[Congressional Record Volume 144, Number 53 (Monday, May 4, 1998)]
[Senate]
[Pages S4147-S4197]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




     INTERNAL REVENUE SERVICE RESTRUCTURING AND REFORM ACT OF 1998

  The PRESIDING OFFICER. Under the previous order, the Senate will now 
proceed for debate only to the consideration of H.R. 2676, which the 
clerk will report.
  The legislative clerk read as follows:

       A bill (H.R. 2676) to amend the Internal Revenue Code of 
     1986 to restructure and reform the Internal Revenue Service, 
     and for other purposes.

  The Senate proceeded to consider the bill which had been reported 
from the Committee on Finance, with an amendment to strike all after 
the enacting clause and inserting in lieu thereof the following:

     SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; TABLE OF 
                   CONTENTS.

       (a) Short Title.--This Act may be cited as the ``Internal 
     Revenue Service Restructuring and Reform Act of 1998''.
       (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; amendment of 1986 Code; table of contents.

  TITLE I--REORGANIZATION OF STRUCTURE AND MANAGEMENT OF THE INTERNAL 
                            REVENUE SERVICE

       Subtitle A--Reorganization of the Internal Revenue Service

Sec. 1001. Reorganization of the Internal Revenue Service.
Sec. 1002. IRS mission to focus on taxpayers' needs.

     Subtitle B--Executive Branch Governance and Senior Management

Sec. 1101. Internal Revenue Service Oversight Board.
Sec. 1102. Commissioner of Internal Revenue; other officials.
Sec. 1103. Treasury Inspector General for Tax Administration.
Sec. 1104. Other personnel.
Sec. 1105. Prohibition on executive branch influence over taxpayer 
              audits and other investigations.

                  Subtitle C--Personnel Flexibilities

Sec. 1201. Improvements in personnel flexibilities.
Sec. 1202. Voluntary separation incentive payments.
Sec. 1203. Termination of employment for misconduct.
Sec. 1204. Basis for evaluation of Internal Revenue Service employees.
Sec. 1205. Employee training program.

                      TITLE II--ELECTRONIC FILING

Sec. 2001. Electronic filing of tax and information returns.
Sec. 2002. Due date for certain information returns.
Sec. 2003. Paperless electronic filing.
Sec. 2004. Return-free tax system.
Sec. 2005. Access to account information.

               TITLE III--TAXPAYER PROTECTION AND RIGHTS

Sec. 3000. Short title.

                      Subtitle A--Burden of Proof

Sec. 3001. Burden of proof.

                  Subtitle B--Proceedings by Taxpayers

Sec. 3101. Expansion of authority to award costs and certain fees.
Sec. 3102. Civil damages for collection actions.
Sec. 3103. Increase in size of cases permitted on small case calendar.
Sec. 3104. Expansion of Tax Court jurisdiction to responsible person 
              penalties.
Sec. 3105. Actions for refund with respect to certain estates which 
              have elected the installment method of payment.
Sec. 3106. Tax Court jurisdiction to review adverse IRS determination 
              of tax-exempt status of bond issue.
Sec. 3107. Civil action for release of erroneous lien.

  Subtitle C--Relief for Innocent Spouses and for Taxpayers Unable To 
           Manage Their Financial Affairs Due to Disabilities

Sec. 3201. Spousal election to limit joint and several liability on 
              joint return.
Sec. 3202. Suspension of statute of limitations on filing refund claims 
              during periods of disability.

       Subtitle D--Provisions Relating to Interest and Penalties

Sec. 3301. Elimination of interest rate differential on overlapping 
              periods of interest on income tax overpayments and 
              underpayments.
Sec. 3302. Increase in overpayment rate payable to taxpayers other than 
              corporations.
Sec. 3303. Elimination of penalty on individual's failure to pay for 
              months during period of installment agreement.
Sec. 3304. Mitigation of failure to deposit penalty.
Sec. 3305. Suspension of interest and certain penalties where Secretary 
              fails to contact individual taxpayer.
Sec. 3306. Procedural requirements for imposition of penalties and 
              additions to tax.
Sec. 3307. Personal delivery of notice of penalty under section 6672.
Sec. 3308. Notice of interest charges.

 Subtitle E--Protections for Taxpayers Subject to Audit or Collection 
                               Activities

                          Part I--Due Process

Sec. 3401. Due process in IRS collection actions.

                    Part II--Examination Activities

Sec. 3411. Uniform application of confidentiality privilege to taxpayer 
              communications with federally authorized practitioners.

[[Page S4148]]

Sec. 3412. Limitation on financial status audit techniques.
Sec. 3413. Software trade secrets protection.
Sec. 3414. Threat of audit prohibited to coerce tip reporting 
              alternative commitment agreements.
Sec. 3415. Taxpayers allowed motion to quash all third-party summonses.
Sec. 3416. Service of summonses to third-party recordkeepers permitted 
              by mail.
Sec. 3417. Prohibition on IRS contact of third parties without prior 
              notice.

                    Part III--Collection Activities


                       SUBPART A--APPROVAL PROCESS

Sec. 3421. Approval process for liens, levies, and seizures.


                       SUBPART B--LIENS AND LEVIES

Sec. 3431. Modifications to certain levy exemption amounts.
Sec. 3432. Release of levy upon agreement that amount is uncollectible.
Sec. 3433. Levy prohibited during pendency of refund proceedings.
Sec. 3434. Approval required for jeopardy and termination assessments 
              and jeopardy levies.
Sec. 3435. Increase in amount of certain property on which lien not 
              valid.
Sec. 3436. Waiver of early withdrawal tax for IRS levies on employer-
              sponsored retirement plans or IRAs.


                           SUBPART C--SEIZURES

Sec. 3441. Prohibition of sales of seized property at less than minimum 
              bid.
Sec. 3442. Accounting of sales of seized property.
Sec. 3443. Uniform asset disposal mechanism.
Sec. 3444. Codification of IRS administrative procedures for seizure of 
              taxpayer's property.
Sec. 3445. Procedures for seizure of residences and businesses.

 Part IV--Provisions Relating to Examination and Collection Activities

Sec. 3461. Procedures relating to extensions of statute of limitations 
              by agreement.
Sec. 3462. Offers-in-compromise.
Sec. 3463. Notice of deficiency to specify deadlines for filing Tax 
              Court petition.
Sec. 3464. Refund or credit of overpayments before final determination.
Sec. 3465. IRS procedures relating to appeals of examinations and 
              collections.
Sec. 3466. Application of certain fair debt collection procedures.
Sec. 3467. Guaranteed availability of installment agreements.

                  Subtitle F--Disclosures to Taxpayers

Sec. 3501. Explanation of joint and several liability.
Sec. 3502. Explanation of taxpayers' rights in interviews with the 
              Internal Revenue Service.
Sec. 3503. Disclosure of criteria for examination selection.
Sec. 3504. Explanations of appeals and collection process.
Sec. 3505. Explanation of reason for refund denial.
Sec. 3506. Statements regarding installment agreements.
Sec. 3507. Notification of change in tax matters partner.

                Subtitle G--Low Income Taxpayer Clinics

Sec. 3601. Low income taxpayer clinics.

                       Subtitle H--Other Matters

Sec. 3701. Cataloging complaints.
Sec. 3702. Archive of records of Internal Revenue Service.
Sec. 3703. Payment of taxes.
Sec. 3704. Clarification of authority of Secretary relating to the 
              making of elections.
Sec. 3705. IRS employee contacts.
Sec. 3706. Use of pseudonyms by IRS employees.
Sec. 3707. Conferences of right in the National Office of IRS.
Sec. 3708. Illegal tax protester designation.
Sec. 3709. Provision of confidential information to Congress by 
              whistleblowers.
Sec. 3710. Listing of local IRS telephone numbers and addresses.
Sec. 3711. Identification of return preparers.
Sec. 3712. Offset of past-due, legally enforceable State income tax 
              obligations against overpayments.
Sec. 3713. Treatment of IRS notices on foreign tax provisions.

                          Subtitle I--Studies

Sec. 3801. Administration of penalties and interest.
Sec. 3802. Confidentiality of tax return information.

TITLE IV--CONGRESSIONAL ACCOUNTABILITY FOR THE INTERNAL REVENUE SERVICE

Sec. 4001. Century date change.
Sec. 4002. Tax law complexity analysis.

                      TITLE V--REVENUE PROVISIONS

Sec. 5001. Clarification of deduction for deferred compensation.
Sec. 5002. Modification to foreign tax credit carryback and carryover 
              periods.
Sec. 5003. Clarification and expansion of mathematical error assessment 
              procedures.
Sec. 5004. Termination of exception for certain real estate investment 
              trusts from the treatment of stapled entities.
Sec. 5005. Certain customer receivables ineligible for mark-to-market 
              treatment.
Sec. 5006. Inclusion of rotavirus gastroenteritis to list of taxable 
              vaccines.

                    TITLE VI--TECHNICAL CORRECTIONS

Sec. 6001. Short title.
Sec. 6002. Definitions.
Sec. 6003. Amendments related to title I of 1997 Act.
Sec. 6004. Amendments related to title II of 1997 Act.
Sec. 6005. Amendments related to title III of 1997 Act.
Sec. 6006. Amendment related to title IV of 1997 Act.
Sec. 6007. Amendments related to title V of 1997 Act.
Sec. 6008. Amendments related to title VII of 1997 Act.
Sec. 6009. Amendments related to title IX of 1997 Act.
Sec. 6010. Amendments related to title X of 1997 Act.
Sec. 6011. Amendments related to title XI of 1997 Act.
Sec. 6012. Amendments related to title XII of 1997 Act.
Sec. 6013. Amendments related to title XIII of 1997 Act.
Sec. 6014. Amendments related to title XIV of 1997 Act.
Sec. 6015. Amendments related to title XV of 1997 Act.
Sec. 6016. Amendments related to title XVI of 1997 Act.
Sec. 6017. Amendments related to Small Business Job Protection Act of 
              1996.
Sec. 6018. Amendments related to Taxpayer Bill of Rights 2.
Sec. 6019. Amendment related to Omnibus Budget Reconciliation Act of 
              1993.
Sec. 6020. Amendment related to Revenue Reconciliation Act of 1990.
Sec. 6021. Amendment related to Tax Reform Act of 1986.
Sec. 6022. Miscellaneous clerical and deadwood changes.
Sec. 6023. Effective date.
  TITLE I--REORGANIZATION OF STRUCTURE AND MANAGEMENT OF THE INTERNAL 
                            REVENUE SERVICE
       Subtitle A--Reorganization of the Internal Revenue Service

     SEC. 1001. REORGANIZATION OF THE INTERNAL REVENUE SERVICE.

       (a) In General.--The Commissioner of Internal Revenue shall 
     develop and implement a plan to reorganize the Internal 
     Revenue Service. The plan shall--
       (1) supersede any organization or reorganization of the 
     Internal Revenue Service based on any statute or 
     reorganization plan applicable on the effective date of this 
     section;
       (2) eliminate or substantially modify the existing 
     organization of the Internal Revenue Service which is based 
     on a national, regional, and district structure;
       (3) establish organizational units serving particular 
     groups of taxpayers with similar needs; and
       (4) ensure an independent appeals function within the 
     Internal Revenue Service, including the prohibition in the 
     plan of ex parte communications between appeals officers and 
     other Internal Revenue Service employees to the extent that 
     such communications appear to compromise the independence of 
     the appeals officers.
       (b) Savings Provisions.--
       (1) Preservation of specific tax rights and remedies.--
     Nothing in the plan developed and implemented under 
     subsection (a) shall be considered to impair any right or 
     remedy, including trial by jury, to recover any internal 
     revenue tax alleged to have been erroneously or illegally 
     assessed or collected, or any penalty claimed to have been 
     collected without authority, or any sum alleged to have been 
     excessive or in any manner wrongfully collected under the 
     internal revenue laws. For the purpose of any action to 
     recover any such tax, penalty, or sum, all statutes, rules, 
     and regulations referring to the collector of internal 
     revenue, the principal officer for the internal revenue 
     district, or the Secretary, shall be deemed to refer to the 
     officer whose act or acts referred to in the preceding 
     sentence gave rise to such action. The venue of any such 
     action shall be the same as under existing law.
       (2) Continuing effect of legal documents.--All orders, 
     determinations, rules, regulations, permits, agreements, 
     grants, contracts, certificates, licenses, registrations, 
     privileges, and other administrative actions--
       (A) which have been issued, made, granted, or allowed to 
     become effective by the President, any Federal agency or 
     official thereof, or by a court of competent jurisdiction, in 
     the performance of any function transferred or affected by 
     the reorganization of the Internal Revenue Service or any 
     other administrative unit of the Department of the Treasury 
     under this section, and
       (B) which are in effect at the time this section takes 
     effect, or were final before the effective date of this 
     section and are to become effective on or after the effective 
     date of this section,

     shall continue in effect according to their terms until 
     modified, terminated, superseded, set aside, or revoked in 
     accordance with law by the President, the Secretary of the 
     Treasury, the Commissioner of Internal Revenue, or other 
     authorized official, a court of competent jurisdiction, or by 
     operation of law.
       (3) Proceedings not affected.--The provisions of this 
     section shall not affect any proceedings, including notices 
     of proposed rulemaking, or any application for any license, 
     permit, certificate, or financial assistance pending before 
     the Department of the Treasury (or any administrative unit of 
     the Department, including the Internal Revenue Service) at 
     the time this section takes effect, with respect to functions 
     transferred or affected by the reorganization under this 
     section but such proceedings and applications shall continue. 
     Orders shall be

[[Page S4149]]

     issued in such proceedings, appeals shall be taken therefrom, 
     and payments shall be made pursuant to such orders, as if 
     this section had not been enacted, and orders issued in any 
     such proceedings shall continue in effect until modified, 
     terminated, superseded, or revoked by a duly authorized 
     official, by a court of competent jurisdiction, or by 
     operation of law. Nothing in this paragraph shall be deemed 
     to prohibit the discontinuance or modification of any such 
     proceeding under the same terms and conditions and to the 
     same extent that such proceeding could have been discontinued 
     or modified if this section had not been enacted.
       (4) Suits not affected.--The provisions of this section 
     shall not affect suits commenced before the effective date of 
     this section, and in all such suits, proceedings shall be 
     had, appeals taken, and judgments rendered in the same manner 
     and with the same effect as if this section had not been 
     enacted.
       (5) Nonabatement of actions.--No suit, action, or other 
     proceeding commenced by or against the Department of the 
     Treasury (or any administrative unit of the Department, 
     including the Internal Revenue Service), or by or against any 
     individual in the official capacity of such individual as an 
     officer of the Department of the Treasury, shall abate by 
     reason of the enactment of this section.
       (6) Administrative actions relating to promulgation of 
     regulations.--Any administrative action relating to the 
     preparation or promulgation of a regulation by the Department 
     of the Treasury (or any administrative unit of the 
     Department, including the Internal Revenue Service) relating 
     to a function transferred or affected by the reorganization 
     under this section may be continued by the Department of the 
     Treasury through any appropriate administrative unit of the 
     Department, including the Internal Revenue Service with the 
     same effect as if this section had not been enacted.

     SEC. 1002. IRS MISSION TO FOCUS ON TAXPAYERS' NEEDS.

       The Internal Revenue Service shall review and restate its 
     mission to place a greater emphasis on serving the public and 
     meeting taxpayers' needs.
     Subtitle B--Executive Branch Governance and Senior Management

     SEC. 1101. INTERNAL REVENUE SERVICE OVERSIGHT BOARD.

       (a) In General.--Section 7802 (relating to the Commissioner 
     of Internal Revenue) is amended to read as follows:

     ``SEC. 7802. INTERNAL REVENUE SERVICE OVERSIGHT BOARD.

       ``(a) Establishment.--There is established within the 
     Department of the Treasury the Internal Revenue Service 
     Oversight Board (hereafter in this subchapter referred to as 
     the `Oversight Board').
       ``(b) Membership.--
       ``(1) Composition.--The Oversight Board shall be composed 
     of 9 members, as follows:
       ``(A) 6 members shall be individuals who are not otherwise 
     Federal officers or employees and who are appointed by the 
     President, by and with the advice and consent of the Senate.
       ``(B) 1 member shall be the Secretary of the Treasury or, 
     if the Secretary so designates, the Deputy Secretary of the 
     Treasury.
       ``(C) 1 member shall be the Commissioner of Internal 
     Revenue.
       ``(D) 1 member shall be an individual who is a 
     representative of an organization that represents a 
     substantial number of Internal Revenue Service employees and 
     who is appointed by the President, by and with the advice and 
     consent of the Senate.
       ``(2) Qualifications and terms.--
       ``(A) Qualifications.--Members of the Oversight Board 
     described in paragraph (1)(A) shall be appointed without 
     regard to political affiliation and solely on the basis of 
     their professional experience and expertise in 1 or more of 
     the following areas:
       ``(i) Management of large service organizations.
       ``(ii) Customer service.
       ``(iii) Federal tax laws, including tax administration and 
     compliance.
       ``(iv) Information technology.
       ``(v) Organization development.
       ``(vi) The needs and concerns of taxpayers.

     In the aggregate, the members of the Oversight Board 
     described in paragraph (1)(A) should collectively bring to 
     bear expertise in all of the areas described in the preceding 
     sentence.
       ``(B) Terms.--Each member who is described in subparagraph 
     (A) or (D) of paragraph (1) shall be appointed for a term of 
     5 years, except that of the members first appointed under 
     paragraph (1)(A)--
       ``(i) 2 members shall be appointed for a term of 2 years,
       ``(ii) 2 members shall be appointed for a term of 4 years, 
     and
       ``(iii) 2 members shall be appointed for a term of 5 years.
       ``(C) Reappointment.--An individual who is described in 
     paragraph (1)(A) may be appointed to no more than two 5-year 
     terms on the Oversight Board.
       ``(D) Vacancy.--Any vacancy on the Oversight Board shall be 
     filled in the same manner as the original appointment. Any 
     member appointed to fill a vacancy occurring before the 
     expiration of the term for which the member's predecessor 
     was appointed shall be appointed for the remainder of that 
     term.
       ``(3) Ethical considerations.--
       ``(A) Financial disclosure.--
       ``(i) In general.--During the entire period that an 
     individual appointed under subparagraph (A) or (D) of 
     paragraph (1) is a member of the Oversight Board, such 
     individual shall be treated as serving as an officer or 
     employee referred to in section 101(f) of the Ethics in 
     Government Act of 1978 for purposes of title I of such Act, 
     except that section 101(d) of such Act shall apply without 
     regard to the number of days of service in the position.
       ``(ii) Represented organization.--The organization 
     represented by the individual appointed under paragraph 
     (1)(D) shall file an annual financial report with the 
     Committee on Finance in the Senate and the Committee on Ways 
     and Means in the House of Representatives. Such report shall 
     include information regarding compensation paid to the 
     individual so appointed, other individuals employed by the 
     organization, and membership dues collected by the 
     organization.
       ``(B) Restrictions on post-employment.--For purposes of 
     section 207(c) of title 18, United States Code, except as 
     provided in subparagraph (D)(i)(II), an individual appointed 
     under subparagraph (A) or (D) of paragraph (1) shall be 
     treated as an employee referred to in section 207(c)(2)(A)(i) 
     of such title during the entire period the individual is a 
     member of the Board, except that subsections (c)(2)(B) and 
     (f) of section 207 of such title shall not apply.
       ``(C) Private members who are special government 
     employees.--If an individual appointed under paragraph (1)(A) 
     is a special Government employee, the following additional 
     rules apply for purposes of chapter 11 of title 18, United 
     States Code:
       ``(i) Restriction on representation.--In addition to any 
     restriction under section 205(c) of title 18, United States 
     Code, except as provided in subsections (d) through (i) of 
     section 205 of such title, such individual (except in the 
     proper discharge of official duties) shall not, with or 
     without compensation, represent anyone to or before any 
     officer or employee of--

       ``(I) the Oversight Board or the Internal Revenue Service 
     on any matter,
       ``(II) the Department of the Treasury on any matter 
     involving the internal revenue laws or involving the 
     management or operations of the Internal Revenue Service, or
       ``(III) the Department of Justice with respect to 
     litigation involving a matter described in subclause (I) or 
     (II).

       ``(ii) Compensation for services provided by another.--For 
     purposes of section 203 of such title--

       ``(I) such individual shall not be subject to the 
     restrictions of subsection (a)(1) thereof for sharing in 
     compensation earned by another for representations on matters 
     covered by such section, and
       ``(II) a person shall not be subject to the restrictions of 
     subsection (a)(2) thereof for sharing such compensation with 
     such individual.

       ``(D) Exemptions for member from employee organization.--
       ``(i) Exemption from criminal conflict laws.--An individual 
     appointed under paragraph (1)(D) shall not be subject to--

       ``(I) section 203 or 205 of title 18, United States Code, 
     for acting as an agent or attorney for (or otherwise 
     representing), with or without compensation, the organization 
     described in paragraph (1)(D),
       ``(II) section 207 of such title for making, with the 
     intent to influence, any communication or appearance before 
     an officer or employee of the United States on behalf of the 
     organization which such individual represented while a member 
     of the Board, or

       ``(III) section 208 of such title for personal and 
     substantial participation in a particular matter in which all 
     financial interests which would otherwise prohibit the 
     individual's participation are interests of such 
     organization.

       ``(ii) Compensation.--Nothing in section 203 of title 18, 
     United States Code, shall prohibit an organization 
     represented by the individual appointed under paragraph 
     (1)(D) from giving, promising, or offering compensation to 
     the individual for acting as its agent or attorney or for 
     otherwise representing such organization.
       ``(4) Quorum.--5 members of the Oversight Board shall 
     constitute a quorum. A majority of members present and voting 
     shall be required for the Oversight Board to take action.
       ``(5) Removal.--
       ``(A) In general.--Any member of the Oversight Board 
     appointed under paragraph (1) (A) or (D) may be removed at 
     the will of the President.
       ``(B) Secretary and commissioner.--An individual described 
     in subparagraph (B) or (C) of paragraph (1) shall be removed 
     upon termination of service in the office described in such 
     subparagraph.
       ``(6) Claims.--
       ``(A) In general.--Members of the Oversight Board who are 
     described in paragraph (1) (A) or (D) shall have no personal 
     liability under Federal law with respect to any claim arising 
     out of or resulting from an act or omission by such member 
     within the scope of service as a member.
       ``(B) Effect on other law.--This paragraph shall not be 
     construed--
       ``(i) to affect any other immunities and protections that 
     may be available to such member under applicable law with 
     respect to such transactions,
       ``(ii) to affect any other right or remedy against the 
     United States under applicable law, or
       ``(iii) to limit or alter in any way the immunities that 
     are available under applicable law for Federal officers and 
     employees.
       ``(c) General Responsibilities.--
       ``(1) Oversight.--
       ``(A) In general.--The Oversight Board shall oversee the 
     Internal Revenue Service in its administration, management, 
     conduct, direction, and supervision of the execution and 
     application of the internal revenue laws or related statutes 
     and tax conventions to which the United States is a party.
       ``(B) Mission of irs.--As part of its oversight functions 
     described in subparagraph (A), the Oversight Board shall 
     ensure that the organization and operation of the Internal 
     Revenue Service allows it to carry out its mission.

[[Page S4150]]

       ``(C) Confidentiality.--The Oversight Board shall ensure 
     that appropriate confidentiality is maintained in the 
     exercise of its duties.
       ``(2) Exceptions.--The Oversight Board shall have no 
     responsibilities or authority with respect to--
       ``(A) the development and formulation of Federal tax policy 
     relating to existing or proposed internal revenue laws, 
     related statutes, and tax conventions,
       ``(B) specific law enforcement activities of the Internal 
     Revenue Service, including specific compliance activities 
     such as examinations, collection activities, and criminal 
     investigations,
       ``(C) specific procurement activities of the Internal 
     Revenue Service, or
       ``(D) except as provided in subsection (d)(3), specific 
     personnel actions.
       ``(d) Specific Responsibilities.--The Oversight Board shall 
     have the following specific responsibilities:
       ``(1) Strategic plans.--To review and approve strategic 
     plans of the Internal Revenue Service, including the 
     establishment of--
       ``(A) mission and objectives, and standards of performance 
     relative to either, and
       ``(B) annual and long-range strategic plans.
       ``(2) Operational plans.--To review the operational 
     functions of the Internal Revenue Service, including--
       ``(A) plans for modernization of the tax system,
       ``(B) plans for outsourcing or managed competition, and
       ``(C) plans for training and education.
       ``(3) Management.--To--
       ``(A) recommend to the President candidates for appointment 
     as the Commissioner of Internal Revenue and recommend to the 
     President the removal of the Commissioner,
       ``(B) recommend to the Secretary of the Treasury, after 
     taking into consideration any recommendations of the 
     Commissioner, 3 candidates for appointment as the National 
     Taxpayer Advocate from individuals who have--
       ``(i) a background in customer service as well as tax law, 
     and
       ``(ii) experience in representing individual taxpayers,
       ``(C) recommend to the Secretary of the Treasury the 
     removal of the National Taxpayer Advocate,
       ``(D) review the Commissioner's selection, evaluation, and 
     compensation of Internal Revenue Service senior executives 
     who have program management responsibility over significant 
     functions of the Internal Revenue Service,
       ``(E) review and approve the Commissioner's plans for any 
     major reorganization of the Internal Revenue Service, and
       ``(F) review procedures of the Internal Revenue Service 
     relating to financial audits required by law.
       ``(4) Budget.--To--
       ``(A) review and approve the budget request of the Internal 
     Revenue Service prepared by the Commissioner,
       ``(B) submit such budget request to the Secretary of the 
     Treasury, and
       ``(C) ensure that the budget request supports the annual 
     and long-range strategic plans.
       ``(5) Taxpayer protection.--To ensure the proper treatment 
     of taxpayers by the employees of the Internal Revenue 
     Service.

     The Secretary shall submit the budget request referred to in 
     paragraph (4)(B) for any fiscal year to the President who 
     shall submit such request, without revision, to Congress 
     together with the President's annual budget request for the 
     Internal Revenue Service for such fiscal year.
       ``(e) Board Personnel Matters.--
       ``(1) Compensation of members.--
       ``(A) In general.--Each member of the Oversight Board who 
     is described in subsection (b)(1)(A) shall be compensated at 
     a rate of $30,000 per year. All other members shall serve 
     without compensation for such service.
       ``(B) Chairperson.--In lieu of the amount specified in 
     subparagraph (A), the Chairperson of the Oversight Board 
     shall be compensated at a rate of $50,000 per year.
       ``(2) Travel expenses.--The members of the Oversight Board 
     shall be allowed travel expenses, including per diem in lieu 
     of subsistence, at rates authorized for employees of agencies 
     under subchapter I of chapter 57 of title 5, United States 
     Code, while away from their homes or regular places of 
     business for purposes of duties as a member of the Oversight 
     Board.
       ``(3) Staff.--
       ``(A) In general.--The Chairperson of the Oversight Board 
     may appoint and terminate any personnel that may be necessary 
     to enable the Board to perform its duties.
       ``(B) Detail of government employees.--Upon request of the 
     Chairperson of the Oversight Board, a Federal agency shall 
     detail a Federal Government employee to the Oversight Board 
     without reimbursement. Such detail shall be without 
     interruption or loss of civil service status or privilege.
       ``(4) Procurement of temporary and intermittent services.--
     The Chairperson of the Oversight Board may procure temporary 
     and intermittent services under section 3109(b) of title 5, 
     United States Code.
       ``(f) Administrative Matters.--
       ``(1) Chair.--
       ``(A) Term.--The members of the Oversight Board shall elect 
     for a 2-year term a chairperson from among the members 
     appointed under subsection (b)(1)(A).
       ``(B) Powers.--Except as otherwise provided by a majority 
     vote of the Oversight Board, the powers of the Chairperson 
     shall include--
       ``(i) establishing committees,
       ``(ii) setting meeting places and times,
       ``(iii) establishing meeting agendas, and
       ``(iv) developing rules for the conduct of business.
       ``(2) Meetings.--The Oversight Board shall meet at least 
     quarterly and at such other times as the Chairperson 
     determines appropriate.
       ``(3) Reports.--
       ``(A) Annual.--The Oversight Board shall each year report 
     with respect to the conduct of its responsibilities under 
     this title to the President, the Committees on Ways and 
     Means, Government Reform and Oversight, and Appropriations of 
     the House of Representatives and the Committees on Finance, 
     Governmental Affairs, and Appropriations of the Senate.
       ``(B) Additional report.--Upon a determination by the 
     Oversight Board under subsection (c)(1)(B) that the 
     organization and operation of the Internal Revenue Service 
     are not allowing it to carry out its mission, the Oversight 
     Board shall report such determination to the Committee on 
     Ways and Means of the House of Representatives, and the 
     Committee on Finance of the Senate.
       ``(g) Termination of Board.--The Internal Revenue Service 
     Oversight Board established under subsection (a) shall 
     terminate on September 30, 2008.''
       (b) Restriction on Disclosure of Return Information to 
     Oversight Board Members.--Section 6103(h) (relating to 
     disclosure to certain Federal officers and employees for 
     purposes of tax administration, etc.) is amended by adding at 
     the end the following new paragraph:
       ``(5) Internal revenue service oversight board.--
       ``(A) In general.--Notwithstanding paragraph (1), and 
     except as provided in subparagraph (B), no return or return 
     information may be disclosed to any member of the Oversight 
     Board described in subparagraph (A) or (D) of section 
     7802(b)(1) or to any employee or detailee of such Board by 
     reason of their service with the Board. Any request for 
     information not permitted to be disclosed under the preceding 
     sentence, and any contact relating to a specific taxpayer, 
     made by any such individual to an officer or employee of the 
     Internal Revenue Service shall be reported by such officer or 
     employee to the Secretary, the Treasury Inspector General for 
     Tax Administration, and the Joint Committee on Taxation.
       ``(B) Exception for reports to the board.--If--
       ``(i) the Commissioner or the Treasury Inspector General 
     for Tax Administration prepares any report or other matter 
     for the Oversight Board in order to assist the Board in 
     carrying out its duties, and
       ``(ii) the Commissioner or such Inspector General 
     determines it is necessary to include any return or return 
     information in such report or other matter to enable the 
     Board to carry out such duties,
     such return or return information (other than information 
     regarding taxpayer identity) may be disclosed to members, 
     employees, or detailees of the Board solely for the purpose 
     of carrying out such duties.''

