[Congressional Bills 111th Congress]
[From the U.S. Government Publishing Office]
[S. 3795 Introduced in Senate (IS)]

111th CONGRESS
  2d Session
                                S. 3795

 To amend the Internal Revenue Code of 1986 to reduce the tax gap, and 
                          for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                           September 16, 2010

   Mr. Carper (for himself, Mr. Bayh, and Mrs. Boxer) 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 reduce the tax gap, 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, ETC.

    (a) Short Title.--This Act may be cited as the ``Taxpayer Advocacy 
and Government Accountability Promotion Act of 2010'' or the ``TAX GAP 
Act of 2010''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.
    (c) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title, etc.
                TITLE I--IMPROVED INFORMATION REPORTING

Sec. 101. Automatic reporting on certain government payments for 
                            property and services.
Sec. 102. Improved reporting by sole proprietors.
Sec. 103. Information reporting for rental property expense payments.
Sec. 104. Additional information on returns relating to mortgage 
                            interest.
Sec. 105. Requirements for withholding with respect to payments to 
                            contractors.
Sec. 106. Information reporting on bank accounts.
Sec. 107. Electronic filing requirements and clarification of role of 
                            paid preparers.
Sec. 108. Impact assessment of Internal Revenue Service capabilities to 
                            utilize information reporting.
            TITLE II--TAX PAYMENTS BY GOVERNMENT CONTRACTORS

Sec. 201. Application of continuous levy to tax liabilities of certain 
                            Federal contractors.
Sec. 202. Continuous levy on payments to Medicaid providers and 
                            suppliers.
Sec. 203. Application of levy to payments to Federal vendors relating 
                            to property.
Sec. 204. Authorization for Financial Management Service retention of 
                            transaction fees from levied amounts.
              TITLE III--TAXPAYER FAIRNESS AND PROTECTION

Sec. 301. Taxpayer assistance and tax simplification report.
Sec. 302. De minimis apology payments pilot program.
          TITLE IV--CLARIFICATION OF PENALTIES AND LIABILITIES

Sec. 401. Increase in information return penalties.
Sec. 402. Elimination of restriction on offsetting refunds from former 
                            residents.
Sec. 403. Study and report on tax penalties.
                   TITLE V--UNDERSTANDING THE TAX GAP

Sec. 501. Tax gap strategy and reports.
Sec. 502. Studies on the impact of tax gap legislation.
Sec. 503. Reports on worker misclassification.

                TITLE I--IMPROVED INFORMATION REPORTING

SEC. 101. AUTOMATIC REPORTING ON CERTAIN GOVERNMENT PAYMENTS FOR 
              PROPERTY AND SERVICES.

    (a) In General.--Section 6041, as amended by section 9006 of the 
Patient Protection and Affordable Care Act, is amended by redesignating 
subsection (i) as subsection (j) and by inserting after subsection (h) 
the following new subsection:
    ``(i) Applications to Governmental Units.--For purposes of this 
section--
            ``(1) Treated as persons.--The term `person' includes any 
        governmental unit (and any agency or instrumentality thereof).
            ``(2) Special rules.--In the case of any payment by a 
        governmental entity or any agency or instrumentality thereof--
                    ``(A) subsection (a) shall be applied without 
                regard to the trade or business requirement contained 
                therein, and
                    ``(B) any return under this section shall be made 
                by the officer or employee having control of the 
                payment or appropriately designated for the purpose of 
                making such return.
            ``(3) Exceptions.--This subsection shall not apply to such 
        payments as the Secretary may specify in regulations prescribed 
        after the date of the enactment of this subsection. Such 
        regulations may include--
                    ``(A) payments of interest,
                    ``(B) payments for real property,
                    ``(C) payments to entities exempt from tax or 
                foreign governments,
                    ``(D) intergovernmental payments,
                    ``(E) payments made pursuant to classified or 
                confidential contracts, including contracts described 
                in section 6050M(e)(3) with respect to which the 
                requirements of section 6050M(e)(2) are met, and
                    ``(F) any other payment with respect to which 
                reporting is required under another provision of this 
                title.''.
    (b) Conforming Amendments to Returns by Governments Regarding 
Payments of Remuneration for Services and Direct Sales to 
Corporations.--Paragraph (3) of section 6041A(d) is amended--
            (1) by striking ``by federal executive agencies'' in the 
        heading,
            (2) by striking ``by any Federal executive agency (as 
        defined in section 6050M(b))'' in subparagraph (A) and 
        inserting ``by any governmental entity or any agency or 
        instrumentality thereof'', and
            (3) by inserting ``classified or confidential contracts, 
        including'' after ``services under'' in subparagraph (B)(i).
    (c) Effective Date.--The amendments made by this section shall 
apply to payments made after December 31, 2011.

SEC. 102. IMPROVED REPORTING BY SOLE PROPRIETORS.

