TITLE III. TAXPAYER PROTECTION AND RIGHTS

1. Burden of Proof
2. Proceedings by Taxpayers
1. Expansion of authority to award costs and certain fees
2. Civil damages for collection actions
3. Increase in size of cases permitted on small case calendar
4. Actions for refund with respect to certain estates which have elected the installment method of payment
5. Review of an adverse IRS determination of a bond issue's tax-exempt status
6. Civil action for release of erroneous lien
3. Relief for Innocent Spouses and for Taxpayers Unable to Manage Their Financial Affairs Due to Disabilities
1. Relief for innocent spouses
2. Suspension of statute of limitations on filing refund claims during periods of disability
4. Provisions Relating to Interest and Penalties
1. Elimination of interest differential on overlapping periods of interest on income tax overpayments and underpayments
2. Increase in overpayment rate payable to taxpayers other than corporations
3. Mitigation of penalty for individual's failure to pay during period of installment agreement
4. Mitigation of failure to deposit penalty
5. Suspension of interest and certain penalties if Secretary fails to contact individual taxpayer
6. Procedural requirements for imposition of penalties and additions to tax
7. Personal delivery of notice of penalty under section 6672
8. Notice of interest charges
9. Abatement of interest on underpayments by taxpayers in Presidentially declared disaster areas
5. E. Protections for Taxpayers Subject to Audit or Collection Activities
1. Due process in IRS collection actions
2. Examination activities
1. Uniform application of confidentiality privilege to taxpayer communications with federally authorized practitioners
2. Limitation on financial status audit techniques
3. Software trade secrets protection
4. Threat of audit prohibited to coerce tip reporting alternative commitment agreements
5. Taxpayers allowed motion to quash all third-party summonses
6. Service of summonses to third-party recordkeepers permitted by mail
7. Notice of IRS contact of third parties
3. Collection activities
1. Approval process for liens, levies, and seizures
2. Modifications to certain levy exemption amounts
3. Release of levy upon agreement that amount is uncollectible
4. Levy prohibited during pendency of refund proceedings
5. Approval required for jeopardy and termination assessments and jeopardy levies
6. Increase in amount of certain property on which lien not valid
7. Waiver of early withdrawal tax for IRS levies on employer-sponsored retirement plans or IRAs
8. Prohibition of sales of seized property at less than minimum bid
9. Accounting of sales of seized property
10. Uniform asset disposal mechanism
11. Codification of IRS administrative procedures for seizure of taxpayer's property
12. Procedures for seizure of residences and businesses
4. Provisions relating to examination and collection activities
1. Procedures relating to extensions of statute of limitations by agreement
2. Offers-in-compromise
3. Notice of deficiency to specify deadlines for filing Tax Court petition
4. Refund or credit of overpayments before final determination
5. IRS procedures relating to appeal of examinations and collections
6. Application of certain fair debt collection practices
7. Guaranteed availability of installment agreements
8. Prohibition on requests to taxpayers to waive rights to bring actions
6. Disclosures to Taxpayers
1. Explanation of joint and several liability
2. Explanation of taxpayers' rights in interviews with the IRS
3. Disclosure of criteria for examination selection
4. Explanation of the appeals and collection process
5. Explanation of reason for refund disallowance
6. Statements to taxpayers with installment agreements
7. Notification of change in tax matters partner
8. Conditions under which taxpayers' returns may be disclosed
9. Disclosure of Chief Counsel advice
7. Low-Income Taxpayer Clinics
8. Other Provisions
1. Cataloging complaints
2. Archive of records of Internal Revenue Service
3. Payment of taxes
4. Clarification of authority of Secretary relating to the making of elections
5. IRS employee contacts
6. Use of pseudonyms by IRS employees
7. Illegal tax protestor designations
8. Provision of confidential information to Congress by whistleblowers
9. Listing of local IRS telephone numbers and addresses
10. Identification of return preparers
11. Offset of past-due, legally enforceable State income tax obligations against overpayments
12. Reporting requirements relating to education tax credits
9. Studies
1. Administration of penalties and interest
2. Confidentiality of tax return information
3. Noncompliance with internal revenue laws by taxpayers
4. Payments for informants

TITLE III. TAXPAYER PROTECTION AND RIGHTS

A. Burden of Proof

The bill provides that the Secretary shall have the burden of proof in any court proceeding with respect to a factual issue if the taxpayer introduces credible evidence with respect to the factual issue relevant to ascertaining the taxpayer's tax liability. Four conditions apply. First, the taxpayer must comply with the requirements of the Internal Revenue Code and the regulations issued thereunder to substantiate any item (as under present law). Second, the taxpayer must maintain records required by the Code and regulations (as under present law). Third, the taxpayer must cooperate with reasonable requests by the Secretary for meetings, interviews, witnesses, information, and documents. Fourth, taxpayers other than individuals must meet the net worth limitations that apply for awarding attorney's fees. The provision applies to income, estate, gift, and generation-skipping transfer taxes.

