[Senate Report 114-298]
[From the U.S. Government Publishing Office]
Calendar No. 554
114th Congress } { Report
SENATE
2d Session } { 114-298
======================================================================
TAXPAYER PROTECTION ACT OF 2016
_______
July 12, 2016.--Ordered to be printed
_______
Mr. Hatch, from the Committee on Finance,
submitted the following
R E P O R T
[To accompany S. 3156]
The Committee on Finance, having considered an original
bill, S. 3156, to provide enhanced protections for taxpayers
from fraud and other illegal activities, and for other
purposes, reports favorably thereon without amendment and
recommends that the bill do pass.
CONTENTS
Page
I. LEGISLATIVE BACKGROUND............................................2
II. EXPLANATION OF THE BILL...........................................3
TITLE I--PROTECTION OF TAXPAYER RIGHTS........................... 3
A. Reform of Assessment and Collection Procedures........ 3
1. Report on IRS authority to compromise tax matters
(sec. 101 of the bill and sec. 7122 of the Code). 3
2. Report on opportunity for hearing by the IRS
Office of Appeals (sec. 102 of the bill)......... 5
3. Extending time limit for contesting IRS levy (sec.
103 of the bill and secs. 6343 and 6532 of the
Code)............................................ 7
4. Individuals held harmless on improper levy on
retirement plans (sec. 104 of the bill and sec.
6343 of the Code)................................ 8
5. Report on IRS audit criteria (sec. 105 of the
bill)............................................ 11
B. Assistance to Individual Taxpayers in Filing Returns.. 11
1. Return preparation programs for low-income
taxpayers (sec. 111 of the bill and new sec.
7526A of the Code)............................... 11
2. Limiting redisclosures and uses of consent-based
disclosures of tax return information (sec. 112
of the bill and sec. 6103 of the Code)........... 14
3. Clarification of equitable relief from joint
liability (sec. 113 of the bill and sec. 6015 of
the Code)........................................ 15
4. Modification of user fee requirements for
installment agreements (sec. 114 of the bill and
sec. 6159 of the Code)........................... 17
5. Reports on Future State and similar online
initiatives (sec. 115 of the bill)............... 19
6. Notice from IRS regarding closure of Taxpayer
Assistance Centers (sec. 116 of the bill)........ 19
7. Recovery of certain improperly withheld severance
payments (sec. 117 of the bill and secs.
104(a)(4) and 6511 of the Code).................. 20
C. Whistleblower Protections............................. 21
1. Reports concerning whistleblower awards (sec. 121
of the bill)..................................... 21
2. Whistleblower reforms (sec. 122 of the bill and
secs. 6103, 7213, and 7623 of the Code).......... 25
D. Reform of Laws Governing Internal Revenue Service
Employees............................................ 27
1. Electronic record retention (sec. 131 of the bill) 27
2. Sense of the Senate on revision of the Hatch Act
(sec. 132 of the bill)........................... 29
3. Prohibition on rehiring former IRS employees who
were involuntarily separated for misconduct (sec.
133 of the bill and sec. 7804 of the Code)....... 29
4. Authority to remove or transfer senior executives
who fail in their performance or engage in
serious misconduct (sec. 134 of the bill and sec.
7804 of the Code)................................ 31
5. Limit participation of third-party contractors for
sworn testimony taken pursuant to a summons from
the IRS (sec. 135 of the bill and secs. 6103 and
7602 of the Code)................................ 34
6. Notification of unauthorized inspection or
disclosure of returns and return information
(sec. 136 of the bill and sec. 7431 of the Code). 35
E. Exempt Organizations.................................. 36
1. Mandatory e-filing by exempt organizations (sec.
141 of the bill and secs. 511, 527, 6033, and
6104 of the Code)................................ 36
2. Repeal of substantiation exception for certain
charitable contributions reported by the donee
organization (sec. 142 of the bill and sec.
170(f)(8) of the Code)........................... 38
3. Prohibit the use of IRS funds for political
targeting (sec. 143 of the bill)................. 40
4. Notification to exempt organizations prior to
revoking exempt status for failing to file
information returns (sec. 144 of the bill and
sec. 6033 of the Code)........................... 40
TITLE II--PROTECTION OF TAXPAYERS FROM IDENTIFY THEFT AND TAX
FRAUD.......................................................... 44
1. Single point of contact for identity theft victims
(sec. 201 of the bill)........................... 44
2. Protecting taxpayers from telephone scams (sec.
202 of the bill)................................. 46
3. Information on identity theft and tax scams (sec.
203 of the bill)................................. 46
4. Report on Federal employee wage and tax
withholding reporting to State tax agencies (sec.
204 of the bill)................................. 47
5. Notification of suspected identity theft (sec. 205
of the bill and new sec. 7529 of the Code)....... 48
III.BUDGET EFFECTS OF THE BILL.......................................51
IV. VOTES OF THE COMMITTEE...........................................55
V. REGULATORY IMPACT AND OTHER MATTERS..............................55
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED............56
I. LEGISLATIVE BACKGROUND
The Committee on Finance, having considered S. 3156, the
``Taxpayer Protection Act of 2016,'' to provide enhanced
protections for taxpayers from fraud and other illegal
activities, and for other purposes, reports favorably thereon
without amendment and recommends that the bill do pass.
BACKGROUND AND NEED FOR LEGISLATIVE ACTION
Background.--Based on a proposal recommended by Chairman
Hatch, the Committee on Finance marked up original legislation
(the ``Taxpayer Protection Act of 2016'') on April 20, 2016,
and, with a majority present, ordered the bill favorably
reported.
Need for legislative action.--The Chairman, Ranking Member,
and members of the Committee believe legislation is necessary
to provide additional protections for taxpayers in their
interactions with the Internal Revenue Service. Previously,
Senators Grassley and Thune introduced taxpayer protection
legislation (S. 1578, the Taxpayer Bill of Rights Enhancement
Act of 2015, 114th Congress, 1st Session), as did Senator
Cardin (S. 2333, the Taxpayer Rights Act of 2015, 114th
Congress, 1st Session) and Senator Cornyn (S. 949, the Small
Business Taxpayer Bill of Rights Act of 2015, 114th Congress,
1st Session). In addition, during this Congress the Committee
has held hearings on ``Cybersecurity and Protecting Taxpayer
Information'' (April 12, 2016) and ``Protecting Taxpayers from
Schemes and Scams During the 2015 Tax Filing Season'' (March
12, 2015). These legislative proposals and hearings informed
the content of this bill.
II. EXPLANATION OF THE BILL
The bill comprises two titles. Title I is ``Protection of
Taxpayer Rights,'' which includes five subtitles: Reform of
Assessment and Collection Procedures (sections 101 through
105); Assistance to Individual Taxpayers in Filing Returns
(sections 111 through 117); Whistleblower Protections (sections
121 through 122); Reform of Laws Governing Internal Revenue
Service Employees (sections 131 through 136); and Exempt
Organizations (sections 141 through 144). Title II is
``Protection of Taxpayers from Identity Theft and Tax Fraud''
and includes sections 201 through 205. The specific provisions
of the bill are explained below.
TITLE I--PROTECTION OF TAXPAYER RIGHTS
A. Reform of Assessment and Collection Procedures
1. Report on IRS authority to compromise tax matters (sec. 101 of the
bill and sec. 7122 of the Code)
PRESENT LAW
Unless a tax matter has been referred to the Department of
Justice for prosecution or defense, the Internal Revenue
Service (``IRS'') has the authority to compromise tax debts.\1\
Treasury regulations provide that such offers to compromise tax
matters can be accepted: (1) if there is doubt as to the
validity of the actual tax liability, (2) if it is doubtful
that the tax, interest, and penalties can be collected, or (3)
to promote effective tax administration in a case where
collection in full would cause the taxpayer economic
hardship.\2\
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\1\Sec. 7122.
\2\Treas. Reg. sec. 1.7122-1(b). For this purpose, economic
hardship is defined under Treas. Reg. sec. 301.6343-1.
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A taxpayer making an offer to compromise a tax case must
make certain nonrefundable payments at the time he or she
submits the initial offer-in-compromise of a tax case.
Taxpayers making a lump sum offer-in-compromise must include a
nonrefundable payment of 20 percent of the lump-sum with the
initial offer.\3\ In the case of an offer-in-compromise
involving periodic payments, the initial offer must be
accompanied by a nonrefundable payment of the first installment
that would be due if the offer were accepted.\4\ Taxpayers may
instruct the IRS in application of the payment to tax, interest
or penalties that are the subject of the offer. In certain
cases, the IRS may waive the requirement.
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\3\Sec. 7122(c)(1)(A).
\4\Sec. 7122(c)(1)(B).
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The Internal Revenue Code of 1986, as amended (the
``Code'')\5\ requires that the IRS prescribe guidelines for
employees to follow in evaluating the adequacy of offers,
including guidelines for determining whether an offer is
complete and can be processed, estimating basic living
expenses, as well as special rules for handling offers from
low-income taxpayers or those that are based solely on doubt as
to liability. With the exception of cases in which the proposed
offer is based on a frivolous submission,\6\ taxpayers whose
offers are rejected may appeal the rejection to the IRS Office
of Appeals. Non-frivolous offers are deemed accepted if not
rejected or returned to the taxpayer within 24 months of
submission of the offer.
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\5\Unless otherwise stated, all section references are to the
Internal Revenue Code of 1986, as amended.
\6\Frivolous submissions may be treated as if never submitted, and
are not subject to further administrative or judicial review. Secs.
6702(b)(2) and 7122(g).
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Compromises with respect to unpaid tax liabilities of
$50,000 or more can be accepted only if a public report is
filed detailing the terms of the offer (tax in dispute and
amount of offer) and the reasons for acceptance, and
accompanied by a written opinion from the IRS Chief Counsel.\7\
The $50,000 threshold was raised from $500 in 1996.\8\
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\7\Treas. Reg. sec. 1.7122-1(e)(6).
\8\Sec. 503 of the Taxpayer Bill of Rights 2, Pub. L. No. 104-168.
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REASONS FOR CHANGE
Many offers-in-compromise cases do not present any
significant legal issues, and the required legal review for
cases meeting the statutory threshold can delay the acceptance
process under current administrative procedures. The Committee
believes that eliminating this threshold may permit the IRS to
focus its review resources on the most important cases,
regardless of dollar value.
Before eliminating this threshold, the Committee believes a
study is needed to evaluate how the IRS currently exercises its
authority to compromise tax matters, including the role of the
IRS Office of the Chief Counsel.
EXPLANATION OF PROVISION
The Government Accountability Office (``GAO'') is required
to evaluate how the IRS presently exercises its authority to
compromise tax matters under section 7122, including any
recommendations for appropriate legislative and administrative
actions. The GAO is also required to evaluate the role of the
IRS Office of the Chief Counsel in consideration of offers,
including whether the current requirement of a written opinion
for accepted offers that compromise tax in excess of $50,000
remains appropriate, in whole or in part, and what changes, if
any, may be desirable. The GAO is required to submit a report
with its findings to the Senate Committee on Finance and House
Committee on Ways and Means within 12 months of the date of
enactment.
EFFECTIVE DATE
The provision is effective on the date of enactment.
2. Report on opportunity for hearing by the IRS Office of Appeals (sec.
102 of the bill)
PRESENT LAW
The IRS Office of Appeals (``Appeals''') is the settlement
arm of the IRS. It operates through regional Appeals offices
organized by the IRS but operating independently of the local
offices of the operating divisions of the IRS responsible for
examining returns and collecting taxes. Its operating rules
generally are not codified, but rather are found in procedural
regulations promulgated by Treasury and in revenue
procedures.\9\ In general, Appeals has jurisdiction over both
pre-assessment and post-assessment cases. The taxpayer
generally has an opportunity to seek Appeals jurisdiction after
failing to reach agreement with the Examination function and
before filing a petition in Tax Court, after filing a petition
in Tax Court (but before litigation), after assessment of
certain penalties, after a claim for refund has been rejected
by an operating division, and after a proposed rejection of an
offer-in-compromise in a collection case.
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\9\Treas. Reg. sec. 601.106; Rev. Proc. 2016-22, 2016-15 IRB 1,
March 23, 2016.
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In 1998, the Internal Revenue Service Restructuring and
Reform Act of 1998 (the ``Restructuring Act'') directed that
the IRS reorganize in a manner to address the needs of
taxpayers and to ensure that the reorganization included an
independent Appeals function,\10\ and mandated that
administrative appeals is an independent appeals function.\11\
It also codified certain requirements for Appeals, including
procedures by which any taxpayer may request early referral to
Appeals of unresolved issues from the examination or collection
division\12\ and use of alternative dispute resolution
procedures of mediation or binding arbitration.\13\ In
addition, the IRS is required to make Appeals officers
available on a regular basis in each State and to consider
videoconferencing of Appeals conferences for taxpayers seeking
appeals in rural or remote areas.\14\
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\10\Pub. L. No. 105-206, sec. 1001, July 22, 1998. A report by the
Treasury Inspector General for Tax Administration (``TIGTA'') found
that Appeals' level of independence is consistent with what was
intended in the Act. The Overall Independence of the Office of Appeals
Appears to Be Sufficient (TIGTA 2005-10-141), September 9, 2005,
available at https://www.treasury.gov/tigta/auditreports/2005reports/
200510141fr.pdf.
\11\The operating divisions that resulted from the restructuring
are Large Business & International (LB&I), Small Business and Self-
Employed (SB/SE), Wage and Investment (W&I) and Tax-Exempt and
Governmental Entities (TE/GE).
\12\Sec. 7123(a); Pub. L. No. 105-206, sec. 3465(a)(1), July 22,
1998.
\13\Sec. 7123(b); Pub. L. No. 105-206, sec. 3465(a)(1), July 22,
1998.
\14\Pub. L. No. 105-206, sec. 3465(b), (c), July 22, 1998.
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The Restructuring Act further required that the Secretary
or the Secretary's delegate include with any first letter of
proposed deficiency, which allows the taxpayer an opportunity
for administrative review in Appeals, an explanation of the
entire process from examination through collection with respect
to such proposed deficiency, including the assistance available
to the taxpayer from the National Taxpayer Advocate at various
points in the process.\15\
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\15\Pub. L. No. 105-206, sec. 3504, July 22, 1998.
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There is no section of the Code that specifically provides
rules requiring Appeals consideration of cases. The rules for
Appeals consideration of cases are contained primarily in the
Statement of Procedural Rules, which informs the public of the
procedures to be followed by the IRS and the public.\16\ The
regulations provide in part, ``[a] taxpayer may request an
appeal in any case in which a District Director . . . has
issued a letter proposing adjustments (commonly referred to as
the 30-day letter) concerning an item described in paragraph
(a)(3) of this section. The taxpayer will be informed of the
right to an administrative appeal in this letter.''\17\ Case
law holds that these regulations are ``directory and not
mandatory in legal effect.''\18\
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\16\Treas. Reg. sec. 601.106.
\17\Treas. Reg. sec. 601.106(b).
\18\Luhring v. Glotzbach, 304 F.2d 560, 565 (4th Cir. 1962); see
also Rosenberg v. Comm'r, 450 F.2d 529, 533 (10th Cir. 1971).
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However, the IRS is required to follow certain due process
procedures, including the right to allow the taxpayer to
request an Appeals hearing, when the IRS seeks to levy against
the property of a taxpayer in collection of a Federal tax
liability or when the IRS files a notice of lien.\19\ The
taxpayer also has the right to obtain judicial review of the
Appeals officer's determination.\20\
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\19\Sec. 6320(b)(1) (right to appeals hearing included in due
process notice to a taxpayer whenever the IRS files a notice of lien);
sec. 6330(b)(1) (right to appeals hearing before levy).
\20\Sec. 6330(d).
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In certain cases affecting large numbers of taxpayers, the
IRS may designate a case or an issue for litigation, which
means it will not be referred to Appeals.\21\ If a case or an
issue in a case is designated, the taxpayer generally will not
receive a 30-day letter and will be issued a statutory notice
of deficiency.
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\21\Rev. Proc. 2016-22, 2016-15 IRB 1, March 23, 2016 (provides
administrative appeals process for cases filed with the Tax Court);
Internal Revenue Manual sec. 33.3.6.2, available at https://
www.irs.gov/irm/part33/irm--33-003-006.html (procedures for designating
a case for litigation).
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REASONS FOR CHANGE
The Committee is aware that the right to appeal an IRS
decision in an independent forum is one of the fundamental
rights the taxpayer has when dealing with the IRS. Under this
right, taxpayers are entitled to a fair and impartial
administrative appeal of most IRS decisions, including many
penalties, and have the right to receive a written response
regarding Appeals' decision. In addition, taxpayers generally
have the right to take their cases to court.
Accordingly, the Committee seeks to understand the
circumstances under which taxpayers are not provided an
opportunity to exercise this appeal right administratively in
Appeals and confirm that the IRS is treating all taxpayers
fairly in deciding whether to allow access to Appeals.