    (a) Revision of Schedule C.--Not later than December 31, 2011, the 
Secretary of the Treasury shall revise Schedule C to require that 
taxpayers engaged in a trade or business provide the information 
required under this subsection.
            (1) Additional gross receipts information.--With respect to 
        the gross receipts of the taxpayer from any trade or business, 
        Schedule C shall require the taxpayer to provide the following:
                    (A) The total of amount of gross receipts or sales 
                reported to the taxpayer through payee statements (as 
                defined in section 6724(d)(2) of the Internal Revenue 
                Code of 1986) and the number of such payee statements 
                received by the taxpayer.
                    (B) The total of amount of gross receipts or sales 
                not included under subparagraph (A).
            (2) Additional expense information.--With respect to 
        payments made by the taxpayer in connection with any trade or 
        business, Schedule C shall require the taxpayer to provide the 
        following:
                    (A) The total of amounts reported by the taxpayer 
                through payee statements (as so defined).
                    (B) The number of payee statements (as so defined) 
                furnished by the taxpayer.
                    (C) Such other information as required by the 
                Secretary with respect to payments in connection with--
                            (i) goods, and
                            (ii) services.
            (3) Perjury.--Schedule C shall require the taxpayer to 
        declare, under penalties of perjury, that the taxpayer filed 
        all information returns required under section 6041 of the 
        Internal Revenue Code of 1986 with respect to payments in the 
        course of a trade or business made during the taxable year.
    (b) Report on Improving Voluntary Compliance by Sole Proprietors.--
            (1) In general.--Not later than 3 years after the date of 
        the enactment of this Act, the Secretary of the Treasury shall 
        submit to Congress a report setting forth recommendations on--
                    (A) whether the Internal Revenue Service should 
                provide additional assistance to first-time Schedule C 
                filers by means of regular communications, a small 
                business hotline, a published resource guide, or 
                automatic or computer-generated ``soft'' notices,
                    (B) ways in which the Internal Revenue Service can 
                work with small businesses, trade representatives, tax 
                preparation software firms, and paid preparer 
                representatives to determine whether and how specific 
                changes to existing education and guidance would help 
                those filing the Schedule C,
                    (C) ways to clarify the instructions for Schedule C 
                to indicate that information returns may be required to 
                be filed by sole proprietors who deduct expenses for 
                wages, fees, and commissions,
                    (D) suggested changes to the Internal Revenue 
                Service's electronic and computer-based system for 
                filing information returns to accommodate those filing 
                information returns on payments made to sole 
                proprietors, including whether the Internal Revenue 
                Service should develop an Internet-based system for 
                filing information returns,
                    (E) identification and analysis of the best 
                practices that are utilized by States and by foreign 
                governments with respect to encouraging voluntary tax 
                compliance by sole proprietors, and ways these best 
                practices may be adopted by the Internal Revenue 
                Service,
                    (F) methods to reduce the information gap between 
                sole proprietors and the Internal Revenue Service,
                    (G) whether, in the case of tax returns containing 
                income from a trade or business, the inclusion of a 
                checkbox or other indicator indicating whether the 
                taxpayer had a 1099-MISC filing requirement would 
                affect voluntary compliance by taxpayers, and
                    (H) such other improvements with respect to 
                improving voluntary compliance by sole proprietors as 
                the Secretary determines is appropriate.
            (2) Use of data.--The recommendations submitted in the 
        report under paragraph (1) shall, wherever possible, be based 
        on empirical data, agency-conducted tests, and quantitative 
        evidence.

SEC. 103. INFORMATION REPORTING FOR RENTAL PROPERTY EXPENSE PAYMENTS.

    (a) In General.--Section 6041, as amended by section 101, is 
amended by redesignating subsections (h), (i), and (j) as subsections 
(i), (j), and (k), respectively, and by inserting after subsection (g) 
the following new subsection:
    ``(h) Treatment of Rental Property Expense Payments.--
            ``(1) In general.--Solely for purposes of subsection (a) 
        and except as provided in paragraph (2), a person receiving 
        rental income from real estate shall be considered to be 
        engaged in a trade or business of renting property.
            ``(2) Exceptions.--Paragraph (1) shall not apply to--
                    ``(A) any individual, including any individual who 
                is an active member of the uniformed services, if 
                substantially all rental income is derived from renting 
                the principal residence (within the meaning of section 
                121) of such individual on a temporary basis,
                    ``(B) any individual who receives rental income of 
                not more than the minimal amount, as determined under 
                regulations prescribed by the Secretary, and
                    ``(C) any other individual for whom the 
                requirements of this section would cause hardship, as 
                determined by the Secretary.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to payments made after December 31, 2011.

SEC. 104. ADDITIONAL INFORMATION ON RETURNS RELATING TO MORTGAGE 
              INTEREST.

    (a) In General.--Paragraph (2) of section 6050H(b) is amended by 
striking ``and'' at the end of subparagraph (C), by redesignating 
subparagraph (D) as subparagraph (G), and by inserting after 
subparagraph (C) the following new subparagraphs:
                    ``(D) the unpaid balance with respect to such 
                mortgage,
                    ``(E) the address of the property securing such 
                mortgage, and
                    ``(F) information with respect to whether the 
                mortgage is a refinancing that occurred in such 
                calendar year.''.
    (b) Payee Statements.--Subsection (d) of section 6050H is amended 
by striking ``and'' at the end of paragraph (1), by striking the period 
at the end of paragraph (2) and inserting ``, and'', and by inserting 
after paragraph (2) the following new paragraph:
            ``(3) the information required to be included on the return 
        under subparagraphs (D), (E), and (F) of subsection (b)(2).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to returns and statements the due date for which (determined 
without regard for extensions) is after December 31, 2011.

SEC. 105. REQUIREMENTS FOR WITHHOLDING WITH RESPECT TO PAYMENTS TO 
              CONTRACTORS.

    (a) In General.--
            (1) Requirement.--Paragraph (1) of section 3406(a) is 
        amended by striking ``or'' at the end of subparagraph (C), by 
        inserting ``or'' at the end of subparagraph (D), and by 
        inserting after subparagraph (D) the following new 
        subparagraph:
                    ``(E) the Secretary has not provided verification 
                to the payor that the TIN furnished by the payee is 
                correct,''.
            (2) Application only to certain transactions.--Subsection 
        (a) of section 3406 is amended by adding at the end the 
        following new paragraph:
            ``(3) Subparagraph (E) of paragraph (1) applies only to 
        certain other reportable payments.--Subparagraph (E) of 
        paragraph (1) shall only apply to other reportable payments 
        described in subparagraph (B) of subsection (b)(3).''.
            (3) Period of withholding.--
                    (A) In general.--Section 3406(e) is amended by 
                redesignating paragraph (5) as paragraph (6) and by 
                inserting after paragraph (4) the following new 
                paragraph:
            ``(5) No matching tin.--In any case in which the Secretary 
        has not provided verification to the payor that the TIN 
        furnished by the payee is correct pursuant to subsection 
        (a)(1)(E), subsection (a) shall apply to such payment and any 
        subsequent such payment made by the payor after the date such 
        TIN was submitted to the Secretary for verification until the 
        payee furnishes another TIN in the manner required and such TIN 
        is verified by the Secretary as correct.''.
                    (B) Conforming amendment.--Paragraph (2) of section 
                3406(e) is amended by inserting ``pursuant to 
                subsection (a)(1)(B),'' after ``is incorrect''.
    (b) Voluntary Withholding.--Section 3402(p) is amended by 
redesignating paragraph (3) as paragraph (4) and by inserting after 
paragraph (2) the following new paragraph:
            ``(3) Certain payments to contractors.--
                    ``(A) In general.--If, at the time of any specified 
                payment to any person, a request by such person is in 
                effect that such payment be subject to withholding 
                under this chapter, the person making such payment 
                shall deduct and withhold from such payment an amount 
                equal to the rate in effect under such request.
                    ``(B) Specified payment.--For purposes of this 
                paragraph, the term `specified payment' means any 
                payment described in subparagraph (A) or (B) of section 
                3406(b)(3).
                    ``(C) Request.--A request to subject a specified 
                payment to withholding shall be made at such time and 
                in such manner as the Secretary may by regulations 
                prescribe, and shall specify a uniform percentage of 
                withholding which is equal to any rate at which tax is 
                imposed under subsection (a), (b), (c), or (d) of 
                section 1, as appropriate,''.
    (c) Effective Date.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to payments made 
        after December 31, 2011.
            (2) Certification.--The amendments made by subsection (a) 
        shall not take effect before the date on which the Secretary of 
        the Treasury has certified that there is a system in place to 
        provide notifications in an accurate and timely manner 
        regarding the verification of taxpayer identification numbers 
        submitted pursuant to section 3406(a)(1)(E) of the Internal 
        Revenue Code of 1986 (as added by subsection (a)).

