[Congressional Record Volume 144, Number 14 (Tuesday, February 24, 1998)]
[Senate]
[Pages S920-S932]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS
By Mr. BOND (for himself, Mr. Cochran, Ms. Snowe, and Mr.
Shelby):
S. 1669. A bill to restructure the Internal Revenue Service and
improve taxpayer rights, and for other purposes; to the Committee on
Finance.
the putting the taxpayer first act of 1998
Mr. BOND. Mr. President, I rise today to introduce a bill --Putting
Taxpayers First. In the next few weeks the Senate will have a historic
opportunity to make far-reaching changes to the operation of the
Internal Revenue Service and to strengthen taxpayers' rights. For too
long, taxpayers have had to put up with poor service when dealing with
the IRS--often to the tune of larger tax bills because of interest and
penalties that accrue during the lengthy delays in resolving disputes.
While our ultimate goal must be a simpler and less burdensome tax law,
taxpayers need help today when dealing with the IRS. We must put
taxpayers first.
For my part, I have asked the people of Missouri for their
suggestions on how to fix the IRS and better protect taxpayers' rights.
In addition, as chairman of the Committee on Small Business, I have
asked small businesses across the country for their recommendations on
this issue. I am pleased to say that a great many people have taken the
time to call or write with their suggestions for improving this
country's tax administration system.
Over the last several months, the Finance Committee has focused
extensively on abuse of taxpayers and the need to reform our tax
administration system. In addition, my committee has held hearings on
this issue and the importance of reform for entrepreneurs and small
business owners throughout the country. The House has also completed
its package of reform measures. That legislation provides a good start,
but I believe we can make it even stronger.
With the input and recommendations from all these sources in mind,
today I am introducing the Putting Taxpayers First Act. This bill will
provide critical relief for a broad spectrum of taxpayers from single
moms and married couples to small business owners and farmers. It is
based on two fundamental principles. We must create an IRS and a tax
system that are based on top-quality service for all taxpayers, and we
must act swiftly to restore citizen confidence in that system.
My bill tackles these goals in three ways: by improving taxpayer
rights and protections, restructuring the management and operation of
the IRS, and using electronic filing technology to help taxpayers, not
complicate their lives.
For more than 200 years, Americans have had the right, guaranteed by
the fourth amendment, ``to be secure in their persons, houses, papers,
and effects, against unreasonable searches and seizures,'' and have
enjoyed the constitutional protections against being ``deprived of * *
* property, without due process of law'' under the fifth amendment.
My bill will make the IRS fully respect these rights by requiring, as
part of the Tax Code, that the IRS must obtain the approval by a judge
or magistrate with notice and a hearing for the taxpayer before seizing
a taxpayer's property. The Government ought to be required to treat
ordinary taxpayers at least as well as they treat common criminals. It
is way past time to level the playing field and preserve the
constitutional rights of all taxpayers.
My bill also stops the runaway freight train of excessive penalties
and interest in two ways. First, the interest on a penalty will only
begin after the taxpayer fails to pay his tax bill. Today, interest on
most penalties is applied retroactively to the date that the tax return
was due, which may be as much as 2 to 3 years back. That is just not
fair. Second, my bill eliminates multiple penalties that apply to the
same error. Penalties should punish bad behavior, not honest errors
that even well-intentioned people are bound to make now and then.
Next, with respect to restructuring the IRS, the second part of my
bill addresses the need for structural changes within the IRS. I
believe that the operations and staffing of the IRS should be based
along customer lines, an idea supported by the National Commission on
Restructuring the IRS. The IRS' current one-size-fits-all approach no
longer meets the needs of taxpayers and is inefficient for the IRS as
well.
By restructuring the IRS along customer lines, the agency could
provide one-stop service for taxpayers with similar characteristics and
needs, such as individuals, small businesses and large companies. As a
result of these changes, a married couple could go to an IRS service
center designed for individuals and get help on the issues they care
about, like the new child tax credit and the Roth IRA. Similarly, a
small business owner could resolve questions about the depreciation
deductions for her business equipment with IRS employees specifically
trained in these areas.
I was extremely pleased to hear IRS Commissioner Rossotti embrace
this one-stop-service proposal early this month. While the Commissioner
has signaled his interest in a customer-based IRS, I want to make sure
that it does not become one of the many reorganization ideas that lose
favor after a few short years.
To protect against this risk, my bill that I introduce today will
make this structure a permanent part of the Tax Code. But reorganizing
the IRS front lines, however, is only part of the task. The top-level
management of the IRS here in Washington must make taxpayer service a
reality throughout the agency. My bill takes that step by creating a
full-time board of governors, which will have full responsibility,
authority and accountability for IRS operations.
This board composed of four individuals drawn from the private sector
plus the IRS Commissioner will have the authority and information
necessary to ensure that the agency's examinations and enforcement
activities are conducted in a manner that treats taxpayers fairly and
with respect.
The board will also oversee the service provided by the taxpayer
advocate and will ensure that the IRS appeals process is handled in an
impartial manner.
An independent, full-time board of governors will protect the IRS
from being used for political purposes. Any efforts to instill
confidence in our tax administration system are severely undercut when
there are allegations that the IRS is being used for politically
motivated audits. Regrettably, there have been recent reports
suggesting the IRS has undertaken these types of audits with regard to
certain individuals and nonprofit organizations like the Christian
Coalition and the Heritage Foundation. An IRS board of governors with
representatives of both political parties will help ensure that the
agency is used for one purpose and one purpose alone: helping taxpayers
to comply with the tax laws in the least burdensome manner possible.
Mr. President, in addition to redesigning the agency, my bill also
creates a commonsense approach for redesigning IRS communications. Too
often we have heard from constituents, especially small business
owners, that the notice they receive from the IRS is incomprehensible.
As a result, one of two things usually happens: The taxpayer pays the
bill without question just to make the IRS go away, even if they are
not sure they owe taxes; or the taxpayer has to hire a professional to
tell
[[Page S921]]
him or her what the notice means and then spend vast amounts of time
and money getting the matter straightened out. This no-win situation
has to end now.
My bill creates a panel of individual taxpayers, small entrepreneurs,
large business managers and other types of taxpayers who will review
all standardized IRS documents to make sure they are clear and
understandable to the taxpayers who must read them. Any notice, letter
or form that does not meet this minimum standard will be sent back to
the IRS with a recommendation that it be rewritten before it is sent to
the taxpayer. And clear communications, I believe, are essential for
good customer service. America's taxpayers deserve no less.
Mr. President, as I said, in the next few weeks the Senate will have
an historic opportunity to make far-reaching changes to the operation
of the Internal Revenue Service and to strengthen taxpayers' rights.
For too long, taxpayers have had to put up with poor service when
dealing with the IRS--often to the tune of larger tax bills because of
interest and penalties that accrue during the lengthy delays in
resolving disputes. While our ultimate goal must be a simpler and less
burdensome tax law, taxpayers need help today when dealing with the
IRS. We must put taxpayers first.
For my part, I have asked people across Missouri for their
suggestions on how to fix the IRS and better protect taxpayers' rights.
In addition, as the Chairman of the Committee on Small Business, I have
asked small businesses across the country for their recommendations on
this issue. And I am pleased to say that a great many people have taken
the time to call or write with their suggestions for improving this
country's tax-administration system.
Over the last several months, the Finance Committee has focused
extensively on abuse of taxpayers and the need to reform our tax-
administration system. In addition, my Committee has held hearings on
this issue and the importance of reform for entrepreneurs and small
business owners throughout the country. The House has also completed
its package of reform measures. That legislation provides a good start,
but I believe we can make it even stronger.
With the input and recommendations from all of these sources in mind,
today I am introducing the Putting the Taxpayer First Act. This bill
will provide critical relief for a broad spectrum of taxpayers, from
single moms and married couples to small business owners and farmers.
And it is based on two fundamental principles. We must create an IRS
and a tax system that are based on top quality service for all
taxpayers, and we must act swiftly to restore citizen confidence in
that system. My bill tackles these goals in three ways: by improving
taxpayer rights and protections, restructuring the management and
operation of the IRS, and using electronic filing technology to help
taxpayers, not complicate their lives.
Improving Taxpayer Rights
While our ultimate goal should be the wholesale reform or substantial
replacement of the tax laws, much additional progress can be made now
by strengthening taxpayers' rights in order to restore faith in the
fairness of our tax system. My bill includes several improvements to
taxpayers' rights, and I will stress just a few of them today.
Recent reports of excessive seizures by the IRS have alarmed all of
us. These inexcusable practices were highlighted by Senator Nickles in
a hearing he held last December in Oklahoma City. Imagine the
devastation to an individual who finds himself in trouble with the IRS
over back taxes, and the next thing he knows, the IRS has seized his
bank account or his car--or worse yet, his home. In the case of an
unfortunate small business, an abrupt seizure can mean shutting the
business down, ending the livelihoods of all the employees and their
families.
While some will say that seizures are a last resort and do not happen
that often, the IRS has disclosed that during Fiscal Year 1996, the
agency made about 10,000 seizures of taxpayers' property. That is still
a sizeable number, and what is truly alarming is that these seizures
can be done on the IRS' own initiative, without judicial approval.
For more than 200 years, Americans have had the right, guaranteed by
the Fourth Amendment, ``to be secure in their persons, houses, papers,
and effects, against unreasonable searches and seizures,'' and have
enjoyed the Constitutional protections against being ``deprived of . .
. property, without due process of law'' under the Fifth Amendment. My
bill will make the IRS more fully respect these rights by requiring, as
part of the tax code, that the IRS must obtain the approval by a judge
or magistrate, with notice and a hearing for the taxpayer, before
seizing a taxpayer's property. The government ought to be required to
treat ordinary taxpayers at least as well as they treat common
criminals. It is way past time to level the playing field and preserve
the Constitutional rights of all taxpayers.
Mr. President, taxpayers, and especially small enterprises, often
need help when it comes to tax planning and examining alternatives to
minimize their tax liability within the law. With the enormous
complexity of the tax code today, taxpayers frequently have to make
good faith judgment calls about whether a particular deduction or
credit applies.
Today, there is an inequity in the law that results in unequal
treatment of taxpayers based on their choice of tax professional or
financial ability to afford a lawyer. Under the current law, a taxpayer
who goes to an accountant to obtain advice for tax planning or
assistance in a controversy to make sure he is not paying more tax than
the law requires, does so at his peril. In fact, he may as well invite
the IRS to that meeting because there is no privilege of
confidentiality between a taxpayer and his accountant.
For a taxpayer to gain the confidentiality protection that is
available, he must engage an attorney. Oddly enough, in many cases, the
attorney may hire an accountant to gain accounting expertise, and then
the work of the accountant would be protected from disclosure to the
IRS. Now the taxpayer has assumed enormous additional costs, and for
what? Just to prevent the IRS from having an even greater upper hand
against taxpayers who already have to prove their innocence?
My bill ends this disparity. It permits a taxpayer, in non-criminal
matters, to hire any individual authorized to practice before the IRS,
such as an accountant, an enrolled agent, or an attorney, and be able
to have conversations with that tax professional, which can remain
private from the IRS. This taxpayer confidentiality provision will
ensure that all taxpayers receive equal treatment from the IRS in a way
that can save them money. In addition, it gives all taxpayers a wider
choice of tax advisors without giving up their right to
confidentiality. This is a common-sense protection for the millions of
individuals and businesses that seek professional tax advice each year.
Penalties, too, have become an enormous burden for taxpayers who make
mistakes, which is not uncommon with today's complex tax laws. Far too
often, a minor tax bill grows into an unmanageable liability because of
the interest on the tax owed, the penalties for negligence and late
payment, and the interest on the penalties. Frequently, these penalties
can prevent a taxpayer from settling his account and getting back into
good standing.
