IRS Restructuring and Reform Act of
1998
Senate
Report page4
 
ii.
Limitation on financial status audit techniques
(sec. 3412 of the bill and sec. 7602 of the Code)
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 have upheld the use of financial status and
economic reality examination techniques to determine
the existence of unreported income in appropriate
circumstances.
Reasons
for Change
The Committee believes that financial status audit
techniques are intrusive, and that their use should
be limited to situations where the
IRS
already has indications of unreported income.
Explanation
of Provision
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
The provision is effective on the date of enactment.
iii.
Software trade secrets protection (sec. 3413 of the
bill and new sec. 7612 of the Code)
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 record keepers. There are no specific
statutory restrictions on the ability of the
Secretary to demand the production of computer
records, programs, code or similar materials.
Reasons
for Change
The Committee believes that the intellectual
property rights of the developers and owners of
computer programs should be respected. The Committee
is concerned that the examination of computer
programs and source code by the
IRS
could lead to the diminution of those rights through
the inadvertent disclosure of trade secrets and
believes that special protection against such
inadvertent disclosure should be established.
The Committee also believes that the indiscriminate
examination of computer source code by the
IRS
is inappropriate. Accordingly, the Committee
believes that a summons for the production of
certain computer source code should only be issued
where the
IRS
is not otherwise able to ascertain through
reasonable efforts the manner in which a taxpayer
has arrived at an item on a return, identifies with
specificity the portion of the computer source code
it seeks to examine, and determines that the need to
see the source code outweighs the risk of
unauthorized disclosure of trade secrets.
Explanation
of Provision
Discovery
of computer source code
The provision generally prohibits the Secretary from
issuing a summons in a Federal tax matter for any
portion of computer source code. Exceptions to the
general rule are provided for inquiries into any
criminal offense connected with the administration
or enforcement of the internal revenue laws and for
computer software source code that was developed by
the taxpayer or a related person for internal use by
the taxpayer or related person. Computer software
source code is considered to have been developed for
internal use by the taxpayer or a related person if
the software is primarily used in the taxpayer or
related person's trade or business, as opposed to
being held for sale or license to others. Software
is considered to be used in a trade or business if
it is used in the provision of services to others.
It is anticipated that software that was originally
developed for internal use by the taxpayer or a
related person will continue to be subject to the
exception, even if the software is later transferred
to another. For example, software may have
originally been developed by the taxpayer to
administer the taxpayer's employee benefits system.
If that function and the software necessary to
perform it is later transferred to an unrelated
third party, the software would continue to be
subject to the exception.
In addition, the prohibition of the general rule
would not apply, and the Secretary would be allowed
to summons computer source code if the Secretary:
(1) is unable to otherwise reasonably ascertain the
correctness of an item on a return from the
taxpayer's books and records, or the computer
software program and any associated data; (2)
identifies with reasonable specificity the portion
of the computer source code to be used to verify the
correctness of the item; and (3) determines that the
need for the source code outweighs the risks of
disclosure of the computer source code. No inference
is intended as to whether software is included in
the definition of a taxpayer's books and records.
It is expected that the Secretary will make a good
faith and significant effort to ascertain the
correctness of an item prior to seeking computer
source code. The portion of the computer source code
to be used would be considered identified with
reasonable specificity where, for example, the
Secretary requests the portion of the code that is
used to determine a particular item on the return,
that otherwise is necessary to the determination of
an item on the return, or that implements an
accounting or other method.