SEC. 106. INFORMATION REPORTING ON BANK ACCOUNTS.

    (a) Elimination of Minimum Interest Requirement.--
            (1) In general.--Section 6049(a) is amended by striking 
        ``aggregating $10 or more'' each place it appears.
            (2) Conforming amendments.--Subparagraph (C) of section 
        6049(d)(5) is amended--
                    (A) by striking ``which involves the payment of $10 
                or more of interest'', and
                    (B) by striking ``in the case of transactions 
                involving $10 or more'' in the heading.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to returns filed after December 31, 2011.
    (b) Reporting of Non-Interest Bearing Deposits.--
            (1) In general.--Subpart B of part III of subchapter A of 
        chapter 61 is amended by inserting after section 6049 the 
        following new section:

``SEC. 6049A. RETURNS REGARDING NON-INTEREST BEARING DEPOSITS.

    ``(a) Requirement of Reporting.--Every person who holds a 
reportable deposit during any calendar year shall make a return 
according to the forms or regulations prescribed by the Secretary, 
setting forth the name and address of the person for whom such deposit 
was held.
    ``(b) Reportable Deposit.--For purposes of this section--
            ``(1) In general.--The term `reportable deposit' means--
                    ``(A) any amount on deposit with--
                            ``(i) a person carrying on the banking 
                        business,
                            ``(ii) a mutual savings bank, a savings and 
                        loan association, a building and loan 
                        association, a cooperative bank, a homestead 
                        association, a credit union, an industrial loan 
                        association or bank, or any similar 
                        organization,
                            ``(iii) a broker (as defined in section 
                        6045(c)), or
                            ``(iv) any other person provided in 
                        regulations prescribed by the Secretary, or
                    ``(B) to the extent provided by the Secretary in 
                regulations, any amount held by an insurance company, 
                an investment company (as defined in section 3 of the 
                Investment Company Act of 1940), or held in other 
                pooled funds or trusts.
            ``(2) Exceptions.--Such term shall not include--
                    ``(A) any amount with respect to which a report is 
                made under section 6049,
                    ``(B) any amount on deposit with or held by a 
                natural person,
                    ``(C) except to the extent provided in regulations, 
                any amount--
                            ``(i) held with respect to a person 
                        described in section 6049(b)(4),
                            ``(ii) with respect to which section 
                        6049(b)(5) would apply if a payment were made 
                        with respect to such amount, or
                            ``(iii) on deposit with or held by a person 
                        described in section 6049(b)(2)(C), or
                    ``(D) any amount for which the Secretary determines 
                there is already sufficient reporting.
    ``(c) Statements To Be Furnished to Persons With Respect to Whom 
Information Is Required.--
            ``(1) In general.--Every person required to make a return 
        under subsection (a) shall furnish to each person whose name is 
        required to be set forth in such return a written statement 
        showing--
                    ``(A) the name, address, and phone number of the 
                information contact of the person required to make such 
                return, and
                    ``(B) the reportable account with respect to which 
                such return was made.
            ``(2) Time and form of statement.--The written statement 
        under paragraph (1)--
                    ``(A) shall be furnished at a time and in a manner 
                similar to the time and manner that statements are 
                required to be filed under section 6049(c)(2), and
                    ``(B) shall be in such form as the Secretary may 
                prescribe by regulations.
    ``(d) Person.--For purposes of this section, the term `person' 
includes any governmental unit and any agency or instrumentality 
thereof and any international organization and any agency or 
instrumentality thereof.''.
            (2) Assessable penalties.--
                    (A) Failure to file return.--Subparagraph (B) of 
                section 6724(d)(1) is amended by striking ``or'' at the 
                end of clause (xxii), by striking ``and'' at the end of 
                clause (xxiv) and inserting ``or'', and by inserting 
                after clause (xxiv) the following new clause:
                            ``(xxvi) section 6049A, and''.
                    (B) Failure to file payee statement.--Paragraph (2) 
                of section 6724(d) is amended by striking ``or'' at the 
                end of subparagraph (FF), by striking the period at the 
                end of subparagraph (GG) and inserting ``, or'' and by 
                inserting after subparagraph (GG) the following new 
                subparagraph:
                    ``(HH) section 6055(c).''.
            (3) Clerical amendment.--The table of section for subpart B 
        of part III of subchapter A of chapter 61 is amended by 
        inserting after the item relating to section 6049 the following 
        new item:

``Sec. 6049A. Returns regarding non-interest bearing deposits.''.
            (4) Effective date.--The amendments made by this subsection 
        shall apply to returns filed after December 31, 2011.

SEC. 107. ELECTRONIC FILING REQUIREMENTS AND CLARIFICATION OF ROLE OF 
              PAID PREPARERS.

