[House Report 105-599]
[From the U.S. Government Publishing Office]
105th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 105-599
_______________________________________________________________________
INTERNAL REVENUE SERVICE RESTRUCTURING AND REFORM ACT OF 1998
__________
CONFERENCE REPORT
to accompany
H.R. 2676
June 24, 1998.--Ordered to be printed
INTERNAL REVENUE SERVICE RESTRUCTURING AND REFORM ACT OF 1998
105th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 105-599
_______________________________________________________________________
INTERNAL REVENUE SERVICE RESTRUCTURING AND REFORM ACT OF 1998
----------
CONFERENCE REPORT
to accompany
H.R. 2676
June 24, 1998.--Ordered to be printed
C O N T E N T S
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Page
Title I. Reorganization of Structure and Management of the IRS... 193
A. IRS Restructuring and Creation of IRS Oversight Board..... 193
1. IRS restructuring and mission (secs. 1001 and 1002 of
the Senate amendment)................................ 193
2. Establishment and duties of IRS Oversight Board (sec.
101 of the House bill and sec. 1101 of the Senate
amendment)........................................... 194
B. Appointment and Duties of IRS Commissioner and Chief
Counsel and Other Personnel.............................. 206
1. IRS Commissioner and other personnel (secs. 102 and
103 of the House bill and secs. 1102(a) and 1104 of
the Senate amendment)................................ 206
2. IRS Chief Counsel (sec. 1102(a) of the Senate
amendment)........................................... 206
C. Structure and Funding of the Employee Plans and Exempt
Organizations Division (``EP/EO'') (secs. 102 and 342 of
the House bill and sec. 1101 of the Senate amendment).... 210
D. Taxpayer Advocate and Taxpayer Assistance Order (secs. 102
and 342 of the House bill and secs. 1102(a), (c), and (d)
of the Senate amendment)................................. 211
E. Treasury Office of Inspector General; IRS Office of the
Chief Inspector (secs. 1102(a) and 1103 of the Senate
amendment)............................................... 217
F. Prohibition on Executive Branch Influence Over Taxpayer
Audits (sec. 104 of the House bill and sec. 1105 of the
Senate amendment)........................................ 225
G. Review of Milwaukee and Waukesa IRS Office (sec. 1106 of
the Senate amendment..................................... 226
H. IRS Personnel Flexibilities (sec. 111 of the House bill
and secs. 1201-1205 of the Senate amendment)............. 227
Title II. Electronic Filing...................................... 234
A. Electronic Filing of Tax and Information Returns (sec. 201
of the House bill and sec. 2001 of the Senate amendment). 234
B. Due Date for Certain Information Returns (sec. 202 of the
House bill and sec. 2002 of the Senate amendment)........ 235
C. Paperless Electronic Filing (sec. 203 of the House bill
and sec. 2003 of the Senate amendment)................... 236
D. Return-Free Tax System (sec. 204 of the House bill and
sec. 2004 of the Senate amendment)....................... 237
E. Access to Account Information (sec. 205 of the House bill
and sec. 2005 of the Senate amendment)................... 238
Title III. Taxpayer Protection and Rights........................ 238
A. Burden of Proof (sec. 301 of the House bill and sec. 3001
of the Senate amendment)................................. 238
B. Proceedings by Taxpayers.................................. 242
1. Expansion of authority to award costs and certain fees
(sec. 311 of the House bill and sec. 3101 of the
Senate amendment).................................... 242
2. Civil damages for collection actions (sec. 312 of the
House bill and sec. 3102 of the Senate amendment).... 244
3. Increase in size of cases permitted on small case
calendar (sec. 313 of the House bill and sec. 3103 of
the Senate amendment)................................ 244
4. Expansion of Tax Court jurisdiction to responsible
person penalties (sec. 3104 of the Senate amendment). 245
5. Actions for refund with respect to certain estates
which have elected the installment method of payment
(sec. 371 of the House bill and sec. 3105 of the
Senate amendment).................................... 246
6. Tax court jurisdiction to review an adverse IRS
determination of a bond issue's tax-exempt status
(sec. 3106 of the Senate Amendment).................. 247
7. Civil action for release of erroneous lien (sec. 3107
of the Senate amendment)............................. 248
C. Relief for Innocent Spouses and for Taxpayers Unable to
Manage Their Financial Affairs Due to Disabilities....... 249
1. Relief for innocent spouses (sec. 321 of the House
bill and sec. 3201 of the Senate amendment).......... 249
2. Suspension of statute of limitations on filing refund
claims during periods of disability (sec. 322 of the
House bill and sec. 3202 of the Senate amendment..... 255
D. Provisions Relating to Interest and Penalties............. 256
1. Elimination of interest differential on overlapping
periods of interest on income tax overpayments and
underpayments (sec. 331 of the House bill and sec.
3301 of the Senate amendment)........................ 256
2. Increase in overpayment rate payable to taxpayers
other than corporations (sec. 332 of the House bill
and sec 3302 of the Senate amendment)................ 257
3. Mitigation of penalty for individual's failure to pay
during period of installment agreement (sec. 376 of
the House bill and sec. 3303 of the Senate amendment) 258
4. Mitigation of failure to deposit penalty (sec. 3304 of
the Senate amendment)................................ 259
5. Suspension of interest and certain penalties if
Secretary fails to contact individual taxpayers (sec.
3305 of the Senate amendment)........................ 259
6. Procedural requirements for imposition of penalties
and additions to tax (sec. 3306 of the Senate
amendment)........................................... 260
7. Personal delivery of notice of penalty under section
6672 (sec. 3307 of the Senate amendment)............. 261
8. Notice of interest charges (sec. 3308 of the Senate
amendment)........................................... 261
9. Abatement of interest on underpayments by taxpayers in
Presidentially declared disaster areas (sec. 3309 of
the Senate amendment)................................ 262
E. Protections for Taxpayers Subject to Audit or Collection
Activities............................................... 263
1. Due process in IRS collection actions (sec. 3401 of
the Senate amendment)................................ 263
2. Examination activities................................ 267
a. Uniform application of confidentiality privilege
to taxpayer communications with federally
authorized practitioners (sec. 341 of the House
bill and sec. 3411 of the Senate amendment)...... 267
b. Limitation on financial status audit techniques
(sec. 343 of the House bill and sec. 3412 of the
Senate amendment)................................ 270
c. Software trade secrets protections (sec. 344 of
the House bill and sec. 3413 of the Senate
amendment)....................................... 270
d. Threat of audit prohibited to coerce tip reporting
alternative commitment agreements (sec. 349 of
the House bill and sec. 3414 of the Senate
amendment)....................................... 274
e. Taxpayers allowed motion to quash all third-party
summonses (sec. 3415 of the Senate amendment).... 275
f. Service of summonses to third-party recordkeepers
permitted by mail (sec. 3416 of the Senate
amendment)....................................... 276
g. Notice of IRS contact of third parties (sec. 3417
of the Senate amendment)......................... 276
3. Collection activities................................. 277
a. Approval process for liens, levies, and seizures
(sec. 3421 of the Senate amendment).............. 277
b. Modifications to certain levy exemption amounts
(sec. 3431 of the Senate amendment).............. 278
c. Release of levy upon agreement that amount is
uncollectible (sec. 3432 of the Senate amendment) 278
d. Levy prohibited during pendency of refund
proceedings (sec. 3433 of the Senate amendment).. 279
e. Approval required for jeopardy and termination
assessments and jeopardy levies (sec. 3434 of the
Senate amendment)................................ 280
f. Increase in amount of certain property on which
lien not valid (sec. 3435 of the Senate
amendment)....................................... 280
g. Waiver of early withdrawal tax for IRS levies on
employer-sponsored retirement plans or IRAs (sec.
3436 of the Senate amendment).................... 281
h. Prohibition of sales of seized property at less
than minimum bid (sec. 3441 of the Senate
amendment)....................................... 282
i. Accounting of sales of seized property (sec. 3442
of the Senate amendment)......................... 283
j. Uniform asset disposal mechanism (sec. 3443 of the
Senate amendment)................................ 284
k. Codification of IRS administrative procedures for
seizure of taxpayer's property (sec. 3444 of the
Senate amendment)................................ 284
l. Procedures for seizure of residences and
businesses (sec. 3445 of the Senate amendment)... 285
4. Provisions relating to examination and collection
activities........................................... 286
a. Procedures relating to extensions of statute of
limitations by agreement (sec. 345 of the House
bill and sec. 3461 of the Senate amendment)...... 286
b. Offers-in-compromise (sec. 346 of the House bill
and sec. 3462 of the Senate amendment)........... 287
c. Notice of deficiency to specify deadlines for
filing Tax Court petition (sec. 347 of the House
bill and sec. 3463 of the Senate amendment)...... 289
d. Refund or credit of overpayments before final
determination (sec. 348 of the House bill and
sec. 3464 of the Senate amendment)............... 290
e. IRS procedures relating to appeal of examinations
and collections (sec. 3465 of the Senate
amendment)....................................... 290
f. Application of certain fair debt collection
practices (sec. 3466 of the Senate amendment).... 291
g. Guaranteed availability of installment agreements
(sec. 3467 of the Senate amendment).............. 292
h. Prohibition on requests to taxpayers to waive
rights to bring actions (sec. 3468 of the Senate
amendment)....................................... 293
F. Disclosures to Taxpayers.................................. 293
1. Explanation of joint and several liability (sec. 351
of the House bill and sec. 3501 of the Senate
amendment)........................................... 293
2. Explanation of taxpayers' rights in interviews with
the IRS (sec. 352 of the House bill and sec. 3502 of
the Senate amendment)................................ 294
3. Disclosure of criteria for examination selection (sec.
353 of the House bill and sec. 3503 of the Senate
amendment)........................................... 295
4. Explanation of the appeals and collection process
(sec. 354 of the House bill and sec. 3504 of the
Senate amendment).................................... 295
5. Explanation of reason for refund disallowance (sec.
3505 of the Senate amendment)........................ 296
6. Statements to taxpayers with installment agreements
(sec. 3506 of the Senate amendment).................. 296
7. Notification of change in tax matters partner (sec.
3507 of the Senate amendment)........................ 297
8. Conditions under which taxpayers' returns may be
disclosed (sec. 3508 of the Senate amendment)........ 297
9. Disclosure of Chief Counsel advice.................... 298
G. Low-Income Taxpayer Clinics (sec. 361 of the House bill
and sec. 3601 of the Senate amendment)................... 303
H. Other Provisions.......................................... 303
1. Cataloging complaints (sec. 372 of the House bill and
sec. 3701 of the Senate amendment)................... 303
2. Archive of records of Internal Revenue Service (sec.
373 of the House bill and sec. 3702 of the Senate
amendment)........................................... 304
3. Payment of taxes (sec. 374 of the House bill and sec.
3703 of the Senate amendment)........................ 305
4. Clarification of authority of Secretary relating to
the making of elections (sec. 375 of the House bill
and sec. 3704 of the Senate amendment)............... 305
5. IRS employee contacts (sec. 3705 of the Senate
amendment)........................................... 306
6. Use of pseudonyms by IRS employees (sec. 3706 of the
Senate amendment).................................... 306
7. Conferences of right in the National Office of IRS
(sec. 3707 of the Senate amendment).................. 307
8. Illegal tax protestor designations (sec. 3708 of the
Senate amendment).................................... 307
9. Provision of confidential information to Congress by
whistleblowers (sec. 3709 of the Senate amendment)... 308
10. Listing of local IRS telephone numbers and addresses
(sec. 3710 of the Senate amendment).................. 309
11. Identification of return preparers (sec. 3711 of the
Senate amendment).................................... 309
12. Offset of past-due, legally enforceable State income
tax obligations against overpayments (sec. 3712 of
the Senate amendment)................................ 310
13. Moratorium regarding regulations under Notice 98-11
(sec. 3713(a)(1) of the Senate amendment)............ 311
14. Sense of the Senate regarding Notices 98-5 and 98-11
(secs. 3713 (a)(2) and (b) of the Senate amendment).. 314
15. Combined employment tax reporting demonstration
project (sec. 3715 of the Senate amendment).......... 319
16. Reporting requirements relating to education tax
credits (sec. 3716 of the Senate amendment).......... 319
I. Studies................................................... 322
1. Administration of penalties and interest (sec. 381 of
the House bill and sec. 3801 of the Senate amendment) 322
2. Confidentiality of tax return information (sec. 382 of
the House bill and sec. 3802 of the Senate amendment) 323
3. Study of transfer pricing enforcement (sec. 3803 of
the Senate amendment)................................ 324
4. Noncompliance with revenue laws by taxpayers (sec.
3804 of the Senate amendment)........................ 325
5. Payments for informants (sec. 3714 of the Senate
amendment)........................................... 325
Title IV. Congressional Accountability for the IRS............... 326
A. Review of Requests for GAO Investigations of the IRS (sec.
401 of the House bill)................................... 326
B. Joint Congressional Hearings and Coordinated Oversight
Reports (secs. 401 and 402 of the House bill)............ 327
C. Budget Matters............................................ 328
1. Funding for century date change (sec. 411 of the House
bill and sec. 4001 of the Senate amendment).......... 328
2. Financial management advisory group (sec. 412 of the
House bill).......................................... 329
D. Tax Law Complexity Analysis (secs. 421 and 422 of the
House bill and sec. 4002 of the Senate amendment)........ 329
Title V. Additional Provisions................................... 332
A. Elimination of 18-Month Holding Period for Capital Gains.. 332
B. Deductibility of Meals Provided for the Convenience of the
Employer................................................. 333
C. Normal Trade Relations.................................... 333
Title VI. Tax Technical Corrections.............................. 335
Title VII. Revenue Offsets....................................... 342
A. Employer Deductions for Vacation and Severance Pay (sec.
501 of the House bill and sec. 5001 of the Senate
amendment)............................................... 342
B. Modify Foreign Tax Credit Carryover Rules (sec. 5002 of
the Senate amendment).................................... 345
C. Clarify and Expand Mathematical Error Procedures (sec.
5003 of the Senate amendment)............................ 346
D. Freeze Grandfather Status of Stapled REITs (sec. 5004 of
the Senate amendment).................................... 347
E. Make Certain Trade Receivables Ineligible for Mark-to-
Market Treatment (sec. 5005 of the Senate amendment)..... 352
F. Add Vaccines Against Rotavirus Gastroenteritis to the List
of Taxable Vaccines (sec. 5006 of the Senate amendment).. 354
G. Restrict Special Net Operating Loss Carryback Rules for
Specified Liability Losses (sec. 5007 of the Senate
amendment)............................................... 354
H. Exclusion of Minimum Required Distributions from AGI for
Roth IRA Conversions (sec. 5008 of the Senate amendment). 355
I. Extension of IRS User Fees (sec. 5009 of the Senate
amendment)............................................... 356
J. Clarify Definition of ``Subject to'' Liabilities Under
Section 357(c) (sec. 3301A of the Senate amendment)...... 357
Title VIII. Limited Tax Benefits Under the Line Item Veto Act.... 358
Title IX. Corrections to the Transportation Equity Act for the
21st Century................................................... 358
Estimated Budget Effects of Titles I Through VII of the
Conference Agreement Relating to H.R. 2676, the ``Internal
Revenue Service Restructuring and Reform Act of 1998''......... 359
105th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 105-599
_______________________________________________________________________
INTERNAL REVENUE SERVICE RESTRUCTURING AND REFORM ACT OF 1998
_______
June 24, 1998.--Ordered to be printed
_______________________________________________________________________
Mr. Archer, from the committee of conference, submitted the following
CONFERENCE REPORT
[To accompany H.R. 2676]
The committee of conference on the disagreeing votes of
the two Houses on the amendment of the Senate to the bill (H.R.
2676) to amend the Internal Revenue Code of 1986 to restructure
and reform the Internal Revenue Service, and for other
purposes, having met, after full and free conference, have
agreed to recommend and do recommend to their respective Houses
as follows:
That the House recede from its disagreement to the
amendment of the Senate, and agree to the same with an
amendment, as follows:
In lieu of the matter proposed to be inserted by the
Senate amendment, insert the following:
SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; WAIVER OF ESTIMATED TAX
PENALTIES; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Internal
Revenue Service Restructuring and Reform 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) Waiver of Estimated Tax Penalties.--No addition to tax
shall be made under section 6654 or 6655 of the Internal
Revenue Code of 1986 with respect to any underpayment of an
installment required to be paid on or before the 30th day after
the date of the enactment of this Act to the extent such
underpayment was created or increased by any provision of this
Act.
(d) Table of Contents.--The table of contents for this Act
is as follows:
Sec. 1. Short title; amendment of 1986 Code; waiver of estimated tax
penalties; table of contents.
TITLE I--REORGANIZATION OF STRUCTURE AND MANAGEMENT OF THE INTERNAL
REVENUE SERVICE
Subtitle A--Reorganization of the Internal Revenue Service
Sec. 1001. Reorganization of the internal revenue service.
Sec. 1002. IRS mission to focus on taxpayers' needs.
Subtitle B--Executive Branch Governance and Senior Management
Sec. 1101. Internal Revenue Service Oversight Board.
Sec. 1102. Commissioner of Internal Revenue; other officials.
Sec. 1103. Treasury Inspector General for Tax Administration.
Sec. 1104. Other personnel.
Sec. 1105. Prohibition on executive branch influence over taxpayer
audits and other investigations.
Subtitle C--Personnel Flexibilities
Sec. 1201. Improvements in personnel flexibilities.
Sec. 1202. Voluntary separation incentive payments.
Sec. 1203. Termination of employment for misconduct.
Sec. 1204. Basis for evaluation of Internal Revenue Service employees.
Sec. 1205. Employee training program.
TITLE II--ELECTRONIC FILING
Sec. 2001. Electronic filing of tax and information returns.
Sec. 2002. Due date for certain information returns.
Sec. 2003. Paperless electronic filing.
Sec. 2004. Return-free tax system.
Sec. 2005. Access to account information.
TITLE III--TAXPAYER PROTECTION AND RIGHTS
Sec. 3000. Short title.
Subtitle A--Burden of Proof
Sec. 3001. Burden of proof.
Subtitle B--Proceedings by Taxpayers
Sec. 3101. Expansion of authority to award costs and certain fees.
Sec. 3102. Civil damages for collection actions.
Sec. 3103. Increase in size of cases permitted on small case calendar.
Sec. 3104. Actions for refund with respect to certain estates which have
elected the installment method of payment.
Sec. 3105. Administrative appeal of adverse IRS determination of tax-
exempt status of bond issue.
Sec. 3106. Civil action for release of erroneous lien.
Subtitle C--Relief for Innocent Spouses and for Taxpayers Unable To
Manage Their Financial Affairs Due to Disabilities
Sec. 3201. Relief from joint and several liability on joint return.
Sec. 3202. Suspension of statute of limitations on filing refund claims
during periods of disability.
Subtitle D--Provisions Relating to Interest and Penalties
Sec. 3301. Elimination of interest rate differential on overlapping
periods of interest on tax overpayments and underpayments.
Sec. 3302. Increase in overpayment rate payable to taxpayers other than
corporations.
Sec. 3303. Mitigation of penalty on individual's failure to pay for
months during period of installment agreement.
Sec. 3304. Mitigation of failure to deposit penalty.
Sec. 3305. Suspension of interest and certain penalties where Secretary
fails to contact individual taxpayer.
Sec. 3306. Procedural requirements for imposition of penalties and
additions to tax.
Sec. 3307. Personal delivery of notice of penalty under section 6672.
Sec. 3308. Notice of interest charges.
Sec. 3309. Abatement of interest on underpayments by taxpayers in
Presidentially declared disaster areas.
Subtitle E--Protections for Taxpayers Subject to Audit or Collection
Activities
Part I--Due Process
Sec. 3401. Due process in IRS collection actions.
Part II--Examination Activities
Sec. 3411. Confidentiality privileges relating to taxpayer
communications.
Sec. 3412. Limitation on financial status audit techniques.
Sec. 3413. Software trade secrets protection.
Sec. 3414. Threat of audit prohibited to coerce tip reporting
alternative commitment agreements.
Sec. 3415. Taxpayers allowed motion to quash all third-party summonses.
Sec. 3416. Service of summonses to third-party recordkeepers permitted
by mail.
Sec. 3417. Notice of IRS contact of third parties.
Part III--Collection Activities
SUBPART A--APPROVAL PROCESS
Sec. 3421. Approval process for liens, levies, and seizures.
SUBPART B--LIENS AND LEVIES
Sec. 3431. Modifications to certain levy exemption amounts.
Sec. 3432. Release of levy upon agreement that amount is uncollectible.
Sec. 3433. Levy prohibited during pendency of refund proceedings.
Sec. 3434. Approval required for jeopardy and termination assessments
and jeopardy levies.
Sec. 3435. Increase in amount of certain property on which lien not
valid.
Sec. 3436. Waiver of early withdrawal tax for IRS levies on employer-
sponsored retirement plans or IRAs.
SUBPART C--SEIZURES
Sec. 3441. Prohibition of sales of seized property at less than minimum
bid.
Sec. 3442. Accounting of sales of seized property.
Sec. 3443. Uniform asset disposal mechanism.
Sec. 3444. Codification of IRS administrative procedures for seizure of
taxpayer's property.
Sec. 3445. Procedures for seizure of residences and businesses.
Part IV--Provisions Relating to Examination and Collection Activities
Sec. 3461. Procedures relating to extensions of statute of limitations
by agreement.
Sec. 3462. Offers-in-compromise.
Sec. 3463. Notice of deficiency to specify deadlines for filing Tax
Court petition.
Sec. 3464. Refund or credit of overpayments before final determination.
Sec. 3465. IRS procedures relating to appeals of examinations and
collections.
Sec. 3466. Application of certain fair debt collection procedures.
Sec. 3467. Guaranteed availability of installment agreements.
Sec. 3468. Prohibition on requests to taxpayers to give up rights to
bring actions.
Subtitle F--Disclosures to Taxpayers
Sec. 3501. Explanation of joint and several liability.
Sec. 3502. Explanation of taxpayers' rights in interviews with the
Internal Revenue Service.
Sec. 3503. Disclosure of criteria for examination selection.
Sec. 3504. Explanations of appeals and collection process.
Sec. 3505. Explanation of reason for refund disallowance.
Sec. 3506. Statements regarding installment agreements.
Sec. 3507. Notification of change in tax matters partner.
Sec. 3508. Disclosure to taxpayers.
Sec. 3509. Disclosure of Chief Counsel advice.
Subtitle G--Low Income Taxpayer Clinics
Sec. 3601. Low income taxpayer clinics.
Subtitle H--Other Matters
Sec. 3701. Cataloging complaints.
Sec. 3702. Archive of records of Internal Revenue Service.
Sec. 3703. Payment of taxes.
Sec. 3704. Clarification of authority of Secretary relating to the
making of elections.
Sec. 3705. IRS employee contacts.
Sec. 3706. Use of pseudonyms by IRS employees.
Sec. 3707. Illegal tax protester designation.
Sec. 3708. Provision of confidential information to Congress by
whistleblowers.
Sec. 3709. Listing of local IRS telephone numbers and addresses.
Sec. 3710. Identification of return preparers.
Sec. 3711. Offset of past-due, legally enforceable State income tax
obligations against overpayments.
Sec. 3712. Reporting requirements in connection with education tax
credit.
Subtitle I--Studies
Sec. 3801. Administration of penalties and interest.
Sec. 3802. Confidentiality of tax return information.
Sec. 3803. Study of noncompliance with internal revenue laws by
taxpayers.
Sec. 3804. Study of payments made for detection of underpayments and
fraud.
TITLE IV--CONGRESSIONAL ACCOUNTABILITY FOR THE INTERNAL REVENUE SERVICE
Subtitle A--Oversight
Sec. 4001. Expansion of duties of the Joint Committee on Taxation.
Sec. 4002. Coordinated oversight reports.
Subtitle B--Century Date Change
Sec. 4011. Century date change.
Subtitle C--Tax Law Complexity
Sec. 4021. Role of the Internal Revenue Service.
Sec. 4022. Tax law complexity analysis.
TITLE V--ADDITIONAL PROVISIONS
Sec. 5001. Lower capital gains rates to apply to property held more than
1 year.
Sec. 5002. Clarification of exclusion of meals for certain employees.
Sec. 5003. Clarification of designation of normal trade relations.
TITLE VI--TECHNICAL CORRECTIONS
Sec. 6001. Short title; coordination with other titles.
Sec. 6002. Definitions.
Sec. 6003. Amendments related to title I of 1997 Act.
Sec. 6004. Amendments related to title II of 1997 Act.
Sec. 6005. Amendments related to title III of 1997 Act.
Sec. 6006. Amendment related to title IV of 1997 Act.
Sec. 6007. Amendments related to title V of 1997 Act.
Sec. 6008. Amendments related to title VII of 1997 Act.
Sec. 6009. Amendments related to title IX of 1997 Act.
Sec. 6010. Amendments related to title X of 1997 Act.
Sec. 6011. Amendments related to title XI of 1997 Act.
Sec. 6012. Amendments related to title XII of 1997 Act.
Sec. 6013. Amendments related to title XIII of 1997 Act.
Sec. 6014. Amendments related to title XIV of 1997 Act.
Sec. 6015. Amendments related to title XV of 1997 Act.
Sec. 6016. Amendments related to title XVI of 1997 Act.
Sec. 6017. Amendment related to Transportation Equity Act for the 21st
Century.
Sec. 6018. Amendments related to Small Business Job Protection Act of
1996.
Sec. 6019. Amendments related to Taxpayer Bill of Rights 2.
Sec. 6020. Amendment related to Omnibus Budget Reconciliation Act of
1993.
Sec. 6021. Amendment related to Revenue Reconciliation Act of 1990.
Sec. 6022. Amendment related to Tax Reform Act of 1986.
Sec. 6023. Miscellaneous clerical and deadwood changes.
Sec. 6024. Effective date.
TITLE VII--REVENUE PROVISIONS
Sec. 7001. Clarification of deduction for deferred compensation.
Sec. 7002. Termination of exception for certain real estate investment
trusts from the treatment of stapled entities.
Sec. 7003. Certain customer receivables ineligible for mark-to-market
treatment.
Sec. 7004. Modification of AGI limit for conversions to Roth IRAs.
TITLE VIII--IDENTIFICATION OF LIMITED TAX BENEFITS SUBJECT TO LINE ITEM
VETO
Sec. 8001. Identification of limited tax benefits subject to line item
veto.
TITLE IX--TECHNICAL CORRECTIONS TO TRANSPORTATION EQUITY ACT FOR THE
21ST CENTURY
Sec. 9001. Short title.
Sec. 9002. Authorization and program subtitle.
Sec. 9003. Restorations to general provisions subtitle.
Sec. 9004. Restorations to program streamlining and flexibility
subtitle.
Sec. 9005. Restorations to safety subtitle.
Sec. 9006. Elimination of duplicate provisions.
Sec. 9007. Highway finance.
Sec. 9008. High priority projects technical corrections.
Sec. 9009. Federal Transit Administration programs.
Sec. 9010. Motor carrier safety technical correction.
Sec. 9011. Restorations to research title.
Sec. 9012. Automobile safety and information.
Sec. 9013. Technical corrections regarding subtitle A of title VIII.
Sec. 9014. Corrections to veterans subtitle.
Sec. 9015. Technical corrections regarding title IX.
Sec. 9016. Effective date.
TITLE I--REORGANIZATION OF STRUCTURE AND MANAGEMENT OF THE INTERNAL
REVENUE SERVICE
Subtitle A--Reorganization of the Internal Revenue Service
SEC. 1001. REORGANIZATION OF THE INTERNAL REVENUE SERVICE.
(a) In General.--The Commissioner of Internal Revenue shall
develop and implement a plan to reorganize the Internal Revenue
Service. The plan shall--
(1) supersede any organization or reorganization of
the Internal Revenue Service based on any statute or
reorganization plan applicable on the effective date of
this section;
(2) eliminate or substantially modify the existing
organization of the Internal Revenue Service which is
based on a national, regional, and district structure;
(3) establish organizational units serving
particular groups of taxpayers with similar needs; and
(4) ensure an independent appeals function within
the Internal Revenue Service, including the prohibition
in the plan of ex parte communications between appeals
officers and other Internal Revenue Service employees
to the extent that such communications appear to
compromise the independence of the appeals officers.
(b) Savings Provisions.--
(1) Preservation of specific tax rights and
remedies.--Nothing in the plan developed and
implemented under subsection (a) shall be considered to
impair any right or remedy, including trial by jury, to
recover any internal revenue tax alleged to have been
erroneously or illegally assessed or collected, or any
penalty claimed to have been collected without
authority, or any sum alleged to have been excessive or
in any manner wrongfully collected under the internal
revenue laws. For the purpose of any action to recover
any such tax, penalty, or sum, all statutes, rules, and
regulations referring to the collector of internal
revenue, the principal officer for the internal revenue
district, or the Secretary, shall be deemed to refer to
the officer whose act or acts referred to in the
preceding sentence gave rise to such action. The venue
of any such action shall be the same as under existing
law.
(2) Continuing effect of legal documents.--All
orders, determinations, rules, regulations, permits,
agreements, grants, contracts, certificates, licenses,
registrations, privileges, and other administrative
actions--
(A) which have been issued, made, granted,
or allowed to become effective by the
President, any Federal agency or official
thereof, or by a court of competent
jurisdiction, in the performance of any
function transferred or affected by the
reorganization of the Internal Revenue Service
or any other administrative unit of the
Department of the Treasury under this section,
and
(B) which are in effect at the time this
section takes effect, or were final before the
effective date of this section and are to
become effective on or after the effective date
of this section,
shall continue in effect according to their terms until
modified, terminated, superseded, set aside, or revoked
in accordance with law by the President, the Secretary
of the Treasury, the Commissioner of Internal Revenue,
or other authorized official, a court of competent
jurisdiction, or by operation of law.
(3) Proceedings not affected.--The provisions of
this section shall not affect any proceedings,
including notices of proposed rulemaking, or any
application for any license, permit, certificate, or
financial assistance pending before the Department of
the Treasury (or any administrative unit of the
Department, including the Internal Revenue Service) at
the time this section takes effect, with respect to
functions transferred or affected by the reorganization
under this section but such proceedings and
applications shall continue. Orders shall be issued in
such proceedings, appeals shall be taken therefrom, and
payments shall be made pursuant to such orders, as if
this section had not been enacted, and orders issued in
any such proceedings shall continue in effect until
modified, terminated, superseded, or revoked by a duly
authorized official, by a court of competent
jurisdiction, or by operation of law. Nothing in this
paragraph shall be deemed to prohibit the
discontinuance or modification of any such proceeding
under the same terms and conditions and to the same
extent that such proceeding could have been
discontinued or modified if this section had not been
enacted.
(4) Suits not affected.--The provisions of this
section shall not affect suits commenced before the
effective date of this section, and in all such suits,
proceedings shall be had, appeals taken, and judgments
rendered in the same manner and with the same effect as
if this section had not been enacted.
(5) Nonabatement of actions.--No suit, action, or
other proceeding commenced by or against the Department
of the Treasury (or any administrative unit of the
Department, including the Internal Revenue Service), or
by or against any individual in the official capacity
of such individual as an officer of the Department of
the Treasury, shall abate by reason of the enactment of
this section.
(6) Administrative actions relating to promulgation
of regulations.--Any administrative action relating to
the preparation or promulgation of a regulation by the
Department of the Treasury (or any administrative unit
of the Department, including the Internal Revenue
Service) relating to a function transferred or affected
by the reorganization under this section may be
continued by the Department of the Treasury through any
appropriate administrative unit of the Department,
including theInternal Revenue Service with the same
effect as if this section had not been enacted.
(c) Effective Date.--This section shall take effect on the
date of the enactment of this Act.
SEC. 1002. IRS MISSION TO FOCUS ON TAXPAYERS' NEEDS.
The Internal Revenue Service shall review and restate its
mission to place a greater emphasis on serving the public and
meeting taxpayers' needs.
Subtitle B--Executive Branch Governance and Senior Management
SEC. 1101. INTERNAL REVENUE SERVICE OVERSIGHT BOARD.
(a) In General.--Section 7802 (relating to the Commissioner
of Internal Revenue) is amended to read as follows:
``SEC. 7802. INTERNAL REVENUE SERVICE OVERSIGHT BOARD.
``(a) Establishment.--There is established within the
Department of the Treasury the Internal Revenue Service
Oversight Board (hereafter in this subchapter referred to as
the `Oversight Board').
``(b) Membership.--
``(1) Composition.--The Oversight Board shall be
composed of 9 members, as follows:
``(A) 6 members shall be individuals who
are not otherwise Federal officers or employees
and who are appointed by the President, by and
with the advice and consent of the Senate.
``(B) 1 member shall be the Secretary of
the Treasury or, if the Secretary so
designates, the Deputy Secretary of the
Treasury.
``(C) 1 member shall be the Commissioner of
Internal Revenue.
``(D) 1 member shall be an individual who
is a full-time Federal employee or a
representative of employees and who is
appointed by the President, by and with the
advice and consent of the Senate.
``(2) Qualifications and terms.--
``(A) Qualifications.--Members of the
Oversight Board described in paragraph (1)(A)
shall be appointed without regard to political
affiliation and solely on the basis of their
professional experience and expertise in 1 or
more of the following areas:
``(i) Management of large service
organizations.
``(ii) Customer service.
``(iii) Federal tax laws, including
tax administration and compliance.
``(iv) Information technology.
``(v) Organization development.
``(vi) The needs and concerns of
taxpayers.
``(vii) The needs and concerns of
small businesses.
In the aggregate, the members of the Oversight
Board described in paragraph (1)(A) should
collectively bring to bear expertise in all of
the areas described in the preceding sentence.
``(B) Terms.--Each member who is described
in subparagraph (A) or (D) of paragraph (1)
shall be appointed for a term of 5 years,
except that of the members first appointed
under paragraph (1)(A)--
``(i) 2 members shall be appointed
for a term of 3 years,
``(ii) 2 members shall be appointed
for a term of 4 years, and
``(iii) 2 members shall be
appointed for a term of 5 years.
``(C) Reappointment.--An individual who is
described in subparagraph (A) or (D) of
paragraph (1) may be appointed to no more than
two 5-year terms on the Oversight Board.
``(D) Vacancy.--Any vacancy on the
Oversight Board 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.
``(3) Ethical considerations.--
``(A) Financial disclosure.--During the
entire period that an individual appointed
under subparagraph (A) or (D) of paragraph (1)
is a member of the Oversight Board, such
individual shall be treated as serving as an
officer or employee referred to in section
101(f) of the Ethics in Government Act of 1978
for purposes of title I of such Act, except
that section 101(d) of such Act shall apply
without regard to the number of days of service
in the position.
``(B) Restrictions on post-employment.--For
purposes of section 207(c) of title 18, United
States Code, an individual appointed under
subparagraph (A) or (D) of paragraph (1) shall
be treated as an employee referred to in
section 207(c)(2)(A)(i) of such title during
the entire period the individual is a member of
the Board, except that subsections (c)(2)(B)
and (f) of section 207 of such title shall not
apply.
``(C) Members who are special government
employees.--If an individual appointed under
subparagraph (A) or (D) of paragraph (1) is a
special Government employee, the following
additional rules apply for purposes of chapter
11 of title 18, United States Code:
``(i) Restriction on
representation.--In addition to any
restriction under section 205(c) of
title 18, United States Code, except as
provided in subsections (d) through (i)
of section 205 of such title, such
individual (except in the proper
discharge of official duties) shall
not, with or without compensation,
represent anyone to or before any
officer or employee of--
``(I) the Oversight Board
or the Internal Revenue Service
on any matter,
``(II) the Department of
the Treasury on any matter
involving theinternal revenue
laws or involving the management or operations of the Internal Revenue
Service, or
``(III) the Department of
Justice with respect to
litigation involving a matter
described in subclause (I) or
(II).
``(ii) Compensation for services
provided by another.--For purposes of
section 203 of such title--
``(I) such individual shall
not be subject to the
restrictions of subsection
(a)(1) thereof for sharing in
compensation earned by another
for representations on matters
covered by such section, and
``(II) a person shall not
be subject to the restrictions
of subsection (a)(2) thereof
for sharing such compensation
with such individual.
``(D) Waiver.--The President may, only at
the time the President nominates the member of
the Oversight Board described in paragraph
(1)(D), waive for the term of the member any
appropriate provision of chapter 11 of title
18, United States Code, to the extent such
waiver is necessary to allow such member to
participate in the decisions of the Board while
continuing to serve as a full-time Federal
employee or a representative of employees. Any
such waiver shall not be effective unless a
written intent of waiver to exempt such member
(and actual waiver language) is submitted to
the Senate with the nomination of such member.
``(4) Quorum.--5 members of the Oversight Board
shall constitute a quorum. A majority of members
present and voting shall be required for the Oversight
Board to take action.
``(5) Removal.--
``(A) In general.--Any member of the
Oversight Board appointed under subparagraph
(A) or (D) of paragraph (1) may be removed at
the will of the President.
``(B) Secretary and commissioner.--An
individual described in subparagraph (B) or (C)
of paragraph (1) shall be removed upon
termination of service in the office described
in such subparagraph.
``(6) Claims.--
``(A) In general.--Members of the Oversight
Board who are described in subparagraph (A) or
(D) of paragraph (1) shall have no personal
liability under Federal law with respect to any
claim arising out of or resulting from an act
or omission by such member within the scope of
service as a member.
``(B) Effect on other law.--This paragraph
shall not be construed--
``(i) to affect any other
immunities and protections that may be
available to such member under
applicable law with respect to such
transactions,
``(ii) to affect any other right or
remedy against the United States under
applicable law, or
``(iii) to limit or alter in any
way the immunities that are available
under applicable law for Federal
officers and employees.
``(c) General Responsibilities.--
``(1) Oversight.--
``(A) In general.--The Oversight Board
shall oversee the Internal Revenue Service in
its 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) Mission of irs.--As part of its
oversight functions described in subparagraph
(A), the Oversight Board shall ensure that the
organization and operation of the Internal
Revenue Service allows it to carry out its
mission.
``(C) Confidentiality.--The Oversight Board
shall ensure that appropriate confidentiality
is maintained in the exercise of its duties.
``(2) Exceptions.--The Oversight Board shall have
no responsibilities or authority with respect to--
``(A) the development and formulation of
Federal tax policy relating to existing or
proposed internal revenue laws, related
statutes, and tax conventions,
``(B) specific law enforcement activities
of the Internal Revenue Service, including
specific compliance activities such as
examinations, collection activities, and
criminal investigations,
``(C) specific procurement activities of
the Internal Revenue Service, or
``(D) except as provided in subsection
(d)(3), specific personnel actions.
``(d) Specific Responsibilities.--The Oversight Board shall
have the following specific responsibilities:
``(1) Strategic plans.--To review and approve
strategic plans of the Internal Revenue Service,
including the establishment of--
``(A) mission and objectives, and standards
of performance relative to either, and
``(B) annual and long-range strategic
plans.
``(2) Operational plans.--To review the operational
functions of the Internal Revenue Service, including--
``(A) plans for modernization of the tax
system,
``(B) plans for outsourcing or managed
competition, and
``(C) plans for training and education.
``(3) Management.--To--
``(A) recommend to the President candidates
for appointment as the Commissioner ofInternal
Revenue and recommend to the President the removal of the Commissioner,
``(B) review the Commissioner's selection,
evaluation, and compensation of Internal
Revenue Service senior executives who have
program management responsibility over
significant functions of the Internal Revenue
Service, and
``(C) review and approve the Commissioner's
plans for any major reorganization of the
Internal Revenue Service.
``(4) Budget.--To--
``(A) review and approve the budget request
of the Internal Revenue Service prepared by the
Commissioner,
``(B) submit such budget request to the
Secretary of the Treasury, and
``(C) ensure that the budget request
supports the annual and long-range strategic
plans.
``(5) Taxpayer protection.--To ensure the proper
treatment of taxpayers by the employees of the Internal
Revenue Service.
The Secretary shall submit the budget request referred to in
paragraph (4)(B) for any fiscal year to the President who shall
submit such request, without revision, to Congress together
with the President's annual budget request for the Internal
Revenue Service for such fiscal year.
``(e) Board Personnel Matters.--
``(1) Compensation of members.--
``(A) In general.--Each member of the
Oversight Board who--
``(i) is described in subsection
(b)(1)(A), or
``(ii) is described in subsection
(b)(1)(D) and is not otherwise a
Federal officer or employee,
shall be compensated at a rate of $30,000 per
year. All other members shall serve without
compensation for such service.
``(B) Chairperson.--In lieu of the amount
specified in subparagraph (A), the Chairperson
of the Oversight Board shall be compensated at
a rate of $50,000 per year.
``(2) Travel expenses.--
``(A) In general.--The members of the
Oversight Board 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, to attend meetings
of the Oversight Board and, with the advance
approval of the Chairperson of the Oversight
Board, while otherwise away from their homes or
regular places of business for purposes of
duties as a member of the Oversight Board.
``(B) Report.--The Oversight Board shall
include in its annual report under subsection
(f)(3)(A) information with respect to the
travel expenses allowed for members of the
Oversight Board under this paragraph.
``(3) Staff.--
``(A) In general.--The Chairperson of the
Oversight Board may appoint and terminate any
personnel that may be necessary to enable the
Board to perform its duties.
``(B) Detail of government employees.--Upon
request of the Chairperson of the Oversight
Board, a Federal agency shall detail a Federal
Government employee to the Oversight Board
without reimbursement. Such detail shall be
without interruption or loss of civil service
status or privilege.
``(4) Procurement of temporary and intermittent
services.--The Chairperson of the Oversight Board may
procure temporary and intermittent services under
section 3109(b) of title 5, United States Code.
``(f) Administrative Matters.--
``(1) Chair.--
``(A) Term.--The members of the Oversight
Board shall elect for a 2-year term a
chairperson from among the members appointed
under subsection (b)(1)(A).
``(B) Powers.--Except as otherwise provided
by a majority vote of the Oversight Board, the
powers of the Chairperson shall include--
``(i) establishing committees,
``(ii) setting meeting places and
times,
``(iii) establishing meeting
agendas, and
``(iv) developing rules for the
conduct of business.
``(2) Meetings.--The Oversight Board shall meet at
least quarterly and at such other times as the
Chairperson determines appropriate.
``(3) Reports.--
``(A) Annual.--The Oversight Board shall
each year report with respect to the conduct of
its responsibilities under this title to the
President, the Committees on Ways and Means,
Government Reform and Oversight, and
Appropriations of the House of Representatives
and the Committees on Finance, Governmental
Affairs, and Appropriations of the Senate.
``(B) Additional report.--Upon a
determination by the Oversight Board under
subsection (c)(1)(B) that the organization and
operation of the Internal Revenue Service are
not allowing it to carry out its mission, the
Oversight Board shall report such determination
to the Committee on Ways and Means of the House
of Representatives and the Committee on Finance
of the Senate.''.
(b) Restriction on Disclosure of Return Information to
Oversight Board Members.--Section 6103(h) (relating to
disclosure to certain Federal officers and employees for
purposes of tax administration, etc.) is amended by adding at
the end the following new paragraph:
``(5) Internal revenue service oversight board.--
``(A) In general.--Notwithstanding
paragraph (1), and except as provided in
subparagraph (B), no return or return
information maybe disclosed to any member of
the Oversight Board described in subparagraph (A) or (D) of section
7802(b)(1) or to any employee or detailee of such Board by reason of
their service with the Board. Any request for information not permitted
to be disclosed under the preceding sentence, and any contact relating
to a specific taxpayer, made by any such individual to an officer or
employee of the Internal Revenue Service shall be reported by such
officer or employee to the Secretary, the Treasury Inspector General
for Tax Administration, and the Joint Committee on Taxation.
``(B) Exception for reports to the board.--
If--
``(i) the Commissioner or the
Treasury Inspector General for Tax
Administration prepares any report or
other matter for the Oversight Board in
order to assist the Board in carrying
out its duties, and
``(ii) the Commissioner or such
Inspector General determines it is
necessary to include any return or
return information in such report or
other matter to enable the Board to
carry out such duties,
such return or return information (other than
information regarding taxpayer identity) may be
disclosed to members, employees, or detailees
of the Board solely for the purpose of carrying
out such duties.''.
(c) Conforming Amendments.--
(1) Section 4946(c) (relating to definitions and
special rules for chapter 42) is amended by striking
``or'' at the end of paragraph (5), by striking the
period at the end of paragraph (6) and inserting ``,
or'', and by adding at the end the following new
paragraph:
``(7) a member of the Internal Revenue Service
Oversight Board.''.
(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. Internal Revenue Service Oversight Board.''.
(d) Effective Date.--
(1) In general.--The amendments made by this
section shall take effect on the date of the enactment
of this Act.
(2) Initial nominations to internal revenue service
oversight board.--The President shall submit the
initial nominations under section 7802 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) Effect on actions prior to appointment of
oversight board.--Nothing in this section shall be
construed to invalidate the actions and authority of
the Internal Revenue Service prior to the appointment
of the members of the Internal Revenue Service
Oversight Board.
SEC. 1102. COMMISSIONER OF INTERNAL REVENUE; OTHER OFFICIALS.
(a) In General.--Section 7803 (relating to other personnel)
is amended to read as follows:
``SEC. 7803. COMMISSIONER OF INTERNAL REVENUE; OTHER OFFICIALS.
``(a) Commissioner of Internal Revenue.--
``(1) Appointment.--
``(A) In general.--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. Such
appointment shall be made from individuals who,
among other qualifications, have a demonstrated
ability in management.
``(B) 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 only for the
remainder of that term.
``(C) Removal.--The Commissioner may be
removed at the will of the President.
``(D) Reappointment.--The Commissioner may
be appointed to more than one 5-year term.
``(2) Duties.--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 a
candidate for appointment as Chief Counsel for
the Internal Revenue Service when a vacancy
occurs, and recommend to the President 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 Ways and
Means, Government Reform and Oversight, and
Appropriations of the House of Representatives and the
Committees on Finance, Governmental Affairs, and
Appropriations of the Senate.
``(3) Consultation with board.--The Commissioner
shall consult with the Oversight Board on all matters
set forth in paragraphs (2) and (3) (other than
paragraph (3)(A)) of section 7802(d).
``(b) Chief Counsel for the Internal Revenue Service.--
``(1) Appointment.--There shall be in the
Department of the Treasury a Chief Counsel for the
Internal Revenue Service who shall be appointed by the
President, by and with the consent of the Senate.
``(2) Duties.--The Chief Counsel shall be the chief
law officer for the Internal Revenue Service and shall
perform such duties as may be prescribed by the
Secretary, including the duty--
``(A) to be legal advisor to the
Commissioner and the Commissioner's officers
and employees,
``(B) to furnish legal opinions for the
preparation and review of rulings and memoranda
of technical advice,
``(C) to prepare, review, and assist in the
preparation of proposed legislation, treaties,
regulations, and Executive orders relating to
laws which affect the Internal Revenue Service,
``(D) to represent the Commissioner in
cases before the Tax Court, and
``(E) to determine which civil actions
should be litigated under the laws relating to
the Internal Revenue Service and prepare
recommendations for the Department of Justice
regarding the commencement of such actions.
If the Secretary determines not to delegate a power
specified in subparagraph (A), (B), (C), (D), or (E),
such determination may not take effect until 30 days
after the Secretary notifies the Committees on Ways and
Means, Government Reform and Oversight, and
Appropriations of the House of Representatives and the
Committees on Finance, Governmental Affairs, and
Appropriations of the Senate.
``(3) Persons to whom chief counsel reports.--The
Chief Counsel shall report directly to the Commissioner
of Internal Revenue, except that--
``(A) the Chief Counsel shall report to
both the Commissioner and the General Counsel
for the Department of the Treasury with respect
to--
``(i) legal advice or
interpretation of the tax law not
relating solely to tax policy, and
``(ii) tax litigation, and
``(B) the Chief Counsel shall report to the
General Counsel with respect to legal advice or
interpretation of the tax law relating solely
to tax policy.
If there is any disagreement between the Commissioner
and the General Counsel with respect to any matter
jointly referred to them under subparagraph (A), such
matter shall be submitted to the Secretary or Deputy
Secretary for resolution.
``(4) Chief counsel personnel.--All personnel in
the Office of Chief Counsel shall report to the Chief
Counsel.
``(c) Office of the Taxpayer Advocate.--
``(1) Establishment.--
``(A) In general.--There is established in
the Internal Revenue Service an office to be
known as the `Office of the Taxpayer Advocate'.
``(B) National taxpayer advocate.--
``(i) In general.--The Office of
the Taxpayer Advocate shall be under
the supervision and direction of an
official to be known as the `National
Taxpayer Advocate'. The National
Taxpayer Advocate shall report directly
to the Commissioner of Internal Revenue
and shall be entitled to compensation
at the same rate as the highest rate of
basic pay established for the Senior
Executive Service under section 5382 of
title 5, United States Code, or, if the
Secretary of the Treasury so
determines, at a rate fixed under
section 9503 of such title.
``(ii) Appointment.--The National
Taxpayer Ad- vocate shall be appointed
by the Secretary of the Treasury after
consultation with the Commissioner of
Internal Revenue and the Oversight
Board and with- out regard to the
provisions of title 5, United States
Code, relating to appointments in the
competitive service or the Senior
Executive Service.
``(iii) Qualifications.--An
individual appointed under clause (ii)
shall have--
``(I) a background in
customer service as well as tax
law, and
``(II) experience in
representing individual
taxpayers.
``(iv) Restriction on employment.--
An individual may be appointed as the
National Taxpayer Ad- vocate only if
such individual was not an officer or
employee of the Internal Revenue
Service during the 2-year period ending
with such appointment and such
individual agrees not to accept any
employment with the Internal Revenue
Service for at least 5 years after
ceasing to be the National Taxpayer
Advocate. Service as an officer or
employee of the Office of the Taxpayer
Advocate shall not be taken into
account in applying this clause.
``(2) Functions of office.--
``(A) In general.--It shall be the function
of the Office of the Taxpayer Advocate to--
``(i) assist taxpayers in resolving
problems with the Internal Revenue
Service,
``(ii) identify areas in which
taxpayers have problems in dealings
with the Internal Revenue Service,
``(iii) to the extent possible,
propose changes in the administrative
practices of the Internal Revenue
Service to mitigate problems identified
under clause (ii), and
``(iv) identify potential
legislative changes which may be
appropriate to mitigate such problems.
``(B) Annual reports.--
``(i) Objectives.--Not later than
June 30 of each calendar year, the
National Taxpayer Advocate shall report
to the Committee on Ways and Means of
the House of Representatives and the
Committee on Finance of the Senate on
the objectives of the Office of the
Taxpayer Advocate for the fiscal year
beginning in such calendar year. Any
such report shall contain full and
substantive analysis, in addition to
statistical information.
``(ii) Activities.--Not later than
December 31 of each calendar year, the
National Taxpayer Advocate shall report
to the Committee on Ways and Means of
the House of Representatives and the
Committee on Finance of the Senate on
the activities of the Office of the
Taxpayer Advocate during the fiscal
year ending during such calendar year.
Any such report shall contain full and
substantive analysis, in addition to
statistical information, and shall--
``(I) identify the
initiatives the Office of the
Taxpayer Advocate has taken on
improving taxpayer services and
Internal Revenue Service
responsiveness,
``(II) contain
recommendations received from
individuals with the authority
to issue Taxpayer Assistance
Orders under section 7811,
``(III) contain a summary
of at least 20 of the most
serious problems encountered by
taxpayers, including
adescription of the nature of such problems,
``(IV) contain an inventory
of the items described in
subclauses (I), (II), and (III)
for which action has been taken
and the result of such action,
``(V) contain an inventory
of the items described in
subclauses (I), (II), and (III)
for which action remains to be
completed and the period during
which each item has remained on
such inventory,
``(VI) contain an inventory
of the items described in
subclauses (I), (II), and (III)
for which no action has been
taken, the period during which
each item has remained on such
inventory, the reasons for the
inaction, and identify any
Internal Revenue Service
official who is responsible for
such inaction,
``(VII) identify any
Taxpayer Assistance Order which
was not honored by the Internal
Revenue Service in a timely
manner, as specified under
section 7811(b),
``(VIII) contain
recommendations for such
administrative and legislative
action as may be appropriate to
resolve problems encountered by
taxpayers,
``(IX) identify areas of
the tax law that impose
significant compliance burdens
on taxpayers or the Internal
Revenue Service, including
specific recommendations for
remedying these problems,
``(X) identify the 10 most
litigated issues for each
category of taxpayers,
including recommendations for
mitigating such disputes, and
``(XI) include such other
information as the National
Taxpayer Advocate may deem
advisable.
``(iii) Report to be submitted
directly.--Each report required under
this subparagraph shall be provided
directly to the committees described in
clause (i) without any prior review or
comment from the Commissioner, the
Secretary of the Treasury, the
Oversight Board, any other officer or
employee of the Department of the
Treasury, or the Office of Management
and Budget.
``(iv) Coordination with report of
treasury inspector general for tax
administration.--To the extent that
information required to be reported
under clause (ii) is also required to
be reported under paragraph (1) or (2)
of subsection (d) by the Treasury
Inspector General for Tax
Administration, the National Taxpayer
Advocate shall not contain such
information in the report submitted
under such clause.
``(C) Other responsibilities.--The National
Taxpayer Advocate shall--
``(i) monitor the coverage and
geographic allocation of local offices
of taxpayer advocates,
``(ii) develop guidance to be
distributed to all Internal Revenue
Service officers and employees
outlining the criteria for referral of
taxpayer inquiries to local offices of
taxpayer advocates,
``(iii) ensure that the local
telephone number for each local office
of the taxpayer advocate is published
and available to taxpayers served by
the office, and
``(iv) in conjunction with the
Commissioner, develop career paths for
local taxpayer advocates choosing to
make a career in the Office of the
Taxpayer Advocate.
``(D) Personnel actions.--
``(i) In general.--The National
Taxpayer Advocate shall have the
responsibility and authority to--
``(I) appoint local
taxpayer advocates and make
available at least 1 such
advocate for each State, and
``(II) evaluate and take
personnel actions (including
dismissal) with respect to any
employee of any local office of
a taxpayer advocate described
in subclause (I).
``(ii) Consultation.--The National
Taxpayer Advocate may consult with the
appropriate supervisory personnel of
the Internal Revenue Service in
carrying out the National Taxpayer
Advocate's responsibilities under this
subparagraph.
``(3) Responsibilities of commissioner.--The
Commissioner shall establish procedures requiring a
formal response to all recommendations submitted to the
Commissioner by the National Taxpayer Advocate within 3
months after submission to the Commissioner.
``(4) Operation of local offices.--
``(A) In general.--Each local taxpayer
advocate--
``(i) shall report to the National
Taxpayer Advocate or delegate thereof,
``(ii) may consult with the
appropriate supervisory personnel of
the Internal Revenue Service regarding
the daily operation of the local office
of the taxpayer advocate,
``(iii) shall, at the initial
meeting with any taxpayer seeking the
assistance of a local office of the
taxpayer advocate, notify such taxpayer
that the taxpayer advocate offices
operate independently of any other
Internal Revenue Service office and
reportdirectly to Congress through the
National Taxpayer Advocate, and
``(iv) may, at the taxpayer
advocate's discretion, not disclose to
the Internal Revenue Service contact
with, or information provided by, such
taxpayer.
``(B) Maintenance of independent
communications.--Each local office of the
taxpayer advocate shall maintain a separate
phone, facsimile, and other electronic
communication access, and a separate post
office address.
``(d) Additional Duties of the Treasury Inspector General
for Tax Administration.--
``(1) Annual reporting.--The Treasury Inspector
General for Tax Administration shall include in one of
the semiannual reports under section 5 of the Inspector
General Act of 1978--
``(A) an evaluation of the compliance of
the Internal Revenue Service with--
``(i) restrictions under section
1204 of the Internal Revenue Service
Restructuring and Reform Act of 1998 on
the use of enforcement statistics to
evaluate Internal Revenue Service
employees,
``(ii) restrictions under section
7521 on directly contacting taxpayers
who have indicated that they prefer
their representatives be contacted,
``(iii) required procedures under
section 6320 upon the filing of a
notice of a lien,
``(iv) required procedures under
subchapter D of chapter 64 for seizure
of property for collection of taxes,
including required procedures under
section 6330 regarding levies, and
``(v) restrictions under section
3707 of the Internal Revenue Service
Restructuring and Reform Act of 1998 on
designation of taxpayers,
``(B) a review and a certification of
whether or not the Secretary is complying with
the requirements of section 6103(e)(8) to
disclose information to an individual filing a
joint return on collection activity involving
the other individual filing the return,
``(C) information regarding extensions of
the statute of limitations for assessment and
collection of tax under section 6501 and the
provision of notice to taxpayers regarding
requests for such extension,
``(D) an evaluation of the adequacy and
security of the technology of the Internal
Revenue Service,
``(E) any termination or mitigation under
section 1203 of the Internal Revenue Service
Restructuring and Reform Act of 1998,
``(F) information regarding improper denial
of requests for information from the Internal
Revenue Service identified under paragraph
(3)(A), and
``(G) information regarding any
administrative or civil actions with respect to
violations of the fair debt collection
provisions of section 6304, including--
``(i) a summary of such actions
initiated since the date of the last
report, and
``(ii) a summary of any judgments
or awards granted as a result of such
actions.
``(2) Semiannual reports.--
``(A) In general.--The Treasury Inspector
General for Tax Administration shall include in
each semiannual report under section 5 of the
Inspector General Act of 1978--
``(i) the number of taxpayer
complaints during the reporting period;
``(ii) the number of employee
misconduct and taxpayer abuse
allegations received by the Internal
Revenue Service or the Inspector
General during the period from
taxpayers, Internal Revenue Service
employees, and other sources;
``(iii) a summary of the status of
such complaints and allegations; and
``(iv) a summary of the disposition
of such complaints and allegations,
including the outcome of any Department
of Justice action and any monies paid
as a settlement of such complaints and
allegations.
``(B) Clauses (iii) and (iv) of
subparagraph (A) shall only apply to complaints
and allegations of serious employee misconduct.
``(3) Other responsibilities.--The Treasury
Inspector General for Tax Administration shall--
``(A) conduct periodic audits of a
statistically valid sample of the total number
of determinations made by the Internal Revenue
Service to deny written requests to disclose
information to taxpayers on the basis of
section 6103 of this title or section 552(b)(7)
of title 5, United States Code, and
``(B) establish and maintain a toll-free
telephone number for taxpayers to use to
confidentially register complaints of
misconduct by Internal Revenue Service
employees and incorporate the telephone number
in the statement required by section 6227 of
the Omnibus Taxpayer Bill of Rights (Internal
Revenue Service Publication No. 1).''.
(b) Notice of Right To Contact Office Included in Notice of
Deficiency.--Section 6212(a) (relating to notice of deficiency)
is amended by adding at the end the following new sentence:
``Such notice shall include a notice to the taxpayer of the
taxpayer's right to contact a local office of the taxpayer
advocate and the location and phone number of the appropriate
office.''.
(c) Expansion of Authority To Issue Taxpayer Assistance
Orders.--Section 7811(a) (relating to taxpayer assistance
orders) is amended to read as follows:
``(a) Authority To Issue.--
``(1) In general.--Upon application filed by a
taxpayer with the Office of the Taxpayer Advocate (in
such form, manner, and at such time as the Secretary
shall by regulations prescribe), the NationalTaxpayer
Advocate may issue a Taxpayer Assistance Order if--
``(A) the National Taxpayer Advocate
determines the taxpayer is suffering or about
to suffer a significant hardship as a result of
the manner in which the internal revenue laws
are being administered by the Secretary, or
``(B) the taxpayer meets such other
requirements as are set forth in regulations
prescribed by the Secretary.
``(2) Determination of hardship.--For purposes of
paragraph (1), a significant hardship shall include--
``(A) an immediate threat of adverse
action,
``(B) a delay of more than 30 days in
resolving taxpayer account problems,
``(C) the incurring by the taxpayer of
significant costs (including fees for
professional representation) if relief is not
granted, or
``(D) irreparable injury to, or a long-term
adverse impact on, the taxpayer if relief is
not granted.
``(3) Standard where administrative guidance not
followed.--In cases where any Internal Revenue Service
employee is not following applicable published
administrative guidance (including the Internal Revenue
Manual), the National Taxpayer Advocate shall construe
the factors taken into account in determining whether
to issue a taxpayer assistance order in the manner most
favorable to the taxpayer.''.
(d) Conforming Amendments Relating to National Taxpayer
Advocate.--
(1) The following provisions are each amended by
striking ``Taxpayer Advocate'' each place it appears
and inserting ``National Taxpayer Advocate'':
(A) Section 6323(j)(1)(D) (relating to
withdrawal of notice in certain circumstances).
(B) Section 6343(d)(2)(D) (relating to
return of property in certain cases).
(C) Section 7811(b)(2)(D) (relating to
terms of a Taxpayer Assistance Order).
(D) Section 7811(c) (relating to authority
to modify or rescind).
(E) Section 7811(d)(2) (relating to
suspension of running of period of limitation).
(F) Section 7811(e) (relating to
independent action of Taxpayer Advocate).
(G) Section 7811(f) (relating to Taxpayer
Advocate).
(2) Section 7811(d)(1) (relating to suspension of
running of period of limitation) is amended by striking
``Taxpayer Advocate's'' and inserting ``National
Taxpayer Advocate's''.
(3) The headings of subsections (e) and (f) of
section 7811 are each amended by striking ``Taxpayer
Advocate'' and inserting ``National Taxpayer
Advocate''.
(e) Additional Conforming Amendments.--
(1) The table of sections for subchapter A of
chapter 80 is amended by striking the item relating to
section 7803 and inserting the following new item:
``Sec. 7803. Commissioner of Internal Revenue; other
officials.''.
(2) Section 5109 of title 5, United States Code, is
amended by striking subsection (b) and redesignating
subsection (c) as subsection (b).
(3) Section 7611(f)(1) (relating to restrictions on
church tax inquiries and examinations) is amended by
striking ``Assistant Commissioner for Employee Plans
and Exempt Organizations of the Internal Revenue
Service'' and inserting ``Secretary''.
(f) Effective Date.--
(1) In general.--Except as provided in paragraph
(2), the amendments made by this section shall take
effect on the date of the enactment of this Act.
(2) Chief counsel.--Section 7803(b)(3) of the
Internal Revenue Code of 1986, as added by this
section, shall take effect on the date that is 90 days
after the date of the enactment of this Act.
(3) National taxpayer advocate.--Notwithstanding
section 7803(c)(1)(B)(iv) of such Code, as added by
this section, in appointing the first National Taxpayer
Advocate after the date of the enactment of this Act,
the Secretary of the Treasury--
(A) shall not appoint any individual who
was an officer or employee of the Internal
Revenue Service at any time during the 2-year
period ending on the date of appointment, and
(B) need not consult with the Internal
Revenue Service Oversight Board if the
Oversight Board has not been appointed.
(4) Current officers.--
(A) 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 7803(a)(1) of such Code, as
added by this section, shall begin as of the
date of such appointment.
(B) Clauses (ii), (iii), and (iv) of
section 7803(c)(1)(B) of such Code, as added by
this section, shall not apply to the individual
serving as Taxpayer Advocate on the date of the
enactment of this Act.
SEC. 1103. TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION.
(a) Establishment of 2 Inspectors General in the Department
of the Treasury.--Section 2 of the Inspector General Act of
1978 (5 U.S.C. App.) is amended by striking the matter
following paragraph (3) and inserting the following:
``there is established--
``(A) in each of such establishments an
office of Inspector General, subject to
subparagraph (B); and
``(B) in the establishment of the
Department of the Treasury--
``(i) an Office of Inspector
General of the Department of the
Treasury; and
``(ii) an Office of Treasury
Inspector General for Tax
Administration.''.
(b) Amendments to Section 8D of the Inspector General Act
of 1978.--
(1) Limitation on authority of inspector general.--
Section 8D(a) of the Inspector General Act of 1978 (5
U.S.C. App.) is amended by adding at the end the
following new paragraph:
``(4) The Secretary of the Treasury may not
exercise any power under paragraph (1) or (2) with
respect to the Treasury Inspector General for Tax
Administration.''.
(2) Duties of inspector general of the department
of the treasury; relationship to the treasury inspector
general for tax administration.--Section 8D(b) of such
Act is amended--
(A) by inserting ``(1)'' after ``(b)''; and
(B) by adding at the end the following new
paragraphs:
``(2) The Inspector General of the Department of
the Treasury shall exercise all duties and
responsibilities of an Inspector General for the
Department of the Treasury other than the duties and
responsibilities exercised by the Treasury Inspector
General for Tax Administration.
``(3) The Secretary of the Treasury shall establish
procedures under which the Inspector General of the
Department of the Treasury and the Treasury Inspector
General for Tax Administration will--
``(A) determine how audits and
investigations are allocated in cases of
overlapping jurisdiction, and
``(B) provide for coordination,
cooperation, and efficiency in the conduct of
such audits and investigations.''.
(3) Access to returns and return information.--
Section 8D(e) of such Act is amended--
(A) in paragraph (1), by striking
``Inspector General'' and inserting ``Treasury
Inspector General for Tax Administration'';
(B) in paragraph (2), by striking all
beginning with ``(2)'' through subparagraph
(B);
(C)(i) by redesignating subparagraph (C) of
paragraph (2) as paragraph (2) of such
subsection; and
(ii) in such redesignated paragraph (2), by
striking ``Inspector General'' and inserting
``Treasury Inspector General for Tax
Administration''; and
(D)(i) by redesignating subparagraph (D) of
such paragraph as paragraph (3) of such
subsection; and
(ii) in such redesignated paragraph (3), by
striking ``Inspector General'' and inserting
``Treasury Inspector General for Tax
Administration''.
(4) Effect on certain final decisions of the
secretary.--Section 8D(f) of such Act is amended by
striking ``Inspector General'' and inserting
``Inspector General of the Department of the Treasury
or the Treasury Inspector General for Tax
Administration''.
(5) Repeal of limitation on reports to the attorney
general.--Section 8D of such Act is amended by striking
subsection (g).
(6) Transmission of reports.--Section 8D(h) of such
Act is amended--
(A) by striking ``(h)'' and inserting
``(g)(1)'';
(B) by striking ``and the Committees on
Government Operations and Ways and Means of the
House of Representatives'' and inserting ``and
the Committees on Government Reform and
Oversight and Ways and Means of the House of
Representatives''; and
(C) by adding at the end the following new
paragraph:
``(2) Any report made by the Treasury Inspector General for
Tax Administration that is required to be transmitted by the
Secretary of the Treasury to the appropriate committees or
subcommittees of Congress under section 5(d) shall also be
transmitted, within the 7-day period specified under such
subsection, to the Internal Revenue Service Oversight Board and
the Commissioner of Internal Revenue.''.
(7) Treasury inspector general for tax
administration.--Section 8D of the Act is amended by
adding at the end the following new subsections:
``(h) The Treasury Inspector General for Tax Administration
shall exercise all duties and responsibilities of an Inspector
General of an establishment with respect to the Department of
the Treasury and the Secretary of the Treasury on all matters
relating to the Internal Revenue Service. The Treasury
Inspector General for Tax Administration shall have sole
authority under this Act to conduct an audit or investigation
of the Internal Revenue Service Oversight Board and the Chief
Counsel for the Internal Revenue Service.
``(i) In addition to the requirements of the first sentence
of section 3(a), the Treasury Inspector General for Tax
Administration should have demonstrated ability to lead a large
and complex organization.
``(j) An individual appointed to the position of Treasury
Inspector General for Tax Administration, the Assistant
Inspector General for Auditing of the Office of the Treasury
Inspector General for Tax Administration under section 3(d)(1),
the Assistant Inspector General for Investigations of the
Office of the Treasury Inspector General for Tax Administration
under section 3(d)(2), or any position of Deputy Inspector
General of the Office of the Treasury Inspector General for Tax
Administration may not be an employee of the Internal Revenue
Service--
``(1) during the 2-year period preceding the date
of appointment to such position; or
``(2) during the 5-year period following the date
such individual ends service in such position.
``(k)(1) In addition to the duties and responsibilities
exercised by an inspector general of an establishment, the
Treasury Inspector General for Tax Administration--
``(A) shall have the duty to enforce criminal
provisions under section 7608(b) of the Internal
Revenue Code of 1986;
``(B) in addition to the functions authorized under
section 7608(b)(2) of such Code, may carry firearms;
``(C) shall be responsible for protecting the
Internal Revenue Service against external attempts to
corrupt or threaten employees of the Internal Revenue
Service, but shall not be responsible for the
conducting of background checks and the providing of
physical security; and
``(D) may designate any employee in the Office of
the Treasury Inspector General for Tax Administration
to enforce such laws and perform such functions
referred to under subparagraphs (A), (B), and (C).
``(2)(A) In performing a law enforcement function under
paragraph (1), the Treasury Inspector General for Tax
Administration shall report any reasonable grounds to believe
there has been a violation of Federal criminal law to the
Attorney General at an appropriate time as determined by the
Treasury Inspector General for Tax Administration,
notwithstanding section 4(d).
``(B) In the administration of section 5(d) and subsection
(g)(2) of this section, the Secretary of the Treasury may
transmit the required report with respect to the Treasury
Inspector General for Tax Administration at an appropriate time
as determined by the Secretary, if the problem, abuse, or
deficiency relates to--
``(i) the performance of a law enforcement function
under paragraph (1); and
``(ii) sensitive information concerning matters
under subsection (a)(1)(A) through (F).
``(3) Nothing in this subsection shall be construed to
affect the authority of any other person to carry out or
enforce any provision specified in paragraph (1).
``(l)(1) The Commissioner of Internal Revenue or the
Internal Revenue Service Oversight Board may request, in
writing, the Treasury Inspector General for Tax Administration
to conduct an audit or investigation relating to the Internal
Revenue Service. If the Treasury Inspector General for Tax
Administration determines not to conduct such audit or
investigation, the Inspector General shall timely provide a
written explanation for such determination to the person making
the request.
``(2)(A) Any final report of an audit conducted by the
Treasury Inspector General for Tax Administration shall be
timely submitted by the Inspector General to the Commissioner
of Internal Revenue and the Internal Revenue Service Oversight
Board.
``(B) The Treasury Inspector General for Tax Administration
shall periodically submit to the Commissioner and Board a list
of investigations for which a final report has been completed
by the Inspector General and shall provide a copy of any such
report upon request of the Commissioner or Board.
``(C) This paragraph applies regardless of whether the
applicable audit or investigation is requested under paragraph
(1).''.
(c) Transfer of Functions.--
(1) In general.--Section 9(a)(1) of the Inspector
General Act of 1978 (5 U.S.C. App.) is amended in
subparagraph (L)--
(A) by inserting ``(i)'' after ``(L)'';
(B) by inserting ``and'' after the
semicolon; and
(C) by adding at the end the following new
clause:
``(ii) of the Treasury Inspector
General for Tax Administration,
effective 180 days after the date of
the enactment of the Internal Revenue
Service Restructuring and Reform Act of
1998, the Office of Chief Inspector of
the Internal Revenue Service;''.
(2) Termination of office of chief inspector.--
Effective upon the transfer of functions under the
amendment made by paragraph (1), the Office of Chief
Inspector of the Internal Revenue Service is
terminated.
(3) Retention of certain internal audit
personnel.--In making the transfer under the amendment
made by paragraph (1), the Commissioner of Internal
Revenue shall designate and retain an appropriate
number (not in excess of 300) of internal audit full-
time equivalent employee positions necessary for
management relating to the Internal Revenue Service.
(4) Additional personnel transfers.--Effective 180
days after the date of the enactment of this Act, the
Secretary of the Treasury shall transfer 21 full-time
equivalent positions from the Office of the Inspector
General of the Department of the Treasury to the Office
of the Treasury Inspector General for Tax
Administration.
(d) Audits and Reports of Agency Financial Statements.--
Subject to section 3521(g) of title 31, United States Code--
(1) the Inspector General of the Department of the
Treasury shall, subject to paragraph (2)--
(A) audit each financial statement in
accordance with section 3521(e) of such title;
and
(B) prepare and submit each report required
under section 3521(f) of such title; and
(2) the Treasury Inspector General for Tax
Administration shall--
(A) audit that portion of each financial
statement referred to under paragraph (1)(A)
that relates to custodial and administrative
accounts of the Internal Revenue Service; and
(B) prepare that portion of each report
referred to under paragraph (1)(B) that relates
to custodial and administrative accounts of the
Internal Revenue Service.
(e) Technical and Conforming Amendments.--
(1) Transfer of functions.--Section 8D(b) of the
Inspector General Act of 1978 (5 U.S.C. App.) is
amended by striking ``and the internal audits and
internal investigations performed by the Office of
Assistant Commissioner (Inspection) of the Internal
Revenue Service''.
(2) Amendments relating to references to the
inspector general of the department of the treasury.--
(A) Limitation on authority.--Section 8D(a)
of the Inspector General Act of 1978 (5 U.S.C.
App.) is amended--
(i) in the first sentence of
paragraph (1), by inserting ``of the
Department of the Treasury'' after
``Inspector General'';
(ii) in paragraph (2), by inserting
``of the Department of the Treasury''
after ``prohibit the Inspector
General''; and
(iii) in paragraph (3)--
(I) in the first sentence,
by inserting ``of the
Department of the Treasury''
after ``notify the Inspector
General''; and
(II) in the second
sentence, by inserting ``of the
Department of the Treasury''
after ``notice, the Inspector
General''.
(B) Duties.--Section 8D(b) of such Act is
amended in the second sentence by inserting
``of the Department of the Treasury'' after
``Inspector General''.
(C) Audits and investigations.--Section 8D
(c) and (d) of such Act are amended by
inserting ``of the Department of the Treasury''
after ``Inspector General'' each place it
appears.
(3) References.--The second section 8G of the
Inspector General Act of 1978 (relating to rule of
construction of special provisions) is amended--
(A) by striking ``Sec. 8G'' and inserting
``Sec. 8H'';
(B) by striking ``or 8E'' and inserting
``8E or 8F''; and
(C) by striking ``section 8F(a)'' and
inserting ``section 8G(a)''.
(4) Amendment to internal revenue code of 1986.--
Section 7608(b)(1) is amended by striking ``or of the
Internal Security Division''.
SEC. 1104. OTHER PERSONNEL.
(a) In General.--Section 7804 (relating to the effect of
reorganization plans) is amended to read as follows:
``SEC. 7804. OTHER PERSONNEL.
``(a) Appointment and Supervision.--Unless otherwise
prescribed by the Secretary, the Commissioner of Internal
Revenue is authorized to employ such number of persons as the
Commissioner deems proper for the administration and
enforcement of the internal revenue laws, and the Commissioner
shall issue all necessary directions, instructions, orders, and
rules applicable to such persons.
``(b) Posts of Duty of Employees in Field Service or
Traveling.--Unless otherwise prescribed by the Secretary--
``(1) Designation of post of duty.--The
Commissioner shall determine and designate the posts of
duty of all such persons engaged in field work or
traveling on official business outside of the District
of Columbia.
``(2) Detail of personnel from field service.--The
Commissioner may order any such person engaged in field
work to duty in the District of Columbia, for such
periods as the Commissioner may prescribe, and to any
designated post of duty outside the District of
Columbia upon the completion of such duty.
``(c) Delinquent Internal Revenue Officers and Employees.--
If any officer or employee of the Treasury Department acting in
connection with the internal revenue laws fails to account for
and pay over any amount of money or property collected or
received by him in connection with the internal revenue laws,
the Secretary shall issue notice and demand to such officer or
employee for payment of the amount which he failed to account
for and pay over, and, upon failure to pay the amount demanded
within the time specified in such notice, the amount so
demanded shall be deemed imposed upon such officer or employee
and assessed upon the date of such notice and demand, and the
provisions of chapter 64 and all other provisions of law
relating to the collection of assessed taxes shall be
applicable in respect of such amount.''.
(b) Conforming Amendments.--
(1) Subsection (b) of section 6344 is amended by
striking ``section 7803(d)'' and inserting ``section
7804(c)''.
(2) The table of sections for subchapter A of
chapter 80 is amended by striking the item relating to
section 7804 and inserting the following new item:
``Sec. 7804. Other personnel.''.
(c) Effective Date.--The amendments made by this section
shall take effect on the date of the enactment of this Act.
SEC. 1105. PROHIBITION ON EXECUTIVE BRANCH INFLUENCE OVER TAXPAYER
AUDITS AND OTHER INVESTIGATIONS.
(a) In General.--Part I of subchapter A of chapter 75
(relating to crimes, other offenses, and forfeitures) is
amended by adding after section 7216 the following new section:
``SEC. 7217. PROHIBITION ON EXECUTIVE BRANCH INFLUENCE OVER TAXPAYER
AUDITS AND OTHER INVESTIGATIONS.
``(a) Prohibition.--It shall be unlawful for any applicable
person to request, directly or indirectly, any officer or
employee of the Internal Revenue Service to conduct or
terminate an audit or other investigation of any particular
taxpayer with respect to the tax liability of such taxpayer.
``(b) Reporting Requirement.--Any officer or employee of
the Internal Revenue Service receiving any request prohibited
by subsection (a) shall report the receipt of such request to
the Treasury Inspector General for Tax Administration.
``(c) Exceptions.--Subsection (a) shall not apply to any
written request made--
``(1) to an applicable person by or on behalf of
the taxpayer and forwarded by such applicable person to
the Internal Revenue Service,
``(2) by an applicable person for disclosure of
return or return information under section 6103 if such
request is made in accordance with the requirements of
such section, or
``(3) by the Secretary of the Treasury as a
consequence of the implementation of a change in tax
policy.
``(d) Penalty.--Any person who willfully violates
subsection (a) or fails to report under subsection (b) shall be
punished upon conviction by a fine in any amount not exceeding
$5,000, or imprisonment of not more than 5 years, or both,
together with the costs of prosecution.
``(e) Applicable Person.--For purposes of this section, the
term `applicable person' means--
``(1) the President, the Vice President, any
employee of the executive office of the President, and
any employee of the executive office of the Vice
President, and
``(2) any individual (other than the Attorney
General of the United States) serving in a position
specified in section 5312 of title 5, United States
Code.''.
(b) Clerical Amendment.--The table of sections for part I
of subchapter A of chapter 75 is amended by adding after the
item relating to section 7216 the following new item:
``Sec. 7217. Prohibition on executive branch influence over
taxpayer audits and other investigations.''.
(c) Effective Date.--The amendments made by this section
shall apply to requests made after the date of the enactment of
this Act.
Subtitle C--Personnel Flexibilities
SEC. 1201. IMPROVEMENTS IN PERSONNEL FLEXIBILITIES.
(a) In General.--Part III of title 5, United States Code,
is amended by adding at the end the following new subpart:
``Subpart I--Miscellaneous
``CHAPTER 95--PERSONNEL FLEXIBILITIES RELATING TO THE INTERNAL REVENUE
SERVICE
``Sec.
``9501. Internal Revenue Service personnel flexibilities.
``9502. Pay authority for critical positions.
``9503. Streamlined critical pay authority.
``9504. Recruitment, retention, relocation incentives, and relocation
expenses.
``9505. Performance awards for senior executives.
``9506. Limited appointments to career reserved Senior Executive Service
positions.
``9507. Streamlined demonstration project authority.
``9508. General workforce performance management system.
``9509. General workforce classification and pay.
``9510. General workforce staffing.
``Sec. 9501. Internal Revenue Service personnel flexibilities
``(a) Any flexibilities provided by sections 9502 through
9510 of this chapter shall be exercised in a manner consistent
with--
``(1) chapter 23 (relating to merit system
principles and prohibited personnel practices);
``(2) provisions relating to preference eligibles;
``(3) except as otherwise specifically provided,
section 5307 (relating to the aggregate limitation on
pay);
``(4) except as otherwise specifically provided,
chapter 71 (relating to labor-management relations);
and
``(5) subject to subsections (b) and (c) of section
1104, as though such authorities were delegated to the
Secretary of the Treasury under section 1104(a)(2).
``(b) The Secretary of the Treasury shall provide the
Office of Personnel Management with any information that Office
requires in carrying out its responsibilities under this
section.
``(c) Employees within a unit to which a labor organization
is accorded exclusive recognition under chapter 71 shall not be
subject to any flexibility provided by sections 9507 through
9510 of this chapter unless the exclusive representative and
the Internal Revenue Service have entered into a written
agreement which specifically provides for the exercise of that
flexibility. Such written agreement may be imposed by the
Federal Services Impasses Panel under section 7119.
``Sec. 9502. Pay authority for critical positions
``(a) When the Secretary of the Treasury seeks a grant of
authority under section 5377 for critical pay for 1 or more
positions at the Internal Revenue Service, the Office of
Management and Budget may fix the rate of basic pay,
notwithstanding sections 5377(d)(2) and 5307, at any rate up to
the salary set in accordance with section 104 of title 3.
``(b) Notwithstanding section 5307, no allowance,
differential, bonus, award, or similar cash payment may be paid
to any employee receiving critical pay at a rate fixed under
subsection (a), in any calendar year if, or to the extent that,
the employee's total annual compensation will exceed the
maximum amount of total annual compensation payable at the
salary set in accordance with section 104 of title 3.
``Sec. 9503. Streamlined critical pay authority
``(a) Notwithstanding section 9502, and without regard to
the provisions of this title governing appointments in the
competitive service or the Senior Executive Service and
chapters 51 and 53 (relating to classification and pay rates),
the Secretary of the Treasury may, for a period of 10 years
after the date of enactment of this section, establish, fix the
compensation of, and appoint individuals to, designated
critical administrative, technical, and professional positions
needed to carry out the functions of the Internal Revenue
Service, if--
``(1) the positions--
``(A) require expertise of an extremely
high level in an administrative, technical, or
professional field; and
``(B) are critical to the Internal Revenue
Service's successful accomplishment of an
important mission;
``(2) exercise of the authority is necessary to
recruit or retain an individual exceptionally well
qualified for the position;
``(3) the number of such positions does not exceed
40 at any one time;
``(4) designation of such positions are approved by
the Secretary of the Treasury;
``(5) the terms of such appointments are limited to
no more than 4 years;
``(6) appointees to such positions were not
Internal Revenue Service employees prior to June 1,
1998;
``(7) total annual compensation for any appointee
to such positions does not exceed the highest total
annual compensation payable at the rate determined
under section 104 of title 3; and
``(8) all such positions are excluded from the
collective bargaining unit.
``(b) Individuals appointed under this section shall not be
considered to be employees for purposes of subchapter II of
chapter 75.
``Sec. 9504. Recruitment, retention, relocation incentives, and
relocation expenses
``(a) For a period of 10 years after the date of enactment
of this section and subject to approval by the Office of
Personnel Management, the Secretary of the Treasury may provide
for variations from sections 5753 and 5754 governing payment of
recruitment, relocation, and retention incentives.
``(b) For a period of 10 years after the date of enactment
of this section, the Secretary of the Treasury may pay from
appropriations made to the Internal Revenue Service allowable
relocation expenses under section 5724a for employees
transferred or reemployed and allowable travel and
transportation expenses under section 5723 for new appointees,
for any new appointee appointed to a position for which pay is
fixed under section 9502 or 9503 after June 1, 1998.
``Sec. 9505. Performance awards for senior executives
``(a) For a period of 10 years after the date of enactment
of this section, Internal Revenue Service senior executives who
have program management responsibility over significant
functions of the Internal Revenue Service may be paid a
performance bonus without regard to the limitation in section
5384(b)(2) if the Secretary of the Treasury finds such award
warranted based on the executive's performance.
``(b) In evaluating an executive's performance for purposes
of an award under this section, the Secretary of the Treasury
shall take into account the executive's contributions toward
the successful accomplishment of goals and objectives
established under the Government Performance and Results Act of
1993, division E of the Clinger-Cohen Act of 1996 (Public Law
104-106; 110 Stat. 679), Revenue Procedure 64-22 (as in effect
on July 30, 1997), taxpayer service surveys, and other
performance metrics or plans established in consultation with
the Internal Revenue Service Oversight Board.
``(c) Any award in excess of 20 percent of an executive's
rate of basic pay shall be approved by the Secretary of the
Treasury.
``(d) Notwithstanding section 5384(b)(3), the Secretary of
the Treasury shall determine the aggregate amount of
performance awards available to be paid during any fiscal year
under this section and section 5384 to career senior executives
in the Internal Revenue Service. Such amount may not exceed an
amount equal to 5 percent of the aggregate amount of basic pay
paid to career senior executives in the Internal Revenue
Service during the preceding fiscal year. The Internal Revenue
Service shall not be included in the determination under
section 5384(b)(3) of the aggregate amount of performance
awards payable to career senior executives in the Department of
the Treasury other than the Internal Revenue Service.
``(e) Notwithstanding section 5307, a performance bonus
award may not be paid to an executive in a calendar year if, or
to the extent that, the executive's total annual compensation
will exceed the maximum amount of total annual compensation
payable at the rate determined under section 104 of title 3.
``Sec. 9506. Limited appointments to career reserved Senior Executive
Service positions
``(a) In the application of section 3132, a `career
reserved position' in the Internal Revenue Service means a
position designated under section 3132(b) which may be filled
only by--
``(1) a career appointee, or
``(2) a limited emergency appointee or a limited
term appointee--
``(A) who, immediately upon entering the
career reserved position, was serving under a
career or career-conditional appointment
outside the Senior Executive Service; or
``(B) whose limited emergency or limited
term appointment is approved in advance by the
Office of Personnel Management.
``(b)(1) The number of positions described under subsection
(a) which are filled by an appointee as described under
paragraph (2) of such subsection may not exceed 10 percent of
the total number of Senior Executive Service positions in the
Internal Revenue Service.
``(2) Notwithstanding section 3132--
``(A) the term of an appointee described under
subsection (a)(2) may be for any period not to exceed 3
years; and
``(B) such an appointee may serve--
``(i) 2 such terms; or
``(ii) 2 such terms in addition to any
unexpired term applicable at the time of
appointment.
``Sec. 9507. Streamlined demonstration project authority
``(a) The exercise of any of the flexibilities under
sections 9502 through 9510 shall not affect the authority of
the Secretary of the Treasury to implement for the Internal
Revenue Service a demonstration project subject to chapter 47,
as provided in subsection (b).
``(b) In applying section 4703 to a demonstration project
described in section 4701(a)(4) which involves the Internal
Revenue Service--
``(1) section 4703(b)(1) shall be deemed to read as
follows:
`` `(1) develop a plan for such project which
describes its purpose, the employees to be covered, the
project itself, its anticipated outcomes, and the
method of evaluating the project;';
``(2) section 4703(b)(3) shall not apply;
``(3) the 180-day notification period in section
4703(b)(4) shall be deemed to be a notification period
of 30 days;
``(4) section 4703(b)(6) shall be deemed to read as
follows:
`` `(6) provides each House of Congress with the
final version of the plan.';
``(5) section 4703(c)(1) shall be deemed to read as
follows:
`` `(1) subchapter V of chapter 63 or subpart G of
part III of this title;';
``(6) the requirements of paragraphs (1)(A) and (2)
of section 4703(d) shall not apply; and
``(7) notwithstanding section 4703(d)(1)(B), based
on an evaluation as provided in section 4703(h), the
Office of Personnel Management and the Secretary of the
Treasury, except as otherwise provided by this
subsection, may waive the termination date of a
demonstration project under section 4703(d).
``(c) At least 90 days before waiving the termination date
under subsection (b)(7), the Office of Personnel Management
shall publish in the Federal Register a notice of its intention
to waive the termination date and shall inform in writing both
Houses of Congress of its intention.
``Sec. 9508. General workforce performance management system
``(a) In lieu of a performance appraisal system established
under section 4302, the Secretary of the Treasury shall, within
1 year after the date of enactment of this section, establish
for the Internal Revenue Service a performance management
system that--
``(1) maintains individual accountability by--
``(A) establishing 1 or more retention
standards for each employee related to the work
of the employee and expressed in terms of
individual performance, and communicating such
retention standards to employees;
``(B) making periodic determinations of
whether each employee meets or does not meet
the employee's established retention standards;
and
``(C) taking actions, in accordance with
applicable laws and regulations, with respect
to any employee whose performance does not meet
established retention standards, including
denying any increases in basic pay, promotions,
and credit for performance under section 3502,
and taking 1 or more of the following actions:
``(i) Reassignment.
``(ii) An action under chapter 43
or chapter 75 of this title.
``(iii) Any other appropriate
action to resolve the performance
problem; and
``(2) except as provided under section 1204 of the
Internal Revenue Service Restructuring and Reform Act
of 1998, strengthens the system's effectiveness by--
``(A) establishing goals or objectives for
individual, group, or organizational
performance (or any combination thereof),
consistent with the Internal Revenue Service's
performance planning procedures, including
those established under the Government
Performance and Results Act of 1993, division E
of the Clinger-Cohen Act of 1996 (Public Law
104-106; 110 Stat. 679), Revenue Procedure 64-
22 (as in effect on July 30, 1997), and
taxpayer service surveys, and communicating
such goals or objectives to employees;
``(B) using such goals and objectives to
make performance distinctions among employees
or groups of employees; and
``(C) using performance assessments as a
basis for granting employee awards, adjusting
an employee's rate of basic pay, and other
appropriate personnel actions, in accordance
with applicable laws and regulations.
``(b)(1) For purposes of subsection (a)(2), the term
`performance assessment' means a determination of whether or
not retention standards established under subsection (a)(1)(A)
are met, and any additional performance determination made on
the basis of performance goals and objectives established under
subsection (a)(2)(A).
``(2) For purposes of this title, the term `unacceptable
performance' with respect to an employee of the Internal
Revenue Service covered by a performance management system
established under this section means performance of the
employee which fails to meet a retention standard established
under this section.
``(c)(1) The Secretary of the Treasury may establish an
awards program designed to provide incentives for and
recognition of organizational, group, and individual
achievements by providing for granting awards to employees who,
as individuals or members of a group, contribute to meeting the
performance goals and objectives established under this chapter
by such means as a superior individual or group accomplishment,
a documented productivity gain, or sustained superior
performance.
``(2) A cash award under subchapter I of chapter 45 may be
granted to an employee of the Internal Revenue Service without
the need for any approval under section 4502(b).
``(d)(1) In applying sections 4303(b)(1)(A) and 7513(b)(1)
to employees of the Internal Revenue Service, `30 days' may be
deemed to be `15 days'.
``(2) Notwithstanding the second sentence of section
5335(c), an employee of the Internal Revenue Service shall not
have a right to appeal the denial of a periodic step increase
under section 5335 to the Merit Systems Protection Board.
``Sec. 9509. General workforce classification and pay
``(a) For purposes of this section, the term `broad-banded
system' means a system for grouping positions for pay, job
evaluation, and other purposes that is different from the
system established under chapter 51 and subchapter III of
chapter 53 as a result of combining grades and related ranges
of rates of pay in 1 or more occupational series.
``(b)(1)(A) The Secretary of the Treasury may, subject to
criteria to be prescribed by the Office of Personnel
Management, establish 1 or more broad-banded systems covering
all or any portion of the Internal Revenue Service workforce.
``(B) With the approval of the Office of Personnel
Management, a broad-banded system established under this
section may either include or consist of positions that
otherwise would be subject to subchapter IV of chapter 53 or
section 5376.
``(2) The Office of Personnel Management may require the
Secretary of the Treasury to submit information relating to
broad-banded systems at the Internal Revenue Service.
``(3) Except as otherwise provided under this section,
employees under a broad-banded system shall continue to be
subject to the laws and regulations covering employeesunder the
pay system that otherwise would apply to such employees.
``(4) The criteria to be prescribed by the Office of
Personnel Management shall, at a minimum--
``(A) ensure that the structure of any broad-banded
system maintains the principle of equal pay for
substantially equal work;
``(B) establish the minimum and maximum number of
grades that may be combined into pay bands;
``(C) establish requirements for setting minimum
and maximum rates of pay in a pay band;
``(D) establish requirements for adjusting the pay
of an employee within a pay band;
``(E) establish requirements for setting the pay of
a supervisory employee whose position is in a pay band
or who supervises employees whose positions are in pay
bands; and
``(F) establish requirements and methodologies for
setting the pay of an employee upon conversion to a
broad-banded system, initial appointment, change of
position or type of appointment (including promotion,
demotion, transfer, reassignment, reinstatement,
placement in another pay band, or movement to a
different geographic location), and movement between a
broad-banded system and another pay system.
``(c) With the approval of the Office of Personnel
Management and in accordance with a plan for implementation
submitted by the Secretary of the Treasury, the Secretary may,
with respect to Internal Revenue Service employees who are
covered by a broad-banded system established under this
section, provide for variations from the provisions of
subchapter VI of chapter 53.
``Sec. 9510. General workforce staffing
``(a)(1) Except as otherwise provided by this section, an
employee of the Internal Revenue Service may be selected for a
permanent appointment in the competitive service in the
Internal Revenue Service through internal competitive promotion
procedures if--
``(A) the employee has completed, in the
competitive service, 2 years of current continuous
service under a term appointment or any combination of
term appointments;
``(B) such term appointment or appointments were
made under competitive procedures prescribed for
permanent appointments;
``(C) the employee's performance under such term
appointment or appointments met established retention
standards, or, if not covered by a performance
management system established under section 9508, was
rated at the fully successful level or higher (or
equivalent thereof); and
``(D) the vacancy announcement for the term
appointment from which the conversion is made stated
that there was a potential for subsequent conversion to
a permanent appointment.
``(2) An appointment under this section may be made only to
a position in the same line of work as a position to which the
employee received a term appointment under competitive
procedures.
``(b)(1) Notwithstanding subchapter I of chapter 33, the
Secretary of the Treasury may establish category rating systems
for evaluating applicants for Internal Revenue Service
positions in the competitive service under which qualified
candidates are divided into 2 or more quality categories on the
basis of relative degrees of merit, rather than assigned
individual numerical ratings.
``(2) Each applicant who meets the minimum qualification
requirements for the position to be filled shall be assigned to
an appropriate category based on an evaluation of the
applicant's knowledge, skills, and abilities relative to those
needed for successful performance in the position to be filled.
``(3) Within each quality category established under
paragraph (1), preference eligibles shall be listed ahead of
individuals who are not preference eligibles. For other than
scientific and professional positions at or higher than GS-9
(or equivalent), preference eligibles who have a compensable
service-connected disability of 10 percent or more, and who
meet the minimum qualification standards, shall be listed in
the highest quality category.
``(4) An appointing authority may select any applicant from
the highest quality category or, if fewer than 3 candidates
have been assigned to the highest quality category, from a
merged category consisting of the highest and second highest
quality categories.
``(5) Notwithstanding paragraph (4), the appointing
authority may not pass over a preference eligible in the same
or higher category from which selection is made unless the
requirements of section 3317(b) or 3318(b), as applicable, are
satisfied.
``(c) The Secretary of the Treasury may detail employees
among the offices of the Internal Revenue Service without
regard to the 120-day limitation in section 3341(b).
``(d) Notwithstanding any other provision of law, the
Secretary of the Treasury may establish a probationary period
under section 3321 of up to 3 years for Internal Revenue
Service positions if the Secretary of the Treasury determines
that the nature of the work is such that a shorter period is
insufficient to demonstrate complete proficiency in the
position.
``(e) Nothing in this section exempts the Secretary of the
Treasury from--
``(1) any employment priority established under
direction of the President for the placement of surplus
or displaced employees; or
``(2) any obligation under a court order or decree
relating to the employment practices of the Internal
Revenue Service or the Department of the Treasury.''.
(b) Clerical Amendment.--The table of sections for part III
of title 5, United States Code, is amended by adding at the end
the following new items:
``Subpart I--Miscellaneous
``95. Personnel flexibilities relating to the Internal Revenue
Service............................................9501''.
SEC. 1202. VOLUNTARY SEPARATION INCENTIVE PAYMENTS.
(a) Definition.--In this section, the term ``employee''
means an employee (as defined by section 2105 of title 5,
United States Code) who is employed by the Internal Revenue
Service serving under an appointment without time limitation,
and has been currently employedfor a continuous period of at
least 3 years, but does not include--
(1) a reemployed annuitant under subchapter III of
chapter 83 or chapter 84 of title 5, United States
Code, or another retirement system;
(2) an employee having a disability on the basis of
which such employee is or would be eligible for
disability retirement under the applicable retirement
system referred to in paragraph (1);
(3) an employee who is in receipt of a specific
notice of involuntary separation for misconduct or
unacceptable performance;
(4) an employee who, upon completing an additional
period of service as referred to in section
3(b)(2)(B)(ii) of the Federal Workforce Restructuring
Act of 1994 (5 U.S.C. 5597 note), would qualify for a
voluntary separation incentive payment under section 3
of such Act;
(5) an employee who has previously received any
voluntary separation incentive payment by the Federal
Government under this section or any other authority
and has not repaid such payment;
(6) an employee covered by statutory reemployment
rights who is on transfer to another organization; or
(7) any employee who, during the 24-month period
preceding the date of separation, has received a
recruitment or relocation bonus under section 5753 of
title 5, United States Code, or who, within the 12-
month period preceding the date of separation, received
a retention allowance under section 5754 of title 5,
United States Code.
(b) Authority To Provide Voluntary Separation Incentive
Payments.--
(1) In general.--The Commissioner of Internal
Revenue may pay voluntary separation incentive payments
under this section to any employee to the extent
necessary to carry out the plan to reorganize the
Internal Revenue Service under section 1001.
(2) Amount and treatment of payments.--A voluntary
separation incentive payment--
(A) shall be paid in a lump sum after the
employee's separation;
(B) shall be paid from appropriations or
funds available for the payment of the basic
pay of the employees;
(C) shall be equal to the lesser of--
(i) an amount equal to the amount
the employee would be entitled to
receive under section 5595(c) of title
5, United States Code; or
(ii) an amount determined by an
agency head not to exceed $25,000;
(D) may not be made except in the case of
any qualifying employee who voluntarily
separates (whether by retirement or
resignation) before January 1, 2003;
(E) shall not be a basis for payment, and
shall not be included in the computation, of
any other type of Government benefit; and
(F) shall not be taken into account in
determining the amount of any severance pay to
which the employee may be entitled under
section 5595 of title 5, United States Code,
based on any other separation.
(c) Additional Internal Revenue Service Contributions to
the Retirement Fund.--
(1) In general.--In addition to any other payments
which it is required to make under subchapter III of
chapter 83 of title 5, United States Code, the Internal
Revenue Service shall remit to the Office of Personnel
Management for deposit in the Treasury of the United
States to the credit of the Civil Service Retirement
and Disability Fund an amount equal to 15 percent of
the final basic pay of each employee who is covered
under subchapter III of chapter 83 or chapter 84 of
title 5, United States Code, to whom a voluntary
separation incentive has been paid under this section.
(2) Definition.--In paragraph (1), the term ``final
basic pay'', with respect to an employee, means the
total amount of basic pay which would be payable for a
year of service by such employee, computed using the
employee's final rate of basic pay, and, if last
serving on other than a full-time basis, with
appropriate adjustment therefor.
(d) Effect of Subsequent Employment With the Government.--
An individual who has received a voluntary separation incentive
payment under this section and accepts any employment for
compensation with the Government of the United States, or who
works for any agency of the United States Government through a
personal services contract, within 5 years after the date of
the separation on which the payment is based shall be required
to pay, prior to the individual's first day of employment, the
entire amount of the incentive payment to the Internal Revenue
Service.
(e) Effect on Internal Revenue Service Employment Levels.--
(1) Intended effect.--Voluntary separations under
this section are not intended to necessarily reduce the
total number of full-time equivalent positions in the
Internal Revenue Service.
(2) Use of voluntary separations.--The Internal
Revenue Service may redeploy or use the full-time
equivalent positions vacated by voluntary separations
under this section to make other positions available to
more critical locations or more critical occupations.
SEC. 1203. TERMINATION OF EMPLOYMENT FOR MISCONDUCT.
(a) In General.--Subject to subsection (c), the
Commissioner of Internal Revenue shall terminate the employment
of any employee of the Internal Revenue Service if there is a
final administrative or judicial determination that such
employee committed any act or omission described under
subsection (b) in the performance of the employee's official
duties. Such termination shall be a removal for cause on
charges of misconduct.
(b) Acts or Omissions.--The acts or omissions referred to
under subsection (a) are--
(1) willful failure to obtain the required approval
signatures on documents authorizing the seizure of a
taxpayer's home, personal belongings, or business
assets;
(2) providing a false statement under oath with
respect to a material matter involving a taxpayer or
taxpayer representative;
(3) with respect to a taxpayer, taxpayer
representative, or other employee of the Internal
Revenue Service, the violation of--
(A) any right under the Constitution of the
United States; or
(B) any civil right established under--
(i) title VI or VII of the Civil
Rights Act of 1964;
(ii) title IX of the Education
Amendments of 1972;
(iii) the Age Discrimination in
Employment Act of 1967;
(iv) the Age Discrimination Act of
1975;
(v) section 501 or 504 of the
Rehabilitation Act of 1973; or
(vi) title I of the Americans with
Disabilities Act of 1990;
(4) falsifying or destroying documents to conceal
mistakes made by any employee with respect toa matter
involving a taxpayer or taxpayer representative;
(5) assault or battery on a taxpayer, taxpayer
representative, or other employee of the Internal
Revenue Service, but only if there is a criminal
conviction, or a final judgment by a court in a civil
case, with respect to the assault or battery;
(6) violations of the Internal Revenue Code of
1986, Department of Treasury regulations, or policies
of the Internal Revenue Service (including the Internal
Revenue Manual) for the purpose of retaliating against,
or harassing, a taxpayer, taxpayer representative, or
other employee of the Internal Revenue Service;
(7) willful misuse of the provisions of section
6103 of the Internal Revenue Code of 1986 for the
purpose of concealing information from a congressional
inquiry,
(8) willful failure to file any return of tax
required under the Internal Revenue Code of 1986 on or
before the date prescribed therefor (including any
extensions), unless such failure is due to reasonable
cause and not to willful neglect,
(9) willful understatement of Federal tax
liability, unless such understatement is due to
reasonable cause and not to willful neglect, and
(10) threatening to audit a taxpayer for the
purpose of extracting personal gain or benefit.
(c) Determination of Commissioner.--
(1) In general.--The Commissioner of Internal
Revenue may take a personnel action other than
termination for an act or omission under subsection
(a).
(2) Discretion.--The exercise of authority under
paragraph (1) shall be at the sole discretion of the
Commissioner of Internal Revenue and may not be
delegated to any other officer. The Commissioner of
Internal Revenue, in his sole discretion, may establish
a procedure which will be used to determine whether an
individual should be referred to the Commissioner of
Internal Revenue for a determination by the
Commissioner under paragraph (1).
(3) No appeal.--Any determination of the
Commissioner of Internal Revenue under this subsection
may not be appealed in any administrative or judicial
proceeding.
(d) Definition.--For purposes of the provisions described
in clauses (i), (ii), and (iv) of subsection (b)(3)(B),
references to a program or activity receiving Federal financial
assistance or an education program or activity receiving
Federal financial assistance shall include any program or
activity conducted by the Internal Revenue Service for a
taxpayer.
SEC. 1204. BASIS FOR EVALUATION OF INTERNAL REVENUE SERVICE EMPLOYEES.
(a) In General.--The Internal Revenue Service shall not use
records of tax enforcement results--
(1) to evaluate employees; or
(2) to impose or suggest production quotas or goals
with respect to such employees.
(b) Taxpayer Service.--The Internal Revenue Service shall
use the fair and equitable treatment of taxpayers by employees
as one of the standards for evaluating employee performance.
(c) Certification.--Each appropriate supervisor shall
certify quarterly by letter to the Commissioner of Internal
Revenue whether or not tax enforcement results are being used
in a manner prohibited by subsection (a).
