[Congressional Record Volume 142, Number 102 (Thursday, July 11, 1996)]
[Senate]
[Pages S7753-S7756]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                       TAXPAYER BILL OF RIGHTS 2

  Mr. LOTT. Mr. President, I ask unanimous consent that the Senate now 
turn to the consideration of Calendar No. 374, H.R. 2337, the taxpayer 
bill of rights legislation.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The clerk will report.
  The legislative clerk read as follows:

       A bill (H.R. 2337) to amend the Internal Revenue Code of 
     1986 to provide for increased taxpayer protections.

  The PRESIDING OFFICER. Is there objection to the immediate 
consideration of the bill?
  There being no objection, the Senate proceeded to consider the bill.
  Mr. ROTH. Mr. President, today the Senate will pass the Taxpayer Bill 
of Rights 2 which provides taxpayers with added protections in their 
dealings with the Internal Revenue Service. I urge the President to 
sign this bipartisan legislation.
  One of my longstanding concerns relates to serious complaints by 
taxpayers that the tax laws can and are being enforced unfairly by the 
Internal Revenue Service. With the broad authority conferred on this 
agency, the Internal Revenue Service has the potential to abuse its 
power at the expense of law-abiding and well-meaning taxpayers. The 
Taxpayer Bill of Rights 2 is the taxpayers' arsenal against an often 
heavy-handed IRS.
  When the Federal Government thinks it has more rights to your 
paycheck than you do, something is terribly wrong with the system. That 
is why this legislation, which returns power to the taxpayers, is so 
important. While it is not a complete solution by any means, it is a 
good first step.
  The Finance Committee has worked on this legislation for several 
years on a bipartisan basis. I would like to give special recognition 
to Senators Grassley and Pryor for their tenacity in pursuing enactment 
of these taxpayer protections.
  Let me also mention that the procedure for this is somewhat unique. 
In the usual course, a tax bill from the House of Representatives would 
be referred to the Senate Finance Committee for review before 
consideration by the full Senate. However, Taxpayer Bill of Rights 2 
provisions were previously approved by the Finance Committee and 
included in the Balanced Budget Act of 1995, which was vetoed by 
President Clinton. The Finance Committee worked closely with the Ways 
and Means Committee on this new bill, which was unanimously passed by 
the House of Representatives. In order to expedite passage of this 
important legislation, I decided that this bill should bypass the 
Finance Committee and go directly to the full Senate.
  Mr. President, the bill provides the following provisions which 
increase taxpayer protections:


              1. Establish Office of The Taxpayer Advocate

  The bill establishes a taxpayer advocate, which would replace the 
taxpayer ombudsman, at the Internal Revenue Service [IRS] to assist 
taxpayers. The taxpayer advocate must annually provide an independent 
report to Congress without review or censure by Treasury or the IRS.


                2. Expand Taxpayer Assistance Authority

  The bill provides the taxpayer advocate with additional tools to help 
taxpayers deal with the IRS. In order to prevent the IRS from dragging 
its feet in complying with the taxpayer advocate's orders, the bill 
requires such matters to be resolved on a timely basis.


     3. Notice of Reason for Termination of Installment Agreements

  The bill requires the IRS to notify taxpayers 30 days before 
altering, modifying, or terminating any installment agreement for 
paying taxes. An exception is provided if collection is in jeopardy.


    4. Administrative Review of Termination of Installment Agreement

  The bill requires the IRS to establish an additional administrative 
reiew before terminating installment agreements.


                 5. Expand Authority to Abate Interest

  The bill expands the IRS's ability to abate interest due to IRS error 
or delay.


          6. Judicial Review of IRS Failure to Abate Interest

  The bill grant the Tax Court jurisdiction to review whether the IRS's 
failure to abate interest was an abuse of discretion.


               7. Extend Interest-free Period to Pay Tax

  The bill extends the interest-free period to pay tax from 10 to 21 
calendar days from noticve and demand when the total tax liability is 
less than $100,000.