EXPLANATION OF PROVISION
The provision requires the GAO to identify and report on
all of the IRS's reasons for not allowing taxpayers an
opportunity for administrative review in Appeals. The provision
further requires an examination of taxpayers' access to
Appeals, in particular the effect on taxpayers in those States
without a permanent Appeals Officer or a permanent Settlement
Officer. GAO is to provide a comparison between taxpayer access
to Appeals in these States and States with a permanent Appeals
or Settlement Officer. GAO is also to evaluate wait times,
geographic and technological constraints, the time necessary to
resolve Appeals cases, taxpayer satisfaction with the IRS, and
other factors that GAO may deem relevant.
The provision also requires the GAO to study the IRS's
process for designating a case for litigation, including
understanding how the IRS makes its determination concerning
what constitutes sound tax administration and whether there is
a critical need for enforcement activity with respect to
certain issues presented. The GAO is to review the outcomes
with respect to cases designated for litigation in the past ten
years, including whether some of the cases were ultimately
settled with the taxpayer and the IRS Office of Chief Counsel.
The report and recommendations with regard to any issues
identified is to be submitted to the Senate Committee on
Finance and the House Committee on Ways and Means within 12
months of the date of enactment.
EFFECTIVE DATE
The provision is effective on the date of enactment.
3. Extending time limit for contesting IRS levy (sec. 103 of the bill
and secs. 6343 and 6532 of the Code)
PRESENT LAW
The IRS is authorized to return property that has been
wrongfully levied upon.\22\ In general, monetary proceeds from
the sale of levied property may be returned within nine months
of the date of the levy.
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\22\Sec. 6343.
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Generally, any person (other than the person against whom
is assessed the tax out of which such levy arose) who claims an
interest in levied property and that such property was
wrongfully levied upon may bring a civil action for wrongful
levy in a district court of the United States.\23\ Generally,
an action for wrongful levy must be brought within nine months
from the date of levy.\24\
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\23\Sec. 7426.
\24\Sec. 6532.
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REASONS FOR CHANGE
The Committee understands that in many cases the time
period for bringing an action may be insufficient for taxpayers
or third parties to discover a wrongful or mistaken levy and
seek to remedy it. Accordingly, the Committee believes it is
appropriate to provide for a longer period of time within which
a person may contest a wrongful IRS levy.
EXPLANATION OF PROVISION
The provision extends from nine months to two years the
period for returning the monetary proceeds from the sale of
property that has been wrongfully levied upon.
The provision also extends from nine months to two years
the period for bringing a civil action for wrongful levy.
EFFECTIVE DATE
The provision is effective with respect to: (1) levies made
after the date of enactment; and (2) levies made on or before
the date of enactment provided that the nine-month periods have
not expired as of the date of enactment.
4. Individuals held harmless on improper levy on retirement plans (sec.
104 of the bill and sec. 6343 of the Code)
PRESENT LAW
Tax-favored retirement savings
Under the Code, tax-favored treatment applies to
traditional and Roth individual retirement arrangements
(``IRAs''') and certain employer-sponsored retirement plans
(``employer-sponsored plans'').\25\ The rules for tax-favored
treatment include annual limits on the amount that may be
contributed to an IRA or employer-sponsored plan.
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\25\Secs. 219, 408, and 408A provide rules for IRAs. Tax-favored
employer-sponsored retirement plans consist of qualified retirement
plans and annuities under sections 401(a) and 403(a), tax-deferred
annuity plans under section 403(b), and State and local government
eligible deferred compensation plans under section 457(b). Under
section 7701(j), the Thrift Savings Fund is treated as a qualified
retirement plan.
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In general, a distribution from a traditional IRA or
employer-sponsored plan (other than from a designated Roth
account under an employer-sponsored plan) is includible in
income, except to the extent attributable to any contributions
that were made to the IRA or plan on an after-tax basis.\26\
Contributions made to a Roth IRA or a designated Roth account
are made on an after-tax basis.\27\ Certain distributions from
a Roth IRA or a designated Roth account are excluded from
income; otherwise, a distribution is includible in income,
except to the extent attributable to contributions.\28\ Amounts
that are withdrawn from an IRA or employer-sponsored plan
before age 59\1/2\ and are includible in income are subject to
a 10-percent early withdrawal tax unless an exception
applies.\29\
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\26\Secs. 408(d) and 402.
\27\Secs. 408A(c) and 402A(a)(2).
\28\Secs. 408A(d) and 402A(d).
\29\Sec. 72(t).
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A distribution from a traditional IRA or employer-sponsored
plan (other than from a designated Roth account) generally may
be rolled over to another traditional IRA or employer-sponsored
plan (other than to a designated Roth account).\30\ The
rollover generally can be achieved by a direct payment from the
distributing IRA or plan to the recipient IRA or plan (``direct
rollover'') or by contributing the distribution to the
recipient IRA or plan within 60 days of receiving the
distribution (``60-day rollover''). Amounts that are rolled
over generally are not includible in gross income. A
distribution from a Roth IRA generally may be rolled over to
another Roth IRA by direct rollover or a 60-day rollover, and a
distribution from a designated Roth account generally may be
rolled over to a Roth IRA or another designated Roth account by
direct rollover or a 60-day rollover. In general, an individual
is permitted to make only one 60-day rollover from an IRA to
another IRA within a one-year period.
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\30\A rollover is not permitted with respect to an IRA that an
individual has inherited from another individual (``inherited IRA'').
In addition, the beneficiary of a deceased employee under an employer-
sponsored plan, other than a surviving spouse, may roll a distribution
from the plan only to an IRA that is designated as an inherited IRA.
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In addition to these rollovers, an individual generally may
convert an amount in a traditional IRA or a non-Roth account
under an employer-sponsored defined contribution plan into a
Roth IRA or a designated Roth account, referred to as a ``Roth
conversion.'' The amount converted is generally includible in
the individual's income to the same extent as if a distribution
had been made. The conversion may be accomplished by a direct
transfer of the amount from the traditional IRA or non-Roth
account to the Roth IRA or designated Roth account or by a
distribution from the traditional IRA or non-Roth account and
contribution to the Roth IRA or designated Roth account within
60 days.
An amount withdrawn from an IRA or employer-sponsored plan
made on account of an IRS levy is includible in income in the
same manner as other distributions. However, the 10-percent
early withdrawal tax does not apply.\31\
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\31\Sec. 72(t)(2)(vii).
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Incorrect levies on IRAs and employer-sponsored plans
Present law provides rules under which the IRS returns
amounts subject to an incorrect levy.\32\ For example, amounts
withdrawn from an IRA pursuant to a levy are returned to the
individual owning the IRA in the case of a wrongful levy or if
the levy was not in accordance with IRS administrative
procedures.\33\ In the case of a wrongful levy, the IRS is
required to pay interest on the amount returned to the
individual at the overpayment rate.\34\ The IRS is not required
to pay interest if the levy was not in accordance with IRS
administrative procedures.\35\
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\32\Sec. 6343(b)-(d).
\33\Secs. 6343(b)(2), 6343(d)(2)(A).
\34\Sec. 6343(c)(1).
\35\Sec. 6343(d)(2).
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Present law does not provide special rules to allow an
individual to recontribute to an IRA or employer-sponsored plan
an amount withdrawn pursuant to a levy and later returned to
the individual by the IRS, or interest thereon. Thus, if an
individual wishes to contribute such returned amounts to an IRA
or employer-sponsored plan, the contribution is subject to the
normally applicable rules, including limits on contributions
and the time for making a rollover.
REASONS FOR CHANGE
IRAs and employer-sponsored retirement plans provide an
important source of retirement income for many Americans. Under
present law, if the IRS improperly levies on an individual's
IRA or benefits under an employer-sponsored plan, the
individual may not be made whole, even if the IRS returns the
amount levied, with interest, because the individual may lose
the opportunity to have those funds accumulate on a tax-favored
basis until retirement. The Committee believes that improper
levies should not reduce retirement income security. Thus, the
Committee bill provides that retirement funds that are
withdrawn from an IRA or employer-sponsored retirement plan
pursuant to an improper IRS levy and returned by the IRS may be
recontributed to the IRA or plan or to a different IRA.
EXPLANATION OF PROVISION
Under the provision, if an amount withdrawn from an IRA
(``original IRA'') or employer-sponsored plan pursuant to a
levy is returned to an individual by the IRS, the individual
may contribute the amount returned, and any interest thereon,
either to the original IRA or to the employer-sponsored plan,
if permissible,\36\ or to a different IRA to which a rollover
from the original IRA or employer-sponsored plan would be
permitted.\37\ The contribution is allowed without regard to
the normally applicable limits on IRA contributions and
rollovers. The provision applies to a levied amount that is
returned to the individual because the levy on the original IRA
or employer-sponsored plan (1) was wrongful, or (2) is
determined to be premature or otherwise not in accordance with
administrative procedures.
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\36\The terms of an employer-sponsored plan might not permit the
amount returned by the IRS to be contributed to the plan. In addition,
in the case of an amount withdrawn from a designated Roth account
pursuant to the levy, the returned amount could be contributed only to
the original designated Roth account (or to a Roth IRA).
\37\The provision allows a rollover with respect to an inherited
IRA to an inherited IRA of the same type (traditional or Roth) as the
original IRA.
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A contribution under the provision must be made by the due
date (not including extensions) for the individual's income tax
return for the year in which the IRS returns the amount
previously levied on. A contribution under the provision is
treated as a rollover (``rollover contribution'') made for the
taxable year in which the distribution on account of the levy
occurred, but is not taken into account for purposes of the
limit on one IRA rollover within a one-year period. In
addition, except in the case of a rollover contribution that is
treated as a Roth conversion, any tax attributable to the
amount distributed from the original IRA or employer-sponsored
plan by reason of a levy (1) is not to be assessed, (2) if
assessed, is to be abated, and (3) if collected, is to be
credited or refunded as an overpayment made on the due date for
the return for the taxable year in which the amount was levied
on.
Under the provision, the IRS is required to pay interest on
an amount returned to the individual at the overpayment rate in
the case of a levy that is determined to be premature or
otherwise not in accordance with administrative procedures (as
well as in the case of a wrongful levy under present law).
Interest paid by the IRS on the amount returned to the
individual and contributed to an IRA or employer-sponsored plan
is treated as earnings within the IRA or employer-sponsored
plan after the rollover contribution was made and is not
includible in gross income when received from the IRS.
When the IRS returns to an individual an amount that was
levied on, the IRS must notify the individual that a
contribution to the original IRA, the employer-sponsored plan,
or a new IRA may be made of the amount returned, and the
interest paid, by the due date (not including extensions) for
the individual's income tax return for the year in which the
amount is returned.
EFFECTIVE DATE
The provision is effective for levied amounts, and interest
thereon, returned to individuals after December 31, 2016.
5. Report on IRS audit criteria (sec. 105 of the bill)
PRESENT LAW
The Treasury Inspector General for Tax Administration
(``TIGTA'') is not currently required to consult with the IRS
on the criteria it uses to select tax returns for audits,
assessments, criminal investigations, or report any instances
where the IRS's criteria discriminate on the basis of race,
religion, or political ideology.
REASONS FOR CHANGE
The Committee wants to ensure that taxpayers are not
targeted by the IRS or discriminated against because of their
race, religion, or political ideology.
EXPLANATION OF PROVISION
In an effort to ascertain whether taxpayers may be targeted
for audits, assessments, criminal investigations, or any
heightened scrutiny or review by the IRS because of their
political ideology, race, religion, or any other impermissible
factor, TIGTA is required to perform an audit of the criteria
the IRS uses to select tax returns for audit, assessments,
criminal investigation, or heightened scrutiny or review.
TIGTA shall provide a report of its findings within two
years of the date of enactment.
EFFECTIVE DATE
The provision is effective on the date of enactment.
B. Assistance to Individual Taxpayers in Filing Returns
1. Return preparation programs for low-income taxpayers (sec. 111 of
the bill and new sec. 7526A of the Code)
PRESENT LAW
The Code provides that the Secretary may allocate up to $6
million per year for matching grants to certain qualified low-
income taxpayer clinics.\38\ Eligible clinics are 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. No single clinic can receive more than $100,000 per
year.
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\38\Sec. 7526.
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A qualified low-income taxpayer clinic includes (1) a
clinical program at an accredited law, business, or accounting
school, in which students represent low-income taxpayers, or
(2) an organization exempt from tax under section 501(c) which
either represents low-income taxpayers or provides referral to
qualified representatives. A clinic is treated as representing
low-income taxpayers if (i) at least 90 percent of the
taxpayers represented by the clinic have income which does not
exceed 250 percent of the Federal poverty level, and (ii) the
amount in controversy for any taxable year is generally $50,000
or less.\39\
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\39\Sec. 7463.
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There is no provision in the Code allowing for the
allocation of funds for matching grants for return preparation
for low-income taxpayers.
In the Consolidated Appropriations Act, 2016,\40\ Congress
appropriated approximately $2.157 billion to the IRS for
taxpayer services, of which not less than $15 million is to be
made available for a Community Volunteer Income Tax Assistance
(``VITA'') matching grants program for tax return preparation
assistance. VITA is a program created by the IRS in 1969 which
utilizes volunteers to provide tax return preparation and
filing service assistance to certain low-income taxpayers and
members of underserved populations.
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\40\Pub. L. No. 114-113.
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REASONS FOR CHANGE
The Committee believes that it is important for the IRS to
continue to provide matching grants for authorized programs
that assist low-income taxpayers and members of underserved
populations in preparing their Federal income tax return at no
cost. The Committee also believes that these programs, which
rely on the participation of trained volunteers, provide
qualifying taxpayers with reliable and competent assistance
which helps to ensure the accuracy and timeliness of the tax
returns filed.
EXPLANATION OF PROVISION
The provision codifies the VITA program and provides that
the Secretary, unless otherwise provided by specific
appropriation, may allocate from otherwise appropriated funds
up to $30 million per year in matching grants to qualified
entities for the development, expansion, or continuation of
qualified tax return preparation programs assisting low-income
taxpayers and members of underserved populations. The Secretary
is authorized to award a multi-year grant not to exceed three
years.
The grant funds may be used for ordinary and necessary
operation costs (including for wages or salaries of persons
coordinating the activities of the program, to develop training
materials, conduct training, and perform quality reviews of the
returns for which assistance has been provided under the
program, and for equipment purchases and vehicle-related
expenses associates with remote or rural tax preparation
services), outreach and educational activities relating to the
eligibility and availability of income supports available
through the Code, and services related to financial education
and capability, asset development, and the establishment of
savings accounts in connection with tax return preparation, but
not for overhead expenses that are not directly related to any
qualified return preparation program. In awarding grants,
priority is given to applications that (i) demonstrate
assistance to certain low-income taxpayers with an emphasis on
outreach; (ii) demonstrate taxpayer outreach and education
around available income supports available through the Code;
and (iii) demonstrate specific outreach and focus on one or
more underserved populations. The provision allows the IRS to
use mass communications, referrals, and other means to promote
the benefits and encourage the use of the program. The
Secretary can refer taxpayers to qualified return preparation
programs receiving grants and those programs are encouraged to
refer eligible individuals to local or regional low income
taxpayer clinics.
Qualified return preparation program means any program
which provides assistance to individuals, at least 90 percent
of whom are low-income taxpayers, in preparing and filing
Federal income tax returns, which is administered by a
qualified entity, in which all volunteers who assist in the
preparation of Federal income tax returns meet the training
requirements prescribed by the Secretary, and which uses a
quality review process which reviews 100 percent of all
returns. Qualified entity means any entity which is an eligible
organization (as defined), is in compliance with Federal tax
filing and payment requirements, is not debarred or suspended
from Federal contracts, grants, or cooperative agreements, and
agrees to provide documentation to substantiate any matching
funds provided under the VITA grant program. Eligible
organization means an institution of higher education described
in section 102 (other than subsection (a)(1)(C) thereof) of the
Higher Education Act of 1965, as in effect on the date of
enactment, and which has not been disqualified from
participating in a program under Title IV of such Act, an
exempt organization described in Code section 501(c), a local
government agency, including a county or municipal government
agency, and an Indian tribe, as defined in section 4(13) of the
Native American Housing Assistance and Self-Determination Act
of 1996 (``Act''), including any tribally designated housing
entity (as defined in such Act), tribal subsidiary,
subdivision, or other wholly owned tribal entity, or a local,
State, regional, or national coalition (with one lead
organization which meets the eligibility requirements described
above acting as the applicant organization). If no eligible
organization is available to assist the targeted population or
community, an eligible organization includes a State government
agency, and a Cooperative Extension Service office. Low-income
taxpayer means a taxpayer who has income for the taxable year
which does not exceed an amount equal to the completed phaseout
amount under section 32(b) for a married couple filing a joint
return with three or more qualifying children, as determined in
a revenue procedure or other published guidance. Underserved
population includes populations of persons with disabilities,
persons with limited English proficiency, Native Americans,
individuals living in rural areas, members of the Armed Forces
and their spouses, and the elderly.