(d) Technical and Conforming Amendment.--Section 6231 of
the Technical and Miscellaneous Revenue Act of 1988 (Public Law
100-647; 102 Stat. 3734) is repealed.
(e) Effective Date.--This section shall apply to
evaluations conducted on or after the date of the enactment of
this Act.
SEC. 1205. EMPLOYEE TRAINING PROGRAM.
(a) In General.--Not later than 180 days after the date of
the enactment of this Act, the Commissioner of Internal Revenue
shall implement an employee training program and shall submit
an employee training plan to the Committee on Finance of the
Senate and the Committee on Ways and Means of the House of
Representatives.
(b) Contents.--The plan submitted under subsection (a)
shall--
(1) detail a comprehensive employee training
program to ensure adequate customer service training;
(2) detail a schedule for training and the fiscal
years during which the training will occur;
(3) detail the funding of the program and relevant
information to demonstrate the priority and commitment
of resources to the plan;
(4) review the organizational design of customer
service;
(5) provide for the implementation of a performance
development system; and
(6) provide for at least 16 hours of conflict
management training during fiscal year 1999 for
employees conducting collection activities.
TITLE II--ELECTRONIC FILING
SEC. 2001. ELECTRONIC FILING OF TAX AND INFORMATION RETURNS.
(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) it should be the goal of the Internal Revenue
Service to have at least 80 percent of all such returns
filed electronically by the year 2007, and
(3) the Internal Revenue Service should cooperate
with and encourage the private sector by encouraging
competition to increase electronic filing of such
returns.
(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'') 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. To the extent practicable, such
plan shall provide that all returns prepared
electronically for taxable years beginning after 2001
shall be filed electronically.
(2) Electronic commerce advisory group.--To ensure
that the Secretary receives input from the private
sector in the development and implementation of the
plan required by paragraph (1), the Secretary shall
convene an electronic commerce advisory group to
include representatives from the small business
community and from the tax practitioner, preparer, and
computerized tax processor communities and other
representatives from the electronic filing industry.
(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.''.
(d) Annual Reports.--Not later than June 30 of each
calendar year after 1998, the Chairperson of the Internal
Revenue Service Oversight Board, the Secretary of the Treasury,
and the Chairperson of the electronic commerce advisory group
established under subsection (b)(2) shall report to the
Committees on Ways and Means, Appropriations, Government Reform
and Oversight, and Small Business of the House of
Representatives and the Committees on Finance, Appropriations,
Governmental Affairs, and Small Business of the Senate on--
(1) the progress of the Internal Revenue Service in
meeting the goal of receiving electronically 80 percent
of tax and information returns by 2007;
(2) the status of the plan required by subsection
(b);
(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.
SEC. 2002. DUE DATE FOR CERTAIN INFORMATION RETURNS.
(a) Information Returns Filed Electronically.--Section 6071
(relating to time for filing returns and other documents) is
amended by redesignating subsection (b) as subsection (c) and
by inserting after subsection (a) the following new subsection:
``(b) Electronically Filed Information Returns.--Returns
made under subparts B and C of part III of this subchapter
which are filed electronically shall be filed on or before
March 31 of the year following the calendar year to which such
returns relate.''.
(b) Study Relating to Time For Providing Notice to
Recipients.--
(1) In general.--The Secretary of the Treasury
shall conduct a study evaluating the effect of
extending the deadline for providing statements to
persons with respect to whom information is required to
be furnished under subparts B and C of part III of
subchapter A of chapter 61 of the Internal Revenue Code
of 1986 (other than section 6051 of such Code) from
January 31 to February 15 of the year in which the
return to which the statement relates is required to be
filed.
(2) Report.--Not later than June 30, 1999, the
Secretary of the Treasury shall submit a report on the
study under paragraph (1) to the Committee on Ways and
Means of the House of Representatives and the Committee
on Finance of the Senate.
(c) Effective Date.--The amendment made by subsection (a)
shall apply to returns required to be filed after December 31,
1999.
SEC. 2003. PAPERLESS ELECTRONIC FILING.
(a) In General.--Section 6061 (relating to signing of
returns and other documents) is amended--
(1) by striking ``Except as otherwise provided by''
and inserting the following:
``(a) General Rule.--Except as otherwise provided by
subsection (b) and'', and
(2) by adding at the end the following new
subsection:
``(b) Electronic Signatures.--
``(1) In general.--The Secretary shall develop
procedures for the acceptance of signatures in digital
or other electronic form. Until such time as such
procedures are in place, the Secretary may--
``(A) waive the requirement of a signature
for, or
``(B) provide for alternative methods of
signing or subscribing,
a particular type or class of return, declaration,
statement, or other document required or permitted to
be made or written under internal revenue laws and
regulations.
``(2) Treatment of alternative methods.--
Notwithstanding any other provision of law, any return,
declaration, statement, or other document filed and
verified, signed, or subscribed under any method
adopted under paragraph (1)(B) shall be treated for all
purposes (both civil and criminal, including penalties
for perjury) in the same manner as though signed or
subscribed.
``(3) Published guidance.--The Secretary shall
publish guidance as appropriate to define and implement
any waiver of the signature requirements or any method
adopted under paragraph (1).''.
(b) Acknowledgment of Electronic Filing.--Section 7502(c)
is amended to read as follows:
``(c) Registered and Certified Mailing; Electronic
Filing.--
``(1) Registered mail.--For purposes of this
section, if any return, claim, statement, or other
document, or payment, is sent by United States
registered mail--
``(A) such registration shall be prima
facie evidence that the return, claim,
statement, or other document was delivered to
the agency, officer, or office to which
addressed, and
``(B) the date of registration shall be
deemed the postmark date.
``(2) Certified mail; electronic filing.--The
Secretary is authorized to provide by regulations the
extent to which the provisions of paragraph (1) with
respect to prima facie evidence of delivery and the
postmark date shall apply to certified mail and
electronic filing.''.
(c) Establishment of Procedures for Other Information.--In
the case of taxable periods beginning after December 31, 1999,
the Secretary of the Treasury or the Secretary's delegate
shall, to the extent practicable, establish procedures to
accept, in electronic form, any other information, statements,
elections, or schedules, from taxpayers filing returns
electronically, so that such taxpayers will not be required to
file any paper.
(d) Internet Availability.--In the case of taxable periods
beginning after December 31, 1998, the Secretary of the
Treasury or the Secretary's delegate shall establish procedures
for all tax forms, instructions, and publications created in
the most recent 5-year period to be made available
electronically on the Internet in a searchable database at
approximately the same time such records are available to the
public in paper form. In addition, in the case of taxable
periods beginning after December 31, 1998, the Secretary of the
Treasury or the Secretary's delegate shall, to the extent
practicable, establish procedures for other taxpayer guidance
to be made available electronically on the Internet in a
searchable database at approximately the same time such
guidance is available to the public in paper form.
(e) Procedures for Authorizing Disclosure Electronically.--
The Secretary shall establish procedures for any taxpayer to
authorize, on an electronically filed return, the Secretary to
disclose information under section 6103(c) of the Internal
Revenue Code of 1986 to the preparer of the return.
(f) Effective Date.--The amendments made by this section
shall take effect on the date of the enactment of this Act.
SEC. 2004. RETURN-FREE TAX SYSTEM.
(a) In General.--The Secretary of the Treasury or the
Secretary's delegate shall develop procedures for the
implementation of a return-free tax system under which
appropriate individuals would be permitted to comply with the
Internal Revenue Code of 1986 without making the return
required under section 6012 of such Code for taxable years
beginning after 2007.
(b) Report.--Not later than June 30 of each calendar year
after 1999, the Secretary shall report to the Committee on Ways
and Means of the House of Representatives and the Committee on
Finance of the Senate on--
(1) what additional resources the Internal Revenue
Service would need to implement such a system,
(2) the changes to the Internal Revenue Code of
1986 that could enhance the use of such a system,
(3) the procedures developed pursuant to subsection
(a), and
(4) the number and classes of taxpayers that would
be permitted to use the procedures developed pursuant
to subsection (a).
SEC. 2005. ACCESS TO ACCOUNT INFORMATION.
(a) In General.--Not later than December 31, 2006, the
Secretary of the Treasury or the Secretary's delegate shall
develop procedures under which a taxpayer filing returns
electronically (and their designees under section 6103(c) of
the Internal Revenue Code of 1986) would be able to review the
taxpayer's account electronically, but only if all necessary
safeguards to ensure the privacy of such account information
are in place.
(b) Report.--Not later than December 31, 2003, the
Secretary of the Treasury shall report on the progress the
Secretary is making on the development of procedures under
subsection (a) to the Committee on Ways and Means of the House
of Representatives and the Committee on Finance of the Senate.
TITLE III--TAXPAYER PROTECTION AND RIGHTS
SEC. 3000. SHORT TITLE.
This title may be cited as the ``Taxpayer Bill of Rights
3''.
Subtitle A--Burden of Proof
SEC. 3001. BURDEN OF PROOF.
(a) In General.--Chapter 76 (relating to judicial
proceedings) is amended by adding at the end the following new
subchapter:
``Subchapter E--Burden of Proof
``Sec. 7491. Burden of proof.
``SEC. 7491. BURDEN OF PROOF.
``(a) Burden Shifts Where Taxpayer Produces Credible
Evidence.--
``(1) General rule.--If, in any court proceeding, a
taxpayer introduces credible evidence with respect to
any factual issue relevant to ascertaining the
liability of the taxpayer for any tax imposed by
subtitle A or B, the Secretary shall have the burden of
proof with respect to such issue.
``(2) Limitations.--Paragraph (1) shall apply with
respect to an issue only if--
``(A) the taxpayer has complied with the
requirements under this title to substantiate
any item,
``(B) the taxpayer has maintained all
records required under this title and has
cooperated with reasonable requests by the
Secretary for witnesses, information,
documents, meetings, and interviews, and
``(C) in the case of a partnership,
corporation, or trust, the taxpayer is
described in section 7430(c)(4)(A)(ii).
``(3) Coordination.--Paragraph (1) shall not apply
to any issue if any other provision of this title
provides for a specific burden of proof with respect to
such issue.
``(b) Use of Statistical Information on Unrelated
Taxpayers.--In the case of an individual taxpayer, the
Secretary shall have the burden of proof in any court
proceeding with respect to any item of income which was
reconstructed by the Secretary solely through the use of
statistical information on unrelated taxpayers.
``(c) Penalties.--Notwithstanding any other provision of
this title, the Secretary shall have the burden of production
in any court proceeding with respect to the liability of any
individual for any penalty, addition to tax, or additional
amount imposed by this title.''.
(b) Conforming Amendment.--The table of subchapters for
chapter 76 is amended by adding at the end the following new
item:
``Subchapter E. Burden of proof.''.
(c) Effective Date.--
(1) In general.--The amendments made by this
section shall apply to court proceedings arising in
connection with examinations commencing after the date
of the enactment of this Act.
(2) Taxable periods or events after date of
enactment.--In any case in which there is no
examination, such amendments shall apply to court
proceedings arising in connection with taxable periods
or events beginning or occurring after such date of
enactment.
Subtitle B--Proceedings by Taxpayers
SEC. 3101. EXPANSION OF AUTHORITY TO AWARD COSTS AND CERTAIN FEES.
(a) Increase in Attorney's Fees.--
(1) Increase in hourly amount.--Clause (iii) of
section 7430(c)(1)(B) (relating to reasonable
litigation costs) is amended by striking ``$110'' and
inserting ``$125''.
(2) Award of higher attorney's fees based on
complexity of issues.--Clause (iii) of section
7430(c)(1)(B) (relating to the award of costs and
certain fees) is amended by inserting ``the difficulty
of the issues presented in the case, or the local
availability of tax expertise,'' before ``justifies a
higher rate''.
(b) Award of Administrative Costs Incurred After 30-Day
Letter.--Paragraph (2) of section 7430(c) is amended by
striking the last sentence and inserting the following new
flush sentence:
``Such term shall only include costs incurred on or
after whichever of the following is the earliest: (i)
the date of the receipt by the taxpayer of the notice
of the decision of the Internal Revenue Service Office
of Appeals, (ii) the date of the notice of deficiency,
or (iii) the date on which the 1st letter of proposed
deficiency which allows the taxpayer an opportunity for
administrative review in the Internal Revenue Service
Office of Appeals is sent.''.
(c) Award of Fees for Certain Additional Services.--
Paragraph (3) of section 7430(c) is amended to read as follows:
``(3) Attorneys fees.--
``(A) In general.--For purposes of
paragraphs (1) and (2), fees for the services
of an individual (whether or not an attorney)
who is authorized to practice before the Tax
Court or before the Internal Revenue Service
shall be treated as fees for the services of an
attorney.
``(B) Pro bono services.--The court may
award reasonable attorneys fees under
subsection (a) in excess of the attorneys fees
paid or incurred if such fees are less than the
reasonable attorneys fees because an individual
is representing the prevailing party for no fee
or for a fee which (taking into account all the
facts and circumstances) is no more than a
nominal fee. This subparagraph shall apply only
if such award is paid to such individual or
such individual's employer.''.
(d) Determination of Whether Position of United States is
Substantially Justified.--Subparagraph (B) of section
7430(c)(4) is amended by redesignating clause (iii) as clause
(iv) and by inserting after clause (ii) the following new
clause:
``(iii) Effect of losing on
substantially similar issues.--In
determining for purposes of clause (i)
whether the position of the United
States was substantially justified, the
court shall take into account whether
the United States has lost in courts of
appeal for other circuits on
substantially similar issues.''.
(e) Taxpayer Treated as Prevailing if Judgment Is Less Than
Taxpayer's Offer.--
(1) In general.--Section 7430(c)(4) (defining
prevailing party) is amended by adding at the end the
following new subparagraph:
``(E) Special rules where judgment less
than taxpayer's offer.--
``(i) In general.--A party to a
court proceeding meeting the
requirements of subparagraph (A)(ii)
shall be treated as the prevailing
party if the liability of the taxpayer
pursuant to the judgment in the
proceeding (determined without regard
to interest) is equal to or less than
the liability of the taxpayer which
would have been so determined if the
United States had accepted a qualified
offer of the party under subsection
(g).
``(ii) Exceptions.--This
subparagraph shall not apply to--
``(I) any judgment issued
pursuant to a settlement, or
``(II) any proceeding in
which the amount of tax
liability is not in issue,
including any declaratory
judgment proceeding, any
proceeding to enforce or quash
any summons issued pursuant to
this title, and any action to
restrain disclosure under
section 6110(f).
``(iii) Special rules.--If this
subparagraph applies to any court
proceeding--
``(I) the determination
under clause (i) shall be made
by reference to the last
qualified offer made with
respect to the tax liability at
issue in the proceeding, and
``(II) reasonable
administrative and litigation
costs shall only include costs
incurred on and after the date
of such offer.
``(iv) Coordination.--This
subparagraph shall not apply to a party
which is a prevailing party under any
other provision of this paragraph.''.
(2) Qualified offer.--Section 7430 is amended by
adding at the end the following new subsection:
``(g) Qualified Offer.--For purposes of subsection (c)(4)--
``(1) In general.--The term `qualified offer' means
a written offer which--
``(A) is made by the taxpayer to the United
States during the qualified offer period,
``(B) specifies the offered amount of the
taxpayer's liability (determined without regard
to interest),
``(C) is designated at the time it is made
as a qualified offer for purposes of this
section, and
``(D) remains open during the period
beginning on the date it is made and ending on
the earliest of the date the offer is rejected,
the date the trial begins, or the 90th day
after the date the offer is made.
``(2) Qualified offer period.--For purposes of this
subsection, the term `qualified offer period' means the
period--
``(A) beginning on the date on which the
1st letter of proposed deficiency which allows
the taxpayer an opportunity for administrative
review in the Internal Revenue Service Office
of Appeals is sent, and
``(B) ending on the date which is 30 days
before the date the case is first set for
trial.''.
(f) Award of Attorneys Fees in Unauthorized Inspection and
Disclosure Cases.--Section 7431(c) (relating to damages) is
amended by striking the period at the end of paragraph (2) and
inserting ``, plus'', and by adding at the end the following
new paragraph:
``(3) in the case of a plaintiff which is described
in section 7430(c)(4)(A)(ii), reasonable attorneys
fees, except that if the defendant is the United
States, reasonable attorneys fees may be awarded only
if the plaintiff is the prevailing party (as determined
under section 7430(c)(4)).''.
(g) Effective Date.--The amendments made by this section
shall apply to costs incurred (and, in the case of the
amendment made by subsection (c), services performed) more than
180 days after the date of the enactment of this Act.
SEC. 3102. CIVIL DAMAGES FOR COLLECTION ACTIONS.
(a) Extension to Negligence Actions.--
(1) In general.--Section 7433 (relating to civil
damages for certain unauthorized collection actions) is
amended--
(A) in subsection (a), by inserting ``, or
by reason of negligence,'' after ``recklessly
or intentionally'', and
(B) in subsection (b)--
(i) in the matter preceding
paragraph (1), by inserting
``($100,000, in the case of
negligence)'' after ``$1,000,000'', and
(ii) in paragraph (1), by inserting
``or negligent'' after ``reckless or
intentional''.
(2) Requirement that administrative remedies be
exhausted.--Paragraph (1) of section 7433(d) is amended
to read as follows:
``(1) Requirement that administrative remedies be
exhausted.--A judgment for damages shall not be awarded
under subsection (b) unless the court determines that
the plaintiff has exhausted the administrative remedies
available to such plaintiff within the Internal Revenue
Service.''.
(b) Damages Allowed in Civil Actions by Persons Other Than
Taxpayers.--Section 7426 is amended by redesignating subsection
(h) as subsection (i) and by adding after subsection (g) the
following new subsection:
``(h) Recovery of Damages Permitted in Certain Cases.--
``(1) In general.--Notwithstanding subsection (b),
if, in any action brought under this section, there is
a finding that any officer or employee of the Internal
Revenue Service recklessly or intentionally, or by
reason of negligence, disregarded any provision of this
title the defendant shall be liable to the plaintiff in
an amount equal to the lesser of $1,000,000 ($100,000
in the case of negligence) or the sum of--
``(A) actual, direct economic damages
sustained by the plaintiff as a proximate
result of the reckless or intentional or
negligent disregard of any provision of this
title by the officer or employee (reduced by
any amount of such damages awarded under
subsection (b)), and
``(B) the costs of the action.
``(2) Requirement that administrative remedies be
exhausted; mitigation; period.--The rules of section
7433(d) shall apply for purposes of this subsection.
``(3) Payment authority.--Claims pursuant to this
section shall be payable out of funds appropriated
under section 1304 of title 31, United States Code.''.
(c) Civil Damages for IRS Violations of Bankruptcy
Procedures.--
(1) In general.--Section 7433 (relating to civil
damages for certain unauthorized collection actions) is
amended by adding at the end the following new
subsection:
``(e) Actions for Violations of Certain Bankruptcy
Procedures.--
``(1) In general.--If, in connection with any
collection of Federal tax with respect to a taxpayer,
any officer or employee of the Internal Revenue Service
willfully violates any provision of section 362
(relating to automatic stay) or 524 (relating to effect
of discharge) of title 11, United States Code (or any
successor provision), or any regulation promulgated
under such provision, such taxpayer may petition the
bankruptcy court to recover damages against the United
States.
``(2) Remedy to be exclusive.--
``(A) In general.--Except as provided in
subparagraph (B), notwithstanding section 105
of such title 11, such petition shall be the
exclusive remedy for recovering damages
resulting from such actions.
``(B) Certain other actions permitted.--
Subparagraph (A) shall not apply to an action
under section 362(h) of such title 11 for a
violation of a stay provided by section 362 of
such title; except that--
``(i) administrative and litigation
costs in connection with such an action
may only be awarded under section 7430,
and
``(ii) administrative costs may be
awarded only if incurred on or after
the date that the bankruptcy petition
is filed.''.
(2) Conforming amendment.--Subsection (b) of
section 7433 is amended by inserting ``or petition
filed under subsection (e)'' after ``subsection (a)''.
(d) Effective Date.--The amendments made by this section
shall apply to actions of officers or employees of the Internal
Revenue Service after the date of the enactment of this Act.
SEC. 3103. INCREASE IN SIZE OF CASES PERMITTED ON SMALL CASE CALENDAR.
(a) In General.--Section 7463 (relating to disputes
involving $10,000 or less) is amended by striking ``$10,000''
each place it appears (including the section heading) and
inserting ``$50,000''.
(b) Conforming Amendments.--
(1) Sections 7436(c)(1) and 7443A(b)(3) are each
amended by striking ``$10,000'' and inserting
``$50,000''.
(2) The table of sections for part II of subchapter
C of chapter 76 is amended by striking ``$10,000'' in
the item relating to section 7463 and inserting
``$50,000''.
(c) Effective Date.--The amendments made by this section
shall apply to proceedings commenced after the date of the
enactment of this Act.
SEC. 3104. ACTIONS FOR REFUND WITH RESPECT TO CERTAIN ESTATES WHICH
HAVE ELECTED THE INSTALLMENT METHOD OF PAYMENT.
(a) In General.--Section 7422 is amended by redesignating
subsection (j) as subsection (k) and by inserting after
subsection (i) the following new subsection:
``(j) Special Rule for Actions With Respect to Estates for
Which an Election Under Section 6166 Is Made.--
``(1) In general.--The district courts of the
United States and the United States Court of Federal
Claims shall not fail to have jurisdiction over any
action brought by the representative of an estate to
which this subsection applies to determine the correct
amount of the estate tax liability of such estate (or
for any refund with respect thereto) solely because the
full amount of such liability has not been paid by
reason of an election under section 6166 with respect
to such estate.
``(2) Estates to which subsection applies.--This
subsection shall apply to any estate if, as of the date
the action is filed--
``(A) no portion of the installments
payable under section 6166 have been
accelerated,
``(B) all such installments the due date
for which is on or before the date the action
is filed have been paid,
``(C) there is no case pending in the Tax
Court with respect to the tax imposed by
section 2001 on the estate and, if a notice of
deficiency under section 6212 with respect to
such tax has been issued, the time for filing a
petition with the Tax Court with respect to
such notice has expired, and
``(D) no proceeding for declaratory
judgment under section 7479 is pending.
``(3) Prohibition on collection of disallowed
liability.--If the court redetermines under paragraph
(1) the estate tax liability of an estate, no part of
such liability which is disallowed by a decision of
such court which has become final may be collected by
the Secretary, and amounts paid in excess of the
installments determined by the court as currently due
and payable shall be refunded.''.
(b) Extension of Time To File Refund Suit.--Section 7479
(relating to declaratory judgments relating to eligibility of
estate with respect to installment payments under section 6166)
is amended by adding at the end the following new subsection:
``(c) Extension of Time To File Refund Suit.--The 2-year
period in section 6532(a)(1) for filing suit for refund after
disallowance of a claim shall be suspended during the 90-day
period after the mailing of the notice referred to in
subsection (b)(3) and, if a pleading has been filed with the
Tax Court under this section, until the decision of the Tax
Court has become final.''.
(c) Effective Date.--The amendments made by this section
shall apply to any claim for refund filed after the date of the
enactment of this Act.
SEC. 3105. ADMINISTRATIVE APPEAL OF ADVERSE IRS DETERMINATION OF TAX-
EXEMPT STATUS OF BOND ISSUE.
The Internal Revenue Service shall amend its administrative
procedures to provide that if, upon examination, the Internal
Revenue Service proposes to an issuer that interest on
previously issued obligations of such issuer is not excludable
from gross income under section 103(a) of the Internal Revenue
Code of 1986, the issuer of such obligations shall have an
administrative appeal of right to a senior officer of the
Internal Revenue Service Office of Appeals.
SEC. 3106. CIVIL ACTION FOR RELEASE OF ERRONEOUS LIEN.
(a) Right of Substitution of Value.--Subsection (b) of
section 6325 (relating to release of lien or discharge of
property) is amended by adding at the end the following new
paragraph:
``(4) Right of substitution of value.--
``(A) In general.--At the request of the
owner of any property subject to any lien
imposed by this chapter, the Secretary shall
issue a certificate of discharge of such
property if such owner--
``(i) deposits with the Secretary
an amount of money equal to the value
of the interest of the United States
(as determined by the Secretary) in the
property, or
``(ii) furnishes a bond acceptable
to the Secretary in a like amount.
``(B) Refund of deposit with interest and
release of bond.--The Secretary shall refund
the amount so deposited (and shall pay interest
at the overpayment rate under section 6621),
and shall release such bond, to the extent that
the Secretary determines that--
``(i) the unsatisfied liability
giving rise to the lien can be
satisfied from a source other than such
property, or
``(ii) the value of the interest of
the United States in the property is
less than the Secretary's prior
determination of such value.
``(C) Use of deposit, etc., if action to
contest lien not filed.--If no action is filed
under section 7426(a)(4) within the period
prescribed therefor, the Secretary shall,
within 60 days after the expiration of such
period--
``(i) apply the amount deposited,
or collect on such bond, to the extent
necessary to satisfy the unsatisfied
liability secured by the lien, and
``(ii) refund (with interest as
described in subparagraph (B)) any
portion of the amount deposited which
is not used to satisfy such liability.
``(D) Exception.--Subparagraph (A) shall
not apply if the owner of the property is the
person whose unsatisfied liability gave rise to
the lien.''.
(b) Civil Action To Release Erroneous Lien.--
(1) In general.--Subsection (a) of section 7426
(relating to civil actions by persons other than
taxpayers) is amended by adding at the end the
following new paragraph:
``(4) Substitution of value.--If a certificate of
discharge is issued to any person under section
6325(b)(4) with respect to any property, such person
may, within 120 days after the day on which such
certificate is issued, bring a civil action against the
United States in a district court of the United States
for a determination of whether the value of the
interest of the United States (if any) in such property
is less than the value determined by the Secretary. No
other action may be brought by such person for such a
determination.''.
(2) Form of relief.--
(A) In general.--Subsection (b) of section
7426 is amended by adding at the end the
following new paragraph:
``(5) Substitution of value.--If the court
determines that the Secretary's determination of the
value of the interest of the United States in the
property for purposes of section 6325(b)(4) exceeds the
actual value of such interest, the court shall grant a
judgment ordering a refund of the amount deposited, and
a release of the bond, to the extent that the aggregate
of the amounts thereof exceeds such value determined by
the court.''.
(B) Interest allowed on refund of
deposit.--Subsection (g) of section 7426 is
amended by striking ``and'' at the end of
paragraph (1), by striking the period at the
end of paragraph (2) and inserting ``; and'',
and by adding at the end the following new
paragraph:
``(3) in the case of a judgment pursuant to
subsection (b)(5) which orders a refund of any amount,
from the date the Secretary received such amount to the
date of payment of such judgment.''.
(3) Suspension of running of statute of
limitation.--Subsection (f) of section 6503 is amended
to read as follows:
``(f) Wrongful Seizure of or Lien on Property of Third
Party.--
``(1) Wrongful seizure.--The running of the period
under section 6502 shall be suspended for a period
equal to the period from the date property (including
money) of a third party is wrongfully seized or
received by the Secretary to the date the Secretary
returns property pursuant to section 6343(b) or the
date on which a judgment secured pursuant to section
7426 with respect to such property becomes final, and
for 30 days thereafter. The running of such period
shall be suspended under this paragraph only with
respect to the amount of such assessment equal to the
amount of money or the value of specific property
returned.
``(2) Wrongful lien.--In the case of any assessment
for which a lien was made on any property, the running
of the period under section 6502 shall be suspended for
a period equal to the period beginning on the date any
person becomes entitled to a certificate under section
6325(b)(4) with respect to such property and ending on
the date which is 30 days after the earlier of--
``(A) the earliest date on which the
Secretary no longer holds any amount as a
deposit or bond provided under section
6325(b)(4) by reason of such deposit or bond
being used to satisfy the unpaid tax or being
refunded or released, or
``(B) the date that the judgment secured
under section 7426(b)(5) becomes final.
The running of such period shall be suspended under
this paragraph only with respect to the amount of such
assessment equal to the value of the interest of the
United States in the property plus interest, penalties,
additions to the tax, and additional amounts
attributable thereto.''.
(c) Effective Date.--The amendments made by this section
shall take effect on the date of the enactment of this Act.
Subtitle C--Relief for Innocent Spouses and for Taxpayers Unable To
Manage Their Financial Affairs Due to Disabilities
SEC. 3201. RELIEF FROM JOINT AND SEVERAL LIABILITY ON JOINT RETURN.
(a) In General.--Subpart B of part II of subchapter A of
chapter 61 is amended by inserting after section 6014 the
following new section:
``SEC. 6015. RELIEF FROM JOINT AND SEVERAL LIABILITY ON JOINT RETURN.
``(a) In General.--Notwithstanding section 6013(d)(3)--
``(1) an individual who has made a joint return may
elect to seek relief under the procedures prescribed
under subsection (b), and
``(2) if such individual is eligible to elect the
application of subsection (c), such individual may, in
addition to any election under paragraph (1), electto
limit such individual's liability for any deficiency with respect to
such joint return in the manner prescribed under subsection (c).
Any determination under this section shall be made without
regard to community property laws.
``(b) Procedures For Relief From Liability Applicable to
All Joint Filers.--
``(1) In general.--Under procedures prescribed by
the Secretary, if--
``(A) a joint return has been made for a
taxable year,
``(B) on such return there is an
understatement of tax attributable to erroneous
items of 1 individual filing the joint return,
``(C) the other individual filing the joint
return establishes that in signing the return
he or she did not know, and had no reason to
know, that there was such understatement,
``(D) taking into account all the facts and
circumstances, it is inequitable to hold the
other individual liable for the deficiency in
tax for such taxable year attributable to such
understatement, and
``(E) the other individual elects (in such
form as the Secretary may prescribe) the
benefits of this subsection not later than the
date which is 2 years after the date the
Secretary has begun collection activities with
respect to the individual making the election,
then the other individual shall be relieved of
liability for tax (including interest, penalties, and
other amounts) for such taxable year to the extent such
liability is attributable to such understatement.
``(2) Apportionment of relief.--If an individual
who, but for paragraph (1)(C), would be relieved of
liability under paragraph (1), establishes that in
signing the return such individual did not know, and
had no reason to know, the extent of such
understatement, then such individual shall be relieved
of liability for tax (including interest, penalties,
and other amounts) for such taxable year to the extent
that such liability is attributable to the portion of
such understatement of which such individual did not
know and had no reason to know.
``(3) Understatement.--For purposes of this
subsection, the term `understatement' has the meaning
given to such term by section 6662(d)(2)(A).
``(c) Procedures To Limit Liability for Taxpayers No Longer
Married or Taxpayers Legally Separated or Not Living
Together.--
``(1) In general.--Except as provided in this
subsection, if an individual who has made a joint
return for any taxable year elects the application of
this subsection, the individual's liability for any
deficiency which is assessed with respect to the return
shall not exceed the portion of such deficiency
properly allocable to the individual under subsection
(d).
``(2) Burden of proof.--Except as provided in
subparagraph (A)(ii) or (C) of paragraph (3), each
individual who elects the application of this
subsection shall have the burden of proof with respect
to establishing the portion of any deficiency allocable
to such individual.
``(3) Election.--
``(A) Individuals eligible to make
election.--
``(i) In general.--An individual
shall only be eligible to elect the
application of this subsection if--
``(I) at the time such
election is filed, such
individual is no longer married
to, or is legally separated
from, the individual with whom
such individual filed the joint
return to which the election
relates, or
``(II) such individual was
not a member of the same
household as the individual
with whom such joint return was
filed at any time during the
12-month period ending on the
date such election is filed.
``(ii) Certain taxpayers ineligible
to elect.--If the Secretary
demonstrates that assets were
transferred between individuals filing
a joint return as part of a fraudulent
scheme by such individuals, an election
under this subsection by either
individual shall be invalid (and
section 6013(d)(3) shall apply to the
joint return).
``(B) Time for election.--An election under
this subsection for any taxable year shall be
made not later than 2 years after the date on
which the Secretary has begun collection
activities with respect to the individual
making the election.
``(C) Election not valid with respect to
certain deficiencies.--If the Secretary
demonstrates that an individual making an
election under this subsection had actual
knowledge, at the time such individual signed
the return, of any item giving rise to a
deficiency (or portion thereof) which is not
allocable to such individual under subsection
(d), such election shall not apply to such
deficiency (or portion). This subparagraph
shall not apply where the individual with
actual knowledge establishes that such
individual signed the return under duress.
``(4) Liability increased by reason of transfers of
property to avoid tax.--
``(A) In general.--Notwithstanding any
other provision of this subsection, the portion
of the deficiency for which the individual
electing the application of this subsection is
liable (without regard to this paragraph) shall
be increased by the value of any disqualified
asset transferred to the individual.
``(B) Disqualified asset.--For purposes of
this paragraph--
``(i) In general.--The term
`disqualified asset' means any property
or right to property transferred to an
individual making the election under
this subsection with respect to a joint
return by the other individual filing
such joint return if the principal
purpose of the transfer was the
avoidance of tax or payment of tax.
``(ii) Presumption.--
``(I) In general.--For
purposes of clause (i), except
as provided in subclause (II),
any transfer which is made
after the date which is 1 year
before the date on which the
1st letter of proposed
deficiency which allows the
taxpayer an opportunity for
administrative review in the
Internal Revenue Service Office
of Appeals is sent shall be
presumed to have as its
principal purpose the avoidance
of tax or payment of tax.
``(II) Exceptions.--
Subclause (I) shall not apply
to any transfer pursuant to a
decree of divorce or separate
maintenance or a written
instrument incident to such a
decree or to any transfer which
an individual establishes did
not have as its principal
purpose the avoidance of tax or
payment of tax.
``(d) Allocation of Deficiency.--For purposes of subsection
(c)--
``(1) In general.--The portion of any deficiency on
a joint return allocated to an individual shall be the
amount which bears the same ratio to such deficiency as
the net amount of items taken into account in computing
the deficiency and allocable to the individual under
paragraph (3) bears to the net amount of all items
taken into account in computing the deficiency.
``(2) Separate treatment of certain items.--If a
deficiency (or portion thereof) is attributable to--
``(A) the disallowance of a credit, or
``(B) any tax (other than tax imposed by
section 1 or 55) required to be included with
the joint return,
and such item is allocated to 1 individual under
paragraph (3), such deficiency (or portion) shall be
allocated to such individual. Any such item shall not
be taken into account under paragraph (1).
``(3) Allocation of items giving rise to the
deficiency.--For purposes of this subsection--
``(A) In general.--Except as provided in
paragraphs (4) and (5), any item giving rise to
a deficiency on a joint return shall be
allocated to individuals filing the return in
the same manner as it would have been allocated
if the individuals had filed separate returns
for the taxable year.
``(B) Exception where other spouse
benefits.--Under rules prescribed by the
Secretary, an item otherwise allocable to an
individual under subparagraph (A) shall be
allocated to the other individual filing the
joint return to the extent the item gave rise
to a tax benefit on the joint return to the
other individual.
``(C) Exception for fraud.--The Secretary
may provide for an allocation of any item in a
manner not prescribed by subparagraph (A) if
the Secretary establishes that such allocation
is appropriate due to fraud of 1 or both
individuals.
``(4) Limitations on separate returns
disregarded.--If an item of deduction or credit is
disallowed in its entirety solely because a separate
return is filed, such disallowance shall be disregarded
and the item shall be computed as if a joint return had
been filed and then allocated between the spouses
appropriately. A similar rule shall apply for purposes
of section 86.
``(5) Child's liability.--If the liability of a
child of a taxpayer is included on a joint return, such
liability shall be disregarded in computing the
separate liability of either spouse and such liability
shall be allocated appropriately between the spouses.
``(e) Petition for Review by Tax Court.--
``(1) In general.--In the case of an individual who
elects to have subsection (b) or (c) apply--
``(A) In general.--The individual may
petition the Tax Court (and the Tax Court shall
have jurisdiction) to determine the appropriate
relief available to the individual under this
section if such petition is filed during the
90-day period beginning on the date on which
the Secretary mails by certified or registered
mail a notice to such individual of the
Secretary's determination of relief available
to the individual. Notwithstanding the
preceding sentence, an individual may file such
petition at any time after the date which is 6
months after the date such election is filed
with the Secretary and before the close of such
90-day period.
``(B) Restrictions applicable to collection
of assessment.--
``(i) In general.--Except as
otherwise provided in section 6851 or
6861, no levy or proceeding in court
shall be made, begun, or prosecuted
against the individual making an
election under subsection (b) or (c)
for collection of any assessment to
which such election relates until the
expiration of the 90-day period
described in subparagraph (A), or, if a
petition has been filed with the Tax
Court, until the decision of the Tax
Court has become final. Rules similar
to the rules of section 7485 shall
apply with respect to the collection of
such assessment.
``(ii) Authority to enjoin
collection actions.--Notwithstanding
the provisions of section 7421(a), the
beginning of such levy or proceeding
during the time the prohibition under
clause (i) is in force may be enjoined
by a proceeding in the proper court,
including the Tax Court. The Tax Court
shall have no jurisdiction under this
subparagraph to enjoin any action or
proceeding unless a timely petition has
been filed under subparagraph (A) and
then only in respect of the amount of
the assessment to which the election
under subsection (b) or (c) relates.
``(2) Suspension of running of period of
limitations.--The running of the period of limitations
in section 6502 on the collection of the assessment to
which the petition under paragraph (1)(A) relates shall
be suspended for the period during which the Secretary
is prohibited by paragraph (1)(B) from collecting by
levy or a proceeding in court and for 60 days
thereafter.
``(3) Applicable rules.--
``(A) Allowance of credit or refund.--
Except as provided in subparagraph (B),
notwithstanding any other law or rule of law
(other than section 6512(b), 7121, or 7122),
credit or refund shall be allowed or made to
the extent attributable to the application of
this section.
``(B) Res judicata.--In the case of any
election under subsection (b) or (c), if a
decision of the Tax Court in any prior
proceeding for the same taxable year has become
final, such decision shall be conclusive except
with respect to the qualification of the
individual for relief which was not an issue in
such proceeding. The exception contained in the
preceding sentence shall not apply if the Tax
Court determines that the individual
participated meaningfully in such prior
proceeding.
``(C) Limitation on tax court
jurisdiction.--If a suit for refund is begun by
either individual filing the joint return
pursuant to section 6532--
``(i) the Tax Court shall lose
jurisdiction of the individual's action
under this section to whatever extent
jurisdiction is acquired by the
district court or the United States
Court of Federal Claims over the
taxable years that are the subject of
the suit for refund, and
``(ii) the court acquiring
jurisdiction shall have jurisdiction
over the petition filed under this
subsection.
``(4) Notice to other spouse.--The Tax Court shall
establish rules which provide the individual filing a
joint return but not making the election under
subsection (b) or (c) with adequate notice and an
opportunity to become a party to a proceeding under
either such subsection.
``(f) Equitable Relief.--Under procedures prescribed by the
Secretary, if--
``(1) taking into account all the facts and
circumstances, it is inequitable to hold the individual
liable for any unpaid tax or any deficiency (or any
portion of either), and
``(2) relief is not available to such individual
under subsection (b) or (c),
the Secretary may relieve such individual of such liability.
``(g) Regulations.--The Secretary shall prescribe such
regulations as are necessary to carry out the provisions of
this section, including--
``(1) regulations providing methods for allocation
of items other than the methods under subsection
(d)(3), and
``(2) regulations providing the opportunity for an
individual to have notice of, and an opportunity to
participate in, any administrative proceeding with
respect to an election made under subsection (b) or (c)
by the other individual filing the joint return.''.
(b) Equitable Relief for Individuals Not Filing Joint
Return.--Section 66(c) (relating to spouse relieved of
liability in certain other cases) is amended by adding at the
end the following new sentence: ``Under procedures prescribed
by the Secretary, if, taking into account all the facts and
circumstances, it is inequitable to hold the individual liable
for any unpaid tax or any deficiency (or any portion of either)
attributable to any item for which relief is not available
under the preceding sentence, the Secretary may relieve such
individual of such liability.''.
(c) Separate Form for Applying for Spousal Relief.--Not
later than 180 days after the date of the enactment of this
Act, the Secretary of the Treasury shall develop a separate
form with instructions for use by taxpayers in applying for
relief under section 6015(a) of the Internal Revenue Code of
1986, as added by this section.
(d) Separate Notice to Each Filer.--The Secretary of the
Treasury shall, wherever practicable, send any notice relating
to a joint return under section 6013 of the Internal Revenue
Code of 1986 separately to each individual filing the joint
return.
(e) Conforming Amendments.--
(1) Section 6013 is amended by striking subsection
(e).
(2) Subparagraph (A) of section 6230(c)(5) is
amended by striking ``section 6013(e)'' and inserting
``section 6015''.
(3) Section 7421(a) is amended by inserting
``6015(d),'' after ``sections''.
(f) Clerical Amendment.--The table of sections for subpart
B of part II of subchapter A of chapter 61 is amended by
inserting after the item relating to section 6014 the following
new item:
``Sec. 6015. Relief from joint and several liability on joint
return.''.
(g) Effective Dates.--
(1) In general.--Except as provided in paragraph
(2), the amendments made by this section shall apply to
any liability for tax arising after the date of the
enactment of this Act and any liability for tax arising
on or before such date but remaining unpaid as of such
date.
(2) 2-year period.--The 2-year period under
subsection (b)(1)(E) or (c)(3)(B) of section 6015 of
the Internal Revenue Code of 1986 shall not expire
before the date which is 2 years after the date of the
first collection activity after the date of the
enactment of this Act.
SEC. 3202. SUSPENSION OF STATUTE OF LIMITATIONS ON FILING REFUND CLAIMS
DURING PERIODS OF DISABILITY.
(a) In General.--Section 6511 (relating to limitations on
credit or refund) is amended by redesignating subsection (h) as
subsection (i) and by inserting after subsection (g) the
following new subsection:
``(h) Running of Periods of Limitation Suspended While
Taxpayer Is Unable To Manage Financial Affairs Due to
Disability.--
``(1) In general.--In the case of an individual,
the running of the periods specified in subsections
(a), (b), and (c) shall be suspended during any period
of such individual's life that such individual is
financially disabled.
``(2) Financially disabled.--
``(A) In general.--For purposes of
paragraph (1), an individual is financially
disabled if such individual is unable to manage
his financial affairs by reason of a medically
determinable physical or mental impairment of
the individual which can be expected to result
in death or which has lasted or can be expected
to last for a continuous period of not less
than 12 months. An individual shall not be
considered to have such an impairment unless
proof of the existence thereof is furnished in
such form and manner as the Secretary may
require.
``(B) Exception where individual has
guardian, etc.--An individual shall not be
treated as financially disabled during any
period that such individual's spouse or any
other person is authorized to act on behalf of
such individual in financial matters.''.
(b) Effective Date.--The amendment made by subsection (a)
shall apply to periods of disability before, on, or after the
date of the enactment of this Act but shall not apply to any
claim for credit or refund which (without regard to such
amendment) is barred by the operation of any law or rule of law
(including res judicata) as of the date of the enactment of
this Act.
Subtitle D--Provisions Relating to Interest and Penalties
SEC. 3301. ELIMINATION OF INTEREST RATE DIFFERENTIAL ON OVERLAPPING
PERIODS OF INTEREST ON TAX OVERPAYMENTS AND
UNDERPAYMENTS.
(a) In General.--Section 6621 (relating to determination of
rate of interest) is amended by adding at the end the following
new subsection:
``(d) Elimination of Interest on Overlapping Periods of Tax
Overpayments and Underpayments.--To the extent that, for any
period, interest is payable under subchapter A and allowable
under subchapter B on equivalent underpayments and overpayments
by the same taxpayer of tax imposed by this title, the net rate
of interest under this section on such amounts shall be zero
for such period.''.
(b) Conforming Amendment.--Subsection (f) of section 6601
(relating to satisfaction by credits) is amended by adding at
the end the following new sentence: ``The preceding sentence
shall not apply to the extent that section 6621(d) applies.''.
(c) Effective Dates.--
(1) In general.--Except as provided under paragraph
(2), the amendments made by this section shall apply to
interest for periods beginning after the date of the
enactment of this Act.
(2) Special rule.--The amendments made by this
section shall apply to interest for periods beginning
before the date of the enactment of this Act if the
taxpayer--
(A) reasonably identifies and establishes
periods of such tax overpayments and
underpayments for which the zero rate applies,
and
(B) not later than December 31, 1999,
requests the Secretary of the Treasury to apply
section 6621(d) of the Internal Revenue Code of
1986, as added by subsection (a), to such
periods.
SEC. 3302. INCREASE IN OVERPAYMENT RATE PAYABLE TO TAXPAYERS OTHER THAN
CORPORATIONS.
(a) In General.--Subparagraph (B) of section 6621(a)(1)
(defining overpayment rate) is amended to read as follows:
``(B) 3 percentage points (2 percentage
points in the case of a corporation).''.
(b) Effective Date.--The amendment made by this section
shall apply to interest for the second and succeeding calendar
quarters beginning after the date of the enactment of this Act.
SEC. 3303. MITIGATION OF PENALTY ON INDIVIDUAL'S FAILURE TO PAY FOR
MONTHS DURING PERIOD OF INSTALLMENT AGREEMENT.
(a) In General.--Section 6651 (relating to failure to file
tax return or to pay tax) is amended by adding at the end the
following new subsection:
``(h) Limitation on Penalty on Individual's Failure To Pay
for Months During Period of Installment Agreement.--In the case
of an individual who files a return of tax on or before the due
date for the return (including extensions), paragraphs (2) and
(3) of subsection (a) shall each be applied by substituting
`0.25' for `0.5' each place it appears for purposes of
determining the addition to tax for any month during which an
installment agreement under section 6159 is in effect for the
payment of such tax.''.
(b) Effective Date.--The amendment made by this section
shall apply for purposes of determining additions to the tax
for months beginning after December 31, 1999.
SEC. 3304. MITIGATION OF FAILURE TO DEPOSIT PENALTY.
(a) Taxpayer May Designate Periods to Which Deposits
Apply.--Section 6656 (relating to underpayment of deposits) is
amended by adding at the end the following new subsection:
``(e) Designation of Periods to Which Deposits Apply.--
``(1) In general.--A person may, with respect to
any deposit of tax to be reported on such person's
return for a specified tax period, designate the period
or periods within such specified tax period to which
the deposit is to be applied for purposes of this
section.
``(2) Time for making designation.--A person may
make a designation under paragraph (1) only during the
90-day period beginning on the date of a notice that a
penalty under subsection (a) has been imposed for the
specified tax period to which the deposit relates.''.
(b) Expansion of Exemption for First-Time Deposits.--
(1) In general.--Paragraph (2) of section 6656(c)
(relating to exemption for first-time depositors of
employment taxes) is amended to read as follows:
``(2) such failure--
``(A) occurs during the 1st quarter that
such person was required to deposit any
employment tax, or
``(B) if such person is required to change
the frequency of deposits of any employment
tax, relates to the first deposit to which such
change applies, and''.
(c) Periods Apply to Current Liabilities Unless Designated
Otherwise.--Paragraph (1) of section 6656(e) (as added by
subsection (a) of this section) is amended to read as follows:
``(e) Designation of Periods to Which Deposits Apply.--
``(1) In general.--A deposit made under this
section shall be applied to the most recent period or
periods within the specified tax period to which the
deposit relates, unless the person making such deposit
designates a different period or periods to which such
deposit is to be applied.''.
(d) Effective Date.--
(1) In general.--The amendments made by this
section shall apply to deposits required to be made
after the 180th day after the date of the enactment of
this Act.
(2) Application to current liabilities.--The
amendment made by subsection (c) shall apply to
deposits required to be made after December 31, 2001.
SEC. 3305. SUSPENSION OF INTEREST AND CERTAIN PENALTIES WHERE SECRETARY
FAILS TO CONTACT INDIVIDUAL TAXPAYER.
(a) In General.--Section 6404 (relating to abatements) is
amended by redesignating subsection (g) as subsection (h) and
by inserting after subsection (f) the following new subsection:
``(g) Suspension of Interest and Certain Penalties Where
Secretary Fails To Contact Taxpayer.--
``(1) Suspension.--
``(A) In general.--In the case of an
individual who files a return of tax imposed by
subtitle A for a taxable year on or before the
due date for the return (including extensions),
if the Secretary does not provide a notice to
the taxpayer specifically stating the
taxpayer's liability and the basis for the
liability before the close of the 1-year period
(18-month period in the case of taxable years
beginning before January 1, 2004) beginning on
the later of--
``(i) the date on which the return
is filed, or
``(ii) the due date of the return
without regard to extensions,
the Secretary shall suspend the imposition of
any interest, penalty, addition to tax, or
additional amount with respect to any failure
relating to the return which is computed by
reference to the period of time the failure
continues to exist and which is properly
allocable to the suspension period.
``(B) Separate application.--This paragraph
shall be applied separately with respect to
each item or adjustment.
``(2) Exceptions.--Paragraph (1) shall not apply
to--
``(A) any penalty imposed by section 6651,
``(B) any interest, penalty, addition to
tax, or additional amount in a case involving
fraud,
``(C) any interest, penalty, addition to
tax, or additional amount with respect to any
tax liability shown on the return, or
``(D) any criminal penalty.
``(3) Suspension period.--For purposes of this
subsection, the term `suspension period' means the
period--
``(A) beginning on the day after the close
of the 1-year period (18-month period in the
case of taxable years beginning before January
1, 2004) under paragraph (1), and
``(B) ending on the date which is 21 days
after the date on which notice described in
paragraph (1)(A) is provided by the
Secretary.''.
(b) Effective Date.--The amendments made by this section
shall apply to taxable years ending after the date of the
enactment of this Act.
SEC. 3306. PROCEDURAL REQUIREMENTS FOR IMPOSITION OF PENALTIES AND
ADDITIONS TO TAX.
(a) In General.--Chapter 68 (relating to additions to the
tax, additional amounts, and assessable penalties) is amended
by adding at the end the following new subchapter:
``Subchapter C--Procedural Requirements
``Sec. 6751. Procedural requirements.
``SEC. 6751. PROCEDURAL REQUIREMENTS.
``(a) Computation of Penalty Included in Notice.--The
Secretary shall include with each notice of penalty under this
title information with respect to the name of the penalty, the
section of this title under which the penalty is imposed, and a
computation of the penalty.
``(b) Approval of Assessment.--
``(1) In general.--No penalty under this title
shall be assessed unless the initial determination of
such assessment is personally approved (in writing) by
the immediate supervisor of the individual making such
determination or such higher level official as the
Secretary may designate.
``(2) Exceptions.--Paragraph (1) shall not apply
to--
``(A) any addition to tax under section
6651, 6654, or 6655, or
``(B) any other penalty automatically
calculated through electronic means.
``(c) Penalties.--For purposes of this section, the term
`penalty' includes any addition to tax or any additional
amount.''.
(b) Conforming Amendment.--The table of subchapters for
chapter 68 is amended by adding at the end the following new
item:
``Subchapter C. Procedural requirements.''.
(c) Effective Date.--The amendments made by this section
shall apply to notices issued, and penalties assessed, after
December 31, 2000.
SEC. 3307. PERSONAL DELIVERY OF NOTICE OF PENALTY UNDER SECTION 6672.
(a) In General.--Paragraph (1) of section 6672(b) (relating
to failure to collect and pay over tax, or attempt to evade or
defeat tax) is amended by inserting ``or in person'' after
``section 6212(b)''.
(b) Conforming Amendments.--
(1) Paragraph (2) of section 6672(b) is amended by
inserting ``(or, in the case of such a notice delivered
in person, such delivery)'' after ``paragraph (1)''.
(2) Paragraph (3) of section 6672(b) is amended by
inserting ``or delivered in person'' after ``mailed''
each place it appears.
(c) Effective Date.--The amendments made by this section
shall take effect on the date of the enactment of this Act.
SEC. 3308. NOTICE OF INTEREST CHARGES.
(a) In General.--Chapter 67 (relating to interest) is
amended by adding at the end the following new subchapter:
``Subchapter D--Notice Requirements
``Sec. 6631. Notice requirements.
``SEC. 6631. NOTICE REQUIREMENTS.
``The Secretary shall include with each notice to an
individual taxpayer which includes an amount of interest
required to be paid by such taxpayer under this title
information with respect to the section of this title under
which the interest is imposed and a computation of the
interest.''.
(b) Conforming Amendment.--The table of subchapters for
chapter 67 is amended by adding at the end the following new
item:
``Subchapter D. Notice requirements.''.
(c) Effective Date.--The amendments made by this section
shall apply to notices issued after December 31, 2000.
SEC. 3309. ABATEMENT OF INTEREST ON UNDERPAYMENTS BY TAXPAYERS IN
PRESIDENTIALLY DECLARED DISASTER AREAS.
(a) In General.--Section 6404 (relating to abatements), as
amended by section 3305, is amended by redesignating subsection
(h) as subsection (i) and by inserting after subsection (g) the
following new subsection:
``(h) Abatement of Interest on Underpayments by Taxpayers
in Presidentially Declared Disaster Areas.--
``(1) In general.--If the Secretary extends for any
period the time for filing income tax returns under
section 6081 and the time for paying income tax with
respect to such returns under section 6161 for any
taxpayer located in a Presidentially declared disaster
area, the Secretary shall abate for such period the
assessment of any interest prescribed under section
6601 on such income tax.
``(2) Presidentially declared disaster area.--For
purposes of paragraph (1), the term `Presidentially
declared disaster area' means, with respect to any
taxpayer, any area which the President has determined
warrants assistance by the Federal Government under the
Disaster Relief and Emergency Assistance Act.''.
(b) Effective Date.--The amendment made by this section
shall apply to disasters declared after December 31, 1997, with
respect to taxable years beginning after December 31, 1997.
(c) Emergency Designation.--
(1) For the purposes of section 252(e) of the
Balanced Budget and Emergency Deficit Control Act,
Congress designates the provisions of this section as
an emergency requirement.
(2) The amendments made by subsections (a) and (b)
of this section shall only take effect upon the
transmittal by the President to the Congress of a
message designating the provisions of subsections (a)
and (b) as an emergency requirement pursuant to section
252(e) of the Balanced Budget and Emergency Deficit
Control Act.
Subtitle E--Protections for Taxpayers Subject to Audit or Collection
Activities
PART I--DUE PROCESS
SEC. 3401. DUE PROCESS IN IRS COLLECTION ACTIONS.
(a) Notice and Opportunity for Hearing Upon Filing of
Notice of Lien.--Subchapter C of chapter 64 (relating to lien
for taxes) is amended by inserting before the table of sections
the following:
``Part I. Due process for liens.
``Part II. Liens.
``PART I--DUE PROCESS FOR LIENS
``Sec. 6320. Notice and opportunity for hearing upon filing of
notice of lien.
``SEC. 6320. NOTICE AND OPPORTUNITY FOR HEARING UPON FILING OF NOTICE
OF LIEN.
``(a) Requirement of Notice.--
``(1) In general.--The Secretary shall notify in
writing the person described in section 6321 of the
filing of a notice of lien under section 6323.
``(2) Time and method for notice.--The notice
required under paragraph (1) shall be--
``(A) given in person,
``(B) left at the dwelling or usual place
of business of such person, or
``(C) sent by certified or registered mail
to such person's last known address,
not more than 5 business days after the day of the
filing of the notice of lien.
``(3) Information included with notice.--The notice
required under paragraph (1) shall include in simple
and nontechnical terms--
``(A) the amount of unpaid tax,
``(B) the right of the person to request a
hearing during the 30-day period beginning on
the day after the 5-day period described in
paragraph (2),
``(C) the administrative appeals available
to the taxpayer with respect to such lien and
the procedures relating to such appeals, and
``(D) the provisions of this title and
procedures relating to the release of liens on
property.
``(b) Right to Fair Hearing.--
``(1) In general.--If the person requests a hearing
under subsection (a)(3)(B), such hearing shall be held
by the Internal Revenue Service Office of Appeals.
``(2) One hearing per period.--A person shall be
entitled to only one hearing under this section with
respect to the taxable period to which the unpaid tax
specified in subsection (a)(3)(A) relates.
``(3) Impartial officer.--The hearing under this
subsection shall be conducted by an officer or employee
who has had no prior involvement with respect to the
unpaid tax specified in subsection (a)(3)(A) before the
first hearing under this section or section 6330. A
taxpayer may waive the requirement of this paragraph.
``(4) Coordination with section 6330.--To the
extent practicable, a hearing under this section shall
be held in conjunction with a hearing under section
6330.
``(c) Conduct of Hearing; Review; Suspensions.--For
purposes of this section, subsections (c), (d) (other than
paragraph (2)(B) thereof), and (e) of section 6330 shall apply.
``PART II--LIENS''.
(b) Notice and Opportunity for Hearing Before Levy.--
Subchapter D of chapter 64 (relating to seizure of property for
collection of taxes) is amended by inserting before the table
of sections the following:
``Part I. Due process for collections.
``Part II. Levy.
``PART I--DUE PROCESS FOR COLLECTIONS
``Sec. 6330. Notice and opportunity for hearing before levy.
``SEC. 6330. NOTICE AND OPPORTUNITY FOR HEARING BEFORE LEVY.
``(a) Requirement of Notice Before Levy.--
``(1) In general.--No levy may be made on any
property or right to property of any person unless the
Secretary has notified such person in writing of their
right to a hearing under this section before such levy
is made. Such notice shall be required only once for
the taxable period to which the unpaid tax specified in
paragraph (3)(A) relates.
``(2) Time and method for notice.--The notice
required under paragraph (1) shall be--
``(A) given in person,
``(B) left at the dwelling or usual place
of business of such person, or
``(C) sent by certified or registered mail,
return receipt requested, to such person's last
known address,
not less than 30 days before the day of the first levy
with respect to the amount of the unpaid tax for the
taxable period.
``(3) Information included with notice.--The notice
required under paragraph (1) shall include in simple
and nontechnical terms--
``(A) the amount of unpaid tax,
``(B) the right of the person to request a
hearing during the 30-day period under
paragraph (2), and
``(C) the proposed action by the Secretary
and the rights of the person with respect to
such action, including a brief statement which
sets forth--
``(i) the provisions of this title
relating to levy and sale of property,
``(ii) the procedures applicable to
the levy and sale of property under
this title,
``(iii) the administrative appeals
available to the taxpayer with respect
to such levy and sale and the
procedures relating to such appeals,
``(iv) the alternatives available
to taxpayers which could prevent levy
on property (including installment
agreements under section 6159), and
``(v) the provisions of this title
and procedures relating to redemption
of property and release of liens on
property.
``(b) Right to Fair Hearing.--
``(1) In general.--If the person requests a hearing
under subsection (a)(3)(B), such hearing shall be held
by the Internal Revenue Service Office of Appeals.
``(2) One hearing per period.--A person shall be
entitled to only one hearing under this section with
respect to the taxable period to which the unpaid tax
specified in subsection (a)(3)(A) relates.
``(3) Impartial officer.--The hearing under this
subsection shall be conducted by an officer or employee
who has had no prior involvement with respect to the
unpaid tax specified in subsection (a)(3)(A) before the
first hearing under this section or section 6320. A
taxpayer may waive the requirement of this paragraph.
``(c) Matters Considered at Hearing.--In the case of any
hearing conducted under this section--
``(1) Requirement of investigation.--The appeals
officer shall at the hearing obtain verification from
the Secretary that the requirements of any applicable
law or administrative procedure have been met.
``(2) Issues at hearing.--
``(A) In general.--The person may raise at
the hearing any relevant issue relating to the
unpaid tax or the proposed levy, including--
``(i) appropriate spousal defenses,
``(ii) challenges to the
appropriateness of collection actions,
and
``(iii) offers of collection
alternatives, which may include the
posting of a bond, the substitution of
other assets, an installment agreement,
or an offer-in-compromise.
``(B) Underlying liability.--The person may
also raise at the hearing challenges to the
existence or amount of the underlying tax
liability for any tax period if the person did
not receive any statutory notice of deficiency
for such tax liability or did not otherwise
have an opportunity to dispute such tax
liability.
``(3) Basis for the determination.--The
determination by an appeals officer under this
subsection shall take into consideration--
``(A) the verification presented under
paragraph (1),
``(B) the issues raised under paragraph
(2), and
``(C) whether any proposed collection
action balances the need for the efficient
collection of taxes with the legitimate concern
of the person that any collection action be no
more intrusive than necessary.
``(4) Certain issues precluded.--An issue may not
be raised at the hearing if--
``(A) the issue was raised and considered
at a previous hearing under section 6320 or
inany other previous administrative or judicial proceeding, and
``(B) the person seeking to raise the issue
participated meaningfully in such hearing or
proceeding.
This paragraph shall not apply to any issue with
respect to which subsection (d)(2)(B) applies.
``(d) Proceeding After Hearing.--
``(1) Judicial review of determination.--The person
may, within 30 days of a determination under this
section, appeal such determination--
``(A) to the Tax Court (and the Tax Court
shall have jurisdiction to hear such matter),
or
``(B) if the Tax Court does not have
jurisdiction of the underlying tax liability,
to a district court of the United States.
If a court determines that the appeal was to an
incorrect court, a person shall have 30 days after the
court determination to file such appeal with the
correct court.
``(2) Jurisdiction retained at irs office of
appeals.--The Internal Revenue Service Office of
Appeals shall retain jurisdiction with respect to any
determination made under this section, including
subsequent hearings requested by the person who
requested the original hearing on issues regarding--
``(A) collection actions taken or proposed
with respect to such determination, and
``(B) after the person has exhausted all
administrative remedies, a change in
circumstances with respect to such person which
affects such determination.
``(e) Suspension of Collections and Statute of
Limitations.--
``(1) In general.--Except as provided in paragraph
(2), if a hearing is requested under subsection
(a)(3)(B), the levy actions which are the subject of
the requested hearing and the running of any period of
limitations under section 6502 (relating to collection
after assessment), section 6531 (relating to criminal
prosecutions), or section 6532 (relating to other
suits) shall be suspended for the period during which
such hearing, and appeals therein, are pending. In no
event shall any such period expire before the 90th day
after the day on which there is a final determination
in such hearing.
``(2) Levy upon appeal.--Paragraph (1) shall not
apply to a levy action while an appeal is pending if
the underlying tax liability is not at issue in the
appeal and the court determines that the Secretary has
shown good cause not to suspend the levy.
``(f) Jeopardy and State Refund Collection.--If--
``(1) the Secretary has made a finding under the
last sentence of section 6331(a) that the collection of
tax is in jeopardy, or
``(2) the Secretary has served a levy on a State to
collect a Federal tax liability from a State tax
refund,
this section shall not apply, except that the taxpayer shall be
given the opportunity for the hearing described in this section
within a reasonable period of time after the levy.
``PART II--LEVY''.
(c) Review by Special Trial Judges Allowed.--
(1) In general.--Section 7443(b) (relating to
proceedings which may be assigned to special trial
judges) is amended by striking ``and'' at the end of
paragraph (3), by redesignating paragraph (4) as
paragraph (5), and by inserting after paragraph (3) the
following new paragraph:
``(4) any proceeding under section 6320 or 6330,
and''.
(2) Authority to make decisions.--Section 7443(c)
(relating to authority to make court decisions) is
amended by striking ``or (3)'' and inserting ``(3), or
(4)''.
(d) Effective Date.--The amendments made by this section
shall apply to collection actions initiated after the date
which is 180 days after the date of the enactment of this Act.
PART II--EXAMINATION ACTIVITIES
SEC. 3411. CONFIDENTIALITY PRIVILEGES RELATING TO TAXPAYER
COMMUNICATIONS.
(a) In General.--Chapter 77 (relating to miscellaneous
provisions) is amended by adding at the end the following new
section:
``SEC. 7525. CONFIDENTIALITY PRIVILEGES RELATING TO TAXPAYER
COMMUNICATIONS.
``(a) Uniform Application to Taxpayer Communications With
Federally Authorized Practitioners.--
``(1) 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 to the extent the communication would be
considered a privileged communication if it were
between a taxpayer and an attorney.
``(2) Limitations.--Paragraph (1) may only be
asserted in--
``(A) any noncriminal tax matter before the
Internal Revenue Service, and
``(B) any noncriminal tax proceeding in
Federal court brought by or against the United
States.
``(3) Definitions.--For purposes of this
subsection--
``(A) Federally authorized tax
practitioner.--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) Tax advice.--The term `tax advice'
means advice given by an individual with
respect to a matter which is within the scope
of the individual's authority to practice
described in subparagraph (A).
``(b) Section Not To Apply to Communications Regarding
Corporate Tax Shelters.--The privilege under subsection (a)
shall not apply to any written communication between a
federally authorized tax practitioner and a director,
shareholder, officer, or employee, agent, or representative of
a corporation in connection with the promotion of the direct or
indirect participation of such corporation in any tax shelter
(as defined in section 6662(d)(2)(C)(iii)).''.
(b) Conforming Amendment.--The table of sections for such
chapter 77 is amended by adding at the end the following new
item:
``Sec. 7525. Confidentiality privileges relating to taxpayer
communications.''
. (c) Effective Date.--The amendments made by this section
shall apply to communications made on or after the date of the
enactment of this Act.
SEC. 3412. LIMITATION ON FINANCIAL STATUS AUDIT TECHNIQUES.
Section 7602 (relating to examination of books and
witnesses) is amended by adding at the end the following new
subsection:
``(d) Limitation on Examination on Unreported Income.--The
Secretary shall not use financial status or economic reality
examination techniques to determine the existence of unreported
income of any taxpayer unless the Secretary has a reasonable
indication that there is a likelihood of such unreported
income.''.
SEC. 3413. SOFTWARE TRADE SECRETS PROTECTION.
(a) In General.--Subchapter A of chapter 78 (relating to
examination and inspection) is amended by redesignating section
7612 as section 7613 and by inserting after 7611 the following
new section:
``SEC. 7612. SPECIAL PROCEDURES FOR SUMMONSES FOR COMPUTER SOFTWARE.
``(a) General Rule.--For purposes of this title--
``(1) except as provided in subsection (b), no
summons may be issued under this title, and the
Secretary may not begin any action under section 7604
to enforce any summons to produce or analyze any tax-
related computer software source code, and
``(2) any software and related materials which are
provided to the Secretary under this title shall be
subject to the safeguards under subsection (c).
``(b) Circumstances Under Which Computer Software Source
Code May Be Provided.--
``(1) In general.--Subsection (a)(1) shall not
apply to any portion, item, or component of tax-related
computer software source code if--
``(A) the Secretary is unable to otherwise
reasonably ascertain the correctness of any
item on a return from--
``(i) the taxpayer's books, papers,
records, or other data, or
``(ii) the computer software
executable code (and any modifications
thereof) to which such source code
relates and any associated data which,
when executed, produces the output to
ascertain the correctness of the item,
``(B) the Secretary identifies with
reasonable specificity the portion, item, or
component of such source code needed to verify
the correctness of such item on the return, and
``(C) the Secretary determines that the
need for the portion, item, or component of
such source code with respect to such item
outweighs the risks of unauthorized disclosure
of trade secrets.
``(2) Exceptions.--Subsection (a)(1) shall not
apply to--
``(A) any inquiry into any offense
connected with the administration or
enforcement of the internal revenue laws,
``(B) any tax-related computer software
source code acquired or developed by the
taxpayer or a related person primarily for
internal use by the taxpayer or such person
rather than for commercial distribution,
``(C) any communications between the owner
of the tax-related computer software source
code and the taxpayer or related persons, or
``(D) any tax-related computer software
source code which is required to be provided or
made available pursuant to any other provision
of this title.
``(3) Cooperation required.--For purposes of
paragraph (1), the Secretary shall be treated as
meeting the requirements of subparagraphs (A) and (B)
of such paragraph if--
``(A) the Secretary determines that it is
not feasible to determine the correctness of an
item without access to the computer software
executable code and associated data described
in paragraph (1)(A)(ii),
``(B) the Secretary makes a formal request
to the taxpayer for such code and data and to
the owner of the computer software source code
for such executable code, and
``(C) such code and data is not provided
within 180 days of such request.
``(4) Right to contest summons.--In any proceeding
brought under section 7604 to enforce a summons issued
under the authority of this subsection, the court
shall, at the request of any party, hold a hearing to
determine whether the applicable requirements of this
subsection have been met.
``(c) Safeguards To Ensure Protection of Trade Secrets and
Other Confidential Information.--
``(1) Entry of protective order.--In any court
proceeding to enforce a summons for any portion of
software, the court may receive evidence and issue any
order necessary to prevent the disclosure of trade
secrets or other confidential information with respect
to such software, including requiring that any
information be placed under seal to be opened only as
directed by the court.
``(2) Protection of software.--Notwithstanding any
other provision of this section, and in addition to any
protections ordered pursuant to paragraph (1), in the
case of software that comes into the possession or
control of the Secretary in the course of any
examination with respect to any taxpayer--
``(A) the software may be used only in
connection with the examination of such
taxpayer's return, any appeal by the taxpayer
to the Internal Revenue Service Office of
Appeals, any judicial proceeding (and any
appeals therefrom), and any inquiry into any
offense connected with the administration or
enforcement of the internal revenue laws,
``(B) the Secretary shall provide, in
advance, to the taxpayer and the owner of the
software a written list of the names of all
individuals who will analyze or otherwise have
access to the software,
``(C) the software shall be maintained in a
secure area or place, and, in the case of
computer software source code, shall not be
removed from the owner's place of business
unless the owner permits, or a court orders,
such removal,
``(D) the software may not be copied except
as necessary to perform such analysis, and the
Secretary shall number all copies made
andcertify in writing that no other copies have been (or will be) made,
``(E) at the end of the period during which
the software may be used under subparagraph
(A)--
``(i) the software and all copies
thereof shall be returned to the person
from whom they were obtained and any
copies thereof made under subparagraph
(D) on the hard drive of a machine or
other mass storage device shall be
permanently deleted, and
``(ii) the Secretary shall obtain
from any person who analyzes or
otherwise had access to such software a
written certification under penalty of
perjury that all copies and related
materials have been returned and that
no copies were made of them,
``(F) the software may not be decompiled or
disassembled,
``(G) the Secretary shall provide to the
taxpayer and the owner of any interest in such
software, as the case may be, a written
agreement, between the Secretary and any person
who is not an officer or employee of the United
States and who will analyze or otherwise have
access to such software, which provides that
such person agrees not to--
``(i) disclose such software to any
person other than persons to whom such
information could be disclosed for tax
administration purposes under section
6103, or
``(ii) participate for 2 years in
the development of software which is
intended for a similar purpose as the
software examined, and
``(H) the software shall be treated as
return information for purposes of section
6103.
For purposes of subparagraph (C), the owner shall make
available any necessary equipment or materials for
analysis of computer software source code required to
be conducted on the owner's premises. The owner of any
interest in the software shall be considered a party to
any agreement described in subparagraph (G).
``(d) Definitions.--For purposes of this section--
``(1) Software.--The term `software' includes
computer software source code and computer software
executable code.
``(2) Computer software source code.--The term
`computer software source code' means--
``(A) the code written by a programmer
using a programming language which is
comprehensible to appropriately trained persons
and is not capable of directly being used to
give instructions to a computer,
``(B) related programmers' notes, design
documents, memoranda, and similar
documentation, and
``(C) related customer communications.
``(3) Computer software executable code.--The term
`computer software executable code' means--
``(A) any object code, machine code, or
other code readable by a computer when loaded
into its memory and used directly by such
computer to execute instructions, and
``(B) any related user manuals.
``(4) Owner.--The term `owner' shall, with respect
to any software, include the developer of the software.
``(5) Related person.--A person shall be treated as
related to another person if such persons are related
persons under section 267 or 707(b).
``(6) Tax-related computer software source code.--
The term `tax-related computer software source code'
means the computer source code for any computer
software program intended for accounting, tax return
preparation or compliance, or tax planning.''.
(b) Unauthorized Disclosure of Software.--Section 7213
(relating to unauthorized disclosure of information) is amended
by redesignating subsection (d) as subsection (e) and by
inserting after subsection (c) the following new subsection:
``(d) Disclosure of Software.--Any person who willfully
divulges or makes known software (as defined in section
7612(d)(1)) to any person in violation of section 7612 shall be
guilty of a felony and, upon conviction thereof, shall be fined
not more than $5,000, or imprisoned not more than 5 years, or
both, together with the costs of prosecution.''.
(c) Application of Special Procedures for Third-Party
Summonses.--Paragraph (2) of section 7603(b), as amended by
section 3416(a), is amended by striking ``and'' at the end of
subparagraph (H), by striking a period at the end of
subparagraph (I) and inserting ``, and'', and by adding at the
end the following new subparagraph:
``(J) any owner or developer of a computer
software source code (as defined in section
7612(d)(2)).
Subparagraph (J) shall apply only with respect to a
summons requiring the production of the source code
referred to in subparagraph (J) or the program and data
described in section 7612(b)(1)(A)(ii) to which such
source code relates.''.
(d) Conforming Amendment.--The table of sections for
subchapter A of chapter 78 is amended by striking the item
relating to section 7612 and by inserting the following new
item:
``Sec. 7612. Special procedures for summonses for computer
software.
``Sec. 7613. Cross references.''.
(e) Effective Date.--
(1) In general.--The amendments made by this
section shall apply to summonses issued, and software
acquired, after the date of the enactment of this Act.
(2) Software protection.--In the case of any
software acquired on or before such date of enactment,
the requirements of section 7612(a)(2) of the Internal
Revenue Code of 1986 (as added by such amendments)
shall apply after the 90th day after such date. The
preceding sentence shall not apply to the requirement
under section 7612(c)(2)(G)(ii) of such Code (as so
added).
SEC. 3414. THREAT OF AUDIT PROHIBITED TO COERCE TIP REPORTING
ALTERNATIVE COMMITMENT AGREEMENTS.
The Secretary of the Treasury or the Secretary's delegate
shall instruct employees of the Internal Revenue Service that
they may not threaten to audit any taxpayer in an attempt to
coerce the taxpayer into entering into a Tip Reporting
Alternative Commitment Agreement.
SEC. 3415. TAXPAYERS ALLOWED MOTION TO QUASH ALL THIRD-PARTY SUMMONSES.
(a) In General.--Paragraph (1) of section 7609(a) (relating
to summonses to which section applies) is amended by striking
so much of such paragraph as precedes ``notice of the summons''
and inserting the following:
``(1) In general.--If any summons to which this
section applies requires the giving of testimony on or
relating to, the production of any portion of records
made or kept on or relating to, or the production of
any computer software source code (as defined in
7612(d)(2)) with respect to, any person (other than the
person summoned) who is identified in the summons,
then''.
(b) Coordination With Other Authority.--Section 7609
(relating to special procedures for third-party summonses) is
amended by adding at the end the following new subsection:
``(j) Use of Summons Not Required.--Nothing in this section
shall be construed to limit the Secretary's ability to obtain
information, other than by summons, through formal or informal
procedures authorized by sections 7601 and 7602.''.
(c) Conforming Amendments.--
(1) Subsection (a) of section 7609 is amended by
striking paragraphs (3) and (4), by redesignating
paragraph (5) as paragraph (3), and by striking in
paragraph (3) (as so redesignated) ``subsection
(c)(2)(B)'' and inserting ``subsection (c)(2)(D)''.
(2) Subsection (c) of section 7609 is amended to
read as follows:
``(c) Summons to Which Section Applies.--
``(1) In general.--Except as provided in paragraph
(2), this section shall apply to any summons issued
under paragraph (2) of section 7602(a) or under section
6420(e)(2), 6421(g)(2), 6427(j)(2), or 7612.
``(2) Exceptions.--This section shall not apply to
any summons--
``(A) served on the person with respect to
whose liability the summons is issued, or any
officer or employee of such person,
``(B) issued to determine whether or not
records of the business transactions or affairs
of an identified person have been made or kept,
``(C) issued solely to determine the
identity of any person having a numbered
account (or similar arrangement) with a bank or
other institution described in section
7603(b)(2)(A),
``(D) issued in aid of the collection of--
``(i) an assessment made or
judgment rendered against the person
with respect to whose liability the
summons is issued, or
``(ii) the liability at law or in
equity of any transferee or fiduciary
of any person referred to in clause
(i),
``(E)(i) issued by a criminal investigator
of the Internal Revenue Service in connection
with the investigation of an offense connected
with the administration or enforcement of the
internal revenue laws, and
``(ii) served on any person who is not a
third-party recordkeeper (as defined in section
7603(b)), or
``(F) described in subsection (f) or (g).
``(3) Records.--For purposes of this section, the
term `records' includes books, papers, and other
data.''.
(3) Paragraph (2) of section 7609(e) is amended by
striking ``third-party recordkeeper's'' and all that
follows through ``subsection (f)'' and inserting
``summoned party's response to the summons''.
(4) Subsection (f) of section 7609 is amended--
(A) by striking ``described in subsection
(c)'' and inserting ``described in subsection
(c)(1)'', and
(B) by inserting ``or testimony'' after
``records'' in paragraph (3).
(5) Subsection (g) of section 7609 is amended by
striking ``In the case of any summons described in
subsection (c), the provisions of subsections (a)(1)
and (b) shall not apply if'' and inserting ``A summons
is described in this subsection if''.
(6)(A) Subsection (i) of section 7609 is amended by
striking ``Third-Party Recordkeeper and'' in the
subsection heading.
(B) Paragraph (1) of section 7609(i) is amended by
striking ``described in subsection (c), the third-party
recordkeeper'' and inserting ``to which this section
applies for the production of records, the summoned
party''.
(C) Paragraph (2) of section 7609(i) is amended--
(i) by striking ``recordkeeper'' in the
heading and inserting ``summoned party'', and
(ii) by striking ``the third-party
recordkeeper'' and inserting ``the summoned
party''.
(D) Paragraph (3) of section 7609(i) is amended to
read as follows:
``(3) Protection for summoned party who
discloses.--Any summoned party, or agent or employee
thereof, making a disclosure of records or testimony
pursuant to this section in good faith reliance on the
certificate of the Secretary or an order of a court
requiring production of records or the giving of such
testimony shall not be liable to any customer or other
person for such disclosure.''.
(d) Effective Date.--The amendments made by this section
shall apply to summonses served after the date of the enactment
of this Act.
SEC. 3416. SERVICE OF SUMMONSES TO THIRD-PARTY RECORDKEEPERS PERMITTED
BY MAIL.
(a) In General.--Section 7603 (relating to service of
summons) is amended by striking ``A summons issued'' and
inserting ``(a) In General.--A summons issued'' and by adding
at the end the following new subsection:
``(b) Service by Mail to Third-Party Recordkeepers.--
``(1) In general.--A summons referred to in
subsection (a) for the production of books, papers,
records, or other data by a third-party recordkeeper
may also be served by certified or registered mail to
the last known address of such recordkeeper.
``(2) Third-party recordkeeper.--For purposes of
paragraph (1), the term `third-party recordkeeper'
means--
``(A) any mutual savings bank, cooperative
bank, domestic building and loan association,
or other savings institution chartered and
supervised as a savings and loan or similar
association under Federal or State law, any
bank (as defined in section 581), or any credit
union (within the meaning of section
501(c)(14)(A));
``(B) any consumer reporting agency (as
defined under section 603(f) of the Fair Credit
Reporting Act (15 U.S.C. 1681a(f)));
``(C) any person extending credit through
the use of credit cards or similar devices;
``(D) any broker (as defined in section
3(a)(4) of the Securities Exchange Act of 1934
(15 U.S.C. 78c(a)(4)));
``(E) any attorney;
``(F) any accountant;
``(G) any barter exchange (as defined in
section 6045(c)(3));
``(H) any regulated investment company (as
defined in section 851) and any agent of such
regulated investment company when acting as an
agent thereof, and
``(I) any enrolled agent.''.
(b) Effective Date.--The amendment made by this section
shall apply to summonses served after the date of the enactment
of this Act.
SEC. 3417. NOTICE OF IRS CONTACT OF THIRD PARTIES.
(a) In General.--Section 7602 (relating to examination of
books and witnesses), as amended by section 3412, is amended by
redesignating subsections (c) and (d) as subsections (d) and
(e), respectively, and by inserting after subsection (b) the
following new subsection:
``(c) Notice of Contact of Third Parties.--
``(1) General notice.--An officer or employee of
the Internal Revenue Service may not contact any person
other than the taxpayer with respect to the
determination or collection of the tax liability of
such taxpayer without providing reasonable notice in
advance to the taxpayer that contacts with persons
other than the taxpayer may be made.
``(2) Notice of specific contacts.--The Secretary
shall periodically provide to a taxpayer a record of
persons contacted during such period by the Secretary
with respect to the determination or collection of the
tax liability of such taxpayer. Such record shall also
be provided upon request of the taxpayer.
``(3) Exceptions.--This subsection shall not
apply--
``(A) to any contact which the taxpayer has
authorized,
``(B) if the Secretary determines for good
cause shown that such notice would jeopardize
collection of any tax or such notice may
involve reprisal against any person, or
``(C) with respect to any pending criminal
investigation.''.
(b) Effective Date.--The amendments made by subsection (a)
shall apply to contacts made after the 180th day after the date
of the enactment of this Act.
PART III--COLLECTION ACTIVITIES
Subpart A--Approval Process
SEC. 3421. APPROVAL PROCESS FOR LIENS, LEVIES, AND SEIZURES.
(a) In General.--The Commissioner of Internal Revenue shall
develop and implement procedures under which--
(1) a determination by an employee to file a notice
of lien or levy with respect to, or to levy or seize,
any property or right to property would, where
appropriate, be required to be reviewed by a supervisor
of the employee before the action was taken, and
(2) appropriate disciplinary action would be taken
against the employee or supervisor where the procedures
under paragraph (1) were not followed.
(b) Review Process.--The review process under subsection
(a)(1) may include a certification that the employee has--
(1) reviewed the taxpayer's information,
(2) verified that a balance is due, and
(3) affirmed that the action proposed to be taken
is appropriate given the taxpayer's circumstances,
considering the amount due and the value of the
property or right to property.
(c) Effective Dates.--
(1) In general.--Except as provided in paragraph
(2), this section shall take effect on the date of the
enactment of this Act.
(2) Automated collection system actions.--In the
case of any action under an automated collection
system, this section shall apply to actions initiated
after December 31, 2000.
Subpart B--Liens and Levies
SEC. 3431. MODIFICATIONS TO CERTAIN LEVY EXEMPTION AMOUNTS.
(a) Fuel, Etc.--Section 6334(a)(2) (relating to fuel,
provisions, furniture, and personal effects) is amended by
striking ``$2,500'' and inserting ``$6,250''.
(b) Books, Etc.--Section 6334(a)(3) (relating to books and
tools of a trade, business, or profession) is amended by
striking ``$1,250'' and inserting ``$3,125''.
(c) Conforming Amendment.--Section 6334(g)(1) (relating to
inflation adjustment) is amended--
(1) by striking ``1997'' and inserting ``1999'',
and
(2) by striking ``1996'' in subparagraph (B) and
inserting ``1998''.
(d) Effective Date.--The amendments made by this section
shall take effect with respect to levies issued after the date
of the enactment of this Act.
SEC. 3432. RELEASE OF LEVY UPON AGREEMENT THAT AMOUNT IS UNCOLLECTIBLE.
(a) In General.--Section 6343 (relating to authority to
release levy and return property) is amended by adding at the
end the following new subsection:
``(e) Release of Levy Upon Agreement That Amount is not
Collectible.--In the case of a levy on the salary or wages
payable to or received by the taxpayer, upon agreement with the
taxpayer that the tax is not collectible, the Secretary shall
release such levy as soon as practicable.''.
(b) Effective Date.--The amendment made by this section
shall apply to levies imposed after December 31, 1999.
SEC. 3433. LEVY PROHIBITED DURING PENDENCY OF REFUND PROCEEDINGS.
(a) In General.--Section 6331 (relating to levy and
distraint) is amended by redesignating subsection (i) as
subsection (j) and by inserting after subsection (h) the
following new subsection:
``(i) No Levy During Pendency of Proceedings for Refund of
Divisible Tax.--
``(1) In general.--No levy may be made under
subsection (a) on the property or rights to property of
any person with respect to any unpaid divisible tax
during the pendency of any proceeding brought by such
person in a proper Federal trial court for the recovery
of any portion of such divisible tax which was paid by
such person if--
``(A) the decision in such proceeding would
be res judicata with respect to such unpaid
tax, or
``(B) such person would be collaterally
estopped from contesting such unpaid tax by
reason of such proceeding.
``(2) Divisible tax.--For purposes of paragraph
(1), the term `divisible tax' means--
``(A) any tax imposed by subtitle C, and
``(B) the penalty imposed by section 6672
with respect to any such tax.
``(3) Exceptions.--
``(A) Certain unpaid taxes.--This
subsection shall not apply with respect to any
unpaid tax if--
``(i) the taxpayer files a written
notice with the Secretary which waives
the restriction imposed by this
subsection on levy with respect to such
tax, or
``(ii) the Secretary finds that the
collection of such tax is in jeopardy.
``(B) Certain levies.--This subsection
shall not apply to--
``(i) any levy to carry out an
offset under section 6402, and
``(ii) any levy which was first
made before the date that the
applicable proceeding under this
subsection commenced.
``(4) Limitation on collection activity; authority
to enjoin collection.--
``(A) Limitation on collection.--No
proceeding in court for the collection of any
unpaid tax to which paragraph (1) applies shall
be begun by the Secretary during the pendency
of a proceeding under such paragraph. This
subparagraph shall not apply to--
``(i) any counterclaim in a
proceeding under such paragraph, or
``(ii) any proceeding relating to a
proceeding under such paragraph.
``(B) Authority to enjoin.--Notwithstanding
section 7421(a), a levy or collection
proceeding prohibited by this subsection may be
enjoined (during the period such prohibition is
in force) by the court in which the proceeding
under paragraph (1) is brought.
``(5) Suspension of statute of limitations on
collection.--The period of limitations under section
6502 shall be suspended for the period during which the
Secretary is prohibited under this subsection from
making a levy.
``(6) Pendency of proceeding.--For purposes of this
subsection, a proceeding is pending beginning on the
date such proceeding commences and ending on the date
that a final order or judgment from which an appeal may
be taken is entered in such proceeding.''.
(b) Effective Date.--The amendment made by this section
shall apply to unpaid tax attributable to taxable periods
beginning after December 31, 1998.
SEC. 3434. APPROVAL REQUIRED FOR JEOPARDY AND TERMINATION ASSESSMENTS
AND JEOPARDY LEVIES.
(a) In General.--Paragraph (1) of section 7429(a) (relating
to review of jeopardy levy or assessment procedures) is amended
to read as follows:
``(1) Administrative review.--
``(A) Prior approval required.--No
assessment may be made under section 6851(a),
6852(a), 6861(a), or 6862, and no levy may be
made under section 6331(a) less than 30 days
after notice and demand for payment is made,
unless the Chief Counsel for the Internal
Revenue Service (or such Counsel's delegate)
personally approves (in writing) such
assessment or levy.
``(B) Information to taxpayer.--Within 5
days after the day on which such an assessment
or levy is made, the Secretary shall provide
the taxpayer with a written statement of the
information upon which the Secretary relied in
making such assessment or levy.''.
(b) Effective Date.--The amendment made by this section
shall apply to taxes assessed and levies made after the date of
the enactment of this Act.
SEC. 3435. INCREASE IN AMOUNT OF CERTAIN PROPERTY ON WHICH LIEN NOT
VALID.
(a) Certain Property.--
(1) In general.--Subsection (b) of section 6323
(relating to validity and priority against certain
persons) is amended--
(A) by striking ``$250'' in paragraph (4)
(relating to personal property purchased in
casual sale) and inserting ``$1,000'', and
(B) by striking ``$1,000'' in paragraph (7)
(relating to residential property subject to a
mechanic's lien for certain repairs and
improvements) and inserting ``$5,000''.
(2) Inflation adjustment.--Subsection (i) of
section 6323 (relating to special rules) is amended by
adding at the end the following new paragraph:
``(4) Cost-of-living adjustment.--In the case of
notices of liens imposed by section 6321 which are
filed in any calendar year after 1998, each of the
dollar amounts under paragraph (4) or (7) of subsection
(b) shall be increased by an amount equal to--
``(A) such dollar amount, multiplied by
``(B) the cost-of-living adjustment
determined under section 1(f)(3) for the
calendar year, determined by substituting
`calendar year 1996' for `calendar year 1992'
in subparagraph (B) thereof.
If any amount as adjusted under the preceding sentence
is not a multiple of $10, such amount shall be rounded
to the nearest multiple of $10.''.
(b) Expansion of Treatment of Passbook Loans.--Paragraph
(10) of section 6323(b) is amended--
(1) by striking ``Passbook loans'' in the heading
and inserting ``Deposit-secured loans'',
(2) by striking ``, evidenced by a passbook,'', and
(3) by striking all that follows ``secured by such
account'' and inserting a period.
(c) Effective Date.--The amendments made by this section
shall take effect on the date of the enactment of this Act.
SEC. 3436. WAIVER OF EARLY WITHDRAWAL TAX FOR IRS LEVIES ON EMPLOYER-
SPONSORED RETIREMENT PLANS OR IRAS.
(a) In General.--Section 72(t)(2)(A) (relating to
subsection not to apply to certain distributions) is amended by
striking ``or'' at the end of clauses (iv) and (v), by striking
the period at the end of clause (vi) and inserting ``, or'',
and by adding at the end the following new clause:
``(vii) made on account of a levy
under section 6331 on the qualified
retirement plan.''
(b) Effective Date.--The amendments made by this section
shall apply to distributions after December 31, 1999.
Subpart C--Seizures
SEC. 3441. PROHIBITION OF SALES OF SEIZED PROPERTY AT LESS THAN MINIMUM
BID.
(a) In General.--Section 6335(e)(1)(A)(i) (relating to
determinations relating to minimum price) is amended by
striking ``a minimum price for which such property shall be
sold'' and inserting ``a minimum price below which such
property shall not be sold''.
(b) Reference to Penalty for Violation.--Section 6335(e) is
amended by adding at the end the following new paragraph:
``(4) Cross reference.--
``For provision providing for civil damages for violation of
paragraph (1)(A)(i), see section 7433.''.
(c) Effective Date.--The amendments made by this section
shall apply to sales made after the date of the enactment of
this Act.
SEC. 3442. ACCOUNTING OF SALES OF SEIZED PROPERTY.
(a) In General.--Section 6340 (relating to records of sale)
is amended--
(1) in subsection (a)--
(A) by striking ``real'', and
(B) by inserting ``or certificate of sale
of personal property'' after ``deed'', and
(2) by adding at the end the following new
subsection:
``(c) Accounting to Taxpayer.--The taxpayer with respect to
whose liability the sale was conducted or who redeemed the
property shall be furnished--
``(1) the record under subsection (a) (other than
the names of the purchasers),
``(2) the amount from such sale applied to the
taxpayer's liability, and
``(3) the remaining balance of such liability.''.
(b) Effective Date.--The amendments made by this section
shall apply to seizures occurring after the date of the
enactment of this Act.
SEC. 3443. UNIFORM ASSET DISPOSAL MECHANISM.
Not later than the date which is 2 years after the date of
the enactment of this Act, the Secretary of the Treasury or the
Secretary's delegate shall implement a uniform asset disposal
mechanism for sales under section 6335 of the Internal Revenue
Code of 1986. The mechanism should be designed to remove any
participation in such sales by revenue officers of the Internal
Revenue Service and should consider the use of outsourcing.
SEC. 3444. CODIFICATION OF IRS ADMINISTRATIVE PROCEDURES FOR SEIZURE OF
TAXPAYER'S PROPERTY.
(a) In General.--Section 6331 (relating to levy and
distraint), as amended by section 3433, is amended by
redesignating subsection (j) as subsection (k) and by inserting
after subsection (i) the following new subsection:
``(j) No Levy Before Investigation of Status of Property.--
``(1) In general.--For purposes of applying the
provisions of this subchapter, no levy may be made on
any property or right to property which is to be sold
under section 6335 until a thorough investigation of
the status of such property has been completed.
``(2) Elements in investigation.--For purposes of
paragraph (1), an investigation of the status of any
property shall include--
``(A) a verification of the taxpayer's
liability,
``(B) the completion of an analysis under
subsection (f),
``(C) the determination that the equity in
such property is sufficient to yield net
proceeds from the sale of such property to
apply to such liability, and
``(D) a thorough consideration of
alternative collection methods.''.
(b) Effective Date.--The amendments made by this section
shall take effect on the date of the enactment of this Act.
SEC. 3445. PROCEDURES FOR SEIZURE OF RESIDENCES AND BUSINESSES.
(a) In General.--Section 6334(a)(13) (relating to property
exempt from levy) is amended to read as follows:
``(13) Residences exempt in small deficiency cases
and principal residences and certain business assets
exempt in absence of certain approval or jeopardy.--
``(A) Residences in small deficiency
cases.--If the amount of the levy does not
exceed $5,000--
``(i) any real property used as a
residence by the taxpayer, or
``(ii) any real property of the
taxpayer (other than real property
which is rented) used by any other
individual as a residence.
``(B) Principal residences and certain
business assets.--Except to the extent provided
in subsection (e)--
``(i) the principal residence of
the taxpayer (within the meaning of
section 121), and
``(ii) tangible personal property
or real property (other than real
property which is rented) used in the
trade or business of an individual
taxpayer.''.
(b) Levy Allowed in Certain Circumstances.--Section 6334(e)
is amended to read as follows:
``(e) Levy Allowed on Principal Residences and Certain
Business Assets in Certain Circumstances.--
``(1) Principal residences.--
``(A) Approval required.--A principal
residence shall not be exempt from levy if a
judge or magistrate of a district court of the
United States approves (in writing) the levy of
such residence.
``(B) Jurisdiction.--The district courts of
the United States shall have exclusive
jurisdiction to approve a levy under
subparagraph (A).
``(2) Certain business assets.--Property (other
than a principal residence) described in subsection
(a)(13)(B) shall not be exempt from levy if--
``(A) a district director or assistant
district director of the Internal Revenue
Service personally approves (in writing) the
levy of such property, or
``(B) the Secretary finds that the
collection of tax is in jeopardy.
An official may not approve a levy under subparagraph
(A) unless the official determines that the taxpayer's
other assets subject to collection are insufficient to
pay the amount due, together with expenses of the
proceedings.''.
(c) State Fish and Wildlife Permits.--
(1) In general.--With respect to permits issued by
a State and required under State law for the harvest of
fish or wildlife in the trade or business of an
individual taxpayer, the term ``other assets'' as used
in section 6334(e)(2) of the Internal Revenue Code of
1986 shall include future income which may be derived
by such taxpayer from the commercial sale of fish or
wildlife under such permit.
(2) Construction.--Paragraph (1) shall not be
construed to invalidate or in any way prejudice any
assertion that the privilege embodied in permits
described in paragraph (1) is not property or a right
to property under the Internal Revenue Code of 1986.
(d) Effective Date.--The amendments made by this section
shall take effect on the date of the enactment of this Act.
PART IV--PROVISIONS RELATING TO EXAMINATION AND COLLECTION ACTIVITIES
SEC. 3461. PROCEDURES RELATING TO EXTENSIONS OF STATUTE OF LIMITATIONS
BY AGREEMENT.
(a) Authority To Extend 10-Year Collection Period After
Assessment.--Section 6502(a) (relating to length of period
after collection) is amended--
(1) by striking paragraph (2) and inserting:
``(2) if--
``(A) there is an installment agreement
between the taxpayer and the Secretary, prior
to the date which is 90 days after the
expiration of any period for collection agreed
upon in writing by the Secretary and the
taxpayer at the time the installment agreement
was entered into, or
``(B) there is a release of levy under
section 6343 after such 10-year period, prior
to the expiration of any period for collection
agreed upon in writing by the Secretary and the
taxpayer before such release.'', and
(2) by striking the first sentence in the matter
following paragraph (2).
(b) Notice to Taxpayer of Right To Refuse or Limit
Extension.--Paragraph (4) of section 6501(c) (relating to the
period for limitations on assessment and collection) is
amended--
(1) by striking ``Where'' and inserting the
following:
``(A) In general.--Where'', and
(2) by adding at the end the following new
subparagraph:
``(B) Notice to taxpayer of right to refuse
or limit extension.--The Secretary shall notify
the taxpayer of the taxpayer's right to refuse
to extend the period of limitations, or to
limit such extension to particular issues or to
a particular period of time, on each occasion
when the taxpayer is requested to provide such
consent.''.
(c) Effective Date.--
(1) In general.--The amendments made by this
section shall apply to requests to extend the period of
limitations made after December 31, 1999.
(2) Prior request.--If, in any request to extend
the period of limitations made on or before December
31, 1999, a taxpayer agreed to extend such period
beyond the 10-year period referred to in section
6502(a) of the Internal Revenue Code of 1986, such
extension shall expire on the latest of--
(A) the last day of such 10-year period,
(B) December 31, 2002, or
(C) in the case of an extension in
connection with an installment agreement, the
90th day after the end of the period of such
extension.
SEC. 3462. OFFERS-IN-COMPROMISE.
(a) Standards for Evaluation of Offers-in-Compromise.--
Section 7122 (relating to offers-in-compromise) is amended by
adding at the end the following new subsection:
``(c) Standards for Evaluation of Offers.--
``(1) In general.--The Secretary shall prescribe
guidelines for officers and employees of the Internal
Revenue Service to determine whether an offer-in-
compromise is adequate and should be accepted to
resolve a dispute.
``(2) Allowances for basic living expenses.--
``(A) In general.--In prescribing
guidelines under paragraph (1), the Secretary
shall develop and publish schedules of national
and local allowances designed to provide that
taxpayers entering into a compromise have an
adequate means to provide for basic living
expenses.
``(B) Use of schedules.--The guidelines
shall provide that officers and employees of
the Internal Revenue Service shall determine,
on the basis of the facts and circumstances of
each taxpayer, whether the use of the schedules
published under subparagraph (A) is appropriate
and shall not use the schedules to the extent
such use would result in the taxpayer not
having adequate means to provide for basic
living expenses.
``(3) Special rules relating to treatment of
offers.--The guidelines under paragraph (1) shall
provide that--
``(A) an officer or employee of the
Internal Revenue Service shall not reject an
offer-in-compromise from a low-income taxpayer
solely on the basis of the amount of the offer,
and
``(B) in the case of an offer-in-compromise
which relates only to issues of liability of
the taxpayer--
``(i) such offer shall not be
rejected solely because the Secretary
is unable to locate the taxpayer's
return or return information for
verification of such liability, and
``(ii) the taxpayer shall not be
required to provide a financial
statement.''.
(b) Levy Prohibited While Offer-in-Compromise Pending or
Installment Agreement Pending or in Effect.--Section 6331
(relating to levy and distraint), as amended by sections 3433
and 3444, is amended by redesignating subsection (k) as
subsection (l) and by inserting after subsection (j) the
following new subsection:
``(k) No Levy While Certain Offers Pending or Installment
Agreement Pending or in Effect.--
``(1) Offer-in-compromise pending.--No levy may be
made under subsection (a) on the property or rights to
property of any person with respect to any unpaid tax--
``(A) during the period that an offer-in-
compromise by such person under section 7122 of
such unpaid tax is pending with the Secretary,
and
``(B) if such offer is rejected by the
Secretary, during the 30 days thereafter (and,
if an appeal of such rejection is filed within
such 30 days, during the period that such
appeal is pending).
For purposes of subparagraph (A), an offer is pending beginning
on the date the Secretary accepts such offer for processing.
``(2) Installment agreements.--No levy may be made
under subsection (a) on the property or rights to
property of any person with respect to any unpaid tax--
``(A) during the period that an offer by
such person for an installment agreement under
section 6159 for payment of such unpaid tax is
pending with the Secretary,
``(B) if such offer is rejected by the
Secretary, during the 30 days thereafter (and,
if an appeal of such rejection is filed within
such 30 days, during the period that such
appeal is pending),
``(C) during the period that such an
installment agreement for payment of such
unpaid tax is in effect, and
``(D) if such agreement is terminated by
the Secretary, during the 30 days thereafter
(and, if an appeal of such termination is filed
within such 30 days, during the period that
such appeal is pending).
``(3) Certain rules to apply.--Rules similar to the
rules of paragraphs (3), (4), and (5) of subsection (i)
shall apply for purposes of this subsection.''.
(c) Review of Rejections of Offers-in-Compromise and
Installment Agreements.--
(1) In general.--Section 7122 (relating to
compromises), as amended by subsection (a), is amended
by adding at the end the following new subsection:
``(d) Administrative Review.--The Secretary shall establish
procedures--
``(1) for an independent administrative review of
any rejection of a proposed offer-in-compromise or
installment agreement made by a taxpayer under this
section or section 6159 before such rejection is
communicated to the taxpayer, and
``(2) which allow a taxpayer to appeal any
rejection of such offer or agreement to the Internal
Revenue Service Office of Appeals.''.
(2) Conforming amendment.--Section 6159 (relating
to installment agreements) is amended by adding at the
end the following new subsection:
``(d) Cross Reference.--
``For rights to administrative review and appeal, see section
7122(d).''.
(d) Preparation of Statement Relating to Offers-in-
Compromise.--The Secretary of the Treasury shall prepare a
statement which sets forth in simple, nontechnical terms the
rights of a taxpayer and the obligations of the Internal
Revenue Service relating to offers-in-compromise. Such
statement shall--
(1) advise taxpayers who have entered into a
compromise of the advantages of promptly notifying the
Internal Revenue Service of any change of address or
marital status,
(2) provide notice to taxpayers that in the case of
a compromise terminated due to the actions of 1 spouse
or former spouse, the Internal Revenue Service will,
upon application, reinstate such compromise with the
spouse or former spouse who remains in compliance with
such compromise, and
(3) provide notice to the taxpayer that the
taxpayer may appeal the rejection of an offer-in-
compromise to the Internal Revenue Service Office of
Appeals.
(e) Effective Dates.--
(1) In general.--The amendments made by this
section shall apply to proposed offers-in-compromise
and installment agreements submitted after the date of
the enactment of this Act.
(2) Suspension of collection by levy.--The
amendment made by subsection (b) shall apply to offers-
in-compromise pending on or made after December 31,
1999.
SEC. 3463. NOTICE OF DEFICIENCY TO SPECIFY DEADLINES FOR FILING TAX
COURT PETITION.
(a) In General.--The Secretary of the Treasury or the
Secretary's delegate shall include on each notice of deficiency
under section 6212 of the Internal Revenue Code of 1986 the
date determined by such Secretary (or delegate) as the last day
on which the taxpayer may file a petition with the Tax Court.
(b) Later Filing Deadlines Specified on Notice of
Deficiency To Be Binding.--Subsection (a) of section 6213
(relating to restrictions applicable to deficiencies; petition
to Tax Court) is amended by adding at the end the following new
sentence: ``Any petition filed with the Tax Court on or before
the last date specified for filing such petition by the
Secretary in the notice of deficiency shall be treated as
timely filed.''.
(c) Effective Date.--Subsection (a) and the amendment made
by subsection (b) shall apply to notices mailed after December
31, 1998.
SEC. 3464. REFUND OR CREDIT OF OVERPAYMENTS BEFORE FINAL DETERMINATION.
(a) Tax Court Proceedings.--Subsection (a) of section 6213
is amended--
(1) by striking ``, including the Tax Court.'' and
inserting ``, including the Tax Court, and a refund may
be ordered by such court of any amount collected within
the period during which the Secretary is prohibited
from collecting by levy or through a proceeding in
court under the provisions of this subsection.'', and
(2) by striking ``to enjoin any action or
proceeding'' and inserting ``to enjoin any action or
proceeding or order any refund''.
(b) Other Proceedings.--Subsection (a) of section 6512 is
amended by striking the period at the end of paragraph (4) and
inserting ``, and'', and by inserting after paragraph (4) the
following new paragraphs:
``(5) As to any amount collected within the period
during which the Secretary is prohibited from making
the assessment or from collecting by levy or through a
proceeding in court under the provisions of section
6213(a), and
``(6) As to overpayments the Secretary is
authorized to refund or credit pending appeal as
provided in subsection (b).''.