       (c) Conforming Amendments.--
       (1) Section 4946(c) (relating to definitions and special 
     rules for chapter 42) is amended by striking ``or'' at the 
     end of paragraph (5), by striking the period at the end of 
     paragraph (6) and inserting ``, or'', and by adding at the 
     end the following new paragraph:
       ``(7) a member of the Internal Revenue Service Oversight 
     Board.''
       (2) The table of sections for subchapter A of chapter 80 is 
     amended by striking the item relating to section 7802 and 
     inserting the following new item:

``Sec. 7802. Internal Revenue Service Oversight Board.''

       (d) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     take effect on the date of the enactment of this Act.
       (2) Initial nominations to internal revenue service 
     oversight board.--The President shall submit the initial 
     nominations under section 7802 of the Internal Revenue Code 
     of 1986, as added by this section, to the Senate not later 
     than 6 months after the date of the enactment of this Act.
       (3) Effect on actions prior to appointment of oversight 
     board.--Nothing in this section shall be construed to 
     invalidate the actions and authority of the Internal Revenue 
     Service prior to the appointment of the members of the 
     Internal Revenue Service Oversight Board.
       (4) Special rule for reorganization plan.--The authority of 
     the Internal Revenue Service Oversight Board under section 
     7802(d)(3)(E) of such Code (as so added) to approve major 
     reorganization plans shall not apply to the reorganization 
     plan under section 1001 of this Act.

     SEC. 1102. COMMISSIONER OF INTERNAL REVENUE; OTHER OFFICIALS.

       (a) In General.--Section 7803 (relating to other personnel) 
     is amended to read as follows:

     ``SEC. 7803. COMMISSIONER OF INTERNAL REVENUE; OTHER 
                   OFFICIALS.

       ``(a) Commissioner of Internal Revenue.--
       ``(1) Appointment.--
       ``(A) In general.--There shall be in the Department of the 
     Treasury a Commissioner of Internal Revenue who shall be 
     appointed by the President, by and with the advice and 
     consent of the Senate, to a 5-year term. Such appointment 
     shall be made from individuals who, among other 
     qualifications, have a demonstrated ability in management.
       ``(B) Vacancy.--Any individual appointed to fill a vacancy 
     in the position of Commissioner occurring before the 
     expiration of the term for which such individual's 
     predecessor was appointed shall be appointed only for the 
     remainder of that term.
       ``(C) Removal.--The Commissioner may be removed at the will 
     of the President.
       ``(D) Reappointment.--The Commissioner may be appointed to 
     more than one 5-year term.

[[Page S4151]]

       ``(2) Duties.--The Commissioner shall have such duties and 
     powers as the Secretary may prescribe, including the power 
     to--
       ``(A) administer, manage, conduct, direct, and supervise 
     the execution and application of the internal revenue laws or 
     related statutes and tax conventions to which the United 
     States is a party,
       ``(B) recommend to the President a candidate for 
     appointment as Chief Counsel for the Internal Revenue Service 
     when a vacancy occurs, and recommend to the President the 
     removal of such Chief Counsel, and
       ``(C) recommend to the Oversight Board candidates for 
     appointment as National Taxpayer Advocate when a vacancy 
     occurs.

     If the Secretary determines not to delegate a power specified 
     in subparagraph (A), (B), or (C), such determination may not 
     take effect until 30 days after the Secretary notifies the 
     Committees on Ways and Means, Government Reform and 
     Oversight, and Appropriations of the House of Representatives 
     and the Committees on Finance, Governmental Affairs, and 
     Appropriations of the Senate.
       ``(3) Consultation with board.--The Commissioner shall 
     consult with the Oversight Board on all matters set forth in 
     paragraphs (2) and (3) (other than paragraph (3)(A)) of 
     section 7802(d).
       ``(b) Chief Counsel for the Internal Revenue Service.--
       ``(1) Appointment.--There shall be in the Department of the 
     Treasury a Chief Counsel for the Internal Revenue Service who 
     shall be appointed by the President, by and with the consent 
     of the Senate.
       ``(2) Duties.--The Chief Counsel shall be the chief law 
     officer for the Internal Revenue Service and shall perform 
     such duties as may be prescribed by the Secretary, including 
     the duty--
       ``(A) to be legal advisor to the Commissioner and the 
     Commissioner's officers and employees,
       ``(B) to furnish legal opinions for the preparation and 
     review of rulings and memoranda of technical advice,
       ``(C) to prepare, review, and assist in the preparation of 
     proposed legislation, treaties, regulations, and Executive 
     Orders relating to laws which affect the Internal Revenue 
     Service,
       ``(D) to represent the Commissioner in cases before the Tax 
     Court, and
       ``(E) to determine which civil actions should be litigated 
     under the laws relating to the Internal Revenue Service and 
     prepare recommendations for the Department of Justice 
     regarding the commencement of such actions.

     If the Secretary determines not to delegate a power specified 
     in subparagraph (A), (B), (C), (D), or (E), such 
     determination may not take effect until 30 days after the 
     Secretary notifies the Committees on Ways and Means, 
     Government Reform and Oversight, and Appropriations of the 
     House of Representatives and the Committees on Finance, 
     Governmental Affairs, and Appropriations of the Senate.
       ``(3) Report to commissioner.--The Chief Counsel shall 
     report directly to the Commissioner of Internal Revenue.
       ``(c) Office of the Taxpayer Advocate.--
       ``(1) Establishment.--
       ``(A) In general.--There is established in the Internal 
     Revenue Service an office to be known as the `Office of the 
     Taxpayer Advocate'.
       ``(B) National taxpayer advocate.--
       ``(i) In general.--The Office of the Taxpayer Advocate 
     shall be under the supervision and direction of an official 
     to be known as the `National Taxpayer Advocate'. The National 
     Taxpayer Advocate shall report directly to the Commissioner 
     of Internal Revenue and shall be entitled to compensation at 
     the same rate as the highest level official reporting 
     directly to the Commissioner of Internal Revenue.
       ``(ii) Appointment.--The National Taxpayer Advocate shall 
     be appointed by the Secretary of the Treasury from among the 
     3 individuals nominated by the Oversight Board under section 
     7802(d)(3).
       ``(iii) Restriction on employment.--An individual may be 
     appointed as the National Taxpayer Advocate only if such 
     individual was not an officer or employee of the Internal 
     Revenue Service during the 2-year period ending with such 
     appointment and such individual agrees not to accept any 
     employment with the Internal Revenue Service for at least 5 
     years after ceasing to be the National Taxpayer Advocate.
       ``(2) Functions of office.--
       ``(A) In general.--It shall be the function of the Office 
     of Taxpayer Advocate to--
       ``(i) assist taxpayers in resolving problems with the 
     Internal Revenue Service,
       ``(ii) identify areas in which taxpayers have problems in 
     dealings with the Internal Revenue Service,
       ``(iii) to the extent possible, propose changes in the 
     administrative practices of the Internal Revenue Service to 
     mitigate problems identified under clause (ii), and
       ``(iv) identify potential legislative changes which may be 
     appropriate to mitigate such problems.
       ``(B) Annual reports.--
       ``(i) Objectives.--Not later than June 30 of each calendar 
     year, the National Taxpayer Advocate shall report to the 
     Committee on Ways and Means of the House of Representatives 
     and the Committee on Finance of the Senate on the objectives 
     of the Office of the Taxpayer Advocate for the fiscal year 
     beginning in such calendar year. Any such report shall 
     contain full and substantive analysis, in addition to 
     statistical information.
       ``(ii) Activities.--Not later than December 31 of each 
     calendar year, the National Taxpayer Advocate shall report to 
     the Committee on Ways and Means of the House of 
     Representatives and the Committee on Finance of the Senate 
     on the activities of the Office of the Taxpayer Advocate 
     during the fiscal year ending during such calendar year. 
     Any such report shall contain full and substantive 
     analysis, in addition to statistical information, and 
     shall--

       ``(I) identify the initiatives the Office of the Taxpayer 
     Advocate has taken on improving taxpayer services and 
     Internal Revenue Service responsiveness,
       ``(II) contain recommendations received from individuals 
     with the authority to issue Taxpayer Assistance Orders under 
     section 7811,
       ``(III) contain a summary of at least 20 of the most 
     serious problems encountered by taxpayers, including a 
     description of the nature of such problems,
       ``(IV) contain an inventory of the items described in 
     subclauses (I), (II), and (III) for which action has been 
     taken and the result of such action,

       ``(V) contain an inventory of the items described in 
     subclauses (I), (II), and (III) for which action remains to 
     be completed and the period during which each item has 
     remained on such inventory,
       ``(VI) contain an inventory of the items described in 
     subclauses (I), (II), and (III) for which no action has been 
     taken, the period during which each item has remained on such 
     inventory, the reasons for the inaction, and identify any 
     Internal Revenue Service official who is responsible for such 
     inaction,
       ``(VII) identify any Taxpayer Assistance Order which was 
     not honored by the Internal Revenue Service in a timely 
     manner, as specified under section 7811(b),
       ``(VIII) contain recommendations for such administrative 
     and legislative action as may be appropriate to resolve 
     problems encountered by taxpayers,
       ``(IX) identify areas of the tax law that impose 
     significant compliance burdens on taxpayers or the Internal 
     Revenue Service, including specific recommendations for 
     remedying these problems,
       ``(X) identify the 10 most litigated issues for each 
     category of taxpayers, including recommendations for 
     mitigating such disputes, and
       ``(XI) include such other information as the National 
     Taxpayer Advocate may deem advisable.

       ``(iii) Report to be submitted directly.--Each report 
     required under this subparagraph shall be provided directly 
     to the committees described in clause (i) without any prior 
     review or comment from the Commissioner, the Secretary of the 
     Treasury, the Oversight Board, any other officer or employee 
     of the Department of the Treasury, or the Office of 
     Management and Budget.
       ``(C) Other responsibilities.--The National Taxpayer 
     Advocate shall--
       ``(i) monitor the coverage and geographic allocation of 
     local offices of taxpayer advocates,
       ``(ii) develop guidance to be distributed to all Internal 
     Revenue Service officers and employees outlining the criteria 
     for referral of taxpayer inquiries to local offices of 
     taxpayer advocates,
       ``(iii) ensure that the local telephone number for each 
     local office of the taxpayer advocate is published and 
     available to taxpayers served by the office, and
       ``(iv) in conjunction with the Commissioner, develop career 
     paths for local taxpayer advocates choosing to make a career 
     in the Office of the Taxpayer Advocate.
       ``(D) Personnel actions.--
       ``(i) In general.--The National Taxpayer Advocate shall 
     have the responsibility and authority to--

       ``(I) appoint at least 1 local taxpayer advocate for each 
     State, and

       ``(II) evaluate and take personnel actions (including 
     dismissal) with respect to any employee of any local office 
     of a taxpayer advocate described in subclause (I).

       ``(ii) Consultation.--The National Taxpayer Advocate may 
     consult with the appropriate supervisory personnel of the 
     Internal Revenue Service in carrying out the National 
     Taxpayer Advocate's responsibilities under this subparagraph.
       ``(3) Responsibilities of commissioner.--The Commissioner 
     shall establish procedures requiring a formal response to all 
     recommendations submitted to the Commissioner by the National 
     Taxpayer Advocate within 3 months after submission to the 
     Commissioner.
       ``(4) Operation of local offices.--
       ``(A) In general.--Each local taxpayer advocate--
       ``(i) shall report directly to the National Taxpayer 
     Advocate,
       ``(ii) may consult with the appropriate supervisory 
     personnel of the Internal Revenue Service regarding the daily 
     operation of the local office of the taxpayer advocate,
       ``(iii) shall, at the initial meeting with any taxpayer 
     seeking the assistance of a local office of the taxpayer 
     advocate, notify such taxpayer that the office operates 
     independently of any other Internal Revenue Service office 
     and reports directly to Congress through the National 
     Taxpayer Advocate, and
       ``(iv) may, at the taxpayer advocate's discretion, not 
     disclose to the Internal Revenue Service contact with, or 
     information provided by, such taxpayer.
       ``(B) Maintenance of independent communications.--Each 
     local office of the taxpayer advocate shall maintain a 
     separate phone, facsimile, and other electronic communication 
     access, and a separate post office address.
       ``(d) Additional Duties of the Treasury Inspector General 
     for Tax Administration.--
       ``(1) Annual reporting.--The Treasury Inspector General for 
     Tax Administration shall include in one of the semiannual 
     reports under section 5 of the Inspector General Act of 
     1978--
       ``(A) an evaluation of the compliance of the Internal 
     Revenue Service with--
       ``(i) restrictions under section 1204 of the Internal 
     Revenue Service Restructuring and Reform Act of 1998 on the 
     use of enforcement statistics to evaluate Internal Revenue 
     Service employees,

[[Page S4152]]

       ``(ii) restrictions under section 7521 on directly 
     contacting taxpayers who have indicated that they prefer 
     their representatives be contacted,
       ``(iii) required procedures under section 6320 for approval 
     of a notice of a lien,
       ``(iv) required procedures under subchapter D of chapter 64 
     for seizure of property for collection of taxes, including 
     required procedures under section 6330 for approval of a levy 
     or notice of levy, and
       ``(v) restrictions under section 3708 of the Internal 
     Revenue Service Restructuring and Reform Act of 1998 on 
     designation of taxpayers,
       ``(B) a review and a certification of whether or not the 
     Secretary is complying with the requirements of section 
     6103(e)(8) to disclose information to an individual filing a 
     joint return on collection activity involving the other 
     individual filing the return,
       ``(C) information regarding extensions of the statute of 
     limitations for assessment and collection of tax under 
     section 6501 and the provision of notice to taxpayers 
     regarding requests for such extension,
       ``(D) an evaluation of the adequacy and security of the 
     technology of the Internal Revenue Service,
       ``(E) any termination or mitigation under section 1203 of 
     the Internal Revenue Service Restructuring and Reform Act of 
     1998, and
       ``(F) information regarding improper denial of requests for 
     information from the Internal Revenue Service identified 
     under paragraph (2).
       ``(2) Semiannual reports.--
       ``(A) In general.--The Treasury Inspector General for Tax 
     Administration shall include in each semiannual report under 
     section 5 of the Inspector General Act of 1978--
       ``(i) the number of taxpayer complaints during the 
     reporting period;
       ``(ii) the number of employee misconduct and taxpayer abuse 
     allegations received during the period from taxpayers, 
     Internal Revenue Service employees, and other sources;
       ``(iii) a summary of the status of such complaints and 
     allegations; and
       ``(iv) a summary of the disposition of such complaints and 
     allegations, including the outcome of any Department of 
     Justice action and any monies paid as a settlement of such 
     complaints and allegations.
       ``(B) Clauses (iii) and (iv) of subparagraph (B) shall only 
     apply to complaints and allegations of serious employee 
     misconduct.
       ``(3) Other responsibilities.--The Treasury Inspector 
     General for Tax Administration shall--
       ``(A) conduct periodic audits of not less than 1 percent of 
     the total number of determinations made by the Internal 
     Revenue Service to deny written requests to disclose 
     information to taxpayers on the basis of section 6103 of this 
     title or section 552(b)(7) of title 5, United States Code, 
     and
       ``(B) establish and maintain a toll-free telephone number 
     for taxpayers to use to confidentially register complaints of 
     misconduct by Internal Revenue Service employees and 
     incorporate the telephone number in the statement required by 
     section 6227 of the Omnibus Taxpayer Bill of Rights (Internal 
     Revenue Service Publication No. 1).''
       (b) Notice of Right To Contact Office Included in Notice of 
     Deficiency.--Section 6212(a) (relating to notice of 
     deficiency) is amended by adding at the end the following: 
     ``Such notice shall include a notice to the taxpayer of the 
     taxpayer's right to contact a local office of the taxpayer 
     advocate and the location and phone number of the appropriate 
     office.''
       (c) Expansion of Authority To Issue Taxpayer Assistance 
     Orders.--Section 7811(a) (relating to taxpayer assistance 
     orders) is amended to read as follows:
       ``(a) Authority To Issue.--
       ``(1) In general.--Upon application filed by a taxpayer 
     with the Office of the Taxpayer Advocate (in such form, 
     manner, and at such time as the Secretary shall by 
     regulations prescribe), the National Taxpayer Advocate may 
     issue a Taxpayer Assistance Order if, in the determination of 
     the National Taxpayer Advocate--
       ``(A) the taxpayer is suffering or about to suffer a 
     significant hardship as a result of the manner in which the 
     internal revenue laws are being administered by the 
     Secretary, or
       ``(B) the issuance of a Taxpayer Assistance Order is 
     otherwise appropriate considering the circumstances of the 
     taxpayer.
       ``(2) Determination of hardship.--For purposes of paragraph 
     (1), a significant hardship shall include--
       ``(A) an immediate threat of adverse action,
       ``(B) a delay of more than 30 days in resolving taxpayer 
     account problems,
       ``(C) the incurring by the taxpayer of significant costs 
     (including fees for professional representation) if relief is 
     not granted, or
       ``(D) irreparable injury to, or a long-term adverse impact 
     on, the taxpayer if relief is not granted.
       ``(3) Standard where administrative guidance not 
     followed.--In cases where any Internal Revenue Service 
     employee is not following applicable published administrative 
     guidance (including the Internal Revenue Manual), the 
     National Taxpayer Advocate shall construe the factors taken 
     into account in determining whether to issue a taxpayer 
     assistance order in the manner most favorable to the 
     taxpayer.''
       (d) Conforming Amendments Relating to National Taxpayer 
     Advocate.--
       (1) The following provisions are each amended by striking 
     ``Taxpayer Advocate'' each place it appears and inserting 
     ``National Taxpayer Advocate'':
       (A) Section 6323(j)(1)(D) (relating to withdrawal of notice 
     in certain circumstances).
       (B) Section 6343(d)(2)(D) (relating to return of property 
     in certain cases).
       (C) Section 7811(b)(2)(D) (relating to terms of a Taxpayer 
     Assistance Order).
       (D) Section 7811(c) (relating to authority to modify or 
     rescind).
       (E) Section 7811(d)(2) (relating to suspension of running 
     of period of limitation).
       (F) Section 7811(e) (relating to independent action of 
     Taxpayer Advocate).
       (G) Section 7811(f) (relating to Taxpayer Advocate).
       (2) Section 7811(d)(1) (relating to suspension of running 
     of period of limitation) is amended by striking ``Taxpayer 
     Advocate's'' and inserting ``National Taxpayer Advocate's''.
       (3) The headings of subsections (e) and (f) of section 7811 
     are each amended by striking ``Taxpayer Advocate'' and 
     inserting ``National Taxpayer Advocate''.
       (e) Additional Conforming Amendments.--
       (1) The table of sections for subchapter A of chapter 80 is 
     amended by striking the item relating to section 7803 and 
     inserting the following new item:

``Sec. 7803. Commissioner of Internal Revenue; other officials.''

       (2) Section 5109 of title 5, United States Code, is amended 
     by striking subsection (b) and redesignating subsection (c) 
     as subsection (b).
       (3) Section 7611(f)(1) (relating to restrictions on church 
     tax inquiries and examinations) is amended by striking 
     ``Assistant Commissioner for Employee Plans and Exempt 
     Organizations of the Internal Revenue Service'' and inserting 
     ``Secretary''.
       (f) Effective Date.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall take effect on the date 
     of the enactment of this Act.
       (2) Chief counsel.--Section 7803(b)(3) of the Internal 
     Revenue Code of 1986, as added by this section, shall take 
     effect on the date that is 90 days after the date of the 
     enactment of this Act.
       (3) National taxpayer advocate.--During the period before 
     the appointment of the Internal Revenue Service Oversight 
     Board and notwithstanding section 7803(c)(1)(B)(ii) of the 
     Internal Revenue Code of 1986, as added by this section, the 
     National Taxpayer Advocate shall be appointed by the 
     Secretary of the Treasury from among individuals who have a 
     background in customer service as well as tax law and who 
     have experience in representing individual taxpayers. The 
     Commissioner of Internal Revenue shall submit to the 
     Secretary a list of nominations for consideration under the 
     preceding sentence.
       (4) Current officers.--
       (A) In the case of an individual serving as Commissioner of 
     Internal Revenue on the date of the enactment of this Act who 
     was appointed to such position before such date, the 5-year 
     term required by section 7803(a)(1) of the Internal Revenue 
     Code of 1986, as added by this section, shall begin as of the 
     date of such appointment.
       (B) Clauses (ii) and (iii) of section 7803(c)(1)(B) of such 
     Code, as added by this section, shall not apply to the 
     individual serving as Taxpayer Advocate on the date of the 
     enactment of this Act.

     SEC. 1103. TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION.

       (a) Establishment of 2 Inspectors General in the Department 
     of the Treasury.--Section 2 of the Inspector General Act of 
     1978 (5 U.S.C. App.) is amended by striking the matter 
     following paragraph (3) and inserting the following:
     ``there is established--
       ``(A) in each of such establishments an office of Inspector 
     General, subject to subparagraph (B); and
       ``(B) in the establishment of the Department of the 
     Treasury--
       ``(i) an Office of Inspector General of the Department of 
     the Treasury; and
       ``(ii) an Office of Treasury Inspector General for Tax 
     Administration.''
       (b) Amendments to Section 8D of the Inspector General Act 
     of 1978.--
       (1) Limitation on authority of inspector general.--Section 
     8D(a) of the Inspector General Act of 1978 (5 U.S.C. App.) is 
     amended by adding at the end the following:
       ``(4) The Secretary of the Treasury may not exercise any 
     power under paragraph (1) or (2) with respect to the Treasury 
     Inspector General for Tax Administration.''
       (2) Duties of inspector general of the department of the 
     treasury; relationship to the treasury inspector general for 
     tax administration.--Section 8D(b) of such Act is amended--
       (A) by inserting ``(1)'' after ``(b)''; and
       (B) by adding at the end the following:
       ``(2) The Inspector General of the Department of the 
     Treasury shall exercise all duties and responsibilities of an 
     Inspector General for the Department of the Treasury other 
     than the duties and responsibilities exercised by the 
     Treasury Inspector General for Tax Administration.
       ``(3) The Secretary of the Treasury shall establish 
     procedures under which the Inspector General of the 
     Department of the Treasury and the Treasury Inspector General 
     for Tax Administration will--
       ``(A) determine how audits and investigations are allocated 
     in cases of overlapping jurisdiction, and
       ``(B) provide for coordination, cooperation, and efficiency 
     in the conduct of such audits and investigations.''
       (3) Access to returns and return information.--Section 
     8D(e) of such Act is amended--
       (A) in paragraph (1), by striking ``Inspector General'' and 
     inserting ``Treasury Inspector General for Tax 
     Administration'';
       (B) in paragraph (2), by striking all beginning with 
     ``(2)'' through subparagraph (B);
       (C)(i) by redesignating subparagraph (C) of paragraph (2) 
     as paragraph (2) of such subsection; and
       (ii) in such redesignated paragraph (2), by striking 
     ``Inspector General'' and inserting

[[Page S4153]]

     ``Treasury Inspector General for Tax Administration''; and
       (D)(i) by redesignating subparagraph (D) of such paragraph 
     as paragraph (3) of such subsection; and
       (ii) in such redesignated paragraph (3), by striking 
     ``Inspector General'' and inserting ``Treasury Inspector 
     General for Tax Administration''.
       (4) Effect on certain final decisions of the secretary.--
     Section 8D(f) of such Act is amended by striking ``Inspector 
     General'' and inserting ``Inspector General of the Department 
     of the Treasury or the Treasury Inspector General for Tax 
     Administration''.
       (5) Repeal of limitation on reports to the attorney 
     general.--Section 8D of such Act is amended by striking 
     subsection (g).
       (6) Transmission of reports.--Section 8D(h) of such Act is 
     amended--
       (A) by striking ``(h)'' and inserting ``(g)(1)'';
       (B) by striking ``and the Committees on Government 
     Operations and Ways and Means of the House of 
     Representatives'' and inserting ``and the Committees on 
     Government Reform and Oversight and Ways and Means of the 
     House of Representatives''; and
       (C) by adding at the end the following:
       ``(2) Any report made by the Treasury Inspector General for 
     Tax Administration that is required to be transmitted by the 
     Secretary of the Treasury to the appropriate committees or 
     subcommittees of Congress under section 5(d) shall also be 
     transmitted, within the 7-day period specified under such 
     subsection, to the Internal Revenue Service Oversight 
     Board and the Commissioner of Internal Revenue.''
       (7) Treasury inspector general for tax administration.--
     Section 8D of the Act is amended by adding at the end the 
     following:
       ``(h) The Treasury Inspector General for Tax Administration 
     shall exercise all duties and responsibilities of an 
     Inspector General of an establishment with respect to the 
     Department of the Treasury and the Secretary of the Treasury 
     on all matters relating to the Internal Revenue Service. The 
     Treasury Inspector General for Tax Administration shall have 
     sole authority under this Act to conduct an audit or 
     investigation of the Internal Revenue Service Oversight Board 
     and the Chief Counsel for the Internal Revenue Service.
       ``(i) In addition to the requirements of the first sentence 
     of section 3(a), the Treasury Inspector General for Tax 
     Administration should have experience in tax administration 
     and demonstrated ability to lead a large and complex 
     organization.
       ``(j) An individual appointed to the position of Treasury 
     Inspector General for Tax Administration, the Assistant 
     Inspector General for Auditing of the Office of the Treasury 
     Inspector General for Tax Administration under section 
     3(d)(1), the Assistant Inspector General for Investigations 
     of the Office of the Treasury Inspector General for Tax 
     Administration under section 3(d)(2), or any position of 
     Deputy Inspector General of the Office of the Treasury 
     Inspector General for Tax Administration may not be an 
     employee of the Internal Revenue Service--
       ``(1) during the 2-year period preceding the date of 
     appointment to such position; or
       ``(2) during the 5-year period following the date such 
     individual ends service in such position.
       ``(k)(1) In addition to the duties and responsibilities 
     exercised by an inspector general of an establishment, the 
     Treasury Inspector General for Tax Administration--
       ``(A) shall have the duty to enforce criminal provisions 
     under section 7608(b) of the Internal Revenue Code of 1986;
       ``(B) in addition to the functions authorized under section 
     7608(b)(2) of such Code, may carry firearms;
       ``(C) shall be responsible for protecting the Internal 
     Revenue Service against external attempts to corrupt or 
     threaten employees of the Internal Revenue Service; and
       ``(D) may designate any employee in the Office of the 
     Treasury Inspector General for Tax Administration to enforce 
     such laws and perform such functions referred to under 
     subparagraphs (A), (B), and (C).
       ``(2)(A) In performing a law enforcement function under 
     paragraph (1), the Treasury Inspector General for Tax 
     Administration shall report any reasonable grounds to believe 
     there has been a violation of Federal criminal law to the 
     Attorney General at an appropriate time as determined by the 
     Treasury Inspector General for Tax Administration, 
     notwithstanding section 4(d).
       ``(B) In the administration of section 5(d) and subsection 
     (g)(2) of this section, the Secretary of the Treasury may 
     transmit the required report with respect to the Treasury 
     Inspector General for Tax Administration at an appropriate 
     time as determined by the Secretary, if the problem, abuse, 
     or deficiency relates to--
       ``(i) the performance of a law enforcement function under 
     paragraph (1); and
       ``(ii) sensitive information concerning matters under 
     subsection (a)(1)(A) through (F).
       ``(3) Nothing in this subsection shall be construed to 
     affect the authority of any other person to carry out or 
     enforce any provision specified in paragraph (1).
       ``(l)(1) The Treasury Inspector General for Tax 
     Administration shall timely conduct an audit or investigation 
     relating to the Internal Revenue Service upon the written 
     request of the Commissioner of Internal Revenue or the 
     Internal Revenue Service Oversight Board.
       ``(2)(A) Any final report of an audit conducted by the 
     Treasury Inspector General for Tax Administration shall be 
     timely submitted by the Inspector General to the Commissioner 
     of Internal Revenue and the Internal Revenue Service 
     Oversight Board.
       ``(B) The Treasury Inspector General for Tax Administration 
     shall periodically submit to the Commissioner and Board a 
     list of investigations for which a final report has been 
     completed by the Inspector General and shall provide a copy 
     of any such report upon request of the Commissioner or Board.
       ``(C) This paragraph applies regardless of whether the 
     applicable audit or investigation is requested under 
     paragraph (1).''
       (c) Transfer of Functions.--
       (1) In general.--Section 9(a)(1) of the Inspector General 
     Act of 1978 (5 U.S.C. App.) is amended in subparagraph (L)--
       (A) by inserting ``(i)'' after ``(L)'';
       (B) by inserting ``and'' after the semicolon; and
       (C) by adding at the end the following:
       ``(ii) of the Treasury Inspector General for Tax 
     Administration, effective 180 days after the date of the 
     enactment of the Internal Revenue Service Restructuring and 
     Reform Act of 1998, the Office of Chief Inspector of the 
     Internal Revenue Service;''.
       (2) Termination of office of chief inspector.--Effective 
     upon the transfer of functions under the amendment made by 
     paragraph (1), the Office of Chief Inspector of the Internal 
     Revenue Service is terminated.
       (3) Retention of certain internal audit personnel.--In 
     making the transfer under the amendment made by paragraph 
     (1), the Commissioner of Internal Revenue shall designate and 
     retain an appropriate number (not in excess of 300) of 
     internal audit full-time equivalent employee positions 
     necessary for management relating to the Internal Revenue 
     Service.
       (4) Additional personnel transfers.--Effective 180 days 
     after the date of the enactment of this Act, the Secretary of 
     the Treasury shall transfer 21 full-time equivalent positions 
     from the Office of the Inspector General of the Department of 
     the Treasury to the Office of the Treasury Inspector General 
     for Tax Administration.
       (d) Audits and Reports of Agency Financial Statements.--
     Subject to section 3521(g) of title 31, United States Code--
       (1) the Inspector General of the Department of the Treasury 
     shall, subject to paragraph (2)--
       (A) audit each financial statement in accordance with 
     section 3521(e) of such title; and
       (B) prepare and submit each report required under section 
     3521(f) of such title; and
       (2) the Treasury Inspector General for Tax Administration 
     shall--
       (A) audit that portion of each financial statement referred 
     to under paragraph (1)(A) that relates to custodial and 
     administrative accounts of the Internal Revenue Service; and
       (B) prepare that portion of each report referred to under 
     paragraph (1)(B) that relates to custodial and administrative 
     accounts of the Internal Revenue Service.
       (e) Technical and Conforming Amendments.--
       (1) Transfer of functions.--Section 8D(b) of the Inspector 
     General Act of 1978 (5 U.S.C. App.) is amended by striking 
     ``and the internal audits and internal investigations 
     performed by the Office of Assistant Commissioner 
     (Inspection) of the Internal Revenue Service''.
       (2) Amendments relating to references to the inspector 
     general of the department of the treasury.--
       (A) Limitation on authority.--Section 8D(a) of the 
     Inspector General Act of 1978 (5 U.S.C. App.) is amended--
       (i) in the first sentence of paragraph (1), by inserting 
     ``of the Department of the Treasury'' after ``Inspector 
     General'';
       (ii) in paragraph (2), by inserting ``of the Department of 
     the Treasury'' after ``prohibit the Inspector General''; and
       (iii) in paragraph (3)--

       (I) in the first sentence, by inserting ``of the Department 
     of the Treasury'' after ``notify the Inspector General''; and
       (II) in the second sentence, by inserting ``of the 
     Department of the Treasury'' after ``notice, the Inspector 
     General''.

