Authorization of appropriations for tax law enforcement relating to human sex trafficking

(a)

Authorization of appropriations

(1)

In general

There is authorized to be appropriated $2,000,000 for fiscal year 2007 for the purpose of establishing an office within the Internal Revenue Service to focus on violations of the internal revenue laws by persons who are under investigation by any office of Federal, State, or local law enforcement for knowingly recruiting, enticing, harboring, transporting, or providing by any means a person, knowing that— (A)force, fraud, or coercion will be used to cause the person to engage in a commercial sex act, or (B)the person has not attained the age of 18 years and will be caused to engage in a commercial sex act. (2)

Definitions

For purposes of paragraph (1), the terms commercial sex act and coercion shall have the meaning given such terms by section 1591(c) of title 18, United States Code. (3)

Availability

Any amounts appropriated pursuant to the authority of paragraph (1) shall remain available for fiscal year 2008. (b)

Additional funding for operations of office

Unless specifically appropriated otherwise, there is authorized to be appropriated and is appropriated to the office established under subsection (a)(1) for fiscal years 2007 and 2008 for the administration of such office an amount equal to the amount of any tax under chapter 1 of the Internal Revenue Code of 1986 (including any interest) collected during such fiscal years as the result of the actions of such office, plus any civil or criminal monetary penalties imposed under such Code relating to such tax and so collected. (c)

Report

Not later than 1 year after the date of the enactment of this Act, the Secretary of the Treasury shall report to the Committee of Ways and Means of the House of Representatives and the Committee on Finance of the Senate on the enforcement activities of the office established under subsection (a)(1) and shall include any recommendations for statutory changes to assist in future prosecutions under this section. (d)

Applicability of whistleblower awards to victims of human sex trafficking

For purposes of making an award under paragraph (1) or (2) of section 7623(b) of the Internal Revenue Code of 1986 with respect to information provided by any person caused to engage in a commercial sex act (within the meaning of section 1591(c)(1) of title 18, United States Code), the determination whether such person is described in such paragraph shall be made without regard to paragraph (3) of such section 7623(b).

Whistleblower reforms

(a)

In general

Section 7623 (relating to expenses of detection of underpayments and fraud, etc.) is amended— (1)by striking The Secretary and inserting (a) In general.—The Secretary, (2)by striking and at the end of paragraph (1) and inserting or, (3)by striking (other than interest), and (4)by adding at the end the following new subsections:

(b)

Awards to whistleblowers

(1)

In general

If the Secretary proceeds with any administrative or judicial action described in paragraph (5) based on information brought to the Secretary’s attention by an individual, the Secretary shall, as determined by the Whistleblower Office and subject to paragraph (2), pay such individual as an award at least 15 percent but not more than 30 percent of the collected proceeds (including penalties, interest, additions to tax, and additional amounts) resulting from the action (including any related actions) or from any settlement in response to such action. The Whistleblower Office shall determine the amount of such award on the basis of the extent to which the individual substantially contributed to such action. (2)

Award in case of less substantial contribution

(A)

In general

If the Whistleblower Office determines that the action described in paragraph (1) is based principally on disclosures of specific allegations (other than information provided by the individual described in paragraph (1)) resulting from a judicial or administrative hearing, from a governmental report, hearing, audit, or investigation, or from the news media, the Whistleblower Office may award such sums as it considers appropriate, but in no case more than 10 percent of the collected proceeds (including penalties, interest, additions to tax, and additional amounts) resulting from the action (including any related actions) or from any settlement in response to such action, taking into account the significance of the individual’s information and the role of such individual and any legal representative of such individual in contributing to such action. (B)

Nonapplication of paragraph where individual is original source of information

Subparagraph (A) shall not apply if the information resulting in the initiation of the action described in paragraph (1) was originally provided by the individual described in paragraph (1). (3)

Reduction in or denial of award

If the Whistleblower Office determines that the claim for an award under paragraph (1) or (2) is brought by an individual who planned and initiated the actions that led to the underpayment of tax or actions described in subsection (a)(2), then the Whistleblower Office may appropriately reduce such award. If such individual is convicted of criminal conduct arising from the role described in the preceding sentence, the Whistleblower Office shall deny any award. (4)

Appeal of award determination

Any determination regarding an award under paragraph (1), (2), or (3) may, within 30 days of such determination, be appealed to the Tax Court (and the Tax Court shall have jurisdiction with respect to such matter). (5)

Application of this subsection

This subsection shall apply with respect to any action— (A)against any taxpayer, but in the case of any individual, only if such individual’s gross income exceeds $200,000 for any taxable year subject to such action, and (B)if the tax, penalties, interest, additions to tax, and additional amounts in dispute exceed $20,000. (6)

Additional rules

(A)

No contract necessary

No contract with the Internal Revenue Service is necessary for any individual to receive an award under this subsection. (B)

Representation

Any individual described in paragraph (1) or (2) may be represented by counsel. (C)

Submission of information

No award may be made under this subsection based on information submitted to the Secretary unless such information is submitted under penalty of perjury. (c)

Whistleblower Office

(1)

