Internal Revenue Service Restructuring and Reform Act of 1998

TABLE OF CONTENTS:

Title I: Reorganization of

Structure and Management of the Internal Revenue

Service

Subtitle A: Reorganization of the Internal Revenue

Service

Subtitle B: Executive Branch Governance and Senior

Management

Subtitle C: Personnel Flexibilities

Title II: Electronic Filing

Title III: Taxpayer Protection and Rights

Subtitle A: Burden of Proof

Subtitle B: Proceedings by Taxpayers

Subtitle C: Relief for Innocent Spouses and for

Taxpayers Unable to Manage Their Financial Affairs

Due to Disabilities

Subtitle D: Provisions Relating To Interest and

Penalties

Subtitle E: Protections for Taxpayers Subject to Audit

or Collection Activities

Subtitle F: Disclosures to Taxpayers

Subtitle G: Low-Income Taxpayer Clinics

Subtitle H: Other Matters

Subtitle I: Studies

Title IV: Congressional Accountability for the Internal

Revenue Service

Title V: Revenue Provisions

Title VI: Technical Corrections

Internal Revenue Service Restructuring and Reform Act of 1998 - Title I: Reorganization of Structure and Management of the Internal Revenue Service - Subtitle A: Reorganization of the Internal Revenue Service - Directs the Commissioner of the Internal Revenue Service to develop and implement a plan to reorganize the Internal Revenue Service (IRS) which shall: (1) supersede any organization or reorganization of the IRS based on any statute or reorganization plan applicable on the effective date of this Act; (2) eliminate or substantially modify the existing organization of the IRS 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 IRS, including the prohibition in the plan of ex parte communications between appeals officers and other IRS employees to the extent that such communications appear to compromise the independence of appeals officers.

(Sec. 1002) Directs the IRS to 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 - Amends the Internal Revenue Code (IRC) to replace provisions providing for the appointment of a Commissioner of Internal Revenue with provisions establishing, within the Department of the Treasury, an Internal Revenue Service Oversight Board (the Board) which shall have nine members (appointed for five year terms) consisting of: (1) six non-Federal employees appointed by the President; (2) the Secretary of the Treasury or the Deputy Secretary of the Treasury; (3) the Commissioner of Internal Revenue; and (4) an IRS employee, appointed by the President, who is a representative of an organization representing a substantial number of IRS employees.

Directs the Board, in general, to oversee the IRS in its administration, management, conduct, direction, and supervision of the execution and application of the internal revenue laws and tax conventions. Directs the Board, in addition to: (1) ensure that the organization and operation of the IRS allows it to carry out its mission; and (2) ensure that appropriate confidentiality is maintained in the exercise of its duties. Prohibits the Board from having responsibility with respect to: (1) the development and formulation of Federal tax policy; (2) IRS law enforcement activities; (3) specific IRS procurement activities; or (4) specific personnel actions, except with respect to the matters listed in clause (3) of the next sentence. Sets forth the specific responsibilities of the Board, including: (1) reviewing and approving the strategic plans of the IRS; (2) reviewing the operational functions of the IRS; (3) recommending a Commissioner to the President and recommending a National Taxpayer Advocate to the Secretary of the Treasury (the Secretary); (4) reviewing and approving the IRS budget request; and (5) ensuring the proper treatment of taxpayers by IRS employees.

Terminates the Board on September 30, 2008.

Amends the Internal Revenue Code to prohibit the disclosure of any return information to any Board member, subject to exceptions.

(Sec. 1102) Directs the President to appoint, for a term of five years (currently, there is no specified term limit), an IRS Commissioner who shall: (1) administer, manage, conduct, direct, and supervise the execution and application of the internal revenue laws and tax conventions; (2) recommend to the President an IRS Chief Counsel; and (3) recommend to the Board a National Taxpayer Advocate.

Directs the IRS Chief Counsel to report directly to the Commissioner.

Reestablishes, within the IRS, the Office of the Taxpayer Advocate which shall be under the direction of the National Taxpayer Advocate. Provides for a National Taxpayer Advocate and at least one local taxpayer advocate for each State. Directs such Office to: (1) assist taxpayers in resolving problems with the IRS; and (2) identify and propose changes to the IRS to mitigate the problems of taxpayers. Sets forth reporting requirements and additional responsibilities. Permits the National Taxpayer Advocate to issue a Taxpayer Assistance Order in cases of significant hardship (as defined).

Establishes reporting and auditing duties for the Treasury Inspector General for Tax Administration.

