Taxpayer Protection and IRS Accountability Act of 2003, H.R. 1528, and Tax Administration and Good Government Act, S. 882
CRS Report for Congress
Taxpayer Protection and IRS Accountability
Act of 2003, H.R. 1528, and Tax
Administration Good Government Act, S. 882
Erika Lunder
Legislative Attorney
American Law Division
Summary
The House of Representatives and the Senate have passed different versions of
H.R. 1528, a bill whose provisions primarily relate to tax administration and taxpayer
safeguards. On June 19, 2003, the House passed H.R. 1528, the Taxpayer Protection
and IRS Accountability Act of 2003, by a vote of 252-170. On May 19, 2004, the
Senate passed an amended version of the bill by unanimous consent. The Senate
amendment replaced the language in the House-passed bill with the reported version of
S. 882, the Tax Administration Good Government Act. Both versions of H.R. 1528
contain similar provisions, but there are differences between the two. This report briefly
summarizes the contents of the House and Senate versions of H.R. 1528.
The House of Representatives and the Senate have each passed versions of H.R.
1528, a bill that primarily addresses tax administration and taxpayer safeguards. The
House passed H.R. 1528, the Taxpayer Protection and IRS Accountability Act of 2003,
by a vote of 252 to 170 on June 19, 2003. The Senate passed an amended version of the
bill by unanimous consent on May 19, 2004. The Senate amendment replaced the
language in the House-passed bill with the reported version of S. 882, the Tax
Administration Good Government Act. The two versions of H.R. 1528 include many of
the same provisions, but significant differences do exist.
This report will briefly summarize both versions of H.R. 1528. Under each subject
heading, provisions that are in both versions will be mentioned, followed by provisions
that are only in the House version, and then the provisions that are only in the Senate
version. Title VII of the House version made clerical changes to the applicability of
federal-state agreements dealing with unemployment assistance. These changes are
outdated in light of P.L. 108-26, the Unemployment Compensation Amendments of 2003,
and are omitted. Additionally, section 310 (Suspension of Tax-Exempt Status of Terrorist
Organization) of the House version is omitted because an identical provision was enacted
in P.L. 108-121, the Military Family Tax Relief Act of 2003.
Congressional Research Service ˜ The Library of Congress
Penalty and Interest Reforms
House — Title I; Senate — Title II
Both versions. Both versions of H.R. 1528 address penalty and interest reform.
Both versions include a similar provision that would simplify the calculation of the
penalty for failure to pay estimated tax and would increase the safe harbor (although by
different amounts) under which no penalty is imposed. Another proposal that is similar
in both versions would liberalize the rules under which interest owed by taxpayers is
abated, including the abatement of interest owed on an underpayment attributable to
erroneous IRS written advice. Both versions would clarify and expand the use of cash
deposits that taxpayers may make in order to suspend the accrual of interest on potential
underpayments. Other provisions would liberalize the use of interest netting by
individuals (the Senate’s provision would apply to all taxpayers), modify and increase the
penalty for making frivolous tax submissions, and clarify when the highest penalty applies
for failing to make a timely tax deposit.
House version. The House version would convert the penalty for failure to pay
estimated tax to an interest charge on the unpaid balance. The House version would also
allow individual taxpayers who receive interest from the IRS because they overpaid their
taxes and the IRS was slow to refund the overpayment to exclude the interest from
income. Another House proposal would permit the IRS to waive the penalty for a
first-time failure to pay tax owed or file a return if the failure was due to an unintentional
minor error and the penalty would be disproportionate to the amount owed.
Senate version. The Senate version would increase the threshold under which
corporations do not have to make estimated tax payments and would increase the
threshold under which corporations may base the amount owed on either the current
year’s tax liability or the previous year’s tax liability, as opposed to just the former. It
would also extend the rule that inclusion of an IRS telephone number in certain
communications with taxpayers meets the notification requirement relating to interest and
penalty calculations. The Senate version would also make permanent the rule that the IRS
has eighteen months to notify a taxpayer of an unpaid tax liability before the accrual of
certain penalties and interest is suspended, and would add “gross misstatements” to the
list of provisions to which the suspension rules do not apply.
Tax Administration Reforms
House — Titles II, III, V, VI; Senate — Title I
Both versions. Both versions of the bill include provisions related to tax
administration. Under both versions, the IRS would be able to enter into installment
agreements for less than the full amount of the tax owed. Another proposal would extend
the amount of time from nine months to two years during which the IRS may return
money that has been wrongfully levied upon. Also, if the IRS wrongfully levied upon an
IRA account, the taxpayer would be able to redeposit to the account. Both versions would
stop the suspension of the statute of limitations during review by the National Taxpayer
Advocate (NTA) when the NTA’s review was less than seven days. Both versions would
also require the IRS to include an explanation on certain forms and publications of the
consequences of failing to file for a refund within the statute of limitations period.