       (B) Duties.--Section 8D(b) of such Act is amended in the 
     second sentence by inserting ``of the Department of the 
     Treasury'' after ``Inspector General''.
       (C) Audits and investigations.--Section 8D (c) and (d) of 
     such Act are amended by inserting ``of the Department of the 
     Treasury'' after ``Inspector General'' each place it appears.
       (3) References.--The second section 8G of the Inspector 
     General Act of 1978 (relating to rule of construction of 
     special provisions) is amended--
       (A) by striking ``Sec. 8G'' and inserting ``Sec. 8H'';
       (B) by striking ``or 8E'' and inserting ``8E or 8F''; and
       (C) by striking ``section 8F(a)'' and inserting ``section 
     8G(a)''.
       (4) Amendment to internal revenue code of 1986.--Section 
     7608(b)(1) of the Internal Revenue Code of 1986 is amended by 
     striking ``or of the Internal Security Division''.

     SEC. 1104. OTHER PERSONNEL.

       (a) In General.--Section 7804 (relating to the effect of 
     reorganization plans) is amended to read as follows:

     ``SEC. 7804. OTHER PERSONNEL.

       ``(a) Appointment and Supervision.--Unless otherwise 
     prescribed by the Secretary, the Commissioner of Internal 
     Revenue is authorized to employ such number of persons as the 
     Commissioner deems proper for the administration and 
     enforcement of the internal revenue laws, and the 
     Commissioner shall issue all necessary directions, 
     instructions, orders, and rules applicable to such persons.
       ``(b) Posts of Duty of Employees in Field Service or 
     Traveling.--Unless otherwise prescribed by the Secretary--
       ``(1) Designation of post of duty.--The Commissioner shall 
     determine and designate the

[[Page S4154]]

     posts of duty of all such persons engaged in field work or 
     traveling on official business outside of the District of 
     Columbia.
       ``(2) Detail of personnel from field service.--The 
     Commissioner may order any such person engaged in field work 
     to duty in the District of Columbia, for such periods as the 
     Commissioner may prescribe, and to any designated post of 
     duty outside the District of Columbia upon the completion of 
     such duty.
       ``(c) Delinquent Internal Revenue Officers and Employees.--
     If any officer or employee of the Treasury Department acting 
     in connection with the internal revenue laws fails to account 
     for and pay over any amount of money or property collected or 
     received by him in connection with the internal revenue laws, 
     the Secretary shall issue notice and demand to such officer 
     or employee for payment of the amount which he failed to 
     account for and pay over, and, upon failure to pay the amount 
     demanded within the time specified in such notice, the amount 
     so demanded shall be deemed imposed upon such officer or 
     employee and assessed upon the date of such notice and 
     demand, and the provisions of chapter 64 and all other 
     provisions of law relating to the collection of assessed 
     taxes shall be applicable in respect of such amount.''
       (b) Conforming Amendments.--
       (1) Subsection (b) of section 6344 is amended by striking 
     ``section 7803(d)'' and inserting ``section 7804(c)''.
       (2) The table of sections for subchapter A of chapter 80 is 
     amended by striking the item relating to section 7804 and 
     inserting the following new item:

``Sec. 7804. Other personnel.''

       (c) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 1105. PROHIBITION ON EXECUTIVE BRANCH INFLUENCE OVER 
                   TAXPAYER AUDITS AND OTHER INVESTIGATIONS.

       (a) In General.--Part I of subchapter A of chapter 75 
     (relating to crimes, other offenses, and forfeitures) is 
     amended by adding after section 7216 the following new 
     section:

     ``SEC. 7217. PROHIBITION ON EXECUTIVE BRANCH INFLUENCE OVER 
                   TAXPAYER AUDITS AND OTHER INVESTIGATIONS.

       ``(a) Prohibition.--It shall be unlawful for any applicable 
     person to request, directly or indirectly, any officer or 
     employee of the Internal Revenue Service to conduct or 
     terminate an audit or other investigation of any particular 
     taxpayer with respect to the tax liability of such taxpayer.
       ``(b) Reporting Requirement.--Any officer or employee of 
     the Internal Revenue Service receiving any request prohibited 
     by subsection (a) shall report the receipt of such request to 
     the Treasury Inspector General for Tax Administration.
       ``(c) Exceptions.--Subsection (a) shall not apply to any 
     written request made--
       ``(1) to an applicable person by or on behalf of the 
     taxpayer and forwarded by such applicable person to the 
     Internal Revenue Service,
       ``(2) by an applicable person for disclosure of return or 
     return information under section 6103 if such request is made 
     in accordance with the requirements of such section, or
       ``(3) by the Secretary of the Treasury as a consequence of 
     the implementation of a change in tax policy.
       ``(d) Penalty.--Any person who willfully violates 
     subsection (a) or fails to report under subsection (b) shall 
     be punished upon conviction by a fine in any amount not 
     exceeding $5,000, or imprisonment of not more than 5 years, 
     or both, together with the costs of prosecution.
       ``(e) Applicable Person.--For purposes of this section, the 
     term `applicable person' means--
       ``(1) the President, the Vice President, any employee of 
     the executive office of the President, and any employee of 
     the executive office of the Vice President, and
       ``(2) any individual (other than the Attorney General of 
     the United States) serving in a position specified in section 
     5312 of title 5, United States Code.''
       (b) Clerical Amendment.--The table of sections for part I 
     of subchapter A of chapter 75 is amended by adding after the 
     item relating to section 7216 the following new item:

``Sec. 7217. Prohibition on executive branch influence over taxpayer 
              audits and other investigations.''

       (c) Effective Date.--The amendments made by this section 
     shall apply to requests made after the date of the enactment 
     of this Act.
                  Subtitle C--Personnel Flexibilities

     SEC. 1201. IMPROVEMENTS IN PERSONNEL FLEXIBILITIES.

       (a) In General.--Part III of title 5, United States Code, 
     is amended by adding at the end the following new subpart:

                       ``Subpart I--Miscellaneous

``CHAPTER 95--PERSONNEL FLEXIBILITIES RELATING TO THE INTERNAL REVENUE 
                                SERVICE

``Sec.
``9501. Internal Revenue Service personnel flexibilities.
``9502. Pay authority for critical positions.
``9503. Streamlined critical pay authority.
``9504. Recruitment, retention, and relocation incentives.
``9505. Performance awards for senior executives.
``9506. Limited appointments to career reserved Senior Executive 
              Service positions.
``9507. Streamlined demonstration project authority.
``9508. General workforce performance management system.
``9509. General workforce classification and pay.
``9510. General workforce staffing.

     ``Sec. 9501. Internal Revenue Service personnel flexibilities

       ``(a) Any flexibilities provided by sections 9502 through 
     9510 of this chapter shall be exercised in a manner 
     consistent with--
       ``(1) chapter 23 (relating to merit system principles and 
     prohibited personnel practices);
       ``(2) provisions relating to preference eligibles;
       ``(3) except as otherwise specifically provided, section 
     5307 (relating to the aggregate limitation on pay);
       ``(4) except as otherwise specifically provided, chapter 71 
     (relating to labor-management relations); and
       ``(5) subject to subsections (b) and (c) of section 1104, 
     as though such authorities were delegated to the Secretary of 
     the Treasury under section 1104(a)(2).
       ``(b) The Secretary of the Treasury shall provide the 
     Office of Personnel Management with any information that 
     Office requires in carrying out its responsibilities under 
     this section.
       ``(c) Employees within a unit to which a labor organization 
     is accorded exclusive recognition under chapter 71 shall not 
     be subject to any flexibility provided by sections 9507 
     through 9510 of this chapter unless the exclusive 
     representative and the Internal Revenue Service have 
     entered into a written agreement which specifically 
     provides for the exercise of that flexibility. Such 
     written agreement may be imposed by the Federal Services 
     Impasses Panel under section 7119.

     ``Sec. 9502. Pay authority for critical positions

       ``(a) When the Secretary of the Treasury seeks a grant of 
     authority under section 5377 for critical pay for 1 or more 
     positions at the Internal Revenue Service, the Office of 
     Management and Budget may fix the rate of basic pay, 
     notwithstanding sections 5377(d)(2) and 5307, at any rate up 
     to the salary set in accordance with section 104 of title 3.
       ``(b) Notwithstanding section 5307, no allowance, 
     differential, bonus, award, or similar cash payment may be 
     paid to any employee receiving critical pay at a rate fixed 
     under subsection (a), in any calendar year if, or to the 
     extent that, the employee's total annual compensation will 
     exceed the maximum amount of total annual compensation 
     payable at the salary set in accordance with section 104 of 
     title 3.

     ``Sec. 9503. Streamlined critical pay authority

       ``(a) Notwithstanding section 9502, and without regard to 
     the provisions of this title governing appointments in the 
     competitive service or the Senior Executive Service and 
     chapters 51 and 53 (relating to classification and pay 
     rates), the Secretary of the Treasury may, for a period of 10 
     years after the date of enactment of this section, establish, 
     fix the compensation of, and appoint individuals to, 
     designated critical administrative, technical, and 
     professional positions needed to carry out the functions of 
     the Internal Revenue Service, if--
       ``(1) the positions--
       ``(A) require expertise of an extremely high level in an 
     administrative, technical, or professional field; and
       ``(B) are critical to the Internal Revenue Service's 
     successful accomplishment of an important mission;
       ``(2) exercise of the authority is necessary to recruit or 
     retain an individual exceptionally well qualified for the 
     position;
       ``(3) the number of such positions does not exceed 40 at 
     any one time;
       ``(4) designation of such positions are approved by the 
     Secretary of the Treasury;
       ``(5) the terms of such appointments are limited to no more 
     than 4 years;
       ``(6) appointees to such positions were not Internal 
     Revenue Service employees immediately prior to such 
     appointment;
       ``(7) total annual compensation for any appointee to such 
     positions does not exceed the highest total annual 
     compensation payable at the rate determined under section 104 
     of title 3; and
       ``(8) all such positions are excluded from the collective 
     bargaining unit.
       ``(b) Individuals appointed under this section shall not be 
     considered to be employees for purposes of subchapter II of 
     chapter 75.

     ``Sec. 9504. Recruitment, retention, and relocation 
       incentives

       ``For a period of 10 years after the date of enactment of 
     this section and subject to approval by the Office of 
     Personnel Management, the Secretary of the Treasury may 
     provide for variations from sections 5753 and 5754 governing 
     payment of recruitment, relocation, and retention incentives.

     ``Sec. 9505. Performance awards for senior executives

       ``(a) For a period of 10 years after the date of enactment 
     of this section, Internal Revenue Service senior executives 
     who have program management responsibility over significant 
     functions of the Internal Revenue Service may be paid a 
     performance bonus without regard to the limitation in section 
     5384(b)(2) if the Secretary of the Treasury finds such award 
     warranted based on the executive's performance.
       ``(b) In evaluating an executive's performance for purposes 
     of an award under this section, the Secretary of the Treasury 
     shall take into account the executive's contributions toward 
     the successful accomplishment of goals and objectives 
     established under the Government Performance and Results Act 
     of 1993, division E of the Clinger-Cohen Act of 1996 (Public 
     Law 104-106; 110 Stat. 679), Revenue Procedure 64-22 (as in 
     effect on July 30, 1997), taxpayer service surveys, and other 
     performance metrics or plans established in consultation with 
     the Internal Revenue Service Oversight Board.
       ``(c) Any award in excess of 20 percent of an executive's 
     rate of basic pay shall be approved by the Secretary of the 
     Treasury.

[[Page S4155]]

       ``(d) Notwithstanding section 5384(b)(3), the Secretary of 
     the Treasury shall determine the aggregate amount of 
     performance awards available to be paid during any fiscal 
     year under this section and section 5384 to career senior 
     executives in the Internal Revenue Service. Such amount may 
     not exceed an amount equal to 5 percent of the aggregate 
     amount of basic pay paid to career senior executives in the 
     Internal Revenue Service during the preceding fiscal year. 
     The Internal Revenue Service shall not be included in the 
     determination under section 5384(b)(3) of the aggregate 
     amount of performance awards payable to career senior 
     executives in the Department of the Treasury other than the 
     Internal Revenue Service.
       ``(e) Notwithstanding section 5307, a performance bonus 
     award may not be paid to an executive in a calendar year if, 
     or to the extent that, the executive's total annual 
     compensation will exceed the maximum amount of total annual 
     compensation payable at the rate determined under section 104 
     of title 3.

     ``Sec. 9506. Limited appointments to career reserved Senior 
       Executive Service positions

       ``(a) In the application of section 3132, a `career 
     reserved position' in the Internal Revenue Service means a 
     position designated under section 3132(b) which may be filled 
     only by--
       ``(1) a career appointee, or
       ``(2) a limited emergency appointee or a limited term 
     appointee--
       ``(A) who, immediately upon entering the career reserved 
     position, was serving under a career or career-conditional 
     appointment outside the Senior Executive Service; or
       ``(B) whose limited emergency or limited term appointment 
     is approved in advance by the Office of Personnel Management.
       ``(b)(1) The number of positions described under subsection 
     (a) which are filled by an appointee as described under 
     paragraph (2) of such subsection may not exceed 10 percent of 
     the total number of Senior Executive Service positions in the 
     Internal Revenue Service.
       ``(2) Notwithstanding section 3132--
       ``(A) the term of an appointee described under subsection 
     (a)(2) may be for any period not to exceed 3 years; and
       ``(B) such an appointee may serve--
       ``(i) 2 such terms; or
       ``(ii) 2 such terms in addition to any unexpired term 
     applicable at the time of appointment.

     ``Sec. 9507. Streamlined demonstration project authority

       ``(a) The exercise of any of the flexibilities under 
     sections 9502 through 9510 shall not affect the authority of 
     the Secretary of the Treasury to implement for the Internal 
     Revenue Service a demonstration project subject to chapter 
     47, as provided in subsection (b).
       ``(b) In applying section 4703 to a demonstration project 
     described in section 4701(a)(4) which involves the Internal 
     Revenue Service--
       ``(1) section 4703(b)(1) shall be deemed to read as 
     follows:
       `` `(1) develop a plan for such project which describes its 
     purpose, the employees to be covered, the project itself, its 
     anticipated outcomes, and the method of evaluating the 
     project;';
       ``(2) section 4703(b)(3) shall not apply;
       ``(3) the 180-day notification period in section 4703(b)(4) 
     shall be deemed to be a notification period of 30 days;
       ``(4) section 4703(b)(6) shall be deemed to read as 
     follows:
       `` `(6) provides each House of Congress with the final 
     version of the plan.';
       ``(5) section 4703(c)(1) shall be deemed to read as 
     follows:
       `` `(1) subchapter V of chapter 63 or subpart G of part III 
     of this title;';
       ``(6) the requirements of paragraphs (1)(A) and (2) of 
     section 4703(d) shall not apply; and
       ``(7) notwithstanding section 4703(d)(1)(B), based on an 
     evaluation as provided in section 4703(h), the Office of 
     Personnel Management and the Secretary of the Treasury, 
     except as otherwise provided by this subsection, may waive 
     the termination date of a demonstration project under section 
     4703(d).
       ``(c) At least 90 days before waiving the termination date 
     under subsection (b)(7), the Office of Personnel Management 
     shall publish in the Federal Register a notice of its 
     intention to waive the termination date and shall inform in 
     writing both Houses of Congress of its intention.

     ``Sec. 9508. General workforce performance management system

       ``(a) In lieu of a performance appraisal system established 
     under section 4302, the Secretary of the Treasury may 
     establish for all or part of the Internal Revenue Service a 
     performance management system that--
       ``(1) maintains individual accountability by--
       ``(A) establishing 1 or more retention standards for each 
     employee related to the work of the employee and expressed in 
     terms of individual performance, and communicating such 
     retention standards to employees;
       ``(B) making periodic determinations of whether each 
     employee meets or does not meet the employee's established 
     retention standards; and
       ``(C) taking actions, in accordance with applicable laws 
     and regulations, with respect to any employee whose 
     performance does not meet established retention standards, 
     including denying any increases in basic pay, promotions, and 
     credit for performance under section 3502, and taking 1 or 
     more of the following actions:
       ``(i) Reassignment.
       ``(ii) An action under chapter 43 or chapter 75 of this 
     title.
       ``(iii) Any other appropriate action to resolve the 
     performance problem; and
       ``(2) except as provided under section 1204 of the Internal 
     Revenue Service Restructuring and Reform Act of 1998, 
     strengthens the system's effectiveness by--
       ``(A) establishing goals or objectives for individual, 
     group, or organizational performance (or any combination 
     thereof), consistent with the Internal Revenue Service's 
     performance planning procedures, including those established 
     under the Government Performance and Results Act of 1993, 
     division E of the Clinger-Cohen Act of 1996 (Public Law 104-
     106; 110 Stat. 679), Revenue Procedure 64-22 (as in effect on 
     July 30, 1997), and taxpayer service surveys, and 
     communicating such goals or objectives to employees;
       ``(B) using such goals and objectives to make performance 
     distinctions among employees or groups of employees; and
       ``(C) using performance assessments as a basis for granting 
     employee awards, adjusting an employee's rate of basic pay, 
     and other appropriate personnel actions, in accordance with 
     applicable laws and regulations.
       ``(b)(1) For purposes of subsection (a)(2), the term 
     `performance assessment' means a determination of whether or 
     not retention standards established under subsection 
     (a)(1)(A) are met, and any additional performance 
     determination made on the basis of performance goals and 
     objectives established under subsection (a)(2)(A).
       ``(2) For purposes of this title, the term `unacceptable 
     performance' with respect to an employee of the Internal 
     Revenue Service covered by a performance management system 
     established under this section means performance of the 
     employee which fails to meet a retention standard established 
     under this section.
       ``(c)(1) The Secretary of the Treasury may establish an 
     awards program designed to provide incentives for and 
     recognition of organizational, group, and individual 
     achievements by providing for granting awards to employees 
     who, as individuals or members of a group, contribute to 
     meeting the performance goals and objectives established 
     under this chapter by such means as a superior individual or 
     group accomplishment, a documented productivity gain, or 
     sustained superior performance.
       ``(2) A cash award under subchapter I of chapter 45 may be 
     granted to an employee of the Internal Revenue Service 
     without the need for any approval under section 4502(b).
       ``(d)(1) In applying sections 4303(b)(1)(A) and 7513(b)(1) 
     to employees of the Internal Revenue Service, `30 days' may 
     be deemed to be `15 days'.
       ``(2) Notwithstanding the second sentence of section 
     5335(c), an employee of the Internal Revenue Service shall 
     not have a right to appeal the denial of a periodic step 
     increase under section 5335 to the Merit Systems Protection 
     Board.

     ``Sec. 9509. General workforce classification and pay

       ``(a) For purposes of this section, the term `broad-banded 
     system' means a system for grouping positions for pay, job 
     evaluation, and other purposes that is different from the 
     system established under chapter 51 and subchapter III of 
     chapter 53 as a result of combining grades and related ranges 
     of rates of pay in 1 or more occupational series.
       ``(b)(1)(A) The Secretary of the Treasury may, subject to 
     criteria to be prescribed by the Office of Personnel 
     Management, establish 1 or more broad-banded systems covering 
     all or any portion of the Internal Revenue Service workforce.
       ``(B) With the approval of the Office of Personnel 
     Management, a broad-banded system established under this 
     section may either include or consist of positions that 
     otherwise would be subject to subchapter IV of chapter 53 or 
     section 5376.
       ``(2) The Office of Personnel Management may require the 
     Secretary of the Treasury to submit information relating to 
     broad-banded systems at the Internal Revenue Service.
       ``(3) Except as otherwise provided under this section, 
     employees under a broad-banded system shall continue to be 
     subject to the laws and regulations covering employees under 
     the pay system that otherwise would apply to such employees.
       ``(4) The criteria to be prescribed by the Office of 
     Personnel Management shall, at a minimum--
       ``(A) ensure that the structure of any broad-banded system 
     maintains the principle of equal pay for substantially equal 
     work;
       ``(B) establish the minimum and maximum number of grades 
     that may be combined into pay bands;
       ``(C) establish requirements for setting minimum and 
     maximum rates of pay in a pay band;
       ``(D) establish requirements for adjusting the pay of an 
     employee within a pay band;
       ``(E) establish requirements for setting the pay of a 
     supervisory employee whose position is in a pay band or who 
     supervises employees whose positions are in pay bands; and
       ``(F) establish requirements and methodologies for setting 
     the pay of an employee upon conversion to a broad-banded 
     system, initial appointment, change of position or type of 
     appointment (including promotion, demotion, transfer, 
     reassignment, reinstatement, placement in another pay band, 
     or movement to a different geographic location), and movement 
     between a broad-banded system and another pay system.
       ``(c) With the approval of the Office of Personnel 
     Management and in accordance with a plan for implementation 
     submitted by the Secretary of the Treasury, the Secretary 
     may, with respect to Internal Revenue Service employees who 
     are covered by a broad-banded system established under this 
     section, provide for variations from the provisions of 
     subchapter VI of chapter 53.

     ``Sec. 9510. General workforce staffing

       ``(a)(1) Except as otherwise provided by this section, an 
     employee of the Internal Revenue Service may be selected for 
     a permanent appointment in the competitive service in the 
     Internal Revenue Service through internal competitive 
     promotion procedures if--
       ``(A) the employee has completed, in the competitive 
     service, 2 years of current continuous service under a term 
     appointment or any combination of term appointments;

[[Page S4156]]

       ``(B) such term appointment or appointments were made under 
     competitive procedures prescribed for permanent appointments;
       ``(C) the employee's performance under such term 
     appointment or appointments met established retention 
     standards, or, if not covered by a performance management 
     system established under section 9508, was rated at the fully 
     successful level or higher (or equivalent thereof); and
       ``(D) the vacancy announcement for the term appointment 
     from which the conversion is made stated that there was a 
     potential for subsequent conversion to a permanent 
     appointment.
       ``(2) An appointment under this section may be made only to 
     a position in the same line of work as a position to which 
     the employee received a term appointment under competitive 
     procedures.
       ``(b)(1) Notwithstanding subchapter I of chapter 33, the 
     Secretary of the Treasury may establish category rating 
     systems for evaluating applicants for Internal Revenue 
     Service positions in the competitive service under which 
     qualified candidates are divided into 2 or more quality 
     categories on the basis of relative degrees of merit, rather 
     than assigned individual numerical ratings.
       ``(2) Each applicant who meets the minimum qualification 
     requirements for the position to be filled shall be assigned 
     to an appropriate category based on an evaluation of the 
     applicant's knowledge, skills, and abilities relative to 
     those needed for successful performance in the position to be 
     filled.
       ``(3) Within each quality category established under 
     paragraph (1), preference eligibles shall be listed ahead of 
     individuals who are not preference eligibles. For other than 
     scientific and professional positions at or higher than GS-9 
     (or equivalent), preference eligibles who have a compensable 
     service-connected disability of 10 percent or more, and who 
     meet the minimum qualification standards, shall be listed in 
     the highest quality category.
       ``(4) An appointing authority may select any applicant from 
     the highest quality category or, if fewer than 3 candidates 
     have been assigned to the highest quality category, from a 
     merged category consisting of the highest and second highest 
     quality categories.
       ``(5) Notwithstanding paragraph (4), the appointing 
     authority may not pass over a preference eligible in the same 
     or higher category from which selection is made unless the 
     requirements of section 3317(b) or 3318(b), as applicable, 
     are satisfied.
       ``(c) The Secretary of the Treasury may detail employees 
     among the offices of the Internal Revenue Service without 
     regard to the 120-day limitation in section 3341(b).
       ``(d) Notwithstanding any other provision of law, the 
     Secretary of the Treasury may establish a probationary period 
     under section 3321 of up to 3 years for Internal Revenue 
     Service positions if the Secretary of the Treasury determines 
     that the nature of the work is such that a shorter period is 
     insufficient to demonstrate complete proficiency in the 
     position.
       ``(e) Nothing in this section exempts the Secretary of the 
     Treasury from--
       ``(1) any employment priority established under direction 
     of the President for the placement of surplus or displaced 
     employees; or
       ``(2) any obligation under a court order or decree relating 
     to the employment practices of the Internal Revenue Service 
     or the Department of the Treasury.''.
       (b) Clerical Amendment.--The table of sections for part III 
     of title 5, United States Code, is amended by adding at the 
     end the following:

                       ``Subpart I--Miscellaneous

``95. Personnel flexibilities relating to the Internal Reven9501''.ice.

     SEC. 1202. VOLUNTARY SEPARATION INCENTIVE PAYMENTS.

       (a) Definition.--In this section, the term ``employee'' 
     means an employee (as defined by section 2105 of title 5, 
     United States Code) who is employed by the Internal Revenue 
     Service serving under an appointment without time limitation, 
     and has been currently employed for a continuous period of at 
     least 3 years, but does not include--
       (1) a reemployed annuitant under subchapter III of chapter 
     83 or chapter 84 of title 5, United States Code, or another 
     retirement system;
       (2) an employee having a disability on the basis of which 
     such employee is or would be eligible for disability 
     retirement under the applicable retirement system referred to 
     in paragraph (1);
       (3) an employee who is in receipt of a specific notice of 
     involuntary separation for misconduct or unacceptable 
     performance;
       (4) an employee who, upon completing an additional period 
     of service as referred to in section 3(b)(2)(B)(ii) of the 
     Federal Workforce Restructuring Act of 1994 (5 U.S.C. 5597 
     note), would qualify for a voluntary separation incentive 
     payment under section 3 of such Act;
       (5) an employee who has previously received any voluntary 
     separation incentive payment by the Federal Government under 
     this section or any other authority and has not repaid such 
     payment;
       (6) an employee covered by statutory reemployment rights 
     who is on transfer to another organization; or
       (7) any employee who, during the 24-month period preceding 
     the date of separation, has received a recruitment or 
     relocation bonus under section 5753 of title 5, United States 
     Code, or who, within the 12-month period preceding the date 
     of separation, received a retention allowance under section 
     5754 of title 5, United States Code.
       (b) Authority To Provide Voluntary Separation Incentive 
     Payments.--
       (1) In general.--The Commissioner of Internal Revenue may 
     pay voluntary separation incentive payments under this 
     section to any employee to the extent necessary to carry out 
     the plan to reorganize the Internal Revenue Service under 
     section 1001.
       (2) Amount and treatment of payments.--A voluntary 
     separation incentive payment--
       (A) shall be paid in a lump sum after the employee's 
     separation;
       (B) shall be paid from appropriations or funds available 
     for the payment of the basic pay of the employees;
       (C) shall be equal to the lesser of--
       (i) an amount equal to the amount the employee would be 
     entitled to receive under section 5595(c) of title 5, United 
     States Code; or
       (ii) an amount determined by an agency head not to exceed 
     $25,000;
       (D) may not be made except in the case of any qualifying 
     employee who voluntarily separates (whether by retirement or 
     resignation) before January 1, 2003;
       (E) shall not be a basis for payment, and shall not be 
     included in the computation, of any other type of Government 
     benefit; and
       (F) shall not be taken into account in determining the 
     amount of any severance pay to which the employee may be 
     entitled under section 5595 of title 5, United States Code, 
     based on any other separation.
       (c) Additional Internal Revenue Service Contributions to 
     the Retirement Fund.--
       (1) In general.--In addition to any other payments which it 
     is required to make under subchapter III of chapter 83 of 
     title 5, United States Code, the Internal Revenue Service 
     shall remit to the Office of Personnel Management for deposit 
     in the Treasury of the United States to the credit of the 
     Civil Service Retirement and Disability Fund an amount equal 
     to 15 percent of the final basic pay of each employee who is 
     covered under subchapter III of chapter 83 or chapter 84 of 
     title 5, United States Code, to whom a voluntary separation 
     incentive has been paid under this section.
       (2) Definition.--In paragraph (1), the term ``final basic 
     pay'', with respect to an employee, means the total amount of 
     basic pay which would be payable for a year of service by 
     such employee, computed using the employee's final rate of 
     basic pay, and, if last serving on other than a full-time 
     basis, with appropriate adjustment therefor.
       (d) Effect of Subsequent Employment With the Government.--
     An individual who has received a voluntary separation 
     incentive payment under this section and accepts any 
     employment for compensation with the Government of the United 
     States, or who works for any agency of the United States 
     Government through a personal services contract, within 5 
     years after the date of the separation on which the payment 
     is based shall be required to pay, prior to the individual's 
     first day of employment, the entire amount of the incentive 
     payment to the Internal Revenue Service.
       (e) Effect on Internal Revenue Service Employment Levels.--
       (1) Intended effect.--Voluntary separations under this 
     section are not intended to necessarily reduce the total 
     number of full-time equivalent positions in the Internal 
     Revenue Service.
       (2) Use of voluntary separations.--The Internal Revenue 
     Service may redeploy or use the full-time equivalent 
     positions vacated by voluntary separations under this section 
     to make other positions available to more critical locations 
     or more critical occupations.