(c) Refund or Credit Pending Appeal.--Paragraph (1) of
section 6512(b) is amended by adding at the end the following
new sentence: ``If a notice of appeal in respect of the
decision of the Tax Court is filed under section 7483, the
Secretary is authorized to refund or credit the overpayment
determined by the Tax Court to the extent the overpayment is
not contested on appeal.''.
(d) Effective Date.--The amendments made by this section
shall take effect on the date of the enactment of this Act.
SEC. 3465. IRS PROCEDURES RELATING TO APPEALS OF EXAMINATIONS AND
COLLECTIONS.
(a) Dispute Resolution Procedures.--
(1) In general.--Chapter 74 (relating to closing
agreements and compromises) is amended by redesignating
section 7123 as section 7124 and by inserting after
section 7122 the following new section:
``SEC. 7123. APPEALS DISPUTE RESOLUTION PROCEDURES.
``(a) Early Referral to Appeals Procedures.--The Secretary
shall prescribe procedures by which any taxpayer may request
early referral of 1 or more unresolved issues from the
examination or collection division to the Internal Revenue
Service Office of Appeals.
``(b) Alternative Dispute Resolution Procedures.--
``(1) Mediation.--The Secretary shall prescribe
procedures under which a taxpayer or the Internal
Revenue Service Office of Appeals may request non-
binding mediation on any issue unresolved at the
conclusion of--
``(A) appeals procedures, or
``(B) unsuccessful attempts to enter into a
closing agreement under section 7121 or a
compromise under section 7122.
``(2) Arbitration.--The Secretary shall establish a
pilot program under which a taxpayer and the Internal
Revenue Service Office of Appeals may jointly request
binding arbitration on any issue unresolved at the
conclusion of--
``(A) appeals procedures, or
``(B) unsuccessful attempts to enter into a
closing agreement under section 7121 or a
compromise under section 7122.''.
(2) Conforming amendment.--The table of sections
for chapter 74 is amended by striking the item relating
to section 7123 and inserting the following new items:
``Sec. 7123. Appeals dispute resolution procedures.
``Sec. 7124. Cross references.''.
(b) Appeals Officers in Each State.--The Commissioner of
Internal Revenue shall ensure that an appeals officer is
regularly available within each State.
(c) Appeals Videoconferencing Alternative for Rural
Areas.--The Commissioner of Internal Revenue shall consider the
use of the videoconferencing of appeals conferences between
appeals officers and taxpayers seeking appeals in rural or
remote areas.
SEC. 3466. APPLICATION OF CERTAIN FAIR DEBT COLLECTION PROCEDURES.
(a) In General.--Subchapter A of chapter 64 (relating to
collection) is amended by inserting after section 6303 the
following new section:
``SEC. 6304. FAIR TAX COLLECTION PRACTICES.
``(a) Communication With the Taxpayer.--Without the prior
consent of the taxpayer given directly to the Secretary or the
express permission of a court of competent jurisdiction, the
Secretary may not communicate with a taxpayer in connection
with the collection of any unpaid tax--
``(1) at any unusual time or place or a time or
place known or which should be known to be inconvenient
to the taxpayer;
``(2) if the Secretary knows the taxpayer is
represented by any person authorized to practice before
the Internal Revenue Service with respect to such
unpaid tax and has knowledge of, or can readily
ascertain, such person's name and address, unless such
person fails to respond within a reasonable period of
time to a communication from the Secretary or unless
such person consents to direct communication with the
taxpayer; or
``(3) at the taxpayer's place of employment if the
Secretary knows or has reason to know that the
taxpayer's employer prohibits the taxpayer from
receiving such communication.
In the absence of knowledge of circumstances to the contrary,
the Secretary shall assume that the convenient time for
communicating with a taxpayer is after 8 a.m. and before 9
p.m., local time at the taxpayer's location.
``(b) Prohibition of Harassment and Abuse.--The Secretary
may not engage in any conduct the natural consequence of which
is to harass, oppress, or abuse any person in connection with
the collection of any unpaid tax. Without limiting the general
application of the foregoing, the following conduct is a
violation of this subsection:
``(1) The use or threat of use of violence or other
criminal means to harm the physical person, reputation,
or property of any person.
``(2) The use of obscene or profane language or
language the natural consequence of which is to abuse
the hearer or reader.
``(3) Causing a telephone to ring or engaging any
person in telephone conversation repeatedly or
continuously with intent to annoy, abuse, or harass any
person at the called number.
``(4) Except as provided under rules similar to the
rules in section 804 of the Fair Debt Collection
Practices Act (15 U.S.C. 1692b), the placement of
telephone calls without meaningful disclosure of the
caller's identity.
``(c) Civil Action for Violations of Section.--
``For civil action for violations of this section, see section
7433.''.
(b) Clerical Amendment.--The table of sections for
subchapter A of chapter 64 is amended by inserting after the
item relating to section 6303 the following new item:
``Sec. 6304. Fair tax collection practices.''.
(c) Effective Date.--The amendments made by this section
shall take effect on the date of the enactment of this Act.
SEC. 3467. GUARANTEED AVAILABILITY OF INSTALLMENT AGREEMENTS.
(a) In General.--Section 6159 (relating to agreements for
payment of tax liability in installments) is amended by
redesignating subsection (c) as subsection (d) and by inserting
after subsection (b) the following new subsection:
``(c) Secretary Required To Enter Into Installment
Agreements in Certain Cases.--In the case of a liability for
tax of an individual under subtitle A, the Secretary shall
enter into an agreement to accept the payment of such tax in
installments if, as of the date the individual offers to enter
into the agreement--
``(1) the aggregate amount of such liability
(determined without regard to interest, penalties,
additions to the tax, and additional amounts) does not
exceed $10,000,
``(2) the taxpayer (and, if such liability relates
to a joint return, the taxpayer's spouse) has not,
during any of the preceding 5 taxable years--
``(A) failed to file any return of tax
imposed by subtitle A,
``(B) failed to pay any tax required to be
shown on any such return, or
``(C) entered into an installment agreement
under this section for payment of any tax
imposed by subtitle A,
``(3) the Secretary determines that the taxpayer is
financially unable to pay such liability in full when
due (and the taxpayer submits such information as the
Secretary may require to make such determination),
``(4) the agreement requires full payment of such
liability within 3 years, and
``(5) the taxpayer agrees to comply with the
provisions of this title for the period such agreement
is in effect.''.
(b) Effective Date.--The amendment made by this section
shall take effect on the date of the enactment of this Act.
SEC. 3468. PROHIBITION ON REQUESTS TO TAXPAYERS TO GIVE UP RIGHTS TO
BRING ACTIONS.
(a) Prohibition.--No officer or employee of the United
States may request a taxpayer to waive the taxpayer's right to
bring a civil action against the United States or any officer
or employee of the United States for any action taken in
connection with the internal revenue laws.
(b) Exceptions.--Subsection (a) shall not apply in any case
where--
(1) a taxpayer waives the right described in
subsection (a) knowingly and voluntarily, or
(2) the request by the officer or employee is made
in person and the taxpayer's attorney or other
federally authorized tax practitioner (within the
meaning of section 7525(a)(3)(A) of the Internal
Revenue Code of 1986) is present, or the request is
made in writing to the taxpayer's attorney or other
representative.
Subtitle F--Disclosures to Taxpayers
SEC. 3501. EXPLANATION OF JOINT AND SEVERAL LIABILITY.
(a) In General.--The Secretary of the Treasury or the
Secretary's delegate shall, as soon as practicable, but not
later than 180 days after the date of the enactment of this
Act, establish procedures to clearly alert married taxpayers of
their joint and several liabilities on all appropriate
publications and instructions.
(b) Right To Limit Liability.--The procedures under
subsection (a) shall include requirements that notice of an
individual's right to relief under section 6015 of the Internal
Revenue Code of 1986 shall be included in the statement
required by section 6227 of the Omnibus Taxpayer Bill of Rights
(Internal Revenue Service Publication No. 1) and in any
collection-related notices.
SEC. 3502. EXPLANATION OF TAXPAYERS' RIGHTS IN INTERVIEWS WITH THE
INTERNAL REVENUE SERVICE.
The Secretary of the Treasury or the Secretary's delegate
shall, as soon as practicable, but not later than 180 days
after the date of the enactment of this Act, revise the
statement required by section 6227 of the Omnibus Taxpayer Bill
of Rights (Internal Revenue Service Publication No. 1) to more
clearly inform taxpayers of their rights--
(1) to be represented at interviews with the
Internal Revenue Service by any person authorized to
practice before the Internal Revenue Service, and
(2) to suspend an interview pursuant to section
7521(b)(2) of the Internal Revenue Code of 1986.
SEC. 3503. DISCLOSURE OF CRITERIA FOR EXAMINATION SELECTION.
(a) In General.--The Secretary of the Treasury or the
Secretary's delegate shall, as soon as practicable, but not
later than 180 days after the date of the enactment of this
Act, incorporate into the statement required by section 6227 of
the Omnibus Taxpayer Bill of Rights (Internal Revenue Service
Publication No. 1) a statement which sets forth in simple and
nontechnical terms the criteria and procedures for selecting
taxpayers for examination. Such statement shall not include any
information the disclosure of which would be detrimental to law
enforcement, but shall specify the general procedures used by
the Internal Revenue Service, including whether taxpayers are
selected for examination on the basis of information available
in the media or on the basis of information provided to the
Internal Revenue Service by informants.
(b) Transmission to Committees of Congress.--The Secretary
shall transmit drafts of the statement required under
subsection (a) (or proposed revisions to any such statement) to
the Committee on Ways and Means of the House of Representatives
and the Committee on Finance of the Senate on the same day.
SEC. 3504. EXPLANATIONS OF APPEALS AND COLLECTION PROCESS.
The Secretary of the Treasury or the Secretary's delegate
shall, as soon as practicable, but not later than 180 days
after the date of the enactment of this Act, include with any
1st letter of proposed deficiency which allows the taxpayer an
opportunity for administrative review in the Internal Revenue
Service Office of Appeals an explanation of the entire process
from examination through collection with respect to such
proposed deficiency, including the assistance available to the
taxpayer from the National Taxpayer Advocate at various points
in the process.
SEC. 3505. EXPLANATION OF REASON FOR REFUND DISALLOWANCE.
(a) In General.--Section 6402 (relating to authority to
make credits or refunds) is amended by adding at the end the
following new subsection:
``(j) Explanation of Reason for Refund Disallowance.--In
the case of a disallowance of a claim for refund, the Secretary
shall provide the taxpayer with an explanation for such
disallowance.''.
(b) Effective Date.--The amendment made by this section
shall apply to disallowances after the 180th day after the date
of the enactment of this Act.
SEC. 3506. STATEMENTS REGARDING INSTALLMENT AGREEMENTS.
The Secretary of the Treasury or the Secretary's delegate
shall, beginning not later than July 1, 2000, provide each
taxpayer who has an installment agreement in effect under
section 6159 of the Internal Revenue Code of 1986 an annual
statement setting forth the initial balance at the beginning of
the year, the payments made during the year, and the remaining
balance as of the end of the year.
SEC. 3507. NOTIFICATION OF CHANGE IN TAX MATTERS PARTNER.
(a) In General.--Section 6231(a)(7) (defining tax matters
partner) is amended by adding at the end the following new
sentence: ``The Secretary shall, within 30 days of selecting a
tax matters partner under the preceding sentence, notify all
partners required to receive notice under section 6223(a) of
the name and address of the person selected.''.
(b) Effective Date.--The amendment made by this section
shall apply to selections of tax matters partners made by the
Secretary of the Treasury after the date of the enactment of
this Act.
SEC. 3508. DISCLOSURE TO TAXPAYERS.
The Secretary of the Treasury or the Secretary's delegate
shall ensure that any instructions booklet accompanying an
individual Federal income tax return form (including forms
1040, 1040A, 1040EZ, and any similar or successor forms) shall
include, in clear language, in conspicuous print, and in a
conspicuous place, a concise description of the conditions
under which return information may be disclosed to any party
outside the Internal Revenue Service, including disclosure to
any State or agency, body, or commission (or legal
representative) thereof.
SEC. 3509. DISCLOSURE OF CHIEF COUNSEL ADVICE.
(a) In General.--Section 6110(b)(1) (defining written
determination) is amended by striking ``or technical advice
memorandum'' and inserting ``technical advice memorandum, or
Chief Counsel advice''.
(b) Chief Counsel Advice.--Section 6110 (relating to public
inspection of written determinations) is amended by
redesignating subsections (i), (j), (k), and (l) as subsections
(j), (k), (l), and (m), respectively, and by inserting after
subsection (h) the following new subsection:
``(i) Special Rules for Disclosure of Chief Counsel
Advice.--
``(1) Chief counsel advice defined.--
``(A) In general.--For purposes of this
section, the term `Chief Counsel advice' means
written advice or instruction, under whatever
name or designation, prepared by any national
office component of the Office of Chief Counsel
which--
``(i) is issued to field or service
center employees of the Service or
regional or district employees of the
Office of Chief Counsel, and
``(ii) conveys--
``(I) any legal
interpretation of a revenue
provision,
``(II) any Internal Revenue
Service or Office of Chief
Counsel position or policy
concerning a revenue provision,
or
``(III) any legal
interpretation of State law,
foreign law, or other Federal
law relating to the assessment
or collection of any liability
under a revenue provision.
``(B) Revenue provision defined.--For
purposes of subparagraph (A), the term `revenue
provision' means any existing or former
internal revenue law, regulation, revenue
ruling, revenue procedure, other published or
unpublished guidance, or tax treaty, either in
general or as applied to specific taxpayers or
groups of specific taxpayers.
``(2) Additional documents treated as chief counsel
advice.--The Secretary may by regulation provide that
this section shall apply to any advice or instruction
prepared and issued by the Office of Chief Counsel
which is not described in paragraph (1).
``(3) Deletions for chief counsel advice.--In the
case of Chief Counsel advice open to public inspection
pursuant to this section--
``(A) paragraphs (2) through (7) of
subsection (c) shall not apply, but
``(B) the Secretary may make deletions of
material in accordance with subsections (b) and
(c) of section 552 of title 5, United States
Code, except that in applying subsection (b)(3)
of such section, no statutory provision of this
title shall be taken into account.
``(4) Notice of intention to disclose.--
``(A) Nontaxpayer-specific chief counsel
advice.--In the case of Chief Counsel advice
which is written without reference to a
specific taxpayer or group of specific
taxpayers--
``(i) subsection (f)(1) shall not
apply, and
``(ii) the Secretary shall, within
60 days after the issuance of the Chief
Counsel advice, complete any deletions
described in subsection (c)(1) or
paragraph (3) and make the Chief
Counsel advice, as so edited, open for
public inspection.
``(B) Taxpayer-specific chief counsel
advice.--In the case of Chief Counsel advice
which is written with respect to a specific
taxpayer or group of specific taxpayers, the
Secretary shall, within 60 days after the
issuance of the Chief Counsel advice, mail the
notice required by subsection (f)(1) to each
such taxpayer. The notice shall include a copy
of the Chief Counsel advice on which is
indicated the information that the Secretary
proposes to delete pursuant to subsection
(c)(1). The Secretary may also delete from the
copy of the text of the Chief Counsel advice
any of the information described in paragraph
(3), and shall delete the names, addresses, and
other identifying details of taxpayers other
than the person to whom the advice pertains,
except that the Secretary shall not delete from
the copy of the Chief Counsel advice that is
furnished to the taxpayer any information of
which that taxpayer was the source.''.
(c) Conforming Amendments.--
(1) Section 6110(f)(1) is amended by striking ``The
Secretary'' and inserting ``Except as otherwise
provided by subsection (i), the Secretary''.
(2) Paragraphs (1)(B) and (2) of section
6110(j)(1), as redesignated by this section, are
amended by striking ``subsection (g)'' each place it
appears and inserting ``subsection (g) or (i)(4)(B)''.
(3) Section 6110(k)(1)(B), as so redesignated, is
amended by striking ``subsection (c)'' and inserting
``subsection (c)(1) or (i)(3)''.
(d) Effective Dates.--
(1) In general.--Except as otherwise provided in
this subsection, the amendments made by this section
shall apply to any Chief Counsel advice issued more
than 90 days after the date of the enactment of this
Act.
(2) Transition rules.--The amendments made by this
section shall apply to any Chief Counsel advice issued
after December 31, 1985, and before the 91st day after
the date of the enactment of this Act by the offices of
the associate chief counsel for domestic, employee
benefits and exempt organizations, and international,
except that any such Chief Counsel advice shall be
treated as made available on a timely basis if such
advice is made available for public inspection not
later than the following dates:
(A) One year after the date of the
enactment of this Act, in the case of all
litigation guideline memoranda, service center
advice, tax litigation bulletins, criminal tax
bulletins, and general litigation bulletins.
(B) Eighteen months after such date of
enactment, in the case of field service advice
and technical assistance to the field issued on
or after January 1, 1994.
(C) Three years after such date of
enactment, in the case of field service advice
and technical assistance to the field issued on
or after January 1, 1992, and before January 1,
1994.
(D) Six years after such date of enactment,
in the case of any other Chief Counsel advice
issued after December 31, 1985.
(3) Documents treated as chief counsel advice.--If
the Secretary of the Treasury by regulation provides
pursuant to section 6110(i)(2) of the Internal Revenue
Code of 1986, as added by this section, that any
additional advice or instruction issued by the Office
of Chief Counsel shall be treated as Chief Counsel
advice, such additional advice or instruction shall be
made available for public inspection pursuant to
section 6110 of such Code, as amended by this section,
only in accordance with the effective date set forth in
such regulation.
(4) Chief counsel advice to be available
electronically.--The Internal Revenue Service shall
make any Chief Counsel advice issued more than 90 days
after the date of the enactment of this Act and made
available for public inspection pursuant to section
6110 of such Code, as amended by this section, also
available by computer telecommunications within 1 year
after issuance.
Subtitle G--Low Income Taxpayer Clinics
SEC. 3601. LOW INCOME TAXPAYER CLINICS.
(a) In General.--Chapter 77 (relating to miscellaneous
provisions), as amended by section 3411, is amended by adding
at the end the following new section:
``SEC. 7526. LOW INCOME TAXPAYER CLINICS.
``(a) In General.--The Secretary may, subject to the
availability of appropriated funds, make grants to provide
matching funds for the development, expansion, or continuation
of qualified low income taxpayer clinics.
``(b) Definitions.--For purposes of this section--
``(1) Qualified low income taxpayer clinic.--
``(A) In general.--The term `qualified low
income taxpayer clinic' means a clinic that--
``(i) does not charge more than a
nominal fee for its services (except
for reimbursement of actual costs
incurred), and
``(ii)(I) represents low income
taxpayers in controversies with the
Internal Revenue Service, or
``(II) operates programs to inform
individuals for whom English is a
second language about their rights and
responsibilities under this title.
``(B) Representation of low income
taxpayers.--A clinic meets the requirements of
subparagraph (A)(ii)(I) if--
``(i) at least 90 percent of the
taxpayers represented by the clinic
have incomes which do not exceed 250
percent of the poverty level, as
determined in accordance with criteria
established by the Director of the
Office of Management and Budget, and
``(ii) the amount in controversy
for any taxable year generally does not
exceed the amount specified in section
7463.
``(2) Clinic.--The term `clinic' includes--
``(A) a clinical program at an accredited
law, business, or accounting school in which
students represent low income taxpayers in
controversies arising under this title, and
``(B) an organization described in section
501(c) and exempt from tax under section 501(a)
which satisfies the requirements of paragraph
(1) through representation of taxpayers or
referral of taxpayers to qualified
representatives.
``(3) Qualified representative.--The term
`qualified representative' means any individual
(whether or not an attorney) who is authorized to
practice before the Internal Revenue Service or the
applicable court.
``(c) Special Rules and Limitations.--
``(1) Aggregate limitation.--Unless otherwise
provided by specific appropriation, the Secretary shall
not allocate more than $6,000,000 per year (exclusive
of costs of administering the program) to grants under
this section.
``(2) Limitation on annual grants to a clinic.--The
aggregate amount of grants which may be made under this
section to a clinic for a year shall not exceed
$100,000.
``(3) Multi-year grants.--Upon application of a
qualified low income taxpayer clinic, the Secretary is
authorized to award a multi-year grant not to exceed 3
years.
``(4) Criteria for awards.--In determining whether
to make a grant under this section, the Secretary shall
consider--
``(A) the numbers of taxpayers who will be
served by the clinic, including the number of
taxpayers in the geographical area for whom
English is a second language,
``(B) the existence of other low income
taxpayer clinics serving the same population,
``(C) the quality of the program offered by
the low income taxpayer clinic, including the
qualifications of its administrators and
qualified representatives, and its record, if
any, in providing service to low income
taxpayers, and
``(D) alternative funding sources available
to the clinic, including amounts received from
other grants and contributions, and the
endowment and resources of the institution
sponsoring the clinic.
``(5) Requirement of matching funds.--A low income
taxpayer clinic must provide matching funds on a dollar
for dollar basis for all grants provided under this
section. Matching funds may include--
``(A) the salary (including fringe
benefits) of individuals performing services
for the clinic, and
``(B) the cost of equipment used in the
clinic.
Indirect expenses, including general overhead of the
institution sponsoring the clinic, shall not be counted
as matching funds.''.
(b) Clerical Amendment.--The table of sections for chapter
77, as amended by section 3411, is amended by adding at the end
the following new item:
``Sec. 7526. Low income taxpayer clinics.''.
(c) Effective Date.--The amendments made by this section
shall take effect on the date of the enactment of this Act.
Subtitle H--Other Matters
SEC. 3701. CATALOGING COMPLAINTS.
In collecting data for the report required under section
1211 of Taxpayer Bill of Rights 2 (Public Law 104-168), the
Secretary of the Treasury or the Secretary's delegate shall,
not later than January 1, 2000, maintain records of taxpayer
complaints of misconduct by Internal Revenue Service employees
on an individual employee basis.
SEC. 3702. ARCHIVE OF RECORDS OF INTERNAL REVENUE SERVICE.
(a) In General.--Subsection (l) of section 6103 (relating
to confidentiality and disclosure of returns and return
information) is amended by adding at the end the following new
paragraph:
``(17) Disclosure to national archives and records
administration.--The Secretary shall, upon written
request from the Archivist of the United States,
disclose or authorize the disclosure of returns and
return information to officers and employees of the
National Archives and Records Administration for
purposes of, and only to the extent necessary in, the
appraisal of records for destruction or retention. No
such officer or employee shall, except to the extent
authorized by subsections (f), (i)(7), or (p), disclose
any return or return information disclosed under the
preceding sentence to any person other than to the
Secretary, or to another officer or employee of the
National Archives and Records Administration whose
official duties require such disclosure for purposes of
such appraisal.''.
(b) Conforming Amendments.--Section 6103(p) is amended--
(1) in paragraph (3)(A), by striking ``or (16)''
and inserting ``(16), or (17)'',
(2) in paragraph (4), by striking ``or (14)'' and
inserting ``, (14), or (17)'' in the matter preceding
subparagraph (A), and
(3) in paragraph (4)(F)(ii), by striking ``or
(15)'' and inserting ``, (15), or (17)''.
(c) Effective Date.--The amendments made by this section
shall apply to requests made by the Archivist of the United
States after the date of the enactment of this Act.
SEC. 3703. PAYMENT OF TAXES.
The Secretary of the Treasury or the Secretary's delegate
shall establish such rules, regulations, and procedures as are
necessary to allow payment of taxes by check or money order
made payable to the United States Treasury.
SEC. 3704. CLARIFICATION OF AUTHORITY OF SECRETARY RELATING TO THE
MAKING OF ELECTIONS.
Subsection (d) of section 7805 is amended by striking ``by
regulations or forms''.
SEC. 3705. IRS EMPLOYEE CONTACTS.
(a) Notice.--The Secretary of the Treasury or the
Secretary's delegate shall provide that--
(1) any manually generated correspondence received
by a taxpayer from the Internal Revenue Service shall
include in a prominent manner the name, telephone
number, and unique identifying number of an Internal
Revenue Service employee the taxpayer may contact with
respect to the correspondence,
(2) any other correspondence or notice received by
a taxpayer from the Internal Revenue Service shall
include in a prominent manner a telephone number that
the taxpayer may contact, and
(3) an Internal Revenue Service employee shall give
a taxpayer during a telephone or personal contact the
employee's name and unique identifying number.
(b) Single Contact.--The Secretary of the Treasury or the
Secretary's delegate shall develop a procedure under which, to
the extent practicable and if advantageous to the taxpayer, one
Internal Revenue Service employee shall be assigned to handle a
taxpayer's matter until it is resolved.
(c) Telephone Helpline in Spanish.--The Secretary of the
Treasury or the Secretary's delegate shall provide, in
appropriate circumstances, that taxpayer questions on telephone
helplines of the Internal Revenue Service are answered in
Spanish.
(d) Other Telephone Helpline Options.--The Secretary of the
Treasury or the Secretary's delegate shall provide, in
appropriate circumstances, on telephone helplines of the
Internal Revenue Service an option for any taxpayer to talk to
an Internal Revenue Service employee during normal business
hours. The person shall direct phone questions of the taxpayer
to other Internal Revenue Service personnel who can provide
assistance to the taxpayer.
(e) Effective Dates.--
(1) In general.--Except as otherwise provided in
this subsection, this section shall take effect 60 days
after the date of the enactment of this Act.
(2) Subsection (c).--Subsection (c) shall take
effect on January 1, 2000.
(3) Subsection (d).--Subsection (d) shall take
effect on January 1, 2000.
(4) Unique identifying number.--Any requirement
under this section to provide a unique identifying
number shall take effect 6 months after the date of the
enactment of this Act.
SEC. 3706. USE OF PSEUDONYMS BY IRS EMPLOYEES.
(a) In General.--Any employee of the Internal Revenue
Service may use a pseudonym only if--
(1) adequate justification for the use of a
pseudonym is provided by the employee, including
protection of personal safety, and
(2) such use is approved by the employee's
supervisor before the pseudonym is used.
(b) Effective Date.--Subsection (a) shall apply to requests
made after the date of the enactment of this Act.
SEC. 3707. ILLEGAL TAX PROTESTER DESIGNATION.
(a) Prohibition.--The officers and employees of the
Internal Revenue Service--
(1) shall not designate taxpayers as illegal tax
protesters (or any similar designation), and
(2) in the case of any such designation made on or
before the date of the enactment of this Act--
(A) shall remove such designation from the
individual master file, and
(B) shall disregard any such designation
not located in the individual master file.
(b) Designation of Nonfilers Allowed.--An officer or
employee of the Internal Revenue Service may designate any
appropriate taxpayer as a nonfiler, but shall remove such
designation once the taxpayer has filed income tax returns for
2 consecutive taxable years and paid all taxes shown on such
returns.
(c) Effective Date.--The provisions of this section shall
take effect on the date of the enactment of this Act, except
that the removal of any designation under subsection (a)(2)(A)
shall not be required to begin before January 1, 1999.
SEC. 3708. PROVISION OF CONFIDENTIAL INFORMATION TO CONGRESS BY
WHISTLEBLOWERS.
(a) In General.--Section 6103(f) (relating to disclosure to
committees of Congress) is amended by adding at the end the
following new paragraph:
``(5) Disclosure by whistleblower.--Any person who
otherwise has or had access to any return or return
information under this section may disclose such return
or return information to a committee referred to in
paragraph (1) or any individual authorized to receive
or inspect information under paragraph (4)(A) if such
person believes such return or return information may
relate to possible misconduct, maladministration, or
taxpayer abuse.''.
(b) Effective Date.--The amendment made by this section
shall take effect on the date of the enactment of this Act.
SEC. 3709. LISTING OF LOCAL IRS TELEPHONE NUMBERS AND ADDRESSES.
The Secretary of the Treasury or the Secretary's delegate
shall, as soon as practicable, provide that the local telephone
numbers and addresses of Internal Revenue Service offices
located in any particular area be listed in a telephone book
for that area.
SEC. 3710. IDENTIFICATION OF RETURN PREPARERS.
(a) In General.--The last sentence of section 6109(a)
(relating to identifying numbers) is amended by striking ``For
purposes of this subsection'' and inserting ``For purposes of
paragraphs (1), (2), and (3)''.
(b) Effective Date.--The amendment made by this section
shall take effect on the date of the enactment of this Act.
SEC. 3711. OFFSET OF PAST-DUE, LEGALLY ENFORCEABLE STATE INCOME TAX
OBLIGATIONS AGAINST OVERPAYMENTS.
(a) In General.--Section 6402 (relating to authority to
make credits or refunds), as amended by section 3505, is
amended by redesignating subsections (e) through (j) as
subsections (f) through (k), respectively, and by inserting
after subsection (d) the following new subsection:
``(e) Collection of Past-Due, Legally Enforceable State
Income Tax Obligations.--
``(1) In general.--Upon receiving notice from any
State that a named person owes a past-due, legally
enforceable State income tax obligation to such State,
the Secretary shall, under such conditions as may be
prescribed by the Secretary--
``(A) reduce the amount of any overpayment
payable to such person by the amount of such
State income tax obligation;
``(B) pay the amount by which such
overpayment is reduced under subparagraph (A)
to such State and notify such State of such
person's name, taxpayer identification number,
address, and the amount collected; and
``(C) notify the person making such
overpayment that the overpayment has been
reduced by an amount necessary to satisfy a
past-due, legally enforceable State income tax
obligation.
If an offset is made pursuant to a joint return, the
notice under subparagraph (B) shall include the names,
taxpayer identification numbers, and addresses of each
person filing such return.
``(2) Offset permitted only against residents of
state seeking offset.--Paragraph (1) shall apply to an
overpayment by any person for a taxable year only if
the address shown on the Federal return for such
taxable year of the overpayment is an address within
the State seeking the offset.
``(3) Priorities for offset.--Any overpayment by a
person shall be reduced pursuant to this subsection--
``(A) after such overpayment is reduced
pursuant to--
``(i) subsection (a) with respect
to any liability for any internal
revenue tax on the part of the person
who made the overpayment,
``(ii) subsection (c) with respect
to past-due support, and
``(iii) subsection (d) with respect
to any past-due, legally enforceable
debt owed to a Federal agency, and
``(B) before such overpayment is credited
to the future liability for any Federal
internal revenue tax of such person pursuant to
subsection (b).
If the Secretary receives notice from 1 or more
agencies of the State of more than 1 debt subject to
paragraph (1) that is owed by such person to such an
agency, any overpayment by such person shall be applied
against such debts in the order in which such debts
accrued.
``(4) Notice; consideration of evidence.--No State
may take action under this subsection until such
State--
``(A) notifies by certified mail with
return receipt the person owing the past-due
State income tax liability that the State
proposes to take action pursuant to this
section,
``(B) gives such person at least 60 days to
present evidence that all or part of such
liability is not past-due or not legally
enforceable,
``(C) considers any evidence presented by
such person and determines that an amount of
such debt is past-due and legally enforceable,
and
``(D) satisfies such other conditions as
the Secretary may prescribe to ensure that the
determination made under subparagraph (C) is
valid and that the State has made reasonable
efforts to obtain payment of such State income
tax obligation.
``(5) Past-due, legally enforceable state income
tax obligation.--For purposes of this subsection, the
term `past-due, legally enforceable State income tax
obligation' means a debt--
``(A)(i) which resulted from--
``(I) a judgment rendered by a
court of competent jurisdiction which
has determined an amount of State
income tax to be due, or
``(II) a determination after an
administrative hearing which has
determined an amount of State income
tax to be due, and
``(ii) which is no longer subject to
judicial review, or
``(B) which resulted from a State income
tax which has been assessed but not collected,
the time for redetermination of which has
expired, and which has not been delinquent for
more than 10 years.
For purposes of this paragraph, the term `State income
tax' includes any local income tax administered by the
chief tax administration agency of the State.
``(6) Regulations.--The Secretary shall issue
regulations prescribing the time and manner in which
States must submit notices of past-due, legally
enforceable State income tax obligations and the
necessary information that must be contained in or
accompany such notices. The regulations shall specify
the types of State income taxes and the minimum amount
of debt to which the reduction procedure established by
paragraph (1) may be applied. The regulations may
require States to pay a fee to reimburse the Secretary
for the cost of applying such procedure. Any fee paid
to the Secretary pursuant to the preceding sentence
shall be used to reimburse appropriations which bore
all or part of the cost of applying such procedure.
``(7) Erroneous payment to state.--Any State
receiving notice from the Secretary that an erroneous
payment has been made to such State under paragraph (1)
shall pay promptly to the Secretary, in accordance with
such regulations as the Secretary may prescribe, an
amount equal to the amount of such erroneous payment
(without regard to whether any other amounts payable to
such State under such paragraph have been paid to such
State).''.
(b) Disclosure of Certain Information to States Requesting
Refund Offsets for Past-Due, Legally Enforceable State Income
Tax Obligations.--
(1) Paragraph (10) of section 6103(l) is amended by
striking ``(c) or (d)'' each place it appears and
inserting ``(c), (d), or (e)''.
(2) The paragraph heading for such paragraph (10)
is amended by striking ``section 6402(c) or 6402(d)''
and inserting ``subsection (c), (d), or (e) of section
6402''.
(c) Conforming Amendments.--
(1) Subsection (a) of section 6402 is amended by
striking ``(c) and (d)'' and inserting ``(c), (d), and
(e)''.
(2) Paragraph (2) of section 6402(d) is amended by
striking ``and before such overpayment'' and inserting
``and before such overpayment is reduced pursuant to
subsection (e) and before such overpayment''.
(3) Subsection (f) of section 6402, as redesignated
by subsection (a), is amended--
(A) by striking ``(c) or (d)'' and
inserting ``(c), (d), or (e)'', and
(B) by striking ``Federal agency'' and
inserting ``Federal agency or State''.
(4) Subsection (h) of section 6402, as redesignated
by subsection (a), is amended by striking ``subsection
(c)'' and inserting ``subsection (c) or (e)''.
(d) Effective Date.--The amendments made by this section
(other than subsection (d)) shall apply to refunds payable
under section 6402 of the Internal Revenue Code of 1986 after
December 31, 1999.
SEC. 3712. REPORTING REQUIREMENTS IN CONNECTION WITH EDUCATION TAX
CREDIT.
(a) Amounts To Be Reported.--Subparagraph (C) of section
6050S(b)(2) is amended--
(1) by redesignating clauses (ii) and (iii) as
clauses (iii) and (iv), respectively, and by inserting
after clause (i) the following new clause:
``(ii) the amount of any grant
received by such individual for payment
of costs of attendance and processed by
the person making such return during
such calendar year,'',
(2) in clause (iii) (as so redesignated), by
inserting ``by the person making such return'' after
``year'', and
(3) in clause (iv) (as so redesignated), by
inserting ``and'' at the end.
(b) Conforming Amendments.--
(1) Paragraph (2) of section 6050S(d) is amended by
striking ``aggregate''.
(2) Subsection (e) of section 6050S is amended by
inserting ``(without regard to subsection (g)(2)
thereof)'' after ``section 25A''.
(c) Effective Date.--The amendments made by this section
shall apply to returns required to be filed with respect to
taxable years beginning after December 31, 1998.
Subtitle I--Studies
SEC. 3801. ADMINISTRATION OF PENALTIES AND INTEREST.
The Joint Committee on Taxation and the Secretary of the
Treasury shall each conduct a separate study--
(1) reviewing the administration and implementation
by the Internal Revenue Service of the interest and
penalty provisions of the Internal Revenue Code of 1986
(including the penalty reform provisions of the Omnibus
Budget Reconciliation Act of 1989), and
(2) making any legislative and administrative
recommendations the Committee or the Secretary deems
appropriate to simplify penalty or interest
administration and reduce taxpayer burden.
Such studies shall be submitted to the Committee on Ways and
Means of the House of Representatives and the Committee on
Finance of the Senate not later than 1 year after the date of
the enactment of this Act.
SEC. 3802. CONFIDENTIALITY OF TAX RETURN INFORMATION.
The Joint Committee on Taxation and the Secretary of the
Treasury shall each conduct a separate study of the scope and
use of provisions regarding taxpayer confidentiality, and shall
report the findings of such study, together with such
recommendations as the Committee or the Secretary deems
appropriate, to the Congress not later than 18 months after the
date of the enactment of this Act. Such study shall examine--
(1) the present protections for taxpayer privacy,
(2) any need for third parties to use tax return
information,
(3) whether greater levels of voluntary compliance
may be achieved by allowing the public to know who is
legally required to file tax returns, but does not file
tax returns,
(4) the interrelationship of the taxpayer
confidentiality provisions in the Internal Revenue Code
of 1986 with such provisions in other Federal law,
including section 552a of title 5, United States Code
(commonly known as the ``Freedom of Information Act''),
(5) the impact on taxpayer privacy of the sharing
of income tax return information for purposes of
enforcement of State and local tax laws other than
income tax laws, and including the impact on the
taxpayer privacy intended to be protected at the
Federal, State, and local levels under Public Law 105-
35, the Taxpayer Browsing Protection Act of 1997, and
(6) whether the public interest would be served by
greater disclosure of information relating to tax
exempt organizations described in section 501 of the
Internal Revenue Code of 1986.
SEC. 3803. STUDY OF NONCOMPLIANCE WITH INTERNAL REVENUE LAWS BY
TAXPAYERS.
Not later than 1 year after the date of the enactment of
this Act, the Secretary of the Treasury and the Commissioner of
Internal Revenue shall conduct jointly a study, in consultation
with the Joint Committee on Taxation, of the noncompliance with
internal revenue laws by taxpayers (including willful
noncompliance and noncompliance due to tax law complexity or
other factors) and report the findings of such study to
Congress.
SEC. 3804. STUDY OF PAYMENTS MADE FOR DETECTION OF UNDERPAYMENTS AND
FRAUD.
Not later than 1 year after the date of the enactment of
this Act, the Secretary of the Treasury shall conduct a study
and report to Congress on the use of section 7623 of the
Internal Revenue Code of 1986 including--
(1) an analysis of the present use of such section
and the results of such use, and
(2) any legislative or administrative
recommendations regarding the provisions of such
section and its application.
TITLE IV--CONGRESSIONAL ACCOUNTABILITY FOR THE INTERNAL REVENUE SERVICE
Subtitle A--Oversight
SEC. 4001. EXPANSION OF DUTIES OF THE JOINT COMMITTEE ON TAXATION.
(a) In General.--Section 8021 (relating to the powers of
the Joint Committee on Taxation) is amended by adding at the
end the following new subsections:
``(e) Investigations.--The Joint Committee shall review all
requests (other than requests by the chairman or ranking member
of a Committee or Subcommittee) for investigations of the
Internal Revenue Service by the General Accounting Office, and
approve such requests when appropriate, with a view towards
eliminating overlapping investigations, ensuring that the
General Accounting Office has the capacity to handle the
investigation, and ensuring that investigations focus on areas
of primary importance to tax administration.
``(f) Relating to Joint Reviews.--
``(1) In general.--The Chief of Staff, and the
staff of the Joint Committee, shall provide such
assistance as is required for joint reviews described
in paragraph (2).
``(2) Joint reviews.--Before June 1 of each
calendar year after 1998 and before 2004, there shall
be a joint review of the strategic plans and budget for
the Internal Revenue Service and such other matters as
the Chairman of the Joint Committee deems appropriate.
Such joint review shall be held at the call of the
Chairman of the Joint Committee and shall include two
members of the majority and one member of the minority
from each of the Committees on Finance, Appropriations,
and Governmental Affairs of the Senate, and the
Committees on Ways and Means, Appropriations, and
Government Reform and Oversight of the House of
Representatives.''.
(b) Effective Dates.--
(1) Subsection (e) of section 8021 of the Internal
Revenue Code of 1986, as added by subsection (a) of
this section, shall apply to requests made after the
date of the enactment of this Act.
(2) Subsection (f) of such section shall take
effect on the date of the enactment of this Act.
SEC. 4002. COORDINATED OVERSIGHT REPORTS.
(a) In General.--Paragraph (3) of section 8022 (relating to
the duties of the Joint Committee on Taxation) is amended to
read as follows:
``(3) Reports.--
``(A) To report, from time to time, to the
Committee on Finance and the Committee on Ways
and Means, and, in its discretion, to the
Senate or House of Representatives, or both,
the results of its investigations, together
with such recommendations as it may deem
advisable.
``(B) Subject to amounts specifically
appropriated to carry out this subparagraph, to
report, at least once each Congress, to the
Committee on Finance and the Committee on Ways
and Means on the overall state of the Federal
tax system, together with recommendations with
respect to possible simplification proposals
and other matters relating to the
administration of the Federal tax system as it
may deem advisable.
``(C) To report, for each calendar year
after 1998 and before 2004, to the Committees
on Finance, Appropriations, and Governmental
Affairs of the Senate, and to the Committees on
Ways and Means, Appropriations, and Government
Reform and Oversight of the House of
Representatives, with respect to--
``(i) strategic and business plans
for the Internal Revenue Service;
``(ii) progress of the Internal
Revenue Service in meeting its
objectives;
``(iii) the budget for the Internal
Revenue Service and whether it supports
its objectives;
``(iv) progress of the Internal
Revenue Service in improving taxpayer
service and compliance;
``(v) progress of the Internal
Revenue Service on technology
modernization; and
``(vi) the annual filing season.''.
(b) Effective Date.--The amendment made by this section
shall take effect on the date of the enactment of this Act.
Subtitle B--Century Date Change
SEC. 4011. CENTURY DATE CHANGE.
It is the sense of Congress that--
(1) the Internal Revenue Service should place a
high priority on resolving the century date change
computing problems, and
(2) the Internal Revenue Service efforts to resolve
the century date change computing problems should be
funded fully to provide for certain resolution of such
problems.
Subtitle C--Tax Law Complexity
SEC. 4021. ROLE OF THE INTERNAL REVENUE SERVICE.
It is the sense of Congress that the Internal Revenue
Service should provide Congress with an independent view of tax
administration, and that during the legislative process, the
tax writing committees of Congress should hear from front-line
technical experts at the Internal Revenue Service with respect
to the administrability of pending amendments to the Internal
Revenue Code of 1986.
SEC. 4022. TAX LAW COMPLEXITY ANALYSIS.
(a) Commissioner Study.--
(1) In general.--The Commissioner of Internal
Revenue shall conduct each year after 1998 an analysis
of the sources of complexity in administration of the
Federal tax laws. Such analysis may include an analysis
of--
(A) questions frequently asked by taxpayers
with respect to return filing,
(B) common errors made by taxpayers in
filling out their returns,
(C) areas of law which frequently result in
disagreements between taxpayers and the
Internal Revenue Service,
(D) major areas of law in which there is no
(or incomplete) published guidance or in which
the law is uncertain,
(E) areas in which revenue officers make
frequent errors interpreting or applying the
law,
(F) the impact of recent legislation on
complexity, and
(G) forms supplied by the Internal Revenue
Service, including the time it takes for
taxpayers to complete and review forms, the
number of taxpayers who use each form, and how
recent legislation has affected the time it
takes to complete and review forms.
(2) Report.--The Commissioner shall not later than
March 1 of each year report the results of the analysis
conducted under paragraph (1) for the preceding year to
the Committee on Ways and Means of the House of
Representatives and the Committee on Finance of the
Senate. The report shall include any recommendations--
(A) for reducing the complexity of the
administration of Federal tax laws, and
(B) for repeal or modification of any
provision the Commissioner believes adds undue
and unnecessary complexity to the
administration of the Federal tax laws.
(b) Analysis To Accompany Certain Legislation.--
(1) In general.--The Joint Committee on Taxation,
in consultation with the Internal Revenue Service and
the Department of the Treasury, shall include a tax
complexity analysis in each report for legislation, or
provide such analysis to members of the committee
reporting the legislation as soon as practicable after
the report is filed, if--
(A) such legislation is reported by the
Committee on Finance in the Senate, the
Committee on Ways and Means of the House of
Representatives, or any committee of
conference, and
(B) such legislation includes a provision
which would directly or indirectly amend the
Internal Revenue Code of 1986 and which has
widespread applicability to individuals or
small businesses.
(2) Tax complexity analysis.--For purposes of this
subsection, the term ``tax complexity analysis'' means,
with respect to any legislation, a report on the
complexity and administrative difficulties of each
provision described in paragraph (1)(B) which--
(A) includes--
(i) an estimate of the number of
taxpayers affected by the provision,
and
(ii) if applicable, the income
level of taxpayers affected by the
provision, and
(B) should include (if determinable)--
(i) the extent to which tax forms
supplied by the Internal Revenue
Service would require revision and
whether any new forms would be
required,
(ii) the extent to which taxpayers
would be required to keep additional
records,
(iii) the estimated cost to
taxpayers to comply with the provision,
(iv) the extent to which enactment
of the provision would require the
Internal Revenue Service to develop or
modify regulatory guidance,
(v) the extent to which the
provision may result in disagreements
between taxpayers and the Internal
Revenue Service, and
(vi) any expected impact on the
Internal Revenue Service from the
provision (including the impact on
internal training, revision of the
Internal Revenue Manual, reprogramming
of computers, and the extent to which
the Internal Revenue Service would be
required to divert or redirect
resources in response to the
provision).
(3) Legislation subject to point of order in house
of representatives.--
(A) Legislation reported by committee on
ways and means.--Clause 2(l) of rule XI of the
Rules of the House of Representatives is
amended by adding at the end the following new
subparagraph:
``(8) The report of the Committee on Ways and Means on any
bill or joint resolution containing any provision amending the
Internal Revenue Code of 1986 shall include a Tax Complexity
Analysis prepared by the Joint Committee on Taxation in
accordance with section 4022(b) of the Internal Revenue Service
Restructuring and Reform Act of 1998 unless the Committee on
Ways and Means causes to have such Analysis printed in the
Congressional Record prior to the consideration of the bill or
joint resolution.''.
(B) Conference reports.--Rule XXVIII of the
Rules of the House of Representatives is
amended by adding at the end the following new
clause:
``7. It shall not be in order to consider the report of a
committee of conference which contains any provision amending
the Internal Revenue Code of 1986 unless--
``(a) the accompanying joint explanatory statement
contains a Tax Complexity Analysis prepared by the
Joint Committee on Taxation in accordance with section
4022(b) of the Internal Revenue Service Restructuring
and Reform Act of 1998, or
``(b) such Analysis is printed in the Congressional
Record prior to the consideration of the report.''.
(C) Rules of house of representatives.--
This paragraph is enacted by the House of
Representatives--
(i) as an exercise of the
rulemaking power of the House of
Representatives, and as such it is
deemed a part of the Rules of the
House, and it supersedes other rules
only to the extent that it is
inconsistent therewith; and
(ii) with full recognition of the
constitutional right of the House to
change its rules at any time, in the
same manner and to the same extent as
in the case of any other rule of the
House.
(4) Effective date.--This subsection shall apply to
legislation considered on and after January 1, 1999.
TITLE V--ADDITIONAL PROVISIONS
SEC. 5001. LOWER CAPITAL GAINS RATES TO APPLY TO PROPERTY HELD MORE
THAN 1 YEAR.
(a) General Rule.--
(1) Paragraph (5) of section 1(h) is amended to
read as follows:
``(5) 28-percent rate gain.--For purposes of this
subsection, the term `28-percent rate gain' means the
excess (if any) of--
``(A) the sum of--
``(i) collectibles gain, and
``(ii) section 1202 gain, over
``(B) the sum of--
``(i) collectibles loss,
``(ii) the net short-term capital
loss, and
``(iii) the amount of long-term
capital loss carried under section
1212(b)(1)(B) to the taxable year.''.
(2) Subparagraph (A) of section 1(h)(6) is amended
by striking ``18 months'' and inserting ``1 year''.
(3) Clauses (i) and (ii) of section 1(h)(7)(A) are
amended to read as follows:
``(i) the amount of long-term
capital gain (not otherwise treated as
ordinary income) which would be treated
as ordinary income if section
1250(b)(1) included all depreciation
and the applicable percentage under
section 1250(a) were 100 percent, over
``(ii) the excess (if any) of--
``(I) the amount described
in paragraph (5)(B), over
``(II) the amount described
in paragraph (5)(A).''.
(4) So much of paragraph (13) of section 1(h) as
precedes subparagraph (C) is amended to read as
follows:
``(13) Special rules.--
``(A) Determination of 28-percent rate
gain.--In applying paragraph (5)--
``(i) the amount determined under
subparagraph (A) of paragraph (5) shall
include long-term capital gain (not
otherwise described in such
subparagraph)--
``(I) which is properly
taken into account for the
portion of the taxable year
before May 7, 1997, or
``(II) from property held
not more than 18 months which
is properly taken into account
for the portion of the taxable
year after July 28, 1997, and
before January 1, 1998,
``(ii) the amount determined under
subparagraph (B) of paragraph (5) shall
include long-term capital loss (not
otherwise described in such
subparagraph)--
``(I) which is properly
taken into account for the
portion of the taxable year
before May 7, 1997, or
``(II) from property held
not more than 18 months which
is properly taken into account
for the portion of the taxable
year after July 28, 1997, and
before January 1, 1998, and
``(iii) subparagraph (B) of
paragraph (5) (as in effect immediately
before the enactment of this clause)
shall apply to amounts properly taken
into account before January 1, 1998.
``(B) Determination of unrecaptured section
1250 gain.--The amount determined under
paragraph (7)(A) shall not include gain--
``(i) which is properly taken into
account for the portion of the taxable
year before May 7, 1997, or
``(ii) from property held not more
than 18 months which is properly taken
into account for the portion of the
taxable year after July 28, 1997, and
before January 1, 1998.''.
(5) Paragraphs (11) and (12) of section 1223, and
section 1235(a), are each amended by striking ``18
months'' each place it appears and inserting ``1
year''.
(b) Effective Dates.--
(1) In general.--Except as provided in paragraph
(2), the amendments made by this section shall apply to
taxable years ending after December 31, 1997.
(2) Subsection (a)(5).--The amendments made by
subsection (a)(5) shall take effect on January 1, 1998.
SEC. 5002. CLARIFICATION OF EXCLUSION OF MEALS FOR CERTAIN EMPLOYEES.
(a) In General.--Subsection (b) of section 119 (relating to
meals or lodging furnished for the convenience of the employer)
is amended by adding at the end the following new paragraph:
``(4) Meals furnished to employees on business
premises where meals of most employees are otherwise
excludable.--All meals furnished on the business
premises of an employer to such employer's employees
shall be treated as furnished for the convenience of
the employer if, without regard to this paragraph, more
than half of the employees to whom such meals are
furnished on such premises are furnished such meals for
the convenience of the employer.''.
(b) Effective Date.--The amendment made by subsection (a)
shall apply to taxable years beginning before, on, or after the
date of the enactment of this Act.
SEC. 5003. CLARIFICATION OF DESIGNATION OF NORMAL TRADE RELATIONS.
(a) Findings and Policy.--
(1) Findings.--The Congress makes the following
findings:
(A) Since the 18th century, the principle
of nondiscrimination among countries with which
the United States has trade relations, commonly
referred to as ``most-favored-nation''
treatment, has been a cornerstone of United
States trade policy.
(B) Although the principle remains firmly
in place as a fundamental concept in United
States trade relations, the term ``most-
favored-nation'' is a misnomer which has led to
public misunderstanding.
(C) It is neither the purpose nor the
effect of the most-favored-nation principle to
treat any country as ``most favored''. To the
contrary, the principle reflects the intention
to confer on a country the same trade benefits
that are conferred on any other country, that
is, the intention not to discriminate among
trading partners.
(D) The term ``normal trade relations'' is
a more accurate description of the principle of
nondiscrimination as it applies to the tariffs
applicable generally to imports from United
States trading partners, that is, the general
rates of duty set forth in column 1 of the
Harmonized Tariff Schedule of the United
States.
(2) Policy.--It is the sense of the Congress that--
(A) the language used in United States
laws, treaties, agreements, executive orders,
directives, and regulations should more clearly
and accurately reflect the underlying
principles of United States trade policy; and
(B) accordingly, the term ``normal trade
relations'' should, where appropriate, be
substituted for the term ``most-favored-
nation''.
(b) Change in Terminology.--
(1) Trade expansion act of 1962.--The heading for
section 251 of the Trade Expansion Act of 1962 (19
U.S.C. 1881) is amended to read as follows: ``NORMAL
TRADE RELATIONS''.
(2) Trade act of 1974.--(A) Section 402 of the
Trade Act of 1974 (19 U.S.C. 2432) is amended by
striking ``(most-favored-nation treatment)'' each place
it appears and inserting ``(normal trade relations)''.
(B) Section 601(9) of the Trade Act of 1974 (19
U.S.C. 2481(9)) is amended by striking ``most-favored-
nation treatment'' and inserting ``trade treatment
based on normal trade relations (known under
international law as most-favored-nation treatment)''.
(3) CFTA.--Section 302(a)(3)(C) of the United
States Canada Free-Trade Agreement Implementation Act
of 1988 (19 U.S.C. 2112 note) is amended by striking
``the most-favored-nation rate of duty'' each place it
appears and inserting ``the general subcolumn of the
column 1 rate of duty set forth in the Harmonized
Tariff Schedule of the United States''.
(4) NAFTA.--Section 202(n) of the North American
Free Trade Agreement Implementation Act (19 U.S.C.
3332(n)) is amended by striking ``most-favored-
nation''.
(5) Uruguay round agreements act.--Section
135(a)(2) of the Uruguay Round Agreements Act (19
U.S.C. 3555(a)(2)) is amended by striking ``most-
favored-nation'' and inserting ``normal trade
relations''.
(6) SEED act.--Section 2(c)(11) of the Support for
East European Democracy (SEED) Act of 1989 (22 U.S.C.
5401(c)(11)) is amended--
(A) by striking ``(commonly referred to as
`most favored nation status')'', and
(B) by striking ``Most favored nation trade
status'' in the heading and inserting ``Normal
trade relations''.
(7) United states-hong kong policy act of 1992.--
Section 103(4) of the United States-Hong Kong Policy
Act of 1992 (22 U.S.C. 5713(4)) is amended by striking
``(commonly referred to as `most-favored-nation
status')''.
(c) Savings Provisions.--Nothing in this section shall
affect the meaning of any provision of law, Executive order,
Presidential proclamation, rule, regulation, delegation of
authority, other document, or treaty or other international
agreement of the United States relating to the principle of
``most-favored-nation'' (or ``most favored nation'') treatment.
Any Executive order, Presidential proclamation, rule,
regulation, delegation of authority, other document, or treaty
or other international agreement of the United States that has
been issued, made, granted, or allowed to become effective and
that is in effect on the effective date of this Act, or was to
become effective on or after the effective date of this Act,
shall continue in effect according to its terms until modified,
terminated, superseded, set aside, or revoked in accordance
with law.
TITLE VI--TECHNICAL CORRECTIONS
SEC. 6001. SHORT TITLE; COORDINATION WITH OTHER TITLES.
(a) Short Title.--This title may be cited as the ``Tax
Technical Corrections Act of 1998''.
(b) Coordination With Other Titles.--For purposes of
applying the amendments made by any title of this Act other
than this title, the provisions of this title shall be treated
as having been enacted immediately before the provisions of
such other titles.
SEC. 6002. DEFINITIONS.
For purposes of this title--
(1) 1986 code.--The term ``1986 Code'' means the
Internal Revenue Code of 1986.
(2) 1997 act.--The term ``1997 Act'' means the
Taxpayer Relief Act of 1997.
SEC. 6003. AMENDMENTS RELATED TO TITLE I OF 1997 ACT.
(a) Amendments Related to Section 101(a) of 1997 Act.--
(1) Subsection (d) of section 24 of the 1986 Code
is amended--
(A) by striking paragraphs (3) and (4),
(B) by redesignating paragraph (5) as
paragraph (3), and
(C) by striking paragraphs (1) and (2) and
inserting the following new paragraphs:
``(1) In general.--In the case of a taxpayer with 3
or more qualifying children for any taxable year, the
aggregate credits allowed under subpart C shall be
increased by the lesser of--
``(A) the credit which would be allowed
under this section without regard to this
subsection and the limitation under section
26(a), or
``(B) the amount by which the aggregate
amount of credits allowed by this subpart
(without regard to this subsection) would
increase if the limitation imposed by section
26(a) were increased by the excess (if any)
of--
``(i) the taxpayer's social
security taxes for the taxable year,
over
``(ii) the credit allowed under
section 32 (determined without regard
to subsection (n)) for the taxable
year.
The amount of the credit allowed under this subsection
shall not be treated as a credit allowed under this
subpart and shall reduce the amount of credit otherwise
allowable under subsection (a) without regard to
section 26(a).
``(2) Reduction of credit to taxpayer subject to
alternative minimum tax.--The credit determined under
this subsection for the taxable year shall be reduced
by the excess (if any) of--
``(A) the amount of tax imposed by section
55 (relating to alternative minimum tax) with
respect to such taxpayer for such taxable year,
over
``(B) the amount of the reduction under
section 32(h) with respect to such taxpayer for
such taxable year.''.
(2) Paragraph (3) of section 24(d) of the 1986 Code
(as redesignated by paragraph (1)) is amended by
striking ``paragraph (3)'' and inserting ``paragraph
(1)''.
(b) Amendments Related to Section 101(b) of 1997 Act.--
(1) The subsection (m) of section 32 of the 1986
Code added by section 101(b) of the 1997 Act is amended
to read as follows:
``(n) Supplemental Child Credit.--
``(1) In general.--In the case of a taxpayer with
respect to whom a credit is allowed under section 24(a)
for the taxable year, the credit otherwise allowable
under this section shall be increased by the lesser
of--
``(A) the excess of--
``(i) the credits allowed under
subpart A (determined after the
application of section 26 and without
regard to this subsection), over
``(ii) the credits which would be
allowed under subpart A after the
application of section 26, determined
without regard to section 24 and this
subsection, or
``(B) the excess of--
``(i) the sum of the credits
allowed under this part (determined
without regard to sections 31, 33, and
34 and this subsection), over
``(ii) the sum of the regular tax
and the social security taxes (as
defined in section 24(d)).
The credit determined under this subsection shall be
allowed without regard to any other provision of this
section, including subsection (d).
``(2) Coordination with other credits.--The amount
of the credit under this subsection shall reduce the
amount of the credits otherwise allowable under subpart
A for the taxable year (determined after the
application of section 26), but the amount of the
credit under this subsection (and such reduction) shall
not be taken into account in determining the amount of
any other credit allowable under this part.''.
SEC. 6004. AMENDMENTS RELATED TO TITLE II OF 1997 ACT.
(a) Amendments Related to Section 201 of 1997 Act.--
(1) The item relating to section 25A in the table
of sections for subpart A of part IV of subchapter A of
chapter 1 of the 1986 Code is amended to read as
follows:
``Sec. 25A. Hope and Lifetime Learning credits.''.
(2) Subsection (a) of section 6050S of the 1986
Code is amended to read as follows:
``(a) In General.--Any person--
``(1) which is an eligible educational
institution--
``(A) which receives payments for qualified
tuition and related expenses with respect to
any individual for any calendar year, or
``(B) which makes reimbursements or refunds
(or similar amounts) to any individual of
qualified tuition and related expenses,
``(2) which is engaged in a trade or business of
making payments to any individual under an insurance
arrangement as reimbursements or refunds (or similar
amounts) of qualified tuition and related expenses, or
``(3) except as provided in regulations, which is
engaged in a trade or business and, in the course of
which, receives from any individual interest
aggregating $600 or more for any calendar year on 1 or
more qualified education loans,
shall make the return described in subsection (b) with respect
to the individual at such time as the Secretary may by
regulations prescribe.''.
(3) Subparagraph (A) of section 201(c)(2) of the
1997 Act is amended to read as follows:
``(A) Subparagraph (B) of section
6724(d)(1) (relating to definitions) is amended
by redesignating clauses (x) through (xv) as
clauses (xi) through (xvi), respectively, and
by inserting after clause (ix) the following
new clause:
`` `(x) section 6050S (relating to
returns relating to payments for
qualified tuition and related
expenses),' ''.
(b) Amendments Related to Section 202 of 1997 Act.--
(1) Paragraph (1) of section 221(e) of the 1986
Code is amended by inserting ``by the taxpayer solely''
after ``incurred'' the first place it appears.
(2) Subsection (d) of section 221 of the 1986 Code
is amended by adding at the end the following new
sentence: ``Such 60 months shall be determined in the
manner prescribed by the Secretary in the case of
multiple loans which are refinanced by, or serviced as,
a single loan and in the case of loans incurred before
the date of the enactment of this section.''.
(c) Amendments Related to Section 211 of 1997 Act.--
(1) Paragraph (3) of section 135(c) of the 1986
Code is amended to read as follows:
``(3) Eligible educational institution.--The term
`eligible educational institution' has the meaning
given such term by section 529(e)(5).''.
(2) Subparagraph (A) of section 529(c)(3) of the
1986 Code is amended by striking ``section 72(b)'' and
inserting ``section 72''.
(3) Paragraph (2) of section 529(e) of the 1986
Code is amended to read as follows:
``(2) Member of family.--The term `member of the
family' means, with respect to any designated
beneficiary--
``(A) the spouse of such beneficiary,
``(B) an individual who bears a
relationship to such beneficiary which is
described in paragraphs (1) through (8) of
section 152(a), and
``(C) the spouse of any individual
described in subparagraph (B).''.
(d) Amendments Related to Section 213 of 1997 Act.--
(1) Section 530(b)(1) of the 1986 Code (defining
education individual retirement account) is amended by
inserting ``an individual who is'' before ``the
designated beneficiary'' in the material preceding
subparagraph (A).
(2)(A) Section 530(b)(1)(E) of the 1986 Code
(defining education individual retirement account) is
amended to read as follows:
``(E) Except as provided in subsection
(d)(7), any balance to the credit of the
designated beneficiary on the date on which the
beneficiary attains age 30 shall be distributed
within 30 days after such date to the
beneficiary or, if the beneficiary dies before
attaining age 30, shall be distributed within
30 days after the date of death of such
beneficiary.''.
(B) Paragraph (7) of section 530(d) of the 1986
Code is amended by inserting at the end the following
new sentence: ``In applying the preceding sentence,
members of the family (as so defined) of the designated
beneficiary shall be treated in the same manner as the
spouse under such paragraph (8).''.
(C) Subsection (d) of section 530 of the 1986 Code
is amended by adding at the end the following new
paragraph:
``(8) Deemed distribution on required distribution
date.--In any case in which a distribution is required
under subsection (b)(1)(E), any balance to the credit
of a designated beneficiary as of the close of the 30-
day period referred to in such subsection for making
such distribution shall be deemed distributed at the
close of such period.''.
(3)(A) Paragraph (1) of section 530(d) of the 1986
Code is amended by striking ``section 72(b)'' and
inserting ``section 72''.
(B) Subsection (e) of section 72 of the 1986 Code
is amended by inserting after paragraph (8) the
following new paragraph:
``(9) Extension of paragraph (2)(b) to qualified
state tuition programs and educational individual
retirement accounts.--Notwithstanding any other
provision of this subsection, paragraph (2)(B) shall
apply to amounts received under a qualified State
tuition program (as defined in section 529(b)) or under
an education individual retirement account (as defined
in section 530(b)). The rule of paragraph (8)(B) shall
apply for purposes of this paragraph.''.
(4) Paragraph (2) of section 135(d) of the 1986
Code is amended to read as follows:
``(2) Coordination with other higher education
benefits.--The amount of the qualified higher education
expenses otherwise taken into account under subsection
(a) with respect to the education of an individual
shall be reduced (before the application of subsection
(b)) by--
``(A) the amount of such expenses which are
taken into account in determining the credit
allowable to the taxpayer or any other person
under section 25A with respect to such
expenses, and
``(B) the amount of such expenses which are
taken into account in determining the exclusion
under section 530(d)(2).''.
(5) Section 530(d)(2) of the 1986 Code (relating to
distributions for qualified higher education expenses)
is amended by adding at the end the following new
subparagraph:
``(D) Disallowance of excluded amounts as
credit or deduction.--No deduction or credit
shall be allowed to the taxpayer under any
other section of this chapter for any qualified
education expenses to the extent taken into
account in determining the amount of the
exclusion under this paragraph.''.
(6) Section 530(d)(4)(B) of the 1986 Code (relating
to exceptions) is amended by striking ``or'' at the end
of clause (ii), by striking the period at the end of
clause (iii) and inserting ``, or'', and by adding at
the end the following new clause:
``(iv) an amount which is
includible in gross income solely
because the taxpayer elected under
paragraph (2)(C) to waive the
application of paragraph (2) for the
taxable year.''.
(7) So much of section 530(d)(4)(C) of the 1986
Code as precedes clause (ii) thereof is amended to read
as follows:
``(C) Contributions returned before due
date of return.--Subparagraph (A) shall not
apply to the distribution of any contribution
made during a taxable year on behalf of the
designated beneficiary if--
``(i) such distribution is made on
or before the day prescribed by law
(including extensions of time) for
filing the beneficiary's return of tax
for the taxable year or, if the
beneficiary is not required to file
such a return, the 15th day of the 4th
month of the taxable year following the
taxable year, and''.
(8)(A) Paragraph (5) of section 530(d) of the 1986
Code is amended by striking the first sentence and
inserting the following new sentence: ``Paragraph (1)
shall not apply to any amount paid or distributed from
an education individual retirement account to the
extent that the amount received is paid, not later than
the 60th day after the date of such payment or
distribution, into another education individual
retirement account for the benefit of the same
beneficiary or a member of the family (within the
meaning of section 529(e)(2)) of such beneficiary who
has not attained age 30 as of such date.''.
(B) Paragraph (6) of section 530(d) of the 1986
Code is amended by inserting before the period ``and
has not attained age 30 as of the date of such
change''.
(9) Subparagraph (C) of section 135(c)(2) of the
1986 Code is amended--
(A) by inserting ``and education individual
retirement accounts'' in the heading after
``program'', and
(B) by striking ``section 529(c)(3)(A)''
and inserting ``section 72''.
(10)(A) Paragraph (1) of section 4973(e) of the
1986 Code is amended to read as follows:
``(1) In general.--In the case of education
individual retirement accounts maintained for the
benefit of any 1 beneficiary, the term `excess
contributions' means the sum of--
``(A) the amount by which the amount
contributed for the taxable year to such
accounts exceeds $500 (or, if less, the sum of
the maximum amounts permitted to be contributed
under section 530(c) by the contributors to
such accounts for such year),
``(B) if any amount is contributed (other
than a contribution described in section
530(b)(2)(B)) during such year to a qualified
State tuition program for the benefit of such
beneficiary, any amount contributed to such
accounts for such taxable year, and
``(C) the amount determined under this
subsection for the preceding taxable year,
reduced by the sum of--
``(i) the distributions out of the
accounts for the taxable year (other
than rollover distributions), and
``(ii) the excess (if any) of the
maximum amount which may be contributed
to the accounts for the taxable year
over the amount contributed to the
accounts for the taxable year.''.
(B) Paragraph (2) of section 4973(e) of the 1986
Code is amended by striking subparagraph (B) and by
redesignating subparagraph (C) as subparagraph (B).
(e) Amendments Related to Section 224 of 1997 Act.--
(1) Clauses (vi) and (vii) of section 170(e)(6)(B)
of the 1986 Code are each amended by striking
``entity's'' and inserting ``donee's''.
(2) Clause (iv) of section 170(e)(6)(B) of the 1986
Code is amended by striking ``organization or entity''
and inserting ``donee''.
(3) Subclause (I) of section 170(e)(6)(C)(ii) of
the 1986 Code is amended by striking ``an entity'' and
inserting ``a donee''.
(4) Section 170(e)(6)(F) of the 1986 Code (relating
to termination) is amended by striking ``1999'' and
inserting ``2000''.
(f) Amendments Related to Section 225 of 1997 Act.--
(1) The last sentence of section 108(f)(2) of the
1986 Code is amended to read as follows:
``The term `student loan' includes any loan made by an
educational organization described in section
170(b)(1)(A)(ii) or by an organization exempt from tax
under section 501(a) to refinance a loan to an
individual to assist the individual in attending any
such educational organization but only if the
refinancing loan is pursuant to a program of the
refinancing organization which is designed as described
in subparagraph (D)(ii).''.
(2) Section 108(f)(3) of the 1986 Code is amended
by striking ``(or by an organization described in
paragraph (2)(E) from funds provided by an organization
described in paragraph (2)(D))''.
(g) Amendments Related to Section 226 of 1997 Act.--
(1) Section 226(a) of the 1997 Act is amended by
striking ``section 1397E'' and inserting ``section
1397D''.
(2) Section 1397E(d)(4)(B) of the 1986 Code is
amended by striking ``local education agency as
defined'' and inserting ``local educational agency as
defined''.
(3) Section 1397E is amended by adding at the end
the following new subsection:
``(h) Credit Treated as Allowed Under Part IV of Subchapter
A.--For purposes of subtitle F, the credit allowed by this
section shall be treated as a credit allowable under part IV of
subchapter A of this chapter.''.
(4) Subsection (g) of section 1397E of the 1986
Code is amended by inserting ``(determined without
regard to subsection (c))'' after ``section''.
(5) Subparagraph (D) of section 42(j)(4) of the
1986 Code is amended by striking ``subpart A, B, D, or
G of this part'' and inserting ``this chapter''.
(6) Paragraph (4) of section 49(b) of the 1986 Code
is amended by striking ``subpart A, B, D, or G'' and
inserting ``this chapter''.
(7) Subparagraph (C) of section 50(a)(5) of the
1986 Code is amended by striking ``subpart A, B, D, or
G'' and inserting ``this chapter''.
SEC. 6005. AMENDMENTS RELATED TO TITLE III OF 1997 ACT.
(a) Amendments Related to Section 301 of 1997 Act.--
(1) Section 219(g) of the 1986 Code is amended--
(A) by inserting ``or the individual's
spouse'' after ``individual'' in paragraph (1),
and
(B) by striking paragraph (7) and
inserting:
``(7) Special rule for spouses who are not active
participants.--If this subsection applies to an
individual for any taxable year solely because their
spouse is an active participant, then, in applying this
subsection to the individual (but not their spouse)--
``(A) the applicable dollar amount under
paragraph (3)(B)(i) shall be $150,000, and
``(B) the amount applicable under paragraph
(2)(A)(ii) shall be $10,000.''.
(2) Paragraph (2) of section 301(a) of the 1997 Act
is amended by inserting ``after `$10,000' '' before the
period.
(b) Amendments Related to Section 302 of 1997 Act.--
(1) Section 408A(c)(3)(A) of the 1986 Code is
amended by striking ``shall be reduced'' and inserting
``shall not exceed an amount equal to the amount
determined under paragraph (2)(A) for such taxable
year, reduced''.
(2) Section 408A(c)(3) of the 1986 Code (relating
to limits based on modified adjusted gross income) is
amended--
(A) by inserting ``or a married individual
filing a separate return'' after ``joint
return'' in subparagraph (A)(ii),
(B) in subparagraph (B)--
(i) by inserting ``, for the
taxable year of the distribution to
which such contribution relates'' after
``if'', and
(ii) by striking ``for such taxable
year'' in clause (i), and
(C) by striking ``and the deduction under
section 219 shall be taken into account'' in
subparagraph (C)(i).
(3)(A) Section 408A(d)(2) of the 1986 Code
(defining qualified distribution) is amended by
striking subparagraph (B) and inserting the following
new subparagraph:
``(B) Distributions within nonexclusion
period.--A payment or distribution from a Roth
IRA shall not be treated as a qualified
distribution under subparagraph (A) if such
payment or distribution is made within the 5-
taxable year period beginning with the 1st
taxable year for which the individual made a
contribution to a Roth IRA (or such
individual's spouse made a contribution to a
Roth IRA) established for such individual.''.
(B) Section 408A(d)(2) of the 1986 Code is amended
by adding at the end the following new subparagraph:
``(C) Distributions of excess contributions
and earnings.--The term `qualified
distribution' shall not include any
distribution of any contribution described in
section 408(d)(4) and any net income allocable
to the contribution.''.
(4) Section 408A(d)(3) of the 1986 Code (relating
to rollovers from IRAs other than Roth IRAs) is
amended--
(A) by striking clause (iii) of
subparagraph (A) and inserting:
``(iii) unless the taxpayer elects
not to have this clause apply for any
taxable year, any amount required to be
included in gross income for such
taxable year by reason of this
paragraph for any distribution before
January 1, 1999, shall be so included
ratably over the 4-taxable year period
beginning with such taxable year.
Any election under clause (iii) for any
distributions during a taxable year may not be
changed after the due date for such taxable
year.''; and
(B) by adding at the end the following new
subparagraph:
``(F) Special rules for contributions to
which 4-year averaging applies.--In the case of
a qualified rollover contribution to a Roth IRA
of a distribution to which subparagraph
(A)(iii) applied, the following rules shall
apply:
``(i) Acceleration of inclusion.--
``(I) In general.--The
amount required to be included
in gross income for each of the
first 3 taxable years in the 4-
year period under subparagraph
(A)(iii) shall be increased by
the aggregate distributions
from Roth IRAs for such taxable
year which are allocable under
paragraph (4) to the portion of
such qualified rollover
contribution required to be
included in gross income under
subparagraph (A)(i).
``(II) Limitation on
aggregate amount included.--The
amount required to be included
in gross income for any taxable
year under subparagraph
(A)(iii) shall not exceed the
aggregate amount required to be
included in gross income under
subparagraph (A)(iii) for all
taxable years in the 4-year
period (without regard to
subclause (I)) reduced by
amounts included for all
preceding taxable years.
``(ii) Death of distributee.--
``(I) In general.--If the
individual required to include
amounts in gross income under
such subparagraph dies before
all of such amounts are
included, all remaining amounts
shall be included in gross
income for the taxable year
which includes the date of
death.
``(II) Special rule for
surviving spouse.--If the
spouse of the individual
described in subclause (I)
acquires the individual's
entire interest in any Roth IRA
to which such qualified
rollover contribution is
properly allocable, the spouse
may elect to treat the
remaining amounts described in
subclause (I) as includible in
the spouse's gross income in
the taxable years of the spouse
ending with or within the
taxable years of such
individual in which such
amounts would otherwise have
been includible. Any such
election may not be made or
changed after the due date for
the spouse's taxable year which
includes the date of death.
``(G) Special rule for applying section
72.--
``(i) In general.--If--
``(I) any portion of a
distribution from a Roth IRA is
properly allocable to a
qualified rollover contribution
described in this paragraph,
and
``(II) such distribution is
made within the 5-taxable year
period beginning with the
taxable year in which such
contribution was made,
then section 72(t) shall be applied as
if such portion were includible in
gross income.
``(ii) Limitation.--Clause (i)
shall apply only to the extent of the
amount of the qualified rollover
contribution includible in gross income
under subparagraph (A)(i).''
(5)(A) Section 408A(d)(4) of the 1986 Code is
amended to read as follows:
``(4) Aggregation and ordering rules.--
``(A) Aggregation rules.--Section 408(d)(2)
shall be applied separately with respect to
Roth IRAs and other individual retirement
plans.
``(B) Ordering rules.--For purposes of
applying this section and section 72 to any
distribution from a Roth IRA, such distribution
shall be treated as made--
``(i) from contributions to the
extent that the amount of such
distribution, when added to all
previous distributions from the Roth
IRA, does not exceed the aggregate
contributions to the Roth IRA, and
``(ii) from such contributions in
the following order:
``(I) Contributions other
than qualified rollover
contributions to which
paragraph (3) applies.
``(II) Qualified rollover
contributions to which
paragraph (3) applies on a
first-in, first-out basis.
Any distribution allocated to a qualified
rollover contribution under clause (ii)(II)
shall be allocated first to the portion of such
contribution required to be included in gross
income.''.
(B) Section 408A(d)(1) of the 1986 Code is amended
to read as follows:
``(1) Exclusion.--Any qualified distribution from a
Roth IRA shall not be includible in gross income.''.
(6)(A) Section 408A(d) of the 1986 Code (relating
to distribution rules) is amended by adding at the end
the following new paragraph:
``(6) Taxpayer may make adjustments before due
date.--
``(A) In general.--Except as provided by
the Secretary, if, on or before the due date
for any taxable year, a taxpayer transfers in a
trustee-to-trustee transfer any contribution to
an individual retirement plan made during such
taxable year from such plan to any other
individual retirement plan, then, for purposes
of this chapter, such contribution shall be
treated as having been made to the transferee
plan (and not the transferor plan).
``(B) Special rules.--
``(i) Transfer of earnings.--
Subparagraph (A) shall not apply to the
transfer of any contribution unless
such transfer is accompanied by any net
income allocable to such contribution.
``(ii) No deduction.--Subparagraph
(A) shall apply to the transfer of any
contribution only to the extent no
deduction was allowed with respect to
the contribution to the transferor
plan.''.
(B) Section 408A(d)(3) of the 1986 Code, as amended
by this subsection, is amended by striking subparagraph
(D) and by redesignating subparagraphs (E), (F), and
(G) as subparagraphs (D), (E), and (F), respectively.
(7) Section 408A(d) of the 1986 Code, as amended by
paragraph (6), is amended by adding at the end the
following new paragraph:
``(7) Due date.--For purposes of this subsection,
the due date for any taxable year is the date
prescribed by law (including extensions of time) for
filing the taxpayer's return for such taxable year.''.
(8)(A) Section 4973(f) of the 1986 Code is
amended--
(i) by striking ``such accounts'' in
paragraph (1)(A) and inserting ``Roth IRAs'',
and
(ii) by striking ``to the accounts'' in
paragraph (2)(B) and inserting ``by the
individual to all individual retirement
plans''.
(B) Section 4973(b) of the 1986 Code is amended--
(i) by inserting ``a contribution to a Roth
IRA or'' after ``other than'' in paragraph
(1)(A), and
(ii) by inserting ``(including the amount
contributed to a Roth IRA)'' after
``annuities'' in paragraph (2)(C).
(C) Section 302(b) of the 1997 Act is amended by
striking ``Section 4973(b)'' and inserting ``Section
4973''.
(9) Section 408A of the 1986 Code is amended by
adding at the end the following new subsection:
``(f) Individual Retirement Plan.--For purposes of this
section--
``(1) a simplified employee pension or a simple
retirement account may not be designated as a Roth IRA,
and
``(2) contributions to any such pension or account
shall not be taken into account for purposes of
subsection (c)(2)(B).''.
(c) Amendments Related to Section 303 of 1997 Act.--
(1) Section 72(t)(8)(E) of the 1986 Code is
amended--
(A) by striking ``120 days'' and inserting
``120th day'', and
(B) by striking ``60 days'' and inserting
``60th day''.
(2)(A) Section 402(c)(4) of the 1986 Code is
amended by striking ``and'' at the end of subparagraph
(A), by striking the period at the end of subparagraph
(B) and inserting ``, and'', by inserting at the end
the following new subparagraph:
``(C) any hardship distribution described
in section 401(k)(2)(B)(i)(IV).''.
(B) Section 403(b)(8)(B) of the 1986 Code is
amended by inserting ``(including paragraph (4)(C)
thereof)'' after ``section 402(c)''.
(C) The amendments made by this paragraph shall
apply to distributions after December 31, 1998.
(d) Amendments Related to Section 311 of 1997 Act.--
(1) Subsection (h) of section 1 of the 1986 Code
(relating to maximum capital gains rate) is amended to
read as follows:
``(h) Maximum Capital Gains Rate.--
``(1) In general.--If a taxpayer has a net capital
gain for any taxable year, the tax imposed by this
section for such taxable year shall not exceed the sum
of--
``(A) a tax computed at the rates and in
the same manner as if this subsection had not
been enacted on the greater of--
``(i) taxable income reduced by the
net capital gain, or
``(ii) the lesser of--
``(I) the amount of taxable
income taxed at a rate below 28
percent, or
``(II) taxable income
reduced by the adjusted net
capital gain,
``(B) 10 percent of so much of the adjusted
net capital gain (or, if less, taxable income)
as does not exceed the excess (if any) of--
``(i) the amount of taxable income
which would (without regard to this
paragraph) be taxed at a rate below 28
percent, over
``(ii) the taxable income reduced
by the adjusted net capital gain,
``(C) 20 percent of the adjusted net
capital gain (or, if less, taxable income) in
excess of the amount on which a tax is
determined under subparagraph (B),
``(D) 25 percent of the excess (if any)
of--
``(i) the unrecaptured section 1250
gain (or, if less, the net capital
gain), over
``(ii) the excess (if any) of--
``(I) the sum of the amount
on which tax is determined
under subparagraph (A) plus the
net capital gain, over
``(II) taxable income, and
``(E) 28 percent of the amount of taxable
income in excess of the sum of the amounts on
which tax is determined under the preceding
subparagraphs of this paragraph.
``(2) Reduced capital gain rates for qualified 5-
year gain.--
``(A) Reduction in 10-percent rate.--In the
case of any taxable year beginning after
December 31, 2000, the rate under paragraph
(1)(B) shall be 8 percent with respect to so
much of the amount to which the 10-percent rate
would otherwise apply as does not exceed
qualified 5-year gain, and 10 percent with
respect to the remainder of such amount.
``(B) Reduction in 20-percent rate.--The
rate under paragraph (1)(C) shall be 18 percent
with respect to so much of the amount to which
the 20-percent rate would otherwise apply as
does not exceed the lesser of--
``(i) the excess of qualified 5-
year gain over the amount of such gain
taken into account under subparagraph
(A) of this paragraph, or
``(ii) the amount of qualified 5-
year gain (determined by taking into
account only property the holding
period for which begins after December
31, 2000),
and 20 percent with respect to the remainder of
such amount. For purposes of determining under
the preceding sentence whether the holding
period of property begins after December 31,
2000, the holding period of property acquired
pursuant to the exercise of an option (or other
right or obligation to acquire property) shall
include the period such option (or other right
or obligation) was held.
``(3) Net capital gain taken into account as
investment income.--For purposes of this subsection,
the net capital gain for any taxable year shall be
reduced (but not below zero) by the amount which the
taxpayer takes into account as investment income under
section 163(d)(4)(B)(iii).
``(4) Adjusted net capital gain.--For purposes of
this subsection, the term `adjusted net capital gain'
means net capital gain reduced (but not below zero) by
the sum of--
``(A) unrecaptured section 1250 gain, and
``(B) 28-percent rate gain.
``(5) 28-percent rate gain.--For purposes of this
subsection--
``(A) In general.--The term `28-percent
rate gain' means the excess (if any) of--
``(i) the sum of--
``(I) the aggregate long-
term capital gain from property
held for more than 1 year but
not more than 18 months,
``(II) collectibles gain,
and
``(III) section 1202 gain,
over
``(ii) the sum of--
``(I) the aggregate long-
term capital loss (not
described in subclause (IV))
from property referred to in
clause (i)(I),
``(II) collectibles loss,
``(III) the net short-term
capital loss, and
``(IV) the amount of long-
term capital loss carried under
section 1212(b)(1)(B) to the
taxable year.
``(B) Special rules.--
``(i) Short sale gains and holding
periods.--Rules similar to the rules of
section 1233(b) shall apply where the
substantially identical property has
been held more than 1 year but not more
than 18 months; except that, for
purposes of such rules--
``(I) section 1233(b)(1)
shall be applied by
substituting `18 months' for `1
year' each place it appears,
and
``(II) the holding period
of such property shall be
treated as being 1 year on the
day before the earlier of the
date of the closing of the
short sale or the date such
property is disposed of.
``(ii) Long-term losses.--Section
1233(d) shall be applied separately by
substituting `18 months' for `1 year'
each place it appears.
``(iii) Options.--A rule similar to
the rule of section 1092(f) shall apply
where the stock was held for more than
18 months.
``(iv) Section 1256 contracts.--
Amounts treated as long-term capital
gain or loss under section 1256(a)(3)
shall be treated as attributable to
property held for more than 18 months.
``(6) Collectibles gain and loss.--For purposes of
this subsection--
``(A) In general.--The terms `collectibles
gain' and `collectibles loss' mean gain or loss
(respectively) from the sale or exchange of a
collectible (as defined in section 408(m)
without regard to paragraph (3) thereof) which
is a capital asset held for more than 18 months
butonly to the extent such gain is taken into
account in computing gross income and such loss is taken into account
in computing taxable income.
``(B) Partnerships, etc.--For purposes of
subparagraph (A), any gain from the sale of an
interest in a partnership, S corporation, or
trust which is attributable to unrealized
appreciation in the value of collectibles shall
be treated as gain from the sale or exchange of
a collectible. Rules similar to the rules of
section 751 shall apply for purposes of the
preceding sentence.
``(7) Unrecaptured section 1250 gain.--For purposes
of this subsection--
``(A) In general.--The term `unrecaptured
section 1250 gain' means the excess (if any)
of--
``(i) the amount of long-term
capital gain (not otherwise treated as
ordinary income) which would be treated
as ordinary income if--
``(I) section 1250(b)(1)
included all depreciation and
the applicable percentage under
section 1250(a) were 100
percent, and
``(II) only gain from
property held for more than 18
months were taken into account,
over
``(ii) the excess (if any) of--
``(I) the amount described
in paragraph (5)(A)(ii), over
``(II) the amount described
in paragraph (5)(A)(i).
``(B) Limitation with respect to section
1231 property.--The amount described in
subparagraph (A)(i) from sales, exchanges, and
conversions described in section 1231(a)(3)(A)
for any taxable year shall not exceed the net
section 1231 gain (as defined in section
1231(c)(3)) for such year.
``(8) Section 1202 gain.--For purposes of this
subsection, the term `section 1202 gain' means an
amount equal to the gain excluded from gross income
under section 1202(a).
``(9) Qualified 5-year gain.--For purposes of this
subsection, the term `qualified 5-year gain' means the
aggregate long-term capital gain from property held for
more than 5 years. The determination under the
preceding sentence shall be made without regard to
collectibles gain, gain described in paragraph
(7)(A)(i), and section 1202 gain.
``(10) Coordination with recapture of net ordinary
losses under section 1231.--If any amount is treated as
ordinary income under section 1231(c), such amount
shall be allocated among the separate categories of net
section 1231 gain (as defined in section 1231(c)(3)) in
such manner as the Secretary may by forms or
regulations prescribe.
``(11) Regulations.--The Secretary may prescribe
such regulations as are appropriate (including
regulations requiring reporting) to apply this
subsection in the case of sales and exchanges by pass-
thru entities and of interests in such entities.
``(12) Pass-thru entity defined.--For purposes of
this subsection, the term `pass-thru entity' means--
``(A) a regulated investment company,
``(B) a real estate investment trust,
``(C) an S corporation,
``(D) a partnership,
``(E) an estate or trust,
``(F) a common trust fund,
``(G) a foreign investment company which is
described in section 1246(b)(1) and for which
an election is in effect under section 1247,
and
``(H) a qualified electing fund (as defined
in section 1295).
``(13) Special rules for periods during 1997.--
``(A) Determination of 28-percent rate
gain.--In applying paragraph (5)--
``(i) the amount determined under
subclause (I) of paragraph (5)(A)(i)
shall include long-term capital gain
(not otherwise described in paragraph
(5)(A)(i)) which is properly taken into
account for the portion of the taxable
year before May 7, 1997,
``(ii) the amounts determined under
subclause (I) of paragraph (5)(A)(ii)
shall include long-term capital loss
(not otherwise described in paragraph
(5)(A)(ii)) which is properly taken
into account for the portion of the
taxable year before May 7, 1997, and
``(iii) clauses (i)(I) and (ii)(I)
of paragraph (5)(A) shall be applied by
not taking into account any gain and
loss on property held for more than 1
year but not more than 18 months which
is properly taken into account for the
portion of the taxable year after May
6, 1997, and before July 29, 1997.
``(B) Other special rules.--
``(i) Determination of unrecaptured
section 1250 gain not to include pre-
may 7, 1997 gain.--The amount
determined under paragraph (7)(A)(i)
shall not include gain properly taken
into account for the portion of the
taxable year before May 7, 1997.
``(ii) Other transitional rules for
18-month holding period.--Paragraphs
(6)(A) and (7)(A)(i)(II) shall be
applied by substituting `1 year' for
`18 months' with respect to gain
properly taken into account for the
portion of the taxable year after May
6, 1997, and before July 29, 1997.
``(C) Special rules for pass-thru
entities.--In applying this paragraph with
respect to any pass-thru entity, the
determination of when gains and loss are
properly taken into account shall be made at
the entity level.''.
(2) Paragraph (3) of section 55(b) of the 1986 Code
is amended to read as follows:
``(3) Maximum rate of tax on net capital gain of
noncorporate taxpayers.--The amount determined under
the first sentence of paragraph (1)(A)(i) shall not
exceed the sum of--
``(A) the amount determined under such
first sentence computed at the rates and in the
same manner as if this paragraph had not been
enacted on the taxable excess reduced by the
lesser of--
``(i) the net capital gain, or
``(ii) the sum of--
``(I) the adjusted net
capital gain, plus
``(II) the unrecaptured
section 1250 gain, plus
``(B) 10 percent of so much of the adjusted
net capital gain (or, if less, taxable excess)
as does not exceed the amount on which a tax is
determined under section 1(h)(1)(B), plus
``(C) 20 percent of the adjusted net
capital gain (or, if less, taxable excess) in
excess of the amount on which tax is determined
under subparagraph (B), plus
``(D) 25 percent of the amount of taxable
excess in excess of the sum of the amounts on
which tax is determined under the preceding
subparagraphs of this paragraph.
In the case of taxable years beginning after December
31, 2000, rules similar to the rules of section 1(h)(2)
shall apply for purposes of subparagraphs (B) and (C).
Terms used in this paragraph which are also used in
section 1(h) shall have the respective meanings given
such terms by section 1(h) but computed with the
adjustments under this part.''.
(3) Section 57(a)(7) of the 1986 Code is amended by
adding at the end the following new sentence: ``In the
case of stock the holding period of which begins after
December 31, 2000 (determined with the application of
the last sentence of section 1(h)(2)(B)), the preceding
sentence shall be applied by substituting `28 percent'
for `42 percent'.''.
(4) Paragraphs (11) and (12) of section 1223, and
section 1235(a), of the 1986 Code are each amended by
striking ``1 year'' each place it appears and inserting
``18 months''.
(e) Amendments Related to Section 312 of 1997 Act.--
(1) Paragraph (2) of section 121(b) of the 1986
Code is amended to read as follows:
``(2) Special rules for joint returns.--In the case
of a husband and wife who make a joint return for the
taxable year of the sale or exchange of the property--
``(A) $500,000 Limitation for certain joint
returns.--Paragraph (1) shall be applied by
substituting `$500,000' for `$250,000' if--
``(i) either spouse meets the
ownership requirements of subsection
(a) with respect to such property,
``(ii) both spouses meet the use
requirements of subsection (a) with
respect to such property, and
``(iii) neither spouse is
ineligible for the benefits of
subsection (a) with respect to such
property by reason of paragraph (3).
``(B) Other joint returns.--If such spouses
do not meet the requirements of subparagraph
(A), the limitation under paragraph (1) shall
be the sum of the limitations under paragraph
(1) to which each spouse would be entitled if
such spouses had not been married. For purposes
of the preceding sentence, each spouse shall be
treated as owning the property during the
period that either spouse owned the
property.''.
(2) Section 121(c)(1) of the 1986 Code is amended
to read as follows:
``(1) In general.--In the case of a sale or
exchange to which this subsection applies, the
ownership and use requirements of subsection (a), and
subsection (b)(3), shall not apply; but the dollar
limitation under paragraph (1) or (2) of subsection
(b), whichever is applicable, shall be equal to--
``(A) the amount which bears the same ratio
to such limitation (determined without regard
to this paragraph) as
``(B)(i) the shorter of--
``(I) the aggregate periods, during
the 5-year period ending on the date of
such sale or exchange, such property
has been owned and used by the taxpayer
as the taxpayer's principal residence,
or
``(II) the period after the date of
the most recent prior sale or exchange
by the taxpayer to which subsection (a)
applied and before the date of such
sale or exchange, bears to
``(ii) 2 years.''.
(3) Section 312(d)(2) of the 1997 Act (relating to
sales before date of the enactment) is amended by
inserting ``on or'' before ``before'' each place it
appears in the text and heading.
(f) Amendments Related to Section 313 of 1997 Act.--
(1) Subsection (a) of section 1045 of such Code is
amended--
(A) by striking ``an individual'' and
inserting ``a taxpayer other than a
corporation'', and
(B) by striking ``such individual'' and
inserting ``such taxpayer''.
(2) Subsection (b) of section 1045 of the 1986 Code
is amended by adding at the end the following new
paragraph:
``(5) Certain rules to apply.--Rules similar to the
rules of subsections (f), (g), (h), (i), (j), and (k)
of section 1202 shall apply.''.
SEC. 6006. AMENDMENT RELATED TO TITLE IV OF 1997 ACT.
(a) Amendment Related to Section 401 of 1997 Act.--
Paragraph (1) of section 55(e) of the 1986 Code is amended to
read as follows:
``(1) In general.--
``(A) $7,500,000 gross receipts test.--The
tentative minimum tax of a corporation shall be
zero for any taxable year if the corporation's
average annual gross receipts for all 3-
taxable-year periods ending before such taxable
year does not exceed $7,500,000. For purposes
of the preceding sentence, only taxable years
beginning after December 31, 1993, shall be
taken into account.
``(B) $5,000,000 gross receipts test for
first 3-year period.--Subparagraph (A) shall be
applied by substituting `$5,000,000' for
`$7,500,000' for the first 3-taxable-year
period (or portion thereof) of the corporation
which is taken into account under subparagraph
(A).
``(C) First taxable year corporation in
existence.--If such taxable year is the first
taxable year that such corporation is in
existence, the tentative minimum tax of such
corporation for such year shall be zero.
``(D) Special rules.--For purposes of this
paragraph, the rules of paragraphs (2) and (3)
of section 448(c) shall apply.''.
(b) Amendment Related to Section 402 of 1997 Act.--
Subsection (c) of section 168 of the 1986 Code is amended--
(1) by striking paragraph (2), and
(2) by striking the portion of such subsection
preceding the table in paragraph (1) and inserting the
following:
``(c) Applicable Recovery Period.--For purposes of this
section, the applicable recovery period shall be determined in
accordance with the following table:''.
SEC. 6007. AMENDMENTS RELATED TO TITLE V OF 1997 ACT.
(a) Amendments Related to Section 501 of 1997 Act.--
(1) Subsection (c) of section 2631 of the 1986 Code
is amended to read as follows:
``(c) Inflation Adjustment.--
``(1) In general.--In the case of any calendar year
after 1998, the $1,000,000 amount contained in
subsection (a) shall be increased by an amount equal
to--
``(A) $1,000,000, multiplied by
``(B) the cost-of-living adjustment
determined under section 1(f)(3) for such
calendar year by substituting `calendar year
1997' for `calendar year 1992' in subparagraph
(B) thereof.
If any amount as adjusted under the preceding sentence
is not a multiple of $10,000, such amount shall be
rounded to the next lowest multiple of $10,000.
``(2) Allocation of increase.--Any increase under
paragraph (1) for any calendar year shall apply only to
generation-skipping transfers made during or after such
calendar year; except that no such increase for
calendar years after the calendar year in which the
transferor dies shall apply to transfers by such
transferor.''.
(2) Subsection (f) of section 501 of the 1997 Act
is amended by inserting ``(other than the amendment
made by subsection (d))'' after ``this section''.
(b) Amendments Related to Section 502 of 1997 Act.--
(1)(A) Section 2033A of the 1986 Code is hereby
moved to the end of part IV of subchapter A of chapter
11 of the 1986 Code and redesignated as section 2057.
(B) So much of such section 2057 (as so
redesignated) as precedes subsection (b) thereof is
amended to read as follows:
``SEC. 2057. FAMILY-OWNED BUSINESS INTERESTS.
``(a) General Rule.--
``(1) Allowance of deduction.--For purposes of the
tax imposed by section 2001, in the case of an estate
of a decedent to which this section applies, the value
of the taxable estate shall be determined by deducting
from the value of the gross estate the adjusted value
of the qualified family-owned business interests of the
decedent which are described in subsection (b)(2).
``(2) Maximum deduction.--The deduction allowed by
this section shall not exceed $675,000.
``(3) Coordination with unified credit.--
``(A) In general.--Except as provided in
subparagraph (B), if this section applies to an
estate, the applicable exclusion amount under
section 2010 shall be $625,000.
``(B) Increase in unified credit if
deduction is less than $675,000.--If the
deduction allowed by this section is less than
$675,000, the amount of the applicable
exclusion amount under section 2010 shall be
increased (but not above the amount which would
apply to the estate without regard to this
section) by the excess of $675,000 over the
amount of the deduction allowed.''.
(C) Subparagraph (A) of section 2057(b)(2) of the
1986 Code (as so redesignated) is amended by striking
``(without regard to this section)''.
(D) Subsection (c) of section 2057 of the 1986 Code
(as so redesignated) is amended by striking
``(determined without regard to this section)''.
(E) The table of sections for part III of
subchapter A of chapter 11 of the 1986 Code is amended
by striking the item relating to section 2033A.
(F) The table of sections for part IV of such
subchapter is amended by adding at the end the
following new item:
``Sec. 2057. Family-owned business interests.''.
(2) Section 2057(b)(3) of the 1986 Code (as so
redesignated) is amended to read as follows:
``(3) Includible gifts of interests.--The amount of
the gifts of qualified family-owned business interests
determined under this paragraph is the sum of--
``(A) the amount of such gifts from the
decedent to members of the decedent's family
taken into account under section 2001(b)(1)(B),
plus
``(B) the amount of such gifts otherwise
excluded under section 2503(b),
to the extent such interests are continuously held by
members of such family (other than the decedent's
spouse) between the date of the gift and the date of
the decedent's death.''.
(3)(A) Section 2057(e)(2)(C) of the 1986 Code (as
so redesignated) is amended by striking ``(as defined
in section 543(a))'' and inserting ``(as defined in
section 543(a) without regard to paragraph (2)(B)
thereof) if such trade or business were a
corporation''.
(B) Clause (ii) of section 2057(e)(2)(D) of the
1986 Code (as so redesignated) is amended by striking
``income of which is described in section 543(a) or''
and inserting ``personal holding company income (as
defined in subparagraph (C)) or income described''.
(C) Paragraph (2) of section 2057(e) of the 1986
Code (as so redesignated) is amended by adding at the
end the following new flush sentence:
``In the case of a lease of property on a net cash
basis by the decedent to a member of the decedent's
family, income from such lease shall not be treated as
personal holding company income for purposes of
subparagraph (C), and such property shall not be
treated as an asset described in subparagraph (D)(ii),
if such income and property would not be so treated if
the lessor had engaged directly in the activities
engaged in by the lessee with respect to such
property.''.
(4) Paragraph (2) of section 2057(f) of the 1986
Code (as so redesignated) is amended--
(A) by striking ``(as determined under
rules similar to the rules of section
2032A(c)(2)(B))'', and
(B) by adding at the end the following new
subparagraph:
``(C) Adjusted tax difference.--For
purposes of subparagraph (A)--
``(i) In general.--The adjusted tax
difference attributable to a qualified
family-owned business interest is the
amount which bears the same ratio to
the adjusted tax difference with
respect to the estate (determined under
clause (ii)) as the value of such
interest bears to the value of all
qualified family-owned business
interests described in subsection
(b)(2).
``(ii) Adjusted tax difference with
respect to the estate.--For purposes of
clause (i), the term `adjusted tax
difference with respect to the estate'
means the excess of what would have
been the estate tax liability but for
the election under this section over
the estate tax liability. For purposes
of this clause, the term `estate tax
liability' means the tax imposed by
section 2001 reduced by the credits
allowable against such tax.''.
(5)(A) Paragraph (1) of section 2057(e) of the 1986
Code (as so redesignated) is amended by adding at the
end the following new flush sentence:
``For purposes of the preceding sentence, a decedent
shall be treated as engaged in a trade or business if
any member of the decedent's family is engaged in such
trade or business.''.
(B) Subsection (f) of section 2057 of the 1986 Code
(as so redesignated) is amended by adding at the end
the following new paragraph:
``(3) Use in trade or business by family members.--
A qualified heir shall not be treated as disposing of
an interest described in subsection (e)(1)(A) by reason
of ceasing to be engaged in a trade or business so long
as the property to which such interest relates is used
in a trade or business by any member of such
individual's family.''.
(6) Paragraph (1) of section 2057(g) of the 1986
Code (as so redesignated) is amended by striking ``or
(M)''.
(7) Paragraph (3) of section 2057(i) of the 1986
Code (as so redesignated) is amended by redesignating
subparagraphs (L), (M), and (N) as subparagraphs (N),
(O), and (P), respectively, and by inserting after
subparagraph (K) the following new subparagraphs:
``(L) Section 2032A(g) (relating to
application to interests in partnerships,
corporations, and trusts).
``(M) Subsections (h) and (i) of section
2032A.''.
(c) Amendments Related to Section 503 of the 1997 Act.--
(1) Clause (iii) of section 6166(b)(7)(A) of the
1986 Code is amended to read as follows:
``(iii) for purposes of applying
section 6601(j), the 2-percent portion
(as defined in such section) shall be
treated as being zero.''.
(2) Clause (iii) of section 6166(b)(8)(A) of the
1986 Code is amended to read as follows:
``(iii) 2-percent interest rate not
to apply.--For purposes of applying
section 6601(j), the 2-percent portion
(as defined in such section) shall be
treated as being zero.''.
(d) Amendment Related to Section 505 of the 1997 Act.--
Paragraphs (1) and (2) of section 7479(a) of the 1986 Code are
each amended by striking ``an estate,'' and inserting ``an
estate (or with respect to any property included therein),''.
(e) Amendments Related to Section 506 of the 1997 Act.--
(1) Paragraph (1) of section 506(e) of the 1997 Act
is amended by striking ``and (c)'' and inserting ``,
(c), and (d)''.
(2)(A) Paragraph (9) of section 6501(c) of the 1986
Code is amended by striking the last sentence.
(B) Subsection (f) of section 2001 of the 1986 Code
is amended to read as follows:
``(f) Valuation of Gifts.--
``(1) In general.--If the time has expired under
section 6501 within which a tax may be assessed under
chapter 12 (or under corresponding provisions of prior
laws) on--
``(A) the transfer of property by gift made
during a preceding calendar period (as defined
in section 2502(b)), or
``(B) an increase in taxable gifts required
under section 2701(d),
the value thereof shall, for purposes of computing the
tax under this chapter, be the value as finally
determined for purposes of chapter 12.
``(2) Final determination.--For purposes of
paragraph (1), a value shall be treated as finally
determined for purposes of chapter 12 if--
``(A) the value is shown on a return under
such chapter and such value is not contested by
the Secretary before the expiration of the time
referred to in paragraph (1) with respect to
such return,
``(B) in a case not described in
subparagraph (A), the value is specified by the
Secretary and such value is not timely
contested by the taxpayer, or
``(C) the value is determined by a court or
pursuant to a settlement agreement with the
Secretary.''.
(B) Subsection (c) of section 2504 of the 1986 Code
is amended to read as follows:
``(c) Valuation of Gifts.--If the time has expired under
section 6501 within which a tax may be assessed under this
chapter 12 (or under corresponding provisions of prior laws)
on--
``(1) the transfer of property by gift made during
a preceding calendar period (as defined in section
2502(b)), or
``(2) an increase in taxable gifts required under
section 2701(d),
the value thereof shall, for purposes of computing the tax
under this chapter, be the value as finally determined (within
the meaning of section 2001(f)(2)) for purposes of this
chapter.''.
(f) Amendments Related to Section 507 of 1997 Act.--
(1) Paragraph (3) of section 1(g) of the 1986 Code
is amended by striking subparagraph (C) and by
redesignating subparagraph (D) as subparagraph (C).
