Key Provisions of the IRS Restructuring and Reform Act of 1998

Tax Letter The IRS Restructuring and Reform Act of 1998: Summary of the Key Provisions Just the other day, on July 22, his Excellency the President signed into law the above mentioned Act. In basic terms, the Act brings fourth significant changes in not only the management but also the oversight of the IRS. This letter will focus on the Acts' key provisions.

Capital Gains Holding Period Previously, non-corporate tax payers' capital gains have been exposed to a three-tier structure -- with one of these distinct levels recommending a 28% mid-term rate for capital assets held for 12 consecutive months (but for less than 18 months). This new Act does away with this particular mid-term rate and replaces it with a maximum rate of 20% for gains raked in by non-corporate taxpayers from the sale of some capital assets held for 12 consecutive months (and beyond).

It is important to note that before the enactment of this Act, the 20% rate has only been applied to assets held for 18 months and beyond. b). Joint Income Tax Returns Under this Act, a spouse will find it easier to set up innocent spouse status. An innocent spouse could be defined as that spouse who at the time of signing the joint return is unaware that the tax attributable to the other spouse suffers an understatement.

As per the provisions of the Act, it will be possible for a spouse to be relieved of a tax deficiency liability if the said person can establish that they: Filed a joint return with an understatement of taxes owed; the understatement must result from erroneous items of the spouse; and the person applying for innocent spouse relief must not have known about the errors caused by the other spouse. (United States General Accounting Office, 1999, p.

14) In that regard, therefore, the spouse does not need to demonstrate that certain AGI percentage thresholds have been exceeded by the understatement -- all that ought to be demonstrated in this case is that there was an understatement (which need not necessarily result from the other spouse's "grossly" erroneous items). c).

The Internal Revenue Service is to embrace a Policy for Taxpayer Acceptance of Offers-In-Compromise as well as Agreements Installment The Internal Revenue Service is, in general terms, prohibited from levying on the property (or right to the same, thereof) of a taxpayer to effect tax collection while there is a pending installment agreement or offer-in-compromise -- with an offer-in-compromise being "the Internal Revenue Service term for settlement" (Berson, 2001, p. 1-70).

To settle his/her deficiency, the tax payer can, in some cases and as per the provisions of the Act, call upon the Internal Revenue Service to enter into an installment agreement. This Act permits the Internal Revenue Service to exercise greater flexibility in instances where the taxpayer is unable to settle his/her deficiency. d). Internal Revenue Service Reorganization One of the key highlights of the Act is the Taxpayer Bill of Rights 3. In what.