IRS Restructuring and Reform Act of
1998
Senate
Report page2
 
D. Taxpayer Advocate (secs. 1102(a), (c), and (d) of the bill
and sec. 7803(c) of the Code)
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 a summary 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.
Reasons
for Change
The Committee believes that the Taxpayer Advocate
serves an important role within the
IRS
in terms of preserving taxpayer rights and solving
problems that taxpayers encounter in their dealings
with the
IRS
. To that end, it is appropriate that the
IRS
Oversight Board have input in the selection of the
Taxpayer Advocate. Due to the enhanced powers of the
Taxpayer Advocate in TBOR2 and this bill, the
Committee has been advised that the Taxpayer
Advocate should be appointed by the Secretary to
avoid constitutional problems. In addition, the
Committee believes that the Taxpayer Advocate should
have experience appropriate to the position and that
the Taxpayer Advocate's objectivity would be best
preserved by limiting prior and future employment
with the
IRS
. The Committee also believes that the reporting
requirements of the Taxpayer Advocate should be
targeted not only towards solving problems with the
IRS
but also towards preventing problems before they
arise.
The Committee believes that the Taxpayer Advocate
must have broad discretion to provide relief to
taxpayers. In determining whether a taxpayer
assistance order should be issued, the Taxpayer
Advocate should consider certain factors as
constituting a "significant hardship" for
the taxpayer. In addition to providing relief if the
taxpayer is about to suffer a significant hardship,
the Taxpayer Assistance Order should be issued in
other appropriate situations, such as if there is an
immediate threat of adverse action, if there has
been a delay of more than 30 days in resolving the
taxpayer's account problems, the taxpayer will have
to pay significant costs if relief is not granted,
or the taxpayer will suffer irreparable injury, or
long-term adverse impact, if relief is not granted.
The Committee believes that the Taxpayer Advocate
should have flexibility to issue a TAO under any
appropriate circumstances, not only when one of the
listed factors exists.
Explanation
of Provision
National
Taxpayer Advocate
The bill renames the Taxpayer Advocate the
"National Taxpayer Advocate." The bill
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 bill 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 Taxpayer
Advocate 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.
Taxpayer
assistance orders
The provision expands the circumstances under which
a TAO may be issued. The bill 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 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.
E.
Treasury Office of Inspector General;
IRS
Office of the Chief Inspector
(secs.
1102 and 1103 of the bill, sec. 7803(d) of the Code,
and secs. 2, 8D, and 9 of the Inspector General Act
of 1978)
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.16
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.
The Commissioner and the Treasury IG have entered
into two Memorandums of Understanding ("MOUs")17
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.18
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.
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 prohibit audits 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, 19
51, 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.
Reasons
for Change
The Committee believes that the current
IRS
Office of the Chief Inspector lacks sufficient
structural and actual autonomy from the agency it is
charged with monitoring and overseeing. Further, the
current relationship between the Treasury IG and the
IRS
Office of the Chief Inspector does not foster
appropriate oversight over the
IRS
. The Committee believes that the establishment of
an independent Inspector General within the
Department of Treasury whose primary focus and
responsibility will be to audit, investigate, and
evaluate
IRS
programs will improve the quality as well as the
credibility of
IRS
oversight.
Explanation
of Provision
In
general
The bill 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 bill, 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
IRS
matters, 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 bill 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 bill, 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 bill, 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
bill, 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 Treasury IG 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 bill.
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.
E.
Prohibition on Executive Branch Influence Over
Taxpayer Audits
(sec. 1105 of the bill and new sec. 7217 of the
Code)
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).
Reasons
for Change
The Committee believes that the perception that it
is possible that high-level Executive Branch
influence over taxpayer audits and collection
activity could occur has a negative influence on
taxpayers' views of the tax system. Accordingly, the
Committee believes that it is appropriate to
prohibit such influence.
Explanation
of Provision
The 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.
In the case of a law enforcement action authorized
by the Attorney General, discussions involving
specified persons with respect to that law
enforcement action shall not be considered to be
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
. The Chief Inspector 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).
Three exceptions to the general prohibition apply.
First, the prohibition does not apply to a request
made to a specified person by or on behalf of a
taxpayer that is forwarded by the specified person
to the
IRS
. This exception is intended to cover two types of
situations. The first situation is where a taxpayer
(or a taxpayer's representative) writes to a
specified person seeking assistance in resolving a
difficulty with the
IRS
. This exception permits the specified person who
receives such a request to forward it to the
IRS
for resolution without violating the general
prohibition. The second situation that this first
exception is intended to cover is an audit or
investigation by the
IRS
of a Presidential nominee. Under present law (sec.
6103(c)), nominees for Presidentially appointed
positions consent to disclosure of their tax returns
and return information so that background checks may
be conducted. Sometimes an audit or other
investigation is initiated as part of that
background check. The Committee anticipates that any
such audit or investigation that is part of such a
background check will be encompassed within this
first exception.
The second exception to the general prohibition
applies 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.
The third exception to the general prohibition
applies 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.
G.
IRS
Personnel Flexibilities
(Secs. 1201-1205 of the bill and new chapter 95 of
Title 5, U.S.C.)
Present
Law
The
IRS
is subject to the personnel rules and procedures set
forth in title 5, United States Code. Under these
rules,
IRS
employees generally are classified under the General
Schedule or the Senior Executive Service.
Reasons
for Change
The Committee believes that as part of restructuring
the
IRS
, the Commissioner should have the ability to bring
in experts and the flexibility to revitalize the
current
IRS
workforce. The current hiring practices often
inhibit the ability of the Commissioner to change
the
IRS
' institutional culture. Commissioner Rossotti has
indicated that in order to maximize efforts to
transform the
IRS
into an efficient, modern and responsive agency, the
ability to recruit and retain a top-notch leadership
and technical team is critical.
The Committee believes the
IRS
needs the flexibility to recruit employees from the
private sector, to redesign its salary and incentive
structures to reward employees who meet their
objectives, and to hold non-performers accountable.
Personnel and pay flexibilities are necessary
prerequisites for larger fundamental changes in the
IRS
.
The Committee wants to support the Commissioner's
initiatives to reposition the current
IRS
workforce as part of implementing a new organization
designed around the needs of taxpayers.
Explanation
of Provision
In general
The bill amends title 5 of the United States Code to
provide certain personnel flexibilities to the
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