The provision applies to court proceedings arising in connection with examinations commencing (or taxable periods or events beginning or occurring) after the date of enactment.

B. Proceedings by Taxpayers

1. Expansion of authority to award costs and certain fees

The bill increases the hourly fee cap on attorneys fees and expands the circumstances under which attorneys fees and administrative costs may be awarded to taxpayers, effective for costs incurred and services performed more than 180 days after the date of enactment.

2. Civil damages for collection actions

The bill permits up to $100,000 in civil damages caused by an officer or employee of the IRS who negligently disregards provisions of the Code or Treasury regulations in connection with the collection of Federal tax with respect to the taxpayer. The bill also permits up to $1 million in civil damages caused by an officer or employee of the IRS who willfully violates provisions of the Bankruptcy Code relating to automatic stays or discharges. These provisions are effective for actions of officers or employees of the IRS occurring after the date of enactment.

3. Increase in size of cases permitted on small case calendar

The bill increases the cap for small case treatment in the Tax Court from $10,000 to $50,000, effective for proceedings commenced after the date of enactment.

4. Actions for refund with respect to certain estates which have elected the installment method of payment

The bill grants the U.S. Court of Federal Claims and the U.S. district courts jurisdiction to determine the correct amount of estate tax liability (or refund) in actions brought by taxpayers deferring estate tax payments under section 6166, as long as certain conditions are met. The bill further provides that once a final judgment has been entered by a district court or the U.S. Court of Federal Claims, the IRS is not permitted to collect any amount disallowed by the court, and any amounts paid by the taxpayer in excess of the amount the court finds to be currently due and payable are refunded to the taxpayer, with interest. The provision is effective for claims for refunds filed after the date of enactment.

5. Review of an adverse IRS determination of a bond issue's tax-exempt status

The bill directs the Internal Revenue Service to modify its administrative procedures to allow tax-exempt bond issuers examined by the IRS to appeal adverse examination determinations to the Appeals Division of the IRS as a matter of right. Such an appeal is to be considered by senior personnel with experience in tax-exempt bonds issues. The direction to the IRS is effective on the date of enactment.

6. Civil action for release of erroneous lien

The bill establishes an administrative procedure permitting a record owner of property against which a Federal tax lien has been filed to obtain a certificate of discharge of property from the lien as a matter of right if such record owner is not the person whose unsatisfied liability gave rise to the lien. The record owner is required to apply to the Secretary of the Treasury for such a certificate and either to deposit cash or to furnish a bond sufficient to protect the lien interest of the United States. The provision is effective on the date of enactment.

C. Relief for Innocent Spouses and for Taxpayers Unable to Manage Their Financial Affairs Due to Disabilities

1. Relief for innocent spouses

The bill generally makes innocent spouse relief easier to obtain. The bill eliminates all of the understatement thresholds and requires only that the understatement of tax be attributable to an erroneous (and not just a grossly erroneous) item of the other spouse.

The bill also provides a separate liability election for a taxpayer who, at the time of the election, is no longer married to, is legally separated from, or has been living apart for at least 12 months from the person with whom the taxpayer originally filed a joint return. Such taxpayers may elect to have the liability for any deficiency limited to the portion of the deficiency that is attributable to items allocable to the taxpayer. The election is not available if the Secretary demonstrates that assets were transferred between individuals filing a joint return as part of a fraudulent scheme of the individuals or if both individuals had actual knowledge of the understatement of tax.

Expanded innocent spouse relief and the separate liability election must be elected no later than two years after the date on which the Secretary has begun collection activities with respect to the individual seeking the relief. The bill provides that the Tax Court has jurisdiction with respect to disputes about innocent spouse relief.

The bill further authorizes the Secretary to relieve an individual of liability if relief is not available under the expanded innocent spouse rule or the separate liability election, but it would be inequitable to hold the individual liable for any unpaid tax or any deficiency.

The expanded innocent spouse relief, separate liability election, and authority to provide equitable relief apply to liabilities for tax arising after the date of enactment, as well as any liability for tax arising on or before the date of enactment that remains unpaid on the date of enactment.

