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House expected to act on IRS Restructuring legislation.

The national press has been filled with articles about the firefight between Congress and the Clinton Administration over the IRS Restructuring Commission legislation. House Republicans believe that they can reap a political bonanza on the legislation this fall. As the National Public Accountant goes to press, the House Ways and Means Committee is expected to report to the full House, H.R. 2292, the Internal Revenue Service Restructuring and Reform Act of 1997. The bill has been introduced in the House by Representatives Rob Portman (R-OH) and Ben Cardin (D-MD). The companion bill in the Senate is S. 1096, and has been introduced by Senators Charles Grassley (RIA) and J. Robert Kerrey (DNE). NSA testified before the House Ways and Means Committee in September 1997 in support of the legislation.

The national press has largely focused on the Administration's opposition to the provision in the legislation which calls for a private IRS Governing Board. In contrast, the Administration has staked out its own position by issuing an Executive Order establishing a Treasury-led IRS Management Board to oversee the Service. President Clinton's Management Board is composed of officials from the Treasury, IRS, the Office of Personnel Management (OPM), and the Office of Management and Budget (OMB). According to the Administration, the IRS Management Board will help the Treasury Secretary in his oversight capacity of the IRS.

Unfortunately, while the press has been "keeping its eyes" on the fight over the IRS board, the other provisions of H.R. 2292 have received little or no attention by the press. These are the provisions which Congress and the Administration largely have common agreement on. Both agree on the need to improve customer service and the IRS computer system, as well as on the benefits of electronic filing. Also, Congress and Clinton agree on the issue of enacting into law further taxpayer protections.

The taxpayer protection items may actually be the sleeper provisions of the IRS Restructuring legislation. One of the major pro-taxpayer provisions of H.R. 2292 involves an expansion of the authority to issue Taxpayer Assistance Orders (TAO). Under current law, in order for a Problem Resolution Officer (PRO) to issue a TAO, the PRO must determine whether the taxpayer is suffering or is about to suffer a significant hardship. To the extent a significant hardship is determined to exist, the PRO then makes a determination as to whether the IRS action warrants being changed.

Under the legislation, the definition of significant hardship is expanded to cover whether IRS employees followed applicable administrative guidance (including the Internal Revenue Manual), whether there is an immediate threat of adverse action, whether there has been a delay of more than 30 days in o resolving taxpayer account problems, and the prospect that the taxpayer will have to pay significant professional fees for representation.

H.R. 2292 also provides for revisions in the Offer in Compromise program. The bill calls for the IRS to develop and publish schedules of national and local allowances to ensure that taxpayers entering into a compromise can provide for basic living expenses. Practitioners believe the current allowable expense standards used by the IRS collection division do not reflect the real cost of living for families. Many practitioners believe the current expense standards do not adequately compensate for family size, housing and utility costs, and the cost of transportation. While the initial version of bill's language on Offers in Compromise is unfortunately vague and lacking in specificity, it is a provision which deserves watching by NSA members.

Another important provision of H.R. 2292 calls for a study on tax penalty reform. The bill requires the IRS Taxpayer Advocate to review the administration and implementation of the penalty reform recommendations made by Congress in 1989. The Advocate is mandated to complete the study by July 30, 1998. Of significance, while this particular provision does not provide any substantive penalty relief to taxpayers, the provision is likely to set the stage for the next serious phase of IRS restructuring. Tax penalties have been used too readily - by Congress and successive Administrations - as a revenue raising device for federal budget purposes.

The 1997 Tax Legislation: The Tax Practitioner's Dream Bill?

According to the August 12, 1997 Money Magazine (Internet On-Line) Daily Report, the new capital gains provisions of the Tax Relief Act of 1997 will add 37 lines alone to Schedule D, Form 1040. Money states that taxpayers will need to pay attention to at least half a dozen tax brackets in 1998 and nine in 1999 depending on effective dates and the holding periods for securities.

Money stated that the new law " so complex, it could force more people to use professional tax return preparation services...And if taxpayers choose to calculate their liability on their own, they had better be prepared to spend a lot more time reading instructions and figuring the math."

The new legislation is expected, according to Money, to be a boon for the computer software and tax preparation software industry. In quoting Sheldon Schwartz, the IRS Director of Tax Form and Publications, Money suggests that between 50 and 60 percent of all IRS forms will be modified in some way to reflect the new changes in the tax law. Money believes the new child tax credit provisions will be a particular burden to taxpayers. With all the new layers of complexity, NSA members can only hope that Congress does not try to pass legislation during the 1998 election year which is modelled on the 1986 Tax Reform Act.

Tax Dodgers Over the Internet

While clearly not having reached the forefront as a tax policy issue, one of the evolving issues in Congress involves the taxation of internet and electronic commerce. Bills have already been introduced in Congress to prohibit internet taxes. Ironically, concerns about the internet are not isolated to the United States alone. For example, the Australian Taxation OfFice recently released a report which claims use of the internet for electronic commerce may lead to a rise in tax avoidance and noncompliance. The taxation of the internet should largely be viewed as an issue in the context of a baseball game and which we are only in the first inning. Stay tuned.
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Title Annotation:includes provisions of the Tax Relief Act of 1997
Author:Goldstein, Benson
Publication:The National Public Accountant
Date:Oct 1, 1997
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