    (a) Lower Threshold for Required Electronic Filing by Paid 
Preparers.--
            (1) In general.--Section 6011(e)(3)(B) is amended by 
        striking ``10'' and inserting ``5''.
            (2) Penalty.--Section 6695 is amended by adding at the end 
        the following new subsection:
    ``(h) Failure To File Return on Magnetic Media.--Any person who is 
a tax return preparer with respect to any individual income tax return 
and who must file such return on magnetic media pursuant to the 
requirement of section 6011(e)(3) and fails to comply with the 
requirements of section 6011(e)(3) shall pay a penalty of $50 for such 
failure unless it is shown that such failure is due to reasonable cause 
and not due to willful neglect. The maximum penalty imposed under this 
subsection on any person with respect to individual income tax returns 
filed during any calendar year shall not exceed $25,000.''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to returns filed for taxable years beginning after 
        December 31, 2010.
    (b) Proposal on Automated Bar Coding.--The Secretary of the 
Treasury, in consultation with the Commissioner of the Internal Revenue 
Service, shall develop a proposal to require unique identifying numbers 
and bar codes, or such other unique identifying system as the Secretary 
determines appropriate, with respect to each version of software used 
for the purpose of preparing tax returns.

SEC. 108. IMPACT ASSESSMENT OF INTERNAL REVENUE SERVICE CAPABILITIES TO 
              UTILIZE INFORMATION REPORTING.

    (a) Initial Assessment.--
            (1) In general.--The Secretary of the Treasury shall 
        conduct an impact assessment to determine whether the Internal 
        Revenue Service has the sufficient resources, personnel, 
        infrastructure, technology, and computer hardware and software 
        capacity to incorporate expanded information reporting.
            (2) Expanded information reporting.--For purposes of this 
        section, the term ``expanded information reporting'' includes--
                    (A) all information reporting required under this 
                Act and the amendments made by this Act, and
                    (B) any information reporting required under the 
                Internal Revenue Code of 1986 that was not required 
                under such Code before January 1, 2001.
            (3) Matters included.--
                    (A) Computer systems.--The impact assessment 
                required under paragraph (1) shall include an 
                assessment of the computer program capabilities of the 
                Internal Revenue Service to match the information on 
                tax returns with other information reported to the 
                Internal Revenue Service and to modify tax schedules to 
                capture the information to be matched. Such assessment 
                shall address--
                            (i) how effectively the Internal Revenue 
                        Service has followed through and implemented 
                        data matching systems for expanded information 
                        reporting,
                            (ii) whether the Internal Revenue Service 
                        needs to modify its computer systems so that 
                        discrepancies between information collected 
                        through expanded information reporting and 
                        information reported on tax returns can be 
                        identified, and
                            (iii) whether information on tax returns 
                        (and accompanying schedules) should be 
                        modified.
                    (B) Recommendations.--The initial assessment shall 
                include specific recommendations on--
                            (i) how any current efforts with respect to 
                        the matters assessed may be improved or 
                        expanded upon, and
                            (ii) any new, additional efforts that 
                        should be made to improve, upgrade, or 
                        accelerate the processing of the matters 
                        assessed.
            (4) Report.--Not later than December 31, 2013, the 
        Secretary of the Treasury shall submit to Congress a report on 
        the assessment required under paragraph (1).
            (5) Use of data.--The assessment under paragraph (1) and 
        the report under paragraph (4) shall, wherever possible, be 
        based on empirical data, agency-conducted tests, and 
        quantitative evidence.
            (6) Adoption of recommendations.--Not later than 1 year 
        after the report under paragraph (4) is submitted, the 
        Commissioner of Internal Revenue shall implement any 
        recommendations contained in such report which do not require 
        Congressional action and which can be implemented 
        administratively.
    (b) Follow-Up Report.--
            (1) In general.--Not later than 3 years after the report 
        under subsection (a) is submitted, the Secretary of the 
        Treasury shall submit to Congress a follow-up report on the 
        implementation of any recommendations included in the report 
        submitted under subsection (a)(4).
            (2) Matters included.--The report submitted under paragraph 
        (1) shall include recommendations for new, additional proposals 
        which were not included in the report under subsection (a)(4) 
        but which should be made to improve or upgrade the resources, 
        personnel, infrastructure, technology, and computer hardware 
        and software capacities of the Internal Revenue Service with 
        respect to expanded information reporting.

            TITLE II--TAX PAYMENTS BY GOVERNMENT CONTRACTORS

SEC. 201. APPLICATION OF CONTINUOUS LEVY TO TAX LIABILITIES OF CERTAIN 
              FEDERAL CONTRACTORS.

    (a) In General.--Section 6330(f) (relating to jeopardy and State 
refund collection) is amended--
            (1) by striking ``or'' at the end of paragraph (2),
            (2) by striking the comma at the end of paragraph (3) and 
        inserting ``; or'',
            (3) by inserting after paragraph (3) the following new 
        paragraph:
            ``(4) the Secretary has approved a levy, including a 
        continuing levy under section 6331(h)(1), on any specified 
        payment described in section 6331(h)(3),'', and
            (4) by striking the heading and inserting ``Jeopardy, State 
        Refund, and Collection From Federal Vendor Payments''.
    (b) Effective Date.--The amendments made by this section shall 
apply to levies issued after the date of the enactment of this Act.

SEC. 202. CONTINUOUS LEVY ON PAYMENTS TO MEDICAID PROVIDERS AND 
              SUPPLIERS.

    (a) In General.--Section 6331(h)(2) (defining specified payment) is 
amended by striking ``and'' at the end of subparagraph (B), by striking 
the period at the end of subparagraph (C) and inserting ``, and'', and 
by adding at the end the following new subparagraph:
                    ``(D) any payment to any Medicaid provider or 
                supplier under a State plan under title XIX of the 
                Social Security Act.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to levies issued after December 31, 2011.

SEC. 203. APPLICATION OF LEVY TO PAYMENTS TO FEDERAL VENDORS RELATING 
              TO PROPERTY.

    (a) In General.--Section 6331(h)(3) is amended by striking ``goods 
or services'' and inserting ``property, goods, or services''.
    (b) Effective Date.--The amendment made by this section shall apply 
to levies issued after the date of the enactment of this Act.

SEC. 204. AUTHORIZATION FOR FINANCIAL MANAGEMENT SERVICE RETENTION OF 
              TRANSACTION FEES FROM LEVIED AMOUNTS.

