Notice of Supplemental Authority, Fattah v. IRS, FBI, FOJ

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF PENNSYLVANIA

!CHAKA FATTAH, JR., : CIVIL ACTION Plaintiff : : v. : No. 14-1092-TJS : UNITED STATES OF AMERICA, et al., : Defendants !

PLAINTIFF’S NOTICE OF SUPPLEMENTAL AUTHORITY

Plaintiff Chaka Fattah, Jr. hereby gives notice of persuasive legal authority relevant to

this matter.

Plaintiff became aware of the herein authority over the past few business days, after

briefing was completed on June 10, 2014. Plaintiff submits the reasons for the supplemental

citations, while attempting to do so without argument. Plaintiff’s understanding is that

Defendants will have an opportunity to respond, as long as, in this Court’s view, their

response is filed promptly, and limited to the issues in this notice of supplemental authority.

In the alternative, Plaintiff respectfully asks the Court to construe this filing an

implicit Motion For Leave of Court to Supplement the Record.

26 U.S.C. §7433 claims

A. There is authority that this Court should determine that Congress is presumed to

have acted intentionally as it relates to §7433 covering conduct by all IRS employees

or officers, including special agents, and regardless of job title or division.

“We begin with the familiar canon of statutory construction that the starting point for

interpreting a statute is the language of the statute itself. Absent a clearly expressed

legislative intention to the contrary, that language must ordinarily be regarded as conclusive.”

Consumer Prod. Safety Comm’n v. FTE Sylvania, Inc., 447 U.S. 102, 108 (1980) “The

primary indication of [Congress’] intent is the language of the statute.” United States v.

Case 2:14-cv-01092-TJS Document 18 Filed 07/21/14 Page 1 of 23

Aguilar, 21 F.3d 1475, 1480 (9th Cir. 1994), aff’d in part, rev’d in part on other grounds, 115

S.Ct. 2357 (1995).

“[I]n interpreting a statute a court should always turn to one cardinal canon before all

others….[C]ourts must presume that a legislature says in a statute what it means and means

in a statute what it says there.” Connecticut Nat’l Bank v. Germain, 503 U.S. 249, 253-252

(1992).

When Congress amends one statutory provision but not another, it is presumed to

have acted intentionally (emphasis added), see EEOC v. Arabian American Oil Co., 499 U.S.

244, 256, and “negative implications raised by disparate provisions are strongest” where the

provisions were “considered simultaneously when the language raising the implication was

inserted,” Lindh v. Murphy, 521 U.S. 320, 330. Pp. 5-6.

In the present matter, §7433 was amended on two (2) occasions since its enactment in

1988 as part of the “Taxpayer Bill of Rights”. See Technical and Miscellaneous Revenue Act

of 1989. Pub. L. No. 100-647 (1988). In 1996, Congress amended §7433, the following

amendments were made:

1996 - Subsec. (b). Pub. L. 104-168, Sec. 801(a), substituted "$1,000,000" for "$100,000". Subsec. (d)(1). Pub. L. 104-168, Sec. 802(a), amended par. (1) generally. Prior to amendment, par. (1) read as follows:"(1) Requirement that administrative remedies be exhausted. - A judgment for damages shall not be awarded under subsection (b) unless the court determines that the plaintiff has exhausted the administrative remedies available to such plaintiff within the Internal Revenue Service.” ! In 1998, as a result of changes by the IRS Restructuring and Reform Act of 1998, the

following amendments were made:

1998 - Subsec. (a). Pub. L. 105-206, Sec. 3102(a)(1)(A), inserted", or by reason of negligence," after "recklessly or intentionally”. Subsec. (b). Pub. L. 105-206, Sec. 3102(a)(1)(B)(i), (c)(2), in introductory provisions, inserted "or petition filed under subsection (e)" after "subsection (a)" and inserted "($100,000, in the case of negligence)" after “$1,000,000". Subsec. (b)(1). Pub. L. 105-206, Sec. 3102(a)(1)(B)(ii), inserted "or negligent" after "reckless or intentional”. Subsec. (d)(1). Pub. L. 105-206, Sec. 3102(a)(2), substituted "Requirement that administrative remedies be exhausted" for “Award for damages may be reduced if administrative remedies not exhausted" in heading and amended text of par. (1) generally. Prior to amendment, text read as follows: "The amount of damages awarded under subsection (b) may be reduced if the court determines that the plaintiff has


not exhausted the administrative remedies available to such plaintiff within the Internal Revenue Service.” Subsec. (e). Pub. L. 105-206, Sec. 3102(c)(1), added subsec. (e). ! It is a fact that Congress amended §7433. Using the above authority in EEOC,

Congress amended §7433, as shown above, and did not amend the language “any officer or

employee of the Internal Revenue Service”. Plaintiff respectfully requests that the Court

review the authority and its applicability in the present matter about whether it should be

presumed that Congress did so intentionally.

First, this section is in reference to Plaintiff’s argument that “Defendants contention

about Congress’s intent is inaccurate” (Doc. 15-1, page 12). Second, this section is in

reference to Plaintiff’s argument that “special agents [Michael Scheffer and Edward

Manning] fall squarely into Section §7433’s plain language “any officer or employee of the

Internal Revenue Service.” (Doc. 17, pages 2-3) That argument was also in the original

response (Doc. 15-1, page 19) “Plaintiff submits…does not state that the special agents…are

not IRS employees as defined by §7433”. Third, this section references Plaintiff’s argument

about whether or not §7433 is limited to the actions of a “revenue officer”.

Discussing the “present law” in 1988 [before passage of §7433] the U.S. Senate said:

“Taxpayers do not have a specific right to bring an action against the Government for

damages sustained due to unlawful actions taken by an IRS employee.” Under the heading

“Reasons for Change” it further states “The committee believes that taxpayers should be

provided a civil cause of action to compensate them for damages that arise out of the

unlawful actions or inaction of IRS employees that occur during the determination or

collection of federal taxes” (emphasis added) S. 2223, 100th Cong., 2d Sess. S 123 (1988).