Penalties were included in the tax code to encourage taxpayers to
comply with our voluntary assessment system. But the multiplicity of
penalties and hidden punishments disguised as interest on those
penalties seriously undermines Americans' confidence that our system is
fair.
My bill stops the runaway freight train of excessive penalties and
interest in two ways. First, interest on a penalty will only begin
after the taxpayer has failed to pay his tax bill. Today, interest on
most penalties is applied retroactively to the date that the tax return
was due, which may be as much as two to three years back. That's just
not fair. Second, my bill eliminates multiple penalties that apply to
the same error. Penalties should punish bad behavior, not honest errors
that even well-intentioned people are bound to make now and then.
Mr. President, another issue of enormous importance to many
entrepreneurs in this country is the status
[[Page S922]]
of independent contractors. Over the past several years, I have worked
hard for the adoption of a clear legislative safe-harbor for the
classification of workers and protections against retroactive
reclassification of independent contractors. I included these
provisions as part of the Home-Based Business Fairness Act, S. 460,
which I introduced last March. And I intend to pursue these important
changes to the tax code through that bill as the Senate debates
legislation to restructure the IRS and improve taxpayers' rights.
Restructuring the IRS
The second part of my bill addresses the need for structural changes
within the IRS. Over the past century, the IRS has evolved into a
bureaucratic web of functions, regions, and district offices, all aimed
at making the collection of taxes easy for the government. What has
been overlooked is that those tax dollars come from citizens whom the
government is supposed to serve and represent. With roughly 140 million
individuals, alone, filing tax returns every year, the system must be
made convenient for the taxpayer, not just for the government.
I believe that the operations and staffing of the IRS should be based
along customer lines, an idea supported by the National Commission on
Restructuring the IRS. The IRS' current ``one size fits all'' approach
no longer meets the needs of taxpayers and is inefficient for the IRS
as well. By restructuring the IRS along customer lines, the agency
could provide one-stop service for taxpayers with similar
characteristics and needs, such as individuals, small businesses, and
large companies. As a result, a married couple could go to an IRS
service center designed for individuals and get help on the issues that
they care about like the new child tax credit and the Roth IRA.
Similarly, a small business owner could resolve questions about the
depreciation deductions for her business equipment with IRS employees
specifically trained in these areas.
I was extremely pleased to hear IRS Commissioner Rossotti embrace
this one-stop-service proposal earlier this month. And I look forward
to working with the agency to make it a reality for taxpayers at the
earliest possible date. While the Commissioner has signaled his
interest in a customer-based IRS, I want to make sure that it does not
become one of the many reorganization ideas that lose favor after a few
short years. To protect against that risk, my bill will make this
structure a permanent part of the tax code.
Reorganizing the IRS at the front-lines, however, is only part of the
task. The top-level management of the IRS here in Washington must make
taxpayer service a reality throughout the agency. My bill takes that
step by creating a full-time Board of Governors, which will have full
responsibility, authority, and accountability for IRS operations. This
Board, composed of four individuals drawn from the private sector plus
the IRS Commissioner, will have the authority and information necessary
to ensure that the agency's examination and enforcement activities are
conducted in a manner that treats taxpayers fairly and with respect.
The Board will also oversee the service provided by the Taxpayer
Advocate and will ensure that the IRS' appeals process is handled in an
impartial manner.
An independent, full-time Board of Governors will also protect the
IRS from being used for political purposes. Any efforts to instill
confidence in our tax-administration system are severely undercut by
allegations that the IRS is being used for politically-motivated
audits. Regrettably, there have been recent reports suggesting that the
IRS has undertaken these types of audits with regard to certain
individuals and non-profit organizations like the Christian Coalition
and the Heritage Foundation. An IRS Board of Governors with
representatives of both political parties will help ensure that the
agency is used for one purpose, and one purpose alone: helping
taxpayers to comply with the tax laws in the least burdensome manner
possible.
Mr. President, in addition to redesigning the agency, my bill also
creates a common sense approach for redesigning IRS communications. Too
often I have heard from constituents, especially small business owners,
that a notice they received from the IRS is incomprehensible. As a
result, one of two things usually happens. The taxpayer pays the bill
without question just to make the IRS go away, even if they are not
sure they owe any taxes. Or the taxpayer has to hire a professional to
tell him what the notice means and then spend vast amounts of time and
money getting the matter straightened out. This no-win situation has to
end now.
My bill creates a panel of individual taxpayers, small entrepreneurs,
large business managers, and other types of taxpayers, who will review
all standardized IRS documents to make sure they are clear and
understandable to the taxpayers who must read them. Any notice, letter
or form that does not meet this minimum standard, will be sent back to
the IRS with a recommendation that it be rewritten before it is sent to
any taxpayer. Clear communications are essential for good customer
service, and America's taxpayers deserve no less.
Fair and Efficient Use of Technology
The third part of my bill concerns the fair and efficient use of
technology in our tax-administration system. With the continuing
advances in technology, we have an enormous opportunity to make all
taxpayers' lives easier. In fact, the IRS has already made good
progress in this area with programs like TeleFile, which enables many
taxpayers to file their tax returns through a brief telephone call.
But with technological advances comes the risk of imposing even more
burdens on taxpayers, and Congress must make sure that these
improvements are not implemented at the expense of the taxpayers, and
especially the small businesses, who are expected to comply with them.
To prevent that result, my bill makes clear that expanded electronic
filing of tax and information returns should be a goal, not a mandate
imposed on American taxpayers.
In addition, my bill ensures that in making electronic filing a
reality, the IRS will involve representatives of all taxpayer groups--
individuals, small business, large companies, and the tax-preparation
community--to ensure that electronic filing does not complicate
everyone's lives in the name of modernization and simplification.
Mr. President, the provisions of the Putting the Taxpayer First Act
will make the IRS a better public servant and help restore confidence
in our tax system. Taxpayers face enormous difficulties today just to
comply with the tax law, and they have waited far too long for good
service and fair treatment in a timely manner. I urge my colleagues on
the Finance Committee to include the provisions of this bill when they
markup IRS-reform legislation next month. Our efforts must focus on
putting the taxpayer first if we are to make positive and lasting
changes to the IRS and not keep America's taxpayers waiting any longer.
Mr. President, I ask unanimous consent that Senators Cochran, Snowe
and Shelby be shown as original cosponsors. And I ask unanimous consent
that a copy of the bill and a description of its provisions be printed
in the Record.
The PRESIDENT pro tempore. Without objection, it is so ordered.
There being no objection, the material was ordered to be printed in
the Record, as follows:
S. 1669
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; TABLE OF
CONTENTS.
(a) Short Title.--This Act may be cited as the ``Putting
the Taxpayer First Act of 1998''.
(b) Amendment of 1986 Code.--Except as otherwise expressly
provided, whenever in this Act an amendment or repeal is
expressed in terms of an amendment to, or repeal of, a
section or other provision, the reference shall be considered
to be made to a section or other provision of the Internal
Revenue Code of 1986.
(c) Table of Contents.--
Sec. 1. Short title; amendment of 1986 Code; table of contents.
TITLE I--TAXPAYER RIGHTS
Sec. 101. Court approval for seizure of taxpayer's property.
Sec. 102. Improved offers-in-compromise procedure.
Sec. 103. Clarification that attorney's fees are available in
unauthorized-disclosure and browsing cases.
Sec. 104. Uniform application of confidentiality privilege for taxpayer
communications with federally authorized practitioners.
[[Page S923]]
Sec. 105. Taxpayer's right to have an IRS examination take place at
another site.
Sec. 106. Prohibition on IRS contact of third parties without taxpayer
pre-notification.
Sec. 107. Expansion of taxpayer's rights in administrative appeal.
TITLE II--PENALTY REFORM
Sec. 201. Imposition of interest on penalties only after a taxpayer's
failure to pay.
Sec. 202. Repeal of the penalty for substantial understatement of
income tax.
Sec. 203. Repeal of the failure-to-pay penalty.
TITLE III--INTERNAL REVENUE SERVICE RESTRUCTURING
Sec. 301. Internal Revenue Service Board of Governors; Commissioner of
Internal Revenue.
Sec. 302. Restructuring of IRS operations along customer lines.
Sec. 303. Greater independence of the Taxpayer Advocate.
Sec. 304. Greater independence of the Office of Appeals.
Sec. 305. Improved IRS written communications to taxpayers and tax
forms.
TITLE IV--ELECTRONIC FILING
Sec. 401. Goals for electronic filing; electronic-filing advisory
group.
Sec. 402. Report on electronic filing and its effect on small
businesses.
TITLE V--REGULATORY REFORM
Sec. 501. Congressional review of Internal Revenue Service rules that
increase revenue.
Sec. 502. Small business advocacy panels for the IRS.
Sec. 503. Taxpayer's election with respect to recovery of costs and
certain fees.
TITLE I--TAXPAYER RIGHTS
SEC. 101. COURT APPROVAL FOR SEIZURE OF TAXPAYER'S PROPERTY.
(a) In General.--Section 6331(a) is amended by adding at
the end the following new paragraph:
``(2) Limitation on authority of secretary.--
Notwithstanding paragraph (1)--
``(A) General rule.--The Secretary shall not levy upon any
property or rights to property until--
``(i) the taxpayer has received the notice described in
subsection (a) which notifies the taxpayer of the opportunity
for judicial review under this subparagraph and advises the
taxpayer that criminal penalties may be imposed if the
property is transferred or otherwise made unavailable for
collection while such review is pending, and
``(ii) a court of competent jurisdiction has determined,
after the taxpayer has received notice and an opportunity for
a hearing, that such levy is reasonable under the
circumstances.
``(B) Exception.--A court may waive the right to notice and
hearing under subparagraph (A) if the Secretary demonstrates
to the court's satisfaction that--
``(i) irreparable harm will occur with respect to the
Secretary's ability to collect the tax if relief is not
granted,
``(ii) the Secretary has provided the taxpayer with notice
and demand pursuant to section 6303(a),
``(iii) the taxpayer has neglected or refused to pay the
tax within 10 days after notice and demand, and
``(iv) the Secretary has a reasonable probability of
success on the merits with regard to the taxpayer's liability
for the tax.''
(b) Conforming Amendment.--Section 6331(a) is amended by
striking ``If any person'' and inserting:
``(1) In general.--If any person''.
(c) Effective Date.--The amendments made by this section
shall be effective for levies occurring on or after the date
of the enactment of this Act.
SEC. 102. IMPROVED OFFERS-IN-COMPROMISE PROCEDURE.
(a) In General.--Section 7122 (relating to compromises) is
amended by adding at the end the following new subsection:
``(c) Offers in Compromise.--
``(1) In general.--If the Secretary receives an offer in
compromise which is based on the taxpayer's inability to pay
the taxpayer's tax liability in full, the Secretary shall
accept such offer in compromise if it reasonably reflects the
taxpayer's ability to pay.
``(2) Timely response.--
``(A) General rule.--The Secretary shall accept, reject, or
make a counteroffer to an offer in compromise described in
paragraph (1) within 120 days from the date that the offer is
filed and reasonable documentation is submitted regarding the
taxpayer's ability to pay.
``(B) Failure to respond.--If the Secretary fails to
respond within such time, interest on the underpayment under
section 6601(a) shall be suspended until such date as the
Secretary responds. This subparagraph shall not apply if the
Secretary reasonably determines that the taxpayer's offer in
compromise is frivolous.
``(C) Unacceptable offers.--If the Secretary does not
accept an offer in compromise from a taxpayer--
``(i) the Secretary shall provide a detailed description of
the reasons that the offer was not accepted, and
``(ii) the taxpayer may appeal the Secretary's
determination to the Office of Appeals.