    Notwithstanding any other provision of law, the Financial 
Management Service may charge the Internal Revenue Service, and the 
Internal Revenue Service may pay the Financial Management Service, a 
fee sufficient to cover the full cost of implementing a continuous levy 
program under subsection (h) of section 6331 of the Internal Revenue 
Code of 1986. Any such fee shall be based on actual levies made and 
shall be collected by the Financial Management Service by the retention 
of a portion of amounts collected by levy pursuant to that subsection. 
Amounts received by the Financial Management Service as fees under that 
subsection shall be deposited into the account of the Department of the 
Treasury under section 3711(g)(7) of title 31, United States Code, and 
shall be collected and accounted for in accordance with the provisions 
of that section.

              TITLE III--TAXPAYER FAIRNESS AND PROTECTION

SEC. 301. TAXPAYER ASSISTANCE AND TAX SIMPLIFICATION REPORT.

    (a) In General.--Not later than 2 years after the date of the 
enactment of this Act, the Secretary of the Treasury, in consultation 
with the Commissioner of the Internal Revenue Service, shall submit to 
Congress a report on taxpayer assistance and tax simplification.
    (b) Matters Included.--The report required under subsection (a) 
shall be based on examinations of tax policy and of tax compliance 
enforcement and shall include the following:
            (1) An assessment of the current and proposed efforts of 
        the Internal Revenue Service with respect to the simplification 
        of tax forms, publications, and filing requirements for 
        individual taxpayers and for sole proprietor taxpayers, 
        including additional, plain-language guidance for taxpayers. 
        Such assessment shall include specific recommendations on--
                    (A) how these or additional efforts may be improved 
                or expanded upon, including through paid preparers and 
                tax preparation software, and
                    (B) requiring or encouraging the Internal Revenue 
                Service, to the maximum extent possible, to test its 
                forms and publications on actual taxpayers prior to 
                publication.
            (2) An assessment of the current efforts of the Internal 
        Revenue Service--
                    (A) to reduce the time between receipt of an 
                electronically filed tax return and the issuance of a 
                refund, and
                    (B) to reduce the time between receipt of a 
                manually filed tax return and the issuance of a refund.
            (3) An assessment of the efforts of the Internal Revenue 
        Service to induce voluntary compliance by individual taxpayers 
        and sole proprietor taxpayers, with a particular focus on 
        current efforts to reduce administrative and compliance 
        burdens. Such assessment shall include specific recommendations 
        on how voluntary compliance may be improved or expanded upon, 
        particularly in an environment where most taxpayers use paid 
        preparers or tax preparation software.
            (4) An assessment of the current efforts of the Internal 
        Revenue Service to improve taxpayer service, including through 
        outreach programs, taxpayer education, preparer education, tax 
        software industry coordination, and expanded availability of 
        online, Internet-based tax information and filing services 
        offered by the Internal Revenue Service. Such assessment shall 
        include specific recommendations on how these or additional 
        efforts may be improved or expanded upon.
            (5) An assessment of the efficacy of previous Internal 
        Revenue Service efforts with respect to settlement initiatives, 
        including the effect of such initiatives on improving 
        compliance and reducing current and future revenues lost due to 
        tax evasion. Such assessment shall include specific 
        recommendations on how, or whether, these or additional efforts 
        may be improved or expanded upon.
            (6) An assessment of the personnel, infrastructure, 
        information technology, and capabilities of the Internal 
        Revenue Service with respect to ensuring and promoting taxpayer 
        service, encouraging voluntary compliance, enforcing 
        involuntary compliance.
    (c) Use of Data.--The report under subsection (a) shall, wherever 
possible, be based on empirical data, agency-conducted tests, and 
quantitative evidence.

SEC. 302. DE MINIMIS APOLOGY PAYMENTS PILOT PROGRAM.

    (a) In General.--Section 7811(b) is amended by striking ``or'' at 
the end of paragraph (1), by striking the period and inserting ``, or'' 
at the end of paragraph (2)(D), and adding at the end the following new 
paragraph:
            ``(3) in the case of any order issued during 2011 or 2012, 
        to make an apology payment under subsection (h).''.
    (b) Apology Payment.--Section 7811 is amended by adding at the end 
the following new subsection:
    ``(h) Apology Payment Program.--
            ``(1) In general.--A taxpayer assistance order may require 
        the Secretary to provide an apology payment on behalf of the 
        Internal Revenue Service to the taxpayer under this subsection 
        in any case in which the National Taxpayer Advocate determines 
        that any action or inaction by the Internal Revenue Service has 
        caused excess expense or undue burden on a taxpayer.
            ``(2) Taxpayer limitations.--In the case of any apology 
        payment required under this subsection to any taxpayer with 
        respect to any taxable year--
                    ``(A) such payment shall not be less than $100, and
                    ``(B) such payment shall not exceed $1,000.
            ``(3) Aggregate yearly limitation.--The amount of apology 
        payments which the National Taxpayer Advocate may require to be 
        paid for any fiscal year shall not exceed $250,000.''.
    (c) Reports.--Clause (ii) of section 7803(c)(2)(A) is amended by 
striking ``and'' at the end of subclause (X), by redesignating 
subclause (XI) as subclause (XII), and by inserting after subclause (X) 
the following new subclause:
                                    ``(XI) contain a summary of all 
                                Taxpayer Assistance Orders which 
                                require an apology payment under 
                                section 7811(h), and''.
    (d) Exclusion of Apology Payments From Gross Income.--
            (1) In general.--Part III of subchapter B of chapter 1 is 
        amended by inserting before section 140 the following new 
        section:

``SEC. 139F. INTERNAL REVENUE SERVICE APOLOGY PAYMENTS.

