[Congressional Bills 116th Congress]
[From the U.S. Government Publishing Office]
[S. 1138 Introduced in Senate (IS)]

<DOC>






116th CONGRESS
  1st Session
                                S. 1138

To amend the Internal Revenue Code of 1986 to expand the earned income 
             and child tax credits, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             April 10, 2019

   Mr. Brown (for himself, Mr. Bennet, Mr. Durbin, Ms. Baldwin, Mr. 
   Blumenthal, Mr. Booker, Ms. Cantwell, Mr. Cardin, Mr. Carper, Mr. 
Casey, Mr. Coons, Ms. Cortez Masto, Ms. Duckworth, Mrs. Feinstein, Mrs. 
   Gillibrand, Ms. Harris, Ms. Hassan, Mr. Heinrich, Ms. Hirono, Mr. 
Jones, Mr. Kaine, Mr. King, Ms. Klobuchar, Mr. Leahy, Mr. Manchin, Mr. 
Markey, Mr. Menendez, Mr. Merkley, Mr. Murphy, Mrs. Murray, Mr. Peters, 
    Mr. Reed, Ms. Rosen, Mr. Sanders, Mr. Schatz, Mr. Schumer, Mrs. 
   Shaheen, Ms. Smith, Ms. Stabenow, Mr. Tester, Mr. Udall, Mr. Van 
    Hollen, Mr. Warner, Ms. Warren, Mr. Whitehouse, and Mr. Wyden) 
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 expand the earned income 
             and child tax credits, 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. 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.

SEC. 2. EXPANSION OF EARNED INCOME CREDIT.

    (a) Credit Percentage; Phaseout Percentage.--The table contained in 
paragraph (1) of section 32(b) is amended to read as follows:


------------------------------------------------------------------------
 ``In the case of an eligible individual    The  credit    The  phaseout
                  with:                   percentage is:  percentage is:
------------------------------------------------------------------------
1 qualifying child......................            42.5           15.98
2 qualifying children...................              50           21.06
3 or more qualifying children...........            52.5           21.06
No qualifying children..................              20       15.98.''.
------------------------------------------------------------------------

    (b) Earned Income Amount; Phaseout Amount.--
            (1) In general.--The table contained in subparagraph (A) of 
        section 32(b)(2) is amended to read as follows:


------------------------------------------------------------------------
                                            The  earned
 ``In the case of an eligible individual  income  amount   The  phaseout
                  with:                         is:         amount is:
------------------------------------------------------------------------
1 qualifying child......................         $10,180         $18,660
2 or more qualifying children...........         $14,290         $18,660
No qualifying children..................         $10,180     $11,380.''.
------------------------------------------------------------------------

            (2) Joint filers.--Subparagraph (B) of section 32(b)(2) is 
        amended by striking ``$5,000'' and inserting ``$5,690''.
            (3) Adjustment for inflation.--Paragraph (1) of section 
        32(j) is amended--
                    (A) by striking ``after 2015'' and inserting 
                ``after 2018'';
                    (B) by striking ``subsections (b)(2)(A) and'' in 
                subparagraph (B)(i) and inserting ``subsection'';
                    (C) by striking ``the $5,000 amount in subsection 
                (b)(2)(B)'' in subparagraph (B)(ii) and inserting 
                ``amounts in subsection (b)(2)''; and
                    (D) by striking ``calendar year 2008'' in 
                subparagraph (B)(ii) and inserting ``calendar year 
                2017''.
    (c) Age of Eligible Individual.--Clause (ii) of section 32(c)(1)(A) 
is amended--
            (1) by striking ``age 25'' in subclause (II) and inserting 
        ``age 19'';
            (2) by striking ``age 65'' in subclause (II) and inserting 
        ``age 68'';
            (3) by striking ``and'' at the end of subclause (II);
            (4) by striking the period at the end of subclause (III) 
        and inserting ``, and''; and
            (5) by adding at the end the following new subclause:
                                    ``(IV) in the case of an individual 
                                who has not attained age 25 before the 
                                close of the taxable year, such 
                                individual is not a student (as defined 
                                in section 152(f)(2)).''.
    (d) Advance Payment of Earned Income Credit.--
            (1) In general.--Chapter 25 of subtitle C is amended by 
        inserting after section 3506 the following new section:

``SEC. 3507. ADVANCE PAYMENT OF EARNED INCOME CREDIT.