(2) Section 641 of the 1986 Code is amended by
striking subsection (c) and by redesignating subsection
(d) as subsection (c).
(3) Paragraph (4) of section 1361(e) of the 1986
Code is amended by striking ``section 641(d)'' and
inserting ``section 641(c)''.
(4) Subparagraph (A) of section 6103(e)(1) of the
1986 Code is amended by striking clause (ii) and by
redesignating clauses (iii) and (iv) as clauses (ii)
and (iii), respectively.
(g) Amendments Related to Section 508 of 1997 Act.--
(1) Subsection (c) of section 2031 of the 1986 Code
is amended by redesignating paragraph (9) as paragraph
(10) and by inserting after paragraph (8) the following
new paragraph:
``(9) Treatment of easements granted after death.--
In any case in which the qualified conservation
easement is granted after the date of the decedent's
death and on or before the due date (including
extensions) for filing the return of tax imposed by
section 2001, the deduction under section 2055(f) with
respect to such easement shall be allowed to the estate
but only if no charitable deduction is allowed under
chapter 1 to any person with respect to the grant of
such easement.''.
(2) The first sentence of paragraph (6) of section
2031(c) of the 1986 Code is amended by striking all
that follows ``shall be made'' and inserting ``on or
before the due date (including extensions) for filing
the return of tax imposed by section 2001 and shall be
made on such return.''.
SEC. 6008. AMENDMENTS RELATED TO TITLE VII OF 1997 ACT.
(a) Amendment Related to Section 1400 of 1986 Code.--
Section 1400(b)(2)(B) of the 1986 Code is amended by inserting
``as determined on the basis of the 1990 census'' after
``percent''.
(b) Amendment Related to Section 1400A of 1986 Code.--
Subsection (a) of section 1400A of the 1986 Code is amended by
inserting before the period ``and section 1394(b)(3)(B)(iii)
shall be applied without regard to the employee residency
requirement''.
(c) Amendments Related to Section 1400B of 1986 Code.--
(1) Section 1400B(b) of the 1986 Code is amended by
inserting after paragraph (4) the following new
paragraph:
``(5) Treatment of dc zone termination.--The
termination of the designation of the DC Zone shall be
disregarded for purposes of determining whether any
property is a DC Zone asset.''.
(2) Paragraph (6) of section 1400B(b) of the 1986
Code is amended by striking ``(4)(A)(ii)'' and
inserting ``(4)(A)(i) or (ii)''.
(3) Section 1400B(c) of the 1986 Code is amended by
striking ``entity which is an''.
(4) Section 1400B(d)(2) of the 1986 Code is amended
by inserting ``as determined on the basis of the 1990
census'' after ``percent''.
(d) Amendments Related to Section 1400C of 1986 Code.--
(1) Paragraph (1) of section 1400C(b) of the 1986
Code is amended by inserting ``and subsection (d)''
after ``this subsection''.
(2) Paragraph (1) of section 1400C(c) of the 1986
Code is amended to read as follows:
``(1) In general.--The term `first-time homebuyer'
means any individual if such individual (and if
married, such individual's spouse) had no present
ownership interest in a principal residence in the
District of Columbia during the 1-year period ending on
the date of the purchase of the principal residence to
which this section applies.''.
(3) Subparagraph (B) of section 1400C(e)(2) of the
1986 Code is amended by inserting before the period
``on the date the taxpayer first occupies such
residence''.
(4) Paragraph (3) of section 1400C(e) of the 1986
Code is amended by striking all that follows
``principal residence'' and inserting ``on the date
such residence is purchased.''.
(5) Subsection (i) of section 1400C of the 1986
Code is amended to read as follows:
``(i) Application of Section.--This section shall apply to
property purchased after August 4, 1997, and before January 1,
2001.''.
(6) Subsection (c) of section 23 of the 1986 Code
is amended by inserting ``and section 1400C'' after
``other than this section''.
(7) Subparagraph (C) of section 25(e)(1) of the
1986 Code is amended by striking ``section 23'' and
inserting ``sections 23 and 1400C''.
SEC. 6009. AMENDMENTS RELATED TO TITLE IX OF 1997 ACT.
(a) Amendment Related to Section 908 of 1997 Act.--
Paragraph (6) of section 5041(b) of the 1986 Code is amended by
inserting ``which is a still wine'' after ``hard cider''.
(b) Amendment Related to Section 964 of 1997 Act.--
(1) In general.--Subparagraph (C) of section
7704(g)(3) of the 1986 Code is amended by striking the
period at the end and inserting ``and shall be paid by
the partnership. Section 6655 shall be applied to such
partnership with respect to such tax in the same manner
as if the partnership were a corporation, such tax were
imposed by section 11, and references in such section
to taxable income were references to the gross income
referred to in subparagraph (A).''.
(2) Effective date.--The second sentence of section
7704(g)(3)(C) of the 1986 Code (as added by paragraph
(1)) shall apply to taxable years beginning after the
date of the enactment of this Act.
(c) Amendment Related to Section 971 of 1997 Act.--Clause
(ii) of section 280F(a)(1)(C) is amended by striking
``subparagraph (A)'' and inserting ``subparagraphs (A) and
(B)''.
(d) Amendment Related to Section 976 of 1997 Act.--Section
6103(d)(5) of the 1986 Code is amended by striking ``section
967 of the Taxpayer Relief Act of 1997.'' and inserting
``section 976 of the Taxpayer Relief Act of 1997. Subsections
(a)(2) and (p)(4) and sections 7213 and 7213A shall not apply
with respect to disclosures or inspections made pursuant to
this paragraph.''.
(e) Amendment Related to Section 977 of 1997 Act.--
Paragraph (2) of section 977(e) of the 1997 Act is amended to
read as follows:
``(2) Non-amtrak state.--The term `non-Amtrak
State' means any State which is not receiving intercity
passenger rail service from the Corporation as of the
date of the enactment of this Act.''.
SEC. 6010. AMENDMENTS RELATED TO TITLE X OF 1997 ACT.
(a) Amendments Related to Section 1001 of 1997 Act.--
(1) Paragraph (2) of section 1259(b) of the 1986
Code is amended--
(A) by striking ``debt'' each place it
appears in clauses (i), (ii), and (iii) of
subparagraph (A) and inserting ``position'',
(B) by striking ``and'' at the end of
subparagraph (A), and
(C) by redesignating subparagraph (B) as
subparagraph (C) and by inserting after
subparagraph (A) the following new
subparagraph:
``(B) any hedge with respect to a position
described in subparagraph (A), and''.
(2) Section 1259(d)(1) of the 1986 Code is amended
by inserting ``(including cash)'' after ``property''.
(3) Subparagraph (D) of section 475(f)(1) of the
1986 Code is amended by adding at the end the following
new sentence: ``Subsection (d)(3) shall not apply under
the preceding sentence for purposes of applying
sections 1402 and 7704.''.
(4) Subparagraph (C) of section 1001(d)(3) of the
1997 Act is amended by striking ``within the 30-day
period beginning on'' and inserting ``before the close
of the 30th day after''.
(b) Amendment Related to Section 1011 of 1997 Act.--
Paragraph (1) of section 1059(g) of the 1986 Code is amended by
striking ``and in the case of stock held by pass-thru
entities'' and inserting ``, in the case of stock held by pass-
thru entities, and in the case of consolidated groups''.
(c) Amendments Related to Section 1012 of 1997 Act.--
(1) Paragraph (1) of section 1012(d) of the 1997
Act is amended by striking ``1997, pursuant'' and
inserting ``1997; except that the amendment made by
subsection (a) shall apply to such distributions only
if pursuant''.
(2) Subparagraph (A) of section 355(e)(3) of the
1986 Code is amended--
(A) by striking ``shall not be treated as
described in'' and inserting ``shall not be
taken into account in applying'', and
(B) by striking clause (iv) and inserting
the following new clause:
``(iv) The acquisition of stock in
the distributing corporation or any
controlled corporation to the extent
that the percentage of stock owned
directly or indirectly in such
corporation by each person owning stock
in such corporation immediately before
the acquisition does not decrease.''.
(3)(A) Subsection (c) of section 351 of the 1986
Code is amended to read as follows:
``(c) Special Rules Where Distribution to Shareholders.--
``(1) In general.--In determining control for
purposes of this section, the fact that any corporate
transferor distributes part or all of the stock in the
corporation which it receives in the exchange to its
shareholders shall not be taken into account.
``(2) Special rule for section 355.--If the
requirements of section 355 (or so much of section 356
as relates to section 355) are met with respect to a
distribution described in paragraph (1), then, solely
for purposes of determining the tax treatment of the
transfers of property to the controlled corporation by
the distributing corporation, the fact that the
shareholders of the distributing corporation dispose of
part or all of the distributed stock shall not be taken
into account in determining control for purposes of
this section.''.
(B) Clause (ii) of section 368(a)(2)(H) of the 1986
Code is amended to read as follows:
``(ii) in the case of a transaction
with respect to which the requirements
of section 355 (or so much of section
356 as relates to section 355) are met,
the fact that the shareholders of the
distributing corporation dispose of
part or all of the distributed stock
shall not be taken into account.''.
(d) Amendments Related to Section 1013 of 1997 Act.--
(1) Paragraph (5) of section 304(b) of the 1986
Code is amended by striking subparagraph (B) and by
redesignating subparagraph (C) as subparagraph (B).
(2) Subsection (b) of section 304 of the 1986 Code
is amended by adding at the end the following new
paragraph:
``(6) Avoidance of multiple inclusions, etc.--In
the case of any acquisition to which subsection (a)
applies in which the acquiring corporation or the
issuing corporation is a foreign corporation, the
Secretary shall prescribe such regulations as are
appropriate in order to eliminate a multiple inclusion
of any item in income by reason of this subpart and to
provide appropriate basis adjustments (including
modifications to the application of sections 959 and
961).''.
(e) Amendments Related to Section 1014 of 1997 Act.--
(1) Paragraph (1) of section 351(g) of the 1986
Code is amended by adding ``and'' at the end of
subparagraph (A) and by striking subparagraphs (B) and
(C) and inserting the following new subparagraph:
``(B) if (and only if) the transferor
receives stock other than nonqualified
preferred stock--
``(i) subsection (b) shall apply to
such transferor, and
``(ii) such nonqualified preferred
stock shall be treated as other
property for purposes of applying
subsection (b).''.
(2) Clause (ii) of section 354(a)(2)(C) of 1986
Code is amended by adding at the end the following new
subclause:
``(III) Extension of
statute of limitations.--The
statutory period for the
assessment of any deficiency
attributable to a corporation
failing to be a family-owned
corporation shall not expire
before the expiration of 3
years after the date the
Secretary is notified by the
corporation (in such manner as
the Secretary may prescribe) of
such failure, and such
deficiency may be assessed
before the expiration of such
3-year period notwithstanding
the provisions of any other law
or rule of law which would
otherwise prevent such
assessment.''.
(f) Amendment Related to Section 1024 of 1997 Act.--Section
6331(h)(1) of the 1986 Code is amended by striking ``The effect
of a levy'' and inserting ``If the Secretary approves a levy
under this subsection, the effect of such levy''.
(g) Amendments Related to Section 1031 of 1997 Act.--
(1) Subsection (l) of section 4041 of the 1986 Code
is amended by striking ``subsection (e) or (f)'' and
inserting ``subsection (f) or (g)''.
(2) Subsection (b) of section 9502 of the 1986 Code
is amended by moving the sentence added at the end of
paragraph (1) to the end of such subsection.
(3) Subsection (c) of section 6421 of the 1986 Code
is amended--
(A) by striking ``(2)(A)'' and inserting
``(2)'', and
(B) by adding at the end the following
sentence: ``Subsection (a) shall not apply to
gasoline to which this subsection applies.''.
(h) Amendments Related to Section 1032 of 1997 Act.--
(1) Section 1032(a) of the 1997 Act is amended by
striking ``Subsection (a) of section 4083'' and
inserting ``Paragraph (1) of section 4083(a)''.
(2) Section 1032(e)(12)(A) of the 1997 Act shall be
applied as if ``gasoline, diesel fuel,'' were the
material proposed to be stricken.
(3) Paragraph (1) of section 4082(d) of the 1986
Code is amended to read as follows:
``(1) Aviation-grade kerosene.--Subsection (a)(2)
shall not apply to aviation-grade kerosene (as
determined under regulations prescribed by the
Secretary) which the Secretary determines is destined
for use as a fuel in an aircraft.''.
(4) Paragraph (3) of section 4082(d) of the 1986
Code is amended by striking ``a removal, entry, or sale
of kerosene to'' and inserting ``kerosene received
by''.
(5) Paragraph (1) of section 4101(e) of the 1986
Code is amended by striking ``dyed diesel fuel and
kerosene'' and inserting ``such fuel in a dyed form''.
(i) Amendment Related to Section 1034 of 1997 Act.--
Paragraph (3) of section 4251(d) of the 1986 Code is amended by
striking ``other similar arrangement'' and inserting ``any
other similar arrangement''.
(j) Amendments Related to Section 1041 of 1997 Act.--
(1) Subparagraph (A) of section 512(b)(13) of the
1986 Code is amended by inserting ``or accrues'' after
``receives''.
(2) Subclause (I) of section 512(b)(13)(B)(i) of
the 1986 Code is amended by striking ``(as defined in
section 513A(a)(5)(A))''.
(3) Paragraph (2) of section 1041(b) of the 1997
Act is amended to read as follows:
``(2) Binding contracts.--The amendments made by
this section shall not apply to any amount received or
accrued during the first 2 taxable years beginning on
or after the date of the enactment of this Act if such
amount is received or accrued pursuant to a written
binding contract in effect on June 8, 1997, and at all
times thereafter before such amount is received or
accrued. The preceding sentence shall not apply to any
amount which would (but for the exercise of an option
to accelerate payment of such amount) be received or
accrued after such 2 taxable years.''.
(k) Amendments Related to Section 1053 of 1997 Act.--
(1) Section 853 of the 1986 Code is amended by
redesignating subsection (e) as subsection (f) and by
inserting after subsection (d) the following new
subsection:
``(e) Treatment of Taxes Not Allowed as a Credit Under
Section 901(k).--This section shall not apply to any tax with
respect to which the regulated investment company is not
allowed a credit under section 901 by reason of section
901(k).''.
(2) Subsection (c) of section 853 of the 1986 Code
is amended by striking the last sentence.
(3) Subparagraph (A) of section 901(k)(4) of the
1986 Code is amended by striking ``securities
business'' and inserting ``business as a securities
dealer''.
(l) Amendment Related to Section 1055 of 1997 Act.--Section
6611(g)(1) of the 1986 Code is amended by striking ``(e), and
(h)'' and inserting ``and (e)''.
(m) Amendment Related to Section 1061 of 1997 Act.--
Subsection (c) of section 751 of the 1986 Code is amended by
striking ``731'' each place it appears and inserting ``731,
732,''.
(n) Amendment Related to Section 1083 of 1997 Act.--Section
1083(a)(2) of the 1997 Act is amended--
(1) by striking ``21'' and inserting ``20'', and
(2) by striking ``22'' and inserting ``21''.
(o) Amendments Related to Section 1084 of 1997 Act.--
(1) Paragraph (3) of section 264(a) of the 1986
Code is amended by striking ``subsection (c)'' and
inserting ``subsection (d)''.
(2) Paragraph (4) of section 264(a) of the 1986
Code is amended by striking ``subsection (d)'' and
inserting ``subsection (e)''.
(3)(A) Paragraph (4) of section 264(f) of the 1986
Code is amended by adding at the end the following new
subparagraph:
``(E) Master contracts.--If coverage for
each insured under a master contract is treated
as a separate contract for purposes of sections
817(h), 7702, and 7702A, coverage for each such
insured shall be treated as a separate contract
for purposes of subparagraph (A). For purposes
of the preceding sentence, the term `master
contract' shall not include any group life
insurance contract (as defined in section
848(e)(2)).''.
(B) The second sentence of section 1084(d) of the
1997 Act is amended by striking ``but'' and all that
follows and inserting ``except that, in the case of a
master contract (within the meaning of section
264(f)(4)(E) of the Internal Revenue Code of 1986), the
addition of covered lives shall be treated as a new
contract only with respect to such additional covered
lives.''.
(4)(A) Clause (iv) of section 264(f)(5)(A) of the
1986 Code is amended by striking the second sentence.
(B) Subparagraph (B) of section 6724(d)(1) of the
1986 Code is amended by striking ``or'' at the end of
clause (xv), by striking the period at the end of
clause (xvi) and inserting ``, or'', and by adding at
the end the following new clause:
``(xvii) section 264(f)(5)(A)(iv)
(relating to reporting with respect to
certain life insurance and annuity
contracts).''.
(C) Paragraph (2) of section 6724(d) of the 1986
Code is amended by striking ``or'' at the end of
subparagraph (Y), by striking the period at theend of
subparagraph (Z) and inserting ``or'', and by adding at the end the
following new subparagraph:
``(AA) section 264(f)(5)(A)(iv) (relating
to reporting with respect to certain life
insurance and annuity contracts).''.
(5) Subparagraph (A) of section 264(f)(8) of the
1986 Code is amended by striking ``subsection
(d)(5)(B)'' and inserting ``subsection (e)(5)(B)''.
(p) Amendments Related to Section 1085 of 1997 Act.--
(1) Paragraph (5) of section 32(c) of the 1986 Code
is amended--
(A) by inserting before the period at the
end of subparagraph (A) ``and increased by the
amounts described in subparagraph (C)'',
(B) by adding ``or'' at the end of clause
(iii) of subparagraph (B), and
(C) by striking all that follows subclause
(II) of subparagraph (B)(iv) and inserting the
following:
``(III) other trades or
businesses.
For purposes of clause (iv), there
shall not be taken into account items
which are attributable to a trade or
business which consists of the
performance of services by the taxpayer
as an employee.
``(C) Certain amounts included.--An amount
is described in this subparagraph if it is--
``(i) interest received or accrued
during the taxable year which is exempt
from tax imposed by this chapter, or
``(ii) amounts received as a
pension or annuity, and any
distributions or payments received from
an individual retirement plan, by the
taxpayer during the taxable year to the
extent not included in gross income.
Clause (ii) shall not include any amount which
is not includible in gross income by reason of
a trustee-to-trustee transfer or a rollover
distribution.''.
(2) Clause (v) of section 32(c)(2)(B) of the 1986
Code is amended by inserting ``shall be taken into
account'' before ``, but only''.
(3) The text of paragraph (3) of section 1085(a) of
the 1997 Act is amended to read as follows: ``Paragraph
(2) of section 6213(g) (relating to the definition of
mathematical or clerical errors) is amended by striking
``and'' at the end of subparagraph (I), by striking the
period at the end of subparagraph (J) and inserting ``,
and'', and by inserting after subparagraph (J) the
following new subparagraph:
``(K) an omission of information required
by section 32(k)(2) (relating to taxpayers
making improper prior claims of earned income
credit).''.
(q) Amendment Related to Section 1088 of 1997 Act.--Section
1088(b)(2)(C) of the 1997 Act is amended by inserting ``more
than 1 year'' before ``after''.
(r) Amendment Related to Section 1089 of 1997 Act.--
Paragraphs (1)(C) and (2)(C) of section 664(d) of the 1986 Code
are each amended by adding ``, and'' at the end.
SEC. 6011. AMENDMENTS RELATED TO TITLE XI OF 1997 ACT.
(a) Amendment Related to Section 1103 of 1997 Act.--The
paragraph (3) of section 59(a) added by section 1103 of the
1997 Act is redesignated as paragraph (4).
(b) Amendments Related to Section 1121 of 1997 Act.--
(1) Subsection (e) of section 1297 of the 1986 Code
is amended by adding at the end the following new
paragraph:
``(4) Treatment of holders of options.--Paragraph
(1) shall not apply to stock treated as owned by a
person by reason of section 1298(a)(4) (relating to the
treatment of a person that has an option to acquire
stock as owning such stock) unless such person
establishes that such stock is owned (within the
meaning of section 958(a)) by a United States
shareholder (as defined in section 951(b)) who is not
exempt from tax under this chapter.''.
(2) Section 1298(a)(2)(B) of the 1986 Code is
amended by adding at the end the following new
sentence: ``Section 1297(e) shall not apply in
determining whether a corporation is a passive foreign
investment company for purposes of this
subparagraph.''.
(c) Amendments Related to Section 1122 of 1997 Act.--
(1) Section 672(f)(3)(B) of the 1986 Code is
amended by striking ``section 1296'' and inserting
``section 1297''.
(2) Paragraph (1) of section 1291(d) of the 1986
Code is amended by adding at the end the following new
sentence: ``In the case of stock which is marked to
market under section 475 or any other provision of this
chapter, this section shall not apply, except that
rules similar to the rules of section 1296(j) shall
apply.''.
(3) Subsection (d) of section 1296 of the 1986 Code
is amended by adding at the end the following new
sentence: ``In the case of a regulated investment
company which elected to mark to market the stock held
by such company as of the last day of the taxable year
preceding such company's first taxable year for which
such company elects the application of this section,
the amount referred to in paragraph (1) shall include
amounts included in gross income under such mark to
market with respect to such stock for prior taxable
years.''.
(d) Amendment Related to Section 1123 of 1997 Act.--The
subsection (e) of section 1297 of the 1986 Code added by
section 1123 of the 1997 Act is redesignated as subsection (f).
(e) Amendments Related to Section 1131 of 1997 Act.--
(1) Section 991 of the 1986 Code is amended by
striking ``except for the tax imposed by chapter 5''.
(2) Section 6013 of the 1986 Code is amended by
striking ``chapters 1 and 5'' each place it appears in
paragraphs (1)(A) and (5) of subsection (g) and in
subsection (h)(1) and inserting ``chapter 1'' .
(f) Amendment Related to Section 1142 of 1997 Act.--
(1) Paragraph (2) of section 6038(a) of the 1986
Code is amended by striking ``by regulations''.
(2) Paragraph (3) of section 6038(a) of the 1986
Code is amended by striking ``such information'' and
all that follows through the period and inserting ``the
Secretary has prescribed the furnishing of such
information on or before the first day of such annual
accounting period.''.
(3) Paragraph (4) of section 6038(e) of the 1986
Code is amended by striking ``corporation'' and
inserting ``foreign business entity'' each place it
appears.
(g) Amendment Related to Section 1144 of 1997 Act.--
Paragraphs (1) and (2) of section 1144(c) of the 1997 Act are
each amended by striking ``6038B(b)'' and inserting ``6038B(c)
(as redesignated by subsection (b))''.
SEC. 6012. AMENDMENTS RELATED TO TITLE XII OF 1997 ACT.
(a) Amendment Related to Section 1204 of 1997 Act.--The
last sentence of section 162(a) of the 1986 Code is amended by
striking ``investigate'' and all that follows and inserting
``investigate or prosecute, or provide support services for the
investigation or prosecution of, a Federal crime.''.
(b) Amendments Related to Section 1205 of 1997 Act.--
(1) Section 6311(e)(1) of the 1986 Code is amended
by striking ``section 6103(k)(8)'' and inserting
``section 6103(k)(9)''.
(2) Paragraph (8) of section 6103(k) of the 1986
Code (as added by section 1205(c)(1) of the 1997 Act)
is redesignated as paragraph (9).
(3) The subsection (g) of section 7431 of the 1986
Code added by section 1205 of the 1997 Act is
redesignated as subsection (h) and is amended by
striking ``(8)'' in the heading and inserting ``(9)''.
(4) Section 1205(c)(3) of the 1997 Act shall be
applied as if it read as follows:
``(3) Section 6103(p)(3)(A), as amended by section
1026(b)(1)(A) of the 1997 Act, is amended by striking
`or (8)' and inserting `(8), or (9)' ''.
(5) Section 1213(b) of the 1997 Act is amended by
striking ``section 6724(d)(1)(A)'' and inserting
``section 6724(d)(1)''.
(c) Amendment Related to Section 1221 of 1997 Act.--
Paragraph (2) of section 774(d) of the 1986 Code is amended by
inserting before the period ``or 857(b)(3)(D)''.
(d) Amendment Related to Section 1223 of 1997 Act.--
Subsection (c) of section 6724 of the 1986 Code is amended by
inserting before the period ``(more than 100 information
returns in the case of a partnership having more than 100
partners)''.
(e) Amendment Related to Section 1226 of 1997 Act.--Section
1226 of the 1997 Act is amended by striking ``ending on or''
and inserting ``beginning''.
(f) Amendment Related to Section 1231 of 1997 Act.--
Subsection (c) of section 6211 of the 1986 Code is amended--
(1) by striking ``Subchapter C'' in the heading and
inserting ``Subchapters C and D'', and
(2) by striking ``subchapter C'' in the text and
inserting ``subchapters C and D''.
(g) Amendment Related to Section 1256 of 1997 Act.--
Subparagraph (A) of section 857(d)(3) of the 1986 Code is
amended by striking ``earliest accumulated earnings and profits
(other than earnings and profits to which subsection (a)(2)(A)
applies)'' and inserting ``earliest earnings and profits
accumulated in any taxable year to which the provisions of this
part did not apply''.
(h) Amendment Related to Section 1285 of 1997 Act.--Section
7430(b) of the 1986 Code is amended by redesignating paragraph
(5) as paragraph (4).
SEC. 6013. AMENDMENTS RELATED TO TITLE XIII OF 1997 ACT.
(a) Amendments Related to Section 1305 of 1997 Act.--
(1) Section 646 of the 1986 Code is redesignated as
section 645.
(2) The item relating to section 646 in the table
of sections for subpart A of part I of subchapter J of
chapter 1 of the 1986 Code is amended by striking
``Sec. 646'' and inserting ``Sec. 645''.
(3) Paragraph (1) of section 2652(b) of the 1986
Code is amended by striking ``section 646'' and
inserting ``section 645''.
(4)(A) Paragraph (1) of section 2652(b) of the 1986
Code is amended by striking the second sentence.
(B) Subsection (b) of section 2654 of the 1986 Code
is amended by adding at the end the following new
sentence: ``For purposes of this subsection, a trust
shall be treated as part of an estate during any period
that the trust is so treated under section 645.''.
(b) Amendments Related to Section 1309 of 1997 Act.--
(1) Subsection (b) of section 685 of the 1986 Code
is amended by adding at the end the following new flush
sentence:
``A trust shall not fail to be treated as meeting the
requirement of paragraph (6) by reason of the death of an
individual but only during the 60-day period beginning on the
date of such death.''.
(2) Subsection (f) of section 685 of the 1986 Code
is amended by inserting before the period at the end
``and of trusts terminated during the year''.
SEC. 6014. AMENDMENTS RELATED TO TITLE XIV OF 1997 ACT.
(a) Amendments Related to Section 1421 of 1997 Act.--
(1) Paragraph (1) of section 5054(a) of the 1986
Code is amended--
(A) by inserting ``, or imported into the
United States and transferred to a brewery free
of tax under section 5418,'' after ``produced
in the United States'' in the text, and
(B) by inserting ``; certain imported
beer'' after ``produced in the united states''
in the heading.
(2) Paragraph (2) of section 5054(a) of the 1986
Code is amended by inserting ``and not transferred to a
brewery free of tax under section 5418'' after ``United
States''.
(3) Section 5056 of the 1986 Code is amended by
striking ``produced in the United States'' each place
it appears and inserting ``removed for consumption or
sale''.
(b) Amendments Related to Section 1422 of 1997 Act.--
(1) Paragraph (2) of section 5043(a) of the 1986
Code is amended by inserting ``which are not
transferred to a bonded wine cellar free of tax under
section 5364'' after ``foreign wines''.
(2) Subsection (a) of section 5044 of the 1986 Code
is amended by striking ``produced in the United
States'' and inserting ``removed from a bonded wine
cellar''.
(3) Section 5364 of the 1986 Code is amended by
striking ``Wine imported or brought into'' and
inserting ``Natural wine (as defined in section 5381)
imported or brought into''.
(c) Amendment Related to Section 1434 of 1997 Act.--
Paragraph (2) of section 4052(f) of the 1986 Code is amended by
striking ``this section'' and inserting ``such section''.
(d) Amendment Related to Section 1436 of 1997 Act.--
Paragraph (2) of section 4091(a) of the 1986 Code is amended by
inserting ``or on which tax has been credited or refunded''
after ``such paragraph''.
(e) Amendment Related to Section 1453 of 1997 Act.--
Subparagraph (D) of section 7430(c)(4) of the 1986 Code is
amended by striking ``subparagraph (A)(iii)'' and inserting
``subparagraph (A)(ii)''.
SEC. 6015. AMENDMENTS RELATED TO TITLE XV OF 1997 ACT.
(a) Amendment Related to Section 1501 of 1997 Act.--The
paragraph (8) of section 408(p) of the 1986 Code added by
section 1501(b) of the 1997 Act is redesignated as paragraph
(9).
(b) Amendment Related to Section 1505 of 1997 Act.--Section
1505(d)(2) of the 1997 Act is amended by striking ``(b)(12)''
and inserting ``(b)(12)(A)(i)''.
(c) Amendments Related to Section 1529 of 1997 Act.--
(1) Section 1529(a) of the 1997 Act is amended to
read as follows:
``(a) General Rule.--Amounts to which this section applies
which are received by an individual (or the survivors of the
individual) as a result of hypertension or heart disease of the
individual shall be excludable from gross income under section
104(a)(1) of the Internal Revenue Code of 1986.''.
(2) Section 1529(b)(1)(B) of the 1997 Act is
amended to read as follows:
``(B) under--
``(i) a State law (as amended on
May 19, 1992) which irrebuttably
presumed that heart disease and
hypertension are work-related illnesses
but only for employees hired before
July 1, 1992, or
``(ii) any other statute,
ordinance, labor agreement, or similar
provision as a disability pension
payment or in the nature of a
disability pension payment attributable
to employment as a police officer or
fireman, but only if the individual is
referred to in the State law described
in clause (i); and''.
(d) Amendment Related to Section 1530 of 1997 Act.--
Subparagraph (C) of section 404(a)(9) of the 1986 Code (as
added by section 1530 of the 1997 Act) is redesignated as
subparagraph (D) and is amended by striking ``A qualified'' and
inserting ``Qualified gratuitous transfers.--A qualified''.
(e) Amendment Related to Section 1531 of 1997 Act.--
Subsection (f) of section 9811 of the 1986 Code (as added by
section 1531 of the 1997 Act) is redesignated as subsection
(e).
SEC. 6016. AMENDMENTS RELATED TO TITLE XVI OF 1997 ACT.
(a) Amendments Related to Section 1601(d) of 1997 Act.--
(1) Amendments related to section 1601(d)(1)--
(A) Section 408(p)(2)(D)(i) of the 1986
Code is amended by striking ``or (B)'' in the
last sentence.
(B) Section 408(p) of the 1986 Code is
amended by adding at the end the following new
paragraph:
``(10) Special rules for acquisitions,
dispositions, and similar transactions.--
``(A) In general.--An employer which fails
to meet any applicable requirement by reason of
an acquisition, disposition, or similar
transaction shall not be treated as failing to
meet such requirement during the transition
period if--
``(i) the employer satisfies
requirements similar to the
requirements of section
410(b)(6)(C)(i)(II), and
``(ii) the qualified salary
reduction arrangement maintained by the
employer would satisfy the requirements
of this subsection after the
transaction if the employer which
maintained the arrangement before the
transaction had remained a separate
employer.
``(B) Applicable requirement.--For purposes
of this paragraph, the term `applicable
requirement' means--
``(i) the requirement under
paragraph (2)(A)(i) that an employer be
an eligible employer,
``(ii) the requirement under
paragraph (2)(D) that an arrangement be
the only plan of an employer, and
``(iii) the participation
requirements under paragraph (4).
``(C) Transition period.--For purposes of
this paragraph, the term `transition period'
means the period beginning on the date of any
transaction described in subparagraph (A) and
ending on the last day of the second calendar
year following the calendar year in which such
transaction occurs.''.
(C) Section 408(p)(2) of the 1986 Code is
amended--
(i) by striking ``the preceding
sentence shall apply only in accordance
with rules similar to the rules of
section 410(b)(6)(C)(i)'' in the last
sentence of subparagraph (C)(i)(II) and
inserting ``the preceding sentence
shall not apply'', and
(ii) by striking clause (iii) of
subparagraph (D).
(2) Amendment to section 1601(d)(4).--Section
1601(d)(4)(A) of the 1997 Act is amended--
(A) by striking ``Section 403(b)(11)'' and
inserting ``Paragraphs (7)(A)(ii) and (11) of
section 403(b)'', and
(B) by striking ``403(b)(1)'' in clause
(ii) and inserting ``403(b)(10)''.
(b) Amendment Related to Section 1601(f)(4) of 1997 Act.--
Subsection (d) of section 6427 of the 1986 Code is amended--
(1) by striking ``Helicopters'' in the heading and
inserting ``Other Aircraft Uses'', and
(2) by inserting ``or a fixed-wing aircraft'' after
``helicopter''.
SEC. 6017. AMENDMENT RELATED TO TRANSPORTATION EQUITY ACT FOR THE 21ST
CENTURY.
(a) In General.--Subparagraph (B) of section 6427(i)(2) of
the 1986 Code is amended to read as follows:
``(B) Time for filing claim.--No claim
filed under this paragraph shall be allowed
unless filed during the 1st quarter following
the last quarter included in the claim.''.
(b) Effective Date.--The amendment made by subsection (a)
shall take effect as if included in the amendments made by
section 9009 of the Transportation Equity Act for the 21st
Century.
SEC. 6018. AMENDMENTS RELATED TO SMALL BUSINESS JOB PROTECTION ACT OF
1996.
(a) Amendment Relating to Section 1116.--Subparagraph (C)
of section 1116(b)(2) of the Small Business Job Protection Act
of 1996 is amended by striking ``chapter 68'' and inserting
``chapter 61''.
(b) Amendment Relating to Section 1421.--Section 408(d)(7)
of the 1986 Code is amended--
(1) by inserting ``or 402(k)'' after ``section
402(h)'' in subparagraph (B) thereof, and
(2) by inserting ``or simple retirement accounts''
after ``pensions'' in the heading thereof.
(c) Amendment Relating to Section 1431.--Subparagraph (E)
of section 1431(c)(1) of the Small Business Job Protection Act
of 1996 is amended to read as follows:
``(E) Section 414(q)(5), as redesignated by
subparagraph (A), is amended by striking `under
paragraph (4) or the number of officers taken into
account under paragraph (5)' ''.
(d) Amendment Relating to Section 1604.--Paragraph (3) of
section 1604(b) of such Act is amended--
(1) by striking ``such Code'' and inserting ``the
Internal Revenue Code of 1986'', and
(2) by striking ``such date of enactment'' and
inserting ``the date of the enactment of this Act''.
(e) Amendment Relating to Section 1609.--Paragraph (1) of
section 1609(h) of such Act is amended by striking ``paragraph
(3)(A)(i)'' and inserting ``paragraph (3)(A)''.
(f) Amendments Relating to Section 1807.--
(1) Subparagraph (A) of section 23(b)(2) of the
1986 Code (relating to income limitation on credit for
adoption expenses) is amended by inserting
``(determined without regard to subsection (c))'' after
``for any taxable year''.
(2) Paragraph (3) of section 1807(c) of the Small
Business Job Protection Act of 1996 is amended by
striking ``Clause (i)'' and inserting ``Clause (ii)''.
(g) Amendment Relating to Section 1903.--Subsection (b) of
section 1903 of such Act shall be applied as if ``or'' in the
material proposed to be stricken were capitalized.
(h) Effective Date.--The amendments made by this section
shall take effect as if included in the provisions of the Small
Business Job Protection Act of 1996 to which they relate.
SEC. 6019. AMENDMENTS RELATED TO TAXPAYER BILL OF RIGHTS 2.
(a) In General.--Subsection (b) of section 6104 of the 1986
Code is amended by adding at the end the following new
sentence: ``In the case of an organization described in section
501(d), this subsection shall not apply to copies referred to
in section 6031(b) with respect to such organization.''.
(b) Public Inspection.--Subparagraph (C) of section
6104(e)(1) of the 1986 Code is amended by adding at the end the
following new sentence: ``In the case of an organization
described in section 501(d), subparagraph (A) shall not require
the disclosure of the copies referred to in section 6031(b)
with respect to such organization.''.
(c) Disclosure to Authorized Representatives of the
Taxpayer.--Paragraph (6) of section 6103(e) of the 1986 Code is
amended by striking ``or (5)'' and inserting ``(5), (8), or
(9)''.
(d) Effective Date.--The amendments made by this section
shall take effect on the date of the enactment of this Act.
SEC. 6020. AMENDMENT RELATED TO OMNIBUS BUDGET RECONCILIATION ACT OF
1993.
(a) In General.--Section 196(c) of the 1986 Code is amended
by striking ``and'' at the end of paragraph (6), by striking
the period at the end of paragraph (7), and insert ``, and'',
and by adding at the end the following new paragraph:
``(8) the employer social security credit
determined under section 45B(a).''.
(b) Effective Date.--The amendment made by this section
shall take effect as if included in the amendments made by
section 13443 of the Revenue Reconciliation Act of 1993.
SEC. 6021. AMENDMENT RELATED TO REVENUE RECONCILIATION ACT OF 1990.
(a) Identification Requirement for Individuals Eligible for
Earned Income Credit.--Subparagraph (F) of section 32(c)(1) of
the 1986 Code is amended by striking ``The term `eligible
individual' does not include any individual who does not
include on the return of tax for the taxable year--'' and
inserting ``No credit shall be allowed under this section to an
eligible individual who does not include on the return of tax
for the taxable year--''.
(b) Identification Requirement for Qualifying Children
Under Earned Income Credit.--
(1) In general.--Clause (i) of section 32(c)(3)(D)
of the 1986 Code is amended to read as follows:
``(i) In general.--A qualifying
child shall not be taken into account
under subsection (b) unless the
taxpayer includes the name, age, and
TIN of the qualifying child on the
return of tax for the taxable year.''.
(2) Individuals who do not include tin, etc., of
any qualifying child.--Paragraph (1) of section 32(c)
of the 1986 Code is amended by adding at the end the
following new subparagraph:
``(G) Individuals who do not include tin,
etc., of any qualifying child.--No credit shall
be allowed under this section to any eligible
individual who has 1 or more qualifying
children if no qualifying child of such
individual is taken into account under
subsection (b) by reason of paragraph
(3)(D).''.
(3) Conforming amendment.--Subparagraph (A) of
section 32(c)(3) is amended by inserting ``and'' at the
end of clause (ii), by striking ``, and'' at the end of
clause (iii) and inserting a period, and by striking
clause (iv).
(c) Effective Dates.--
(1) Eligible individuals.--The amendment made by
subsection (a) shall take effect as if included in the
amendments made by section 451 of the Personal
Responsibility and Work Opportunity Reconciliation Act
of 1996.
(2) Qualifying children.--The amendments made by
subsection (b) shall take effect as if included in the
amendments made by section 11111 of Revenue
Reconciliation Act of 1990.
SEC. 6022. AMENDMENT RELATED TO TAX REFORM ACT OF 1986.
(a) In General.--Section 6401(b)(1) of the 1986 Code is
amended by striking ``and D'' and inserting ``D, and G''.
(b) Effective Date.--The amendment made by subsection (a)
shall take effect as if included in the amendments made by
section 701(b) of the Tax Reform Act of 1986.
SEC. 6023. MISCELLANEOUS CLERICAL AND DEADWOOD CHANGES.
(1) The heading for subparagraph (B) of section
45A(b)(1) of the 1986 Code is amended by striking
``targeted jobs credit'' and inserting ``work
opportunity credit''.
(2) The subsection heading for section 59(b) of the
1986 Code is amended by striking ``Section 936 Credit''
and inserting ``Credits Under Section 30A or 936''.
(3) Subsection (n) of section 72 of the 1986 Code
is amended by inserting ``(as in effect on the day
before the date of the enactment of the Small Business
Job Protection Act of 1996)'' after ``section
101(b)(2)(D)''.
(4) Subparagraph (A) of section 72(t)(3) of the
1986 Code is amended by striking ``(A)(v),'' and
inserting ``(A)(v)''.
(5) Clause (ii) of section 142(f)(3)(A) of the 1986
Code is amended by striking ``1997, ('' and inserting
``1997 (''.
(6) The last sentence of paragraph (3) of section
501(n) of the 1986 Code is amended by striking
``subparagraph (C)(ii)'' and inserting ``subparagraph
(E)(ii)''.
(7) Subsection (o) of section 501 of the 1986 Code
is amended by striking ``section 1853(e)'' and
inserting ``section 1855(d)''.
(8) The heading for subclause (II) of section
512(b)(17)(B)(ii) of the 1986 Code is amended by
striking ``Rule'' and inserting ``rule''.
(9) Clause (ii) of section 543(d)(5)(A) of the 1986
Code is amended by striking ``section 563(c)'' and
inserting ``section 563(d)''.
(10) Subparagraph (B) of section 871(f)(2) of the
1986 Code is amended by striking ``(19 U.S.C. 2462)''
and inserting ``19 U.S.C. 2461 et seq.)''.
(11) Paragraph (2) of section 1017(a) of the 1986
Code is amended by striking ``(b)(2)(D)'' and inserting
``(b)(2)(E)''.
(12) Subparagraph (D) of section 1250(d)(4) of the
1986 Code is amended by striking ``the last sentence of
section 1033(b)'' and inserting ``section 1033(b)(2)''.
(13) Paragraph (5) of section 3121(a) of the 1986
Code is amended--
(A) by striking the semicolon at the end of
subparagraph (F) and inserting a comma,
(B) by striking ``or'' at the end of
subparagraph (G), and
(C) by striking the period at the end of
subparagraph (I) and inserting a semicolon.
(14) Paragraph (19) of section 3401(a) of the 1986
Code is amended by inserting ``for'' before ``any
benefit provided to''.
(15) Paragraph (21) of section 3401(a) of the 1986
Code is amended by inserting ``for'' before ``any
payment made''.
(16) Sections 4092(b) and 6427(q)(2) of the 1986
Code are each amended by striking ``section
4041(c)(4)'' and inserting ``section 4041(c)(2)''.
(17) Sections 4221(c) and 4222(d) of the 1986 Code
are each amended by striking ``4053(a)(6)'' and
inserting ``4053(6)''.
(18)(A) The heading of section 4973 of the 1986
Code is amended to read as follows:
``SEC. 4973. TAX ON EXCESS CONTRIBUTIONS TO CERTAIN TAX-FAVORED
ACCOUNTS AND ANNUITIES.''.
(B) The item relating to section 4973 in the table
of sections for chapter 43 of the 1986 Code is amended
to read as follows:
``Sec. 4973. Tax on excess contributions to certain tax-favored
accounts and annuities.''.
(19) Section 4975 of the 1986 Code is amended--
(A) in subsection (c)(3) by striking
``exempt for the tax'' and inserting ``exempt
from the tax'', and
(B) in subsection (i) by striking
``Secretary of Treasury'' and inserting
``Secretary of the Treasury''.
(20) Paragraph (1) of section 6039(a) of the 1986
Code is amended by inserting ``to any person'' after
``transfers''.
(21) Subparagraph (A) of section 6050R(b)(2) of the
1986 Code is amended by striking the semicolon at the
end thereof and inserting a comma.
(22) Subparagraph (A) of section 6103(h)(4) of the
1986 Code is amended by inserting ``if'' before ``the
taxpayer is a party to''.
(23) Paragraph (5) of section 6416(b) of the 1986
Code is amended by striking ``section 4216(e)(1)'' each
place it appears and inserting ``section 4216(d)(1)''.
(24)(A) Section 6421 of the 1986 Code is amended by
redesignating subsections (j) and (k) as subsections
(i) and (j), respectively.
(B) Subsection (b) of section 34 of the 1986 Code
is amended by striking ``section 6421(j)'' and
inserting ``section 6421(i)''.
(C) Subsections (a) and (b) of section 6421 of the
1986 Code are each amended by striking ``subsection
(j)'' and inserting ``subsection (i)''.
(25) Paragraph (3) of section 6427(f) of the 1986
Code is amended by striking ``, (e),''.
(26)(A) Section 6427 of the 1986 Code, as amended
by paragraph (16), is amended by redesignating
subsections (n), (p), (q), and (r) as subsections (m),
(n), (o), and (p), respectively.
(B) Paragraphs (1) and (2)(A) of section 6427(i) of
the 1986 Code are each amended by striking ``(q)'' and
inserting ``(o)''.
(27) Subsection (m) of section 6501 of the 1986
Code is amended by striking ``election under'' and all
that follows through ``(or any'' and inserting
``election under section 30(d)(4), 40(f), 43, 45B,
45C(d)(4), or 51(j) (or any''.
(28) The paragraph heading of paragraph (2) of
section 7702B(e) of the 1986 Code is amended by
inserting ``section'' after ``Application of''.
(29) Paragraph (3) of section 7434(b) of the 1986
Code is amended by striking ``attorneys fees'' and
inserting ``attorneys' fees''.
(30) Subparagraph (B) of section 7872(f)(2) of the
1986 Code is amended by striking ``foregone'' and
inserting ``forgone''.
(31) Subsection (e) of section 9502 of the 1986
Code is amended to read as follows:
``(e) Certain Taxes on Alcohol Mixtures To Remain in
General Fund.--For purposes of this section, the amounts which
would (but for this subsection) be required to be appropriated
under subparagraphs (A), (C), and (D) of subsection (b)(1)
shall be reduced by--
``(1) 0.6 cent per gallon in the case of taxes
imposed on any mixture at least 10 percent of which is
alcohol (as defined in section 4081(c)(3)) if any
portion of such alcohol is ethanol, and
``(2) 0.67 cent per gallon in the case of fuel used
in producing a mixture described in paragraph (1).''.
(32) The amendments made by this section shall take
effect on the date of the enactment of this Act.
SEC. 6024. EFFECTIVE DATE.
Except as otherwise provided in this title, the amendments
made by this title shall take effect as if included in the
provisions of the Taxpayer Relief Act of 1997 to which they
relate.
TITLE VII--REVENUE PROVISIONS
SEC. 7001. CLARIFICATION OF DEDUCTION FOR DEFERRED COMPENSATION.
(a) In General.--Section 404(a) (relating to deduction for
contributions of an employer to an employee's trust or annuity
plan and compensation under a deferred-payment plan) is amended
by adding at the end the following new paragraph:
``(11) Determinations relating to deferred
compensation.--For purposes of determining under this
section--
``(A) whether compensation of an employee
is deferred compensation, and
``(B) when deferred compensation is paid,
no amount shall be treated as received by the employee,
or paid, until it is actually received by the
employee.''.
(b) Effective Date.--
(1) In general.--The amendment made by subsection
(a) shall apply to taxable years ending after the date
of the enactment of this Act.
(2) Change in method of accounting.--In the case of
any taxpayer required by the amendment made by
subsection (a) to change its method of accounting for
its first taxable year ending after the date of the
enactment of this Act--
(A) such change shall be treated as
initiated by the taxpayer,
(B) such change shall be treated as made
with the consent of the Secretary of the
Treasury, and
(C) the net amount of the adjustments
required to be taken into account by the
taxpayer under section 481 of the Internal
Revenue Code of 1986 shall be taken into
account ratably over the 3-taxable year period
beginning with such first taxable year.
SEC. 7002. TERMINATION OF EXCEPTION FOR CERTAIN REAL ESTATE INVESTMENT
TRUSTS FROM THE TREATMENT OF STAPLED ENTITIES.
(a) In General.--Notwithstanding paragraph (3) of section
136(c) of the Tax Reform Act of 1984 (relating to stapled
stock; stapled entities), the REIT gross income provisions
shall be applied by treating the activities and gross income of
members of the stapled REIT group properly allocable to any
nonqualified real property interest held by the exempt REIT or
any stapled entity which is a member of such group (or treated
under subsection (c) as held by such REIT or stapled entity) as
the activities and gross income of the exempt REIT in the same
manner as if the exempt REIT and such group were 1 entity.
(b) Nonqualified Real Property Interest.--For purposes of
this section--
(1) In general.--The term ``nonqualified real
property interest'' means, with respect to any exempt
REIT, any interest in real property acquired after
March 26, 1998, by the exempt REIT or any stapled
entity.
(2) Exception for binding contracts, etc.--Such
term shall not include any interest in real property
acquired after March 26, 1998, by the exempt REIT or
any stapled entity if--
(A) the acquisition is pursuant to a
written agreement (including a put option, buy-
sell agreement, and an agreement relating to a
third party default) which was binding on such
date and at all times thereafter on such REIT
or stapled entity, or
(B) the acquisition is described on or
before such date in a public announcement or in
a filing with the Securities and Exchange
Commission.
(3) Improvements and leases.--
(A) In general.--Except as otherwise
provided in this paragraph, the term
``nonqualified real property interest'' shall
not include--
(i) any improvement to land owned
or leased by the exempt REIT or any
member of the stapled REIT group, and
(ii) any repair to, or improvement
of, any improvement owned or leased by
the exempt REIT or any member of the
stapled REIT group,
if such ownership or leasehold interest is a
qualified real property interest.
(B) Leases.--The term ``nonqualified real
property interest'' shall not include--
(i) any lease of a qualified real
property interest if such lease is not
otherwise such an interest, or
(ii) any renewal of a lease which
is a qualified real property interest,
but only if the rent on any lease referred to
in clause (i) or any renewal referred to in
clause (ii) does not exceed an arm's length
rate.
(C) Termination where change in use.--
(i) In general.--Subparagraph (A)
shall not apply to any improvement
placed in service after December 31,
1999, which is part of a change in the
use of the property to which such
improvement relates unless the cost of
such improvement does not exceed 200
percent of--
(I) the cost of such
property, or
(II) if such property is
substituted basis property (as
defined in section 7701(a)(42)
of the Internal Revenue Code of
1986), the fair market value of
the property at the time of
acquisition.
(ii) Binding contracts.--For
purposes of clause (i), an improvement
shall be treated as placed in service
before January 1, 2000, if such
improvement is placed in service before
January 1, 2004, pursuant to a binding
contract in effect on December 31,
1999, and at all times thereafter.
(4) Exception for permitted transfers, etc.--The
term ``nonqualified real property interest'' shall not
include any interest in real property acquired solely
as a result of a direct or indirect contribution,
distribution, or other transfer of such interest from
the exempt REIT or any member of the stapled REIT group
to such REIT or any such member, but only to the extent
the aggregate of the interests of the exempt REIT and
all stapled entities in such interest in real property
(determined in accordance with subsection (c)(1)) is
not increased by reason of the transfer.
(5) Treatment of entities which are not stapled,
etc. on march 26, 1998.--Notwithstanding any other
provision of this section, all interests in real
property held by an exempt REIT or any stapled entity
with respect to such REIT (or treated under subsection
(c) as held by such REIT or stapled entity) shall be
treated as nonqualified real property interests
unless--
(A) such stapled entity was a stapled
entity with respect to such REIT as of March
26, 1998, and at all times thereafter, and
(B) as of March 26, 1998, and at all times
thereafter, such REIT was a real estate
investment trust.
(6) Qualified real property interest.--The term
``qualified real property interest'' means any interest
in real property other than a nonqualified real
property interest.
(c) Treatment of Property Held by 10-Percent
Subsidiaries.--For purposes of this section--
(1) In general.--Any exempt REIT and any stapled
entity shall be treated as holding their proportionate
shares of each interest in real property held by any
10-percent subsidiary entity of the exempt REIT or
stapled entity, as the case may be.
(2) Property held by 10-percent subsidiaries
treated as nonqualified.--
(A) In general.--Except as provided in
subparagraph (B), any interest in real property
held by a 10-percent subsidiary entity of an
exempt REIT or stapled entity shall be treated
as a nonqualified real property interest.
(B) Exception for interests in real
property held on march 26, 1998, etc.--In the
case of an entity which was a 10-percent
subsidiary entity of an exempt REIT or stapled
entity on March 26, 1998, and at all times
thereafter, an interest in real property held
by such subsidiary entity shall be treated as a
qualified real property interest if such
interest would be so treated if held or
acquired directly by the exempt REIT or the
stapled entity.
(3) Reduction in qualified real property interests
if increase in ownership of subsidiary.--If, after
March 26, 1998, an exempt REIT or stapled entity
increases its ownership interest in a subsidiary entity
to which paragraph (2)(B) applies above its ownership
interest in such subsidiary entity as of such date, the
additional portion of each interest in real property
which is treated as held by the exempt REIT or stapled
entity by reason of such increased ownership shall be
treated as a nonqualified real property interest.
(4) Special rules for determining ownership.--For
purposes of this subsection--
(A) percentage ownership of an entity shall
be determined in accordance with subsection
(e)(4),
(B) interests in the entity which are
acquired by an exempt REIT or a member of the
stapled REIT group in any acquisition described
in an agreement, announcement, or filing
described in subsection (b)(2) shall be treated
as acquired on March 26, 1998, and
(C) except as provided in guidance
prescribed by the Secretary, any change in
proportionate ownership which is attributable
solely to fluctuations in the relative fair
market values of different classes of stock
shall not be taken into account.
(5) Treatment of 60-percent partnerships.--
(A) In general.--If, as of March 26, 1998--
(i) an exempt REIT or stapled
entity held directly or indirectly at
least 60 percent of the capital or
profits interest in a partnership, and
(ii) 90 percent or more of the
capital interests and 90 percent or
more of the profits interests in such
partnership (other than interests held
directly or indirectly by the exempt
REIT or stapled entity) are, or will
be, redeemable or exchangeable for
consideration the amount of which is
determined by reference to the value of
shares of stock in the exempt REIT or
stapled entity (or both),
paragraph (3) shall not apply to such
partnership, and such REIT or entity shall be
treated for all purposes of this section as
holding all of the capital and profits
interests in such partnership.
(B) Limitation to 1 partnership.--If, as of
January 1, 1999, more than 1 partnership owned
by any exempt REIT or stapled entity meets the
requirements of subparagraph (A), only the
largest such partnership on such date
(determined by aggregate asset bases) shall be
treated as meeting such requirements.
(C) Mirror entity.--For purposes of
subparagraph (A), an interest in a partnership
formed after March 26, 1998, shall be treated
as held by an exempt REIT or stapled entity on
March 26, 1998, if such partnership is formed
to mirror the stapling of an exempt REIT and a
stapled entity in connection with an
acquisition agreed to or announced on or before
March 26, 1998.
(d) Treatment of Property Secured by Mortgage Held by
Exempt REIT or Member of Stapled REIT Group.--
(1) In general.--In the case of any nonqualified
obligation held by an exempt REIT or any member of the
stapled REIT group, the REIT gross income provisions
shall be applied by treating the exempt REIT as having
impermissible tenant service income equal to--
(A) the interest income from such
obligation which is properly allocable to the
property described in paragraph (2), and
(B) the income of any member of the stapled
REIT group from services described in paragraph
(2) with respect to such property.
If the income referred to in subparagraph (A) or (B) is
of a 10-percent subsidiary entity, only the portion of
such income which is properly allocable to the exempt
REIT's or the stapled entity's interest in the
subsidiary entity shall be taken into account.
(2) Nonqualified obligation.--Except as otherwise
provided in this subsection, the term ``nonqualified
obligation'' means any obligation secured by a mortgage
on an interest in real property if the income of any
member of the stapled REIT group for services furnished
with respect to such property would be impermissible
tenant service income were such property held by the
exempt REIT and such services furnished by the exempt
REIT.
(3) Exception for certain market rate
obligations.--Such term shall not include any
obligation--
(A) payments under which would be treated
as interest if received by a REIT, and
(B) the rate of interest on which does not
exceed an arm's length rate.
(4) Exception for existing obligations.--Such term
shall not include any obligation--
(A) which is secured on March 26, 1998, by
an interest in real property, and
(B) which is held on such date by the
exempt REIT or any entity which is a member of
the stapled REIT group on such date and at all
times thereafter,
but only so long as such obligation is secured by such
interest, and the interest payable on such obligation
is not changed to a rate which exceeds an arm's length
rate unless such change is pursuant to the terms of the
obligation in effect on March 26, 1998. The preceding
sentence shall not cease to apply by reason of the
refinancing of the obligation if (immediately after the
refinancing) the principal amount of the obligation
resulting from the refinancing does not exceed the
principal amount of the refinanced obligation
(immediately before the refinancing) and the interest
payable on such refinanced obligation does not exceed
an arm's length rate.
(5) Treatment of entities which are not stapled,
etc. on march 26, 1998.--A rule similar to the rule of
subsection (b)(5) shall apply for purposes of this
subsection.
(6) Increase in amount of nonqualified obligations
if increase in ownership of subsidiary.--A rule similar
to the rule of subsection (c)(3) shall apply for
purposes of this subsection.
(7) Coordination with subsection (a).--This
subsection shall not apply to the portion of any
interest in real property that the exempt REIT or
stapled entity holds or is treated as holding under
this section without regard to this subsection.
(e) Definitions.--For purposes of this section--
(1) REIT gross income provisions.--The term ``REIT
gross income provisions'' means--
(A) paragraphs (2), (3), and (6) of section
856(c) of the Internal Revenue Code of 1986,
and
(B) section 857(b)(5) of such Code.
(2) Exempt reit.--The term ``exempt REIT'' means a
real estate investment trust to which section 269B of
the Internal Revenue Code of 1986 does not apply by
reason of paragraph (3) of section 136(c) of the Tax
Reform Act of 1984.
(3) Stapled reit group.--The term ``stapled REIT
group'' means, with respect to an exempt REIT, the
group consisting of--
(A) all entities which are stapled entities
with respect to the exempt REIT, and
(B) all entities which are 10-percent
subsidiary entities of the exempt REIT or any
such stapled entity.
(4) 10-percent subsidiary entity.--
(A) In general.--The term ``10-percent
subsidiary entity'' means, with respect to any
exempt REIT or stapled entity, any entity in
which the exempt REIT or stapled entity (as the
case may be) directly or indirectly holds at
least a 10-percent interest.
(B) Exception for certain c corporation
subsidiaries of reits.--A corporation which
would, but for this subparagraph, be treated as
a 10-percent subsidiary of an exempt REIT shall
not be so treated if such corporation is
taxable under section 11 of the Internal
Revenue Code of 1986.
(C) 10-percent interest.--The term ``10-
percent interest'' means--
(i) in the case of an interest in a
corporation, ownership of 10 percent
(by vote or value) of the stock in such
corporation,
(ii) in the case of an interest in
a partnership, ownership of 10 percent
of the capital or profits interest in
the partnership, and
(iii) in any other case, ownership
of 10 percent of the beneficial
interests in the entity.
(5) Other definitions.--Terms used in this section
which are used in section 269B or section 856 of such
Code shall have the respective meanings given such
terms by such section.
(f) Guidance.--The Secretary may prescribe such guidance as
may be necessary or appropriate to carry out the purposes of
this section, including guidance to prevent the avoidance of
such purposes and to prevent the double counting of income.
(g) Effective Date.--This section shall apply to taxable
years ending after March 26, 1998.
SEC. 7003. CERTAIN CUSTOMER RECEIVABLES INELIGIBLE FOR MARK-TO-MARKET
TREATMENT.
(a) Certain Receivables Not Eligible for Mark to Market.--
Section 475(c) (relating to definitions) is amended by adding
at the end the following new paragraph:
``(4) Special rules for certain receivables.--
``(A) In general.--Paragraph (2)(C) shall
not include any nonfinancial customer paper.
``(B) Nonfinancial customer paper.--For
purposes of subparagraph (A), the term
`nonfinancial customer paper' means any
receivable which--
``(i) is a note, bond, debenture,
or other evidence of indebtedness,
``(ii) arises out of the sale of
nonfinancial goods or services by a
person the principal activity of which
is the selling or providing of
nonfinancial goods or services, and
``(iii) is held by such person (or
a person who bears a relationship to
such person described in section 267(b)
or 707(b)) at all times since issue.''
(b) Regulations.--Section 475(g) is amended by striking
``and'' at the end of paragraph (1), by striking the period at
the end of paragraph (2) and inserting ``, and'', and by adding
at the end the following new paragraph:
``(3) to prevent the use by taxpayers of subsection
(c)(4) to avoid the application of this section to a
receivable that is inventory in the hands of the
taxpayer (or a person who bears a relationship to the
taxpayer described in sections 267(b) of 707(b)).''.
(c) Effective Date.--
(1) In general.--The amendments made by this
section shall apply to taxable years ending after the
date of the enactment of this Act.
(2) Change in method of accounting.--In the case of
any taxpayer required by the amendments made by this
section to change its method of accounting for its
first taxable year ending after the date of the
enactment of this Act--
(A) such change shall be treated as
initiated by the taxpayer,
(B) such change shall be treated as made
with the consent of the Secretary of the
Treasury, and
(C) the net amount of the adjustments
required to be taken into account by the
taxpayer under section 481 of the Internal
Revenue Code of 1986 shall be taken into
account ratably over the 4-taxable year period
beginning with such first taxable year.
SEC. 7004. MODIFICATION OF AGI LIMIT FOR CONVERSIONS TO ROTH IRAS.
(a) In General.--Section 408A(c)(3)(C)(i) (relating to
limits based on modified adjusted gross income) is amended to
read as follows:
``(i) adjusted gross income shall
be determined in the same manner as
under section 219(g)(3), except that--
``(I) any amount included
in gross income under
subsection (d)(3) shall not be
taken into account, and
``(II) any amount included
in gross income by reason of a
required distribution under a
provision described in
paragraph (5) shall not be
taken into account for purposes
of subparagraph (B)(i).''.
(b) Effective Date.--The amendment made by this section
shall apply to taxable years beginning after December 31, 2004.
TITLE VIII--IDENTIFICATION OF LIMITED TAX BENEFITS SUBJECT TO LINE ITEM
VETO
SEC. 8001. IDENTIFICATION OF LIMITED TAX BENEFITS SUBJECT TO LINE ITEM
VETO.
Section 1021(a)(3) of the Congressional Budget and
Impoundment Control Act of 1974 shall only apply to--
(1) section 3105 (relating to administrative appeal
of adverse IRS determination of tax-exempt status of
bond issue), and
(2) section 3445(c) (relating to State fish and
wildlife permits).
TITLE IX--TECHNICAL CORRECTIONS TO TRANSPORTATION EQUITY ACT FOR THE
21ST CENTURY
SEC. 9001. SHORT TITLE.
This title may be cited as the ``TEA 21 Restoration Act''.
SEC. 9002. AUTHORIZATION AND PROGRAM SUBTITLE.
(a) Authorization of Appropriations.--Section 1101(a) of
the Transportation Equity Act for the 21st Century is amended--
(1) in paragraph (13)--
(A) by striking ``$1,025,695,000'' and
inserting ``$1,029,583,500'';
(B) by striking ``$1,398,675,000'' and
inserting ``$1,403,977,500'';
(C) by striking ``$1,678,410,000'' the
first place it appears and inserting
``$1,684,773,000'';
(D) by striking ``$1,678,410,000'' the
second place it appears and inserting
``$1,684,773,000'';
(E) by striking ``$1,771,655,000'' the
first place it appears and inserting
``$1,778,371,500''; and
(F) by striking ``$1,771,655,000'' the
second place it appears and inserting
``$1,778,371,500''; and
(2) in paragraph (14)--
(A) by striking ``1998'' and inserting
``1999''; and
(B) by inserting before ``$5,000,000'' the
following: ``$10,000,000 for fiscal year
1998''.
(b) Obligation Limitations.--
(1) General limitation.--Section 1102(a) of such
Act is amended--
(A) in paragraph (2) by striking
``$25,431,000,000'' and inserting
``$25,511,000,000'';
(B) in paragraph (3) by striking
``$26,155,000,000'' and inserting
``$26,245,000,000'';
(C) in paragraph (4) by striking
``$26,651,000,000'' and inserting
``$26,761,000,000'';
(D) in paragraph (5) by striking
``$27,235,000,000'' and inserting
``$27,355,000,000''; and
(E) in paragraph (6) by striking
``$27,681,000,000'' and inserting
``$27,811,000,000''.
(2) Transportation research programs.--Section
1102(e) of such Act is amended--
(A) by striking ``3'' and inserting ``5'';
(B) by striking ``VI'' and inserting ``V'';
and
(C) by inserting before the period at the
end the following: ``; except that obligation
authority made available for such programs
under such limitations shall remain available
for a period of 3 fiscal years''.
(3) Redistribution of certain authorized funds.--
Section 1102(f) of such Act is amended by striking
``(other than the program under section 160 of title
23, United States Code)''.
(c) Apportionments.--Section 1103 of such Act is amended--
(1) in subsection (l) by adding at the end the
following:
``(5) Section 150 of such title, and the item
relating to such section in the analysis for chapter 1
of such title, are repealed.'';
(2) in subsection (n) by inserting ``of title 23,
United States Code'' after ``206''; and
(3) by adding at the end the following:
``(o) Technical Adjustments.--Section 104 of title 23,
United States Code, is amended--
``(1) in subsection (a)(1) (as amended by
subsection (a) of this section) by striking `under
section 103';
``(2) in subsection (b) (as amended by subsection
(b) of this section)--
``(A) in paragraph (1)(A) by striking `1999
through 2003' and inserting `1998 through
2002'; and
``(B) in paragraph (4)(B)(i) by striking
`on lanes on Interstate System' and all that
follows through `in each State' and inserting
`on Interstate System routes open to traffic in
each State'; and
``(3) in subsection (e)(2) (as added by subsection
(d)(6) of this section) by striking `104, 144, or 157'
and inserting `104, 105, or 144'.''.
(d) Minimum Guarantee.--Section 1104 of such Act is amended
by adding at the end the following:
``(c) Technical Adjustments.--Section 105 of title 23,
United States Code (as amended by subsection (a) of this
section), is amended--
``(1) in subsection (a) by adding at the end the
following: `The minimum amount allocated to a State
under this section for a fiscal year shall be
$1,000,000.';
``(2) in subsection (c)(1) by striking `50 percent
of ';
``(3) in subsection (c)(1)(A) by inserting `(other
than metropolitan planning, minimum guarantee, high
priority projects, Appalachian development highway
system, and recreational trails programs)' after
`subsection (a)';
``(4) in subsection (c)(1)(B) by striking `all
States' and inserting `each State';
``(5) in subsection (c)(2)--
``(A) by striking `apportion' and inserting
`administer'; and
``(B) by striking `apportioned' and
inserting `administered'; and
``(6) in subsection (f)--
``(A) by inserting `percentage' before
`return' each place it appears;
``(B) in paragraph (2) by striking `for the
preceding fiscal year was equal to or less
than' and inserting `in the table in subsection
(b) was equal to'; and
``(C) in paragraph (3)--
``(i) by inserting
`proportionately' before `adjust';
``(ii) by striking `set forth'; and
``(iii) by striking `do not exceed'
and inserting `is equal to'.''.
(e) Revenue Aligned Budget Authority.--Section 1105 of such
Act is amended by adding at the end the following:
``(c) Technical Corrections.--Section 110 of such title (as
amended by subsection (a)) is amended--
``(1) by striking subsection (a) and inserting the
following:
`(a) In General.--
`(1) Allocation.--On October 15 of fiscal year 2000
and each fiscal year thereafter, the Secretary shall
allocate for such fiscal year an amount of funds equal
to the amount determined pursuant to section
251(b)(1)(B)(ii)(I)(cc) of the Balanced Budget and
Emergency Deficit Control Act of 1985 (2 U.S.C
901(b)(2)(B)(ii)(I)(cc)) if the amount determined
pursuant to such section for such fiscal year is
greater than zero.
`(2) Reduction.--If the amount determined pursuant
to section 251(b)(1)(B)(ii)(I)(cc) of the Balanced
Budget and Emergency Deficit Control Act of 1985 (2
U.S.C 901(b)(2)(B)(ii)(I)(cc)) for fiscal year 2000 or
any fiscal year thereafter is less than zero, the
Secretary on October 1 of the succeeding fiscal year
shall reduce proportionately the amount of sums
authorized to be appropriated from the Highway Trust
Fund (other than the Mass Transit Account) to carry out
each of the Federal-aid highway and highway safety
construction programs (other than emergency relief) by
an aggregate amount equal to the amount determined
pursuant to such section.';
``(2) in subsections (b)(2) and (b)(4) by striking
`subsection (a)' and inserting `subsection (a)(1)'; and
``(3) in subsection (c) by striking `Maintenance
program, the' and inserting `and'.''.
(f) Interstate Maintenance Program.--Section 1107 of such
Act is amended by adding at the end the following:
``(d) Technical Amendments.--Section 119 of such title (as
amended by subsection (a)) is amended--
``(1) in subsection (b)--
``(A) by striking `104(b)(5)(B)' and
inserting `104(b)(4)'; and
``(B) by striking `104(b)(5)(A)' each place
it appears and inserting `104(b)(5)(A) (as in
effect on the date before the date of enactment
of the Transportation Equity Act for the 21st
Century)'; and
``(2) in subsection (c) by striking `104(b)(5)(B)'
each place it appears and inserting `104(b)(4)'.''.
(g) Congestion Mitigation and Air Quality Improvement
Program.--Section 1110(d)(2) of such Act is amended--
(1) by striking ``149(c)'' and inserting
``149(e)''; and
(2) by striking ``that reduce'' and inserting
``reduce''.
(h) Highway Use Tax Evasion Projects.--Section 1114 of such
Act is amended by adding at the end the following:
``(c) Technical Adjustments.--Section 143 of title 23,
United States Code (as amended by subsection (a) of this
section), is amended--
``(1) in subsection (c)(1) by striking `April 1'
and inserting `August 1';
``(2) in subsection (c)(3) by inserting `priority'
after `Funding'; and
``(3) in subsection (c)(3) by inserting `and prior
to funding any other activity under this section,'
after `2003,'.''.
(i) Federal Lands Highways Program.--Section 1115 of the
Transportation Equity Act for the 21st Century is amended by
adding at the end the following:
``(f) Conforming Amendments.--
``(1) Federal share.--Subsections (j) and (k) of
section 120 of title 23, United States Code (as added
by subsection (a) of this section), are redesignated as
subsections (k) and (l), respectively.
``(2) Reservation of funds.--Section 202(d)(4)(B)
of such title (as added by subsection (b)(4) of this
section) is amended by striking `to, apply sodium
acetate/formate de-icer to,' and inserting `, sodium
acetate/formate, or other environmentally acceptable,
minimally corrosive anti-icing and de-icing
compositions'.
``(3) Elimination of duplicative provision.--
Section 144(g) of such title is amended by striking
paragraph (4).''.
(j) Woodrow Wilson Memorial Bridge Correction.--Section
1116 of such Act is amended by adding at the end the following:
``(e) Technical Correction.--Sections 404(5) and
407(c)(2)(C)(iii) of such Act (as amended by subsections (a)(2)
and (b)(2), respectively) are amended by striking `the record
of decision' each place it appears and inserting `a record of
decision'.''.
(k) Technical Correction.--Section 1117 of such Act is
amended in subsections (a) and (b) by striking ``section 102''
each place it appears and inserting ``section 1101(a)(6)''.
SEC. 9003. RESTORATIONS TO GENERAL PROVISIONS SUBTITLE.
(a) In General.--Subtitle B of title I of the
Transportation Equity Act for the 21st Century is amended by
adding at the end the following:
``SEC. 1224. NATIONAL HISTORIC COVERED BRIDGE PRESERVATION.
``(a) Historic Covered Bridge Defined.--In this section,
the term `historic covered bridge' means a covered bridge that
is listed or eligible for listing on the National Register of
Historic Places.
``(b) Historic Covered Bridge Preservation.--Subject to the
availability of appropriations under subsection (d), the
Secretary shall--
``(1) collect and disseminate information
concerning historic covered bridges;
``(2) foster educational programs relating to the
history and construction techniques of historic covered
bridges;
``(3) conduct research on the history of historic
covered bridges; and
``(4) conduct research, and study techniques, on
protecting historic covered bridges from rot, fire,
natural disasters, or weight-related damage.
``(c) Direct Federal Assistance.--
``(1) In general.--Subject to the availability of
appropriations, the Secretary shall make a grant to a
State that submits an application to the Secretary that
demonstrates a need for assistance in carrying out 1 or
more historic covered bridge projects described in
paragraph (2).
``(2) Types of project.--A grant under paragraph
(1) may be made for a project--
``(A) to rehabilitate or repair a historic
covered bridge; and
``(B) to preserve a historic covered
bridge, including through--
``(i) installation of a fire
protection system, including a
fireproofing or fire detection system
and sprinklers;
``(ii) installation of a system to
prevent vandalism and arson; or
``(iii) relocation of a bridge to a
preservation site.
``(3) Authenticity.--A grant under paragraph (1)
may be made for a project only if--
``(A) to the maximum extent practicable,
the project--
``(i) is carried out in the most
historically appropriate manner; and
``(ii) preserves the existing
structure of the historic covered
bridge; and
``(B) the project provides for the
replacement of wooden components with wooden
components, unless the use of wood is
impracticable for safety reasons.
``(4) Federal share.--The Federal share of the cost
of a project carried out with a grant under this
subsection shall be 80 percent.
``(d) Funding.--There is authorized to be appropriated to
carry out this section $10,000,000 for each of fiscal years
1999 through 2003. Such funds shall remain available until
expended.
``SEC. 1225. SUBSTITUTE PROJECT.
``(a) Approval of Project.--Notwithstanding any other
provision of law, upon the request of the Mayor of the District
of Columbia, the Secretary may approve substitute highway and
transit projects under section 103(e)(4) of title 23, United
States Code (as in effect on the day before the date of
enactment of this Act), in lieu of construction of the Barney
Circle Freeway project in the District of Columbia, as
identified in the 1991 Interstate Cost Estimate.
``(b) Eligibility for Federal Assistance.--Upon approval of
any substitute project or projects under subsection (a)--
``(1) the cost of construction of the Barney Circle
Freeway Modification project shall not be eligible for
funds authorized under section 108(b) of the Federal-
Aid Highway Act of 1956; and
``(2) substitute projects approved pursuant to this
section shall be funded from interstate construction
funds apportioned or allocated to the District of
Columbia that are not expended and not subject to lapse
on the date of enactment of this Act.
``(c) Federal Share.--The Federal share payable on account
of a project or activity approved under this section shall be
85 percent of the cost thereof; except that the exception set
forth in section 120(b)(2) of title 23, United States Code,
shall apply.
``(d) Limitation on Eligibility.--Any substitute project
approved pursuant to subsection (a) (for which the Secretary
finds that sufficient Federal funds are available) must be
under contract for construction, or construction must have
commenced, before the last day of the 4-year period beginning
on the date of enactment of this Act. If the substitute project
is not under contract for construction, or construction has not
commenced, by such last day, the Secretary shall withdraw
approval of the substitute project.
``SEC. 1226. FISCAL, ADMINISTRATIVE, AND OTHER AMENDMENTS.
``(a) Advanced Construction.--Section 115 of title 23,
United States Code, is amended--
``(1) in subsection (b)--
``(A) by moving the text of paragraph (1)
(including subparagraphs (A) and (B)) 2 ems to
the left;
``(B) by striking `Projects' and all that
follows through `When a State' and inserting
`Projects.--When a State';
``(C) by striking paragraphs (2) and (3);
``(D) by striking `(A) prior' and inserting
`(1) prior'; and
``(E) by striking `(B) the project' and
inserting `(2) the project';
``(2) by striking subsection (c); and
``(3) by redesignating subsection (d) as subsection
(c).
``(b) Availability of Funds.--Section 118 of such title is
amended--
``(1) in the subsection heading of subsection (b)
by striking `; Discretionary Projects'; and
``(2) by striking subsection (e) and inserting the
following:
`(e) Effect of Release of Funds.--Any Federal-aid highway
funds released by the final payment on a project, or by the
modification of the project agreement, shall be credited to the
same program funding category previously apportioned to the
State and shall be immediately available for expenditure.'.
``(c) Advances to States.--Section 124 of such title is
amended--
``(1) by striking `(a)' the first place it appears;
and
``(2) by striking subsection (b).
``(d) Diversion.--Section 126 of such title, and the item
relating to such section in the analysis for chapter 1 of such
title, are repealed.''.
(b) Conforming Amendment.--The table of contents contained
in section 1(b) of such Act is amended by inserting after the
item relating to section 1222 the following:
``Sec. 1223. Transportation assistance for Olympic cities.
``Sec. 1224. National historic covered bridge preservation.
``Sec. 1225. Substitute project.
``Sec. 1226. Fiscal, administrative, and other amendments.''.
(c) Metropolitan Planning Technical Adjustment.--Section
1203 of such Act is amended by adding at the end the following:
``(o) Technical Adjustment.--Section 134(h)(5)(A) of title
23, United States Code (as amended by subsection (h) of this
section), is amended by striking `for implementation'.''.
(d) Amendments to Prior Surface Transportation Laws.--
Section 1211 of such Act is amended--
(1) in subsection (i)(3)(E) by striking
``subparagraph (D)'' and inserting ``subparagraph
(C)'';
(2) in subsection (i) by adding at the end the
following:
``(4) Technical amendments.--Section
1105(e)(5)(B)(i) of such Act (as amended by paragraph
(3) of this subsection) is amended--
``(A) by striking `subsection
(c)(18)(B)(i)' and inserting `subsection
(c)(18)(D)(i)';
``(B) by striking `subsection
(c)(18)(B)(ii)' and inserting `subsection
(c)(18)(D)(ii)'; and
``(C) by adding at the end the following:
`The portion of the route referred to in
subsection (c)(36) is designated as Interstate
Route I-86.'.'';
(3) by striking subsection (j);
(4) in subsection (k)--
(A) by striking ``along'' in paragraph (1)
and inserting ``from''; and
(B) by adding at the end the following:
``(4) Texas state highway 99.--Texas State Highway
99 (also known as `Grand Parkway') shall be considered
as 1 option in the I-69 route studies performed by the
Texas Department of Transportation for the designation
of I-69 Bypass in Houston, Texas.''; and
(5) by redesignating subsections (g) through (i)
and (k) through (n) as subsections (f) through (h) and
(i) through (l), respectively.
(e) Miscellaneous.--Section 1212 of such Act is amended--
(1) in the second sentence of subsection (q)(1) by
striking ``advance curriculum'' and inserting
``advanced curriculum'';
(2) in subsection (r)--
(A) by redesignating paragraph (2) as
paragraph (3); and
(B) by inserting after paragraph (1) the
following:
``(2) Authorization of appropriations.--There are
authorized to be appropriated from the Highway Trust
Fund (other than the Mass Transit Account) to carry out
paragraph (1) $2,000,000 for fiscal year 1999 and
$2,500,000 for fiscal year 2000.'';
(3) in subsection (s)--
(A) by redesignating paragraph (2) as
paragraph (3); and
(B) by inserting after paragraph (1) the
following:
``(2) Authorization of appropriations.--There is
authorized to be appropriated from the Highway Trust
Fund (other than the Mass Transit Account) to carry out
paragraph (1) $23,000,000 for fiscal year 1999.'';
(4) in subsection (u)--
(A) by inserting ``the Secretary shall
approve, and'' before ``the Commonwealth'';
(B) by inserting a comma after ``with'';
and
(C) by inserting ``(as redefined by this
Act)'' after ``80''; and
(5) by redesignating subsections (k) through (z) as
subsections (e) through (t), respectively.
(f) Puerto Rico Highway Program.--Section 1214(r) of the
Transportation Equity Act for the 21st Century is amended by
adding at the end the following:
``(3) Treatment of funds.--Amounts made available
to carry out this subsection for a fiscal year shall be
administered as follows:
``(A) For purposes of this subsection, such
amounts shall be treated as being apportioned
to Puerto Rico under sections 104(b), 144, and
206 of title 23, United States Code, for each
program funded under such sections in an amount
determined by multiplying--
``(i) the aggregate of such amounts
for the fiscal year; by
``(ii) the ratio that--
``(I) the amount of funds
apportioned to Puerto Rico for
each such program for fiscal
year 1997; bears to
``(II) the total amount of
funds apportioned to Puerto
Rico for all such programs for
fiscal year 1997.
``(B) The amounts treated as being
apportioned to Puerto Rico under each section
referred to in subparagraph (A) shall be deemed
to be required to be apportioned to Puerto Rico
under such section for purposes of the
imposition of any penalty provisions in titles
23 and 49, United States Code.
``(C) Subject to subparagraph (B), nothing
in this subsection shall be construed as
affecting any allocation under section 105 of
title 23, United States Code, and any
apportionment under sections 104 and 144 of
such title.''.
(g) Designated Transportation Enhancement Activities.--
Section 1215 of such Act--
(1) is amended in each of subsections (d), (e),
(f), and (g)--
(A) by redesignating paragraph (2) as
paragraph (3); and
(B) by inserting after paragraph (1) the
following:
``(2) Authorization of appropriations.--There are
authorized to be appropriated from the Highway Trust
Fund (other than the Mass Transit Account) to carry out
paragraph (1) the amounts specified in such paragraph
for the fiscal years specified in such paragraph.'';
and
(2) in subsection (d)(1) by inserting ``on Route
50'' after ``measures''.
(h) Eligibility.--Section 1217 of such Act is amended--
(1) in subsection (d) by striking ``104(b)(4)'' and
inserting ``104(b)(5)(A)'';
(2) in subsection (i) by striking ``120(l)(1)'' and
inserting ``120(j)(1)''; and
(3) in subsection (j) by adding at the end the
following: ``$3,000,000 of the amounts made available
for item 164 of the table contained in section 1602
shall be made available on October 1, 1998, to the
Pennsylvania Turnpike Commission to carry out this
subsection.''.
(i) Magnetic Levitation Transportation Technology
Deployment Program.--Section 1218 of such Act is amended by
adding at the end the following:
``(c) Technical Amendments.--Section 322 of title 23,
United States Code (as added by subsection (a) of this
section), is amended--
``(1) in subsection (a)(3) by striking `or under 50
miles per hour';
``(2) in subsection (d)--
``(A) in paragraph (1) by striking `or low-
speed'; and
``(B) in paragraph (2)--
``(i) in subparagraph (A) by
striking `(h)(1)(A)' and inserting
`(h)(1)'; and
``(ii) in subparagraph (B) by
striking `(h)(4)' and inserting
`(h)(3)';
``(3) in subsection (h)(1)(B)(i) by inserting
`(other than subsection (i))' after `this section'; and
``(4) by adding at the end the following:
`(i) Low-Speed Project.--
`(1) In general.--Notwithstanding any other
provision of this section, of the funds made available
by subsection (h)(1)(A) to carry out this section,
$5,000,000 shall be made available to the Secretary to
make grants for the research and development of low-
speed superconductivity magnetic levitation technology
for public transportation purposes in urban areas to
demonstrate energy efficiency, congestion mitigation,
and safety benefits.
`(2) Noncontract authority authorization of
appropriations.--
`(A) In general.--There are authorized to
be appropriated from the Highway Trust Fund
(other than the Mass Transit Account) to carry
out this subsection such sums as are necessary
for each of fiscal years 2000 through 2003.
`(B) Availability.--Notwithstanding section
118(a), funds made available under subparagraph
(A)--
`(i) shall not be available in
advance of an annual appropriation; and
`(ii) shall remain available until
expended.'.''.
(j) Transportation Assistance for Olympic Cities.--Section
1223(f) of such Act is amended by inserting before the period
at the end the following: ``or Special Olympics
International''.
SEC. 9004. RESTORATIONS TO PROGRAM STREAMLINING AND FLEXIBILITY
SUBTITLE.
(a) In General.--Subtitle C of title I of the
Transportation Equity Act for the 21st Century is amended by
adding at the end the following:
``SEC. 1311. DISCRETIONARY GRANT SELECTION CRITERIA AND PROCESS.
``(a) Establishment of Criteria.--The Secretary shall
establish criteria for all discretionary programs funded from
the Highway Trust Fund (other than the Mass Transit Account).
To the extent practicable, such criteria shall conform to the
Executive Order No. 12893 (relating to infrastructure
investment).
``(b) Selection Process.--
``(1) Limitation on acceptance of applications.--
Before accepting applications for grants under any
discretionary program for which funds are authorized to
be appropriated from the Highway Trust Fund (other than
the Mass Transit Account) by this Act (including the
amendments made by this Act), the Secretary shall
publish the criteria established under subsection (a).
Such publication shall identify all statutory criteria
and any criteria established by regulation that will
apply to the program.
``(2) Explanation.--Not less often than quarterly,
the Secretary shall submit to the Committee on
Environment and Public Works of the Senate and the
Committee on Transportation and Infrastructure of the
House of Representatives a list of the projects
selected under discretionary programs funded from the
Highway Trust Fund (other than the Mass Transit
Account) and an explanation of how the projects were
selected based on the criteria established under
subsection (a).
``(c) Minimum Covered Programs.--At a minimum, the criteria
established under subsection (a) and the selection process
established by subsection (b) shall apply to the following
programs:
``(1) The intelligent transportation system
deployment program under title V.
``(2) The national corridor planning and
development program.
``(3) The coordinated border infrastructure and
safety program.
``(4) The construction of ferry boats and ferry
terminal facilities.
``(5) The national scenic byways program.
``(6) The Interstate discretionary program.
``(7) The discretionary bridge program.''.
(b) Conforming Amendments.--The table of contents contained
in section 1(b) of such Act is amended--
(1) by striking the following:
``Sec. 1309. Major investment study integration.''
and inserting the following:
``Sec. 1308. Major investment study integration.'';
and
(2) by inserting after the item relating to section
1310 the following:
``Sec. 1311. Discretionary grant selection criteria and process.''.
(c) Review Process.--Section 1309 of the Transportation
Equity Act for the 21st Century is amended--
(1) in subsection (a)(1) by inserting after
``highway construction'' the following: ``and mass
transit'';
(2) in subsection (d) by inserting after ``Code,''
the following: ``or chapter 53 of title 49, United
States Code,''; and
(3) in subsection (e)(1)--
(A) by inserting ``or recipient'' after ``a
State'';
(B) by inserting after ``provide funds''
the following: ``for a highway project''; and
(C) by inserting after ``Code,'' the
following: ``or for a mass transit project made
available under chapter 53 of title 49, United
States Code,''.
SEC. 9005. RESTORATIONS TO SAFETY SUBTITLE.
(a) In General.--Subtitle D of title I of the
Transportation Equity Act for the 21st Century is amended by
adding at the end the following:
``SEC. 1405. OPEN CONTAINER LAWS.
``(a) Establishment.--Chapter 1 of title 23, United States
Code, is amended by inserting after section 153 the following:
`Sec. 154. Open container requirements
`(a) Definitions.--In this section, the following
definitions apply:
`(1) Alcoholic beverage.--The term ``alcoholic
beverage'' has the meaning given the term in section
158(c).
`(2) Motor vehicle.--The term ``motor vehicle''
means a vehicle driven or drawn by mechanical power and
manufactured primarily for use on public highways, but
does not include a vehicle operated exclusively on a
rail or rails.
`(3) Open alcoholic beverage container.--The term
``open alcoholic beverage container'' means any bottle,
can, or other receptacle--
`(A) that contains any amount of alcoholic
beverage; and
`(B)(i) that is open or has a broken seal;
or
`(ii) the contents of which are partially
removed.
`(4) Passenger area.--The term ``passenger area''
shall have the meaning given the term by the Secretary
by regulation.
`(b) Open Container Laws.--
`(1) In general.--For the purposes of this section,
each State shall have in effect a law that prohibits
the possession of any open alcoholic beverage
container, or the consumption of any alcoholic
beverage, in the passenger area of any motor vehicle
(including possession or consumption by the driver of
the vehicle) located on a public highway, or the right-
of-way of a public highway, in the State.
`(2) Motor vehicles designed to transport many
passengers.--For the purposes of this section, if a
State has in effect a law that makes unlawful the
possession of any open alcoholic beverage container by
the driver (but not by a passenger)--
`(A) in the passenger area of a motor
vehicle designed, maintained, or used primarily
for the transportation of persons for
compensation, or
`(B) in the living quarters of a house
coach or house trailer,
the State shall be deemed to have in effect a law
described in this subsection with respect to such a
motor vehicle for each fiscal year during which the law
is in effect.
`(c) Transfer of Funds.--
`(1) Fiscal years 2001 and 2002.--On October 1,
2000, and October 1, 2001, if a State has not enacted
or is not enforcing an open container law described in
subsection (b), the Secretary shall transfer an amount
equal to 1\1/2\ percent of the funds apportioned to the
State on that date under each of paragraphs (1), (3),
and (4) of section 104(b) to the apportionment of the
State under section 402--
`(A) to be used for alcohol-impaired
driving countermeasures; or
`(B) to be directed to State and local law
enforcement agencies for enforcement of laws
prohibiting driving while intoxicated or
driving under the influence and other related
laws (including regulations), including the
purchase of equipment, the training of
officers, and the use of additional personnel
for specific alcohol-impaired driving
countermeasures, dedicated to enforcement of
the laws (including regulations).
`(2) Fiscal year 2003 and fiscal years
thereafter.--On October 1, 2002, and each October 1
thereafter, if a State has not enacted or is not
enforcing an open container law described in subsection
(b), the Secretary shall transfer an amount equal to 3
percent of the funds apportioned to the State on that
date under each of paragraphs (1), (3), and (4) of
section 104(b) to the apportionment of the State under
section 402 to be used or directed as described in
subparagraph (A) or (B) of paragraph (1).
`(3) Use for hazard elimination program.--A State
may elect to use all or a portion of the funds
transferred under paragraph (1) or (2) for activities
eligible under section 152.
`(4) Federal share.--The Federal share of the cost
of a project carried out with funds transferred under
paragraph (1) or (2), or used under paragraph (3),
shall be 100 percent.
`(5) Derivation of amount to be transferred.--The
amount to be transferred under paragraph (1) or (2) may
be derived from 1 or more of the following:
`(A) The apportionment of the State under
section 104(b)(1).
`(B) The apportionment of the State under
section 104(b)(3).
`(C) The apportionment of the State under
section 104(b)(4).
`(6) Transfer of obligation authority.--
`(A) In general.--If the Secretary
transfers under this subsection any funds to
the apportionment of a State under section 402
for a fiscal year, the Secretary shall transfer
an amount, determined under subparagraph (B),
of obligation authority distributed for the
fiscal year to the State for Federal-aid
highways and highway safety construction
programs for carrying out projects under
section 402.
`(B) Amount.--The amount of obligation
authority referred to in subparagraph (A) shall
be determined by multiplying--
`(i) the amount of funds
transferred under subparagraph (A) to
the apportionment of the State under
section 402 for the fiscal year; by
`(ii) the ratio that--
`(I) the amount of
obligation authority
distributed for the fiscal year
to the State for Federal-aid
highways and highway safety
construction programs; bears to
`(II) the total of the sums
apportioned to the State for
Federal-aid highways and
highway safety construction
programs (excluding sums not
subject to any obligation
limitation) for the fiscal
year.
`(7) Limitation on applicability of obligation
limitation.--Notwithstanding any other provision of
law, no limitation on the total of obligations for
highway safety programs under section 402 shall apply
to funds transferred under this subsection to the
apportionment of a State under such section.'.
``(b) Conforming Amendment.--The analysis for chapter 1 of
such title is amended by inserting after the item relating to
section 153 the following:
`154. Open container requirements.'.
``SEC. 1406. MINIMUM PENALTIES FOR REPEAT OFFENDERS FOR DRIVING WHILE
INTOXICATED OR DRIVING UNDER THE INFLUENCE.
``(a) In General.--Chapter 1 of title 23, United States
Code, is amended by adding at the end the following:
`Sec. 164. Minimum penalties for repeat offenders for driving while
intoxicated or driving under the influence
`(a) Definitions.--In this section, the following
definitions apply:
`(1) Alcohol concentration.--The term ``alcohol
concentration'' means grams of alcohol per 100
milliliters of blood or grams of alcohol per 210 liters
of breath.
`(2) Driving while intoxicated; driving under the
influence.--The terms ``driving while intoxicated'' and
``driving under the influence'' mean driving or being
in actual physical control of a motor vehicle while
having an alcohol concentration above the permitted
limit as established by each State.
`(3) License suspension.--The term ``license
suspension'' means the suspension of all driving
privileges.
`(4) Motor vehicle.--The term ``motor vehicle''
means a vehicle driven or drawn by mechanical power and
manufactured primarily for use on public highways, but
does not include a vehicle operated solely on a rail
line or a commercial vehicle.
`(5) Repeat intoxicated driver law.--The term
``repeat intoxicated driver law'' means a State law
that provides, as a minimum penalty, that an individual
convicted of a second or subsequent offense for driving
while intoxicated or driving under the influence after
a previous conviction for that offense shall--
`(A) receive a driver's license suspension
for not less than 1 year;
`(B) be subject to the impoundment or
immobilization of each of the individual's
motor vehicles or the installation of an
ignition interlock system on each of the motor
vehicles;
`(C) receive an assessment of the
individual's degree of abuse of alcohol and
treatment as appropriate; and
`(D) receive--
`(i) in the case of the second
offense--
`(I) an assignment of not
less than 30 days of community
service; or
`(II) not less than 5 days
of imprisonment; and
`(ii) in the case of the third or
subsequent offense--
`(I) an assignment of not
less than 60 days of community
service; or
`(II) not less than 10 days
of imprisonment.
`(b) Transfer of Funds.--
`(1) Fiscal years 2001 and 2002.--On October 1,
2000, and October 1, 2001, if a State has not enacted
or is not enforcing a repeat intoxicated driver law,
the Secretary shall transfer an amount equal to 1\1/2\
percent of the funds apportioned to the State on that
date under each of paragraphs (1), (3), and (4) of
section 104(b) to the apportionment of the State under
section 402--
`(A) to be used for alcohol-impaired
driving countermeasures; or
`(B) to be directed to State and local law
enforcement agencies for enforcement of laws
prohibiting driving while intoxicated or
driving under the influence and other related
laws (including regulations), including the
purchase of equipment, the training of
officers, and the use of additional personnel
for specific alcohol-impaired driving
countermeasures, dedicated to enforcement of
the laws (including regulations).
`(2) Fiscal year 2003 and fiscal years
thereafter.--On October 1, 2002, and each October 1
thereafter, if a State has not enacted or is not
enforcing a repeat intoxicated driver law, the
Secretary shall transfer an amount equal to 3 percent
of the funds apportioned to the State on that date
under each of paragraphs (1), (3), and (4) of section
104(b) to the apportionment of the State under section
402 to be used or directed as described in subparagraph
(A) or (B) of paragraph (1).
`(3) Use for hazard elimination program.--A State
may elect to use all or a portion of the funds
transferred under paragraph (1) or (2) for activities
eligible under section 152.
`(4) Federal share.--The Federal share of the cost
of a project carried out with funds transferred under
paragraph (1) or (2), or used under paragraph (3),
shall be 100 percent.
`(5) Derivation of amount to be transferred.--The
amount to be transferred under paragraph (1) or (2) may
be derived from 1 or more of the following:
`(A) The apportionment of the State under
section 104(b)(1).
`(B) The apportionment of the State under
section 104(b)(3).
`(C) The apportionment of the State under
section 104(b)(4).
`(6) Transfer of obligation authority.--
`(A) In general.--If the Secretary
transfers under this subsection any funds to
the apportionment of a State under section 402
for a fiscal year, the Secretary shall transfer
an amount, determined under subparagraph (B),
of obligation authority distributed for the
fiscal year to the State for Federal-aid
highways and highway safety construction
programs for carrying out projects under
section 402.
`(B) Amount.--The amount of obligation
authority referred to in subparagraph (A) shall
be determined by multiplying--
`(i) the amount of funds
transferred under subparagraph (A) to
the apportionment of the State under
section 402 for the fiscal year; by
`(ii) the ratio that--
`(I) the amount of
obligation authority
distributed for the fiscal year
to the State for Federal-aid
highways and highway safety
construction programs; bears to
`(II) the total of the sums
apportioned to the State for
Federal-aid highways and
highway safety construction
programs (excluding sums not
subject to any obligation
limitation) for the fiscal
year.
`(7) Limitation on applicability of obligation
limitation.--Notwithstanding any other provision of
law, no limitation on the total of obligations for
highway safety programs under section 402 shall apply
to funds transferred under this subsection to the
apportionment of a State under such section.'.
``(b) Conforming Amendment.--The analysis for chapter 1 of
such title is amended by adding at the end the following:
`164. Minimum penalties for repeat offenders for driving while
intoxicated or driving under the influence.'.''.
(b) Conforming Amendment.--The table of contents contained
in section 1(b) of such Act is amended by inserting after the
item relating to section 1403 the following:
``Sec. 1404. Safety incentives to prevent operation of motor vehicles by
intoxicated persons.
``Sec. 1405. Open container laws.
``Sec. 1406. Minimum penalties for repeat offenders for driving while
intoxicated or driving under the influence.''.
(c) Roadside Safety Technologies.--Section 1402(a)(2) of
such Act is amended by striking ``directive'' and inserting
``redirective''.
SEC. 9006. ELIMINATION OF DUPLICATE PROVISIONS.
(a) San Mateo County, California.--Section 1113 of the
Transportation Equity Act for the 21st Century is amended--
(1) by striking subsection (c); and
(2) by redesignating subsection (c) as subsection
(d).
(b) Value Pricing Pilot Program.--Section 1216(a) of such
Act is amended by adding at the end the following:
``(8) Conforming amendments.--
``(A) Section 1012(b)(6) of such Act (as
amended by paragraph (5) of this subsection) is
amended by striking `146(c)' and inserting
`102(a)'.
``(B) Section 1012(b)(8) of such Act (as
added by paragraph (7) of this subsection) is
amended--
``(i) in subparagraph (C) by
striking `under this subsection' and
inserting `to carry out this
subsection';
``(ii) in subparagraph (D)--
``(I) by striking `under
this paragraph' and inserting
`to carry out this subsection';
and
``(II) by striking `by this
paragraph' and inserting `to
carry out this subsection';
``(iii) by striking subparagraph
(A); and
``(iv) by redesignating
subparagraphs (B), (C), and (D) as
subparagraphs (A), (B), and (C),
respectively.''.
(c) National Defense Highways Outside the United States.--
Section 1214(e) of such Act is amended to read as follows:
``(e) Minnesota Transportation History Network.--
``(1) In general.--The Secretary shall award a
grant to the Minnesota Historical Society for the
establishment of the Minnesota Transportation History
Network to include major exhibits, interpretive
programs at national historic landmark sites, and
outreach programs with county and local historical
organizations.
``(2) Coordination.--In carrying out subsection
(a), the Secretary shall coordinate with officials of
the Minnesota Historical Society.
``(3) Authorization of appropriations.--There is
authorized to be appropriated out of the Highway Trust
Fund (other than the Mass Transit Account) $1,000,000
for each of fiscal years 1998 through 2003 to carry out
this subsection.
``(4) Applicability of title 23.--Funds authorized
by this subsection shall be available for obligation in
the same manner as if such funds were apportioned under
chapter 1 of title 23, United States Code; except that
such funds shall remain available until expended.''.
(d) Entrance Paving at Ninigret National Wildlife Refuge.--
Section 1214(i) of such Act is amended by striking ``$750,000''
each place it appears and inserting ``$75,000''.
SEC. 9007. HIGHWAY FINANCE.
(a) In General.--Section 1503 of the Transportation Equity
Act for the 21st Century is amended by adding at the end the
following:
``(c) Technical Amendments.--Section 188 of title 23,
United States Code (as added by subsection (a) of this
section), is amended--
``(1) in subsection (a)(2) by striking `1998' and
inserting `1999'; and
``(2) in subsection (c)--
``(A) by striking `1998' and inserting
`1999'; and
``(B) by striking the table and inserting
the following:
Maximum amount
`Fiscal year: of credit:
1999.................................................. $1,600,000,000
2000.................................................. $1,800,000,000
2001.................................................. $2,200,000,000
2002.................................................. $2,400,000,000
2003..............................................$2,600,000,000.'.''.
(b) Conforming Amendments.--The table of contents contained
in section 1(b) of the Transportation Equity Act for the 21st
Century is amended--
(1) in the item relating to section 1119 by
striking ``and safety''; and
(2) by striking the items relating to subtitle E of
title I and inserting the following:
``Subtitle E--Finance
``Chapter 1--Transportation Infrastructure Finance and Innovation
``Sec. 1501. Short title.
``Sec. 1502. Findings.
``Sec. 1503. Establishment of program.
``Sec. 1504. Duties of the Secretary.
``Chapter 2--State Infrastructure Bank Pilot Program
``Sec. 1511. State infrastructure bank pilot program.''.
SEC. 9008. HIGH PRIORITY PROJECTS TECHNICAL CORRECTIONS.
The table contained in section 1602 of the Transportation
Equity Act for the 21st Century is amended--
(1) in item 1 by striking ``1.275'' and inserting
``1.7'';
(2) in item 82 by striking ``30.675'' and inserting
``32.4'';
(3) in item 107 by striking ``1.125'' and inserting
``1.44'';
(4) in item 121 by striking ``10.5'' and inserting
``5.0'';
(5) in item 140 by inserting ``-VFHS Center'' after
``Park'';
(6) in item 151 by striking ``5.666'' and inserting
``8.666'';
(7) in item 164--
(A) by inserting ``, and $3,000,000 for the
period of fiscal years 1998 and 1999 shall be
made available to carry out section 1217(j)''
after ``Pennsylvania''; and
(B) by striking ``25'' and inserting
``24.78'';
(8) by striking item 166 and inserting the
following:
``166 Michigan Improve Tenth Street,
. Port Huron.............. 1.8'';
------------------------------------------------------------------------
(9) by striking item 242 and inserting the
following:
``24Minnesota Construct Third Street
North, CSAH 81, Waite
Park and St. Cloud... 1.0'';
------------------------------------------------------------------------
(10) by striking item 250 and inserting the
following:
``25Indiana Reconstruct Old
Merridan Corridor
from Pennsylvania
Avenue to Gilford
Road................. 1.35'';
------------------------------------------------------------------------
(11) in item 255 by striking ``2.25'' and inserting
``3.0'';
(12) in item 263 by striking ``Upgrade Highway 99
between State Highway 70 and Lincoln Road, Sutter
County'' and inserting ``Upgrade Highway 99, Sutter
County'';
(13) in item 288 by striking ``3.75'' and inserting
``5.0'';
(14) in item 290 by striking ``3.5'' and inserting
``3.0'';
(15) in item 345 by striking ``8'' and inserting
``19.4'';
(16) in item 418 by striking ``2'' and inserting
``2.5'';
(17) in item 421 by striking ``11'' and inserting
``6'';
(18) in item 508 by striking ``1.8'' and inserting
``2.4'';
(19) by striking item 525 and inserting the
following:
``52Alaska Construct Bradfield
Canal Road........... 1'';
------------------------------------------------------------------------
(20) in item 540 by striking ``1.5'' and inserting
``2.0'';
(21) in item 576 by striking ``0.52275'' and
inserting ``0.69275'';
(22) in item 588 by striking ``2.5'' and inserting
``3.0'';
(23) in item 591 by striking ``10'' and inserting
``5'';
(24) in item 635 by striking ``1.875'' and
inserting ``2.15'';
(25) in item 669 by striking ``3'' and inserting
``3.5'';
(26) in item 702 by striking ``10.5'' and inserting
``10'';
(27) in item 746 by inserting ``, and for the
purchase of the Block House in Scott County, Virginia''
after ``Forest'';
(28) in item 755 by striking ``1.125'' and
inserting ``1.5'';
(29) in item 769 by striking ``Construct new I-95
interchange with Highway 99W, Tehama County'' and
inserting ``Construct new I-5 interchange with Highway
99W, Tehama County'';
(30) in item 770 by striking ``1.35'' and inserting
``1.0'';
(31) in item 789 by striking ``2.0625'' and
inserting ``1.0'';
(32) in item 803 by striking ``Tomahark'' and
inserting ``Tomahawk'';
(33) in item 836 by striking ``Construct'' and all
that follows through ``for'' and inserting ``To the
National Park Service for construction of the'';
(34) in item 854 by striking ``0.75'' and inserting
``1'';
(35) in item 863 by striking ``9'' and inserting
``4.75'';
(36) in item 887 by striking ``0.75'' and inserting
``3.21'';
(37) in item 891 by striking ``19.5'' and inserting
``25.0'';
(38) in item 902 by striking ``10.5'' and inserting
``14.0'';
(39) by striking item 1065 and inserting the
following:
``1065Texas Construct a 4-lane
divided highway on
Artcraft Road from I-
10 to Route 375 in El
Paso................. 5'';
------------------------------------------------------------------------
(40) in item 1192 by striking ``24.97725'' and
inserting ``24.55725'';
(41) in item 1200 by striking ``Upgrade (all
weather) on U.S. 2, U.S. 41, and M 35'' and inserting
``Upgrade (all weather) on Delta County's reroute of
U.S. 2, U.S. 41, and M 35'';
(42) in item 1245 by striking ``3'' and inserting
``3.5'';
(43) in item 1271 by striking ``Spur'' and all that
follows through ``U.S. 59'' and inserting ``rail-grade
separations (Rosenberg Bypass) at U.S. 59(S)'';
(44) in item 1278 by striking ``28.18'' and
inserting ``22.0'';
(45) in item 1288 by inserting ``30'' after
``U.S.'';
(46) in item 1338 by striking ``5.5'' and inserting
``3.5'';
(47) in item 1383 by striking ``0.525'' and
inserting ``0.35'';
(48) in item 1395 by striking ``Construct'' and all
that follows through ``Road'' and inserting ``Upgrade
Route 219 between Meyersdale and Somerset'';
(49) in item 1468 by striking ``Reconstruct'' and
all that follows through ``U.S. 23'' and inserting
``Conduct engineering and design and improve I-94 in
Calhoun and Jackson Counties'';
(50) in item 1474--
(A) by striking ``in Euclid'' and inserting
``and London Road in Cleveland''; and
(B) by striking ``3.75'' and inserting
``8.0'';
(51) in item 1535 by striking ``Stanford'' and
inserting ``Stamford'';
(52) in item 1538 by striking ``and Winchester''
and inserting ``, Winchester, and Torrington'';
(53) by striking item 1546 and inserting the
following:
``1546Michigan Construct Bridge-to-
Bay bike path, St.