The Committee is aware that the refusal of the
taxpayer or the owner of the software to cooperate
could, in certain situations, prevent the Secretary
from establishing the factors necessary to support
the summons of computer source code. Accordingly,
the requirement that the Secretary be unable to
otherwise reasonably ascertain the correctness of an
item on a return from the taxpayer's books and
records, or from the computer software program and
any associated data, and the requirement that the
Secretary have identified with reasonable
specificity the portion of the computer source code
requested, will be deemed to be satisfied where (1)
the Secretary 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, (2)
the Secretary 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 (3) the Secretary
has not received such program and data within 180
days of making the formal request. In the case of
requests to the taxpayer, the Committee expects that
a formal request will take the form of an
Information Document Request (
IDR
), summons, or similar document. The Committee
intends that the Secretary actively pursue the
recovery of such program and any data from the
taxpayer before seeking to have the normal
requirements deemed satisfied under this rule.
Additional
protections against disclosure of computer software
and source code
The provision establishes a number of 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. It is expected that the taxpayer will be
informed of any alternative data or settings to be
used in the examination of the software. However,
the Committee does not intend to provide the
taxpayer with the right to monitor the examination
of the software by the
IRS
on a key stroke by key stroke or similar basis.
(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. If the owner does not consent to the removal
of source code from its place of business, the owner
must make available the necessary equipment to
review the source code. The owner shall have the
right to require the use of equipment that is
configured to prevent electronic communication
outside the owner's place of business.
(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. Source code may be
copied (by the use of a scanner or otherwise) from
written to machine readable form. However, any such
machine readable copies shall be treated as separate
copies and must be numbered, accounted for and
returned or destroyed at the conclusion of the
examination.
(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.
Computer source code is the code written by a
programmer using a programming language that is
comprehensible to an appropriately trained person,
is not machine readable, and is not capable of
directly being used to give instructions to a
computer. Computer source code also includes any
related programmer's notes, design documents,
memoranda and similar documentation and customer
communications regarding the operation of the
program (other than communications with the taxpayer
or any person related to the taxpayer).
The Secretary's determination may be contested in
any proceeding to enforce the summons, by any person
to whom the summons is addressed. In any such
proceeding, the court may issue any order that is
necessary to prevent the disclosure of confidential
information, including (but not limited to) the
enforcement of the protections established by this
provision.
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
The provision is effective for 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.
iv.
Threat of audit prohibited to coerce tip reporting
alternative commitment agreements (sec. 3414 of the
bill)
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.
Reasons
for Change
The Committee believes that it is inappropriate for
the Secretary to use the threat of an
IRS
audit to induce participation in voluntary programs.
Explanation
of Provision
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
The provision is effective on the date of enactment.
v.
Taxpayers allowed motion to quash all third-party
summonses (sec. 3415 of the bill and sec. 7609(a) of
the Code)
Present
Law
When the
IRS
issues a summons to a "third-party recordkeeper"
relating to the business transactions or affairs of
a taxpayer, Code section 7609 requires that notice
of the summons 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.
Reasons
for Change
The Committee believes that a taxpayer should have
notice when the
IRS
uses its summons power to gather information in an
effort to determine the taxpayer's liability.
Expanding notice requirement to cover all third
party summonses will ensure that taxpayer will
receive notice and an opportunity to contest any
summons issued to a third party in connection with
the determination of their liability.
Explanation
of Provision
The provision 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 current law are not subject to these
requirements. No inference is intended with respect
to the applicability of present law to summonses to
the taxpayer or the scope of the authority to
summons testimony, books, papers, or other records.
Effective
Date
The provision is effective for summonses served
after the date of enactment.
vi.
Service of summonses to third-party recordkeepers
permitted by mail (sec. 3416 of the bill and sec.
7603 of the Code)
Present
Law
Code section 7603 requires that a summons shall 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." By contrast, if
a third-party recordkeeper summons is served,
section 7609 permits the
IRS
to give the taxpayer notice of the summons via
certified or registered mail. Moreover, Rule 4 of
the Federal Rules of Civil Procedure permits service
of process by mail even in summons enforcement
proceedings.
Reasons
for Change
The Committee is concerned that, in certain cases,
the personal appearance of an
IRS
official at a place of business for the purpose of
serving a summons may be unnecessarily disruptive.
