FOR IMMEDIATE RELEASE Press Release # 105 - 373

July 9, 1998

SENATE APPROVES HISTORIC IRS REFORMS

Conference Report Passes 96-2

WASHINGTON -- The Senate Thursday approved an historic package of reforms to the Internal Revenue Service agreed to late last month by House and Senate negotiators. The House approved the conference report June 25. The bill now goes to President Clinton for his signature.

The Internal Revenue Service Restructuring and Reform Act of 1998 will shift the burden of proof off of the taxpayer and onto the IRS; create an independent board to give the IRS a new direction; and create a new arsenal of taxpayer protections, including protections for innocent spouses, usually women. The cost of the bill is $13 billion over 10 years.

Senate Finance Committee Chairman William V. Roth, Jr. (R-DE) stated after the vote:

"The IRS reform bill that we have just approved is truly historic legislation. With the reforms in this legislation, a new day will dawn for taxpayers in their relations with the agency. With this legislation, we have sought to create an agency that has a reputation for service, civility and fairness in the treatment of taxpayers.

"This legislation will benefit not only taxpayers, but IRS employees and the agency overall. We have given Commissioner Rossotti the tools that will enable him to make the changes that we all seek.

"We would not have succeeded in our efforts without bipartisan support, and I compliment members and staff on both sides of aisle for their hard work on this comprehensive reform legislation."

A summary of the highlights of the conference report is attached.

SUMMARY OF THE HIGHLIGHTS OF THE HOUSE AND SENATE IRS REFORM AGREEMENT

The IRS reform legislation will be the most comprehensive overhaul of the Internal Revenue Service ever enacted. It will protect taxpayers by increasing oversight of the agency, hold employees accountable for their actions and create a new arsenal of taxpayer protections.

Specifically, the agreement will reform and improve the agency by:

Increasing oversight of the agency to prevent abuses.

1. The bill will create a nine-member board, consisting of 6 private sector members, the Secretary of the Treasury,the IRS Commissioner and a representative of the employees. The purpose of the Board is to establish a new direction for the IRS and review and approve strategic plans for the IRS.

The Board will have big picture oversight responsibility over IRS law enforcement and collection activities, the two areas that Senate hearings found to have significant problems.

All members of the Board are subject to Senate confirmation.

The Board will have access to information which will allow it to identify problems at the agency. If the Board identifies a certain problem, it can ask the Treasury Inspector General to investigate and report back.

The Board may not intervene in specific taxpayer cases or specific personnel matters.

2. The bill gives the Commissioner the management tools he needs to recruit, retain, hire and fire employees.

3. The bill will make the Taxpayer Advocate more independent of the IRS to ensure that the Taxpayer Advocate's office represents the interests of the taxpayers without undue interference by the IRS.

4. The bill transfers the IRS Office of Chief Inspector to the new Treasury Inspector General for Tax Administration to provide more effective oversight and to eliminate the mismanagement and conflict of interest that were evident in the Senate hearings.

Holding IRS employees accountable for their actions.

1. This bill requires the IRS to terminate an employee if any of the following conduct relating to the employee's official duties is proven in a disciplinary or other proceeding:

- Perjury.

- Falsifying or destroying documents to cover up mistakes.

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

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

- Violation of IRS rules for the purpose of retaliating against a taxpayer or other employee.

- Violation of the civil rights of a taxpayer.

2. Holding IRS employees and managers accountable in the collection area.

3. Requiring all IRS individual correspondence to include the name and phone number of an employee to contact.

• Ensuring that taxpayers are treated with fairness by creating a whole new arsenal of taxpayer protections.

1. Shifting the burden of proof to the IRS in court proceedings.

2. Reforming the law to protect innocent spouses to ensure that divorced or separated individuals are only responsible for additional taxes on their own income.

3. Providing interest and penalty relief for taxpayers by:

- Suspending interest and certain penalties when the IRS does not provide appropriate notice to the taxpayer within 18 months after a return is filed. Under the legislation, beginning in tax year 2004, the IRS must provide that notice within 12 months.

- Reducing the failure to pay penalty by one half while the taxpayer is paying off a tax liability in an installment agreement.

- Allowing small businesses to designate deposits for each payroll period to prevent cascading penalties.

- Requiring each penalty and interest notice to include a computation of the penalty or interest.

- Requiring management approval of non-computer generated penalties.

4. Extending the attorney client privilege to accountants and other tax practitioners.

5. Expanding the authority of the Taxpayer Advocate to assist taxpayers.

6. Making it easier for taxpayers who are attempting to comply with the system to enter into installment agreements and offers in compromise.

7. Ensuring due process for taxpayers in collections activities.

- Gives the taxpayer 30 days to request a hearing before property is taken by the IRS. During that time there could be no other collection activities.

8. Holding supervisors accountable for appropriateness of liens, levies and seizures.

9. Prohibiting the IRS from seizing residences to satisfy unpaid liabilities of less than $5,000.

10. Prohibiting the IRS from seizing a taxpayer's home without a court order.

Additions to the bill:

In addition to the IRS reforms, the bill included several other provisions:

The bill includes an amendment that reduces the holding period on capital gains from 18 months to 12 months.

The bill also clarifies the tax treatment of meals that are provided on the employers' premises for the convenience of the employer where more than half of the employees receive the meals. The meals would not be taxable to the employee, and would be fully deductible to the employer.

The bill also includes an amendment that replaces the term,"most favored nation" with the term "normal trade relations". This change will help ensure that the language of our trade laws more clearly and accurately reflects our trade policy, which is that the vast majority of our trading partners receive treatment equal to all others.

The bill also includes a package of technical corrections to the transportation bill.

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