EFFECTIVE DATE
The provision is effective on the date of enactment.
2. Limiting redisclosures and uses of consent-based disclosures of tax
return information (sec. 112 of the bill and sec. 6103 of the Code)
PRESENT LAW
In general
As a general rule, returns and return information are
confidential and cannot be disclosed unless authorized by Title
26.\41\ Under section 6103(c), a taxpayer may designate in a
request or consent to the disclosure by the IRS of his or her
return or return information to a third party. Treasury
regulations set forth the requirements for such consent.\42\
The request or consent may be in written or non-written form.
The Treasury regulations require that the taxpayer sign and
date a written consent. At the time the consent is signed and
dated by the taxpayer, the written document must indicate (1)
the taxpayer's identity information; (2) the identity of the
person to whom disclosure is to be made; (3) the type of return
(or specified portion of the return) or return information (and
the particular data) that is to be disclosed; and (4) the
taxable year covered by the return or return information. The
regulations also require that the consent be submitted within
120 days of the date signed and dated by the taxpayer. Present
law does not require that a recipient receiving returns or
return information by consent maintain the confidentiality of
the information received. Under present law, the recipient is
also free to use the information for purposes other than for
which the information was solicited from the taxpayer.
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\41\Sec. 6103(a).
\42\Treas. Reg. sec. 301.6103(c)-1.
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Criminal penalties
Under section 7206, it is a felony to willfully make and
subscribe any document that contains or is verified by a
written declaration that it is made under penalties of perjury
and which such person does not believe to be true and correct
as to every material matter.\43\ Upon conviction, such person
may be fined up to $100,000 ($500,000 in the case of a
corporation) or imprisoned up to three years, or both, together
with the costs of prosecution.
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\43\Sec. 7206(1).
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Under section 7213, criminal penalties apply to: (1)
willful unauthorized disclosures of returns and return
information by Federal and State employees and other persons;
(2) the offering of any item of material value in exchange for
a return or return information and the receipt of such
information pursuant to such an offer; and (3) the unauthorized
disclosure of return information received by certain
shareholders under the material interest provision of section
6103. Under section 7213, a court can impose a fine up to
$5,000, up to five years imprisonment, or both, together with
the costs of prosecution. If the offense is committed by a
Federal employee or officer, the employee or officer will be
discharged from office upon conviction.
The willful and unauthorized inspection of returns and
return information can subject Federal and State employees and
others to a maximum fine of $1,000, up to a year in prison, or
both, in addition to the costs of prosecution. If the offense
is committed by a Federal employee or officer, the employee or
officer will be discharged from office upon conviction.
Civil damage remedies for unauthorized disclosure or inspection
If a Federal employee makes an unauthorized disclosure or
inspection, a taxpayer can bring suit against the United States
in Federal district court. If a person other than a Federal
employee makes an unauthorized disclosure or inspection, suit
may be brought directly against such person. No liability
results from a disclosure based on a good faith, but erroneous,
interpretation of section 6103. A disclosure or inspection made
at the request of the taxpayer will also relieve liability.
Upon a finding of liability, a taxpayer can recover the
greater of $1,000 per act of unauthorized disclosure (or
inspection), or the sum of actual damages plus, in the case of
an inspection or disclosure that was willful or the result of
gross negligence, punitive damages. The taxpayer may also
recover the costs of the action and, if found to be a
prevailing party, reasonable attorney fees.
The taxpayer has two years from the date of the discovery
of the unauthorized inspection or disclosure to bring suit. The
IRS is required to notify a taxpayer of an unauthorized
inspection or disclosure as soon as practicable after any
person is criminally charged by indictment or information for
unlawful inspection or disclosure.
REASONS FOR CHANGE
The Committee is concerned that return information obtained
by a recipient by consent is not subject to the same protection
and limits on use as other taxpayer information.
EXPLANATION OF PROVISION
Under the provision, persons designated by the taxpayer to
receive return information shall not use the information for
any purpose other than the express purpose for which consent
was granted and shall not disclose return information to any
other person without the express permission of, or request by,
the taxpayer.
EFFECTIVE DATE
The provision is effective for disclosures made after the
date of enactment.
3. Clarification of equitable relief from joint liability (sec. 113 of
the bill and sec. 6015 of the Code)
PRESENT LAW
If a married couple elects to file a tax return on which
they report their income jointly, they are generally liable
jointly and severally for the entire tax liability that should
have been reported on the joint return.\44\ A spouse may be
entitled to relief from joint liability, in whole or in part,
under the innocent spouse relief provisions of the Code.
---------------------------------------------------------------------------
\44\Sec. 6103(d).
---------------------------------------------------------------------------
Grounds for relief from joint liability
There are three types of relief: general innocent spouse
relief, relief for spouses no longer married or legally
separated (separation of liabilities), and equitable relief.
The grounds for relief and its scope differ among these three
types of relief. In addition, the first two types of relief
must be sought no later than two years after the date the IRS
began collection activities against the electing spouse. For
equitable relief, there is no limitations period in the
statute.
General relief from joint liability with respect to an
understatement of tax is available to all joint filers who make
a timely election for such relief and are able to establish the
following.\45\ First, the electing spouse must establish that
the underpayment is attributable to the erroneous items of the
other spouse. Second, the electing spouse must show that at the
time of signing the return, he or she did not know or have
reason to know there was an understatement of tax. Finally,
relief is granted only if it is inequitable to hold the
electing spouse liable for the deficiency in tax, based on all
facts and circumstances.
---------------------------------------------------------------------------
\45\Sec. 6015(b).
---------------------------------------------------------------------------
Separation of liabilities relief from joint liability with
respect to a deficiency is available to persons who are no
longer married, are legally separated, or were no longer living
together in the 12 months ending with the date innocent spouse
relief is elected.\46\ The individual electing relief on this
basis must establish the portion of any deficiency that is
appropriately allocable to him or her. Special rules are
provided in the Code for determining allocation of items that
benefit one spouse more than the other, property transfers, and
children's liability. Relief otherwise available is not
permitted with respect to items of which a spouse was aware at
the time the return was signed and which contributed to a
deficiency.
---------------------------------------------------------------------------
\46\Sec. 6015(c).
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Equitable relief from joint liability may be available to
those spouses who are ineligible under the provisions for
general relief or separation of liabilities relief.\47\ Such
relief is granted only if, taking into account all facts and
circumstances, it is inequitable to hold the individual liable
for the unpaid portion of tax or for a deficiency with respect
to the joint return.
---------------------------------------------------------------------------
\47\Sec. 6015(f).
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Availability and scope of judicial review
If an individual elects to have the general relief
provisions or the separation of liabilities relief provisions
apply with respect to a deficiency, the individual may petition
the Tax Court to review unfavorable determinations by the IRS
with respect to the claimed relief. The Tax Court has held that
its authority to review such IRS determinations is under a de
novo standard.\48\
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\48\Sec. 6015(e)(1).
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The claim for relief from joint liability must be filed no
later than 90 days after the notice of final determination on
relief from joint liability and no earlier than the earlier of
the mailing of such notice of final determination or the date
which is six months after electing such relief. During the
pendency of the Tax Court proceeding, or during the period in
which a petition may be filed, collection action is restricted.
In contrast to the above, the extent to which a denial of a
claim for equitable relief from joint liability is also subject
to judicial review by the Tax Court, the scope of that review,
and the standard for any review have been the subject of
conflicting appellate decisions. An abuse of discretion
standard based on court review of the administrative record was
held to be the correct standard in some instances,\49\ but
other courts have permitted review of information beyond the
administrative record while applying an abuse of discretion
standard.\50\ Still others have applied a de novo standard to
both the scope of the review and the standard of review.\51\
---------------------------------------------------------------------------
\49\Jonson v. Commissioner, 118 T.C. 106, 125 (2002), aff'd on
other grounds, 353 F.3d 1181 (10th Cir. 2003); Mitchell v.
Commissioner, 292 F.3d 800, 807 (D.C. Cir. 2002); Cheshire v.
Commissioner, 282 F.3d 326, 337-38 (5th Cir. 2002).
\50\Commissioner v. Neal, 557 F.3d 1262 (11th Cir. 2009).
\51\Wilson v. Commissioner, 705 F.3d 980 (9th Cir. 2013); Porter v.
Commissioner, 132 T.C. 203, 132 T.C. No. 11 (2009).
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REASONS FOR CHANGE
The Committee is aware that the extent to which a denial of
a claim for equitable relief from joint liability is subject to
judicial review by the Tax Court, as well as the scope of any
such review, have been the subject of conflicting appellate
decisions. As a result, persons resident in different states
but whose circumstances are otherwise similar may be accorded
different rights to judicial review under the Code. The
Committee believes that such disparity of treatment can be
avoided if the statute is clarified to confer a right to
judicial review in all cases, and to specify the scope of such
review.
EXPLANATION OF PROVISION
Under the provision, Tax Court review of innocent spouse
equitable relief cases is not limited to the administrative
record, but it may consider evidence that is newly discovered
or was previously unavailable. The provision also clarifies
that the Tax Court has jurisdiction to redetermine equitable
claims for relief from joint liability, and is not limited to a
review for abuse of discretion by the IRS.
The provision allows taxpayers to request equitable relief
with respect to any unpaid liability before the expiration of
the collection period or, if paid, before the expiration of the
time for claiming a refund or credit.
EFFECTIVE DATE
The provision applies to petitions or requests filed or
pending on or after the date of enactment.
4. Modification of user fee requirements for installment agreements
(sec. 114 of the bill and sec. 6159 of the Code)
PRESENT LAW
The Code authorizes the IRS to enter into written
agreements with any taxpayer under which the taxpayer agrees to
pay taxes owed, as well as interest and penalties, in
installments over an agreed schedule, if the IRS determines
that doing so will facilitate collection of the amounts owed.
This agreement provides for a period during which payments may
be made and while other IRS enforcement actions are held in
abeyance.\52\ An installment agreement generally does not
reduce the amount of taxes, interest, or penalties owed.
However, the IRS is authorized to enter into installment
agreements with taxpayers which do not provide for full payment
of the taxpayer's liability over the life of the agreement. The
IRS is required to review such partial payment installment
agreements at least every two years to determine whether the
financial condition of the taxpayer has significantly changed
so as to warrant an increase in the value of the payments being
made.
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\52\Sec. 6331(k).
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Taxpayers can request an installment agreement by filing
Form 9465, Installment Agreement Request.\53\ If the request
for an installment agreement is approved by the IRS, the IRS
charges a user fee.\54\ Under sections 300.1 and 300.2 of the
Treasury Regulations, the IRS currently charges $120 for
entering into an installment agreement. If the application is
for a direct debit installment agreement, whereby the taxpayer
authorizes the IRS to request the monthly electronic transfer
of funds from the taxpayer's bank account to the IRS, the fee
is reduced to $52. In addition, regardless of the method of
payment, the fee is $43 for low-income taxpayers. For this
purpose, low-income is defined as a person who falls below 250
percent of the Federal poverty guidelines published annually.
Finally, there is no user fee if the agreement qualifies for a
short-term agreement (120 days or less).
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\53\The IRS accepts applications for installment agreements online,
from individuals and businesses, if the total tax, penalties and
interest is below $50,000 for the former, and $25,000 for the latter.
\54\31 U.S.C. sec. 9701; Treas. reg. sec. 300.1. The Independent
Offices Appropriations Act of 1952 (IOAA), 65 Stat. B70, (June 27,
1951). A discussion of the IRS practice regarding user fees and a list
of actions for which fees are charged is included in the Internal
Revenue Manual. See ``User Fees,'' paragraph 1.32.19 IRM, available at
https://www.irs.gov/irm/part1/irm--01-032-019.html.
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REASONS FOR CHANGE
The Committee believes user fees are a barrier to
compliance in collection and discourage low-income taxpayers
from voluntary tax compliance, as many of them do not have the
means to pay the user fee, even at the reduced rate. Further,
when negotiating installment agreements, many low-income
taxpayers are charged the full user fee, despite qualifying for
the reduced amount.\55\
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\55\See American Bar Association letter to Mr. Daniel Werfel,
Acting Commissioner, IRS, ``Comments Concerning User Fees for
Processing Installment Agreements and Offers in Compromise,'' October
1, 2013, page 2, available at http://www.americanbar.org/content/dam/
aba/administrative/taxation/policy/100113comments.authcheckdam.pdf.
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EXPLANATION OF PROVISION
The provision generally prohibits increases in the amount
of user fees charged by the IRS for installment agreements. For
low-income taxpayers (those whose adjusted gross income, as
determined for the most recent year for which such information
is available, does not exceed 250 percent of the applicable
poverty level as determined by the Secretary), it alleviates
the user fee requirement in two ways. First, it waives the user
fee if the low-income taxpayer enters into an installment
agreement under which the taxpayer agrees to make automated
installment payments through a debit account. Second, it
provides that low-income taxpayers who are unable to make
payments electronically remain subject to the required user
fee, but the fee is reimbursed upon completion of the
installment agreement.
EFFECTIVE DATE
The provision applies to agreements entered into on or
after the date that is 60 days after the date of enactment.
5. Reports on Future State and similar online initiatives (sec. 115 of
the bill)
PRESENT LAW
No provision.
REASONS FOR CHANGE
The Committee believes it is necessary to hold the IRS
accountable for its decisions and protect taxpayers who do not
have sufficient access to the Internet.
EXPLANATION OF PROVISION
The provision requires the IRS to submit annual progress
reports on the status of the efforts by the IRS to expand
online taxpayer services (its so-called ``Future State
Initiative''), including a thorough assessment of any service
which is proposed to be shifted to a self-service option.
The provision also requires the GAO to identify and report
on the extent of phone and in-person services currently being
provided to taxpayers residing in rural cities, towns, or
unincorporated areas which has a population of 50,000 or less.
In addition, the GAO must provide recommendations on steps the
IRS can include in the development of its expanded online
taxpayer services to protect the interests of rural taxpayers.
EFFECTIVE DATE
The first IRS report is required to be submitted to the
Senate Committee on Finance and House Committee on Ways and
Means within 12 months of the date of enactment, with
subsequent reports to follow at annual intervals. The GAO
report is required to be submitted to the Senate Committee on
Finance and House Committee on Ways and Means within 12 months
of the date of enactment.
6. Notice from IRS regarding closure of Taxpayer Assistance Centers
(sec. 116 of the bill)
PRESENT LAW
The IRS is not currently required to give notice to
Congress before closing a Taxpayer Assistance Center (``TAC'').
REASONS FOR CHANGE
The Committee is concerned about taxpayers who do not have
access to the Internet, and seeks to ensure that taxpayers who
require and desire in-person access to IRS facilities continue
to have such access.
EXPLANATION OF PROVISION
The provision requires IRS to report to the Senate
Committee on Finance and the House Committee on Ways and Means
90 days in advance, the reasons for a proposed closure of a TAC
and an explanation of the taxpayer assistance services which
will be provided to certain taxpayers by the IRS after the
proposed closure takes effect. The taxpayers are those located
in any rural city, town, or unincorporated area which has a
population of not more than 50,000 who would be affected by the
proposed closure. Any closure of a TAC is treated as a major
rule for purposes of applying the Congressional Review Act.\56\
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\56\5 U.S.C. sec. 801 et seq.
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EFFECTIVE DATE
The provision is effective on the date of enactment.
7. Recovery of certain improperly withheld severance payments (sec. 117
of the bill and secs. 104(a)(4) and 6511 of the Code)
PRESENT LAW
Under present law, certain payments made as compensation
for injuries or sickness are excluded from a taxpayer's gross
income.\57\ Such payments include amounts received as a
pension, annuity or similar allowance for personal injuries or
sickness resulting from active service in the armed forces of
any country.\58\
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\57\Sec. 104.
\58\Sec. 104(a)(4).
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REASONS FOR CHANGE
The Committee believes it is necessary to help impacted
veterans who are either unaware that their disability severance
benefits were reduced by tax withholding or veterans who became
aware of such withholding who have been unable to recoup their
losses because of the expiration of the three-year statute of
limitations for amending a tax return.
EXPLANATION OF PROVISION
The provision requires that, not later than one year after
the date of enactment, the Secretary of Defense identify
certain disability severance payments made to veterans from
which income taxes were withheld. Each individual so identified
shall receive a notice of the amount of severance payments
which were improperly withheld upon, and other information
determined to be necessary by the Secretary of Treasury to
carry out the purposes of the provision. Each individual will
receive instructions for filing an amended return to recover
the improperly withheld amounts.
The provision extends the statute of limitations on claims
for refund, such that individuals who receive notice of
improper withholding will have one year from the date of notice
in which to file a refund claim.
