Taxpayer Bill of Rights  

Press Release #105-274

Roth IRS Reform Proposal the
"Most Comprehensive Overhaul of the IRS Ever Proposed"

Releases List of Additions to House Legislation

WASHINGTON -- The IRS reform discussion draft released by Senate Finance Committee Chairman William V. Roth, Jr. on Tuesday adds scores of critically important new provisions to the House bill in the areas of oversight, employee accountability and taxpayer protection.

"My IRS reform proposal is the most comprehensive overhaul of the Internal Revenue Service ever proposed. The House bill is a good bill, and it is the foundation of my proposal. But, based on what our committee uncovered in our investigation and hearings, we needed to go much further to ensure fair and civil treatment of taxpayers. My proposal -- which will be in final 'mark' form Thursday - increases oversight of the agency, holds employees accountable for their actions and creates a new arsenal of taxpayer protections," Roth stated.

The discussion draft released yesterday by Chairman Roth mark will go further than the House bill in a number of critical areas including:

  • Giving the IRS Commissioner the statutory authority to restructure the agency;
  • Giving the board more oversight authority over collections;
  • Giving the Taxpayer Advocate more independence;
  • Holding IRS employees accountable for their actions;
  • Giving taxpayers major relief from penalties and interest;
  • Giving taxpayers due process protections in the collections area;
  • Ensures that innocent spouses get relief with less complication;
  • Makes the burden of proof even more taxpayer friendly.

Attached is a nine page document that lists the new provisions, or changes to the House provisions, in Roth's discussion draft. March 23, 1998 (10:49pm)


I. Restructuring and Establishment of an IRS Board

A. Statutory Language -Organizational Structure

  1. Direct the Commissioner of Internal Revenue to restructure the IRS by eliminating the three-tier (nation/region/district) structure and replacing current geographically based organizational units with operating units serving particular groups of taxpayers with similar needs.

  2. Direct the IRS to revise its mission statement to provide greater emphasis on serving the needs of taxpayers.

B. Establish an IRS Board

  1. The "private-life" experts will be subject to the same conflict-of-interest restrictions as other employees who provide limited services to the Government. In addition, the "private-life" experts will not be allowed to represent parties on any matter before the Board or the IRS during their term. Nor can the "private-life" experts represent any party on tax-related matters before the Treasury. As in the House bill, the "private-life" experts will be subject to (I) the public financial disclosure rules and (ii) the 1-year post-employment restriction.

  2. In addition to the responsibilities provided in the House bill, the Board must ensure that the IRS has proper procedures in effect to carry out its mission. The Board will have "big picture" authority over IRS law enforcement and collection activities. It will have limited 6103 authority with the ability to receive information (including unredacted reports) prepared by the Treasury Inspector General or made available by the Commissioner. The Board shall not intervene or be involved in particular taxpayer matters or individual personnel matters. Board members would be subject to the same "browsing" rules as other IRS employees.

  3. If the Board identifies a potential problem, it may request the Inspector General to investigate and report. The Board may receive unredacted reports that may include 6103 information. The Board will review the Commissioner's policies to address issues. If the IRS fails to fix a problem identified by the Board, the Board shall consult the chairmen of the tax writing committees.

  4. The Board shall provide the Secretary of Treasury with 3 candidates for the position of Taxpayer Advocate. The Taxpayer Advocate will report to the Commissioner and the Board.

  5. The Treasury Inspector General shall report to the Secretary and to the Board as to IRS matters.

  6. The Board will sunset on September 30, 2008.

II. Management

A. Require the IRS Chief Counsel to Report to the Commissioner

  1. Require the IRS Chief Counsel to report to the Commissioner rather than to the Treasury General Counsel. The Chief Counsel's powers and duties would not change unless the Secretary provides notice to Congress. The Chief Counsel would represent the IRS but would not have any tax policy authority.

B. Taxpayer Advocate

  1. Establish an independent Taxpayer Advocate modeled after Senator Breaux's bill (S.1308). The Taxpayer Advocate will be selected by the Secretary of Treasury from 3 candidates recommended by the Board. Candidates may include IRS employees. The Taxpayer Advocate may not be employed by the IRS within 5 years after ceasing duties as the Taxpayer Advocate.

  2. Revise the Taxpayer Advocate's responsibilities and reporting requirements (e.g., providing line authority over local taxpayer advocates who will be more independent from the IRS).

III. Transfer IRS Office of Chief Inspector Function to Treasury Inspector General

A. Transfer IRS Internal Security and portions of Internal Audit to the Treasury Inspector General. The Commissioner will retain an appropriate number of internal auditors for management matters. At least 900 of the approximately 1200 Treasury Inspector General FTEs must be dedicated to IRS matters.