2. Suspension of statute of limitations on filing refund claims during periods of disability

The bill permits equitable tolling of the statute of limitations for refund claims of an individual taxpayer during any period of the individual's life in which he or she is unable to manage his or her financial affairs by reason of a medically determinable physical or mental impairment that can be expected to result in death or to last for a continuous period of not less than 12 months. Tolling does not apply during periods in which the taxpayer's spouse or another person is authorized to act on the taxpayer's behalf in financial matters. The provision applies to periods of disability before, on, or after the date of enactment but does not apply to any claim for refund or credit which (without regard to the provision) is barred by the statute of limitations as of the date of enactment.

D. Provisions Relating to Interest and Penalties

1. Elimination of interest differential on overlapping periods of interest on income tax overpayments and underpayments

The bill establishes a net interest rate of zero when interest is payable and allowable on equivalent amounts of overpayment and underpayment of any taxes imposed by Title 26 (the Internal Revenue Code) that exist for any period. Each overpayment and underpayment is considered only once in determining whether equivalent amounts of overpayment and underpayment exist. The special rules that increase the interest rate paid on large corporate underpayments and decrease the interest rate received on corporate underpayments in excess of $10,000 do not prevent the application of the net zero rate. The provision applies to income taxes and self-employment taxes. The provision applies to interest for periods beginning before the date of enactment if: (1) the statute of limitations has not expired with respect to either the underpayment or overpayment; (2) the taxpayer identifies the periods of underpayment and overpayment for which the zero rate applies; and (3) on or before December 31, 1999, the taxpayer asks the Secretary to apply the zero rate.

2. Increase in overpayment rate payable to taxpayers other than corporations

The bill provides that the overpayment interest rate will be AFR plus three percentage points, except that for corporations, the rate remains at AFR plus two percentage points. The provision is effective for interest for the second and succeeding calendar quarters beginning after the date of enactment.

3. Mitigation of penalty for individual's failure to pay during period of installment agreement

The bill provides that the penalty for failure to pay taxes is one half of the usual rate (.25 percent instead of .50 percent) imposed with respect to the tax liability of an individual for any month in which an installment payment agreement with the IRS is in effect, provided that the individual filed the tax return in a timely manner (including extensions). The provision is effective for installment agreement payments made after December 31, 1999.

4. Mitigation of failure to deposit penalty for payroll taxes

The bill allows the taxpayer to designate the period to which each deposit is applied. The designation must be made no later than 90 days of the related IRS penalty notice. The provision extends the authorization to waive the failure to deposit penalty to the first deposit a taxpayer is required to make after the taxpayer is required to change the frequency of the taxpayer's deposits. The provision is effective for deposits required to be made more than 180 days after the date of enactment. The bill also provides that, for deposits required to be made after December 31, 2001, any deposit is to be applied to the most recent period to which the deposit relates, unless the taxpayer explicitly designates otherwise.

5. Suspension of interest and certain penalties if Secretary fails to contact individual taxpayer

The bill suspends the accrual of certain penalties and interest after one year if the IRS has not sent the taxpayer a notice specifically stating the taxpayer's liability for additional taxes (and the basis for the liability) within one year following the date which is the later of (1) the original due date of the return or (2) the date on which the individual taxpayer timely filed the return. The suspension only applies to individuals who file a timely tax return and does not apply to the failure to pay penalty, in the case of fraud, or with respect to criminal penalties. The provision is effective for taxable years ending after the date of enactment. With respect to taxable years beginning before January 1, 2004, the one-year period is increased to 18 months. Interest and penalties resume 21 days after the IRS sends a notice to the taxpayer specifically stating the taxpayer's liability and the basis for the liability. The provision is applied separately with respect to each item or adjustment.

6. Procedural requirements for imposition of penalties and additions to tax

The bill requires that each notice imposing a penalty include the name of the penalty, the Code section imposing the penalty, and a computation of the penalty. The bill also requires the specific approval of IRS management to assess all non-computer generated penalties unless excepted. This provision does not apply to failure to file penalties, failure to pay penalties, or to penalties for failure to pay estimated tax. The provision is effective with respect to notices issued, and penalties assessed, after December 31, 2000.

7. Personal delivery of notice of penalty under section 6672

The bill permits in-person delivery, as an alternative to delivery by mail, of a preliminary notice that the IRS intends to assess a 100-percent penalty, effective on the date of enactment.

8. Notice of interest charges

The bill requires every IRS notice that includes an amount of interest required to be paid by the taxpayer that is sent to an individual taxpayer to include a detailed computation of the interest charged and a citation to the Code section under which such interest is imposed, effective for notices issued after December 31, 2000.

9. Abatement of interest on underpayments by taxpayers in Presidentially declared disaster areas

The bill provides that taxpayers located in a Presidentially declared disaster area do not have to pay interest on taxes due for the length of any extension for filing their tax returns granted by the Secretary of the Treasury, effective for disasters declared after December 31, 1997, with respect to taxable years beginning after December 31, 1997. The provision is designated as emergency legislation under section 252(e) of the Balanced Budget and Emergency Deficit Control Act.