    ``(a) Advance Payment.--
            ``(1) In general.--An employer making payment of wages to 
        an employee with respect to whom an eligibility certificate is 
        in effect shall, at the time of paying such wages for the 
        payroll period elected by the employee under paragraph (2), 
        make an additional lump sum payment to such employee equal to 
        the earned income advance amount (except as provided in 
        subsection (b)(1)(C)(ii)) of such employee.
            ``(2) Payments available after 6 months of employment 
        during calendar year.--For purposes of paragraph (1), an 
        employee with respect to whom an eligibility certificate is in 
        effect for the calendar year may elect to receive the earned 
        income advance amount at the same time as wages for any payroll 
        period which begins after the employee has been paid wages by 
        the employer for a period of not less than 6 months during such 
        calendar year.
    ``(b) Eligibility Certificate.--
            ``(1) In general.--For purposes of this section, an 
        eligibility certificate is a statement submitted by an employee 
        to the employer which--
                    ``(A) certifies that the employee is eligible to 
                receive the credit provided by section 32 for the 
                taxable year,
                    ``(B) certifies that the employee does not have an 
                eligibility certificate in effect for the calendar year 
                with respect to the payment of wages by another 
                employer, and
                    ``(C) certifies that--
                            ``(i) an eligibility certificate has not 
                        been in effect for the spouse of the employee 
                        on any date during the calendar year, or
                            ``(ii) such a certificate is in effect for 
                        the spouse of the employee, and the employee is 
                        eligible to receive only \1/2\ the earned 
                        income advance amount otherwise determined with 
                        respect to the employee.
            ``(2) Employer not responsible for verification.--For 
        purposes of this section, an employer shall not--
                    ``(A) be required to verify any certification made 
                by an employee in the statement described in paragraph 
                (1), or
                    ``(B) be held liable for any false claims or 
                statements made by an employee in regards to such 
                statement.
    ``(c) Earned Income Advance Amount.--
            ``(1) Determination of amount.--
                    ``(A) In general.--Subject to subparagraph (B), the 
                term `earned income advance amount' means, with respect 
                to any payroll period, the amount of the credit 
                provided under section 32 as determined--
                            ``(i) on the basis of the wages of the 
                        employee from the employer during such calendar 
                        year through such payroll period, and
                            ``(ii) in accordance with tables issued by 
                        the Secretary.
                    ``(B) Limitation.--For each calendar year, except 
                as provided in subparagraph (C), the earned income 
                advance amount shall not exceed $500.
                    ``(C) Adjustment for inflation.--
                            ``(i) In general.--In the case of any 
                        taxable year beginning after 2019, the $500 
                        amount in subparagraph (B) shall be increased 
                        by an amount equal to--
                                    ``(I) such dollar amount, 
                                multiplied by
                                    ``(II) the cost-of-living 
                                adjustment determined under section 
                                1(f)(3) for the calendar year in which 
                                the taxable year begins determined by 
                                substituting `calendar year 2018' for 
                                `calendar year 2016' in subparagraph 
                                (A)(ii) thereof.
                            ``(ii) Rounding.--If any increase 
                        determined under paragraph (1) is not a 
                        multiple of $10, such increase shall be rounded 
                        to the nearest multiple of $10.
            ``(2) Armed forces.--In the case of an employee who is a 
        member of the Armed Forces of the United States, the earned 
        income advance amount shall be determined by taking into 
        account the total wages of such employee, as determined for 
        purposes of section 32.
            ``(3) Advance amount tables.--For purposes of paragraph 
        (1)(A)(ii), the tables issued by the Secretary shall be similar 
        in form to the tables issued under section 3402 and, to the 
        extent feasible, coordinated with such tables.
    ``(d) Payments To Be Treated as Payments of Withholding and FICA 
Taxes.--
            ``(1) In general.--Payments made by an employer under 
        subsection (a) to an employee--
                    ``(A) shall not be treated as payment of 
                compensation, and
                    ``(B) shall be treated as made out of--
                            ``(i) amounts required to be deducted and 
                        withheld for the payroll period under section 