B. The Treasury Inspector General will be appointed by the President and confirmed by the Senate. In addition to the standard qualifications for an Inspector General (e.g., appointed solely on the basis of integrity and demonstrated successful ability in accounting, auditing, financial analysis, law, management analysis, public administration, or investigations), the Treasury Inspector General must have experience in tax administration and the demonstrated ability to lead a significant organization.

C. The Treasury Inspector General, Deputy Inspector General, and two Assistant Deputies (Auditing and Inspection) may not be employed by the IRS within 2 years before and 5 years after working at the Treasury Inspector General's office.

D. The Treasury Inspector General must have access to tax return and return information.

E. Congress must be notified if the Secretary interferes with an ongoing investigation.

F. In addition to standard reporting requirements the Treasury Inspector General should be responsible for reporting:

  1. The number of taxpayer complaints during the period;

  2. The number of employee misconduct and taxpayer abuse allegations received during the period from taxpayers, IRS employees, and other sources;

  3. The current status of each complaint and allegation;

  4. The disposition of each complaint including the outcome of any Justice Department action and any monies paid to settle suits; and

  5. Whether restrictions on the use of enforcement statistics to evaluate IRS employees are being followed and that required procedures to protect taxpayer rights during collection enforcement actions are being followed.

IV. Prohibition on Executive Branch Influence over Audits and Personnel Flexibilities

A. IRS Personnel Flexibilities

Provide personnel tools that will enable the Commissioner to reorganize the IRS.

  1. Flexibilities for Senior Management, Professional and Technical Positions
    In order to give the IRS commissioner the ability to bring the type of executives to the IRS that he feels is necessary to effect the change in the organization, there would need to be changes in the current personnel programs. Currently, the number of employees the Commissioner can appoint and the pay and other remuneration that can be given to these employees is limited. For example, the Commissioner can only appoint three individuals to senior positions who are not IRS career service employees. These changes would be as follows:

  2. a. Give the IRS Commissioner the authority to fill senior executive service positions which were reserved for IRS career service employees with limited or temporary appointments of individuals who have not had a career with the IRS. These individuals would have time limits on their employment of up to three years (which could be extended). It is anticipated that these type of employees would be brought into the IRS to perform specific functions and then return to the private sector.

    b. Provide that the Treasury Secretary may appoint up to 40 senior executives with technical, professional and management expertise at pay levels not in excess of the compensation of the Vice President without approval of the OPM and OMB. In addition, the Treasury Secretary may appoint individuals to critical positions other than those established under the streamlined authority for senior executives at pay levels not in excess of the compensation of the Vice President, with the approval of OMB. The recruitment, retention, and relocation incentives that the IRS can provide for these type of senior executives would be expanded, subject to the approval of the OPM.

    c. As part of the return to a service-oriented culture and to reward these new critical executives for attaining specified performance results, the IRS will be given the authority to provide for variable compensation (i.e., bonuses) in excess of amounts currently allowed for up to 25 senior IRS executives. Any variable compensation award in excess of 20% of basic pay would have to be approved by the Treasury Secretary. In addition, the amount of the award when combined with other compensation of an individual cannot exceed the compensation of the Vice President.

  3. Flexibilities for the General Workforce

  4. a. Extend the voluntary separation incentive pay program that ended
    December 31, 1997 to December 31, 2002.

    b. Establish streamlined demonstration authority to establish new human resource programs within a specified time period. The streamlining eliminates or shortens some of the waiting periods and comment periods that are usually applicable with demonstration projects. The demonstration project will be subject to the review of the OPM.

    c. As the IRS decreases the levels of management in its organization, the traditional ways of rewarding superior performers by giving them higher management authority (along with commensurate pay increases) will not be as available as before. The Treasury Secretary is given the authority (subject to criteria established by the OPM) to restructure employee pay rates in connection with implementing a broad banded employee pay system which will provide for increases in pay based on increases in job competencies, but without the need for moving to a higher level of management. This will be different from the current government pay and grading system.

    d. The Treasury Secretary may establish a new performance management system, developing individual accountability for performance reviews. In conjunction with this new performance review system, the Treasury Secretary may also establish a new incentive awards program which awards up to $25,000 without OPM approval.

  5. Any of the personnel flexibilities that affect employees represented by a union must be agreed to between the IRS and the union. If the union and the IRS cannot agree, then the matter will be brought before the Federal Impasse Panel for resolution.

