Commissioner's Directive.

6. New Procedures to Allow Taxpayers to Appeal Liens, Levies, and Seizures. A new appeals process was created, and IRS forms, publications, and the Internal Revenue Manual were updated to reflect it.

7. Notification of Collection Activity to Divorced and Separated Spouses. The Internal Revenue Manual now provides for such notice, subject to privacy concerns in this particularly sensitive area.

8. Prohibition on Compromising Informant's Tax Liability. The Internal Revenue Manual was amended to prohibit compromising an informant's liability in exchange for information about another taxpayer.

9. Voluntary Payor Telephone Numbers on Forms 1099. The IRS began asking payors in 1996 to include a telephone contact on the Forms 1099 that they provided to taxpayers.

10. Study of Interest Netting. This study was completed and released in April, 1997. It resulted in the Administration's global interest netting legislative proposal in TBOR 3.

11. Study of Joint Return Issues for Divorced and Separated Spouses. The information-gathering stage of this study was completed in late 1996, but a draft is still undergoing review within Treasury. This is the only uncompleted item from this list.

12. Increased IRS Investigation of Disputed Information Returns. The Internal Revenue Manual was amended to increase efforts to investigate information that a taxpayer challenges.

13. 30-Day Notice Before Terminating or Modifying Installment Agreements.   This was accomplished through regulations.

14. Penalty for Trust Fund Taxes Under § 6672. Internal Revenue Manual changes required that taxpayers get 60 days notice before the penalty is assessed, and an IRS policy statement prohibited penalties against honorary or volunteer trustees of an organization in most circumstances.

15. Annual Reminders of Outstanding Delinquent Accounts. The Internal Revenue Manual was amended to direct IRS personnel to provide annual, and sometimes

semiannual, reminders to taxpayers.

16. Notice of Overpayments. The Internal Revenue Manual was changed to require a reasonable attempt to notify a taxpayer as soon as possible if the IRS receives a payment that cannot be matched to a taxpayer account.

17. Limitations on the Use of a Designated Summons. A policy statement was issued, requiring Regional Counsel to approve all designated summonses and in most cases limiting their use to audits of large corporations in the Coordinated Examination Program ("CEP").

18. Early Appeal of Certain Issues. A revenue procedure was issued to provide a mechanism for employers to obtain appeal of employment tax issues while an examination is still in progress.

19. Appeals Mediation Procedure. A test of an Appeals mediation procedure began in 1995 and has been continued through 1997.

20. Obtaining Advance Valuation of Art Works. Under a new revenue procedure, taxpayers can obtain an IRS expert's valuation in advance of filing the return in which the valuation is reported.

21. Making Taxpayer Identification Numbers Available. Regulations proposed in 1996 provide a method for taxpayers who are not eligible to obtain Social Security Numbers to still obtain Taxpayer Identification Numbers.

22. Obtaining Section 9100 Relief. The revenue procedure for granting taxpayers relief when the make certain requests for changes of accounting method or period was revised.

23. Allow Automatic Extensions Without Payment. Proposed regulations eliminate the requirement that the tax be fully paid with the application for an automatic 4-month extension.

24. Permit Use of Imaging Systems to Store Tax Records. This was accomplished by updating the revenue procedures on storing such records.

25. Electronic Filing of Form 941. A revenue procedure was issued setting forth the procedures to be used by taxpayers who wish to file Form 941 electronically.

26. Simultaneous Appeals/Competent Authority Procedure. A revenue procedure authorizes simultaneous Appeals/Competent Authority procedure.

TBOR 2 provisions. The Administration worked with Congress in developing this legislation,

which was signed by President Clinton on July 30, 1996.

Sec. 101. Taxpayer Advocate. This provision changed the "Taxpayer Ombudsman" to the "Taxpayer Advocate" and increased his authority in several respects.

Sec. 102. Taxpayer Assistance orders. This provision restricted the individuals who can overturn TAOs to the Taxpayer Advocate, Commissioner, or Deputy Commissioner.