The provision provides that the Secretary of Defense shall
take such actions as may be necessary to ensure that amounts
are not withheld for tax purposes from severance payments made
by the Secretary of Defense to individuals when such payments
are not considered gross income pursuant to section 104(a)(4).
The provision requires the Secretary of Defense to submit a
report within 15 months of the date of enactment to the Senate
Committee on Armed Services, the Senate Committee on Veterans'
Affairs, the Senate Committee on Finance, the House Committee
on Armed Services, the House Committee on Veterans' Affairs,
and the House Committee on Ways and Means, specifying the
number of individuals identified as having been withheld upon,
the aggregate amount withheld, and a description of the actions
to be taken by the Secretary of Defense to ensure that future
payments are not withheld.
EFFECTIVE DATE
The provision is effective on the date of enactment.
C. Whistleblower Protections
1. Reports concerning whistleblower awards (sec. 121 of the bill)
PRESENT LAW
Awards to whistleblowers
The Code authorizes the IRS to pay such sums as deemed
necessary for: ``(1) detecting underpayments of tax; or (2)
detecting and bringing to trial and punishment persons guilty
of violating the internal revenue laws or conniving at the
same.''\59\ Generally, amounts are paid based on a percentage
of proceeds collected based on the information provided.
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\59\Sec. 7623.
---------------------------------------------------------------------------
The Tax Relief and Health Care Act of 2006 (the
``Act'')\60\ established an enhanced reward program for actions
in which the tax, penalties, interest, additions to tax, and
additional amounts in dispute exceed $2,000,000 and, if the
taxpayer is an individual, the individual's gross income
exceeds $200,000 for any taxable year in issue. In such cases,
the award is calculated to be at least 15 percent but not more
than 30 percent of collected proceeds (including penalties,
interest, additions to tax, and additional amounts).
---------------------------------------------------------------------------
\60\Pub. L. No. 109-432.
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Under the Act, the Secretary is required to issue guidance
within one year of the date of enactment of the Act for the
establishment of the Whistleblower Office within the IRS to
administer the reward program. The Whistleblower Office may
seek assistance from the individual providing information or
from his or her legal representative, and may reimburse the
costs incurred by any legal representative out of the amount of
the reward. To the extent the disclosure of returns or return
information is required to render such assistance, the
disclosure must be pursuant to an IRS tax administration
contract.
The Act permits an individual to appeal the amount or a
denial of an award determination to the United States Tax Court
(the ``Tax Court'') within 30 days of such determination. Tax
Court review of an award determination may be assigned to a
special trial judge.
The Act also requires the Secretary to conduct a study and
report to Congress on the effectiveness of the whistleblower
reward program and any legislative or administrative
recommendations regarding the administration of the program.
Rules relating to taxpayers with foreign assets
U.S. persons who transfer assets to, and hold interests in,
foreign bank accounts or foreign entities may be subject to
self-reporting requirements under both the Foreign Account Tax
Compliance Act (``FATCA'') provisions in the Code and the
provisions in the Bank Secrecy Act and its underlying
regulations (which provide for FinCEN Form 114, Report of
Foreign Bank and Financial Accounts, the ``FBAR''), as
discussed below. Amounts recovered for violations of FATCA
provisions in the Code may be considered for purposes of
computing a whistleblower award under the Code. However, the
IRS has found that amounts recovered for violations of non-tax
laws, including the provisions of the Bank Secrecy Act (and
FBAR) for which the IRS has delegated authority, may not be
considered for purposes of computing an award under the
Code.\61\
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\61\Chief Counsel Memorandum, ``Scope of Awards Payable Under
I.R.C. section 7623,'' April 23, 2012, available at http://www.tax-
whistleblower.com/resources/PMTA-92012-10.pdf. Under Title 31, ``[t]he
Secretary may pay a reward to an individual who provides original
information which leads to a recovery of a criminal fine, civil
penalty, or forfeiture, which exceeds $50,000, for a violation of
[chapter 53 of Title 31]. The Secretary shall determine the amount of a
reward. . .[and]. . . may not award more than 25 per centum of the net
amount of the fine, penalty, or forfeiture collected or $150,000,
whichever is less.'' 31 U.S.C. Sec. 5323.
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FATCA
The Code imposes a withholding and reporting regime for
U.S. persons engaged in foreign activities, directly or
indirectly, through a foreign business entity.\62\ This regime
for outbound payments,\63\ commonly referred to as the Foreign
Account Tax Compliance Act (``FATCA''),\64\ imposes a
withholding tax of 30 percent of the gross amount of certain
payments to foreign financial institutions (``FFIs''') unless
the FFI establishes that it is compliant with the information
reporting requirements of FATCA which include identifying
certain U.S. accounts held in the FFI. An FFI must report with
respect to a U.S. account (1) the name, address, and taxpayer
identification number of each U.S. person holding an account or
a foreign entity with one or more substantial U.S. owners
holding an account; (2) the account number; (3) the account
balance or value; and (4) except as provided by the Secretary,
the gross receipts, including from dividends and interest, and
gross withdrawals or payments from the account.\65\
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\62\See, e.g., secs. 6038, 6038B, and 6046.
\63\Hiring Incentives to Restore Employment Act of 2010, Pub. L.
No. 111-147.
\64\Foreign Account Tax Compliance Act of 2009 is the name of the
House and Senate bills in which the provisions first appeared. See H.R.
3933 and S. 1934 (October 27, 2009).
\65\Sec. 1471(c).
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Individuals are required to disclose with their annual
Federal income tax return any interest in foreign accounts and
certain foreign securities if the aggregate value of such
assets is in excess of the greater of $50,000 or an amount
determined by the Secretary in regulations. Failure to do so is
punishable by a penalty of $10,000, which may increase for each
30-day period during which the failure continues after
notification by the IRS, up to a maximum penalty of
$50,000.\66\
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\66\Sec. 6038D. Guidance on the scope of reporting required, the
threshold values triggering reporting requirements for various fact
patterns and how the value of assets is to be determined is found in
Treas. Reg. secs. 1.6038D-1 to 1.6038D-8.
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FBAR
In addition to the reporting requirements under the Code,
U.S. persons who transfer assets to, and hold interests in,
foreign bank accounts or foreign entities may be subject to
self-reporting requirements under the Bank Secrecy Act.\67\
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\67\Bank Secrecy Act, 31 U.S.C. secs. 5311-5332.
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The Bank Secrecy Act imposes reporting obligations on both
financial institutions and account holders. With respect to
account holders, a U.S. citizen, resident, or person doing
business in the United States is required to keep records and
file reports, as specified by the Secretary, when that person
enters into a transaction or maintains an account with a
foreign financial agency.\68\ Regulations promulgated pursuant
to broad regulatory authority granted to the Secretary in the
Bank Secrecy Act\69\ provide additional guidance regarding the
disclosure obligation with respect to foreign accounts.
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\68\31 U.S.C. sec. 5314. The term ``agency'' in the Bank Secrecy
Act includes financial institutions.
\69\31 U.S.C. sec. 5314(a) provides: ``Considering the need to
avoid impeding or controlling the export or import of monetary
instruments and the need to avoid burdening unreasonably a person
making a transaction with a foreign financial agency, the Secretary of
the Treasury shall require a resident or citizen of the United States
or a person in, and doing business in, the United States, to keep
records, file reports, or keep records and file reports, when the
resident, citizen, or person makes a transaction or maintains a
relation for any person with a foreign financial agency.''
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The FBAR must be filed by June 30\70\ of the year following
the year in which the $10,000 filing threshold is met.\71\ The
FBAR is required to be filed electronically with the Treasury
Department through the FinCEN BSA E-filing System.\72\ Failure
to file the FBAR is subject to both criminal\73\ and civil
penalties.\74\ Willful failure to file an FBAR may be subject
to penalties in amounts not to exceed the greater of $100,000
or 50 percent of the amount in the account at the time of the
violation.\75\ A non-willful, but negligent, failure to file is
subject to a penalty of $10,000 for each negligent
violation.\76\ The penalty may be waived if (1) there is
reasonable cause for the failure to report and (2) the amount
of the transaction or balance in the account was properly
reported. In addition, serious violations are subject to
criminal prosecution, potentially resulting in both monetary
penalties and imprisonment. Civil and criminal sanctions are
not mutually exclusive.
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\70\The Surface Transportation and Veterans Health Care Choice
Improvement Act of 2015, Pub. L. No. 114-41, changed the filing date
for FinCEN Form 114 from June 30 to April 15 (with a maximum extension
for a 6-month period ending on October 15 and with provision for an
extension under rules similar to the rules in Treas. Reg. section
1.6081--5) for tax returns for taxable years beginning after December
31, 2015.
\71\31 C.F.R. sec. 103.27(c). The $10,000 threshold is the
aggregate value of all foreign financial accounts in which a U.S.
person has a financial interest or over which the U.S. person has
signature or other authority.
\72\See http://bsaefiling.fincen.treas.gov/main.html. The
predecessor form, Treasury Form TD F 90-22.1, was filed with the IRS
Detroit Computing Center.
\73\31 U.S.C. sec. 5322 (failure to file is punishable by a fine up
to $250,000 and imprisonment for five years, which may double if the
violation occurs in conjunction with certain other violations).
\74\31 U.S.C. sec. 5321(a)(5).
\75\31 U.S.C. sec. 5321(a)(5)(C).
\76\31 U.S.C. sec. 5321(a)(5)(B)(i), (ii).
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FBAR enforcement responsibility
Until 2003, the Financial Crimes Enforcement Network
(``FinCEN''), an agency of the Department of the Treasury, had
exclusive responsibility for civil penalty enforcement of FBAR,
although administration of the FBAR reporting regime was
delegated to the IRS.\77\ As a result, persons who were more
than 180 days delinquent in paying any FBAR penalties were
referred for collection action to the Financial Management
Service of the Treasury Department, which is responsible for
such non-tax collections.\78\ Continued nonpayment resulted in
a referral to the Department of Justice for institution of
court proceedings against the delinquent person. In 2003, the
Secretary delegated FBAR civil enforcement authority to the
IRS.\79\ The authority delegated to the IRS in 2003 included
the authority to determine and enforce civil penalties,\80\ as
well as to revise the form and instructions. However, the Bank
Secrecy Act does not include collection powers similar to those
available for enforcement of the tax laws under the Code. As a
consequence, FBAR civil penalties remain collectible only in
accord with the procedures for non-tax collection described
above.
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\77\Treas. Directive 15-14 (December 1, 1992), in which the
Secretary delegated to the IRS authority to investigate violations of
the Bank Secrecy Act. If the IRS Criminal Investigation Division
declines to pursue a possible criminal case, it is to refer the matter
to FinCEN for civil enforcement.
\78\31 U.S.C. sec. 3711(g).
\79\31 C.F.R. sec. 103.56(g). Memorandum of Agreement and
Delegation of Authority for Enforcement of FBAR Requirements (April 2,
2003); News Release, Internal Revenue Service, IR-2003-48 (April 10,
2003). Secretary of the Treasury, ``A Report to Congress in Accordance
with sec. 361(b) of the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of
2001 (USA Patriot Act)'' (April 24, 2003).
\80\A penalty may be assessed before the end of the six-year period
beginning on the date of the transaction with respect to which the
penalty is assessed. 31 U.S.C. sec. 5321(b)(1). A civil action for
collection may be commenced within two years of the later of the date
of assessment and the date a judgment becomes final in any related
criminal action. 31 U.S.C. sec. 5321(b)(2).
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The FBAR is not filed as part of the income tax return nor
filed in the same office as that return and, as a result, is
not considered ``return information'' for purposes of the Code
and its distribution to other law enforcement agencies is not
limited by the nondisclosure rules of the Code.\81\ In
contrast, the nondisclosure constraints on IRS personnel who
examine income tax liability (i.e., Form 1040 reporting)
generally preclude the sharing of tax return information with
any other IRS personnel or Treasury officials, absent a tax
administration purpose.\82\ Tax administration is defined as
``the administration, management, conduct, direction, and
supervision of the execution and application of the internal
revenue laws or related statutes'' and does not necessarily
include administration of Title 31.\83\ Because Title 31
includes enforcement of non-tax provisions of the Bank Secrecy
Act, Title 31 is not, per se, a ``related statute,'' for
purposes of finding that a disclosure of such information would
be for tax administration purposes. As a result, IRS personnel
charged with investigating and enforcing the civil penalties
under Title 31 are permitted access to Form 1040 information
that would support or shed light on the existence of an FBAR
violation only if there is a determination, in writing, that
the FBAR violation was in furtherance of a Code violation and
the statutes are ``related statutes''' for purposes of
authorizing the disclosure.\84\
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\81\Section 6103 bars disclosure of return information, unless
permitted by an exception.
\82\Sec. 6103(h)(1). In essence, section 6103(h)(1) authorizes
officers and employees of both the Treasury Department and IRS to have
access to return information on the basis of a ``need to know'' in
order to perform a tax administration function.
\83\Sec. 6103(b)(4).
\84\Internal Revenue Manual, secs. 4.26.14.2 and 4.26.14.2.1.
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REASONS FOR CHANGE
The Committee understands that there may be an
inconsistency with which amounts collected by the IRS on the
basis of whistleblower information are included in a
whistleblower award. Accordingly, the Committee believes that
it is necessary to determine whether the current regime
discourages whistleblowers from reporting foreign bank accounts
to the IRS.
EXPLANATION OF PROVISION
The provision requires the GAO to report on whether and to
what extent the Secretary of the Treasury has paid
whistleblower awards for information relating to violations of
internal revenue laws under the Code and for FBAR violations
under the Bank Secrecy Act.
The provision further requires TIGTA to investigate whether
and to what extent the IRS is asserting FBAR penalties in lieu
of Title 26 penalties.
The GAO study and the TIGTA report are to be submitted to
the Senate Committee on Finance and the House Committee on Ways
and Means within 12 months of the date of enactment.
EFFECTIVE DATE
The provision is effective on the date of enactment.
2. Whistleblower reforms (sec. 122 of the bill and secs. 6103, 7213,
and 7623 of the Code)
PRESENT LAW
In general
Under section 7623, individuals who submit information
leading to detection of underpayment of tax or to detection,
trial, and punishment of persons guilty of violating internal
revenue laws, may file a claim for an award of 15 to 30 percent
of recovered funds resulting from such action.
Disclosure rules for whistleblowers
Section 6103 provides a general rule of confidentiality for
returns and return information: ``returns and return
information shall be confidential and except as authorized by
this Title . . . [none of the specified recipients] shall
disclose any return or return information obtained by him . .
.''\85\ One of the exceptions to the general rule of
confidentiality permits the IRS to make investigative
disclosures of return information to third parties. The
disclosures, made in accordance with regulations, are to be
made to the extent necessary to obtain information, which is
not otherwise reasonably available, with respect to the correct
determination of tax, liability for tax, the amount to be
collected, or with respect to the enforcement of any provision
of Title 26. The third party recipient of the return
information furnished during an investigative disclosure is not
subject to the general rule of confidentiality provided by
section 6103.
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\85\Sec. 6103(a).
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There is no provision of section 6103 to provide
whistleblowers with status updates regarding what the IRS has
done with the information provided by the whistleblower. Such
status information would be the return information of the
taxpayer being audited/investigated for additional tax
liability.
A taxpayer can file or sue for civil damages for the
unauthorized disclosure and/or inspection of returns and return
information.\86\ In addition, criminal penalties apply for the
willful unauthorized disclosure or inspection of returns and
return information.
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\86\Sec. 7431.
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Protection against retaliation
Though other statutes such as the False Claims Act\87\
currently protect some individuals from employer retaliation,
those who file claims under the Code are not explicitly
afforded these same protections.
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\87\31 U.S.C. Sec. 3730(h)(2).
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REASONS FOR CHANGE
The Committee believes that modifications to the disclosure
rules are necessary to improve communication with IRS
whistleblowers. The Committee also believes it is important to
ensure that any additional taxpayer information received by
whistleblowers is fully protected.
EXPLANATION OF PROVISION
This provision amends section 6103 to: (1) allow the IRS to
exchange information with whistleblowers to the extent
disclosure is necessary in obtaining information, which is not
otherwise reasonably available, with respect to the correct
determination of tax liability or the amount to be collected
with respect to the enforcement of any other provision of the
Code; and (2) require the Secretary to notify the whistleblower
as to the status of their case not later than 30 days after:
(i) the case has been referred for an audit or examination; and
(ii) the taxpayer makes a payment to settle the tax liability
to which the information relates. Upon written request by the
whistleblower and so long as the disclosure would not seriously
impair Federal tax administration, the Secretary has the
authority to provide information on the status and stage of any
investigation, and in the case of a determination of the amount
of any award, the reasons for such determination. To ensure
taxpayer information is protected, whistleblowers receiving
information under either (1) or (2) are subject to criminal
penalties for unauthorized disclosure of taxpayer information.
