Statement of Findings and Purpose

This part of the bill contains a declaration by Congress that the success of our tax system depends upon the willingness of taxpayers to accurately assess and voluntarily pay their taxes; that it is in the national interest to encourage all Americans to voluntarily comply with the tax laws; and that the Internal Revenue Service can encourage voluntary compliance by improving the assistance it provides to taxpayers in answering tax questions, helping taxpayers complete tax returns, and explaining notices and bills.

The stated purpose of the bill would be to protect the rights of American taxpayers, basic to which would be the ability to receive the assistance needed to deal with tax laws that have become increasingly complex and difficult to understand.

A. Establishment of an Office of Ombudsman

1. In General

The bill would establish, within the Internal Revenue Service, the Office of Ombudsman. Although established within the IRS, this office would be under the supervision and discretion of the Ombudsman. The Ombudsman would be appointed by the President, by and with the consent of the Senate, for a term of six years. The Ombudsman would be permitted to employ personnel he deems necessary to carry out the functions of the office. The Ombudsman would be compensated at the rate established for Federal Government personnel at level V (Compensation for personnel at this level currently is $53,600. This is the same compensation paid to the Chief Counsel of IRS) of the Executive Schedule.

2. Duties of the Ombudsman

The Ombudsman would be an advocate of the rights of taxpayers. Under the bill, the Ombudsman would have the following duties:

(1) To establish procedures to review and evaluate complaints of taxpayers relating to improper, abusive, or inefficient service by IRS employees and, with due regard to the rights both of taxpayers and IRS employees, to take action, under regulations to be prescribed, to correct such service;

(2) To survey taxpayers for the purpose of obtaining their evaluation of the quality of the service provided by the IRS and the Office of Ombudsman;

(3) To compile data concerning the number and type of taxpayer complaints in each Internal Revenue district and service center and to evaluate actions taken to resolve those complaints;

(4) To issue "Stop Action Orders" (described below);

(5) To provide a forum for taxpayers to communicate their problems in dealing with the tax forms, publications, complex regulations, and internal procedures of the IRS; and

(6) To carry out any other functions, relating to the assistance of taxpayers, that the Ombudsman deems appropriate.

In addition to these duties, the Ombudsman would be required to submit to the House Ways and Means Committee, the Senate Finance Committee, and the Joint Committee on Taxation an annual report on the activities of the Office of the Ombudsman (including any recommended legislation).

3. Stop Action Orders

Under the bill, a taxpayer could apply (in such form, manner, and at such time as prescribed by Treasury Regulations) for the issuance of a "Stop Action Order." The Ombudsman would issue a Stop Action Order if it is determined that a taxpayer is suffering, or is about to suffer, an irreparable loss as a result of the manner in which the Internal Revenue laws are being administered by the Secretary.

The effect of a Stop Action Order would be to prevent the Secretary from taking any action adverse to the taxpayer (for a period of up to 60 days) under any provision of the Internal Revenue Code relating to collection, bankruptcy and receiverships, discovery of liability and enforcement of title, or any other provision of law that is specifically described by the Ombudsman in the Order. A Stop Action Order, however, would not be effective if the Secretary determines that the collection of tax would be jeopardized by a delay.

4. Effective Date

These provisions would become effective on the 90th day after the date of enactment.

B. Administrative Appeal of Tax Liens

Under the bill, a person who has a lien placed upon his property, or rights to property, would be able to appeal the imposition of the lien. The appeal would be to the Secretary and would be made in a manner to be prescribed by regulations to be issued no later than 180 days after the bill is enacted.

Effective date

This provision of the bill would be effective with respect to liens imposed 180 days or more after the date of enactment.

C. Revision of Rules Relating to Levies on and Seizure of Property for Collection of Taxes

The bill would require that in order for the IRS to levy upon any property, with respect to any unpaid tax liability, a court order authorizing such levy would have to be issued. However, if the collection of tax is found to be in jeopardy, a court order would not be required.

The Secretary could seek a court order from any Federal judge or from any judge of a State court of record within the district where the property (or right to property) to be levied upon is located. A court order authorizing a levy would be granted only upon a finding that:

(1) the owner of the property to be levied upon has exhausted all administrative appeals with respect to the imposition of a lien upon the property (or that the time for making such appeals has expired);

(2) the Secretary has established that the statutory requirements for making a levy upon property have been met; and

(3) there is reasonable cause to believe that the Secretary has met all of the requirements for making a levy.

