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IRS official claims reform bill may complicate appeals.

Mr. Vincent Canciello, IRS National Director of Appeals, recently stated the IRS restructuring legislation may complicate the procedures for IRS appeals, In a speech before the American Institute of Certified Public Accountants, Mr. Canciello mentioned that the success of the Appeals Division will depend largely on how the division handles its new responsibilities as provided for under the Internal Revenue Service Restructuring and Reform Act of 1998.

One of the major provisions of the reform act involves the IRS reorganizational plan and the desire to ensure an independent appeals process. According to the conference report for the legislation, the reorganization plan shall prohibit "ex parte communications between appeals officers and other IRS employees to the extent such communications appear to compromise the independence of the appeals officers."

Canciello complained the prohibition on ex parte communications could limit Appeals access to pertinent information to resolve cases and thus, might force many cases to be returned to the IRS Examination Division - especially cases which currently are handled through informal requests for additional documents.

There are a number of other provisions of the new law which National Director Canciello considers burdensome on the Appeals Division, as he believes the provisions are likely to greatly increase the workload of Appeals. These measures involve early referral to Appeals, mediation and arbitration, the expansion of the special treatment of small cases before the U.S. Tax Court, and the enhancement of Appeal's authority to review liens and levies. The IRS reform law expands the small case procedures for the U.S. Tax Court from the current $10,000 limit to $50,000. Canciello believes this latter provision alone will significantly increase the case load of Appeals.

Bankruptcy Reform Would Reverse Some of the Positives of IRS Reform Law

In the same year Congress has gone to great lengths to publicize how it was creating a kinder, gentler IRS, the House and Senate are also considering legislation which would backtrack on some of the taxpayer protections contained in the IRS Restructuring and Reform Act of 1998. Measures which backtrack on IRS reform are included as part of a bankruptcy reform bill (H.R. 3150), legislation which passed the House of Representatives on June 10, 1998 by a vote of 306-118. As the National Public Accountant goes to press, a companion bill to the House bankruptcy legislation is pending Senate floor action.

According to the July 1998 issue of the BNA IRS Practice Adviser Report, a House Ways and Means Committee spokesperson has stated, "The IRS reform bill is a bill that protects taxpayers against the IRS. The bankruptcy bill is a bill that tightens credit procedures against deadbeats. The United States government can at times be a creditor."

The House bill would extend the tolling of priority time periods to installment agreements. The time period would be tolled for 30 days plus the time that an installment agreement was pending prior to the bankruptcy claim. In testimony before the House Judiciary Committee, the American Bankruptcy Institute stated that some practitioners may recommend a larger number of their clients to file bankruptcy rather than apply for an installment agreement if this particular provision becomes law. The American Bankruptcy Institute further stated that "This change penalizes those individuals who in good faith extend the time period for payment of their claims, and a major illness, loss of job or other unfortunate events force them to file a bankruptcy petition. Prior years' taxes for this individual would be a priority claim because of the tolling provision, but if this individual had no interest in paying the taxes and had not contacted the IRS to work out an installment payment plan, the taxes may be discharged."

Under current law if a taxpayer incurs a tax liability based on fraudulent or unfiled tax returns, the Bankruptcy Code does not permit the taxpayer to have those taxes discharged in a Chapter 7 bankruptcy proceeding. On the other hand, present law does permit (under certain circumstances) the discharge of a tax liability resulting from fraudulent or unfiled tax returns to the extent bankruptcy is filed under Chapter 13. The House bankruptcy bill would make such taxes nondischargeable in Chapter 13 cases.

Many commentators have criticized the legislation's provision which harmonizes the nondischargeability of taxes under Chapter 13 with Chapter 7. These commentators distinguish a Chapter 13 case from a Chapter 7 liquidation in that Chapter 13 requires a taxpayer to enter into a workout plan under which the taxpayer agrees to pay some of the debts and back taxes (including priority taxes) over a specified period of years. They further distinguish the two bankruptcy procedures by suggesting taxing authorities only receive a very small percentage of taxes due under a Chapter 7 proceeding, which they claim is likely to be a lot less than what is received by the government under Chapter 13.

There are a number of other provisions contained within H.R. 3150 which restrict the ability of taxpayers to discharge taxes in bankruptcy. In the BNA IRS Advisory Report mentioned above, Steven C. Salch, past chair of the American Bar Association Section on Taxation, has stated "I think this is going to be a disaster. It's going to hurt an awful lot of people. And not wealthy people."
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Author:Goldstein, Benson
Publication:The National Public Accountant
Date:Oct 1, 1998
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