The Final version of §7433 encompassed two (2) modifications from the Senate draft. The

final version removed a provision providing the right to sue for violations of “any Federal

law” and it removed the term “determinations”. The parties in the present matter have not

disputed that assessment falls outside the scope of §7433. The Court held has held that

“determinations would have included assessments” Gerald Schreiber v. Robert

Mastriogivannia 214 F.3d 148 (3rd Cir. 2000). Plaintiff’s Brief (Doc. 15-1, page 11) “The

distinction is between “collection” and “assessment”…”. Plaintiff stated “Plaintiff submits


that “the only recognition of the limited scope of “collection”…is that the conduct must be

regarding collection, not assessment.” (Doc. 15-1, page 11) Defendants cited Hart v. United

States in their Brief (Doc. 14-1, page 5) about this issue.

In Crowd Management Services, Inc. v. United States of America 792 F. Supp.

87 (1992)(District Court, D., Oregon.), the Court said “The Taxpayers' Bill of Rights was

enacted to provide additional safeguards to taxpayers so as to strike a fairer balance between

the legitimate interests in protecting taxpayers who are honestly attempting to meet their tax

burdens and in allowing the IRS to continue its efforts to vigorously enforce the tax laws. See

134 Cong.Rec. 33563 (daily ed. Oct. 21, 1988) (statement of Rep. Pickle) ("I am satisfied

that the taxpayers safeguards included in this bill will protect the legitimate interests of

taxpayers who are honestly attempting to meet their tax obligations, while, at the same time,

allowing the IRS to continue its efforts to vigorously enforce our tax laws."); Id. at S 15074

(daily ed. Oct. 7, 1988) (statement of Sen. Pryor) ("I ... believe that the taxpayers' bill of

rights would correct the balance of fairness in favor of the American taxpayer, and it will do

so without hindering the IRS' ability to collect lawfully owed taxes."); Id. at S 15078

(statement of Senator Levin) ("While it is important that the IRS be given powerful

enforcement capabilities — it is equally vital that these capabilities be used fairly”)(emphasis

added). This section is in reference to Plaintiff’s argument that “Defendants contention about

Congress’s intent is inaccurate” (Doc. 15-1, page 12).

B. There is authority to show that Grand Jury Secrecy is meant to protect the

reputation and other rights of an individual under investigation, in this matter the

Plaintiff.

Plaintiff submits the following in reference to Plaintiff’s argument that the “grand jury

subpoenas” have no effect on the 7433 claim. Plaintiff stated (Doc. 17, page 3), “the grand

jury subpoenas do not allow any IRS officer or employee to leak information to the media”.

The U.S. Court of Appeals for the Seventh Circuit said “One of the principle reasons

for preserving the secrecy of grand jury proceeding is to protect the reputations of both

witnesses and those under investigation.” (emphasis added) Lucas v. Turner, 725 F.2d 1095,

1100 (7th Cir. 1984).


In Douglas Oil Co. v. Petrol Stops Northwest, 441 U.S. at 219, 99 S. Ct. at 1673, the

Court said “[B]y preserving the secrecy of [grand jury] proceedings we assure that persons

who are accused…will not be held up to public ridicule.”

In re:Grand Jury of Cuisinarts Inc., 665 F.2d 24, 33 (2d Cir. 1981), the Court stated

“A glaring injustice could be inflicted and irreparable injury caused to the reputation of a

person if it were to become known that there is or ever was before the grand jury any

proceeding concerning him if he were not subsequently indicted.”(emphasis added) In the

present matter, it is undisputed that Plaintiff has not been charged with any crime, by

indictment or otherwise.

The Supreme Court has held that “[g]rand jury secrecy is as important for the

protection of the innocent as for the pursuit of the guilty.”(emphasis added) United States v.

Sells Eng’g, Inc. 463 U.S. 418, 424-25 (1983)

“The invocation of grand jury interests is not some talisman that dissolves all

competing needs.” Butterworth, 494 U.S. at 630, 110 S. Ct. 1376

“Courts have interpreted the secrecy requirement imposed by 6(e) to apply not only

to information drawn from the transcripts of grand jury proceeding, but also to anything

which may tend to reveal what transpired before the grand jury.” Lance, 610 F.2d at 216

The U.S. Court of Appeals for the Fifth Circuit has held that “the secrecy provisions

of Rule 6(e) to apply not only to disclosures of events which have already occurred before

the grand jury, such as a witness’s testimony, but also to disclosures of matters which will

occur, such as statement which reveal the identity of persons who will be called to testify”.

(emphasis added).

Plaintiff notes the grand jury subpoenas he received requested both the production of

documents, and his testimony at a hearing date and time, shown on page 2 of the grand jury

subpoenas. Media articles about Plaintiff in 2012 and 2013 stated that Plaintiff was under

federal investigation, and media articles referenced subpoenas, and the grand jury. A

Philadelphia Magazine article, incorporated by reference in the Amended Complaint (Doc.

11 ¶ 49) stated “ongoing federal grand jury investigation of [Chaka] Fattah Jr”. This

references, in connection with Cuisinarts, Douglas Oil Co., and Sells Plaintiff’s argument


that “The negative media stories cited in the amended complaint contain significant amounts

of information. Some of which Plaintiff alleges is subject to §6304(b).”

C. There is authority that shows that Congress has created an extensive statutory

scheme with respect to assessment of taxes, none of which could replace Plaintiff’s

§7433 claim in the present matter. The current claim is distinguishable from a claim

for wrongful assessment.

The section references Plaintiff’s argument that the February 2012 events were a not

an assessment action as a matter of law (Doc 15-1, page 7-20). See 26 U.S.C. 6203, “Method

of Assessment”, “The assessment shall be made by recording the liability of the taxpayer in

the officer of the Secretary…”

Many Federal Courts have mentioned when dismissing a Section 7433 claim that

while Section 7433 does not allow a claim based on assessment, that individual American

Citizens have an adequate remedy at law for challenges to assessments (citations omitted).