     SEC. 1203. TERMINATION OF EMPLOYMENT FOR MISCONDUCT.

       (a) In General.--Subject to subsection (c), the 
     Commissioner of Internal Revenue shall terminate the 
     employment of any employee of the Internal Revenue Service if 
     there is a final administrative or judicial determination 
     that such employee committed any act or omission described 
     under subsection (b) in the performance of the employee's 
     official duties. Such termination shall be a removal for 
     cause on charges of misconduct.
       (b) Acts or Omissions.--The acts or omissions referred to 
     under subsection (a) are--
       (1) failure to obtain the required approval signatures on 
     documents authorizing the seizure of a taxpayer's home, 
     personal belongings, or business assets;
       (2) providing a false statement under oath with respect to 
     a material matter involving a taxpayer;
       (3) violation of the civil rights of a taxpayer or other 
     employee of the Internal Revenue Service;
       (4) falsifying or destroying documents to conceal mistakes 
     made by the employee with respect to a matter involving a 
     taxpayer;
       (5) assault or battery on a taxpayer or other employee of 
     the Internal Revenue Service;
       (6) violations of the Internal Revenue Code of 1986, 
     Department of Treasury regulations, or policies of the 
     Internal Revenue Service (including the Internal Revenue 
     Manual) for the purpose of retaliating against, or harassing, 
     a taxpayer or other employee of the Internal Revenue Service; 
     and
       (7) willful misuse of the provisions of section 6103 of the 
     Internal Revenue Code of 1986 for the purpose of concealing 
     information from a congressional inquiry.
       (c) Determination of Commissioner.--
       (1) In general.--The Commissioner of Internal Revenue may 
     take a personnel action other than termination for an act or 
     omission under subsection (a).
       (2) Discretion.--The exercise of authority under paragraph 
     (1) shall be at the sole discretion of the Commissioner of 
     Internal Revenue and may not be delegated to any other 
     officer. The Commissioner of Internal Revenue, in his sole 
     discretion, may establish a procedure which will be used to 
     determine whether an individual should be referred to the 
     Commissioner of Internal Revenue for a determination by the 
     Commissioner under paragraph (1).
       (3) No appeal.--Any determination of the Commissioner of 
     Internal Revenue under this

[[Page S4157]]

     subsection may not be appealed in any administrative or 
     judicial proceeding.

     SEC. 1204. BASIS FOR EVALUATION OF INTERNAL REVENUE SERVICE 
                   EMPLOYEES.

       (a) In General.--The Internal Revenue Service shall not use 
     records of tax enforcement results--
       (1) to evaluate employees and their immediate supervisors; 
     or
       (2) to impose or suggest production quotas or goals with 
     respect to individuals described in paragraph (1).
       (b) Taxpayer Service.--The Internal Revenue Service shall 
     use the fair and equitable treatment of taxpayers by 
     employees as one of the standards for evaluating employee 
     performance.
       (c) Certification.--Each appropriate supervisor shall 
     certify quarterly by letter to the Commissioner of Internal 
     Revenue that tax enforcement results are not used in a manner 
     prohibited by subsection (a).
       (d) Technical and Conforming Amendment.--Section 6231 of 
     the Technical and Miscellaneous Revenue Act of 1988 (Public 
     Law 100-647; 102 Stat. 3734) is repealed.
       (e) Effective Date.--This section shall apply to 
     evaluations conducted on or after the date of the enactment 
     of this Act.

     SEC. 1205. EMPLOYEE TRAINING PROGRAM.

       (a) In General.--Not later than 90 days after the date of 
     the enactment of this Act, the Commissioner of Internal 
     Revenue shall implement an employee training program and 
     shall submit an employee training plan to the Committee on 
     Finance of the Senate and the Committee on Ways and Means of 
     the House of Representatives.
       (b) Contents.--The plan submitted under subsection (a) 
     shall--
       (1) detail a comprehensive employee training program to 
     ensure adequate customer service training;
       (2) detail a schedule for training and the fiscal years 
     during which the training will occur;
       (3) detail the funding of the program and relevant 
     information to demonstrate the priority and commitment of 
     resources to the plan;
       (4) review the organizational design of customer service;
       (5) provide for the implementation of a performance 
     development system; and
       (6) provide for at least 16 hours of conflict management 
     training during fiscal year 1999 for employees conducting 
     collection activities.
                      TITLE II--ELECTRONIC FILING

     SEC. 2001. ELECTRONIC FILING OF TAX AND INFORMATION RETURNS.

       (a) In General.--It is the policy of the Congress that--
       (1) paperless filing should be the preferred and most 
     convenient means of filing tax and information returns, and
       (2) it should be the goal of the Internal Revenue Service 
     to have at least 80 percent of all such returns filed 
     electronically by the year 2007.
       (b) Strategic Plan.--
       (1) In general.--Not later than 180 days after the date of 
     the enactment of this Act, the Secretary of the Treasury or 
     the Secretary's delegate (hereafter in this section referred 
     to as the ``Secretary'') shall establish a plan to eliminate 
     barriers, provide incentives, and use competitive market 
     forces to increase electronic filing gradually over the next 
     10 years while maintaining processing times for paper returns 
     at 40 days. To the extent practicable, such plan shall 
     provide that all returns prepared electronically for taxable 
     years beginning after 2001 shall be filed electronically.
       (2) Electronic commerce advisory group.--To ensure that the 
     Secretary receives input from the private sector in the 
     development and implementation of the plan required by 
     paragraph (1), the Secretary shall convene an electronic 
     commerce advisory group to include representatives from the 
     small business community and from the tax practitioner, 
     preparer, and computerized tax processor communities and 
     other representatives from the electronic filing industry.
       (c) Promotion of Electronic Filing and Incentives.--Section 
     6011 is amended by redesignating subsection (f) as subsection 
     (g) and by inserting after subsection (e) the following new 
     subsection:
       ``(f) Promotion of Electronic Filing.--
       ``(1) In general.--The Secretary is authorized to promote 
     the benefits of and encourage the use of electronic tax 
     administration programs, as they become available, through 
     the use of mass communications and other means.
       ``(2) Incentives.--The Secretary may implement procedures 
     to provide for the payment of appropriate incentives for 
     electronically filed returns.''
       (d) Annual Reports.--Not later than June 30 of each 
     calendar year after 1998, the Chairperson of the Internal 
     Revenue Service Oversight Board, the Secretary of the 
     Treasury, and the Chairperson of the electronic commerce 
     advisory group established under subsection (b)(2) shall 
     report to the Committees on Ways and Means, Appropriations, 
     and Government Reform and Oversight of the House of 
     Representatives and the Committees on Finance, 
     Appropriations, and Governmental Affairs of the Senate on--
       (1) the progress of the Internal Revenue Service in meeting 
     the goal of receiving electronically 80 percent of tax and 
     information returns by 2007;
       (2) the status of the plan required by subsection (b); and
       (3) the legislative changes necessary to assist the 
     Internal Revenue Service in meeting such goal.

     SEC. 2002. DUE DATE FOR CERTAIN INFORMATION RETURNS.

       (a) Information Returns Filed Electronically.--Section 6071 
     (relating to time for filing returns and other documents) is 
     amended by redesignating subsection (b) as subsection (c) and 
     by inserting after subsection (a) the following new 
     subsection:
       ``(b) Electronically Filed Information Returns.--Returns 
     made under subparts B and C of part III of this subchapter 
     which are filed electronically shall be filed on or before 
     March 31 of the year following the calendar year to which 
     such returns relate.''
       (b) Study Relating to Time For Providing Notice to 
     Recipients.--
       (1) In general.--The Secretary of the Treasury shall 
     conduct a study evaluating the effect of extending the 
     deadline for providing statements to persons with respect to 
     whom information is required to be furnished under subparts B 
     and C of part III of subchapter A of chapter 61 of the 
     Internal Revenue Code of 1986 (other than section 6051 of 
     such Code) from January 31 to February 15 of the year in 
     which the return to which the statement relates is required 
     to be filed.
       (2) Report.--Not later than December 31, 1998, the 
     Secretary of the Treasury shall submit a report on the study 
     under paragraph (1) to the Committee on Ways and Means of the 
     House of Representatives and the Committee on Finance of the 
     Senate.
       (c) Effective Date.--The amendment made by subsection (a) 
     shall apply to returns required to be filed after December 
     31, 1999.

     SEC. 2003. PAPERLESS ELECTRONIC FILING.

       (a) In General.--Section 6061 (relating to signing of 
     returns and other documents) is amended--
       (1) by striking ``Except as otherwise provided by'' and 
     inserting the following:
       ``(a) General Rule.--Except as otherwise provided by 
     subsection (b) and'', and
       (2) by adding at the end the following new subsection:
       ``(b) Electronic Signatures.--
       ``(1) In general.--The Secretary shall develop procedures 
     for the acceptance of signatures in digital or other 
     electronic form. Until such time as such procedures are in 
     place, the Secretary may provide for alternative methods of 
     subscribing all returns, declarations, statements, or other 
     documents required or permitted to be made or written under 
     internal revenue laws and regulations.
       ``(2) Treatment of alternative methods.--Notwithstanding 
     any other provision of law, any return, declaration, 
     statement, or other document filed and verified, signed, or 
     subscribed under any method adopted under paragraph (1) shall 
     be treated for all purposes (both civil and criminal, 
     including penalties for perjury) in the same manner as though 
     signed and subscribed. Any such return, declaration, 
     statement, or other document shall be presumed to have been 
     actually submitted and subscribed by the person on whose 
     behalf it was submitted.
       ``(3) Published guidance.--The Secretary shall publish 
     guidance as appropriate to define and implement any method 
     adopted under paragraph (1).''
       (b) Acknowledgment of Electronic Filing.--Section 7502(c) 
     is amended to read as follows:
       ``(c) Registered and Certified Mailing; Electronic 
     Filing.--
       ``(1) Registered mail.--For purposes of this section, if 
     any return, claim, statement, or other document, or payment, 
     is sent by United States registered mail--
       ``(A) such registration shall be prima facie evidence that 
     the return, claim, statement, or other document was delivered 
     to the agency, officer, or office to which addressed, and
       ``(B) the date of registration shall be deemed the postmark 
     date.
       ``(2) Certified mail; electronic filing.--The Secretary is 
     authorized to provide by regulations the extent to which the 
     provisions of paragraph (1) with respect to prima facie 
     evidence of delivery and the postmark date shall apply to 
     certified mail and electronic filing.''
       (c) Establishment of Procedures for Other Information.--In 
     the case of taxable periods beginning after December 31, 
     1998, the Secretary of the Treasury or the Secretary's 
     delegate shall, to the extent practicable, establish 
     procedures to accept, in electronic form, any other 
     information, statements, elections, or schedules, from 
     taxpayers filing returns electronically, so that such 
     taxpayers will not be required to file any paper.
       (d) Procedures for Authorizing Disclosure Electronically.--
     The Secretary shall establish procedures for taxpayers to 
     designate, on electronically filed returns, persons to whom 
     information may be disclosed under section 6103(c) of the 
     Internal Revenue Code of 1986.
       (e) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 2004. RETURN-FREE TAX SYSTEM.

       (a) In General.--The Secretary of the Treasury or the 
     Secretary's delegate shall develop procedures for the 
     implementation of a return-free tax system under which 
     appropriate individuals would be permitted to comply with the 
     Internal Revenue Code of 1986 without making the return 
     required under section 6012 of such Code for taxable years 
     beginning after 2007.
       (b) Report.--Not later than June 30 of each calendar year 
     after 1999, such Secretary shall report to the Committee on 
     Ways and Means of the House of Representatives and the 
     Committee on Finance of the Senate on--
       (1) what additional resources the Internal Revenue Service 
     would need to implement such a system,
       (2) the changes to the Internal Revenue Code of 1986 that 
     could enhance the use of such a system,
       (3) the procedures developed pursuant to subsection (a), 
     and
       (4) the number and classes of taxpayers that would be 
     permitted to use the procedures developed pursuant to 
     subsection (a).

[[Page S4158]]

     SEC. 2005. ACCESS TO ACCOUNT INFORMATION.

       (a) In General.--Not later than December 31, 2006, the 
     Secretary of the Treasury or the Secretary's delegate shall 
     develop procedures under which a taxpayer filing returns 
     electronically (and their designees under section 6103(c) of 
     the Internal Revenue Code of 1986) would be able to review 
     the taxpayer's account electronically, but only if all 
     necessary safeguards to ensure the privacy of such account 
     information are in place.
       (b) Report.--Not later than December 31, 2003, the 
     Secretary of the Treasury shall report on the progress the 
     Secretary is making on the development of procedures under 
     subsection (a) to the Committee on Ways and Means of the 
     House of Representatives and the Committee on Finance of the 
     Senate.
               TITLE III--TAXPAYER PROTECTION AND RIGHTS

     SEC. 3000. SHORT TITLE.

       This title may be cited as the ``Taxpayer Bill of Rights 
     3''.
                      Subtitle A--Burden of Proof

     SEC. 3001. BURDEN OF PROOF.

       (a) In General.--Chapter 76 (relating to judicial 
     proceedings) is amended by adding at the end the following 
     new subchapter:

                    ``Subchapter E--Burden of Proof

``Sec. 7491. Burden of proof.

     ``SEC. 7491. BURDEN OF PROOF.

       ``(a) Burden Shifts Where Taxpayer Produces Credible 
     Evidence.--
       ``(1) General rule.--If, in any court proceeding, a 
     taxpayer introduces credible evidence with respect to any 
     factual issue relevant to ascertaining the income tax 
     liability of the taxpayer, the Secretary shall have the 
     burden of proof with respect to such issue.
       ``(2) Limitations.--Paragraph (1) shall apply with respect 
     to an issue only if--
       ``(A) the taxpayer has complied with the requirements under 
     this title to substantiate any item,
       ``(B) the taxpayer has maintained all records required 
     under this title and has cooperated with reasonable requests 
     by the Secretary for witnesses, information, documents, 
     meetings, and interviews, and
       ``(C) in the case of a partnership, corporation, or trust, 
     the taxpayer is described in section 7430(c)(4)(A)(ii).
       ``(3) Coordination.--Paragraph (1) shall not apply to any 
     issue if any other provision of this title provides for a 
     specific burden of proof with respect to such issue.
       ``(b) Use of Statistical Information on Unrelated 
     Taxpayers.--In the case of an individual taxpayer, the 
     Secretary shall have the burden of proof in any court 
     proceeding with respect to any item of income which was 
     reconstructed by the Secretary solely through the use of 
     statistical information on unrelated taxpayers.
       ``(c) Penalties.--Notwithstanding any other provision of 
     this title, the Secretary shall have the burden of production 
     in any court proceeding with respect to the liability of any 
     individual for any penalty, addition to tax, or additional 
     amount imposed by this title.''
       (b) Conforming Amendment.--The table of subchapters for 
     chapter 76 is amended by adding at the end the following new 
     item:

``Subchapter E. Burden of proof.''

       (c) Effective Date.--The amendments made by this section 
     shall apply to court proceedings arising in connection with 
     examinations commencing after the date of the enactment of 
     this Act.
                  Subtitle B--Proceedings by Taxpayers

     SEC. 3101. EXPANSION OF AUTHORITY TO AWARD COSTS AND CERTAIN 
                   FEES.

       (a) Award of All Reasonable Attorneys Fees.--
       (1) In general.--Section 7430(c)(1) (relating to reasonable 
     litigation costs) is amended--
       (A) by striking clause (iii) of subparagraph (B) and 
     inserting:
       ``(iii) reasonable fees paid or incurred for the services 
     of attorneys in connection with the court proceeding.'', and
       (B) by striking the last 2 sentences.
       (2) Conforming amendment.--Section 7430(c)(2)(B) is amended 
     by striking ``or (iii)''.
       (b) Award of Administrative Costs Incurred After 30-Day 
     Letter.--Paragraph (2) of section 7430(c) is amended by 
     striking the last sentence and inserting the following new 
     flush sentence:

     ``Such term shall only include costs incurred on or after 
     whichever of the following is the earliest: (i) the date of 
     the receipt by the taxpayer of the notice of the decision of 
     the Internal Revenue Service Office of Appeals, (ii) the date 
     of the notice of deficiency, or (iii) the date on which the 
     1st letter of proposed deficiency which allows the taxpayer 
     an opportunity for administrative review in the Internal 
     Revenue Service Office of Appeals is sent.''
       (c) Award of Fees for Certain Additional Services.--
     Paragraph (3) of section 7430(c) is amended to read as 
     follows:
       ``(3) Attorneys fees.--
       ``(A) In general.--For purposes of paragraphs (1) and (2), 
     fees for the services of an individual (whether or not an 
     attorney) who is authorized to practice before the Tax Court 
     or before the Internal Revenue Service shall be treated as 
     fees for the services of an attorney.
       ``(B) Pro bono services.--The court may award reasonable 
     attorneys fees under subsection (a) in excess of the 
     attorneys fees paid or incurred if such fees are less than 
     the reasonable attorneys fees because an individual is 
     representing the prevailing party for no fee or for a fee 
     which (taking into account all the facts and circumstances) 
     is no more than a nominal fee. This subparagraph shall apply 
     only if such award is paid to such individual or such 
     individual's employer.''
       (d) Determination of Whether Position of United States Is 
     Substantially Justified.--Subparagraph (B) of section 
     7430(c)(4) is amended by redesignating clause (iii) as clause 
     (iv) and by inserting after clause (ii) the following new 
     clause:
       ``(iii) Effect of losing on substantially similar issues.--
     In determining for purposes of clause (i) whether the 
     position of the United States was substantially justified, 
     the court shall take into account whether the United States 
     has lost in courts of appeal for other circuits on 
     substantially similar issues.''
       (e) Taxpayer Treated as Prevailing if Judgment Is Less Than 
     Taxpayer's Offer.--
       (1) In general.--Section 7430(c)(4) (defining prevailing 
     party) is amended by adding at the end the following new 
     subparagraph:
       ``(E) Special rules where judgment less than taxpayer's 
     offer.--
       ``(i) In general.--A party to a court proceeding meeting 
     the requirements of subparagraph (A)(ii) shall be treated as 
     the prevailing party if the liability of the taxpayer 
     pursuant to the judgment in the proceeding (determined 
     without regard to interest) is equal to or less than the 
     liability of the taxpayer which would have been so determined 
     if the United States had accepted a qualified offer of the 
     party under subsection (g).
       ``(ii) Exceptions.--This subparagraph shall not apply to--

       ``(I) any judgment issued pursuant to a settlement, or
       ``(II) any proceeding in which the amount of tax liability 
     is not in issue, including any declaratory judgment 
     proceeding, any proceeding to enforce or quash any summons 
     issued pursuant to this title, and any action to restrain 
     disclosure under section 6110(f).

       ``(iii) Special rules.--If this subparagraph applies to any 
     court proceeding--

       ``(I) the determination under clause (i) shall be made by 
     reference to the last qualified offer made with respect to 
     the tax liability at issue in the proceeding, and
       ``(II) reasonable administrative and litigation costs shall 
     only include costs incurred on and after the date of such 
     offer.

       ``(iv) Coordination.--This subparagraph shall not apply to 
     a party which is a prevailing party under any other provision 
     of this paragraph.''
       (2) Qualified offer.--Section 7430 is amended by adding at 
     the end the following new subsection:
       ``(g) Qualified Offer.--For purposes of subsection (c)(4)--
       ``(1) In general.--The term `qualified offer' means a 
     written offer which--
       ``(A) is made by the taxpayer to the United States during 
     the qualified offer period,
       ``(B) specifies the amount of the taxpayer's liability 
     (determined without regard to interest),
       ``(C) is designated at the time it is made as a qualified 
     offer for purposes of this section, and
       ``(D) remains open during the period beginning on the date 
     it is made and ending on the earliest of the date the offer 
     is rejected, the date the trial begins, or the 90th day after 
     the date the offer is made.
       ``(2) Qualified offer period.--For purposes of this 
     subsection, the term `qualified offer period' means the 
     period--
       ``(A) beginning on the date on which the 1st letter of 
     proposed deficiency which allows the taxpayer an opportunity 
     for administrative review in the Internal Revenue Service 
     Office of Appeals is sent, and
       ``(B) ending on the date which is 30 days before the date 
     the case is first set for trial.''
       (f) Award of Attorneys Fees in Unauthorized Inspection and 
     Disclosure Cases.--Section 7431(c) (relating to damages) is 
     amended by striking the period at the end of paragraph (2) 
     and inserting ``, plus'', and by adding at the end the 
     following new paragraph:
       ``(3) in the case of a plaintiff which is described in 
     section 7430(c)(4)(A)(ii), reasonable attorneys fees, except 
     that if the defendant is the United States, reasonable 
     attorneys fees may be awarded only if the plaintiff is the 
     prevailing party (as determined under section 7430(c)(4)).''
       (g) Effective Date.--The amendments made by this section 
     shall apply to costs incurred (and, in the case of the 
     amendment made by subsection (c), services performed) more 
     than 180 days after the date of the enactment of this Act.

     SEC. 3102. CIVIL DAMAGES FOR COLLECTION ACTIONS.

       (a) Extension to Negligence Actions.--
       (1) In general.--Section 7433 (relating to civil damages 
     for certain unauthorized collection actions) is amended--
       (A) in subsection (a), by inserting ``, or by reason of 
     negligence,'' after ``recklessly or intentionally'', and
       (B) in subsection (b)--
       (i) in the matter preceding paragraph (1), by inserting 
     ``($100,000, in the case of negligence)'' after 
     ``$1,000,000'', and
       (ii) in paragraph (1), by inserting ``or negligent'' after 
     ``reckless or intentional''.
       (2) Requirement that administrative remedies be 
     exhausted.--Paragraph (1) of section 7433(d) is amended to 
     read as follows:
       ``(1) Requirement that administrative remedies be 
     exhausted.--A judgment for damages shall not be awarded under 
     subsection (b) unless the court determines that the plaintiff 
     has exhausted the administrative remedies available to such 
     plaintiff within the Internal Revenue Service.''
       (b) Damages Allowed in Civil Actions by Persons Other Than 
     Taxpayers.--Section 7426 is amended by redesignating 
     subsection (h) as subsection (i) and by adding after 
     subsection (g) the following new subsection:
       ``(h) Recovery of Damages Permitted in Certain Cases.--

[[Page S4159]]

       ``(1) In general.--Notwithstanding subsection (b), if, in 
     any action brought under this section, there is a finding 
     that any officer or employee of the Internal Revenue Service 
     recklessly or intentionally, or by reason of negligence, 
     disregarded any provision of this title the defendant shall 
     be liable to the plaintiff in an amount equal to the lesser 
     of $1,000,000 ($100,000 in the case of negligence) or the sum 
     of--
       ``(A) actual, direct economic damages sustained by the 
     plaintiff as a proximate result of the reckless or 
     intentional or negligent actions of the officer or employee 
     (reduced by any amount of such damages awarded under 
     subsection (b)), and
       ``(B) the costs of the action.
       ``(2) Requirement that administrative remedies be 
     exhausted.--A judgment for damages shall not be awarded under 
     this section unless the court determines that the plaintiff 
     has exhausted the administrative remedies available to such 
     plaintiff within the Internal Revenue Service.''
       (c) Civil Damages for IRS Violations of Bankruptcy 
     Procedures.--
       (1) In general.--Section 7433 (relating to civil damages 
     for certain unauthorized collection actions) is amended by 
     adding at the end the following new subsection:
       ``(e) Actions for Violations of Certain Bankruptcy 
     Procedures.--
       ``(1) In general.--If, in connection with any collection of 
     Federal tax with respect to a taxpayer, any officer or 
     employee of the Internal Revenue Service willfully violates 
     any provision of section 362 (relating to automatic stay) or 
     524 (relating to effect of discharge) of title 11, United 
     States Code, or any regulation promulgated under such 
     section, such taxpayer may petition the bankruptcy court to 
     recover damages against the United States.
       ``(2) Remedy to be exclusive.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     notwithstanding section 105 of such title 11, such petition 
     shall be the exclusive remedy for recovering damages 
     resulting from such actions.
       ``(B) Certain other actions permitted.--Subparagraph (A) 
     shall not apply to an action under section 362(h) of such 
     title 11 for a violation of a stay provided by section 362 of 
     such title; except that--
       ``(i) administrative and litigation costs in connection 
     with such an action may only be awarded under section 7430, 
     and
       ``(ii) administrative costs may be awarded only if incurred 
     on or after the date that the bankruptcy petition is filed.''
       (2) Conforming amendment.--Subsection (b) of section 7433 
     is amended by inserting ``or petition filed under subsection 
     (e)'' after ``subsection (a)''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to actions of officers or employees of the 
     Internal Revenue Service after the date of the enactment of 
     this Act.

     SEC. 3103. INCREASE IN SIZE OF CASES PERMITTED ON SMALL CASE 
                   CALENDAR.

       (a) In General.--Section 7463 (relating to disputes 
     involving $10,000 or less) is amended by striking ``$10,000'' 
     each place it appears (including the section heading) and 
     inserting ``$50,000''.
       (b) Conforming Amendments.--
       (1) Sections 7436(c)(1) and 7443A(b)(3) are each amended by 
     striking ``$10,000'' and inserting ``$50,000''.
       (2) The table of sections for part II of subchapter C of 
     chapter 76 is amended by striking ``$10,000'' in the item 
     relating to section 7463 and inserting ``$50,000''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to proceedings commencing after the date of the 
     enactment of this Act.

     SEC. 3104. EXPANSION OF TAX COURT JURISDICTION TO RESPONSIBLE 
                   PERSON PENALTIES.

       (a) In General.--Section 6672 (relating to failure to 
     collect and pay over tax, or attempt to evade or defeat tax) 
     is amended by redesignating subsections (c), (d), and (e) as 
     subsections (d), (e), and (f), respectively, and by inserting 
     after subsection (b) the following new subsection:
       ``(c) Petition for Review by Tax Court.--
       ``(1) In general.--A person may petition the Tax Court (and 
     the Tax Court shall have jurisdiction) to determine the 
     person's liability under subsection (a) if such petition is 
     filed during the 90-day period beginning on the day on which 
     notice and demand of the penalty under subsection (a) is made 
     on such person.
       ``(2) Restrictions applicable to collection of 
     assessment.--
       ``(A) In general.--Except as otherwise provided in section 
     6851 or 6861, no levy or proceeding in court for collection 
     of any assessment of any penalty under subsection (a) shall 
     be made, begun, or prosecuted until the expiration of the 90-
     day period described in paragraph (1), or, if a petition has 
     been filed with the Tax Court, until the decision of the Tax 
     Court has become final. Rules similar to the rules of section 
     7485 shall apply with respect to the collection of such 
     assessment.
       ``(B) Authority to enjoin collection actions.--
     Notwithstanding the provisions of section 7421(a), the 
     beginning of any levy or proceeding in court for collection 
     of any assessment of any penalty under subsection (a) during 
     the time the prohibition under subparagraph (A) is in force 
     may be enjoined by a proceeding in the proper court, 
     including the Tax Court. The Tax Court shall have no 
     jurisdiction under this subparagraph to enjoin any action or 
     proceeding unless a timely petition has been filed under 
     paragraph (1) and then only in respect of the amount of the 
     assessment to which such petition relates.
       ``(3) Suspension of running of period of limitations.--The 
     running of the period of limitations in section 6502 on the 
     collection of the assessment to which the petition under 
     paragraph (1) relates shall be suspended for the period 
     during which the Secretary is prohibited by paragraph (2)(A) 
     from collecting by levy or a proceeding in court and for 60 
     days thereafter.
       ``(4) Applicable rules.--
       ``(A) Credit or refund allowed.--Notwithstanding any other 
     law or rule of law (other than section 6512(b), 7121, or 
     7122), credit or refund shall be allowed or made to the 
     extent attributable to the application of this subsection.
       ``(B) Limitation on tax court jurisdiction.--If a suit for 
     refund is begun, the Tax Court shall lose jurisdiction of the 
     action under this subsection to whatever extent jurisdiction 
     is acquired by the district court or the United States Court 
     of Federal Claims over the taxable periods that are the 
     subject of the suit for refund.''
       (b) Conforming Amendments.--
       (1) Section 7103(a)(4) is amended by striking ``6672(b)'' 
     and inserting ``6672(d)''.
       (2) Section 7421(a) is amended by striking ``6672(b)'' and 
     inserting ``6672 (c) and (d)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to penalties imposed after the date of the 
     enactment of this Act.

     SEC. 3105. ACTIONS FOR REFUND WITH RESPECT TO CERTAIN ESTATES 
                   WHICH HAVE ELECTED THE INSTALLMENT METHOD OF 
                   PAYMENT.

       (a) In General.--Section 7422 is amended by redesignating 
     subsection (j) as subsection (k) and by inserting after 
     subsection (i) the following new subsection:
       ``(j) Special Rule for Actions With Respect to Estates for 
     Which an Election Under Section 6166 Is Made.--
       ``(1) In general.--The district courts of the United States 
     and the United States Court of Federal Claims shall not fail 
     to have jurisdiction over any action brought by the 
     representative of an estate to which this subsection applies 
     to determine the correct amount of the estate tax liability 
     of such estate (or for any refund with respect thereto) 
     solely because the full amount of such liability has not been 
     paid by reason of an election under section 6166 with respect 
     to such estate.
       ``(2) Estates to which subsection applies.--This subsection 
     shall apply to any estate if, as of the date the action is 
     filed--
       ``(A) no portion of the installments payable under section 
     6166 have been accelerated,
       ``(B) all such installments the due date for which is on or 
     before the date the action is filed have been paid,
       ``(C) there is no case pending in the Tax Court with 
     respect to the tax imposed by section 2001 on the estate and, 
     if a notice of deficiency under section 6212 with respect to 
     such tax has been issued, the time for filing a petition with 
     the Tax Court with respect to such notice has expired, and
       ``(D) no proceeding for declaratory judgment under section 
     7479 is pending.
       ``(3) Prohibition on collection of disallowed liability.--
     If the court redetermines under paragraph (1) the estate tax 
     liability of an estate, no part of such liability which is 
     disallowed by a decision of such court which has become final 
     may be collected by the Secretary, and amounts paid in excess 
     of the installments determined by the court as currently due 
     and payable shall be refunded.''
       (b) Extension of Time To File Refund Suit.--Section 7479 
     (relating to declaratory judgments relating to eligibility of 
     estate with respect to installment payments under section 
     6166) is amended by adding at the end the following new 
     subsection:
       ``(c) Extension of Time To File Refund Suit.--The 2-year 
     period in section 6532(a)(1) for filing suit for refund after 
     disallowance of a claim shall be suspended during the 90-day 
     period after the mailing of the notice referred to in 
     subsection (b)(3) and, if a pleading has been filed with the 
     Tax Court under this section, until the decision of the Tax 
     Court has become final.''
       (c) Effective Date.--The amendments made by this section 
     shall apply to any claim for refund filed after the date of 
     the enactment of this Act.