          8. Abate Penalty for Failure to Deposit Payroll Tax

  The bill allows the IRS to abate penalties for certain inadvertent 
failures to deposit payroll tax.


          9. Studies of Joint Return Issues Must Be Conducted

   10. Joint return May Be Made after Separate Returns Without Full 
                      Payment of Joint Return Tax

 11. Disclosure of Collection Activities with Respect to Joint Returns

  The bill requires the IRS, upon request, to disclose in writing 
whether the IRS has attempted to collect unpaid taxes from the other 
individual who joined in the filing of a joint return.


                    12. Withdrawal of Notice of Lien

  The bill allows the IRS to withdraw a public notice of tax lien prior 
to full payment by the indebted taxpayer. Upon request, the IRS must 
make reasonable efforts to notify credit agencies, etc.


                     13. return of levied property

  The bill allows the IRS to return levied property without full 
payment of tax debt.


               14. modify certain levy exemption amounts

  The bill increases the amount exempt from a tax levy for personal 
property

[[Page S7754]]

from $1,650 to $2,500 and for books and tools of a trade from $1,100 to 
$1,250. These amounts will be indexed after 1997.


                        15. offers-in-compromise

  The bill streamlines the procedure for settling tax debts under 
$50,000 by increasing from $500 to $50,000 the amount requiring a 
written opinion from the Office of Chief Counsel in order to settle a 
tax debt.


     16. civil damages for fraudulent filing of information returns

  The bill creates a civil cause of action by an individual against any 
person who files a fraudulent information return with respect to 
purported payments made to the individual. The plaintiff may obtain the 
greater of $5,000 or the actual amount of damages, costs, and 
attorney's fees.


  17. irs must conduct reasonable investigation of information returns

  The bill requires the IRS to prove that its position in court was 
substantially justified if a taxpayer asserts a reasonable dispute with 
respect to an information return and fully cooperates with the IRS. The 
IRS is not presumed to be correct as under current law.


    18. awarding of costs and fees: irs must prove its position was 
                        substantially justified

  The bill provides that once a taxpayer substantially prevails over 
the IRS in a tax dispute, the IRS has the burden of proving that its 
position was substantially justified. The taxpayer may be awarded 
attorney's fees if the IRS does not meet its burden.


  19. increase limit on attorney's fees from $75 to $110 per hour and 
                           indexed after 1996

        20. failure to agree to extension not taken into account

  The bill provides that in making a determination whether a taxpayer 
is eligible for an attorney's fees award, any failure to agree to an 
extension of the statute of limitations may not be considered in 
determining whether a taxpayer exhausted administrative remedies.


    21. award of litigation costs permitted in declaratory judgment 
                              proceedings

  The bill eliminates the present-law restrictions on awarding 
attorney's fees in all declaratory judgment proceedings.


   22. increase limit on recovery of civil damages for unauthorized 
                           collection actions

  The bill increase--from $100,000 to $1 million--the amount a taxpayer 
may be awarded for reckless or intentional action by an IRS officer or 
employee.


 23. court discretion to reduce award for litigation costs for failure 
                   to exhaust administrative remedies

  The bill permits, but does not require, a court to reduce an award if 
the taxpayer has not exhausted administrative remedies.


                   24. preliminary notice requirement

  The bill requires the IRS to issue a notice to an individual the IRS 
has determined to be a responsible person for unpaid trust fund taxes, 
i.e., payroll taxes, at least 60 days before issuing a notice and 
demand penalties.


25. disclosure of certain information where more than one person liable 
                              for penalty

  The bill requires the IRS, if requested in writing by a person the 
IRS believes is responsible for unpaid trust fund taxes, to disclose in 
writing information about collection activity against others for the 
same tax liability.


26. right of contribution where more than one person liable for penalty

  The bill creates a Federal cause of action for contribution. Persons 
who paid an amount in excess of their proportionate share of trust fund 
tax penalties may sue other responsible persons for their proportionate 
share. The proceeding must be separate from an IRS proceeding.