The Committee believes that it is appropriate to
permit service of summons, as well as notice of
summons, by mail.
Explanation
of Provision
The provision allows the
IRS
the option of serving any summons either in person
or by mail.
Effective
Date
The provision is effective for summonses served
after the date of enactment.
vii.
Prohibition on
IRS
contact of third parties without taxpayer
pre-notification (sec. 3417 of the bill and sec.
7602 of the Code)
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
under Code section 7609. In general, the taxpayer
must be notified of the service of summons on a
third party within three days of the date of service
(sec. 7609(a)). The
IRS
also has the right to seize property of the taxpayer
that is held in the hands of third parties (sec.
6331(a)). 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.
Reasons
for Change
The Committee believes that taxpayers should be
notified before the
IRS
contacts third parties regarding examination or
collection activities with respect to the taxpayer.
Such contacts may have a chilling effect on the
taxpayer's business and could damage the taxpayer's
reputation in the community. Accordingly, the
Committee believes that taxpayers should have the
opportunity to resolve issues and volunteer
information before the
IRS
contacts third parties.
Explanation
of Provision
The provision 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
The provision is effective for contacts made after
180 days after the date of enactment.
c.
Collection Activities
i.
Approval process for liens, levies, and seizures
(sec. 3421 of the bill)
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
(sec. 6334(e)).
Reasons
for Change
The Committee believes that the imposition of liens,
levies, and seizures may impose significant
hardships on taxpayers. Accordingly, the Committee
believes that extra protection in the form of an
administrative approval process is appropriate.
Explanation
of Provision
The provision requires the
IRS
to implement an approval process under which any
lien, levy or seizure would 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. Failure to follow such procedures should
result in disciplinary action against the supervisor
and/or revenue officer.
In addition, the Treasury Inspector General for Tax
Administration is required to collect information on
the approval process and annually report to the
tax-writing committees.
Effective
Date
The provision is effective for collection actions
commenced after date of enactment.
ii.
Modifications to certain levy exemption amounts
(sec. 3431 of the bill and sec. 6334 of the Code)
Present
Law
The Code authorizes the
IRS
to levy on all non-exempt property of the taxpayer.
Property exempt from levy is described in section
6334. Section 6334(a)(2) exempts from levy up to
$2,500 in value of fuel, provisions, furniture, and
personal effects in the taxpayer's household.
Section 6334(a)(3) exempts from levy up to $1,250 in
value of books and tools necessary for the trade,
business or profession of the taxpayer.
Reasons
for Change
The Committee believes that a minimum amount of
household items and equipment for taxpayer's
business should be exempt from levy. To ensure that
such exemption is meaningful, the amounts should be
indexed for inflation.
Explanation
of Provision
The provision 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
The provision is effective for collection actions
taken after the date of enactment.
iii.
Release of levy upon agreement that amount is
uncollectible (sec. 3432 of the bill and sec. 6343
of the Code)
Present
Law
Some have contended that the
IRS
does not release a wage levy immediately upon
receipt of proof that the taxpayer is unable to pay
the tax, but instead, the
IRS
levies on one period's wage payment before releasing
the levy.
Reasons
for Change
Congress believes that taxpayers should not have
collection activity taken against them once the
IRS
has determined that the amounts are uncollectible.
Explanation
of Provision
The
IRS
is required to immediately release a wage levy upon
agreement with the taxpayer that the tax is not
collectible.
Effective
Date
The provision is effective for levies imposed after
date of enactment.
iv.
Levy prohibited during pendency of refund
proceedings (sec. 3433 of the bill and sec. 6331 of
the Code)
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. Most divisible taxes
are not within the Tax Court's jurisdiction;
accordingly, the taxpayer has no pre-payment forum
for contesting such taxes. In the case of divisible
taxes, it is possible that the taxpayer could be
properly under the refund jurisdiction of the
District Court or the U.S. Court of Federal Claims
and still be subject to collection by levy with
respect to the entire amount of the tax at issue.