  6. Tentative Government Affairs Committee Recommendations

  7. The Government Affairs Committee generally approves the personnel flexibility changes discussed above. However, they suggest a number of changes:

    a. All the personnel flexibility changes that are discussed above should be included in a demonstration project. This would mean that prior to implementing these changes, there would be notification of the each House of Congress and to the employees likely to be affected by the change.

    A demonstration project would normally last 5 years and a decision would be made at that point whether to make the demonstration project official or whether to cancel these changes. It is also possible for the Treasury and the OPM to terminate the demonstration project during its term.

    b. They propose limitations on extensions of the voluntary incentive pay program so that payments are made only if actual employee headcount reductions are made.

    c. With regard to broad banding pay policies discussed above, they recommend that cost controls be established in the implementation plan.

    d. Finally, they believe that the personnel flexibility measures concerning incentive awards and recruitment, retention and relocation bonuses should be instituted government wide. Streamlined demonstration authority should also be available government wide.

  8. Require the IRS to develop employee performance measures that favor taxpayer service.

  9. Require the IRS to terminate an employee if any of the following conduct is proven in a disciplinary or other proceeding:

  10. a. Failure to obtain the required approval signatures on documents authorizing the seizure of a taxpayer's home, personal belongings, or business assets.

    b. Perjury (e.g., false testimony in a taxpayer's case, failure to provide truthful information in the course of a criminal investigation, or false information in a deposition or affidavit)

    c. Falsifying or destroying documents concerning a particular taxpayer to cover-up employee mistakes.

    d. Assault or battery on a taxpayer or other IRS employee.

    e. Violation of the civil rights of a taxpayer or other IRS employee.

    f. Violation of the Internal Revenue Code, Treasury Regulations, or policies of the IRS (including the Internal Revenue Manual) for the purpose of retaliating or harassing a taxpayer or other IRS employee.

V. Electronic Filing - none

VI. Taxpayer Protections

A. Burden of Proof

  1. 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.

  2. 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. Allow reasonable attorney fees at the prevailing rate in the locality.

  2. Allow up to $1 million in civil damages for willful violations of the Bankruptcy Code relating to automatic stays or discharges. (Administration proposal)

  3. Allow civil damages for unauthorized collection actions against persons other than the taxpayer. (Administration proposal).

  4. Expand Tax Court jurisdiction to include responsible person penalties and innocent spouse relief.

  5. 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

  2. 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.

D. Provisions Relating to Interest and Penalties

  1. 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 fraud penalties).

  2. 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.

  3. Require each notice of penalty to include a computation of the penalty.

  4. 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. Prohibit individual taxpayers from extending the 10 year collection statute of limitations.

  2. Offers-in-Compromise

  3. a. 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.

    b. 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 pay).

    c. The IRS should implement liberal offer in compromise acceptance procedures to keep taxpayers in the system.

    d. 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)

    e. Offer in compromises must be reviewed by a higher level before being rejected on the merits.

    f. 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.

  4. 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

  2. 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 decision.

  3. 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.

  4. 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.

  5. 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.

  6. 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 collection actions.

  7. 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 taxpayer's property.

  8. 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.

  9. Increase the amount exempt from levy to $10,000 for personal property and $5,000 for books and tools of trade indexed for inflation.

  10. Require the IRS to immediately release a levy upon agreement that the amount is "currently not collectible".

  11. 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 compliance.

  12. Suspend collection by levy during refund suit. (Administration proposal)

  13. Require district counsel review of jeopardy and termination assessments and jeopardy levies. (Administration proposal)

  14. Codify certain fair debt collection practices (e.g., prohibit late night calls to taxpayers, harassment, etc.). (Administration proposal)

  15. Increase superpriority limits (e.g., mechanics liens from $1,000 to $5,000 and casual sales from $250 to $1,000). (Administration proposal)

  16. 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)

  17. Allow taxpayers to bring an action to quash all third-party summonses (taxpayers would receive notice of the summons). (Administration proposal)

  18. Allow service of summons by mail. (Administration proposal)

  19. 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)

  20. Waive the 10% addition to tax for early withdrawal from an IRA or other qualified plan if the IRS levies.

  21. Prohibit the IRS from seizing real property used as a residence to satisfy unpaid liabilities less than $5,000.

G. Other Matters

  1. 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.

  2. 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.

  3. 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 collection employees.

  4. 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.

  5. Modify section 6103 to allow the tax writing committees to obtain data from IRS employees regarding employee and taxpayer abuse.

  6. Require the Treasury Inspector General to review and report on whether IRS employees are following the law and not directly contacting taxpayers who are represented.

  7. Provide that it is the Sense of the Congress that achieving success on the Year 2000 computer conversion problem is a high priority.

  8. 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.

  9. 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.

  10. 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 compliance.

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