Plaintiff’s 2010 transcript (Doc. 14-8) shows Plaintiff was assessed $51,141 in income tax on

12-26-11 (Doc. 14-8, page 2). It is undisputed that the 2010 tax liability was recorded at the

IRS as of December 26, 2011, which was 2 months before the February 29, 2012 action by

the IRS.

Congress has provided methods by which a taxpayer can challenge an assessment See

26 C.F.R. S 601.103(c) (explaining options available to a taxpayer). A taxpayer may pursue

an internal appeal with the IRS, see 26 C.F.R. S 106, sue for a refund in federal court, see 28

U.S.C. 1346(a)(1), 26 U.S.C. SS 6511, 7422, or appeal the assessment to the Tax Court, see

26 U.S.C. SS 6213, 6214.

None of these methods would permit a claim based on Plaintiff’s allegations under the

§7433 claim. Plaintiff’s current action under §7433 deals with the timing of agents visit, their

lack of prior consent to communicate with Plaintiff without his representatives at Morgan

Lewis, both in violation of §6304, and harassment and abuse related to a media leak in

violation of §6304(b).

D. There is authority that any claim under Chapter 64, Collection, which encompasses

an alleged unlawful act in violation of §6304, may trigger §7433 liability.


This section references Plaintiff’s argument that “the waiver of sovereign immunity in

section 7433 includes any violation of section 6304.” (Doc. 17, page 2). Plaintiff further

references his Brief (Doc 15-1, page 18) “Moreover, the “collection action” that this civil

action was filed under §7433, is improper communication and other claims about

communication under §6304.”

In Miller v. United States, 66 F.3d 220 (9th Cir. 1995) the Ninth Circuit said that

“Because the statutory requirements of “notice and demand” are under §6303, chapter 64,

Collection, “notice and demand” is a collection procedure [under §7433].”(emphasis added).

The Court then said, in the next sentence “Therefore, an unlawful act in connection with

“notice and demand” could trigger §7433”. The Court should determine whether or not the

ruling in Miller should be interpreted to show that if a alleged violation of §6303 is a

collection procedure, or action under §7433, whether that also extends to §6304.

The ruling in Miller encompasses whether an alleged violation of law under Chapter

64 of the Internal Revenue Code may trigger §7433. In the present matter, Plaintiff alleges

violations under chapter 64, Collection, specifically §6304.

In the legislative history of §6304, shown in Senate Report 105-174 (1997-1998), the

U.S. Senate said prior to enactment of §6304 the “Present Law” is “The Fair Debt Collection

Practices Act provides a number of rules relating to debt collection practices. Among these

are restrictions on communication with the consumer…”. Under the heading “Reasons for

change”, the Senate states “The Committee believes that the IRS should be at least as

considerate to taxpayers as private creditor are rehired to with their customers [under

FDCPA]. Accordingly, the Committee believe that it is appropriate to require the IRS to

comply with applicable portions of the Fair Debt Collection Practices Act. This references

Doc. 11 ¶ 29, 30 and Doc. 15-1, pages 2-5.

E. There is authority to support Plaintiff’s argument that the questions asked by the

special agents were about collection.

Defendants sent Plaintiff a notice with the amount of his 2010 tax liability on

December 26, 2011. (Doc. 14-8, page 2, “Notice issued, CP 0014”). According to 26 U.S.C.

§6303, the notice sent by Defendants can only occur “after an assessment of a tax”. See


§6303. It is not in dispute that the Interview occurred on February 26, 2012, after December

26, 2011. This references Plaintiff’s argument that the allegations in the Amended Complaint

about the substance of the questions asked are not “naked speculation”. (Doc. 17, page 3)

F. There is authority that under §6303, Notice and Demand, a written notice of a

taxpayers liability is a collection procedure, which, if unlawful, falls under §7433.

Notice under §6303 of a tax liability occurs “after an assessment of a tax”.

Written notice of a tax liability, under the plain language in §6303, occurs “after an

assessment of a tax”. See 26 U.S.C. §6303. The present matter, under §6304 and §7433 is

partially about verbal communication of a tax liability., regarding tax year 2010. The Court

should determine, using the authority in Miller, if in fact a written notice under Chapter 64,

Collection, can be held to be a collection action, whether or not a communication under

§6304, also under Chapter 64, Collection, should be held to have the same interpretation. In

the present matter the special agents “asked if any payments had been made on the 2010 tax

year income tax liability.

Plaintiff submits that it is undisputed that on December 26, 2011 Defendant IRS

issued a notice (Doc.14-8, page 2) to Plaintiff via U.S. mail, under §6303, which based on

the authority in Miller occurred after an assessment of tax. The 2010 notice is referenced in

the Amended Complaint (Doc. 11, page 17).

This references Plaintiff’s argument that February 2012 events, as claimed under

§7433 and §6303, were a collection action (Doc. 15-1, pages 7-20).

Civil Penalties

A. There is authority supporting that the financial condition of the taxpayer is relevant

in determining, de novo, whether or not the penalties should be refunded for

reasonable cause due to undue hardship.

To establish reasonable cause the taxpayer must show that he or she exercised

ordinary business care and prudence. Courts will consider “all the facts and circumstance of

the taxpayer’s financial situation” to determine whether or nor the taxpayer exercised

ordinary business care and prudence. East Wind Indus., Inc. v. U.S., 196 F.3d 499, 507 (3d

Cir. 1999). This references Plaintiff’s argument (Doc. 15-1, page 40) that “due to his



Calendar No. 602100T CONGRESS REPORT2d Session SENATE 100-309

TAXPAYER RIGHTS AND EXCISE TAXCOLLECTION PROCEDURES

REPORTOF THE

COMMITTEE ON FINANCEUNITED STATES SENATE

to accompany

S. 2223

MARCH 29 (legislative day, MARCH 21), 1988.-Ordered to be printed

U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 198819-010


CONTENTS

PageI. Legislative B ackground .......................................................................................... 1