Sec. 201. Notice of termination or modification of installment agreements. This provision required IRS to give 30-day notice before terminating or modifying installment agreements entered with taxpayers.

Sec. 202. Administrative review of termination of installment agreements. This provided an administrative review process or appeal if the IRS terminates an installment payment agreement.

Sec. 301. Expanded authority to abate interest. The Service was given authority to abate interest in more situations under this provision.

Sec. 302. Judicial review of failures to abate interest. The Tax Court can now review the Service's failure to abate interest, under an abuse of discretion standard.

Sec. 303. Extension of interest-free period. The period of time after taxpayers receive a bill from the IRS in which they can pay before interest starts to accrue was extended.

Sec. 304. Abatement of payroll deposit penalty. This provision lets the IRS waive the penalty for failure to make a timely deposit of payroll taxes in certain circumstances.

Sec. 401. Study of joint return issues. This study addresses several issues arising out of the joint and several liability that taxpayers incur when they file joint returns but later separate or divorce. It has not been completed.

Sec. 402. Joint return after separate return without full payment. Married taxpayers who file separately, but later determine that their tax would be less if they filed jointly, may now amend their return without fully paying the amount of joint tax due.

Sec. 403. Disclosure of collection activities with respect to joint returns. The IRS may now disclose to divorced or separated spouse the collection activities it has undertaken with respect to the other spouse, consistent with privacy concerns.

Sec. 501a. Withdrawal of notice of lien. The IRS can now withdraw a recorded tax lien in additional circumstances, e.g. when a taxpayer has made an installment payment agreement.

Sec. 501b. Return of levied property. This provision permits the IRS to return property it has seized in some additional circumstances, e.g. after an installment agreement is entered.

Sec. 502. Modification to levy exemption amounts. The amounts of certain property that is exempt from levy were increased and indexed for inflation.

Sec. 503. Offers in compromise. The amount of tax that can be compromised without an opinion from the IRS Chief Counsel's office was increased by this provision.

Sec. 601. Civil damages for fraudulent information returns. This provision creates a federal cause of action against a payor who has filed a "fraudulent" information return.

Sec. 602. Reasonable investigations of information returns. This provision requires the IRS to investigate and prove the accuracy of information returns that the taxpayer contests, so long as the taxpayer fully cooperates in the investigation.

Sec. 701. Attorneys fees -- burden of proof on "substantially justified." The IRS must show that its position was "substantially justified" in the attorneys' fees stage of a case.

Sec. 702. Increase and index attorneys' fees dollar amount. The hourly amount of attorneys' fees that can be collected from the Government was raised and indexed for inflation.

Sec. 703. Failure to extend statute of limitations. Under this provision, the failure to extend the statute is irrelevant to whether the taxpayer exhausted administrative remedies for purposes of the attorneys' fees determination.

Sec. 704. Attorneys' fees in declaratory judgment actions. This provision made attorneys' fees and costs available in declaratory relief actions.

Sec. 801. Increase civil damages for unauthorized collection actions. The maximum damages for reckless or intentional IRS misdeeds went from $100,000 to $1 million.

Sec. 802. Discretion to award damages for unauthorized collection actions where administrative remedies not exhausted. This replaced the previous automatic bar if remedies were not exhausted. 

Sec. 901. Preliminary notice of proposed 6672 penalty. This provision applies when corporate officers responsible for collecting employment taxes are penalized for failing to do so.

Sec. 902. Disclosure to other responsible persons. In certain circumstances, the IRS must advise such persons of its actions to collect the penalty from other responsible persons.

Sec. 903. Contribution between responsible persons. This provision created a federal right of contribution between persons who are jointly and severally liable for the penalty.

Sec. 904. 6672 penalty for tax exempt organizations. This proposal gave volunteer, unpaid board members of tax-exempt organizations some safe-harbors from the penalty.

Sec. 1001. Enrolled agents as 3rd-party recordkeepers. "Enrolled agents" get the same treatment as banks, brokerage houses, attorneys, and accountants for IRS summons purposes under this provision.