(Sec. 1103) Amends the Inspector General Act of 1978 to establish, in the Department of the Treasury: (1) an Office of Inspector General of the Department of the Treasury; and (2) an Office of Treasury Inspector General for Tax Administration. Limits authority of the Secretary of the Treasury with respect to the Treasury Inspector General for Tax Administration. Grants the Treasury Inspector General for Tax administration sole authority under the Inspector General Act of 1978 to conduct an audit or investigation of the IRS Oversight Board and the Chief Counsel for the IRS. Sets forth additional duties of such Inspector General, including conducting an audit or investigation relating to the IRS upon the request of the IRS Commissioner or Oversight Board. Terminates the current Office of Chief Inspector of the IRS and provides for the transfer of personnel.

(Sec. 1104) Authorizes the Commissioner, unless otherwise prescribed by the Secretary, (currently, the Secretary) to employ the number of persons as is proper to administer and enforce the internal revenue laws.

(Sec. 1105) Prohibits any applicable person (defined as the President, Vice President, or an employee of either and any Level I Executive Schedule employee, except the U.S. Attorney General) from requesting any IRS employee to conduct or terminate any audit or investigation of a taxpayer. Requires any IRS employee receiving any such request to report to the Treasury Inspector General for Tax Administration. Sets forth exceptions.

(Sec. 1106) Requires a review of the investigation equal employment opportunity process of the IRS offices in Milwaukee and Waukesha, Wisconsin.

Subtitle C: Personnel Flexibilities - Amends Federal law concerning government organization and employees to set forth special personnel flexibility provisions concerning the IRS which provide, among other things for: (1) streamlined pay authority for critical positions; (2) recruitment, retention, and relocation incentives; (3) performance awards for senior executives; and (4) a "broad-banded system" of classification and pay grouping for the general IRS workforce.

(Sec. 1202) Establishes voluntary separation incentives, effective through December 31, 2002.

(Sec. 1203) Requires termination of the employment of an IRS employee upon the final determination that such employee has committed certain acts or omissions, including: (1) failure to obtain required approval prior to a seizure; (2) making a false statement under oath concerning a material matter involving a taxpayer; (3) violating the civil rights of a taxpayer; (4) falsifying or destroying documents to conceal mistakes; (5) assaulting a taxpayer; (6) threatening a taxpayer for the purpose of extracting personal gain; and (7) specified willful violations of the Internal Revenue Code.

(Sec. 1204) Prohibits using records of tax enforcement results to evaluate or set production quotas for IRS employees.

(Sec. 1205) Requires the IRS to implement an employee training program in customer service.

Title II: Electronic Filing - States that it is the policy of the Congress that paperless filing: (1) should be the preferred form of filing; (2) should be a voluntary option for taxpayers; (3) that by the year 2007, at least 80 percent of all returns should be filed electronically; and (4) should be encouraged by the IRS through cooperation with the private sector. Sets forth: (1) plans to achieve such goals; and (2) reporting requirements.

(Sec. 2002) Provides, with respect to electronic filing, for specified studies and reports.

Title III: Taxpayer Protection and Rights - Taxpayer Bill of Rights 3 - Subtitle A: Burden of Proof - Places the burden of proof in any court proceeding, with respect to any factual issue relevant to ascertaining the income tax liability of a taxpayer, on the Secretary, but only if: (1) the taxpayer has complied with applicable substantiation requirements; (2) the taxpayer has maintained all required records and has cooperated fully with the Secretary with respect to an issue; and (3) in the case of a partnership, corporation, or trust meets the IRC definition of the term prevailing party.

Subtitle B: Proceedings by Taxpayers - Revises provisions concerning the awarding of reasonable attorney's fees to, among other things, eliminate the dollars per hour rate cap on such fees.

(Sec. 3102) Permits civil damages (of up to $100,000) if any IRS employee, in connection with any collection activity, negligently disregards the IRC. (Currently, damages (of up to $1,000,000) are allowed only if the employee recklessly or intentionally disregards the IRC.) Permits such damages for an individual other than the taxpayer who is harmed by unauthorized collection activities.

(Sec. 3103) Increases, from $10,000 to $50,000, the amount in controversy permitted on the small case calendar.

(Sec. 3104) Permits a "responsible person" (an individual responsible to collect a tax, generally an employer responsible for withholding) to petition the Tax Court to determine liability for the "responsible person" penalty.

(Sec. 3105) Sets forth provisions concerning actions: (1) with respect to certain estates which have elected the installment method of payment; (2) to review an adverse IRS determination of the tax-exempt status of a bond; and (3) for the release of an erroneous lien.