The
IRS
's policy is generally to exercise forbearance with
respect to collection while the refund suit is
pending, so long as the interests of the Government
are adequately protected (e.g., by the filing of a
notice of Federal tax lien) and collection is not in
jeopardy. Any refunds due the taxpayer may be
credited to the unpaid portion of the liability
pending the outcome of the suit.
Reasons
for Change
The Committee believes that taxpayers who are
litigating a refund action over divisible taxes
should be protected from collection of the full
assessed amount, because the court considering the
refund suit may ultimately determine that the
taxpayer is not liable.
Explanation
of Provision
The provision requires the
IRS
to withhold collection by levy 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). This provision will not affect the
IRS
's ability to collect other assessments that are not
the subject of the refund suit, to offset refunds,
to counterclaim in a refund suit or related
proceeding, or to file a notice of Federal tax lien.
The statute of limitations on collection is stayed
for the period during which the
IRS
is prohibited from collecting by levy.
Effective
Date
The provision is effective for refund suits brought
with respect to tax years beginning after
December 31, 1998
.
v.
Approval required for jeopardy and termination
assessments and jeopardy levies (sec. 3434 of the
bill and sec. 7429(a) of the Code)
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 (sec. 6851), or if
assessment or collection would be jeopardized by
delay (secs. 6861 and 6862). In jeopardy or
termination situations, a levy may be made without
the 30-days' notice of intent to levy that is
ordinarily required by section 6331(d)(2). Jeopardy
assessments apply when the tax year is over.
Termination assessments apply to the current taxable
year or the immediately preceding taxable year if
the filing date has not yet passed. A termination
assessment serves to terminate the taxable year for
the purpose of computing the tax to be assessed and
collected under the termination assessment
procedure. Under both the jeopardy and termination
assessment procedures, the
IRS
can assess the tax and immediately begin collection
if any one of the following situations exists: (1)
the taxpayer is or appears to be planning to depart
the United States or to go into hiding; (2) the
taxpayer is or appears to be planning to place
property beyond the reach of the
IRS
by removing it from the country, hiding it,
dissipating it, or by transferring it to other
persons; or (3) the taxpayer's financial solvency is
or appears to be imperiled. Because the same
criteria apply to jeopardy and termination
assessments, jeopardy and termination assessments
are often entered at the same time against the same
taxpayer.
The Code and regulations do not presently require
Counsel to review jeopardy assessments, termination
assessments, or jeopardy levies, although the
Internal Revenue Manual does require Counsel review
before such actions and it is current practice to
make such a review. The
IRS
bears the burden of proof with respect to the
reasonableness of a jeopardy or termination
assessment or a jeopardy levy (sec. 7429(g)).
Reasons
for Change
The Committee believes that it is appropriate to
require Counsel review and approval of jeopardy and
termination levies, because such actions often
involve difficult legal issues.
Explanation
of Provision
The provision requires
IRS
Counsel review and approval before the
IRS
could make a jeopardy assessment, a termination
assessment, or a jeopardy levy. If Counsel's
approval was not obtained, the taxpayer would be
entitled to obtain abatement of the assessment or
release of the levy, and, if the
IRS
failed to offer such relief, to appeal first to
IRS
Appeals under the new due process procedure for
IRS
collections (described in E. 1, above) and then to
court.
Effective
Date
The provision is effective with respect to taxes
assessed and levies made after the date of
enactment.
vi.
Increase in amount of certain property on which lien
not valid (sec. 3435 of the bill and sec. 6323 of
the Code)
Present
Law
The 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 (sec. 6321). However, the Federal tax
lien is not valid as to certain "superpriority"
interests as defined in section 6323(b).
Two of these interests are limited by a specific
dollar amount. Under section 6323(b)(4), 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. Section 6323(b)(7) provides protection to
mechanic's lienors with respect to the repairs or
improvements made to owneroccupied 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 under
section 6323(b)(10) 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.