Both versions would allow 501(c) and (d) organizations involved in a controversy
with the IRS over the determination of their exempt status to seek declaratory judgements
regarding that status — current law is restricted to 501(c)(3) organizations. Other
provisions would allow earlier disclosure of information about securities to be auctioned
by the Treasury Department, permit the IRS to regulate the conduct of enrolled agents,
and change the bookkeeping of fees paid by the IRS to Financial Management Service.
The requirement that certain offers-in-compromise be supported by a written opinion from
the Office of Chief Counsel would be repealed, as would two of the reasons for which
IRS employees are automatically terminated (the late filing of refund returns and
employee versus employee assault or battery). Both versions of the bill would increase
funding to low-income taxpayer clinics, although by different amounts.
House version. The House version would permit taxpayers who file electronic
returns and pay electronically to have until April 30th to file their returns. The National
Taxpayer Advocate would be permitted to appoint counsel that reports solely to him or
her. Another proposal would require that the IRS make certain fuel tax refunds by
electronic transfer. The House version would allow a joint venture whose only members
are husband and wife filing a joint return to choose not to be treated as a partnership for
income tax purposes. Other provisions would require that the Treasury Department
conduct a study of the IRS’s use of liens and levies and would allow state-based health
insurance coverage to qualify for the refundable health insurance credit.
Additionally, the House version contains several reporting provisions applicable to
the Treasury Inspector General for Tax Administration (TIGTA). TIGTA would be
required to address the most common complaints against IRS employees, annually publish
statistics on the awards of costs and attorneys fees in IRS administrative and court
proceedings, issue an annual report on penalty abatements, and study whether the IRS
would better communicate with taxpayers if the agency used such methods as e-mail. The
House version would also extend the Joint Committee on Taxation’s annual reporting
requirement concerning the IRS to 2009.
Senate version. The Senate version contains numerous provisions not found in
the House version. The Senate version would make two changes to the installment
agreement program: (1) waive the user fee if the taxpayer agreed to make automatic
installment payments and (2) grant the IRS the authority to terminate an agreement if the
taxpayer was late in making a required tax deposit or filing a return. Another proposal
would allow states to offset federal tax refunds owed to non-residents in order to collect
past-due income tax debts from those individuals. The Senate version would also make
several changes to the powers of the IRS Oversight Board, such as adding requirements
that the board approve the selection, evaluation, and compensation of senior executives
and approve the use of critical pay authority. Another provision would prevent the
discharge in bankruptcy of the penalty for failure to collect and pay over tax or the attempt
to evade tax, and would clarify that payroll agents are subject to the penalty. Other
proposals would create a permanent IRS disaster response team, address the treatment of
exempt organizations who receive support from Indian tribal governments, and require
that at least two members of the electronic commerce advisory group be representatives
from the consumer advocacy community.
The Senate version includes several provisions related to electronic filing. Under the
Senate version, a commercial return preparation service participating in the Free File
program would only be allowed to cross-market its services to a taxpayer if he or she
agreed to it. The Senate version would authorize grants for programs intended to
establish accounts for taxpayers without bank accounts so that they may receive refunds
electronically. It would also allow the IRS to lower the threshold number of returns under
which paid tax return preparers must file electronically and expand the types of returns
that must be electronically filed by them.
Another proposal in the Senate version would require that certain paid tax return
preparers register annually with the IRS, with passing an annual exam and meeting
standards of conduct as prerequisites to registering. Additionally, a program would be
established for the registration with the IRS of all providers of refund anticipation loans
to individuals. The Senate version would also authorize that grants be made to low-
income taxpayer return preparation clinics. Other provisions would make the combined
federal-state employment tax reporting program permanent, add a civil penalty for the
failure to report an interest in a foreign financial account, increase the minimum penalty
for bad checks, and repeal the application of the below-market loan rules for certain loans
made to qualified continuing care facilities.
The Senate version would require several reports, including an annual report on IRS
performance measures. Additionally, reports would be required on the proposals to
modify Schedules L and M-1, the implementation of an accelerated tax refund program,
taxpayer record-keeping requirements, and IRS accounts receivable. The Senate version
would also change some reporting requirements, such as reducing the National Taxpayer
Advocate’s annual required reports from two to one and repealing certain TIGTA
reporting requirements. Additionally, a joint task force would be set up to study and
provide recommendations on the use of offers-in-compromise by the IRS.
Confidentiality and Disclosure
House — Titles IV and V; Senate — Title IV
Both versions. Both versions of H.R. 1528 address matters relating to
confidentiality and disclosure of taxpayer return and information. Both versions would
prohibit the disclosure of a taxpayer’s address and identification number as part of the
publically-available summaries of accepted offers-in-compromise. They would require
that the forms used by taxpayers to consent to the IRS sharing information with a third
party include a warning that taxpayers should not sign blank forms and would address
procedures to ensure the consent is used for its proper purpose. Taxpayer representatives
would not be subjected to examination without special IRS supervisory approval merely
because of whom they represent. Both versions would require the IRS notify taxpayers
whose returns had been illegally browsed by IRS employees. Another proposal would
require federal, state, and local agencies to conduct on-site reviews of contractors’
compliance with federal confidentiality standards (the House version would require an
annual review, while the Senate version would require a review every three years).