Subtitle C: Relief for Innocent Spouses and for Taxpayers Unable to Manage Their Financial Affairs Due to Disabilities - Limits an electing innocent spouse's tax liability, if the election is found to have been validly made.

(Sec. 3202) Provides for the suspension of the statute of limitations for claiming a refund or credit during periods of a medically determined physical or mental impairment.

Subtitle D: Provisions Relating To Interest and Penalties - Establishes a net interest rate of zero on equivalent amounts of overpayment and underpayment existing for any period.

(Sec. 3302) Increases, by one percent, the overpayment rate payable to taxpayers other than corporations.

(Sec. 3303) Eliminates the penalty on an individual's failure to pay if an installment agreement is in effect.

(Sec. 3304) Permits a taxpayer (generally an employer) to designate the period to which each payroll tax deposit is to apply, thereby mitigating the current penalty for missing a deposit.

(Sec. 3305) Suspends interest and certain penalties if, one year after a return is filed or a return is due, the IRS has not sent the taxpayer a deficiency notice.

(Sec. 3306) Sets forth provisions concerning: (1) procedural requirements for imposition of penalties and additions to tax; (2) personal delivery of notice concerning failure to collect and pay over tax, or attempt to evade or defeat tax; (3) notice requirements concerning interest; and (4) abatement of interest on underpayments by taxpayers in a presidentially declared disaster area.

Subtitle E: Protections for Taxpayers Subject to Audit or Collection Activities - Requires notice and opportunity for a hearing at least 30 days before filing a lien notice or making a levy.

(Sec. 3411) Extends the attorney-client privilege to tax communications between a taxpayer and a federally authorized tax practitioner.

(Sec. 3412) Prohibits the use of financial status or economic reality examination techniques to determine the existence of unreported income, unless there is a reasonable indication of unreported income.

(Sec. 3413) Prohibits, as a general rule, issuing a summons in a tax matter for any computer software source code.

(Sec. 3414) Prohibits threatening to audit a taxpayer in an attempt to coerce the taxpayer into a Tip Reporting Alternative Commitment Agreement.

(Sec. 3415) Sets forth provisions concerning: (1) permitting taxpayer motions to quash third-party summonses; (2) service to third-party recordkeepers by mail; and (3) requiring notice to third-parties prior to the IRS contacting such parties.

(Sec. 3421) Requires a supervisor's approval of before an IRS employee can file a lien.

(Sec. 3431) Increases to $10,000 the value of personal effects exempt from levy.

(Sec. 3432) Requires the IRS to immediately release an uncollectible wage levy upon agreement that the levy is not collectible.

(Sec. 3433) Prohibits an IRS levy if there is a pending refund proceeding. Sets forth other provisions concerning an IRS levy.

(Sec. 3441) Prohibits the IRS from selling seized property at less than the minimum bid price.

(Sec. 3442) Sets forth provisions concerning: (1) an accounting to the taxpayer of the sale of the taxpayer's seized property; (2) implementation of a uniform asset disposal mechanism; and (3) codification of IRS administrative procedures requiring investigation of the status of property before seizure.

(Sec. 3445) Prohibits seizure of a residence if the amount of the levy does not exceed $5,000. Permits the seizure of a principal residence or business only: (1) with the approval of a district or assistant IRS district director; or (2) the collection of the tax is in jeopardy.

(Sec. 3461) Repeals the current IRC provision permitting the IRS and a taxpayer to agree to extend the statute of limitations on collections.

(Sec. 3462) Directs the Secretary to: (1) prescribe guidelines for IRS officers and employees to determine whether an offer-in-compromise is adequate; and (2) in prescribing such guidelines, to develop and publish local and national allowances schedules designed to provide that taxpayers entering into a compromise have an adequate means to provide for basic living expenses. Prohibits, as specified, an IRS levy if there is a pending offer-in-compromise. Provides for the review of rejected offers-in-compromise.

(Sec. 3463) Requires each deficiency notice to specify the last date on which a taxpayer can file a petition with the Tax Court.

(Sec. 3465) Requires IRS procedures by which any taxpayer may request early referral of unresolved issues from the examination or collection division to the IRS Office of Appeals.

(Sec. 3466) Provides for the application of certain Fair Debt Collections Practices Act procedures to the IRS.

(Sec. 3467) Requires the IRS to enter into installment payment agreements in specified instances, including that the liability is $10,000 or less and full payment will be made within three years.