     SEC. 3106. TAX COURT JURISDICTION TO REVIEW ADVERSE IRS 
                   DETERMINATION OF TAX-EXEMPT STATUS OF BOND 
                   ISSUE.

       (a) In General.--Section 7478 (relating to declaratory 
     judgments relating to status of certain governmental 
     obligations) is amended--
       (1) by striking ``prospective obligations will be'' both 
     places it appears in subsection (a) and inserting 
     ``previously issued or prospective obligations is or will 
     be'', and
       (2) by striking subsection (b)(1) and inserting the 
     following:
       ``(1) Petitioner.--Except as provided in subsection (c), a 
     pleading may be filed under this section only by the issuer 
     or prospective issuer.''
       (b) Notice Requirement.--Section 7478(b) is amended by 
     adding at the end the following:
       ``(4) Notice to holders of previously issued obligations.--
       ``(A) In general.--If an issuer of previously issued 
     obligations files a pleading under this section, the court 
     shall not issue a declaratory judgment or decree under this 
     section unless it determines that the petitioner has provided 
     adequate notice to holders of such obligations within 10 days 
     of the filing of the pleading.
       ``(B) Delivery of notice.--The notice under subparagraph 
     (A) shall be given using the most practicable of the 
     following methods:
       ``(i) In person.
       ``(ii) By certified or registered mail sent to the holder's 
     last known address.
       ``(iii) By printing in appropriate publications.
       ``(C) Contents of the notice.--The notice under 
     subparagraph (A) shall include a statement of the holder's 
     right to intervene in, and participate in, any proceeding 
     under this section with respect to obligations held or 
     formerly held by the holder.''

[[Page S4160]]

       (c) Intervention; Other Rules.--Section 7478 is amended by 
     adding at the end the following:
       ``(c) Bondholder Intervention.--If an issuer of previously 
     issued obligations files a pleading under this section, then 
     the Tax Court shall permit any person who demonstrates to the 
     satisfaction of the court that such person was or is a holder 
     of any of such previously issued obligations to intervene in, 
     and participate in, the proceedings before the court with 
     respect to such pleading, on such terms and conditions as 
     shall be established by the court.
       ``(d) Period of Limitations, Collection, and Imposition of 
     Interest and Penalties Stayed Pending Conclusion of 
     Proceedings.--
       ``(1) In general.--If an issuer of previously issued 
     obligations files a pleading under this section--
       ``(A) the running of the period of limitations in sections 
     6501 and 6502 on the assessment and the collection of any tax 
     due by a person (whether or not a party to a proceeding under 
     this section) on the interest paid on such previously issued 
     obligations,
       ``(B) the collection of such tax due, and
       ``(C) the imposition of any interest, penalties, additions 
     to tax, or additional amounts in respect to any such unpaid 
     tax,

     shall be suspended from the date of such filing until the 
     date on which the decision of the Tax Court becomes final.
       ``(2) Cross reference.--

  ``For additional suspension of running of period of limitation, see 
section 6503.''
       (d) Effective Date; Special Rule.--
       (1) Effective date.--Except as provided in paragraph (2), 
     the amendments made by this section shall apply to 
     determinations made after the date of the enactment of this 
     Act.
       (2) Special rule.--Notwithstanding section 7478(b)(3) of 
     the Internal Revenue Code of 1986, in the case of a technical 
     advice memorandum which--
       (A) provides that any interest on any obligation which is 
     part of an issue (or portion thereof) is not exempt from 
     taxation under the Internal Revenue Code of 1986, and
       (B) was publicly released within 1 year of the date of the 
     enactment of this Act,

     a pleading may be filed under section 7478 of such Code with 
     respect to such memorandum not later than the 90th day after 
     such date.

     SEC. 3107. CIVIL ACTION FOR RELEASE OF ERRONEOUS LIEN.

       (a) Right of Substitution of Value.--Subsection (b) of 
     section 6325 (relating to release of lien or discharge of 
     property) is amended by adding at the end the following new 
     paragraph:
       ``(4) Right of substitution of value.--
       ``(A) In general.--At the request of the owner of any 
     property subject to any lien imposed by this chapter, the 
     Secretary shall issue a certificate of discharge of such 
     property if such owner--
       ``(i) deposits with the Secretary an amount of money equal 
     to the value of the interest of the United States (as 
     determined by the Secretary) in the property, or
       ``(ii) furnishes a bond acceptable to the Secretary in a 
     like amount.
       ``(B) Refund of deposit with interest and release of 
     bond.--The Secretary shall refund the amount so deposited 
     (and shall pay interest at the overpayment rate under section 
     6621), and shall release such bond, to the extent that the 
     Secretary determines that--
       ``(i) the unsatisfied liability giving rise to the lien can 
     be satisfied from a source other than such property, or
       ``(ii) the value of the interest of the United States in 
     the property is less than the Secretary's prior determination 
     of such value.
       ``(C) Use of deposit, etc., if action to contest lien not 
     filed.--If no action is filed under section 7426(a)(4) within 
     the period prescribed therefor, the Secretary shall, within 
     60 days after the expiration of such period--
       ``(i) apply the amount deposited, or collect on such bond, 
     to the extent necessary to satisfy the unsatisfied liability 
     secured by the lien, and
       ``(ii) refund (with interest as described in subparagraph 
     (B)) any portion of the amount deposited which is not used to 
     satisfy such liability.
       ``(D) Exception.--Subparagraph (A) shall not apply if the 
     owner of the property is the person whose unsatisfied 
     liability gave rise to the lien.''
       (b) Civil Action To Release Erroneous Lien.--
       (1) In general.--Subsection (a) of section 7426 (relating 
     to civil actions by persons other than taxpayers) is amended 
     by adding at the end the following new paragraph:
       ``(4) Substitution of value.--If a certificate of discharge 
     is issued to any person under section 6325(b)(4) with respect 
     to any property, such person may, within 120 days after the 
     day on which such certificate is issued, bring a civil action 
     against the United States in a district court of the United 
     States for a determination of whether the value of the 
     interest of the United States (if any) in such property is 
     less than the value determined by the Secretary. No other 
     action may be brought by such person for such a 
     determination.''
       (2) Form of relief.--
       (A) In general.--Subsection (b) of section 7426 is amended 
     by adding at the end the following new paragraph:
       ``(5) Substitution of value.--If the court determines that 
     the Secretary's determination of the value of the interest of 
     the United States in the property for purposes of section 
     6325(b)(4) exceeds the actual value of such interest, the 
     court shall grant a judgment ordering a refund of the amount 
     deposited, and a release of the bond, to the extent that the 
     aggregate of the amounts thereof exceeds such value 
     determined by the court.''
       (B) Interest allowed on refund of deposit.--Subsection (g) 
     of section 7426 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 adding at the end the 
     following new paragraph:
       ``(3) in the case of a judgment pursuant to subsection 
     (b)(5) which orders a refund of any amount, from the date the 
     Secretary received such amount to the date of payment of such 
     judgment.''
       (3) Suspension of running of statute of limitation.--
     Subsection (f) of section 6503 is amended to read as follows:
       ``(f) Wrongful Seizure of or Lien on Property of Third 
     Party.--
       ``(1) Wrongful seizure.--The running of the period under 
     section 6502 shall be suspended for a period equal to the 
     period from the date property (including money) of a third 
     party is wrongfully seized or received by the Secretary to 
     the date the Secretary returns property pursuant to section 
     6343(b) or the date on which a judgment secured pursuant to 
     section 7426 with respect to such property becomes final, and 
     for 30 days thereafter. The running of such period shall be 
     suspended under this paragraph only with respect to the 
     amount of such assessment equal to the amount of money or the 
     value of specific property returned.
       ``(2) Wrongful lien.--In the case of any assessment for 
     which a lien was made on any property, the running of the 
     period under section 6502 shall be suspended for a period 
     equal to the period beginning on the date any person becomes 
     entitled to a certificate under section 6325(b)(4) with 
     respect to such property and ending on the date which is 30 
     days after the earlier of--
       ``(A) the earliest date on which the Secretary no longer 
     holds any amount as a deposit or bond provided under section 
     6325(b)(4) by reason of such deposit or bond being used to 
     satisfy the unpaid tax or being refunded or released, or
       ``(B) the date that the judgment secured under section 
     7426(b)(5) becomes final.

     The running of such period shall be suspended under this 
     paragraph only with respect to the amount of such assessment 
     equal to the value of the interest of the United States in 
     the property plus interest, penalties, additions to the tax, 
     and additional amounts attributable thereto.''
       (c) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.
  Subtitle C--Relief for Innocent Spouses and for Taxpayers Unable To 
           Manage Their Financial Affairs Due to Disabilities

     SEC. 3201. SPOUSAL ELECTION TO LIMIT JOINT AND SEVERAL 
                   LIABILITY ON JOINT RETURN.

       (a) In General.--Subpart B of part II of subchapter A of 
     chapter 61 is amended by inserting after section 6014 the 
     following new section:

     ``SEC. 6015. ELECTION TO LIMIT JOINT AND SEVERAL LIABILITY ON 
                   JOINT RETURN.

       ``(a) Election To Limit Liability.--
       ``(1) In general.--Notwithstanding section 6013(d)(3), and 
     except as provided in paragraphs (2) and (3), if an 
     individual who has made a joint return for any taxable year 
     elects the application of this section--
       ``(A) the individual's liability for any tax shown on the 
     return which remains unpaid as of the payment due date shall 
     not exceed the individual's separate return amount 
     determined under subsection (b), and
       ``(B) the individual's liability for any deficiency which 
     is assessed shall not exceed the portion of such deficiency 
     properly allocable to the individual under subsection (c).
       ``(2) Burden of proof.--Except as provided in paragraph (3) 
     (B) or (C), each individual who elects the application of 
     this section shall have the burden of proof with respect to 
     establishing the individual's separate return amount and the 
     portion of any deficiency allocable to such individual.
       ``(3) Election.--
       ``(A) In general.--An election under this subsection for 
     any taxable year shall be made not later than 2 years after 
     the date on which the Secretary has begun collection 
     activities with respect to the individual making the 
     election.
       ``(B) Certain taxpayers ineligible to elect.--If the 
     Secretary demonstrates that assets were transferred between 
     individuals filing a joint return as part of a fraudulent 
     scheme by such individuals, an election under this section by 
     either individual shall be invalid (and section 6013(d)(3) 
     shall apply to the joint return).
       ``(C) Election not valid with respect to certain 
     deficiencies.--If the Secretary demonstrates that an 
     individual making an election under this section had actual 
     knowledge of any item giving rise to a deficiency (or portion 
     thereof) which is not allocable to such individual under 
     subsection (c), such election shall not apply to such 
     deficiency (or portion).
       ``(b) Separate Return Amount.--For purposes of this 
     section--
       ``(1) In general.--The term `separate return amount' means, 
     with respect to an individual, an amount equal to the excess 
     (if any) of--
       ``(A) the tax liability of the individual which would have 
     been determined (on the basis of the items shown on the joint 
     return) for the taxable year if the individual had filed a 
     separate return, over
       ``(B) the aggregate payments of such tax properly allocable 
     to such individual.
       ``(2) Special rules for computing tax liabilities and 
     payment.--
       ``(A) Treatment of certain credits.--The credits allowed by 
     sections 31, 33, and 34 for any taxable year--
       ``(i) shall not be taken into account in determining the 
     amount of tax shown on a return or the tax liability of an 
     individual filing a separate return, but

[[Page S4161]]

       ``(ii) shall be taken into account in determining the 
     aggregate payments of tax of the individual to whom such 
     credits are properly allocable.
       ``(B) Mathematical and clerical errors.--Tax shown on a 
     return shall include any tax assessed on account of a 
     mathematical or clerical error (within the meaning of section 
     6213(g)(2)) appearing on the return.
       ``(3) Payment due date.--The term `payment due date' means 
     the date prescribed for payment of the tax (determined with 
     regard to any extension of time for payment).
       ``(c) Allocation of Deficiency.--For purposes of subsection 
     (a)(1)(B)--
       ``(1) In general.--The portion of any deficiency on a joint 
     return allocated to an individual shall be the amount which 
     bears the same ratio to such deficiency as the net amount of 
     items taken into account in computing the deficiency and 
     allocable to the individual under paragraph (3) bears to the 
     net amount of all items taken into account in computing the 
     deficiency.
       ``(2) Separate treatment of certain items.--If a deficiency 
     (or portion thereof) is attributable to--
       ``(A) the disallowance of a credit, or
       ``(B) any tax (other than tax imposed by section 1 or 55) 
     required to be included with the joint return,

     and such item is allocated to 1 individual under paragraph 
     (3), such deficiency (or portion) shall be allocated to such 
     individual. Any such item shall not be taken into account 
     under paragraph (1).
       ``(3) Allocation of items giving rise to the deficiency.--
     For purposes of this subsection--
       ``(A) In general.--Any item giving rise to a deficiency on 
     a joint return shall be allocated to individuals filing the 
     return in the same manner as it would have been allocated if 
     the individuals had filed separate returns for the taxable 
     year.
       ``(B) Exception where other spouse benefits.--Under rules 
     prescribed by the Secretary, an item otherwise allocable to 
     an individual under subparagraph (A) shall be allocated to 
     the other individual filing the joint return to the extent 
     the item gave rise to a tax benefit on the joint return to 
     the other individual.
       ``(C) Exception for fraud.--The Secretary may provide for 
     an allocation of any item in a manner not prescribed by 
     subparagraph (A) if the Secretary establishes that such 
     allocation is appropriate due to fraud of 1 or both 
     individuals.
       ``(d) Petition for Review by Tax Court.--
       ``(1) In general.--In the case of an individual who elects 
     to have this section apply--
       ``(A) In general.--The individual may petition the Tax 
     Court (and the Tax Court shall have jurisdiction) to 
     determine the appropriate relief available to the individual 
     under this section if such petition is filed during the 90-
     day period beginning on the date on which the Secretary mails 
     by certified or registered mail a notice to such individual 
     of the Secretary's determination of relief available to the 
     spouse. Notwithstanding the preceding sentence, an individual 
     may file such petition at any time after the date which is 6 
     months after the date such election is filed with the 
     Secretary and before the close of such 90-day period.
       ``(B) Restrictions applicable to collection of 
     assessment.--
       ``(i) In general.--Except as otherwise provided in section 
     6851 or 6861, no levy or proceeding in court shall be made, 
     begun, or prosecuted against the spouse making an election 
     under subsection (a) for collection of any assessment to 
     which such election relates until the expiration of the 90-
     day period described in subparagraph (A), or, if a petition 
     has been filed with the Tax Court, until the decision of the 
     Tax Court has become final. Rules similar to the rules of 
     section 7485 shall apply with respect to the collection of 
     such assessment.
       ``(ii) Authority to enjoin collection actions.--
     Notwithstanding the provisions of section 7421(a), the 
     beginning of such levy or proceeding during the time the 
     prohibition under clause (i) is in force may be enjoined by a 
     proceeding in the proper court, including the Tax Court. The 
     Tax Court shall have no jurisdiction under this subparagraph 
     to enjoin any action or proceeding unless a timely petition 
     has been filed under subparagraph (A) and then only in 
     respect of the amount of the assessment to which the election 
     under subsection (a) relates.
       ``(2) Suspension of running of period of limitations.--The 
     running of the period of limitations in section 6502 on the 
     collection of the assessment to which the petition under 
     paragraph (1)(A) relates shall be suspended for the period 
     during which the Secretary is prohibited by paragraph (1)(B) 
     from collecting by levy or a proceeding in court and for 60 
     days thereafter.
       ``(3) Applicable rules.--
       ``(A) Allowance of credit or refund.--Except as provided in 
     subparagraph (B), notwithstanding any other law or rule of 
     law (other than section 6512(b), 7121, or 7122), credit or 
     refund shall be allowed or made to the extent attributable to 
     the application of this section.
       ``(B) Res judicata.--In the case of any election under 
     subsection (a), if a decision of the Tax Court in any prior 
     proceeding for the same taxable year has become final, such 
     decision shall be conclusive except with respect to the 
     qualification of the individual for relief which was not an 
     issue in such proceeding. The exception contained in the 
     preceding sentence shall not apply if the Tax Court 
     determines that the individual participated meaningfully in 
     such prior proceeding.
       ``(C) Limitation on tax court jurisdiction.--If a suit for 
     refund is begun by either individual filing the joint return 
     pursuant to section 6532--
       ``(i) the Tax Court shall lose jurisdiction of the 
     individual's action under this section to whatever extent 
     jurisdiction is acquired by the district court or the United 
     States Court of Federal Claims over the taxable years that 
     are the subject of the suit for refund, and
       ``(ii) the court acquiring jurisdiction shall have 
     jurisdiction over the petition filed under this subsection.
       ``(4) Notice to other spouse.--The Tax Court shall 
     establish rules which provide the individual filing a joint 
     return but not making the election under subsection (a) with 
     adequate notice and an opportunity to become a party to a 
     proceeding under this subsection.
       ``(e) Equitable Relief.--Under procedures prescribed by the 
     Secretary, if--
       ``(1) a separate return amount determined under subsection 
     (b) or an allocation of deficiency under subsection (c) is 
     attributable to an item being allocated to an individual,
       ``(2) the individual establishes that he or she did not 
     know, and had no reason to know, of such item, and
       ``(3) taking into account all the facts and circumstances, 
     it is inequitable to hold the individual liable for any 
     unpaid tax or any deficiency (or any portion of either) 
     attributable to such item,

     the Secretary may provide that, for purposes of this section, 
     such item shall not be allocated to such individual but shall 
     be allocated to the other individual filing the joint return.
       ``(f) Other Rules.--For purposes of this section--
       ``(1) Community property laws disregarded.--Any 
     determination under this section shall be made without regard 
     to community property laws.
       ``(2) Limitations on separate returns disregarded.--If an 
     item of deduction or credit is disallowed in its entirety 
     solely because a separate return is filed, such disallowance 
     shall be disregarded and the item shall be computed as if a 
     joint return had been filed and then allocated between the 
     spouses appropriately. A similar rule shall apply for 
     purposes of section 86.
       ``(3) Child's liability.--If the liability of a child of a 
     taxpayer is included on a joint return, such liability shall 
     be disregarded in computing the separate liability of either 
     spouse and such liability shall be allocated appropriately 
     between the spouses.
       ``(g) Liability Increased by Reason of Transfers of 
     Property To Avoid Tax.--
       ``(1) In general.--Notwithstanding any other provision of 
     this section, any limitation on the tax liability of an 
     individual electing the application of this section shall be 
     increased by the value of any disqualified asset transferred 
     to the individual.
       ``(2) Disqualified asset.--For purposes of this 
     subsection--
       ``(A) In general.--The term `disqualified asset' means any 
     property or right to property transferred to an individual 
     making the election under this section with respect to a 
     joint return by the other individual filing such joint return 
     if the principal purpose of the transfer was the avoidance of 
     tax or payment of tax.
       ``(B) Presumption.--
       ``(i) In general.--For purposes of subparagraph (A), except 
     as provided in clause (ii), any transfer which is made after 
     the date which is 1 year before--

       ``(I) in the case of any unpaid tax to which subsection 
     (a)(1)(A) applies, the payment due date of such unpaid tax, 
     and
       ``(II) in the case of any deficiency to which subsection 
     (a)(1)(B) applies, the date on which the 1st letter of 
     proposed deficiency which allows the taxpayer an opportunity 
     for administrative review in the Internal Revenue Service 
     Office of Appeals is sent,

     shall be presumed to have as its principal purpose the 
     avoidance of tax or payment of tax.
       ``(ii) Exceptions.--Clause (i) shall not apply to any 
     transfer--

       ``(I) pursuant to a decree of divorce or separate 
     maintenance or a written instrument incident to such a 
     decree, or
       ``(II) which an individual establishes did not have as its 
     principal purpose the avoidance of tax or payment of tax.

       ``(h) Regulations.--The Secretary shall prescribe such 
     regulations as are necessary to carry out the provisions of 
     this section, including--
       ``(1) regulations providing methods for allocation of items 
     other than the methods under subsection (c)(3), and
       ``(2) regulations providing the opportunity for an 
     individual to have notice of, and an opportunity to 
     participate in, any administrative proceeding with respect to 
     an election made under subsection (a) by the other individual 
     filing the joint return.''
       (b) Separate Form for Applying for Spousal Relief.--Not 
     later than 180 days after the date of the enactment of this 
     Act, the Secretary of the Treasury shall develop a separate 
     form with instructions for use by taxpayers in applying for 
     relief under section 6015(a) of the Internal Revenue Code of 
     1986, as added by this section.
       (c) Separate Notice to Each Filer.--The Secretary of the 
     Treasury shall, wherever practicable, send any notice 
     relating to a joint return under section 6013 of the Internal 
     Revenue Code of 1986 separately to each individual filing the 
     joint return.
       (d) Conforming Amendments.--
       (1) Section 6013 is amended by striking subsection (e).
       (2) Subparagraph (A) of section 6230(c)(5) is amended by 
     striking ``section 6013(e)'' and inserting ``section 6015''.
       (3) Section 7421(a) is amended by inserting ``6015(d),'' 
     after ``sections''.
       (e) Clerical Amendment.--The table of sections for subpart 
     B of part II of subchapter A of chapter 61 is amended by 
     inserting after the item relating to section 6014 the 
     following new item:


[[Page S4162]]


``Sec. 6015. Election to limit joint and several liability on joint 
              return.''

       (f) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to any liability 
     for tax arising after the date of the enactment of this Act 
     and any liability for tax arising on or before such date but 
     remaining unpaid as of such date.
       (2) 2-year period.--The 2-year period under section 
     6015(a)(3)(A) of the Internal Revenue Code of 1986 shall not 
     expire before the date which is 2 years after the date of the 
     first collection activity after the date of the enactment of 
     this Act.

     SEC. 3202. SUSPENSION OF STATUTE OF LIMITATIONS ON FILING 
                   REFUND CLAIMS DURING PERIODS OF DISABILITY.

       (a) In General.--Section 6511 (relating to limitations on 
     credit or refund) is amended by redesignating subsection (h) 
     as subsection (i) and by inserting after subsection (g) the 
     following new subsection:
       ``(h) Running of Periods of Limitation Suspended While 
     Taxpayer Is Unable To Manage Financial Affairs Due to 
     Disability.--
       ``(1) In general.--In the case of an individual, the 
     running of the periods specified in subsections (a), (b), and 
     (c) shall be suspended during any period of such individual's 
     life that such individual is financially disabled.
       ``(2) Financially disabled.--
       ``(A) In general.--For purposes of paragraph (1), an 
     individual is financially disabled if such individual is 
     unable to manage his financial affairs by reason of a 
     medically determinable physical or mental impairment of the 
     individual which can be expected to result in death or which 
     has lasted or can be expected to last for a continuous period 
     of not less than 12 months. An individual shall not be 
     considered to have such an impairment unless proof of the 
     existence thereof is furnished in such form and manner as the 
     Secretary may require.
       ``(B) Exception where individual has guardian, etc.--An 
     individual shall not be treated as financially disabled 
     during any period that such individual's spouse or any other 
     person is authorized to act on behalf of such individual in 
     financial matters.''
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to periods of disability before, on, or after the 
     date of the enactment of this Act but shall not apply to any 
     claim for credit or refund which (without regard to such 
     amendment) is barred by the operation of any law or rule of 
     law (including res judicata) as of January 1, 1998.
       Subtitle D--Provisions Relating to Interest and Penalties

     SEC. 3301. ELIMINATION OF INTEREST RATE DIFFERENTIAL ON 
                   OVERLAPPING PERIODS OF INTEREST ON INCOME TAX 
                   OVERPAYMENTS AND UNDERPAYMENTS.

       (a) In General.--Section 6621 (relating to determination of 
     rate of interest) is amended by adding at the end the 
     following new subsection:
       ``(d) Elimination of Interest on Overlapping Periods of 
     Income Tax Overpayments and Underpayments.--To the extent 
     that, for any period, interest is payable under subchapter A 
     and allowable under subchapter B on equivalent underpayments 
     and overpayments by the same taxpayer of tax imposed by 
     chapters 1 and 2, the net rate of interest under this section 
     on such amounts shall be zero for such period.''
       (b) Conforming Amendment.--Subsection (f) of section 6601 
     (relating to satisfaction by credits) is amended by adding at 
     the end the following new sentence: ``The preceding sentence 
     shall not apply to the extent that section 6621(d) applies.''
       (c) Effective Date.--The amendments made by this section 
     shall apply to interest for calendar quarters beginning after 
     the date of the enactment of this Act.

     SEC. 3302. INCREASE IN OVERPAYMENT RATE PAYABLE TO TAXPAYERS 
                   OTHER THAN CORPORATIONS.

       (a) In General.--Subparagraph (B) of section 6621(a)(1) 
     (defining overpayment rate) is amended to read as follows:
       ``(B) 3 percentage points (2 percentage points in the case 
     of a corporation).''
       (b) Effective Date.--The amendment made by this section 
     shall apply to interest for calendar quarters beginning after 
     the date of the enactment of this Act.

     SEC. 3303. ELIMINATION OF PENALTY ON INDIVIDUAL'S FAILURE TO 
                   PAY FOR MONTHS DURING PERIOD OF INSTALLMENT 
                   AGREEMENT.

       (a) In General.--Section 6651 (relating to failure to file 
     tax return or to pay tax) is amended by adding at the end the 
     following new subsection:
       ``(h) Limitation on Penalty on Individual's Failure To Pay 
     for Months During Period of Installment Agreement.--In the 
     case of an individual who files a return of tax on or before 
     the due date for the return (including extensions), no 
     addition to the tax shall be imposed under paragraph (2) or 
     (3) of subsection (a) with respect to the individual's 
     liability for tax relating to the return for any month 
     during which an installment agreement under section 6159 
     is in effect for the payment of such tax.''
       (b) Effective Date.--The amendment made by this section 
     shall apply for purposes of determining additions to the tax 
     for months beginning after the date of the enactment of this 
     Act.

     SEC. 3304. MITIGATION OF FAILURE TO DEPOSIT PENALTY.

       (a) Taxpayer May Designate Periods to Which Deposits 
     Apply.--Section 6656 (relating to underpayment of deposits) 
     is amended by adding at the end the following new subsection:
       ``(e) Designation of Periods to Which Deposits Apply.--
       ``(1) In general.--A person may designate the period or 
     periods to which a deposit is to be applied for purposes of 
     this section.
       ``(2) Time for making designation.--A person shall make any 
     designation under paragraph (1) on or before the later of--
       ``(A) the date the deposit is made, or
       ``(B) the 90th day after the earlier of the dates 
     determined under subsection (b)(1)(B) with respect to a 
     notice covering the period to which the deposit would be 
     applied but for a designation under this subsection.''
       (b) Expansion of Exemption for First-Time Deposits.--
       (1) In general.--Paragraph (2) of section 6656(c) (relating 
     to exemption for first-time depositors of employment taxes) 
     is amended to read as follows:
       ``(2) such failure--
       ``(A) occurs during the 1st quarter that such person was 
     required to deposit any employment tax, or
       ``(B) if such person is required to change the frequency of 
     deposits of any employment tax, relates to the first deposit 
     to which such change applies, and''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to deposits required to be made after the 180th 
     day after the date of the enactment of this Act.

     SEC. 3305. SUSPENSION OF INTEREST AND CERTAIN PENALTIES WHERE 
                   SECRETARY FAILS TO CONTACT INDIVIDUAL TAXPAYER.

       (a) In General.--Section 6404 (relating to abatements) is 
     amended by redesignating subsection (g) as subsection (h) and 
     by inserting after subsection (f) the following new 
     subsection:
       ``(g) Suspension of Interest and Certain Penalties Where 
     Secretary Fails To Contact Taxpayer.--
       ``(1) In general.--In the case of an individual who files a 
     return of tax imposed by subtitle A for a taxable year on or 
     before the due date for the return (including extensions), if 
     the Secretary does not provide a notice of deficiency to the 
     taxpayer before the close of the 1-year period beginning on 
     the later of--
       ``(A) the date on which the return is filed, or
       ``(B) the due date of the return without regard to 
     extensions,

     the Secretary shall suspend the imposition of any interest, 
     penalty, addition to tax, or additional amount with respect 
     to any failure relating to the return which is computed by 
     reference to the period of time the failure continues to 
     exist and which is properly allocable to the suspension 
     period.
       ``(2) Exceptions.--Paragraph (1) shall not apply to--
       ``(A) any penalty imposed by section 6651,
       ``(B) any interest, penalty, addition to tax, or additional 
     amount in a case involving fraud, or
       ``(C) any criminal penalty.
       ``(3) Suspension period.--For purposes of this subsection, 
     the term `suspension period' means the period--
       ``(A) beginning on the day after the close of the 1-year 
     period under paragraph (1), and
       ``(B) ending on the date which is 21 days after the date on 
     which notice and demand for payment of tax relating to such 
     return is made by the Secretary.''
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years ending after the date of the 
     enactment of this Act.

     SEC. 3306. PROCEDURAL REQUIREMENTS FOR IMPOSITION OF 
                   PENALTIES AND ADDITIONS TO TAX.