The provision explicitly protects individuals who file
claims under section 7623. A person who alleges discharge or
other reprisal by any person in violation of these protections
may file a complaint with the Secretary of Labor, not later
than 180 days after the date on which the violation occurs.
These protections are consistent with those currently available
under the False Claims Act and may expose employers to
substantial damages for punishing individuals whose conduct is
protected, for example through reinstatement, back pay plus
interest, and compensation for other special damages including
litigation costs and reasonable attorneys' fees.
EFFECTIVE DATE
The modifications made to the disclosure rules apply to
disclosures made after the date of enactment. The protections
from retaliation are effective on the date of enactment.
D. Reform of Laws Governing Internal Revenue Service Employees
1. Electronic record retention (sec. 131 of the bill)
PRESENT LAW
Federal executive agencies are required to maintain and
preserve Federal records,\88\ whether in paper or electronic
form, and protect against unauthorized removal of such records.
Policies for the retention and disposal of records must conform
to the requirements of the record-management procedures, as
implemented by the Archivist of the United States.\89\ Email
accounts are specifically included within the scope of records
subject to the record-retention policies.\90\ Each agency is
required to provide instruction and guidance to persons
conducting business on behalf of the agency, including
employees, officers and contractors.\91\
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\88\The Federal Records Act requirements for federal agencies are
found in 44 U.S.C. chapter 31 (Records Management by Federal Agencies).
See 44 U.S.C. sec. 3301 for a definition of Federal records that
generally includes all documentary materials that agencies receive or
create in the conduct of official business and that may have
evidentiary value with respect to official business, regardless of the
physical form of the materials.
\89\See generally Title 44, at chapter 21 (national archives and
records administration), chapter 29 (records management by the
Archivist of the United States and the General Services
Administration), chapter 31 (records management by Federal agencies)
and chapter 33 (disposal of records).
\90\The regulations implementing the Federal Records Act are found
in 36 CFR chapter XII, subchapter B--Records Management; 36 CFR sec.
1236.22(a). These regulations implement the provisions of 44 U.S.C.
chapters 21, 29, 31 and 33 and specify policies for federal agencies'
records management programs relating to proper records creation and
maintenance, adequate documentation, and records disposition.
\91\A quarterly bulletin published by the National Archives and
Records Administration (``NARA'') provides guidance to executive
agencies. See generally NARA Bulletin 2013-03, available at http://
www.archives.gov/records-mgmt/bulletins/2013/2013-03.html.
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The government-wide record-management requirements are in
addition to the obligations to protect the sensitive
information for which the IRS is responsible. Tax information
is sensitive and confidential.\92\ The Code imposes civil and
criminal penalties to protect it from unauthorized use,
inspection or disclosure.\93\ As a condition of receiving tax
data, outside agencies must establish to the satisfaction of
the IRS that they have adequate programs and security protocols
in place to protect the data received.\94\
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\92\Sec. 6103(a).
\93\See secs. 7213 (criminal unauthorized disclosure), 7213A
(criminal unauthorized inspection) and 7431 (civil remedy for
unauthorized inspection or disclosure).
\94\Sec. 6103(p)(4).
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There are no Code provisions governing IRS record
retention, management, or transfer of paper or electronic
records. The Internal Revenue Manual (``IRM'') provides IRS
employees processes, procedures, and guidelines regarding
records and information management, including the creation,
maintenance, retrieval, preservation, and disposition of all
records.\95\
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\95\IRM sections 1.15.1-1.15.36, Records and Information
Management, available at https://www.irs.gov/irm/part1/irm--01-015-
001.html. According to NARA, the IRM's coverage of records and
information management policies, routines, procedures, and requirements
indicates compliance with 36 CFR 1220.34(c) and 36 CFR 1222 through
1238. National Archives and Records Administration, Department of the
Treasury, Internal Revenue Service, Records Management Inspection
Report, June 2015, available at http://www.archives.gov/records-mgmt/
pdf/irs-inspection.pdf.
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REASONS FOR CHANGE
The Committee believes that retaining certain e-mail
records is necessary to protect the interests of taxpayers and
hold IRS officials accountable for their actions. Pursuant to
these goals and to increase transparency, the Committee
believes it necessary to (i) incentivize the IRS to meet its
December 31, 2016, deadline (as provided by a joint agency
directive) concerning record retention by requiring the
indefinite retention of e-mail records of all IRS personnel
until TIGTA certifies that the IRS is in compliance with
certain requirements to maintain and transfer e-mail records;
and (ii) expand the e-mail record retention requirements going
forward to cover all principal officers and specified
employees, as defined.
EXPLANATION OF PROVISION
The provision codifies the joint directive regarding the
management of government records issued by the Office of
Management and Budget and the National Archives and Records
Administration.\96\ Accordingly, the provision requires that
permanent and temporary e-mail records of the IRS be retained
in an appropriate electronic system that supports records
management and litigation requirements by December 31, 2016. In
addition, the provision requires that by December 31, 2016, the
IRS Commissioner of Internal Revenue (``Commissioner'') and the
Chief Counsel for the IRS (``Chief Counsel'') maintain e-mail
records of all principal officers and specified employees for
no less than 15 years beginning on the date the record was
generated. At the end of the 15-year period, the IRS is
required to transfer all the email records for principal
officers and specified employees to the National Archives for
permanent storage.
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\96\Office of Management and Budget and National Archives and
Records Administration, Memorandum for the Heads of Executive
Departments and Agencies and Independent Agencies: Managing Government
Records Directive (M-12-18), August 24, 2012, available at https://
www.whitehouse.gov/sites/default/files/omb/memoranda/2012/m-12-18.pdf.
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Principal officer means any employee whose position is
listed under the IRS in the most recent version of the United
States Government Manual published by the Office of the Federal
Register, any employee who is a senior staff member reporting
directly to the Commissioner or the Chief Counsel, and any
associate counsel, deputy counsel or division head in the
Office of Chief Counsel. Specified employee means any employee
who holds a Senior Executive Service position (as defined in
Title 5 of the United States Code) in the IRS or the Office of
Chief Counsel, and is not a principal officer of the IRS.
Until TIGTA certifies to the Senate Committee on Finance
and the House Committee on Ways and Means that the IRS is in
compliance with the requirements to maintain and transfer e-
mail records, the Commissioner and the Chief Counsel must
retain the email records of all personnel. The provision
requires TIGTA to prepare an interim report on the steps being
taken to comply with the provision by September 30, 2016, and a
final report on whether the IRS is in compliance with the
provision by April 1, 2017, for the Senate Committee on Finance
and the House Committee on Ways and Means.
EFFECTIVE DATE
The provision is effective on the date of enactment.
2. Sense of the Senate on revision of the Hatch Act (sec. 132 of the
bill)
The Hatch Act (``Act'') prohibits civilian executive branch
employees of the Federal government, District of Columbia
government, and some State and local employees who work in
connection with federally funded programs from running for
partisan political office and from engaging in certain other
partisan political activities.\97\ The Act was significantly
amended in 1993, to allow most Federal employees to engage in
voluntary, partisan political activities as long as those
activities take place during their own free time, away from
their federal jobs, and off of federal premises.\98\ Employees
covered by the Hatch Act may not use their official authority
to influence or affect an election and may not knowingly help
in political fundraising, run for partisan elective office,
knowingly solicit or discourage political activity by persons
with certain business before the agency, or engage in political
activity on government time or using government resources.
Employees at certain listed agencies are further restricted
from taking any active part in political management or
political campaigns, even while off-duty. Exceptions apply for
the President and Vice President and for certain other top
officials.
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\97\The Hatch Act is codified at 5 U.S.C. sections 1501-1508
(applicable to State and local employees) and 5 U.S.C. sections 7321-
7326 (applicable to Federal employees).
\98\Hatch Act Reform Amendments of 1993, sec. 2, Pub. L. No. 103-
94, October 6, 1993.
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It is the Sense of the Senate that the Act\99\ be revised
to designate any employee of the Department of the Treasury who
is primarily responsible for matters relating to exempt
organizations (pursuant to section 501(c) or 527) as ``further
restricted.'' By designating these employees as ``further
restricted,'' the public can be assured that any impermissible
political activity by these IRS employees that is detected will
result in serious penalties, including removal from Federal
employment.
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\99\5 U.S.C. sec. 7323(b)(2)(B)(i).
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3. Prohibition on rehiring former IRS employees who were involuntarily
separated for misconduct (sec. 133 of the bill and sec. 7804 of the
Code)
PRESENT LAW
Employees of the IRS are subject to rules governing Federal
employment generally,\100\ as well as rules of conduct specific
to Department of the Treasury and the IRS. Standards of Ethical
Conduct for Employees of the Executive Branch are supplemented
by additional rules applicable to employees of the Department
of the Treasury.\101\
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\100\Part III of Title 5 of the United States Code prescribes rules
for Federal employment, including employment, retention, and management
and employee issues.
\101\Standards of Ethical Conduct for Employees of the Executive
Branch, 5 C.F.R. 735. 5 CFR 3101, Supplemental Standards of Ethical
Conduct for Employees of the Department of the Treasury; 31 CFR Part 0,
Department of the Treasury Employee Rules of Conduct.
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The Code\102\ provides that the Commissioner of the IRS has
such duties and powers as prescribed by the Secretary. Unless
otherwise specified by the Secretary, such duties and powers
include the power to administer, manage, conduct, direct, and
supervise the execution and application of the internal revenue
laws or related statutes and tax conventions to which the
United States is a party, and to recommend to the President a
candidate for Chief Counsel (and recommend the removal of the
Chief Counsel). Unless otherwise specified by the Secretary,
the Commissioner is authorized to employ such persons as the
Commissioner deems proper for the administration and
enforcement of the internal revenue laws and is required to
issue all necessary directions, instructions, orders, and rules
applicable to such persons,\103\ including determination and
designation of posts of duty.
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\102\Sec. 7803(a).
\103\Sec. 7804.
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The Restructuring Act\104\ requires the IRS to terminate an
employee for certain proven violations committed by the
employee in connection with the performance of official duties.
The violations include: (1) willful failure to obtain the
required approval signatures on documents authorizing the
seizure of a taxpayer's home, personal belongings, or business
assets; (2) providing a false statement under oath material to
a matter involving a taxpayer; (3) with respect to a taxpayer,
taxpayer representative, or other IRS employee, the violation
of any right under the U.S. Constitution, or any civil right
established under Titles VI or VII of the Civil Rights Act of
1964, Title IX of the Educational Amendments of 1972, the Age
Discrimination in Employment Act of 1967, the Age
Discrimination Act of 1975, sections 501 or 504 of the
Rehabilitation Act of 1973 and Title I of the Americans with
Disabilities Act of 1990; (4) falsifying or destroying
documents to conceal mistakes made by any employee with respect
to a matter involving a taxpayer or a taxpayer representative;
(5) assault or battery on a taxpayer or other IRS employee, but
only if there is a criminal conviction or a final judgment by a
court in a civil case, with respect to the assault or battery;
(6) violations of the 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; (7) willful misuse of section 6103 for the purpose of
concealing data from a Congressional inquiry; (8) willful
failure to file any tax return required under the Code on or
before the due date (including extensions) unless failure is
due to reasonable cause; (9) willful understatement of Federal
tax liability, unless such understatement is due to reasonable
cause; and (10) threatening to take an official action, such as
an audit, or delay or fail to take official action with respect
to a taxpayer for political purposes or for the purpose of
extracting personal gain or benefit.
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\104\Pub. L. No. 105-206, sec. 1203(b), July 22, 1998.
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The Restructuring Act provides non-delegable authority to
the Commissioner to determine that mitigating factors exist,
that, in the Commissioner's sole discretion, mitigate against
terminating the employee. The Act also provides that the
Commissioner, in his sole discretion, may establish a procedure
to determine whether an individual should be referred for such
a determination by the Commissioner. TIGTA is required to track
employee terminations and terminations that would have occurred
had the Commissioner not determined that there were mitigation
factors and include such information in TIGTA's annual report
to Congress.
REASONS FOR CHANGE
TIGTA reported that the IRS had rehired 141 former
employees who had previously been dismissed involuntarily for
cause.\105\ The types of misconduct that led to the involuntary
dismissals included willful failure to file tax returns,
unauthorized access to confidential tax information,
falsification of official forms, abuse of leave, and other
violations of IRS policies. The Committee believes that
rehiring persons who were fired for such misconduct is improper
and poses a serious risk to the confidentiality of the
information entrusted to the IRS and erodes trust in the IRS.
In order to restore trust in the integrity of IRS employees and
hold IRS officials accountable for their hiring practices, it
is necessary to ban rehiring persons who were dismissed for
cause.
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\105\Inspector General for Tax Administration, Department of the
Treasury, Additional Consideration of Prior Conduct and Performance
Issues Is Needed When Hiring Former Employees (TIGTA 2015-10-006),
December 30, 2014, available at https://www.treasury.gov/tigta/
auditreports/2015reports/201510006fr.pdf.
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EXPLANATION OF PROVISION
A former employee of the IRS who was involuntarily
separated due to misconduct under subchapter A of Chapter 80 of
the Code, under chapters 43 or 75 of Title 5 of the United
States Code, or whose employment was terminated under section
1203 of the IRS Restructuring Act of 1998, cannot be reemployed
by the IRS.
EFFECTIVE DATE
The provision is effective with respect to any employee
removed from employment before, on, or after the date of
enactment. However, the provision does not apply to any
employee who is employed by the IRS as of the date of enactment
with respect to any removal for misconduct which occurred
before such date.
4. Authority to remove or transfer senior executives who fail in their
performance or engage in serious misconduct (sec. 134 of the bill and
sec. 7804 of the Code)
PRESENT LAW
Employees of the IRS are subject to rules governing Federal
employment generally,\106\ as well as rules of conduct specific
to Department of the Treasury and IRS. Standards of Ethical
Conduct for Employees of the Executive Branch are supplemented
by additional rules applicable to employees of the Department
of the Treasury.\107\
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\106\Part III of Title 5 of the United States Code prescribes rules
for Federal employment, including employment, retention, and management
and employee issues.
\107\Standards of Ethical Conduct for Employees of the Executive
Branch, 5 C.F.R. 735. 5 CFR 3101, Supplemental Standards of Ethical
Conduct for Employees of the Department of the Treasury; 31 CFR Part 0,
Department of the Treasury Employee Rules of Conduct.
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The Code\108\ provides that the Commissioner of the IRS has
such duties and powers as prescribed by the Secretary. Unless
otherwise specified by the Secretary, such duties and powers
include the power to administer, manage, conduct, direct, and
supervise the execution and application of the internal revenue
laws or related statutes and tax conventions to which the
United States is a party, and to recommend to the President a
candidate for Chief Counsel (and recommend the removal of the
Chief Counsel). Unless otherwise specified by the Secretary,
the Commissioner is authorized to employ such persons as the
Commissioner deems proper for the administration and
enforcement of the internal revenue laws and is required to
issue all necessary directions, instructions, orders, and rules
applicable to such persons,\109\ including determination and
designation of posts of duty.
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\108\Sec. 7803(a).
\109\Sec. 7804.
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The Restructuring Act\110\ requires the IRS to terminate an
employee for certain proven violations committed by the
employee in connection with the performance of official duties.
The violations include: (1) willful failure to obtain the
required approval signatures on documents authorizing the
seizure of a taxpayer's home, personal belongings, or business
assets; (2) providing a false statement under oath material to
a matter involving a taxpayer; (3) with respect to a taxpayer,
taxpayer representative, or other IRS employee, the violation
of any right under the U.S. Constitution, or any civil right
established under Titles VI or VII of the Civil Rights Act of
1964, Title IX of the Educational Amendments of 1972, the Age
Discrimination in Employment Act of 1967, the Age
Discrimination Act of 1975, sections 501 or 504 of the
Rehabilitation Act of 1973 and Title I of the Americans with
Disabilities Act of 1990; (4) falsifying or destroying
documents to conceal mistakes made by any employee with respect
to a matter involving a taxpayer or a taxpayer representative;
(5) assault or battery on a taxpayer or other IRS employee, but
only if there is a criminal conviction or a final judgment by a
court in a civil case, with respect to the assault or battery;
(6) violations of the 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; (7) willful misuse of section 6103 for the purpose of
concealing data from a Congressional inquiry; (8) willful
failure to file any tax return required under the Code on or
before the due date (including extensions) unless failure is
due to reasonable cause; (9) willful understatement of Federal
tax liability, unless such understatement is due to reasonable
cause; and (10) threatening to take an official action, such as
an audit, or delay or fail to take official action with respect
to a taxpayer for political purposes or for the purpose of
extracting personal gain or benefit.
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\110\Pub. L. No. 105-206, sec. 1203(b), July 22, 1998.
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The Restructuring Act provides non-delegable authority to
the Commissioner to determine that mitigating factors exist,
that, in the Commissioner's sole discretion, mitigate against
terminating the employee. The Act also provides that the
Commissioner, in his sole discretion, may establish a procedure
to determine whether an individual should be referred for such
a determination by the Commissioner. The IG is required to
track employee terminations and terminations that would have
occurred had the Commissioner not determined that there were
mitigation factors and include such information in the IG's
annual report to Congress.