E. Protections for Taxpayers Subject to Audit or Collection Activities

1. Due process in IRS collection actions

The bill establishes formal procedures designed to insure due process where the IRS seeks to collect taxes by levy (including by seizure). The due process procedures also apply after notice of a Federal tax lien has been filed.

The IRS would be required to notify the taxpayer that a Notice of Lien had been filed. During the 30-day period beginning with the mailing or delivery of such notification, the taxpayer may demand a hearing before an appeals officer who has had no prior involvement with the taxpayer's case.

Before the IRS can levy against a taxpayer's property, it would be required to provide the taxpayer with a "Notice of Intent to Levy," similar to that currently required under section 6331(d). The notice would not be required to itemize the property the Secretary seeks to levy on. Service by registered or certified mail, return receipt requested, would be required.

Subject to the exceptions noted below, no levy could occur within the 30-day period beginning with the mailing of the "Notice of Intent to Levy." During that 30-day period, the taxpayer may demand a pre-levy hearing before an appeals officer who generally has had no prior involvement with the taxpayer's case.

If a return receipt is not returned, the Secretary may proceed to levy against the taxpayer 30 days after the Notice of Intent to Levy was mailed. The Secretary must provide a hearing equivalent to the pre-levy hearing if later requested by the taxpayer. However, the Secretary is not required to suspend the levy process pending the completion of a hearing that is not requested within 30 days of the mailing of the Notice.

An exception to the general rule prohibiting levies during the 30-day period would apply in the case of State tax offset procedures, and in the case of jeopardy or termination assessments.

No seizure of a dwelling that is the principal residence of the taxpayer or the taxpayer's spouse, former spouse, or minor child would be allowed without prior judicial approval. Notice of the judicial hearing must be provided to the taxpayer and relevant family member. At the judicial hearing, the Secretary would be required to demonstrate (1) that the requirements of any applicable law or administrative procedure relevant to the levy have been met, (2) that the liability is owed, and (3) that no reasonable alternative for the collection of the taxpayer's debt exists.

The provision is effective for collection actions initiated more than 180 days after the date of enactment.

2. Examination activities

a. Uniform application of confidentiality privilege to taxpayer communications with federally authorized practitioners

The bill extends the present law attorney-client privilege of confidentiality to communications between taxpayers and individuals who are authorized under Federal law to practice before the IRS. The privilege of confidentiality created by this provision does not apply to a written communication between federally authorized tax practitioner and any director, shareholder, officer, employee, agent, or representative of a corporation in connection with the promotion of any tax shelter (as defined in section 6662(d)(2)(C)(iii)) with respect to which such corporation is a direct or indirect participant.

The provision is effective with regard to communications made on or after the date of enactment.

b. Limitation on financial status audit techniques

The bill prohibits the IRS from using financial status or economic reality examination techniques to determine the existence of unreported income of any taxpayer unless the IRS has a reasonable indication that there is a likelihood of unreported income, effective on the date of enactment.

c. Software trade secrets protection

The bill prohibits the Secretary from issuing (or beginning an action to enforce) a summons in a civil action for any portion of any third-party tax-related computer source code unless certain requirements are satisfied. The bill also establishes a number of protections against the disclosure and improper use of software and source code obtained by the IRS in the course of an examination. The bill specifically provides that computer software or source code that is obtained by the IRS in the course of the examination of a taxpayer's return is included in the definition of return information under section 6103.

The provision does not change or eliminate any other requirement of the Code. A summons for third-party tax-related computer source code that meets the standards established by the provision will not be enforced if it would not be enforced under present law.

The provision is effective with respect to summons issued and software acquired after the date of enactment. In addition, 90 days after the date of enactment, the protections against the disclosure and improper use of trade secrets and confidential information added by the provision (except for the requirement that the Secretary provide a written agreement from non-U.S. government officers and employees) apply to software and source code acquired on or before the date of enactment.

d. Threat of audit prohibited to coerce tip reporting alternative commitment

agreements

The bill requires the IRS to instruct its employees that they may not threaten to audit any taxpayer in an attempt to coerce the taxpayer to enter into a tip reporting alternative commitment ("TRAC") agreement, effective on the date of enactment.

e. Taxpayers allowed motion to quash all third-party summonses

The bill generally expands the current "third-party recordkeeper" procedures to apply to summonses issued to persons other than the taxpayer. Thus, the taxpayer whose liability is being investigated receives notice of the summons and is entitled to bring an action in the appropriate U.S. District Court to quash the summons. The provision is effective for summonses served after the date of enactment.

f. Service of summonses to third-party recordkeepers permitted by mail

The bill allows the IRS the option of serving any summons either in person or by certified or registered mail, effective for summonses served after the date of enactment.

g. Notice of IRS contact of third parties

The bill provides that the IRS may not contact any person other than the taxpayer with respect to the determination or collection of the tax liability of the taxpayer without providing reasonable notice to the taxpayer that contacts with persons other than the taxpayer may be made. The provision is effective with respect to contacts made after 180 days after the date of enactment.

