D. Taxpayer Advocate
In 1996, the Taxpayer Bill of Rights 2 ("TBOR 2") established the position of Taxpayer
Advocate, which replaced the position of Taxpayer Ombudsman, created in 1979 by the IRS. The
Taxpayer Advocate is appointed by and reports directly to the IRS Commissioner.
TBOR 2 also created the Office of the Taxpayer Advocate. The functions of the office are
(1) to assist taxpayers in resolving problems with the IRS, (2) to identify areas in which taxpayers
have problems in dealings with the IRS, (3) to propose changes (to the extent possible) in the
administrative practices of the IRS that will mitigate those problems, and (4) to identify potential
legislative changes that may mitigate those problems.
Under present law, the direct point of contact for taxpayers seeking taxpayer assistance
orders is a problem resolution officer appointed by a District Director or a Regional Director of
Appeals. The Taxpayer Advocate has designated the authority to issue taxpayer assistance orders to
the local and regional problem resolution officers.
Description of Proposal
The proposal would provide for the selection of a National Taxpayer Advocate by the
Secretary of the Treasury Department from one of three candidates recommended by the IRS
Oversight Board. The candidates should be individuals with a background in customer service as
well as tax law.
As under present law, the National Taxpayer Advocate would be required to annually
report to the tax-writing committees of Congress on various matters. In addition to the matters
required to be addressed under current law, the National Taxpayer Advocate would be required to
identify areas of the tax law that impose significant compliance burdens on taxpayers and identify
the 10 most litigated issues for each category of taxpayer, and any other information that the
National Taxpayer Advocate may deem advisable.
The National Taxpayer Advocate would be required to appoint local Taxpayer Advocates,
at least one for each State, who would report directly to the National Taxpayer Advocate. In
contrast to the present law problem resolution system, the local Taxpayer Advocates would be
employees of the Taxpayer Advocate's Office, independent from the IRS examination, collection,
and appeals functions. The National Taxpayer Advocate would monitor the coverage and
geographical allocation of the local Taxpayer Advocates and would have the responsibility to
evaluate and take personnel actions (including dismissal) with respect to any local Taxpayer
Advocate or any employee in the Office of the National Taxpayer Advocate. In conjunction with
the Commissioner, the National Taxpayer Advocate would be required to develop career paths for
local Taxpayer Advocates. In addition, the National Taxpayer Advocate would be required to
develop guidance on the criteria for referral of taxpayer inquiries to local Taxpayer Advocates and
ensure that access to local Taxpayer Advocates would be readily available to the public.
Each local Taxpayer Advocate would report directly to the National Taxpayer Advocate and
would operate separately from the local IRS office (including having its own telephone and fax
lines and a separate listing in the telephone book) and would so inform the taxpayer at the initial
meeting. The local Taxpayer Advocate would not be required to disclose to the IRS any contact
with or information provided by the taxpayer.
The IRS would be required to publish the taxpayer's right to contact the local Taxpayer
Advocate on the statutory notice of deficiency.
The National Taxpayer Advocate cannot have been employed by the IRS during the two
years preceding the appointment and would be required to agree not to accept any employment with
the IRS for at least 5 years after ceasing to be the National Taxpayer Advocate.
The proposal would be effective on the date of enactment.
E. Prohibition on Executive Branch Influence Over Taxpayer Audits
There is no explicit prohibition in the Code on high-level Executive Branch influence over
taxpayer audits and collection activity.
The Internal Revenue Code prohibits disclosure of tax returns and return information,
except to the extent specifically authorized by the Internal Revenue Code (Sec. 6103).
Unauthorized disclosure is a felony punishable by a fine not exceeding $5,000 or imprisonment of
not more than five years, or both (Sec. 7213). An action for civil damages also may be brought for
unauthorized disclosure (Sec. 7431).
Description of Proposal
The proposal would make it unlawful for a specified person to request that any officer or
employee of the IRS conduct or terminate an audit or otherwise investigate or terminate the
investigation of any particular taxpayer with respect to the tax liability of that taxpayer. The
prohibition would apply to the President, the Vice President, and employees of the executive
offices of either the President or Vice President, as well as any individual (except the Attorney
General) serving in a position specified in section 5312 of Title 5 of the United States Code
(generally Cabinet-level positions). The prohibition would apply to both direct requests and
requests made through an intermediary.