27. volunteer board members of tax-exempt organizations are exempt from 
                                penalty

  The bill clarifies that volunteer, unpaid board members serving on an 
honorary basis are not subject to responsible person penalties for 
unpaid trust fund taxes.


           28. enrolled agents are third-party record keepers

            29. safeguards relating to designated summonses

  The bill limits the issuance of designated summonses to examinations 
involving the largest 1600 corporate taxpayers and requires review by 
regional counsel before issuance.


30. annual report on number of designated summonses within preceding 12 
                                 months

    31. relief from retroactive application of treasury department 
                regulations within 18 month safe-harbor

  The bill generally prohibits Treasury regulations from being 
effective before publication in the Federal Register. Exceptions are 
provided to prevent abuse or if the regulation is filed or issued 
within 18 months of enactment of the statute to which it relates. 
Taxpayers may elect to retroactively apply a regulation.


 32. information returns must include the phone number of the contact 
                                 person

          33. required notice to taxpayers of certain payments

  The bill requires the IRS to make reasonable efforts to notify within 
60 days taxpayers who have made payments which the IRS cannot trace to 
the taxpayer.


34. Civil Damages for Unauthorized Enticement of Information Disclosure

  The bill allows a taxpayer to sue the United States for up to 
$500,000 if any officer or employee of the United States intentionally 
compromises collection or determination of tax due from an attorney, 
certified public accountant, or enrolled agent representing the 
taxpayer in exchange for information concerning the taxpayer's tax 
liability.


      35. annual reminders to taxpayers with outstanding tax debts

     36. Five-year extension of authority for undercover operations

  The bill allows the IRS to churn the income earned in an undercover 
operation to pay for its expenses.


             37. disclosure of returns on cash transactions

  Any person who receives more than $10,000 in cash in one transaction, 
or two or more related transactions must file a form with the IRS. The 
bill allows the IRS to disclose information from this form to other 
Federal and State agencies.


    38. disclosure of returns and return information to designee of 
                                taxpayer

  The bill deletes the word ``written'' from the requirement that 
written consent from a taxpayer is required for disclosure of taxpayer 
information. This change facilitates development of the tax system 
modernization projects.


   39. report on netting of interest on overpayments and liabilities

  The bill requires Treasury to conduct a study on the netting of 
interest on overpayments and underpayment.


 40. Use of non-postal delivery services for timely-mailing-as-timely-
                              filing rule

  Under current law, only items mailed with the U.S. Postal Service are 
deemed filed with the IRS when they are mailed. The bill expands the 
timely-mailing-as-timely-filing rule to designated delivery services.


           41. annual reports on misconduct by IRS employees

  The bill requires the IRS to make annual reports to the tax writing 
committees on all allegations of IRS employee misconduct.
  Mr. President, passage of the Taxpayer Bill of Rights 2 is the first 
step in eliminating unfair enforcement of our tax laws by giving 
taxpayers an arsenal against the IRS. I again urge my colleagues to 
approve this important legislation and urge President Clinton to sign 
it.
  Mr. BAUCUS. Mr. President, when I came to the Senate a few years 
back, one of the first bills I introduced was the Taxpayers' Bill of 
Rights, to protect taxpayers in disputes with the Internal Revenue 
Service. At that time I noted:

       Oliver Wendell Holmes reasoned that ``Taxes are what we pay 
     for a civilized society.'' However, Justice Holmes did not 
     consider additional burdens imposed on taxpayers--added costs 
     and delays that result from inefficiencies and 
     inconsistencies in the administration of tax law.