``(3) Regulations.--The Secretary shall prescribe such
regulations as may be necessary to carry out the purposes of
this subsection, including regulations--
``(A) establishing standards for acceptable offers in
compromise based on the economic reality of the taxpayer's
ability to pay, and
``(B) providing for the application of this subsection to
offers in compromise made by small businesses and the self-
employed.''
(b) Effective Date.--The amendments made by this section
shall be effective for offers in compromise filed after the
date of the enactment of this Act.
SEC. 103. CLARIFICATION THAT ATTORNEY'S FEES ARE AVAILABLE IN
UNAUTHORIZED-DISCLOSURE AND BROWSING CASES.
(a) In General.--Subsection (a) of section 7430 (relating
to awarding of costs and certain fees) is amended to read as
follows:
``(a) In General.--In any administrative or court
proceeding which is brought by or against the United States
in connection with the determination, collection, or refund
of any tax, interest, or penalty under this title (including
any civil action under section 7431), the prevailing party
may be awarded a judgment or settlement for--
``(1) reasonable administrative costs incurred in
connection with such administrative proceeding within the
Internal Revenue Service, and
``(2) reasonable litigation costs incurred in connection
with such court proceeding.''
(b) Effective Date.--The amendments made by this section
shall be effective for any proceeding which--
(1) arises after the date of the enactment of this Act, or
(2) arises on or before such date and which does not become
final before the 30th day after such date.
SEC. 104. UNIFORM APPLICATION OF CONFIDENTIALITY PRIVILEGE
FOR TAXPAYER COMMUNICATIONS WITH FEDERALLY
AUTHORIZED PRACTITIONERS.
(a) In General.--Chapter 77 (relating to miscellaneous
provisions) is amended by adding at the end the following new
section:
``SEC. 7525. UNIFORM APPLICATION OF CONFIDENTIALITY PRIVILEGE
FOR TAXPAYER COMMUNICATIONS WITH FEDERALLY
AUTHORIZED PRACTITIONERS.
``(a) General Rule.--With respect to tax advice, the same
common law protections of confidentiality which apply to a
communication between a taxpayer and an attorney shall also
apply to a communication between a taxpayer and any federally
authorized tax practitioner if the communication would be
considered a privileged communication if it were between a
taxpayer and an attorney.
``(b) Limitations.--Subsection (a) may only be asserted
in--
``(1) noncriminal tax matters before the Internal Revenue
Service, and
``(2) proceedings in Federal courts with respect to such
matters.
``(c) Federally Authorized Tax Practitioner.--For purposes
of this section, the term `federally authorized tax
practitioner' means any individual who is authorized under
Federal law to practice before the Internal Revenue Service
but only if such practice is subject to Federal regulation
under section 330 of title 31, United States Code.''
(b) Conforming Amendment.--The table of sections for
chapter 77 is amended by adding at the end the following new
item:
``Sec. 7525. Uniform application of confidentiality privilege for
taxpayer communications with federally authorized
practitioners.''
SEC. 105. TAXPAYER'S RIGHT TO HAVE AN IRS EXAMINATION TAKE
PLACE AT ANOTHER SITE.
(a) In General.--Subsection (a) of section 7605 (relating
to time and place of examination) is amended to read as
follows:
``(a) Time and Place.--
``(1) In general.--The time and place of examination
pursuant to the provisions of section 6420(e)(2), 6421(g)(2),
6427(j)(2), or 7602 shall be such time and place as may be
fixed by the Secretary and as are reasonable under the
circumstances. In the case of a summons under authority of
paragraph (2) of section 7602, or under the corresponding
authority of section 6420(e)(2), 6421(g)(2), or 6427(j)(2),
the date fixed for appearance before the Secretary shall not
be less than 10 days from the date of the summons.
``(2) Limitation.--Upon request of a taxpayer, the
Secretary shall conduct any examination described in
paragraph (1) at a location other than the taxpayer's
residence or place of business, if such location is
reasonably accessible to the Secretary and the taxpayer's
original books and records pertinent to the examination are
available at such location.''
(b) Effective Date.--The amendments made by this section
shall be effective for examinations occurring after the date
of the enactment of this Act.
SEC. 106. PROHIBITION ON IRS CONTACT OF THIRD PARTIES WITHOUT
TAXPAYER PRE-NOTIFICATION.
(a) In General.--Section 7602 (relating to examination of
books and witnesses) is amended by redesignating subsection
(c) as subsection (d) and by inserting after subsection (b)
the following new subsection:
``(c) Limitation of Authority To Summon.--In the case of a
taxpayer engaged in a trade or business, no summons
concerning such trade or business may be issued under this
title with respect to any person other than such taxpayer
without providing reasonable notice to the taxpayer that such
[[Page S924]]
summons will be issued. This subsection shall not apply if
the Secretary determines for good cause shown that such
notice would jeopardize collection of any tax or any pending
criminal investigation.''
(b) Effective Date.--The amendments made by this section
shall be effective for summons issued after the date of the
enactment of this Act.
SEC. 107. EXPANSION OF TAXPAYER'S RIGHTS IN ADMINISTRATIVE
APPEAL.
(a) In General.--Subchapter B of chapter 63 (relating to
assessment) is amended by adding before section 6212 the
following new section:
``SEC. 6211A. NOTICE OF PROPOSED ADJUSTMENT.
``(a) Income Taxes.--At least 60 days prior to issuing a
notice of deficiency under section 6212, the Secretary shall
send a notice explaining the adjustments that the Secretary
believes should be made to the amount shown as tax by the
taxpayer on his return that would result in a deficiency. If
the taxpayer does not agree with the Secretary's proposed
adjustments, the taxpayer may appeal such proposed
adjustments to the Office of Appeals.
``(b) Address for Notice of Proposed Adjustment.--The
provisions of section 6212(b) shall apply with respect to
mailing of the notice of proposed adjustment described in
subsection (a).''
(b) Employment Taxes.--Section 6205(b) is amended--
(1) by adding at the end the following new paragraph:
``(2) Notice of proposed assessment.--At least 60 days
prior to making any assessment with respect to paragraph (1),
the Secretary shall send a notice of proposed assessment
(mailed to the taxpayer at its last known address) explaining
the adjustments that the Secretary believes should be made to
the amount paid or deducted with respect to any payment of
wages or compensation which would result in an underpayment.
If the taxpayer disagrees with the Secretary's adjustments,
the taxpayer may appeal such adjustments to the Office of
Appeals.'', and
(2) by striking ``If less than'' and inserting:
``(1) In general.--If less than''.
(b) Conforming Amendments.--The table of sections for
subchapter B of chapter 63 is amended by inserting the
following new item:
``Sec. 6211A. Notice of proposed adjustment.''
(c) Effective Date.--The amendments made by this section
shall be effective 60 days after the date of the enactment of
this Act.
TITLE II--PENALTY REFORM
SEC. 201. IMPOSITION OF INTEREST ON PENALTIES ONLY AFTER A
TAXPAYER'S FAILURE TO PAY.
(a) In General.--Section 6601(e)(2) is amended to read as
follows:
``(2) Interest on penalties, additional amounts, or
additions to the tax.--Interest shall be imposed under
subsection (a) in respect of any assessable penalty,
additional amount, or addition to the tax only if such
assessable penalty, additional amount, or addition to the tax
is not paid within 21 calendar days from the date of notice
and demand therefor (10 business days if the amount for which
such notice and demand is made equals or exceeds $100,000),
and in such case interest shall be imposed only for the
period from the date of the notice and demand to the date of
payment.''
(b) Effective Date.--The amendments made by this section
shall be effective for penalties assessed after the date of
the enactment of this Act.
SEC. 202. REPEAL OF THE PENALTY FOR SUBSTANTIAL
UNDERSTATEMENT OF INCOME TAX.
(a) In General.--Subsection (d) of section 6662 is
repealed.
(b) Conforming Amendments.--
(1) Section 6662(b) is amended by striking paragraph (2)
and redesignating paragraphs (3), (4), and (5) as paragraphs
(2), (3), and (4), respectively.
(2) Section 6662 is amended by redesignating subsections
(e), (f), (g), and (h) as subsections (d), (e), (f), and (g),
respectively.
(3) Section 461(i)(3)(C) is amended to read as follows:
``(C) any partnership or other entity, any investment plan
or arrangement, or any other plan or arrangement if a
significant purpose of such partnership, entity, plan, or
arrangement is the avoidance or evasion of Federal income
tax.''
(4) Section 1274(b)(3)(B)(i) is amended by striking
``section 6662(d)(2)(C)(iii)'' and inserting ``section
461(i)(3)(C)''.
(5) Section 6013(e)(3) is amended to read as follows:
``(3) Substantial understatement.--
``(A) In general.--For purposes of this subsection, the
term `substantial understatement' means any understatement
which exceeds $500.
``(B) Understatement.--For purposes of subparagraph (A),
the term ``understatement'' means the excess of--
``(i) the amount of the tax required to be shown on the
return for the taxable year, over
``(ii) the amount of the tax imposed which is shown on the
return, reduced by any rebate (within the meaning of section
6211(b)(2)).
``(C) Reduction for understatement due to position of
taxpayer or disclosed item.--The amount of the understatement
under subparagraph (B) shall be reduced by that portion of
the understatement which is attributable to--
``(i) the tax treatment of any item by the taxpayer if
there is or was substantial authority for such treatment, or
``(ii) any item if--
``(I) the relevant facts affecting the item's tax treatment
are adequately disclosed in the return or in a statement
attached to the return, and
``(II) there is a reasonable basis for the tax treatment of
such item by the taxpayer.
``(D) Special rules in cases involving tax shelters.--
``(i) In general.--In the case of any item of a taxpayer
which is attributable to a tax shelter--
``(I) subparagraph (C)(ii) shall not apply, and
``(II) subparagraph (C)(i) shall not apply unless (in
addition to meeting the requirements of such subparagraph)
the taxpayer reasonably believed that the tax treatment of
such item by the taxpayer was more likely than not the proper
treatment.
``(ii) Tax shelter.--For purposes of this subparagraph, the
term `tax shelter' has the meaning given such term by section
461(i)(3)(C).
``(E) Secretarial list.--The Secretary shall prescribe (and
revise not less frequently than annually) a list of
positions--
``(i) for which the Secretary believes there is not
substantial authority, and
``(ii) which affect a significant number of taxpayers.
Such list (and any revision thereof) shall be published in
the Federal Register.''
(6) Section 6694(a) is amended--
(A) by striking ``section 6662(d)(2)(B)(ii)'' and inserting
``section 6013(e)(3)(C)(ii)'' in paragraph (3), and
(B) by adding at the end the following: ``For purposes of
paragraph (3), in applying section 6013(e)(3)(C)(ii)(II), in
no event shall a corporation be treated as having a
reasonable basis for its tax treatment of an item
attributable to a multiple-party financing transaction if
such treatment does not clearly reflect the income of the
corporation.''
(c) Effective Date.--The amendments made by this section
shall take effect on the date of the enactment of this Act.
SEC. 203. REPEAL OF THE FAILURE-TO-PAY PENALTY.
(a) In General.--Section 6651(a) is amended by striking
paragraphs (2) and (3).
(b) Conforming Amendments to Section 6651.--
(1) Section 6651(a) is amended--
(A) by striking ``In the case of failure--
``(1) to'' and inserting ``In the case of failure to'', and
(B) by striking the semicolon at the end of paragraph (1)
and inserting a period.
(2) Section 6651(b) is amended--
(A) by striking ``For purposes of--
``(1) subsection (a)(1)'' and inserting ``For purposes of
subsection (a)'',
(B) by striking the comma at the end of paragraph (1) and
inserting a period, and
(C) by striking paragraphs (2) and (3).
