VI. Taxpayer Protections
A. Burden of Proof
1. Shift the burden of proof in court proceedings if the taxpayer introduces
credible evidence with respect to a factual issue relevant to ascertaining income tax liability.
As with the House provision, this shift would be subject to net worth limitations (except for
individuals) and the taxpayer must comply with current law substantiation requirements
and maintenance of records. Taxpayer must also cooperate (rather than "fully cooperate")
with the IRS.
2. In any instance in which the IRS uses statistics to determine a taxpayer's
income, the burden of proof in court proceedings would shift to the IRS to prove the
taxpayer's taxable income.
3. In court proceedings, the IRS would have the burden of establishing that
imposition of penalties is appropriate. If neither the IRS nor the taxpayer introduce evidence
relating to penalties, the IRS should not be sustained.
B. Proceedings by Taxpayers
1. Expansion of Authority to Award Costs and Certain Fees
a. Allow a taxpayer to recover costs and fees from the time the
taxpayer has a right to seek administrative review by the Office of Appeals (House bill);
b. Allow reasonable attorney fees at the prevailing rate in the
locality. (House bill provides exceptions to $110/hour limitation);
c. When a taxpayer is represented for free, the IRS should bear the
responsibility to pay reasonable costs and fees if the taxpayer substantially prevails and the
IRS position was not substantially justified (House bill);
d. In determining whether the IRS was substantially justified, the
court must consider whether the IRS has lost in courts of appeal for other circuits on
substantially similar issues. (House bill)
2. Allow taxpayers to recover up to $100,000 in civil damages from the IRS
due to IRS employee negligence in collection matters. (House bill)
3. Allow up to $1 million in civil damages for willful violations of the
Bankruptcy Code relating to automatic stays or discharges. (Administration proposal)
4. Allow civil damages for unauthorized collection actions against persons
other than the taxpayer. (Administration proposal).
5. Increase the size of cases in the Tax Court's Small Case Calendar from
$10,000 to $50,000. (House bill increased to $25,000)
6. Expand Tax Court jurisdiction to include responsible person penalties
and innocent spouse relief.
7. If a taxpayer makes a statutory offer after the taxpayer has a right to an
administrative review by Appeals, the IRS rejects the offer, and the IRS obtains a judgment
against the taxpayer in an amount equal to or less than the amount of the taxpayer's statutory
offer, the IRS must pay the taxpayer's fees and costs incurred from the date of the statutory
offer. Subject to net worth limitations for collection of attorney fees.
C.Relief for Innocent Spouses and Persons with Disabilities
1. Innocent Spouse Relief
a. Overhaul the current law innocent spouse relief requirements and replace with
proportionate liability. Innocent spouses could elect out of joint and several liability and be
liable only for tax attributable to their income. The electing spouse must prove the amount
of tax for which they should not be responsible. Community property laws would be
disregarded for the purpose of this relief. As in the House bill, provide the Tax Court with
jurisdiction to determine the limits of the spouse's liability.
b. Require the Treasury Inspector General to certify that the IRS
notifies taxpayers of amount collected from a former spouse.
2. Equitable Tolling (House bill and Administration Proposal).
Allow equitable tolling of the statute of limitations on filing a refund claim for the period of
time a taxpayer is unable to manage his affairs due to a physical or mental disability that is
expected to result in death or last for more than 12 months. Tolling would not apply if
someone was authorized to act on the taxpayer's behalf on financial affairs.
D. Provisions Relating to Interest and Penalties
1. Eliminate the interest rate differential on overlapping periods of interest
on income tax overpayments and underpayments (House bill).
2. Eliminate the interest rate differential for non-corporate taxpayers by
increasing the interest rate on overpayments from the Federal short-term interest +2% to
+3%. (House bill)
3. Do not impose the failure to pay penalty while the taxpayer is in an
4. If IRS does not contact a taxpayer within 1 year after a return is filed, then
interest and penalties will be suspended (excluding the failure to file, failure to pay, and civil
5. Allow the taxpayer to designate deposits for each payroll period rather
than using the first-in-first-out ("FIFO") method that results in cascading penalties.
6. Require each notice of penalty to include a computation of the penalty.
7. Require management to approve non-computer generated penalties
(excluding failure to file, pay, or estimated tax payment).
E. Protections for Taxpayers Subject to Audit or Collection
1. Extend the attorney client privilege to accountants and other tax
2. Expand the Taxpayer Advocate's authority to issue a Taxpayer Assistance
Order for "significant hardships" if:
a. There is an immediate threat of adverse action;
b. There has been unreasonable IRS delay in resolving the taxpayer's
c. The taxpayer will have to pay significant costs (including fees for
representation) if relief is not granted; or
d. The taxpayer will suffer irreparable injury or long-term adverse
impact if relief is not granted.