Adverse personnel actions may be reviewed by the Merit
Systems Protection Board, (``the Board'') under its appellate
jurisdiction.\111\ Members of the Senior Executive Service
(``SES'') have additional rights to seek informal hearings of
the Board after notice of proposed adverse action by the
IRS.\112\
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\111\Title 5 C.F.R, Part 1201-Practices and Procedures.
\112\5 U.S.C. sec. 3592 and related regulations.
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REASONS FOR CHANGE
The Committee believes that providing additional authority
to remove or demote senior executive employees for poor
performance or misconduct is necessary to help restore public
confidence and trust in the IRS and to increase accountability.
EXPLANATION OF PROVISION
Under the provision, the Commissioner may remove or demote
any individual employed in a senior executive position at the
IRS if the Commissioner determines the performance or
misconduct of the individual warrants such removal. The
Commissioner has this authority to immediately remove senior
executives notwithstanding the 120-day moratorium provided
under current law. Within 30 days of removing or demoting a
senior executive, the Commissioner is required to notify the
Senate Committee on Finance, the Senate Committee on Homeland
Security and Governmental Affairs, the House Committee on Ways
and Means, and the House Committee on Oversight and Government
Reform (herein the ``Committees'''). Individual means a career
appointee (as defined in section 3132(a)(4) of Title 5).
Misconduct includes neglect of duty, malfeasance, or failure to
accept a directed reassignment or to accompany a position in a
transfer of function. Senior executive position means an SES
position (as defined in section 3132(a)(2) of Title 5).
Appeal rights of the employee are provided that are similar
in scope to those applicable to removal of executives at the
Department of Veterans Affairs.\113\ The senior executive is
allowed an opportunity for an expedited review by the Board.
The expedited review by the Board is to be conducted by an
administrative law judge at the Board, and if the judge does
not conclude their review within 21 days then the removal or
demotion is final. There is no further appeal permitted beyond
the administrative law judge.
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\113\Section 707 of ``Veterans Access, Choice and Accountability
Act of 2014,'' Pub. L. No. 113-146, (August 7, 2014).
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If the senior executive is removed, and then appeals the
IRS's decision, the senior executive is not entitled to any
type of pay, bonus, or benefit while appealing the decision of
removal. If a senior executive is demoted, and then appeals the
IRS's decision, the employee may only receive any type of pay,
bonus, or benefit at the rate appropriate for the position they
were demoted to, and only if the individual reports for duty,
while appealing the decision of demotion. The Board is required
to submit to the Committees a plan within 30 days of enactment
of how the expedited review would be implemented and to
implement such plan within 60 days of enactment.
The provision does not apply to an appeal of a removal,
transfer, or other personnel action that was pending before the
date of enactment.
EFFECTIVE DATE
The provision is effective on the date of enactment.
5. Limit participation of third-party contractors for sworn testimony
taken pursuant to a summons from the IRS (sec. 135 of the bill and
secs. 6103 and 7602 of the Code)
PRESENT LAW
The Secretary has primary authority to administer and
enforce the Code.\114\ The Code also creates the appointment of
the Commissioner and Chief Counsel of the IRS and enumerates
the powers of the Secretary that the Secretary is expected to
delegate to those officers.
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\114\Secs. 7801 and 7805.
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The duties of the Commissioner are the application and
execution of the tax laws, including tax treaties to which the
United States is a party, to the extent delegated by the
Secretary.\115\ The Commissioner is authorized to employ other
persons to carry out his work, unless prohibited by the
Secretary.\116\ The Chief Counsel is the chief law officer for
the IRS, and serves as the legal adviser to the Commissioner
and his officers and employees. The enumerated duties of the
Chief Counsel and his or her employees includes the
representation of the Commissioner in cases before the Tax
Court and the determination of which civil actions should be
litigated or recommended to the Department of Justice for
action.\117\ Persons employed by the Chief Counsel report to
the Chief Counsel, who reports directly to the Commissioner
except that for matters of tax policy, Chief Counsel reports
directly to the General Counsel, and for matters involving tax
law or litigation not solely related to tax policy, reports to
both the Commissioner and the General Counsel for the
Secretary.
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\115\Sec. 7803(a).
\116\Sec. 7804.
\117\Sec. 7803(b).
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Employees of either the Commissioner or the Chief Counsel
are employees of an executive agency,\118\ subject to the
criminal and civil conflict of interest statutes, the Standards
of Ethical Conduct for Employees of the Executive Branch. Such
provisions are also applicable to ``special government
employees,'' persons who are hired for a limited period.\119\
In contrast, outside contractors are generally not subject to
the same ethics standards and regulations as government
employees, and do not perform the same duties as an employee.
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\118\Title 5 of the U.S. Code provides general rules for government
organizations and employees, including section 105 (defines ``executive
agency'' as any Executive department, government corporation, or
independent establishment agency); sec. 2105 (defines employee) and
sections 9501 through 9510 (permitting flexibility in workforce
staffing, compensation and staffing).
\119\18 U.S.C. sec. 202.
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In the IRS, such contractors have generally been limited to
persons needed to perform technical support functions, or to
provide expert advice on nontax aspects in factual development
of tax controversies.\120\ In order to provide such assistance,
the persons under contract may be authorized to receive return
information,\121\ and, pursuant to a temporary regulation
published in 2014, may participate fully in the conduct of an
examination, including questioning of witnesses responding to
an administrative summons. In the preamble to the temporary
regulations, the Secretary stated that ``The assistance of
persons from outside the IRS or Chief Counsel promotes
efficient administration and enforcement of laws administered
by the IRS, by providing specialized knowledge, skills, or
abilities that the IRS officers or employees assigned to the
case may not possess[,]'' but goes on to say that the
contractors' role is ``limited to functions that are not
inherently governmental, such as taking testimony by asking
questions, reviewing books or papers, or analyzing other
data.''\122\
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\120\See Internal Revenue Manual paragraph 35.4.8.5 (08-11-2004)
``Expert Witnesses.''
\121\Sec. 6103(n); Treas. Reg. sec. 301.6103(n)-1(a).
\122\See Treasury Decision 9669, ``Summons Interview Regulations
under section 7602,'' Internal Revenue Bulletin, 2014-298 (July 7,
2014); Treas. Reg. Sec. 301.7602-1T ``Examination of books and
witnesses (temporary).''
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REASONS FOR CHANGE
Temporary regulations allow non-IRS attorneys to receive,
review, and use summoned books, papers, records, or other data
of taxpayers, and to be present during taxpayer interviews. The
Committee believes enacting a proposal that effectively
rescinds these temporary regulations is necessary to help
ensure that taxpayer information is not misused or unlawfully
disclosed by outside counsel.
EXPLANATION OF PROVISION
The provision bars the IRS from delegating to third-party
contractors the authority under section 7602 to examine books
and records, summons persons, or take sworn testimony related
to a tax matter.
EFFECTIVE DATE
The provision is effective on the date of enactment for
contracts in effect on or after that date.
6. Notification of unauthorized inspection or disclosure of returns and
return information (sec. 136 of the bill and sec. 7431 of the Code)
PRESENT LAW
If a Federal employee makes an unauthorized disclosure or
inspection, a taxpayer can bring suit against the United States
in Federal district court. If a person other than a Federal
employee makes an unauthorized disclosure or inspection, suit
may be brought directly against such person. No liability
results from a disclosure based on a good faith, but erroneous,
interpretation of section 6103. A disclosure or inspection made
at the request of the taxpayer will also relieve liability.
Upon a finding of liability, a taxpayer can recover the
greater of $1,000 per act of unauthorized disclosure (or
inspection), or the sum of actual damages plus, in the case of
an inspection or disclosure that was willful or the result of
gross negligence, punitive damages. The taxpayer may also
recover the costs of the action and, if found to be a
prevailing party, reasonable attorney fees.
The taxpayer has two years from the date of the discovery
of the unauthorized inspection or disclosure to bring suit. The
IRS is required to notify a taxpayer of an unauthorized
inspection or disclosure as soon as practicable after any
person is criminally charged by indictment or information for
unlawful inspection or disclosure.
REASONS FOR CHANGE
The Committee believes that current law requiring the
Secretary to notify a taxpayer about unauthorized inspection or
disclosure only if the offending party is criminally charged is
insufficient. The Committee believes that additional
notification is necessary to enhance the ability of a taxpayer
to exercise his or her rights under the Code to bring a civil
action for unauthorized inspection or disclosure.
EXPLANATION OF PROVISION
The provision requires the Secretary to notify a taxpayer
if the IRS or a Federal or State agency (upon notice to the
Secretary by such Federal or State agency) proposes an
administrative determination as to disciplinary or adverse
action against an employee arising from the employee's
unauthorized inspection or disclosure of the taxpayer's return
or return information. The provision requires the notice to
include the date of the unauthorized inspection or disclosure
and the rights of the taxpayer as a result of such
administrative determination.
EFFECTIVE DATE
The provision is effective for determinations proposed
after 180 days after the date of enactment.
E. Exempt Organizations
1. Mandatory e-filing by exempt organizations (sec. 141 of the bill and
secs. 511, 527, 6033, and 6104 of the Code)
PRESENT LAW
In general
The Restructuring Act\123\ states a Congressional policy to
promote the paperless filing of Federal tax returns. Section
2001(a) of the Restructuring Act set a goal for the IRS to have
at least 80 percent of all Federal tax and information returns
filed electronically by 2007.\124\ Section 2001(b) of
Restructuring Act requires the IRS to establish a 10-year
strategic plan to eliminate barriers to electronic filing.
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\123\Pub. L. No. 105-206.
\124\The Electronic Tax Administration Advisory Committee, the body
charged with oversight of IRS progress in reaching that goal reported
that e-filing by individuals exceeded 80 percent in the 2013 filing
season, but projected an overall rate of 72.8 percent based on all
Federal returns. See Electronic Tax Administration Advisory Committee,
Annual Report to Congress, June 2013, IRS Pub. 3415, page 6.
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Present law requires the Secretary to issue regulations
regarding electronic filing and specifies certain limitations
on the rules that may be included in such regulations.\125\ The
statute requires that Federal income tax returns prepared by
specified tax return preparers be filed electronically,\126\
and that all partnerships with more than 100 partners be
required to file electronically. For taxpayers other than
partnerships, the statute prohibits any requirement that
persons who file fewer than 250 returns during a calendar year
file electronically. With respect to individuals, estates, and
trusts, the Secretary may permit, but generally cannot require,
electronic filing of income tax returns. In crafting any of
these required regulations, the Secretary must take into
account the ability of taxpayers to comply at reasonable cost.
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\125\Sec. 6011(e).
\126\Section 6011(e)(3)(B) defines a ``specified tax return
preparer'' as any return preparer who reasonably expects to file more
than 10 individual income tax returns during a calendar year.
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The regulations require corporations that have assets of
$10 million or more and file at least 250 returns during a
calendar year to file electronically their Form 1120/1120S
corporation/S corporation income tax returns and Form 990
information returns for tax years ending on or after December
31, 2006. In determining whether the 250 return threshold is
met, income tax, information, excise tax, and employment tax
returns filed within one calendar year are counted.
Tax-exempt organizations
Most tax-exempt organizations are required to file annual
information returns in the Form 990 series. Since 2007, the
smallest organizations--generally, those with gross receipts of
$50,000 or less--may provide an abbreviated notice on Form 990-
N, sometimes referred to as an ``e-Postcard.'' Which form to
file depends on the annual receipts, value of assets, and types
of activities of the exempt entity. The Forms 990, 990-EZ
(short form), and 990-PF (private foundation) are released to
the public on DVDs.
In general, only the largest and smallest tax-exempt
organizations are required to electronically file their annual
information returns. First, as indicated above, tax-exempt
corporations that have assets of $10 million or more and that
file at least 250 returns during a calendar year must
electronically file their Form 990 information returns. Private
foundations and charitable trusts, regardless of asset size,
that file at least 250 returns during a calendar year are
required to file electronically their Form 990-PF information
returns.\127\ Finally, organizations that file Form 990-N (the
e-Postcard) also must electronically file.\128\
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\127\Taxpayers can request waivers of the electronic filing
requirement if they cannot meet that requirement due to technological
constraints, or if compliance with the requirement would result in
undue financial burden on the taxpayer.
\128\See Form 990-N, ``Electronic Notice for Tax-exempt
Organizations Not Required to File a Form 990 or 990-EZ.''
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REASONS FOR CHANGE
The Committee believes it is important to increase the
transparency of, and enhance public access to information
about, public charities.
EXPLANATION OF PROVISION
The provision extends the requirement to e-file to all tax-
exempt organizations required to file statements or returns in
the Form 990 series or Form 8872 (``Political Organization
Report of Contributions and Expenditures''). The provision also
requires that the IRS make the information provided on the
forms available to the public (consistent with the disclosure
rules of section 6104) in a machine-readable format as soon as
practicable. It is intended that the information be provided to
the public in a format that permits one to extract and perform
computations on the data but not alter or manipulate the
statements or returns from which the data is to be extracted.
EFFECTIVE DATE
The provision generally is effective for taxable years
beginning after the date of enactment. Transition relief is
provided for certain organizations. First, for certain small
organizations or other organizations for which the Secretary
determines that application of the e-filing requirement would
constitute an undue hardship in the absence of additional
transitional time, the requirement to file electronically must
be implemented not later than either or both of the
organization's first two taxable years beginning after the date
of enactment. For this purpose, small organization means any
organization: (1) the gross receipts of which for the taxable
year are less than $200,000; and (2) the aggregate gross assets
of which at the end of the taxable year are less than $500,000.
Second, the provision grants IRS the discretion to delay the
effective date to either or both of the organization's first
two taxable years beginning after the date of enactment for the
filing of Form 990-T (reports of unrelated business taxable
income or the payment of proxy tax under section 6033(e)).
2. Repeal of substantiation exception for certain charitable
contributions reported by the donee organization (sec. 142 of the bill
and sec. 170(f)(8) of the Code)
PRESENT LAW
Substantiation and other formal requirements, in general
A donor who claims a deduction for a charitable
contribution must maintain reliable written records regarding
the contribution, regardless of the value or amount of such
contribution.\129\ In the case of a charitable contribution of
money, regardless of the amount, applicable recordkeeping
requirements are satisfied only if the donor maintains as a
record of the contribution a bank record or a written
communication from the donee showing the name of the donee
organization, the date of the contribution, and the amount of
the contribution. In such cases, the recordkeeping requirements
may not be satisfied by maintaining other written records.
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\129\Sec. 170(f)(17).
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No charitable contribution deduction is allowed for a
separate contribution of $250 or more unless the donor obtains
a contemporaneous written acknowledgement of the contribution
from the charity indicating whether the charity provided any
good or service (and an estimate of the value of any such good
or service) to the taxpayer in consideration for the
contribution.\130\
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\130\Such acknowledgement must include the amount of cash and a
description (but not value) of any property other than cash
contributed, whether the donee provided any goods or services in
consideration for the contribution, and a good faith estimate of the
value of any such goods or services. Sec. 170(f)(8).
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In addition, any charity receiving a contribution exceeding
$75 made partly as a gift and partly as consideration for goods
or services furnished by the charity (a ``quid pro quo''
contribution) is required to inform the contributor in writing
of an estimate of the value of the goods or services furnished
by the charity and that only the portion exceeding the value of
the goods or services is deductible as a charitable
contribution.\131\
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\131\Sec. 6115.
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If the total charitable deduction claimed for noncash
property is more than $500, the taxpayer must attach a
completed Form 8283 (Noncash Charitable Contributions) to the
taxpayer's return or the deduction is not allowed.\132\ In
general, taxpayers are required to obtain a qualified appraisal
for donated property with a value of more than $5,000, and to
attach an appraisal summary to the tax return.
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\132\Sec. 170(f)(11).
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Exception for certain contributions reported by the donee organization
Subsection 170(f)(8)(D) provides an exception to the
contemporaneous written acknowledgment requirement described
above. Under the exception, a contemporaneous written
acknowledgment is not required if the donee organization files
a return, on such form and in accordance with such regulations
as the Secretary may prescribe, that includes the same content.
``[T]he section 170(f)(8)(D) exception is not available unless
and until the Treasury Department and the IRS issue final
regulations prescribing the method by which donee reporting may
be accomplished.''\133\ No such final regulations have been
issued.
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\133\See IRS, Notice of Proposed Rulemaking, Substantiation
Requirement for Certain Contributions, REG-138344-13 (October 13,
2015), I.R.B. 2015-41 (preamble).