(3) Section 6651 is amended by striking subsections (c),
(d), and (e).
(4) Section 6651(f) is amended by striking ``paragraph (1)
of''.
(5) Section 6651(g) is amended to read as follows:
``(g) Treatment of Returns Prepared by Secretary Under
Section 6020(b).--In the case of any return made by the
Secretary under section 6020(b), such return shall be
disregarded for purposes of determining the amount of the
addition under subsection (a).''
(6) Section 6651, as amended by paragraphs (3) and (4), is
amended by redesignating subsections (f) and (g) as
subsections (c) and (d), respectively.
(7) The heading of section 6651 is amended to read as
follows:
``SEC. 6651. FAILURE TO FILE TAX RETURN.''
(8) The table of sections for subchapter A of chapter 68 is
amended by striking the item relating to section 6651 and
inserting the following new item:
``Sec. 6651. Failure to file tax return.''
(9) Section 5684(c)(2) is amended by striking ``or pay
tax''.
(c) Effective Date.--The amendments made by this section
shall be effective for failures to pay occurring after the
date of the enactment of this Act.
TITLE III--INTERNAL REVENUE SERVICE RESTRUCTURING
SEC. 301. INTERNAL REVENUE SERVICE BOARD OF GOVERNORS;
COMMISSIONER OF INTERNAL REVENUE.
(a) In General.--Chapter 80 (relating to general rules) is
amended by adding after section 7801 the following new
section:
``SEC. 7801A. INTERNAL REVENUE SERVICE BOARD OF GOVERNORS;
COMMISSIONER OF INTERNAL REVENUE.
``(a) Internal Revenue Service Board of Governors.--
``(1) Establishment.--There is established within the
Department of the Treasury the Internal Revenue Service Board
of Governors (in this title referred to as the `Board').
``(2) Membership.--
``(A) Composition.--The Board shall be composed of 5
members, of whom--
``(i) 4 shall be individuals who are appointed by the
President, by and with the advice and consent of the Senate,
and
``(ii) 1 shall be the Commissioner of Internal Revenue.
[[Page S925]]
Not more than 2 members of the Board appointed under clause
(i) may be affiliated with the same political party.
``(B) Qualifications.--Members of the Board described in
subparagraph (A)(i) shall be appointed solely on the basis of
their professional experience and expertise in the following
areas:
``(i) The needs and concerns of taxpayers.
``(ii) Organization development.
``(iii) Customer service.
``(iv) Operation of small businesses.
``(v) Management of large businesses.
``(vi) Information technology.
``(vii) Compliance.
In the aggregate, the members of the Board described in
subparagraph (A)(i) should collectively bring to bear
expertise in these enumerated areas.
``(C) Terms.--Each member who is described in subparagraph
(A)(i) shall be appointed for a term of 5 years, except that
of the members first appointed--
``(i) 1 member who is affiliated with the same political
party as the President shall be appointed for a term of 1
year,
``(ii) 1 member who is not affiliated with the same
political party as the President shall be appointed for a
term of 2 years,
``(iii) 1 member who is affiliated with the same political
party as the President shall be appointed for a term of 3
years, and
``(iv) 1 member who is not affiliated with the same
political party as the President shall be appointed for a
term of 4 years.
A member of the Board may serve on the Board after the
expiration of the member's term until a successor has taken
office as a member of the Board.
``(D) Reappointment.--An individual who is described in
subparagraph (A)(i) may be appointed to no more than two 5-
year terms on the Board.
``(E) Vacancy.--Any vacancy on the Board--
``(i) shall not affect the powers of the Board, and
``(ii) shall be filled in the same manner as the original
appointment.
Any member appointed to fill a vacancy occurring before the
expiration of the term for which the member's predecessor was
appointed shall be appointed for the remainder of that term.
``(F) Removal.--
``(i) In general.--A member of the Board may be removed at
the will of the President.
``(ii) Commissioner of internal revenue.--An individual
described in subparagraph (A)(ii) shall be removed upon
termination of employment.
``(3) General responsibilities.--
``(A) In general.--The Board shall oversee the Internal
Revenue Service in the administration, management, conduct,
direction, and supervision of the execution and application
of the internal revenue laws or related statutes and tax
conventions to which the United States is a party.
``(B) Consultation on tax policy.--The Board shall be
responsible for consulting with the Secretary of the Treasury
with respect to the development and formulation of Federal
tax policy relating to existing or proposed internal revenue
laws, related statutes, and tax conventions.
``(4) Specific responsibilities.--The Board shall have the
following specific responsibilities:
``(A) Strategic plans.--To review and approve strategic
plans of the Internal Revenue Service, including the
establishment of--
``(i) mission and objectives, and standards of performance
relative to either, and
``(ii) annual and long-range strategic plans.
``(B) Operational plans.--To review and approve the
operational functions of the Internal Revenue Service,
including--
``(i) plans for modernization of the tax system,
``(ii) plans for outsourcing or managed competition, and
``(iii) plans for training and education.
``(C) Management.--To--
``(i) review and approve the Commissioner's selection,
evaluation, and compensation of senior managers,
``(ii) oversee the operation of the Office of the Taxpayer
Advocate and the Office of Appeals, and
``(iii) review and approve the Commissioner's plans for
reorganization of the Internal Revenue Service.
``(D) Budget.--To--
``(i) review and approve the budget request of the Internal
Revenue Service prepared by the Commissioner,
``(ii) submit such budget request to the Secretary of the
Treasury,
``(iii) ensure that the budget request supports the annual
and long-range strategic plans of the Internal Revenue
Service, and
``(iv) ensure appropriate financial audits of the Internal
Revenue Service.
The Secretary shall submit, without revision, the budget
request referred to in subparagraph (D) for any fiscal year
to the President who shall submit, without revision, such
request to Congress together with the President's annual
budget request for the Internal Revenue Service for such
fiscal year.
``(5) Board personnel matters.--
``(A) Compensation of members.--Each member of the Board
who is described in subsection (b)(1)(A)(i) shall be
compensated at an annual rate equal to the rate for Executive
Schedule IV under title 5 of the United States Code. The
Commissioner shall receive no additional compensation for
service on the Board.
``(B) Staff.--The Chairperson of the Board shall have the
authority to hire such personnel as may be necessary to
enable the Board to perform its duties.
``(6) Administrative matters.--
``(A) Chair.--The Commissioner of Internal Revenue shall
serve as the chairperson of the Board.
``(B) Committees.--The Board may establish such committees
as the Board determines appropriate.
``(C) Meetings.--The Board shall meet at least once each
month and at such other times as the Board determines
appropriate.
``(D) Quorum; voting requirements; delegation of
authorities.--3 members of the Board shall constitute a
quorum. All decisions of the Board with respect to the
exercise of its duties and powers under this section shall be
made by a majority vote of the members present and voting. A
member of the Board may not delegate to any person the
member's vote or any decisionmaking authority or duty vested
in the Board by the provisions of this section.
``(E) Reports.--The Board shall each year report to the
President and the Congress with respect to the conduct of its
responsibilities under this title.
``(b) Commissioner of Internal Revenue.--
``(1) Appointment.--There shall be in the Department of the
Treasury a Commissioner of Internal Revenue who shall be
appointed by the President, by and with the advice and
consent of the Senate, to a 5-year term. The appointment
shall be made without regard to political affiliation or
activity.
``(2) Vacancy.--Any individual appointed to fill a vacancy
in the position of Commissioner occurring before the
expiration of the term for which such individual's
predecessor was appointed shall be appointed for the
remainder of that term.
``(3) Removal.--The Commissioner may be removed at the will
of the President.
``(4) Duties.--Subject to the powers of the Board, the
Commissioner shall have such duties and powers as the
Secretary may prescribe, including the power to--
``(A) 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
``(B) recommend to the President (after consultation with
the Board) a candidate for appointment as Chief Counsel for
the Internal Revenue Service when a vacancy occurs, and
recommend to the President (after consultation with the
Board) the removal of such Chief Counsel.
If the Secretary determines not to delegate a power specified
in subparagraph (A) or (B), such determination may not take
effect until 30 days after the Secretary notifies the
Committees on Finance, Appropriations, and Governmental
Affairs of the Senate, the Committees on Ways and Means,
Appropriations, and Government Reform and Oversight of the
House of Representatives, and the Joint Committee on
Taxation.
``(5) Consultation with board.--The Commissioner shall
consult with the Board on all matters set forth in subsection
(a)(4).''
(b) Conforming Amendments.--
(1) Section 5315 of title 5, United States Code, is amended
by adding at the end the following new item:
``Members, Internal Revenue Service Board of Governors.''
(2) Section 7701(a) (relating to definitions) is amended by
inserting after paragraph (46) the following new paragraph:
``(47) Board.--The term `Board' means the Board of
Governors of the Internal Revenue Service.''
(3) The table of sections for subchapter A of chapter 80 is
amended by inserting after the item relating to section 7801
the following new item:
``Sec. 7801A. Internal Revenue Service Board of Governors; Commissioner
of Internal Revenue.''
(c) Effective Date.--
(1) In general.--The amendments made by this section shall
take effect on the date of the enactment of this Act.
(2) Nominations to internal revenue service board of
governors.--The President shall submit nominations under
section 7801A(a) of the Internal Revenue Code of 1986, as
added by this section, to the Senate not later than 6 months
after the date of the enactment of this Act.
(3) Current commissioner.--In the case of an individual
serving as Commissioner of Internal Revenue on the date of
the enactment of this Act who was appointed to such position
before such date, the 5-year term required by section
7801A(b)(1) of the Internal Revenue Code of 1986, as added by
this section, shall begin as of the date of such appointment.
SEC. 302. RESTRUCTURING OF IRS OPERATIONS ALONG CUSTOMER
LINES.
(a) In General.--Subsection (a) of section 7802 (relating
to the Commissioner of Internal Revenue) is amended to read
as follows:
``(a) Organization of the Internal Revenue Service.--
``(1) In general.--The Internal Revenue Service shall be
organized into divisions representing the following types of
taxpayers:
``(A) Individual taxpayers subject to wage withholding.
[[Page S926]]
``(B) Small businesses and self-employed individuals.
``(C) Large businesses.
``(D) Employee plans and exempt organizations.
``(E) Trusts and estates.
``(F) Such other divisions as the Board deems necessary and
appropriate.
``(2) Supervision and direction of divisions.--Each
division established by paragraph (1) shall be under the
supervision and direction of an Assistant Commissioner of
Internal Revenue. As the head of a division, each Assistant
Commissioner shall be responsible for carrying out the
functions of taxpayer services, examinations, collections,
counsel operations, and such other functions as the Board may
designate with respect to the taxpayers covered by the
division.''
(b) Conforming Amendments.--
(1) The section heading for section 7802 is amended to read
as follows:
``SEC. 7802. ORGANIZATION OF THE INTERNAL REVENUE SERVICE;
TAXPAYER ADVOCATE; OFFICE OF APPEALS.''
(2) The table of sections for subchapter A of chapter 80 is
amended by striking the item relating to section 7802 and
inserting the following new item:
``Sec. 7802. Organization of the Internal Revenue Service; Taxpayer
Advocate; Office of Appeals.''
(3) Subsection (b) of section 5109 of title 5, United
States Code, is amended by striking ``the employee appointed
under section 7802(b)'' and inserting ``an employee appointed
under section 7802(a)(2)''.
(c) Effective Date.--The amendments made by this section
shall take effect on the date of the enactment of this Act.
SEC. 303. GREATER INDEPENDENCE OF THE TAXPAYER ADVOCATE.