  That was back in 1979. And it took a while, but we finally scored a 
big win in 1988 with the enactment of a comprehensive Taxpayer Bill of 
Rights. That went a long ways toward defining taxpayer rights and 
providing protection against arbitrary actions by the IRS.
  The Taxpayers' Bill of Rights required the IRS to give at least 30 
days written notice before levying on a taxpayers' property, so that he 
or she would have time to file an appeal. It

[[Page S7755]]

expanded the kinds of property exempt from IRS levies, and raised the 
wage total exempt from collection. It allowed taxpayers to collect 
costs and attorney's fees from the Government if the IRS was not 
substantially justified in bringing an action. And it let taxpayers sue 
the Government for damages if IRS employees acted recklessly in 
collecting taxes or intentionally disregarded any provision of the 
Internal Revenue Code.
  These were important steps toward accountability and fairness. But 
they did not solve all the problems. A few years ago I spent a day 
working at Rocky Mountain Log Homes in Hamilton, MT. The business is 
owned by Mark Moreland and a couple of partners. They put together 
prefabricated log homes, which add a lot of value to the timber and 
create skilled, high-paying jobs. These homes sell all over the world, 
and are especially popular in Japan.
  But then last year, Mark sent me a letter to tell me about the 
trouble he was having with the Service on an ``independent contractor'' 
issue. The dispute goes all the way back to 1986.
  Mark went through many meetings with the Service, including two 
meetings in which he thought the matter had been settled. But then in 
1995--9 years later--he was told that the matter remained ``open'' and 
that they owed the IRS a great deal of money.
  So I wrote to the Commissioner to ask what was going on. But we did 
not get much satisfaction. Mark wrote me a couple of months later to 
let me know how it went. He said:

       I felt you would want to know what has happened 
     subsequently. In spite of your efforts, the IRS pursued the 
     matter and we were forced to retain counsel. Our attorney was 
     able to keep the IRS from attaching our assets and challenged 
     their contentions based on the IRS' 20 point test. For 
     several months we were forced to produce documents and try to 
     refute their position.
       Once we were on the brink of going to court on the matter, 
     we received the enclosed communication. Unbelievably, they 
     had disposed of all the pertinent records related to our case 
     back in 1986! They had absolutely no basis for attempting to 
     collect the original $28,000 let alone the additional $60,000 
     to $70,000 in penalties and interest. Through what can only 
     be referred to as a bluff, they threatened and postured, 
     hoping we would roll over and pay. The cost to us in legal 
     fees, time lost from our businesses and practices, and mental 
     anguish is immense.

  So here is a case in which the IRS, with little justification to 
begin with, and at the end with no evidence at all, put a good business 
through 9 years of misery. And Mark's experience is not an isolated 
event. I have received many letters--far too many--who have gone 
through experiences like his. Good, law-abiding people are fed up with 
the means the IRS uses to resolve disputes with taxpayers. It is no 
wonder that many believe the IRS should be eliminated and the current 
tax system torn out by the roots.
  Today we will do something to help. The Taxpayer Bill of Rights II 
builds off the start we made in 1989. To be specific, it creates an 
Office of Taxpayer Advocate within the IRS to help taxpayers resolve 
their problems with the IRS; expands the ability of taxpayers to take 
the IRS to court in order to abate interest; raises the damages a 
taxpayer can collect in the event an IRS agent recklessly or 
intentionally disregards the Internal Revenue Code from $100,000 to $1 
million; and eases the burden of proof a taxpayer must show in order to 
collect attorney's fees and costs when he or she successfully 
challenges an IRS decision.
  These are commonsense ideas. They will help folks like Mark who are 
victimized by reckless and irresponsible IRS procedures. So let's pass 
this bill, and restore some fairness and accountability to tax 
collection in this country.
  Mr. GRASSLEY. Mr. President, first of all, I want to commend Majority 
Leader Lott for taking up the Taxpayer Bill of Rights II so that we can 
consider and pass this necessary legislation quickly. I have worked 
with others for a long time to finally get this done.
  As most taxpayers have struggled to file their taxes by the deadline 
last April 15, and we recognize Tax Freedom Day today, the issue of 
taxpayers' rights takes on a special importance. Although most IRS 
employees provide valuable and responsible service, taxpayer abuse by 
the Government is an ongoing problem. With this in mind, I am very 
happy to have joined Senator Pryor and others in reintroducing the 
Taxpayer Bill of Rights II in the Senate, as S. 258. This is very 
necessary legislation that builds upon the original Taxpayer Bill of 
Rights passed into law in 1988, sponsored by Senator Pryor and myself.
  For me, the long process of trying to ensure taxpayer protections 
began in the early 1980's, when I was a member and then chairman of the 
Finance Subcommittee on IRS Oversight. We made progress, but it was 
only the beginning.
  Senator Pryor helped continue the cause when he succeeded me as 
chairman in 1987. At that time, he took the initiative and asked me to 
work with him in pushing for a Taxpayer Bill of Rights by expanding 
legislation I and others had introduced. It took nearly 2 years, but we 
ultimately succeeded in achieving this goal.
  We now have a 7-year record of implementation regarding the Taxpayer 
Bill of Rights. Great strides toward taxpayer protection were achieved 
through this legislation.
  However, the Taxpayer Bill of Rights of 1988 was never expected to be 
the final chapter of the book on taxpayer protection. But, it was a 
major step in the continuing process of stamping out taxpayer abuse. 
And that process continues today, as we look into ways to improve the 
current law.
  In reviewing the record, it is clear that much more needs to be done. 
There is no question that much more needs to be done. There is no 
question that breakdowns in implementing the law have occurred, and 
there are gaps in the law that need to be filled.
  For instance, we believe the current ombudsman position is too 
limited and too beholden to IRS insiders. Our legislation will turn the 
ombudsman into a more independent office of taxpayer advocate that will 
have expanded powers to take the initiative in helping taxpayers who 
are being treated unfairly by the IRS.