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In October 2015, the IRS issued proposed regulations that,
if finalized, would have implemented the section 170(f)(8)(D)
exception to the contemporaneous written acknowledgment
requirement.\134\ The proposed regulations provided that a
return filed by a donee organization under section 170(f)(8)(D)
must include, in addition to the information generally required
on a contemporaneous written acknowledgment: (1) the name and
address of the donee organization; (2) the name and address of
the donor; and (3) the taxpayer identification number of the
donor. In addition, the return must be filed with the IRS (with
a copy provided to the donor) on or before February 28 of the
year following the calendar year in which the contribution was
made. Under the proposed regulations, donee reporting would
have been optional and would have been available solely at the
discretion of the donee organization. The proposed regulations
were withdrawn in January 2016.
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\134\134 See Prop. Treas. Reg. sec 1.170A0913(f)(18).
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REASONS FOR CHANGE
Protecting sensitive taxpayer information, including Social
Security numbers, against identity theft or inadvertent
disclosure is a priority of the Committee. As indicated above,
recently issued proposed regulations would establish a process
under which certain charities would collect and be responsible
for maintaining the security of such information about its
donors. This places the donors at an increased risk of identity
theft and potentially would have a chilling effect on
donations. Although the Secretary recently withdrew the
proposed regulations, the Committee remains concerned about the
existence of statutory authority that might allow the Secretary
to establish such a process in the future. The Committee
therefore believes that the authority provided to the Secretary
under section 170(f)(8)(D) should be repealed.
EXPLANATION OF PROVISION
The provision repeals the section 170(f)(8)(D) exception to
the contemporaneous written acknowledgment requirement.
EFFECTIVE DATE
The provision is effective on the date of enactment.
3. Prohibit the use of IRS funds for political targeting (sec. 143 of
the bill)
PRESENT LAW
No provision.
REASONS FOR CHANGE
The Committee seeks to ensure that no appropriated funds
are used to punish taxpayers for exercising their First
Amendment rights.
EXPLANATION OF PROVISION
The provision would prohibit the use of any funds by the
IRS to target citizens of the United States for exercising any
right guaranteed under the First Amendment to the U.S.
Constitution.
EFFECTIVE DATE
The provision is effective on the date of enactment.
4. Notification to exempt organizations prior to revoking exempt status
for failing to file information returns (sec. 144 of the bill and sec.
6033 of the Code)
PRESENT LAW
Applications for tax exemption
Section 501(c)(3) organizations
Section 501(c)(3) organizations (with certain exceptions)
are required to seek formal recognition of tax-exempt status by
filing an application with the IRS (Form 1023 (Application for
Recognition of Exemption under Section 501(c)(3) of the Code))
or Form 1023-EZ (Streamlined Application for Recognition of
Exemption under Section 501(c)(3) of the Code)).\135\ In
response to the application, the IRS issues a determination
letter or ruling either recognizing the applicant as tax-exempt
or not. Certain organizations are not required to apply for
recognition of tax-exempt status in order to qualify as tax-
exempt under section 501(c)(3) but may do so. These
organizations include churches, certain church-related
organizations, organizations (other than private foundations)
the gross receipts of which in each taxable year are normally
not more than $5,000, and organizations (other than private
foundations) subordinate to another tax-exempt organization
that are covered by a group exemption letter.
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\135\See sec. 508(a).
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A favorable determination by the IRS on an application for
recognition of tax-exempt status generally will be retroactive
to the date that the section 501(c)(3) organization was created
if it files a completed Form 1023 within 15 months of the end
of the month in which it was formed.\136\ If the organization
does not file Form 1023 or files a late application, it will
not be treated as tax-exempt under section 501(c)(3) for any
period prior to the filing of an application for recognition of
tax exemption.\137\ Contributions to section 501(c)(3)
organizations that are subject to the requirement that the
organization apply for recognition of tax-exempt status
generally are not deductible from income, gift, or estate tax
until the organization receives a determination letter from the
IRS.\138\
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\136\Pursuant to Treas. Reg. sec. 301.9100-2(a)(2)(iv),
organizations are allowed an automatic 12-month extension as long as
the application for recognition of tax exemption is filed within the
extended, i.e., 27-month, period. The IRS also may grant an extension
beyond the 27-month period if the organization is able to establish
that it acted reasonably and in good faith and that granting relief
will not prejudice the interests of the government. Treas. Reg. secs.
301.9100-1 and 301.9100-3.
\137\Treas. Reg. sec. 1.508-1(a)(1).
\138\Sec. 508(d)(2)(B). Contributions made prior to receipt of a
favorable determination letter may be deductible prior to the
organization's receipt of such favorable determination letter if the
organization has timely filed its application to be recognized as tax-
exempt. Treas. Reg. secs. 1.508-1(a) and 1.508-2(b)(1)(i)(b).
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Other section 501(c) organizations
Most other types of section 501(c) organizations--including
organizations described within sections 501(c)(4) (social
welfare organizations, etc.), 501(c)(5) (labor organizations,
etc.), or 501(c)(6) (business leagues, etc.)--are not required
to seek formal recognition of tax-exempt status from the IRS.
Rather, organizations are exempt under these provisions if they
satisfy the requirements applicable to such organizations.
However, in order to obtain certain benefits such as public
recognition of tax-exempt status, exemption from certain State
taxes, and nonprofit mailing privileges, such organizations
voluntarily may request a formal recognition of exempt status
by filing a Form 1024 (Application for Recognition of Exemption
under Section 501(a)).
If such an organization voluntarily requests a
determination letter by filing Form 1024 within 27 months of
the end of the month in which it was formed, its determination
of exempt status, once provided, generally will be effective as
of the organization's date of formation.\139\ If, however, the
organization files Form 1024 after the 27-month deadline has
passed, its exempt status will be formally recognized only as
of the date the organization filed Form 1024.
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\139\Rev. Proc. 2016-5, sec. 11, 2016-01 I.R.B. 188.
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Notwithstanding the foregoing, a section 501(c)(4)
organization must provide to the Secretary notice of its
formation and intent to operate as such an organization. \140\
The notice generally must be provided no later than 60 days
following the organization's establishment. Within 60 days of
receipt of a notice of an organization's formation and intent
to operate as an organization described in section 501(c)(4),
the Secretary must issue to the organization an acknowledgment
of the notice. The notice requirement is generally effective
for organizations organized after December 18, 2015.
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\140\See sec. 506.
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Annual information returns
Exempt organizations are required to file an annual
information return, Form 990 (Return of Organization Exempt
From Income Tax), stating specifically the items of gross
income, receipts, disbursements, and such other information as
the Secretary may prescribe.\141\ Exempt from the requirement
are churches, their integrated auxiliaries, and conventions or
associations of churches; the exclusively religious activities
of any religious order; certain State institutions whose income
is excluded from gross income under section 115; an interchurch
organization of local units of a church; certain mission
societies; certain church-affiliated elementary and high
schools; and certain other organizations, including some that
the IRS has relieved from the filing requirement pursuant to
its statutory discretionary authority.\142\
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\141\Sec. 6033(a). An organization that has not received a
determination of its tax-exempt status, but that claims tax-exempt
status under section 501(a), is subject to the same annual reporting
requirements and exceptions as organizations that have received a tax-
exemption determination.
\142\Sec. 6033(a)(3); Treas. Reg. secs. 1.6033-2(a)(2)(i) and
(g)(1).
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An organization that is required to file an information
return, but that has gross receipts of less than $200,000
during its taxable year, and total assets of less than $500,000
at the end of its taxable year, may file Form 990-EZ. If an
organization normally has gross receipts of $50,000 or less, it
must file Form 990-N (``e-Postcard''), if it chooses not to
file Form 990 or Form 990-EZ. Private foundations are required
to file Form 990-PF rather than Form 990.
Revocation of exempt status
In general
An organization that has received a favorable tax-exemption
determination from the IRS generally may continue to rely on
the determination as long as ``there are no substantial changes
in the organization's character, purposes, or methods of
operation.''\143\ A ruling or determination letter concluding
that an organization is exempt from tax may, however, be
revoked or modified: (1) by notice from the IRS to the
organization to which the ruling or determination letter was
originally issued; (2) by enactment of legislation or
ratification of a tax treaty; (3) by a decision of the United
States Supreme Court; (4) by issuance of temporary or final
Regulations by the Treasury Department; (5) by issuance of a
revenue ruling, a revenue procedure, or other statement in the
Internal Revenue Bulletin; or (6) automatically, in the event
the organization fails to file a required annual return or
notice for three consecutive years (discussed in greater detail
below).\144\ A revocation or modification of a determination
letter or ruling may be retroactive if, for example, there has
been a change in the applicable law, the organization omitted
or misstated a material fact, or the organization has operated
in a manner materially different from that originally
represented.\145\
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\143\Treas. Reg. sec. 1.501(a)-1(a)(2).
\144\Rev. Proc. 2016-5, sec. 12, 2016-01 I.R.B. 188.
\145\Ibid.
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Upon revocation of tax-exemption or change in the
classification of an organization (e.g., from public charity to
private foundation status), the IRS publishes an announcement
of such revocation or change in the Internal Revenue Bulletin.
Contributions made to organizations by donors who are unaware
of the revocation or change in status ordinarily will be
deductible if made on or before the date of publication of the
announcement.
Automatic revocation for failure to file information
returns
If an organization fails to file a required Form 990-series
return or notice for three consecutive years, the
organization's tax-exempt status is automatically revoked.\146\
A revocation for failure to file is effective from the date
that the Secretary determines was the last day the organization
could have timely filed the third required information return
or notice. To again be recognized as tax-exempt, the
organization must apply to the Secretary for recognition of
tax-exemption, irrespective of whether the organization was
required to make an application for recognition of tax-
exemption in order to gain tax-exemption originally.
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\146\Sec. 6033(j).
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If, upon application for tax-exempt status after an
automatic revocation for failure to file information returns,
the organization shows to the satisfaction of the Secretary
reasonable cause for failing to file the required annual
notices or returns, the organization's tax-exempt status may,
in the discretion of the Secretary, be reinstated retroactive
to the date of revocation. An organization may not challenge
under the Code's declaratory judgment procedures (section 7428)
a revocation of tax-exemption made for failure to file annual
information returns.
The Secretary is authorized to publish a list of
organizations whose exempt status is automatically revoked.
REASONS FOR CHANGE
Under present law, the IRS does not have the discretion to
reinstate an organization's exempt status without requiring a
formal reapplication for exempt status (Form 1023 or Form 1024)
if the organization has had its exempt status automatically
revoked for failing to file information returns. This
reapplication requirement has increased the IRS's backlog of
unprocessed applications. Furthermore, present law does not
require the IRS to notify an organization that has already
failed to file a return for two consecutive years that it is at
risk of revocation if it fails to file for a third consecutive
year. Many of the affected organizations are small and poorly
funded, yet face increased demand for their services from the
communities in which they operate. As a result, requiring
reapplication can pose a significant financial burden on these
organizations and their communities. The Committee therefore
believes it is appropriate to require the IRS to notify
organizations that are at risk of losing exempt status for
failure to file and to permit the IRS to reinstate an
organization's exempt status without requiring reapplication in
certain situations.
EXPLANATION OF PROVISION
The provision requires that the IRS provide notice to an
organization that fails to file a Form 990-series return or
notice for two consecutive years not later than 270 days after
the date of the second failure. The notice must state that the
IRS has no record of having received such a return or notice
from the organization for two consecutive years and inform the
organization about the consequences of failing to file such a
return or notice by the date of the next filing deadline. The
notice must also contain information about how to comply with
the annual information return and notice requirements under
sections 6033(a)(1) and 6033(i).
The provision also provides that the Secretary may
reinstate the exempt status of an organization that had its
exempt status automatically revoked for failing to file an
information return or notice for three consecutive years if (1)
the organization demonstrates to the satisfaction of the
Secretary that it did not receive the above-described notice
from the IRS, and (2) files an annual return or notice for the
current year. Under such circumstances, the exempt status is
reinstated as of the date of revocation.
EFFECTIVE DATE
The provision is effective for notices and returns required
to be filed after December 31, 2015.
TITLE II--PROTECTION OF TAXPAYERS FROM IDENTIFY THEFT AND TAX FRAUD
1. Single point of contact for identity theft victims (sec. 201 of
the bill)
PRESENT LAW
Disparate elements in the tax laws and administration are
implicated in identity theft. Tax-related identity theft can
generally occur in one of two ways. In refund fraud, a
perpetrator may obtain a taxpayer's identifying information,
submit an individual income tax return using a falsified Form W
2, Wage and Tax Statement, and fraudulently claim a refund. In
other cases, the stolen identifying information is used in
order to obtain employment; the returns then filed by the
persons employed using the stolen identity may be based on the
actual wages and withholdings. Victims of the fraud include the
individuals whose identifying information was stolen as well as
the businesses whose systems may have been breached to obtain
that personal information.
The IRS describes its procedures for addressing both types
of fraud in the Internal Revenue Manual. The IRS initially
established the Identity Protection Specialized Unit (``IPSU'')
to assist victims of identity theft, but taxpayers were also
referred to other operating units of the IRS to deal with
various aspects of their case.\147\ Subsequently reorganized
and renamed the Identity Theft Victim Assistance (``IDTVA'')
organization, it is staffed with specially trained employees
who are able to assess each case, identify issues, and assist
the taxpayer in getting the correct return filed, refund(s)
issued, etc.\148\ The IDTVA organization's work is coordinated
by the IRS' Identity Protection Program through the auspices of
an oversight office within the Wage and Investment Operating
Division.\149\
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\147\TIGTA, Ref. No. 2012-40-050, Most Taxpayers Whose Identities
Have Been Stolen to Commit Refund Fraud Do Not Receive Quality Customer
Service (May 2012).
\148\A description of the services provided by the IDTVA
organization is available at https://www.irs.gov/uac/Newsroom/IRS-
Identity-Theft-Victim-Assistance-How-It-Works.
\149\Internal Revenue Service, Identity Protection and Victim
Assistance, Internal Revenue Manual Chapter 23, paragraph 25.23.1 et
seq. (September 2, 2015).
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If a victim thinks he or she is not being properly served
by the IRS or the IDTVA organization, the taxpayer may be
eligible for assistance from the Taxpayer Advocate Service
(``TAS'') as in the case of economic hardship caused by the
theft. In such instances, the TAS will assign a case advocate
to the taxpayer's account.
REASONS FOR CHANGE
The Committee is concerned that taxpayers who are
victimized by identity thieves experience delays in obtaining
their tax refunds, and find it difficult to work with multiple
offices within the IRS. Requiring a centralized point of
contact at the IRS to provide the necessary level of personal
assistance to these victims is a commonsense measure that will
simplify the resolution of cases for taxpayers. According to
testimony provided by GAO recently, the IRS has improved its
customer service to victims of identity theft, despite declines
in customer service elsewhere.\150\ Although the IRS has shown
flexibility in adapting new procedures for handling of identity
theft cases, the Committee believes providing a centralized
point of contact for a victim should not be left to the
discretion of the IRS.
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\150\Government Accountability Office, Tax Filing: IRS Needs a
Comprehensive Customer Service Strategy and Needs to Better Combat
Identity Theft Refund Fraud and Protect Taxpayer Data (GAO-16-578T),
April 19, 2016, available at http://www.gao.gov/products/GAO-16-578T.
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EXPLANATION OF PROVISION
The provision requires the Secretary of the Treasury (or
his or her delegate) to establish and implement procedures to
provide a single point of contact at the IRS throughout the
processing of the taxpayer's case for taxpayers adversely
affected by identity theft. The single point of contact is
required to track the taxpayer's case to completion and
coordinate with other specialized units to resolve case issues
as quickly as possible.
The single point of contact may be a team or subset of
specially trained employees who can work across functions to
resolve problems for the victim and who is accountable for
handling the case to completion. The makeup of the team may
change as required to meet IRS needs, but the procedures must
ensure continuity of records and case history and may require
notice to the taxpayer in appropriate instances.
EFFECTIVE DATE
The provision is effective on the date of enactment.
2. Protecting taxpayers from telephone scams (sec. 202 of the bill)
PRESENT LAW
TIGTA is not currently required to report on potential
technological solutions to help protect consumers from so-
called IRS phone scams.
REASONS FOR CHANGE
The Committee has observed the steep growth in the number
of telephone scams involving impersonation of IRS agents or
other Federal officials in recent years. The large volume of
complaints about such telephone calls, the amount of money lost
by the victims and the ability of the perpetrators to shift
their activities and thwart law enforcement efforts is of great
concern to the Committee. Accordingly, the Committee believes
that a thorough analysis of the problem is needed to develop
more effective strategies to prevent such scams.
EXPLANATION OF PROVISION
The provision requires TIGTA to issue a report, in
consultation with the Federal Communications Commission and the
Federal Trade Commission, identifying potential technological
solutions to help protect consumers from telephone calls from
individuals who are falsely claiming to be calling from or on
behalf of the IRS. The report would also identify telephone
companies that offer services designed to help taxpayers
protect themselves from such scams. The report is required
within 12 months after the date of enactment.