Any request made in violation of this rule must be reported by the IRS employee to whom
the request was made to the Treasury Inspector General. The Inspector would have the authority
to investigate such violations and to refer any violations to the Department of Justice for possible
prosecution, as appropriate. Anyone convicted of violating this provision will be punished by
imprisonment of not more than 5 years or a fine not exceeding $5,000 (or both).
Three exceptions to the general prohibition apply. First, the prohibition does not apply to a
request made to a specified person by a taxpayer or a taxpayer's representative that is forwarded by
the specified person to the IRS. This exception is intended to cover two types of situations. The
first situation is where a taxpayer (or a taxpayer's representative) writes to a specified person
seeking assistance in resolving a difficulty with the IRS. This exception permits the specified
person who receives such a request to forward it to the IRS for resolution without violating the
The second situation that this first exception is intended to cover is an audit or investigation
by the IRS of a Presidential nominee. Under present law (Sec. 6103(c)), nominees for
Presidentially appointed positions consent to disclosure of their tax returns and return information
so that background checks may be conducted. Sometimes an audit or other investigation is
initiated as part of that background check. The Committee anticipates that any such audit or
investigation that is part of such a background check will be encompassed within this first
The second exception to the general prohibition applies to requests for disclosure of returns
or return information under section 6103 if the request is made in accordance with the requirements
of section 6103.
The third exception to the general prohibition applies to requests made by the Secretary of
the Treasury as a consequence of the implementation of a change in tax policy.
Any audit or investigation covered by an exception to this rule would have to be justified in
The proposal would apply to violations occurring after the date of enactment.
F. Treasury Office of Inspector General; IRS Office of the Chief Inspector
Treasury Inspector General
The Treasury Office of Inspector General ("Treasury IG") was established in 1988 and
charged with conducting independent audits, investigations and review to help the Department of
Treasury accomplish its mission, improve its programs and operations, promote economy,
efficiency and effectiveness, and prevent and detect fraud and abuse. The Treasury IG derives its
statutory authority under the Inspector General Act of 1978, as amended ("IG Act of 1978").
Appointment and qualifications
The IG Act of 1978 provides that the Treasury IG is selected by the President, with the
advice and consent of the Senate, without regard to political affiliation and solely on the basis of
integrity and demonstrated ability in accounting, auditing, financial analysis, law, management
analysis, public administration, or investigations. The Treasury IG can be removed from office by
the President. The President must communicate the reasons for such removal to both Houses of
Duties and responsibilities
The Treasury IG generally is authorized to conduct, supervise and coordinate internal
audits and investigations relating to the programs and operations of the Treasury, including all of
its bureaus and offices. Special rules apply, however, with respect to the Treasury IG's
jurisdiction over ATF, Customs, the Secret Service and the IRS--the four so-called "law
enforcement bureaus." Upon its establishment, the Treasury IG assumed the internal audit
functions previously performed by the offices of internal affairs of ATF, Customs and the Secret
Service. Although the Treasury IG was granted oversight responsibility for the internal
investigations performed by the Office of Internal Affairs of ATF, the Office of Internal Affairs of
Customs, and the Office of Inspections of the Secret Service, the internal investigation or
inspection functions of these offices remained with the respective bureaus. The Treasury IG did
not assume responsibility for either the internal audit or inspection functions of the IRS Office of
the Chief Inspector. However, it was directed to oversee the internal audits and internal
investigations performed by the IRS Office of the Chief Inspector.
The Commissioner and the Treasury IG have entered into two Memorandums of
Understanding ("MOUs") to clarify the respective roles of the IRS Office of the Chief Inspector
and the Treasury IG in two primary areas: (1) the investigation of allegations of wrongdoing by
IRS executives and employees in situations where the independence of the Office of the Chief
Inspector could be questioned, and (2) oversight by the Treasury IG of the IRS Office of the Chief
Inspector. Pursuant to the 1990 MOU, the Commissioner agreed to transfer 21 FTEs and $1.9
million from the IRS appropriation to the Treasury IG appropriation to be used for the following
purposes: (1) oversight of the operations of the Office of the Chief Inspector; (2) conduct of special
reviews of IRS operations; (3) investigation of allegations of misconduct concerning the
Commissioner, the Senior Deputy Commissioner, and employees of the IRS Office of the Chief
Inspector; and (4) investigation of allegations of misconduct where the independence of the IRS
Office of the Chief Inspector might be questioned. With respect to item (4), the Commissioner and
Treasury IG agreed that all allegations of misconduct involving IRS executives and managers
(Grade 15 and above), as well as any other allegation involving "significant or notorious" matters
were to be referred to the Treasury IG, and that investigations arising out of such referrals
generally would be conducted by the Treasury IG.
