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
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
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
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. Interest would be disregarded when comparing the offer and the final
judgment. Subject to net worth limitations for collection of attorney fees.
C. Relief for Innocent Spouses and Persons with
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. Include provisions to address gaming and fraudulent
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 installment agreement.
4. If the IRS does not contact the taxpayer in writing specifying
a problem (or audit notice) with a particular tax return within 1 year
after a return is timely filed, then interest and penalties will be suspended
(excluding the failure to file, failure to pay, and fraud penalties) until
21 days after a notice of deficiency is issued.
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
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
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.
4. Limit IRS authority to require the production of computer source
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 for assessment.
(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 pay).
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
g. Offer in compromises and requests to enter into an installment
agreement must be reviewed by a higher level before being rejected on the
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
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. (House bill)
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
- 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 eliminate the current $10 million threshold
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. Direct the IRS to provide
taxpayers in each state with timely access to Appeals Officers.
4. Require the IRS to implement a review process under which liens,
levies, and seizures would be approved by a supervisor, who would review
the taxpayer's information, verify that a balance is due, and affirm that
a lien, levy, or seizure is appropriate under the circumstances (including
the amount due and the value of the asset). Failure to follow
these procedures should result in disciplinary action against the revenue
officer and his/her supervisor. 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 collection actions.
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 taxpayer's property.
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 compliance.
11.Suspend collection by levy during refund suit. (Administration
12.Require counsel to 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
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 representative;
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".
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 collection
11.Require all IRS notices and correspondence to include the name, phone
number, and address of an IRS employee the taxpayer should contact regarding
12.Modify section 6103 to allow the Chairmen of the tax writing
committees and the Chief of staff of Joint Tax 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 represented.
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
(e.g., personal safety) 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".
The IRS may keep track of non-filers. However, if a taxpayer is current
for 2 years in filing and paying taxes, then the taxpayer should be removed
from the non-filer list. Require the Treasury Inspector General to annually
report to Congress on whether the IRS is in compliance.
VII. Congressional Accountability
Require the IRS to provide an annual report on tax law complexity