In general

There is established in the Internal Revenue Service an office to be known as the Whistleblower Office which— (A)shall at all times operate at the direction of the Commissioner and coordinate and consult with other divisions in the Internal Revenue Service as directed by the Commissioner, (B)shall analyze information received from any individual described in subsection (b) and either investigate the matter itself or assign it to the appropriate Internal Revenue Service office, (C)shall monitor any action taken with respect to such matter, (D)shall inform such individual that it has accepted the individual’s information for further review, (E)may require such individual and any legal representative of such individual to not disclose any information so provided, (F)in its sole discretion may ask for additional assistance from such individual or any legal representative of such individual, and (G)shall determine the amount to be awarded to such individual under subsection (b). (2)

Request for assistance

(A)

In general

Any assistance requested under paragraph (1)(F) shall be under the direction and control of the Whistleblower Office or the office assigned to investigate the matter under paragraph (1)(A). No individual or legal representative whose assistance is so requested may by reason of such request represent himself or herself as an employee of the Federal Government. (B)

Funding of assistance

From the amounts available for expenditure under subsection (b), the Whistleblower Office may, with the agreement of the individual described in subsection (b), reimburse the costs incurred by any legal representative of such individual in providing assistance described in subparagraph (A). (d)

Report by Secretary

The Secretary shall each year conduct a study and report to Congress on the use of this section, including— (1)an analysis of the use of this section during the preceding year and the results of such use, and (2)any legislative or administrative recommendations regarding the provisions of this section and its application.

(b)

Assignment to special trial judges

(1)

In general

Section 7443A(b) (relating to proceedings which may be assigned to special trial judges) is amended by striking and at the end of paragraph (4), by redesignating paragraph (5) as paragraph (6), and by inserting after paragraph (4) the following new paragraph:

(5)any proceeding under section 7623(b)(4), and

(2)

Conforming amendment

Section 7443A(c) is amended by striking or (4) and inserting (4), or (5). (c)

Deduction allowed whether or not taxpayer itemizes

Subsection (a) of section 62 (relating to general rule defining adjusted gross income) is amended by inserting after paragraph (20) the following new paragraph:

(21)

Attorneys fees relating to awards to whistleblowers

Any deduction allowable under this chapter for attorney fees and court costs paid by, or on behalf of, the taxpayer in connection with any award under section 7623(b) (relating to awards to whistleblowers). The preceding sentence shall not apply to any deduction in excess of the amount includible in the taxpayer’s gross income for the taxable year on account of such award.

(d)

Effective date

The amendments made by this section shall apply to information provided on or after the date of the enactment of this Act.

Increase in criminal monetary penalty limitation for the underpayment or overpayment of tax due to fraud

(a)

In general

(1)

Attempt to evade or defeat tax

Section 7201 (relating to attempt to evade or defeat tax) is amended— (A)by striking $100,000 ($500,000 and inserting $500,000 ($1,000,000, and (B)by striking 5 years and inserting 10 years. (2)

Willful failure to file return, supply information, or pay tax

(A)

In general

Section 7203 (relating to willful failure to file return, supply information, or pay tax) is amended— (i)in the first sentence— (I)by striking Any person and inserting the following:

(a)

In general

Any person

, and

(II)by striking $25,000 and inserting $50,000, (ii)in the third sentence, by striking section and inserting subsection, and (iii)by adding at the end the following new subsection:

(b)

Aggravated failure to file

(1)

In general

In the case of any failure described in paragraph (2), the first sentence of subsection (a) shall be applied by substituting— (A)felony for misdemeanor, (B)$500,000 ($1,000,000 for $50,000 ($100,000, and (C)10 years for 1 year. (2)

Failure described

A failure described in this paragraph is— (A)a failure to make a return described in subsection (a) for a period of 3 or more consecutive taxable years if the aggregate tax liability for such period is not less than $100,000, or (B)a failure to make a return if the tax liability giving rise to the requirement to make such return is attributable to an activity which is a felony under any State or Federal law.

(B)

Penalty may be applied in addition to other penalties

Section 7204 (relating to fraudulent statement or failure to make statement to employees) is amended by striking the penalty provided in section 6674 and inserting the penalties provided in sections 6674 and 7203(b). (3)

Fraud and false statements

Section 7206 (relating to fraud and false statements) is amended— (A)by striking $100,000 ($500,000 and inserting $500,000 ($1,000,000, and (B)by striking 3 years and inserting 5 years. (b)

Increase in monetary limitation for underpayment or overpayment of tax due to fraud

Section 7206 (relating to fraud and false statements), as amended by subsection (a)(3), is amended— (1)by striking Any person who— and inserting (a) In general.—Any person who—, and (2)by adding at the end the following new subsection:

(b)

Increase in monetary limitation for underpayment or overpayment of tax due to fraud

If any portion of any underpayment (as defined in section 6664(a)) or overpayment (as defined in section 6401(a)) of tax required to be shown on a return is attributable to fraudulent action described in subsection (a), the applicable dollar amount under subsection (a) shall in no event be less than an amount equal to such portion. A rule similar to the rule under section 6663(b) shall apply for purposes of determining the portion so attributable.

(c)

Effective date

The amendments made by this section shall apply to actions, and failures to act, occurring after the date of the enactment of this Act.