(a) In General.--Section 7802(d)(1) is amended to read as
follows:
``(1) In general.--There is established in the Internal
Revenue Service an office to be known as the `Office of the
Taxpayer Advocate'. Such office shall be independent of all
other functions of the Internal Revenue Service and shall be
under the supervision and direction of an official to be
known as the `Taxpayer Advocate' who shall be appointed by,
and report directly to, the Board. The Taxpayer Advocate
shall be entitled to compensation at the same rate as the
highest level official reporting directly to the Commissioner
of the Internal Revenue.''
(b) Conforming Amendments.--
(1) Section 7802, as amended by subsection (a), is amended
by striking subsection (b) and by redesignating subsection
(d) as subsection (b).
(2) Section 7802(b)(3), as so redesignated, is amended--
(A) by striking ``Commissioner of Internal Revenue'' and
inserting ``Board'', and
(B) by striking ``Commissioner'' each place it appears in
the text and heading and inserting ``Board''.
(c) Effective Date.--The amendments made by this section
shall take effect on the date of the enactment of this Act.
SEC. 304. GREATER INDEPENDENCE OF THE OFFICE OF APPEALS.
(a) In General.--Section 7802(c) is amended to read as
follows:
``(c) Office of Appeals.--
``(1) In general.--There is established in the Internal
Revenue Service an office to be known as the `Office of
Appeals'. Such office shall be independent of all other
functions of the Internal Revenue Service and shall be under
the supervision and direction of an officer to be known as
the `National Appeals Officer' who shall be appointed by, and
report directly to, the Board. The National Appeals Officer
shall be entitled to compensation at the same rate as the
highest level official reporting directly to the Commissioner
of the Internal Revenue.
``(2) Functions of office.--
``(A) In general.--It shall be the function of the Office
of Appeals to resolve tax controversies, without litigation,
on a basis that is fair and impartial to both the Government
and the taxpayer and in a manner that encourages voluntary
compliance and public confidence in the integrity and
efficiency of the Internal Revenue Service.
``(B) Restrictions.--In carrying out its functions, the
Office of Appeals--
``(i) shall consider only those issues concerning the
taxpayer's return raised by the division established under
subsection (a) prior to its referral to the Office, and
``(ii) shall not have any communications with any officer
or employee of the division with respect to such issues
unless the taxpayer, or the taxpayer's representative, has
the opportunity to be present for such communications.''
(b) Effective Date.--The amendments made by this section
shall take effect on the date of the enactment of this Act.
SEC. 305. IMPROVED IRS WRITTEN COMMUNICATIONS TO TAXPAYERS
AND TAX FORMS.
(a) Taxpayer-Communications Advisory Group.--
(1) In general.--In order to ensure that the Internal
Revenue Service Board of Governors receives input from the
taxpayers who must comply with written communications from
the Internal Revenue Service, the Board shall, not later than
180 days after the date of the enactment of this Act, convene
a taxpayer-communications advisory group to review all--
(A) standardized letters, notices, bills, and other written
communications sent to taxpayers by the Internal Revenue
Service, and
(B) tax forms and instructions.
The advisory group shall recommend to the Board the rewriting
of any standardized written document, form, or instruction
which it finds is not clear to, or easily understood by, the
taxpayers to whom it is directed.
(2) Membership.--
(A) In general.--Members of the taxpayer-communications
advisory group shall be appointed by the Board and shall
include at least one representative of the following:
individual taxpayers subject to withholding; small businesses
and the self-employed; large businesses; trusts and estates;
tax-exempt organizations; tax practitioners, preparers, and
other tax professionals; and such other types of taxpayers
that the Board deems appropriate.
(B) Term.--A member of the advisory group shall be
appointed for a term of one year and may be reappointed for
one additional term.
(b) Personnel and Other Matters.--
(1) Members' compensation.--Each member of the advisory
group shall serve without compensation, but shall be allowed
travel expenses, including per diem in lieu of subsistence,
at rates authorized for employees of agencies under
subchapter I of chapter 57 of title 5, United States Code,
while away from their homes or regular places of business in
performance of services for the advisory group.
(2) Details.--Any Federal Government employee may be
detailed to the advisory group without reimbursement, and
such detail shall be without interruption or loss of civil
service status or privilege.
TITLE IV--ELECTRONIC FILING
SEC. 401. GOALS FOR ELECTRONIC FILING; ELECTRONIC-FILING
ADVISORY GROUP.
(a) In General.--It is the policy of Congress that--
(1) paperless filing should be the preferred and most
convenient means of filing Federal tax and information
returns,
(2) electronic filing should be a voluntary option for
taxpayers, and
(3) there be a goal that no more than 20 percent of all
such returns should be filed on paper by the year 2007.
(b) Strategic Plan.--
(1) In general.--Not later than 180 days after the date of
the enactment of this Act, the Secretary of the Treasury or
the Secretary's delegate (hereafter in this section referred
to as the ``Secretary''), in consultation with the Board of
Governors of the Internal Revenue Service and the electronic-
filing advisory group described in paragraph (4), shall
establish a plan to eliminate barriers, provide incentives,
and use competitive market forces to increase electronic
filing gradually over the next 10 years while maintaining
processing times for paper returns at 40 days.
(2) Publication of plan.--The plan described in paragraph
(1) shall be published in the Federal Register and shall be
subject to public comment for 60 days from the date of
publication. Not later than 180 days after publication of
such plan, the Secretary shall publish a final plan in the
Federal Register.
(3) Implementation of plan.--The Secretary shall prescribe
rules and regulations to implement the plan developed under
paragraph (1). Notwithstanding any other provision of law,
the Secretary shall--
(A) prescribe such rules and regulations in accordance with
section 553 (b), (c), (d), and (e) of title 5, United States
Code, and
(B) in connection with such rules and regulations, perform
an initial and final regulatory flexibility analysis pursuant
to sections 603 and 604 of title 5, United States Code, and
outreach pursuant to section 609 of title 5, United States
Code.
(4) Electronic-filing advisory group.--
(A) In general.--To ensure that the Secretary receives
input from the private sector in the development and
implementation of the plan required by paragraph (1), not
later than 60 days after the date of enactment of this Act,
the Secretary shall convene an electronic-filing advisory
group to include at least one representative of individual
taxpayers subject to withholding, small businesses and the
self-employed, large businesses, trusts and estates, tax-
exempt organizations, tax practitioners, preparers, and other
tax professionals, computerized tax processors, and the
electronic-filing industry.
(B) Personnel and other matters.--The provisions of section
305(b) of this Act shall apply to the advisory group.
(5) Termination.--The advisory group shall terminate on
December 31, 2008.
(c) Promotion of Electronic Filing and Incentives.--Section
6011 is amended by redesignating subsection (f) as subsection
(g) and by inserting after subsection (e) the following new
subsection:
``(f) Promotion of Electronic Filing.--
``(1) In general.--The Secretary is authorized to promote
the benefits of and encourage the use of electronic tax
administration programs, as they become available, through
the use of mass communications and other means.
``(2) Incentives.--The Secretary may implement procedures
to provide for the payment of appropriate incentives for
electronically filed returns.''
SEC. 402. REPORT ON ELECTRONIC FILING AND ITS EFFECT ON SMALL
BUSINESSES.
Not later than June 30 of each calendar year after 1997 and
before 2009, the Chairperson of the Internal Revenue Service
Board of Governors, the Secretary of the
[[Page S927]]
Treasury, and the Chairperson of the electronic-filing
advisory group established under section 401(b)(4) of this
Act shall report to the Committees on Finance,
Appropriations, Governmental Affairs, and Small Business of
the Senate, the Committees on Ways and Means, Appropriations,
Government Reform and Oversight, and Small Business of the
House of Representatives, and the Joint Committee on
Taxation, on--
(1) the progress of the Internal Revenue Service in meeting
the goal of receiving 80 percent of tax and information
returns electronically by 2007,
(2) the status of the plan required by section 401(b) of
this Act,
(3) the legislative changes necessary to assist the
Internal Revenue Service in meeting such goal, and
(4) the effects on small businesses and the self-employed
of electronically filing tax and information returns,
including a detailed description of the forms to be filed
electronically, the equipment and technology required for
compliance, the cost to a small business and self-employed
individual of filing electronically, implementation plans,
and action to coordinate Federal, State, and local electronic
filing requirements.
TITLE V--REGULATORY REFORM
SEC. 501. CONGRESSIONAL REVIEW OF INTERNAL REVENUE SERVICE
RULES THAT INCREASE REVENUE.
(a) In General.--Section 804(2) of title 5, United States
Code, is amended to read as follows:
``(2) The term `major rule'--
``(A) means any rule that--
``(i) the Administrator of the Office of Information and
Regulatory Affairs of the Office of Management and Budget
finds has resulted in or is likely to result in--
``(I) an annual effect on the economy of $100,000,000 or
more;
``(II) a major increase in costs or prices for consumers,
individual industries, Federal, State, or local government
agencies, or geographic regions; or
``(III) significant adverse effects on competition,
employment, investment, productivity, innovation, or on the
ability of United States-based enterprises to compete with
foreign-based enterprises in domestic and export markets; or
``(ii)(I) is promulgated by the Internal Revenue Service;
and
``(II) the Administrator of the Office of Information and
Regulatory Affairs of the Office of Management and Budget
finds that the implementation and enforcement of the rule has
resulted in or is likely to result in any net increase in
Federal revenues over current practices in tax collection or
revenues anticipated from the rule on the date of the
enactment of the statute under which the rule is promulgated;
and
``(B) does not include any rule promulgated under the
Telecommunications Act of 1996 and the amendments made by
that Act.''
(b) Effective Date.--The amendments made by this section
shall be effective 90 days after the date of the enactment of
this Act.
SEC. 502. SMALL BUSINESS ADVOCACY PANELS FOR THE IRS.
(a) In General.--Section 609(d) of title 5, United States
Code, is amended to read as follows:
``(d) For purposes of this section, the term `covered
agency' means the Internal Revenue Service, the Environmental
Protection Agency, and the Occupational Safety and Health
Administration of the Department of Labor.''
(b) Effective Date.--The amendments made by this section
shall be effective 90 days after the date of the enactment of
this Act.
SEC. 503. TAXPAYER'S ELECTION WITH RESPECT TO RECOVERY OF
COSTS AND CERTAIN FEES.
(a) In General.--
(1) Section 504(f) of title 5, United States Code, is
amended to read as follows:
``(f) A party may elect to recover costs, fees, or other
expenses under this section or under section 7430 of the
Internal Revenue Code of 1986.''
(2) Section 2412(e) of title 28, United States Code, is
amended to read as follows:
``(e) A party may elect to recover costs, fees, or other
expenses under this section or under section 7430 of the
Internal Revenue Code of 1986.''
(b) Coordination.--Section 7430 (relating to awarding of
costs and certain fees) is amended by adding at the end the
following new subsection:
``(g) Coordination With Equal Access to Justice Act.--This
section shall not apply to any administrative or judicial
proceeding with respect to which a taxpayer elects to recover
costs, fees, or other expenses under section 504 of title 5,
United States Code, or section 2412 of title 28, United
States Code.''
(c) Effective Date.--The amendments made by this section
shall be effective for proceedings initiated after the date
of the enactment of this Act.
____
Putting the Taxpayer First Act
Explanation of Provisions
Title I--Taxpayer Rights
Section 101. Court approval for seizure of taxpayer's property
In response to recent concerns raised about the IRS'
unchecked authority to seize a taxpayer's property, the bill
requires that before the IRS may seize property the agency
must obtain court approval with notice to the taxpayer and an
opportunity for a hearing. This requirement will protect a
taxpayer's right against unreasonable search and seizure
under the Fourth Amendment of the Constitution and ensure the
taxpayer's right to due process under the Fifth Amendment.