II. E xplanation of the B ill .......................................................................................... 2TITLE I-TAXPAYER BILL OF RIGHTS ......................................................... 2

A . T axpayer R ights ..................... I ...................................................................... . 21. Disclosure of rights of taxpayers (sec. 101) ................... 22. Taxpayer interview procedures (sec. 102) .......................................... 23. Taxpayers may rely on written advice of Internal Revenue

Service (sec. 103) .................................................................................... 44. Taxpayers assistance orders (sec. 104) ............................................... 55. Office of Inspector General (sec. 105) ................................................ 56. Basis for evaluation of IRS employees (sec. 106) .............................. 67. Procedures relating to IRS regulations (sec. 107) ............................ 78. Explanation of tax liability and penalties (sec. 108) ....................... 89. Installment payment of tax liability (sec. 109) ................................. 8

10. Assistant Commissioner for Taxpayer Services (sec. 110) ............. 9B . Levy and Lien P rovisions ............................................................................. . 9

1. Levy and distraint (sec. 111) ............................................................... 92. Review of jeopardy levy and assessment procedures (sec. 112) ..... 113. Administrative appeal of liens (sec. 113) ........................................... 12

C. Proceedings by Taxpayers .............................................................................. 131. Awarding of costs and certain fees in administrative and civil

action s (sec. 121) .................................................................................... 132. Civil cause of action for damages sustained due to failure to

release lien (sec. 122) ........................................................................... 143. Civil cause of action for damages sustained due to unreasonable

actions by the IR S (sec. 123) ................................................................ 15D . T ax C ourt Jurisdiction .................................................................................. . 16

1. Jurisdiction to restrain certain premature assessments (sec.1 3 1 ) .......................................................................................................... 1 6

2. Jurisdiction to enforce overpayment determinations (sec. 132) .... 173. Jurisdiction to review certain sales of seized property (sec. 133). 174. Jurisdiction to redetermine interest on deficiencies (sec. 134) ...... 185. Jurisdiction to modify decisions in certain estate tax cases (sec.

13 5 ) .......................................................................................................... 196. Refund jurisdiction for the Tax Court (sec. 136) .............................. 20

TITLE II-EXCISE TAX PROVISIONS .............................................................. 21A. Collection and Exemption Procedures for Excise Taxes on Diesel

and Nonaviation Fuels (secs. 201-203) ..................................................... 21B. Modification of Distilled Spirits Wine and Flavors Credit (sec. 204) .... 24C. Exception From Distilled Spirits Occupational Tax for Certain Small

P lants (sec. 205) ............................................................................................ . 25D. Increase in Gas Guzzler Excise Tax (sec. 206) .......................................... 26

TITLE III-MISCELLANEOUS PROVISION .................................................... 26Debt Collection: Extension of Program for IRS Collection of Non Tax

Debts Owed to Federal Agencies (sec. 301) .............................................. 26I1. B udget E ffects of the B ill ........................................................................................ 27

IV. Regulatory Impact and Other Matters to be Discussed Under SenateR u le s ....................................................................................................................... 28A . R egulatory Im pact .......................................................................................... 28B . O th er M atters .................................................................................................. 29

V. Changes in Existing Law Made by the Bill ......................................................... 29


Reasons for changeThe committee believes that an additional civil cause of action is

warranted to compensate taxpayers for damages arising out of thewrongful failure of an IRS employee to release a lien.

Explanation of provisionThe bill provides taxpayers with the right to sue the Federal

Government in Federal district court or Tax Court if any IRS em-ployee knowingly or negligently fails to release a lien on the tax-payer's property as required under the Code. Taxpayers may recov-er the costs of the action and damages equal to the greater of (1)the actual direct economic damages sustained by the taxpayerwhich, but for the actions of the IRS, would not have been sus-tained, or (2) $100 per day (up to $1000) for each day the failurecontinues during the period that begins ten days after the taxpayerprovides written notice to the IRS of the failure to release the lien.This written notice must be provided by the taxpayer after the con-clusion of the 30-day period during which the IRS is required to re-lease the lien. The IRS is authorized to establish reasonable re-quirements concerning the form and manner of the written notice.The committee anticipates that the requirements imposed by theIRS with respect to the written notice will require only informationconcerning the name and taxpayer identification number of thetaxpayer, information concerning the type and location of the prop-erty subject to the lien, and any information that is necessary toestablish that the lien should be released.

The IRS has authority to settle administratively claims underthis provision. A judgment for damages under this provision maynot be awarded by a court unless the taxpayer has exhausted ad-ministrative remedies. In addition, the actual economic damagesrecoverable by a taxpayer are to be reduced to the extent that thedamages could reasonably have been mitigated by the taxpayer.Taxpayers have two years after discovery of an erroneous failureby the IRS to release a lien in which to bring an action under thisprovision.

Effective dateThis provision applies to taxpayer notices provided and damages

arising after the date of enactment.-3. Civil cause of action for damages due to unreasonable action by

the IRS (sec. 123 of the bill and new sec. 7433 of the Code)

Present lawTaxpayers do not have a specific right to bring an action against

the Government for damages sustained due to unlawful actionstaken by an IRS employee.

Reasons for changeThe committee believes that taxpayers should be provided a civil

cause of action to compensate them for damages that arise out of


16unlawful actions or inaction of IRS employees that occur duringthe determination or collection of Federal taxes.

Explanation of provisionThe bill provides taxpayers with the right to sue the Federal

Government in Federal district court or Tax Court for damages ifin connection with the determination or collection of any Federaltax, an officer or employee of the IRS carelessly, recklessly, or in-tentionally disregards any provision of Federal law or any regula-tion promulgated under the Internal Revenue Code. The taxpayermay recover the costs of the action plus actual direct economicdamages sustained by the taxpayer as a proximate result of the un-lawful actions or inaction of the IRS employee.

A taxpayer may not recover under this provision if the taxpayerwas contributorily negligent. In addition, the damages recoverableunder this provision are to be reduced to the extent that the dam-ages could reasonably have been mitigated by the taxpayer.

