The American Institute of Certified Public Accountants has more than 207,000 members, many of whom work daily with the tax laws. In reviewing S. 2400, the "Taxpayers' Procedural Safeguard Act" we have not only taken into account the interests of our member practitioners but also the interests of taxpayers and the Internal Revenue Service. It is from this important standpoint of balancing the rights and equity afforded to taxpayers with the IRS' responsibility to promptly, efficiently and effectively collect the taxes owed to the Federal government that we have based our comments.

There is a provision of the bill which we find necessary to codify. Sec. 2(a)(4) concerning "information included with notice" details a practice the Service currently and routinely should follow. In actuality, this procedure is omitted and its codification should help ensure the dissemination of this information.

We also agree with the Sec. 2(a) provision to change the time frame dealing with notices from 10 days to 30 days. Even though the taxpayer receives the final notice of an intended action of levy after a period of interaction with the IRS of from 4-6 months has already elapsed 10 days is not an adequate period of time to react. Given the seriousness of the proposed action an additional 20 days is not unwarranted.

Presently, the law exempts certain amounts of personal use and trade or business property from levy. The amounts are $1,500 and $1,000 respectively as established by the Tax Equity and Fiscal Responsibility Act of 1982. Because of the recent increase in the exempt amounts and the absence of information indicating their inadequacy we feel the exemptions properly reflect the needs of taxpayers. A moderate increase in the amounts may be called for but that should be determined only after a study of the adequacy of the current exemptions. Raising the exemptions to $20,000 and $10,000 would only cause taxpayers to deploy their assets in such a manner as to avoid taxation.

Sec. 2(c)(3)(A) unduly raises the amount of wages, salary and other income exempt from levy. These altered amounts correspond to a family of four workers earning $25,000 in gross wages. We feel this amount to be excessive and that there is no need to change the original exemption.

On a related matter, there originally appeared to be some merit to the concept outlined in Sec. 2(c)(3)(B) concerning exempt income deposited with certain financial institutions. That surface appeal dissipates, however, when you consider the impossibility of a) tracing deposits to insure that they are "exempt" deposits; and b) administering this provision from the Service's point of view.

In general, we agree with Sec. 2(c)(4)(A) calling for the levy of a principal residence, motor vehicle used for commuting and personal property used in a trade or business only after prior approval of the district director. Specifically, however, the section dealing with the exemption of personal property used in a trade or business must be coordinated with Sec. 2(c)(2) which describes the exemption of $10,000 of property used in an unincorporated trade or business.

We also find the section dealing with "uneconomical levy" - Sec. 2(c)(4)(B) - to be troublesome. Although in theory we would agree with this provision in reality we can not. Implementing this provision would prove to be costly, time consuming and unadministerable. The determination of "fair market value" of property is not an exact science. This definitional problem has been highlighted with regard to many other sections of the Internal Revenue Code. And given the time sensitivity of enforcement actions, this section would unduly protract the whole process. For the same reasons we would call for the deletion of that portion of Sec. 2(c)(4)(B) that states "(D) the expense of levy and sale of such property exceed the amount of such liability" (regarding release of levy.)

Also with regard to release of levy, we would agree with the section that calls for release when the taxpayer has entered into an installment payment agreement but only if the bill were changed to clarify that the taxpayer must be in compliance with that agreement. Relatedly, we can not agree with the provision for release of levy with regard to substantiation of "necessary" living expenses because of the impossible definitional problem. It would not be administrable. And the immediately following provision addressing the situation where the value of the property net of prior liens exceeds the liability should stipulate that the levy will be released only as long as a lien remains.

We find the provisions of Sec. 3(b)(2) concerning the determination by district court within 20 days after an action is commenced to be unduly time consuming and a conceptually unsound practice for the District Court. It seems unrealistic to impose this major burden on the judicial system as well as to create a major avenue for abuse by taxpayers. This section of the bill provides incentive for taxpayers to ignore the entire tax system, avoid taxation, and then have a right to a determination of his case by what might be the incorrect judicial forum. (Presently, a taxpayer must pay the tax first before he can file a claim for refund with a District Court.)

The offer of installment payments as described in Sec. 5(a) should be limited to a case by case determination. A determination on this basis will protect the rights of those taxpayers who are truly in need. Providing a carte blanche offer would have a negative impact on the payment of taxes under the existing system by the vast majority of the taxpaying public (whose tax liability will not exceed $20,000.)

We feel that the Sec. 5(a) provision concerning a subsequent change in financial condition (notice and hearing) will only serve to provide an incentive to avoid the tax system. It would prove to be an extreme burden on the system as well as, unduly protracting the entire process.

We agree with provisions of the bill that call for the abatement of penalties where the taxpayer has relied on the written advice of the IRS. But we can not agree with the Sec. 6(a) call for the abatement of a deficiency and interest. Abatement of deficiency (exclusive of those situations where the employee of the IRS is acting within official and authoritative capacity, i.e., in the issuance of private letter rulings, already provided for in the law) and interest is inconsistent with the remainder of the Internal Revenue Code. Additionally, given the fiscal restraints the IRS is operating under, adoption of this provision would cause a serious curtailment of the advice the IRS would be able to provide.

Sec. 6(b) concerning oral advice given by the IRS would prove to be an unwanted provision. There is a compliance problem inherent in that provision i.e., if a taxpayer is asked where he should send a tax return would the IRS have to inform him that they are not bound by such advice? It might be useful, on the other hand, for the IRS to explain the exact nature of oral advice in certain instructions and other publications it issues. But to implement this provision, as is, would only cause a drain on the respect of the public has for the Service.

The convenience of the taxpayer should always be taken into account by the IRS but the Sec. 7(a) mandate concerning interviews of taxpayers would prove to be impractical and unadministrable. It would, additionally, serve to reduce the workflow the IRS would be able to handle and effectively negate the office audit program. We acknowledge the concern but feel it would be better addressed in the Internal Revenue Manual.

We have serious concerns regarding the Sec. 7(a) provision for "safeguards." This section extends the warning given in the context of a criminal investigation to a routine civil proceeding. The creation of a "criminal" atmosphere would only frighten taxpayers and cause ill feelings towards the Service.

Our final comment concerns the Sec. 8 establishment of an office of ombudsman. There is presently a taxpayers ombudsman at the IRS who overseas the Problems Resolution Program among other duties. All indications are that the system is working and serving the public. To tamper with the system by politicizing it would serve no beneficial purpose. However, if this provision were enacted we would disagree with Sec. 8(c) regarding taxpayer assistance orders. The ombudsman should not have the authority to override the entire system. Rather, he should see to it that the taxpayer is fairly treated within the existing framework. Additionally, if there was enactment of this provision, we feel that the new subsection calling on the ombudsman to report annually to Congress to be a constructive requirement.

Although we agree with and endorse certain concepts in this bill, we find much of it to be counterproductive. The tax system is critical to the proper functioning of our government and we should strive to improve its effectiveness, efficiency and sense of justice while avoiding actions which are counterproductive. The bill appears to create more incentive for people not to pay their taxes rather than adequately protecting their rights. Additionally, it greatly widens the gap between taxpayers subject to the withholding system as it exists and those taxpayers not subject to or only partially subject to withholding.

American Institute of Certified Public Accountants
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