The bill includes an exception when a taxpayer tries to
hide, damage, or destroy property to evade paying his or her
taxes. In such a case, if the IRS demonstrates that the
property is likely to be lost or damaged, the court may
provide immediate relief, without involving the taxpayer, to
protect the property. To obtain such relief, the IRS must
demonstrate to the court's satisfaction that without relief,
the government's ultimate ability to collect the tax due from
the property will be lost. The IRS must also demonstrate that
the taxpayer has been given notice that tax is due, the
taxpayer has failed to pay, and the IRS has a reasonable
probability of success on the merits of the case.
Section 102. Improved offers-in-compromise procedure
The bill strengthens the IRS' current administrative
program for taxpayers who have no chance of paying their tax
liability in full. The program is intended to be a last
resort, and the bill requires the IRS to accept offers in
compromise when it is unlikely that the tax can be collected
in full and the offer represents the taxpayer's ability to
pay. The bill requires the IRS to accept, reject, or make a
counteroffer to a taxpayer's offer-in-compromise within 120
days from the date that the taxpayer filed the offer and
submitted reasonable documentation concerning his or her
ability to pay. The bill suspends interest on the taxpayer's
tax liability if the IRS fails to meet the 120-day deadline
(with exceptions for frivolous offers made by taxpayers
merely to buy time). In addition, if the IRS does not accept
an offer (e.g., rejects it or returns it as unprocessable),
the IRS will be required to provide a complete explanation to
the taxpayer as to the reasons that the offer was not
accepted, and the taxpayer may appeal the rejection to the
Office of Appeals.
This section also requires the Treasury Department to issue
regulations that establish the standard for an acceptable
offer. The regulations will require that an acceptable offer
be based on the economic reality of the taxpayer's ability to
pay, and establish specific provisions addressing cases
involving small businesses and the self-employed.
Section 103. Expansion of attorney's fees to cover unauthorized-
disclosure and browsing cases
The bill clarifies that a court may award attorney's fees
in cases involving unauthorized disclosure of taxpayer
information and browsing of taxpayer records by IRS
employees. This provision is intended to overrule McLarty v.
United States, 6 F.3d 545 (8th Cir. 1993), which denied
attorney's fees in a case involving unauthorized disclosure,
and adopt the ruling in Huckaby v. United States Department
of Treasury, 804 F.2d 297 (5th Cir. 1986), which permitted
such fees. The bill is also intended to prevent the
interpretation in McLarty from being applied to browsing
cases.
Section 104. Uniform application of confidentiality privilege for
taxpayer communications with Federally authorized practitioners
The bill expands the privilege of confidentiality that
exists currently between a taxpayer and an attorney with
respect to tax advice to any tax practitioner who is
currently authorized to practice before the IRS, such as
accountants and enrolled agents. Such confidentiality may be
asserted only in non-criminal tax cases before the IRS and
Federal courts, including Tax Court.
Section 105. Taxpayer's right to have an IRS examination take place at
another site
The bill provides that the IRS must accept a taxpayer's
request that an audit be moved away from his or her home or
business premises if the off-site location is accessible to
the auditor and the taxpayer's books and records are
available at such a location. This provision will enable the
IRS to conduct an audit but without the fear and disruption
resulting from the auditor being present in a family home and
among a business' employees and customers for days or weeks.
Section 106. Prohibition on IRS contact of third parties without
taxpayer pre-notification
In many audit cases, especially employment tax audits, the
IRS uses its summons authority to verify information from a
business' customers, employees, suppliers, and others who do
business with the taxpayer, but without notifying the
taxpayer. Such inquiries often chill business relationships
and can lead a third party to cease doing business with the
taxpayer for fear of becoming ``involved'' in the audit
themselves. To reduce the economic harm of such contacts, the
bill requires pre-notification to a business taxpayer in
advance of the IRS issuing a summons to the business'
customers, employees, suppliers, and other third parties. An
exception is provided for cases in which the IRS can
demonstrate a specific bona fide reason that such notice
would jeopardize the collection of tax (e.g., the business
has threatened to fire any employee who talks to the IRS) or
a criminal investigation.
Section 107. Expansion of taxpayer's rights in administrative appeal
In some cases, when an audit is completed, the IRS does not
issue a notice of proposed
[[Page S928]]
deficiency (i.e., 30-day letter) to the taxpayer, and instead
the taxpayer receives a notice of deficiency (i.e., 90-day
letter). As a result, the taxpayer loses the opportunity
to resolve his or her tax dispute through an
administrative appeal, and the taxpayer's only recourse is
to pay the tax or file suit in the Tax Court. To prevent
this situation, the bill requires the IRS to issue a
notice of proposed deficiency and permits the taxpayer to
appeal any proposed adjustments to the Office of Appeals.
This section is intended to encourage disputes to be
resolved at the agency level without the enormous costs to
the taxpayer of litigation.
Title II--Penalty Reform
Section 201. Imposition of interest on penalties only after a
taxpayer's failure to pay
Currently, interest on most penalties imposed by the IRS is
retroactively applied back to the due date for the taxpayer's
return. As a result, such interest amounts to an additional
hidden penalty, which can increase a taxpayer's tax bill
enormously. The bill provides that interest on a penalty
begins to run only after the time has expired for the
taxpayer to pay the bill.
Section 202. Repeal of the penalty for substantial understatement of
income tax
To simplify the penalty rules, the bill repeals the penalty
for substantial understatement of income tax. In most cases
involving a substantial understatement, the existing
negligence penalty will also apply. As a result, there will
still be a deterrent against taxpayers who attempt to cheat
on their taxes. However, with the growing complexity of the
tax code, it is possible for an innocent mistake to lead to a
substantial understatement, and the bill will protect
taxpayers in such cases.
Section 203. Repeal of the failure-to-pay penalty
The failure-to-pay penalties were originally enacted in the
1960s to compensate for the low rate of interest applied to
an individual's tax liability, and for the fact that such
interest was not compounded. Today, with interest compounded
daily and adjusted for changes in the interest rate, these
penalties are no longer needed and serve only as another
hidden, second penalty. In addition, these penalties are
often applied on top of accuracy-related penalties, resulting
in total punishment of as much as 45 percent in non-criminal
cases. To reduce the multiplicity of punishment on taxpayers
who make mistakes, the bill repeals the failure-to-pay
penalties.
Title III--Internal Revenue Service Restructuring
Section 301. Internal Revenue Service Board of Governors and
Commissioner of Internal Revenue
The bill creates an independent, full-time Board of
Governors for the Internal Revenue Service (IRS), which will
exercise top-level administrative management over the agency.
The Board of Governors will have full responsibility,
authority, and accountability for the IRS' enforcement
activities, such as examinations and collections, which are
often at the heart of taxpayer complaints about the IRS. In
addition, the Board will oversee the Office of the Taxpayer
Advocate and the Office of Appeals. While the bill keeps the
formulation of tax policy within the purview of the Treasury
Department, the Board of Governors will have a significant
consultative role in such policy decisions.
The Board will consist of five members appointed by the
President and confirmed by the Senate, and the members will
have staggered five-year terms (i.e., one member will be
appointed each year). Two of the members will be affiliated
with the Republican party and two with the Democratic party.
The fifth member will be the Commissioner of Internal
Revenue, who will continue to be appointed by the President
with Senate confirmation, subject to a 5-year term. The
Commissioner will also serve as the Chairperson of the Board.
Collectively, the members of the Board will represent
experience and expertise in the needs and concerns of
taxpayers, organization development, customer service, the
operation of small businesses, the management of large
businesses, information technology, and compliance.
Section 302. Restructuring of IRS operations along customer lines
The bill reorganizes the IRS' operations according to
customer groups to provide ``one stop service'' for taxpayers
with similar characteristics and needs. This structure will
replace the current functional or ``one size fits all''
approach under which an IRS function, such as taxpayer
services, examinations, or collections, handles all
taxpayers. The new IRS under this section of the bill will
have the following customer groups:
Individual taxpayers (subject to wage withholding).
Small business and self-employed individuals.
Large business.
Exempt organizations and pension plans.
Trusts and estates.
Other division deemed necessary by the Board of Governors.
Each customer group will be headed by an Assistant
Commissioner and will have existing IRS functions such as
taxpayer service, examinations, collections, and counsel
operations dedicated to the specific needs of the individuals
or businesses within the division. This structure will be
required by law in order to make it permanent and prevent it
from becoming just one of the many reorganization plans that
the IRS has undertaken over the past several decades.
Section 303. Greater independence of the Taxpayer Advocate
The bill requires that the Taxpayer Advocate be appointed
by and report directly to the Board of Governors. The Office
of the Taxpayer Advocate will also be independent of all
other functions of the IRS. Currently, the Taxpayer Advocate
is appointed by and reports only to the Commissioner of
Internal Revenue.
Section 304. Greater independence of the Office of Appeals
The section establishes a statutory Office of Appeals
within the IRS, which will be independent of all other IRS
functions. The Office of Appeals will be managed by a
National Appeals Officer, who will be appointed by and report
to the Board of Governors.
In order to ensure that the Office of Appeals is an
impartial arbiter, the bill prohibits two practices that
currently occur in the IRS' appeals process. Under the bill,
an appeals officer will be precluded from addressing issues
and arguments outside of those identified by the auditor. In
addition, this section prohibits communications between an
appeals officer and the auditor handling the case without the
presence of the taxpayer or his or her representative.
Section 305. Improved IRS written communications to taxpayers and tax
forms
The bill directs the Board of Governors to create a
taxpayer-communications advisory group to provide a common-
sense review process for all new and existing IRS written
communications to taxpayers, such as standardized letters,
notices and bills as well as forms and instructions. The
advisory group's goal will be to ensure that all written
communications are clear and easy to understand by the
taxpayer to whom it is directed. If a document does not meet
this minimum standard, the advisory group will recommend to
the Board of Governors that the letter, notice, etc. be
rewritten before it is used.
The members of the advisory group will be volunteers with
at least one representative of individual taxpayers, small
businesses and the self-employed, large businesses, trusts
and estates, tax-exempt organizations, tax compliance
professionals and other constituencies deemed necessary by
the Board of Governors.
Title IV--Electronic Filing
Section 401. Goals for electronic filing and the electronic-filing
advisory group
This section establishes a goal, but not a mandate, that
paperless filing should be the preferred and most convenient
means of filing tax and information returns in 80 percent of
cases by the year 2007. In addition, this section calls on
the Treasury Secretary to create an electronic-filing
advisory group to ensure that the private sector has a role
in the implementation of that goal. The advisory group will
include representatives of individual taxpayers, small
businesses and the self-employed, large businesses, trusts
and estates, tax-exempt organizations, and the tax
preparation and filing industries.
This section requires the Treasury Secretary, in
consultation with the Board of Governors and the advisory
group, to develop a strategic plan for implementing the
electronic-filing goal. The plan will be subject to public
notice and comment and to the requirements of the Regulatory
Flexibility Act to ensure that the costs and burdens on
taxpayers who decide to file electronically are minimized.
This section also provides authority for the IRS to promote
the benefits of electronic filing and to provide appropriate
incentives to encourage taxpayers to file electronically.
Section 402. Report on electronic filing and its effect on small
businesses
The bill requires the IRS Board of Governors, the Treasury
Secretary, and the electronic-filing advisory group to issue
an annual report to Congress through 2008 that specifically
addresses the effects of electronic filing on small business
and its feasibility. In particular, the report will include a
detailed description of the forms to be filed electronically,
the equipment and technology required for compliance, cost of
filing electronically, implementation plans, and efforts
undertaken to coordinate Federal, state and local filing
requirements including the possibility of one-stop filing.
Title V--Regulatory Reform
Section 501. Congressional review of Internal Revenue Service rules
that increase revenue
The bill includes the provisions of the Stealth Tax
Prevention Act of 1997 (S. 831), which will provide Congress
with a 60-day window to review any final IRS rule that raises
revenue.
