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IRS reform on its way to becoming law

IRS reform on its way to becoming law

With the Senate unanimously approving IRS restructuring legislation on May 7th, the bill is certain to become law. At press time, differences between last year’s Housepassed bill (with an overwhelming 426-4 vote) and the Senate’s version have to be worked out, and most political analysts do not predict major problems. President Clinton announced following the Senate’s vote that he was “very pleased” with that body’s action and that the White House will work with House and Senate conferees in crafting the final version of the legislation. Both political parties are motivated to move the legislation from Congress to the White House, so look for quick work from conferees.

Among the Senate bill’s provisions that are of particular interest to the CPA profession are the following:

Expanded Confidentiality Rights for Taxpayers.

The accounting profession has fought hard for this provision, which, in short, grants a form of privilege protection for tax advice taxpayers receive from anyone who is authorized to practice before the IRS. Attorneys tend to oppose the extension of professional privilege to the clients of CPAs; nevertheless, the provision appears to have taken on a life of its own. One limitation placed on the newly proposed privilege is that it will only come into play for civil matters. If a matter turns criminal, the privilege falls away. It also would only apply to matters in which the IRS is a party.

IRS Oversight Board. The oversight board is granted authority to set policy and review IRS operations. The majority of the board’s members will be from the private sector, although seats on the board are reserved for the Secretary of the Treasury, the IRS Commissioner, and an IRS employee representative. The AICPA supported establishment of the oversight board. The Senate bill goes further than the House in defining the board’s role, giving it the authority to recommend nominees for commissioner to the President and review the compensation packages of senior IRS executives.

Burden of Proof Despite opposition from the tax practice community, the Senate included language shifting the burden of proof from the taxpayer to the IRS in court cases, provided the taxpayer kept proper records. Many in the profession fear that the provision will simply encourage more intrusive IRS practices during the examination phase to ensure that the IRS obtains whatever information it might need if the case were to go to court. To temper this argument, there are limits to when the burden of proof will shift.

Innocent Spouse Relief Spouses are protected by this provision from liability for tax bills run up by their partner without their knowledge or participation.

Electronic Filing. Both versions of the bill encourage electronic filing of tax returns by taxpayers, but, responding to the concerns of the small business community, the Senate adopted an amendment to make electronic filing for taxpayers voluntary,

Tax Simplification. Congress is required to give more consideration to the complexity of the tax laws it passes. This provision is similar to the AICPA’s tax complexity index, which provides a checklist of areas to consider when reviewing tax legislation to gauge the complexity of the proposal.

Taxpayer Rights.

The Senate bill includes a host of taxpayer rights initiatives, from creating an independent advocate that would assist taxpayers in disputes with the IRS to making it easier for taxpayers to recover legal fees and collect damages for wrongful collection actions.

The Joint Committee on Taxation has an analysis comparing the House and Senate versions which can be accessed at www.house.gov/jct/pubs98.html. A hard copy of the document dCS-5-98, “Comparison of Provisions of HR 2676 Relating to IRS Restructuring and Reform as Passed by the House and the Senate”) can also be ordered by calling the Joint Tax Committee at (202) 2252647 or by sending an e-mail to publications.manager@jointtax. house.gov.

Watch upcoming issues of The CPA Journal for more in-depth analysis of the IRS Restructuring Bill and for an article on practice tips for the expected new CPA-client privilege provision.

Copyright New York State Society of Certified Public Accountants Jul 1998

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