The IRS has authority to settle administratively claims underthis provision. A judgment for damages under this provision maynot be awarded by a court unless the taxpayer has exhausted ad-ministrative remedies. A taxpayer's claim under this provision isbarred unless the action is commenced within two years after thediscovery by the taxpayer of the improper IRS action. If the TaxCourt or district court determines that the taxpayer's lawsuit isfrivolous or groundless, the court may impose a penalty on the tax-payer of up to $10,000.

Effective dateThe provision applies to actions of IRS officers or employees that

occur after the date of enactment.D. TAX COURT JURISDICTION

1. Jurisdiction to restrain certain premature assessments (sec. 131of the bill and secs. 6213 and 7482 of the Code)

Present lawJurisdiction to restrain IRS assessment and collection of tax rests

solely with the Federal district courts. Consequently, even thoughas a general rule no assessment or collection of tax may be madeuntil the decision of the Tax Court has become final, a taxpayerwith a case before the Tax Court who is faced with a prematureIRS assessment is forced to challenge that assessment in Federaldistrict court.

Reasons for changeThe committtee believes that generally both taxpayers and the

Government are well served by permitting related issues to be liti-gated in the same forum.


100TH CONGRESS H O2d Session I HOUSE OF REPRESENTATIVES

REPORT100-1104

TECHNICAL AND MISCELLANEOUSREVENUE ACT OF 1988

CONFERENCE REPORT

TO ACCOMPANY

H.R. 4333

Volume I of 2 Volumes

OCTOBER 21, 1988.-Ordered to be printed

U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON: 1988

For sale by the Superintendent of Documents, U.S. Government Printing OfficeWashington, DC 20402


100TH CONGRESS I REPORT2d Session HOUSE OF REPRESENTATIVES 100-1104

TECHNICAL AND MISCELLANEOUS REVENUE ACT OF 1988

OCTOBER 21, 1988.-Ordered to be printed

Mr. ROSTENKOWSKI, from the committee of conference,submitted the following

CONFERENCE REPORT

[To accompany H.R. 4333]

The committee of conference on the disagreeing votes of the twoHouses on the amendment of the Senate to the bill (H.R. 4333) tomake technical corrections relating to the Tax Reform Act of 1986,and for other purposes, having met, after full and free conference,have agreed to recommend and do recommend to their respectiveHouses as follows:

That the House recede from its disagreement to the amendmentof the Senate and agree to the same with an amendment as fol-lows:

In lieu of the matter proposed to be inserted by the Senateamendment insert the following:SECTION 1. SHORT TITLE; ETC.

(a) SHORT TITLE.-This Act may be cited as the "Technical andMiscellaneous Revenue Act of 1988".

(b) DEFINITIoNs. -For purposes of this Act-(1) 1986 cODE.-The term '1986 Code" means the Internal

Revenue Code of 1986.(2) REFORM ACT.-Except where incompatible with the intent,

the term "Reform Act" means the Tax Reform Act of 1986.(C) CLERICAL AMENDMENT.-Paragraph (29) of section 7701(a) of

the 1986 Code is amended by striking out "of 1954 " and inserting inlieu thereof "of 1986".

(d) TABLE OF CONTENTS.-

TITLE I-TECHNICAL CORRECTIONS TO TAX REFORM ACT OF 1986Sec. 1001. Amendments related to title I of the Reform Act.Sec. 1002. Amendments related to title II of the Reform Act.Sec. 1003. Amendments related to title III of the Reform Act.Sec. 1004. Amendments related to title IV of the Reform Act.Sec. 1005. Amendments related to title V of the Reform Act.


Sec. 6229. Taxpayers may rely on written advice of Internal Revenue Service.Sec. 6220. Taxpayer assistance orders.Sec. 6231. Basis for evaluation of Internal Revenue Service employees.Sec. 6232. Procedures relating to Internal Revenue Service regulations.Sec. 6233. Content of tax due, deficiency, and other notices.Sec. 6234. Installment payment of tax liability.Sec. 6235. Assistant Commissioner for taxpayer services.

PART II-LEVY AND LIEN PROVISIONS

Sec. 8236. Levy and distraint.Sec- 6237. Review of jeopardy levy and assessment procedures.Sec. 6238. Administrative appeal of liens.

PART III-PROCEEDINGS BY TAYPA YERS

Sec. 62,39. Awarding costs and certain fees in administrative and court proceedings.Sec. 6240. Civil cause of action for damages sustained due to failure to release lien.Sec. 6241. Civil cause of action for damages sustained due to certain unauthorized

actions by internal revenue service.Sec. 6242. Assessable penalty for improper disclosure or use of information by prepar-

ers of returns.

PART IV-TAx COURT JURISDICTION

Sec. 6243. Jurisdiction to restrain certain premature assessments.Sec. 6244. Jurisdiction to enforce overpayment determinations.Sec. 6245. Jurisdiction to review certain sales of seized property.Sec. 6246. Jurisdiction to redetermine interest on deficiencies.Sec. 6247. Jurisdiction to modify decisions in certain estate tax cases.

Subtitle K-Other Administrative ProvisionsSec. 6251. Exchange of information.Sec. 6252 Provisions relating to previously required studies.Sec. 6252 Repeal of secretarial authority to prescribe class lives.Sec. 6254. Amendments related to Crude Oil Windfall Profit Tax Act of 1980.

Subtitle L-Provisions Relating to Corporations and Personal Holding CompaniesSec. 621^8. Authority to pay refunds to certain fiduciaries of insolvent members of af-

filiated groups.Sec. 62,7. Application of net operating loss limitations to bankruptcy reorganiza-

tions.Sec. 628. Application of section 7.503 of 1,986 Code for purposes of section 10222(b) of

Revenue Act of 1987.Sec. 627.9. Interest earned by brokers or dealers not taken into account as personal

holding company income.Sec. 6280. Treatment of certain bank holding companies.Sec. 6281. Authority to waive appraisal requirement for certain charitable contribu-

tions of property.Sec. 6282 Distributions by cooperative housing corporations.