(The bill is unclear whether the taxpayer would be a party to the action seeking a court order. If the taxpayer is not a party, then the proceeding would amount to a judicial review of the IRS file. If the taxpayer is a party, it is not clear what defenses to the levy request could be raised by the taxpayer. )

In addition to the court order requirement, a person would be permitted to appeal the decision of the Secretary to levy upon his property or rights to property. The Secretary would be required to prescribe regulations to implement an administrative appeal procedure within 180 days after enactment of the bill.

Effective date

This provision of the bill would be effective with respect to any levy issued 180 days or more after the date of enactment.

D. Time Requirements for Issuance of Treasury Regulations

The bill would provide that, unless any law provides otherwise, all final regulations necessary to implement any addition to, or amendment of, the Internal Revenue Code would have to be promulgated within 18 months after the enactment of such addition or amendment.

The failure by the Secretary to promulgate regulations within the prescribed time would have the following effects:

(1) the effective date of the regulations could be no earlier than the date of publication in the Federal Register, and

(2) any reasonable position advanced by a taxpayer, with respect to an issue for which regulations have not been promulgated, would apply to the taxpayer, with respect to that issue, notwithstanding that regulations are promulgated subsequently.

In a legal proceeding involving issues concerning which regulations have not been issued within the time prescribed, the taxpayer would have the burden of proving that his position is reasonable. Moreover, with respect to such issues, the position of the Secretary would not be given any greater weight than that of the taxpayer. These rules would apply only to issues which arise with respect to a taxpayer after the 180 day period for promulgating regulations and on or before the date of publication of the regulations in the Federal Register. Moreover, these rules would not apply to reoccurrences of issues with respect to the taxpayer after the regulations are published in the Federal Register.

Effective date

In general, these provisions would apply to Internal Revenue Code amendments enacted after December 29, 1969. However, in the case of Internal Revenue Code amendments enacted after December 29, 1969, and before six months after the date of enactment of the bill, any regulations necessary to implement those amendments would have to be issued within 36 months after the date of enactment of the Taxpayers' Bill of Rights.

E. Installment Payments of Estimated Income Tax by Individuals

The bill would repeal the present law requirement that individual taxpayers make declarations of estimated tax; (The General Accounting Office has made a similar recommendation in a report entitled "Legislative Change Needed to Eliminate the Requirement for a Declaration of Estimated Tax" (May 8, 1980)) it would raise the annual estimated tax payment threshold from $100 of tax liability in excess of withholding to $300; and it would allow farmers and fishermen to have until March 1 of the succeeding taxable year (rather than January 15) to make full payment of estimated tax.

The bill would not change the requirements with respect to who must pay estimated taxes (except for the increase in the tax liability threshold). Under the bill, individuals required to pay estimated taxes would make payments according to the following schedule:

-------------------------------------------------------------------
                         The following percentages of the estimated
                         tax be paid on the 16th day of the
                         ------------------------------------------
                                                                1st
                                                           month of
                                                         succeeding
If the estimated tax requirements 4th      6th       9th    taxable
   are met                      month    month     month       year
-------------------------------------------------------------------

Before the 1st day of the 4th
month of the taxable year ------- 25       25        25         25

After the last day of the 3d
month and before the 1st
day of the 6th month of
the taxable year  -------------------- 33 1/3    33 1/3     33 1/3

After the last day of the 5th
month and before the 1st
day of the 9th month of
the taxable year ----------------------------------- 50         50

After the last day of the 8th
month and before the 1st
day of the 12th month of
the taxable year --------------------------------------------- 100

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Effective date

These provisions would apply to taxable years beginning after the date of enactment.

Revenue effect

It is estimated that this provision would reduce budget receipts by $107 million in fiscal year 1982, $22 million in 1983, $27 million in 1984, $31 million in 1985, and $37 million in 1986.

F. Time for Furnishing Forms W-2 to Terminated Employees

(These provisions are similar to section 225 of H.R. 5829 (The Tax Reduction Act of 1980), as reported by the Senate Finance Committee on September 15, 1980 (Sen. Rept. 96-940). This bill was not considered by the Senate.)

Under the bill, the employer of an employee who terminates employment prior to the close of the calendar year would be required to furnish the employee with a Form W-2 no later than January 31 of the following calendar year, unless the employee requests earlier receipt. If a terminated employee makes a written request for early receipt of a Form W-2, then the employer would be required to furnish the form no later than 30 days after the receipt of the request.

In addition, an employer would be required to furnish to a terminated employee (on the day on which the last salary payment is made) a written notice stating that:

(1) the employee may request early receipt of a Form W-2;

(2) that an amount of Federal taxes has been withheld; and

(3) that, if the employee is entitled to a refund, he must file a return based on information which, unless requested earlier, will be sent to the employee's last known address prior to January 31 of the next year.

Effective date

These provisions would become effective 30 days after enactment of the bill.