If the IRS is not following applicable published guidance (including the Internal Revenue
Manual), the Taxpayer Advocate shall construe this in a manner most favorable to the
taxpayer. (House bill - modified)
3. Prohibit the IRS from using financial status or economic reality audit
techniques to determine the existence of unreported income unless the IRS has a reasonable
indication there is a likelihood of unreported income. (House bill)
4. Limit IRS authority to require the production of computer source code.
5. Statute of Limitations
a. Prohibit individual taxpayers from extending the 10 year collection statute of limitations.
b. Require the IRS to provide notice of the taxpayer's rights if the IRS
requests an extension of the statute of limitations. (House bill). Require Treasury Inspector
General to track.
a. Modify the House provision to require the IRS to consider the
facts and circumstances of a particular taxpayer's case. The IRS should develop and publish
schedules of national and local allowances designed to provide taxpayers with adequate
living expenses. If the facts warrant, the taxpayer should not be limited by the standards.
b. Require the IRS to prepare a statement setting forth the terms and
rights of a taxpayer relating to an offer-in-compromise. (House bill)
c. Specify that offers made by low income taxpayers will be
considered even if the amount of the offer is low. This is not intended to allow others to
make low-ball offers.
d. Prohibit the IRS from requiring a financial statement if the
taxpayer makes an offer based upon dispute as to liability (rather than based upon ability to
e. The IRS should implement liberal offer in compromise acceptance
procedures to keep taxpayers in the system.
f. Prohibit the IRS from collecting a tax liability by levy if: (1) an offer
in compromise is being processed; (2) within 30 days following rejection of an offer; and (3)
during appeal of a rejection of an offer. (Administration proposal)
g. Offer in compromises must be reviewed by a higher level before
being rejected on the merits.
h. If the IRS lost the taxpayer's file, prohibit the IRS from rejecting
the taxpayer's offer-in-compromise based upon doubt as to the taxpayer's liability.
7. Require the IRS to include on each deficiency notice, the date the IRS
determines is the last day for the taxpayer to file a Tax Court petition. A petition filed by the
specified date would be deemed timely filed. (House bill)
8. Allow courts to order a refund of any amount that was collected during a
period in which the IRS is prohibited from collecting against the taxpayer. Allow refunds of
the portion of the overpayment determined by the Tax Court that is not contested on appeal.
9. Prohibit the use of threats of audits to obtain a Tip Reporting Alternative
Commitment Agreement. (House bill)
10. Ensure availability of installment agreements if the liability is $10,000 or
less. (Administration proposal)
F. Additional Taxpayer Protections Relating to Liens, Levies, and Seizures
1. Due Process for IRS Collection Actions
a. Require the IRS to provide notice to taxpayers 30 days (90 days in case of life insurance) before
the IRS liens, levies, or seizes a taxpayer's property.
b. The taxpayer would have 30 days to request a hearing by IRS Appeals. No collection activity
(other than in jeopardy situations) would be allowed until after the hearing. The taxpayer
could raise any issue as to why collection should not continue.
c. The taxpayer could petition the Tax Court to contest the Appeal's
2. Provide taxpayers with an enhanced mechanism to appeal an audit.
Codify existing IRS procedures which allow a taxpayer to request early referral to Appeals.
Also, codify procedures relating to the existing alternative dispute resolution program but
reduce the threshold from $10 million to $1 million.
3. Direct IRS to establish an independent appeals function. Prohibit ex
parte communication between Appeals and other IRS personnel (collection or audit) as to a
particular taxpayer's case.
4. Require two supervisors to sign under penalty of perjury that they have
reviewed the taxpayer's information, verified that a balance is due, and believe a lien, levy,
or seizure is appropriate given the taxpayer's circumstances (including the amount due and
the value of the asset). Require the Treasury Inspector General to collect this information and
annually report to the tax writing committees.
5. Clarify that the IRS cannot sell a taxpayer's property for less than the
minimum bid price and cross reference to civil damages provision for unauthorized
6. Require the IRS to provide an accounting and receipt to the taxpayer
(including the amount credited to the taxpayer's account) when the IRS seizes and sells the
7. Require the IRS to implement, within 2 years, a uniform asset disposal
mechanism (which may include consideration of outsourcing) for sales of seized property to
prevent revenue officers from conducting sales.
8. Increase the amount exempt from levy to $10,000 for personal property
and $5,000 for books and tools of trade indexed for inflation.
9. Require the IRS to immediately release a levy upon agreement that the
amount is "currently not collectible".
10. Current law prohibits the IRS from levying property if the amount of
IRS expenses of levy and sale exceed the fair market value of such property at the time of the
levy. Codify portions of the Internal Revenue Manual which require the IRS to investigate
the status of the property prior to levy. Require the Treasury Inspector General to certify IRS
11. Suspend collection by levy during refund suit. (Administration
12. Require district counsel review of jeopardy and termination assessments
and jeopardy levies. (Administration proposal)
13. Codify certain fair debt collection practices (e.g., prohibit late night calls to
taxpayers, harassment, etc.). (Administration proposal)
14. Increase superpriority limits (e.g., mechanics liens from $1,000 to $5,000
and casual sales from $250 to $1,000). (Administration proposal)
15. Allow personal delivery (as an alternative to US Mail) of a preliminary
notice that the IRS intends to assess a 100 percent penalty. (Administration proposal)
16. Allow taxpayers to bring an action to quash all third-party summonses
(taxpayers would receive notice of the summons). (Administration proposal)
17. Allow service of summons by mail. (Administration proposal)
18. Provide a new remedy for third-parties who claim the IRS filed an
erroneous lien to obtain a certificate of discharge of property from lien as a matter of right.