Under the bill, Congress will have expedited procedures to
enact a joint resolution of disapproval to overrule the IRS
rule before it takes effect. The primary example of this
situation is the IRS' 1997 proposed regulations defining who
is a limited partner for self-employment tax purposes (now
known as the ``stealth tax regulations''), which is currently
subject to a Congressionally imposed moratorium.
Section 502. Small Business Advocacy Panels for the IRS
The bill requires the IRS to increase small business
participation in agency rulemaking
[[Page S929]]
activities by convening a Small Business Advocacy Review
Panel for a proposed rule with a significant economic impact
on small entities. For such rules, the IRS will have to
notify SBA's Chief Counsel of Advocacy that the rule is under
development and provide sufficient information so that the
Chief Counsel can identify affected small entities and gather
advice and comments on the effects of the proposed rule. A
Small Business Advocacy Review Panel, comprising Federal
government employees from the IRS, the Office of Advocacy,
and OMB, must be convened to review the proposed rule and to
collect comments from small businesses. Within 60 days, the
panel will have to issue a report of the comments received
from small entities and the panel's findings, which will
become part of the public record. As appropriate, the IRS may
modify the rule or the initial Reg Flex analysis (or its
decision on whether a Reg Flex analysis is required) based on
the panel's report.
Currently, the requirement for Small Business Advisory
Panels applies to the Occupational Safety and Health
Administration (OSHA) and the Environmental Protection Agency
(EPA). By expanding it to the IRS, the bill will ensure that
the views of small businesses are taken into account early in
the process of developing new rules and regulations and that
the IRS will take action to reduce the burdens of such rules
on these small enterprises.
Section 503. Taxpayer's election with respect to recovery of costs and
certain fees
Under the Internal Revenue Code, a taxpayer may recover
costs and fees, including attorney's fees, against the IRS if
he or she prevails and the IRS' litigation position was not
substantially justified. The Equal Access to Justice Act
(EAJA) permits a small business to recover such costs when an
unreasonable agency demand for fines or civil penalties is
not sustained in court or in an administrative proceeding. In
addition, a small business may also recover such costs and
fees under the EAJA when it is the prevailing party and the
agency enforcement action is not substantially justified.
Currently, the EAJA prohibits a taxpayer seeking to recover
costs and fees in an IRS enforcement action from doing so
under the EAJA if the fees and costs can be recovered under
the Internal Revenue Code.
The bill permits taxpayers to elect whether to pursue
recovery of attorney's fees and expenses under the Equal
Access to Justice Act (``EAJA'') or the Internal Revenue
Code.
______
By Mr. MURKOWSKI (for himself and Mr. Stevens):
S. 1670. A bill to amend the Alaskan Native Claims Settlement Act to
provide for selection of lands by certain veterans of the Vietnam era;
to the Committee on Energy and Natural Resources.
the alaska native vietnam veterans allotment open season act of 1998
Mr. MURKOWSKI. Mr. President, I am pleased to rise today to introduce
on behalf of myself and Senator Stevens, legislation that will provide
Alaska Native Veterans of the Vietnam era, from 1964-75, a chance to
apply for Native Allotments. Because these brave men and women were
outside of the country, serving America with distinction, they missed
the opportunity to apply for these allotments. Our bill will create a
year-long open season for these veterans and their heirs to apply for
and select allotment parcels.
The Alaska Native Allotment Act, in effect from 1906-71, allowed
Alaska Natives who had continuous use of either vacant land or certain
mineral lands set aside for federal use, the opportunity to apply for,
select, and ultimately be granted conveyance of these lands. Alaska
Native Vietnam Veterans did not receive the outreach and assistance in
applying that other Alaska Natives received during the time the act was
in effect, and were effectively denied the opportunity to apply for
allotments when they were serving their country. Our legislation calls
for the same standards that were in effect under the Allotment Act be
used to evaluate these new applications. It calls for DOI to develop
rules to implement this bill, in consultation with Alaska Native
groups. Congressman Young has introduced a companion measure in the
House, and our respective committees plan to hold hearings this winter
on these pieces of legislation.
Mr. President, I am pleased that my 1995 authorizing legislation,
Public Law 104-2, that required the Department of the Interior to
produce a report on the possible impacts of allotment legislation, has
led to this day. The time has come to give these veterans the
opportunity to join their fellow Alaska Natives in reaping the benefits
of the historic Alaska Native Allotment Act.
______
By Mr. BENNETT (for himself and Mr. Dodd):
S. 1671. A bill to address the Year 2000 computer problems with
regard to financial institutions, to extend examination parity to the
Director of the Office of Thrift Supervision and the National Credit
Union Administration, and for other purposes; to the Committee on
Banking, Housing, and Urban Affairs.
THE EXAMINATION PARITY AND YEAR 2000 READINESS FOR FINANCIAL
INSTITUTIONS ACT
Mr. BENNETT. Mr. President, I rise today, with my esteemed colleague
Senator Dodd, to address an issue of significant import. Almost all of
our nation's commercial banks, thrifts, and credit unions are regulated
and insured. This brings great peace of mind to the American public. We
all rest easier knowing that our funds, held by our insured and
regulated financial institutions, are protected by (a) an insurance
fund, (b) a safety and soundness regulator, and (c) the full faith and
credit of the US Treasury. In order to continue this tradition of safe
and sound banking practice, we need to ensure that banking law stays
abreast of current practices in the market place and that our banks
have the most up-to-date information available on upcoming issues
affecting the safety and soundness of their operations.
The Bill we introduce today has a two-fold purpose. It grants the
Office of Thrift Supervision (OTS) and the National Credit Union
Administration (NCUA) the authority to examine third party service
organizations which have assumed more of the traditional bank
functions. This bill will make OTS and NCUA comparable to the Office of
the Controller of the Currency and the Federal Deposit Insurance
Corporation in their ability to ensure safe and sound banking practices
as they relate to third party service organizations. This Bill also
requires federal financial regulatory agencies to hold seminars for
financial institutions on the implications of the Year 2000 (Y2K)
problem for safe and sound operations, and to provide model approaches
for solving common Y2K problems.
The authorities proposed for the NCUA and OTS have been requested by
both regulatory agencies. NCUA ``strongly supports [this proposal] and
urges its quick enactment.'' OTS, in separate letters to Senator Dodd
and myself, refers to the current situation as an ``obstacle'' to their
supervisory efforts and a ``statutory deficiency''. OTS Director
Seidman further states ``I support your efforts. . . . I have asked my
staff to cooperate fully with Senate Banking Committee staff to address
any concerns you may have regarding this provision.''
OTS staff has been very helpful in this effort and I want to take
this opportunity to thank OTS Director Seidman for her assistance as
well as Ms Deborah Dakins. I also want to express appreciation to the
Senate Banking Committee staff, especially Mr. Andrew Lowenthal, and my
own Subcommittee staff for their efforts.
Mr. President, I ask unanimous consent that the text of the bill be
printed in the Record.
There being no objection, the bill was ordered to be printed in the
Record, as follows:
S. 1671
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Examination Parity and Year
2000 Readiness for Financial Institutions Act''.
SEC. 2. YEAR 2000 READINESS FOR FINANCIAL INSTITUTIONS.
(a) Findings.--The Congress finds that--
(1) the Year 2000 computer problem poses a serious
challenge to the American economy, including the Nation's
banking and financial services industries;
(2) thousands of banks, savings associations, and credit
unions rely heavily on internal information technology and
computer systems, as well as outside service providers, for
mission-critical functions, such as check clearing, direct
deposit, accounting, automated teller machine networks,
credit card processing, and data exchanges with domestic and
international borrowers, customers, and other financial
institutions; and
(3) Federal financial regulatory agencies must have
sufficient examination authority to ensure that the safety
and soundness of the Nation's financial institutions will not
be at risk.
(b) Definitions.--For purposes of this section--
(1) the terms ``depository institution'' and ``Federal
banking agency'' have the same meanings as in section 3 of
the Federal Deposit Insurance Act;
[[Page S930]]
(2) the term ``Federal home loan bank'' has the same
meaning as in section 2 of the Federal Home Loan Bank Act;
(3) the term ``Federal reserve bank'' means a reserve bank
established under the Federal Reserve Act;
(4) the term ``insured credit union'' has the same meaning
as in section 101 of the Federal Credit Union Act; and
(5) the term ``Year 2000 computer problem'' means, with
respect to information technology, any problem which prevents
such technology from accurately processing, calculating,
comparing, or sequencing date or time data--
(A) from, into, or between--
(i) the 20th and 21st centuries; or
(ii) the years 1999 and 2000; or
(B) with regard to leap year calculations.
(c) Seminars and Model Approaches to Year 2000 Computer
Problem.--
(1) Seminars.--
(A) In general.--Each Federal banking agency and the
National Credit Union Administration Board shall offer
seminars to all depository institutions and insured credit
unions under the jurisdiction of such agency on the
implication of the Year 2000 computer problem for--
(i) the safe and sound operations of such depository
institutions and credit unions; and
(ii) transactions with other financial institutions,
including Federal reserve banks and Federal home loan banks.
(B) Content and schedule.--The content and schedule of
seminars offered pursuant to subparagraph (A) shall be
determined by each Federal banking agency and the National
Credit Union Administration Board taking into account the
resources and examination priorities of such agency.
(2) Model approaches.--
(A) In general.--Each Federal banking agency and the
National Credit Union Administration Board shall make
available to each depository institution and insured credit
union under the jurisdiction of such agency model approaches
to common Year 2000 computer problems, such as model
approaches with regard to project management, vendor
contracts, testing regimes, and business continuity planning.
(B) Variety of approaches.--In developing model approaches
to the Year 2000 computer problem pursuant to subparagraph
(A), each Federal banking agency and the National Credit
Union Administration Board shall take into account the need
to develop a variety of approaches to correspond to the
variety of depository institutions or credit unions within
the jurisdiction of the agency.
(3) Cooperation.--In carrying out this section, the Federal
banking agencies and the National Credit Union Administration
Board may cooperate and coordinate their activities with each
other, the Financial Institutions Examination Council, and
appropriate organizations representing depository
institutions and credit unions.
SEC. 3. REGULATION AND EXAMINATION OF SERVICE PROVIDERS.
(a) Regulation and Examination of Savings Association
Service Companies.--
(1) Amendment to home owners' loan act.--Section 5(d) of
the Home Owners' Loan Act (12 U.S.C. 1464(d)) is amended by
adding at the end the following:
``(7) Regulation and examination of savings association
service companies, subsidiaries, and service providers.--
``(A) General examination and regulatory authority.--A
service company or subsidiary that is owned in whole or in
part by a savings association shall be subject to examination
and regulation by the Director to the same extent as that
savings association.
``(B) Examination by other banking agencies.--The Director
may authorize any other Federal banking agency that
supervises any other owner of part of the service company or
subsidiary to perform an examination described in
subparagraph (A).
``(C) Applicability of section 8 of the federal deposit
insurance act.--A service company or subsidiary that is owned
in whole or in part by a saving association shall be subject
to the provisions of section 8 of the Federal Deposit
Insurance Act as if the service company or subsidiary were an
insured depository institution. In any such case, the
Director shall be deemed to be the appropriate Federal
banking agency, pursuant to section 3(q) of the Federal
Deposit Insurance Act.
``(D) Service performed by contract or otherwise.--
Notwithstanding subparagraph (A), if a savings association, a
subsidiary thereof, or any savings and loan affiliate or
entity, as identified by section 8(b)(9) of the Federal
Deposit Insurance Act, that is regularly examined or subject
to examination by the Director, causes to be performed for
itself, by contract or otherwise, any service authorized
under this Act or, in the case of a State savings
association, any applicable State law, whether on or off its
premises--
``(i) such performance shall be subject to regulation and
examination by the Director to the same extent as if such
services were being performed by the savings association on
its own premises; and
``(ii) the savings association shall notify the Director of
the existence of the service relationship not later than 30
days after the earlier of--
``(I) the date on which the contract is entered into; or
``(II) the date on which the performance of the service is
initiated.