    ``Gross income shall not include any apology payment received by a 
taxpayer as a result of a Taxpayer Assistance Order described in 
section 7811(h).''.
            (2) Clerical amendment.--The table of sections for part III 
        of subchapter B of chapter 1 is amended by inserting before the 
        item relating to section 140 the following new item:

``Sec. 139F. Internal Revenue Service apology payments.''.
    (e) Effective Dates.--
            (1) In general.--The amendments made by subsections (a) and 
        (b) shall apply to orders issued after December 31, 2010.
            (2) Reports.--The amendments made by subsection (c) shall 
        apply to reports required to be submitted after December 31, 
        2010.
            (3) Exclusion.--The amendments made by subsection (d) shall 
        apply to taxable years beginning after December 31, 2010.
    (f) Study and Report on Apology Payments Program.--Not later than 
December 31, 2013, the Secretary of the Treasury shall submit to 
Congress a report on the apology payments program under the amendments 
made by this section. Such report shall contain--
            (1) an evaluation of--
                    (A) the merits and effects of such program on--
                            (i) taxpayers who received payments under 
                        section 7811(h), and
                            (ii) the Internal Revenue Service, and
                    (B) the impact of the program on all taxpayers and 
                the public, and
            (2) recommendations whether the program should be extended, 
        and, if so, whether and how it should be improved.

          TITLE IV--CLARIFICATION OF PENALTIES AND LIABILITIES

SEC. 401. INCREASE IN INFORMATION RETURN PENALTIES.

    (a) Failure To File Correct Information Returns.--
            (1) In general.--Subsections (a)(1), (b)(1)(A), and 
        (b)(2)(A) of section 6721 are each amended by striking ``$50'' 
        and inserting ``$150''.
            (2) Aggregate annual limitation.--Subsections (a)(1), 
        (d)(1)(A), and (e)(3)(A) of section 6721 are each amended by 
        striking ``$250,000'' and inserting ``$2,000,000''.
    (b) Reduction Where Correction Within 30 Days.--
            (1) In general.--Subparagraph (A) of section 6721(b)(1) is 
        amended by striking ``$15'' and inserting ``$45''.
            (2) Aggregate annual limitation.--Subsections (b)(1)(B) and 
        (d)(1)(B) of section 6721 are each amended by striking 
        ``$75,000'' and inserting ``$350,000''.
    (c) Reduction Where Correction on or Before August 1.--
            (1) In general.--Subparagraph (A) of section 6721(b)(2) is 
        amended by striking ``$30'' and inserting ``$90''.
            (2) Aggregate annual limitation.--Subsections (b)(2)(B) and 
        (d)(1)(C) of section 6721 are each amended by striking 
        ``$150,000'' and inserting ``$750,000''.
    (d) Aggregate Annual Limitations for Persons With Gross Receipts of 
Not More Than $5,000,000.--
            (1) In general.--Paragraph (1) of section 6721(d) is 
        amended--
                    (A) by striking ``$100,000'' in subparagraph (A) 
                and inserting ``$750,000'',
                    (B) by striking ``$25,000'' in subparagraph (B) and 
                inserting ``$100,000'', and
                    (C) by striking ``$50,000'' in subparagraph (C) and 
                inserting ``$300,000''.
            (2) Technical amendment.--Paragraph (1) of section 6721(d) 
        is amended by striking ``such taxable year'' and inserting 
        ``such calendar year''.
    (e) Penalty in Case of Intentional Disregard.--Paragraph (2) of 
section 6721(e) is amended by striking ``$100'' and inserting ``$400''.
    (f) Adjustment for Inflation.--Section 6721 is amended by adding at 
the end the following new subsection:
    ``(f) Adjustment for Inflation.--
            ``(1) In general.--In the case of any calendar year 
        beginning after 2012, each of the dollar amounts under 
        subsections (a), (b), (d) (other than paragraph (2)(A) 
        thereof), and (e) shall be increased by such dollar amount 
        multiplied by the cost-of-living adjustment determined under 
        section 1(f)(3) determined by substituting `calendar year 2011' 
        for `calendar year 1992' in subparagraph (B) thereof.
            ``(2) Rounding.--If any amount adjusted under paragraph 
        (1)--
                    ``(A) is not less than $75,000 and is not a 
                multiple of $500, such amount shall be rounded to the 
                next lowest multiple of $500, and
                    ``(B) is not described in subparagraph (A) and is 
                not a multiple of $10, such amount shall be rounded to 
                the next lowest multiple of $10.''.
    (g) Other Information Reporting Requirements.--Section 6723 is 
amended--
            (1) by striking ``$50'' and inserting ``$150'', and
            (2) by striking ``$100,000'' and inserting ``$750,000''.
    (h) Failure To Furnish Correct Payee Statements.--Section 6722 of 
the Internal Revenue Code of 1986 is amended to read as follows:

``SEC. 6722. FAILURE TO FURNISH CORRECT PAYEE STATEMENTS.