                        3401,
                            ``(ii) amounts required to be deducted for 
                        the payroll period under section 3102, and
                            ``(iii) amounts of the taxes imposed for 
                        the payroll period under section 3111,
                as if the employer had paid to the Secretary, on the 
                day on which the wages are paid to the employee, an 
                amount equal to such payments.
            ``(2) Advance payments exceed taxes due.--In the case of 
        any employer, if for any payroll period the aggregate amount of 
        earned income advance payments exceeds the sum of the amounts 
        referred to in paragraph (1)(B), the employer shall pay only so 
        much of such earned income advance payment as does not exceed 
        such sum, and shall not make any further advance payments to 
        the employee for the calendar year.
            ``(3) Failure to make advance payments.--Failure to make 
        any payment of an earned income advance amount as required 
        under this section shall be treated as the failure at such time 
        to deduct and withhold under chapter 24 an amount equal to the 
        earned income advance amount.
    ``(e) Submission of Certificate.--
            ``(1) Effective period.--An eligibility certificate 
        submitted to an employer at any time during the calendar year 
        shall continue in effect with respect to the employee during 
        such calendar year until revoked by the employee or until 
        another such certificate takes effect under this section.
            ``(2) Requirement to revoke certificate.--In the case of an 
        employee who has submitted an eligibility certificate under 
        this section and subsequently becomes ineligible for the credit 
        provided under section 32 for the taxable year, the employee 
        shall, not later than 10 days after becoming ineligible for 
        such credit, submit to the employer a revocation of such 
        certificate.
            ``(3) Form and contents of certificate.--Eligibility 
        certificates shall be in such form and contain such other 
        information as the Secretary may by regulations prescribe.
    ``(f) Taxpayers Making Prior Fraudulent or Reckless Claims.--
            ``(1) In general.--No earned income advance amount shall be 
        paid under this section for any taxable year in the 
        disallowance period.
            ``(2) Disallowance period.--For purposes of paragraph (1), 
        the disallowance period is--
                    ``(A) the period of 10 taxable years after the most 
                recent taxable year for which there was a final 
                determination that the taxpayer's claim of an earned 
                income advance amount under this section was due to 
                fraud, and
                    ``(B) the period of 2 taxable years after the most 
                recent taxable year for which there was a final 
                determination that the taxpayer's claim of an earned 
                income advance amount under this section was due to 
                reckless or intentional disregard of rules and 
                regulations (but not due to fraud).
    ``(g) Taxable Year.--The term `taxable year' means the last taxable 
year of the employee under subtitle A beginning in the calendar year in 
which the wages are paid.
    ``(h) IRS Notification.--The Internal Revenue Service shall take 
such steps as may be appropriate to ensure that taxpayers who receive a 
refund of the credit under section 32 are aware of the availability of 
earned income advance amounts under this section.''.
            (2) Coordination with advance payments.--Section 32 is 
        amended by inserting after subsection (f) the following new 
        subsection:
    ``(g) Coordination With Advance Payments of Earned Income Credit.--
            ``(1) Recapture of advance payments.--If any payment is 
        made to the individual by an employer under section 3507 during 
        any calendar year, then the tax imposed by this chapter for the 
        individual's last taxable year beginning in such calendar year 
        shall be increased by the aggregate amount of such payments.
            ``(2) Reconciliation of payments advanced and credit 
        allowed.--Any increase in tax under paragraph (1) shall not be 
        treated as tax imposed by this chapter for purposes of 
        determining the amount of any credit (other than the credit 
        allowed by subsection (a)) allowable under this part.''.
            (3) Filing requirement.--Section 6012(a) is amended--
                    (A) in paragraph (7), by striking ``and'' at the 
                end;
                    (B) in paragraph (8), by adding ``and'' at the end; 
                and
                    (C) by inserting after paragraph (8) the following 
                new paragraph:
            ``(9) every individual who receives payments during the 
        calendar year in which the taxable year begins under section 
        3507.''.
            (4) Receipts for employees.--Section 6051(a) is amended by 
        inserting after paragraph (6) the following new paragraph:
            ``(7) the total amount paid to the employee under section 
        3507 (relating to advance payment of earned income credit),''.
            (5) Clerical amendment.--The table of sections for chapter 
        25 of subtitle C is amended by inserting after the item 
        relating to section 3506 the following new item:

