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Senate Drafting Session on IRS Restructuring Bill Begins Tuesday

Tuesday, March 31, 1998

OnLine

The Senate Finance Committee is scheduled to begin drafting the Internal Revenue Service restructuring bill in a closed-door executive session March 31, during which the panel will consider up to 120 amendments.

Aides expect the Finance Committee will meet privately to reach a consensus on IRS restructuring, before unveiling the agreed-upon changes to Senate Finance Committee Chairman Bill Roth's, R-Del., underlying proposal in a public meeting sometime March 31 or at a later time.

Roth March 26 unveiled his $20 billion proposal that would:

  • Create an IRS governing board.
  • Shift conditionally the burden of proof in the Tax Court to the IRS from the taxpayer.
  • Grant accountants privilege parity in IRS and Tax Court proceedings (similar to the attorney-client confidentiality privilege);
  • Provide expanded "innocent spouse" and tax penalty relief,and
  • Allow limited interest netting.

With a price tag of approximately $20 billion, the Senate IRS bill costs about three times as much as the $6 billion House-approved bill (H.R. 2676), primarily because of the expanded "innocent spouse" and penalty relief for taxpayers.

To offset the revenue loss from the high cost, Roth’s bill would reverse the Schmidt Baking decision as it applies to both vacation and severance pay, curtail the Foreign Tax Credit, freeze paired-share Real Estate Investment Trusts, making certain trade receivables ineligible for mark-to-market treatment, and give the IRS power to fix certain errors on tax returns.

Numerous amendments

The list of possible amendments senators may offer to the bill include proposals to:

  • Curtail the Treasury Department’s ability to issue guidance relating to foreign hybrids and Notice 98-11.
  • Replace the proposed freeze on paired-share REITs with language letting these entities continue, but requiring them to pay a toll charge.
  • Reinstate the active financing provision that President Clinton vetoed.
  • Expand the bill’s interest netting proposal.
  • Clarify that Section 927(e) does not apply to royalty income from licenses, and
  • Extend the research and development tax credit, the exclusion for employer-provided education benefits, and other expiring tax provisions.

Many congressional observers predict the expiring provisions will be extended in a tax-cut bill that will be voted on sometime this summer. If the Finance Committee decides to extend these provisions through the IRS restructuring bill, though, it could signal that senators do not expect to complete work on another tax bill this year.

Amendments also have been offered to offset the cost of the amendments, including proposals to alter the tax treatment of corporate-owned life insurance, to eliminate the preferred capital gains tax rate for the District of Columbia, and to increase the excise tax on tobacco.

If an item is included on the list of amendments, it does not necessarily mean it will be approved by the committee or be enacted. Some amendments are offered to appease advocates of a particular issue, and others are offered to let the chairman know that a member is interested in a particular issue.

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