In general, under the IG Act of 1978, Inspectors General are instructed to report
expeditiously to the Attorney General whenever the Inspector General has reasonable grounds to
believe there has been a violation of Federal criminal law. However, in matters involving criminal
violations of the Internal Revenue Code, the Treasury IG may report to the Attorney General only
those offenses under section 7214 of the Code (unlawful acts of revenue officers or agents,
including extortion, bribery and fraud) without the consent of the Commissioner.
The Treasury IG reports to and is under the general supervision of the Secretary of
Treasury, acting through the Deputy Secretary. In general, the Secretary cannot prevent or prohibit
the Treasury IG from initiating, carrying out, or completing any audit or investigation or from
issuing any subpoena during the course of any audit or investigation.
However, section 8D of the IG Act of 1978 grants the Secretary authority to prohibit audits
or investigations by the Treasury IG under certain circumstances. In particular, the Treasury IG is
under the authority, direction, and control of the Secretary with respect to audits or investigations,
or the issuance of subpoenas, which require access to sensitive information concerning: (1)
ongoing criminal investigations or proceedings; (2) undercover operations; (3) the identity of
confidential sources, including protected witnesses; (4) deliberations and decisions on policy
matters, including documented information used as a basis for making policy decisions, the
disclosure of which could reasonably be expected to have a significant influence on the economy or
market behavior; (5) intelligence or counterintelligence matters; (6) other matters the disclosure of
which would constitute a serious threat to national security or to the protection of certain persons.
With respect to audits, investigations or subpoenas that require access to the above-listed
information, the Secretary may prohibit the Treasury IG from carrying out such audit, investigation
or subpoena if the Secretary determines that such prohibition is necessary to prevent the disclosure
of such information or to prevent significant impairment to the national interests of the United
States. The Secretary must provide written notice of such a prohibition to the Treasury IG, who
must, in turn, transmit a copy of such notice to the Committees on Governmental Affairs and
Finance of the Senate and the Committees on Government Reform and Oversight and Ways and
Means of the House.
Access to taxpayer returns and return information
The Treasury IG has access to taxpayer returns and return information under section
6103(h)(1) of the Code. However, such access is subject to certain special requirements,
including the requirement that the Treasury IG notify the IRS Office of the Chief Inspector (or the
Deputy Commissioner in certain circumstances) of its intent to access returns and return
Under the IG Act of 1978, the Treasury IG reports to the Congress semiannually on its
activities. Reports from the Treasury IG are transmitted to the Committees on Government Reform
and Oversight and Ways and Means of the House and the Committees on Governmental Affairs
and Finance of the Senate.
For fiscal year 1997, the Treasury IG had 296 FTEs and total funding of $29.7 million.
174 FTEs were assigned to the Treasury IG's audit function and 61 were assigned to the
investigative function. The remaining FTEs were divided among the following functions:
evaluations, legal, program, technology and administrative support. Of the total Treasury IG
FTEs, approximately 23 were used for IRS oversight activities in fiscal year 1997.
IRS Office of Chief Inspector
The IRS Office of the Chief Inspector (also known as the "Inspection Service") was
established on October 1, 1951, in response to publicity revealing widespread corruption in the
IRS. At the time of its creation, President Harry S. Truman stated, "A strong, vigorous inspection
service will be established and will be made completely independent of the rest of the Internal
Appointment of the Chief Inspector
In 1952, the Office of the Assistant Commissioner (Inspection) was established. The
office was redesignated as the Office of the Chief Inspector on March 25, 1990. The Chief
Inspector is appointed by the Commissioner. In this regard, pursuant to Treasury Director 40-01,
the Commissioner must consult with the Treasury IG before selecting candidates for the position of
Chief Inspector (and all other senior executive service ("SES") positions in the Office of the Chief
Inspector). The Commissioner must also consult with the Treasury IG regarding annual
performance appraisals for the Chief Inspector and other SES officials.
The Office of the Chief Inspector consists of a National Office and the offices of the
Regional Inspectors. The offices of the Regional Inspectors are located in the same cities and have
the same geographic boundaries as the offices of the four IRS Regional Commissioners. The
Regional Inspectors report directly to the Chief Inspector.