Both versions would allow a former spouse to make an oral, as opposed to written,
request to find out about collection activities relating to a joint return. Another proposal
would clarify that the IRS does not have to comply with the church-audit procedures when
sending out educational materials about the requirements for tax-exempt organizations.
The IRS would be allowed to use any means of mass communication to notify taxpayers
of undelivered refunds. Both versions would expand present law regarding disclosure in
emergency situations to include local law enforcement agencies. Also, state officials
would have expanded access to tax information of tax-exempt 501(c) organizations.
House version. The House version would only allow the disclosure in judicial
and administrative proceedings of a nonparty’s return or return information that is directly
related to resolution of the issue in the proceeding, and would require reasonable effort
be made to notify the nonparty of the disclosure. The House version would permit the
National Taxpayer Advocate to authorize employees to withhold information provided
by a taxpayer from the IRS and the Department of Justice and to issue disclosure guidance
that will supercede provisions in the Internal Revenue Manual in certain situations.
Senate version. A provision that is only in the Senate version would remove the
application of the confidentiality rules to returns and return information once the
information has been publically disclosed in a proper manner. The Senate version would
clarify that a taxpayer’s identity may be disclosed to law enforcement agencies
investigating terrorist activities. It would also clarify that agents of the Treasury
Department may identify themselves, their affiliation, and the nature of their investigation
when contacting third parties. The Senate version would permit the IRS to disclose to a
person required to provide a taxpayer identification number whether the information
matches records maintained by the IRS. It would also make the rule covering disclosure
of Form 8300 (relating to disclosure of certain currency transactions) uniform with
provisions in Title 31.
Tax Court Modernization
House — Title III; Senate — Title III
Both versions. Both versions of the bill would extend the jurisdiction of the Tax
Court to hear all appeals of due process cases involving collection matters and would
clarify that the Tax Court may apply the doctrine of equitable recoupment.
House version. The House version contains no other provisions.
Senate version. Provisions in the Senate version would clarify that special trial
judges may hear certain small employment tax cases and that the Tax Court may impose
a fee for any case commenced by filing a petition. The Senate version would also allow
the fees imposed on Tax Court practitioners to be used to provide services to pro se
taxpayers. It would address issues related to Tax Court judges’ pension and
compensation, such as equalizing their compensation and benefits with U.S. District
Court judges. The Tax Court would also be able to establish, subject to various
requirements, its own personnel system. Additionally, the Senate version would equalize
the treatment of such things as terms, salary, and benefits between special trial judges of
the Tax Court and magistrate judges of Article III courts.
Simplification
Senate — Title V
Both versions. There are no provisions contained in both versions.
House version. The House version of the bill does not include any provisions.
Senate version. The Senate version would make the definition of “qualifying
child” uniform for purposes of the dependency exemption, child credit, earned income tax
credit, dependent care credit, and head of household filing status. The Senate version
would also remove several obsolete or little-used provisions from the tax code.
Revenue Raisers
House — Title V; Senate — Title VI
Both versions. Both versions would extend the authorization for IRS user fees
to September 30, 2013.
House version. The House version contains no other provisions.
Senate version. Many of the revenue raisers in the Senate version relate to
abusive tax shelters. These include the addition of a penalty for failing to include
information regarding reportable transactions (including listed transactions) with a return
or statement and a penalty on understatements attributable to reportable transactions
(including listed transactions) with significant tax avoidance purposes. The Senate
version would modify existing penalties for promoting tax shelters, maintaining investor
lists, and having an understatement of tax liability on a return prepared by a paid tax
return preparer. It would replace current law requiring the registration of tax shelters with
a provision requiring that material advisors file an information return for any reportable
transaction.
Other provisions relating to tax shelters include the removal of tax shelter
communications from the taxpayer-practitioner confidentiality protection and changes to
the definition of “substantial understatement” for corporate taxpayers. Also under the
Senate version, deducting interest on underpayments attributable to undisclosed reportable
transactions and listed transactions would be prohibited. The Senate version would
modify existing law to expand the circumstances under which injunctions for activities
involving tax shelters may be issued. Other proposals would permit the Treasury
Secretary to censure and fine individuals practicing before it, extend the period of time
the IRS has to assess taxes relating to undisclosed listed transactions, and authorize the
appropriation of $300 million to combat abusive tax avoidance transactions.
Revenue raisers in the Senate version that are not related to tax shelters include a
proposal to require that a corporation’s chief executive officer sign a declaration that the
corporation’s income tax return complies with the law. Another would confirm that the
Treasury Department may make rules that treat corporations filing consolidated returns
differently from those filing separate returns. The Senate version would also increase
various criminal tax penalties, clarify the situations in which payments of fines and
penalties to a government are nondeductible, and deny a business deduction for the
payment of punitive damages.