[Congressional Record Volume 144, Number 24 (Tuesday, March 10, 1998)]
[Senate]
[Page S1699]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. MACK (for himself, Mr. Kerrey, Mr. Nickles, Mr. Conrad, 
        Mr. Grassley, Ms. Moseley-Braun, Mr. Breaux, Mr. Craig, Mr. 
        Coverdell, Mr. McConnell, Mr. Thurmond, Mr. Murkowski, Mr. 
        Bond, Mr. Lugar, Mr. Ashcroft, Mr. DeWine, and Mr. Abraham):
  S. 1737. A bill to amend the Internal Revenue Code of 1986 to provide 
a uniform application of the confidentiality privilege to taxpayer 
communications with federally authorized practitioners; to the 
Committee on Finance.


                the taxpayer confidentiality act of 1998

  Mr. MACK. Mr. President, I rise to introduce the Taxpayer 
Confidentiality Act of 1998. This bill corrects an inequity in the way 
that taxpayers are treated by the IRS. Under current law, 
communications between taxpayers and their lawyers concerning tax 
advice can often be protected from disclosure to the IRS by the common 
law attorney-client privilege.
  Many taxpayers choose to obtain their tax advice from practitioners 
who are not attorneys. Under federal law, there are other categories of 
tax practitioners to whom these taxpayers can turn for tax advice--
certified public accountants, enrolled agents, enrolled actuaries, and 
attorneys providing advice in the role of a tax practitioner. These tax 
practitioners are subject to federal regulation, and are authorized to 
provide tax advice and to represent taxpayers before the IRS.
  But under current law, communications with these other tax 
practitioners cannot be protected from disclosure to the IRS by a 
client privilege. The very same words on the very same piece of paper 
that would be beyond the reach of the IRS if they were the advice of an 
attorney at law would have to be turned over to the IRS if they came 
from a certified public accountant or an enrolled agent. This is an 
unfair penalty to impose on a taxpayer based on their choice of tax 
advisor, particularly since many taxpayers do not have the financial 
resources to hire legal counsel.
  The Taxpayer Confidentiality Act of 1998 fixes this unjust situation, 
and provides taxpayers with the confidence of knowing that their tax 
advice communications with any federally-authorized tax practitioners 
are afforded equal confidentiality protections in dealings with the 
IRS.
  This bill does not unduly restrict the ability of the IRS to gather 
information. The IRS will still be able to discover the facts. The 
taxpayer can protect from disclosure only tax advice communications 
that would be protected by the attorney-client privilege if the advisor 
were acting as an attorney. The client privilege extends only to 
communications and does not cover the taxpayer's business records. 
Also, courts have widely held that information used to prepare a tax 
return is not subject to a privilege and thus, under the Act, would 
remain subject to disclosure.
  The bill will not hinder criminal investigations and prosecutions, as 
taxpayers can assert the privilege only in noncriminal matters before 
the IRS and noncriminal judicial proceedings arising from these 
matters. And existing exceptions to the attorney-client confidentiality 
privilege would also apply to the protections under the bill. Thus, 
communications in the furtherance of a crime or a fraud would not be 
protected.
  And the bill does not affect the ability of anyone other than the 
IRS--including other federal or state agencies, and private individuals 
involved in civil litigation--to obtain access to information that they 
have the right under current law to obtain. It is just a narrowly-
tailored, common-sense solution to the problem of treating taxpayers 
differently based on the tax advisor they employ. Taxpayers should have 
a right to privacy in the tax advice they receive from qualified tax 
practitioners.
  The Taxpayer Confidentiality Act of 1998 does not modify the 
attorney-client privilege in any way, and does not expand the authority 
of federally-regulated tax practitioners in any way. It merely provides 
equal treatment for all taxpayers who receive tax advice from 
federally-authorized sources. The Act curbs unwarranted IRS 
intrusiveness, and must be included in our IRS reform 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. 1737

       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 ``Taxpayer Confidentiality Act 
     of 1998''.

     SEC. 2. UNIFORM APPLICATION OF CONFIDENTIALITY PRIVILEGE TO 
                   TAXPAYER COMMUNICATIONS WITH FEDERALLY 
                   AUTHORIZED PRACTITIONERS.

       (a) In General.--Chapter 77 of the Internal Revenue Code of 
     1986 (relating to miscellaneous provisions) is amended by 
     adding at the end the following new section:

     ``SEC. 7525. UNIFORM APPLICATION OF CONFIDENTIALITY PRIVILEGE 
                   TO 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) noncriminal 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 
     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 such 
     chapter 77 is amended by adding at the end the following new 
     item:

``Sec. 7525. Uniform application of confidentiality privilege to 
              taxpayer communications with federally authorized 
              practitioners.''

       (c) Effective Date.--The amendments made by this section 
     shall take effect on the date of enactment of this Act.
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