``(E) Administration by the director.--The Director may
issue such regulations and orders, including those issued
pursuant to section 8 of the Federal Deposit Insurance Act,
as may be necessary to enable the Director to administer and
carry out this paragraph and to prevent evasion of this
paragraph.
``(8) Definitions.--For purposes of this section--
``(A) the term `service company' means--
``(i) any corporation--
``(I) that is organized to perform services authorized by
this Act or, in the case of a corporation owned in part by a
State savings association, authorized by applicable State
law; and
``(II) all of the capital stock of which is owned by 1 or
more insured savings associations; and
``(ii) any limited liability company--
``(I) that is organized to perform services authorized by
this Act or, in the case of a company, 1 of the members of
which is a State savings association, authorized by
applicable State law; and
``(II) all of the members of which are 1 or more insured
savings associations;
``(B) the term `limited liability company' means any
company, partnership, trust, or similar business entity
organized under the law of a State (as defined in section 3
of the Federal Deposit Insurance Act) that provides that a
member or manager of such company is not personally liable
for a debt, obligation, or liability of the company solely by
reason of being, or acting as, a member or manager of such
company; and
``(C) the terms `State savings association' and
`subsidiary' have the same meanings as in section 3 of the
Federal Deposit Insurance Act.''.
(2) Conforming amendments to section 8 of the federal
deposit insurance act.--Section 8 of the Federal Deposit
Insurance Act (12 U.S.C. 1818) is amended--
(A) in subsection (b)(9), by striking ``to any service
corporation of a savings association and to any subsidiary of
such service corporation'';
(B) in subsection (e)(7)(A)(ii), by striking ``(b)(8)'' and
inserting ``(b)(9)''; and
(C) in subsection (j)(2), by striking ``(b)(8)'' and
inserting ``(b)(9)''.
(b) Regulation and Examination of Service Providers for
Credit Unions.--Title II of the Federal Credit Union Act (12
U.S.C. 1781 et seq.) is amended by inserting after section
206 the following new section:
``SEC. 206A. REGULATION AND EXAMINATION OF CREDIT UNION
ORGANIZATIONS AND SERVICE PROVIDERS.
``(a) Regulation and Examination of Credit Union
Organizations.--
``(1) General examination and regulatory authority.--A
credit union organization shall be subject to examination and
regulation by the Board to the same extent as that insured
credit union.
``(2) Examination by other banking agencies.--The Board may
authorize to make an examination of a credit union
organization in accordance with paragraph (1)--
``(A) any Federal regulator agency that supervises any
activity of a credit union organization; or
``(B) any Federal banking agency that supervises any other
person who maintains an ownership interest in a credit union
organization.
``(b) Applicability of Section 206.--A credit union
organization shall be subject to the provisions of section
206 as if the credit union organization were an insured
credit union.
``(c) Service performed by Contract or Otherwise.--
Notwithstanding subsection (a), if an insured credit union or
a credit union organization that is regularly examined or
subject to examination by the Board, causes to be performed
for itself, by contract or otherwise, any service authorized
under this Act or, in the case of a State credit union, any
applicable State law, whether on or off its premises--
``(1) such performance shall be subject to regulation and
examination by the Board to the same extent as if such
services were being performed by the insured credit union or
credit union organization itself on its own premises; and
``(2) the insured credit union or credit union organization
shall notify the Board of the existence of the service
relationship not later than 30 days after the earlier of--
``(A) the date on which the contract is entered into; or
``(B) the date on which the performance of the service is
initiated.
``(d) Administration by the Board.--The Board may issue
such regulations and orders as may be necessary to enable the
Board to administer and carry out this section and to prevent
evasion of this section.
``(e) Definitions.--For purposes of this section--
``(1) the term `credit union organization' means any entity
that--
``(A) is not a credit union;
``(B) is an entity in which an insured credit union may
lawfully hold an ownership interest or investment; and
``(C) is owned in whole or in part by an insured credit
union; and
``(2) the term `Federal banking agency' has the same
meaning as in section 3 of the Federal Deposit Insurance Act.
``(f) Expiration of Authority.--This section and all powers
and authority of the Board under this section shall cease to
be effective as of December 31, 2001.''.
[[Page S931]]
Mr. DODD. Mr. President. I am very pleased to join with Senator
Bennett to introduce the ``Examination Parity and Year 2000 Readiness
For Financial Institutions Act.'' This legislation, while technical in
nature, will provide badly needed authority and guidance to Federal
financial regulators to help their supervised institutions cope with
the Year 2000 computer problem.
The Year 2000--or Y2K--computer problem is caused by the inability of
most of the major financial systems to process the year 2000 as the one
that follows the year 1999. This is caused by the fact that basic
computer code, much of it written as many as thirty years ago, reads
dates as two-digits, ``98'' or ``99,'' instead of four digits ``1999''
or ``2000.'' If left untreated, computers will read the year 2000 as
the years 1900, 1980 or some other default date. The result is not only
erroneous calculations, but the total crash of many critical financial
systems.
Federal financial regulators have been very active, of late, in
helping their supervised institutions prepare for this extremely
dangerous problem. However, both the Office of Thrift Supervision and
the National Credit Union Administration have notified Senator Bennett
and I that they lack the authority to examine the Year 2000
preparations of service providers to thrifts and credit unions.
Currently, other federal financial regulators--the Federal Reserve,
Office of the Comptroller of the Currency and the Federal Deposit
Insurance Corporation--have this authority.
These service providers perform many of the key transaction and data
processing for federally-insured thrifts and credit unions,
particularly smaller institutions for whom it is not cost-effective to
establish their own computer systems. As a result, it is imperative to
the safety and soundness of these institutions for the regulators to be
able to establish that their service providers will be Year 2000
compliant.
The legislation also contains provisions that require all financial
regulators to hold seminars to educate their respective supervised
institutions and, to the maximum extent possible, provide model
solutions for fixing the problem. The beneficial impact of such
outreach and education efforts for federally-insured institutions is
self-evident.
Mr. President, the Year 2000 problem is one that we will have to
confront in many more ways than this legislation. The extent of the
problem goes well beyond the financial services industry to affect
virtually every segment of our nation's economy. But this sensible bill
is a good first step to ensuring that Federal financial regulators have
the tools necessary to address the problem in their area of
jurisdiction.
______
By Mr. DASCHLE (for himself and Mr. Johnson):
S. 1672. A bill to expand the authority of the Secretary of the Army
to improve the control of erosion on the Missouri River; to the
Committee on Environment and Public Works.
the missouri river erosion control act of 1998
Mr. DASCHLE. Mr. President, it is my pleasure today to introduce the
Missouri River Erosion Control Act of 1998, a bill to provide much-
needed assistance to homeowners who live along the Missouri River. Over
the past several years, many South Dakotans have seen property values
drop and homes nearly destroyed by shoreline erosion. This legislation
will help these families to work with the U.S. Army Corps of Engineers
to take responsible steps to prevent these problems. My colleague,
Senator Johnson, is joining me as an original cosponsor of this
legislation.
While erosion occurs naturally on any river, shorelines on the
Missouri are particularly vulnerable to it. Releases from the
hydroelectric dams that span the river in South Dakota cause its depth
and speed to fluctuate drastically, sometimes with dangerous
consequences. Following last year's flooding disaster, the rapid,
swirling current caused by sustained high releases from the dams swept
away half an acre of land near Burbank, South Dakota, in just 3 hours.
A subsequent release destroyed an additional 40 feet of land, bringing
the river's edge to the foundation of the home of Neil and Eileen
Helvig. Thanks to last minute work by the Corps of Engineers to
stabilize the shoreline, the Helvig's home, and several others nearby,
were saved. However, this is not the only case when bank erosion has
posed a threat to residential homes and without a comprehensive program
in place to provide help to others in need, we may not be so lucky in
the future.
Over the last several years, Mrs. Lois Hyde of rural Lake Andes has
watched the river work its way to within a stone's throw of her home--
an original homestead first settled by her family over 100 years ago.
Without additional help, it is likely that she may be forced to abandon
her farm. I believe it is our responsibility to give individuals like
her the help they need to protect their homes.
The Missouri River Erosion Control Act of 1998 will give homeowners
the opportunity to take responsible steps to protect their property.
The bill amends current law to permit homeowners to work in partnership
with the U.S. Army Corps of Engineers to take steps to stabilize their
shoreline. Under the my bill, the Corps of Engineers will accept
applications from private property owners along the Missouri River and
rank those applications in order of need. The most vulnerable stretches
of the shoreline would then be targeted for assistance. Like other
erosion control programs, the bill requires a 35 percent non-federal
cost share, while the federal government will provide the other 65
percent of the cost.
For many years the Corps of Engineers has been reluctant to work with
private property owners to prevent damage to private property from
erosion. Nevertheless, new circumstances require new thinking.
Particularly in the wake of last year's disaster in South Dakota,
circumstances have made it clear that we must help families take the
steps they need to protect their homes. Homeowners want to take
responsible measures to protect their property. We must give them that
opportunity. I urge my colleagues to join me in support of this bill.
Mr. President, I ask unanimous consent that the text of the bill be
printed in the Record.
There being no objection, the bill was ordered to be printed in the
Record, as follows:
S. 1672
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Missouri River Erosion
Control Act of 1998''.
SEC. 2. MISSOURI RIVER EROSION CONTROL.
Section 9(f) of the Act entitled ``An Act authorizing the
construction of certain public works on rivers and harbors
for flood control, and for other purposes'', approved
December 22, 1944 (102 Stat. 4031)), is amended--
(1) by striking ``(f) The'' and inserting the following:
``(f) Missouri River Between Fort Peck Dam, Montana, and a
Point Below Gavins Point Dam, South Dakota and Nebraska.--
``(1) In general.--The'';
(2) in the first sentence of paragraph (1) (as designated
by paragraph (1)), by striking ``58'' and inserting ``77'';
(3) in the second sentence--
(A) by striking ``The cost'' and inserting the following:
``(2) Costs.--
``(A) Maximum.--The cost''; and
(B) by striking ``$3,000,000'' and inserting
``$6,000,000'';
(4) in the third sentence, by striking ``Notwithstanding''
and inserting the following:
``(B) Apportionment among project purposes.--
Notwithstanding'';
(5) in the last sentence, by striking ``In lieu'' and
inserting the following:
``(3) Acquisition of land.--
``(A) In general.--In lieu'';
(6) in paragraph (3) (as designated by paragraph (5)), by
adding at the end the following:
``(B) Recreational river segments.--Notwithstanding the
Wild and Scenic Rivers Act (16 U.S.C. 1271 et seq.), in the
case of a segment of the Missouri River in the State of South
Dakota that is administered as a recreational river under
section 3(a) of that Act (16 U.S.C. 1274(a)), the Secretary
of the Army may acquire, from willing sellers, such real
estate interests as the Secretary determines are necessary to
carry out this subsection.''; and
(7) by adding at the end the following:
``(4) Measures on behalf of non-federal entities.--The
Secretary of the Army may undertake measures authorized by
paragraph (1) at the request of, or on behalf of, a non-
Federal public or private entity or individual with respect
to land owned by the entity or individual as of the date of
enactment of this paragraph, if a non-Federal interest
described in section 221(b) of the Flood Control Act of 1970
(42 U.S.C. 1962d-5b(b)) agrees in writing to provide 35
percent of the cost of the measures to be undertaken.''.
[[Page S932]]
____________________