Clair County......... 0.450'';
------------------------------------------------------------------------
(54) by striking item 1549 and inserting the
following:
``1549New York Center for Advanced
Simulation and
Technology, at
Dowling College...... 0.6'';
------------------------------------------------------------------------
(55) in item 1663 by striking ``26.5'' and
inserting ``27.5'';
(56) in item 1703 by striking ``I-80'' and
inserting ``I-180'';
(57) in item 1726 by striking ``I-179'' and
inserting ``I-79'';
(58) by striking item 1770 and inserting the
following:
``1770Virginia Operate and conduct
research on the
`Smart Road' in
Blacksburg........... 6.025'';
------------------------------------------------------------------------
(59) in item 1810 by striking ``Construct Rio
Rancho Highway'' and inserting ``Northwest Albuquerque/
Rio Rancho high priority roads'';
(60) in item 1815 by striking ``High'' and all that
follows through ``projects'' and inserting ``Highway
and bridge projects that Delaware provides for by
law'';
(61) in item 1844 by striking ``Prepare'' and
inserting ``Repair'';
(62) by striking item 1850 and inserting the
following:
``1850Missouri Resurface and maintain
roads located in
Missouri State parks. 5'';
------------------------------------------------------------------------
(63) in item 661 by striking ``SR 800'' and
inserting ``SR 78'';
(64) in item 1704 by inserting ``, Pittsburgh,''
after ``Road'';
(65) in item 1710 by inserting ``, Bethlehem''
after ``site''; and
(66) in item 1626 by striking ``1'' and inserting
``2''.
SEC. 9009. FEDERAL TRANSIT ADMINISTRATION PROGRAMS.
(a) Definitions.--Section 3003 of the Federal Transit Act
of 1998 is amended--
(1) by inserting ``(a) In General.--'' before
``Section 5302''; and
(2) by adding at the end the following:
``(b) Conforming Amendments.--Section 5302 (as amended by
subsection (a) of this section) is amended in subsection
(a)(1)(G)(i) by striking `daycare and' and inserting `daycare
or'.''.
(b) Metropolitan Planning.--Section 3004 of the Federal
Transit Act of 1998 is amended--
(1) in subsection (b)--
(A) in paragraph (1) by striking
subparagraph (A) and inserting the following:
``(A) by striking `general local government
representing' and inserting `general purpose
local government that together represent';
and'';
(B) in paragraph (3) by striking ``and'' at
the end;
(C) in paragraph (4) by striking
subparagraph (A) and inserting the following:
``(A) by striking `general local government
representing' and inserting `general purpose
local government that together represent';
and'';
(D) by redesignating paragraph (4) as
paragraph (5); and
(E) by inserting after paragraph (3) the
following:
``(4) in paragraph (4)(A) by striking `(3)' and
inserting `(5)'; and'';
(2) in subsection (d) by striking the closing
quotation marks and the final period at the end and
inserting the following:
`(5) Coordination.--If a project is located within
the boundaries of more than 1 metropolitan planning
organization, the metropolitan planning organizations
shall coordinate plans regarding the project.
`(6) Lake tahoe region.--
`(A) Definition.--In this paragraph, the
term ``Lake Tahoe region'' has the meaning
given the term ``region'' in subdivision (a) of
article II of the Tahoe Regional Planning
Compact, as set forth in the first section of
Public Law 96-551 (94 Stat. 3234).
`(B) Transportation planning process.--The
Secretary shall--
`(i) establish with the Federal
land management agencies that have
jurisdiction over land in the Lake
Tahoe region a transportation planning
process for the region; and
`(ii) coordinate the transportation
planning process with the planning
process required of State and local
governments under this chapter and
sections 134 and 135 of title 23.
`(C) Interstate compact.--
`(i) In general.--Subject to clause
(ii) and notwithstanding subsection
(b), to carry out the transportation
planning process required by this
section, the consent of Congress is
granted to the States of California and
Nevada to designate a metropolitan
planning organization for the Lake
Tahoe region, by agreement between the
Governors of the States of California
and Nevada and units of general purpose
local government that together
represent at least 75 percent of the
affected population (including the
central city or cities (as defined by
the Bureau of the Census)), or in
accordance with procedures established
by applicable State or local law.
`(ii) Involvement of federal land
management agencies.--
`(I) Representation.--The
policy board of a metropolitan
planning organization
designated under clause (i)
shall include a representative
of each Federal land management
agency that has jurisdiction
over land in the Lake Tahoe
region.
`(II) Funding.--In addition
to funds made available to the
metropolitan planning
organization under other
provisions of this chapter and
under title 23, not more than 1
percent of the funds allocated
under section 202 of title 23
may be used to carry out the
transportation planning process
for the Lake Tahoe region under
this subparagraph.
`(D) Activities.--Highway projects included
in transportation plans developed under this
paragraph--
`(i) shall be selected for funding
in a manner that facilitates the
participation of the Federal land
management agencies that have
jurisdiction over land in the Lake
Tahoe region; and
`(ii) may, in accordance with
chapter 2 of title 23, be funded using
funds allocated under section 202 of
title 23.'.''; and
(3) by adding at the end the following:
``(f) Technical Adjustments.--Section 5303(f) is amended--
``(1) in paragraph (1) (as amended by subsection
(e)(1) of this subsection)--
``(A) in subparagraph (C) by striking `and'
at the end;
``(B) in subparagraph (D) by striking the
period at the end and inserting `; and';
``(C) by adding at the end the following:
`(E) the financial plan may include, for
illustrative purposes, additional projects that would
be included in the adopted long-range plan if
reasonable additional resources beyond those identified
in the financial plan were available, except that, for
the purpose of developing the long-range plan, the
metropolitan planning organization and the State shall
cooperatively develop estimates of funds that will be
available to support plan implementation.'; and
``(2) by adding at the end the following:
`(6) Selection of projects from illustrative list.--
Notwithstanding paragraph (1)(E), a State or metropolitan
planning organization shall not be required to select any
project from the illustrative list of additional projects
included in the financial plan under paragraph (1)(B).'.''.
(c) Metropolitan Transportation Improvement Program.--
Section 3005 of the Federal Transit Act of 1998 is amended--
(1) in the section heading by inserting
``metropolitan'' before ``transportation''; and
(2) by adding at the end the following:
``(d) Technical Adjustments.--Section 5304 is amended--
``(1) in subsection (a) (as amended by subsection
(a) of this section)--
``(A) by striking `In cooperation with' and
inserting the following:
`(1) In general.--In cooperation with'; and
``(B) by adding at the end the following:
`(2) Funding estimate.--For the purpose of
developing the transportation improvement program, the
metropolitan planning organization, public transit
agency, and the State shall cooperatively develop
estimates of funds that are reasonably expected to be
available to support program implementation.';
``(2) in subsection (b)(2)--
``(A) in subparagraph (B) by striking `and'
at the end; and
``(B) in subparagraph (C) (as added by
subsection (b) of this section) by striking
`strategies which may include' and inserting
the following: `strategies; and
`(D) may include'; and
``(3) in subsection (c) by striking paragraph (4)
(as amended by subsection (c) of this section) and
inserting the following:
`(4) Selection of projects from illustrative
list.--
`(A) In general.--Notwithstanding
subsection (b)(2)(D), a State or metropolitan
planning organization shall not be required to
select any project from the illustrative list
of additional projects included in the
financial plan under subsection (b)(2)(D).
`(B) Action by secretary.--Action by the
Secretary shall be required for a State or
metropolitan planning organization to select
any project from the illustrative list of
additional projects included in the plan under
subsection (b)(2) for inclusion in an approved
transportation improvement plan.'.''.
(d) Transportation Management Areas.--Section 3006(d) of
the Federal Transit Act of 1998 is amended to read as follows:
``(d) Project Selection.--Section 5305(d)(1) is amended to
read as follows: `(1)(A) All federally funded projects carried
out within the boundaries of a transportation management area
under title 23 (excluding projects carried out on the National
Highway System and projects carried out under the bridge and
interstate maintenance program) or under this chapter shall be
selected from the approved transportation improvement program
by the metropolitan planning organization designated for the
area in consultation with the State and any affected public
transit operator.
`(B) Projects carried out within the boundaries of a
transportation management area on the National Highway System
and projects carried out within such boundaries under the
bridge program or the interstate maintenance program shall be
selected from the approved transportation improvement program
by the State in cooperation with the metropolitan planning
organization designated for the area.'.''.
(e) Urbanized Area Formula Grants.--Section 3007 of the
Federal Transit Act of 1998 is amended by adding at the end the
following:
``(h) Technical Adjustments.--
``(1) General authority.--Section 5307(b) (as
amended by subsection (c)(1)(B) of this section) is
amended by adding at the end the following: `The
Secretary may make grants under this section from funds
made available for fiscal year 1998 to finance the
operating costs of equipment and facilities for use in
mass transportation in an urbanized area with a
population of at least 200,000.'.
``(2) Report.--Section 5307(k)(3) (as amended by
subsection (f) of this section) is amended by inserting
`preceding' before `fiscal year'.''.
(f) Clean Fuels Formula Grant Program.--Section 3008 of the
Federal Transit Act of 1998 is amended by adding at the end the
following:
``(c) Technical Adjustments.--Section 5308(e)(2) (as added
by subsection (a) of this section) is amended by striking
`$50,000,000' and inserting `35 percent'.''.
(g) Capital Investment Grants and Loans.--Section 3009 of
the Federal Transit Act of 1998 is amended by adding at the end
the following:
``(k) Technical Adjustments.--
``(1) Criteria.--Section 5309(e) (as amended by
subsection (e) of this section) is amended--
``(A) in paragraph (3)(C) by striking
`urban' and inserting `suburban';
``(B) in the second sentence of paragraph
(6) by striking `or not' and all that follows
through `, based' and inserting `or ``not
recommended'', based'; and
``(C) in the last sentence of paragraph (6)
by inserting `of the' before `criteria
established'.
``(2) Letters of intent and full funding grant
agreements.--Section 5309(g) (as amended by subsection
(f) of this section) is amended in paragraph (4) by
striking `5338(a)' and all that follows through `2003'
and inserting `5338(b) of this title for new fixed
guideway systems and extensions to existing fixed
guideway systems and the amount appropriated under
section 5338(h)(5) or an amount equivalent to the last
2 fiscal years of funding authorized under section
5338(b) for new fixed guideway systems and extensions
to existing fixed guideway systems'.
``(3) Allocating amounts.--Section 5309(m) (as
amended by subsection (g) of this section) is amended--
``(A) in paragraph (1) by inserting `(b)'
after `5338';
``(B) by striking paragraph (2) and
inserting the following:
`(2) New fixed guideway grants.--
`(A) Limitation on amounts available for
activities other than final design and
construction.--Not more than 8 percent of the
amounts made available in each fiscal year by
paragraph (1)(B) shall be available for
activities other than final design and
construction.
`(B) Funding for ferry boat systems.--
`(i) Amounts under (1)(b).--Of the
amounts made available under paragraph
(1)(B), $10,400,000 shall be available
in each of fiscal years 1999 through
2003 for capital projects in Alaska or
Hawaii, for new fixed guideway systems
and extensions to existing fixed
guideway systems that are ferry boats
or ferry terminal facilities, or that
are approaches to ferry terminal
facilities.
`(ii) Amounts under 5338(h)(5).--Of
the amounts appropriated under section
5338(h)(5), $3,600,000 shall be
available in each of fiscal years 1999
through 2003 for capital projects in
Alaska or Hawaii, for new fixed
guideway systems and extensions to
existing fixed guideway systems that
are ferry boats or ferry terminal
facilities, or that are approaches to
ferry terminal facilities.';
``(C) by redesignating paragraph (4) as
paragraph (3)(C);
``(D) in paragraph (3) by adding at the end
the following:
`(D) Other than urbanized areas.--Of
amounts made available by paragraph (1)(C), not
less than 5.5 percent shall be available in
each fiscal year for other than urbanized
areas.';
``(E) by striking paragraph (5); and
``(F) by inserting after paragraph (3) the
following:
`(4) Eligibility for assistance for multiple
projects.--A person applying for or receiving
assistance for a project described in subparagraph (A),
(B), or (C) of paragraph (1) may receive assistance for
a project described in any other of such
subparagraphs.'.''.
(h) References to Full Funding Grant Agreements.--Section
3009(h)(3) of the Federal Transit Act of 1998 is amended--
(1) by striking ``and'' at the end of subparagraph
(A)(ii);
(2) by striking the period at the end of
subparagraph (B) and inserting a semicolon; and
(3) by adding at the end the following:
``(C) in section 5328(a)(4) by striking
`section 5309(m)(2) of this title' and
inserting `5309(o)(1)'; and
``(D) in section 5309(n)(2) by striking `in
a way' and inserting `in a manner'.''.
(i) Dollar Value of Mobility Improvements.--Section
3010(b)(2) of the Federal Transit Act of 1998 is amended by
striking ``Secretary'' and inserting ``Comptroller General''.
(j) Intelligent Transportation System Applications.--
Section 3012 of the Federal Transit Act of 1998 is amended by
moving paragraph (3) of subsection (a) to the end of subsection
(b) and by redesignating such paragraph (3) as paragraph (4).
(k) Advanced Technology Pilot Project.--Section 3015 of the
Federal Transit Act of 1998 is amended--
(1) in subsection (c)(2) by adding at the end the
following: ``Financial assistance made available under
this subsection and projects assisted with the
assistance shall be subject to section 5333(a) of title
49, United States Code.''; and
(2) by adding at the end the following:
``(d) Training and Curriculum Development.--
``(1) In general.--Any funds made available by
section 5338(e)(2)(C)(iii) of title 49, United States
Code, shall be available in equal amounts for
transportation research, training, and curriculum
development at institutions identified in subparagraphs
(E) and (F) of section 5505(j)(3) of such title.
``(2) Special rule.--If the institutions identified
in paragraph (1) are selected pursuant to 5505(i)(3)(B)
of such title in fiscal year 2002 or 2003, the funds
made available to carry out this subsection shall be
available to those institutions to carry out the
activities required pursuant to section 5505(i)(3)(B)
of such title for that fiscal year.''.
(l) National Transit Institute.--Section 3017(a) of the
Federal Transit Act of 1998 is amended to read as follows:
``(a) In General.--Section 5315 is amended--
``(1) in the section heading by striking `mass
transportation' and inserting `transit';
``(2) in subsection (a)--
``(A) by striking `mass transportation' in
the first sentence and inserting `transit';
``(B) in paragraph (5) by inserting `and
architectural design' before the semicolon at
the end;
``(C) in paragraph (7) by striking
`carrying out' and inserting `delivering';
``(D) in paragraph (11) by inserting `,
construction management, insurance, and risk
management' before the semicolon at the end;
``(E) in paragraph (13) by striking `and'
at the end;
``(F) in paragraph (14) by striking the
period at the end and inserting a semicolon;
and
``(G) by adding at the end the following:
`(15) innovative finance; and
`(16) workplace safety.'.''.
(m) Pilot Program.--Section 3021(a) of the Federal Transit
Act of 1998 is amended by inserting ``single-State'' before
``pilot program''.
(n) Architectural, Engineering, and Design Contracts.--
Section 3022 of the Federal Transit Act of 1998 is amended by
adding at the end the following:
``(b) Conforming Amendment.--Section 5325(b) (as
redesignated by subsection (a)(2) of this section) is amended--
``(1) by inserting `or requirement' after `A
contract'; and
``(2) by inserting before the last sentence the
following: `When awarding such contracts, recipients of
assistance under this chapter shall maximize
efficiencies of administration by accepting nondisputed
audits conducted by other governmental agencies, as
provided in subparagraphs (C) through (F) of section
112(b)(2) of title 23.'.''.
(o) Conforming Amendment.--Section 3027 of the Federal
Transit Act of 1998 is amended--
(1) in subsection (c) by striking ``600,000'' each
place it appears and inserting ``900,000''; and
(2) by adding at the end the following:
``(d) Conforming Amendment.--The item relating to section
5336 in the table of sections for chapter 53 is amended by
striking `block grants' and inserting `formula grants'.''.
(p) Apportionment for Fixed Guideway Modernization.--
Section 3028 of the Federal Transit Act of 1998 is amended by
adding at the end the following:
``(c) Conforming Amendments.--Section 5337(a) (as amended
by subsection (a) of this section) is amended--
``(1) in paragraph (2)(B) by striking `(e)' and
inserting `(e)(1)';
``(2) in paragraph (3)(D)--
``(A) by striking `(ii)'; and
``(B) by striking `(e)' and inserting
`(e)(1)';
``(3) in paragraph (4) by striking `(e)' and
inserting `(e)(1)';
``(4) in paragraph (5)(A) by striking `(e)' and
inserting `(e)(2)';
``(5) in paragraph (5)(B) by striking `(e)' and
inserting `(e)(2)';
``(6) in paragraph (6) by striking `(e)' each place
it appears and inserting `(e)(2)'; and
``(7) in paragraph (7) by striking `(e)' each place
it appears and inserting `(e)(2)'.''.
(q) Authorizations.--Section 3029 of the Federal Transit
Act of 1998 is amended by adding at the end the following:
``(c) Technical Adjustments.--Section 5338 (as amended by
subsection (a) of this section) is amended--
``(1) in subsection (c)(2)(A)(i) by striking
`$43,200,000' and inserting `$42,200,000';
``(2) in subsection (c)(2)(A)(ii) by striking
`$46,400,000' and inserting `$48,400,000';
``(3) in subsection (c)(2)(A)(iii) by striking
`$51,200,000' and inserting `$50,200,000';
``(4) in subsection (c)(2)(A)(iv) by striking
`$52,800,000' and inserting `$53,800,000';
``(5) in subsection (c)(2)(A)(v) by striking
`$57,600,000' and inserting `$58,600,000';
``(6) in subsection (d)(2)(C)(iii) by inserting
before the semicolon `, including not more than
$1,000,000 shall be available to carry out section
5315(a)(16)';
``(7) in subsection (e)--
``(A) by striking `5317(b)' each place it
appears and inserting `5505';
``(B) in paragraph (1) by striking `There
are' and inserting `Subject to paragraph
(2)(C), there are';
``(C) in paragraph (2)--
``(i) in subparagraph (A) by
striking `There shall' and inserting
`Subject to subparagraph (C), there
shall';
``(ii) in subparagraph (B) by
striking `In addition' and inserting
`Subject to subparagraph (C), in
addition'; and
``(iii) by adding at the end the
following:
`(C) Funding of centers.--
`(i) Of the amounts made available
under subparagraph (A) and paragraph
(1) for each fiscal year--
`(I) $2,000,000 shall be
available for the center
identified in section
5505(j)(4)(A); and
`(II) $2,000,000 shall be
available for the center
identified in section
5505(j)(4)(F).
`(ii) For each of fiscal years 1998
through 2001, of the amounts made
available under this paragraph and
paragraph (1)--
`(I) $400,000 shall be
available from amounts made
available under subparagraph
(A) of this paragraph and under
paragraph (1) for each of the
centers identified in
subparagraphs (E) and (F) of
section 5505(j)(3); and
`(II) $350,000 shall be
available from amounts made
available under subparagraph
(B) of this paragraph and under
paragraph (1) for each of the
centers identified in
subparagraphs (E) and (F) of
section 5505(j)(3).
`(iii) Any amounts made available
under this paragraph or paragraph (1)
for any fiscal year that remain after
distribution under clauses (i) and
(ii), shall be available for the
purposes identified in section 3015(d)
of the Federal Transit Act of 1998.';
and
``(D) by adding at the end the following:
`(3) Special rule.--Nothing in this subsection
shall be construed to limit the transportation research
conducted by the centers funded by this section.';
``(8) in subsection (g)(2) by striking `(c)(2)(B),'
and all that follows through `(f)(2)(B),' and inserting
`(c)(1), (c)(2)(B), (d)(1), (d)(2)(B), (e)(1),
(e)(2)(B), (f)(1), (f)(2)(B),';
``(9) in subsection (h) by inserting `under the
Transportation Discretionary Spending Guarantee for the
Mass Transit Category' after `through (f)'; and
``(10) in subsection (h)(5) by striking
subparagraphs (A) through (E) and inserting the
following:
`(A) for fiscal year 1999 $400,000,000;
`(B) for fiscal year 2000 $410,000,000;
`(C) for fiscal year 2001 $420,000,000;
`(D) for fiscal year 2002 $430,000,000; and
`(E) for fiscal year 2003
$430,000,000;'.''.
(r) Projects for Fixed Guideway Systems.--Section 3030 of
the Federal Transit Act of 1998 is amended--
(1) in subsection (a)--
(A) in paragraph (8) by inserting ``North-
'' before ``South'';
(B) in paragraph (42) by striking
``Maryland'' and inserting ``Baltimore'';
(C) in paragraph (103) by striking
``busway'' and inserting ``Boulevard
transitway'';
(D) in paragraph (106) by inserting ``CTA''
before ``Douglas'';
(E) by striking paragraph (108) and
inserting the following:
``(108) Greater Albuquerque Mass Transit
Project.''; and
(F) by adding at the end the following:
``(109) Hartford City Light Rail Connection to
Central Business District.
``(110) Providence-Boston Commuter Rail.
``(111) New York-St. George's Ferry Intermodal
Terminal.
``(112) New York-Midtown West Ferry Terminal.
``(113) Pinellas County-Mobility Initiative
Project.
``(114) Atlanta-MARTA Extension (S. De Kalb-
Lindbergh).'';
(2) in subsection (b)--
(A) by striking paragraph (2) and inserting
the following:
``(2) Sioux City-Light Rail.'';
(B) by striking paragraph (40) and
inserting the following:
``(40) Santa Fe-El Dorado Rail Link.'';
(C) by striking paragraph (44) and
inserting the following:
``(44) Albuquerque-High Capacity Corridor.'';
(D) by striking paragraph (53) and
inserting the following:
``(53) San Jacinto-Branch Line (Riverside
County).''; and
(E) by adding at the end the following:
``(69) Chicago-Northwest Rail Transit Corridor.
``(70) Vermont-Burlington-Essex Commuter Rail.'';
and
(3) in subsection (c)--
(A) in paragraph (1)(A)--
(i) in the matter preceding clause
(i) by inserting ``(even if the project
is not listed in subsection (a) or
(b))'' before the colon;
(ii) by striking clause (ii) and
inserting the following:
``(ii) San Diego Mission Valley and
Mid-Coast Corridor, $325,000,000.'';
(iii) by striking clause (v) and
inserting the following:
``(v) Hartford City Light Rail
Connection to Central Business
District, $33,000,000.'';
(iv) by striking clause (xxiii) and
inserting the following:
``(xxiii) Kansas City-I-35 Commuter
Rail, $30,000,000.'';
(v) in clause (xxxii) by striking
``Whitehall Ferry Terminal'' and
inserting ``Staten Island Ferry-
Whitehall Intermodal Terminal'';
(vi) by striking clause (xxxv) and
inserting the following:
``(xxxv) New York-Midtown West
Ferry Terminal, $16,300,000.'';
(vii) in clause (xxxix) by striking
``Allegheny County'' and inserting
``Pittsburgh'';
(viii) by striking clause (xvi) and
inserting the following:
``(xvi) Northeast Indianapolis
Corridor, $10,000,000.'';
(ix) by striking clause (xxix) and
inserting the following:
``(xxix) Greater Albuquerque Mass
Transit Project, $90,000,000.'';
(x) by striking clause (xliii) and
inserting the following:
``(xliii) Providence-Boston
Commuter Rail, $10,000,000.''; and
(xi) by striking clause (li) and
inserting the following:
``(li) Dallas-Ft. Worth RAILTRAN
(Phase-II), $12,000,000.'';
(B) by striking the heading for subsection
(c)(2) and inserting ``Additional amounts'';
and
(C) in paragraph (3) by inserting after the
first sentence the following: ``The project
shall also be exempted from all requirements
relating to criteria for grants and loans for
fixed guideway systems under section 5309(e) of
such title and from regulations required under
that section.''.
(s) New Jersey Urban Core Project.--Section 3030(e) of the
Federal Transit Act of 1998 is amended by adding at the end the
following:
``(4) Technical adjustment.--Section 3031(d) of the
Intermodal Surface Transportation Efficiency Act of
1991 (as amended by paragraph (3)(B) of this
subsection) is amended--
``(A) by striking `of the West Shore Line'
and inserting `or the West Shore Line'; and
``(B) by striking `directly connected to'
and all that follows through `Newark
International Airport' the first place it
appears.''.
(t) Baltimore-Washington Transportation Improvements.--
Section 3030 of the Federal Transit Act of 1998 is amended by
adding at the end the following:
``(h) Technical Adjustment.--Section 3035(nn) of the
Intermodal Surface Transportation Efficiency Act of 1991 (105
Stat. 2134) (as amended by subsection (g)(1)(C) of this
section) is amended by inserting after `expenditure of' the
following: `section 5309 funds to the aggregate expenditure
of'.''.
(u) Bus Projects.--Section 3031 of the Federal Transit Act
of 1998 is amended--
(1) in the table contained in subsection (a)--
(A) by striking item 64;
(B) in item 69 by striking ``Rensslear''
each place it appears and inserting
``Rensselaer'';
(C) in item 103 by striking ``facilities
and''; and
(D) by striking item 150;
(2) by striking the heading for subsection (b) and
inserting ``Additional Amounts'';
(3) in subsection (b) by inserting after ``2000''
the first place it appears ``with funds made available
under section 5338(h)(6) of such title''; and
(4) in item 2 of the table contained in subsection
(b) by striking ``Rensslear'' each place it appears and
inserting ``Rensselaer''.
(v) Contracting Out Study.--Section 3032 of the Federal
Transit Act of 1998 is amended--
(1) in subsection (a) by striking ``3'' and
inserting ``6'';
(2) in subsection (d) by striking ``the Mass
Transit Account of the Highway Trust Fund'' and
inserting ``funds made available under section
5338(f)(2) of title 49, United States Code,'';
(3) in subsection (d) by striking ``1998'' and
inserting ``1999''; and
(4) in subsection (e) by striking ``subsection
(c)'' and inserting ``subsection (d)''.
(w) Job Access and Reverse Commute Grants.--Section 3037 of
the Federal Transit Act of 1998 is amended--
(1) in subsection (b)(4)(A)--
(A) by inserting ``designated recipients
under section 5307(a)(2) of title 49, United
States Code,'' after ``from among''; and
(B) by inserting a comma after ``and
agencies'';
(2) in subsection (b)(4)(B)--
(A) by striking ``at least'' and inserting
``less than'';
(B) by inserting ``designated recipients
under section 5307(a)(2) of title 49, United
States Code,'' after ``from among''; and
(C) by inserting ``and agencies,'' after
``authorities'';
(3) in subsection (f)(2)--
(A) by striking ``(including bicycling)'';
and
(B) by inserting ``(including bicycling)''
after ``additional services'';
(4) in subsection (h)(2)(B) by striking
``403(a)(5)(C)(ii)'' and inserting
``403(a)(5)(C)(vi)'';
(5) in the heading for subsection (l)(1)(C) by
striking ``from the general fund'';
(6) in subsection (l)(1)(C) by inserting ``under
the Transportation Discretionary Spending Guarantee for
the Mass Transit Category'' after ``(B)''; and
(7) in subsection (l)(3)(B) by striking ``at
least'' and inserting ``less than''.
(x) Rural Transportation Accessibility Incentive Program.--
Section 3038 of the Federal Transit Act of 1998 is amended--
(1) in subsection (a)(1)(A) by inserting before the
semicolon ``or connecting 1 or more rural communities
with an urban area not in close proximity'';
(2) in subsection (g)(1)--
(A) by inserting ``over-the-road buses used
substantially or exclusively in'' after
``operators of''; and
(B) by inserting at the end the following:
``Such sums shall remain available until expended.'';
and
(3) in subsection (g)(2)--
(A) by striking ``each of''; and
(B) by adding at the end the following:
``Such sums shall remain available until
expended.''.
(y) Study of Transit Needs in National Parks and Related
Public Lands.--Section 3039(b) of the Federal Transit Act of
1998 is amended--
(1) in paragraph (1) by striking ``in order to
carry'' and inserting ``assist in carrying''; and
(2) by adding at the end the following:
``(3) Definition.--For purposes of this subsection,
the term `Federal land management agencies' means the
National Park Service, the United States Fish and
Wildlife Service, and the Bureau of Land Management.''.
(z) Obligation Ceiling.--Section 3040 of the Federal
Transit Act of 1998 is amended--
(1) by striking paragraph (2) and inserting the
following:
``(2) $5,797,000,000 in fiscal year 2000;''; and
(2) in paragraph (4) by striking ``$6,746,000,000''
and inserting ``$6,747,000,000''.
SEC. 9010. MOTOR CARRIER SAFETY TECHNICAL CORRECTION.
Section 4011 of the Transportation Equity Act for the 21st
Century is amended by adding at the end the following:
``(h) Technical Amendments.--Section 31314 (as amended by
subsection (g) of this section) is amended--
``(1) in subsections (a) and (b) by striking `(3),
and (5)' each place it appears and inserting `(3), and
(4)'; and
``(2) by striking subsection (d).''.
SEC. 9011. RESTORATIONS TO RESEARCH TITLE.
(a) University Transportation Research Funding.--Section
5001(a)(7) of the Transportation Equity Act for the 21st
Century is amended--
(1) by striking ``$31,150,000'' each place it
appears and inserting ``$25,650,000'';
(2) by striking ``$32,750,000'' each place it
appears and inserting ``$27,250,000''; and
(3) by striking ``$32,000,000'' each place it
appears and inserting ``$26,500,000''.
(b) Obligation Ceiling.--Section 5002 of such Act is
amended by striking ``$403,150,000'' and all that follows
through ``$468,000,000'' and inserting ``$397,650,000 for
fiscal year 1998, $403,650,000 for fiscal year 1999,
$422,450,000 for fiscal year 2000, $437,250,000 for fiscal year
2001, $447,500,000 for fiscal year 2002, and $462,500,000''.
(c) Use of Funds for ITS.--Section 5210 of the
Transportation Equity Act for the 21st Century is amended by
adding at the end the following:
``(d) Use of Innovative Financing.--
``(1) In general.--The Secretary may use up to 25
percent of the funds made available to carry out this
subtitle to make available loans, lines of credit, and
loan guarantees for projects that are eligible for
assistance under this subtitle and that have
significant intelligent transportation system elements.
``(2) Consistency with other law.--Credit
assistance described in paragraph (1) shall be made
available in a manner consistent with the
Transportation Infrastructure Finance and Innovation
Act of 1998.''.
(d) University Transportation Research.--Section 5110 of
such Act is amended by adding at the end the following:
``(d) Technical Adjustments.--Section 5505 of title 49,
United States Code (as added by subsection (a) of this
section), is amended--
``(1) in subsection (g)(2) by striking `section
5506,' and inserting `section 508 of title 23, United
States Code,';
``(2) in subsection (i)--
``(A) by inserting `Subject to section
5338(e):' after `(i) Number and Amount of
Grants.--'; and
``(B) by striking `institutions' each place
it appears and inserting `institutions or
groups of institutions'; and
``(3) in subsection (j)(4)(B) by striking `on
behalf of' and all that follows before the period and
inserting `on behalf of a consortium which may also
include West Virginia University Institute of
Technology, the College of West Virginia, and Bluefield
State College'.''.
(e) Technical Corrections.--Section 5115 of such Act is
amended--
(1) in subsection (a) by striking ``Director'' and
inserting ``Director of the Bureau of Transportation
Statistics'';
(2) in subsection (b) by striking ``Bureau'' and
inserting ``Bureau of Transportation Statistics,''; and
(3) in subsection (c) by striking ``paragraph (1)''
and inserting ``subsection (a)''.
(f) Corrections to Certain Oklahoma Projects.--Section 5116
of such Act is amended--
(1) in subsection (e)(2) by striking ``$1,000,000
for fiscal year 1999, $1,000,000 for fiscal year 2000,
and $500,000 for fiscal year 2001'' and inserting
``$1,000,000 for fiscal year 1999, $1,000,000 for
fiscal year 2000, $1,000,000 for fiscal year 2001, and
$500,000 for fiscal year 2002''; and
(2) in subsection (f)(2) by striking ``$1,000,000
for fiscal year 1999, $1,000,000 for fiscal year 2000,
$1,000,000 for fiscal year 2001, and $500,000 for
fiscal year 2002'' and inserting ``$1,000,000 for
fiscal year 1999, $1,000,000 for fiscal year 2000, and
$500,000 for fiscal year 2001''.
(g) Intelligent Transportation Infrastructure Reference.--
Section 5117(b)(3)(B)(ii) of such Act is amended by striking
``local departments of transportation'' and inserting ``the
Department of Transportation''.
(h) Fundamental Properties of Asphalts and Modified
Asphalts.--Section 5117(b)(5)(B) of such Act is amended--
(1) by striking ``1999'' and inserting ``1998'';
and
(2) by striking ``$3,000,000 per fiscal year'' and
inserting ``$1,000,000 for fiscal year 1998 and
$3,000,000 for each of fiscal years 1999 through
2003''.
SEC. 9012. AUTOMOBILE SAFETY AND INFORMATION.
(a) Reference.--Section 7104 of the Transportation Equity
Act for the 21st Century is amended by adding at the end the
following:
``(c) Conforming Amendment.--Section 30105(a) of title 49,
United States Code (as amended by subsection (a) of this
section), is amended by inserting after `Secretary' the
following: `for the National Highway Traffic Safety
Administration'.''.
(b) Clean Vessel Act Funding.--Section 7403 of such Act is
amended--
(1) by inserting ``(a) In General.--'' before
``Section 4(b)''; and
(2) by adding at the end the following:
``(b) Technical Amendment.--Section 4(b)(3)(B) of the 1950
Act (as amended by subsection (a) of this section) is amended
by striking `6404(d)' and inserting `7404(d)'.''.
(c) Boating Infrastructure.--Section 7404(b) of such Act is
amended by striking ``6402'' and inserting ``7402''.
SEC. 9013. TECHNICAL CORRECTIONS REGARDING SUBTITLE A OF TITLE VIII.
(a) Amendment to Offsetting Adjustment for Discretionary
Spending Limit.--Section 8101(b) of the Transportation Equity
Act for the 21st Century is amended--
(1) in paragraph (1) by striking
``$25,173,000,000'' and inserting ``$25,144,000,000'';
and
(2) in paragraph (2) by striking
``$26,045,000,000'' and inserting ``$26,009,000,000''.
(b) Amendments for Highway Category.--Section 8101 of the
Transportation Equity Act for the 21st Century is amended by
adding at the end the following:
``(f) Technical Amendments.--Section 250(c)(4)(C) of the
Balanced Budget and Emergency Deficit Control Act of 1985 (as
amended by subsection (c) of this Act) is amended--
``(1) by striking `Century and' and inserting
`Century or';
``(2) by striking `as amended by this section,' and
inserting `as amended by the Transportation Equity Act
for the 21st Century,'; and
``(3) by adding at the end the following new flush
sentence:
`Such term also refers to the Washington Metropolitan
Transit Authority account (69-1128-0-1-401) only for
fiscal year 1999 only for appropriations provided
pursuant to authorizations contained in section 14 of
Public Law 96-184 and Public Law 101-551.'.''.
(c) Technical Amendment.--Section 8102 of the
Transportation Equity Act for the 21st Century is amended by
inserting before the period at the end the following: ``or from
section 1102 of this Act''.
SEC. 9014. CORRECTIONS TO VETERANS SUBTITLE.
(a) Tobacco-Related Illnesses in Veterans.--Section 8202 of
the Transportation Equity Act for the 21st Century is amended
to read as follows (and the amendments made by that section as
originally enacted shall be treated for all purposes as not
having been made):
``SEC. 8202. TREATMENT OF TOBACCO-RELATED ILLNESSES OF VETERANS.
``(a) In General.--(1) Chapter 11 of title 38, United
States Code, is amended by inserting after section 1102 the
following new section:
`Sec. 1103. Special provisions relating to claims based upon effects of
tobacco products
`(a) Notwithstanding any other provision of law, a
veteran's disability or death shall not be considered to have
resulted from personal injury suffered or disease contracted in
the line of duty in the active military, naval, or air service
for purposes of this title on the basis that it resulted from
injury or disease attributable to the use of tobacco products
by the veteran during the veteran's service.
`(b) Nothing in subsection (a) shall be construed as
precluding the establishment of service connection for
disability or death from a disease or injury which is otherwise
shown to have been incurred or aggravated in active military,
naval, or air service or which became manifest to the requisite
degree of disability during any applicable presumptive period
specified in section 1112 or 1116 of this title.'.
``(2) The table of sections at the beginning of such
chapter is amended by inserting after the item relating to
section 1102 the following new item:
`1103. Special provisions relating to claims based upon effects of
tobacco products.'.
``(b) Effective Date.--Section 1103 of title 38, United
States Code, as added by subsection (a), shall apply with
respect to claims received by the Secretary of Veterans Affairs
after the date of the enactment of this Act.''.
(b) GI Bill Educational Assistance for Survivors and
Dependents of Veterans.--Subtitle B of title VIII of the
Transportation Equity Act for the 21st Century is amended by
adding at the end the following new section:
``SEC. 8210. TWENTY PERCENT INCREASE IN RATES OF SURVIVORS AND
DEPENDENTS EDUCATIONAL ASSISTANCE.
``(a) Survivors and Dependents Educational Assistance.--
Section 3532 of title 38, United States Code, is amended--
``(1) in subsection (a)(1)--
``(A) by striking out `$404' and inserting
in lieu thereof `$485';
``(B) by striking out `$304' and inserting
in lieu thereof `$365'; and
``(C) by striking out `$202' and inserting
in lieu thereof `$242';
``(2) in subsection (a)(2), by striking out `$404'
and inserting in lieu thereof `$485';
``(3) in subsection (b), by striking out `$404' and
inserting in lieu thereof `$485'; and
``(4) in subsection (c)(2)--
``(A) by striking out `$327' and inserting
in lieu thereof `$392';
``(B) by striking out `$245' and inserting
in lieu thereof `$294'; and
``(C) by striking out `$163' and inserting
in lieu thereof `$196'.
``(b) Correspondence Course.--Section 3534(b) of such title
is amended by striking out `$404' and inserting in lieu thereof
`$485'.
``(c) Special Restorative Training.--Section 3542(a) of
such title is amended--
``(1) by striking out `$404' and inserting in lieu
thereof `$485';
``(2) by striking out `$127' each place it appears
and inserting in lieu thereof `$152'; and
``(3) by striking out `$13.46' and inserting in
lieu thereof `$16.16'.
``(d) Apprenticeship Training.--Section 3687(b)(2) of such
title is amended--
``(1) by striking out `$294' and inserting in lieu
thereof `$353';
``(2) by striking out `$220' and inserting in lieu
thereof `$264';
``(3) by striking out `$146' and inserting in lieu
thereof `$175'; and
``(4) by striking out `$73' and inserting in lieu
thereof `$88'.
``(e) Effective Date.--The amendments made by this section
shall take effect on October 1, 1998, and shall apply with
respect to educational assistance allowances paid for months
after September 1998.''.
SEC. 9015. TECHNICAL CORRECTIONS REGARDING TITLE IX.
(a) Highway Trust Fund.--Subsection (f) of section 9002 of
the Transportation Equity Act for the 21st Century is amended
by adding at the end the following new paragraphs:
``(4) The last sentence of section 9503(c)(1), as
amended by subsection (d), is amended by striking `the
date of enactment of the Transportation Equity Act for
the 21st Century' and inserting `the date of the
enactment of the TEA 21 Restoration Act'.
``(5) Paragraph (3) of section 9503(e), as amended
by subsection (d), is amended by striking `the date of
enactment of the Transportation Equity Act for the 21st
Century' and inserting `the date of the enactment of
the TEA 21 Restoration Act'.''.
(b) Boat Safety Account and Sport Fish Restoration
Account.--Section 9005 of the Transportation Equity Act for the
21st Century is amended by adding at the end the following new
subsection:
``(f) Clerical Amendments.--
``(1) Subparagraph (A) of section 9504(b)(2), as
amended by subsection (b)(1), is amended by striking
`the date of the enactment of the Transportation Equity
Act for the 21st Century' and inserting `the date of
the enactment of the TEA 21 Restoration Act'.
``(2) Subparagraph (B) of section 9504(b)(2), as
added by subsection (b)(3), is amended by striking
`such Act' and inserting `the TEA 21 Restoration Act'.
``(3) Subparagraph (C) of section 9504(b)(2), as
amended by subsection (b)(2) and redesignated by
subsection (b)(3), is amended by striking `the date of
the enactment of the Transportation Equity Act for the
21st Century' and inserting `the date of the enactment
of the TEA 21 Restoration Act'.
``(4) Subsection (c) of section 9504, as amended by
subsection (c)(2), is amended by striking `the date of
enactment of the Transportation Equity Act for the 21st
Century' and inserting `the date of the enactment of
the TEA 21 Restoration Act'.''.
SEC. 9016. EFFECTIVE DATE.
This title and the amendments made by this title shall take
effect simultaneously with the enactment of the Transportation
Equity Act for the 21st Century. For purposes of all Federal
laws, the amendments made by this title shall be treated as
being included in the Transportation Equity Act for the 21st
Century at the time of the enactment of such Act, and the
provisions of such Act (including the amendments made by such
Act) (as in effect on the day before the date of enactment of
this Act) that are amended by this title shall be treated as
not being enacted.
And the Senate agree to the same.
Bill Archer,
Nancy L. Johnson,
Rob Portman,
Charles B. Rangel,
William J. Coyne,
Managers on the Part of the House.
Bill Roth,
John H. Chafee,
Chuck Grassley,
Orrin Hatch,
Frank H. Murkowski,
Don Nickles,
Phil Gramm,
Daniel P. Moynihan,
Max Baucus,
Bob Graham,
John Breaux,
Bob Kerrey,
From the Committee on Governmental Affairs:
Fred Thompson,
Sam Brownback,
Thad Cochran,
Managers on the Part of the Senate.
JOINT EXPLANATORY STATEMENT OF THE COMMITTEE OF CONFERENCE
The managers on the part of the House and the Senate at
the conference on the disagreeing votes of the two Houses on
the amendment of the Senate to the bill (H.R. 2676) to amend
the Internal Revenue Code of 1986 to restructure and reform the
Internal Revenue Service, and for other purposes, submit the
following joint statement to the House and the Senate in
explanation of the effect of the action agreed upon by the
managers and recommended in the accompanying conference report:
The Senate amendment struck all of the House bill after
the enacting clause and inserted a substitute text.
The House recedes from its disagreement to the amendment
of the Senate with an amendment that is a substitute for the
House bill and the Senate amendment. The differences between
the House bill, the Senate amendment, and the substitute agreed
to in conference are noted below, except for clerical
corrections, conforming changes made necessary by agreements
reached by the conferees, and minor drafting and clerical
changes.
TITLE I. REORGANIZATION OF STRUCTURE AND MANAGEMENT OF THE IRS
A. IRS Restructuring and Creation of IRS Oversight Board
1. IRS mission and restructuring (secs. 1001 and 1002 of the Senate
amendment)
Present Law
IRS mission statement
The IRS mission statement provides that:
The purpose of the Internal Revenue Service is to collect
the proper amount of tax revenue at the least cost; serve the
public by continually improving the quality of our products and
services; and perform in a manner warranting the highest degree
of public confidence in our integrity and fairness.
IRS organizational plan
Under Reorganization Plan No. 1 of 1952, the Internal
Revenue Service (``IRS'') is organized into a 3-tier geographic
structure with a multi-functional National Office, Regional
Offices, and District Offices. A number of IRS reorganizations
have occurred since then, but no major changes have been made
to the basic 3-tier structure. Currently, as a result of a 1995
reorganization, there is a Regional Commissioner, a Regional
Counsel and a Regional Director of Appeals for each of the
following 4 regions: (1) the Northeast Region (headquartered in
New York); (2) the Southeast Region (Atlanta); (3) the
Midstates Region (Dallas); and (4) the Western Region (San
Francisco). There are 33 District Offices, 10 service centers,
and 3 computing centers.
House Bill
No provision.
Senate Amendment
Under the Senate amendment, the IRS is directed to revise
its mission statement to provide greater emphasis on serving
the public and meeting the needs of taxpayers.
The IRS Commissioner is directed to restructure the IRS
by eliminating or substantially modifying the present-law
three-tier geographic structure and replacing it with an
organizational structure that features operating units serving
particular groups of taxpayers with similar needs. The plan is
also required to ensure an independent appeals function within
the IRS. As part ofensuring an independent appeals function,
the reorganization plan is to prohibit ex parte communications between
appeals officers and other IRS employees to the extent such
communications appear to compromise the independence of the appeals
officers. The legality of IRS actions will not be affected pending
further appropriate statutory changes relating to such a reorganization
(e.g., eliminating statutory references to obsolete positions).
Effective date.--The provision is effective on the date
of enactment.
Conference Agreement
The conference agreement follows the Senate amendment.
Effective date.--The provision is effective on the date
of enactment.
2. Establishment and duties of IRS Oversight Board (sec. 101 of the
House bill and sec. 1101 of the Senate amendment)
Present Law
Under present law, the administration and enforcement of
the internal revenue laws are performed by or under the
supervision of the Secretary of the Treasury.\1\ The Secretary
has delegated the responsibility to administer and enforce the
Internal Revenue laws to the Commissioner of Internal Revenue
(``Commissioner''). The Commissioner has the final authority of
the IRS concerning the substantive interpretation of the tax
laws as reflected in legislative and regulatory proposals,
revenue rulings, letter rulings, and technical advice
memoranda. The duties of the Chief Counsel of the IRS are
prescribed by the Secretary. The Secretary has delegated
authority over the Chief Counsel to the General Counsel of the
Treasury. The General Counsel has delegated authority to serve
as the legal adviser to the Commissioner to the Chief Counsel.
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\1\ Code sec. 7801(a).
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Federal employees are subject to rules designed to
prevent conflicts of interest or the appearance of conflicts of
interest. The rules applicable to any particular employee
depend in part on whether the employee is a regular, full-time
Federal Government employee or a special government employee,
the length of service of the employee, and the pay grade of the
employee. A ``special government employee'' is, in general, an
officer or employee of the executive or legislative branch of
the U.S. government who is appointed or employed to perform
(with or without compensation), for a period not to exceed 130
days during any period of 365 consecutive days, temporary
duties either on a full-time or intermittent basis. Violations
of the ethical conduct rules are generally punishable by
imprisonment for up to 1 year (5 years in the case of willful
misconduct), a civil fine, or both. The amount of the civil
fine with respect to each violation cannot exceed the greater
of $50,000 or the compensation received by the employee in
connection with the prohibited conduct.
Under the ethical conduct rules, all Federal Government
employees (including special government employees) are
precluded from participating in a matter in which the employee
(or a related party) has a financial interest. In addition,
special government employees cannot represent a party (whether
or not for compensation) or receive compensation for
representation of a party \2\ in relation to a particular
matter involving specific parties (1) in which the employee has
at any time participated personally and substantially, or (2)
which is pending in the department or agency of the Government
in which the special government employee is serving. In the
case of a special government employee who has served in a
department no more than 60 days during the immediately
preceding 365 days, item (2) does not apply. Thus, for example,
such an individual can receive compensation for
representational services with respect to matters pending in
the department in which the employee serves, as long as it is
not a matter involving parties in which the employee personally
and substantially participated.\3\
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\2\ The prohibition on receipt of compensation applies regardless
of whether the services are performed by the Federal employee or
someone else. For example, it would preclude a Federal employee from
sharing in the compensation received by a partner of the Federal
employee for representations on covered matters.
\3\ More stringent rules apply to regular Federal Government
employees. Such employees cannot receive compensation for
representational services (whether rendered by the individual or
another) in matters in which the United States is a party or has a
direct and substantial interest before any department, agency or court.
In addition, a Federal Government employee cannot act as agent or
attorney (whether or not for compensation) for prosecuting any claim
against the United States or act as agent or attorney for anyone before
any department, agency, or court in which the United States is a party
or has a direct and substantial interest.
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The conflict of interest rules also impose restrictions
on what a Federal Government employee can do after leaving the
Government. In general, senior level officers and employees
(including special government employees) who served at least 60
days during the immediately preceding 1-year period cannot
represent anyone other than the United States before the
individual's former department or agency for 1 year after
terminating employment. Whether an employee is a senior level
officer or employee is determined by pay grade. The one-year
post employment restriction does not apply to special
government employees who serve less than 60 days during the
immediately preceding 1-year period before termination of
employment.\4\
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\4\ All Executive branch employees are permanently prohibited from
representing a party other than the government in connection with a
particular matter (1) in which the government is a party or has an
interest, (2) in which the individual participated personally and
substantially, and (3) which involved a specific party or parties at
the time of their participation. In addition, Federal employees cannot,
within 2 years after terminating employment, represent any person other
than the United States in connection with any matter (1) in which the
government is a party or has a direct and substantial interest, (2)
which the person knows or reasonably should know was actually pending
under his or her official responsibility within one year before
termination of employment, and (3) which involved a specific party or
parties at the time it was pending.
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Federal employees with pay grades (or pay rates) above
certain levels (and who have at least 60 days of service) are
required to file annually public financial disclosures.
House Bill
Duties, responsibilities, and powers of the IRS Oversight Board
General responsibilities of the Board
The House bill provides for the establishment within the
Treasury Department of the Internal Revenue Service Oversight
Board (the ``Board''). The general responsibilities of the
Board are to oversee the Internal Revenue Service (the ``IRS'')
in its administration, management, conduct, direction, and
supervision of the execution and application of the internal
revenue laws. The Board has no responsibilities or authority
with respect to: (1) the development and formulation of Federal
tax policy relating to existing or proposed internal revenue
laws; (2) law enforcement activities of the IRS, including
compliance activities such as criminal investigations,
examinations, and collection activities;\5\ and (3) specific
procurement activities of the IRS (e.g., selecting vendors or
awarding contracts). The Board also has the authority to
recommend candidates for IRS Commissioner to the President, and
to recommend removal of the Commissioner.
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\5\ This provision is not intended to limit the Board's authority
with respect to the review and approval of strategic plans and the
budget of the Commissioner or to preclude the Board from review of IRS
operations generally.
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Specific responsibilities of the Board
The Board has the following specific responsibilities:
(1) to review and approve strategic plans of the IRS, including
the establishment of mission and objectives (and standards of
performance) and annual and long-range strategic plans; (2) to
review the operational functions of the IRS, including plans
for modernization of the tax system, outsourcing or managed
competition, and training and education; (3) to provide for the
review of the Commissioner's selection, evaluation and
compensation of senior managers; and (4) to review and approve
the Commissioner's plans for major reorganization of the IRS.
It is intended that major reorganizations subject to the
Board's review and approval are limited to major changes in
organizational structure, such as the 1995 IRS reorganization
that combined 7 regions into 4 and 63 districts into 33. In
addition, the Board will review and approve the budget request
of the IRS prepared by the Commissioner, submit such budget
request to the Secretary, and ensure that the budget request
supports the annual and long-range strategic plans of the IRS.
The Secretary is required to submit the budget request approved
by the Board to the President, who is required to submit such
request, without revision, to the Congress together with the
President's annual budget request for the IRS. The House bill
does not affect the ability of the President to include, in
addition, his own budget request relating to the IRS.
It is intended that the Board will reach a formal
decision on all matters subject to its review. With respect to
those matters over which the Board has approval authority, the
Board's decisions are determinative. It is fully expected that,
with respect to those matters over which the Board has approval
authority (other than as relates to the development of the
budget), the Secretary will exert his or her oversight
responsibility over the IRS by working through and with the
Board.\6\
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\6\ The budget is excepted from this expectation because the bill
provides a separate mechanism through which the Secretary may act. The
procedures relating to the Board permit the President to submit his own
budget in addition to that approved by the Board.
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The Board is required to report each year to the
President and the Congress regarding the conduct of its
responsibilities.
It is expected that the Treasury Department will no
longer utilize the IRS Management Board once the new Board
created by the bill is in place, as the functions of the IRS
Management Board would be taken over by the new Board.
Composition of the Board
The Board is composed of 11 members. Eight of the members
are so-called ``private-life'' members who are not Federal
officers or employees. These private-life members will be
appointed by the President, with the advice and consent of the
Senate. The remaining members are (1) the Secretary of the
Treasury (or, if the Secretary so designates, the Deputy
Secretary of the Treasury), (2) a representative from an
organization representing a substantial number of IRS
employees, who will be appointed by the President with the
advice and consent of the Senate, and \7\ (3) the Commissioner
of the IRS.
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\7\ In appointing the employee organization representative, the
President is not constrained to choose an individual recommended by an
organization covering IRS employees, but may choose whoever the
President determines to be an appropriate representative of the
organization.
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Qualifications of Board members
The private-life members of the Board are to be appointed
based on their expertise in the following areas: management of
large service organizations; customer service; the Federal tax
laws, including administration and compliance; information
technology; organization development; and the needs and
concerns of taxpayers. In the aggregate, the members of the
Board should collectively bring to bear expertise in all these
enumerated areas.
Ethical standards for private-life members
Representational activities and compensation matters
The private-life members are considered special
government employees during the entire period of their
appointment. That is, they will be considered to be performing
services as a special government employee on each day during
their appointment, not just on those days on which they
actually perform services. Thus, they will be subject to the
ethical conduct rules applicable to special government
employees who serve more than 60 days during any 365-day
period. Thus, for example, private-life Board members would not
be able to represent clients before the IRS on matters
involving specific parties during their terms as Board members.
Post-employment restrictions
Private-life Board members are to be subject to the one-
year post-employment restriction applicable to senior-level
employees.
Financial disclosure reports
Private-life members are to be subject to the public
financial disclosure rules generally applicable to special
government employees above certain pay grades.
Administrative matters
Term of appointments
The 8 private-life Board members and the employee
organization representative generally will be appointed for 5-
year terms. The private-life members may serve no more than two
5-year terms. Each 5-year term begins upon appointment. Board
member terms are staggered, as a result of a special rule
providing that some private-life members first appointed to the
Board will serve initial terms of less than 5 years. The
members of the Board are to elect a chairperson from among the
private-life Board members for a 2-year term. Any member of the
Board can be removed at the will of the President. In addition,
the Secretary of the Treasury (or, if so delegated, the Deputy
Secretary) and the IRS Commissioner are removed from the Board
upon termination of employment in such positions and the
representative of IRS employees is removed from the Board upon
termination of their employment, membership, or other
affiliation with the organization representing IRS employees.
Meetings and quorum
The Board is required to meet at least once a month, and
can meet at such other times as the Board determines
appropriate. A quorum of 6 members is required in order for the
Board to conduct business. Actions of the Board are taken by a
majority vote of those members present and voting.
Staffing
The Board will not have its own permanent staff, but will
have such staff as detailed by the Commissioner at the request
of the Chair of the Board. The Chair can procure temporary and
intermittent services under section 3109(b) of title 5 of the
U.S. Code.
Compensation and travel expenses
The private-life members of the Board will be compensated
at a rate not to exceed $30,000 per year, except that the Chair
will be compensated at a rate not to exceed $50,000 a year.
Other members of the Board will receive no compensation for
their services as Board members. The members of the Board will
be entitled to travel expenses for purposes of attending
meetings of the Board.
Reports
The Board is required to report each year regarding the
conduct of its responsibilities. The annual report shall be
provided to the President and Congress.
Effective date
The House bill provisions are effective on the date of
enactment. The President is directed to submit nominations for
Board members to the Senate within 6 months of the date of
enactment.
Senate Amendment
Duties, responsibilities, and powers of the IRS Oversight Board
General responsibilities of the Board
The Senate amendment generally follows the House bill,
except that under the Senate amendment, the Board has no
authority (1) to intervene in specific taxpayer cases,
including compliance activities involving specific taxpayers
such as criminal investigations, examinations, and collection
activities, and (2) to intervene in specific individual
personnel matters. The Board does have authority with respect
to general law enforcement matters, and it has the
responsibility to ensure that the organization and operation of
the IRS allows it to carry out its mission.
Specific responsibilities of the Board
Under the Senate amendment, the Board's specific
responsibilities and budget responsibilities are the same as in
the House bill, except that: (1) the Board's review and
approval authority for the Commissioner's plans for major
reorganization does not apply to the reorganization provided in
the Senate amendment; (2) the Board, after taking into account
the recommendations, if any, of the Commissioner, shall
recommend to the Secretary 3 candidates for appointment as the
National Taxpayer Advocate from individuals who have a
background in customer service and tax law, and experience
representing individual taxpayers (and to recommend the removal
of the National Taxpayer Advocate); (3) the Board shall review
procedures of the IRS relating to financial audits; (4) the
Board is to review operations of the IRS in order to ensure the
proper treatment of taxpayers; and (5) in exercising its
duties, the members of the Board shall maintain appropriate
confidentiality (e.g., regarding enforcement matters).
Composition of the Board
Under the Senate amendment, the Board is composed of 9
members. Six of the members are so-called ``private-life''
members who are not otherwise Federal officers or employees.
These private-life members are appointed by the President, with
the advice and consent of the Senate. The other members are:
(1) the Secretary (or, if the Secretary so designates, the
Deputy Secretary); (2) the Commissioner; and (3) a
representative from an employee organization that represents a
substantial number of IRS employees and who is appointed by the
President, with the advice and consent of the Senate. In
appointing the representative of an employee organization, the
President is not required to choose an individual recommended
by the employee organization, but may choose whoever the
President determines to be an appropriate representative of the
employee organization.
Section 6103 authority
Under the Senate amendment, Board members would have
limited access to confidential tax return and return
information under section 6103. This limited access would
permit the Board to receive such information (i.e., information
that has not been redacted to remove confidential tax return
and return information) from the Treasury IG for Tax
Administration or the Commissioner in connection with reports
to the Board. This access to section 6103 information does not
include the taxpayer's name, address, or taxpayer or employer
identification number. The Board members are subject to the
anti-browsing rules applicable to IRS employees under present
law.\8\
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\8\ The provision does not affect the Secretary's (or Deputy
Secretary's) or the Commissioner's access to section 6103 information
or the application of the anti-browsing rules to the Secretary (or
Deputy Secretary) or the Commissioner.
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Qualifications of Board members
Under the Senate amendment, the private-life members of
the Board will be appointed without regard to political
affiliation, and based solely on their expertise in the same
areas as the House bill, except that the Senate amendment adds
the further qualification that a private-life member have
experience and expertise in the needs and concerns of small
business.
Ethical standards for private-life members
Representational activities and compensation matters
Under the Senate amendment, the ethical conduct rules
applicable to private-life Board members depend on whether or
not such members are determined to be ``special government
employees'' under current law. It is expected that they
generally will be.\9\ In that case, they will be subject, at a
minimum, to the ethical conduct rules applicable to special
government employees. In addition, during their term as a Board
member, a private-life Board member cannot represent any party
(whether or not for compensation) with respect to (1) any
matter before the Board or the IRS, (2) any tax-related matter
before the Treasury Department, or (3) any court proceeding
with respect to a matter described in (1) or (2). Thus, for
example, the day after appointment to the Board, a private-life
Board member could not meet with representatives of the IRS or
Treasury on behalf of a client or the Board member's corporate
employer with respect to proposed tax regulations. On the other
hand, the Board member could, for example, represent clients
before the U.S. Customs Service. The special rules applicable
to private-life Board members generally do not preclude the
Board member from sharing in compensation from representation
of clients by another person (e.g., a partner of the Board
member) before the IRS or Treasury.\10\
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\9\ If the Board members are determined not to be special
government employees under the present-law rules, then they will be
subject to the ethical conduct rules relating to regular Federal
Government employees.
\10\ Certain limitations to this exception to the otherwise
applicable ethical rules would apply. For example, this exception would
not apply if the matter was one in which the Board member personally
and substantially participated. Similarly, the Board member could not
act with respect to a matter in which he or she has a personal
financial interest, including the potential to receive a share in
compensation as a result of another's representation.
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Post-employment restrictions
Under the Senate amendment, private-life Board members
are subject to the 1-year post employment restriction
applicable to individuals above certain pay grades and who have
served at least 60 days (whether or not the members are special
government employees under the present-law rules).
Financial disclosure reports
Under the Senate amendment, the private-life Board
members are subject to the public financial disclosure rules
applicable to Federal Government employees above certain pay
grades and who have at least 60 days of service. Thus, the
private-life Board members are required to file a public
financial disclosure report for purposes of confirmation,
annually during their tenure on the Board, and upon termination
of appointment.
Ethical standards for IRS employee organization representative
Waiver of conflict-of-interest laws
The Senate amendment provides that the IRS employee
organization representative is subject to the same ethical
conduct rules as the private-life Board members. However, the
Senate amendment modifies the otherwise applicable ethical
conduct rules so that they do not preclude the employee
representative from carrying out his or her duties as a Board
member and his or her duties with respect to the employee
organization. In particular, the employee representative is not
prohibited from (1) representing the interests of the employee
organization before the Federal Government on any matter, or
(2) acting on a Board matter because the employee organization
has a financial interest in the matter. In addition, the
employee representative can continue to receive his or her
compensation from the employee organization.\11\
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\11\ Certain limitations on this exception would apply. For
example, the rules relating to bribery would continue to apply. In
addition, the employee representative would be precluded from acting on
a matter in which he or she has a financial interest.
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Post-employment restrictions
The employee representative is subject to the same 1-year
post employment restriction applicable to the private-life
Board members, except to the extent the representative is
acting in his capacity as a representative of the employee
organization.
Financial disclosure reports
The employee representative is subject to the same public
financial disclosure rules as the private-life Board members.
In addition, the employee organization is required to provide
an annual financial report with the House Ways and Means
Committee and the Senate Finance Committee. Such report is
required to include the compensation paid to the individual
serving on the Board, the compensation of individuals employed
by the employee organization, and membership dues collected by
the organization.
Administrative matters
Term of appointments
The 6 private-life Board members will be appointed for 5-
year terms. The private-life members may serve no more than two
5-year terms. Board member terms will be staggered, as a result
of a special rule providing that some private-life members
first appointed to the Board would serve terms of less than 5
years. Under this rule, 2 members first appointed will have a
term of 2 years, 2 for a term of 4 years, and 2 for a term of 5
years. The terms of the initial Board members will run from the
date of appointment. Subsequent terms will run from expiration
of the previous term. A Board member appointed to fill a
vacancy before the expiration of a term will be appointed to
the remainder of the term. Such a member could be appointed to
a subsequent 5-year term.
A private-life Board member and the IRS employee
representative Board member may be removed at the will of the
President. In addition, the Secretary (or Deputy Secretary) and
the IRS Commissioner are automatically removed from the Board
upon his or her termination of employment as such.
Chair of the Board
The members of the Board are to elect a Chair from the
private-life members for a 2-year term. Except as otherwise
provided by a majority of the Board, the authority of the Chair
includes the authority to hire appropriate staff, call
meetings, establish committees, establish the agenda for
meetings, and develop rules for the conduct of business.
Meetings and quorum
Under the Senate amendment, the Board is required to meet
on a regular basis (as determined necessary by the Chair), but
no less frequently than quarterly. The Board can meet
privately, and is not subject to public disclosure laws. A
quorum of 5 members is required in order for the Board to
conduct business. Actions of the Board can be taken by a
majority vote of those members present and voting.
Staffing
Under the Senate amendment, the Chair is authorized to
hire (and terminate) such personnel as the Chair finds
necessary to enable the Board to carry out its duties. In
addition, the Board will have such staff as detailed by the
Commissioner or from another Federal agency at the request of
the Chair of the Board. The Chair can procure temporary and
intermittent services under section 3109(b) of title 5 of the
U.S. Code.
Compensation and travel expenses
Under the Senate amendment, the private-life members of
the Board will be compensated at a rate of $30,000 per year,
except that the Chair will be compensated at a rate of $50,000
a year. The other Board members will receive no compensation
for their services as a Boardmember. In addition, members of
the Board are entitled to travel expenses for purposes of attending
Board meetings or other duties as a member of the Board.
Reports
Under the Senate amendment, the Board is required to
report each year regarding the conduct of its responsibilities.
The annual report shall be provided to the President and the
House Committees on Ways and Means, Government Reform and
Oversight, and Appropriations and the Senate Committees on
Finance, Governmental Affairs, and Appropriations. In addition,
the Board is required to report to the Ways and Means and
Finance Committees if the IRS does not address problems
identified by the Board.
Effective date
The provision is effective on the date of enactment. The
President is directed to submit nominations for Board members
to the Senate within 6 months of the date of enactment. The
legality of the actions of the IRS are not affected pending
appointment of the Board. Under the Senate amendment, the Board
will sunset September 30, 2008.
Conference Agreement
Duties, responsibilities, and powers of the IRS Oversight Board
General responsibilities of the Board
The conference agreement follows the Senate amendment.
Specific responsibilities of the Board
Under the conference agreement, the specific
responsibilities of the Board are the same as under the Senate
amendment, except that they do not include the responsibility
(1) to recommend to the Secretary (taking into account the
recommendations, if any, of the Commissioner) 3 candidates for
appointment as the National Taxpayer Advocate; or (2) to review
procedures of the IRS relating to financial audits. However,
the conferees intend that the Chairman of the Board will
consider establishing a financial management subcommittee.
Consistent with the Board's responsibility to review and
approve plans for major reorganizations, the conferees intend
for the Board to have the authority to review and approve the
reorganization plan that is contained in Title I of this
legislation. However, to the extent that the Commissioner has
already taken measures to develop and implement such a plan,
the conferees do not want to impede such efforts. Thus, the
conferees do not intend in any way that the Commissioner should
be precluded from moving ahead with such planning and
implementation prior to the appointment of the Board.
Composition of the Board
The conference agreement follows the Senate amendment,
except that in lieu of a Board member who is a representative
of an organization that represents a substantial number of IRS
employees, the conference agreement provides for an individual
who is a full-time Federal employee or a representative of
employees (``employee representative'').
Section 6103 authority
The conference agreement follows the Senate amendment.
Qualifications of Board members
The conference agreement follows the Senate amendment.
Ethical standards for private-life members
The conference agreement follows the Senate amendment
with respect to the application of the ethics rules to the
private-life Board members regarding representational
activities and compensation matters, post-employment
restrictions, and financial disclosure requirements.
Ethical standards for employee representative
Under the conference agreement, the same ethics rules
applicable to the private-life members regarding the
representational activities and compensation matters apply to
the employee representative if the individual is a special
Government employee (i.e., the individual is not already an
officer or employee of the Federal Government). In addition,
the same post-employment restrictions and the financial
disclosure requirements applicable to the private-life members
apply to the employee representative. The conference agreement
does not include the Senate amendment requirement for filing
annual financial reports that applies to the organization
representing a substantial number of IRS employees, a
representative of which is a Board member.
The conference agreement does not include the Senate
amendment provision for waiver of the conflict-of-interest
laws. Instead, the conference agreement grants the President
the authority to waive, at the time the President nominates the
employee representative to the Board, for the term of the
member, any appropriate provisions of chapter 11 of title 18 of
the United States Code, to the extent such waiver is necessary
to allow such member to participate in the decisions of the
Board while continuing to serve as an employee representative.
Any such waiver is not effective unless a written intent of
waiver to exempt the member (and the actual waiver language) is
submitted to the Senate with the nomination of the member. It
is not intended that waiver of the restrictions on post-
employment provided under the conference agreement be necessary
to allow such member to participate in the decisions of the
Board while continuing to serve as an employee representative.
Administrative matters
Term of appointments
The conference agreement follows the Senate amendment,
with modifications. First, the staggered term of the initial
Board shall be as follows: 2 members first appointed will have
a term of 3 years, 2 members shall have a term of 4 years, and
2 members shall have a term of 5 years. In addition, the
limitation of the Senate amendment that private-life members
may serve no more than two five-year terms also applies to the
employee representative under the conference agreement.
Chair of the Board
The conference agreement follows the Senate amendment.
Meetings and quorum
The conference agreement follows the Senate amendment.
Staffing
The conference agreement follows the Senate amendment.
However, the conferees intend that the size of the staff be
limited to a small number, and the Board is encouraged to use
outside consultants whenever necessary.
Compensation and travel expenses
The conference agreement follows the Senate amendment
with respect to compensation of Board members, with a
modification. The employee representative member of the Board
will be compensated at a rate of $30,000 per year unless the
individual is already an officer or employee of the Federal
Government.
The conference agreement follows the House bill provision
on travel expenses, with a modification. Travel expenses other
than those incurred to attend Board meetings are allowed if
approved in advance by the Chair, and the Board shall report
annually to Congress the amount of travel expenditures incurred
by the Board.
Reports
The conference agreement follows the Senate amendment,
with a modification providing that the Board is to include in
its annual report information on travel expenses allowed.
Effective date
The conference agreement follows the House bill. The
conference agreement does not include the Senate amendment
provision for termination of the Board on September 30, 2008.
The conference agreement provides that the provisions relating
to the Board are not to be construed to invalidate the actions
and authority of the IRS prior to the appointment of members of
the Board.
B. Appointment and Duties of IRS Commissioner and Chief Counsel and
Other Personnel
1. IRS Commissioner and other personnel (secs. 102 and 103 of the House
bill and secs. 1102(a) and 1104 of the Senate amendment)
Present Law
Within the Department of the Treasury is a Commissioner
of Internal Revenue (``Commissioner''), who is appointed by the
President, with the advice and consent of the Senate. The
Commissioner has such duties and powers as may be prescribed by
the Secretary.\12\ The Secretary has delegated to the
Commissioner the administration and enforcement of the internal
revenue laws.\13\ The Commissioner generally does not have
authority with respect to tax policy matters.\14\
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\12\ Code sec. 7802(a).
\13\ Treasury Order 150-10 (April 22, 1982).
\14\ See, e.g., Treasury Order 111-2 (March 16, 1981), which
delegates to the Assistant Secretary (Tax Policy) the exclusive
authority to make the final determination of the Treasury Department's
position with respect to issues of tax policy arising in connection
with regulations, published Revenue Rulings and Revenue Procedures, and
tax return forms and to determine the time, form and manner for the
public communication of such position.
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The Secretary is authorized to employ such persons as the
Secretary deems appropriate for the administration and
enforcement of the internal revenue laws and to assign posts of
duty.
House Bill
As under present law, the House bill provides that
Commissioner will be appointed by the President, with the
advice and consent of the Senate, and can be removed at will by
the President. The Commissioner will be appointed to a 5-year
term, beginning with the date of appointment. The Board has the
power to recommend candidates to the President for
Commissioner. The Board has the authority to recommend the
removal of the Commissioner. Although the President is not
required to nominate for Commissioner a candidate recommended
by the Board (or to remove a Commissioner when the Board so
recommends), it is expected that the President will generally
give deference to the Board's expertise and familiarly with the
needs and functions of the IRS and will act in accordance with
the Board's recommendations.
The Commissioner has such duties and powers as prescribed
by the Secretary. Unless otherwise specified by the Secretary,
such duties and powers include the power to administer, manage,
conduct, direct, and supervise the execution and application of
the internal revenue laws or related statutes and tax
conventions to which the United States is a party and to
recommend to the President a candidate for Chief Counsel (and
recommend the removal of the Chief Counsel). It is intended
that the listed duties codify present delegations. However, if
the Secretary changes such orders, they may be subject to the
notice requirement of the bill, described below.
If the Secretary determines not to delegate the specified
duties to the Commissioner, such determination will not take
effect until 30 days after the Secretary notifies the House
Committees on Ways and Means, Government Reform and Oversight,
and Appropriations, the Senate Committees on Finance,
Government Operations, and Appropriations, and the Joint
Committee on Taxation.
This provision is not intended to alter the Secretary's
existing authority to delegate to agencies other than the IRS
the authority to administer and enforce certain portions of the
internal revenue laws. For example, the Secretary currently has
delegated to the Bureau of Alcohol, Tobacco and Firearms the
authority to administer and enforce the taxes under section
4181 and chapters 51, 52, and 53 of the Internal Revenue Code
(regarding excise and other taxes on alcohol, tobacco,
firearms, and destructive devices).
The Commissioner is to consult with the Board on all
matters within the Board's authority (other than the
recommendation of candidates for Commissioner and the
recommendation to remove the Commissioner). With respect to
those matters within the Board's approval authority (other than
with respect to the development of the budget), it is fully
expected that the Secretary will exert his or her oversight
responsibility over the IRS by working through and with the
Board.\15\
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\15\ The budget is excepted from this expectation because the House
bill provides a separate mechanism through which the Secretary may act.
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Unless otherwise specified by the Secretary, the
Commissioner is authorized to employ such persons as the
Commissioner deems proper for the administration and
enforcement of the internal revenue laws and would be required
to issue all necessary directions, instructions, orders, and
rules applicable to such persons. Unless otherwise provided by
the Secretary, the Commissioner will determine and designate
the posts of duty.
The Commissioner is compensated as under present law.
Effective date.--The provisions of the House bill
relating to the Commissioner generally are effective on the
date of enactment. The provision relating to the 5-year term of
office applies to the Commissioner in office on the date of
enactment. This 5-year term runs from the date of appointment.
Senate Amendment
As under present law, the Senate amendment provides that
the Commissioner isappointed by the President, with the advice
and consent of the Senate, and may be removed at will by the President.
Under the provision, one of the qualifications of the Commissioner is
demonstrated ability in management. The Commissioner is appointed to a
5-year term, beginning with the date of appointment. The Commissioner
may be reappointed for more than one 5-year term. The Board recommends
candidates to the President for the position of Commissioner; however,
the President is not required to nominate for Commissioner a candidate
recommended by the Board. The Board has the authority to recommend the
removal of the Commissioner.
The Commissioner has such duties and powers as prescribed
by the Secretary. Unless otherwise specified by the Secretary,
such duties and powers include the power to administer, manage,
conduct, direct, and supervise the execution and application of
the internal revenue laws or related statutes and tax
conventions to which the United States is a party, to exercise
the IRS' final authority concerning the substantive
interpretation of the tax laws, to recommend to the President a
candidate for Chief Counsel (and recommend the removal of the
Chief Counsel), and to recommend candidates for the position of
National Taxpayer Advocate to the IRS Board. If the Secretary
determines not to delegate such specified duties to the
Commissioner, such determination will not take effect until 30
days after the Secretary notifies the House Committees on Ways
and Means, Government Reform and Oversight, and Appropriations,
and the Senate Committees on Finance, Governmental Affairs, and
Appropriations. The Commissioner is to consult with the Board
on all matters within the Board's authority (other than the
recommendation of candidates for Commissioner and the
recommendation to remove the Commissioner).
Unless otherwise specified by the Secretary, the
Commissioner is authorized to employ such persons as the
Commissioner deems proper for the administration and
enforcement of the internal revenue laws and is required to
issue all necessary directions, instructions, orders, and rules
applicable to such persons. Unless otherwise provided by the
Secretary, the Commissioner will determine and designate the
posts of duty.
Effective date.--Same as the House bill.
Conference Agreement
The conference agreement follows the Senate amendment,
with a modification. Instead of the Senate amendment provision
relating to the duty of the Commissioner to recommend
candidates for the position of National Taxpayer Advocate to
the IRS Board, the conference agreement provides that the
Treasury Secretary is to consult with the Commissioner and the
Board before selecting the National Taxpayer Advocate.
Effective date.--The conference agreement follows the
Senate amendment and the House bill.
2. IRS Chief Counsel (sec. 1102(a) of the Senate amendment)
Present Law
The President is authorized to appoint, by and with the
consent of the Senate, an Assistant General Counsel of the
Treasury, who is the Chief Counsel of the IRS. The Chief
Counsel is the chief law officer for the IRS and has such
duties as may be prescribed by the Secretary. The Secretary has
delegated authority over the Chief Counsel to the Treasury
General Counsel. The Chief Counsel does not report to the
Commissioner, but to the Treasury General Counsel. As delegated
by the Treasury General Counsel, the duties of the Chief
Counsel include: (1) to be the legal advisor to the
Commissioner and his or her officers and employees; (2) to
furnish such legal opinions as may be required in the
preparation and review of rulings and memoranda of technical
advice and the performance of other duties delegated to the
Chief Counsel; (3) to prepare, review, or assist in the
preparation of proposed legislation, treaties, regulations and
Executive Orders relating to laws affecting the IRS; (4) to
represent the Commissioner in cases before the Tax Court; (5)
to determine what civil actions should be brought in the courts
under the laws affecting the IRS and to prepare recommendations
to the Department of Justice for the commencement of such
actions and to authorize or sanction commencement of such
actions.
House Bill
No provision.
Senate Amendment
As under present law, the Senate amendment provides that
the Chief Counsel is appointed by the President, with the
advice and consent of the Senate. Under the Senate amendment,
the Chief Counsel is not an Assistant General Counsel of the
Treasury and reports directly to the Commissioner.
The Chief Counsel has such duties and powers as
prescribed by the Secretary. Unless otherwise specified by the
Secretary, these duties include the duties currently delegated
to the Chief Counsel as described above. If the Secretary
determined not to delegate such specified duties to the Chief
Counsel, such determination is subject to the same notice
requirement applicable to changes in the delegation of
authority with respect to the Commissioner.
Effective date.--The provision is generally effective on
the date of enactment. The provision providing that the Chief
Counsel reports directly to the Commissioner is effective 90
days after the date of enactment.
Conference Agreement
The conference agreement follows the Senate amendment,
with modifications. Under theconference agreement, the Chief
Counsel is to report directly to the Commissioner, with two exceptions.
First, the Chief Counsel is to report to both the
Commissioner and the General Counsel of the Treasury Department
with respect to (1) legal advice or interpretation of the tax
law not relating solely to tax policy, and (2) tax litigation.
Under this rule, the conferees intend that the Chief Counsel's
dual reporting to the Commissioner and to the General Counsel
include reporting with respect to legal advice or
interpretation of the tax law set forth in regulations, revenue
rulings and revenue procedures, technical advice and other
similar memoranda, private letter rulings, and published
guidance not described in the foregoing.
Second, the Chief Counsel is to report to the General
Counsel with respect to legal advice or interpretation of the
tax law relating solely to tax policy. Under this rule, the
conferees intend that the Chief Counsel's reporting to the
General Counsel include proposed legislation and international
tax treaties.
The conference agreement provides that if there is any
disagreement between the Commissioner and the General Counsel
with respect to any matter on which the Chief Counsel has dual
reporting to both the Commissioner and the General Counsel, the
matter is to be submitted to the Secretary or the Deputy
Secretary of the Treasury for resolution.
The conferees intend that under the general rule, the
Chief Counsel's reporting directly to the Commissioner include
reporting with respect to budget, organizational structure and
reorganizations, mission and strategic plans. In addition, the
conferees intend that the Chief Counsel's reporting directly to
the Commissioner include reporting with respect to all matters
relating to the day-to-day operations of the IRS, such as
management of the IRS and procurement.
The conference agreement provides that all personnel in
the Office of the Chief Counsel are to report to the Chief
Counsel (and not to any person at the IRS or elsewhere within
the Treasury Department).
C. Structure and Funding of the Employee Plans and Exempt Organizations
Division (``EP/EO'') (sec. 1102 of the House bill and sec. 1101 of the
Senate amendment)
Present Law
Prior to 1974, no one specific office in the IRS had
primary responsibility for employee plans and tax-exempt
organizations. As part of the reforms contained in the Employee
Retirement Income Security Act of 1974 (``ERISA''), Congress
statutorily created the Office of Employee Plans and Exempt
Organizations (``EP/EO'') under the direction of an Assistant
Commissioner.\16\ EP/EO was created to oversee deferred
compensation plans governed by sections 401-414 of the Code and
organizations exempt from tax under Code section 501(a).
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\16\ Code section 7802(b).
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In general, EP/EO was established in response to concern
about the level of IRS resources devoted to oversight of
employee plans and exempt organizations. The legislative
history of Code section 7802(b) states that, with respect to
administration of laws relating to employee plans and exempt
organizations, ``the natural tendency is for the Service to
emphasize those areas that produce revenue rather than those
areas primarily concerned with maintaining the integrity and
carrying out the purposes of exemption provisions.'' \17\
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\17\ S. Rept. 93-383, 108 (1973). See also H. Rept. 93-807, 104
(1974).
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To provide funding for the new EP/EO office, ERISA
authorized the appropriation of an amount equal to the sum of
the section 4940 excise tax on investment income of private
foundations (assuming a rate of 2 percent) as would have been
collected during the second preceding year plus the greater of
the same amount or $30 million.\18\ However, amounts raised by
the section 4940 excise tax have never been dedicated to the
administration of EP/EO, but are transferred instead to general
revenues. Thus, the level of EP/EO funding, like that of the
rest of the IRS, is dependent on annual Congressional
appropriations to the Treasury Department.
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\18\ Code section 7802(b)(2).
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House Bill
The House bill retains the Office of Employee Plans and
Exempt Organizations under the supervision and direction of an
Assistant Commissioner of the Internal Revenue. As under
present law, EP/EO is responsible for carrying out functions
and duties associated with organizations designed to be exempt
from tax under section 501(a) of the Code and with respect to
plans designed to be qualified under section 401(a). In
addition, however, EP/EO's responsibilities are expanded to
include nonqualified deferred compensation arrangements. The
House bill also provides that the Assistant Commissioner shall
report annually to the Commissioner on EP/EO operations.
In addition, the House bill repeals the funding mechanism
for EP/EO set forth in section 7802(b). Thus, the appropriate
level of funding for EP/EO is, consistent with current
practice, subject to annual Congressional appropriations, as
are other functions within the IRS.
Effective date.--The provision is effective on the date
of enactment.
Senate Amendment
The Senate amendment eliminates the statutory requirement
contained in section 7802(b) that there be an ``Office of
Employee Plans and Exempt Organizations'' under the supervision
and direction of an Assistant Commissioner. The legislative
history expresses the Committee's intent that a comparable
structure be created administratively to ensure that adequate
resources within the IRS are devoted to oversight of the tax-
exempt sector.
In addition, like the House bill, the Senate amendment
repeals the funding mechanism for EP/EO set forth in section
7802(b).\19\
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\19\ The legislative history of the provision states that it is not
intended that the elimination of the statutory requirement contained in
section 7802(b)(1) of the self-funding mechanism described in section
7802(b)(2) impede the implementation of certain self-correction
programs and EP/EO's other programs and activities. Rather, the
legislative history indicates that, given the magnitude of the sector
EP/EO is charged with regulating, as well as the unique nature of its
mandate, an adequately funded EP/EO is extremely important to the fair
and efficient administration of the Federal tax system.
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Effective date.--The provision is effective on the date
of enactment.
Conference Agreement
The conference agreement follows the Senate amendment.
D. Taxpayer Advocate and Taxpayer Assistance Orders (secs. 102 and 342
of the House bill and secs. 1102(a), (c), and (d) of the Senate
amendment)
Present Law
Taxpayer Advocate
In 1996, the Taxpayer Bill of Rights 2 (``TBOR 2'')
established the position of Taxpayer Advocate, which replaced
the position of Taxpayer Ombudsman, created in 1979 by the IRS.
The Taxpayer Advocate is appointed by and reports directly to
the IRS Commissioner.
TBOR 2 also created the Office of the Taxpayer Advocate.
The functions of the office are (1) to assist taxpayers in
resolving problems with the IRS, (2) to identify areas in which
taxpayers have problems in dealings with the IRS, (3) to
propose changes (to the extent possible) in the administrative
practices of the IRS that will mitigate those problems, and (4)
to identify potential legislative changes that may mitigate
those problems.
Taxpayer assistance orders
Taxpayers can request that the Taxpayer Advocate issue a
taxpayer assistance order (``TAO'') if the taxpayer is
suffering or about to suffer a significant hardship as a result
of the manner in which the internal revenue laws are being
administered. A TAO may require the IRS to release property of
the taxpayer that has been levied upon, or to cease any action,
take any action as permitted by law, or refrain from taking any
action with respect to the taxpayer.
Under present law, the direct point of contact for
taxpayers seeking taxpayer assistance orders is a problem
resolution officer appointed by a District Director or a
Regional Director of Appeals. The Taxpayer Advocate has
designated the authority to issue taxpayer assistance orders to
the local and regional problem resolution officers.
Reports of the Taxpayer Advocate
The Taxpayer Advocate is required to report annually to
the House Committee on Ways and Means and the Senate Finance
Committee on the objectives of the Taxpayer Advocate for the
up-coming fiscal year. This report is required to be provided
no later than June 30 of each calendar year and is to contain
full and substantive analysis, in addition to statistical
information.
The Taxpayer Advocate is also required to report annually
to the House Committee on Ways and Means and the Senate Finance
Committee on the activities of the Taxpayer Advocate during the
most recently ended fiscal year. This report is required to be
provided no later than December 31 of each calendar year, and
is to contain full and substantive analysis, in addition to
statistical information. This report is also required to: (1)
identify the initiatives the Taxpayer Advocate has taken on
improving taxpayer services and IRS responsiveness; (2) contain
recommendations received from individuals with the authority to
issue TAOs; (3) contain asummary of at least 20 of the most
serious problems encountered by taxpayers, including a description of
the nature of such problems; (4) contain an inventory of the items
described in (1), (2), and (3) for which action has been taken and the
result of such action; (5) contain an inventory of the items described
in (1), (2), and (3) for which action remains to be completed and the
period during which each item has remained on such inventory; (6)
contain an inventory of the items described in (1), (2) and (3) for
which no action has been taken, the period during which the item has
remained on the inventory, the reasons for the inaction, and identify
any IRS official who is responsible for the inaction; (7) identify any
TAO that was not honored by the IRS in a timely manner; (8) contain
recommendations for such administrative and legislative action as may
be appropriate to resolve problems encountered by taxpayers; (9)
describe the extent to which regional problem resolution officers
participate in the selection and evaluation of local problem resolution
officers, and (10) include such other information as the Taxpayer
Advocate deems advisable.
The reports of the Taxpayer Advocate are to be submitted
directly to the Congressional Committees without prior review
or comment from the Commissioner, Secretary, any other officer
or employee of the Treasury, or the Office of Management and
Budget.
House Bill
The House bill requires the Commissioner to obtain the
approval of the IRS Oversight Board on the selection of the
Taxpayer Advocate. A candidate for the Taxpayer Advocate must
have either substantial experience representing taxpayers
before the IRS or have substantial experience within the IRS.
If the prospective Taxpayer Advocate was an officer or an
employee of the IRS before being appointed as the Taxpayer
Advocate, the individual is required to agree not to accept any
employment with the IRS for at least 5 years after ceasing to
be the Taxpayer Advocate.
The House bill modifies the information to be included in
the December 31 report to the tax-writing committees. The
report no longer needs to include information about the extent
to which regional problem resolution officers participate in
the selection and evaluation of local problem resolution
officers. The report identifies areas of the tax law that
impose significant compliance burdens on taxpayers or the IRS,
including specific recommendations for solving these problems.
The Taxpayer Advocate also is required to work in conjunction
with the National Director of Appeals to identify the 10 most
litigated issues for each category of taxpayers, and include
the list of issues and recommendations for mitigating such
disputes in the report. Categories of taxpayers include, for
example, individuals, self-employed individuals, small
businesses, etc.
As under present law, the reports are submitted directly
to the tax-writing committees, without review by the IRS
Oversight Board, the Secretary of the Treasury, or any other
officer or employee of the Department of the Treasury or the
Office of Management and Budget.
In addition, the House bill imposes new responsibilities
on the Taxpayer Advocate. The Taxpayer Advocate is requested to
monitor the coverage and geographical allocation of problem
resolution officers and develop guidance that outlines criteria
to be used by IRS employees in referring taxpayer inquiries to
problem resolution officers. In connection with these
responsibilities, it is anticipated that the Taxpayer Advocate
will work with the IRS District Offices to ensure convenient
taxpayer access to the local problem resolution officer. For
example, the local telephone number for the problem resolution
officer in each district should be published and available to
taxpayers.
It is intended that the Taxpayer Advocate will work with
the Commissioner in developing career paths for local problem
resolution officers, so that individuals can progress through
the General Schedule in the same manner as examination
employees, without having to leave the problem resolution
system. In that regard, it is contemplated that the
compensation levels of local and regional problem resolution
officers should be the same as those of IRS personnel operating
in other functional units. Under the current system, local
problem resolution officers generally must return to an audit
or collection function to achieve promotion. This lack of a
career path within the problem resolution system reduces the
independence of the system. It is contemplated that, to the
extent feasible, regional problem resolution officers should be
selected from the available pool of local problem resolution
officers.
Effective date.--The House bill provision is effective on
the date of enactment, except that the post-employment
restrictions on the Taxpayer Advocate do not apply to an
individual holding that position on the date of enactment.
Senate Amendment
National Taxpayer Advocate
The Senate amendment renames the Taxpayer Advocate the
``National Taxpayer Advocate.'' The Senate amendment provides
that the IRS Oversight Board is to recommend to the Secretary 3
candidates for National Taxpayer Advocate from among
individuals with a background in customer service as well as
tax law and with experience representing individual taxpayers.
The Secretary is required to choose a National Taxpayer
Advocate from among the individuals recommended by the
Oversight Board. An individual may be appointed as the National
Taxpayer Advocate only if the individual was not an officer or
employee of the IRS during the 2-year period ending with such
appointment and the individual agrees not to accept employment
with the IRS for at least 5 years after ceasing to be the
National Taxpayer Advocate.
The Senate amendment replaces the present-law problem
resolution system with a system of local Taxpayer Advocates who
report directly to the National Taxpayer Advocate and who will
be employees of the Taxpayer Advocate's Office, independent
from the IRS examination, collection, and appeals functions.
The National Taxpayer Advocate has the responsibility to
evaluate and take personnel actions (including dismissal) with
respect to any local TaxpayerAdvocate or any employee in the
Office of the National Taxpayer Advocate. In conjunction with the
Commissioner, the National Taxpayer Advocate is required to develop
career paths for local Taxpayer Advocates.
The National Taxpayer Advocate is required to monitor the
coverage and geographical allocation of the local Taxpayer
Advocates, develop guidance to be distributed to all IRS
officers and employees outlining the criteria for referral of
taxpayer inquires to local taxpayer advocates, ensure that the
local telephone number for the local taxpayer advocate is
published and available to taxpayers.
Each local Taxpayer Advocate may consult with the
appropriate supervisory personnel of the IRS regarding the
daily operation of the Office of the Taxpayer Advocate. At the
initial meeting with any taxpayer seeking the assistance of the
Office of the Taxpayer Advocate, the local taxpayer advocate is
required to notify the taxpayer that the Office operated
independently of any other IRS office and reports directly to
Congress through the National Taxpayer Advocate. At the
discretion of the local taxpayer advocate, the advocate shall
not disclose to the IRS any contact with or information
provided by the taxpayer. Each local Office of the Taxpayer
Advocate is to maintain a separate phone, facsimile, and other
electronic communication access, and a separate post office
address.
The IRS would be required to publish the taxpayer's right
to contact the local Taxpayer Advocate on the statutory notice
of deficiency.
Under the Senate amendment, the National Taxpayer
Advocate is to appoint a counsel in the Office of the Taxpayer
Advocate to report directly to the National Taxpayer Advocate.
Taxpayer assistance orders
The provision expands the circumstances under which a TAO
may be issued. The Senate amendment provides that a
``significant hardship'' is deemed to occur if one of the
following four factors exists: (1) there is an immediate threat
of adverse action; (2) there has been a delay of more than 30
days in resolving the taxpayer's account problems; (3) the
taxpayer will have to pay significant costs (including fees for
professional services) if relief is not granted; or (4) the
taxpayer will suffer irreparable injury, or a long-term adverse
impact, if relief is not granted. These factors are not an
exclusive list of what constitutes a significant hardship; a
TAO may also be issued in other circumstances in which it is
determined that the taxpayer is or will suffer a significant
hardship. The Taxpayer Advocate is also authorized to issue a
TAO in any circumstances that the Taxpayer Advocate considers
appropriate for the issuance of a TAO.
In determining whether to issue a TAO in cases in which
the IRS failed to follow applicable published guidance
(including procedures set forth in the Internal Revenue
Manual), the Taxpayer Advocate is to construe the matter in a
manner most favorable to the taxpayer.
Reports of the National Taxpayer Advocate
The provision requires the annual report regarding the
activities of the National Taxpayer Advocate for the most
recently ended fiscal year to (in addition to the information
required under present law): (1) identify areas of the tax law
that impose significant compliance burdens on taxpayers or the
IRS, including specific recommendations for remedying such
problems; and (2) identify the 10 most litigated issues for
each category of taxpayers, including recommendations for
mitigating such disputes.
Effective date
The Senate amendment provision is generally effective on
the date of enactment. During the period before the appointment
of the IRS Oversight Board, the National Taxpayer Advocate
shall be appointed by the Secretary (taking into consideration
individuals nominated by the Commissioner) from among
individuals who have a background in customer service as well
as tax law and experience in representing individual taxpayers.
The provision providing that the Taxpayer Advocate reports
directly to the Commissioner, the provision providing that the
Taxpayer Advocate is appointed by the Secretary, and the
restrictions on previous and subsequent employment of the
Taxpayer Advocate do not apply to the individual serving as the
Taxpayer Advocate on the date of enactment.
Conference Agreement
National Taxpayer Advocate
The conference agreement follows the Senate amendment,
with modifications. The conference agreement does not include
the Senate amendment provision that the IRS Oversight Board is
to recommend to the Secretary 3 candidates for National
Taxpayer Advocate; instead, the conference agreement provides
that the National Taxpayer Advocate is appointed by the
Secretary after consultation with the Commissioner and the
Board (without regard to the provisions of Title 5 of the U.S.
Code, relating to appointments in the competitive service or
the Senior Executive Service). The conference agreement
modifies the Senate amendment provision that an individual may
be appointed as the National Taxpayer Advocate only if the
individual was not an officer or employee of the IRS during the
2-year period ending with such appointment and the individual
agrees not to accept employment with the IRS for at least 5
years after ceasing to be the National Taxpayer Advocate. The
conference agreement provides that service as an officer or
employee of the Office of the Taxpayer Advocate is not taken
into account, for purposes of these 2-year and 5-year rules.
The conference agreement also clarifies that the National
Taxpayer Advocate's compensation is to be at the highest rate
of basic pay established for the Senior Executive Service, or,
if the Treasury Secretary so determines, at a rate fixed under
5 U.S. Code section 9503.
The conferees intend that the National Taxpayer
Advocate's responsibility to appoint local taxpayer advocates
and make available at least one local taxpayer advocate for
each Statemeans that a local taxpayer advocate will be
available to taxpayers in each State.
The conference agreement does not include the Senate
amendment provision that the National Taxpayer Advocate has the
responsibility and authority to appoint a counsel in the Office
of the Taxpayer Advocate to report directly to the National
Taxpayer Advocate. The conferees intend that the National
Taxpayer Advocate be able to hire and consult counsel as
appropriate.
The conference agreement provides that each local
taxpayer advocate reports to the National Taxpayer Advocate or
his delegate. The committees intend that a delegate mean the
taxpayer advocate for the appropriate organizational unit. It
is not intended that a local taxpayer advocate report to a
District Director of the IRS, for example. Providing reporting
to a delegate of the National Taxpayer Advocate under the
conference agreement is intended to provide reporting
flexibility sufficient to take into account the necessities of
any reorganization of the IRS.
Taxpayer assistance orders
The conference agreement follows the Senate amendment,
except that the conference agreement does not include the
Senate amendment provision that the Taxpayer Advocate is
authorized to issue a TAO in any circumstances that the
Taxpayer Advocate considers appropriate for the issuance of a
TAO. Instead, the conference agreement provides that the
National Taxpayer Advocate may issue a TAO if the taxpayer
meets requirements set forth in regulations. It is intended
that the circumstances set forth in regulations be based on
considerations of equity.
Effective date
The conference agreement follows the Senate amendment,
with modifications. Under the conference agreement, the
provisions are effective on date of enactment, except that in
appointing the first National Taxpayer Advocate after date of
enactment, the Treasury Secretary may not appoint anyone who
was an officer or employee of the IRS at any time during the 2-
year period ending on the date of appointment, and the Treasury
Secretary need not consult with the Board if the Board has not
been appointed.
E. Treasury Office of Inspector General; IRS Office of the Chief
Inspector (secs. 1102 and 1103 of the Senate amendment)
Present Law
Treasury Inspector General
The Treasury Office of Inspector General (``Treasury
IG'') was established in 1988 and charged with conducting
independent audits, investigations and review to help the
Department of Treasury accomplish its mission, improve its
programs and operations, promote economy, efficiency and
effectiveness, and prevent and detect fraud and abuse. The
Treasury IG derives its statutory authority under the Inspector
General Act of 1978, as amended (``IG Act of 1978'').
Appointment and qualifications
The IG Act of 1978 provides that the Treasury IG is
selected by the President, with the advice and consent of the
Senate, without regard to political affiliation and solely on
the basis of integrity and demonstrated ability in accounting,
auditing, financial analysis, law, management analysis, public
administration, or investigations. The Treasury IG can be
removed from office by the President. The President must
communicate the reasons for such removal to both Houses of
Congress.
Duties and responsibilities
The Treasury IG generally is authorized to conduct,
supervise and coordinate internal audits and investigations
relating to the programs and operations of the Treasury,
including all of its bureaus and offices.\20\ Special rules
apply, however, with respect to the Treasury IG's jurisdiction
over ATF, Customs, the Secret Service and the IRS--the four so-
called ``law enforcement bureaus.'' Upon its establishment, the
Treasury IG assumed the internal audit functions previously
performed by the offices of internal affairs of ATF, Customs
and the Secret Service. Although the Treasury IG was granted
oversight responsibility for the internal investigations
performed by the Office of Internal Affairs of ATF, the Office
of Internal Affairs of Customs, and the Office of Inspections
of the Secret Service, the internal investigation or inspection
functions of these offices remained with the respective
bureaus. The Treasury IG did not assume responsibility for
either the internal audit or inspection functions of the IRS
Office of the Chief Inspector. However, it was directed to
oversee the internal audits and internal investigations
performed by the IRS Office of the Chief Inspector.
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\20\ The Treasury Department organization includes the Departmental
offices as well as the Bureau of Alcohol, Tobacco and Firearms
(``ATF''), the Office of the Comptroller of the Currency (``OCC''), the
U.S. Customs Service (``Customs''), the Bureau of Engraving and
Printing, the Federal Law Enforcement Training Center, the Financial
Management Service, the U.S. Mint, the Bureau of the Public Debt, the
U.S. Secret Service (``Secret Service''), the Office of Thrift
Supervision, and the IRS.
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The Commissioner and the Treasury IG have entered into
two Memorandums of Understanding (``MOUs'')\21\ to clarify the
respective roles of the IRS Office of the Chief Inspector and
the Treasury IG in two primary areas: (1) the investigation of
allegations of wrongdoing by IRS executives and employees in
situations where the independence of the Office of the Chief
Inspector could be questioned, and (2) oversight by the
Treasury IG of the IRS Office of the Chief Inspector.\22\
Pursuant to the 1990 MOU, the Commissioner agreed to transfer
21 FTEs and $1.9 million from the IRS appropriation to the
Treasury IG appropriation to be used for the following
purposes: (1) oversight of the operations of the Office of the
Chief Inspector; (2) conduct of special reviews of IRS
operations; (3) investigation of allegations of misconduct
concerning the Commissioner, the Senior Deputy Commissioner,
and employees of the IRS Office of the Chief Inspector; and (4)
investigation of allegations of misconduct where the
independence of the IRS Office of the Chief Inspector might be
questioned. With respect to item (4), the Commissioner and
Treasury IG agreed that all allegations of misconduct involving
IRS executives and managers (Grade 15 and above), as well as
any other allegation involving ``significant or notorious''
matters were to be referred to the Treasury IG, and that
investigations arising out of such referrals generally would be
conducted by the Treasury IG.
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\21\ The first MOU was entered into in 1990 and the second in 1994.
\22\ Treasury Directive 40-01 (September 21, 1992) reiterates that
the Treasury IG is responsible for investigating alleged misconduct on
the part of IRS employees at the grade 15 level and above, all
employees of the Office of the Chief Inspector. In addition, Treasury
Directive 40-01 states that the Treasury IG is responsible for
investigating alleged misconduct on the part of Office of Chief Counsel
employees (excluding employees of the National Director, Office of
Appeals).
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In general, under the IG Act of 1978, Inspectors General
are instructed to report expeditiously to the Attorney General
whenever the Inspector General has reasonable grounds to
believe there has been a violation of Federal criminal law.
However, in matters involving criminal violations of the
Internal Revenue Code, the Treasury IG may report to the
Attorney General only those offenses under section 7214 of the
Code (unlawful acts of revenue officers or agents, including
extortion, bribery and fraud) without the consent of the
Commissioner.
Authority
The Treasury IG reports to and is under the general
supervision of the Secretary of Treasury, acting through the
Deputy Secretary. In general, the Secretary cannot prevent or
prohibit the Treasury IG from initiating, carrying out, or
completing any audit or investigation or from issuing any
subpoena during the course of any audit or investigation.