    ``(a) Imposition of Penalty.--
            ``(1) General rule.--In the case of each failure described 
        in paragraph (2) by any person with respect to a payee 
        statement, such person shall pay a penalty of $150 for each 
        statement with respect to which such a failure occurs, but the 
        total amount imposed on such person for all such failures 
        during any calendar year shall not exceed $2,000,000.
            ``(2) Failures subject to penalty.--For purposes of 
        paragraph (1), the failures described in this paragraph are--
                    ``(A) any failure to furnish a payee statement on 
                or before the date prescribed therefor to the person to 
                whom such statement is required to be furnished, and
                    ``(B) any failure to include all of the information 
                required to be shown on a payee statement or the 
                inclusion of incorrect information.
    ``(b) Reduction Where Correction in Specified Period.--
            ``(1) Correction within 30 days.--If any failure described 
        in subsection (a)(2) is corrected on or before the day 30 days 
        after the required filing date--
                    ``(A) the penalty imposed by subsection (a) shall 
                be $45 in lieu of $150, and
                    ``(B) the total amount imposed on the person for 
                all such failures during any calendar year which are so 
                corrected shall not exceed $350,000.
            ``(2) Failures corrected on or before august 1.--If any 
        failure described in subsection (a)(2) is corrected after the 
        30th day referred to in paragraph (1) but on or before August 1 
        of the calendar year in which the required filing date occurs--
                    ``(A) the penalty imposed by subsection (a) shall 
                be $90 in lieu of $150, and
                    ``(B) the total amount imposed on the person for 
                all such failures during the calendar year which are so 
                corrected shall not exceed $750,000.
    ``(c) Exception for De Minimis Failures.--
            ``(1) In general.--If--
                    ``(A) a payee statement is furnished to the person 
                to whom such statement is required to be furnished,
                    ``(B) there is a failure described in subsection 
                (a)(2)(B) (determined after the application of section 
                6724(a)) with respect to such statement, and
                    ``(C) such failure is corrected on or before August 
                1 of the calendar year in which the required filing 
                date occurs,
        for purposes of this section, such statement shall be treated 
        as having been furnished with all of the correct required 
        information.
            ``(2) Limitation.--The number of payee statements to which 
        paragraph (1) applies for any calendar year shall not exceed 
        the greater of--
                    ``(A) 10, or
                    ``(B) one-half of 1 percent of the total number of 
                payee statements required to be filed by the person 
                during the calendar year.
    ``(d) Lower Limitations for Persons With Gross Receipts of Not More 
Than $5,000,000.--
            ``(1) In general.--If any person meets the gross receipts 
        test of paragraph (2) with respect to any calendar year, with 
        respect to failures during such calendar year--
                    ``(A) subsection (a)(1) shall be applied by 
                substituting `$750,000' for `$2,000,000',
                    ``(B) subsection (b)(1)(B) shall be applied by 
                substituting `$100,000' for `$350,000', and
                    ``(C) subsection (b)(2)(B) shall be applied by 
                substituting `$300,000' for `$750,000'.
            ``(2) Gross receipts test.--A person meets the gross 
        receipts test of this paragraph if such person meets the gross 
        receipts test of section 6721(d)(2).
    ``(e) Penalty in Case of Intentional Disregard.--If 1 or more 
failures to which subsection (a) applies are due to intentional 
disregard of the requirement to furnish a payee statement (or the 
correct information reporting requirement), then, with respect to each 
such failure--
            ``(1) subsections (b), (c), and (d) shall not apply,
            ``(2) the penalty imposed under subsection (a)(1) shall be 
        $400, or, if greater--
                    ``(A) in the case of a payee statement other than a 
                statement required under section 6045(b), 6041A(e) (in 
                respect of a return required under section 6041A(b)), 
                6050H(d), 6050J(e), 6050K(b), or 6050L(c), 10 percent 
                of the aggregate amount of the items required to be 
                reported correctly, or
                    ``(B) in the case of a payee statement required 
                under section 6045(b), 6050K(b), or 6050L(c), 5 percent 
                of the aggregate amount of the items required to be 
                reported correctly, and
            ``(3) in the case of any penalty determined under paragraph 
        (2)--
                    ``(A) the $1,500,000 limitation under subsection 
                (a) shall not apply, and
                    ``(B) such penalty shall not be taken into account 
                in applying such limitation to penalties not determined 
                under paragraph (2).
    ``(f) Adjustment for Inflation.--
            ``(1) In general.--For each fifth calendar year beginning 
        after 2012, each of the dollar amounts under subsections (a), 
        (b), (d)(1), and (e) shall be increased by such dollar amount 
        multiplied by the cost-of-living adjustment determined under 
        section 1(f)(3) determined by substituting `calendar year 2011' 
        for `calendar year 1992' in subparagraph (B) thereof.
            ``(2) Rounding.--If any amount adjusted under paragraph 
        (1)--
                    ``(A) is not less than $75,000 and is not a 
                multiple of $500, such amount shall be rounded to the 
                next lowest multiple of $500, and
                    ``(B) is not described in subparagraph (A) and is 
                not a multiple of $10, such amount shall be rounded to 
                the next lowest multiple of $10.''.
    (i) Effective Date.--The amendments made by this section shall 
apply with respect to information returns required to be filed on or 
after January 1, 2011.

SEC. 402. ELIMINATION OF RESTRICTION ON OFFSETTING REFUNDS FROM FORMER 
              RESIDENTS.

    (a) In General.--Section 6402(e) (relating to collection of past-
due, legally enforceable State income tax obligations) is amended by 
striking paragraph (2) and by redesignating paragraphs (3), (4), (5), 
(6), and (7) as paragraphs (2), (3), (4), (5), and (6), respectively.
    (b) Effective Date.--The amendments made by this section shall 
apply to refunds payable for taxable years ending after the date of the 
enactment of this Act.

SEC. 403. STUDY AND REPORT ON TAX PENALTIES.

    (a) Study.--
            (1) In general.--The Secretary of the Treasury, in 
        consultation with the Commissioner of the Internal Revenue 
        Service, shall conduct an empirical study to quantify the 
        effect of penalties imposed under the Internal Revenue Code of 
        1986.
            (2) Matters included.--The matters studied under paragraph 
        (1) shall include the following:
                    (A) The deterrent effect of providing additional, 
                clearer, and advanced notice regarding the potential 
                penalties under the Internal Revenue Code of 1986 to--
                            (i) taxpayers in general, and
                            (ii) taxpayers in categories with higher 
                        noncompliance rates specifically.
                    (B) The fairness of such penalties with respect to 
                horizontal equity, proportionality, and procedure.
                    (C) The comprehension and understandability of such 
                penalties among taxpayers.
                    (D) The effectiveness of such penalties, including 
                the effect of such penalties on encouraging voluntary 
                compliance.
                    (E) The ease of administration of such penalties 
                and the amount of discretion involved in applying such 
                penalties.
                    (F) The authority to abate such penalties if a 
                taxpayer can demonstrate a reasonable cause.
    (b) Report.--Not later than 2 years after the date of the enactment 
of this Act, the Secretary of the Treasury shall submit to Congress a 
report on the results of the study conducted under subsection (a), 
together with any recommendations for reforming the penalties imposed 
under the Internal Revenue Code of 1986 based on such study.
    (c) Use of Data.--The report and recommendations under subsection 
(b) shall, wherever possible, be based on empirical data, agency-
conducted tests, and quantitative evidence.

                   TITLE V--UNDERSTANDING THE TAX GAP

SEC. 501. TAX GAP STRATEGY AND REPORTS.