       (a) In General.--Chapter 68 (relating to additions to the 
     tax, additional amounts, and assessable penalties) is amended 
     by adding at the end the following new subchapter:

                ``Subchapter C--Procedural Requirements

``Sec. 6751. Procedural requirements.

     ``SEC. 6751. PROCEDURAL REQUIREMENTS.

       ``(a) Computation of Penalty Included in Notice.--The 
     Secretary shall include with each notice of penalty under 
     this title information with respect to the name of the 
     penalty, the section of this title under which the penalty is 
     imposed, and a computation of the penalty.
       ``(b) Approval of Assessment.--
       ``(1) In general.--No penalty under this title shall be 
     assessed unless the initial determination of such assessment 
     is personally approved (in writing) by the immediate 
     supervisor of the individual making such determination or 
     such higher level official as the Secretary may designate.
       ``(2) Exceptions.--Paragraph (1) shall not apply to--
       ``(A) any addition to tax under section 6651, 6654, or 
     6655, or
       ``(B) any other penalty automatically calculated through 
     electronic means.
       ``(c) Penalties.--For purposes of this section, the term 
     `penalty' includes any addition to tax or any additional 
     amount.''
       (b) Conforming Amendment.--The table of subchapters for 
     chapter 68 is amended by adding at the end the following new 
     item:

``Subchapter C. Procedural requirements.''

       (c) Effective Date.--The amendments made by this section 
     shall apply to notices issued, and penalties assessed, after 
     the 180th day after the date of the enactment of this Act.

     SEC. 3307. PERSONAL DELIVERY OF NOTICE OF PENALTY UNDER 
                   SECTION 6672.

       (a) In General.--Paragraph (1) of section 6672(b) (relating 
     to failure to collect and pay over tax, or attempt to evade 
     or defeat tax) is amended by inserting ``or in person'' after 
     ``section 6212(b)''.
       (b) Conforming Amendments.--
       (1) Paragraph (2) of section 6672(b) is amended by 
     inserting ``(or, in the case of such a notice delivered in 
     person, such delivery)'' after ``paragraph (1)''.
       (2) Paragraph (3) of section 6672(b) is amended by 
     inserting ``or delivered in person'' after ``mailed'' each 
     place it appears.

[[Page S4163]]

       (c) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 3308. NOTICE OF INTEREST CHARGES.

       (a) In General.--Chapter 67 (relating to interest) is 
     amended by adding at the end the following new subchapter:

                  ``Subchapter D--Notice requirements

``Sec. 6631. Notice requirements.

     ``SEC. 6631. NOTICE REQUIREMENTS.

       ``The Secretary shall include with each notice to an 
     individual taxpayer which includes an amount of interest 
     required to be paid by such taxpayer under this title 
     information with respect to the section of this title under 
     which the interest is imposed and a computation of the 
     interest.''
       (b) Conforming Amendment.--The table of subchapters for 
     chapter 67 is amended by adding at the end the following new 
     item:

``Subchapter D. Notice requirements.''

       (c) Effective Date.--The amendments made by this section 
     shall apply to notices issued after June 30, 2000.
 Subtitle E--Protections for Taxpayers Subject to Audit or Collection 
                               Activities

                          PART I--DUE PROCESS

     SEC. 3401. DUE PROCESS IN IRS COLLECTION ACTIONS.

       (a) Notice and Opportunity for Hearing Before Filing of 
     Notice of Lien.--Subchapter C of chapter 64 (relating to lien 
     for taxes) is amended by inserting before the table of 
     sections the following:

``Part I.  Due process for liens.
``Part II.  Liens.

                    ``PART I--DUE PROCESS FOR LIENS

``Sec. 6320. Notice and opportunity for hearing before filing of notice 
              of lien.

     ``SEC. 6320. NOTICE AND OPPORTUNITY FOR HEARING BEFORE FILING 
                   OF NOTICE OF LIEN.

       ``(a) Requirement of Notice.--
       ``(1) In general.--No notice of lien may be filed under 
     section 6323 unless the Secretary has notified in writing the 
     person described in section 6321 of the Secretary's intention 
     to file such a notice of lien.
       ``(2) Time and method for notice.--The notice required 
     under paragraph (1) shall be--
       ``(A) given in person,
       ``(B) left at the dwelling or usual place of business of 
     such person, or
       ``(C) sent by certified or registered mail to such person's 
     last known address,

     not less than 30 days before the day of the filing of the 
     notice of lien.
       ``(3) Information included with notice.--The notice 
     required under paragraph (1) shall include in simple and 
     nontechnical terms--
       ``(A) the amount of unpaid tax,
       ``(B) the right of the person to request a hearing during 
     the 30-day period described in paragraph (2),
       ``(C) the administrative appeals available to the taxpayer 
     with respect to such lien and the procedures relating to such 
     appeals, and
       ``(D) the provisions of this title and procedures relating 
     to the release of liens on property.
       ``(b) Right to Fair Hearing.--
       ``(1) In general.--If the person requests a hearing under 
     subsection (a)(3)(B), such hearing shall be held by the 
     Internal Revenue Service Office of Appeals.
       ``(2) Impartial officer.--The hearing under this subsection 
     shall be conducted by an officer or employee who has had no 
     involvement with respect to the unpaid tax specified in 
     subsection (a)(3)(A) before the first hearing under this 
     section. A taxpayer may waive the requirement of this 
     paragraph.
       ``(c) Conduct of Hearing; Review; Suspensions.--For 
     purposes of this section, subsections (c), (d) (other than 
     paragraph (2)(B) thereof), and (e) of section 6330 shall 
     apply.

                          ``PART II--LIENS''.

       (b) Notice and Opportunity for Hearing Before Levy.--
     Subchapter D of chapter 64 (relating to seizure of property 
     for collection of taxes) is amended by inserting before the 
     table of sections the following:

``Part I.  Due process for collections.
``Part II.  Levy.

                 ``PART I--DUE PROCESS FOR COLLECTIONS

``Sec. 6330. Notice and opportunity for hearing before levy.

     ``SEC. 6330. NOTICE AND OPPORTUNITY FOR HEARING BEFORE LEVY.

       ``(a) Requirement of Notice Before Levy.--
       ``(1) In general.--No levy may be made on any property or 
     right to property of any person unless the Secretary has 
     notified such person in writing of the Secretary's intention 
     to make such a levy.
       ``(2) Time and method for notice.--
       ``(A) In general.--The notice required under paragraph (1) 
     shall be--
       ``(i) given in person,
       ``(ii) left at the dwelling or usual place of business of 
     such person, or
       ``(iii) sent by certified or registered mail to such 
     person's last known address,

     not less than 30 days before the day of the levy.
       ``(B) Longer period for life insurance and endowment 
     contracts.--In the case of a levy on an organization with 
     respect to a life insurance or endowment contract issued by 
     such organization, subparagraph (A) shall be applied by 
     substituting `90 days' for `30 days'.
       ``(3) Information included with notice.--The notice 
     required under paragraph (1) shall include in simple and 
     nontechnical terms--
       ``(A) the amount of unpaid tax,
       ``(B) the right of the person to request a hearing during 
     the applicable period under paragraph (2), and
       ``(C) the proposed action by the Secretary and the rights 
     of the person with respect to such action, including a brief 
     statement which sets forth--
       ``(i) the provisions of this title relating to levy and 
     sale of property,
       ``(ii) the procedures applicable to the levy and sale of 
     property under this title,
       ``(iii) the administrative appeals available to the 
     taxpayer with respect to such levy and sale and the 
     procedures relating to such appeals,
       ``(iv) the alternatives available to taxpayers which could 
     prevent levy on the property (including installment 
     agreements under section 6159), and
       ``(v) the provisions of this title and procedures relating 
     to redemption of property and release of liens on property.
       ``(b) Right to Fair Hearing.--
       ``(1) In general.--If the person requests a hearing under 
     subsection (a)(3)(B), such hearing shall be held by the 
     Internal Revenue Service Office of Appeals.
       ``(2) Impartial officer.--The hearing under this subsection 
     shall be conducted by an officer or employee who has had no 
     prior involvement with respect to the unpaid tax specified in 
     subsection (a)(3)(A) before the first hearing under this 
     section or section 6320. A taxpayer may waive the requirement 
     of this paragraph.
       ``(c) Matters Considered at Hearing.--In the case of any 
     hearing conducted under this section--
       ``(1) Requirement of investigation.--The Secretary shall 
     verify at the hearing that the requirements of any applicable 
     law or administrative procedure have been met.
       ``(2) Issues at hearing.--The person may raise at the 
     hearing any relevant issue relating to the unpaid tax or the 
     proposed levy, including--
       ``(A) challenges to the underlying tax liability as to 
     existence or amount,
       ``(B) appropriate spousal defenses,
       ``(C) challenges to the appropriateness of collection 
     actions, and
       ``(D) offers of collection alternatives, which may include 
     the posting of a bond, the substitution of other assets, an 
     installment agreement, or an offer-in-compromise.
       ``(3) Basis for the determination.--The determination by an 
     appeals officer under this subsection shall take into 
     consideration--
       ``(A) the verification presented under paragraph (1),
       ``(B) the issues raised under paragraph (2), and
       ``(C) whether the proposed collection action balances the 
     need for the efficient collection of taxes with the 
     legitimate concern of the person that the collection action 
     be no more intrusive than necessary.
       ``(4) Certain issues precluded.--An issue may not be raised 
     at the hearing if--
       ``(A) the issue was raised at a previous hearing under this 
     section or section 6320 or in any other previous 
     administrative or judicial proceeding, and
       ``(B) the person seeking to raise the issue participated 
     meaningfully in such hearing or proceeding.

     This paragraph shall not apply to any issue with respect to 
     which subsection (d)(2)(B) applies.
       ``(d) Proceeding After Hearing.--
       ``(1) Judicial review of determination.--The person may 
     appeal a determination under this subsection to the Tax Court 
     within 30 days of the date of such determination.
       ``(2) Jurisdiction retained at irs office of appeals.--The 
     Internal Revenue Service Office of Appeals shall retain 
     jurisdiction with respect to any determination made under 
     this section, including subsequent hearings requested by the 
     person who requested the original hearing on issues 
     regarding--
       ``(A) collection actions taken or proposed with respect to 
     such determination, and
       ``(B) after the person has exhausted all administrative 
     remedies, a change in circumstances with respect to such 
     person which affects such determination.
       ``(e) Suspension of Collections and Statute of 
     Limitations.--If a hearing is requested under subsection 
     (a)(3)(B), the levy actions which are the subject of the 
     requested hearing and the running of any period of 
     limitations under section 6502 (relating to collection after 
     assessment), section 6531 (relating to criminal 
     prosecutions), or section 6532 (relating to other suits) 
     shall be suspended for the period during which such hearing, 
     and appeals therein, are pending. In no event shall any such 
     period expire before the 90th day after the day on which 
     there is a final determination in such hearing.
       ``(f) Jeopardy Collection.--If the Secretary has made a 
     finding under the last sentence of section 6331(a) that the 
     collection of tax is in jeopardy, this section shall not 
     apply, except that the taxpayer shall be given the 
     opportunity for the hearing described in this section within 
     a reasonable period of time after the levy.

                           ``PART II--LEVY''.

       (c) Review by Special Trial Judges Allowed.--
       (1) In general.--Section 7443(b) (relating to proceedings 
     which may be assigned to special trial judges) is amended by 
     striking ``and'' at the end of paragraph (3), by 
     redesignating paragraph (4) as paragraph (5), and by 
     inserting after paragraph (3) the following:
       ``(4) any proceeding under section 6320 or 6330, and''.
       (2) Authority to make decisions.--Section 7443(c) (relating 
     to authority to make court decisions) is amended by striking 
     ``or (3)'' and inserting ``(3), or (4)''.
       (d) Conforming Amendment.--Section 6331 is amended by 
     striking subsection (d).

[[Page S4164]]

       (e) Effective Date.--The amendments made by this section 
     shall apply to collection actions initiated after the date 
     which is 180 days after the date of the enactment of this 
     Act.

                    PART II--EXAMINATION ACTIVITIES

     SEC. 3411. UNIFORM APPLICATION OF CONFIDENTIALITY PRIVILEGE 
                   TO TAXPAYER COMMUNICATIONS WITH FEDERALLY 
                   AUTHORIZED PRACTITIONERS.

       (a) In General.--Chapter 77 (relating to miscellaneous 
     provisions) is amended by adding at the end the following new 
     section:

     ``SEC. 7525. UNIFORM APPLICATION OF CONFIDENTIALITY PRIVILEGE 
                   TO TAXPAYER COMMUNICATIONS WITH FEDERALLY 
                   AUTHORIZED PRACTITIONERS.

       ``(a) General Rule.--With respect to tax advice, the same 
     common law protections of confidentiality which apply to a 
     communication between a taxpayer and an attorney shall also 
     apply to a communication between a taxpayer and any federally 
     authorized tax practitioner to the extent the communication 
     would be considered a privileged communication if it were 
     between a taxpayer and an attorney.
       ``(b) Limitations.--Subsection (a) may only be asserted 
     in--
       ``(1) any noncriminal tax matter before the Internal 
     Revenue Service, and
       ``(2) any noncriminal tax proceeding in Federal court with 
     respect to such matter.
       ``(c) Definitions.--For purposes of this section--
       ``(1) Federally authorized tax practitioner.--The term 
     `federally authorized tax practitioner' means any individual 
     who is authorized under Federal law to practice before the 
     Internal Revenue Service if such practice is subject to 
     Federal regulation under section 330 of title 31, United 
     States Code.
       ``(2) Tax advice.--The term `tax advice' means advice given 
     by an individual with respect to a matter which is within the 
     scope of the individual's authority to practice described in 
     paragraph (1).''
       (b) Conforming Amendment.--The table of sections for such 
     chapter 77 is amended by adding at the end the following new 
     item:

``Sec. 7525. Uniform application of confidentiality privilege to 
              taxpayer communications with federally authorized 
              practitioners.''

       (c) Effective Date.--The amendments made by this section 
     shall apply to communications made on or after the date of 
     the enactment of this Act.

     SEC. 3412. LIMITATION ON FINANCIAL STATUS AUDIT TECHNIQUES.

       Section 7602 (relating to examination of books and 
     witnesses) is amended by adding at the end the following new 
     subsection:
       ``(d) Limitation on Examination on Unreported Income.--The 
     Secretary shall not use financial status or economic reality 
     examination techniques to determine the existence of 
     unreported income of any taxpayer unless the Secretary has a 
     reasonable indication that there is a likelihood of such 
     unreported income.''

     SEC. 3413. SOFTWARE TRADE SECRETS PROTECTION.

       (a) In General.--Subchapter A of chapter 78 (relating to 
     examination and inspection) is amended by redesignating 
     section 7612 as section 7613 and by inserting after 7611 the 
     following:

     ``SEC. 7612. SPECIAL PROCEDURES FOR SUMMONSES FOR COMPUTER 
                   SOFTWARE.

       ``(a) General Rule.--For purposes of this title--
       ``(1) except as provided in subsection (b), no summons may 
     be issued under this title, and the Secretary may not begin 
     any action under section 7604 to enforce any summons, to 
     produce or analyze any computer software source code, and
       ``(2) any software and related materials which are provided 
     to the Secretary under this title shall be subject to the 
     safeguards under subsection (c).
       ``(b) Circumstances Under Which Computer Software Source 
     Code May Be Provided.--
       ``(1) In general.--Subsection (a)(1) shall not apply to any 
     portion, item, or component of computer software source code 
     if--
       ``(A) the Secretary is unable to otherwise reasonably 
     ascertain the correctness of any item on a return from--
       ``(i) the taxpayer's books, papers, records, or other data, 
     or
       ``(ii) the computer software executable code (and any 
     modifications thereof) to which such source code relates and 
     any associated data which, when executed, produces the output 
     to ascertain the correctness of the item,
       ``(B) the Secretary identifies with reasonable specificity 
     the portion, item, or component of such source code needed to 
     verify the correctness of such item on the return, and
       ``(C) the Secretary determines that the need for the 
     portion, item, or component of such source code with respect 
     to such item outweighs the risks of unauthorized disclosure 
     of trade secrets.
       ``(2) Exceptions.--Subsection (a)(1) shall not apply to--
       ``(A) any inquiry into any offense connected with the 
     administration or enforcement of the internal revenue laws,
       ``(B) any computer software source code developed by the 
     taxpayer or a related person for internal use by the taxpayer 
     or such person, or
       ``(C) any communications between the owner of the source 
     code and the taxpayer or related persons.
       ``(3) Cooperation required.--For purposes of paragraph (1), 
     the Secretary shall be treated as meeting the requirements of 
     subparagraphs (A) and (B) of such paragraph if--
       ``(A) the Secretary determines that it is not feasible to 
     determine the correctness of an item without access to the 
     computer software executable code and associated data 
     described in paragraph (1)(A)(ii),
       ``(B) the Secretary makes a formal request to the taxpayer 
     for such code and data and to the owner of the computer 
     software source code for such executable code, and
       ``(C) such code and data is not provided within 180 days of 
     such request.
       ``(4) Right to contest summons.--In any proceeding brought 
     under section 7604 to enforce a summons issued under the 
     authority of this subsection, the court shall, at the request 
     of any party, hold a hearing to determine whether the 
     applicable requirements of this subsection have been met.
       ``(c) Safeguards To Ensure Protection of Trade Secrets and 
     Other Confidential Information.--
       ``(1) Entry of protective order.--In any court proceeding 
     to enforce a summons for any portion of software, the court 
     may receive evidence and issue any order necessary to prevent 
     the disclosure of trade secrets or other confidential 
     information with respect to such software, including -
     requiring that any information be placed under seal to be 
     opened only as directed by the court.
       ``(2) Protection of software.--Notwithstanding any other 
     provision of this section, and in addition to any protections 
     ordered pursuant to paragraph (1), in the case of software 
     that comes into the possession or control of the Secretary in 
     the course of any examination with respect to any taxpayer--
       ``(A) the software may be used only in connection with the 
     examination of such taxpayer's return, any appeal by the 
     taxpayer to the Internal Revenue Service Office of Appeals, 
     any judicial proceeding (and any appeals therefrom), and any 
     inquiry into any offense connected with the administration or 
     enforcement of the internal revenue laws,
       ``(B) the Secretary shall provide, in advance, to the 
     taxpayer and the owner of the software a written list of the 
     names of all individuals who will analyze or otherwise have 
     access to the software,
       ``(C) the software shall be maintained in a secure area or 
     place, and, in the case of computer software source code, 
     shall not be removed from the owner's place of business 
     unless the owner permits, or a court orders, such removal,
       ``(D) the software may not be copied except as necessary to 
     perform such analysis, and the Secretary shall number all 
     copies made and certify in writing that no other copies have 
     been (or will be) made,
       ``(E) at the end of the period during which the software 
     may be used under subparagraph (A)--
       ``(i) the software and all copies thereof shall be returned 
     to the person from whom they were obtained and any copies 
     thereof made under subparagraph (D) on the hard drive of a 
     machine or other mass storage device shall be permanently 
     deleted, and
       ``(ii) the Secretary shall obtain from any person who 
     analyzes or otherwise had access to such software a written 
     certification under penalty of perjury that all copies and 
     related materials have been returned and that no copies were 
     made of them,
       ``(F) the software may not be decompiled or disassembled, 
     and
       ``(G) the Secretary shall provide to the taxpayer and the 
     owner of any interest in such software, as the case may be, a 
     written agreement, between the Secretary and any person who 
     is not an officer or employee of the United States and who 
     will analyze or otherwise have access to such software, which 
     provides that such person agrees not to--
       ``(i) disclose such software to any person other than 
     authorized employees or agents of the Secretary during and 
     after employment by the Secretary, or
       ``(ii) participate for 2 years in the development of 
     software which is intended for a similar purpose as the 
     software examined.

     For purposes of subparagraph (C), the owner shall make 
     available any necessary equipment or materials for analysis 
     of computer software source code required to be conducted on 
     the owner's premises. The owner of any interest in the 
     software shall be considered a party to any agreement 
     described in subparagraph (G).
       ``(d) Definitions.--For purposes of this section--
       ``(1) Software.--The term `software' includes computer 
     software source code and computer software executable code.
       ``(2) Computer software source code.--The term `computer 
     software source code' means--
       ``(A) the code written by a programmer using a programming 
     language which is comprehensible to appropriately trained 
     persons, is not machine readable, and is not capable of 
     directly being used to give instructions to a computer,
       ``(B) related programmers' notes, design documents, 
     memoranda, and similar documentation, and
       ``(C) related customer communications.
       ``(3) Computer software executable code.--The term 
     `computer software executable code' means--
       ``(A) any object code, machine code, or other code readable 
     by a computer when loaded into its memory and used directly 
     by such computer to execute instructions, and
       ``(B) any related user manuals.
       ``(4) Owner.--The term `owner' shall, with respect to any 
     software, include the developer of the software.
       ``(5) Related person.--A person shall be treated as related 
     to another person if such persons are related persons under 
     section 267 or 707(b).''
       (b) Unauthorized Disclosure of Software.--Section 7213 
     (relating to unauthorized disclosure of information) is 
     amended by redesignating subsection (d) as subsection (e) and 
     by inserting after subsection (c) the following:

[[Page S4165]]

       ``(d) Disclosure of Software.--Any person who willfully 
     divulges or makes known software (as defined in section 
     7612(d)(1)) to any person in violation of section 7612 shall 
     be guilty of a felony and, upon conviction thereof, shall be 
     fined not more than $5,000, or imprisoned not more than 5 
     years, or both, together with the costs of prosecution.''
       (c) Application of Special Procedures for Third-Party 
     Summonses.--Paragraph (2) of section 7603(b), as amended by 
     section 3416(a), is amended by striking ``and'' at the end of 
     subparagraph (H), by striking a period at the end of 
     subparagraph (I) and inserting ``, and'', and by adding at 
     the end the following:
       ``(J) any owner or developer of a computer software source 
     code (as defined in section 7612(d)(2)).

     Subparagraph (J) shall apply only with respect to a summons 
     requiring the production of the source code referred to in 
     subparagraph (J) or the program and data described in section 
     7612(b)(1)(A)(ii) to which such source code relates.''
       (d) Conforming Amendment.--The table of sections for 
     subchapter A of chapter 78 is amended by striking the item 
     relating to section 7612 and by inserting the following:

``Sec. 7612. Special procedures for summonses for computer software.
``Sec. 7613. Cross references.''

       (e) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to summonses issued, and software acquired, after the 
     date of the enactment of this Act.
       (2) Software protection.--In the case of any software 
     acquired on or before such date of enactment, the 
     requirements of section 7612(a)(2) of the Internal Revenue 
     Code of 1986 (as added by such amendments) shall apply after 
     the 90th day after such date. The preceding sentence shall 
     not apply to the requirement under section 7612(c)(2)(G)(ii) 
     of such Code (as so added).

     SEC. 3414. THREAT OF AUDIT PROHIBITED TO COERCE TIP REPORTING 
                   ALTERNATIVE COMMITMENT AGREEMENTS.

       The Secretary of the Treasury or the Secretary's delegate 
     shall instruct employees of the Internal Revenue Service that 
     they may not threaten to audit any taxpayer in an attempt to 
     coerce the taxpayer into entering into a Tip Reporting 
     Alternative Commitment Agreement.

     SEC. 3415. TAXPAYERS ALLOWED MOTION TO QUASH ALL THIRD-PARTY 
                   SUMMONSES.

       (a) In General.--Paragraph (1) of section 7609(a) (relating 
     to summonses to which section applies) is amended by striking 
     so much of such paragraph as precedes ``notice of the 
     summons'' and inserting the following:
       ``(1) In general.--If any summons to which this section 
     applies requires the giving of testimony on, or the 
     production of any portion of records made or kept on, any 
     person (other than the person summoned) who is identified in 
     the summons, then''.
       (b) Conforming Amendments.--
       (1) Subsection (a) of section 7609 is amended by striking 
     paragraphs (3) and (4), by redesignating paragraph (5) as 
     paragraph (3), and by striking in paragraph (3) (as so 
     redesignated) ``subsection (c)(2)(B)'' and inserting 
     ``subsection (c)(2)(D)''.
       (2) Subsection (c) of section 7609 is amended to read as 
     follows:
       ``(c) Summons to Which Section Applies.--
       ``(1) In general.--Except as provided in paragraph (2), 
     this section shall apply to any summons issued under 
     paragraph (2) of section 7602(a) or under section 6420(e)(2), 
     6421(g)(2), or 6427(j)(2).
       ``(2) Exceptions.--This section shall not apply to any 
     summons--
       ``(A) served on the person with respect to whose liability 
     the summons is issued, or any officer or employee of such 
     person,
       ``(B) issued to determine whether or not records of the 
     business transactions or affairs of an identified person have 
     been made or kept,
       ``(C) issued solely to determine the identity of any person 
     having a numbered account (or similar arrangement) with a 
     bank or other institution described in section 7603(b)(2)(A),
       ``(D) issued in aid of the collection of--
       ``(i) an assessment made or judgment rendered against the 
     person with respect to whose liability the summons is issued, 
     or
       ``(ii) the liability at law or in equity of any transferee 
     or fiduciary of any person referred to in clause (i),
       ``(E)(i) issued by a criminal investigator of the Internal 
     Revenue Service in connection with the investigation of an 
     offense connected with the administration or enforcement of 
     the internal revenue laws, and
       ``(ii) served on any person who is not a third-party 
     recordkeeper (as defined in section 7603(b)), or
       ``(F) described in subsection (f) or (g).
       ``(3) Records.--For purposes of this section, the term 
     `records' includes books, papers, and other data.''
       (3) Paragraph (2) of section 7609(e) is amended by striking 
     ``third-party recordkeeper's'' and all that follows through 
     ``subsection (f)'' and inserting ``summoned party's response 
     to the summons''.
       (4) Subsection (f) of section 7609 is amended--
       (A) by striking ``described in subsection (c)'' and 
     inserting ``described in subsection (c)(1)'', and
       (B) by inserting ``or testimony'' after ``records'' in 
     paragraph (3).
       (5) Subsection (g) of section 7609 is amended by striking 
     ``In the case of any summons described in subsection (c), the 
     provisions of subsections (a)(1) and (b) shall not apply if'' 
     and inserting ``A summons is described in this subsection 
     if''.
       (6)(A) Subsection (i) of section 7609 is amended by 
     striking ``Third-Party Recordkeeper and'' in the subsection 
     heading.
       (B) Paragraph (1) of section 7609(i) is amended by striking 
     ``described in subsection (c), the third-party recordkeeper'' 
     and inserting ``to which this section applies for the 
     production of records, the summoned party''.
       (C) Paragraph (2) of section 7609(i) is amended--
       (i) by striking ``recordkeeper'' in the heading and 
     inserting ``summoned party'', and
       (ii) by striking ``the third-party recordkeeper'' and 
     inserting ``the summoned party''.
       (D) Paragraph (3) of section 7609(i) is amended to read as 
     follows:
       ``(3) Protection for summoned party who discloses.--Any 
     summoned party, or agent or employee thereof, making a 
     disclosure of records or testimony pursuant to this section 
     in good faith reliance on the certificate of the Secretary or 
     an order of a court requiring production of records or the 
     giving of such testimony shall not be liable to any customer 
     or other person for such disclosure.''
       (c) Effective Date.--The amendments made by this section 
     shall apply to summonses served after the date of the 
     enactment of this Act.

     SEC. 3416. SERVICE OF SUMMONSES TO THIRD-PARTY RECORDKEEPERS 
                   PERMITTED BY MAIL.

       (a) In General.--Section 7603 (relating to service of 
     summons) is amended by striking ``A summons issued'' and 
     inserting ``(a) In General.--A summons issued'' and by adding 
     at the end the following new subsection:
       ``(b) Service by Mail to Third-Party Recordkeepers.--
       ``(1) In general.--A summons referred to in subsection (a) 
     for the production of books, papers, records, or other data 
     by a third-party recordkeeper may also be served by certified 
     or registered mail to the last known address of such 
     recordkeeper.
       ``(2) Third-party recordkeeper.--For purposes of paragraph 
     (1), the term `third-party recordkeeper' means--
       ``(A) any mutual savings bank, cooperative bank, domestic 
     building and loan association, or other savings institution 
     chartered and supervised as a savings and loan or similar 
     association under Federal or State law, any bank (as defined 
     in section 581), or any credit union (within the meaning of 
     section 501(c)(14)(A));
       ``(B) any consumer reporting agency (as defined under 
     section 603(f) of the Fair Credit Reporting Act (15 U.S.C. 
     1681a(f)));
       ``(C) any person extending credit through the use of credit 
     cards or similar devices;
       ``(D) any broker (as defined in section 3(a)(4) of the 
     Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(4)));
       ``(E) any attorney;
       ``(F) any accountant;
       ``(G) any barter exchange (as defined in section 
     6045(c)(3));
       ``(H) any regulated investment company (as defined in 
     section 851) and any agent of such regulated investment 
     company when acting as an agent thereof, and
       ``(I) any enrolled agent.''
       (b) Effective Date.--The amendment made by this section 
     shall apply to summonses served after the date of the 
     enactment of this Act.

     SEC. 3417. PROHIBITION ON IRS CONTACT OF THIRD PARTIES 
                   WITHOUT PRIOR NOTICE.

       (a) In General.--Section 7602 (relating to examination of 
     books and witnesses), as amended by section 3412, is amended 
     by redesignating subsections (c) and (d) as subsections (d) 
     and (e), respectively, and by inserting after subsection (b) 
     the following new subsection:
       ``(c) Limitation of Authority To Contact Third Parties.--An 
     officer or employee of the Internal Revenue Service may not 
     contact any person other than the taxpayer with respect to 
     the determination or collection of the tax liability of such 
     taxpayer without providing reasonable notice to the taxpayer 
     that such contact will be made. This subsection shall not 
     apply--
       ``(1) to any contact which the taxpayer has authorized,
       ``(2) if the Secretary determines for good cause shown that 
     such notice would jeopardize collection of any tax, or
       ``(3) with respect to any pending criminal investigation.''
       (b) Effective Date.--The amendments made by this section 
     shall apply to contacts made after the 180th day after the 
     date of the enactment of this Act.