However, section 8D of the IG Act of 1978 grants the
Secretary authority to prohibitaudits or investigations by the
Treasury IG under certain circumstances. In particular, the Treasury IG
is under the authority, direction, and control of the Secretary with
respect to audits or investigations, or the issuance of subpoenas,
which require access to sensitive information concerning: (1) ongoing
criminal investigations or proceedings; (2) undercover operations; (3)
the identity of confidential sources, including protected witnesses;
(4) deliberations and decisions on policy matters, including documented
information used as a basis for making policy decisions, the disclosure
of which could reasonably be expected to have a significant influence
on the economy or market behavior; (5) intelligence or
counterintelligence matters; (6) other matters the disclosure of which
would constitute a serious threat to national security or to the
protection of certain persons. With respect to audits, investigations
or subpoenas that require access to the above-listed information, the
Secretary may prohibit the Treasury IG from carrying out such audit,
investigation or subpoena if the Secretary determines that such
prohibition is necessary to prevent the disclosure of such information
or to prevent significant impairment to the national interests of the
United States. The Secretary must provide written notice of such a
prohibition to the Treasury IG, who must, in turn, transmit a copy of
such notice to the Committees on Government Reform and Oversight and
Ways and Means of the House and the Committees on Governmental Affairs
and Finance of the Senate.
Access to taxpayer returns and return information
The Treasury IG has access to taxpayer returns and return
information under section 6103(h)(1) of the Code. However, such
access is subject to certain special requirements, including
the requirement that the Treasury IG notify the IRS Office of
the Chief Inspector (or the Deputy Commissioner in certain
circumstances) of its intent to access returns and return
information.
Reporting requirements
Under the IG Act of 1978, the Treasury IG reports to the
Congress semiannually on its activities. Reports from the
Treasury IG are transmitted to the Committees on Government
Reform and Oversight and Ways and Means of the House and the
Committees on Governmental Affairs and Finance of the Senate.
Resources
For fiscal year 1997, the Treasury IG had 296 FTEs and
total funding of $29.7 million. 174 FTEs were assigned to the
Treasury IG's audit function and 61 were assigned to the
investigative function. The remaining FTEs were divided among
the following functions: evaluations, legal, program,
technology and administrative support. Of the total Treasury IG
FTEs, approximately 23 were used for IRS oversight activities
in fiscal year 1997.
IRS Office of Chief Inspector
The IRS Office of the Chief Inspector (also known as the
``Inspection Service'') was established on October 1, 1951, in
response to publicity revealing widespread corruption in the
IRS. At the time of its creation, President Harry S. Truman
stated, ``A strong, vigorous inspection service will be
established and will be made completely independent of the rest
of the Internal Revenue Service.''
Appointment of the Chief Inspector
In 1952, the Office of the Assistant Commissioner
(Inspection) was established. The office was redesignated as
the Office of the Chief Inspector on March 25, 1990. The Chief
Inspector is appointed by the Commissioner. In this regard,
pursuant to Treasury Director 40-01, the Commissioner must
consult with the Treasury IG before selecting candidates for
the position of Chief Inspector (and all other senior executive
service (``SES'') positions in the Office of the Chief
Inspector). The Commissioner must also consult with the
Treasury IG regarding annual performance appraisals for the
Chief Inspector and other SES officials.
The Office of the Chief Inspector consists of a National
Office and the offices of the Regional Inspectors. The offices
of the Regional Inspectors are located in the same cities and
have the same geographic boundaries as the offices of the four
IRS Regional Commissioners. The Regional Inspectors report
directly to the Chief Inspector.
Duties and responsibilities
The Office of the Chief Inspector generally is
responsible for carrying out internal audits and investigations
that: (1) promote the economic, efficient, and effective
administration of the nation's tax laws; (2) detect and deter
fraud and abuse in IRS programs and operations; and (3) protect
the IRS against external attempts to corrupt or threaten its
employees. The Chief Inspector reports directly to the
Commissioner and Deputy Commissioner of the IRS.
The IRS Inspection Service is divided into three
functions: Internal Security, Internal Audit, and Integrity
Investigations and Activities. Internal Security's
responsibilities include criminal investigations (employee
conduct, bribery, assault and threat and investigations of non-
IRS employees for acts such as impersonation, theft, enrolled
agent misconduct, disclosure, and anti-domestic terrorism)
investigative support activities (including forensic lab,
computer investigative support, and maintenance of law
enforcement equipment), protection, and background
investigations.
Internal Audit is responsible for providing IRS
management with independent reviews and appraisals of all IRS
activities and operations. In addition, Internal Audit makes
recommendations to improve the efficiency and effectiveness of
programs and to assist IRS officials in carrying out their
program and operational responsibilities. In this regard,
Internal Audit generally conducts performance reviews (program
audits, system development audits, internal control audits) and
financial reviews (financial statement audits and financial
related reviews).
Integrity Investigations and Activities are joint
internal audit and internal security operations undertaken as a
proactive effort to detect and deter fraud and abuse within the
IRS. Integrity Investigations and Activities also includes the
UNAX Central Case Development Center. The Center was developed
in October, 1997, in response to the Taxpayer Browsing
Protection Act of 1997. Its purpose is to detect unauthorized
accesses to IRS computer systems by IRS employees and to refer
such instances to Internal Security investigators for further
investigation.
Authority
The Chief Inspector derives specific and general
authority from delegation by the Commissioner and Deputy
Commissioner. In addition, under section 7608(b) of the Code,
the Chief Inspector is authorized to perform certain functions
in connection with the duty of enforcing any of the criminal
provisions of the Code, including executing and serving search
and arrest warrants, serving subpoenas and summonses, making
arrests without warrant, carrying firearms, and seizing
property subject to forfeiture under the Code.
Access to taxpayer returns and return information
The Office of the Chief Inspector has full access to
taxpayer returns and return information.
Reporting requirements
The Office of the Chief Inspector reports facts developed
through its internal audit and internal security activities to
IRS management officials, who are charged with the
responsibility of reviewing IRS activities. The results of the
Chief Inspector's internal audit and internal security
activities also are reported to the Treasury IG and are
included in the Treasury IG's semiannual reports to Congress.
Internal audit reports prepared by the Office of the
Chief Inspector are provided monthly to the Government
Accounting Office, as well as to the House and Senate
Appropriations Committees. In addition, a monthly list of
Internal Audit reports is provided to Treasury and the Office
of Management and Budget. Reports of Investigation regarding
criminal conduct are referred to the Department of Justice for
prosecution.
Resources
The IRS Office of the Chief Inspector had 1,202 FTEs for
1997 and total funding of $100.1 million. Of these FTEs,
approximately 442 performed Internal Audit functions, 511
performed Internal Security functions, and 94 performed
Integrity Investigations and Activities. Of the remaining FTEs,
approximately 95 were dedicated to information technology
functions and 60 staffed the offices of the Chief Inspector and
the Regional Inspectors.
House Bill
No provision.
Senate Amendment
In general
The Senate amendment establishes a new, independent,
Treasury Inspector General for Tax Administration (``Treasury
IG for Tax Administration'') within the Department of Treasury.
The IRS Office of the Chief Inspector is eliminated, and all of
its powers and responsibilities are transferred to the Treasury
IG for Tax Administration. The Treasury IG for Tax
Administration has the powers and responsibilities generally
granted to Inspectors General under the IG Act of 1978, without
the limitations that currently apply to the Treasury IG under
section D of the Act. The role of the existing Treasury IG is
redefined to exclude responsibility for the IRS. The Treasury
IG for Tax Administration is under the supervision of the
Secretary of Treasury, with certain additional reporting to the
Board and the Congress.
Appointment and qualifications of Treasury IG for Tax Administration
The Treasury IG for Tax Administration is selected by the
President, with the advice and consent of the Senate. The
Treasury IG for Tax Administration can be removed from office
by the President. The President must communicate the reasons
for such removal to both Houses of Congress.
The Treasury IG for Tax Administration must be selected
without regard to political affiliation and solely on the basis
of integrity and demonstrated ability in accounting, auditing,
financial analysis, law, management analysis, public
administration, or investigations. In addition, however, the
Treasury IG for Tax Administration should have experience in
tax administration and demonstrated ability to lead a large and
complex organization. The Treasury IG for Tax Administration
may not be employed by the IRS within the two years preceding
and the five years following his or her appointment.
The Treasury IG for Tax Administration is required to
appoint an Assistant Inspector General for Auditing and an
Assistant Inspector for Inspections. Under the Senate
amendment, such appointees, as well as any Deputy Inspector
General(s) appointed by the Treasury IG for Tax Administration,
may not be employed by the IRS within the two years preceding
and the five years following their appointments.
Duties and responsibilities of Treasury IG for Tax Administration
The Treasury IG for Tax Administration has the present-
law duties and responsibilities currently delegated to the
Treasury IG with respect to the IRS. In addition, the Treasury
IG for Tax Administration assumes all of the duties and
responsibilities currently delegated to the IRS Office of the
Chief Inspector. The Treasury IG for Tax Administration has
jurisdiction over IRSmatters, as well as matters involving the
Board.
Accordingly, the Treasury IG for Tax Administration is
charged with conducting audits, investigations, and evaluations
of IRS programs and operations (including the Board) to promote
the economic, efficient and effective administration of the
nation's tax laws and to detect and deter fraud and abuse in
IRS programs and operations. In this regard, the Treasury IG
for Tax Administration specifically is directed to evaluate the
adequacy and security of IRS technology on an ongoing basis. In
addition, the Treasury IG for Tax Administration is responsible
for protecting the IRS against external attempts to corrupt or
threaten its employees. The Treasury IG for Tax Administration
is charged with investigating allegations of criminal
misconduct (e.g., Code sections 7212, 7213, 7214, 7216 and new
section 7217), as well as administrative misconduct (e.g.,
violations of the Taxpayer Bill of Rights and the Taxpayer Bill
of Rights 2, the Office of Government Ethics Standards of
Ethical Conduct and the IRS Supplemental Standards of Ethical
Conduct).
In addition, the Senate amendment directs the Treasury IG
for Tax Administration to implement a program periodically to
audit at least one percent of all determinations (identified
through a random selection process) where the IRS has asserted
either section 6103 (directly or in connection with the Freedom
of Information Act or the Privacy Act) or law enforcement
considerations (i.e., executive privilege) as a rationale for
refusing to disclose requested information. The program must be
implemented within 6 months after establishment of the Treasury
IG for Tax Administration. The Treasury IG for Tax
Administration is directed to report any findings of improper
assertion of section 6103 or law enforcement considerations to
the Board.
Further, the Treasury IG for Tax Administration is
directed to establish a toll-free confidential telephone number
for taxpayers to register complaints of misconduct by IRS
employees and to publish the telephone number in IRS
Publication 1.
There are no restrictions on the Treasury IG for Tax
Administration's ability to refer matters to the Department of
Justice. Thus, the Treasury IG for Tax Administration is
required to report to the Attorney General whenever the
Treasury IG for Tax Administration has reasonable grounds to
believe that there has been a violation of Federal criminal
law.
Authority of Treasury IG for Tax Administration
The Treasury IG for Tax Administration reports to and is
under the general supervision of the Secretary of Treasury.
Under the Senate amendment, the Secretary cannot prevent or
prohibit the Treasury IG for Tax Administration from
initiating, carrying out, or completing any audit or
investigation or from issuing any subpoena during the course of
any audit or investigation.
Under the Senate amendment, the Treasury IG for Tax
Administration must provide to the Board all reports regarding
IRS matters on a timely basis and conduct audits or
investigations requested by the Board. The Treasury IG for Tax
Administration also must, in a timely manner, conduct such
audits or investigations and provide such reports as may be
requested by the Commissioner.
In carrying out the duties and responsibilities described
above, the Treasury IG for Tax Administration has the present-
law authority generally granted to Inspectors General under the
IG Act of 1978. The limitations on the authority of the
Treasury IG under such Act do not apply to the Treasury IG for
Tax Administration. In addition, the Treasury IG for Tax
Administration has the authority granted to the IRS Office of
the Chief Inspector under present-law Code section 7608,
including the right to execute and serve search and arrest
warrants, to serve subpoenas and summonses, to make arrests
without warrant, to carry firearms, and to seize property
subject to forfeiture under the Code.
Resources
To ensure that the Treasury IG for Tax Administration has
sufficient resources to carry out his or her duties and
responsibilities under the Senate amendment, all but 300 FTEs
from the IRS Office of the Chief Inspector are transferred to
the Treasury IG for Tax Administration. Such FTEs include all
of the FTEs performing investigative functions in the Office of
the Chief Inspector Internal Security and Integrity
Investigations and Activities. In addition, the 21 FTEs
previously transferred from Inspection to Treasury IG pursuant
to the 1990 MOU to perform oversight of the IRS are transferred
to the Treasury IG for Tax Administration.
The Commissioner will retain approximately 300 FTEs from
the IRS Office of the Chief Inspector to staff an audit
function (including support staff) for internal IRS management
purposes. Like other IRS functions, however, this audit
function is subject to oversight and review by the Treasury IG
for Tax Administration.
Access to taxpayer returns and return information
Taxpayer returns and return information are available for
inspection by the Treasury IG for Tax Administration pursuant
to section 6103(h)(1). Thus, the Treasury IG for Tax
Administration has the same access to taxpayer returns and
return information as does the Chief Inspector under present
law.
Reporting requirements
The Treasury IG for Tax Administration is subject to the
semiannual reporting requirements set forth in section 5 of the
IG Act of 1978. As under present law, reports are made to the
Committees on Government Reform and Oversight and Ways and
Means of the House and the Committees on Governmental Affairs
and Finance of the Senate. The reports must contain the
information that is required to be reported by the Treasury IG
with respect to the IRS under present law, as well as
information regarding the source, nature and status of taxpayer
complaints and allegations of serious misconduct by IRS
employees received by the IRS or by the TreasuryIG for Tax
Administration. In addition, the Treasury IG for Tax Administration is
required to report annually on certain additional information (e.g.,
regarding the use of enforcement statistics in evaluating IRS
employees, the implementation of various taxpayer rights protections,
and IRS employee terminations and mitigations) required by the Senate
amendment.
Treasury IG
The Treasury IG generally continues to have its present-
law responsibilities and authority with respect to all Treasury
functions other than the IRS and the Board. However, the
Treasury IG generally does not have access to taxpayer returns
and return information under section 6103 (unless the Secretary
specifically authorizes such access).
The Treasury IG for Tax Administration operates
independently of the Treasury IG. The Secretary of Treasury is
directed to establish procedures pursuant to which the Treasury
IG for Tax Administration and the Treasury IG shall coordinate
audits and investigations in cases involving overlapping
jurisdiction.
The Treasury IG continues to have responsibility for
providing an opinion on the Department of Treasury's
consolidated financial statement as required under the Chief
Financial Officer Act. The Treasury IG for Tax Administration
is responsible for rendering an opinion on the IRS custodial
and administrative accounts (to the extent the Government
Accounting Office does not exercise its option to preempt under
the CFO Act).
Effective date.--The provision is effective 180 days
after the date of enactment.
Conference Agreement
The conference agreement follows the Senate amendment,
except as follows. The conference agreement provides that
experience in tax administration is not among the
qualifications applicable to the Treasury IG for Tax
Administration. With respect to the authority of the Treasury
IG for Tax Administration, the conference agreement provides
that the Commissioner or the Oversight Board may request the
Treasury IG for Tax Administration to conduct an audit or
investigation relating to the IRS. If the Treasury IG for Tax
Administration determines not to conduct an audit or
investigation requested by the Commissioner or the Oversight
Board, the Treasury IG for Tax Administration shall timely
provide the requesting party with a written explanation of its
determination. In this regard, the conferees intend that the
Treasury IG for Tax Administration shall make all reasonable
efforts to be responsive to the requests of the Commissioner
and the Oversight Board. In addition, the conference agreement
modifies the duties and responsibilities of the Treasury IG for
Tax Administration by providing that the responsibility for (1)
protecting IRS employees and (2) investigating the backgrounds
of prospective IRS employees shall not be transferred to the
Treasury IG for Tax Administration, but rather shall remain
with the IRS.
F. Prohibition on Executive Branch Influence Over Taxpayer Audits (sec.
104 of the House bill and sec. 1105 of the Senate amendment)
Present Law
There is no explicit prohibition in the Code on high-
level Executive Branch influence over taxpayer audits and
collection activity.
The Internal Revenue Code prohibits disclosure of tax
returns and return information, except to the extent
specifically authorized by the Internal Revenue Code (sec.
6103). Unauthorized disclosure is a felony punishable by a fine
not exceeding $5,000 or imprisonment of not more than five
years, or both (sec. 7213). An action for civil damages also
may be brought for unauthorized disclosure (sec. 7431).
House Bill
The House bill makes it unlawful for a specified person
to request that any officer or employee of the IRS conduct or
terminate an audit or otherwise investigate or terminate the
investigation of any particular taxpayer with respect to the
tax liability of that taxpayer. The prohibition applies to the
President, the Vice President, and employees of the executive
offices of either the President or Vice President, as well as
any individual (except the Attorney General) serving in a
position specified in section 5312 of Title 5 of the United
States Code (these are generally Cabinet-level positions). The
prohibition applies to both direct requests and requests made
through an intermediary.
Any request made in violation of this rule must be
reported by the IRS employee to whom the request was made to
the Chief Inspector of the IRS, who has the authority to
investigate such violations and to refer any violations to the
Department of Justice for possible prosecution, as appropriate.
Anyone convicted of violating this provision will be punished
by imprisonment of not more than 5 years or a fine not
exceeding $5,000 (or both).
The general prohibition does not apply (1) to a request
made to a specified person by a taxpayer or a taxpayer's
representative that is forwarded by the specified person to the
IRS; (2) to requests for disclosure of returns or return
information under section 6103 if the request is made in
accordance with the requirements of section 6103; and (3) to
requests made by the Secretary of the Treasury as a consequence
of the implementation of a change in tax policy.
Effective date.--The provision applies to violations
occurring after the date of enactment.
Senate Amendment
Same as the House bill; in addition, the Senate amendment
clarifies that the prohibition applies to direct or indirect
requests.
Effective date.--Same as the House bill.
Conference Agreement
The conference agreement follows the Senate amendment.
G. Review of Milwaukee and Waukesha IRS Offices (sec. 1106 of the
Senate amendment)
Present Law
A task force was initiated in January, 1998, to conduct
an investigation of the equal employment opportunity process in
the IRS' Milwaukee and Waukesha, Wisconsin offices.
House Bill
No provision.
Senate Amendment
The Senate amendment directs the IRS Commissioner to
appoint an independent expert in employment and personnel
matters to review the investigation conducted by the task force
and report to Congress with recommendations for action not
later than July 1, 1999. The review should include a
determination of the accuracy and validity of such
investigation; and if determined necessary by the expert, a
further investigation of such offices relating to: (1) the
equal employment opportunity process; and (2) any alleged
discriminatory employment-related actions, including any
alleged violation of Federal law.
Effective date.--The Senate amendment provisions is
effective on date of enactment.
Conference Agreement
The conference agreement follows the House bill. However,
the conferees intend that the task force continue to its
conclusion. The conferees intend that the General Accounting
Office review the report of the task force and report to the
House Committee on Ways and Means and the Senate Committee on
Finance.
H. IRS Personnel Flexibilities (sec. 111 of the House bill and secs.
1201-1205 of the Senate amendment)
Present Law
The IRS is subject to the personnel rules and procedures
set forth in title 5, United States Code, which regulate
hiring, evaluating, promoting, and firing employees. Under
these rules, IRS employees generally are classified under the
General Schedule or the Senior Executive Service.
House Bill
In general
The House bill provides that the IRS exercise the
personnel flexibilities consistently with existing rules
relating to merit system principles, prohibited personnel
practices, and preference eligibles. In those cases where the
exercise of personnel flexibilities would affect members of the
employees' union, such employees would not be subject to the
exercise of any flexibility unless there is a written agreement
between the IRS and the employees' union. The written agreement
would not be a contract that could be appealed to the Federal
Services Impasse Panel, or otherwise create additional appeal
rights.
Performance management system
The House bill requires the IRS to establish a new
performance management system within one year from the date of
enactment. The performance management system would maintain
individual accountability by: (1) establishing at least 2
standards of performance, the lowest of which would be the
retention standard and would be equivalent to fully successful
performance; (2) providing for periodic performance evaluations
to determine whether employees are meeting all applicable
retention standards; and (3) using the results of such
employee's performance evaluation as a basis for adjustments in
pay and other appropriate personnel actions. In addition, the
performance management system would provide for: (1)
establishing goals or objectives for individual, group or
organizational performance and taxpayer service surveys; (2)
communicating such goals or objectives to employees; and (3)
using such goals or objectives to make performance distinctions
among employees or groups of employees. It is intended that in
no event would performance measures be used which rank
employees or groups of employees based solely on enforcement
results, establish dollar goals for assessments or collections,
or otherwise undermine fair treatment of taxpayers.
Awards
The House bill addresses three types of awards. First,
certain awards for superior accomplishments would continue to
require certification to the Office of Personnel Management
(OPM), but absent objection from OPM within 60 days, the
Commissioner's recommendationsfor such awards would take
effect. As with all awards, these awards would be made based on
performance under the new performance management system, and in no case
would awards be made (or performance measured) based solely or
principally on tax enforcement results.
The second category of awards relates to the most senior
managers in the IRS. The Commissioner has discretion, upon
consultation with the IRS Oversight Board established under
section 101 of the House bill, to make awards of up to 50
percent of salary to such manager, so long as the total
compensation for an employee as a result of such award does not
equal or exceed the annual rate of compensation for the Vice
President for such calendar year. As with awards for superior
accomplishments, OPM would have 60 days to object. The
Commissioner would be required to prescribe regulations
defining how determinations would be made as to whether an
employee is eligible for such awards. In no case, however,
would more than 8 employees be eligible to receive such awards
in any calendar year.
The third category of awards would be based on savings
and would encourage the practice of rewarding employees for
developing more efficient methods of administration. A cash
award under this category would not be based solely on tax
enforcement results.
Streamlined procedures
The House bill streamlines the process of taking certain
adverse actions for poor performance by (1) reducing the notice
period for taking adverse actions from 30 days to 15 days, and
(2) prohibiting appeals of the denial of a step increase to the
Merit Systems Protections Board. Aggrieved employees could
appeal such actions pursuant to internal agency procedures,
including any procedures agreed to pursuant to collective
bargaining agreements or pursuant to the written agreement
authorizing the use of this flexibility.
Staffing flexibilities
The House bill provides the IRS with flexibility in
filling certain permanent appointments in the competitive
service by authorizing the IRS to fill such vacancies with
either qualified veterans or qualified temporary employees. For
purpose of this provision, a qualified veteran is an individual
who is either a preference eligible or has been separated from
the armed forces under honorable conditions after at least
three years of active service, and who meets the minimum
qualifications for the vacant position. A qualified temporary
employee is defined under the bill as a temporary employee of
the IRS with at least two years of continuous service, who has
met all applicable retention standards and who meets the
minimum qualifications for the vacant position.
The House bill authorizes the IRS to establish category
rating systems for evaluating job applicants, under which
qualified candidates are divided into two or more quality
categories on the basis of relative degrees of merit, rather
than assigned individual numerical ratings. Managers would be
authorized to select any candidate from the highest quality
category, and would not be limited to the three highest ranked
candidates. In administering these category rating systems, the
IRS generally would be required to list preference eligibles
ahead of other individuals within each quality category. The
appointing authority, however, could select any candidate from
the highest quality category, as long as existing requirements
relating to passing over preference eligibles were satisfied.
The House bill authorizes the Commissioner to reassign or
remove career appointees in the Senior Executive Service
immediately upon taking office.
The House bill authorizes the Commissioner to establish
probation periods for IRS employees of up to 3 years, when the
Commissioner determines that a shorter period is not sufficient
for an employee to demonstrate proficiency in a position.
Demonstration projects
The House bill authorizes the Commissioner to conduct 1
or more demonstration projects to (1) improve personnel
management, (2) provide increased individual accountability,
(3) eliminate obstacles to the removal or imposing any
disciplinary action with respect to poor performers, subject to
the requirements of due process, (4) expedite appeals from
adverse actions or performance-based actions, and (5) promote
pay based on performance.
The House bill maintains a number of the existing
prohibitions on demonstration projects, including the
prohibition on using demonstration projects to waive any
requirement of title 5 relating to family and medical leave.
The House bill requires the IRS to negotiate a written
agreement with the employees' union to the extent that the
implementation of a demonstration project affects such
employees.
The House bill establishes a general time limitation of 5
years on the duration of any demonstration project. However, if
the Commissioner and the Director of OPM concur, a
demonstration project could be extended for an additional 2
years if necessary to validate the results of the project. Not
later than 6 months prior to the termination of a project, the
House bill would require the Commissioner to submit a
legislative proposal to the Congress if the Commissioner
determines that such project should be made permanent.
Effective date
The provision is effective on the date of enactment.
Senate Amendment
In general
The Senate amendment is the same as the House bill except
that negotiation impasses between the IRS and the employees'
union may be appealed to the Federal Services Impasse Panel.
Senior management and technical positions
Streamlined critical pay authority
The Senate amendment provides a streamlined process for
the Secretary of the Treasury, or his delegate, to fix the
compensation of, and appoint up to 40 individuals to,
designated critical technical and professional positions,
provided that: (1) the positions require expertise of an
extremely high level in a technical, administrative or
professional field and are critical to the IRS; (2) exercise of
the authority is necessary to recruit or retain an individual
exceptionally well qualified for the position; (3) designation
of such positions is approved by the Secretary; (4) the terms
of such appointments are limited to no more than four years;
(5) appointees to such positions are not IRS employees
immediately prior to such appointment; and (6) the total annual
compensation for any position (including performance bonuses)
does not exceed the rate of pay of the Vice President
(currently, $175,400).
These appointments are not subject to the otherwise
applicable requirements under title 5. All such appointments
will be excluded from the collective bargaining unit and the
appointments will not be subject to approval of the Office of
Management and Budget (``OMB'') or the Office of Personnel
Management (``OPM'').
The streamlined authority will be limited to a period of
10 years.
Critical pay authority
The Senate amendment provides OMB with authority to set
the pay for certain critical pay positions requested by the
Secretary under section 5377 of title 5 of the United States
Code at levels higher than authorized under current law. These
critical pay positions would be critical technical,
administrative and professional positions other than those
designated under the streamlined authority. The Senate
amendment authorizes OMB to approve requests for critical
position pay up to the rate of pay of the Vice President
(currently, $175,400).
Recruitment, retention and relocation incentives
The Senate amendment authorizes the Secretary to vary
from the existing provisions governing recruitment, retention
and relocation incentives. The authority will be for a period
of 10 years and will be subject to OPM approval.
Career-reserve Senior Executive Service (``SES'') positions
The Senate amendment broadens the definition of a
``career reserved position'' in the SES to include a limited
emergency appointee or a limited term appointee who,
immediately upon entering the career-reserved position, was
serving under a career or a career-conditional appointment
outside the SES or whose limited emergency or limited term
appointment is approved in advance by OPM. The number of
appointments to these SES positions will be limited to up to 10
percent of the total number of SES positions available to the
IRS. These positions will be limited to a 3-year term, with the
option of extending the term for 2 more 3-year terms.
Performance management system
The Senate amendment is the same as the House bill except
that (1) the Senate amendment does not require that the IRS
establish the performance management system within one year
from the date of enactment, and (2) the Senate amendment does
not provide for the establishment of at least 2 standards of
performance. The Senate amendment permits the IRS to establish
one or more retention standards for each employee related to
the work of the employee and expressed in terms of performance.
Awards
The Senate amendment is the same as the House bill except
that the Senate amendment (1) provides that awards for superior
accomplishments between $10,000 and $25,000 would not be
subject to OPM approval, and (2) provides the Secretary with
the authority to provide performance bonus awards to IRS senior
executives of up to one-third of the individual's annual
compensation. The bonus award would be based on meeting preset
performance goals established by the IRS. An individual's total
annual compensation, including the bonus, cannot exceed the
rate of pay of the Vice President. The authority will not be
subject to OPM approval. It is anticipated that the bonuses
will not be available to more than 25 IRS senior executives
annually.
Staffing flexibilities
The Senate amendment is the same as the House bill,
except that the Senate amendment (1) does not include the
requirement that the IRS fill vacancies with qualified
veterans, and (2) does not authorize the Commissioner to
reassign or remove career appointees in the Senior Executive
Service immediately upon taking office. The current law rule
which provides that career appointees may not be involuntarily
removed within 120 days after the appointment of the head of
the agency continues to apply.
The Senate amendment authorizes the Secretary to
establish one or more broad band pay systems covering all or
any portion of the IRS workforce, subject to OPM criteria.
The Senate amendment authorizes the IRS to use Voluntary
Separation Incentive Pay (``buyouts'') through December 31,
2002. The use of voluntary separation incentive is not intended
to reduce the total number of Full-Time Equivalent (``FTE'')
positions in the IRS.
Demonstration projects
The Senate amendment is the same as the House bill except
that the Senate amendment (1) does not include the prohibitions
on demonstration projects, and (2) provides authority to the
Secretary and OPM to waive the termination of a demonstration
project, thereby making it permanent. At least 90 days prior to
waiving the termination date OPM will be required to publish a
notice of such intent in the Federal Register and inform the
appropriate Committees (including the House Ways and Means
Committee, the House Government Reform and Oversight Committee,
the Senate Finance Committee and the Senate Governmental
Affairs Committee) of both Houses of Congress in writing.
Mandatory employee terminations
The Senate amendment requires the IRS to terminate an
employee for certain proven violations committed by the
employee in connection with the performance of official duties.
The violations include: (1) failure to obtain the required
approval signatures on documents authorizing the seizure of a
taxpayer's home, personal belongings, or business assets; (2)
providing a false statement under oath material to a matter
involving a taxpayer; (3) falsifying or destroying documents to
avoid uncovering mistakes made by the employee with respect to
a matter involving a taxpayer; (4) assault or battery on a
taxpayer or other IRS employee; (5) violation of the civil
rights of a taxpayer or other IRS employee; (6) violations of
the Internal Revenue Code, Treasury Regulations, or policies of
the IRS (including the Internal Revenue Manual) for the purpose
of retaliating or harassing a taxpayer or other IRS employee;
(7) willful misuse of section 6103 for the purpose of
concealing data from a Congressional inquiry; (8) willful
failure to file any tax return required under the Code on or
before the due date (including extensions) unless failure is
due to reasonable cause; (9) willful understatement of Federal
tax liability, unless such understatement is due to reasonable
cause; and (10) threatening to audit a taxpayer for the purpose
of extracting personal gain or benefit.
The Senate amendment provides non-delegable authority to
the Commissioner to determine that mitigating factors exist,
that, in the Commissioner's sole discretion, mitigate against
terminating the employee. The Senate amendment also provides
that the Commissioner, in his sole discretion, may establish a
procedure which will be used to determine whether an individual
should be referred for such a determination by the
Commissioner. The Treasury IG is required to track employee
terminations and terminations that would have occurred had the
Commissioner not determined that there were mitigation factors
and include such information in the IG's annual report.
IRS employee training program
The Senate amendment requires the IRS to place a high
priority on employee training and to adequately fund employee
training programs. The bill also requires the IRS to provide to
the Congressional tax writing committees a comprehensive multi-
year plan to: (1) ensure adequate customer service training;
(2) review the organizational design of customer service; (3)
implement a performance development system; and (4) provide for
at least sixteen hours of conflict management training during
1999 for collection employees.
Effective date
The provision is effective on the date of enactment
except that the IRS employee training program would be
effective 90 days after the date of enactment.
Conference Agreement
The conference agreement follows the Senate amendment,
with modifications. The conference agreement includes the House
bill provision requiring the IRS to establish a new performance
management system within one year from the date of enactment.
The conferees intend to give the IRS flexibility to
establish a new performance management system. The conferees
expect that this will refocus the IRS' personnel system on the
overall mission of the IRS and how each employee's performance
relates to that mission. Although the new performance standards
are premised on the notion of retention, such standards should
go beyond simply establishing a retention/non-retention or
pass-fail performance system. At a minimum, the conferees
believe that there should be at least one standard above the
retention standard. This will enable managers to make
meaningful distinctions among employees based on performance,
to encourage employees to perform at a higher level and to
reward superior performance.
The conference agreement permits the Secretary to appoint
an individual, who was appointed an IRS employee on or after
June 1, 1998, to a critical pay position under the streamlined
critical pay authority.
The conference agreement also authorizes the IRS to pay
certain relocation expenses for individuals appointed to
critical pay positions after June 1, 1998. This authority is
for a period of 10 years after the date of enactment.
The provision (in particular the written agreement
requirement) is not intended to expand the jurisdiction of the
Federal Service Impasses Panel.
With respect to mandatory terminations of employees for
certain proven violations committed by the employee in
connection with the performance of official duties, the
conference agreement modifies the definitions of some of the
violations. The definitions of the other violations are the
same as the Senate amendment. The modified definitions are: (1)
willful failure to obtain the required approval signatures on
documents authorizing the seizure of a taxpayer's home,
personal belongings, or business assets; (2) assault or battery
on a taxpayer or other IRS employee, but only if there is a
criminal conviction or a final judgment by a court in a civil
case, with respect to the assault or battery; (3) falsifying or
destroying documents to conceal mistakes made by any employee
with respect to a matter involving a taxpayer or taxpayer
representative; and (4) with respect to a taxpayer, taxpayer
representative, or other IRS employee, the violation of any
right under the U.S. Constitution, or any civil right
established under titles VI or VII of the Civil Rights Act of
1964, title IX of the Educational Amendments of 1972, the Age
Discrimination in Employment Act of 1967, the Age
Discrimination Act of 1975, sections 501 or 504 of the
Rehabilitation Act of 1973 and title I of the Americans with
Disabilities Act of 1990.
The conference agreement also provides that the
Commissioner is to implement an employee training program no
later than 180 days after enactment.
TITLE II. ELECTRONIC FILING
A. Electronic Filing of Tax and Information Returns (sec. 201 of the
House bill and sec. 2001 of the Senate amendment)
Present Law
Treasury Regulations section 1.6012-5 provides that the
Commissioner may authorize a taxpayer to elect to file a
composite return in lieu of a paper return. An electronically
filed return is a composite return consisting of electronically
transmitted data and certain paper documents that cannot be
electronically transmitted.
The IRS periodically publishes a list of the forms and
schedules that may be electronically transmitted, as well as a
list of forms, schedules, and other information that cannot be
electronically filed.
During the 1997 tax filing season, the IRS received
approximately 20 million individual income tax returns
electronically.
House Bill
The House bill states that the policy of Congress is to
promote paperless filing, with a long-range goal of providing
for the filing of at least 80 percent of all tax returns in
electronic form by the year 2007. The provision requires the
Secretary of the Treasury to establish a strategic plan to
eliminate barriers, provide incentives, and use competitive
market forces to increase taxpayer use of electronic filing.
The provision requires all returns prepared in electronic form
but filed in paper form to be filed electronically, to the
extent feasible, by the year 2002.
The provision requires the Secretary to promote
electronic filing and to create an electronic commerce advisory
group and to report annually to the Congress on electronic
filing implementation issues.
Effective date.--Date of enactment.
Senate Amendment
Same as the House bill, except as follows. The Senate
amendment also states that it is the policy of Congress that
electronic filing should be a voluntary option for taxpayers.
The Senate amendment also requires that the annual report
discuss the effects on small businesses and the self-employed
of electronically filing tax and information returns.
In addition, the Senate amendment states that the policy
of Congress is that the IRS should cooperate with the private
sector by encouraging competition to increase electronic
filing.
Effective date.--Same as the House bill.
Conference Agreement
The conference agreement generally follows the Senate
amendment, except that the provision in the Senate amendment
that states that it is the policy of Congress that electronic
filing should be a voluntary option for taxpayers is
deleted.\1\ The provision on private sector cooperation is
clarified to provide that the IRS should cooperate with and
encourage the private sector by encouraging competition to
increase electronic filing of returns. The intent of the
conferees with respect to this provision is for the IRS and
Treasury to press for robust private sector competition. When
disputes arise between the IRS and the private sector on the
question of whether services offered by the IRS inhibit
competition or are appropriate services not reasonably
available to taxpayers or tax preparers, the Electronic
Commerce Advisory Group shall recommend to the IRS Commissioner
an appropriate course of action. Those recommendations shall
also be made available to the Congress. Notwithstanding the
previous sentence, the conferees also intend that the IRS
should continue to offer and improve its Telefile program and
make available a comparable program on the Internet.
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\1\ No inference is intended by this deletion. Present law (section
6011(e)(1) of the Code) already states that returns of any tax imposed
by subtitle A (income taxes and self-employment taxes) on individuals,
estates and trusts may not be required to be filed in any format (such
as by electronic means) other than on paper forms supplied by the IRS.
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B. Due Date for Certain Information Returns (sec. 202 of the House bill
and sec. 2002 of the Senate amendment)
Present Law
Information such as the amount of dividends, partnership
distributions, and interest paid during the calendar year must
be supplied to taxpayers by the payors by January 31 of the
following calendar year. The payors must file an information
return with the IRS with the information by February 28 of the
year following the calendar year for which the return must be
filed. Under present law, the due date for filing information
returns with the IRS is the same whether such returns are filed
on paper, on magnetic media, or electronically. Most
information returns are filed on magnetic media (such as
computer tapes), which are physically shipped to the IRS.
House Bill
The House bill provides an incentive to filers of
information returns to use electronic filing by extending the
due date for filing such returns with the IRS from February 28
(underpresent law) to March 31 of the year following the
calendar year to which the return relates.
Effective date.--Information returns required to be filed
after December 31, 1999.
Senate Amendment
Same as the House bill except that the Senate amendment
also requires the Treasury to issue a study evaluating the
merits and disadvantages, if any, of extending the deadline for
providing taxpayers with copies of information returns (other
than Forms W-2) from January 31 to February 15.
Effective date.--Same as the House bill, except that the
Treasury study is due by December 31, 1998.
Conference Agreement
The conference agreement follows the Senate amendment,
except that the Treasury study is due by June 30, 1999.
C. Paperless Electronic Filing (sec. 203 of the House bill and sec.
2003 of the Senate amendment)
Present Law
Code section 6061 requires that tax forms be signed as
required by the Secretary. The IRS will not accept an
electronically filed return unless it has also received a Form
8453, which is a paper form that contains signature information
of the filer.
A return generally is considered timely filed when it is
received by the IRS on or before the due date of the return. If
the requirements of Code section 7502 are met, timely mailing
is treated as timely filing. If the return is mailed by
registered mail, the dated registration statement is prima
facie evidence of delivery.
The IRS periodically publishes a list of the forms and
schedules that may be electronically transmitted, as well as a
list of forms, schedules, and other information that cannot be
electronically filed.
House Bill
The House bill requires the Secretary to develop
procedures that would eliminate the need to file a paper form
relating to signature information. Until the procedures are in
place, the provision authorizes the Secretary to provide for
alternative methods of signing all returns, declarations,
statements, or other documents or to waive the signature
requirement. An alternative method of signature would be
treated identically, for both civil and criminal purposes, as a
signature on a paper form.
The provision also provides rules for determining when
electronic returns are deemed filed and for authorization for
return preparers to communicate with the IRS on matters
included on electronically filed returns.
The provision requires the Secretary to establish
procedures, to the extent practicable, to receive all forms
electronically for taxable periods beginning after December 31,
1998.
Effective date.--Date of enactment.
Senate Amendment
Same as the House bill, with the following exceptions.
(1) The Senate amendment deletes the provision permitting the
Secretary to waive the signature requirement. (2) The Secretary
of the Treasury must establish procedures for all tax forms,
instructions, and publications created in the most recent 5-
year period to be made available electronically on the Internet
in a searchable database not later than the date such records
are available to the public in printed form. (3) The Secretary
of the Treasury must, to the extent practicable, establish
procedures for other taxpayer guidance to be made available
electronically on the Internet in a searchable database not
later than the date such guidance is available to the public in
printed form.
Effective date.--Generally effective on the date of
enactment. The provision which relates to Internet access to
IRS forms, instructions, publications, and guidance is
effective for taxable periods beginning after December 31,
1998.
Conference Agreement
The conference agreement follows the Senate amendment,
except as follows. The Secretary is permitted to waive the
signature requirement, but only returns signed or subscribed
under alternative methods prescribed by the Secretary (not
including waiver) are entitled to be treated as though signed
or subscribed. The provision that requires the Secretary, to
the extent practicable, to receive all forms electronically
applies to taxable periods after December 31, 1999. The
provision relating to authorizing return preparers to
communicate with the IRS on matters included on electronically
filed returns is clarified.
D. Return-Free Tax System (sec. 204 of the House bill and sec. 2004 of
the Senate amendment)
Present Law
Under present law, taxpayers generally are required to
calculate their own tax liabilities and submit returns showing
their calculations.
House Bill
The provision requires the Secretary or his delegate to
study the feasibility of, and develop procedures for, the
implementation of a return-free tax system for appropriate
individuals for taxable years beginning after 2007. The
Secretary is required annually to report to the tax-writing
committees on the progress of the development of such system.
The Secretary is required to make the first report on the
development of the return-free tax system to the tax-writing
committees by June 30, 2000.
Effective date.--Date of enactment.
Senate Amendment
Same as the House bill.
Conference Agreement
The conference agreement follows the House bill and the
Senate amendment.
E. Access to Account Information (sec. 205 of the House bill and sec.
2005 of the Senate amendment)
Present Law
Taxpayers who file their returns electronically cannot
review their accounts electronically.
House Bill
The House bill requires the Secretary to develop
procedures not later than December 31, 2006, under which a
taxpayer filing returns electronically (or the taxpayer's
designee under section 6103(c)) could review the taxpayer's own
account electronically, but only if all necessary privacy
safeguards are in place by that date.
Effective date.--Date of enactment.
Senate Amendment
Same as the House bill, except that the Secretary is also
required to issue an interim progress report to the tax-writing
committees by December 31, 2003.
Effective date.--Same as the House bill.
Conference Agreement
The conference agreement follows the Senate amendment.
TITLE III. TAXPAYER PROTECTION AND RIGHTS
A. Burden of Proof (sec. 301 of the House bill and sec. 3001 of the
Senate amendment)
Present Law
Under present law, a rebuttable presumption exists that
the Commissioner's determination of tax liability is correct.
``This presumption in favor of the Commissioner is a procedural
device that requires the plaintiff to go forward with prima
facie evidence to support a finding contrary to the
Commissioner's determination. Once this procedural burden is
satisfied, the taxpayer must still carry the ultimate burden of
proof or persuasion on the merits. Thus, the plaintiff not only
has the burden of proof of establishing that the Commissioner's
determination was incorrect, but also of establishing the merit
of its claims by a preponderance of the evidence'' (Danville
Plywood Corp. v. U.S., U.S. Cl. Ct., 63 AFTR 2d 89-1036, 1043
(1989)).
The general rebuttable presumption that the
Commissioner's determination of tax liability is correct is a
fundamental element of the structure of the Internal Revenue
Code. Although this presumption is judicially based, rather
than legislatively based, there is considerable evidence that
the presumption has been repeatedly considered and approved by
the Congress. This is the case because the Internal Revenue
Code contains a number of civil provisions that explicitly
place the burden of proof on the Commissioner in specifically
designated circumstances.
House Bill
The House bill provides that the Secretary shall have the
burden of proof in any court proceeding with respect to a
factual issue if the taxpayer asserts a reasonable dispute with
respect to any such issue relevant to ascertaining the
taxpayer's income tax liability. Two conditions apply. First,
the taxpayer must fully cooperate at all times with the
Secretary (including providing, within a reasonable period of
time, access to and inspection of all witnesses, information,
and documents within the control of the taxpayer, as reasonably
requested by the Secretary).\2\ Full cooperation also includes
providing reasonable assistance to the Secretary in obtaining
access to and inspection of witnesses, information, or
documents not within the control of the taxpayer (including any
witnesses, information, or documents located in foreign
countries).\3\ A necessary element of fully cooperating with
the Secretary is that the taxpayer must exhaust his or her
administrative remedies (including any appeal rights provided
by the IRS). The taxpayer is not required to agree to extend
the statute of limitations to be considered to have fully
cooperated with the Secretary. Second, certain taxpayers must
meet the net worth limitations that apply for awarding
attorney's fees. In general, corporations, trusts, and
partnerships whose net worth exceeds $7 million are not
eligible for the benefits of the provision. The taxpayer has
the burden of proving that it meets each of these conditions,
because they are necessary prerequisites to establishing that
the burden of proof is on the Secretary.
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\2\ This requirement parallels the present-law provision relating
to reasonable verification of information returns (sec. 6201(d)).
\3\ Full cooperation also includes providing English translations,
as reasonably requested by the Secretary.
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The provision explicitly states that nothing in the
provision shall be construed to override any requirement under
the Code or regulations to substantiate any item. Accordingly,
taxpayers must meet all applicable substantiation requirements,
whether generally imposed or imposed \4\ with respect to
specific items, such as charitable contributions \5\ or meals,
entertainment, travel, and certain other expenses.\6\
Substantiation requirements include any requirement of the Code
or regulations that the taxpayer establish an item to the
satisfaction of the Secretary.\7\ Taxpayers who fail to
substantiate any item in accordance with the legal requirement
of substantiation will not have satisfied all of the legal
conditions that are prerequisite to claiming the item on the
taxpayer's tax return and will accordingly be unable to avail
themselves of this provision regarding the burden of proof.
Thus, if a taxpayer required to substantiate an item fails to
do so in the manner required (or destroys the substantiation),
this burden of proof provision is inapplicable.\8\
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\4\ See e.g., Sec. 6001 and Treas. Reg. sec. 1.6001-1 requiring
every person liable for any tax imposed by this Title to keep such
records as the Secretary may from time to time prescribe, and secs.
6038 and 6038A requiring United States persons to furnish certain
information the Secretary may prescribe with respect to foreign
businesses controlled by the U.S. person.
\5\ Sec. 170(a)(1) and (f)(8) and Treas. Reg. sec. 1.170A-13.
\6\ Sec. 274(d) and Treas. Reg. sec. 1.274(d)-1, 1.274-5T, and
1.274-5A.
\7\ For example, sec. 905(b) of the Code provides that foreign tax
credits shall be allowed only if the taxpayer establishes to the
satisfaction of the Secretary all information necessary for the
verification and computation of the credit. Instructions for meeting
that requirement are set forth in Treas. Reg. sec. 1.905-2.
\8\ If, however, the taxpayer can demonstrate that he had
maintained the required substantiation but that it was destroyed or
lost through no fault of the taxpayer, such as by fire or flood,
existing tax rules regarding reconstruction of those records would
continue to apply.
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Effective date.--The provision applies to court
proceedings arising in connection with examinations commencing
after the date of enactment.
Senate Amendment
The Senate amendment provides that the Secretary shall
have the burden of proof in any court proceeding with respect
to a factual issue if the taxpayer introduces credible evidence
with respect to the factual issue relevant to ascertaining the
taxpayer's income tax liability. Four conditions apply. First,
the taxpayer must comply with the requirements of the Internal
Revenue Code and the regulations issued thereunder to
substantiate any item (as under present law). Second, the
taxpayer must maintain records required by the Code and
regulations (as under present law). Third, the taxpayer must
cooperate with reasonable requests by the Secretary for
meetings, interviews, witnesses, information, and documents
(including providing, within a reasonable period of time,
access to and inspection of witnesses, information, and
documents within the control of the taxpayer, as reasonably
requested by the Secretary). Cooperation also includes
providing reasonable assistance to the Secretary in obtaining
access to and inspection of witnesses, information, or
documents not within the control of the taxpayer (including any
witnesses, information, or documents located in foreign
countries).\9\ A necessary element of cooperating with the
Secretary is that the taxpayer must exhaust his or her
administrative remedies (including any appeal rights provided
by the IRS). The taxpayer is not required to agree to extend
the statute of limitations to be considered to have cooperated
with the Secretary. Cooperating also means that the taxpayer
must establish the applicability of any privilege. Fourth,
taxpayers other than individuals must meet the net worth
limitations that apply for awarding attorney's fees
(accordingly, no net worth limitation would be applicable to
individuals). Corporations, trusts, and partnerships whose net
worth exceeds $7 million are not eligible for the benefits of
the provision. The taxpayer has the burden of proving that it
meets each of these conditions, because they are necessary
prerequisites to establishing that the burden of proof is on
the Secretary.
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\9\ Cooperation also includes providing English translations, as
reasonably requested by the Secretary.
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In the case of court proceedings arising in connection
with examinations commencing six months after the date of
enactment and before June 1, 2001, the provision applies to any
tax liability of the taxpayer.
The burden will shift to the Secretary under this
provision only if the taxpayer first introduces credible
evidence with respect to a factual issue relevant to
ascertaining the taxpayer's income tax liability. Credible
evidence is the quality of evidence which, after critical
analysis, the court would find sufficient upon which to base a
decision on the issue if no contrary evidence were submitted
(without regard to the judicial presumption of IRS
correctness). A taxpayer has not produced credible evidence for
these purposes if the taxpayer merely makes implausible factual
assertions, frivolous claims, or tax protestor-type arguments.
The introduction of evidence will not meet this standard if the
court is not convinced that it is worthy of belief. If after
evidence from both sides, the court believes that the evidence
is equally balanced, the court shall find that the Secretary
has not sustained his burden of proof.
Nothing in the provision shall be construed to override
any requirement under the Code or regulations to substantiate
any item. Accordingly, taxpayers must meet applicable
substantiation requirements, whether generally imposed \10\ or
imposed with respect to specific items, such as charitable
contributions \11\ or meals, entertainment, travel, and certain
other expenses.\12\ Substantiation requirements include any
requirement of the Code or regulations that the taxpayer
establish an item to the satisfaction of the Secretary.\13\
Taxpayers who fail to substantiate any item in accordance with
the legal requirement of substantiation will not have satisfied
the legal conditions that are prerequisite to claiming the item
on the taxpayer's tax return and will accordingly be unable to
avail themselves of this provision regarding the burden of
proof. Thus, if a taxpayer required to substantiate an item
fails to do so in the manner required (or destroys the
substantiation), this burden of proof provision is
inapplicable.\14\
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\10\ See e.g., Sec. 6001 and Treas. Reg. sec. 1.6001-1 requiring
every person liable for any tax imposed by this Title to keep such
records as the Secretary may from time to time prescribe, and secs.
6038 and 6038A requiring United States persons to furnish certain
information the Secretary may prescribe with respect to foreign
businesses controlled by the U.S. person.
\11\ Sec. 170(a)(1) and (f)(8) and Treas. Reg. sec. 1.170A-13.
\12\ See e.g. Sec. 274(d) and Treas. Reg. sec. 1.274(d)-1, 1.274-
5T, and 1.274-5A.
\13\ For example, sec. 905(b) of the Code provides that foreign tax
credits shall be allowed only if the taxpayer establishes to the
satisfaction of the Secretary all information necessary for the
verification and computation of the credit. Instructions for meeting
that requirement are set forth in Treas. Reg. sec. 1.905-2.
\14\ If, however, the taxpayer can demonstrate that he had
maintained the required substantiation but that it was destroyed or
lost through no fault of the taxpayer, such as by fire or flood,
existing tax rules regarding reconstruction of those records would
continue to apply.
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In the case of an individual taxpayer, the Secretary
shall have the burden of proof in any court proceeding with
respect to any item of income which was reconstructed by the
Secretary solely through the use of statistical information on
unrelated taxpayers.
Further, the provision provides that, in any court
proceeding, the Secretary must initially come forward with
evidence that it is appropriate to apply a particular penalty
to the taxpayer before the court can impose the penalty. This
provision is not intended to require the Secretary to introduce
evidence of elements such as reasonable cause or substantial
authority. Rather, the Secretary must come forward initially
with evidence regarding the appropriateness of applying a
particular penalty to the taxpayer; if the taxpayer believes
that, because of reasonable cause, substantial authority, or a
similar provision, it is inappropriate to impose the penalty,
it is the taxpayer's responsibility (and not the Secretary's
obligation) to raise those issues.
Effective date.--The provision applies to court
proceedings arising in connection with examinations commencing
after the date of enactment.
Conference Agreement
The conference agreement follows the Senate amendment,
except as follows. The provision applies to income,\15\ estate,
gift, and generation-skipping transfer taxes, permanently
(i.e., without the June 1, 2001 termination of some taxes as
under the Senate amendment). The effective date is clarified by
adding that in any case in which there is no examination, the
provision applies to court proceedings arising in connection
with taxable periods or events beginning or occurring after the
date of enactment. An audit is not the only event that would be
considered an examination for purposes of this provision. For
example, the matching of an information return against amounts
reported on a tax return is intended to be an examination for
purposes of this provision. Similarly, the review of a claim
for refund prior to issuing that refund is also intended to be
an examination for purposes of this provision.
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\15\ For this purpose, self-employment taxes are treated as income
taxes.
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B. Proceedings by Taxpayers
1. Expansion of authority to award costs and certain fees (sec. 311 of
the House bill and sec. 3101 of the Senate amendment)
Present Law
Any person who substantially prevails in any action by or
against the United States in connection with the determination,
collection, or refund of any tax, interest, or penalty may be
awarded reasonable administrative costs incurred before the IRS
and reasonable litigation costs incurred in connection with any
court proceeding. Reasonable administrative costs are defined
as (1) any administrative fees or similar charges imposed by
the IRS and (2) expenses, costs and fees related to attorneys,
expert witnesses, and studies or analyses necessary for
preparation of the case, to the extent that such costs are
incurred before the earlier of the date of the notice of
decision by IRS Appeals or the notice of deficiency. Net worth
limitations apply.
Reasonable litigation costs include reasonable fees paid
or incurred for the services of attorneys, except that the
attorney's fees will not be reimbursed at a rate in excess of
$110 per hour (indexed for inflation) unless the court
determines that a special factor, such as the limited
availability of qualified attorneys for the proceeding,
justifies a higher rate.
Rule 68 of the Federal Rules of Civil Procedure (FRCP)
provides a procedure under which a party may recover costs if
the party's offer for judgment was rejected and the subsequent
court judgment was less favorable to the opposing party than
the offer. The offering party's costs are limited to the costs
(excluding attorney's fees) incurred after the offer was made.
The FRCP generally apply to tax litigation in the district
courts and the United States Court of Federal Claims.
Code section 7431 permits the award of civil damages for
unauthorized inspection or disclosure of return information.
The Federal appellate courts are split over whether a party who
substantially prevails over the United States in an action
under Code section 7431 is eligible for an award of fees and
reasonable costs.
House Bill
The House bill:
(1) Moves the point in time after which reasonable
administrative costs can be awarded to the date on
which the first letter of proposed deficiency that
allows the taxpayer an opportunity for administrative
review in the IRS Office of Appeals is sent;
(2) Provides that the difficulty of the issues
presented on the unavailability of local tax expertise
can be used to justify an award of attorney's fees of
more than the statutory limit of $110 per hour;
(3) Permits the award of reasonable attorney's fees
to specified persons who represent for no more than a
nominal fee a taxpayer who is a prevailing party; and
(4) Provides that in determining whether the
position of the United States was substantially
justified, the court shall take into account whether
the United States has lost in other courts of appeal on
substantially similar issues.
Effective date.--Costs incurred and services performed
more than 180 days after the date of enactment.
Senate Amendment
The Senate amendment:
(1) Is the same as the House bill;
(2) Permits awards of reasonable attorney's fees by
deleting the hourly rate caps (and the exceptions to
those caps);
(3) Is the same as the House bill; and
(4) Is the same as the House bill.
In addition, the Senate amendment:
(5) Provides that if a taxpayer makes an offer
after the taxpayer has a right toadministrative review
in the IRS Office of Appeals, the IRS rejects the offer, and later the
IRS obtains a judgment against the taxpayer in an amount that is equal
to or less than the taxpayer's offer for the amount of the tax
liability (excluding interest), reasonable costs and attorney's fees
from the date of the offer would be awarded; and
(6) Clarifies that the award of attorney's fees is
permitted in actions for civil damages for unauthorized
inspection or disclosure of taxpayer returns and return
information.
Effective date.--Same as the House bill.
Conference Agreement
The conference agreement follows the Senate amendment,
except that the conference agreement follows the House bill
with respect to the hourly rate caps, with the following
modification. The hourly rate is raised to $125 per hour, which
parallels the rate utilized under the Equal Access to Justice
Act (the statute that authorizes the awarding of attorney's
fees in non-tax Federal cases). This new cap will continue to
be indexed for inflation (as under present law). With respect
to the award of attorney's fees in unauthorized inspection and
disclosure cases, the conferees wish to clarify that fees are
payable by the United States only when the United States is the
defendant and the plaintiff is a prevailing party. Also,
individual defendants (such as State employees or contractors)
may be liable for attorneys' fees and costs in cases where the
United States is not a party, whenever they are found to have
made a wrongful disclosure.
2. Civil damages for collection actions (sec. 312 of the House bill and
sec. 3102 of the Senate amendment)
Present Law
A taxpayer may sue the United States for up to $1 million
of civil damages caused by an officer or employee of the IRS
who recklessly or intentionally disregards provisions of the
Internal Revenue Code or Treasury regulations in connection
with the collection of Federal tax with respect to the
taxpayer.
House Bill
The House bill permits up to $100,000 in civil damages
caused by an officer or employee of the IRS who negligently
disregards provisions of the Internal Revenue Code or Treasury
regulations in connection with the collection of Federal tax
with respect to the taxpayer.
Effective date.--Actions of officers or employees of the
IRS occurring after the date of enactment.
Senate Amendment
Same as the House bill, except that the provision also
permits up to $1 million in civil damages caused by an officer
or employee of the IRS who willfully violates provisions of the
Bankruptcy Code relating to automatic stays or discharges. The
provision also provides that persons other than the taxpayer
may sue for civil damages for unauthorized collection actions.
Effective date.--Same as the House bill.
Conference Agreement
The conference agreement follows the Senate amendment.
3. Increase in size of cases permitted on small case calendar (sec. 313
of the House bill and sec. 3103 of the Senate amendment)
Present Law
Taxpayers may choose to contest many tax disputes in the
Tax Court. Special small case procedures apply to disputes
involving $10,000 or less, if the taxpayer chooses to utilize
these procedures (and the Tax Court concurs). The IRS cannot
require the taxpayer to use the small case procedures. The Tax
Court generally concurs with the taxpayer's request to use the
small case procedures, unless it decides that the case involves
an issue that should be heard under the normal procedures.
After the case has commenced, the Tax Court may order that the
small case procedures should be discontinued only if (1) there
is reason to believe that the amount in controversy will exceed
$10,000 or (2) justice would require the change in procedure.
House Bill
The House bill increases the cap for small case treatment
from $10,000 to $25,000.
Effective date.--Proceedings commenced after the date of
enactment.
Senate Amendment
The Senate amendment increases the cap for small case
treatment from $10,000 to $50,000.
Effective date.--Same as the House bill.
Conference Agreement
The conference agreement follows the Senate amendment.
The conferees recognize thatan increase of this size may
encompass a small number of cases of significant precedential value.
Accordingly, the conferees anticipate that the Tax Court will carefully
consider (1) IRS objections to small case treatment, such as objections
based upon the potential precedential value of the case, as well as (2)
the financial impact on the taxpayer, including additional legal fees
and costs, of not utilizing small case treatment.
4. Expansion of Tax Court jurisdiction to responsible person penalties
(sec. 3104 of the Senate amendment)
Present Law
In general, employers are required to withhold income
taxes and social security taxes from their employee's wages.
These withheld taxes constitute a trust in favor of the United
States from the time that the employer deducts them from the
employee's wages, and the employer is liable to the government
for the payment of such taxes. All persons considered
responsible for the withholding and payment of taxes are
subject to a penalty equal to the amount of taxes due where the
employer fails to turn over such funds to the government (the
``responsible person'' penalty, also known as the ``100
percent'' penalty). Generally, the determination of whether a
person is a ``responsible person'' is a question of the
person's status, duty, and authority in the context of the
business which has failed to collect and pay over taxes
required to be withheld. A responsible person penalty may also
be imposed on a payroll lender.
The Tax Court has no jurisdiction over the determination
of the correctness of the assessment of the responsible person
penalty. Accordingly, as the Tax Court is the only pre-payment
forum for the determination of tax liability, the imposition of
the responsible person penalty can only be challenged in a
refund suit in the appropriate district court or the U.S. Court
of Federal Claims after payment of such penalty. The
responsible person penalty is a divisible tax. Thus, unlike a
refund suit for income taxes, a responsible person need not pay
the full amount of the assessment to invoke the jurisdiction of
the district court or the U.S. Court of Federal Claims.
Instead, the alleged responsible person may commence a refund
suit after payment of the portion of the penalty attributable
to one employee for one quarter.
House Bill
No provision.
Senate Amendment
The Senate amendment provides Tax Court jurisdiction over
the ``responsible person'' penalty. Accordingly, the
responsible person does not have to make a payment before
challenging the imposition of the penalty.
Effective date.--Penalties imposed after the date of
enactment.
Conference Agreement
The conference agreement does not include the Senate
amendment.
5. Actions for refund with respect to certain estates which have
elected the installment method of payment (sec. 371 of the
House bill and 3105 of the Senate amendment)
Present Law
In general, the U.S. Court of Federal Claims and the U.S.
district courts have jurisdiction over suits for the refund of
taxes, as long as full payment of the assessed tax liability
has been made. Under Code section 6166, if certain conditions
are met, the executor of a decedent's estate may elect to pay
the estate tax attributable to certain closely-held businesses
over a 14-year period. Courts have held that U.S. district
courts and the U.S. Court of Federal Claims do not have
jurisdiction over claims for refunds by taxpayers deferring
estate tax payments pursuant to section 6166 unless the entire
estate tax liability has been paid. Under section 7479, the
U.S. Tax Court has limited authority to provide declaratory
judgments regarding initial or continuing eligibility for
deferral under section 6166.
House Bill
The House bill grants the U.S. Court of Federal Claims
and the U.S. district courts jurisdiction to determine the
correct amount of estate tax liability (or refund) in actions
brought by taxpayers deferring estate tax payments under
section 6166, as long as certain conditions are met. In order
to qualify for the provision: (1) the estate must have made an
election pursuant to section 6166; (2) the estate must have
fully paid each installment of principal and/or interest due
(and all non-6166-related estate taxes due) before the date the
suit is filed; (3) no portion of the payments due may have been
accelerated; (4) there must be no suits for declaratory
judgment pursuant to section 7479 pending; and (5) there must
be no outstanding deficiency notices against the estate. In
general, to the extent that a taxpayer has previously litigated
its estate tax liability, the taxpayer would not be able to
take advantage of this procedure under principles of res
judicata. Taxpayers are not relieved of the liability to make
any installment payments that become due during the pendency of
the suit (i.e., failure to make such payments would subject the
taxpayer to the existing provisions of section 6166(g)(3)).
The House bill further provides that once a final
judgment has been entered by a district court or the U.S. Court
of Federal Claims, the IRS is not permitted to collect any
amount disallowed by the court, and any amounts paid by the
taxpayer in excess of the amount the court finds to be
currently due and payable are refunded to the taxpayer, with
interest. Lastly, the provision provides that the two-year
statute of limitations for filing a refund action is suspended
during the pendency of any action brought by a taxpayer
pursuant to section 7479 for a declaratory judgment as to an
estate's eligibility for section 6166.
Effective date.--Claims for refunds filed after the date
of enactment.
Senate Amendment
Generally same as the House bill, with technical
modifications.
Effective date.--Same as the House bill.
Conference Agreement
The conference agreement follows the Senate amendment.
6. Tax Court jurisdiction to review an adverse IRS determination of a
bond issue's tax-exempt status (sec. 3106 of the Senate
amendment)
Present Law
Interest on debt incurred by States or local governments
generally is excluded from gross income if the proceeds of the
borrowing are used to carry out governmental functions of those
entities and the debt is repaid with governmental funds.
A State or local government that seeks to issue bonds,
the interest on which is intended to be excludable from gross
income, can request a ruling from the IRS regarding the
eligibility of such bonds for tax-exemption. The prospective
issuer can challenge the IRS's determination (or failure to
make a timely determination) in a declaratory judgment
proceeding in the Tax Court. Because bondholders, not issuers,
are the parties whose tax liability is affected, issuers are
not allowed to litigate the tax-exempt status of the bonds
directly after the bonds are issued.
House Bill
No provision.
Senate Amendment
The Senate amendment expands the declaratory judgment
procedures currently applicable to prospective bond issuers to
allow issuers to litigate in the Tax Court issues related to
the tax-exempt status of outstanding bonds. In such cases, the
issuer must provide adequate notice to outstanding bondholders,
and the bondholders are authorized to intervene in court
proceedings brought under this provision. The statute of
limitations on assessment and collection of the tax liability
of the bondholders is suspended during the pendency of the
proceeding.
Effective date.--Determinations of tax-exempt status made
after the date of enactment. In the case of a determination
under a technical advice memorandum the public release of which
occurred within one year of the date of enactment, a pleading
may be filed not later than 90 days after the date of
enactment.
Conference Agreement
In lieu of the Senate amendment provision, the conference
agreement directs the Internal Revenue Service to modify its
administrative procedures to allow tax-exempt bond issuers
examined by the IRS to appeal adverse examination
determinations to the Appeals Division of the IRS as a matter
of right. Because of the complexity of the issues involved, the
IRS is directed to provide that these appeals will be heard by
senior appeals officers having experience in resolving complex
cases.
The conferees further express their intent that Congress
will evaluate judicial remedies in future legislation once the
IRS's tax-exempt bond examination program has developed more
fully and the Congress is better able to ensure that any such
future measure protects all parties in interest to these
determinations (i.e., issuers, bondholders, conduit borrowers,
and the Federal Government).
Effective date.--The direction to the IRS is effective on
the date of enactment.
7. Civil action for release of erroneous lien (sec. 3107 of the Senate
amendment)
Present Law
Prior to 1995, the provisions governing jurisdiction over
refund suits had generally been interpreted to apply only if an
action was brought by the taxpayer against whom tax was
assessed. Remedies for third parties from whom tax was
collected (rather than assessed) were found in other provisions
of the Internal Revenue Code. The Supreme Court has held that a
third party who paid another person's tax under protest to
remove a lien on the third party's property could bring a
refund suit, because she had no other adequate administrative
or judicial remedy. The Supreme Court held that parties who are
forced to pay another's tax under duress could bring a refund
suit, because no other judicial remedy was adequate.
House Bill
No provision.
Senate Amendment
The Senate amendment creates an administrative procedure
permitting a record owner of property against which a Federal
tax lien has been filed to obtain a certificate of discharge of
property from the lien as a matter of right. The third party is
required to apply to the Secretary of the Treasury for such a
certificate and either to deposit cash or to furnish a bond
sufficient toprotect the lien interest of the United States.
The Senate amendment also establishes a judicial cause of
action for third parties challenging a lien. The period within
which such an action must be commenced is 120 days after the
date the certificate of discharge is issued to ensure an early
resolution of the parties' interests.
Effective date.--Date of enactment.
Conference Agreement
The conference agreement follows the Senate amendment.
C. Relief for Innocent Spouses and for Taxpayers Unable to Manage Their
Financial Affairs Due to Disabilities
1. Relief for innocent spouses (sec. 321 of the House bill and sec.
3201 of the Senate amendment)
Present Law
Under present law, relief from liability for tax,
interest and penalties is available for ``innocent spouses'' in
certain circumstances. To qualify for such relief, the innocent
spouse must establish: (1) that a joint return was made; (2)
that an understatement of tax, which exceeds the greater of
$500 or a specified percentage of the innocent spouse's
adjusted gross income for the preadjustment (most recent) year,
is attributable to a grossly erroneous item of the other
spouse; (3) that in signing the return, the innocent spouse did
not know, and had no reason to know, that there was an
understatement of tax; and (4) that taking into account all the
facts and circumstances, it is inequitable to hold the innocent
spouse liable for the deficiency in tax. The specified
percentage of adjusted gross income is 10 percent if adjusted
gross income is $20,000 or less. Otherwise, the specified
percentage is 25 percent.
The proper forum for contesting the Secretary's denial of
innocent spouse relief is determined by whether an underpayment
is asserted or the taxpayer is seeking a refund of overpaid
taxes. Accordingly, the Tax Court may not have jurisdiction to
review all denials of innocent spouse relief.
House Bill
The House bill generally makes innocent spouse status
easier to obtain. The bill eliminates all of the understatement
thresholds and requires only that the understatement of tax be
attributable to an erroneous (and not just a grossly erroneous)
item of the other spouse.
The House bill provides that innocent spouse relief may
be provided on an apportioned basis. A spouse may be relieved
of liability for the portion of an understatement of tax even
if the spouse knew or had reason to know of other
understatements of tax on the same return.
The House bill specifically provides that the Tax Court
has jurisdiction to review any denial of innocent spouse
relief. Except for termination and jeopardy assessments, the
Secretary may not levy or proceed in court to collect any tax
from a taxpayer claiming innocent spouse status with regard to
such tax until the expiration of the 90-day period in which
such taxpayer may petition the Tax Court or, if the Tax Court
considers such petition, before the decision of the Tax Court
has become final. The running of the statute of limitations is
suspended in such situations with respect to the spouse
claiming innocent spouse status.
The House bill requires the Secretary of the Treasury to
develop a separate form with instructions for taxpayers to use
in applying for innocent spouse relief within 180 days from the
date of enactment. An innocent spouse seeking relief under this
provision must claim innocent spouse status with regard to any
assessment not later than two years after the date of such
assessment.
Effective date.--Understatements with respect to taxable
years beginning after the date of enactment.
Senate Amendment
In general
The Senate amendment modifies the innocent spouse
provisions to permit a spouse to elect to limit his or her
liability for unpaid taxes on a joint return to the spouse's
separate liability amount. In the case of a deficiency arising
from a joint return, a spouse could elect to be liable only to
the extent that items giving rise to the deficiency are
allocable to the spouse. The separate liability election also
applies in situations where the tax shown on a joint return is
not paid with the return. In this case, the amount determined
under the separate liability election equals the amount that
would have been reported by the electing spouse on a separate
return. However, if any item of credit or deduction would be
disallowed solely because a separate return is filed, the item
of credit or deduction will be computed without regard to such
prohibition. Special rules apply to prevent the inappropriate
use of the election. The separate liability election may not be
used to create a refund, or to direct a refund to a particular
spouse.
Items are generally allocated between spouses in the same
manner as they would have been allocated had the spouses filed
separate returns. The Secretary may prescribe other methods of
allocation by regulation. The allocation of items is to be
accomplished without regard to community property laws.
The election applies to all unpaid taxes under subtitle A
of the Internal Revenue Code, including the income tax and the
self-employment tax. The election may be made at any time
notlater than 2 years after collection activities begin with respect to
the electing spouse. It is intended that the 2 year period not begin
until collection activities have been undertaken against the electing
spouse that have the effect of giving the spouse notice of the IRS'
intention to collect the joint liability from such spouse. For example,
garnishment of wages or a notice of intent to levy against the property
of the electing spouse would constitute collection activity against the
electing spouse. The mailing of a notice of deficiency and demand for
payment to the last known address of the electing spouse, addressed to
both spouses, would not.
The Tax Court has jurisdiction of disputes arising from
the separate liability election. For example, a spouse who
makes the separate liability election may petition the Tax
Court to determine the limits on liability applicable under
this provision. The Tax Court is authorized to establish rules
that would allow the Secretary of the Treasury and the electing
spouse to require, with adequate notice, the other spouse to
become a party to any proceeding before the Tax Court. The
Secretary of the Treasury is required to develop a separate
form with instructions for taxpayers to use in electing to
limit liability.
The Internal Revenue Service is required to notify all
taxpayers who have filed joint returns of their rights to elect
to limit their joint and several liability under this
provision. It is expected that notice will appear in
appropriate IRS publications, including IRS Publication 1, and
in collection related notices sent to taxpayers. In addition,
the Internal Revenue Service should, whenever practicable, send
appropriate notifications separately to each spouses.
Effective date
The Senate amendment applies to any liability for tax
arising after the date of enactment and any liability for tax
arising on or before such date, but remaining unpaid as of such
date.
The period in which an election may be made under the
provision will not expire before the later of the date that is
2 years after the date of enactment or 2 years after the date
of the first collection action that has the effect of giving
the spouse notice of the IRS' intention to collect the joint
liability from the spouse is undertaken after the date of
enactment. This rule does not extend the statute of
limitations.
An individual may elect under the provision without
regard to whether such individual has previously been denied
innocent spouse relief under present law.
Conference Agreement
In general
The conference agreement follows the Senate amendment
with respect to deficiencies of a taxpayer who is no longer
married to, is legally separated from, or has been living apart
for at least 12 months from the person with whom the taxpayer
originally filed the joint return. The conference agreement
also includes the provision in the House bill expanding the
circumstances in which innocent spouse relief is available.
Taxpayers, whether or not eligible to make the separate
liability election, may be granted innocent spouse relief where
appropriate. In addition, the conference agreement authorizes
the Secretary to provide equitable relief in appropriate
situations. The conference agreement follows the House bill and
the Senate amendment in establishing jurisdiction in the Tax
Court over disputes arising in this area.
Deficiencies of certain taxpayers
The conference agreement follows the Senate amendment
with respect to deficiencies of a taxpayer who, at the time of
election, is no longer married \16\ to, is legally separated
from, or has been living apart for at least 12 months from the
person with whom the taxpayer originally filed the joint
return. Such taxpayers may elect to limit their liability for
any deficiency limited to the portion of the deficiency that is
attributable to items allocable to the taxpayer.
---------------------------------------------------------------------------
\16\ For the purpose of this rule, a taxpayer is no longer married
if he or she is widowed.
---------------------------------------------------------------------------
For example, a deficiency is assessed after IRS audit of
a joint return. The deficiency relates to income earned by the
husband that was not reported on the return. If the spouses who
joined in the return are no longer married, are legally
separated, or have lived apart for at least 12 months, either
may elect limited liability under this provision. If the wife
elects, she would owe none of the deficiency. The deficiency
would be the sole responsibility of the husband whose income
gave rise to the deficiency.
If the deficiency relates to the items of both spouses,
the separate liability for the deficiency is allocated between
the spouses in the same proportion as the net items taken into
account in determining the deficiency. For example, a
deficiency is assessed that is attributable to $70,000 of
unreported income allocable to the husband and the disallowance
of a $30,000 miscellaneous itemized deduction allocable to the
wife. If the spouses who joined in the return are no longer
married, are legally separated, or have lived apart for at
least 12 months, either may elect limited liability under this
provision. If either the husband and wife elect, the husband's
liability would be limited to 70 percent of the deficiency (if
he elects) and the wife's liability limited to 30 percent (if
she elects). This would be the case even if a portion of the
miscellaneous itemized deductions had been disallowed under
section 67(a). The election is required in order to limit
liability. If either spouse fails to elect, that spouse would
be liable for the full amount of the deficiency, unless reduced
by innocent spouse relief or pursuant to the grant of authority
to the Secretary to provide equitable relief.
If the deficiency arises as a result of the denial of an
item of deduction or credit, the amount of the deficiency
allocated to the spouse to whom the item of deduction or credit
is allocated is limited to the amount of income or tax
allocated to such spouse that was offset by the deduction or
credit. The remainder of the liability is allocated to the
other spouse to reflect the fact that income or tax allocated
to that spouse was originally offset by a portion of the
disallowed deduction or credit.
For example, a married couple files a joint return with
wage income of $100,000 allocable to the wife and $30,000 of
self employment income allocable to the husband. On
examination, a $20,000 deduction allocated to the husband is
disallowed, resulting in a deficiency of $5,600. Under the
provision, the liability is allocated in proportion to the
items giving rise to the deficiency. Since the only item giving
rise to the deficiency is allocable to the husband, and because
he reported sufficient income to offset the item of deduction,
the entire deficiency is allocated to the husband and the wife
has no liability with regard to the deficiency, regardless of
the ability of the IRS to collect the deficiency from the
husband.
If the joint return had shown only $15,000 (instead of
$30,000) of self employment income for the husband, the income
offset limitation rule discussed above would apply. In this
case, the disallowed $20,000 deduction entirely offsets the
$15,000 of income of the husband, and $5,000 remains. This
remaining $5,000 of the disallowed deduction offsets income of
the wife. The liability for the deficiency is therefore divided
in proportion to the amount of income offset for each spouse.
In this example, the husband is liable for \3/4\ of the
deficiency ($4,200), and the wife is liable for the remaining
\1/4\ ($1,400).
Where a deficiency is attributable to the disallowance of
a credit, or to any tax other than regular or alternative
minimum income tax, the portion of the deficiency attributable
to such credit or other tax is considered first. For example,
on examination a deficiency of $10,000 ($2,800 of self-
employment tax and $7,200 of income tax) is determined to be
attributable to $20,000 of unreported self-employment income of
the husband and a disallowed itemized deduction of $5,000
allocable to the wife. The $2,800 of deficient self-employment
taxes is first allocated to the husband, and the remaining
$7,200 of income tax deficiency is allocated 80 percent to the
husband and 20 percent to the wife.
The special rules included in the Senate bill to prevent
the inappropriate use of the election are included in the
conference agreement.
First, if the IRS demonstrates that assets were
transferred between the spouses in a fraudulent scheme joined
in by both spouses, neither spouse is eligible to make the
election under the provision (and consequently joint and
several liability applies to both spouses).
Second, if the IRS proves that the electing spouse had
actual knowledge that an item on a return is incorrect, the
election will not apply to the extent any deficiency is
attributable to such item. Such actual knowledge must be
established by the evidence and shall not be inferred based on
indications that the electing spouse had a reason to know.
The rule that the election will not apply to the extent
any deficiency is attributable to an item the electing spouse
had actual knowledge of is expected to be applied by treating
the item as fully allocable to both spouses. For example a
married couple files a joint return with wage income of
$150,000 allocable to the wife and $30,000 of self employment
income allocable to the husband. On examination, an additional
$20,000 of the husband's self-employment income is discovered,
resulting in a deficiency of $9,000. The IRS proves that the
wife had actual knowledge that $5,000 of this additional self-
employment income, but had no knowledge of the remaining
$15,000. In this case, the husband would be liable for the full
amount of the deficiency, since the item giving rise to the
deficiency is fully allocable to him. In addition, the wife
would be liable for the amount that would have been calculated
as the deficiency based on the $5,000 of unreported income of
which she had actual knowledge. The IRS would be allowed to
collect that amount from either spouse, while the remainder of
the deficiency could be collected from only the husband.
Third, the portion of the deficiency for which the
electing spouse is liable is increased by the value of any
disqualified assets received from the other spouse.
Disqualified assets include any property or right to property
that was transferred to an electing spouse if the principle
purpose of the transfer is the avoidance of tax (including the
avoidance of payment of tax). A rebuttable presumption exists
that a transfer is made for tax avoidance purposes if the
transfer was made less than one year before the earlier of the
payment due date or the date of the notice of proposed
deficiency. The rebuttable presumption does not apply to
transfers pursuant to a decree of divorce or separate
maintenance. The presumption may be rebutted by a showing that
the principal purpose of the transfer was not the avoidance of
tax or the payment of tax.
Other deficiencies
The conference agreement also includes the provision in
the House bill modifying innocent spouse relief. Taxpayers who
do not make the separate liability election may be eligible for
innocent spouse relief. For example, a taxpayer may be
ineligible to make the separate liability election for a
deficiency because he or she is not widowed, divorced, legally
separated, or living apart (for at least 12 months) from the
person with whom the taxpayer originally joined in filing the
joint return. Such a taxpayer may apply for relief of any
deficiency that is attributable to an erroneous item of the
other spouse, provided he or she did not know or have reason to
know of the understatement of tax and it would be inequitable
to hold the taxpayer responsible for the deficiency. The
election is required to be made no later than the date that is
two years after the Secretary has begun collection actions with
respect to the individual. The rule in the House bill allowing
innocent spouse relief to be provided on an apportioned basis
is included in the conference agreement.
Other circumstances, including tax shown on a return but not paid
The conference agreement does not include the portion of
the Senate amendment that could provide relief in situations
where tax was shown on a joint return, but not paid with the
return. The conferees intend that the Secretary will consider
using the grant of authority to provide equitable relief in
appropriate situations to avoid the inequitable treatment of
spouses in such situations. For example, the conferees intend
that equitable relief be available to a spousethat does not
know, and had no reason to know, that funds intended for the payment of
tax were instead taken by the other spouse for such other spouse's
benefit.
The conferees do not intend to limit the use of the
Secretary's authority to provide equitable relief to situations
where tax is shown on a return but not paid. The conferees
intend that such authority be used where, taking into account
all the facts and circumstances, it is inequitable to hold an
individual liable for all or part of any unpaid tax or
deficiency arising from a joint return. The conferees intend
that relief be available where there is both an understatement
and an underpayment of tax.
Procedural rules
The conference agreement follows the House bill and the
Senate amendment with respect to procedural rules, including
the jurisdiction of the Tax Court to review matters relating to
this provision. The conference agreement also follows the
Senate amendment in requiring the IRS to notify taxpayers of
their rights under this provision, and, whenever practicable,
to send notifications separately to each spouse.
Effective date
The conference agreement follows the Senate amendment.
The separate liability election, expanded innocent spouse
relief and authority to provide equitable relief all apply to
liabilities for tax arising after the date of enactment, as
well as any liability for tax arising on or before the date of
enactment that remains unpaid on the date of enactment. The
applicable 2-year election periods do not expire before the
date that is two years after the first collection activity
taken by the IRS after the date of enactment. The Secretary is
required to develop a separate form for electing innocent
spouse relief within 180 days after the date of enactment.
2. Suspension of statute of limitations on filing refund claims during
periods of disability (sec. 322 of the House bill and sec. 3202
of the Senate amendment)
Present Law
In general, a taxpayer must file a refund claim within
three years of the filing of the return or within two years of
the payment of the tax, whichever period expires later (if no
return is filed, the two-year limit applies) (sec. 6511(a)). A
refund claim that is not filed within these time periods is
rejected as untimely.
There is no explicit statutory rule providing for
equitable tolling of the statute of limitations. The U.S.
Supreme Court has held that Congress did not intend the
equitable tolling doctrine to apply to the statutory
limitations of section 6511 on the filing of tax refund claims.
House Bill
The House bill permits equitable tolling of the statute
of limitations for refund claims of an individual taxpayer
during any period of the individual's life in which he or she
is unable to manage his or her financial affairs by reason of a
medically determinable physical or mental impairment that can
be expected to result in death or to last for a continuous
period of not less than 12 months. Tolling does not apply
during periods in which the taxpayer's spouse or another person
is authorized to act on the taxpayer's behalf in financial
matters.
Effective date.--The provision applies to periods of
disability before, on, or after the date of enactment but does
not apply to any claim for refund or credit that (without
regard to the provision) is barred by the operation of any law,
including the statute of limitations, as of January 1, 1998.
Senate Amendment
Same as the House bill.
Conference Agreement
The conference agreement follows the House bill and the
Senate amendment.
Effective date.--The provision applies to periods of
disability before, on, or after the date of enactment but does
not apply to any claim for refund or credit that (without
regard to the provision) is barred by the operation of any law,
including the statute of limitations, as of the date of
enactment.
D. Provisions Relating to Interest and Penalties
1. Elimination of interest differential on overlapping periods of
interest on income tax overpayments and underpayments (sec. 331
of the House bill and sec. 3301 of the Senate amendment)
Present Law
A taxpayer that underpays its taxes is required to pay
interest on the underpayment at a rate equal to the Federal
short term interest rate plus three percentage points. A
special ``hot interest'' rate equal to the Federal short term
interest rate plus five percentage points applies in the case
of certain large corporate underpayments.
A taxpayer that overpays its taxes receives interest on
the overpayment at a rate equal to the Federal short term
interest rate plus two percentage points. In the case of
corporate overpayments in excess of $10,000, this is reduced to
the Federal short term interest rate plus one-half of a
percentage point.
If a taxpayer has an underpayment of tax from one year
and an overpayment of tax from a different year that are
outstanding at the same time, the IRS will typically offset the
overpayment against the underpayment and apply the appropriate
interest to the resulting net underpayment or overpayment.
However, if either the underpayment or overpayment has been
satisfied, the IRS will not typically offset the two amounts,
but rather will assess or credit interest on the full
underpayment or overpayment at the underpayment or overpayment
rate. This has the effect of assessing the underpayment at the
higher underpayment rate and crediting the overpayment at the
lower overpayment rate. This results in the taxpayer being
assessed a net interest charge, even if the amounts of the
overpayment and underpayment are the same.
The Secretary has the authority to credit the amount of
any overpayment against any liability under the Code. Congress
has previously directed the Internal Revenue Service to
implement procedures for ``netting'' overpayments and
underpayments to the extent a portion of tax due is satisfied
by a credit of an overpayment.
House Bill
The House bill establishes a net interest rate of zero
where interest is payable and allowable on equivalent amounts
of overpayment and underpayment of income tax that exist for
any period. Each overpayment and underpayment is considered
only once in determining whether equivalent amounts of
overpayment and underpayment exist. The special rules that
increase the interest rate paid on large corporate
underpayments and decrease the interest rate received on
corporate underpayments in excess of $10,000 do not prevent the
application of the net zero rate. The provision applies to
income taxes and self-employment taxes.
Effective date.--Interest for calendar quarters beginning
after the date of enactment.
Senate Amendment
Generally same as the House bill, except that the Senate
amendment applies where interest is payable and allowable on
equivalent amounts of overpayment and underpayment of any taxes
imposed by Title 26 (the Internal Revenue Code), and not only
income taxes.
Effective date.--Same as the House bill. In addition, the
provision applies to interest for periods beginning before the
date of enactment if: (1) the statute of limitations has not
expired with respect to either the underpayment or overpayment;
(2) the taxpayer identifies the periods of underpayment and
overpayment for which the zero rate applies; and (3) on or
before December 31, 1999, the taxpayer asks the Secretary to
apply the zero rate.
Conference Agreement
The conference agreement follows the Senate amendment. It
is anticipated that the Secretary will take into account
interest paid on previously determined deficiencies or refunds
for the purpose of determining the rate of interest under this
provision without regard to whether the underpayments or
overpayments are currently outstanding. It is also anticipated
that where interest is both payable from and allowable to an
individual taxpayer for the same period, the Secretary will
take all reasonable efforts to offset the liabilities, rather
than process them separately using the net interest rate of
zero. Where interest is payable and allowable on an equivalent
amount of underpayment and overpayment that is attributable to
a taxpayer's interest in a pass-thru entity (e.g., a
partnership), the conferees intend that the benefits of the
provision apply.
2. Increase in overpayment rate payable to taxpayers other than
corporations (sec. 332 of the House bill and sec. 3302 of the
Senate amendment)
Present Law
A taxpayer that underpays its taxes is required to pay
interest on the underpayment at a rate equal to the Federal
short-term interest rate (AFR) plus three percentage points. A
taxpayer that overpays its taxes receives interest on the
overpayment at a rate equal to the Federal short-term interest
rate (AFR) plus two percentage points.
House Bill
The House bill provides that the overpayment interest
rate will be AFR plus three percentage points, except that for
corporations, the rate remains at AFR plus two percentage
points.
Effective date.--Interest for calendar quarters beginning
after the date of enactment.
Senate Amendment
Same as the House bill, except for the effective date.
Effective date.--Interest for the second and succeeding
calendar quarters beginning after the date of enactment.
Conference Agreement
The conference agreement follows the Senate amendment.
3. Mitigation of penalty for individual's failure to pay during period
of installment agreement (sec. 376 of the House bill and sec.
3303 of the Senate amendment)
Present Law
Taxpayers who fail to pay their taxes are subject to a
penalty of one-half percent per month on the unpaid amount, up
to a maximum of 25 percent. If the liability is shown on the
return, the penalty begins to accrue on the date prescribed for
payment of the tax (with regard to extensions). If the
liability should have been shown on the return but was not, the
penalty generally begins to accrue after the date that is 21
days from the date of the IRS notice and demand for payment
with respect to such liability. Taxpayers who make installment
payments pursuant to an agreement with the IRS are also subject
to this penalty.
House Bill
The House bill provides that the penalty for failure to
pay taxes is not imposed with respect to the tax liability of
an individual with respect to any month in which an installment
payment agreement with the IRS is in effect to the extent that
doing so would result in the cumulative penalty percentage
exceeding 9.5 percent (instead of 25 percent).
Effective date.--Installment agreement payments made
after the date of enactment.
Senate Amendment
The Senate amendment provides that the penalty for
failure to pay taxes is not imposed with respect to the tax
liability of an individual for any month in which an
installment payment agreement with the IRS is in effect,
provided that the individual filed the tax return in a timely
manner (including extensions).
Effective date.--Installment agreement payments made
after December 31, 1999.
Conference Agreement
The conference agreement follows the Senate amendment,
except that the rate of the penalty is half the usual rate
(0.25 percent instead of 0.5 percent) for any month in which an
installment payment agreement with the IRS is in effect.
4. Mitigation of failure to deposit penalty (sec. 3304 of the Senate
amendment)
Present Law
Deposits of payroll taxes are allocated to the earliest
period for which such a deposit is due. If a taxpayer misses or
makes an insufficient deposit, later deposits will first be
applied to satisfy the shortfall for the earlier period; the
remainder is then applied to satisfy the obligation for the
current period. Cascading penalties may result as payments that
would otherwise be sufficient to satisfy current liabilities
are applied to satisfy earlier shortfalls. The Secretary may
waive the failure to make deposit penalty for inadvertent
failures by first-time depositors of employment taxes.
House Bill
No provision.
Senate Amendment
The Senate amendment allows the taxpayer to designate the
period to which each deposit is applied. The designation must
be made no later than 90 days after the related IRS penalty
notice. The provision also extends the authorization to waive
the failure to deposit penalty to the first deposit a taxpayer
is required to make after the taxpayer is required to change
the frequency of the taxpayer's deposits.
Effective date.--Deposits made more than 180 days after
the date of enactment.
Conference Agreement
The conference agreement follows the Senate amendment,
with technical modifications. Also, the designation must be
made during the 90 days immediately following the sending of
the related IRS penalty notice. The conference agreement also
provides that, for deposits required to be made after December
31, 2001, any deposit is to be applied to the most recent
period to which the deposit relates, unless the taxpayer
explicitly designates otherwise.
5. Suspension of interest and certain penalties if Secretary fails to
contact individual taxpayer (sec. 3305 of the Senate amendment)
Present Law
In general, interest and penalties accrue during periods
for which taxes are unpaid without regard to whether the
taxpayer is aware that there is tax due.
House Bill
No provision.
Senate Amendment
The Senate amendment suspends the accrual of penalties
and interest after 1 year if the IRS has not sent the taxpayer
a notice of deficiency within 1 year following the date which
is the later of (1) the original due date of the return or (2)
the date on which the individual taxpayer timely filed the
return. The suspension only applies to taxpayers who file a
timely tax return. The Senate amendment applies only to
individuals and does not apply to the failure to pay penalty,
in the case of fraud, or with respect to criminal penalties.
Interest and penalties resume 21 days after the IRS sends a
notice and demand for payment to the taxpayer.
Effective date.--Taxable years ending after the date of
enactment.
Conference Agreement
The conference agreement follows the Senate amendment,
with the following modifications. With respect to taxable years
beginning before January 1, 2004, the 1-year period is
increased to 18 months. Interest and penalties are suspended if
the IRS fails to send a notice specifically stating the
taxpayer's liability and the basis for the liability within the
specified period. Interest and penalties resume 21 days after
the IRS sends that notice to the taxpayer. The provision is
applied separately with respect to each item or adjustment. The
provision does not apply where a taxpayer has self-assessed the
tax.
For example, if the IRS sends a math error notice to a
taxpayer 2 months after the return is filed and also sends a
notice of deficiency related to a different item 2 years later,
the provision applies to the item reflected on the second
notice (notwithstanding that the first notice was sent within
the applicable time period).
6. Procedural requirements for imposition of penalties and additions to
tax (sec. 3306 of the Senate amendment)
Present Law
Present law does not require the IRS to show how
penalties are computed on the notice of penalty. In some cases,
penalties may be imposed without supervisory approval.
House Bill
No provision.
Senate Amendment
The Senate amendment requires that each notice imposing a
penalty include the name of the penalty, the code section
imposing the penalty, and a computation of the penalty.
The Senate amendment also requires the specific approval
of IRS management to assess all non-computer generated
penalties unless excepted. This provision does not apply to
failure to file penalties, failure to pay penalties, or to
penalties for failure to pay estimated tax.
Effective date.--Notices issued, and penalties assessed,
more than 180 days after the date of enactment.
Conference Agreement
The conference agreement follows the Senate amendment.
Effective date.--Notices issued, and penalties assessed
after December 31, 2000.
7. Personal delivery of notice of penalty under section 6672 (sec. 3307
of the Senate amendment)
Present Law
Any person who is required to collect, truthfully account
for, and pay over any tax imposed by the Internal Revenue Code
who willfully fails to do so is liable for a penalty equal to
the amount of the tax. Before the IRS may assess any such
``100-percent penalty,'' it must mail a written preliminary
notice informing the person of the proposed penalty to that
person's last known address. The mailing of such notice must
precede any notice and demand for payment of the penalty by at
least 60 days. The statute of limitations on assessments shall
not expire before the date 90 days after the date on which the
notice was mailed. These restrictions do not apply if the
Secretary finds the collection of the penalty is in jeopardy.
House Bill
No provision.
Senate Amendment
The Senate amendment permits in person delivery, as an
alternative to delivery by mail, of a preliminary notice that
the IRS intends to assess a 100-percent penalty.
Effective date.--Date of enactment.
Conference Agreement
The conference agreement follows the Senate amendment.
8. Notice of interest charges (sec. 3308 of the Senate amendment)
Present Law
Taxpayer generally must pay interest on amounts due to
the IRS.
House Bill
No provision.
Senate Amendment
The Senate amendment requires every IRS notice that
includes an amount of interest required to be paid by the
taxpayer that is sent to an individual taxpayer to include a
detailed computation of the interest charged and a citation to
the Code section under which such interest is imposed.
Effective date.--Notices issued after June 30, 2000.
Conference Agreement
The conference agreement follows the Senate amendment.
Effective date.--Notices issued after December 31, 2000.
9. Abatement of interest on underpayments by taxpayers in
Presidentially declared disaster areas (sec. 3309 of the Senate
amendment)
Present Law
In the case of a Presidentially declared disaster, the
Secretary of the Treasury has the authority to postpone some
tax-related deadlines, but there is no authority to abate
interest.
Under a provision of the Taxpayer Relief Act of 1997, if
the Secretary of the Treasury extends the filing date of an
individual tax return for individuals living in an area that
has been declared a disaster area by the President during 1997,
no interest is charged as a result of the failure of the
individual taxpayer to file an individual tax return, or to pay
the taxes shown on such return, during the extension.
House Bill
No provision.
Senate Amendment
The Senate amendment provides that taxpayers located in a
Presidentially declared disaster area do not have to pay
interest on taxes due for the length of any extension for
filing their tax returns granted by the Secretary of the
Treasury.
Effective date.--Disasters declared after December 31,
1996, with respect to taxable years beginning after December
31, 1996.
Conference Agreement
The conference agreement follows the Senate amendment.
This provision is designated as emergency legislation
under section 252(e) of the Balanced Budget and Emergency
Deficit Control Act.
Effective date.--Disasters declared after December 31,
1997, with respect to taxable years beginning after December
31, 1997. The conferees have modified the effective date
because section 915 of The Taxpayer Relief Act of 1997 already
applies to 1997 disasters. The conferees intend that no gap
between the two provisions exists.
E. Protections for Taxpayers Subject to Audit or Collection Activities
1. Due process in IRS collection actions (sec. 3401 of the Senate
amendment)
Present Law
Levy is the IRS's administrative authority to seize a
taxpayer's property to pay the taxpayer's tax liability. The
IRS is entitled to seize a taxpayer's property by levy if the
Federal tax lien has attached to such property. The Federal tax
lien arises automatically where (1) a tax assessment has been
made, (2) the taxpayer has been given notice of the assessment
stating the amount and demanding payment, and (3) the taxpayer
has failed to pay the amount assessed within 10 days after the
notice and demand.
The IRS may collect taxes by levy upon a taxpayer's
property or rights to property (including accrued salary and
wages) if the taxpayer neglects or refuses to pay the tax
within 10 days after notice and demand that the tax be paid.
Notice of the IRS's intent to collect taxes by levy must be
given no less than 30 days (90 days in the case of a life
insurance contract) before the day of the levy. The notice of
levy must describe the procedures that will be used, the
administrative appeals available to the taxpayer and the
procedures relating to such appeals, the alternatives available
to the taxpayer that could prevent levy, and the procedures for
redemption of property and release of liens.
The effect of a levy on salary or wages payable to or
received by a taxpayer is continuous from the date the levy is
first made until it is released.
If the IRS district director finds that the collection of
any tax is in jeopardy, collection by levy may be made without
regard to either notice period. A similar rule applies in the
case of termination assessments.
House Bill
No provision.
Senate Amendment
The Senate amendment establishes formal procedures
designed to insure due process where the IRS seeks to collect
taxes by levy (including by seizure). The due process
procedures also apply after the Federal tax lien attaches, but
before the notice of the Federal tax lien has been given to the
taxpayer.
As under present law, notice of the intent to levy must
be given at least 30 days (90 days in the case of a life
insurance contract) before property can be seized or salary and
wages garnished. During the 30-day (90-day) notice period, the
taxpayer may demand a hearing to take place before an appeals
officer who has had no prior involvement in the taxpayer's
case. If, within that period, the taxpayer demands a hearing,
the proposed collection action may not proceed until the
hearing has concluded and the appeals officer has issued his or
her determination.
During the hearing, the IRS is required to verify that
all statutory, regulatory, and administrative requirements for
the proposed collection action have been met. IRS verifications
are expected to include (but not be limited to) showings that:
(1) the revenue officer recommending the collection
action has verified the taxpayer's liability;
(2) the estimated expenses of levy and sale will
not exceed the value of the property to be seized;
(3) the revenue officer has determined that there
is sufficient equity in the property to be seized to
yield net proceeds from sale to apply to the unpaid tax
liabilities; and
(4) with respect to the seizure of the assets of a
going business, the revenue officer recommending the
collection action has thoroughly considered the facts
of the case, including the availability of alternative
collection methods, before recommending the collection
action.
The taxpayer (or affected third party) is allowed to
raise any relevant issue at the hearing. Issues eligible to be
raised include (but are not limited to):
(1) challenges to the underlying liability as to
existence or amount;
(2) appropriate spousal defenses;
(3) challenges to the appropriateness of collection
actions; and
(4) collection alternatives, which could include
the posting of a bond, substitution of other assets, an
installment agreement or an offer-in-compromise.
Once the taxpayer has had a hearing with respect to an
issue, the taxpayer would not be permitted to raise the same
issue in another hearing.
The determination of the appeals officer is to address
whether the proposed collection action balances the need for
the efficient collection of taxes with the legitimate concern
of the taxpayer that the collection action be no more intrusive
than necessary.
The taxpayer may contest the determination of the
appellate officer in Tax Court by filing a petition within 30
days of the date of the determination. The IRS may not take any
collection action pursuant to the determination during such 30-
day period or while the taxpayer's contest is pending in Tax
Court.
IRS Appeals would retain jurisdiction over its
determinations. IRS Appeals could enter an order requiring the
IRS collection division to adhere to the original
determination. In addition, the taxpayer would be allowed to
return to IRS Appeals to seek a modification of the original
determination based on any change of circumstances.
In the case of a continuous levy, the due process
procedures would apply to the original imposition of the levy.
This provision does not apply in the case of jeopardy and
termination assessments. Jeopardy and termination assessments
would be subject to post-seizure review as part of the Appeals
determination hearing as well as through any existing judicial
procedure. A jeopardy or termination assessment must be
approved by the IRS District Counsel responsible for the case.
Failure to obtain District Counsel approval would render the
jeopardy or termination assessment void.
Effective date.--The due process procedures apply to
collection actions initiated more than six months after the
date of enactment.
Conference Agreement
Liens
The conference agreement generally follows the Senate
amendment, except that taxpayers would have a right to a
hearing after the Notice of Lien is filed. The IRS would be
required to notify the taxpayer that a Notice of Lien had been
filed within 5 days after filing. During the 30-day period
beginning with the mailing or delivery of such notification,
the taxpayer may demand a hearing before an appeals officer who
has had no prior involvement with the taxpayer's case. In
general, any issue relevant to the appropriateness of the
proposed collection against the taxpayer can be raised at this
hearing. For example, the taxpayer can request innocent spouse
status, make an offer-in-compromise, request an installment
agreement or suggest which assets should be used to satisfy the
tax liability. However, the validity of the tax liability can
bechallenged only if the taxpayer did not actually receive the
statutory notice of deficiency or has not otherwise had an opportunity
to dispute the liability. This hearing right applies only after the
first Notice of Lien with regard to each tax liability is filed.
Levies
The conference agreement includes a modified form of the
Senate amendment. The IRS would be required to provide the
taxpayer with a ``Notice of Intent to Levy,'' formally stating
its intention to collect a tax liability by levy against the
taxpayer's property or rights to property. The conferees intend
that the Secretary have the discretion to provide the Notice of
Intent to Levy in combination with the notice required by
present law under section 6331(d). Service by registered or
certified mail, return receipt requested would be required. The
Notice of Intent to Levy would not be required to itemize the
property the Secretary seeks to levy on.
Subject to the exceptions noted below, no levy could
occur within the 30-day period beginning with the mailing of
the ``Notice of Intent to Levy.'' During that 30-day period,
the taxpayer may demand a hearing before an appeals officer who
has had no prior involvement with the taxpayer's case, other
than in connection with a hearing after the filing of a notice
of tax lien. If a hearing is requested within the 30-day
period, no levy could occur until a determination by the
appeals officer is rendered. In general, any issue that is
relevant to the appropriateness of the proposed collection
against the taxpayer can be raised at the pre-levy hearing. For
example, the taxpayer can request innocent spouse status, make
an offer-in-compromise, request an installment agreement or
suggest which assets should be used to satisfy the tax
liability. However, the validity of the tax liability can be
challenged only if the taxpayer did not actually receive the
statutory notice of deficiency or has not otherwise had an
opportunity to dispute the liability.
If a return receipt is not returned, the Secretary may
proceed to levy on the taxpayer's property or rights to
property 30 days after the Notice of Intent to Levy was mailed.
The Secretary must provide a hearing equivalent to the pre-levy
hearing if later requested by the taxpayer. However, the
Secretary is not required to suspend the levy process pending
the completion of a hearing that is not requested within 30
days of the mailing of the Notice. If the taxpayer did not
receive the required notice and requests a hearing after
collection activity has begun, then collection shall be
suspended and a hearing provided to the taxpayer.
The conferees anticipate that the IRS will combine Notice
of Intent to Levy and Notice of Lien hearings whenever
possible. If multiple hearings are held, it is expected that,
to the extent practicable, the same appellate officer will hear
the taxpayer with regard to both lien and levy issues. If the
taxpayer requests a hearing following receipt of a Notice of
Lien or Notice of Intent to Levy and, prior to the date of the
hearing, receives the other notice, the scheduled hearing will
serve for both purposes and the taxpayer is obligated to raise
all relevant issues at such hearing.
Judicial review
The conferees expect the appeals officer will prepare a
written determination addressing the issues presented by the
taxpayer and considered at the hearing. The determination of
the appeals officer may be appealed to Tax Court or, where
appropriate, the Federal district court. Where the validity of
the tax liability was properly at issue in the hearing, and
where the determination with regard to the tax liability is a
part of the appeal, no levy may take place during the pendency
of the appeal. The amount of the tax liability will in such
cases be reviewed by the appropriate court on a de novo basis.
Where the validity of the tax liability is not properly part of
the appeal, the taxpayer may challenge the determination of the
appeals officer for abuse of discretion. In such cases, the
appeals officer's determination as to the appropriateness of
collection activity will be reviewed using an abuse of
discretion standard of review. Levies will not be suspended
during the appeal if the Secretary shows good cause why the
levy should be allowed to proceed.
No further hearings are provided under this provision as
a matter of right. It is the responsibility of the taxpayer to
raise all relevant issues at the time of the pre-levy hearing.