(Sec. 3468) Prohibits any U.S. employee from requesting a taxpayer to waive the taxpayer's right to bring a civil action against a U.S. employee or against the United States for any action taken in connection with the internal revenue laws.

Subtitle F: Disclosures to Taxpayers - Requires the establishment of procedures to clearly alert married taxpayers of their joint and several liabilities on all appropriate publications and instructions.

(Sec. 3502) Requires a revision of the Taxpayer Bill of Rights contained in IRS Publication No. 1 so that it more clearly informs taxpayers of their rights to be represented at interviews and to suspend an interview. Requires: (1) the inclusion in such publication of a statement which sets forth in simple terms the procedure and criteria for selecting taxpayers for examination; and (2) the submission of drafts of such statement to specified congressional committees.

(Sec. 3504) Requires the inclusion, with any first letter of deficiency allowing a taxpayer an opportunity for administrative review in the IRS Office of Appeals, of an explanation of the appeals process with respect to such proposed deficiency.

(Sec. 3506) Requires: (1) annual balance statements to taxpayers with installment agreements; (2) notification of the selection of a tax matters partner; and (3) an explanation to taxpayers of when return information may be disclosed to any party outside the IRS.

Subtitle G: Low-Income Taxpayer Clinics - Authorizes the Secretary, subject to the availability of appropriated funds, to make grants to provide matching funds for the development, expansion, or continuation of qualified low income taxpayer clinics.

Subtitle H: Other Matters - Requires the cataloging of taxpayer complaints of misconduct by IRS employees on an individual employee basis.

(Sec. 3702) Permits the disclosure of return information to the National Archives and Records Administration to determine if such information should be retained or destroyed.

(Sec. 3705) Requires any IRS notice sent to a taxpayer to include the name and telephone number of an IRS employee for the taxpayer to contact.

(Sec. 3708) Prohibits the designation, by the IRS, of a taxpayer as an illegal tax protester.

(Sec. 3710) Requires the listing of local IRS phone numbers and addresses.

(Sec. 3712) Provides for the payment of legally enforceable past-due State income tax obligations from Federal tax overpayments.

(Sec. 3713) Prohibits implementing temporary or final regulations with respect to IRS Notice 98-11 (concerning foreign source income) prior to six months after enactment.

(Sec. 3714) Sets forth provisions concerning: (1) a study of payments made for the detection of underpayments and fraud; (2) a combined employment tax reporting demonstration project; and (3) reporting requirements in connection with the education tax credit.

Subtitle I: Studies - Directs the Joint Committee on Taxation to conduct studies and report findings concerning: (1) penalty administration; (2) taxpayer confidentiality; and (3) willful noncompliance by taxpayers with tax laws. Directs the Oversight Board to study and report on whether the IRS has the resources needed to prevent tax avoidance by companies using unlawful transfer pricing methods.

Title IV: Congressional Accountability for the Internal Revenue Service - Expresses the sense of the Congress that the IRS should place a high priority on resolving the century date change computing problems.

(Sec. 4002) Directs the Commissioner of Internal Revenue to annually conduct a study of the sources of the complexity of the administration of the Federal tax laws.

Title V: Revenue Provisions - Provides that no amount shall be treated as deferred compensation until it is actually received by the employee.

(Sec. 5002) Reduces the carryback period and extends the carryforward period for the excess foreign tax credit.

(Sec. 5004) Revises provisions concerning the treatment of a stapled real estate investment trust (REIT) structure.

(Sec. 5005) Makes certain trade receivables ineligible for mark-to-market treatment.

(Sec. 5006) Adds the rotavirus gastroenteritis vaccine to the list of taxable vaccines.

(Sec. 5008) Modifies the method of determining the adjusted gross income limit for a Roth IRA.

(Sec. 5009) Extends IRS user fee provisions until October 1, 2007.

Title VI: Technical Corrections - Tax Technical Corrections Act of 1998 - Amends the IRC, the Taxpayer Relief Act of 1997 (which primarily amended the IRC), and other tax legislation to revise provisions concerning, among other things: (1) credits for children; (2) education incentives; (3) savings and investment incentives; (4) the alternative minimum tax; (5) estate, gift, and generation-skipping taxes; (6) incentives for the revitalization of the District of Columbia; (7) excise taxes; (8) financial products; (9) corporate organizations and reorganizations; (10) foreign investments and tax credits; (11) pensions and employee benefits; and (12) unused business credits.

Makes such revisions effective as if included in the Taxpayer Relief Act of 1997, with exceptions.