``Sec. 3507. Advance payment of earned income credit.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2018.

SEC. 3. PERMANENT EXPANSION AND MODIFICATION OF CHILD TAX CREDIT.

    (a) Permanence of Certain Special Rules.--
            (1) Credit amount.--Subsection (a) of section 24 is amended 
        by striking ``$1,000'' and inserting ``$2,000''.
            (2) Threshold amount.--Paragraph (2) of section 24(b) is 
        amended--
                    (A) by striking ``$110,000'' in subparagraph (A) 
                and inserting ``$200,000'';
                    (B) by striking ``$75,000'' in subparagraph (B) and 
                inserting ``$150,000''; and
                    (C) by striking ``$55,000'' in subparagraph (C) and 
                inserting ``$100,000''.
            (3) Partial credit allowed for certain other dependents; 
        elimination of maximum amount of refundable credit.--Subsection 
        (h) of section 24 is amended--
                    (A) by striking paragraphs (1), (2), (3), (5), and 
                (6) and by redesignating paragraphs (4) and (7) as 
                paragraphs (1) and (2), respectively;
                    (B) by striking ``(after the application of 
                paragraph (2))'' in subparagraph (A) of paragraph (1), 
                as so redesignated;
                    (C) by striking ``paragraph (7)'' in subparagraph 
                (C) of paragraph (1), as so redesignated, and inserting 
                ``paragraph (2)'';
                    (D) by inserting ``for a taxable year beginning 
                after December 31, 2017, and before January 1, 2026,'' 
                after ``under this section'' in paragraph (2), as so 
                redesignated; and
                    (E) by striking ``for Taxable Years 2018 Through 
                2025'' in the heading.
    (b) Increase in Credit for Young Children.--Subsection (a) of 
section 24, as amended by subsection (a)(1), is amended by striking 
``$2,000'' and inserting ``$2,000 ($3,000 in the case of a qualifying 
child who has not attained age 6)''.
    (c) Adjustment for Inflation.--Section 24 is amended by 
redesignating subsection (h), as amended by subsection (a)(3) of this 
section, as subsection (i) and by inserting after subsection (g) the 
following new subsection:
    ``(h) Adjustment for Inflation.--
            ``(1) In general.--In the case of any taxable year 
        beginning after 2019, each of the dollar amounts in subsection 
        (a) shall be increased by an amount equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) the cost-of-living adjustment determined 
                under section 1(f)(3) for the calendar year in which 
                the taxable year begins, determined by substituting 
                `calendar year 2018' for `calendar year 2016' in 
                subparagraph (A)(ii) thereof.
            ``(2) Rounding.--If any amount as adjusted under paragraph 
        (1) is not a multiple of $50, such amount shall be rounded to 
        the next lowest multiple of $50.''.
    (d) Modification of Qualifying Child Definition.--Paragraph (1) of 
section 24(c) is amended by inserting ``, determined without regard to 
paragraph (1)(D) thereof'' after ``section 152(c)''.
    (e) Treatment as Fully Refundable.--
            (1) Credit moved to subpart relating to refundable 
        credits.--
                    (A) In general.--The Internal Revenue Code of 1986 
                is amended--
                            (i) by redesignating section 24, as amended 
                        by this section, as section 36C; and
                            (ii) by moving such section, as so 
                        redesignated, from subpart A of part IV of 
                        subchapter A of chapter 1 to the location 
                        immediately after section 36B in subpart C of 
                        part IV of subchapter A of chapter 1.
                    (B) Technical amendments.--
                            (i) Subsection (a) of section 36C, as moved 
                        and redesignated by subparagraph (A), is 
                        amended by striking ``this chapter'' and 
                        inserting ``this subtitle''.
                            (ii) Section 36C, as so moved and 
                        redesignated, is amended--
                                    (I) by striking subsection (d); and
                                    (II) by redesignating subsection 
                                (i) as subsection (d), and by moving 
                                such subsection to the location 
                                immediately after subsection (c).
                    (C) Partial credit for other dependents 
                nonrefundable.--Paragraph (1) of subsection (d) of 
                section 36C, as moved and redesignated by subparagraph 
                (B)(ii), is amended by adding at the end the following 
                new subparagraph:
                    ``(D) Portion of credit nonrefundable.--The amount 
                of the credit allowed under this paragraph--
                            ``(i) shall not be treated as a credit 
                        allowed under this subpart, and
                            ``(ii) shall not be taken into account in 
                        determining the amount of the credit under this 
                        section for purposes of section 7527A.''.
                    (D) Clerical amendments.--
                            (i) The table of sections for subpart A of 
                        part IV of subchapter A of chapter 1 is amended 
                        by striking the item relating to section 24.
                            (ii) The table of sections for subpart C of 
                        part IV of subchapter A of chapter 1 is amended 
                        by adding at the end the following new item:

``Sec. 36C. Child tax credit.''.
            (2) Advance payment of credit.--
                    (A) In general.--Section 36C, as amended by the 
                preceding provisions of this section, is amended by 
                adding at the end the following new subsection:
    ``(i) Reconciliation of Credit and Advance Credit.--
            ``(1) In general.--The amount of the credit allowed under 
        this section for any taxable year shall be reduced (but not 
        below zero) by the aggregate amount of any advance payments of 
        such credit under section 7527A for such taxable year.
            ``(2) Excess advance payments.--If the aggregate amount of 
        advance payments under section 7527A for the taxable year 
        exceed the amount of the credit allowed under this section for 
        such taxable year (determined without regard to paragraph (1)), 
        the tax imposed by this chapter for such taxable year shall be 
        increased by the amount of such excess.''.
                    (B) Advance payment.--Chapter 77 is amended by 
                inserting after section 7527 the following new section:

``SEC. 7527A. ADVANCE PAYMENT OF CHILD TAX CREDIT.

    ``(a) In General.--As soon as practicable and not later than 1 year 
after the date of the enactment of this section, the Secretary shall 
establish a program for making advance payments of the credit allowed 
under section 36C (determined without regard to subsection (i)(1) of 
such section) on a monthly basis, or as frequently as the Secretary 
determines to be administratively feasible, to taxpayers allowed such 
credit.
    ``(b) Limitation.--
            ``(1) In general.--The Secretary may make payments under 
        subsection (a) only to the extent that the total amount of such 
        payments made to any taxpayer during the taxable year does not 
        exceed an amount equal to the excess, if any, of--
                    ``(A) subject to paragraph (2), the amount 
                determined under section 36C with respect to such 
                taxpayer (determined without regard to subsection (i) 
                of such section) for such taxable year, over
                    ``(B) the estimated tax imposed by subtitle A, as 
                reduced by the credits allowable under subparts A and C 
                (with the exception of section 36C) of such part IV, 
                with respect to such taxpayer for such taxable year, as 
                determined in such manner as the Secretary deems 
                appropriate.
            ``(2) Application of threshold amount limitation.--The 
        program described in subsection (a) shall make reasonable 
        efforts to apply the limitation of section 36C(b) with respect 
        to payments made under such program.''.
                    (C) Clerical amendment.--The table of sections for 
                chapter 77 is amended by inserting after the item 
                relating to section 7527 the following new item:

``Sec. 7527A. Advance payment of child tax credit.''.
            (3) Conforming amendments.--
                    (A) Subparagraph (B) of section 45R(f)(3) is 
                amended to read as follows:
                    ``(B) Special rule.--Any amounts paid pursuant to 
                an agreement under section 3121(l) (relating to 
                agreements entered into by American employers with 
                respect to foreign affiliates) which are equivalent to 
                the taxes referred to in subparagraph (A) shall be 
                treated as taxes referred to in such subparagraph.''.
                    (B) Section 152(f)(6)(B)(ii) is amended by striking 
                ``section 24'' and inserting ``section 36C''.
                    (C) Paragraph (26) of section 501(c) is amended in 
                the flush matter at the end by striking ``section 
                24(c))'' and inserting ``section 36C(c))''.
                    (D) Section 6211(b)(4)(A) is amended--
                            (i) by striking ``24(d),''; and
                            (ii) by striking ``and 36B, 168(k)(4)'' and 
                        inserting ``36B, and 36C''.
                    (E) Section 6213(g)(2) is amended--
                            (i) in subparagraph (I), by striking 
                        ``section 24(e)'' and inserting ``section 
                        36C(e)'';
                            (ii) in subparagraph (L), by striking ``24, 
                        or 32'' and inserting ``32, or 36C''; and
                            (iii) in subparagraph (P)--
                                    (I) by striking ``24(g)(2)'' and 
                                inserting ``36C(g)(2)''; and
                                    (II) by striking ``section 24'' and 
                                inserting ``section 36C''.
                    (F) Section 6402(m) is amended by striking 
                ``section 24 (by reason of subsection (d) thereof) or 
                32'' and inserting ``section 32 or 36C''.
                    (G) Section 6695(g)(2) is amended by striking ``24, 
                25A(a)(1), or 32'' and inserting ``25A(a)(1), 32, or 
                36C''.
                    (H) Paragraph (2) of section 1324(b) of title 31, 
                United States Code, is amended by inserting ``, 
                36C(a)'' after ``36B''.
                    (I) Section 1613(a)(11) of the Social Security Act 
                (42 U.S.C. 1382b(a)(11)) is amended by striking 
                ``section 24 of the Internal Revenue Code of 1986 
                (relating to child tax credit) by reason of subsection 
                (d) thereof'' and inserting ``section 36C of the 
                Internal Revenue Code of 1986 (relating to child tax 
                credit), and any payment made to such individual (or 
                such spouse) under section 7527A of such Code (relating 
                to advance payment of child tax credit)''.
    (f) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2018.

SEC. 4. EARNED INCOME CREDIT EXPANSION FOR PUERTO RICO.