Reasons
for Change
The Committee believes that it is appropriate to
increase the dollar limits on the superpriority
amounts because the dollar limits have not been
increased for decades and do not reflect current
prices or values.
Explanation
of Provision
The provision increases the dollar limit in section
6323(b)(4) for purchasers at a casual sale from $250
to $1,000, and further increases the dollar limit in
section 6323(b)(7) from $1,000 to $5,000 for
mechanics lienors providing home improvement work
for owner-occupied personal residences. The
provision indexes these amounts for inflation. The
provision also clarifies section 6323(b)(10) to
reflect present banking practices, where a
passbook-type loan may be made even though an actual
passbook is not used.
Effective
Date
The provision is effective on the date of enactment.
vii.
Waiver of early withdrawal tax for IRS levies on
employer-sponsored retirement plans or IRAs (sec.
3436 of the bill and sec. 72(t)(2)(A) of the Code)
Present
Law
Under present law, a distribution of benefits from
any 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
certain lump-sum distributions from qualified
retirement plans, distributions rolled over to an
IRA or employer-sponsored retirement plan, and
lump-sum distributions of employer securities.
Distributions from qualified plans and IRAs prior to
attainment of age 59-1/2 that are includible in
income generally are subject to a 10-percent early
withdrawal tax, unless an exception to the tax
applies. An exception to the tax applies if the
withdrawal is due to death or disability, is made in
the form of certain periodic payments, or is used to
pay medical expenses in excess of 7.5 percent of
adjusted gross income ("AGI"). Certain
additional exceptions to the tax apply separately to
withdrawals from IRAs and qualified plans.
Distributions from IRAs for education expenses, 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
section 403(b) and 457 plans) and IRAs are not
exempt from levy by the IRS.
Under present law, distributions from
employer-sponsored retirement plans or IRAs made on
account of an IRS levy are 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 is subject to the 10-percent early withdrawal
tax, unless an exception described above applies.
Reasons
for Change
The Committee believes that the imposition of the
10-percent early withdrawal tax on amounts
distributed from employer-sponsored retirement plans
or IRAs on account of an IRS levy may impose
significant hardships on taxpayers. Accordingly, the
Committee believes such distributions should be
exempt from the 10-percent early withdrawal tax.
Explanation
of Provision
The provision provides an exception from the
10-percent early withdrawal tax for amounts
withdrawn from any 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, or in any other situation not addressed
by the express statutory exceptions to the
10-percent early withdrawal tax.
Effective
Date
The provision is effective for withdrawals after the
date of enactment.
viii.
Prohibition of sales of seized property at less than
minimum bid (sec. 3441 of the bill and sec. 6335(e)
of the Code)
Present
Law
Section 6335(e) requires that a minimum bid price 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. Accordingly, if the minimum bid
price is set at the tax liability plus the expenses
of sale, the taxpayer's concurrence is not required.
IRM 56(13)5.1(4). Section 6335 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. Code section 7433 provides
civil damages for certain unauthorized collection
actions.
Reasons
for Change
The Committee believes that strengthening provisions
regarding the minimum bid price, including
preventing the IRS from selling the taxpayer's
property for less than the minimum bid price, are
appropriate to preserve taxpayers' rights.
Explanation of Provision
The provision prohibits the IRS from selling seized
property for less than the minimum bid price. The
provision 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 pursuant
to section 7433.
Effective
Date
The provision is effective for sales occurring after
the date of enactment.
ix.
Accounting of sales of seized property (sec. 3442 of
the bill and sec. 6340 of the Code)
Present
Law
The IRS is authorized to seize and sell a taxpayer's
property to satisfy an unpaid tax liability (sec.
6331(b)). The IRS is required to give written notice
to the taxpayer before seizure of the property (sec.
6331(d)). 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 (sec. 6340). The records must set
forth all pr
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