                    PART III--COLLECTION ACTIVITIES

                      Subpart A--Approval Process

     SEC. 3421. APPROVAL PROCESS FOR LIENS, LEVIES, AND SEIZURES.

       (a) In General.--The Commissioner of Internal Revenue shall 
     develop and implement procedures under which--
       (1) a determination by an employee to file a notice of lien 
     or levy with respect to, or to levy or seize, any property or 
     right to property would, where appropriate, be required to be 
     reviewed by a supervisor of the employee before the action 
     was taken, and
       (2) appropriate disciplinary action would be taken against 
     the employee or supervisor where the procedures under 
     paragraph (1) were not followed.
       (b) Review Process.--The review process under subsection 
     (a)(1) may include a certification that the employee has--
       (1) reviewed the taxpayer's information,
       (2) verified that a balance is due, and
       (3) affirmed that the action proposed to be taken is 
     appropriate given the taxpayer's circumstances, considering 
     the amount due and the value of the property or right to 
     property.

                      Subpart B--Liens and Levies

     SEC. 3431. MODIFICATIONS TO CERTAIN LEVY EXEMPTION AMOUNTS.

       (a) Fuel, Etc.--Section 6334(a)(2) (relating to fuel, 
     provisions, furniture, and personal effects)

[[Page S4166]]

     is amended by striking ``$2,500'' and inserting ``$10,000''.
       (b) Books, Etc.--Section 6334(a)(3) (relating to books and 
     tools of a trade, business, or profession) is amended by 
     striking ``$1,250'' and inserting ``$5,000''.
       (c) Conforming Amendment .--Section 6334(g)(1) (relating to 
     inflation adjustment) is amended--
       (1) by striking ``1997'' and inserting ``1999'', and
       (2) by striking ``1996'' in subparagraph (B) and inserting 
     ``1998''.
       (d) Effective Date.--The amendments made by this section 
     shall take effect with respect to levies issued after the 
     date of the enactment of this Act.

     SEC. 3432. RELEASE OF LEVY UPON AGREEMENT THAT AMOUNT IS 
                   UNCOLLECTIBLE.

       (a) In General.--Section 6343 (relating to authority to 
     release levy and return property) is amended by adding at the 
     end the following new subsection:
       ``(e) Immediate Release of Levy Upon Agreement That Amount 
     is not Collectible.--In the case of a levy on the salary or 
     wages payable to or received by the taxpayer, upon agreement 
     with the taxpayer that the tax is not collectible, the 
     Secretary shall immediately release such levy before any 
     intervening salary or wage payment period.''
       (b) Effective Date.--The amendment made by this section 
     shall apply to levies imposed after the date of the enactment 
     of this Act.

     SEC. 3433. LEVY PROHIBITED DURING PENDENCY OF REFUND 
                   PROCEEDINGS.

       (a) In General.--Section 6331 (relating to levy and 
     distraint) is amended by redesignating subsection (i) as 
     subsection (j) and by inserting after subsection (h) the 
     following new subsection:
       ``(i) No Levy During Pendency of Proceedings for Refund of 
     Divisible Tax.--
       ``(1) In general.--No levy may be made under subsection (a) 
     on the property or rights to property of any person with 
     respect to any unpaid divisible tax during the pendency of 
     any proceeding brought by such person in a proper court for 
     the recovery of any portion of such divisible tax which was 
     paid by such person if--
       ``(A) the decision in such proceeding would be res judicata 
     with respect to such unpaid tax, or
       ``(B) such person would be collaterally estopped from 
     contesting such unpaid tax by reason of such proceeding.
       ``(2) Divisible tax.--For purposes of paragraph (1), the 
     term `divisible tax' means--
       ``(A) any tax imposed by subtitle C, and
       ``(B) the penalty imposed by section 6672 with respect to 
     any such tax.
       ``(3) Exceptions.--
       ``(A) Certain unpaid taxes.--This subsection shall not 
     apply with respect to any unpaid tax if--
       ``(i) the taxpayer files a written notice with the 
     Secretary which waives the restriction imposed by this 
     subsection on levy with respect to such tax, or
       ``(ii) the Secretary finds that the collection of such tax 
     is in jeopardy.
       ``(B) Certain levies.--This subsection shall not apply to--
       ``(i) any levy to carry out an offset under section 6402, 
     and
       ``(ii) any levy which was first made before the date that 
     the applicable proceeding under this subsection commenced.
       ``(4) Limitation on collection activity; authority to 
     enjoin collection.--
       ``(A) Limitation on collection.--No proceeding in court for 
     the collection of any unpaid tax to which paragraph (1) 
     applies shall be begun by the Secretary during the pendency 
     of a proceeding under such paragraph. This subparagraph shall 
     not apply to--
       ``(i) any counterclaim in a proceeding under such 
     paragraph, or
       ``(ii) any proceeding relating to a proceeding under such 
     paragraph.
       ``(B) Authority to enjoin.--Notwithstanding section 
     7421(a), a levy or collection proceeding prohibited by this 
     subsection may be enjoined (during the period such 
     prohibition is in force) by the court in which the proceeding 
     under paragraph (1) is brought.
       ``(5) Suspension of statute of limitations on collection.--
     The period of limitations under section 6502 shall be 
     suspended for the period during which the Secretary is 
     prohibited under this subsection from making a levy.
       ``(6) Pendency of proceeding.--For purposes of this 
     subsection, a proceeding is pending beginning on the date 
     such proceeding commences and ending on the date the 
     decision in such proceeding becomes final.''
       (b) Effective Date.--The amendment made by this section 
     shall apply to unpaid tax attributable to taxable periods 
     beginning after December 31, 1998.

     SEC. 3434. APPROVAL REQUIRED FOR JEOPARDY AND TERMINATION 
                   ASSESSMENTS AND JEOPARDY LEVIES.

       (a) In General.--Paragraph (1) of section 7429(a) (relating 
     to review of jeopardy levy or assessment procedures) is 
     amended to read as follows:
       ``(1) Administrative review.--
       ``(A) Prior approval required.--No assessment may be made 
     under section 6851(a), 6852(a), 6861(a), or 6862, and no levy 
     may be made under section 6331(a) less than 30 days after 
     notice and demand for payment is made, unless the Chief 
     Counsel for the Internal Revenue Service (or such Counsel's 
     delegate) personally approves (in writing) such assessment or 
     levy.
       ``(B) Information to taxpayer.--Within 5 days after the day 
     on which such an assessment or levy is made, the Secretary 
     shall provide the taxpayer with a written statement of the 
     information upon which the Secretary relied in making such 
     assessment or levy.''
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxes assessed and levies made after the date 
     of the enactment of this Act.

     SEC. 3435. INCREASE IN AMOUNT OF CERTAIN PROPERTY ON WHICH 
                   LIEN NOT VALID.

       (a) Certain Property.--
       (1) In general.--Subsection (b) of section 6323 (relating 
     to validity and priority against certain persons) is 
     amended--
       (A) by striking ``$250'' in paragraph (4) (relating to 
     personal property purchased in casual sale) and inserting 
     ``$1,000'', and
       (B) by striking ``$1,000'' in paragraph (7) (relating to 
     residential property subject to a mechanic's lien for certain 
     repairs and improvements) and inserting ``$5,000''.
       (2) Inflation adjustment.--Subsection (i) of section 6323 
     (relating to special rules) is amended by adding at the end 
     the following new paragraph:
       ``(4) Cost-of-living adjustment.--In the case of notices of 
     liens imposed by section 6321 which are filed in any calendar 
     year after 1998, each of the dollar amounts under paragraph 
     (4) or (7) of subsection (b) 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, determined by 
     substituting `calendar year 1996' for `calendar year 1992' in 
     subparagraph (B) thereof.

     If any amount as adjusted under the preceding sentence is not 
     a multiple of $10, such amount shall be rounded to the 
     nearest multiple of $10.''
       (b) Expansion of Treatment of Passbook Loans.--Paragraph 
     (10) of section 6323(b) is amended--
       (1) by striking ``Passbook loans'' in the heading and 
     inserting ``Deposit-secured loans'',
       (2) by striking ``, evidenced by a passbook,'', and
       (3) by striking all that follows ``secured by such 
     account'' and inserting a period.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 3436. WAIVER OF EARLY WITHDRAWAL TAX FOR IRS LEVIES ON 
                   EMPLOYER-SPONSORED RETIREMENT PLANS OR IRAS.

       (a) In General.--Section 72(t)(2)(A) (relating to 
     subsection not to apply to certain distributions) is amended 
     by striking ``or'' at the end of clauses (iv) and (v), by 
     striking the period at the end of clause (vi) and inserting 
     ``, or'', and by adding at the end the following new clause:
       ``(vii) made on account of a levy under section 6331 on the 
     qualified retirement plan.''
       (b) Effective Date.--The amendments made by this section 
     shall apply to levies made after the date of the enactment of 
     this Act.

                          Subpart C--Seizures

     SEC. 3441. PROHIBITION OF SALES OF SEIZED PROPERTY AT LESS 
                   THAN MINIMUM BID.

       (a) In General.--Section 6335(e)(1)(A)(i) (relating to 
     determinations relating to minimum price) is amended by 
     striking ``a minimum price for which such property shall be 
     sold'' and inserting ``a minimum price below which such 
     property shall not be sold''.
       (b) Reference to Penalty for Violation.--Section 6335(e) is 
     amended by adding at the end the following new paragraph:
       ``(4) Cross reference.--

  ``For provision providing for civil damages for violation of 
paragraph (1)(A)(i), see section 7433.''

     SEC. 3442. ACCOUNTING OF SALES OF SEIZED PROPERTY.

       (a) In General.--Section 6340 (relating to records of sale) 
     is amended--
       (1) in subsection (a)--
       (A) by striking ``real'', and
       (B) by inserting ``or certificate of sale of personal 
     property'' after ``deed'', and
       (2) by adding at the end the following new subsection:
       ``(c) Accounting to Taxpayer.--The taxpayer with respect to 
     whose liability the sale was conducted or who redeemed the 
     property shall be furnished--
       ``(1) the record under subsection (a) (other than the names 
     of the purchasers),
       ``(2) the amount from such sale applied to the taxpayer's 
     liability, and
       ``(3) the remaining balance of such liability.''
       (b) Effective Date.--The amendments made by this section 
     shall apply to seizures occurring after the date of the 
     enactment of this Act.

     SEC. 3443. UNIFORM ASSET DISPOSAL MECHANISM.

       Not later than the date which is 2 years after the date of 
     the enactment of this Act, the Secretary of the Treasury or 
     the Secretary's delegate shall implement a uniform asset 
     disposal mechanism for sales under section 6335 of the 
     Internal Revenue Code of 1986. The mechanism should be 
     designed to remove any participation in such sales by revenue 
     officers of the Internal Revenue Service and should consider 
     the use of outsourcing.

     SEC. 3444. CODIFICATION OF IRS ADMINISTRATIVE PROCEDURES FOR 
                   SEIZURE OF TAXPAYER'S PROPERTY.

       (a) In General.--Section 6331 (relating to levy and 
     distraint), as amended by section 3401(c), is amended by 
     inserting after subsection (c) the following new subsection:
       ``(d) No Levy Before Investigation of Status of Property.--
       ``(1) In general.--For purposes of applying the provisions 
     of this subchapter, no levy may be made on any property or 
     right to property until a thorough investigation of the 
     status of such property has been completed.

[[Page S4167]]

       ``(2) Elements in investigation.--For purposes of paragraph 
     (1), an investigation of the status of any property shall 
     include--
       ``(A) a verification of the taxpayer's liability,
       ``(B) the completion of an analysis under subsection (f),
       ``(C) the determination that the equity in such property is 
     sufficient to yield net proceeds from the sale of such 
     property to apply to such liability, and
       ``(D) a thorough consideration of alternative collection 
     methods.''
       (b) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 3445. PROCEDURES FOR SEIZURE OF RESIDENCES AND 
                   BUSINESSES.

       (a) In General.--Section 6334(a)(13) (relating to property 
     exempt from levy) is amended to read as follows:
       ``(13) Residences exempt in small deficiency cases and 
     principal residences and certain business assets exempt in 
     absence of certain approval or jeopardy.--
       ``(A) Residences in small deficiency cases.--If the amount 
     of the levy does not exceed $5,000, any real property used as 
     a residence by the taxpayer or any other individual.
       ``(B) Principal residences and certain business assets.--
     Except to the extent provided in subsection (e), the 
     principal residence of the taxpayer (within the meaning of 
     section 121), and assets used in the trade or business of an 
     individual taxpayer.''
       (b) Conforming Amendments.--Section 6334(e) is amended--
       (1) by striking ``subsection (a)(13)'' and inserting 
     ``subsection (a)(13)(B)'',
       (2) by adding at the end the following new flush sentence:

     ``An official may not approve a levy under paragraph (1) 
     unless the official determines that the taxpayer's other 
     assets subject to collection are insufficient to pay the 
     amount due, together with expenses of the proceedings.'', and
       (3) by inserting ``and Certain Business Assets'' after 
     ``Principal Residence'' in the heading.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

 PART IV--PROVISIONS RELATING TO EXAMINATION AND COLLECTION ACTIVITIES

     SEC. 3461. PROCEDURES RELATING TO EXTENSIONS OF STATUTE OF 
                   LIMITATIONS BY AGREEMENT.

       (a) Repeal of Authority To Extend 10-Year Collection Period 
     After Assessment.--Section 6502(a) (relating to length of 
     period after collection) is amended--
       (1) by striking paragraph (2) and inserting:
       ``(2) if there is a release of levy under section 6343 
     after such 10-year period, prior to the expiration of any 
     period for collection agreed upon in writing by the Secretary 
     and the taxpayer before such release.'', and
       (2) by striking the first sentence in the matter following 
     paragraph (2).
       (b) Notice to Taxpayer of Right To Refuse or Limit 
     Extension.--Paragraph (4) of section 6501(c) (relating to the 
     period for limitations on assessment and collection) is 
     amended--
       (1) by striking ``Where'' and inserting the following:
       ``(A) In general.--Where'', and
       (2) by adding at the end the following new subparagraph:
       ``(B) Notice to taxpayer of right to refuse or limit 
     extension.--The Secretary shall notify the taxpayer of the 
     taxpayer's right to refuse to extend the period of 
     limitations, or to limit such extension to particular issues 
     or to a particular period of time, on each occasion when the 
     taxpayer is requested to provide such consent.''
       (c) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to requests to extend the period of limitations made 
     after the date of the enactment of this Act.
       (2) Prior request.--If, in any request to extend the period 
     of limitations made on or before the date of the enactment of 
     this Act, a taxpayer agreed to extend such period beyond the 
     10-year period referred to in section 6502(a) of the Internal 
     Revenue Code of 1986, such extension shall expire on the 
     later of--
       (A) the last day of such 10-year period, or
       (B) the date which is 180 days after such date of the 
     enactment.

     SEC. 3462. OFFERS-IN-COMPROMISE.

       (a) Standards for Evaluation of Offers-in-Compromise.--
     Section 7122 (relating to offers-in-compromise) is amended by 
     adding at the end the following new subsection:
       ``(c) Standards for Evaluation of Offers.--
       ``(1) In general.--The Secretary shall prescribe guidelines 
     for officers and employees of the Internal Revenue Service to 
     determine whether an offer-in-compromise is adequate.
       ``(2) Allowances for basic living expenses.--
       ``(A) In general.--In prescribing guidelines under 
     paragraph (1), the Secretary shall develop and publish 
     schedules of national and local allowances designed to 
     provide that taxpayers entering into a compromise have an 
     adequate means to provide for basic living expenses.
       ``(B) Use of schedules.--The guidelines shall provide that 
     officers and employees of the Internal Revenue Service shall 
     determine, on the basis of the facts and circumstances of 
     each taxpayer, whether the use of the schedules published 
     under subparagraph (A) is appropriate and shall not use the 
     schedules to the extent such use would result in the taxpayer 
     not having adequate means to provide for basic living 
     expenses.
       ``(3) Special rules relating to treatment of offers.--The 
     guidelines under paragraph (1) shall provide that--
       ``(A) an officer or employee of the Internal Revenue 
     Service shall not reject an offer-in-compromise from a low-
     income taxpayer solely on the basis of the amount of the 
     offer, and
       ``(B) in the case of an offer-in-compromise which relates 
     only to issues of liability of the taxpayer--
       ``(i) such offer shall not be rejected solely because the 
     Secretary is unable to locate the taxpayer's return or return 
     information for verification of such liability, and
       ``(ii) the taxpayer shall not be required to provide a 
     financial statement.''
       (b) Levy Prohibited While Offer-in-Compromise Pending.--
     Section 6331 (relating to levy and distraint), as amended by 
     section 3433, is amended by redesignating subsection (j) as 
     subsection (k) and by inserting after subsection (i) the 
     following new subsection:
       ``(j) No Levy While Certain Offers Pending.--
       ``(1) Offer in compromise pending.--No levy may be made 
     under subsection (a) on the property or rights to property of 
     any person with respect to any unpaid tax--
       ``(A) during the period that an offer by such person in 
     compromise under section 7122 of such unpaid tax is pending 
     with the Secretary, and
       ``(B) if such offer is rejected by the Secretary, during 
     the 30 days thereafter (and, if an appeal of such rejection 
     is filed within such 30 days, during the period that such 
     appeal is pending).

     For purposes of subparagraph (A), an offer is pending 
     beginning on the date the Secretary accepts such offer for 
     processing.
       ``(2) Certain rules to apply.--Rules similar to the rules 
     of paragraphs (3), (4), and (5) of subsection (i) shall apply 
     for purposes of this subsection.''
       (c) Review of Rejections of Offers-in-Compromise and 
     Installment Agreements.--
       (1) In general.--Section 7122 (relating to compromises), as 
     amended by subsection (a), is amended by adding at the end 
     the following:
       ``(d) Administrative Review.--The Secretary shall establish 
     procedures--
       ``(1) for an independent administrative review of any 
     rejection of a proposed offer-in-compromise or installment 
     agreement made by a taxpayer under this section or section 
     6159 before such rejection is communicated to the taxpayer, 
     and
       ``(2) which allow a taxpayer to appeal any rejection of 
     such offer or agreement to the Internal Revenue Service 
     Office of Appeals.''
       (2) Conforming amendment.--Section 6159 (relating to 
     installment agreements) is amended by adding at the end the 
     following new subsection:
       ``(d) Cross Reference.--

  ``For rights to administrative review and appeal, see section 
7122(d).''

       (d) Preparation of Statement Relating to Offers-in-
     Compromise.--The Secretary of the Treasury shall prepare a 
     statement which sets forth in simple, nontechnical terms the 
     rights of a taxpayer and the obligations of the Internal 
     Revenue Service relating to offers-in-compromise. Such 
     statement shall--
       (1) advise taxpayers who have entered into a compromise of 
     the advantages of promptly notifying the Internal Revenue 
     Service of any change of address or marital status,
       (2) provide notice to taxpayers that in the case of a 
     compromise terminated due to the actions of 1 spouse or 
     former spouse, the Internal Revenue Service will, upon 
     application, reinstate such compromise with the spouse or 
     former spouse who remains in compliance with such compromise, 
     and
       (3) provide notice to the taxpayer that the taxpayer may 
     appeal the rejection of an offer-in-compromise to the 
     Internal Revenue Service Office of Appeals.
       (e) Effective Dates.--
       (1) In general.--The amendments made by this section shall 
     apply to proposed offers-in-compromise and installment 
     agreements submitted after the date of the enactment of this 
     Act.
       (2) Suspension of collection by levy.--The amendment made 
     by subsection (b) shall apply to offers-in-compromise pending 
     on or made after the 60th day after the date of the enactment 
     of this Act.

     SEC. 3463. NOTICE OF DEFICIENCY TO SPECIFY DEADLINES FOR 
                   FILING TAX COURT PETITION.

       (a) In General.--The Secretary of the Treasury or the 
     Secretary's delegate shall include on each notice of 
     deficiency under section 6212 of the Internal Revenue Code of 
     1986 the date determined by such Secretary (or delegate) as 
     the last day on which the taxpayer may file a petition with 
     the Tax Court.
       (b) Later Filing Deadlines Specified on Notice of 
     Deficiency To Be Binding.--Subsection (a) of section 6213 
     (relating to restrictions applicable to deficiencies; 
     petition to Tax Court) is amended by adding at the end the 
     following new sentence: ``Any petition filed with the Tax 
     Court on or before the last date specified for filing such 
     petition by the Secretary in the notice of deficiency shall 
     be treated as timely filed.''
       (c) Effective Date.--Subsection (a) and the amendment made 
     by subsection (b) shall apply to notices mailed after 
     December 31, 1998.

     SEC. 3464. REFUND OR CREDIT OF OVERPAYMENTS BEFORE FINAL 
                   DETERMINATION.

       (a) Tax Court Proceedings.--Subsection (a) of section 6213 
     is amended--
       (1) by striking ``, including the Tax Court.'' and 
     inserting ``, including the Tax Court, and a refund may be 
     ordered by such court of any amount collected within the 
     period during which the Secretary is prohibited from 
     collecting by levy or through a proceeding in court under the 
     provisions of this subsection.'', and

[[Page S4168]]

       (2) by striking ``to enjoin any action or proceeding'' and 
     inserting ``to enjoin any action or proceeding or order any 
     refund''.
       (b) Other Proceedings.--Subsection (a) of section 6512 is 
     amended by striking the period at the end of paragraph (4) 
     and inserting ``, and'', and by inserting after paragraph (4) 
     the following new paragraphs:
       ``(5) As to any amount collected within the period during 
     which the Secretary is prohibited from making the assessment 
     or from collecting by levy or through a proceeding in court 
     under the provisions of section 6213(a), and
       ``(6) As to overpayments the Secretary is authorized to 
     refund or credit pending appeal as provided in subsection 
     (b).''
       (c) Refund or Credit Pending Appeal.--Paragraph (1) of 
     section 6512(b) is amended by adding at the end the following 
     new sentence: ``If a notice of appeal in respect of the 
     decision of the Tax Court is filed under section 7483, the 
     Secretary is authorized to refund or credit the overpayment 
     determined by the Tax Court to the extent the overpayment is 
     not contested on appeal.''
       (d) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 3465. IRS PROCEDURES RELATING TO APPEALS OF EXAMINATIONS 
                   AND COLLECTIONS.

       (a) Dispute Resolution Procedures.--
       (1) In general.--Chapter 74 (relating to closing agreements 
     and compromises) is amended by redesignating section 7123 as 
     section 7124 and by inserting after section 7122 the 
     following new section:

     ``SEC. 7123. APPEALS DISPUTE RESOLUTION PROCEDURES.

       ``(a) Early Referral to Appeals Procedures.--The Secretary 
     shall prescribe procedures by which any taxpayer may request 
     early referral of 1 or more unresolved issues from the 
     examination or collection division to the Internal Revenue 
     Service Office of Appeals.
       ``(b) Alternative Dispute Resolution Procedures.--
       ``(1) Mediation.--The Secretary shall prescribe procedures 
     under which a taxpayer or the Internal Revenue Service Office 
     of Appeals may request non-binding mediation on any issue 
     unresolved at the conclusion of--
       ``(A) appeals procedures, or
       ``(B) unsuccessful attempts to enter into a closing 
     agreement under section 7121 or a compromise under section 
     7122.
       ``(2) Arbitration.--The Secretary shall establish a pilot 
     program under which a taxpayer and the Internal Revenue 
     Service Office of Appeals may jointly request binding 
     arbitration on any issue unresolved at the conclusion of--
       ``(A) appeals procedures, or
       ``(B) unsuccessful attempts to enter into a closing 
     agreement under section 7121 or a compromise under section 
     7122.''
       (2) Conforming amendment.--The table of sections for 
     chapter 74 is amended by striking the item relating to 
     section 7123 and inserting the following new items:

``Sec. 7123. Appeals dispute resolution procedures.
``Sec. 7124. Cross references.''

       (b) Appeals Officers in Each State.--The Commissioner of 
     Internal Revenue shall ensure that an appeals officer is 
     regularly available within each State.
       (c) Appeals Videoconferencing Alternative for Rural 
     Areas.--The Commissioner of Internal Revenue shall consider 
     the use of the videoconferencing of appeals conferences 
     between appeals officers and taxpayers seeking appeals in 
     rural or remote areas.

     SEC. 3466. APPLICATION OF CERTAIN FAIR DEBT COLLECTION 
                   PROCEDURES.

       (a) In General.--Subchapter A of chapter 64 (relating to 
     collection) is amended by inserting after section 6303 the 
     following new section:

     ``SEC. 6304. FAIR TAX COLLECTION PRACTICES.

       ``(a) Communication With the Taxpayer.--Without the prior 
     consent of the taxpayer given directly to the Secretary or 
     the express permission of a court of competent jurisdiction, 
     the Secretary may not communicate with a taxpayer in 
     connection with the collection of any unpaid tax--
       ``(1) at any unusual time or place or a time or place known 
     or which should be known to be inconvenient to the taxpayer;
       ``(2) if the Secretary knows the taxpayer is represented by 
     any person authorized to practice before the Internal Revenue 
     Service with respect to such unpaid tax and has knowledge of, 
     or can readily ascertain, such person's name and address, 
     unless such person fails to respond within a reasonable 
     period of time to a communication from the Secretary or 
     unless such person consents to direct communication with the 
     taxpayer; or
       ``(3) at the taxpayer's place of employment if the 
     Secretary knows or has reason to know that the taxpayer's 
     employer prohibits the taxpayer from receiving such 
     communication.

     In the absence of knowledge of circumstances to the contrary, 
     the Secretary shall assume that the convenient time for 
     communicating with a taxpayer is after 8 a.m. and before 9 
     p.m., local time at the taxpayer's location.
       ``(b) Prohibition of Harassment and Abuse.--The Secretary 
     may not engage in any conduct the natural consequence of 
     which is to harass, oppress, or abuse any person in 
     connection with the collection of any unpaid tax. Without 
     limiting the general application of the foregoing, the 
     following conduct is a violation of this subsection:
       ``(1) The use or threat of use of violence or other 
     criminal means to harm the physical person, reputation, or 
     property of any person.
       ``(2) The use of obscene or profane language or language 
     the natural consequence of which is to abuse the hearer or 
     reader.
       ``(3) Causing a telephone to ring or engaging any person in 
     telephone conversation repeatedly or continuously with intent 
     to annoy, abuse, or harass any person at the called number.
       ``(4) Except as provided under rules similar to the rules 
     in section 804 of the Fair Debt Collection Practices Act (15 
     U.S.C. 1692b), the placement of telephone calls without 
     meaningful disclosure of the caller's identity.
       ``(c) Civil Action for Violations of Section.--

  ``For civil action for violations of this section, see section 
7433.''

       (b) Clerical Amendment.--The table of sections for 
     subchapter A of chapter 64 is amended by inserting after the 
     item relating to section 6303 the following new item:

``Sec. 6304. Fair tax collection practices.''

       (c) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 3467. GUARANTEED AVAILABILITY OF INSTALLMENT AGREEMENTS.

       (a) In General.--Section 6159 (relating to agreements for 
     payment of tax liability in installments) is amended by 
     redesignating subsection (c) as subsection (d) and by 
     inserting after subsection (b) the following new subsection:
       ``(c) Secretary Required To Enter Into Installment 
     Agreements in Certain Cases.--In the case of a liability for 
     tax of an individual under subtitle A, the Secretary shall 
     enter into an agreement to accept the payment of such tax in 
     installments if, as of the date the individual offers to 
     enter into the agreement--
       ``(1) the aggregate amount of such liability (determined 
     without regard to interest, penalties, additions to the tax, 
     and additional amounts) does not exceed $10,000,
       ``(2) the taxpayer (and, if such liability relates to a 
     joint return, the taxpayer's spouse) has not, during any of 
     the preceding 5 taxable years--
       ``(A) failed to file any return of tax imposed by subtitle 
     A,
       ``(B) failed to pay any tax required to be shown on any 
     such return, or
       ``(C) entered into an installment agreement under this 
     section for payment of any tax imposed by subtitle A,
       ``(3) the Secretary determines that the taxpayer is 
     financially unable to pay such liability in full when due 
     (and the taxpayer submits such information as the Secretary 
     may require to make such determination),
       ``(4) the agreement requires full payment of such liability 
     within 3 years, and
       ``(5) the taxpayer agrees to comply with the provisions of 
     this title for the period such agreement is in effect.''
       (b) Effective Date.--The amendment made by this section 
     shall take effect on the date of the enactment of this Act.
                  Subtitle F--Disclosures to Taxpayers

     SEC. 3501. EXPLANATION OF JOINT AND SEVERAL LIABILITY.

       (a) In General.--The Secretary of the Treasury or the 
     Secretary's delegate shall, as soon as practicable, but not 
     later than 180 days after the date of the enactment of this 
     Act, establish procedures to clearly alert married taxpayers 
     of their joint and several liabilities on all appropriate 
     publications and instructions.
       (b) Right To Limit Liability.--The procedures under 
     subsection (a) shall include requirements that notice of an 
     individual's right to limit joint and several liability under 
     section 6015 of the Internal Revenue Code of 1986 shall be 
     included in the statement required by section 6227 of the 
     Omnibus Taxpayer Bill of Rights (Internal Revenue Service 
     Publication No. 1) and in any collection-related notices.

     SEC. 3502. EXPLANATION OF TAXPAYERS' RIGHTS IN INTERVIEWS 
                   WITH THE INTERNAL REVENUE SERVICE.

       The Secretary of the Treasury or the Secretary's delegate 
     shall, as soon as practicable, but not later than 180 days 
     after the date of the enactment of this Act, revise the 
     statement required by section 6227 of the Omnibus Taxpayer 
     Bill of Rights (Internal Revenue Service Publication No. 1) 
     to more clearly inform taxpayers of their rights--
       (1) to be represented at interviews with the Internal 
     Revenue Service by any person authorized to practice before 
     the Internal Revenue Service, and
       (2) to suspend an interview pursuant to section 7521(b)(2) 
     of the Internal Revenue Code of 1986.

     SEC. 3503. DISCLOSURE OF CRITERIA FOR EXAMINATION SELECTION.