3. Collection activities

a. Approval process for liens, levies, and seizures

The bill requires the IRS to implement an approval process under which any lien, levy or seizure would, when appropriate, 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. Circumstances to be considered include the amount due and the value of the asset. The provision is effective for collection actions commenced after date of enactment, except in the case of any action under the automated collection system, the provision applies to actions initiated after December 31, 2000.

b. Modifications to certain levy exemption amounts

The bill increases the value of personal effects exempt from levy to $6,250 and the value of books and tools exempt from levy to $3,125. These amounts are indexed for inflation, effective for levies issued after the date of enactment.

c. Release of levy upon agreement that amount is uncollectible

The bill requires the IRS to immediately release a wage levy upon agreement with the taxpayer that the tax is not collectible, effective for levies imposed after December 31, 1999.

d. Levy prohibited during pendency of refund proceedings

The bill requires the IRS to withhold collection by levy of liabilities that are the subject of a refund suit during the pendency of the litigation, effective for refund suits brought with respect to tax years beginning after December 31, 1998. Proceedings related to a proceeding under this provision include, but are not limited to, civil actions or third-party complaints initiated by the United States or another person with respect to the same kinds of tax (or related taxes or penalties) for the same (or overlapping) tax periods.

e. Approval required for jeopardy and termination assessments and jeopardy levies

The bill requires IRS Chief Counsel review and approval before the IRS can make a jeopardy assessment, a termination assessment, or a jeopardy levy. If the Chief Counsel's approval is not obtained, the taxpayer is entitled to obtain abatement of the assessment or release of the levy, and, if the IRS fails to offer such relief, to appeal first to IRS Appeals under the new due process procedure for IRS collections and then to court. The provision is effective for taxes assessed and levies made after the date of enactment.

f. Increase in amount of certain property on which lien not valid

The bill increases the dollar limit for purchasers at a casual sale from $250 to $1,000, and further increases the dollar limit from $1,000 to $5,000 for mechanics lienors providing home improvement work for owner-occupied personal residences and indexes these dollar amounts for inflation. The provision is effective on the date of enactment.

g. Waiver of early withdrawal tax for IRS levies on employer-sponsored retirement plans or IRAs

The bill provides an exception from the 10-percent early withdrawal tax for amounts withdrawn from an employer-sponsored retirement plan or an IRA that are subject to a levy by the IRS. The exception applies only if the plan or IRA is levied; it does not apply, for example, if the taxpayer withdraws funds to pay taxes in the absence of a levy, in order to release a levy on other interests. The provision is effective for withdrawals after the date of enactment.

h. Prohibition of sales of seized property at less than minimum bid

The bill prohibits the IRS from selling seized property for less than the minimum bid price, effective for sales occurring after the date of enactment.

i. Accounting of sales of seized property

The bill requires the IRS to provide a written accounting of all sales of seized property, whether real or personal, to the taxpayer. The accounting must include a receipt for the amount credited to the taxpayer's account. The provision is effective for seizures occurring after the date of enactment.

j. Uniform asset disposal mechanism

The bill requires the IRS to implement a uniform asset disposal mechanism for sales of seized property within two years from the date of enactment.

k. Codification of IRS administrative procedures for seizure of taxpayer's property

The bill codifies the IRS administrative procedures which require the IRS to investigate the status of certain property prior to levy, effective on the date of enactment.

l. Procedures for seizure of residences and businesses

The bill prohibits the IRS from seizing any real property used as a residence by the taxpayer or any nonrental real property of the taxpayer used by any other individual as a residence to satisfy an unpaid liability of $5,000 or less, including penalties and interest. The bill requires the IRS to exhaust all other payment options before seizing the taxpayer's business assets or principal residence. For this purpose, future income that may be derived by a taxpayer from the commercial sale of fish or wildlife under a specified State permit must be considered in evaluating other payment options before seizing the taxpayer's business assets. A levy is permitted on a principal residence only if a judge or magistrate of a United States district court approves (in writing) of the levy. The provision is effective on the date of enactment.

4. Provisions relating to examination and collection activities

a. Procedures relating to extensions of statute of limitations by agreement

The bill eliminates the provision of present law that allows the statute of limitations on collections to be extended by agreement between the taxpayer and the IRS. Extensions of the statute of limitations on collection may be made as part of an installment agreement; the extension is only for the period for which the installment agreement by its terms extends beyond the end of the otherwise applicable 10-year period, plus 90 days.