    (a) Comprehensive Strategy for Reducing the Tax Gap.--
            (1) In general.--The Secretary of the Treasury shall submit 
        to Congress comprehensive and detailed reports on a strategy 
        for reducing the tax gap. Such reports shall include--
                    (A) a detailed assessment of the major sources and 
                causes of the tax gap, and
                    (B) a goal for reducing the tax gap and components 
                of the tax gap.
            (2) Time for submitting reports.--
                    (A) Initial report.--The first report required 
                under paragraph (1) shall be submitted not later than 
                December 31, 2011.
                    (B) Subsequent reports.--The Secretary of the 
                Treasury shall submit additional reports under 
                paragraph (1) not later than 5 years after the date on 
                which the most recent preceding report was submitted 
                under paragraph (1).
            (3) Use of data.--Any report submitted under this 
        subsection shall, wherever possible, be based on empirical 
        data, agency-conducted tests, and quantitative evidence.
    (b) Annual Tax Gap Report.--
            (1) In general.--Not later than December 31 of each year 
        beginning after 2011, the Secretary of the Treasury shall 
        submit to Congress a report on the most recent estimates of the 
        tax gap.
            (2) Matters included.--The report submitted under paragraph 
        (1) shall include--
                    (A) an update on any studies and pilot projects of 
                the Internal Revenue Service associated with specific 
                areas of the tax gap,
                    (B) an assessment of how the Internal Revenue 
                Service has aligned its enforcement and compliance 
                efforts with the goals and recommendations set forth in 
                the most recent report submitted under subsection (a),
                    (C) a detailed assessment of how effectively the 
                Internal Revenue Service is making full use of the 
                collected information to determine the causes of, and 
                potential solutions for, the tax gap,
                    (D) a detailed assessment of the benefits gained 
                from the tax gap estimation and analysis efforts, 
                including service and enforcement improvements, 
                regulatory changes, and statutory changes resulting 
                from those efforts, and
                    (E) an update and detailed assessment of 
                examination initiatives of the Internal Revenue 
                Service, including information sharing between the 
                Internal Revenue Service and State revenue agencies.
    (c) Tax Gap.--For purposes of this section, the term ``tax gap'' 
means, with respect to any tax year, the difference between--
            (1) the amount of taxes owed by taxpayers under the 
        Internal Revenue Code of 1986 for such tax year, and
            (2) the amount of revenue paid voluntarily and timely by 
        taxpayers under such Code for such tax year.

SEC. 502. STUDIES ON THE IMPACT OF TAX GAP LEGISLATION.

    (a) Study of Return on Investment.--
            (1) Matters studied.--
                    (A) In general.--The Secretary of the Treasury 
                shall conduct a study on--
                            (i) the revenue increases, and
                            (ii) the costs,
                with respect to tax gap legislation.
                    (B) Tax gap legislation.--For purposes of this 
                section, the term ``tax gap legislation'' means the 
                provisions of, and amendments made by--
                            (i) this Act,
                            (ii) section 403 of the Energy Improvement 
                        and Extension Act of 2008 (relating to broker 
                        reporting of customer's basis in securities 
                        transactions),
                            (iii) section 3091 of the housing 
                        Assistance Tax Act of 2008 (relating to returns 
                        relating to payments made in settlement of 
                        payment card and third party network 
                        transactions), and
                            (iv) such other Acts, as determined 
                        appropriate by the Secretary of the Treasury.
            (2) Revenue increases.--The revenue increases considered in 
        the study conducted under paragraph (1) shall include--
                    (A) revenue collected from enforcement efforts,
                    (B) revenue increases from voluntary compliance by 
                taxpayers in response to tax gap legislation (including 
                cases in which the Internal Revenue Service has not yet 
                effectively or fully implemented a data matching 
                system), and
                    (C) any other revenue savings, including 
                administrative and other cost savings to the government 
                and to taxpayers.
            (3) Costs.--The costs considered in this study conducted 
        under paragraph (1) shall include--
                    (A) administrative and other costs of the Internal 
                Revenue Service,
                    (B) compliance costs to taxpayers, and
                    (C) compliance costs to any affected third parties, 
                such as persons required to file information returns.
    (b) Reports.--
            (1) Initial report.--
                    (A) In general.--Not later than 4 years after the 
                date of the enactment of this Act, the Secretary of the 
                Treasury shall submit to Congress a report on the 
                matters studied under subsection (a).
                    (B) Assessment with respect to data limitations.--
                The report under subparagraph (A) shall include--
                            (i) an assessment of the limitations of the 
                        Internal Revenue Service with respect to the 
                        collection of data used to assess the matters 
                        studied under subsection (a), and
                            (ii) recommendations regarding steps to 
                        overcome any such limitations.
            (2) Follow-up report.--
                    (A) In general.--Not later than 3 years after the 
                date on which the report under paragraph (1) is 
                submitted, the Secretary of the Treasury shall submit 
                to Congress a follow-up report on the matters studied 
                under subsection (a).
                    (B) Assessment with respect to implementation of 
                recommendations.--The report under subparagraph (A) 
                shall include an assessment on the implementation of 
                the recommendations included in the report submitted 
                under paragraph (1).

SEC. 503. REPORTS ON WORKER MISCLASSIFICATION.

    (a) In General.--The Secretary of the Treasury shall submit to 
Congress reports on worker misclassification.
    (b) Matters Included.--Such reports shall include the following:
            (1) Information on the number and type of enforcement 
        actions against, and examinations of, employers who have 
        misclassified workers.
            (2) Relief obtained as a result of such actions against, 
        and examinations of, employers who have misclassified workers.
            (3) An assessment of--
                    (A) the level of awareness of firms and workers 
                about the ability to file for a determination of worker 
                classification made by the Internal Revenue Service, 
                and
                    (B) any deterrent to filing for such a 
                determination, including the fear of potential adverse 
                responses or retaliation from a firm.
            (4) An overall estimate of the number of employers 
        misclassifying workers, the number of workers affected, and the 
        industries involved.
            (5) The estimated impact of such misclassification on the 
        Federal tax system.
            (6) Information for improving compliance with worker 
        classification laws and guidelines, reducing the portion of the 
        tax gap allocable to this type of misreporting, and other 
        relevant recommendations.
    (c) Time for Submitting Reports.--
            (1) Initial report.--The first report required under 
        subsection (a) shall be submitted not later than 3 years after 
        the date of the enactment of this Act.
            (2) Subsequent reports.--The Secretary of the Treasury 
        shall submit additional reports under paragraph (1) not later 
        than 5 years after the date on which the most recent preceding 
        report was submitted under paragraph (1).
                                 <all>