Duties and responsibilities
The Office of the Chief Inspector generally is responsible for carrying out internal audits
and investigations that: (1) promote the economic, efficient, and effective administration of the
nation's tax laws; (2) detect and deter fraud and abuse in IRS programs and operations; and (3)
protect the IRS against external attempts to corrupt or threaten its employees. The Chief Inspector
reports directly to the Commissioner and Deputy Commissioner of the IRS.
The IRS Inspection Service is divided into three functions: Internal Security, Internal
Audit, and Integrity Investigations and Activities. Internal Security's responsibilities include
criminal investigations (employee conduct, bribery, assault and threat and investigations of non
IRS employees for acts such as impersonation, theft, enrolled agent misconduct, disclosure, and
anti-domestic terrorism) investigative support activities (including forensic lab, computer
investigative support, and maintenance of law enforcement equipment), protection, and
Internal Audit is responsible for providing IRS management with independent reviews and
appraisals of all IRS activities and operations. In addition, Internal Audit makes recommendations
to improve the efficiency and effectiveness of programs and to assist IRS officials in carrying out
their program and operational responsibilities. In this regard, Internal Audit generally conducts
performance reviews (program audits, system development audits, internal control audits) and
financial reviews (financial statement audits and financial related reviews).
Integrity Investigations and Activities are joint internal audit and internal security operations
undertaken as a proactive effort to detect and deter fraud and abuse within the IRS. Integrity
Investigations and Activities also includes the UNAX Central Case Development Center. The
Center was developed in October, 1997, in response to the Taxpayer Browsing Protection Act of
1997. Its purpose is to detect unauthorized accesses to IRS computer systems by IRS employees
and to refer such instances to Internal Security investigators for further investigation.
The Chief Inspector derives specific and general authority from delegation by the
Commissioner and Deputy Commissioner. In addition, under section 7608(b) of the Code, the
Chief Inspector is authorized to perform certain functions in connection with the duty of enforcing
any of the criminal provisions of the Code, including executing and serving search and arrest
warrants, serving subpoenas and summonses, making arrests without warrant, carrying firearms,
and seizing property subject to forfeiture under the Code.
Access to taxpayer returns and return information
The Office of the Chief Inspector has full access to taxpayer returns and return information.
The Office of the Chief Inspector reports facts developed through its internal audit and
internal security activities to IRS management officials, who are charged with the responsibility of
reviewing IRS activities. The results of the Chief Inspector's internal audit and internal security
activities also are reported to the Treasury IG and are included in the Treasury IG's semiannual
reports to Congress.
Internal audit reports prepared by the Office of the Chief Inspector are provided monthly to
the Government Accounting Office, as well as to the House and Senate Appropriations
Committees. In addition, a monthly list of Internal Audit reports is provided to Treasury and the
Office of Management and Budget. Reports of Investigation regarding criminal conduct are
referred to the Department of Justice for prosecution.
The IRS Office of the Chief Inspector had 1,202 FTEs for 1997 and total funding of
$100.1 million. Of these FTEs, approximately 442 performed Internal Audit functions, 511
performed Internal Security functions, and 94 performed Integrity Investigations and Activities.
Of the remaining FTES, approximately 95 were dedicated to information technology functions and
60 staffed the offices of the Chief Inspector and the Regional Inspectors.
Description of Proposal
Under the proposal, the IRS Office of the Chief Inspector would be eliminated, and all of
its powers and responsibilities would be transferred to the Treasury IG. The Treasury IG would
have its existing powers and responsibilities under the IG Act of 1978, as well as certain additional
powers and responsibilities. The Treasury IG would be under the supervision of the Secretary of
Treasury, with certain additional reporting to the Board and the Congress.
Appointment and qualifications of Treasury IG
As under present law, the Treasury IG would be selected by the President, with the advice
and consent of the Senate. The Treasury IG could be removed from office by the President. The
President would communicate the reasons for such removal to both Houses of Congress.
As under present law, the Treasury IG would be selected without regard to political
affiliation and solely on the basis of integrity and demonstrated ability in accounting, auditing,
financial analysis, law, management analysis, public administration, or investigations. In addition,
however, the Treasury IG should have experience in tax administration and demonstrated ability to
lead a large and complex organization. The Treasury IG could not be employed by the IRS within
the two years preceding and five following his or her appointment.