Subtitle M-Miscellaneous ProvisionsSec. 6301. Repeal of limit on long-term bonds.Sec. 6,02. One-year extension of credit for producing fuel from a nonconventional

source.Sec 6303. Certain discharge of debt income not included in adjusted book income.Sec. 6,304. Nonconventional fuels credit.Sec. 6305- Treatment of certain family services providers.

TITLE VII-RAILROAD UNEMPLOYMENT AND RETIREMENT PROGRAMSSec. 7001. Short title.Sec- 7002. References to Railroad Unemployment Insurance Act.

Subtitle A-Financing ProvisionsSec. 7101. Amendments relating to definition of "compensation".Sec. 7102. Contribution adjustments.Sec. 71031. Administrative expenses.Sec. 7104. Notification to employer.


"(3) PERIOD FOR BRINGING ACTION.-Notwithstanding anyother provision of law, an action to enforce liability createdunder this section may be brought without regard to theamount in controversy and may be brought only within 2 yearsafter the date the right of action accrues.

"(e) NOTICE OF FAILURE TO RELEASE LIEN.-The Secretary shallby regulation prescribe reasonable procedures for a taxpayer tonotify the Secretary of the failure to release a lien under section6325 on property of the taxpayer."

"(b) CLERICAL AMENDMENT.-The table of sections for subchapterB of chapter 76 of the 1986 Code is amended by striking out theitem relating to section 7432 and inserting in lieu thereof the follow-ing new items:"Sec. 7432. Civil damages for failure to release lien."Sec. 7433. Cross references. "

"(c) EFFECTIVE DATE.-The amendments made by this sectionshall apply to notices provided by the taxpayer of the failure to re-lease a lien, and damages arising, after December 31, 1988.SEC. 6241. CIVIL CA USE OF ACTION FOR DAMA GES SUSTAINED DUE TO CER-

TAIN UNAUTHORIZED ACTIONS BY INTERNAL REVENUE SERV-ICE.

(a) IN GENERAL. -Subchapter B of chapter 76 of the 1986 Code (re-lating to proceedings by taxpayers and third parties) is furtheramended by redesignating section 7433 as section 7434 and by in-serting after section 7432 the following new section:"SEC. 7433. CIVIL DAMAGES FOR CERTAIN UNAUTHORIZED COLLECTION

A CTIONS."(a) IN GENERAL.-If in connection with any collection of Federal

tax with respect to a taxpayer, any officer or employee of the Inter-nal Revenue Service recklessly or intentionally disregards any provi-sion of this title, or any regulation promulgated under this title,such taxpayer may bring a civil action for damages against theUnited States in a district court of the United States. Except as pro-vided in section 7432, such civil action shall be the exclusive remedyfor recovering damages resulting from such actions.

"(b) DAMAGES.-In any action brought under subsection (a), upona finding of liability on the part of the defendant, the defendantshall be liable to the plaintiff in an amount equal to the lesser of$100,000 or the sum of-

"(1) actual, direct economic damages sustained by the plain-tiff as a proximate result of the reckless or intentional actionsof the officer or employee, and

"(2) the costs of the action."(c) PAYMENT AUTHORITY.-Claims pursuant to this section shall

be payable out of funds appropriated under section 1304 of title 31,United States Code.

"(d) LIMITATIONS. -"(1) REQUIREMENT THAT ADMINISTRATIVE REMEDIES BE EX-

HAUSTED.-A judgment for damages shall not be awardedunder subsection (b) unless the court determines that the plain-tiff has exhausted the administrative remedies available tosuch plaintiff within the Internal Revenue Service.


"(2) MITIGATION OF DAMAGES.-The amount of damagesawarded under subsection (b)(1) shall be reduced by the amountof such damages which could have reasonably been mitigatedby the plaintiff.

"(3) PERIOD FOR BRINGING ACTION. -Notwithstanding anyother provision of law, an action to enforce liability createdunder this section may be brought without regard to theamount in controversy and may be brought only within 2 yearsafter the date the right of action accrues.

(b) DAMAGES FOR FRIVOLOUS OR GROUNDLESS CLAIMS.-(1) IN GENERAL.-Section 6673 of the 1986 Code (relating to

damages assessable for instituting proceedings before the TaxCourt primarily for delay, etc.) is amended by inserting "(a) INGENERAL.-" before "Whenever" and by adding at the endthereof the following new subsection:

"(b) CLAIMS UNDER SECTION 7433.-Whenever it appears to thecourt that the taxpayer's position in proceedings before the court in-stituted or maintained by such taxpayer under section 7433 is frivo-lous or groundless, damages in an amount not in excess of $10,000shall be awarded to the United States by the court in the court'sdecision. Damages so awarded shall be assessed at the same time asthe decision and shall be paid upon notice and demand from theSecretary.

(2) CLERICAL AMENDMENT.-The heading for section 6673 ofthe 1986 Code is amended by striking out "TAX".

(c) CLERICAL AMENDMENT.-The table of sections for subchapter Bof chapter 76 of the 1986 Code is further amended by striking outthe item relating to section 7433 and inserting in lieu thereof thefollowing new items:"Sec. 7433. Civil damages for certain unauthorized collection actions."Sec. 7434. Cross references."

(d) EFFECTivE DATE.-The amendments made by this sectionshall apply to actions by officers or employees of the Internal Reve-nue Service after the date of the enactment of this Act.SEC. 6242. ASSESSABLE PENALTY FOR IMPROPER DISCLOSURE OR USE OF

INFORMATION BY PREPARERS OF RETURNS.(a) IN GENERAL.-Part I of subchapter B of chapter 68 of the 1986

Code (relating to assessable penalties) is amended by adding at theend thereof the following new section:"SEC. 6712. DISCLOSURE OR USE OF INFORMATION BY PREPARERS OF RE-

TURNS."(a) IMPOSITION OF PENALTY.-If any person who is engaged in

the business of preparing, or providing services in connection withthe preparation of, returns of tax imposed by chapter 1, or anyperson who for compensation prepares any such return for any otherperson, and who-

"(1) discloses any information furnished to him for, or in con-nection with, the preparation of any such return, or

"(2) uses any such information for any purpose other than toprepare, or assist in preparing, any such return,

shall pay a penalty of $250 for each such disclosure or use, but thetotal amount imposed under this subsection on such a person forany calendar year shall not exceed $10,000.