EFFECTIVE DATE
The provision is effective on the date of enactment.
3. Information on identity theft and tax scams (sec. 203 of the bill)
PRESENT LAW
No provision.
REASONS FOR CHANGE
The Committee believes that providing information to
taxpayers regarding tax scams will help protect taxpayers from
potential perpetrators.
EXPLANATION OF PROVISION
The provision requires the IRS to provide the following
information over the telephone, while taxpayers are on hold
with the IRS call center: information about common tax scams,
direction to the taxpayer on where and how to report such
activity, and tips on how to protect against identity theft and
tax scams.
EFFECTIVE DATE
The provision is effective on the date of enactment.
4. Report on Federal employee wage and tax withholding reporting to
State tax agencies (sec. 204 of the bill)
PRESENT LAW
Information returns concerning certain payments
Present law requires persons to file an information return
concerning certain transactions with other persons.\151\ These
returns are intended to assist taxpayers in preparing their
income tax returns and to help the IRS determine whether such
income tax returns are correct and complete.
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\151\Secs. 6041-6050W. If the payment is by the U.S. or a State, or
political subdivision, or any agency or instrumentality of any of
these, the information reporting requirements for Forms 1096 and 1099
apply to officers or employees appropriately designated to make such
returns. Treas. sec. 1.6041-1(i).
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One of the primary provisions requires every person engaged
in a trade or business who makes payments aggregating $600 or
more in any taxable year to a single payee in the course of the
payor's trade or business to file a return reporting these
payments.\152\ Payments subject to this reporting requirement
include fixed or determinable income or compensation, but do
not include payments for goods or certain enumerated types of
payments that are subject to other specific reporting
requirements. Other reporting requirements are provided for
various types of investment income, including interest,
dividends, and gross proceeds from brokered transactions (such
as a sale of stock) paid to U.S. persons.\153\
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\152\Sec. 6041(a). The information return generally is submitted
electronically as a Form 1099 (e.g., Form 1099-MISC, Miscellaneous
Income) or Form 1096, Annual Summary and Transmittal of U.S.
Information Returns, although certain payments to beneficiaries or
employees may require use of Forms W-3 or W-2, respectively. Treas.
Reg. sec. 1.6041-1(a)(2).
\153\Secs. 6042 (dividends), 6045 (broker reporting) and 6049
(interest) and the Treasury regulations thereunder.
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The person filing an information return with respect to
payments described above is required to provide the recipient
of the payment with a written payee statement showing the
aggregate payments made and contact information for the
payor.\154\ The statement must be supplied to payees by the
payors by January 31 of the following calendar year.\155\
Payors generally must file the information return with the IRS
on or before the last day of February of the year following the
calendar year for which the return must be filed.\156\
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\154\Sec. 6041(d).
\155\Sec. 6041(d).
\156\Treas. Reg. sec. 31.6071(a)-1(a)(3)(i).
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Information returns regarding wages paid employees
Payors must report wage amounts paid to employees on
information returns and provide the employee with an annual
statement showing the aggregate payments made and contact
information for the payor by January 31 of the following
calendar year.\157\ For wages paid to, and taxes withheld from,
employees, the payors must file an information return with the
Social Security Administration (``SSA'') by January 31 of the
year following the calendar year for which the return must be
filed.\158\
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\157\Sec. 6051(a). If the payment is by the United States or a
State, or political subdivision, or any agency or instrumentality of
any of these, the information reporting requirements for Forms W-3 and
W-2 apply to officers or employees appropriately designated to make
such returns. Treas. sec. 1.6041-1(i).
\158\Pub. L. No. 114-114, PATH Act, Div. Q, sec. 201. For returns
and statements relating to calendar years after 2015, the information
returns containing wages reportable on Form W-2 and nonemployee
compensation are due on the same date as the due date for employee and
payee statements, and such returns are no longer eligible for the
extended filing date for electronically filed returns under section
6071(b). For this purpose, Nonemployee compensation generally includes
fees for professional services, commissions, awards, travel expense
reimbursements, or other forms of payments for services performed for
the payor's trade or business by someone other than in the capacity of
an employee.
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Under the combined annual wage reporting (``CAWR'') system,
the SSA and the IRS have an agreement, in the form of a
Memorandum of Understanding, to share wage data and to resolve,
or reconcile, the differences in the wages reported to them.
Employers submit Forms W-2, Wage and Tax Statement (listing
Social Security wages earned by individual employees), and W-3,
Transmittal of Wage and Tax Statements (providing an aggregate
summary of wages paid and taxes withheld) directly to SSA.\159\
After it records the Forms W-2 and W-3 wage information in its
individual Social Security wage account records, SSA forwards
the Forms W-2 and W-3 information to IRS.\160\
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\159\Pub. L. No. 94-202, sec. 232, 89 Stat. 1135 (1976) (effective
with respect to statements reporting income received after 1977).
\160\Employers submit quarterly reports to IRS on Form 941,
Employer's Quarterly Federal Tax Return, regarding aggregate quarterly
totals of wages paid and taxes due. IRS then compares the W-3 wage
totals to the Form 941 wage totals.
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REASONS FOR CHANGE
The Committee believes that it may be possible to improve
the process by which certain Federal agencies provide Federal
employee wage and tax withholding information to State tax
agencies. The Committee has reason to believe that the current
process may result in State tax agencies issuing invalid
refunds to fraudsters or delaying refunds while requiring
taxpayers to produce additional documentation to support the
information claimed on their returns.
EXPLANATION OF PROVISION
The provision requires the GAO within 12 months after the
date of enactment to review and prepare a report to the Senate
Committee on Finance and the House Committee on Ways and Means
on the process and timeline by which the following entities
provide Federal employee wage and tax withholding information
to State tax agencies, and provide recommendations for
improvements where appropriate: (1) The National Finance Center
of the Department of Agriculture; (2) The Defense Finance and
Accounting Service of the Department of Defense; (3) The
National Business Center of the Department of the Interior; and
(4) the National Payroll Branch of the General Services
Administration.
EFFECTIVE DATE
The provision is effective on the date of enactment.
5. Notification of suspected identity theft (sec. 205 of the bill and
new sec. 7529 of the Code)
PRESENT LAW
Section 6103 provides that returns and return information
are confidential and may not be disclosed by the IRS, other
Federal employees, State employees, and certain others having
access to the information except as provided in the Code.\161\
The definition of ``return information'' is very broad and
includes any information gathered by the IRS with respect to a
person's liability or possible liability under the Code for any
tax, penalty, interest, fine, forfeiture, or other imposition
or offense.\162\ Thus, information gathered by the IRS in
connection with an investigation of a person for a Title 26
offense, such as fraud, is the return information of the person
being investigated and is subject to the confidentiality
restrictions of section 6103.
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\161\Sec. 6103(a).
\162\Sec. 6103(b)(2). Return information is:
a taxpayer's identity, the nature, source, or amount of
his income, payments, receipts, deductions, exemptions, credits,
assets, liabilities, net worth, tax liability, tax withheld,
deficiencies, overassessments, or tax payments, whether the taxpayer's
return was, is being, or will be examined or subject to other
investigation or processing, or any other data, received by, recorded
by, prepared by, furnished to, or collected by the Secretary with
respect to a return or with respect to the determination of the
existence, or possible existence, of liability (or the amount thereof)
of any person under this Title for any tax, penalty, interest, fine,
forfeiture, or other imposition, or offense,
any part of any written determination or any background
file document relating to such written determination (as such terms are
defined in section 6110(b)) which is not open to public inspection
under section 6110,
any advance pricing agreement entered into by a taxpayer
and the Secretary and any background information related to such
agreement or any application for an advance pricing agreement, and
any closing agreement under section 7121, and any similar
agreement, and any background information related to such an agreement
or request for such an agreement.
Return information does not include data in a form which cannot be
associated with, or otherwise identify, directly or indirectly, a
particular taxpayer.
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As an exception to section 6103's general rule of
confidentiality, the Code permits a taxpayer to receive his or
her own tax return, and also can receive his or her return
information if the Secretary determines that such disclosure
would not seriously impair Federal tax administration.\163\
With respect to fraudulent tax returns, if the victim's name
and Social Security number (``SSN'') are listed as either the
primary or secondary taxpayer on a fraudulent return, a victim
of identity theft, or a person authorized to obtain the
identity theft victim's tax information, may request a redacted
copy (one with some information blacked-out) of a fraudulent
return that was filed and accepted by the IRS using the
identity theft victim's name and SSN.\164\
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\163\Sec. 6103(e)(1) and (7). The Code also permits the disclosure
of returns and return information to such persons or persons the
taxpayer may designate, if the request meets the requirements of the
Treasury regulations and if it is determined that such disclosure would
not seriously impair Federal tax administration. Sec. 6103(c).
\164\See, Internal Revenue Service, Instructions for Requesting
Copy of Fraudulent Returns (March 28, 2016), available at https://
www.irs.gov/Individuals/Instructions-for-Requesting-Copy-of-Fraudulent-
Returns.
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Under a Privacy Act notice, with respect to investigations
other than those involving violations of Title 26, TIGTA may
disclose the following information to complainants:
In cases not involving violations of Title 26, under a
Privacy Act Notice, TIGTA is allowed to disclose information to
complainants, victims, or their representatives (defined to be
a complainant's or victim's legal counsel or a Senator or
Representative whose assistance the complainant or victim has
solicited) concerning the status and/or results of an
investigation or case arising from the matters of which they
complained and/or of which they were a victim, including, once
the investigative subject has exhausted all reasonable appeals,
any action taken. Information concerning the status of the
investigation or case is limited strictly to whether the
investigation or case is open or closed. Information concerning
the results of the investigation or case is limited strictly to
whether the allegations made in the complaint were
substantiated or were not substantiated and, if the subject has
exhausted all reasonable appeals, any action taken.\165\
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\165\ See 75 Fed. Reg. 20715 (April 20, 2010) (relating to TIGTA
Office of Investigation files).
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REASONS FOR CHANGE
The Committee is aware that victims of identity theft are
often unaware that their identity has been stolen or
compromised. As a result, they are unable to take timely
measures to limit damage from the theft and to secure their
identity against further compromise. The Committee is also
aware that successful prosecution of identity thieves requires
that the investigators exercise discretion in disclosing
information to victims about an ongoing investigation. However,
the Committee believes that victims must be provided an
opportunity to safeguard their financial information and assets
as soon as practicable.
The Committee also is aware that the unauthorized use of
the identity of an individual to obtain employment causes
severe hardship for the victims of this theft, including
accusations of underreporting income and the loss of income-
related benefits. Accordingly, to help protect these victims,
in making a determination as to whether there has been or may
have been an unauthorized use of an identity for purposes of
notifying the victim, the IRS should be required to review
information obtained from both its own internal processes on
data mismatches as well as the information provided to the IRS
by the Social Security Administration.
EXPLANATION OF PROVISION
If the Secretary determines that there has been or may have
been an unauthorized use of a taxpayer's identity or that of
the taxpayer's dependents, the provision requires the Secretary
to, without jeopardizing an investigation relating to tax
administration, as soon as practicable, notify the taxpayer of
such determination, and provide: (1) instructions to the
taxpayer about filing a report with law enforcement; (2) the
forms the taxpayer must submit to allow investigating law
enforcement officials to access the taxpayer's personal
information; (3) steps that victims can take to protect
themselves from harm caused by the unauthorized use; and (4) an
offer of IRS victim protection measures such as an IP PIN that
allows returns to be filed securely.
At the time this information is provided (or, if not
available at such time, as soon as practicable thereafter), the
Secretary shall issue additional notifications to such
individual (or such individual's designee) regarding: (1)
whether an investigation has been initiated in regards to such
unauthorized use; (2) whether the investigation substantiated
an unauthorized use of the taxpayer's identity; and (3) whether
any action has been taken with respect to the individual who
committed the substantiated violation, including whether any
referral has been made for criminal prosecution of such
individual, and, to the extent such information is available,
whether such person has been criminally charged by indictment
or information.
For purposes of this provision, the unauthorized use of the
identity of an individual includes the unauthorized use of the
identity of the individual to obtain employment (herein
``employment-related identity theft''). In making a
determination as to whether there has been or may have been an
unauthorized use of the identity of an individual to obtain
employment, the Secretary shall review any information obtained
from a statement described in section 6051 or an information
return relating to compensation for services rendered other
than as an employee, or provided to the IRS by the SSA
regarding any statement described in section 6051 which
indicates that the Social Security account number provided on
such statement or information return does not correspond with
the name provided on such statement or information return or
the name on the tax return reporting the income which is
included on such statement or information return. This
provision requires the Secretary to examine the statements,
information returns, and tax returns described in the provision
for any evidence of employment-related identity theft,
regardless of whether such statements or returns are submitted
electronically or on paper. The provision amends the Social
Security Act to require the Commissioner of SSA to request
information described in the provision not less than annually.
The provision also requires that the IRS establish procedures
to ensure that identity theft victims are not penalized for
underreporting of income as a result of the unauthorized use of
their identity.
EFFECTIVE DATE
The provision applies to determinations made after the date
of enactment.
III. BUDGET EFFECTS OF THE BILL
A. Committee Estimates
In compliance with paragraph 11(a) of rule XXVI of the
Standing Rules of the Senate, the following statement is made
concerning the estimated budget effects of the revenue
provisions of the ``Taxpayer Protection Act of 2016'' as
reported.
The bill is estimated to have the following effects on
Federal budget receipts for fiscal years 2016 through 2026:
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
B. Budget Authority and Tax Expenditures
Budget authority
In compliance with section 308(a)(1) of the Congressional
Budget and Impoundment Control Act of 1974 (``Budget
Act''),\166\ the Committee states that no provisions of the
bill as reported involve new or increased budget authority.
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\166\Pub. L. No. 93-344.
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Tax expenditures
In compliance with section 308(a)(1) of the Budget Act, the
Committee states that the revenue-reducing provisions of the
bill have a negligible effect on tax expenditures (see revenue
table in part A., above).
C. Consultation With Congressional Budget Office
In accordance with section 403 of the Budget Act, the
Committee advises that the Congressional Budget Office has not
submitted a statement on the bill. The letter from the
Congressional Budget Office will be provided separately.
IV. VOTES OF THE COMMITTEE
Motion to report the bill
In compliance with paragraph 7(b) of rule XXVI of the
standing rules of the Senate, the Committee states that, with a
majority and quorum present, the ``Taxpayer Protection Act of
2016,'' as modified by the Chairman's modifications to the mark
and amended by the Committee, was ordered favorably reported by
voice vote on April 20, 2016.
Votes on amendments
The Committee approved by voice vote the following three
amendments en bloc:
1. An amendment by Senators Grassley and Thune to
require the Secretary to notify a taxpayer if the IRS
or a Federal or State agency proposes an administrative
determination as to disciplinary or adverse action
against an employee arising from the employee's
unauthorized inspection or disclosure of the taxpayer's
return or return information;
2. An amendment by Senators Brown, Cardin, Stabenow,
Bennet, Schumer, and Menendez to raise the cap for the
IRS VITA matching grant program allocation to $30
million, subject to appropriation override; and
3. An amendment by Senator Coats to require that the
IRS provide notice to victims of employment-related
identity theft.
V. REGULATORY IMPACT AND OTHER MATTERS
A. Regulatory Impact
Pursuant to paragraph 11(b) of rule XXVI of the Standing
Rules of the Senate, the Committee makes the following
statement concerning the regulatory impact that might be
incurred in carrying out the provisions of the bill as amended.
Impact on individuals and businesses, personal privacy and paperwork
The provisions of the bill are not expected to impose
additional administrative requirements or regulatory burdens on
individuals or businesses.
The provisions of the bill do not impact personal privacy.
B. Unfunded Mandates Statement
This information is provided in accordance with section 423
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
The Committee has determined that the tax provisions of the
reported bill do not contain Federal private sector mandates or
Federal intergovernmental mandates on State, local, or tribal
governments within the meaning of Public Law 104-4, the
Unfunded Mandates Reform Act of 1995.
C. Tax Complexity Analysis
Section 4022(b) of the Internal Revenue Service Reform and
Restructuring Act of 1998 requires the staff of the Joint
Committee on Taxation (in consultation with the Internal
Revenue Service and the Treasury Department) to provide a tax
complexity analysis. The complexity analysis is required for
all legislation reported by the Senate Committee on Finance,
the House Committee on Ways and Means, or any committee of
conference if the legislation includes a provision that
directly or indirectly amends the Internal Revenue Code and has
widespread applicability to individuals or small businesses.
The staff of the Joint Committee on Taxation has determined
that there are no provisions that are of widespread
applicability to individuals or small businesses.
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED
In the opinion of the Committee, it is necessary in order
to expedite the business of the Senate, to dispense with the
requirements of paragraph 12 of rule XXVI of the Standing Rules
of the Senate (relating to the showing of changes in existing
law made by the bill as reported by the Committee).
[all]