    (a) In General.--Subsequent to an amendment of the Puerto Rico 
Internal Revenue Code of 2011 expanding the earned income credit added 
by Act 257 in a similar manner as the amendments made by section 2 of 
this Act, the Secretary of the Treasury shall make annual payments to 
Puerto Rico in the amount determined under subsection (b). Such 
payments shall be made within a reasonable period of time before the 
due date for the income tax in Puerto Rico each year, and shall be made 
only if Puerto Rico provides to the Secretary of the Treasury--
            (1) an estimate, certified by the Financial Oversight and 
        Management Board for Puerto Rico, of the cost of such expansion 
        in the first year; and
            (2) annually thereafter, a report of the actual cost of 
        such expansion in the preceding year and an estimate, certified 
        by such Board, of the cost of such expansion in the year of the 
        report.
    (b) Amount Determined.--For purposes of subsection (a), the amount 
determined with respect to any year is so much of the estimated cost 
(as reported under subsection (a)) of the expansion of the earned 
income credit in Puerto Rico for such year as does not exceed 
$204,000,000, as applicable--
            (1) reduced by the excess, if any, of--
                    (A) the amount of the payments made to Puerto Rico 
                under this section for the preceding year; over
                    (B) the actual cost (as reported under subsection 
                (a)) of the expansion of the earned income credit in 
                Puerto Rico for such preceding year; or
            (2) increased by the excess, if any, of the amount 
        described in paragraph (1)(B) over the amount described in 
        paragraph (1)(A).
    (c) Cost of Expansion.--For purposes of this section, the cost of 
expanding the earned income credit in Puerto Rico as described in 
subsection (a) shall include only the cost of the amendments made as 
described in such subsection, and shall not include the cost of laws in 
effect as of the date of the enactment of this Act.
    (d) Reporting Requirements.--The Treasury of Puerto Rico shall 
submit to the Secretary of the Treasury an annual report on the earned 
income credit of Puerto Rico, including the number of beneficiaries, 
average benefits for different households, participation rates for 
eligible populations, error rates and other compliance matters, and the 
effects of the credit on labor force participation and poverty 
reduction.
    (e) Outreach Grant.--In addition to the payments under subsection 
(a), the Secretary of the Treasury shall make a one-time grant in the 
amount of $5,000,000 to Puerto Rico for the purpose of taxpayer 
education efforts relating to the earned income credit, including 
education of paid preparers.
    (f) Appropriations.--Such sums as are necessary, not to exceed--
            (1) $209,000,000 in the first year after enactment of the 
        amendment described in subsection (a); and
            (2) except as provided in subsection (g), $204,000,000 in 
        each year thereafter (as long as Puerto Rico maintains an 
        earned income credit as described in subsection (a)),
are hereby appropriated to the Secretary of the Treasury to carry out 
the purposes of this section.
    (g) Adjustment for Inflation.--
            (1) In general.--For each calendar year beginning after the 
        year described in subsection (f)(1), the $204,000,000 amount 
        under subsections (b) and (f)(2) shall be increased by an 
        amount equal to--
                    (A) such dollar amount; multiplied by
                    (B) the cost-of-living adjustment determined under 
                section 1(f)(3) of the Internal Revenue Code of 1986, 
                determined by substituting the calendar year preceding 
                the year described in subsection (f)(1) for calendar 
                year 2016 in subparagraph (A)(ii) thereof.
            (2) Rounding.--If any amount adjusted under paragraph (1) 
        is not a multiple of $500, such amount shall be rounded to the 
        next lowest multiple of $500.

SEC. 5. REGULATION OF TAX RETURN PREPARERS.