This would enable the third-party to post a bond and sell the property free and clear of the
Federal tax lien. Also, allow third-parties to challenge a lien in court. The statute of
limitations on collecting from the taxpayer would not be stayed during the third-party
litigation. (Modified Administration Proposal)
19. Waive the 10% addition to tax for early withdrawal from an IRA or
other qualified plan if the IRS levies.
20. Prohibit the IRS from seizing real property used as a residence to satisfy
unpaid liabilities less than $5,000.
G. Disclosures to Taxpayers (House bill)
Require the IRS to provide the following disclosures to taxpayers:
1. Clearly alert married taxpayers of their joint and several liability on all
appropriate publications and instructions;
2. Clearly inform taxpayers of their rights to be represented at an IRS
interview and to suspend an interview to allow the taxpayer to consult with his/her
3. Explain in simple non-technical terms the criteria and procedures for
selecting taxpayers for audit. The statement shall not include any information which would
be detrimental to law enforcement;
4. Include with the first letter of proposed deficiency which allow the
taxpayer an opportunity for administrative review by the Office of Appeals, an explanation of
the appeals process and the collection process.
H. Low Income Taxpayer Clinics (House bill)
Require the Treasury to make matching grants for the development, expansion, or
continuation of certain low-income taxpayer clinics. Various requirements must be satisfied.
The aggregate amount of grants would be limited to $3 million each year. Expand "clinic" to
include an accredited business school (not just law schools).
I. Other Matters
1. Grant jurisdiction to U.S. District Courts and the U.S. Claims Court to
determine the correct amount of estate tax liability in actions brought by taxpayers paying
estate tax in installments as long as certain requirements are met. (House bill)
2. Require the IRS to maintain complaints of IRS employee misconduct on
an individual employee basis. (House bill)
3. Provide an exception to the disclosure rules to require the IRS to disclose
IRS records to the National Archives. (House bill)
4. Require Treasury to establish rules to allow payment of taxes by check or
money order payable to the "United States Treasury". (House bill)
5. Clarify that the Secretary of Treasury may prescribe the manner of
making any election by any reasonable means. (House bill)
6. Require the Joint Tax Committee and Treasury to separately study the
administration and implementation of penalties. The report is due 9 months after date of
enactment. (House bill - modified)
7. Require the Joint Tax Committee and Treasury to separately study the
scope and use of taxpayer confidentiality provisions including the Freedom of Information
Act. The report is due within 1 year after date of enactment. (House bill - modified)
8. Require the Treasury to study the effect of extending from January 31st to
February 15th, the deadline for providing taxpayers with information returns. The report is
due 9 months after date of enactment.
9. Expand the prohibition on the use of enforcement statistics to evaluate
individual employees to all IRS employees. Require the Treasury Inspector General to
annually report to the tax writing committees on whether the law is being followed.
10. Require the IRS to place a priority on employee training and adequately
fund employee training programs
Within 90 days after enactment, require the IRS to provide to the tax writing committees a
comprehensive multi year plan to: (1) ensure adequate customer service training; (2) review
the organizational design of customer service; (3) implement a performance development
system; and (4) provide in fiscal year 1999, 16-24 hours of conflict management training for
11. Require all IRS notices and correspondence to include the name, phone
number, and address of an IRS employee the taxpayer should contact regarding the notice.
12. Modify section 6103 to allow the tax writing committees to obtain data
from IRS employees regarding employee and taxpayer abuse.
13. Require the Treasury Inspector General to review and report on whether
IRS employees are following the law and not directly contacting taxpayers who are
14. Provide that it is the Sense of the Congress that achieving success on the
Year 2000 computer conversion problem is a high priority.
15. Provide that the use of pseudonyms by IRS employees may not be
approved merely at the employee's request. The employee must provide justification and
management must agree.
16. Provide that in any matter involving the submission of a substantive
legal matter involving a specific taxpayer to the national office by the field (e.g., Technical
Advice), the taxpayer may exclude field office personnel from the taxpayer's conference of
right with the national office.
17. In order to protect innocent taxpayers who may be mislabeled as "illegal
tax protesters", prohibit the IRS from labeling taxpayers as "illegal tax protesters" (or any
similar label) and from maintaining lists of such individuals. This proposal does not affect
the ability of the IRS to label a taxpayer as a "potentially dangerous taxpayer". Require the
Treasury Inspector General to annually report to Congress on whether the IRS is in