  Other important provisions include the abatement of interest with 
respect to unreasonable errors or delays by the IRS. Taxpayers would 
also have to be notified when and why installment agreements are 
terminated.
  We also substantially increase the amount of civil damages taxpayers 
can claim for unauthorized collection actions, and taxpayers will not 
have protections against retroactive IRS regulations. And, of course, 
there are many more taxpayer protection provisions in the bill.
  Mr. President, we were successful in passing a similar proposal 
through the Congress in 1992. However, the underlying legislation that 
the proposal was attached to was vetoed by former President Bush for 
reasons unrelated to taxpayers rights. So, we have come back again in 
the last two Congresses, working toward final passage.
  Since 1987, Senator Pryor and I have worked in a cooperative, 
bipartisan effort to further taxpayer rights. We have continued working 
with the House to improve taxpayer rights. Congresswoman Johnson and 
Chairman Archer are commended for their successful efforts to pass this 
bill out of the House.
  This is truly a bipartisan effort. Even President Clinton mentioned 
to me last year that he supported our efforts.
  And we have had quite a few meetings with IRS and Treasury officials, 
who finally came to understand and agree that problems exist and need 
to be dealt with.
  So, I urge my colleagues to join us in the cause to help make the IRS 
more responsible and more accountable to the taxpayers of this country.
  Mr. LOTT. Mr. President, I ask unanimous consent that the bill be 
read the third time, and passed, the motion to reconsider be laid upon 
the table, and any statements relating to the measure appear at this 
point in the Record.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The bill (H.R. 2337) was deemed read the third time, and passed.
  Mr. REID. Mr. President, if I could ask a question on this bill, the 
one referred to in the unanimous-consent agreement. I wrote the first 
taxpayer bill of rights that passed. I authored that. It was through 
the good offices of a member of the Finance Committee, Senator Pryor, 
and his diligent work that it passed. So I am very happy that the 
taxpayer bill of rights 2, which has been pushed through the Senate 
with a

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lot of trouble by the Senator from Arkansas. He is to be commended. 
This is a great thing to happen to him in that he has now decided not 
to run again. I appreciate the work of the two leaders in getting the 
taxpayer bill of rights 2 passed.
  Mr. DASCHLE. Mr. President, let me just say, in that regard, the 
Senator from Nevada makes a very good point. The Senator from Arkansas, 
Senator Pryor, has labored on this issue probably longer than anybody 
here in the Senate and deserves much praise for his efforts. This is 
his second work product, along with others. We commend him for that.

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