The bill also requires that, on each occasion on which the taxpayer is requested by the IRS to extend the statute of limitations on assessment, the IRS must notify the taxpayer of the taxpayer's right to refuse to extend the statute of limitations or to limit the extension to particular issues.

The provision is effective for requests to extend the statute of limitations made after December 31, 1999. If, in any request to extend the period of limitations made on or before December 31, 1999, a taxpayer agreed to extend that period beyond the 10-year statute of limitations on collection, that extension shall expire on the latest of: the last day of such 10-year period, December 31, 2002, or the 90^th day after the end of the term of the installment agreement related to such request.

b. Offers-in-compromise

The bill expands the authority for the IRS to accept offers-in-compromise.

The bill requires the IRS to develop and publish schedules of national and local allowances that will provide taxpayers entering into an offer-in-compromise with adequate means to provide for basic living expenses. The IRS is required to consider the facts and circumstances of a particular taxpayer's case in determining whether the national and local schedules are adequate for that particular taxpayer. The bill prohibits the IRS from rejecting an offer-in-compromise from a low-income taxpayer solely on the basis of the amount of the offer.

The bill prohibits the IRS from collecting a tax liability by levy (1) during any period that a taxpayer's offer-in-compromise for that liability is being processed, (2) during the 30 days following rejection of an offer, (3) during any period in which an appeal of the rejection of an offer is being considered, and (4) while an installment agreement is pending.

The bill requires that the IRS implement procedures to review all proposed IRS rejections of taxpayer offers-in-compromise and requests for installment agreements prior to the rejection being communicated to the taxpayer.

The bill provides that the IRS will adopt a liberal acceptance policy for offers-in-compromise to provide an incentive for taxpayers to continue to file tax returns and continue to pay their taxes.

The provisions are generally effective for offers-in-compromise submitted after the date of enactment. The provision suspending levy is effective with respect to offers-in-compromise pending on or made after December 31, 1999.

c. Notice of deficiency to specify deadlines for filing Tax Court petition

The provision requires the IRS to include on each deficiency notice the date determined by the IRS as the last day on which the taxpayer may file a petition with the Tax Court. The provision provides that a petition filed with the Tax Court by this date is treated as timely filed. The provision is effective for notices mailed after December 31, 1998.

d. Refund or credit of overpayments before final determination

The provision provides that a proper court (including the Tax Court) may order a refund of any amount that was collected within the period during which the Secretary is prohibited from collecting the deficiency by levy or other proceeding. The provision allows the refund of any overpayment determined by the Tax Court to the extent the overpayment is not contested on appeal. The provision is effective on the date of enactment.

e. IRS procedures relating to appeal of examinations and collections

The bill codifies existing IRS procedures with respect to early referrals to Appeals and the Collections Appeals Process. The bill also codifies the existing Alternative Dispute Resolution ("ADR") procedures, as modified by eliminating the dollar threshold. The provision is effective on the date of enactment.

f. Application of certain fair debt collection practices

The bill applies to the IRS certain restrictions relating to communication with taxpayer/debtors and the prohibitions on harassing or abusing a debtor. The restrictions relating to communication with the taxpayer/debtor are not intended to hinder the ability of the IRS to respond to taxpayer inquiries (such as answering telephone calls from taxpayers). The provision is effective on the date of enactment.

g. Guaranteed availability of installment agreements

The bill requires the Secretary to enter an installment agreement, at the taxpayer's option, if: (1) the liability is $10,000, or less (excluding penalties and interest); (2) within the previous 5 years, the taxpayer has not failed to file or to pay, nor entered an installment agreement under this provision; (3) if requested by the Secretary, the taxpayer submits financial statements, and the Secretary determines that the taxpayer is unable to pay the tax due in full; (4) the installment agreement provides for full payment of the liability within 3 years; and (5) the taxpayer agrees to continue to comply with the tax laws and the terms of the agreement for the period (up to 3 years) that the agreement is in place. The provision is effective on the date of enactment.

h. Prohibition on requests to taxpayers to waive rights to bring actions

The bill provides that the Government may not request a taxpayer to waive the taxpayer's right to sue the United States or one of its employees for any action taken in connection with the tax laws, unless (1) the taxpayer knowingly and voluntarily waives that right, or (2) the request is made to the taxpayer's attorney or other representative, effective on the date of enactment.