A taxpayer could apply for consideration of new information,
make an offer-in-compromise, request an installment agreement,
or raise other considerations at any time before, during, or
after the Notice of Intent to Levy hearing. However, after the
30 day period had expired, the IRS is not required to provide a
hearing or delay any levy or sale of levied property. Nothing
in this provision is intended to limit any remedy that is
otherwise available under present law.
An exception to the general rule prohibiting levies
during the 30-day period would apply in the case of state tax
offset procedures, and in the case of jeopardy or termination
assessments.
Prior judicial approval required for seizures of principal residences
No seizure of a dwelling that is the principal residence
of the taxpayer or the taxpayer's spouse, former spouse, or
minor child would be allowed without prior judicial approval.
Notice of the judicial hearing must be provided to the taxpayer
and family members residing in the property. At the judicial
hearing, the Secretary would be required to demonstrate (1)
that the requirements of any applicable law or administrative
procedure relevant to the levy have been met, (2) that the
liability is owed, and (3) that no reasonable alternative for
the collection of the taxpayer's debt exists.
Effective date
The provision is effective for collection actions
initiated more than 180 days after the date of enactment.
2. Examination activities
a. Uniform application of confidentiality privilege to
taxpayer communications with federally authorized
practitioners (sec. 341 of the House bill and sec.
3411 of the Senate amendment)
Present Law
A common law privilege of confidentiality exists for
communications between an attorney and client with respect to
the legal advice the attorney gives the client. Communications
protected by the attorney-client privilege must be based on
facts of which the attorney is informed by the taxpayer, for
the purpose of securing the professional advice of the
attorney. The privilege may not be claimed where the purpose of
the communication is the commission of a crime or tort. The
taxpayer must either be a client of the attorney or be seeking
to become a client of the attorney.
The privilege of confidentiality applies only where the
attorney is advising the client on legal matters. It does not
apply in situations where the attorney is acting in other
capacities. Thus, a taxpayer may not claim the benefits of the
attorney-client privilege simply by hiring an attorney to
perform some other function. For example, if an attorney is
retained to prepare a tax return, the attorney-client privilege
will not automatically apply to communications and documents
generated in the course of preparing the return.
The privilege of confidentiality also does not apply
where the communication is made for further communication to
third parties. For example, information that is communicated to
an attorney for inclusion in a tax return is not privileged
because it is communicated for the purpose of disclosure. The
privilege of confidentiality does not apply where an attorney
is acting in another capacity, or where an attorney who is
licensed to practice another profession is performing such
other profession.
The attorney-client privilege is considered waived if the
communication is voluntarily disclosed to anyone other than the
attorney, the client or the agents of the client or the
attorney.
The attorney-client privilege is limited to
communications between taxpayers and attorneys. No equivalent
privilege is provided for communications between taxpayers and
other professionals authorized to practice before the Internal
Revenue Service, such as accountants or enrolled agents.
House Bill
The House bill extends the present law attorney-client
privilege of confidentiality to tax advice that is furnished by
any individual who is authorized to practice before the
Internal Revenue Service, acting in a manner consistent with
State law for such individual's profession, to a client-
taxpayer (or potential client-taxpayer) in any noncriminal
proceeding before the Internal Revenue Service.
The House bill does not modify the attorney-client
privilege. Accordingly, except for criminal proceedings, the
privilege of confidentiality under this provision applies in
the same manner and with the same limitations as the attorney-
client privilege of present law.
Effective date.--The provision is effective with regard
to communications made on or after the date of enactment.
Senate Amendment
The Senate amendment extends the present law attorney-
client privilege of confidentiality to tax advice that is
furnished to a client-taxpayer (or potential client-taxpayer)
by any individual who is authorized under Federal law to
practice before the IRS if such practice is subject to
regulation under section 330 of Title 31, United States Code.
Individuals subject to regulation under section 330 of Title
31, United States Code include attorneys, certified public
accountants, enrolled agents and enrolled actuaries. Tax advice
means advice that is within the scope of authority for such
individual's practice with respect to matters under Title 26
(the Internal Revenue Code). The privilege of confidentiality
may be asserted in any noncriminal tax proceeding before the
IRS, as well as in noncriminal tax proceedings in the Federal
Courts where the IRS is a party to the proceeding.
The provision allows taxpayers to consult with other
qualified tax advisors in the same manner they currently may
consult with tax advisors that are licensed to practice law.
The provision does not modify the attorney-client privilege of
confidentiality, other than to extend it to other authorized
practitioners. The privilege established by the provision
applies only to the extent that communications would be
privileged if they were between a taxpayer and an attorney.
Accordingly, the privilege does not apply to any communication
between a certified public accountant, enrolled agent, or
enrolled actuary and such individual's client (or prospective
client) if the communication would not have been privileged
between an attorney and the attorney's client or prospective
client. For example, information disclosed to an attorney for
the purpose of preparing a tax return is not privileged under
present law. Such information would not be privileged under the
provision whether it was disclosed to an attorney, certified
public accountant, enrolled agent or enrolled actuary.
The privilege granted by the provision may only be
asserted in noncriminal tax proceedings before the IRS and in
the Federal Courts with regard to such noncriminal tax matters
in proceedings where the IRS is a party. The privilege may not
be asserted to prevent the disclosure of information to any
regulatory body other than the IRS. The ability of any other
regulatory body, including the Securities and Exchange
Commission (SEC), to gain or compel information is unchanged by
the provision. No privilege may be asserted under this
provision by a taxpayer in dealings with such other regulatory
bodies in an administrative or court proceeding.
Conference Agreement
The conference agreement follows the Senate amendment
with a modification. The privilege of confidentiality created
by this provision will not apply to any written communication
between a federally authorized tax practitioner and any
director, shareholder, officer, employee, agent, or
representative of a corporation in connection with the
promotion of the direct or indirect participation of such
corporation in any tax shelter (as defined in section
6662(d)(2)(C)(iii)).
A tax shelter for this purpose is any partnership,
entity, plan, or arrangement a significant purpose of which is
the avoidance or evasion of income tax. Tax shelters for which
no privilege of confidentiality will apply include, but are not
limited to, those required to be registered as confidential
corporate tax shelter arrangements under section 6111(d). The
Conferees do not understand the promotion of tax shelters to be
part of the routine relationship between a tax practitioner and
a client. Accordingly, the Conferees do not anticipate that the
tax shelter limitation will adversely affect such routine
relationships.
The privilege created by this provision may be waived in
the same manner as the attorney-client privilege. For example,
if a taxpayer or federally authorized tax practitioner
discloses to a third party the substance of a communication
protected by the privilege, the privilege for that
communication and any related communications is considered to
be waived to the same extent and in the same manner as the
privilege would be waived if the disclosure related to an
attorney-client communication.
The conference agreement also clarifies that the
privilege created by this provision may be asserted in
noncriminal tax proceedings before the IRS and in the Federal
courts with regard to a noncriminal tax proceeding where the
United States is a party.
This provision relates only to matters of privileged
communications. No inference is intended as to whether aspects
of federal tax practice covered by the new privilege constitute
the authorized or unauthorized practice of law under various
State laws.
Effective date.--The provision is effective with regard
to communications made on or after the date of enactment.
b. Limitation on financial status audit techniques (sec.
343 of the House bill and sec. 3412 of the Senate
amendment)
Present Law
The Secretary is authorized and required to make the
inquiries and determinations necessary to insure the assessment
of Federal income taxes. For this purpose, any reasonable
method may be used to determine the amount of Federal income
tax owed. The courts haveupheld the use of financial status and
economic reality examination techniques to determine the existence of
unreported income in appropriate circumstances.
House Bill
The provision prohibits the IRS from using financial
status or economic reality examination techniques to determine
the existence of unreported income of any taxpayer unless the
IRS has a reasonable indication that there is a likelihood of
unreported income.
Effective date.--Date of enactment.
Senate Amendment
Same as the House bill.
Conference Agreement
The conference agreement follows the House bill and the
Senate amendment.
c. Software trade secrets protection (sec. 344 of the House
bill and sec. 3413 of the Senate amendment)
Present Law
The Secretary of the Treasury is authorized to examine
any books, papers, records, or other data that may be relevant
or material to an inquiry into the correctness of any Federal
tax return. The Secretary may issue and serve summonses
necessary to obtain such data, including summonses on certain
third-party recordkeepers.
The Secretary is considered to have made a prima facie
case for the enforcement of a summons if the so-called ``Powell
standards'' are met.\17\ The Powell standards require: (1) that
the examination to which the summons relates is being conducted
pursuant to a legitimate purpose; (2) that the summons seek
information that may be relevant to such examination; (3) that
the IRS not already be in possession of the information; and
(4) that the administrative steps required by the Code have
been followed. However, a summons will not be enforced if the
burden it places on the summonsed party is out of proportion to
the end sought.\18\ Where the summons is issued against a
third-party, particularly one that is a stranger to the
taxpayer's affairs, the IRS has been required to show that the
circumstances of the investigation indicate a realistic
expectation, and not merely an idle hope, that something
relevant to the investigation may be discovered in order to
have the summons enforced.\19\
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\17\ See Powell v. U.S., 379 U.S. 48 (1964).
\18\ Harrington v. U.S., 388 F. 2d 520 (2nd Cir, 1968).
\19\ Harrington, supra.
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There are no specific statutory restrictions on the
ability of the Secretary to demand the production of computer
records, programs, source code or similar materials; whether
held by the taxpayer or by a third-party.
House Bill
The House bill prohibits the Secretary from issuing (or
beginning an action to enforce) a summons in a civil action for
any portion of any third-party tax-related computer source code
unless (1) the Secretary is unable to otherwise reasonably
ascertain the correctness of an item on a return from the
taxpayer's other books, papers, records, other data, or the
computer software program and associated data itself and (2)
the Secretary first identifies with reasonable specificity the
portion of the computer source code to be used to verify the
correctness of the item.
The Secretary is considered to have satisfied these
requirements with regard to the identified portion of the
source code if the Secretary makes a formal request for such
materials to both the taxpayer and the owner or developer of
the software that is not satisfied within 90 days.
The Secretary's determination that the identified portion
of the third-party tax-related computer source code may be
summoned may be contested in any proceeding to enforce the
summons, by any person to whom the summons is addressed. For
this purpose, the special procedures for third-party summonses
will apply. In any such proceeding, the court may issue any
order that is necessary to prevent the disclosure of trade
secrets or other confidential information.
The prohibition on issuing summons for tax-related
computer source code does not apply in connection with any
inquiry into any offense connected with the administration or
enforcement of the internal revenue laws. A computer software
program will not be treated as tax advice for the purpose of
the professional-client privilege contained in section 341 of
the House bill.
Effective date.--Summonses issued more than 90 days after
the date of enactment.
Senate Amendment
The Senate amendment expands the limitations in the House
bill in the following manner:
(1) The prohibitions apply to all computer source code
unless developed for the internal use of the taxpayer or a
related person.
(2) In order to summons source code, the Secretary is
required to determine that the need for the source code
outweighs the risks of disclosure of the computer source code
in addition to being unable to otherwise reasonably ascertain
the correctness of an item on a taxpayer's return and
identifying the portion of the Code with reasonable
specificity.
(3) If the Secretary makes such a determination he will
be considered to have satisfied the statutory requirements to
summons source code if he (a) makes a good faith determination
that it is not feasible to determine the correctness of the
return item in question without access to the computer software
program and associated data, (b) makes a formal request for
such program and any data from the taxpayer and requests such
program from the owner of the source code after reaching such
determination, and (c) has not received such program and data
within 180 days of making the formal request.
In addition to authorizing any court enforcing a subpoena
to issue any order necessary to prevent the disclosure of
confidential information, the Senate amendments establishes a
number of specific protections against the disclosure and
improper use of trade secrets and confidential information
incident to the examination by the Secretary of any computer
software program or source code that comes into the possession
or control of the Secretary in the course of any examination
with respect to any taxpayer. These protections include the
following:
(1) Such software or source code may be examined only in
connection with the examination of the taxpayer's return with
regard to which it was received.
(2) Such software or source code must be maintained in a
secure area.
(3) Such source code may not be removed from the owner's
place of business without the owner's consent unless such
removal is pursuant to a court order.
(4) Such software or source code may not be decompiled or
disassembled.
(5) Such software or source code may only be copied as
necessary to perform the specific examination. The owner of the
software must be informed of any copies that are made, such
copies must be numbered, and at the conclusion of the
examination and any related court proceedings, all such copies
must be accounted for and returned to the owner, permanently
deleted, or destroyed. The Secretary must provide the owner of
such software or source code with the names of any individuals
who will have access to such software or source code.
(6) If an individual who is not an officer or employee of
the U.S. Government will examine the software or source code,
such individual must enter into a written agreement with the
Secretary that such individual will not disclose such software
or source code to any person other than authorized employees or
agents of the Secretary at any time, and that such individual
will not participate in the development of software that is
intended for a similar purpose as the summoned software for a
period of two years.
(7) Criminal penalties are provided where any person
willfully divulges or makes known software that was obtained
(whether or not by summons) for the purpose of examining a
taxpayer's return in violation of this provision.
Effective date.--Summons issued and software acquired
after the date of enactment. In addition, 90 days after the
date of enactment, the protections against the disclosure and
improper use of trade secrets and confidential information
added by the provision (except for the requirement that the
Secretary provide a written agreement from non-U.S. government
officers and employees) apply to software and source code
acquired on or before the date of enactment.
Conference Agreement
The conference agreement generally follows the Senate
amendment with regard to the safeguards for protection of
computer software and source code that is obtained by the IRS
in the course of the examination of a taxpayer's return. The
conference agreement specifically provides that computer
software or source code that is obtained by the IRS in the
course of the examination of a taxpayer's return will be
treated as return information for the purposes of section 6103.
The conference agreement follows the Senate amendment with
regard to the standards the Secretary must meet in order to
summons certain types of computer source code. The conference
agreement follows the House bill in limiting the higher
standards for a summons to third-party tax-related computer
source code.
Under the conference agreement, no summons may be issued
for tax-related computer software source code unless (1) the
Secretary is unable otherwise to ascertain the correctness of
any item on a return from the taxpayer's books and records or
the computer software program and associated data, (2) the
Secretary identifies with reasonable specificity the portion of
the computer source code needed to verify the correctness of
the item and (3) the Secretary determines that the need for the
source code outweighs the risk of unauthorized disclosure of
trade secrets. The Secretary is considered to have satisfied
the first two of these requirements if the Secretary makes a
formal request for such materials to both the taxpayer and the
owner of the software that is not satisfied within 180 days.
This limitation on the summons of tax-related computer
software source code does not apply if the summons is issued in
connection with an inquiry into any offense connected with the
administration or enforcement of the internal revenue laws. The
limitation also does not apply to a summons of computer
software source code that was acquired or developed by the
taxpayer or a related person primarily for internal use by the
taxpayer or such person rather than for commercial
distribution. A finding that computer software source code was
developed for internal use, and thus not eligible for the
limitation in summons authority in this provision, is not
intended to be dispositive of whether such software was
intended for internal use for any other purpose of this title.
Communications between the owner of the tax-related
computer software source code and the taxpayer are not
protected from summons by this provision. Communications
between the owner of the tax-related source code and persons
not related to the taxpayer that are related to the functioning
and operation of the software may be treated as a part of the
computer software source code.
The provision does not change or eliminate any other
requirement of the Code. A summons for third-party tax-related
computer source code that meets the standards established by
the provision will not be enforced if it would not be enforced
under present law. For example, if the Secretary's purpose in
issuing the summons is shown to be improper, the summons would
not be enforced, even if the Secretary otherwise met the
standards for the summons of computer source code established
by the provision. The limitations on the summons of tax-related
computer software source code apply only with respect to
computer software that is used for accounting tax return
preparation, tax compliance or tax planning purposes. No
inference is intended with respect to computer software used
for all other purposes. In such cases, current law will
continue to apply, subject to the protections against the
disclosure and improper use of trade secrets and other
confidential information added by this provision.
Software or source code that is required to be provided
under present law must be provided without regard to this
provision. For example, computer software or source code that
is required to be provided in connection with the registration
of a confidential corporate tax shelter arrangements under
section 6111 would continue to be required to be provided
without regard to this provision. Thus, the registration
requirement of section 6111 cannot be avoided where the tax
benefits of the shelter are discernible only from the operation
of a computer program.
The conference agreement includes the protections against
the disclosure and improper use of trade secrets and
confidential information contained in the Senate amendment. The
requirement that software or source code obtained by the
Secretary in the course of an examination be used only in
connection with that examination is intended to prevent the
Secretary from using the software for the purpose of examining
other, unrelated taxpayers. The requirement is not intended to
prevent the Secretary from using knowledge it obtains in the
course of the examination, so long as such use does not result
in the disclosure of tax return information (including the
software or source code) or the violation of any statutory
protection or judicial order.
Effective date.--The conference agreement follows the
Senate effective date.
d. Threat of audit prohibited to coerce tip reporting
alternative commitment agreements (sec. 349 of the
House bill and sec. 3414 of the Senate amendment)
Present Law
Restaurants may enter into Tip Reporting Alternative
Commitment (TRAC) agreements. A restaurant entering into a TRAC
agreement is obligated to educate its employees on their tip
reporting obligations, to institute formal tip reporting
procedures, to fulfill all filing and record keeping
requirements, and to pay and deposit taxes. In return, the IRS
agrees to base the restaurant's liability for employment taxes
solely on reported tips and any unreported tips discovered
during an IRS audit of an employee.
House Bill
The provision requires the IRS to instruct its employees
that they may not threaten to audit any taxpayer in an attempt
to coerce the taxpayer to enter into a TRAC agreement.
Effective date.--Date of enactment.
Senate Amendment
Same as the House bill.
Conference Agreement
The conference agreement follows the House bill and the
Senate amendment.
e. Taxpayers allowed motion to quash all third-party
summonses (sec. 3415 of the Senate amendment)
Present Law
When the IRS issues a summons to a ``third-party
recordkeeper'' relating to the business transactions or affairs
of a taxpayer, notice of the summons must be given to the
taxpayer within three days by certified or registered mail. The
taxpayer is thereafter given up to 23 days to begin a court
proceeding to quash the summons. If the taxpayer does so,
third-party recordkeepers are prohibited from complying with
the summons until the court rules on the taxpayer's petition or
motion to quash, but the statute of limitations for assessment
and collection with respect to the taxpayer is stayed during
the pendency of such a proceeding. Third-party recordkeepers
are generally persons who hold financial information about the
taxpayer, such as banks, brokers, attorneys, and accountants.
House Bill
No provision.
Senate Amendment
The Senate amendment generally expands the current
``third-party recordkeeper'' procedures to apply to summonses
issued to persons other than the taxpayer. Thus, the taxpayer
whose liability is being investigated receives notice of the
summons and is entitled to bring an action in the appropriate
U.S. District Court to quash the summons. As under the current
third-party recordkeeper provision, the statute of limitations
on assessment and collection is stayed during the litigation,
and certain kinds of summonses specified under present law are
not subject to these requirements.
Effective date.--Summonses served after the date of
enactment.
Conference Agreement
The conference agreement follows the Senate amendment
with a clarification that nothing in section 7609 of the Code
(relating to special procedures for third-party summonses)
shall be construed to limit the ability of the IRS to obtain
information (other than by summons) through formal or informal
procedures authorized by the Code.
f. Service of summonses to third-party recordkeepers
permitted by mail (sec. 3416 of the Senate
amendment)
Present Law
A summons must be served ``by an attested copy delivered
in hand to the person to whom it is directed or left at his
last and usual place of abode.'' If a third-party recordkeeper
summons is served, the IRS may give the taxpayer notice of the
summons via certified or registered mail. The Federal Rules of
Civil Procedure permits service of process by mail even in
summons enforcement proceedings.
House Bill
No provision.
Senate Amendment
The Senate amendment allows the IRS the option of serving
any summons either in person or by certified or registered
mail.
Effective date.--Summonses served after the date of
enactment.
Conference Agreement
The conference agreement follows the Senate amendment.
g. Notice of IRS contact of third parties (sec. 3417 of the
Senate amendment)
Present Law
Third parties may be contacted by the IRS in connection
with the examination of a taxpayer or the collection of the tax
liability of the taxpayer. The IRS has the right to summon
third-party recordkeepers. In general, the taxpayer must be
notified of the service of summons on a third party within
three days of the date of service. The IRS also has the right
to seize property of the taxpayer that is held in the hands of
third parties. Except in jeopardy situations, the Internal
Revenue Manual provides that IRS will personally contact the
taxpayer and inform the taxpayer that seizure of the asset is
planned.
House Bill
No provision.
Senate Amendment
The Senate amendment requires the IRS to notify the
taxpayer before contacting third parties regarding examination
or collection activities (including summonses) with respect to
the taxpayer. Contacts with government officials relating to
matters such as the location of assets or the taxpayer's
current address are not restricted by this provision. The
provision does not apply to criminal tax matters, if the
collection of the tax liability is in jeopardy, or if the
taxpayer authorized the contact.
Effective date.--Contacts made after 180 days after the
date of enactment.
Conference Agreement
The conference agreement provides that the IRS may not
contact any person other than the taxpayer with respect to the
determination or collection of the tax liability of the
taxpayer without providing reasonable notice in advance to the
taxpayer that the IRS may contact persons other than the
taxpayer. It is intended that in general this notice will be
provided as part of an existing IRS notice provided to
taxpayers. The conference agreement also requires the IRS to
provide periodically to the taxpayer a record of persons
previously contacted during that period by the IRS with respect
to the determination or collection of that taxpayer's tax
liability. This record shall also be provided upon request of
the taxpayer. The provision does not apply to criminal tax
matters, if the collection of the tax liability is in jeopardy,
if the Secretary determines for good cause shown that
disclosure may involve reprisal against any person, or if the
taxpayer authorized the contact.
Effective date.--Contacts made after 180 days after the
date of enactment.
3. Collection activities
a. Approval process for liens, levies, and seizures (sec.
3421 of the Senate amendment)
Present Law
Supervisory approval of liens, levies or seizures is only
required under certain circumstances. For example, a levy on a
taxpayer's principal residence is only permitted upon the
written approval of the District Director or Assistant District
Director.
House Bill
No provision.
Senate Amendment
The Senate amendment requires the IRS to implement an
approval process under which any lien, levy or seizure would,
where appropriate, be approved by a supervisor, who would
review the taxpayer's information, verify that a balance is
due, and affirm that a lien, levy or seizure is appropriate
under the circumstances. Circumstances to be considered include
the amount due and the value of the asset.
Effective date.--Collection actions commenced after date
of enactment, except for automated collection system actions
initiated before January 1, 2000.
Conference Agreement
The conference agreement follows the Senate amendment.
The conferees intend that the Commissioner have discretion in
promulgating the procedures required by this provision to
determine the circumstances under which supervisory review of
liens or levies issued by the automated collection system is or
is not appropriate.
Effective date.--Collection actions commenced after date
of enactment, except in the case of any action under the
automated collection system, the provision applies to actions
initiated after December 31, 2000.
b. Modifications to certain levy exemption amounts (sec.
3431 of the Senate amendment)
Present Law
IRS may levy on all non-exempt property of the taxpayer.
Property exempt from levy includes up to $2,500 in value of
fuel, provisions, furniture, and personal effects in the
taxpayer's household and up to $1,250 in value of books and
tools necessary for the trade, business or profession of the
taxpayer.
House Bill
No provision.
Senate Amendment
The Senate amendment increases the value of personal
effects exempt from levy to $10,000 and the value of books and
tools exempt from levy to $5,000. These amounts are indexed for
inflation.
Effective date.--Levies issued after date of enactment.
Conference Agreement
The conference agreement increases the value of personal
effects exempt from levy to $6,250 and the value of books and
tools exempt from levy to $3,125. These amounts are indexed for
inflation.
Effective date.--Levies issued after date of enactment.
c. Release of levy upon agreement that amount is
uncollectible (sec. 3432 of the Senate amendment)
Present Law
Some taxpayers have contended that the IRS does not
release a wage levy immediately upon receipt of proof that the
tax is not collectible. Instead, they claim, the IRS levies on
one period's wage payment before releasing the levy.
House Bill
No provision.
Senate Amendment
The Senate amendment requires the IRS to immediately
release a wage levy upon agreement with the taxpayer that the
tax is not collectible.
Effective date.--Levies imposed after December 31, 1999.
Conference Agreement
The conference agreement follows the Senate amendment,
with a clarification that the release is to occur as soon as
practicable. The IRS is not to intentionally delay until after
one wage payment has been made and levied upon before releasing
the levy.
d. Levy prohibited during pendency of refund proceedings
(sec. 3433 of the Senate amendment)
Present Law
The IRS is prohibited from making a tax assessment (and
thus prohibited from collecting payment) with respect to a tax
liability while it is being contested in Tax Court. However,
the IRS is permitted to assess and collect tax liabilities
during the pendency of a refund suit relating to such tax
liabilities, under the circumstances described below.
Generally, full payment of the tax at issue is a
prerequisite to a refund suit. However, if the tax is divisible
(such as employment taxes or the trust fund penalty under Code
section 6672), the taxpayer need only pay the tax for the
applicable period before filing a refund claim.
House Bill
No provision.
Senate Amendment
The Senate amendment requires the IRS to withhold
collection of liabilities that are the subject of a refund suit
during the pendency of the litigation. This will only apply
when refund suits can be brought without the full payment of
the tax, i.e., in the case of divisible taxes. Collection by
levy would be withheld unless jeopardy exists or the taxpayer
waives the suspension of collection in writing (because
collection will stop the running of interest and penalties on
the tax liability). The Secretary could not commence a civil
action to collect a liability except in a proceeding related to
the initial refund proceeding. The statute of limitations on
collection is stayed for the period during which the IRS is
prohibited from collecting by levy or otherwise.
Effective date.--Unpaid tax attributable to taxable
periods beginning after December 31, 1998.
Conference Agreement
The conference agreement follows the Senate amendment,
with a technical modification. The conferees wish to clarify
that proceedings related to a proceeding\20\ under this
provision include, but are not limited to, civil actions or
third-party complaints initiated by the United States or
another person with respect to the same kinds of tax (or
related taxes or penalties) for the same (or overlapping) tax
periods. For example, if a taxpayer brings a suit for a refund
of a portion of a penalty that the taxpayer has paid under
section 6672, the United States could, consistent with this
provision, counterclaim against the taxpayer for the balance of
the penalty or initiate related claims against other persons
assessed penalties under section 6672 for the same employment
taxes.
---------------------------------------------------------------------------
\20\ For purposes of new section 6331(i)(4)(A)(ii) of the Code.
---------------------------------------------------------------------------
e. Approval required for jeopardy and termination
assessments and jeopardy levies (sec. 3434 of the
Senate amendment)
Present Law
In general, a 30-day waiting period is imposed after
assessment of all types of taxes. In certain circumstances, the
waiting period puts the collection of taxes at risk. The Code
provides special procedures that allow the IRS to make jeopardy
assessments or termination assessments in certain extraordinary
circumstances, such as if the taxpayer is leaving or removing
property from the United States, or if assessment or collection
would be jeopardized by delay. In jeopardy or termination
situations, a levy may be made without the 30-days' notice of
intent to levy that is ordinarily required.
House Bill
No provision.
Senate Amendment
The Senate amendment requires IRS Counsel review and
approval before the IRS can make a jeopardy assessment, a
termination assessment, or a jeopardy levy. If Counsel's
approval is not obtained, the taxpayer is entitled to obtain
abatement of the assessment or release of the levy, and, if the
IRS fails to offer such relief, to appeal first to IRS Appeals
under the new due process procedure for IRS collections and
then to court.
Effective date.--Taxes assessed and levies made after the
date of enactment.
Conference Agreement
The conference agreement follows the Senate amendment.
f. Increase in amount of certain property on which lien not
valid (sec. 3435 of the Senate amendment)
Present Law
A Federal tax lien attaches to all property and rights in
property of the taxpayer, if the taxpayer fails to pay the
assessed tax liability after notice and demand. However, the
Federal tax lien is not valid as to certain ``superpriority''
interests.
Two of these interests are limited by a specific dollar
amount. Purchasers of personal property at a casual sale are
presently protected against a Federal tax lien attached to such
property to the extent the sale is for less than $250. In
addition, present law provides protection to mechanic's lienors
with respect to the repairs or improvements made to owner-
occupied personal residences, but only to the extent that the
contract for repair or improvement is for not more than $1,000.
In addition, a superpriority is granted to banks and
building and loan associations which make passbook loans to
their customers, provided that those institutions retain the
passbooks in their possession until the loan is completely paid
off.
House Bill
No provision.
Senate Amendment
The Senate amendment increases the dollar limit for
purchasers at a casual sale from $250 to $1,000, and further
increases the dollar limit from $1,000 to $5,000 for mechanics
lienors providing home improvement work for owner-occupied
personal residences. The Senate amendment indexes these amounts
for inflation. The Senate amendment also clarifies the
superpriority rules to reflect present banking practices, where
a passbook-type loan may be made even though an actual passbook
is not used.
Effective date.--Date of enactment.
Conference Agreement
The conference agreement follows the Senate amendment.
g. Waiver of early withdrawal tax for IRS levies on
employer-sponsored retirement plans or IRAs (sec.
3436 of the Senate amendment)
Present Law
Under present law, a distribution of benefits from a
employer-sponsored retirement plan or an Individual Retirement
Arrangement (``IRA'') generally is includible in gross income
in the year it is paid or distributed, except to the extent the
amount distributed represents the employee's after-tax
contributions or investment in the contract (i.e., basis).
Special rules apply to lump-sum distributions from qualified
retirement plans, distributions rolled over to an IRA or
employer-sponsored retirement plan, and distributions of
employer securities.
Early distributions from qualified plans and IRAs
includible in income generally are subject to a 10-percent
early withdrawal tax, unless an exception to the tax applies.
Includible amounts withdrawn prior to attainment of age 59\1/2\
are subject to the additional 10-percent early withdrawal tax,
unless the withdrawal is due to death or disability, is made in
the form of certain periodic payments, is used to pay medical
expenses in excess of 7.5 percent of adjusted gross income
(``AGI''), or is used to purchase health insurance of an
unemployed individual. Certain additional exceptions to the tax
apply separately to withdrawals from IRAs and qualified plans.
Distributions from IRAs for education expenses and for up to
$10,000 of first-time homebuyer expenses, or to unemployed
individuals to purchase health insurance are not subject to the
10-percent early withdrawal tax. A distribution from a
qualified plan made by an employee after separation from
service after attainment of age 55 is not subject to the 10-
percent early withdrawal tax.
Under present law, the IRS is authorized to levy on all
non-exempt property of the taxpayer. Benefits under employer-
sponsored retirement plans (including 403(b) and 457 plans) and
IRAs are not exempt from levy by the IRS.
Distributions from employer-sponsored retirement plans or
IRAs made on account of an IRS levy would be includible in the
gross income of the individual, except to the extent the amount
distributed represents after-tax contributions. In addition,
the amount includible in income would be subject to the 10-
percent early withdrawal tax, unless an exception described
above applies.
House Bill
No provision.
Senate Amendment
The Senate amendment provides an exception from the 10-
percent early withdrawal tax for amounts withdrawn from an
employer-sponsored retirement plan or an IRA that are subject
to a levy by the IRS. The exception applies only if the plan or
IRA is levied; it does not apply, for example, if the taxpayer
withdraws funds to pay taxes in the absence of a levy, in order
to release a levy on other interests.
Effective date.--The provision is effective for
withdrawals after the date of enactment.
Conference Agreement
The conference agreement follows the Senate amendment,
with a modification to the effective date. The provision is
effective for distributions after December 31, 1999.
h. Prohibition of sales of seized property at less than
minimum bid (sec. 3441 of the Senate amendment)
Present Law
A minimum bid price must be established for seized
property offered for sale. To conserve the taxpayer's equity,
the minimum bid price should normally be computed at 80 percent
or more of the forced sale value of the property less
encumbrances having priority over the Federal tax lien. If the
group manager concurs, the minimum sales price may be set at
less than 80 percent. The taxpayer is to receive notice of the
minimum bid price within 10 days of the sale. The taxpayer has
the opportunity to challenge the minimum bid price, which
cannot be more than the tax liability plus the expenses of
sale. Present law does not contemplate a sale of the seized
property at less than the minimum bid price. Rather, if no
person offers the minimum bid price, the IRS may buy the
property at the minimum bid price or the property may be
released to the owner.
House Bill
No provision.
Senate Amendment
The Senate amendment prohibits the IRS from selling
seized property for less than the minimum bid price. The Senate
amendment provides that the sale of property for less than the
minimum bid price would constitute an unauthorized collection
action, which would permit an affected person to sue for civil
damages.
Effective date.--Sales occurring after the date of
enactment.
Conference Agreement
The conference agreement follows the Senate amendment.
i. Accounting of sales of seized property (sec. 3442 of the
Senate amendment)
Present Law
The IRS is authorized to seize and sell a taxpayer's
property to satisfy an unpaid tax liability. The IRS is
required to give written notice to the taxpayer before seizure
of the property. The IRS must also give written notice to the
taxpayer at least 10 days before the sale of the seized
property.
The IRS is required to keep records of all sales of real
property. The records must set forth all proceeds and expenses
of the sale. The IRS is required to apply the proceeds first
against the expenses of the sale, then against a specific tax
liability on the seized property, if any, and finally against
any unpaid tax liability of the taxpayer. Any surplus proceeds
are credited to the taxpayer or persons legally entitled to the
proceeds.
House Bill
No provision.
Senate Amendment
The Senate amendment requires the IRS to provide a
written accounting of all sales of seized property, whether
real or personal, to the taxpayer. The accounting must include
a receipt for the amount credited to the taxpayer's account.
Effective date.--Seizures occurring after the date of
enactment.
Conference Agreement
The conference agreement follows the Senate amendment.
j. Uniform asset disposal mechanism (sec. 3443 of the
Senate amendment)
Present Law
The IRS must sell property seized by levy either by
public auction or by public sale under sealed bids. These are
often conducted by the revenue officer charged with collecting
the tax liability.
House Bill
No provision.
Senate Amendment
The Senate amendment requires the IRS to implement a
uniform asset disposal mechanism for sales of seized property.
The disposal mechanism should be designed to remove any
participation in the sale of seized assets by revenue officers.
The provision authorizes the consideration of outsourcing of
the disposal mechanism.
Effective date.--Requires a uniform asset disposal system
to be implemented within two years from the date of enactment.
Conference Agreement
The conference agreement follows the Senate amendment.
k. Codification of IRS administrative procedures for
seizure of taxpayer's property (sec. 3444 of the
Senate amendment)
Present Law
The Internal Revenue Manual (IRM) provides general
guidelines for seizure actions.
Prior to the levy action, the revenue officer must
determine that there is sufficient equity in the property to be
seized to yield net proceeds from the sale to apply to unpaid
tax liabilities. If it is determined after seizure that the
taxpayer's equity is insufficient to yield net proceeds from
sale to apply to the unpaid tax, the revenue officer will
immediately release the seized property.
House Bill
No provision.
Senate Amendment
The Senate amendment codifies the IRS administrative
procedures which require the IRS to investigate the status of
property prior to levy.
Effective date.--Date of enactment.
Conference Agreement
The conference agreement follows the Senate amendment,
with a technical modification applying the investigation
requirement only to property to be sold pursuant to section
6335.
l. Procedures for seizure of residences and businesses
(sec. 3445 of the Senate amendment)
Present Law
Subject to certain procedural rules and limitations, the
Secretary may seize the property of the taxpayer who neglects
or refuses to pay any tax within 10 days after notice and
demand. The IRS may not levy on the personal residence of the
taxpayer unless the District Director (or the assistant
District Director) personally approves in writing or in cases
of jeopardy. There are no special rules for property that is
used as a residence by parties other than the taxpayer. IRS
Policy Statement P-5-34 states that the facts of a case and
alternative collection methods must be thoroughly considered
before deciding to seize the assets of a going business.
House Bill
No provision.
Senate Amendment
The Senate amendment prohibits the IRS from seizing real
property that is used as a residence (by the taxpayer or
another person) to satisfy an unpaid liability of $5,000 or
less, including penalties and interest.
The Senate amendment requires the IRS to exhaust all
other payment options before seizing the taxpayer's business
assets or principal residence. For this purpose, future income
that may be derived by a taxpayer from the commercial sale of
fish or wildlife under a specified State permit must be
considered in evaluating other payment options before seizing
the taxpayer's business assets. The provision does not apply in
cases of jeopardy.
Effective date.--Date of enactment.
Conference Agreement
The conference agreement follows the Senate amendment,
except as follows. The prohibition on seizing a residence to
satisfy an unpaid liability of $5,000 or less is clarified to
apply to any real property used as a residence by the taxpayer
or any nonrental real property of the taxpayer used by any
other individual as a residence. The definition of business
assets is clarified to apply to tangible personal property or
real property used in the trade or business of an individual
taxpayer (other than real property that is rented). The
conference agreement provides that a levy is permitted on a
principal residence only if a judge or magistrate of a United
States district court approves (in writing) of the levy.
4. Provisions relating to examination and collection activities
a. Procedures relating to extensions of statute of
limitations by agreement (sec. 345 of the House
bill and sec. 3461 of the Senate amendment)
Present Law
The statute of limitations within which the IRS may
assess additional taxes is generally three years from the date
a return is filed. Prior to the expiration of the statute of
limitations, both the taxpayer and the IRS may agree in writing
to extend the statute. An extension may be for either a
specified period or an indefinite period. The statute of
limitations within which a tax may be collected after
assessment is 10 years after assessment. Prior to the
expiration of the statute of limitations on collection, both
the taxpayer and the IRS may agree in writing to extend the
statute.
House Bill
The House bill requires that, on each occasion on which
the taxpayer is requested by the IRS to extend the statute of
limitations, the IRS must notify the taxpayer of the taxpayer's
right to refuse to extend the statute of limitations or to
limit the extension to particular issues.
Effective date.--Requests to extend the statute of
limitations made after the date of enactment.
Senate Amendment
The Senate amendment eliminates the provision of present
law that allows the statute of limitations on collections to be
extended by agreement between the taxpayer and the IRS.
The Senate amendment also requires that, on each occasion
on which the taxpayer is requested by the IRS to extend the
statute of limitations on assessment, the IRS must notify the
taxpayer of the taxpayer's right to refuse to extend the
statute of limitations or to limit the extension to particular
issues.
Effective date.--Requests to extend the statute of
limitations made after December 31, 1999 and to all extensions
of the statute of limitations on collection that are open on
December 31, 1999.
Conference Agreement
The conference agreement follows the Senate amendment,
except that extensions of the statute of limitations on
collection may be made in connection with an installment
agreement; the extension is only for the period for which the
waiver of the statute of limitations entered in connection with
the original written terms of the installment agreement extends
beyond the end of the otherwise applicable 10-year period, plus
90 days.
Effective date. Requests to extend the statute of
limitations made after December 31, 1999. If, in any request to
extend the period of limitations made on or before December 31,
1999, a taxpayer agreed to extend that period beyond the 10-
year statute of limitations on collection, that extension shall
expire on the latest of: the last day of such 10-year period,
December 31, 2002, or, in the case of an extension in
connection with an installment agreement, the 90th day after
the end of the period of such extension.
b. Offers-in-compromise (sec. 346 of the House bill and
sec. 3462 of the Senate amendment)
Present Law
The Code permits the IRS to compromise a taxpayer's tax
liability. An offer-in-compromise is an offer by the taxpayer
to settle unpaid tax accounts for less than the full amount of
the assessed balance due. An offer-in-compromise may be
submitted for all types of taxes, as well as interest and
penalties, arising under the Internal Revenue Code.
There are two bases on which an offer can be made: doubt
as to liability for the amount owed and doubt as to ability to
pay the amount owed.
A compromise agreement based on doubt as to ability to
pay requires the taxpayer to file returns and pay taxes for
five years from the date the IRS accepts the offer. Failure to
do so permits the IRS to begin immediate collection actions for
the original amount of the liability. The Internal Revenue
Manual provides guidelines for revenue officers to determine
whether an offer-in-compromise is adequate. An offer is
adequate if it reasonably reflects collection potential.
Although the revenue officer is instructed to consider the
taxpayer's assets and future and present income, the IRM
advises that rejection of an offer solely based on narrow asset
and income evaluations should be avoided.
Pursuant to the IRM, collection normally is withheld
during the period an offer-in-compromise is pending, unless it
is determined that the offer is a delaying tactic and
collection is in jeopardy.
House Bill
Rights of taxpayers entering into offers-in-compromise.--
The House bill requires the IRS to develop and publish
schedules of national and local allowances that will provide
taxpayers entering into an offer-in-compromise with adequate
means to provide for basic living expenses.
Suspend collection by levy while offer-in-compromise is
pending.--No provision.
Procedures for reviews of rejections of offers-in-
compromise and installment agreements.--No provision.
Publication of taxpayer's rights with respect to offers-
in-compromise.--The House bill requires the IRS to publish
guidance on the rights and obligations of taxpayers and the IRS
relating to offers in compromise, including a compliant
spouse's right to apply to reinstate an agreement that would
otherwise be revoked due to the nonfiling or nonpayment of the
other spouse, providing all payments required under the
compromise agreement are current.
Liberal acceptance policy.--No provision.
Effective date.--Date of enactment.
Senate Amendment
Rights of taxpayers entering into offers-in-compromise.--
Same as the House bill, except as follows. Under the Senate
amendment, the IRS also is required to consider the facts and
circumstances of a particular taxpayer's case in determining
whether the national and local schedules are adequate for that
particular taxpayer. If the facts indicate that use of
scheduled allowances would be inadequate under the
circumstances, the taxpayer is not limited by the national or
local allowances.
The Senate amendment prohibits the IRS from rejecting an
offer-in-compromise from a low-income taxpayer solely on the
basis of the amount of the offer. The Senate amendment provides
that, in the case of an offer-in-compromise submitted solely on
the basis of doubt as to liability, the IRS may not reject the
offer merely because the IRS cannot locate the taxpayer's file.
The Senate amendment prohibits the IRS from requesting a
financial statement if the taxpayer makes an offer-in-
compromise based solely on doubt as to liability.
Suspend collection by levy while offer-in-compromise is
pending.--The Senate amendment prohibits the IRS from
collecting a tax liability by levy (1) during any period that a
taxpayer's offer-in-compromise for that liability is being
processed, (2) during the 30 days following rejection of an
offer, and (3) during any period in which an appeal of the
rejection of an offer is being considered. Taxpayers whose
offers are rejected and who made good faith revisions of their
offers and resubmitted them within 30 days of the rejection or
return would be eligible for a continuous period of relief from
collection by levy. This prohibition on collection by levy
would not apply if the IRS determines that collection is in
jeopardy or that the offer was submitted solely to delay
collection. The Senate amendment provides that the statute of
limitations on collection would be tolled for the period during
which collection by levy is barred.
Procedures for reviews of rejections of offers-in-
compromise and installment agreements.--The Senate amendment
requires that the IRS implement procedures to review all
proposed IRS rejections of taxpayer offers-in-compromise and
requests for installment agreements prior to the rejection
being communicated to the taxpayer. The Senate amendment
requires the IRS to allow the taxpayer to appeal any rejection
of such offer or agreement to the IRS Office of Appeals. The
IRS must notify taxpayers of their right to have an appeals
officer review a rejected offer-in-compromise on the
application form for an offer-in-compromise.
Publication of taxpayer's rights with respect to offers-
in-compromise.--Same as the House bill.
Liberal acceptance policy.--The Senate amendment provides
that the IRS will adopt a liberal acceptance policy for offers-
in-compromise to provide an incentive for taxpayers to continue
to file tax returns and continue to pay their taxes.
Effective date.--Generally effective for offers-in-
compromise submitted after the date of enactment. The provision
suspending levy is effective with respect to offers-in-
compromise pending on or made after December 31, 1999.
Conference Agreement
The conference agreement follows the Senate amendment,
with the following additions. First, the provision suspending
collection by levy while an offer-in-compromise is pending is
also expanded to apply while an installment agreement is
pending.
Second, the provision authorizes the Secretary to
prescribe guidelines for the IRS to determine whether an offer-
in-compromise is adequate and should be accepted to resolve a
dispute. Accordingly, the conferees expect that the present
regulations will be expanded so as to permit the IRS, in
certain circumstances, to consider additional factors (i.e.,
factors other than doubt as to liability or collectibility) in
determining whether to compromise the income tax liabilities of
individual taxpayers. For example, the conferees anticipate
that the IRS will take into account factors such as equity,
hardship, and public policy where a compromise of an individual
taxpayer's income tax liability would promote effective tax
administration. The conferees anticipate that, among other
situations, the IRS may utilize this new authority to resolve
longstanding cases by forgoing penalties and interest which
have accumulated as a result of delay in determining the
taxpayer's liability. The conferees believe that the ability to
compromise tax liability and to make payments of tax liability
by installment enhances taxpayer compliance. In addition, the
conferees believe that the IRS should be flexible in finding
ways to work with taxpayers who are sincerely trying to meet
their obligations and remain in the tax system. Accordingly,
the conferees believe that the IRS should make it easier for
taxpayers to enter into offer-in-compromise agreements, and
should do more to educate the taxpaying public about the
availability of such agreements.
c. Notice of deficiency to specify deadlines for filing Tax
Court petition (sec. 347 of the House bill and sec.
3463 of the Senate amendment)
Present Law
Taxpayers must file a petition with the Tax Court within
90 days after the deficiency notice is mailed (150 days if the
person is outside the United States) (sec. 6213). If the
petition is not filed within that time period, the Tax Court
does not have jurisdiction to consider the petition.
House Bill
The provision requires the IRS to include on each
deficiency notice the date determined by the IRS as the last
day on which the taxpayer may file a petition with the Tax
Court. The provision provides that a petition filed with the
Tax Court by this date is treated as timely filed.
Effective date.--Notices mailed after December 31, 1998.
Senate Amendment
Same as the House bill.
Conference Agreement
The conference agreement follows the House bill and the
Senate amendment.
d. Refund or credit of overpayments before final
determination (sec. 348 of the House bill and sec.
3464 of the Senate amendment)
Present Law
Generally, the IRS may not take action to collect a
deficiency during the period a taxpayer may petition the Tax
Court, or if the taxpayer petitions the Tax Court, until the
decision of the Tax Court becomes final. Actions to collect a
deficiency attempted during this period may be enjoined, but
there is no authority for ordering the refund of any amount
collected by the IRS during the prohibited period.
If a taxpayer contests a deficiency in the Tax Court, no
credit or refund of income tax for the contested taxable year
generally may be made, except in accordance with a decision of
the Tax Court that has become final. Where the Tax Court
determines that an overpayment has been made and a refund is
due the taxpayer, and a party appeals a portion of the decision
of the Tax Court, no provision exists for the refund of any
portion of any overpayment that is not contested in the appeal.
House Bill
The provision provides that a proper court (including the
Tax Court) may order a refund of any amount that was collected
within the period during which the Secretary is prohibited from
collecting the deficiency by levy or other proceeding.
The provision also allows the refund of that portion of
any overpayment determined by the Tax Court to the extent the
overpayment is not contested on appeal.
Effective date.--Date of enactment.
Senate Amendment
Same as the House bill.
Conference Agreement
The conference agreement follows the House bill and the
Senate amendment.
e. IRS procedures relating to appeal of examinations and
collections (sec. 3465 of the Senate amendment)
Present Law
IRS Appeals operates through regional Appeals offices
which are independent of the local District Director and
Regional Commissioner's offices. In general, IRS Appeals
offices have jurisdiction over both pre-assessment and post-
assessment cases. The taxpayer generally has an opportunity to
seek Appeals jurisdiction after failing to reach agreement with
the Examination function and before filing a petition in Tax
Court, after filing a petition in Tax Court (but before
litigation), after assessment of certain penalties, after a
claim for refund has been rejected by the District Director's
office, and after a proposed rejection of an offer-in-
compromise in a collection case.
In certain cases under Coordinated Examination Program
procedures, the taxpayer has an opportunity to seek early
Appeals jurisdiction over some issues while an examination is
still pending on other issues. The early referral procedures
also apply to employment tax issues on a limited basis.
A mediation or alternative dispute resolution (ADR)
process is also available in certain cases. ADR is used at the
end of the administrative process as a final attempt to resolve
a dispute before litigation. ADR is currently only available
for cases with more than $10 million in dispute. ADR processes
are also available in bankruptcy cases and cases involving a
competent authority determination.
In April 1996, the IRS implemented a Collections Appeals
Program within the Appeals function, which allows taxpayers to
appeal lien, levy, or seizure actions proposed by the IRS. In
January 1997, appeals for installment agreements proposed for
termination were added to the program.
House Bill
No provision.
Senate Amendment
The Senate amendment codifies existing IRS procedures
with respect to early referrals to Appeals and the Collections
Appeals Process. The Senate amendment also codifies the
existing ADR procedures, as modified by eliminating the dollar
threshold.
In addition, the IRS is required to establish a pilot
program of binding arbitration for disputes of all sizes. Under
the pilot program, binding arbitration must be agreed to by
both the taxpayer and the IRS.
The Senate amendment requires the IRS to make Appeals
officers available on a regular basis in each State, and
consider videoconferencing of Appeals conferences for taxpayers
seeking appeals in rural or remote areas.
Effective date.--Date of enactment.
Conference Agreement
The conference agreement follows the Senate amendment.
f. Application of certain fair debt collection practices
(sec. 3466 of the Senate amendment)
Present Law
The Fair Debt Collection Practices Act provides a number
of rules relating to debt collection practices. Among these are
restrictions on communication with the consumer, such as a
general prohibition on telephone calls outside the hours of
8:00 a.m. to 9:00 p.m. local time, and prohibitions on
harassing or abusing the consumer. In general, these provisions
do not apply to the Federal Government.
House Bill
No provision.
Senate Amendment
The Senate amendment applies the restrictions relating to
communication with the taxpayer/debtor and the prohibitions on
harassing or abusing the debtor to the IRS. The restrictions
relating to communication with the taxpayer/debtor are not
intended to hinder the ability of the IRS to respond to
taxpayer inquiries (such as answering telephone calls from
taxpayers).
Effective date.--Date of enactment.
Conference Agreement
The conference agreement follows the Senate amendment.
g. Guaranteed availability of installment agreements (sec.
3467 of the Senate amendment)
Present Law
The Code authorizes the IRS to enter into written
agreements with any taxpayer under which the taxpayer is
allowed to pay taxes owed, as well as interest and penalties,
in installment payments if the IRS determines that doing so
will facilitate collection of the amounts owed. An installment
agreement does not reduce the amount of taxes, interest, or
penalties owed, but does provide for a longer period during
which payments may be made during which other IRS enforcement
actions (such as levies or seizures) are held in abeyance. The
IRS in most instances readily approves these requests if the
amounts involved are not large (in general, below $10,000) and
if the taxpayer has filed tax returns on time in the past. Some
taxpayers are required to submit background information to the
IRS substantiating their application.
House Bill
No provision.
Senate Amendment
The Senate amendment requires the Secretary to enter an
installment agreement, at the taxpayer's option, if: (1) the
liability is $10,000, or less (excluding penalties and
interest); (2) within the previous 5 years, the taxpayer has
not failed to file or to pay, nor entered an installment
agreement under this provision; (3) if requested by the
Secretary, the taxpayer submits financial statements, and the
Secretary determines that the taxpayer is unable to pay the tax
due in full; (4) the installment agreement provides for full
payment of the liability within 3 years; and (5) the taxpayer
agrees to continue to comply with the tax laws and the terms of
the agreement for the period (up to 3 years) that the agreement
is in place.
Effective date.--Date of enactment.
Conference Agreement
The conference agreement follows the Senate amendment.
h. Prohibition on requests to taxpayers to waive rights to bring
actions (sec. 3468 of the Senate amendment)
Present Law
There is no restriction on the circumstances under which
the Government may request a taxpayer to waive the taxpayer's
right to sue the United States or one of its employees for any
action taken in connection with the tax laws.
House Bill
No provision.
Senate Amendment
The Senate amendment provides that the Government may not
request a taxpayer to waive the taxpayer's right to sue the
United States or one of its employees for any action taken in
connection with the tax laws, unless (1) the taxpayer knowingly
and voluntarily waives that right, or (2) the request is made
to the taxpayer's attorney or other representative.
Effective date.--Date of enactment.
Conference Agreement
The conference agreement follows the Senate amendment.
The conferees do not intend this provision to apply to the
waiver of claims for attorneys' fees or costs or to the waiver
of one or more claims brought in the same administrative or
judicial proceeding with other claims that are being settled.
F. Disclosures to Taxpayers
1. Explanation of joint and several liability (sec. 351 of the House
bill and sec. 3501 of the Senate amendment)
Present Law
In general, spouses who file a joint tax return are each
fully responsible for the accuracy of the tax return and for
the full liability. Spouses who wish to avoid such joint and
several liability may file as married persons filing
separately. Special rules apply in the case of innocent
spouses.
House Bill
The House bill requires that the IRS establish procedures
clearly to alert married taxpayers of their joint and several
liability on all appropriate tax publications and instructions.
The IRS will make an appropriate cross reference to these
statements near the signature line on appropriate tax forms.
Effective date.--Requires that the procedures be
established as soon as practicable, but no later than 180 days
after the date of enactment.
Senate Amendment
Same as the House bill, except that the Senate amendment
also requires notification of the availability of electing
separate liability.
Effective date.--Same as the House bill.
Conference Agreement
The conference agreement follows the Senate amendment,
except that notification must be given of an individual's right
to relief under new section 6015 of the Code.
2. Explanation of taxpayers' rights in interviews with the IRS (sec.
352 of the House bill and sec. 3502 of the Senate amendment)
Present Law
Prior to or at initial in-person audit interviews, the
IRS must explain to taxpayers the audit process and taxpayers'
rights under that process and the collection process and
taxpayers' rights under that process. If a taxpayer clearly
states during an interview with the IRS that the taxpayer
wishes to consult with the taxpayer's representative, the
interview must be suspended to afford the taxpayer a reasonable
opportunity to consult with the representative.
House Bill
The House bill requires that the IRS rewrite Publication
1 (``Your Rights as a Taxpayer'') to inform taxpayers more
clearly of their rights (1) to be represented by a
representative and (2) ifthe taxpayer is so represented, that
the interview may not proceed without the presence of the
representative unless the taxpayer consents.
Effective date.--The addition to Publication 1 must be
made not later than 180 days after the date of enactment.
Senate Amendment
Same as the House bill.
Conference Agreement
The conference agreement follows the House bill and the
Senate amendment.
3. Disclosure of criteria for examination selection (sec. 353 of the
House bill and sec. 3503 of the Senate amendment)
Present Law
The IRS examines Federal tax returns to determine the
correct liability of taxpayers. The IRS selects returns to be
audited in a number of ways, such as through a computerized
classification system (the discriminant function (``DIF'')
system).
House Bill
The provision requires that IRS add to Publication 1
(``Your Rights as a Taxpayer'') a statement which sets forth in
simple and nontechnical terms the criteria and procedures for
selecting taxpayers for examination. The statement must not
include any information the disclosure of which would be
detrimental to law enforcement. The statement must specify the
general procedures used by the IRS, including whether taxpayers
are selected for examination on the basis of information in the
media or from informants.
Effective date.--The addition to Publication 1 must be
made not later than 180 days after the date of enactment.
Senate Amendment
Same as the House bill.
Conference Agreement
The conference agreement follows the House bill and the
Senate amendment.
4. Explanation of the appeals and collection process (sec. 354 of the
House bill and sec. 3504 of the Senate amendment)
Present Law
There is no statutory requirement that specific notices
be given to taxpayers with the first letter of proposed
deficiency that allows the taxpayer an opportunity for
administrative review in the IRS Office of Appeals.
House Bill
The House bill requires that an explanation of the
appeals process and the collection process be provided with the
first letter of proposed deficiency that allows the taxpayer an
opportunity for administrative review in the IRS Office of
Appeals.
Effective date.--Requires that the explanation be
included as soon as practicable, but no later than 180 days
after the date of enactment.
Senate Amendment
The Senate amendment requires that, no later than 180
days after the date of enactment, a description of the entire
process from examination through collections, including the
assistance available to taxpayers from the Taxpayer Advocate at
various points in the process, be provided with the first
letter of proposed deficiency that allows the taxpayer an
opportunity for administrative review in the IRS Office of
Appeals.
Effective date.--Same as the House bill.
Conference Agreement
The conference agreement follows the Senate amendment.
5. Explanation of reason for refund disallowance (sec. 3505 of the
Senate amendment)
Present Law
The Examination Division of the IRS examines claims for
refund submitted by taxpayers. The Internal Revenue Manual
requires examination or other audit action on refund claims
within 30 days after receipt of the claims. The refund claim is
preliminarily examined to determine if it should be disallowed.
The taxpayer will receive a form from the IRS stating that the
claim for refund cannot be considered. Other cases will be
examined as quickly as possible and the disposition of the
case, including the reasons for the disallowance or partial
disallowance of therefund claim, must be stated in the portion
of the revenue agent's report that is sent to the taxpayer.
House Bill
No provision.
Senate Amendment
The Senate amendment requires the IRS to notify the
taxpayer of the specific reasons for the disallowance (or
partial disallowance) of the refund claim.
Effective date.--180 days after the date of enactment.
Conference Agreement
The conference agreement follows the Senate amendment,
with technical modifications.
6. Statements to taxpayers with installment agreements (sec. 3506 of
the Senate amendment)
Present Law
A taxpayer entering into an installment agreement to pay
tax liabilities due to the IRS must complete a Form 433-D which
sets forth the installment amounts to be paid monthly and the
total amount of tax due. The IRS does not provide the taxpayer
with an annual statement reflecting the amounts paid and the
amount due remaining.
House Bill
No provision.
Senate Amendment
The Senate amendment requires the IRS to send every
taxpayer in an installment agreement an annual statement of the
initial balance owed, the payments made during the year, and
the remaining balance.
Effective date.--No later than 180 days after the date of
enactment.
Conference Agreement
The conference agreement follows the Senate amendment.
Effective date.--July 1, 2000.
7. Notification of change in tax matters partner (sec. 3507 of the
Senate amendment)
Present Law
In general, the tax treatment of items of partnership
income, loss, deductions and credits are determined at the
partnership level in a unified partnership proceeding rather
than in separate proceedings with each partner. In providing
notice to taxpayers with respect to partnership proceedings,
the IRS relies on information furnished by a party designated
as the tax matters partner (TMP) of the partnership. The TMP is
required to keep each partner informed of all administrative
and judicial proceedings with respect to the partnership. Under
certain circumstances, the IRS may require the resignation of
the incumbent TMP and designate another partner as the TMP of a
partnership
House Bill
No provision.
Senate Amendment
The Senate amendment requires the IRS to notify all
partners of any resignation of the tax matters partner that is
required by the IRS, and to notify the partners of any
successor tax matters partner.
Effective date.--Selections of tax matters partners made
by the Secretary after the date of enactment.
Conference Agreement
The conference agreement follows the Senate amendment.
8. Conditions under which taxpayers' returns may be disclosed (sec.
3508 of the Senate amendment)
Present Law
There is no requirement that the general tax forms
instruction booklets include a description of conditions under
which tax return information may be disclosed outside the IRS
(including to States).
House Bill
No provision.
Senate Amendment
The Senate amendment requires that general tax forms
instruction booklets include a description of conditions under
which tax return information may be disclosed outside the IRS
(including to States).
Effective date.--Date of enactment.
Conference Agreement
The conference agreement follows the Senate amendment
with technical modifications; the conferees consider the
statement currently contained in the general tax forms
instruction booklets to be sufficient to fulfill the
requirements of this provision.
9. Disclosure of Chief Counsel advice
Present Law
Section 6110 of the Code provides for the public
inspection of written determinations, i.e., rulings,
determination letters, and technical advice memoranda. The IRS
issues annual revenue procedures setting forth the procedures
for requests for these various forms of written determinations
and participation in the formulation of such
determinations.21 Under section 6110 and the
regulations promulgated thereunder, the taxpayer who is the
subject of a written determination can participate in the
redaction of the documents to ensure that the taxpayer's
privacy is protected and that sensitive private information is
removed before the determination is publicly disclosed. In the
event there is disagreement as to the information to be
deleted, the section provides for litigation in the courts to
resolve such disagreements.
---------------------------------------------------------------------------
\21\ See e.g., Rev. Procs. 98-1 and 98-2.
---------------------------------------------------------------------------
One of the Office of Chief Counsel's major roles is to
advise Internal Revenue Service personnel on legal matters at
all stages of case development. The Office of Chief Counsel
thus issues various forms of written legal advice to field
agents of the IRS and to its own field attorneys that do not
fall within the current definition of ``written determination''
under section 6110. Traditionally, field Counsel offices
provided most of the assistance to the IRS, usually at IRS
field offices, but since 1988, the National Office of Chief
Counsel has been rendering more assistance to field Counsel and
IRS offices. National Office of Chief Counsel assistance in
taxpayer-specific cases is generally called ``field service
advice.'' The taxpayers who are the subject of field service
advice generally do not participate in the process, leading
some tax commentators to express concern that the field service
advice process was displacing the technical advice process.
There has been controversy as to whether the Office of
Chief Counsel must release forms of advice other than written
determinations pursuant to the Freedom of Information Act
(FOIA). In Tax Analysts v. IRS,22 the D.C. Circuit
held that the legal analysis portions of field service advice
created in the context of specific taxpayers' cases are not
``return information,'' as defined by section 6103(b)(2), and
must be released under FOIA. The court also found that portions
of field service advice issued in docketed cases may be
withheld as privileged attorney work product. However, some
issues remain outstanding. Although the extent to which such
materials must be released is still in dispute, it is clear
that they are not expressly covered by section 6110. As a
consequence, there exists no mechanism by which taxpayers may
participate in the administrative process of redacting their
private information from such documents or to resolve
disagreements in court.
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\22\ 117 F.3d 607 (D.C. Cir. 1997).
---------------------------------------------------------------------------
House Bill
No provision.
Senate Amendment
No provision.
Conference Agreement
In general
The conferees believe that written documents issued by
the National Office of Chief Counsel to its field components
and field agents of the IRS should be subject to public release
in a manner similar to technical advice memoranda or other
written determinations. In this way, all taxpayers can be
assured of access to the ``considered view of the Chief
Counsel's national office on significant tax issues.''
23 Creating a structured mechanism by which these
types of legal memoranda are open to public inspection will
increase the public's confidence that the tax system operates
fairly and in an even-handed manner with respect to all
taxpayers.
---------------------------------------------------------------------------
\23\ 117 F.3d at 617.
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As part of making these documents public, however, the
privacy of the taxpayer who is the subject of the advice must
be protected. Any procedure for making such advice public must
therefore include adequate safeguards for taxpayers whose
privacy interests are implicated. There should be a mechanism
for taxpayer participation in the deletion of any private
information. There should also be a process whereby appropriate
governmental privileges may be asserted by the IRS and
contested by the public or the taxpayer.
The provision amends section 6110 of the Code,
establishing a structured process by which the IRS will make
certain work products, designated as ``Chief Counsel Advice,''
open to public inspection on an ongoing basis. It is designed
to protect taxpayer privacy while allowing the public
inspection of these documents in a manner generally consistent
with the mechanism of section 6110 for the public inspection of
written determinations. In general, the provision operates by
establishing that Chief Counsel Advice are written
determinations subject to the public inspection provisions of
section 6110.
Definition of Chief Counsel Advice
For purposes of this provision, Chief Counsel Advice is
written advice or instruction prepared and issued by any
national office component of the Office of Chief Counsel to
field employees of the Service or the Office of Chief Counsel
that convey certain legal interpretations or positions of the
IRS or the Office of Chief Counsel concerning existing or
former revenue provisions. For these purposes, the term
``revenue provisions'' includes, without limitation: the
Internal Revenue Code itself; regulations, revenue rulings,
revenue procedures, or other administrative interpretations or
guidance, whether published or unpublished (including, for
example, other Chief Counsel Advice); tax treaties; and court
decisions and opinions. Chief Counsel Advice also includes
legal interpretations of State law, foreign law, or other
federal law relating to the assessment or collection of
liabilities under revenue provisions.
Chief Counsel Advice may interpret or set forth policies
concerning the internal revenue laws either in general or as
applied to specific taxpayers or groups of specific taxpayers.
The definition is, however, not meant to include advice written
with respect to nontax matters, including but not limited to
employment law, conflicts of interest, or procurement matters.
The new statutory category of written determination
encompasses certain existing categories of advisory memoranda
or instructions written by the National Office of Chief Counsel
to field personnel of either the IRS or the Office of Chief
Counsel. Specifically, Chief Counsel Advice includes field
service advice, technical assistance to the field, service
center advice, litigation guideline memoranda, tax litigation
bulletins, general litigation bulletins, and criminal tax
bulletins. The definition applies not only to the case-specific
field service advice issued from the offices of the Associate
Chief Counsel (International), Associate Chief Counsel
(Employee Benefits and Exempt Organizations), and the Assistant
Chief Counsel (Field Service), which were at issue in the Tax
Analysts decision, but any case-specific or noncase-specific
written advice or instructions issued by the National Office of
Chief Counsel to field personnel of either the IRS or the
Office of Chief Counsel.
Moreover, Chief Counsel Advice includes any documents
created subsequent to the enactment of this provision that
satisfy the general statutory definition, regardless of their
name or designation. Chief Counsel Advice also includes any
such advice or instruction even if the organizations currently
issuing them are reorganized or reconstituted as part of any
IRS restructuring.
The new subsection covers written advice ``issued'' to
field personnel of either the IRS or the Office of Chief
Counsel in its final form. With respect to Chief Counsel
Advice, issuance occurs when the Chief Counsel Advice has been
approved within the national office component of the office of
Chief Counsel in which the Chief Counsel Advice was proposed,
signed by the person authorized to do so (usually the Assistant
Chief Counsel or a Branch Chief), and sent to the field. Chief
Counsel Advice does not include written recordations of
informal telephonic advice by the National Office of Chief
Counsel to field personnel of either the IRS or the Office of
Chief Counsel. Drafts of Chief Counsel Advice sent to the field
for review, criticism, or comment prior to approval within the
National Office also need not be made public. However, Chief
Counsel Advice may be treated as issued even if supplemental
advice is contemplated. The Secretary is expected to issue
regulations to clarify the distinction between issuance as it
applies to Chief Counsel Advice and as it applies to other
documents disclosed under section 6110.
The provision also allows the Secretary to promulgate
regulations providing that additional types of advice or
instruction issued by the Office of Chief Counsel (or
components of the Office of Chief Counsel, such as regional or
local Counsel offices) will be treated as Chief Counsel Advice
and subject to public inspection pursuant to this provision. No
inference shall be drawn from the failure of the Secretary to
treat additional types of advice or instruction as Chief
Counsel Advice in determining whether such advice or
instruction is to be disclosed under FOIA.
As with other written determinations, Chief Counsel
Advice may not be used or cited as precedent, except as the
Secretary otherwise establishes by regulation.
Redaction process
Under this provision, Chief Counsel Advice will be
redacted prior to their public release in a manner similar to
that provided for private letter rulings, technical advice
memoranda, and determination letters. Specific taxpayers or
groups of specific taxpayers who are the subject of Chief
Counsel Advice will be afforded the opportunity to participate
in the process of redacting the Chief Counsel Advice prior to
their public release.
In addition, the new provision affords additional
protection for certain governmental interests implicated by
Chief Counsel Advice. Information may be redacted from Chief
Counsel Advice under subsections (b) and (c) of the Freedom of
Information Act, 5 U.S.C. sec. 552 (except, with respect to 5
U.S.C. sec. 552(b)(3), only material required to be withheld
under a Federal statute, other than title 26, may be redacted),
as those provisions have been, or shall be, interpreted by the
courts of the United States. For those deletions that are
discretionary, such as those under FOIA section 552(b)(5), it
is expected that the Office of Chief Counsel and the IRS will
apply any discretionary standards applicable to federal
agencies in general or the Chief Counsel or the IRS in
particular.\24\
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\24\ The current standards for the exercise of such discretion are
set forth in the Internal Revenue Manual (part 1230, section 293(2))
and the Attorney General's October 4, 1993, Memorandum for Heads of
Departments and Agencies.
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Under new section 6110(i), as with current section
6110(c)(1), identifying details consisting of names, addresses,
and any other information that the Secretary determines could
identify any person, including the taxpayer's representative,
will be redacted, after the participation of the taxpayer in
the redaction process. In some situations, information included
in a Chief Counsel Advice (other than a name or address) may
not identify a person as of the time the advice is made open to
public inspection, but that information, together with
information that is expected to be disclosed by another source
at a later date, will serve to identify a person. Consequently,
in deciding whether a Chief Counsel Advice contains identifying
information, the Secretary is to take into account information
that is available to the public at the time that the advice is
made open to public inspection as well as information that is
expected to be publicly available from other sources within a
reasonable time after the Chief Counsel Advice is made open to
public inspection. Generally, it is intended that the standard
the IRS is to use in determining whether information will
identify a person is a standard of a reasonable person
generally knowledgeable with respect to the appropriate
community. The standard is not, however, to be one of a person
with inside knowledge of the particular taxpayer.
As under current section 6110, taxpayers who are the
subject of Chief Counsel Advice, as well as members of the
public, will be afforded the opportunity to challenge
judicially the redaction determinations by the Secretary.
Relation to present law
The public inspection of Chief Counsel Advice is to be
accomplished only pursuant to the rules and procedures set
forth in section 6110, as amended, and not under those of any
other provision of law, such as FOIA. This provision is not
intended to affect the disclosure under FOIA, or under any
other provision of law, of any documents not included within
the definition of Chief Counsel Advice in new sections
6110(i)(1) and (i)(2). The only FOIA exemption affected by this
provision is 5 U.S.C. section 552(b)(3), to the extent that it
incorporates section 6103 of the Code. The timetable and the
manner in which existing Chief Counsel Advice may ultimately be
open to public inspection shall be governed by this provision,
except that the provision is inapplicable to Chief Counsel
Advice that any federal district court has, prior to the date
of enactment, ordered be disclosed. Disclosure of any documents
that are subject to such a court order is to proceed pursuant
to the order rather than this provision. Finally, no inference
is intended with respect to the disclosure, under FOIA or any
other provision of law, of any other documents produced by the
Office of Chief Counsel that are not included in the definition
of Chief Counsel Advice.
Effective date
The provision applies to Chief Counsel Advice issued more
than ninety days after enactment. In addition, the provision
contains certain rules governing disclosure of any document
fitting the definition of Chief Counsel Advice issued after
1985 and before 90 days after the date of enactment by the
offices of the associate chief counsel for domestic, employee
benefits and exempt organizations, and international. It sets
forth a schedule for the IRS to release such Chief Counsel
Advice over a six year period after the date of enactment.
Finally, additional advice or instruction that the Secretary
determines by regulations to treat as Chief Counsel Advice
shall be made public pursuant to this provision in accordance
with the effective dates set forth in such regulations.
G. Low-Income Taxpayer Clinics (sec. 361 of the House bill and sec.
3601 of the Senate amendment)
Present Law
There are no provisions in present law providing for
assistance to clinics that assist low-income taxpayers.
House Bill
The House bill provides that the Secretary is authorized
to provide up to $3,000,000 per year in matching grants to
certain low-income taxpayer clinics. No clinic could receive
more than $100,000 per year. Eligible clinics would be those
that charge no more than a nominal fee to either represent low-
income taxpayers in controversies with the IRS or provide tax
information to individuals for whom English is a second
language.
A ``clinic'' includes (1) a clinical program at an
accredited law school, in which students represent low-income
taxpayers, or (2) an organization exempt from tax under Code
section 501(c) which either represents low-income taxpayers or
provides referral to qualified representatives.
Effective date.--Date of enactment.
Senate Amendment
The Senate amendment is the same as the House bill,
except that the Secretary is authorized to provide up to
$6,000,000 per year in matching grants. A clinic also includes
an accredited business school or an accredited accounting
school. Grants can also be made to volunteer income tax
assistance programs. Grants can also be made to training and
technical assistance programs, up to 7.5 percent of total
amount available for grants, and without regard to the $100,000
per clinic per year limitation.
Effective date.--Same as the House bill.
Conference Agreement
The conference agreement follows the House bill, except
that the overall limit is $6,000,000 and clinical programs at
accredited business schools or accounting schools would be
eligible for grants.
H. Other Provisions
1. Cataloging complaints (sec. 372 of the House bill and sec. 3701 of
the Senate amendment)
Present Law
The IRS is required to make an annual report to the
Congress, beginning in 1997, on all categories of instances
involving allegations of misconduct by IRS employees, arising
either from internally identified cases or from taxpayer or
third-party initiated complaints. The report must identify the
nature of the misconduct or complaint, the number of instances
received by category, and the disposition of the complaints.
House Bill
The provision requires that, in collecting data for this
report, records of taxpayer complaints of misconduct by IRS
employees must be maintained on an individual employee basis.
These individual records are not to be listed in the report.
Effective date.--Date of enactment.
Senate Amendment
Same as the House bill.
Conference Agreement
The conference agreement follows the House bill and the
Senate amendment.
Effective date.--January 1, 2000.
2. Archive of records of Internal Revenue Service (sec. 373 of the
House bill and sec. 3702 of the Senate amendment)
Present Law
The IRS is obligated to transfer agency records to the
National Archives and Records Administration (``NARA'') for
retention or disposal. The IRS is also obligated to protect
confidential taxpayer records from disclosure. These two
obligations have created conflict between NARA and the IRS.
Under present law, the IRS determines whether records contain
taxpayer information. Once the IRS has made that determination,
NARA is not permitted to examine those records. NARA has
expressed concern that the IRS may be using the disclosure
prohibition to improperly conceal agency records with
historical significance.
The Internal Revenue Code prohibits disclosure of tax
returns and return information, except to the extent
specifically authorized by the Internal Revenue Code (sec.
6103). Unauthorized disclosure is a felony punishable by a fine
not exceeding $5,000 or imprisonment of not more than five
years, or both (sec. 7213). An action for civil damages also
may be brought for unauthorized disclosure (sec. 7431). Section
6103 does not authorize the disclosure of confidential return
information to NARA.
House Bill
The House bill provides an exception to the disclosure
rules to require IRS to disclose IRS records to officers or
employees of NARA, upon written request from the U.S.
Archivist, for purposes of the appraisal of such records for
destruction or retention. The present-law prohibitions on and
penalties for disclosure of tax information would generally
apply to NARA.
Effective date.--Effective for requests made by the
Archivist after the date of enactment.
Senate Amendment
Same as the House bill.
Conference Agreement
The conference agreement follows the House bill and the
Senate amendment.
3. Payment of taxes (sec. 374 of the House bill and sec. 3703 of the
Senate amendment)
Present Law
The Code provides that it is lawful for the Secretary to
accept checks or money orders as payment for taxes, to the
extent and under the conditions provided in regulations
prescribed by the Secretary (sec. 6311). Those regulations
state that checks or money orders should be made payable to the
Internal Revenue Service.
House Bill
The House bill requires the Secretary or his delegate to
establish such rules, regulations, and procedures as are
necessary to allow payment of taxes by check or money order to
be made payable to the United States Treasury.
Effective date.--Date of enactment.
Senate Amendment
Same as the House bill.
Conference Agreement
The conference agreement follows the House bill and the
Senate amendment.
4. Clarification of authority of Secretary relating to the making of
elections (sec. 375 of the House bill and sec. 3704 of the
Senate amendment)
Present Law
Except as otherwise provided, elections provided by the
Code are to be made in such manner as the Secretary shall by
regulations or forms prescribe.
House Bill
The provision clarifies that, except as otherwise
provided, the Secretary may prescribe the manner of making of
any election by any reasonable means.
Effective date.--Date of enactment.
Senate Amendment
Same as the House bill.
Conference Agreement
The conference agreement follows the House bill and the
Senate amendment.
5. IRS employee contacts (sec. 3705 of the Senate amendment)
Present Law
The IRS sends many different notices to taxpayers. Some
(but not all) of these notices contain a name and telephone
number of an IRS employee whom the taxpayer may call if the
taxpayer has any questions.
House Bill
No provision.
Senate Amendment
The Senate amendment requires that all IRS notices and
correspondence contain a name and telephone number of an IRS
employee whom the taxpayer may call. In addition, to the extent
practicable and advantageous to the taxpayer, the IRS should
assign one employee to handle a matter with respect to a
taxpayer until that matter is resolved.
The Senate amendment also requires that all IRS telephone
helplines provide an option for any taxpayer questions to be
answered in Spanish.
Further, the Senate amendment requires that all IRS
telephone helplines provide an option for any taxpayer to talk
to a live person in addition to hearing a recorded message.
That person can then direct the taxpayer to other IRS personnel
who can provide understandable information to the taxpayer.
Effective date.--Effective January 1, 2000.
Conference Agreement
The conference agreement generally follows the Senate
amendment, with modifications. Any manually generated
correspondence received by a taxpayer from the IRS must include
in a prominent manner the name, telephone number, and unique
identifying number of an IRS employee the taxpayer may contact
with respect to the correspondence. Any other correspondence or
notice received by a taxpayer from the IRS must include in a
prominent manner a telephone number that the taxpayer may
contact. An IRS employee must give a taxpayer during a
telephone or personal contact the employee's name and unique
identifying number. The requirements pertaining to a unique
identifying number are effective six months after the date of
enactment.
6. Use of pseudonyms by IRS employees (sec. 3706 of the Senate
amendment)
Present Law
The Federal Service Impasses Panel has ruled that if an
employee believes that use of the employee's last name only
will identify the employee due to the unique nature of the
employee's last name, and/or nature of the office locale, then
the employee may ``register'' a pseudonym with the employee's
supervisor.
House Bill
No provision.
Senate Amendment
The Senate amendment provides that an IRS employee may
use a pseudonym only if (1) adequate justification, such as
protecting personal safety, for using the pseudonym was
provided by the employee as part of the employee's request, and
(2) management has approved the request to use the pseudonym
prior to its use.
Effective date.--Requests made after the date of
enactment.
Conference Agreement
The conference agreement follows the Senate amendment.
7. Conferences of right in the National Office of IRS (sec. 3707 of the
Senate amendment)
Present Law
In any matter involving the submission of a substantive
legal matter involving a specific taxpayer to the National
Office of the IRS, the taxpayer is entitled to at least one
conference (the ``conference of right'') at which it can
explain its position.
House Bill
No provision.
Senate Amendment
The Senate amendment gives a taxpayer the right to limit
participation in its conference of right to IRS national office
personnel.
Effective date.--Requests made after the date of
enactment.
Conference Agreement
The conference agreement does not include the Senate
amendment.
8. Illegal tax protester designations (sec. 3708 of the Senate
amendment)
Present Law
The IRS designates individuals who meet certain criteria
as ``illegal tax protesters'' in the IRS master file.
House Bill
No provision.
Senate Amendment
The Senate amendment prohibits the use by the IRS of the
``illegal tax protester'' designation. Any extant designation
in the individual master file (the main computer file) must be
removed and any other extant designation (such as on paper
records that have been archived) must be disregarded. The IRS
is, however, permitted to designate appropriate taxpayers as
nonfilers. The IRS must remove the nonfiler designation once
the taxpayer has filed valid tax returns for two consecutive
years and paid all taxes shown on those returns.
Effective date.--Date of enactment, except that the
removal of any designation from the master file, is not
required to begin before January 1, 1999.
Conference Agreement
The conference agreement follows the Senate amendment.
While this provision prohibits the use by the IRS of the
``illegal tax protester'' designation, it does allow the IRS to
continue its current practice of tracking ``potentially
dangerous taxpayers.'' The conferees recognize the potential
hazards connected with the assessment and collection of taxes,
and this provision is not intended to jeopardize the safety of
IRS employees. Accordingly, if the IRS needs to implement
additional procedures, such as the maintenance of appropriate
records, in connection with this provision so as to ensure IRS
employees' safety, it has the authority to do so.
9. Provision of confidential information to Congress by whistleblowers
(sec. 3709 of the Senate amendment)
Present Law
Tax return information generally may not be disclosed,
except as specifically provided by statute. The Secretary of
the Treasury may furnish tax return information to the Senate
Committee on Finance, the House Committee on Ways and Means,
and the Joint Committee on Taxation upon a written request from
the chairmen of such committees. If the information can be
associated with, or otherwise identify, directly or indirectly,
a particular taxpayer, the information may be furnished to the
committee only while sitting in closed executive session unless
such taxpayer otherwise consents in writing to such disclosure.
House Bill
No provision.
Senate Amendment
The Senate amendment allows any person who is (or was)
authorized to receive confidential tax return information to
disclose tax return information directly to the Chairman of the
Senate Committee on Finance, the Chairman of the House
Committee on Ways and Means, or the Chief of Staff of the Joint
Committee on Taxation provided: (1) such disclosure is for the
purpose of disclosing an incident of IRS employee or taxpayer
abuse, and (2) the Chairman of the committee to which the
information will be disclosed gives prior approval for the
disclosure in writing.
Effective date.--Date of enactment.
Conference Agreement
The conference agreement provides that any person (i.e.,
a whistleblower) who otherwise has or had access to any return
or return information under section 6103 may disclose such
return or return information to the House Ways and Means
Committee, the Senate Finance Committee, or the Joint Committee
on Taxation or to any individual authorized by one of those
committees to receive or inspect any return or return
information if such person (the whistleblower) believes such
return or return information may relate to evidence of possible
misconduct, maladministration, or taxpayer abuse. Disclosure to
one of these committees could be made either to the Chairman or
to the full committee (sitting in closed executive session),
but would not be permitted to be made to an individual Member
of Congress (unless explicitly authorized as an agent). No
inference is intended that such whistleblower disclosures are
not permitted under present law.
Effective date.--Date of enactment.
10. Listing of local IRS telephone numbers and addresses (sec. 3710 of
the Senate amendment)
Present Law
The IRS is not statutorily required to publish the local
telephone number or address of its local offices.
House Bill
No provision.
Senate Amendment
The Senate amendment requires the IRS, as soon as is
practicable but no later than 180 days after the date of
enactment, to publish addresses and local telephone numbers of
local IRS offices in appropriate local telephone directories.
Effective date.--Date of enactment.
Conference Agreement
The conference agreement generally follows the Senate
amendment. The conferees intend that (1) the IRS not be
required to publish in more than one directory in any local
area and (2) publication in alternate language directories is
permissible.
Effective date.--As soon as is practicable.
11. Identification of return preparers (sec. 3711 of the Senate
amendment)
Present Law
Any return or claim for refund prepared by an income tax
return preparer must bear the social security number of the
return preparer, if such preparer is an individual.
House Bill
No provision.
Senate Amendment
The Senate amendment authorizes the IRS to approve
alternatives to social security numbers to identify tax return
preparers.
Effective date.--Date of enactment.
Conference Agreement
The conference agreement follows the Senate amendment.
12. Offset of past-due, legally enforceable State income tax
obligations against overpayments (sec. 3712 of the Senate
amendment)
Present Law
Overpayments of Federal tax may be used to pay past-due
child support and debts owed to Federal agencies, without the
consent of the taxpayer. Such amount for past-due child support
may be paid directly to a State. Present law provides that
offsets are made in the following priority: (1) child support
and (2) other Federal debts, in the order in which such debts
accrued.
House Bill
No provision.
Senate Amendment
The Senate amendment permits States to participate in the
IRS refund offset program for specified past-due, legally
enforceable State income tax debts, providing the person making
the Federal tax overpayment has shown on the Federal return for
the taxable year of the overpayment an address that is within
the State seeking the tax offset. The offset applies after the
offsets provided in present law for internal revenue tax
liabilities, past-due support, and past-due, legally
enforceable obligations owed a Federal agency. The offset
occurs before the designation of any refund toward future
Federal tax liability.
Effective date.--Federal income tax refunds payable after
December 31, 1998.
Conference Agreement
The conference agreement follows the Senate amendment,
with technical modifications. The provision permits the
Secretary to prescribe additional conditions (pursuant to new
section 6402(e)(4)(D)) to ensure that the determination is
valid that the State or local income tax liability is past-due
and legally enforceable. The conferees intend that this include
consideration of questions that may arise as a result of the
taxpayer being a Native American.
Effective date.--Federal income tax refunds payable after
December 31, 1999.
13. Moratorium regarding regulations under Notice 98-11 (sec.
3713(a)(1) of the Senate amendment)
Present Law
Overview
U.S. citizens and residents and U.S. corporations are
taxed currently by the United States on their worldwide income,
subject to a credit against U.S. tax on foreign-source income
for foreign income taxes paid with respect to such income. A
foreign corporation generally is not subject to U.S. tax on its
income from operations outside the United States.
Income of a foreign corporation generally is taxed by the
United States when it is repatriated to the United States
through payment to the corporation's U.S. shareholders, subject
to a foreign tax credit. However, various regimes imposing
current U.S. tax on income earned through a foreign corporation
are reflected in the Code. One anti-deferral regime set forth
in the Code is the controlled foreign corporation rules of
subpart F (secs. 951-964).
A controlled foreign corporation (``CFC'') is defined
generally as any foreign corporation if U.S. persons own more
than 50 percent of the corporation's stock (measured by vote or
value), taking into account only those U.S. persons that own at
least 10 percent of the stock (measured by vote only) (sec.
957). Stock ownership includes not only stock owned directly,
but also stock owned indirectly or constructively (sec. 958).
The United States generally taxes the U.S. 10-percent
shareholders of a CFC currently on their pro rata shares of
certain income of the CFC (so-called ``subpart F income'')
(sec. 951). In effect, the Code treats those shareholders as
having received a current distribution out of the CFC's subpart
F income. Such shareholders also are subject to current U.S.
tax on their pro rata shares of the CFC's earnings invested in
U.S. property (sec. 951). The foreign tax credit may reduce the
U.S. tax on these amounts.
Subpart F income includes, among other items, foreign
base company income (sec. 952). Foreign base company income, in
turn, includes foreign personal holding company income, foreign
base company sales income, foreign base company services
income, foreign base company shipping income and foreign base
company oil related income (sec. 954). Foreign personal holding
company income includes, among other items, dividends,
interest, rents, and royalties. An exception from foreign
personal holding company income applies to certain dividends
and interest received from a related person which is created or
organized in the same country as the CFC and which has a
substantial part of its assets in that country, and to certain
rents and royalties received from a related person for the use
of property in the same country in which the CFC was created or
organized (the so-called ``same-country exception'').
Foreign base company sales income includes income derived
by a CFC from certain related-party transactions, including the
purchase of personal property from a related person and its
sale to any person, the purchase of personal property from any
person and its sale to a related person, and the purchase or
sale of personal property on behalf of a related person, where
the property which is purchased or sold is manufactured outside
the country in which the CFC was created or organized and the
property is purchased or sold for use or consumption outside
such foreign country. A special branch rule applies for
purposes of determining a CFC's foreign base company sales
income. Under this rule, a branch of a CFC is treated as a
separate corporation (only for purposes of determining the
CFC's foreign base company sales income) where the activities
of the CFC through the branch outside the CFC's country of
incorporation have substantially the same effect as if such
branch were a subsidiary.
Because of differences in U.S. and foreign laws, it is
possible for a taxpayer to enter into transactions that are
treated in one manner for U.S. tax purposes and in another
manner for foreign tax purposes. These transactions are
referred to as hybrid transactions. For example, a hybrid
transaction may involve the use of an entity that is treated as
a corporation for purposes of the tax law of one jurisdiction
but is treated as a branch or partnership for purposes of the
tax law of another jurisdiction.
Notice 98-11 and the regulations issued thereunder
Notice 98-11, issued on January 16, 1998, addressed the
treatment of hybrid branches under the subpart F provisions of
the Code. The Notice stated that the Treasury Department and
the Internal Revenue Service have concluded that the use of
certain arrangements involving hybrid branches is contrary to
the policy and rules of subpart F. The hybrid branch
arrangements identified in Notice 98-11 involve structures that
are characterized for U.S. tax purposes as part of a CFC but
are characterized for purposes of the tax law of the country in
which the CFC is incorporated as a separate entity. The Notice
stated that regulations will be issued to prevent the use of
hybrid branch arrangements to reduce foreign tax while avoiding
the corresponding creation of subpart F income. The Notice
stated that such regulations will provide that the branch and
the CFC will be treated as separate corporations for purposes
of subpart F. The Notice also stated that similar issues raised
under subpart F by certain partnership or trust arrangements
will be addressed in separate regulation projects.
On March 23, 1998, temporary and proposed regulations
were issued to address the issues raised in Notice 98-11 and to
address certain partnership and other issues raised under
subpart F. Under the regulations, certain payments between a
CFC and its hybrid branch or between hybrid branches of the CFC
(so-called ``hybrid branch payments'') are treated as giving
rise to subpart F income. The regulations generally provide
that non-subpart F income of the CFC, in the amount of the
hybrid branch payment, is recharacterized as subpart F income
of the CFC if: (1) the hybrid branch payment reduces the
foreign tax of the payor, (2) the hybrid branch payment would
have been foreign personal holding company income if made
between separate CFCs, and (3) there is a disparity between the
effective tax rate on the payment in the hands of the payee and
the effective tax rate that would have applied if the income
had been taxed in the hands of the payor. The regulations also
apply to other hybrid branch arrangements involving a
partnership, including a CFC's proportionate share of any
hybrid branch payment made between a partnership in which the
CFC is a partner and a hybrid branch of the partnership or
between hybrid branches of such a partnership. Under the
regulations, if a partnership is treated as fiscally
transparent by the CFC's taxing jurisdiction, the
recharacterization rules are applied by treating the hybrid
branch payment as if it had been made directly between the CFC
and the hybrid branch, or as if the hybrid branches of the
partnership were hybrid branches of the CFC, as applicable. If
thepartnership is treated as a separate entity by the CFC's
taxing jurisdiction, the recharacterization rules are applied to treat
the partnership as if it were a CFC.
The regulations also address the application of the same-
country exception to the foreign personal holding company
income rules under subpart F in the case of certain hybrid
branch arrangements. Under the regulations, the same-country
exception applies to payments by a CFC to a hybrid branch of a
related CFC only if the payment would have qualified for the
exception if the hybrid branch had been a separate CFC
incorporated in the jurisdiction in which the payment is
subject to tax (other than a withholding tax). The regulations
provide additional rules regarding the application of the same-
country exception in the case of certain hybrid arrangements
involving a partnership.
The regulations generally apply to amounts paid or
accrued pursuant to hybrid branch arrangements entered into or
substantially modified on or after January 16, 1998. As a
result, the regulations generally do not apply to amounts paid
or accrued pursuant to hybrid branch arrangements entered into
before January 16, 1998 and not substantially modified on or
after that date.
In the case of certain hybrid arrangements involving
partnerships, the regulations generally apply to amounts paid
or accrued pursuant to such arrangements entered into or
substantially modified on or after March 23, 1998. As a result,
the regulations generally do not apply to amounts paid or
accrued pursuant to such arrangements entered into before March
23, 1998 and not substantially modified on or after that date.
House Bill
No provision.
Senate Amendment
The Senate amendment provides that no temporary or final
regulations with respect to Notice 98-11 may be implemented
prior to six months after the date of enactment of this
provision. This moratorium applies to the regulations with
respect to hybrid branches and to the regulations with respect
to hybrid arrangements involving partnerships. It is intended
that the moratorium delaying implementation of the regulations
would not require a modification to the effective dates of the
regulations. No inference is intended regarding the authority
of the Department of the Treasury or the Internal Revenue
Service to issue the Notice or the regulations.
Effective date.--Date of enactment.
Conference Agreement
The conference agreement does not include the Senate
amendment. The conferees have agreed not to include the Senate
amendment because the Department of the Treasury has withdrawn
Notice 98-11 and has announced its intention to withdraw the
temporary and proposed regulations issued under Notice 98-11,
and to reissue regulations in proposed form to be finalized no
earlier than January 1, 2000. See Notice 98-35, 1998-26 I.R.B.
1. The conferees expect that the Congress will consider the
international tax policy issues relating to the treatment of
hybrid transactions under the subpart F provisions of the Code,
and will consider taking legislative action as deemed
appropriate. In this regard, the conferees expect that the
Congress will consider the impact of any legislation or
administrative guidance in this area on affected taxpayers and
industries. The conferees strongly recommend that the
Department of the Treasury also take into account the impact of
any administrative guidance in this area on affected taxpayers
and industries. No inference is intended regarding the
authority of the Department of the Treasury or the Internal
Revenue Service to issue the Notice or the regulations, or to
issue any other notice or regulation which reaches the same or
similar results with respect to the treatment of hybrid
transactions under subpart F.
14. Sense of the Senate regarding Notices 98-5 and 98-11 (secs.
3713(a)(2) and (b) of the Senate amendment)
Present Law
Overview
U.S. citizens and residents and U.S. corporations are
taxed currently by the United States on their worldwide income.
U.S. persons may credit foreign taxes against U.S. tax on
foreign-source income. The amount of foreign tax credits that
can be claimed in a year is subject to a limitation that
prevents taxpayers from using foreign tax credits to offset
U.S. tax on U.S.-source income. Separate limitations are
applied to specific categories of income.
A foreign corporation generally is not subject to U.S.
tax on its income from operations outside the United States.
Income of a foreign corporation generally is taxed by the
United States when it is repatriated to the United States
through payment to the corporation's U.S. shareholders, subject
to a foreign tax credit. However, various regimes imposing
current U.S. tax on income earned through a foreign corporation
are reflected in the Code. One anti-deferral regime set forth
in the Code is the controlled foreign corporation rules of
subpart F (secs. 951-964).
A controlled foreign corporation (``CFC'') is defined
generally as any foreign corporation if U.S. persons own more
than 50 percent of the corporation's stock (measured by vote or
value), taking into account only those U.S. persons that own at
least 10 percent of the stock (measured by vote only) (sec.
957). Stock ownership includes not only stock owned directly,
but also stock owned indirectly or constructively (sec. 958).
The United States generally taxes the U.S. 10-percent
shareholders of a CFC currently on their pro rata shares of
certain income of the CFC (so-called ``subpart F income'')
(sec. 951). In effect, the Code treats those shareholders as
having received a current distribution out of the CFC's subpart
F income. Such shareholders also are subject to current U.S.
tax on their pro rata shares of the CFC's earnings invested in
U.S. property (sec. 951). The foreign tax credit may reduce the
U.S. tax on these amounts.
Subpart F income includes, among other items, foreign
base company income (sec. 952). Foreign base company income, in
turn, includes foreign personal holding company income, foreign
base company sales income, foreign base company services
income, foreign base company shipping income and foreign base
company oil related income (sec. 954). Foreign personal holding
company income includes, among other items, dividends,
interest, rents, and royalties. An exception from foreign
personal holding company income applies to certain dividends
and interest received from a related person which is created or
organized in the same country as the CFC and which has a
substantial part of its assets in that country, and to certain
rents and royalties received from a related person for the use
of property in the same country in which the CFC was created or
organized (the so-called ``same-country exception'').
Foreign base company sales income includes income derived
by a CFC from certain related-party transactions, including the
purchase of personal property from a related person and its
sale to any person, the purchase of personal property from any
person and its sale to a related person, and the purchase or
sale of personal property on behalf of a related person, where
the property which is purchased or sold is manufactured outside
the country in which the CFC was created or organized and the
property is purchased or sold for use or consumption outside
such foreign country. A special branch rule applies for
purposes of determining a CFC's foreign base company sales
income. Under this rule, a branch of a CFC is treated as a
separate corporation (only for purposes of determining the
CFC's foreign base company sales income) where the activities
of the CFC through the branch outside the CFC's country of
incorporation have substantially the same effect as if such
branch were a subsidiary.
Because of differences in U.S. and foreign laws, it is
possible for a taxpayer to enter into transactions that are
treated in one manner for U.S. tax purposes and in another
manner for foreign tax purposes. These transactions are
referred to as hybrid transactions. For example, a hybrid
transaction may involve the use of an entity that is treated as
a corporation for purposes of the tax law of one jurisdiction
but is treated as a branch or partnership for purposes of the
tax law of another jurisdiction.
Notices 98-5 and 98-11
Notice 98-5, issued on December 23, 1997, addresses the
treatment of certain types of transactions under the foreign
tax credit provisions of the Code. The Notice states that the
Treasury Department and the Internal Revenue Service have
concluded that the use of certain transactions creates the
potential for foreign tax credit abuse. The Notice states that
such transactions typically involve either: (1) the acquisition
of an asset that generates an income stream (e.g., royalties or
interest) subject to a foreign withholding tax, or (2) the
effective duplication of tax benefits through the use of
certain structures designed to exploit inconsistencies between
U.S. and foreign tax laws. The Notice includes five specific
transactions as illustrations of arrangements creating the
potential for foreign tax credit abuse. The Notice states that
it is intended that regulations will be issued to disallow
foreign tax credits for abusive transactions in cases where the
reasonably expected economic profit from the transaction is
insubstantial compared to the value of the foreign tax credits
expected to be obtained as a result of the arrangement. The
Notice further states that it is intended that regulations
generally will apply with respect to such transactions for
taxes paid or accrued on or after December 23, 1997.
Regulations have not yet been issued under Notice 98-5.
Notice 98-11, issued on January 16, 1998, addressed the
treatment of hybrid branches under the subpart F provisions of
the Code. The Notice stated that the Treasury Department and
the Internal Revenue Service have concluded that the use of
certain arrangements involving hybrid branches is contrary to
the policy and rules of subpart F. The hybrid branch
arrangements identified in Notice 98-11 involve structures that
are characterized for U.S. tax purposes as part of a CFC but
are characterized for purposes of the tax law of the country in
which the CFC is incorporated as a separate entity. The Notice
stated that regulations will be issued to prevent the use of
hybrid branch arrangements to reduce foreign tax while avoiding
the corresponding creation of subpart F income. The Notice
stated that such regulations will provide that the branch and
the CFC will be treated as separate corporations for purposes
of subpart F. The Notice also stated that similar issues raised
under subpart F by certain partnership or trust arrangements
will be addressed in separate regulation projects.
On March 23, 1998, temporary and proposed regulations
were issued to address the issues raised in Notice 98-11 and to
address certain partnership and other issues raised under
subpart F. Under the regulations, certain payments between a
CFC and its hybrid branch or between hybrid branches of the CFC
(so-called ``hybrid branch payments'') are treated as giving
rise to subpart F income. The regulations generally provide
that non-subpart F income of the CFC, in the amount of the
hybrid branch payment, is recharacterized as subpart F income
of the CFC if: (1) the hybrid branch payment reduces the
foreign tax of the payor, (2) the hybrid branch payment would
have been foreign personal holding company income if made
between separate CFCs, and (3) there is a disparity between the
effective tax rate on the payment in the hands of the payee and
the effective tax rate that would have applied if the income
had been taxed in the hands of the payor. The regulations also
apply to other hybrid branch arrangements involving a
partnership, including a CFC's proportionate share of any
hybrid branch payment made between a partnership in which the
CFC is a partner and a hybrid branch of the partnership or
between hybrid branches of such a partnership. Under the
regulations, if a partnership is treated as fiscally
transparent by the CFC's taxing jurisdiction, the
recharacterization rules are applied by treating the hybrid
branch payment as if it had been made directly between the CFC
and the hybrid branch, or as if the hybrid branches of the
partnership were hybrid branches of the CFC, as applicable. If
thepartnership is treated as a separate entity by the CFC's
taxing jurisdiction, the recharacterization rules are applied to treat
the partnership as if it were a CFC.
The regulations also address the application of the same-
country exception to the foreign personal holding company
income rules under subpart F in the case of certain hybrid
branch arrangements. Under the regulations, the same-country
exception applies to payments by a CFC to a hybrid branch of a
related CFC only if the payment would have qualified for the
exception if the hybrid branch had been a separate CFC
incorporated in the jurisdiction in which the payment is
subject to tax (other than a withholding tax). The regulations
provide additional rules regarding the application of the same-
country exception in the case of certain hybrid arrangements
involving a partnership.
The regulations generally apply to amounts paid or
accrued pursuant to hybrid branch arrangements entered into or
substantially modified on or after January 16, 1998. As a
result, the regulations generally do not apply to amounts paid
or accrued pursuant to hybrid branch arrangements entered into
before January 16, 1998 and not substantially modified on or
after that date.
In the case of certain hybrid arrangements involving
partnerships, the regulations generally apply to amounts paid
or accrued pursuant to such arrangements entered into or
substantially modified on or after March 23, 1998. As a result,
the regulations generally do not apply to amounts paid or
accrued pursuant to such arrangements entered into before March
23, 1998 and not substantially modified on or after that date.
House Bill
No provision.
Senate Amendment
The Senate amendment provides that it is the sense of the
Senate that the Department of the Treasury and the Internal
Revenue Service should withdraw Notice 98-11 and the
regulations issued thereunder, and that the Congress, and not
the Department of the Treasury or the Internal Revenue Service,
should determine the international tax policy issues relating
to the treatment of hybrid transactions under the subpart F
provisions of the Code.
The Senate amendment further provides that it is the
sense of the Senate that the Department of the Treasury and the
Internal Revenue Service should limit any regulations issued
under Notice 98-5 to the specific transactions described
therein. In addition, such regulations should: (a) not affect
transactions undertaken in the ordinary course of business, (b)
not have an effective date any earlier than the date of
issuance of proposed regulations, and (c) be issued in
accordance with normal regulatory procedures which include an
opportunity for comment. Nothing in this sense of the Senate
should be construed to limit the ability of the Department of
the Treasury or the Internal Revenue Service to address abusive
transactions.
Effective date.--Date of enactment.
Conference Agreement
Notices 98-5 and 98-11
The conference agreement does not include the Senate
amendment. The conferees are aware that the Department of the
Treasury has withdrawn Notice 98-11 and has announced its
intention to withdraw the temporary and proposed regulations
issued under Notice 98-11, and to reissue regulations in
proposed form to be finalized no earlier than January 1, 2000.
See Notice 98-35, 1998-26 I.R.B. 1. The conferees expect that
the Congress will consider the international tax policy issues
relating to the treatment of hybrid transactions under the
subpart F provisions of the Code, and will consider taking
legislative action as deemed appropriate. In this regard, the
conferees expect that the Congress will consider the impact of
any legislation or administrative guidance in this area on
affected taxpayers and industries. The conferees strongly
recommend that the Department of the Treasury also take into
account the impact of any administrative guidance in this area
on affected taxpayers and industries. No inference is intended
regarding the authority of the Department of the Treasury or
the Internal Revenue Service to issue the Notice or the
regulations, or to issue any other notice or regulation which
reaches the same or similar results with respect to the
treatment of hybrid transactions under subpart F.
The conferees believe that regulations under Notice 98-5
should be issued in accordance with normal regulatory
procedures which include an opportunity for public comment. The
conferees acknowledge recent actions by the Department of the
Treasury to address legitimate taxpayer concerns regarding
Notice 98-5 without compromising the ability of the Department
of the Treasury or the Internal Revenue Service to address
abusive transactions.
The conferees are concerned about the potential
disruptive effect of the issuance of an administrative notice
that describes general principles to be reflected in
regulations that will be issued in the future, but provides
that such future regulations will be effective as of the date
of issuance of the notice. The conferees strongly encourage the
Department of the Treasury and the Internal Revenue Service to
limit similar types of action in the future.
Other matters
The conferees are aware of the Department of the
Treasury's commitment to withdraw temporary and proposed
regulations issued on March 2, 1998, with respect to a special
sourcing rule under the foreign sales corporation provisions,
and to reinstate the rule contained in the prior temporary
regulations. See Temp. Treas. Reg. sec. 1.927(e)-1T, T.D. 8764
(March 2, 1998). Ingood faith reliance on this commitment, the
conferees are deferring action on this issue at this time.
15. Combined employment tax reporting demonstration project (sec. 3715
of the Senate amendment)
Present Law
Traditionally, Federal tax forms are filed with the
Federal government and State tax forms are filed with
individual States. This necessitates duplication of items
common to both returns.
