[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[S. 2008 Introduced in Senate (IS)]







105th CONGRESS
  2d Session
                                S. 2008

   To amend the Internal Revenue Code of 1986 to prohibit the use of 
                 random audits, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             April 29, 1998

 Mr. Coverdell (for himself, Mr. Ashcroft, Mr. Shelby, Mr. Frist, Mr. 
    Cochran, Mr. Hagel, Mr. Inhofe, and Mr. McCain) introduced the 
 following bill; which was read twice and referred to the Committee on 
                                Finance

_______________________________________________________________________

                                 A BILL


 
   To amend the Internal Revenue Code of 1986 to prohibit the use of 
                 random audits, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Internal Revenue Service Random 
Audit Prohibition Act''.

SEC. 2. FINDINGS.

    The Senate finds the following:
            (1) The Internal Revenue Service has at its disposal 
        approximately 40 audit sources, which are programs and 
        techniques used to select potentially noncompliant returns for 
        audit. Such audit sources do not rely on random selection from 
        the population of all returns but rather the Internal Revenue 
        Service selects returns having the characteristics indicative 
        of potential noncompliance.
            (2) The Internal Revenue Service initiated at least 6 
        projects, covering taxable years 1994 through 1996, that 
        involved the performance of random audits on taxpayers.
            (3) The Internal Revenue Service has selected at least 
        7,421 taxpayers nationwide at random for audits and completed 
        no less than 2,961 random audits of returns for taxable years 
        1994 through 1996.
            (4) More than 80 percent of all random audits completed 
        covering taxable years 1994 through 1996 were performed on low-
        income taxpayers earning $25,000 or less.
            (5) Nearly half of all random audits have occurred in 11 
        Southern States.
            (6) Four of the 6 Internal Revenue Service projects 
        involving random audits were focused on small businesses or the 
        self employed.

SEC. 3. PROHIBITION OF RANDOM AUDITS.

    (a) In General.--Section 7602 of the Internal Revenue Code of 1986 
(relating to examination of books and witnesses) is amended by adding 
at the end the following new subsection:
    ``(d) Limitations on Authority To Examine.--
            ``(1) Identification of purpose and basis for examination 
        required.--In taking any action under subsection (a), the 
        Secretary shall identify in plain language the purpose and the 
        basis for initiating an examination in any notice of such an 
        examination to any person described in subsection (a).
            ``(2) Random audits prohibited.--The Secretary shall not 
        base, in whole or in part, the initiation of an examination of 
        a return under subsection (a) on the use of a statistically 
        random return selection technique from a population or 
        subpopulation.''
    (b) Civil Penalty for Performing Random Audits.--Subchapter B of 
chapter 76 of the Internal Revenue Code of 1986 (relating to 
proceedings by taxpayers and third parties) is amended by redesignating 
section 7437 as section 7438 and by inserting after section 7436 the 
following new section:

``SEC. 7437. CIVIL DAMAGES FOR PERFORMANCE OF RANDOM AUDITS.

    ``(a) In General.--If any officer or employee of the Internal 
Service in initiating an examination of a return of a taxpayer 
knowingly uses a statistically random return selection technique in 
violation of section 7602(d)(2), such taxpayer may bring a civil action 
for damages against the United States in a district court of the United 
States.
    ``(b) Damages.--In any action brought under subsection (a), upon a 
finding of liability on the part of the defendant, the defendant shall 
be liable to the plaintiff in an amount equal to the sum of $5,000 plus 
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) Period for Bringing Action.--Notwithstanding any other 
provision of law, an action to enforce the liability created under this 
section may be brought, without regard to the amount in controversy, at 
any time within 2 years after the date of the notice described in 
section 7602(d)(1).''
    (c) Clerical Amendment.--The table of sections for subchapter B of 
chapter 76 of the Internal Revenue Code of 1986 is amended by striking 
the item relating to section 7437 and inserting the following:

                              ``Sec. 7437. Civil damages for 
                                        performance of random audits.
                              ``Sec. 7438. Cross references.''
    (d) Effective Date.--The amendments made by this section shall 
apply to examinations initiated after April 29, 1998.
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