F. Disclosures to Taxpayers

1. Explanation of joint and several liability

The bill requires that the IRS establish procedures to clearly alert married taxpayers of their joint and several liability, the availability of electing separate liability, and an individual's right to relief under section 6015 of the Code on all appropriate tax publications and instructions. The IRS will make an appropriate cross reference to these statements near the signature line on appropriate tax forms. The bill requires that the procedures be established as soon as practicable, but no later than 180 days after the date of enactment.

2. Explanation of taxpayers' rights in interviews with the IRS

The bill requires that the IRS rewrite Publication 1 ("Your Rights as a Taxpayer") to inform taxpayers more clearly of their rights (1) to be represented by a representative and (2) if the taxpayer is so represented, that interviews with the IRS may not proceed without the presence of the representative unless the taxpayer consents. The revisions are required no later than 180 days after the date of enactment.

3. Disclosure of criteria for examination selection

The provision requires that IRS add to Publication 1 ("Your Rights as a Taxpayer") a statement which sets forth in simple and nontechnical terms the criteria and procedures for selecting taxpayers for examination. The statement is required to be included not later than 180 days after the date of enactment.

4. Explanation of the appeals and collection process

The bill requires that, no later than 180 days after the date of enactment, a description of the entire process from examination through collections, including the assistance available to taxpayers from the Taxpayer Advocate at various points in the process, be provided with the first letter of proposed deficiency that allows the taxpayer an opportunity for administrative review in the IRS Office of Appeals.

5. Explanation of reason for refund disallowance

The bill requires the IRS to notify the taxpayer of the specific reasons for the disallowance (or partial disallowance) of a refund claim, effective for 180 days after the date of enactment.

6. Statements to taxpayers with installment agreements

The bill requires the IRS to send every taxpayer in an installment agreement an annual statement of the initial balance owed, the payments made during the year, and the remaining balance, effective July 1, 2000.

7. Notification of change in tax matters partner

The bill requires the IRS to notify all partners of any resignation of the tax matters partner that is required by the IRS, and to notify the partners of any successor tax matters partner, effective for selections of tax matters partners made by the Secretary after the date of enactment.

8. Conditions under which taxpayers' returns may be disclosed

The bill requires that general tax forms instruction booklets include a description of conditions under which tax return information may be disclosed outside the IRS (including to States), effective on the date of enactment.

9. Disclosure of Chief Counsel advice

The provision amends section 6110 of the Code, establishing a structured process by which the IRS will make certain work products, designated as "Chief Counsel Advice," open to public inspection on an ongoing basis. It is designed to protect taxpayer privacy while allowing the public inspection of these documents in a manner generally consistent with the mechanism of section 6110 for the public inspection of written determinations. In general, the provision operates by establishing that Chief Counsel Advice are written determinations subject to the public inspection provisions of section 6110. The provision applies to Chief Counsel Advice issued more than 90 days after enactment.

G. Low-Income Taxpayer Clinics

The bill provides that the Secretary is authorized to provide up to $6,000,000 per year in matching grants to certain low-income taxpayer clinics. No clinic could receive more than $100,000 per year. Eligible clinics would be those that charge no more than a nominal fee to either represent low-income taxpayers in controversies with the IRS or provide tax information to individuals for whom English is a second language. The provision is effective on the date of enactment.

H. Other Provisions

1. Cataloging complaints

The bill requires that, in collecting data for the annual report to the Congress on allegations of IRS employee misconduct, records of taxpayer complaints of misconduct by IRS employees must be maintained on an individual employee basis, effective January 1, 2000.

2. Archive of records of Internal Revenue Service

The bill provides an exception to the disclosure rules to require IRS to disclose IRS records to officers or employees of National Archives and Records Administration ("NARA"), upon written request from the U.S. Archivist, for purposes of the appraisal of such records for destruction or retention. The present-law prohibitions on and penalties for disclosure of tax information would generally apply to NARA. The provision is effective for requests made by the Archivist after the date of enactment.

3. Payment of taxes

The bill requires the Secretary or his delegate to establish such rules, regulations, and procedures as are necessary to allow payment of taxes by check or money order to be made payable to the United States Treasury, rather than to the IRS, effective on the date of enactment.

4. Clarification of authority of Secretary relating to the making of elections

The bill clarifies that, except as otherwise provided, the Secretary may prescribe the manner of making any election under the Code by any reasonable means, effective on the date of enactment.

5. IRS employee contacts

The bill requires any manually generated correspondence received by a taxpayer from the IRS to include in a prominent manner the name, telephone number, and unique identifying number of an IRS employee the taxpayer may contact with respect to the correspondence. Any other correspondence or notice received by a taxpayer from the IRS must include in a prominent manner a telephone number that the taxpayer may contact. An IRS employee must give a taxpayer during a telephone or personal contact the employee's telephone number and unique identifying number. The requirements for a unique identifying number are effective six months after the date of enactment.