Sec. 1002. Safeguards related to designated summons. This provision limits use of the "designated summons" to the largest corporations and requires higher-level IRS review approval.

Sec. 1003. Annual report regarding designated summons. The IRS must provide Congress with an annual report concerning the uses of the designated summons procedure.

Sec. 1101. Retroactive regulations. This provision generally prohibits Treasury from issuing retroactive tax regulations, but contains a number of exceptions we requested.

Sec. 1201. Phone numbers on payee statements. This provision requires a telephone number of a contact person on payee statements.

Sec. 1202. Required notice for certain payments. This provision requires the IRS to make reasonable efforts to notify taxpayers who submit a payment that the IRS cannot associate with an outstanding liability.

Sec. 1203. Unauthorized "enticement" of information disclosures. This prohibits IRS agents from "trading" an informant's tax liability for information about the liabilities of others.

Sec. 1204. Annual reminders of delinquent taxes. IRS must send annual reminders to persons with outstanding tax accounts.

Sec. 1205. 5-year extension of authority for undercover operations. This provision allows the IRS to use amounts recovered in undercover operations to fund ongoing operations.

Sec. 1206. Disclosure of Form 8300 information. Information on Form 8300 (regarding cash transactions of $10,000 or more) can be disclosed to the same extent as the very similar information on Currency Transaction Reports.

Sec. 1207. Disclosure to designee of taxpayer. Under this IRS initiative, the IRS may, but need not necessarily, obtain written consent from the taxpayer before it can disclose information to the taxpayer's representative. 

Sec. 1208. Study of interest netting. This study of the interest rate differential between overpayment and underpayment rates was completed in April 1997 and resulted in our "global interest netting" legislative proposal.

Sec. 1209. Expenses of detection of underpayments and fraud. This provision gave IRS authority to pay rewards out of amounts collected.

Sec. 1210. Use of private delivery services. Under this provision, a taxpayer who uses an approved private delivery service gets the benefit of the tax Code's "mailbox rule."

Sec. 1211. Reports on misconduct by IRS employees. This provision requires the IRS to provide an annual report concerning employee misconduct and disciplinary actions.

Sec. 1301. Treatment of substitute returns for purposes of failure to pay penalty.  Under this provision, the failure to pay penalty runs from the original due date of the return even when the IRS prepares a substitute return..

TBOR 3 provisions. The Administration announced these proposals in April, 1997. All but global interest netting and equitable tolling were enacted this year, mostly in the Taxpayer Relief Act.

1. Uniform "reasonable cause" exception for penalties. This provides a "reasonable cause" exception for all penalties that relate to failure to file a return, information statement, or similar document, or failure to pay or deposit required taxes. 

2. Global interest netting of under- and over-payments. This proposal, which was the result of our interest netting study, would require the IRS to "net" tax balances in computing interest even if the balances have already been paid at the time of the interest computation.

3. Amend limitations period for refunds in Tax Court. This provision, which was a response to the Supreme Court's result in the Lundy case, corrects a technical defect in the limitations periods.

4. Repeal authority to disclose whether a prospective juror has been audited.  The repealed provision was of little utility but caused unnecessary delays and confusion in both civil and criminal tax litigation.

5. Clarify statute of limitations for pass-through entities. This provision codified the result in Bufferd v. Commissioner, 113 S.Ct. 927 (1993), that the period for assessing tax against a partner or S corporation shareholder runs from the date the individual's return is filed, not the entity's filing date.

6. Clarify procedures for administrative cost awards. This provision clarified several ambiguities in the rules and makes the procedures for claiming such costs more uniform.

7. Equitable tolling. This provision would change the rule reached by the Supreme Court in Brockamp to provide that the statutes of limitations on refund claims may be "tolled," or extended, in certain particularly equitable cases.

8. Clarify prohibition on "browsing" of returns and return information. This provision provides criminal penalties for "browsing" and a civil remedy for taxpayers whose returns have been "browsed."