As under present law, the Treasury IG would be required to appoint an Assistant Inspector
General for Auditing and an Assistant Inspector for Inspections. Under the proposal, such
appointees, as well as any Deputy Inspector General(s) appointed by the Treasury IG, could not be
employed by the IRS within the two years preceding and five years following their appointments.
Duties and responsibilities of Treasury IG
The Treasury IG would have all of its present law duties and responsibilities. In addition,
the Treasury IG would assume all of the duties and responsibilities currently delegated to the IRS
Office of the Chief Inspector.
Accordingly, with respect to the IRS, the Treasury IG would be charged with conducting
audits, investigations, and evaluations of IRS programs and operations to promote the economic,
efficient and effective administration of the nation's tax laws and to detect and deter fraud and
abuse in IRS programs and operations. In this regard, the Treasury IG specifically would be
directed to evaluate the adequacy and security of IRS technology on an ongoing basis. In addition,
the Treasury IG would be responsible for protecting the IRS against external attempts to corrupt or
threaten its employees. The Treasury IG would be charged with investigating allegations of
criminal misconduct (e.g., Code sections 7212 , 7213, 7214 and 7216), as well as administrative
misconduct (e.g., violations of the Taxpayer Bill of Rights and the Taxpayer Bill of Rights 2, the
Office of Government Ethics Standards of Ethical Conduct and the IRS Supplemental Standards of
The present law restrictions on the Treasury IG's ability to refer matters to the Department
of Justice would be removed. Thus, the Treasury IG would be required to report to the Attorney
General whenever the Treasury IG has reasonable grounds to believe that there has been a violation
of Federal criminal law.
Authority of Treasury IG
As under present law, the Treasury IG would report to and be under the general
supervision of the Secretary of Treasury. In general, the Secretary cannot prevent or prohibit the
Treasury IG from initiating, carrying out, or completing any audit or investigation or from issuing
any subpoena during the course of any audit or investigation. The present-law authority of the
Secretary to prohibit audits, investigations or the issuance of subpoenas by the Treasury IG under
certain circumstances (described above) would not extend to audits, investigations or subpoenas
relating to the IRS.
Under the proposal, the Treasury IG would provide to the Board all reports regarding IRS
matters on a timely basis and would conduct audits or investigations requested by the Board. The
Treasury IG also would, in a timely manner, conduct such audits or investigations and provide
such reports as may be requested by the Commissioner.
In carrying out the duties and responsibilities described above, the Treasury IG would have
its present-law authority. In addition, the Treasury IG would have the authority granted to the IRS
Office of the Chief Inspector under present-law Code section 7608, including the right to execute
and serve search and arrest warrants, to serve subpoenas and summonses, to make arrests without
warrant, to carry firearms, and to seize property subject to forfeiture under the Code.
To ensure that the Treasury IG has sufficient resources to carry out his or her duties and
responsibilities under the proposal, approximately 900 FTEs currently assigned to IRS Office of
the Chief Inspector would be transferred to the Treasury IG. Such FTEs would include all of the
FTEs performing investigative functions in the Office of the Chief Inspector Internal Security and
Integrity Investigations and Activities. The proposal would require that at least 900 of Treasury IG
FTEs (but not necessarily the same employees who are transferred to the Treasury IG) should be
dedicated to IRS matters on an ongoing basis.
The Commissioner would be permitted to retain approximately 300 FTEs from the Office
of Inspection to staff an audit function (including support staff) for internal IRS management
purposes. Like other IRS functions, however, this audit function would be subject to oversight
and review by the Treasury IG.
Access to taxpayer returns and return information
Taxpayer returns and return information would be available for inspection by the Treasury
IG pursuant to section 6103(h)(1). Thus, the present law written notice requirements contained in
section 8D(e) of the IG Act of 1978 would be repealed, and the Treasury IG would have the same
access to taxpayer returns and return information as does the Chief Inspector under present law.
The Treasury IG would continue to be subject to the semiannual reporting requirements set
forth in section 5 of the IG Act of 1978. As under present law, reports would be made to the
Committees on Government Reform and Oversight and Ways and Means of the House and the
Committees on Governmental Affairs and Finance of the Senate. In addition, reports would be
made to the Joint Committee on Taxation. The reports would be required to contain the
information that is required to be reported by the Treasury IG under present law, as well certain
additional information (e.g., regarding the source, nature and status of allegations received by the
Treasury IG, the implementation of various taxpayer rights protections, and IRS employee
terminations and mitigations) required by this legislation.
The proposal would be effective 180 days after the date of enactment.