And the Senate agree to the same.DAN ROSTENKOWSKI,SAM GIBBONS,J.J. PICKLE,CHARLES B. RANGEL,PETE STARK,BILL ARCHER,Guy VANDER JAGT,

Managers on the Part of the House.LLOYD BENTSEN,SPARK MATSUNAGA,DANIEL PATRICK MOYNIHAN,MAX BAUCUS,DAVID L. BOREN,BOB DOLE,

Managers on the Part of the Senate.

0

89-542 (504)


59–010

Calendar No. 341105TH CONGRESS REPORT" !SENATE2d Session 105–174

INTERNAL REVENUE SERVICE RESTRUCTURING ANDREFORM ACT OF 1998

APRIL 22, 1998.—Ordered to be printed

Mr. ROTH, from the Committee on Finance,submitted the following

R E P O R T

[To accompany H.R. 2676]

The Committee on Finance, to which was referred the bill (H.R.2676) to amend the Internal Revenue Code of 1986 to restructureand reform the Internal Revenue Service, and for other purposes,having considered the same, reports favorably thereon with anamendment and recommends that the bill as amended do pass.

CONTENTS

PageI. Legislative Background .................................................................................... 7

II. Explanation of the Bill ..................................................................................... 8Title I. Executive Branch Governance and Management of the IRS .... 8

A. IRS Restructuring and Creation of IRS Oversight Board ......... 81. IRS restructuring and mission (secs. 1001–1002) ............... 82. Establishment and duties of IRS Oversight Board (sec.

1101) ..................................................................................... 10B. Appointment and Duties of IRS Commissioner and Chief

Counsel and Other Personnel .................................................... 171. IRS Commissioner and other personnel (secs. 1102(a) and

1104) ..................................................................................... 172. IRS Chief Counsel (sec. 1102(a)) ........................................... 18

C. Structure and Funding of the Employee Plans and ExemptOrganizations Division (‘‘EP/EO’’) (sec. 1101) .......................... 19

D. Taxpayer Advocate (secs. 1102 (a), (c), and (d)) ......................... 21E. Treasury Office of Inspector General; IRS Office of the Chief

Inspector (secs. 1102(a) and 1103) ............................................. 25F. Prohibition on Executive Branch Influence Over Taxpayer Au-

dits (sec. 1105) ............................................................................. 33G. IRS Personnel Flexibilities (secs. 1201–1205) ............................ 34

Title II. Electronic Filing .......................................................................... 39A. Electronic Filing of Tax and Information Returns (sec. 2001) .. 39B. Due Date for Certain Information Returns (sec. 2002) ............. 40


2

C. Paperless Electronic Filing (sec. 2003) ....................................... 41D. Return-Free Tax System (sec. 2004) ........................................... 42E. Access to Account Information (sec. 2005) ................................. 42

Title III. Taxpayer Protection and Rights ............................................... 43A. Burden of Proof (sec. 3001) .......................................................... 43B. Proceedings by Taxpayers ............................................................ 47

1. Expansion of authority to award costs and certain fees(sec. 3101) ............................................................................. 47

2. Civil damages for collection actions (sec. 3102) ................... 493. Increase in size of cases permitted on small case calendar

(sec. 3103) ............................................................................. 494. Expansion of Tax Court jurisdiction to responsible person

penalties (sec. 3104) ............................................................. 505. Actions for refund with respect to certain estates which

have elected the installment method of payment (sec.3105) ..................................................................................... 51

6. Tax Court jurisdiction to review an adverse IRS deter-mination of a bond issue’s tax-exempt status (sec. 3106) . 52

7. Civil action for release of erroneous lien (sec. 3107) ........... 54C. Relief for Innocent Spouses and for Taxpayers Unable to

Manage Their Financial Affairs Due to Disabilities ................ 551. Spousal election to limit joint and several liability on

joint return (sec. 3201) ........................................................ 552. Suspension of statute of limitations on filing refund

claims during periods of disability (sec. 3202) .................. 60D. Provisions Relating to Interest and Penalties ........................... 61

1. Elimination of interest differential on overlapping periodsof interest on income tax overpayments and underpay-ments (sec. 3301) ................................................................. 61

2. Increase in overpayment rate payable to taxpayers otherthan corporations (sec. 3302) .............................................. 62

3. Elimination of penalty on individual’s failure to pay dur-ing period of installment agreement (sec. 3303) ............... 63

4. Mitigation of failure to deposit penalty (sec. 3304) ............. 645. Suspension of interest and penalties where Secretary fails

to contact individual taxpayer (sec. 3305) ......................... 646. Procedural requirements for imposition of penalties and

additions to tax (sec. 3306) ................................................. 657. Personal delivery of notice of penalty under section 6672

(sec. 3307) ............................................................................. 658. Notice of interest charges (sec. 3308) ................................... 66

E. Protections for Taxpayers Subject to Audit or Collection Ac-tivities .......................................................................................... 67a. Due Process ............................................................................ 67i. Due process in IRS collection actions (sec. 3401) ................. 67b. Examination Activities .......................................................... 69i. Uniform application of confidentiality to taxpayer commu-

nications with federally authorized practitioners (sec.3411) ..................................................................................... 69

ii. Limitation on financial status audit techniques (sec.3412) ..................................................................................... 71

iii. Software trade secrets protection (sec. 3413) ..................... 71iv. Threat of audit prohibited to coerce tip report alternative

commitment agreements (sec. 3414) .................................. 75v. Taxpayers allowed motion to quash all third-party

summones (sec. 3415) .......................................................... 75vi. Service of summones to third-party recordkeepers per-

mitted by mail (sec. 3416) ................................................... 76vii. Prohibition on IRS contact of third parties without tax-

payer pre-notification (sec. 3417) ....................................... 77c. Collection Activities ................................................................ 78i. Approval process for liens, levies, or seizures (sec. 3421) ... 78ii. Modification to certain levy exemption amounts (sec.