    (a) In General.--Subsection (a) of section 330 of title 31, United 
States Code, is amended--
            (1) by striking paragraph (1) and inserting the following:
            ``(1) regulate--
                    ``(A) the practice of representatives of persons 
                before the Department of the Treasury; and
                    ``(B) the practice of tax return preparers; and''; 
                and
            (2) in paragraph (2)--
                    (A) by inserting ``or a tax return preparer to 
                prepare tax returns'' after ``practice'';
                    (B) by inserting ``or tax return preparer'' before 
                ``demonstrate''; and
                    (C) by inserting ``or in preparing their tax 
                returns, claims for refund, or documents in connection 
                with tax returns or claims for refund'' after ``cases'' 
                in subparagraph (D).
    (b) Authority To Sanction Regulated Tax Return Preparers.--
Subsection (c) of section 330 of title 31, United States Code, is 
amended--
            (1) by striking ``before the Department'';
            (2) by inserting ``or tax return preparer'' after 
        ``representative'' each place it appears; and
            (3) in paragraph (4), by striking ``misleads or threatens'' 
        and all that follows and inserting ``misleads or threatens--
                    ``(A) any person being represented or any 
                prospective person being represented; or
                    ``(B) any person or prospective person whose tax 
                return, claim for refund, or document in connection 
                with a tax return or claim for refund, is being or may 
                be prepared.''.
    (c) Minimum Competency Standards for Tax Return Preparers.--Section 
330 of title 31, United States Code, is amended by adding at the end 
the following new subsection:
    ``(f) Tax Return Preparers.--
            ``(1) In general.--Any tax return preparer shall 
        demonstrate minimum competency standards under this subsection 
        by--
                    ``(A) obtaining an identifying number for securing 
                proper identification of such preparer as described in 
                section 6109(a)(4) of the Internal Revenue Code of 
                1986;
                    ``(B) satisfying any examination and annual 
                continuing education requirements as prescribed by the 
                Secretary; and
                    ``(C) completing a background check administered by 
                the Secretary.
            ``(2) Exemption.--The Secretary shall exempt tax return 
        preparers who have been subject to comparable examination, 
        continuing education requirements, and background checks 
        administered by the Secretary or any comparable State licensing 
        program. Such exemption shall extend directly to individuals 
        who are supervised by such preparers and are not required to 
        secure an identification number under section 6109(a)(4).''.
    (d) Tax Return Preparer Defined.--Section 330 of title 31, United 
States Code, as amended by subsection (c), is amended by adding at the 
end the following new subsection:
    ``(g) Tax Return Preparer.--For purposes of this section--
            ``(1) In general.--The term `tax return preparer' has the 
        meaning given such term under section 7701(a)(36) of the 
        Internal Revenue Code of 1986.
            ``(2) Tax return.--The term `tax return' has the meaning 
        given to the term `return' under section 6696(e)(1) of the 
        Internal Revenue Code of 1986.
            ``(3) Claim for refund.--The term `claim for refund' has 
        the meaning given such term under section 6696(e)(2) of such 
        Code.''.
    (e) Amendments With Respect to Identifying Number.--
            (1) In general.--Section 6109(a) is amended by striking 
        paragraph (4) and inserting the following:
            ``(4) Furnishing identifying number of tax return 
        preparer.--
                    ``(A) In general.--Any return or claim for refund 
                prepared by a tax return preparer shall bear such 
                identifying number for securing proper identification 
                of such preparer, his employer, or both, as may be 
                prescribed. For purposes of this paragraph, the terms 
                `return' and `claim for refund' have the respective 
                meanings given to such terms by section 6696(e).
                    ``(B) Exception.--Subparagraph (A) shall not apply 
                to any tax return preparer who prepares a return or 
                claim for refund under the supervision and direction of 
                a tax return preparer who signs the return or claim for 
                refund and is a certified public accountant, an 
                attorney or enrolled agent.''.
            (2) Clarification of rescission authority.--Section 6109 is 
        amended by inserting after subsection (d) the following new 
        subsection:
    ``(e) Authority To Rescind Identifying Number of Tax Return 
Preparer.--
            ``(1) In general.--The Secretary may rescind an identifying 
        number issued under subsection (a)(4) if--
                    ``(A) after notice and opportunity for a hearing, 
                the preparer is shown to be incompetent or disreputable 
                (as such terms are used in subsection (c) of section 
                330 of title 31, United States Code), and
                    ``(B) rescinding the identifying number would 
                promote compliance with the requirements of this title 
                and effective tax administration.
            ``(2) Records.--If an identifying number is rescinded under 
        paragraph (1), the Secretary shall place in the file in the 
        Office of the Director of Professional Responsibility the 
        opinion of the Secretary with respect to the determination, 
        including--
                    ``(A) a statement of the facts and circumstances 
                relating to the determination, and
                    ``(B) the reasons for the rescission.''.
    (f) GAO Study and Report on the Exchange of Information Between the 
IRS and State Taxation Authorities.--
            (1) In general.--Not later than 18 months after the date of 
        the enactment of this Act, the Comptroller General shall 
        conduct a study and submit to Congress a report on the sharing 
        of information between the Secretary of the Treasury and State 
        authorities, as authorized under section 6103(d) of the 
        Internal Revenue Code of 1986, regarding identification numbers 
        issued to paid tax return preparers and return preparer minimum 
        standards.
            (2) Increased information sharing.--The study and report 
        described in paragraph (1) shall include an analysis of the 
        impact that increased information sharing between Federal and 
        State authorities would have on efforts to enforce minimum 
        standards on paid tax return preparers.
                                 <all>