The Taxpayer Relief Act permitted implementation of a
demonstration project to assess the feasibility and
desirability of expanding combined reporting in the future.
There are several limitations on the demonstration project.
First, it is limited to the State of Montana and the IRS.
Second, it is limited to employment tax reporting. Third, it is
limited to disclosure of the name, address, TIN, and signature
of the taxpayer, which is information common to both the
Montana and Federal portions of the combined form. Fourth, it
is limited to a period of five years.
House Bill
No provision.
Senate Amendment
The Senate amendment authorizes a parallel demonstration
project with Iowa.
Effective date.--Effective on the date of enactment and
will expire on the date five years after the date of enactment.
Conference Agreement
The conference agreement does not include the Senate
amendment.
16. Reporting requirements relating to education tax credits (sec. 3716
of the Senate amendment)
Present Law
Individual taxpayers are allowed to claim a nonrefundable
HOPE credit against Federal income taxes up to $1,500 per
student per year for qualified tuition and related expenses
paid for the first two years of the student's post-secondary
education in a degree program. A Lifetime Learning credit
against Federal income taxes equal to 20 percent of qualified
expenses (up to a maximum credit of $1,000 per taxpayer return
for 1998 through 2002 and $2,000 per taxpayer return after
2002) is also available. Qualified tuition and related expenses
do not include expenses covered by educational assistance that
is not required to be included in the gross income of either
the student or the taxpayer claiming the credit (e.g.,
scholarship or fellowship grants).
Code section 6050S requires information reporting by
eligible educational institutions which receive payments for
qualified tuition and related expenses, and certain other
persons who make reimbursement or refunds of qualified tuition
and related expenses, in order to assist students, their
parents, and the IRS in calculating the amount of the HOPE and
Lifetime Learning credits potentially available. Section
6050S(b) provides that the annual information report to the
Secretary must be in the form prescribed by the Secretary and
must contain the following: (1) the name, address, and taxpayer
identification number (TIN) of the individual which respect to
whom the qualified tuition and related expenses were received
or the reimbursement or refund was paid; (2) the name, address,
and TIN of any individual certified by the student as the
taxpayer who will claim that student as a dependent for
purposes of the deduction under section 151 for any taxable
years ending with or within the year for which the information
return is filed; (3) the aggregate amount of payments of
qualified tuition and related expenses received by the eligible
educational institution and the aggregate amount of
reimbursements or refunds (or similar amounts) paid during the
calendar year with respect to the student; and (4) such other
information as the Secretary may prescribe. Under section
6050S(d), an educational institution also must provide to each
person identified on the information return submitted to the
Secretary (e.g., the student and his or her parent(s)) a
written statement showing the name, address, and phone number
of the reporting person's information contact, and the amounts
set forth in (3) above.
On December 22, 1997, the Department of Treasury issued
Notice 97-73 setting forth the information reporting
requirements under section 6050S for 1998. Notice 97-73
describes who must report information and the nature of the
information that must be reported for 1998. In general, the
required reporting under Notice 97-73 is more limited than that
which will ultimately be required under section 6050S upon the
issuance of final regulations. Accordingly, for 1998,
educational institutions must report the following information:
(1) the name, address, and TIN of the educational institution;
(2) the name, address, and TIN of the student with respect to
whom payments of qualified tuition and related expenses were
received during 1998; (3) an indication as to whether the
student was enrolled for at least half the full-time academic
workload during any academic period commencing in 1998; and (4)
an indication as to whether the student was enrolled
exclusively in a program or programs leading to a graduate-
level degree, graduate-level certificate, or other recognized
graduate-level educational credential. Educational institutions
must provide to students the information listed above, as well
as the phone number of the information contact at the school.
Information returns must be provided to students by February 1,
1999 and filed with the IRS by March 1, 1999. Notice 97-73
states that until final regulations are adopted, no penalties
will be imposed under sections 6721 and 6722 for failure to
file correct information returns or to furnish correct
statements to the individuals with respect to whominformation
reporting is required under section 6050S. In addition, Notice 97-73
states that, even after final regulations are adopted, no penalties
will be imposed under sections 6721 and 6722 for 1998 if the
institution made a good faith effort to file information returns and
furnish statements in accordance with Notice 97-73.
House Bill
No provision.
Senate Amendment
The Senate amendment modifies the information reporting
requirements under section 6050S. In addition to reporting the
aggregate amount of payments for qualified tuition and related
expenses received by the educational institution with respect
to a student, the institution must report any grant amount
received by the student and processed through the institution
during the applicable calendar year. The institution is not
required to report on grant aid that is paid directly to the
student and is not processed through the institution. In
addition, an educational institution is required to report only
the aggregate amount of reimbursements or refunds paid to a
student by the institution (and not by any other party).
Effective date.--The provision applies to returns
required to be filed with respect to taxable years beginning
after December 31, 1998.
Conference Agreement
The conference agreement follows the Senate amendment,
but includes certain additional clarifications intended to
minimize the reporting burdens imposed on educational
institutions while preserving the ability of the IRS to monitor
compliance with respect to the HOPE Scholarship and Lifetime
Learning credits. In particular, the conference agreement
clarifies that the definition of the term ``qualified tuition
and related expenses'' shall be as set forth in section 25A,
determined without regard to section 25A(g)(2) (which requires
adjustments for certain scholarships). Eligible educational
institutions that receive payments of qualified tuition and
related expenses (or reimburse or refund such payments) are
required separately to report the following items with respect
to each student under section 6050S(b)(2)(C): (1) the aggregate
amount of qualified tuition and related expenses (not including
certain expenses relating to sports, games, or hobbies, or
nonacademic fees); (2) any grant amount (whether or not
excludable from income) received by such individual for payment
of costs of attendance and processed through the institution
during the applicable calendar year; and (3) the aggregate
amount of reimbursements or refunds (or similar amounts) paid
to such individual during the calendar year by the institution.
The conferees understand that the Department of Treasury
is in the process of issuing regulatory guidance with respect
to the education credit reporting requirements. In developing
such guidance, the conferees urge Treasury to minimize the
reporting burdens imposed on educational institutions in
connection with the HOPE Scholarship and Lifetime Learning
credits. For example, section 472(1) of the Higher Education
Act contains a definition of tuition and fees that is used in
calculating a student's total ``cost of attendance.'' The
conferees urge Treasury to conform the definition of
``qualified tuition and related expenses'' for purposes of the
HOPE Scholarship and Lifetime Learning credits to the
definition set forth in section 472(1) to the extent possible,
so as to minimize the additional reporting burden on
educational institutions.
In general, the conferees expect that the regulatory
guidance regarding the education credit reporting requirements
will have an effective date that will provide educational
institutions with sufficient time, after any notice and comment
period, to implement additional required reporting. In
addition, although the provision generally applies to taxable
years beginning after December 31, 1998, the conferees intend
that no reporting beyond the reporting currently required in
Notice 97-73 would be required of educational institutions
until such final regulatory guidance is available.
In furtherance of the objective of minimizing the
reporting burden on educational institutions, the conferees
note that, pursuant to the regulatory authority granted in
section 25A(i), Treasury may exempt educational institutions
from the reporting requirements with respect to certain
categories of students, such as non-degree students enrolled in
a course for which academic credit is not granted by the
institution, provided that such exemptions do not undermine the
overall compliance objectives of the provision. The conferees
further expect that Treasury will provide clarification
regarding the reasonable cause exception contained in section
6724(a) as it may apply to the education information reporting
requirements. Finally, the conferees urge that any update and
modernization of IRS computer systems incorporate the capacity
to match a dependent's TIN with the return filed by the person
claiming the individual as a dependent.
I. Studies
1. Administration of penalties and interest (sec. 381 of the House bill
and sec. 3801 of the Senate amendment)
Present Law
The last major comprehensive revision of the overall
penalty structure in the Internal Revenue Code was the
``Improved Penalty Administration and Compliance Tax Act,''
enacted as part of the Omnibus Budget Reconciliation Act of
1989.
House Bill
The House bill requires the Joint Committee on Taxation
to conduct a study reviewing the administration and
implementation of the penalty reform provisions of the Omnibus
BudgetReconciliation Act of 1989, and making any legislative
and administrative recommendations it deems appropriate to simplify
penalty administration and reduce taxpayer burden.
Effective date.--The report must be provided not later
than nine months after the date of enactment.
Senate Amendment
The Senate amendment requires the Joint Committee on
Taxation and the Treasury to each conduct a separate study
reviewing the interest and penalty provisions of the Code, and
making any legislative and administrative recommendations it
deems appropriate to simplify penalty administration and reduce
taxpayer burden.
Effective date.--The reports must be provided not later
than nine months after the date of enactment.
Conference Agreement
The conference agreement follows the Senate amendment.
The conferees expect that the Joint Committee on Taxation and
the Treasury Department studies will examine whether the
current penalty and interest provisions encourage voluntary
compliance. The studies should also consider whether the
provisions operate fairly, whether they are effective
deterrents to undesired behavior, and whether they are designed
in a manner that promotes efficient and effective
administration of the provisions by the IRS. The conferees
expect that the Joint Committee on Taxation and the Treasury
Department will consider comments from taxpayers and
practitioners on issues relevant to the studies.
Effective date.--The reports must be provided not later
than one year after the date of enactment.
2. Confidentiality of tax return information (sec. 382 of the House
bill and sec. 3802 of the Senate amendment)
Present Law
The Internal Revenue Code prohibits disclosure of tax
returns and return information, except to the extent
specifically authorized by the Internal Revenue Code.
Unauthorized disclosure is a felony punishable by a fine not
exceeding $5,000 or imprisonment of not more than five years,
or both. An action for civil damages also may be brought for
unauthorized disclosure. No tax information may be furnished by
the IRS to another agency unless the other agency establishes
procedures satisfactory to the IRS for safeguarding the tax
information it receives.
House Bill
The House bill requires the Joint Committee on Taxation
to conduct a study on provisions regarding taxpayer
confidentiality. The study is to examine:
(1) present-law protections of taxpayer privacy;
(2) the need for third parties to use tax return
information; and
(3) the ability to achieve greater levels of
voluntary compliance by allowing the public to know who
is legally required to file tax returns but does not do
so.
Effective date.--The findings of the study, along with
any recommendations, are required to be reported to the
Congress no later than one year after the date of enactment.
Senate Amendment
The Senate amendment requires the Joint Committee on
Taxation and Treasury to each conduct a separate study on
provisions regarding taxpayer confidentiality. The studies are
to examine:
(1) present-law protections of taxpayer privacy;
(2) the need, if any, for third parties to use tax
return information;
(3) whether greater levels of voluntary compliance
can be achieved by allowing the public to know who is
legally required to file tax returns but does not do
so;
(4) the interrelationship of the taxpayer
confidentiality provisions in the Internal Revenue Code
with those elsewhere in the United States Code (such as
the Freedom of Information Act);
(5) whether return information should be disclosed
to a State unless the State has first notified
personally in advance each person with respect to whom
information has been requested; and
(6) the impact on taxpayer privacy of sharing tax
information for the purposes of enforcing State and
local tax laws (other than income tax laws).
Effective date.--Same as the House bill.
Conference Agreement
The conference agreement generally follows the Senate
amendment. The conference agreement adds to the study an
examination of whether the public interest would be served by
greater disclosure of information relating to tax-exempt
organizations (described in section 501 of the Code). The
conference agreement deletes from the study an examination of
whether return information should be disclosed to a State
unless the State has first notified personally in advance each
person with respect to whom information has been requested.
Effective date.--The findings of the study, along with
any recommendations, are required to be reported to the
Congress no later than 18 months after the date of enactment.
3. Study of transfer pricing enforcement (sec. 3803 of the Senate
amendment)
Present Law
Section 482 authorizes the Secretary of the Treasury to
distribute, apportion or allocate gross income, deductions,
credits or allowances between or among commonly controlled
parties to prevent tax evasion or to clearly reflect income.
Regulations under section 482 generally provide for certain
transfer pricing methods that are used to determine whether
prices for transactions between or among commonly controlled
parties are based on arm's-length terms.
House Bill
No provision.
Senate Amendment
The Senate amendment directs the Internal Revenue Service
Oversight Board to undertake a study on whether the Internal
Revenue Service has the resources to prevent tax avoidance by
companies using unlawful transfer pricing methods. The Senate
amendment also directs the Internal Revenue Service to assist
in the study by analyzing its enforcement of transfer pricing
abuses, including the effectiveness of current enforcement
tools used to ensure compliance with section 482 and the scope
of nonpayment of U.S. taxes by reason of such abuses. The
findings of the study, including recommendations to improve the
Internal Revenue Service's enforcement tools to ensure that
multinational companies doing business in the United States pay
their fair share of U.S. taxes, are required to be reported to
the Congress no later than one year after the date of
enactment.
Effective date.--Date of enactment.
Conference Agreement
The conference agreement does not include the Senate
amendment.
4. Noncompliance with internal revenue laws by taxpayers (sec. 3804 of
the Senate amendment)
Present Law
No provision.
House Bill
No provision.
Senate Amendment
The Senate amendment provides that the Joint Committee on
Taxation, the Secretary of the Treasury and the Commissioner of
the Internal Revenue Service must jointly conduct a study of
taxpayers' willful noncompliance with the tax law. The study
must be reported to the Congress within one year of the date of
enactment.
Effective date.--Date of enactment.
Conference Agreement
The conference agreement follows the Senate amendment,
with clarifications that the study is to examine noncompliance
with the internal revenue laws by taxpayers (including willful
noncompliance and noncompliance due to tax law complexity or
other factors). Treasury and IRS are to conduct the study, in
consultation with the Joint Committee on Taxation.
5. Payments for informants (sec. 3714 of the Senate amendment)
Present Law
Under present law, rewards may be paid for information
relating to civil violations, as well as criminal violations.
Present law also provides that the rewards are paid out of the
proceeds of amounts (other than interest) collected by reason
of the information provided. An annual report on the rewards
program is required.
House Bill
No provision.
Senate Amendment
The Senate amendment requires a study and report by
Treasury to the Congress (within one year of the date of
enactment) of the present-law reward program (including
results) and any legislative or administrative recommendations
regarding the program and its application.
Effective date.--Date of enactment.
Conference Agreement
The conference agreement follows the Senate amendment.
TITLE IV. CONGRESSIONAL ACCOUNTABILITY FOR THE IRS
A. Review of Requests for GAO Investigations of the IRS (sec. 401 of
the House bill)
Present Law
There is currently no specific statutory requirement that
requests for investigations by the General Accounting Office
(``GAO'') relating to the IRS be reviewed by the Joint
Committee on Taxation (the ``Joint Committee''). However, some
of the studies that GAO conducts relating to taxation and
oversight of the IRS require access under section 6103 of the
Code to confidential tax returns and return information. Under
section 6103, the GAO may inform the Joint Committee of its
initiation of an audit of the IRS and obtain access to
confidential taxpayer information unless, within 30 days, \3/
5\ths of the Members of the Joint Committee disapprove of the
audit. This provision has not been utilized; the GAO generally
seeks advance access to confidential taxpayer return
information from the Joint Committee.
House Bill
Under the House bill, the Joint Committee on Taxation
reviews all requests (other than requests by the chair or
ranking member of a Committee or Subcommittee of the Congress)
for investigations of the IRS by the GAO and approves such
requests when appropriate. In reviewing such requests, the
Joint Committee is to eliminate overlapping investigations,
ensure that the GAO has the capacity to handle the
investigation, and ensure that investigations focus on areas of
primary importance to tax administration.
The provision does not change the present-law rules under
section 6103.
Effective date.--The House bill provision is effective
with respect to requests for GAO investigations made after the
date of enactment.
Senate Amendment
No provision.
Conference Agreement
The conference agreement follows the House bill. The
conferees intend that the provision exclude requests made by
the chairman or ranking member of a committee or subcommittee,
investigations required by statute, and work initiated by GAO
under its basic statutory authorities.
Effective date.--Same as the House bill.
B. Joint Congressional Hearings and Coordinated Oversight Reports
(secs. 401 and 402 of the House bill)
Present Law
Under the present Congressional committee structure, a
number of committees have jurisdiction with respect to IRS
oversight. The committees most responsible for IRS oversight
are the House Committees on Ways and Means, Appropriations,
Government Reform and Oversight, the corresponding Senate
Committees on Finance, Appropriations, and Governmental
Affairs, and the Joint Committee on Taxation. While these
Committees have a shared interest in IRS matters, they
typically act independently, and have separate hearings and
make separate investigations into IRS matters. Each committee
also has jurisdiction over certain issues. For example, the
House Ways and Means Committee and the Senate Finance Committee
have exclusive jurisdiction over changes to the tax laws.
Similarly, the House and Senate Appropriations Committees have
exclusive jurisdiction over IRS annual appropriations. The
Joint Committee does not have legislative jurisdiction, but has
significant responsibilities with respect to tax matters and
IRS oversight.
House Bill
Under the House bill, there will be two annual joint
hearings of two majority and one minority members of each of
the Senate Committees on Finance, Appropriations, and
Governmental Affairs and the House Committees on Ways and
Means, Appropriations, and Government Reform and Oversight. The
first annual hearing is to take place before April 1 of each
calendar year and is to review the strategic plans and budget
for the IRS (including whether the budget supports IRS
objectives). The second annual hearing is to be held after the
conclusion of the annual tax filing season, and is to review
the progress of the IRS in meeting its objectives under the
strategic and business plans, the progress of the IRS in
improving taxpayer service and compliance, progress of the IRS
on technology modernization, and the annual filing season. The
bill does not modify the existing jurisdiction of the
Committees involved in the joint hearings.
The House bill provides that the Joint Committee is to
make annual reports to the Committee on Finance and the
Committee on Ways and Means on the overall state of the Federal
tax system, together with recommendations with respect to
possible simplification proposals and other matters relating to
the administration of the Federal tax system as it may deem
advisable. The Joint Committee also is to report annually to
the Senate Committees on Finance, Appropriations, and
Governmental Affairs and the House Committees on Ways and
Means, Appropriations, and Government Reform and Oversight with
respect to the matters that are the subject of the annual joint
hearings of members of such Committees.
Effective date.--The House bill provision is effective on
the date of enactment.
Senate Amendment
No provision.
Conference Agreement
The conference agreement follows the House bill, with
modifications. The conference agreement provides that there
will be one annual joint hearing to review: (1) the progress of
the IRS in meeting its objectives under the strategic and
business plans; (2) the progress of the IRS in improving
taxpayer service and compliance; (3) the progress of the IRS on
technology modernization; and (4) the annual filing season. The
joint review will be held at the call of the Chairman of the
Joint Committee on Taxation, and is to take place before June 1
of each calendar year.
In addition, the conference agreement modifies the House
bill provision requiring the Joint Committee on Taxation to
report on the overall state of the Federal tax system to
provide that such report shall be prepared once in each
Congress, but only if amounts necessary to carry out this
requirement are specifically appropriated to the Joint
Committee on Taxation.
Effective date.--Same as House bill, except that the
requirement for an annual joint review, and report by the Joint
Committee on Taxation, shall apply only for calendar years
1999-2003.
C. Budget Matters
1. Funding for century date change (sec. 411 of the House bill and sec.
4001 of the Senate amendment)
Present Law
No specific provision.
House Bill
The House bill provides that it is the sense of the
Congress that the IRS efforts to resolve the century date
change computing problems should be fully funded to provide for
certain resolution of such problems.
Effective date.--The House bill provision is effective on
the date of enactment.
Senate Amendment
The Senate amendment provides that it is the sense of the
Congress that the IRS should place resolving the century date
change computing problems as a high priority. The Senate
amendment also provides that the Commissioner shall
expeditiously submit a report to theCongress on the overall
impact of the Senate amendment on the ability of the IRS to resolve the
century date change computing problems and on the provisions of the
Senate amendment that will require significant amounts of computer
programming changes prior to December 31, 1999, in order to carry out
the provisions.
Effective date.--The Senate amendment provision is
effective on the date of enactment.
Conference Agreement
The conference agreement follows the House bill and the
Senate amendment with respect to the Sense of the Congress with
respect to resolving the century date change conversion
problems. The conference agreement does not include the Senate
amendment provision requiring the Commissioner to report to the
Congress on the impact of the legislation on the ability of the
IRS to resolve century date change problems.
Effective date. Same as the House bill and Senate
amendment.
2. Financial management advisory group (sec. 412 of the House bill)
Present Law
No provision.
House Bill
The House bill directs the Commissioner to convene a
financial management advisory group consisting of individuals
with expertise in governmental accounting and auditing from
both the private sector and the Government to advise the
Commissioner on financial management issues.
Effective date.--The House bill provision is effective on
the date of enactment.
Senate Amendment
No provision.
Conference Agreement
The conference agreement does not include the House bill
provision. However, the conferees expect that the Chairman of
the Oversight Board will consider establishing a financial
management subcommittee to advise the Commissioner on financial
management issues.
D. Tax Law Complexity Analysis (sec. 421 and 422 of the House bill,
sec. 4002 of the Senate amendment)
Present Law
Present law does not require a formal complexity analysis
with respect to changes to the tax laws.
House Bill
Role of the IRS.--The House bill provides that it is the
sense of the Congress that the IRS should provide the Congress
with an independent view of tax administration and that the
tax-writing committees should hear from front-line technical
experts at the IRS during the legislative process with respect
to the administrability of pending amendments to the Internal
Revenue Code.
Complexity analysis.--The House bill requires the staff
of the Joint Committee on Taxation to provide a ``Tax
Complexity Analysis'' for legislation reported by the Senate
Committee on Finance and the House Committee on Ways and Means
and conference reports amending the tax laws. The Tax
Complexity Analysis is to identify those provisions in the bill
or conference report that, as determined by the staff of the
Joint Committee, add significant complexity to the tax laws, or
provide significant simplification. The Complexity Analysis is
required to include a discussion of the basis for the
determination by the staff of the Joint Committee. It is
expected that, in general, the Complexity Analysis will be
limited to no more than 20 provisions. If the staff of the
Joint Committee determines that a bill or conference report
does not contain any provisions that add significant complexity
or simplification to the tax laws, then the Complexity Analysis
is to contain a statement to that effect.
Factors that may be taken into account by the staff of
the Joint Committee in preparing the Complexity Analysis
include the following: (1) whether the provision is new,
modifies or replaces existing law, and whether hearings were
held to discuss the proposal and whether the IRS provided input
as to its administrability; (2) when the provision becomes
effective and corresponding compliance requirements on
taxpayers; (3) whether new IRS forms or worksheets are needed,
whether existing forms or worksheets must be modified, and
whether the effective date allows sufficient time for the IRS
to prepare such forms and educate taxpayers; (4) necessity of
additional interpretive guidance (e.g., regulations, rulings,
notices); (5) the extent to which the proposal relies on
concepts contained in existing law, including definitions; (6)
effect on existing record keeping requirements and the
activities of taxpayers, complexity of calculations and likely
behavioral response, and standard business practices and
resource requirements; (7) number, type, and sophistication of
affected taxpayers; and (8) whether the proposal requires the
IRS to assume responsibilities not directly related to raising
revenue which could be handled through another Federal agency.
The House bill requires the Commissioner to provide the
Joint Committee with such information as is necessary to
prepare each required Tax Complexity Analysis.
A point of order arises with respect to the floor
consideration of a bill or conference report that does not
contain the required Complexity Analysis. The point of order
may be waived by a majority vote.
Effective date.--The requirement of the House bill for a
Tax Complexity Analysis is effective with respect to
legislation considered on or after January 1, 1998.
Senate Amendment
Role of the IRS.--The IRS is to report to the House Ways
and Means Committee and the Senate Finance Committee annually
regarding sources of complexity in the administration of the
Federal tax laws. Factors the IRS may take into account
include: (1) frequently asked questions by taxpayers; (2)
common errors made by taxpayers in filling out returns; (3)
areas of the law that frequently result in disagreements
between taxpayers and the IRS; (4) major areas in which there
is no or incomplete published guidance or in which the law is
uncertain; (5) areas in which revenue agents make frequent
errors in interpreting or applying the law; (6) impact of
recent legislation on complexity; (7) information regarding
forms, including a listing of IRS forms, the time it takes for
taxpayers to complete and review forms, the number of taxpayers
who use each form, and how the time required changed as a
result of recently enacted legislation; and (8) recommendations
for reducing complexity in the administration of the Federal
tax system.
Complexity analysis with respect to current
legislation.--The Senate amendment requires the Joint Committee
on Taxation (in consultation with the IRS and Treasury) to
provide an analysis of complexity or administrability concerns
raised by tax provisions of widespread applicability to
individuals or small businesses. The analysis is to be included
in any Committee Report of the House Ways and Means Committee
or Senate Finance Committee or Conference Report containing tax
provisions, or provided to the Members of the relevant
Committee or Committees as soon as practicable after the report
is filed. The analysis is to include: (1) an estimate of the
number and type of taxpayers affected; and (2) if applicable,
the income level of affected individual taxpayers. In addition,
such analysis should include, if determinable, the following:
(1) the extent to which existing tax forms would require
revision and whether a new form or forms would be required; (2)
whether and to what extent taxpayers would be required to keep
additional records; (3) the estimated cost to taxpayers to
comply with the provision; (4) the extent to which enactment of
the provision would require the IRS to develop or modify
regulatory guidance; (5) whether and to what extent the
provision can be expected to lead to disputes between taxpayers
and the IRS; and (6) how the IRS can be expected to respond to
the provision (including the impact on internal training,
whether the Internal Revenue Manual would require revision,
whether the change would require reprogramming of computers,
and the extent to which the IRS would be required to divert or
redirect resources in response to the provision).
Effective date.--The provision of the Senate amendment
requiring the Joint Committee on Taxation to provide a
complexity analysis is effective with respect to legislation
considered on or after January 1, 1999. The provision requiring
the IRS to report on sources of complexity is effective on the
date of enactment.
Conference Agreement
Role of the IRS.--The conference agreement follows the
House bill and the Senate amendment. Under the conference
agreement, the Commissioner's report on complexity is to be
transmitted to the Congress not later than March 1 of each
year.
Complexity analysis.--The conference agreement follows
the Senate amendment with a modification to provide that a
point of order arises in the House of Representatives with
respect to the floor consideration of a bill or conference
report if the required complexity analysis has not been
completed. The point of order may be waived by a majority vote.
The point of order is subject to the Constitutional right of
each House of the Congress to establish its own rules and
procedures; thus, such point of order may be changed at any
time pursuant to the procedures of the House of
Representatives.
The conferees intend that the complexity analysis be
prepared by the staff of the Joint Committee on Taxation, and
that it shall, to the extent feasible, be included in committee
or conference committee reports.
Effective date.--The provisions of the conference
agreement are effective for calendar years after 1998.
TITLE V. ADDITIONAL PROVISIONS
A. Elimination of 18-Month Holding Period for Capital Gains
Present Law
The Taxpayer Relief Act of 1997 Act (``the 1997 Act'')
provided lower capital gains rates for individuals. Generally,
the 1997 Act reduced the maximum rate on the adjusted net
capital gain of an individual from 28 percent to 20 percent and
provided a 10-percent rate for the adjusted net capital gain
otherwise taxed at a 15-percent rate. The ``adjusted net
capital gain'' is the net capital gain determined without
regard to certain gain for which the 1997 Act provided a higher
maximum rate of tax. The 1997 Act retained the prior-law 28-
percent maximum rate for net long-term capital gain
attributable to the sale or exchange of collectibles, certain
small business stock to the extent the gain is included in
income, and property held more than one year but not more than
18 months. In addition, the 1997 Act provided a maximum rate of
25 percent for the long-term capital gain attributable to
depreciation from real estate held more than 18 months.
Beginning in 2001, lower rates of 8 and 18 percent will apply
to the gain from certain property held more than five years.
House Bill
No provision.
Senate Amendment
No provision.
Conference Agreement
Under the conference agreement, property held more than
one year (rather than more than 18 months) will be eligible for
the 10-, 20-, and 25-percent capital gain rates provided by the
1997 Act.
Effective date.--The conference agreement applies to
amounts properly taken into account on or after January 1,
1998.
B. Deductibility of Meals Provided for the Convenience of the Employer
Present Law
In general, subject to several exceptions, only 50
percent of business meals and entertainment expenses are
allowed as a deduction (sec. 274(n)). Under one exception,
meals that are excludable from employees' incomes as a de
minimis fringe benefit (sec. 132) are fully deductible by the
employer.
In addition, the courts that have considered the issue
have held that if substantially all of the meals are provided
for the convenience of the employer pursuant to section 119,
the cost of such meals is fully deductible because the employer
is treated as operating a de minimis eating facility within the
meaning of section 132(e)(2) (Boyd Gaming Corp. v. Commissioner
\1\ and Gold Coast Hotel & Casino v. I.R.S.\2\).
---------------------------------------------------------------------------
\1\ 106 T.C. No. 19 (May 23, 1996).
\2\ U.S. D.C. Nev. CV-5-94-1146-HDM(LRL) (September 26, 1996).
---------------------------------------------------------------------------
House Bill
No provision.
Senate Amendment
No provision.
Conference Agreement
The bill provides that all meals furnished to employees
at a place of business for the convenience of the employer are
treated as provided for the convenience of the employer under
section 119 if more than one-half of employees to whom such
meals are furnished on the premises are furnished such meals
for the convenience of the employer under section 119. If these
conditions are satisfied, the value of all such meals would be
excludable from the employee's income and fully deductible to
the employer. No inference is intended as to whether such meals
are fully deductible under present law.
Effective date.--The provision is effective for taxable
years beginning before, on, or after the date of enactment.
C. Normal Trade Relations
Present Law
In the context of U.S. tariff legislation, section 251 of
the Trade Expansion Act of 1962 states the principle of ``most-
favored-nation'' (MFN) treatment, requiring tariff treatment to
be applied to all countries equally. Specifically, the products
of a country given MFN treatment are subject to rates of duty
found in column 1 of the Harmonized Tariff Schedule (HTS) of
the United States. Products from countries not eligible for MFN
treatment under U.S. law are subject to higher rates of duty
(found in column 2 of the HTS). Under current U.S. law, only
sixcountries are subject to column 2 treatment: Afghanistan,
Cuba, Laos, North Korea, Serbia and Montenegro, and Vietnam. The
remaining U.S. trading partners are subject to either conditional or
unconditional MFN treatment, or to even more preferential rates than
MFN under free trade agreements (Israel, Canada, and Mexico) and under
unilateral grants of tariff preference (the Generalized System of
Preferences, the Caribbean Basin Initiative, and the Andean Trade
Preferences Act).
House Bill
No provision.
Senate Amendment
No provision.
Conference Agreement
The provision would change the terminology used in U.S.
trade statutes from ``most-favored-nation'' (MFN) to ``normal
trade relations'' (NTR) in order to reflect more accurately the
nature of the trade relationship in question. The legislation
would not change the tariff treatment received by any country.
The Committee has long been concerned that the term
``most-favored-nation'' is a misnomer and does not accurately
reflect the nature of the trading relationship in question. The
terminology implies that a country receiving MFN is somehow
receiving treatment that is special or better than what a
country would normally receive. In reality, however, a country
receiving MFN receives nothing more than ordinary or normal
treatment. Only six countries receive treatment that is less
favorable than this normal treatment. In addition, three
countries actually receive tariff treatment that is better than
MFN because they participate in a free trade agreement with the
United States and numerous others receive treatment more
favorable than MFN under unilateral grants of trade preference
signifying that the ``most'' favored terminology is misleading.
The Committee believes that the MFN terminology has led
to confusion and a misunderstanding of Congressional and
Presidential action concerning the trade statutes. Accordingly,
the Subcommittee strongly believes that the terminology should
be changed to reflect the true nature of the trading
relationship: merely normal relations.
The Committee does not intend that the change in
terminology from MFN to NTR have any affect whatsoever on the
meaning of any existing U.S. law or practice. It would not
change any procedures under existing law for granting or
removing MFN status. Rather, the new term is to have the same
meaning as MFN as is currently defined in domestic legislation
and international agreements and would not change the tariff
treatment granted by the United States to any of its trading
partners.
TITLE VI. TAX TECHNICAL CORRECTIONS
House Bill
The House bill contains technical, clerical and
conforming amendments to the Taxpayer Relief Act of 1997 (the
``1997 Act'') and other recently enacted legislation. The
provisions generally are effective as if enacted in the
original legislation to which each provision relates.\1\
---------------------------------------------------------------------------
\1\ For a description of the House provisions, see H. Rept. 105-356
(H.R. 2645), October 29, 1997. The provisions of H.R. 2645, as reported
by the House Committee on Ways and Means, were included as an amendment
(Title VI) to H.R. 2676, as passed by the House on November 5, 1997.
---------------------------------------------------------------------------
Senate Amendment
The Senate amendment is the same as the House bill, with
the following modifications, additions, and deletion:
1. Child Tax Credit Provisions of the 1997 Act
Treatment of a portion of the child credit as a
supplemental child credit.--The Senate amendment modifies the
provision of the House bill intended to clarify the treatment
of a portion of the child credit as a supplemental child credit
under the earned income credit and an offsetting reduction of
the child credit. Specifically, the Senate amendment clarifies
the computation of the amount of the child credit that is
treated as a supplemental child credit. Both the House bill and
the Senate amendment clarify that such treatment does not
affect the total tax credits allowed to the taxpayer or any
other tax credit available to the taxpayer.
2. Education Incentives of the 1997 Act
Education IRAs.--The Senate amendment adds provisions to:
(1) provide that the excise tax of section 4973 applies to each
year that an excess contribution remains in an education IRA;
(2) clarify that a beneficiary of an education IRA must be a
life-in-being; (3) clarify that the 10-percent excise tax
provided under section 530(d)(4) will not be imposed in cases
where a distribution from an education IRA is includable in
gross income solely because the taxpayer elects the HOPE or
Lifetime Learning credit with respect to the beneficiary; (4)
clarify that, in the event of the death of the designated
beneficiary, the balance remaining in an education IRA may be
distributed to any other beneficiary or to the estate of the
deceased designated beneficiary, and a tax-free rollover of the
account will be allowed if any member of the family becomes the
new beneficiary; and (5) provide that if expenses are taken
into account in determining the amount of the exclusion under
section 530 for a distribution from an education IRA, then no
deduction, exclusion, or credit is allowed under the Code with
respect to such expenses.
Student loan interest.--The Senate amendment adds a
provision to clarify that only a taxpayer who is required to
make interest payments under the terms of the loan may deduct
such payments as student loan interest.
Enhanced deduction for corporate donations of
computers.--The Senate amendment adds a provision to clarify
the requirements applicable to entities and organizations to
which computers may be donated for purposes of the enhanced
deduction.
Qualified State tuition programs.--The Senate amendment
adds a provision that includes the original beneficiary's
spouse within the definition of ``member of the family.''
Qualified zone academy bonds.--The Senate amendment adds
a provision that clarifies the treatment of the credit for
purposes of the estimated tax and overpayment rules.
3. Savings Incentives of the 1997 Act
Conversion of IRAs into Roth IRAs.--Under the Senate
amendment, in the case of conversions of IRAs into Roth IRAs,
the taxpayer is able to elect to have the amount converted
includable in income in the year of the conversion (or the year
of withdrawal if the conversion is accomplished through a
rollover) rather than ratably over 4 years. The Senate
amendment does not include the additional 10-percent recapture
tax applicable to premature withdrawals of amounts to which the
4-year spread applies. Instead, under the Senate amendment, if
an individual elects application of the 4-year spread and
withdraws amounts before the entire amount of the conversion
has been included in income, the amount withdrawn is includable
in income (in addition to any amount required to be included
under the 4-year spread). In no case will the amount includable
under this provision exceed the amount converted. The Senate
amendment does not include the rules in the House bill
regarding separate accounts for converted amounts and instead
includes ordering rules for determining the character of
withdrawals from Roth IRAs.
Under the Senate amendment, a new 5-year holding period
for determining whether distributions from a Roth IRA are
qualified distributions does not apply to converted amounts.
Thus, the 5-year holding period begins with the year for which
a contribution (including a rollover contribution) was made.
The Senate amendment also clarifies calculation of
adjusted gross income for purposes of applying the $100,000
adjusted gross income (``AGI'') limit on individuals eligible
to convert IRAs to Roth IRAs. Under the Senate amendment, the
applicable AGI is AGI for the year of the distribution to which
the conversion relates. In addition, under the Senate
amendment, it is intended that in determining AGI, the
conversion amount (to the extent otherwise includable in AGI)
is subtracted from AGI for the year of the distribution.
Penalty-free distributions for education expenses and
purchase of first homes.--The Senate amendment modifies the
provision in the House bill intended to prevent avoidance of
the 10-percent early withdrawal tax by providing that hardship
distributions from qualified cash or deferred arrangements and
tax-sheltered annuities are not eligible rollover distributions
(and not subject to 20-percent withholding). The Senate
amendment also modifies the effective date of the House bill
provision. The Senate amendment is effective for distributions
after December 31, 1998.
4. Capital Gains Provisions of the 1997 Act
The Senate amendment modifies two provisions of the House
bill to: (1) clarify the provision relating to the holding
period of positions in certain short sales and straddles; and
(2) provide that new section 1045 (relating to rollovers of
small business stock) applies to stock held by certain
partnerships with trusts as partners. The Senate amendment adds
a provision to clarify the amount of exclusion applicable to
the sale of a principal residence by a married couple filing a
joint return who do not qualify for the full $500,000
exclusion.
5. Alternative Minimum Tax Provisions of the 1997 Act
The Senate amendment adds provisions that: (1) conform
the regular-tax election to use AMT depreciation to the changes
made to AMT depreciation by the 1997 Act; and (2) clarify the
eligibility of the small corporation exemption.
6. Estate and Gift Tax Provisions of the 1997 Act
The Senate amendment modifies the provisions of the House
bill to: (1) clarify the effective date for the generation-
skipping exemption; (2) coordinate the unified credit and the
qualified family-owned business exclusion; and (3) clarify the
rules governing revaluation of gifts. The Senate amendment also
adds provisions that: (1) clarify the phaseout range for the 5-
percent surtax to phase out the benefits of the unified credit
and graduated rates; (2) clarify that interests eligible for
the family-owned business exclusion must be passed to a
qualified heir; (3) clarify the ``trade or business''
requirement for the family-owned business exclusion; (4)
convert the family-owned business exclusion into a deduction;
(5) make other technical changes to items cross-referenced in
the family-owned business provision; and (6) clarify the
treatment of post-mortem conservation contributions.
7. D.C. Zone Incentives of the 1997 Act
The Senate amendment adds provisions that clarify the
definitions of businesses and property eligible for special
incentives available with respect to the D.C. Zone. In
addition, the Senate amendment provides that the income phase-
out rules applicable to the D.C. first-time homebuyer credit
apply only in the year the credit is generated and not in
subsequent carryover years.
8. Miscellaneous Provisions of the 1997 Act
The Senate amendment adds provisions that: (1) clarify
the qualification of the reduced rate of tax on hard ciders;
(2) clarify the treatment of the tax paid by electing publicly
treated partnerships; (3) modify the depreciation limitation of
electric vehicles; and (4) modify the definition of ``non-
Amtrak State'' for purposes of the Amtrak net operating loss
provision.
9. Revenue-Increase Provisions of the 1997 Act
The Senate amendment adds provisions that: (1) clarify
that the exception to the constructive sales rules for
positions with respect to straight debt instruments does not
apply to positions that are convertible into stock; (2) provide
coordination between the basis adjustment rules relating to
extraordinary dividends and similar rules applicable to
consolidated returns; (3) clarify the interaction of section
355 and rules relating to certain divisive transactions
involving asset contributions to a subsidiary; (4) clarify the
application of section 304 to certain international
transactions; (5) clarify the treatment of prepaid telephone
cards for telephone excise tax purposes; (6) modify the
unrelated business income tax rules applicable to second-tier
subsidiaries; (7) modify the interaction between section 901(k)
and the foreign tax credit flow- through rules for RICs; (8)
clarify the treatment of additional covered lives under a
master contract for purposes of the effective date of the
provision relating to company owned life insurance; (9) make a
clerical amendment to the definition of wages under the earned
income credit; and (10) clarify the allocation of basis of
properties distributed by a partnership.
10. Foreign Provisions of the 1997 Act
The Senate amendment adds provisions that: (1) clarify
the treatment of PFIC option holders; (2) clarify the
application of PFIC mark-to-market rules to RICs; and (3)
clarify the interaction between the PFIC and other mark-to-
market regimes.
11. Simplification Provisions of the 1997 Act
The Senate amendment adds a provision that provides that
distributions from a REIT are deemed to first come from any
non-REIT earnings.
12. Estate, Gift, and Trust Simplification Provisions of the 1997 Act
The Senate amendment adds provisions that: (1) clarify
the treatment of revocable trusts for purposes of the
generation-skipping transfer tax; and (2) provide regulatory
authority for simplified reporting of funeral trusts terminated
during the taxable year.
13. Excise Tax Simplification Provisions of the 1997 Act
The Senate amendment clarifies that the 1997 Act's
provision liberalizing rules for bulk importation of wine
applies only to alcohol that would qualify as a natural wine if
produced in the United States.
14. Pension and Employee Benefits Provisions of the 1997 Act
The Senate amendment adds a clarification to the scope of
the provision relating to the treatment of disability payments
made to public safety employees.
15. Technical Corrections Relating to Other Legislation
Adoption credit.--The Senate amendment adds a provision
that provides that the phaseout rules applicable to the
adoption credit are not applicable to credit carryovers.
Disclosure requirements of apostolic organizations.--The
Senate amendment adds a provision that provides that section
501(d) apostolic organizations are not required to disclose
Schedules K-1.
Earned income credit qualification.--The Senate amendment
adds provisions that clarify the application of the taxpayer
identification number rules for purposes of determining
eligibility for the earned income credit.
Stapled REIT grandfather rule.--The Senate amendment does
not include the provision of the House bill relating to the
grandfather rule applicable to stapled REITs.
Conference Agreement
The conference agreement follows the Senate amendment,
with the following modifications, additions, and deletions.
1. Education Incentives of the 1997 Act
Education IRAs.--The conference agreement clarifies that
for purposes of the special rules regarding tax-free rollovers
and changes of designated beneficiaries, the new beneficiary
must be under the age of 30.
Deduction for student loan interest.--The conference
agreement clarifies that a ``qualified education loan'' means
any indebtedness incurred solely to pay qualified higher
education expenses. Thus, revolving lines of credit generally
would not constitute qualified education loans unless the
borrower agreed to use the line of credit to pay only
qualifying education expenses. The conference agreement further
provides Treasury with authority to issue regulations regarding
the calculation of the 60-month period in the case of
consolidated loans, collapsed loans, and loans made before the
date of enactment of the Taxpayer Relief Act of 1997 (August 5,
1997) for purposes of determining the deductibility of interest
paid on such loans. In this regard, the conferees expect that
such regulations would mirror the guidance contained in
Notice98-7 issued regarding the establishment of the 60-month period
with respect to such loans for reporting purposes. The provision is
effective for interest payments due and paid after December 31, 1997,
on any qualified education loan.
2. Savings and Investment Incentives of the 1997 Act
Conversion of IRAs into Roth IRAs.--The conferees wish to
clarify that for purposes of determining the $100,000 adjusted
gross income (``AGI'') limit on IRA conversions to Roth IRAs,
the conversion amount is not taken into account. Thus, for this
purpose, AGI (and all AGI-based phaseouts) are to be determined
without taking into account the conversion amount. For purposes
of computing taxable income, the conversion amount (to the
extent otherwise includible in AGI) is to be taken into account
in computing the AGI-based phaseout amounts. The conferees wish
to clarify that the language of the Senate Finance committee
report (appearing in connection with section 6005(b) of the
Senate amendment) relating to calculation of AGI limit for
conversions is superceded.
Small business stock rollover.--The conference agreement
provides that rules similar to the rules contained in
subsections (f) through (k) of section 1202 will apply for
purposes of the rollover provision (sec. 1045). Under these
rules, for example, the benefit of a tax-free rollover with
respect to the sale of small business stock by a partnership
will flow through to a partner who is not a corporation if the
partner held its partnership interest at all times the
partnership held the small business stock. A similar rule
applies to S corporations. The conference agreement does not
contain any provision limiting the types of partners or
shareholders that a partnership or S corporation may have in
order for the benefits of section 1045 to apply to a
noncorporate partner or shareholder.
3. Estate and Gift Tax Provisions of the 1997 Act
Phaseout range for the 5-percent surtax to phase out the
benefits of the unified credit and graduated rates.--The
conference agreement does not include the provision in the
Senate amendment clarifying the phaseout range for the 5-
percent surtax to phase out the benefits of the unified credit
and graduated rates.
Qualification for an estate tax deduction for qualified
family-owned business interest in the case of cash leases by
decedent to family member.--The conference agreement clarifies
that an interest in property will not be disqualified, in whole
or in part, as an interest in a family-owned business where the
decedent leases that interest on a net cash basis to a member
of the decedent's family who uses the leased property in an
active business. The rental income derived by the decedent from
the net cash lease in those circumstances is not treated as
personal holding company income for purposes of Code section
2057.
4. Miscellaneous Provisions of the 1997 Act
Fuel excise tax provisions.--The conference agreement
does not include the provisions in the Senate amendment
relating to fuel excise taxes that were enacted in the
Transportation Equity Act for the 21st Century.
5. Revenue Increase Provisions of the 1997 Act
Coordination between basis adjustment rules relating to
extraordinary dividends and similar rules applicable to
consolidated returns.--With respect to the Senate amendment
regarding gain recognition for certain extraordinary dividends,
the conference agreement clarifies that Congress intends that,
except as provided in regulations to be issued, section 1059
does not cause current gain recognition to the extent that the
consolidated return regulations require the creation or
increase of an excess loss account with respect to a
distribution. Thus, current Treas. Reg. sec. 1.1059(e)-1(a)
does not result in gain recognition with respect to
distributions within a consolidated group to the extent such
distribution results in the creation or increase of an excess
loss account under the consolidated return regulations.
Holding period requirement for claiming foreign tax
credits with respect to dividends.--The 1997 Act added section
901(k), which denies a shareholder foreign tax credits normally
available with respect to a dividend if the shareholder has not
held the stock for a minimum period during which it is not
protected from risk of loss. Section 901(k)(4), ``Exception for
certain taxes paid by securities dealers,'' provides an
exception for foreign tax credits with respect to certain
dividends received on stock held in the active conduct of a
securities business in a foreign country. The Ways and Means
and Finance committee reports provide that the exception is
available only for dividends received on ``stock which the
shareholder holds in its capacity as a dealer in securities.''
H. Rept. 105-148, 105th Cong., 1st Sess. 546 (1997); S. Rept.
105-33, 105th Cong., 1st Sess 176 (1997). The conference
agreement clarifies that the exception of section 901(k)(4) is
available only for dividends received on stock that the
shareholder holds in its capacity as a dealer in securities.
Extension of diesel fuel excise taxes to kerosene.--The
conference agreement includes clarifications of the rules under
which aviation grade kerosene may be removed for use as
aviation fuel without payment of the highway excise taxes.
6. Individual and Business Simplification Provisions of the 1997 Act
Magnetic media returns for partnerships having more than
100 partners.--Present law, as amended by the 1997 Act,
provides that the Treasury Secretary is to require partnerships
with more than 100 partners to file returns on magnetic media
(sec. 6011(e)). Present law also imposes a penalty in the case
of failure to meet magnetic media requirements. The conference
agreement clarifies that the penalty under section 6724(c) for
failure to comply with the requirement of filing returns on
magnetic media applies to the extent such a failure occurs with
respect to more than 100 information returns, in the case of a
partnership with more than 100 partners.
7. Foreign Tax Provisions of the 1997 Act
Information reporting with respect to certain foreign
corporations and partnerships.--Present law, as amended by the
1997 Act, provides that reporting rules apply to controlled
foreign corporations and foreign partnerships (sec. 6038). The
conference agreement clarifies that guidance relating to the
furnishing of required information is to be provided by the
Secretary of the Treasury (not specifically through
regulations), and conforms the use of the defined term, foreign
business entity.
8. Excise Tax and Other Simplification Provisions of the 1997 Act
Refunds when wine returned to wineries or beer returned
to breweries.--The 1997 Act added a provision that tax is
refunded when tax-paid wine is returned to a winery or tax-paid
beer is returned to a brewery (secs. 5044 and 5056). The Code
provisions allowing these refunds speak of beverages produced
in the United States. A separate provision of the 1997 Act
provided that beer and wine imported ``in bulk'' would be taxed
under the rules for domestically produced beverages. The
conference agreement provides that the refund provisions are
coordinated with the provision on tax treatment of bulk
imports.
Transfers of bulk imports of wine to wineries or beer to
breweries.--Prior to the 1997 Act, imported beer and wine
always were taxed upon importation (secs. 5043 and 5054). The
1997 Act added provisions for non-tax-paid transfers of bulk
imports to breweries and wineries (secs. 5364 and 5418). The
conference agreement conforms the provisions imposing tax in
all cases on importation to recognize these allowed transfers.
Under the conference agreement, liability for tax payment
shifts to the brewery or winery when bulk imports are
transferred with payment of tax, just as those parties are
liable for payment of tax on domestically produced beer and
wine.
9. Taxpayer Bill of Rights 2 (1996)
Disclosure of returns and return information.--The rules
regarding disclosure of returns and return information were
amended in 1996 to permit certain disclosures in two additional
circumstances. Present law provides that, in the case of a
deficiency with respect to a joint return of individuals who
are no longer married or no longer residing in the same
household, the Treasury Secretary is permitted to disclose to
one such individual whether there has been an attempt to
collect the deficiency from the other individual, the general
nature of such collection activities, and the amount collected
(sec. 6103(e)(8)). Present law also provides that if the
Treasury Secretary determines that a person is liable for a
penalty for failure to collect and pay over tax, the Secretary
is permitted to disclose to that person the name of any other
person liable for that penalty, and whether there has been an
attempt to collect the deficiency from the other individual,
the general nature of such collection activities, and the
amount collected (sec. 6103(e)(9)). The conference agreement
clarifies that these disclosures, like certain other
disclosures permitted under present law, may be made under
section 6103(e)(6) to the duly authorized attorney in fact of
the person making the disclosure request. The provision takes
effect on date of enactment.
10. Transportation Equity Act for the 21st Century (``TEA 21'') (1998)
Simplified refund provisions for tax on gasoline, diesel
fuel and kerosene.--TEA 21 included a provision combining the
Code refund provisions for gasoline, diesel fuel, and kerosene
and reducing the minimum claim amount. Under TEA 21, claims may
be filed once a $750 threshold is reached for gasoline, diesel
fuel, and kerosene combined, and overpayments attributable to
multiple calendar quarters may be aggregated in determining
whether this threshold is met (rather than claims being filed
only with respect to a single calendar quarter). The conference
agreement adds a provision conforming a current Code timing
provision to reflect the portion of the TEA 21 provision that
allows aggregation of multiple calendar quarters into a single
refund claim.
TITLE VII. REVENUE OFFSETS
A. Employer Deductions for Vacation and Severance Pay (sec. 501 of the
House Bill and sec. 5001 of the Senate Amendment)
Present Law
For deduction purposes, any method or arrangement that
has the effect of a plan deferring the receipt of compensation
or other benefits for employees is treated as a deferred
compensation plan (sec 404(b)). In general, contributions under
a deferred compensation plan (other than certain pension,
profit-sharing and similar plans) are deductible in the taxable
year in which an amount attributable to the contribution is
includible in income of the employee. However, vacation pay
which is treated as deferred compensation is deductible for the
taxable year of the employer in which the vacation pay is paid
to the employee (sec. 404(a)(5)).
Temporary Treasury regulations provide that a plan,
method, or arrangement defers the receipt of compensation or
benefits to the extent it is one under which an employee
receives compensation or benefits more than a brief period of
time after the end of the employer's taxable year in which the
services creating the right to such compensation or benefits
are performed. A plan, method or arrangement is presumed to
defer the receipt of compensation for more than a brief period
of time after the end of an employer's taxable year to the
extent that compensation is received after the 15th day of the
3rd calendar month after the end of the employer's taxable year
in which the related services are rendered (the ``2\1/2\
month'' period). A plan, method or arrangement is not
considered to defer the receipt of compensation or benefits for
more than a brief period of time after the end of the
employer's taxable year to the extent that compensation or
benefits are received by the employee on or before the end of
the applicable 2\1/2\ month period. (Temp. Treas. Reg. Sec.
1.404(b)-1T A-2).
The Tax Court recently addressed the issue of when
vacation pay and severance pay are considered deferred
compensation in Schmidt Baking Co., Inc., 107 T.C. 271 (1996).
In Schmidt Baking, the taxpayer was an accrual basis taxpayer
with a fiscal year that ended December 28, 1991. The taxpayer
funded its accrued vacation and severance pay liabilities for
1991 by purchasing an irrevocable letter of credit on March 13,
1992. The parties stipulated that the letter of credit
represented a transfer of substantially vested interest in
property to employees for purposes of section 83, and that the
fair market value of such interest was includible in the
employees' gross incomes for 1992 as a result of the
transfer.\1\ The Tax Court held that the purchase of the letter
of credit, and the resulting income inclusion, constituted
payment of the vacation and severance pay within the 2\1/2\
month period. Thus, the vacation and severance pay were treated
as received by the employees within the 2\1/2\ month period and
were not treated as deferred compensation. The vacation pay and
severance pay were deductible by the taxpayer for its 1991
fiscal year pursuant to its normal accrual method of
accounting.
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\1\ While the rules of section 83 may govern the income inclusion,
section 404 governs the deduction if the amount involved is deferred
compensation.
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House Bill
The House bill provides that, for purposes of determining
whether an item of compensation (other than severance pay), is
deferred compensation (under Code sec. 404), the compensation
is not considered to be paid or received until actually
received by the employee. In addition, an item of deferred
compensation is not considered paid to an employee until
actually received by the employee. The House bill is intended
to overrule the result in Schmidt Baking. For example, with
respect to the determination of whether vacation pay is
deferred compensation, the fact that the value of the vacation
pay is includible in the income of employees within the
applicable 2\1/2\ month period is not relevant. Rather, the
vacation pay must have been actually received by employees
within the 2\1/2\ month period in order for the compensation
not to be treated as deferred compensation.
It is intended that similar arrangements, in addition to
the letter of credit approach used in Schmidt Baking, do not
constitute actual receipt by the employee, even if there is an
income inclusion. Thus, for example, actual receipt does not
include the furnishing of a note or letter or other evidence of
indebtedness of the taxpayer, whether or not the evidence is
guaranteed by any other instrument or by any third party. As a
further example, actual receipt does not include a promise of
the taxpayer to provide service or property in the future
(whether or not the promise is evidenced by a contract or other
written agreement). In addition, actual receipt does not
include an amount transferred as a loan, refundable deposit, or
contingent payment. Amounts set aside in a trust for employees
generally are not considered to be actually received by the
employee.
Under the House bill, sick pay that is deferred
compensation is treated the same as vacation pay that is
deferred compensation, and is not deductible until paid to
employees. The bill does not change the rule under which
deferred compensation (other than vacation pay and sick pay and
deferred compensation under qualified plans) is deductible in
the year includible in the gross income of employees
participating in the plan if separate accounts are maintained
for each employee.
While Schmidt Baking involved only vacation pay and
severance pay, there is concern that this type of arrangement
may be tried to circumvent other provisions of the Code where
payment is required in order for a deduction to occur. Thus, it
is intended that the Secretary will prevent the use of similar
arrangements. No inference is intended that the result in
Schmidt Baking is present law beyond its immediate facts or
that the use of similar arrangements is permitted under present
law.
Effective date.--The provision is effective for taxable
years ending after October 8, 1997. Any change in method of
accounting required by the provision will be treated as
initiated by the taxpayer with the consent of the Secretary of
the Treasury. Any adjustment required by section 481 as a
result of the change will be taken into account in the year of
the change.
Senate Amendment
The Senate amendment is the same as the House bill,
except that the provision also applies to severance pay as well
as other types of compensation.
Effective date.--The provision is effective for taxable
years ending after the date of enactment. With respect to the
change in method of accounting, the Senate amendment is the
same as the House bill.
Conference Agreement
The conference agreement follows the Senate amendment. As
under the Senate amendment, the fact that an item of
compensation is includible in employees' incomes or wages
within the applicable 2\1/2\ month period is not relevant to
determining whether an item of compensation is deferred
compensation.
As under the Senate amendment, many arrangements in
addition to the letter of credit approach used in Schmidt
Baking do not constitute actual receipt by employees. For
example, actual receipt does not include the furnishing of a
note or letter or other evidence of indebtedness of the
taxpayer, whether or not the evidence is guaranteed by any
other instrument or by any third party. As a further example,
actual receipt does not include a promise of the taxpayer to
provide service or property in the future (whether or not the
promise is evidenced by a contract or other written agreement).
In addition, actual receipt does not include an amount
transferred as a loan, refundable deposit, or contingent
payment. Further, amounts set aside in a trust for employees
are not considered to be actually received by the employee.
In light of the change being made and its effect on all
cases involving this issue, the conferees ask the Secretary to
consider whether, on a case-by-case basis, continued challenge
of these arrangements for prior years represents the best use
of litigation resources.
Effective date.--The provision is effective for taxable
years ending after the date of enactment. Any change in method
of accounting required by the provision will be treated as
initiated by the taxpayer with the consent of the Secretary of
the Treasury. Any adjustment required by section 481 as a
result of the change will be taken into account over a three-
year period beginning with the first year for which the
provision is effective.
B. Modify Foreign Tax Credit Carryover Rules (sec. 5002 of the Senate
amendment)
Present Law
U.S. persons may credit foreign taxes against U.S. tax on
foreign-source income. The amount of foreign tax credits that
can be claimed in a year is subject to a limitation that
prevents taxpayers from using foreign tax credits to offset
U.S. tax on U.S.-source income. Separate foreign tax credit
limitations are applied to specific categories of income.
The amount of creditable taxes paid or accrued (or deemed
paid) in any taxable year which exceeds the foreign tax credit
limitation is permitted to be carried back two years and
forward five years. The amount carried over may be used as a
credit in a carryover year to the extent the taxpayer otherwise
has excess foreign tax credit limitation for such year. The
separate foreign tax credit limitations apply for purposes of
the carryover rules.
House Bill
No provision.
Senate Amendment
The Senate amendment reduces the carryback period for
excess foreign tax credits from two years to one year. The
Senate amendment also extends the excess foreign tax credit
carryforward period from five years to seven years.
Effective date.--The provision applies to foreign tax
credits arising in taxable years beginning after December 31,
1998.
Conference Agreement
The conference agreement does not include the Senate
amendment.
C. Clarify and Expand Mathematical Error Procedures (sec. 5003 of the
Senate amendment)
Present Law
Taxpayer identification numbers (``TINs'')
The IRS may deny a personal exemption for a taxpayer, the
taxpayer's spouse or the taxpayer's dependents if the taxpayer
fails to provide a correct TIN for each person for whom the
taxpayer claims an exemption. This TIN requirement also
indirectly effects other tax benefits currently conditioned on
a taxpayer being able to claim a personal exemption for a
dependent (e.g., head-of-household filing status and the
dependent care credit). Other tax benefits, including the
adoption credit, the child tax credit, the Hope Scholarship
credit and Lifetime Learning credit, and the earned income
credit also have TIN requirements. For most individuals, their
TIN is their Social Security Number (``SSN''). The mathematical
and clerical error procedure currently applies to the omission
of a correct TIN for purposes of personal exemptions and all of
thecredits listed above except for the adoption credit.
Mathematical or clerical errors
The IRS may summarily assess additional tax due as a
result of a mathematical or clerical error without sending the
taxpayer a notice of deficiency and giving the taxpayer an
opportunity to petition the Tax Court. Where the IRS uses the
summary assessment procedure for mathematical or clerical
errors, the taxpayer must be given an explanation of the
asserted error and a period of 60 days to request that the IRS
abate its assessment. The IRS may not proceed to collect the
amount of the assessment until the taxpayer has agreed to it or
has allowed the 60-day period for objecting to expire. If the
taxpayer files a request for abatement of the assessment
specified in the notice, the IRS must abate the assessment. Any
reassessment of the abated amount is subject to the ordinary
deficiency procedures. The request for abatement of the
assessment is the only procedure a taxpayer may use prior to
paying the assessed amount in order to contest an assessment
arising out of a mathematical or clerical error. Once the
assessment is satisfied, however, the taxpayer may file a claim
for refund if he or she believes the assessment was made in
error.
House Bill
No provision.
Senate Amendment
The Senate amendment provides in the application of the
mathematical and clerical error procedure that a correct TIN is
a TIN that was assigned by the Social Security Administration
(or in certain limited cases, the IRS) to the individual
identified on the return. For this purpose the IRS is
authorized to determine that the individual identified on the
tax return corresponds in every aspect (including, name, age,
date of birth, and SSN) to the individual to whom the TIN is
issued. The IRS also is authorized to use the mathematical and
clerical error procedure to deny eligibility for the dependent
care tax credit, the child tax credit, and the earned income
credit even though a correct TIN has been supplied if the IRS
determines that the statutory age restrictions for eligibility
for any of the respective credits is not satisfied (e.g., the
TIN issued for the child claimed as the basis of the child tax
credit identifies the child as over the age of 17 at the end of
the taxable year).
Effective date.--The provision is effective for taxable
years ending after the date of enactment.
Conference Agreement
The conference agreement does not include the Senate
amendment.
D. Freeze Grandfather Status of Stapled REITs (sec. 5004 of the Senate
amendment)
Present Law
A real estate investment trust (``REIT'') is an entity
that receives most of its income from passive real estate
related investments and that essentially receives pass-through
treatment for income that is distributed to shareholders. If an
electing entity meets the qualifications for REIT status, the
portion of its income that is distributed to the investors each
year generally is taxed to the investors without being
subjected to a tax at the REIT level. In general, a REIT must
derive its income from passive sources and not engage in any
active trade or business.
A REIT must satisfy a number of tests on a year-by-year
basis that relate to the entity's: (1) organizational
structure; (2) source of income; (3) nature of assets; and (4)
distribution of income. Under the source-of-income tests, at
least 95 percent of its gross income generally must be derived
from rents, dividends, interest and certain other passive
sources (the ``95-percent test''). In addition, at least 75
percent of its income generally must be from real estate
sources, including rents from real property and interest on
mortgages secured by real property (the ``75-percent test'').
A REIT is permitted to have a wholly-owned subsidiary
subject to certain restrictions (a ``qualified REIT
subsidiary''). All of the assets, liabilities, income,
deductions and credits of a qualified REIT subsidiary are
treated as attributes of the REIT.
In a stapled REIT structure, both the shares of a REIT
and a C corporation may be traded, but are subject to a
provision that they may not be sold separately. In the Deficit
Reduction Act of 1984 (the ``1984 Act''), Congress required
that, in applying the tests for REIT status, all stapled
entities are treated as one entity (sec. 269B(a)(3)). The 1984
Act included grandfather rules, one of which provided that
certain then-existing stapled REITs were not subject to the new
provision (sec. 136(c)(3) of the 1984 Act). That grandfather
rule provided that the new provision did not apply to a REIT
that was a part of a group of stapled entities if the group of
entities was stapled on June 30, 1983, and included a REIT on
that date.
House Bill
No provision.
Senate Amendment
The Senate amendment treats activities and gross income
of a stapled REIT group with respect to real property interests
acquired after March 26, 1998, by any member of a stapled REIT
group (and not grandfathered under the rules described below)
as activities and income of the REIT for certain purposes,
including the 75-percent and 95-percent tests for REIT
qualification. The stapled REIT group includes the existing
stapled REIT, a stapled entity, or a subsidiary or partnership
in which a 10-percent-or-greater interest is owned by an
existing stapled REIT or stapled entity.
Under the Senate amendment, there is an exception to this
treatment for certain grandfathered real property interests.
Grandfathered interests include interests that had been
acquired by a member of the REIT group on or before March 26,
1998. In addition, grandfathered real property interests
include interests acquired by a member of the REIT group after
March 26, 1998, pursuant to a binding written agreement in
effect on March 26, 1998, or which were described in a public
announcement or in a filing with the Securities and Exchange
Commission (``SEC'') on or before March 26, 1998.
In general, a grandfathered real property interest does
not lose its grandfathered status by reason of a repair to, an
improvement of, or a lease of, a grandfathered property. Thus,
if a REIT owns a grandfathered real property interest that it
leases to a stapled entity, the interest remains a
grandfathered interest. Similarly, a renewal of the lease to
the stapled entity would not cause the real property interest
to lose its grandfather status, whether the renewal is pursuant
to the terms of the lease or otherwise. However, an improvement
of a grandfathered real property interest causes loss of
grandfathered status and become a nonqualified real property
interest in certain circumstances. Any expansion beyond the
boundaries of the land of the otherwise grandfathered interest
occurring after March 26, 1998, is treated as a non-qualified
real property interest to the extent of such expansion.
Moreover, any improvement of an otherwise grandfathered real
property interest (within its land boundaries) that is placed
in service after December 31, 1999, is treated as a separate
nonqualified real property interest in certain circumstances.
There is an exception for improvements placed in service before
January 1, 2004, pursuant to a binding contract in effect on
December 31, 1999, and at all times thereafter.
If a REIT or stapled entity owns, directly or indirectly,
a 10-percent-or-greater interest in a corporate subsidiary or
partnership (or other entity described below) that owns a real
property interest, the above rules apply with respect to a
proportionate part of the entity's real property interest,
activities and gross income. Similar rules attributing the
proportionate part of the subsidiary's or partnership's real
property interests and gross income apply when a REIT or
stapled entity acquires a 10-percent-or-greater interest (or in
the case of a previously-owned entity, acquires an additional
interest) after March 26, 1998, with exceptions for interests
acquired pursuant to binding written agreements, public
announcements, or SEC filings described above.
Special rules apply where a member of the stapled REIT
group holds a mortgage (that is not an existing obligation
under the rules described below) that is secured by an interest
in real property, where either the REIT or a stapled entity
engages in certain activities with respect to that property. In
such cases, all interest on the mortgage and all gross income
received by a member of the REIT group from the activity is
treated as income of the REIT that is not qualifying income
under the 75-percent or 95-percent tests, with the result that
REIT status might be lost. An exception to these rules is
provided for certain mortgages the interest on which does not
exceed an arm's-length rate and which would be treated as
interest for purposes of the REIT rules. An exception is also
available for certain mortgages that are held on March 26,
1998. The exception for existing mortgages ceases to apply if
the mortgage is refinanced and the principal amount is
increased in such refinancing.
For a corporate subsidiary owned by a stapled entity, the
10-percent ownership test is met if a stapled entity owns,
directly or indirectly, 10 percent or more of the corporation's
stock, by either vote or value. For interests in partnerships,
the ownership test is met if either the REIT or a stapled
entity owns, directly or indirectly, a 10-percent or greater
interest in the partnership's assets or net profits.
Effective date.--The Senate amendment is effective for
taxable years ending after March 26, 1998.
Conference Agreement
The conference agreement generally follows the Senate
amendment with the following technical modifications. The
conference agreement clarifies that a real property interest
acquired pursuant to the exercise of a put option, buy-sell
agreement or an agreement relating to a third party default
that was binding on March 26, 1998, and at all times
thereafter, is generally treated as a grandfathered real
property interest. It is the intention of the conferees that
this rule apply only to substantive economic arrangements that
are outside of the control of the stapled REIT group. The
conference agreement clarifies that a renewal of a lease of
property from a third party to a member of the stapled REIT
group, like a lease or renewal between group members, does not
generally terminate grandfather status, whether the renewal is
pursuant to the terms of the lease or otherwise.\2\ However,
renewal of a lease can cause loss of grandfather status if the
property is improved to the extent that grandfather status
would be lost under the improvement rules described above.
Moreover, the conference agreement provides that, for leases
and renewals entered into after March 26, 1998 (whether from
members of the stapled REIT group or third parties),
grandfather status is lost if the rent on the lease or renewal
exceeds an arm's length rate.
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\2\ In the case of a lease from a third party, a renewal will not
qualify if there is a significant time period between the two
tenancies.
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The conference agreement makes certain changes to the
rule attributing ownership of real property interests,
mortgages and other items from a partnership or subsidiary in
which the REIT or a stapled entity owns a 10-percent-or-greater
interest, directly or indirectly. Under the conference
agreement, the percentage ownership interest in a partnership
is to be determined by the owner's share of capital or profits,
whichever is larger. The conference agreement clarifies that an
interest in real property acquired by a 10-percent-or-greater
partnership or subsidiary pursuant to a binding written
agreement, public announcement, SEC filing, put option, buy-
sell agreement or agreement relating to a third-party default
(a ``qualified transaction'') is treated as grandfathered if
such interest would be a grandfathered interest if acquired
directly by the REIT or stapled entity. The conference
agreement also provides that the exception for 10-percent-or-
greater interests in partnerships or subsidiaries acquired
pursuant to a qualified transaction applies to interests
acquired by any member of the stapled REIT group. The conferees
also wish to clarify that all real property interests,
mortgages, activities and gross income of a qualifiedREIT
subsidiary are treated as attributes of the REIT for purposes of the
provision.
The conference agreement adds a rule that provides that a
transfer, direct or indirect, of a grandfathered real property
interest between members of a stapled REIT group does not
result in a loss of grandfather status if the total direct and
indirect interests of both the exempt REIT and stapled entity
in the real property interest does not increase as a result of
the transfer. If the total direct and indirect interest of the
exempt REIT and stapled entity increases, the transferred real
property interest will be deemed to lose grandfather status
only to the extent of such increase. The provision applies to
all types of transfers of real property interests among group
members, such as sales, contributions and distributions,
whether taxable or tax-free. Moreover, the provision applies
both to direct transfers of real property interests and
transfers of such interests indirectly through transfer of
interests in 10-percent-or-greater owned partnerships and
subsidiaries. The application of the new provision is
illustrated by the following examples. First, assume that an
exempt REIT sells a portion of a grandfathered real property
interest to a stapled entity. The real property interest
remains grandfathered because there is no increase in the total
interests of the REIT and the stapled entity (100 percent both
before and after the transfer). Second, assume that a
grandfathered real property interest is contributed by a
stapled entity to a partnership or subsidiary in which the
stapled entity owns a 10-percent-or-greater interest (either
prior to, or as a result of, the contribution). The real
property interest remains grandfathered because the previous
total interests of the exempt REIT and stapled entity (the
stapled entity's 100-percent interest) are not increased by the
transfer.\3\ Third, assume a REIT owns a 50-percent interest in
a partnership that distributes a grandfathered real property
interest to the REIT in complete liquidation of its interest.
The 50-percent interest that was previously deemed owned by the
REIT will continue to be grandfathered; the remaining 50-
percent interest will become a non-grandfathered interest
because it represents an increase in the total direct and
indirect interests of the REIT and stapled entity in the real
property interest. Fourth, assume that a partnership in which
an exempt REIT or stapled entity owns a 10-percent or greater
interest terminates as a result of a sale of 50 percent or more
of the total partnership interests during a 12-month period
that does not involve the REIT or a stapled entity (sec.
708(b)(1)(B)). Grandfather status of real property interests
owned by the partnership is not lost in the transfer because,
as a result of the termination, the partnership's assets are
deemed contributed to a new partnership and interests in that
partnership are deemed distributed to the purchasing and other
partners in proportion to their interests (Treas. reg. sec.
1.708-1(b)(1)(iv)). Thus, there is no change in the total
interest of the REIT and stapled entity in the partnership's
assets.
---------------------------------------------------------------------------
\3\ Nevertheless, if the REIT's interest in the partnership or
subsidirary increases as a result of the contribution, a portion of
each of the entity's real property interests other than the interest
contributed, reflecting the proportionate increase in the REIT's
interest in the entity, will be treated as a non-grandfathered real
property interest.
---------------------------------------------------------------------------
The conference agreement adds a provision intended to
deal with the special situation of so-called ``UPREIT''
partnerships (see Treas. reg. 1.701-2(d)(example 4)), which
generally treats 100 percent of the real property interests,
mortgages, activities and gross income of suchpartnerships as
interests, activities and gross income of the REIT or stapled entity
that owns a partnership interest. The provision applies where (i) an
exempt REIT or stapled entity owned directly or indirectly) at least a
60-percent interest in a partnership as of March 26, 1998, (ii) 90
percent or more of the interests in the partnership (other than those
held by the exempt REIT or stapled entity) are or will be redeemable or
exchangeable for consideration with a value determined with reference
to the stock of the REIT or stapled entity or both. The provision also
applies to an interest in a partnership formed after March 26, 1998,
which meets the provision's other requirements, where the partnership
was formed to mirror the stapling of an exempt REIT and a stapled
entity in connection with an acquisition agreed to or announced on or
before March 26, 1998. If, as of January 1, 1999, more than one
partnership owned (directly or indirectly) by either an exempt REIT or
stapled entity meets the requirements of the provision, only the
largest such partnership (determined by aggregate asset bases) is
treated as meeting such requirements.
The conference agreement provides that, for purposes of
the exception to the mortgage rules for mortgages held on March
26, 1998, an increase in interest payable on a mortgage (except
pursuant to an interest arrangement, such as variable interest,
under the mortgage's terms as of March 26, 1998), or an
increase in interest payable as a result of a refinancing,
causes the mortgage to cease to qualify for the exception
unless the new interest rate meets an arm's-length standard.
The conferees also wish to clarify that in the event that
a stapled REIT group ceases to be stapled, the rules treating
assets, activities and gross income of members or the stapled
REIT group as attributes of the REIT apply only to the portion
of the year in which the group was a stapled REIT group.
Similarly, where a REIT's or stapled entity's interest in a
partnership or subsidiary changes during the year, the rules
treating a proportionate part of the assets, activities and
gross income of the partnership or subsidiary as attributes of
the REIT or stapled entity also apply on a partial-year basis.
E. Make Certain Trade Receivables Ineligible for Mark-to-Market
Treatment (sec. 5005 of the Senate amendment)
Present Law
In general, a dealer in securities is required to use a
mark-to-market method of accounting for securities (sec. 475).
A dealer in securities is a taxpayer who regularly purchases
securities from or sells securities to customers in the
ordinary course of a trade or business, or who regularly offers
to enter into, assume, offset, assign, or otherwise terminate
positions in certain types of securities with customers in the
ordinary course of a trade or business. A security includes an
evidence of indebtedness.
Treasury regulations provide that if a taxpayer would be
a dealer in securities only because of its purchases and sales
of debt instruments that, at the time of purchase or sale, are
customer paper with respect to either the taxpayer or a
corporation that is a member of the same consolidated group,
the taxpayer will not normally be treated as a dealer in
securities. However, the regulations allow such a taxpayer to
elect out of this exception to dealer status.\4\ For this
purpose, a debt instrument is customer paper with respect to a
person if: (1) the person's principal activity is selling
nonfinancial goods or providing nonfinancial services; (2) the
debt instrument was issued by the purchaser of the goods or
services at the time of the purchase of those goods and
services in order to finance the purchase; and (3) at all times
since the debt instrument was issued, it has been held either
by the person selling those goods or services or by a
corporation that is a member of the same consolidated group as
that person.
---------------------------------------------------------------------------
\4\ Treas. reg. sec. 1.475(c)-1(b), issued December 23, 1996; the
``customer paper election.''
---------------------------------------------------------------------------
House Bill
No provision.
Senate Amendment
The Senate amendment provides that certain trade
receivables are not eligible for mark-to-market treatment. A
trade receivable is subject to the provision if it is a note,
bond, debenture, or other evidence of indebtedness arising out
of the sale of goods or services by a person the principal
activity of which is selling or providing non-financial goods
and services and it is held by such person (or a related
person) at all times since it was issued.
Under the Senate amendment, a receivable meeting the
above definition is not treated as a security for purposes of
the mark-to-market rules (sec. 475). Thus, such a receivable is
not marked-to-market, even if the taxpayer qualifies as a
dealer in other securities. Because trade receivables cease to
meet the above definition when they are disposed of (other than
to a related person), a taxpayer who regularly sells trade
receivables is treated as a dealer in securities as under
present law, with the result that the taxpayer's other
securities would be subject to mark-to-market treatment unless
an exception applies.
Effective date.--The Senate amendment generally is
effective for taxable years ending after the date of enactment.
Adjustments required under section 481 as a result of the
change in method of accounting generally are required to be
taken into account ratably over the four-year period beginning
in the first taxable year for which the provision is in effect.
However, where the taxpayer terminates its existence or ceases
to engage in the trade or business that generated the
receivables (except as a result of a tax-free transfer), any
remaining balance of the section 481 adjustment is taken into
account entirely in the year of such cessation or termination
(see sec. 5.04(3)(c) of Rev. Proc. 97-37, 1997-33 I.R.B. 18).
Conference Agreement
The conference agreement follows the Senate amendment
with modifications. Theconferees wish to clarify that the new
provision applies to trade receivables arising from services performed
by independent contractors, as well as employees. Thus, for example, if
a taxpayer's principal activity is selling non-financial services and
some or all of such services are performed by independent contractors,
no receivables that the taxpayer accepts for services can be marked-to-
market under the new provision. The conferees intend that, pursuant to
the authority granted by section 475(g)(1), the Secretary of the
Treasury is authorized to issue regulations to prevent abuse of the new
exception, including through independent contractor arrangements.
The conference agreement provides that, to the extent
provided in Treasury regulations, trade receivables that are
held for sale to customers by the taxpayer or a related person
may be treated as ``securities'' for purposes of the mark-to-
market rules, and transactions in such receivables could result
in a taxpayer being treated as a dealer in securities (sec.
475(c)(1)). It is the intention of the conferees that, unlike
the Senate amendment, a taxpayer will not be treated as a
dealer in securities based on sales to unrelated persons of
receivables subject to the new provision unless the regulatory
exception for receivables held for sale to customers applies.
It is the intention of the conferees that, for trade
receivables that are excepted from the statutory mark-to-market
rules (sec. 475) under the new provision, mark-to-market or
lower-of-cost-or-market will not be treated as methods of
accounting that clearly reflect income under general tax
principles (see sec. 446(b)).
F. Add Vaccines Against Rotavirus Gastroenteritis to the List of
Taxable Vaccines (sec. 5006 of the Senate amendment)
Present Law
A manufacturer's excise tax is imposed at the rate of 75
cents per dose on the following vaccines routinely recommended
for administration to children: diphtheria, pertussis, tetanus,
measles, mumps, rubella, polio, HIB (haemophilus influenza type
B), hepatitis B, and varicella (chicken pox). Amounts equal to
net revenues from this excise tax are deposited in the Vaccine
Injury Compensation Trust Fund.
House Bill
No provision.
Senate Amendment
The Senate amendment adds any vaccine against rotavirus
gastroenteritis to the list of taxable vaccines.
Effective date.--The provision is effective for vaccines
sold by a manufacturer or importer after the date of enactment.
Conference Agreement
The conference agreement does not include the Senate
amendment.
G. Restrict Special Net Operating Loss Carryback Rules for Specified
Liability Losses (sec. 5007 of the Senate amendment)
Present Law
Under present law, that portion of a net operating loss
that qualifies as a ``specified liability loss'' may be carried
back 10 years rather than being limited to the general two-year
carryback period. A specified liability loss includes amounts
allowable as a deduction with respect to product liability, and
also certain liabilities that arise under Federal or State law
or out of any tort of the taxpayer. In the case of a liability
arising out of a Federal or State law, the act (or failure to
act) giving rise to the liability must occur at least 3 years
before the beginning of the taxable year. In the case of a
liability arising out of a tort, the liability must arise out
of a series of actions (or failures to act) over an extended
period of time a substantial portion of which occurred at least
three years before the beginning of the taxable year. A
specified liability loss cannot exceed the amount of the net
operating loss, and is only available to taxpayers that used an
accrual method of accounting throughout the period that the
acts (or failures to act) occurred.
House Bill
No provision.
Senate Amendment
Under the Senate amendment, specified liability losses
are defined and limited to include (in addition to product
liability losses) only amounts allowable as a deduction that
are attributable to a liability under a Federal or State law
requiring the reclamation of land, decommissioning of a nuclear
power plant (or any unit thereof), dismantlement of an offshore
drilling platform, remediation of environmental contamination,
or payment of workers' compensation, if the act (or failure to
act) giving rise to such liability occurs at least 3 years
before the beginning of the taxable year. As under current law,
the redefined specified liability loss cannot exceed the amount
of the net operating loss and is only available to taxpayers
that used an accrual method of accounting throughout the period
that the acts (or failures to act) giving rise to the liability
occurred. No inference regarding the interpretation of the
specified liability loss carryback rules under present law is
intended.
Effective date.--The provision is effective for net
operating losses arising in taxable years beginning after the
date of enactment.
Conference Agreement
The conference agreement does not include the Senate
amendment.
H. Exclusion of Minimum Required Distributions from AGI for Roth IRA
Conversions (Sec. 5008 of the Senate Amendment)
Present Law
Under present law, uniform minimum distribution rules
generally apply to all types of tax-favored retirement
vehicles, including qualified retirement plans and annuities,
individual retirement arrangements (``IRAs'') other than Roth
IRAs, and tax-sheltered annuities (sec 403(b)).
Under present law, distributions are required to begin no
later than the individual's required beginning date (sec.
401(a)(9)). In the case of an IRA, the required beginning date,
means the April 1 of the calendar year following the calendar
year in which the IRA owner attains age 70\1/2\. The Internal
Revenue Service has issued extensive Regulations for purposes
of calculating minimum distributions. In general, minimum
distributions are includible in gross income in the year of
distribution. An excise tax equal to 50 percent of the required
distribution applies to the extent a required distribution is
not made.
Under present law, all or any part of amounts in a
deductible or nondeductible IRA may be converted into a Roth
IRA. Only taxpayers with adjusted gross income (``AGI'') of
$100,000 or less are eligible to convert an IRA into a Roth
IRA. In the case of a married taxpayer, AGI is the combined AGI
of the couple. Married taxpayers filing a separate return are
not eligible to make a conversion.
House Bill
No provision.
Senate Amendment
The Senate amendment excludes minimum required
distributions from IRAs from the definition of AGI solely for
purposes of determining eligibility to convert from an IRA to a
Roth IRA. As under present law, the required minimum
distribution would not be eligible for conversion and would be
includible in gross income.
Effective date.--The provision is effective for taxable
years beginning after December 31, 2004.
Conference Agreement
The conference agreement follows the Senate amendment.
Effective date.--Same as Senate amendment.
I. Extension of IRS User Fees (sec. 5009 of the Senate amendment)
Present Law
The IRS provides written responses to questions of
individuals, corporations, and organizations relating to their
tax status or the effects of particular transactions for tax
purposes in the form of ruling letters, determination letters,
opinion letters, and other similar rulings or determinations.
The IRS is directed by statute to establish a user fee program
with respect to such rulings and determinations. Pursuant to
this statutory authorization, the IRS establishes a schedule of
user fees. The statutory authorization for the IRS user fee
program is in effect for requests made before October 1, 2003
(P.L. 104-117).
House Bill
No provision.
Senate Amendment
The Senate amendment extends the IRS user fee program for
requests made before October 1, 2007.
Effective date.--The provision is effective on the date
of enactment.
Conference Agreement
The conference agreement does not include the Senate
amendment.
J. Clarify Definition of ``Subject to'' Liabilities Under Section
357(c) (sec. 3301A of the Senate amendment)
Present Law
Present law provides that the transferor of property
recognizes no gain or loss if the property is exchanged solely
for qualified stock in a controlled corporation (sec. 351).
Code section 357(c) provides that the transferor generally
recognizes gain to the extent that the sum of the liabilities
assumed by the controlled corporation and the liabilities to
which the transferred property is subject exceeds the
transferor's basis in the transferred property. If the
transferredproperty is ``subject to'' a liability, Treasury
regulations have indicated that the amount of the liability is included
in the calculation regardless of whether the underlying liability is
assumed by the controlled corporation. Treas. Reg. sec. 1.357-2(a).
The gain recognition rule of section 357(c) is applied
separately to each transferor in a section 351 exchange.
The basis of the property in the hands of the controlled
corporation equals the transferor's basis in such property,
increased by the amount of gain recognized by the transferor,
including section 357(c) gain.
Section 357(c) also applies to reorganizations described
in section 368(a)(1)(D).
House Bill
No provision.
Senate Amendment
Under the Senate amendment, the distinction between the
assumption of a liability and the acquisition of an asset
subject to a liability is eliminated. A liability is treated as
having been assumed to the extent that, as determined on the
basis of facts and circumstances, the transferor is relieved of
such liability or any portion thereof (including through an
indemnity agreement or other similar arrangement). In the case
of the transfer of any property subject to a nonrecourse
liability, unless the facts and circumstances indicate
otherwise, the transferee is treated as assuming with respect
to such property a ratable portion of such liability determined
on the basis of the relative fair market values (determined
without regard to section 7701(g)) of all assets subject to
such liability. No inference regarding the tax treatment under
present law is intended.
Effective date.--The provision is effective for transfers
after the date of enactment.
Conference Agreement
The conference agreement does not include the Senate
amendment.
TITLE VIII. LIMITED TAX BENEFITS UNDER THE LINE ITEM VETO ACT
Present Law
The Line Item Veto Act amended the Congressional Budget
and Impoundment Act of 1974 to grant the President the limited
authority to cancel specific dollar amounts of discretionary
budget authority, certain new direct spending, and limited tax
benefits. The Line Item Veto Act provides that the Joint
Committee on Taxation is required to examine any revenue or
reconciliation bill or joint resolution that amends the
Internal Revenue Code of 1986 prior to its filing by a
conference committee in order to determine whether or not the
bill or joint resolution contains any ``limited tax benefits,''
and to provide a statement to the conference committee that
either (1) identifies each limited tax benefit contained in the
bill or resolution, or (2) states that the bill or resolution
contains no limited tax benefits. The conferees determine
whether or not to include the Joint Committee on Taxation
statement in the conference report. If the conference report
includes the information from the Joint Committee on Taxation
identifying provisions that are limited tax benefits, then the
President may cancel one or more of those, but only those,
provisions that have been identified. If such a conference
report contains a statement from the Joint Committee on
Taxation that none of the provisions in the conference report
are limited tax benefits, then the President has no authority
to cancel any of the specific tax provisions, because there are
no tax provisions that are eligible for cancellation under the
Line Item Veto Act. If the conference report contains no
statement with respect to limited tax benefits, then the
President may cancel any revenue provision in the conference
report that he determines to be a limited tax benefit.
Conference Statement
The Joint Committee on Taxation has determined that H.R.
2676 contains the following provisions that constitute limited
tax benefits within the meaning of the Line Item Veto Act:
Section 3105 (relating to administrative appeal of
adverse IRS determination of tax-exempt status of bond
issue)
Section 3445(c) (relating to State fish and wildlife
permits)
TITLE IX. CORRECTIONS TO THE TRANSPORTATION EQUITY ACT FOR THE 21ST
CENTURY
The conference agreement includes corrections to the
Transportation Equity Act for the 21st Century.
ESTIMATED BUDGET EFFECTS OF TITLES I--VIII OF THE CONFERENCE AGREEMENT RELATING TO H.R. 2676, THE ``INTERNAL REVENUE SERVICE RESTRUCTURING AND REFORM ACT OF 1998''
[Fiscal years 1998-2007, in millions of dollars]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Provision Effective 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998-2002 2003-2007 1998-2007
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Title I. Reorganization of ........................
Structure and Management of the
Internal Revenue Service.
(12) No Revenue Effect
Title II. Electronic Filing...... ........................
(12) No Revenue Effect
Title III. Taxpayer Protection
and Rights:
A. Burden of Proof--apply to eca DOE (\1\) -231 -256 -269 -278 -297 -311 -327 -344 -360 -1,035 -1,639 -2,674
only income, estate and gift
taxes (permanent).
B. Proceedings by Taxpayers:
1. Expansion of authority 180da DOE ...... -11 -12 -13 -14 -16 -18 -19 -20 -22 -51 -95 -145
to award costs and
certain fees at
prevailing rate and rule
68 provision with net
worth limitation
(includes outlay
effects); with modified
hourly cap.
2. Civil damages with aoa DOE -2 -15 -25 -50 -30 -25 -25 -25 -25 -25 -122 -125 -247
respect to unauthorized
collection actions
(includes outlay
effects).
3. Increase size of cases pca DOE
permitted on small case
calendar to $50,000.
(12) No Revenue Effect
4. Actions for refund rfa DOE
with respect to certain
estates which have
elected the installment
method of payment.
(12) Negligible Revenue Effect
5. Extend IRS DOE (\1\) -5 -2 -2 -2 -2 -2 -2 -2 -2 -11 -10 -21
administrative appeals
right to issuers of tax-
exempt bonds.
6. Civil action for DOE
release of erroneous
lien.
(12) Negligible Revenue Effect
C. Relief for Innocent
Spouses and for Taxpayers
Unable to Manage Their
Financial Affairs Due to
Disabilities:
1. Relief for innocent laa & ulb DOE -10 -131 -92 -74 -86 -121 -157 -204 -243 -288 -393 -1,013 -1,406
spouses who are no
longer married, legally
separated, or living
apart for 12 consecutive
months; House relief for
other cases; Secretary
of Treasury has
authority to reach
equitable result.
2. Suspension of statute tyoo/a DOE -10 -70 -35 -15 -16 -17 -18 -19 -20 -21 -146 -95 -241
of limitations on filing
refund claims during
periods of disability.
D. Provisions Relating to
Interest and Penalties:
1. Elimination of tyoo/a DOE -26 -68 -58 -61 -56 -59 -62 -65 -68 -72 -267 -326 -593
interest rate
differential on
overlapping periods of
interest on income tax
overpayments and
underpayments.
2. Increase refund 2nd & scaqa DOE ...... -36 -54 -56 -59 -62 -65 -69 -72 -76 -205 -344 -549
interest rate of
Applicable Federal Rate
(``AFR'') +3 for
individual's taxpayers
[2].
3. Reduced penalty on iapma 12/31/99 ...... ....... -108 -136 -143 -152 -159 -167 -175 -185 -387 -838 -1,225
individual's failure to
pay during installment
agreements.
4. Mitigation of failure drma 180da DOE ...... -47 -64 -64 -65 -66 -66 -67 -68 -68 -240 -335 -575
to deposit penalty.
5. Suspend accrual of tyea DOE ...... ....... -146 -174 -196 -209 -248 -431 -435 -439 -516 -1,762 -2,278
interest and penalties
if IRS fails to contact
taxpayer within 12
months after a timely-
filed return (except for
fraud and criminal
penalties); (1) for
first 5 years, time
period is 18 months
(instead of 12 months);
and (2) provide that
termination with respect
to specific additional
tax liability occurs on
earliest notice of such
liability.
6. Procedural nia & paa 12/31/00
requirements for
imposition of penalties
and additions to tax.
(12) Negligible Revenue Effect
7. Permit personal DOE
delivery of section 6672
notices.
(12)No Revenue Effect
8. Notice of interest nia 12/31/00
charges.
(12)No Revenue Effect
E. Protections for Taxpayers
Subject to Audit or
Collection Activities:
1. Due process for IRS caia 180da DOE ...... -11 -7 -7 -7 -7 -7 -8 -8 -8 -32 -38 -70
collection actions.
2. Examination
activities:
a. Extend the cmo/a DOE (\3\) (\3\) (\3\) (\3\) (\3\) (\3\) (\3\) (\3\) (\3\) (\3\) (\4\) (\4\) (\5\)
attorney client
privilege to
accountants and
other tax
practitioners; with
exception from both
attorney/client
privilege and tax
practitioner/ client
privilege for
communications
relating to
corporate tax
shelters.
b. Limitation on DOE
financial status
audits.
(12)No Revenue Effect
c. Limitation on IRS sia & saa DOE ...... -13 -16 -20 -22 -26 -30 -33 -36 -37 -71 -162 -233
authority to require
production of
computer source code
and protections
against improper
disclosure.
d. Prohibition on DOE
improper threat of
audit activity for
tip reporting.
(12)No Revenue Effect
e. Allow taxpayers to ssa DOE
quash all third-
party summonses.
(12)Negligible Revenue Effect
f. Permit service of ssa DOE
summonses by mail or
in person.
(12)No Revenue Effect
g. IRS must provide 180da DOE ...... (\3\) (\3\) (\3\) (\3\) (\3\) (\3\) (\3\) (\3\) (\3\) (\4\) (\4\) (\5\)
general notice and
periodic reports to
taxpayers before
contacting third
parties regarding
IRS examination or
collection
activities with
respect to the
taxpayer.
3. Collection activities:
a. Approval process-- (\6\)
IRS to implement
approval process for
liens, levies, or
seizures;
clarification of
``appropriate''.
(12)Negligible Revenue Effect
b. Increase the Lia DOE (\1\) -1 -1 -1 -1 -2 -2 -2 -2 -2 -6 -8 -13
amount exempt from
levy to $6,250 for
personal property
and $3,125 for books
and tools of trade,
indexed for
inflation.
c. Require the IRS to lia 12/31/99
release a levy upon
agreement that the
amount is not
collectible.
(12)Negligible Revenue Effect
d. Suspend collection tyba 12/31/98
by levy during
refund suit.
(12)Negligible Revenue Effect
e. Require District taa & lma DOE
Counsel review of
jeopardy and
termination
assessments and
jeopardy levies.
(12)Negligible Revenue Effect
f. Increase in amount DOE
of certain property
on which lien not
valid.
(12)Negligible Revenue Effect
g. Waive the 10% wa 12/31/99 ...... ....... -1 -3 -4 -4 -5 -5 -5 -5 -9 -24 -33
early withdrawal tax
when IRA or
qualified plan is
levied.
h. Prohibit the IRS Soa DOE
from selling
taxpayer's property
for less than the
minimum bid.
(12)No Revenue Effect
i. Require the IRS to soa DOE
provide an
accounting and
receipt to the
taxpayer (including
the amount credited
to the taxpayer's
account) for
property seized and
sold.
(12) Negligible Revenue Effect
j. Require the IRS to DOE & 2 years
study and implement
a uniform asset
disposal mechanism
for sales of seized
property to prevent
revenue officers
from conducting
sales.
(12) No Revenue Effect
k. Codify IRS DOE
administrative
procedures for
seizure of
taxpayer's property.
(12) No Revenue Effect
l. Procedures for DOE (\1\) -3 -3 -3 -3 -3 -3 -3 -3 -3 -12 -15 -27
seizure of
residences and
businesses.
4. Provisions relating to
examination and
collection activities:
a. Prohibition on (\7\) ...... ....... -9 -13 -16 -18 -19 -19 -21 -24 -38 -101 -139
extension of statute
of limitations for
collection beyond 10
years with
installment payment
exception.
b. Offers-in- generally DOE -1 ....... 9 4 4 4 4 4 4 4 17 21 38
compromise.
c. Notice of nma12/13/98
deficiency to
specify deadlines
for filing Tax Court
petition.
(12) Negligile Revenue Effect
d. Refund or credit DOE
of overpayments
before final
determination.
(12) Negligible Revenue Effect)
e. IRS procedures DOE
relating to appeal
of examination and
collections.
(12) No Revenue Effect
f. Codify certain DOE
fair debt collection
procedures.
(12) No Revenue Effect
g. Ensure DOE
availability of
installment
agreements.
(12) No Revenue Effect
h. Prohibit Federal DOE
Government officers
and employees from
requesting taxpayers
to give up their
rights to sue.
(12) No Revenue Effect
F. Disclosures to Taxpayers:
1. Explanation of joint 180da DOE
and several liability.
(12) No Revenue Effect
2. Explanation of 180da DOE ...... -13 (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\4\) (\3\) (\4\)
taxpayers' rights in
interviews with IRS.
3. Disclosure of criteria 180da DOE
for examination
selection.
(12) No Revenue Effect
4. Explanations of 180da DOE
appeals and collection
process.
(12) No Revenue Effect
5. Require IRS to explain 180da DOE
reason for denial for
refund.
(12) No Revenue Effect
Statement to taxpayers 7/1/00
with installation
agreements.
(12) No Revenue Effect
7. Require IRS to notify sotmpa DOE (\8\) (\8\) (\8\) (\8\) (\8\) (\8\) (\8\) (\8\) (\8\) (\8\) -1 -1 -2
all partners of any
resignation of the tax
matters partner that is
required by the IRS, and
of the identity of any
successor tax matters
partnership who was
appointed to fill the
vacancy created by such
resignation.
8. Require information to DOE
taxpayers concerning
disclosure of their
income tax return
information to parties
outside the IRS.
(12) No Revenue Effect
9. Disclosure of Chief ai 90da DOE
Counsel advice.
(12) No Revenue Effect
G. Low-Income Taxpayer DOE
Clinics.
(12) No Revenue Effect
H. Other Provisions:
1. Cataloging complaints 1/1/00
of IRS employee
misconduct.
(12) No Revenue Effect
2. Archive of records of DOE
Internal Revenue Service.
(12) No Revenue Effect
3. Payment of taxes to DOE
the U.S. Treasury [2].
(12) No Revenue Effect
4. Clarification of DOE
authority of Secretary
relating to the making
of elections.
(12) No Revenue Effect
5. IRS employee contracts 6ma DOE
(12) No Revenue Effect
6. Require approval of DOE
use of pseudonyms by IRS
employees.
(12) No Revenue Effect
7. Require the IRS to end DOE & rdnrb 1/1/99
the use of the illegal
tax protestor label.
(12) No Revenue Effect
8. Modify section 6103 to DOE
allow the tax-writing
committees to obtain
data from IRS employees
regarding employee and
taxpayer abuse.
(12) No Revenue Effect
9. Publish telephone DOE
numbers for local IRS
offices.
(12) No Revenue Effect
10. Alternative to Social DOE
Security numbers for tax
return preparers.
(12) No Revenue Effect
11. Authorize the Federal rpa 12/31/99 ...... ....... 2 3 3 3 3 4 4 4 8 18 26
government to offset a
Federal income tax
refund to satisfy a past-
due, legally owing State
income tax debt.
12. Modify section 6050S tyba 12/31/98
to require educational
institutions to report
grant amounts processed
through and refunds made
by the institution; with
clarifications regarding
the definition of
``qualified tuition and
related expenses'' and
certain other
educational institution
reporting requirements.
(12) Negligible Revenue Effect
I. Studies:
1. Administration of 1ya DOE
penalties and interest.
(12) No Revenue Effect
2. Confidentiality of tax 18ma DOE
return information.
(12) No Revenue Effect
3. Noncompliance with 1ya DOE
internal revenue laws by
taxpayers.
(12) No Revenue Effect
4. Payments for 1ya DOE
informants.
(12) No Revenue Effect
------------------------------------------------------------------------------------------------------------------------------------
Subtotal, Taxpayer ........................ -53 -661 -885 -961 -998 -1,085 -1,196 -1,463 -1,545 -1,635 -3,559 -6,925 -10,483
Protections and Rights.
====================================================================================================================================
Title IV. Congressional ........................
Accountability for the Internal
Revenue Service.
(12) No Revenue Effect
Title V. Additional Provisions:
A. Change the Holding Period aptiao/a 1/1/98 35 611 -312 -335 -335 -337 -341 -347 -354 -362 -336 -1,741 -2,077
for Long-Term Capital Gains
to 12 months.
B. Deductibility of Meals tybbo/a DOE ...... -20 -33 -34 -35 -36 -38 -39 -40 -41 -122 -194 -316
Provided for the Convenience
of Employer on Employer's
Premises.
C. Instead of Most Favored ........................
Nation Status Use Normal
Trade Relations Terminology
[2].
(12) No Revenue Effect
Subtotal, Additional ........................ 35 591 -345 -369 -370 -373 -379 -386 -394 -403 -458 -1,935 -2,393
Provisions.
Title VI. Tax Technical ........................
Corrections.
(12) No Revenue Effect
Title VII. Revenue Offsets:
A. Overrule Schmidt Baking tyea DOE 593 839 997 456 308 156 163 172 180 189 3,193 860 4,053
with Respect to Vacation Pay
and Severance and Other
Types of Compensation With
Spread.
B. Freeze Grandfathered tyea 3/26/98 (\9\) 1 3 6 10 14 19 26 35 45 20 139 159
Status of Stapled or Paired--
Share REITs.
C. Make Certain Trade tyea DOE 33 317 500 333 117 70 73 77 81 85 1,300 386 1,686
Receivables Ineligible for
Mark-to-Market Treatment.
D. Disregard Minimum tyba 12/31/04 ...... ....... ....... ....... ....... ......... ......... 2,362 2,854 2,812 ......... 8,028 8,028
Distributions in Determining
AGI for IRA Conversions to a
Roth IRA.
------------------------------------------------------------------------------------------------------------------------------------
Subtotal, Revenue Offsets.. ........................ 626 1,157 1,500 795 435 240 255 2,637 3,150 3,131 4,513 9,413 13,926
====================================================================================================================================
Title VIII. Limited Tax Benefits ........................
Under the Line Veto Act.
(12) No Revenue Effect
------------------------------------------------------------------------------------------------------------------------------------
Net Total (Reserved for ........................ 608 1,087 270 -535 -933 -1,218 -1,320 788 1,211 1,093 496 553 1,050
Future Tax Reduction).
Revenue Effect From Emergency
Legislation Per Section 252(e)
of the Balanced Budget and
Emergency Deficit Control Act:
1. Abate interest on dda 12/31/97 -8 -25 -25 -25 -25 -25 -25 -25 -25 -25 -108 -126 -234
underpayments by taxpayers
in Presidentially declared
disaster areas.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Loss of less than $1 million.
\2\ Estimate provided by the Congressional Budget Office.
\3\ Loss of less than $5 million.
\4\ Loss of less than $25 million.
\5\ Loss of less than $50 million.
\6\ Generally effective for collection actions commencing after the date of enactment; collections at ACS sites effective for levies imposed after 12/31/00.
\7\ Effective for requests to extend the statute of limitations made after 12/31/99 and to all extensions of the statute of limitations on collections that are open after 12/31/99.
\8\ Loss of less than $500,000.
\9\ Gain of less than $500,000.
Legend for ``Effective'' column: ai=advice issued; aoa=actions occurring after; aptiao/a=amounts properly taken into account on or after; caia=collection actions initiated after; cmo/
a=communications made on or after; dda=disasters declared after; DOE=date of enactment; drma=deposits required to be made after; eca=examinations commencing after; iapma=installment
agreement payments made after; laa=liability arising after; lia=levies imposed after; Lia=levies issued after; Ima=levies made after; nia=notices issued after; nma=notices mailed after;
paa=penalties assessed after; pca=proceedings commencing after; rdnrb=removal designation not required before; rfa=refunds filed after; rpa=refunds payable after; saa=software acquired
after; scqa=succeeding calendar quarters beginning after; sia=summonses issued after; soa=seizures occurring after; Soa=sales occurring after; sotmpa=selections of tax matters partners
after; ssa=summonses served after; taa=taxes assessed after; tyba=taxable years beginning after; tyea=taxable years ending after; tybbo/a=taxable years beginning before, on, or after; tyoo/
a=taxable years open on or after; ulb=unpaid liability before; wa=withdrawals after; 1ya=1 year after; 6ma=6 months after; 18ma=18 months after; 60da=60 days after; 90da=90 days after; and
180da=180 days after.
Note.--Details may not add to totals due to rounding.
Source: Joint Committee on Taxation.
Bill Archer,
Nancy L. Johnson,
Rob Portman,
Charles B. Rangel,
William J. Coyne,
Managers on the Part of the House.
Bill Roth,
John H. Chafee,
Chuck Grassley,
Orrin Hatch,
Frank H. Murkowski,
Don Nickles,
Phil Gramm,
Daniel P. Moynihan,
Max Baucus,
Bob Graham,
John Breaux,
Bob Kerrey,
From the Committee on Governmental Affairs:
Fred Thompson,
Sam Brownback,
Thad Cochran,
Managers on the Part of the Senate.