3431) ..................................................................................... 78


3

iii. Release of levy upon agreement that amount isuncollectible (sec. 3432) ....................................................... 79

iv. Levy prohibited during pendency of refund proceedings(sec. 3433) ............................................................................. 79

v. Approval required for jeopardy and termination assess-ments and jeopardy levies (sec. 3434) ................................ 80

vi. Increase in amount of certain property on which liennot valid (sec. 3435) ............................................................. 81

vii. Waiver of early withdrawal tax for IRS levies on em-ployer-sponsored retirement plans or IRAs (sec. 3436) .... 82

viii. Prohibition of sales of seized property at less than mini-mum bid (sec. 3441) ............................................................. 83

ix. Accounting of sales of seized property (sec. 3442) .............. 84x. Uniform asset disposal mechanism (sec. 3443) ................... 85xi. Codification of IRS administrative procedures for seizure

of taxpayer’s property (sec. 3444) ....................................... 85xii. Procedures for seizure of residences and businesses (sec.

3445) ..................................................................................... 86d. Provisions Relating to Examination and Collection Activi-

ties ......................................................................................... 87i. Procedures relating to extensions of statute of limitations

by agreement (sec. 3461) ..................................................... 87ii. Offers-in-compromise (sec. 3462) .......................................... 88iii. Notice of deficiency to specify deadlines for filing Tax

Court petition (sec. 3463) .................................................... 90iv. Refund or credit of overpayments before final determina-

tion (sec. 3464) ..................................................................... 91v. IRS procedures relating to appeal of examinations and

collections (sec. 3465) .......................................................... 91vi. Application of certain fair debt collection practices (sec.

3466) ..................................................................................... 93vii. Guaranteed availability of installment agreements (sec.

3467) ..................................................................................... 93F. Disclosures to Taxpayers .............................................................. 94

1. Explanation of joint and several liability (sec. 3501) .......... 942. Explanation of taxpayers’ rights in interviews with the

IRS (sec. 3502) ..................................................................... 953. Disclosure of criteria for examination selection (sec.

3503) ..................................................................................... 964. Explanation of appeals and collection process (sec. 3504) .. 965. Explanation of reason for refund denial (sec. 3505) ............ 976. Statements to taxpayers with installment agreements

(sec. 3506) ............................................................................. 977. Notification of change in tax matters partner (sec. 3507) .. 98

G. Low-Income Taxpayer Clinics (sec. 3601) ................................... 99H. Other Provisions ........................................................................... 99

1. Cataloging complaints (sec. 3701) ........................................ 992. Archive of records of Internal Revenue Service (sec. 3702) 1003. Payment of taxes (sec. 3703) ................................................. 1024. Clarification of authority of Secretary relating to the mak-

ing of elections (sec. 3704) ................................................... 1035. IRS employee contacts (sec. 3705) ........................................ 1036. Use of pseudonyms by IRS employees (sec. 3706) ............... 1047. Conference of right in the National Office of IRS (sec.

3707) ..................................................................................... 1048. Illegal tax protestor designations (sec. 3708) ...................... 1059. Provision of confidential information to Congress by whis-

tleblowers (sec. 3709) ........................................................... 10510. Listing of local IRS telephone numbers and addresses

(sec. 3710) ............................................................................. 10611. Identification of return preparers (sec. 3711) .................... 10612. Offset of past-due, legally enforceable State income tax

obligations against overpayments (sec. 3712) ................... 10713. Moratorium regarding regulations under Notice 98 11

(sec. 3713(a)(1)) .................................................................... 10714. Sense of the Senate regarding Notices 98 5 and 98 11

(sec. 371 (a)(2) and (b)) ........................................................ 110


93

Appeals conferences for taxpayers seeking appeals in rural or re-mote areas.

Effective Date

The provision is effective as of the date of enactment.

vi. Application of certain fair debt collection practices (sec. 3466 ofthe bill and new sec. 6304 of the Code)

Present Law

The Fair Debt Collection Practices Act provides a number ofrules relating to debt collection practices. Among these are restric-tions on communication with the consumer, such as a general pro-hibition on telephone calls outside the hours of 8:00 a.m. to 9:00p.m. local time, and prohibitions on harassing or abusing the con-sumer. In general, these provisions do not apply to the FederalGovernment.

Reasons for Change

The Committee believes that the IRS should be at least as con-siderate to taxpayers as private creditors are required to be withtheir customers. Accordingly, the Committee believes that it is ap-propriate to require the IRS to comply with applicable portions ofthe Fair Debt Collection Practices Act, so that both taxpayers andthe IRS are fully aware of these requirements.

Explanation of Provision

The provision makes the restrictions relating to communicationwith the taxpayer/debtor and the prohibitions on harassing orabusing the debtor applicable to the IRS by incorporating theseprovisions into the Internal Revenue Code. The restrictions relatingto communication with the taxpayer/debtor are not intended tohinder the ability of the IRS to respond to taxpayer inquiries (suchas answering telephone calls from taxpayers).

Effective Date

The provision is effective on the date of enactment.

vii. Guaranteed availability of installment agreements (sec. 3467 ofthe bill and sec. 6159 of the Code)

Present Law

Section 6159 of the Code authorizes the IRS to enter into writtenagreements with any taxpayer under which the taxpayer is allowedto pay taxes owed, as well as interest and penalties, in installmentpayments if the IRS determines that doing so will facilitate collec-tion of the amounts owed. An installment agreement does not re-duce the amount of taxes, interest, or penalties owed. However, itdoes provide for a longer period during which payments may bemade during which other IRS enforcement actions (such as leviesor seizures) are held in abeyance. Many taxpayers can request aninstallment agreement by filing form 9465. This form is relatively