6. Use of pseudonyms by IRS employees

The bill provides that an IRS employee may use a pseudonym only if (1) adequate justification, such as protecting personal safety, for using the pseudonym was provided by the employee as part of the employee's request to use a pseudonym, and (2) IRS management has approved the request to use the pseudonym prior to its use. This provision is effective for requests made after the date of enactment.

7. Illegal tax protester designations

The bill prohibits the use by the IRS of the "illegal tax protester" designation. Any extant designation in the individual master file (the main computer file) must be removed and any other extant designation (such as on paper records that have been archived) must be disregarded. The IRS is, however, permitted to designate appropriate taxpayers as nonfilers. The IRS must remove the nonfiler designation once the taxpayer has filed valid tax returns for two consecutive years and paid all taxes shown on those returns. The provision is effective on the date of enactment, except that the removal of any designation from the master file, is not required to begin before January 1, 1999.

8. Provision of confidential information to Congress by whistleblowers

The bill provides that any person (i.e., a whistleblower) who otherwise has or had access to any return or return information under section 6103 may disclose such return or return information to the House Ways and Means Committee, the Senate Finance Committee, or the Joint Committee on Taxation or to any individual authorized by one of those committees to receive or inspect any return or return information if such person (the whistleblower) believes such return or return information relates to evidence of possible misconduct, maladministration, or taxpayer abuse. The provision is effective on the date of enactment.

9. Listing of local IRS telephone numbers and addresses

The bill requires the IRS, as soon as is practicable, to publish addresses and local telephone numbers of local IRS offices in appropriate local telephone directories.

10. Identification of return preparers

The bill authorizes the IRS to approve alternatives to Social Security numbers to identify tax return preparers, effective on the date of enactment.

11. Offset of past-due, legally enforceable State income tax obligations against overpayments

The bill permits States to participate in the IRS refund offset program for specified past-due, legally enforceable State income tax debts, providing the person making the Federal tax overpayment has shown on the Federal return for the taxable year of the overpayment an address that is within the State seeking the tax offset. The provision is effective for Federal income tax refunds payable after December 31, 1999.

12. Reporting requirements in connection with education tax credits

The bill modifies the information reporting requirements applicable to certain educational institutions in connection with the HOPE Scholarship and Lifetime Learning credits. In addition to reporting the aggregate amount of payments for qualified tuition and related expenses received by the educational institution with respect to a student, the institution must report any grant amount received by the student and processed through the institution during the applicable calendar year. An educational institution also must report only the aggregate amount of reimbursements or refunds paid to a student by the institution (and not by any other party). The bill further clarifies that the definition of term "qualified tuition and related expenses" shall be as set forth in section 25A, determined without regard to section 25A(g)(2) (which requires adjustments for certain scholarships). The provision applies to returns required to be filed with respect to taxable years beginning after December 31, 1998.

I. Studies

1. Administration of penalties and interest

The bill requires the Joint Committee on Taxation and the Treasury to each conduct a separate study reviewing the interest and penalty provisions of the Code, and make any legislative and administrative recommendations deemed appropriate to simplify penalty administration and reduce taxpayer burden. The reports must be provided not later than one year after the date of enactment.

2. Confidentiality of tax return information

The bill requires the Joint Committee on Taxation and Treasury to each conduct a separate study on provisions regarding taxpayer confidentiality. The studies are to examine: (1) present-law protections of taxpayer privacy; (2) the need, if any, for third parties to use tax return information; (3) whether greater levels of voluntary compliance can be achieved by allowing the public to know who is legally required to file tax returns but does not do so; (4) the interrelationship of the taxpayer confidentiality provisions in the Internal Revenue Code with those elsewhere in the United States Code (such as the Freedom of Information Act); (5) the impact on taxpayer privacy of sharing tax information for the purposes of enforcing State and local tax laws (other than income tax laws) and (6) an examination of whether the public interest would be served by greater disclosure of information relating to tax-exempt organizations (described in section 501 of the Code). The findings of the studies, along with any recommendations, are required to be reported to the Congress no later than 18 months after the date of enactment.

3. Noncompliance with internal revenue laws by taxpayers

The bill provides that the Secretary of the Treasury and the Commissioner, in consultation with the Joint Committee on Taxation, must conduct a study of noncompliance with the tax law, including tax law complexity and willful noncompliance or other factors. The study must be reported to the Congress within one year of the date of enactment.

4. Payments for informants

The bill requires a study and report by the Secretary of the Treasury to the Congress of the present-law informant reward program (including results) and any legislative or administrative recommendations regarding the program and its application. The study must be reported to the Congress within one year of the date of enactment.