       (a) In General.--The Secretary of the Treasury or the 
     Secretary's delegate shall, as soon as practicable, but not 
     later than 180 days after the date of the enactment of this 
     Act, incorporate into the statement required by section 6227 
     of the Omnibus Taxpayer Bill of Rights (Internal Revenue 
     Service Publication No. 1) a statement which sets forth in 
     simple and nontechnical terms the criteria and procedures for 
     selecting taxpayers for examination. Such statement shall not 
     include any information the disclosure of which would be 
     detrimental to law enforcement, but shall specify the general 
     procedures used by the Internal Revenue Service, including 
     whether taxpayers are selected for examination on the basis 
     of information available in the media or on the basis of 
     information provided to the Internal Revenue Service by 
     informants.
       (b) Transmission to Committees of Congress.--The Secretary 
     shall transmit drafts of the statement required under 
     subsection (a) (or proposed revisions to any such statement) 
     to the Committee on Ways and Means of the House of 
     Representatives and the Committee on Finance of the Senate on 
     the same day.

     SEC. 3504. EXPLANATIONS OF APPEALS AND COLLECTION PROCESS.

       The Secretary of the Treasury or the Secretary's delegate 
     shall, as soon as practicable

[[Page S4169]]

     but not later than 180 days after the date of the enactment 
     of this Act, include with any 1st letter of proposed 
     deficiency which allows the taxpayer an opportunity for 
     administrative review in the Internal Revenue Service Office 
     of Appeals an explanation of the entire process from 
     examination through collection with respect to such proposed 
     deficiency, including the assistance available to the 
     taxpayer from the National Taxpayer Advocate at various 
     points in the process.

     SEC. 3505. EXPLANATION OF REASON FOR REFUND DENIAL.

       (a) In General.--Section 6402 (relating to authority to 
     make credits or refunds) is amended by adding at the end the 
     following new subsection:
       ``(j) Explanation of Reason for Refund Denial.--In the case 
     of a denial of a claim for refund, the Secretary shall 
     provide the taxpayer with an explanation for such denial.''
       (b) Effective Date.--The amendment made by this section 
     shall apply to denials issued after the 180th day after the 
     date of the enactment of this Act.

     SEC. 3506. STATEMENTS REGARDING INSTALLMENT AGREEMENTS.

       The Secretary of the Treasury or the Secretary's delegate 
     shall, as soon as practicable but not later than 180 days 
     after the date of the enactment of this Act, provide each 
     taxpayer who has an installment agreement in effect under 
     section 6159 of the Internal Revenue Code of 1986 an annual 
     statement setting forth the initial balance at the beginning 
     of the year, the payments made during the year, and the 
     remaining balance as of the end of the year.

     SEC. 3507. NOTIFICATION OF CHANGE IN TAX MATTERS PARTNER.

       (a) In General.--Section 6231(a)(7) (defining tax matters 
     partner) is amended by adding at the end the following new 
     sentence: ``The Secretary shall, within 30 days of selecting 
     a tax matters partner under the preceding sentence, notify 
     all partners required to receive notice under section 6223(a) 
     of the name and address of the individual selected.''
       (b) Effective Date.--The amendment made by this section 
     shall apply to selections of tax matters partners made by the 
     Secretary of the Treasury after the date of the enactment of 
     this Act.
                Subtitle G--Low Income Taxpayer Clinics

     SEC. 3601. LOW INCOME TAXPAYER CLINICS.

       (a) In General.--Chapter 77 (relating to miscellaneous 
     provisions), as amended by section 3411, is amended by adding 
     at the end the following new section:

     ``SEC. 7526. LOW INCOME TAXPAYER CLINICS.

       ``(a) In General.--The Secretary may, subject to the 
     availability of appropriated funds, make grants to provide 
     matching funds for the development, expansion, or 
     continuation of qualified low income taxpayer clinics.
       ``(b) Definitions.--For purposes of this section--
       ``(1) Qualified low income taxpayer clinic.--
       ``(A) In general.--The term `qualified low income taxpayer 
     clinic' means a clinic which--
       ``(i) does not charge more than a nominal fee for its 
     services (except for reimbursement of actual costs incurred), 
     and
       ``(ii)(I) represents low income taxpayers in controversies 
     with the Internal Revenue Service, or
       ``(II) operates programs to inform individuals for whom 
     English is a second language about their rights and 
     responsibilities under this title.
       ``(B) Representation of low income taxpayers.--A clinic 
     meets the requirements of subparagraph (A)(ii)(I) if--
       ``(i) at least 90 percent of the taxpayers represented by 
     the clinic have incomes which do not exceed 250 percent of 
     the poverty level, as determined in accordance with criteria 
     established by the Director of the Office of Management and 
     Budget, and
       ``(ii) the amount in controversy for any taxable year 
     generally does not exceed the amount specified in section 
     7463.
       ``(2) Clinic.--The term `clinic' includes--
       ``(A) a clinical program at an accredited law, business, or 
     accounting school in which students represent low income 
     taxpayers in controversies arising under this title, and
       ``(B) an organization described in section 501(c) and 
     exempt from tax under section 501(a) which satisfies the 
     requirements of paragraph (1) through representation of 
     taxpayers or referral of taxpayers to qualified 
     representatives.
       ``(3) Qualified representative.--The term `qualified 
     representative' means any individual (whether or not an 
     attorney) who is authorized to practice before the Internal 
     Revenue Service or the applicable court.
       ``(c) Special Rules and Limitations.--
       ``(1) Aggregate limitation.--Unless otherwise provided by 
     specific appropriation, the Secretary shall not allocate more 
     than $3,000,000 per year (exclusive of costs of administering 
     the program) to grants under this section.
       ``(2) Limitation on annual grants to a clinic.--The 
     aggregate amount of grants which may be made under this 
     section to a clinic for a year shall not exceed $100,000.
       ``(3) Multi-year grants.--Upon application of a qualified 
     low income taxpayer clinic, the Secretary is authorized to 
     award a multi-year grant not to exceed 3 years.
       ``(4) Criteria for awards.--In determining whether to make 
     a grant under this section, the Secretary shall consider--
       ``(A) the numbers of taxpayers who will be served by the 
     clinic, including the number of taxpayers in the geographical 
     area for whom English is a second language,
       ``(B) the existence of other low income taxpayer clinics 
     serving the same population,
       ``(C) the quality of the program offered by the low income 
     taxpayer clinic, including the qualifications of its 
     administrators and qualified representatives, and its record, 
     if any, in providing service to low income taxpayers, and
       ``(D) alternative funding sources available to the clinic, 
     including amounts received from other grants and 
     contributions, and the endowment and resources of the 
     institution sponsoring the clinic.
       ``(5) Requirement of matching funds.--A low income taxpayer 
     clinic must provide matching funds on a dollar for dollar 
     basis for all grants provided under this section. Matching 
     funds may include--
       ``(A) the salary (including fringe benefits) of individuals 
     performing services for the clinic, and
       ``(B) the cost of equipment used in the clinic.

     Indirect expenses, including general overhead of the 
     institution sponsoring the clinic, shall not be counted as 
     matching funds.''
       (b) Clerical Amendment.--The table of sections for chapter 
     77 is amended by adding at the end the following new section:

``Sec. 7526. Low income taxpayer clinics.''

       (c) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.
                       Subtitle H--Other Matters

     SEC. 3701. CATALOGING COMPLAINTS.

       In collecting data for the report required under section 
     1211 of Taxpayer Bill of Rights 2 (Public Law 104-168), the 
     Secretary of the Treasury or the Secretary's delegate shall 
     maintain records of taxpayer complaints of misconduct by 
     Internal Revenue Service employees on an individual employee 
     basis.

     SEC. 3702. ARCHIVE OF RECORDS OF INTERNAL REVENUE SERVICE.

       (a) In General.--Subsection (l) of section 6103 (relating 
     to confidentiality and disclosure of returns and return 
     information) is amended by adding at the end the following 
     new paragraph:
       ``(17) Disclosure to national archives and records 
     administration.--The Secretary shall, upon written request 
     from the Archivist of the United States, disclose or 
     authorize the disclosure of returns and return information 
     to officers and employees of the National Archives and 
     Records Administration for purposes of, and only to the 
     extent necessary in, the appraisal of records for 
     destruction or retention. No such officer or employee 
     shall, except to the extent authorized by subsections (f), 
     (i)(7), or (p), disclose any return or return information 
     disclosed under the preceding sentence to any person other 
     than to the Secretary, or to another officer or employee 
     of the National Archives and Records Administration whose 
     official duties require such disclosure for purposes of 
     such appraisal.''
       (b) Conforming Amendments.--Section 6103(p) is amended--
       (1) in paragraph (3)(A), by striking ``or (16)'' and 
     inserting ``(16), or (17)'',
       (2) in paragraph (4), by striking ``or (14)'' and inserting 
     ``, (14), or (17)'' in the matter preceding subparagraph (A), 
     and
       (3) in paragraph (4)(F)(ii), by striking ``or (15)'' and 
     inserting ``, (15), or (17)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to requests made by the Archivist of the United 
     States after the date of the enactment of this Act.

     SEC. 3703. PAYMENT OF TAXES.

       The Secretary of the Treasury or the Secretary's delegate 
     shall establish such rules, regulations, and procedures as 
     are necessary to allow payment of taxes by check or money 
     order made payable to the United States Treasury.

     SEC. 3704. CLARIFICATION OF AUTHORITY OF SECRETARY RELATING 
                   TO THE MAKING OF ELECTIONS.

       Subsection (d) of section 7805 is amended by striking ``by 
     regulations or forms''.

     SEC. 3705. IRS EMPLOYEE CONTACTS.

       (a) Notice.--The Secretary of the Treasury or the 
     Secretary's delegate shall provide that any correspondence or 
     notice received by a taxpayer from the Internal Revenue 
     Service shall include in a prominent manner the name and 
     telephone number of an Internal Revenue Service employee the 
     taxpayer may contact with respect to the correspondence or 
     notice.
       (b) Single Contact.--The Secretary of the Treasury or the 
     Secretary's delegate shall develop a procedure under which, 
     to the extent practicable and if advantageous to the 
     taxpayer, one Internal Revenue Service employee shall be 
     assigned to handle a taxpayer's matter until it is resolved.
       (c) Effective Date.--This section shall take effect 60 days 
     after the date of the enactment of this Act.

     SEC. 3706. USE OF PSEUDONYMS BY IRS EMPLOYEES.

       (a) In General.--Any employee of the Internal Revenue 
     Service may use a pseudonym only if--
       (1) adequate justification for the use of a pseudonym is 
     provided by the employee, including protection of personal 
     safety, and
       (2) such use is approved by the employee's supervisor 
     before the pseudonym is used.
       (b) Effective Date.--Subsection (a) shall apply to requests 
     made after the date of the enactment of this Act.

     SEC. 3707. CONFERENCES OF RIGHT IN THE NATIONAL OFFICE OF 
                   IRS.

       (a) In General.--In any conference of right in the National 
     Office of the Internal Revenue Service, participation in such 
     conference shall, upon request of the taxpayer, be limited to 
     personnel of the National Office.
       (b) Effective Date.--Subsection (a) shall apply to requests 
     made after the date of the enactment of this Act.

     SEC. 3708. ILLEGAL TAX PROTESTER DESIGNATION.

       (a) Prohibition.--The officers and employees of the 
     Internal Revenue Service--

[[Page S4170]]

       (1) shall not designate taxpayers as illegal tax protesters 
     (or any similar designation), and
       (2) in the case of any such designation made on or before 
     the date of the enactment of this Act--
       (A) shall remove such designation from the individual 
     master file, and
       (B) shall disregard any such designation not located in the 
     individual master file.
       (b) Designation of Nonfilers Allowed.--An officer or 
     employee of the Internal Revenue Service may designate any 
     appropriate taxpayer as a nonfiler, but shall remove such 
     designation once the taxpayer has filed income tax returns 
     for 2 consecutive taxable years and paid all taxes shown on 
     such returns.
       (c) Effective Date.--The provisions of this section shall 
     take effect on the date of the enactment of this Act.

     SEC. 3709. PROVISION OF CONFIDENTIAL INFORMATION TO CONGRESS 
                   BY WHISTLEBLOWERS.

       (a) In General.--Paragraph (1) of section 6103(f) (relating 
     to disclosure of confidential information to committees of 
     Congress) is amended--
       (1) by striking ``Upon written'' and inserting the 
     following:
       ``(A) Written request by chairman.--Upon written''; and
       (2) by adding at the end the following new subparagraph:
       ``(B) Whistleblower information.--Any person who otherwise 
     has or had access to any return or return information under 
     this section may disclose such return or return information 
     to a chairman of a committee referred to in subparagraph (A) 
     or the chief of staff of the Joint Committee of Taxation only 
     if--
       ``(i) the disclosure is for the purpose of alleging an 
     incident of employee misconduct or taxpayer abuse, and
       ``(ii) the chairman of the committee to which the 
     disclosure is made (or either chairman in the case of 
     disclosure to the chief of staff) gives prior written 
     approval for the disclosure.''
       (b) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 3710. LISTING OF LOCAL IRS TELEPHONE NUMBERS AND 
                   ADDRESSES.

       The Secretary of the Treasury or the Secretary's delegate 
     shall, as soon as practicable, but not later than 180 days 
     after the date of the enactment of this Act, provide that the 
     local telephone numbers and addresses of Internal Revenue 
     Service offices located in any particular area be listed in 
     the telephone book for that area.

     SEC. 3711. IDENTIFICATION OF RETURN PREPARERS.

       (a) In General.--The last sentence of section 6109(a) 
     (relating to identifying numbers) is amended by striking 
     ``For purposes of this subsection'' and inserting ``For 
     purposes of paragraphs (1), (2), and (3)''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 3712. OFFSET OF PAST-DUE, LEGALLY ENFORCEABLE STATE 
                   INCOME TAX OBLIGATIONS AGAINST OVERPAYMENTS.

       (a) In General.--Section 6402 (relating to authority to 
     make credits or refunds) is amended by redesignating 
     subsections (e) through (i) as subsections (f) through (j), 
     respectively, and by inserting after subsection (d) the 
     following new subsection:
       ``(e) Collection of Past-Due, Legally Enforceable State 
     Income Tax Obligations.--
       ``(1) In general.--Upon receiving notice from any State 
     that a named person owes a past-due, legally enforceable 
     State income tax obligation to such State, the Secretary 
     shall, under such conditions as may be prescribed by the 
     Secretary--
       ``(A) reduce the amount of any overpayment payable to such 
     person by the amount of such State income tax obligation;
       ``(B) pay the amount by which such overpayment is reduced 
     under subparagraph (A) to such State and notify such State of 
     such person's name, taxpayer identification number, address, 
     and the amount collected; and
       ``(C) notify the person making such overpayment that the 
     overpayment has been reduced by an amount necessary to 
     satisfy a past-due, legally enforceable State income tax 
     obligation.

     If an offset is made pursuant to a joint return, the notice 
     under subparagraph (B) shall include the names, taxpayer 
     identification numbers, and addresses of each person filing 
     such return.
       ``(2) Offset permitted only against residents of state 
     seeking offset.--Paragraph (1) shall apply to an overpayment 
     by any person for a taxable year only if the address shown on 
     the return for such taxable year is an address within the 
     State seeking the offset.
       ``(3) Priorities for offset.--Any overpayment by a person 
     shall be reduced pursuant to this subsection--
       ``(A) after such overpayment is reduced pursuant to--
       ``(i) subsection (a) with respect to any liability for any 
     internal revenue tax on the part of the person who made the 
     overpayment,
       ``(ii) subsection (c) with respect to past-due support, and
       ``(iii) subsection (d) with respect to any past-due, 
     legally enforceable debt owed to a Federal agency, and
       ``(B) before such overpayment is credited to the future 
     liability for any Federal internal revenue tax of such person 
     pursuant to subsection (b).

     If the Secretary receives notice from 1 or more agencies of 
     the State of more than 1 debt subject to paragraph (1) that 
     is owed by such person to such an agency, any overpayment by 
     such person shall be applied against such debts in the order 
     in which such debts accrued.
       ``(4) Notice; consideration of evidence.--No State may take 
     action under this subsection until such State--
       ``(A) notifies the person owing the past-due State income 
     tax liability that the State proposes to take action pursuant 
     to this section,
       ``(B) gives such person at least 60 days to present 
     evidence that all or part of such liability is not past-due 
     or not legally enforceable,
       ``(C) considers any evidence presented by such person and 
     determines that an amount of such debt is past-due and 
     legally enforceable, and
       ``(D) satisfies such other conditions as the Secretary may 
     prescribe to ensure that the determination made under 
     subparagraph (C) is valid and that the State has made 
     reasonable efforts to obtain payment of such State income tax 
     obligation.
       ``(5) Past-due, legally enforceable state income tax 
     obligation.--For purposes of this subsection, the term `past-
     due, legally enforceable State income tax obligation' means a 
     debt--
       ``(A) which resulted from a judgment which--
       ``(i) was rendered by a court of competent jurisdiction 
     which has determined an amount of State income tax to be due, 
     and
       ``(ii) is no longer subject to judicial review, and
       ``(B) which has not been delinquent for more than 10 years.

     For purposes of this paragraph, the term `State income tax' 
     includes any local tax administered by the chief tax 
     administration agency of the State.
       ``(6) Regulations.--The Secretary shall issue regulations 
     prescribing the time and manner in which States must submit 
     notices of past-due, legally enforceable State income tax 
     obligations and the necessary information that must be 
     contained in or accompany such notices. The regulations shall 
     specify the types of State income taxes and the minimum 
     amount of debt to which the reduction procedure established 
     by paragraph (1) may be applied. The regulations may require 
     States to pay a fee to reimburse the Secretary for the cost 
     of applying such procedure. Any fee paid to the Secretary 
     pursuant to the preceding sentence shall be used to reimburse 
     appropriations which bore all or part of the cost of applying 
     such procedure.
       ``(7) Erroneous payment to state.--Any State receiving 
     notice from the Secretary that an erroneous payment has been 
     made to such State under paragraph (1) shall pay promptly to 
     the Secretary, in accordance with such regulations as the 
     Secretary may prescribe, an amount equal to the amount of 
     such erroneous payment (without regard to whether any other 
     amounts payable to such State under such paragraph have been 
     paid to such State).''.
       (b) Disclosure of Certain Information to States Requesting 
     Refund Offsets for Past-Due, Legally Enforceable State Income 
     Tax Obligations.--
       (1) Paragraph (10) of section 6103(l) is amended by 
     striking ``(c) or (d)'' each place it appears and inserting 
     ``(c), (d), or (e)''.
       (2) The paragraph heading for such paragraph (10) is 
     amended by striking ``section 6402(c) or 6402(d)'' and 
     inserting ``subsection (c), (d), or (e) of section 6402''.
       (c) Conforming Amendments.--
       (1) Subsection (a) of section 6402 is amended by striking 
     ``(c) and (d)'' and inserting ``(c), (d), and (e)''.
       (2) Paragraph (2) of section 6402(d) is amended by striking 
     ``and before such overpayment'' and inserting ``and before 
     such overpayment is reduced pursuant to subsection (e) and 
     before such overpayment''.
       (3) Subsection (f) of section 6402, as redesignated by 
     subsection (a), is amended--
       (A) by striking ``(c) or (d)'' and inserting ``(c), (d), or 
     (e)'', and
       (B) by striking ``Federal agency'' and inserting ``Federal 
     agency or State''.
       (4) Subsection (h) of section 6402, as redesignated by 
     subsection (a), is amended by striking ``subsection (c)'' and 
     inserting ``subsection (c) or (e)''.
       (d) Effective Date.--The amendments made by this section 
     (other than subsection (d)) shall apply to refunds payable 
     under section 6402 of the Internal Revenue Code of 1986 after 
     December 31, 1998.

     SEC. 3713. TREATMENT OF IRS NOTICES ON FOREIGN TAX 
                   PROVISIONS.

       (a) Notice 98-11.--
       (1) Moratorium.--The Secretary of the Treasury or his 
     delegate shall not implement final or temporary regulations 
     with respect to Internal Revenue Service Notice 98-11 during 
     the period--
       (A) beginning on January 16, 1998, and
       (B) ending on the date which is 6 months after the date of 
     the enactment of this Act.
       (2) Sense of senate regarding notice.--It is the sense of 
     the Senate that--
       (A) the Secretary of the Treasury or his delegate should 
     withdraw Internal Revenue Service Notice 98-11 and the 
     regulations issued with respect to such notice, and
       (B) Congress, not the Department of the Treasury or the 
     Internal Revenue Service, should determine the policy issues 
     with respect to the treatment of hybrid transactions under 
     subpart F of part III of subchapter N of chapter 1 of the 
     Internal Revenue Code of 1986.
       (b) Notice 98-5.--It is the sense of the Senate that--
       (1) the Secretary of the Treasury or his delegate should 
     limit any regulations issued with respect to Internal Revenue 
     Service Notice 98-5 to the specific transactions contained in 
     such notice, and
       (2) such regulations should--
       (A) not affect transactions undertaken in the ordinary 
     course of business,
       (B) not have an effective date before the earlier of the 
     dates described in subparagraph (A) or (B) of section 
     7805(b)(1) of the Internal Revenue Code of 1986, and
       (C) be issued in accordance with normal regulatory 
     procedures which include an opportunity for comment.


[[Page S4171]]


     Nothing in the preceding sentence shall be construed as 
     expressing any intent by the Senate to limit the Secretary's 
     ability to address abusive transactions.
                          Subtitle I--Studies

     SEC. 3801. ADMINISTRATION OF PENALTIES AND INTEREST.

       The Joint Committee on Taxation and the Secretary of the 
     Treasury shall each conduct a separate study--
       (1) reviewing the administration and implementation by the 
     Internal Revenue Service of the interest and penalty 
     provisions of the Internal Revenue Code of 1986 (including 
     the penalty reform provisions of the Omnibus Budget 
     Reconciliation Act of 1989), and
       (2) making any legislative and administrative 
     recommendations the Committee or the Secretary deems 
     appropriate to simplify penalty or interest administration 
     and reduce taxpayer burden.

     Such studies shall be submitted to the Committee on Ways and 
     Means of the House of Representatives and the Committee on 
     Finance of the Senate not later than 9 months after the date 
     of the enactment of this Act.

     SEC. 3802. CONFIDENTIALITY OF TAX RETURN INFORMATION.

       The Joint Committee on Taxation and the Secretary of the 
     Treasury shall each conduct a separate study of the scope and 
     use of provisions regarding taxpayer confidentiality, and 
     shall report the findings of such study, together with such 
     recommendations as the Committee or the Secretary deems 
     appropriate, to the Congress not later than one year after 
     the date of the enactment of this Act. Such study shall 
     examine--
       (1) the present protections for taxpayer privacy,
       (2) any need for third parties to use tax return 
     information,
       (3) whether greater levels of voluntary compliance may be 
     achieved by allowing the public to know who is legally 
     required to file tax returns, but does not file tax returns, 
     and
       (4) the interrelationship of the taxpayer confidentiality 
     provisions in the Internal Revenue Code of 1986 with such 
     provisions in other Federal law, including section 552a of 
     title 5, United States Code (commonly known as the ``Freedom 
     of Information Act'').
TITLE IV--CONGRESSIONAL ACCOUNTABILITY FOR THE INTERNAL REVENUE SERVICE

     SEC. 4001. CENTURY DATE CHANGE.

       (a) Sense of Congress.--It is the sense of Congress that 
     the Internal Revenue Service should place a high priority on 
     resolving the century date change computing problems.
       (b) Report on Effect of Legislation on Century Date 
     Change.--The Commissioner of Internal Revenue shall 
     expeditiously submit a report to Congress on--
       (1) the overall impact of this Act on the ability of the 
     Internal Revenue Service to resolve the century date change 
     computing problems, and
       (2) provisions of this Act that will require significant 
     amounts of computer programming prior to December 31, 1999, 
     in order to carry out such provisions.

     SEC. 4002. TAX LAW COMPLEXITY ANALYSIS.

       (a) Commissioner Study.--
       (1) In general.--The Commissioner of Internal Revenue shall 
     conduct each year an analysis of the sources of the 
     complexity of the administration of the Federal tax laws. 
     Such analysis may include an analysis of--
       (A) questions frequently asked by taxpayers with respect to 
     return filing,
       (B) common errors made by taxpayers in filling out their 
     returns,
       (C) areas of law which frequently result in disagreements 
     between taxpayers and the Internal Revenue Service,
       (D) major areas of law in which there is no (or incomplete) 
     published guidance or in which the law is uncertain,
       (E) areas in which revenue officers make frequent errors 
     interpreting or applying the law,
       (F) the impact of recent legislation on complexity, and
       (G) forms supplied by the Internal Revenue Service, 
     including the time it takes for taxpayers to complete and 
     review forms, the number of taxpayers who use each form, and 
     how recent legislation has affected the time it takes to 
     complete and review forms.
       (2) Report.--The Commissioner shall each year report the 
     results of the analysis conducted under paragraph (1) to the 
     Committee on Ways and Means of the House of Representatives 
     and the Committee on Finance of the Senate, including any 
     recommendations for reducing the complexity of the 
     administration of the Federal tax laws.
       (b) Analysis to Accompany Certain Legislation.--
       (1) In general.--The Joint Committee on Taxation, in 
     consultation with the Internal Revenue Service and the 
     Department of the Treasury, shall include a tax complexity 
     analysis in each report for legislation, or provide such 
     analysis to members of the committee reporting the 
     legislation as soon as practicable after the report is filed, 
     if--
       (A) such legislation is reported by the Committee on 
     Finance in the Senate, the Committee on Ways and Means of the 
     House of Representatives, or any committee of conference, and
       (B) such legislation includes a provision which would 
     directly or indirectly amend the Internal Revenue Code of 
     1986 and which has widespread applicability to individuals or 
     small businesses.
       (2) Tax complexity analysis.--For purposes of this 
     subsection, the term ``tax complexity analysis'' means, with 
     respect to any legislation, a report on the complexity and 
     administrative difficulties of each provision described in 
     paragraph (1)(B) which--
       (A) includes--
       (i) an estimate of the number of taxpayers affected by the 
     provision, and
       (ii) if applicable, the income level of taxpayers affected 
     by the provision, and
       (B) should include (if determinable)--
       (i) the extent to which tax forms supplied by the Internal 
     Revenue Service would require revision and whether any new 
     forms would be required,
       (ii) the extent to which taxpayers would be required to 
     keep additional records,
       (iii) the estimated cost to taxpayers to comply with the 
     provision,
       (iv) the extent to which enactment of the provision would 
     require the Internal Revenue Service to develop or modify 
     regulatory guidance,
       (v) the extent to which the provision may result in 
     disagreements between taxpayers and the Internal Revenue 
     Service, and
       (vi) any expected impact on the Internal Revenue Service 
     from the provision (including the impact on internal 
     training, revision of the Internal Revenue Manual, 
     reprogramming of computers, and the extent to which the 
     Internal Revenue Service would be required to divert or 
     redirect resources in response to the provision).
       (3) Effective date.--This subsection shall apply to 
     legislation considered on or after January 1, 1999.
                      TITLE V--REVENUE PROVISIONS

     SEC. 5001. CLARIFICATION OF DEDUCTION FOR DEFERRED 
                   COMPENSATION.

       (a) In General.--Section 404(a) (relating to deduction for 
     contributions of an employer to an employee's trust or 
     annuity plan and compensation under a deferred-payment plan) 
     is amended by adding at the end the following new paragraph:
       ``(11) Determinations relating to deferred compensation.--
     For purposes of determining under this section--
       ``(A) whether compensation of an employee is deferred 
     compensation, and
       ``(B) when deferred compensation is paid,

     no amount shall be treated as received by the employee, or 
     paid, until it is actually received by the employee.''
       (b) Effective Date.--
       (1) In general.--The amendment made by subsection (a) shall 
     apply to taxable years ending after the date of the enactment 
     of this Act.
       (2) Change in method of accounting.--In the case of any 
     taxpayer required by the amendment made by subsection (a) to 
     change its method of accounting for its first taxable year 
     ending after the date of the enactment of this Act--
       (A) such change shall be treated as initiated by the 
     taxpayer,
       (B) such change shall be treated as made with the consent 
     of the Secretary of the Treasury, and
       (C) the net amount of the adjustments required to be taken 
     into account by the taxpayer under section 481 of the 
     Internal Revenue Code of 1986 shall be taken into account in 
     such first taxable year.

     SEC. 5002. MODIFICATION TO FOREIGN TAX CREDIT CARRYBACK AND 
                   CARRYOVER PERIODS.

       (a) In General.--Section 904(c) (relating to limitation on 
     credit) is amended--
       (1) by striking ``in the second preceding taxable year,'', 
     and
       (2) by striking ``or fifth'' and inserting ``fifth, sixth, 
     or seventh''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to credits arising in taxable years ending after 
     the date of the enactment of this Act.

     SEC. 5003. CLARIFICATION AND EXPANSION OF MATHEMATICAL ERROR 
                   ASSESSMENT PROCEDURES.

       (a) TIN Deemed Incorrect if Information on Return Differs 
     With Agency Records.--Section 6213(g)(2) (defining 
     mathematical or clerical error) is amended by adding at the 
     end the following flush sentence:

     ``A taxpayer shall be treated as having omitted a correct TIN 
     for purposes of the preceding sentence if information 
     provided by the taxpayer on the return with respect to the 
     individual whose TIN was provided differs from the 
     information the Secretary obtains from the person issuing the 
     TIN.''
       (b) Expansion of Mathematical Error Procedures to Cases 
     Where TIN Establishes Individual Not Eligible for Tax 
     Credit.--Section 6213(g)(2), as amended by title VI of this 
     Act, is amended by striking ``and'' at the end of 
     subparagraph (J), by striking the period at the end of the 
     subparagraph (K) and inserting ``, and'', and by adding at 
     the end the following new subparagraph:
       ``(L) the inclusion on a return of a TIN required to be 
     included on the return under section 21, 24, or 32 if--
       ``(i) such TIN is of an individual whose age affects the 
     amount of the credit under such section, and
       ``(ii) the computation of the credit on the return reflects 
     the treatment of such individual as being of an age different 
     from the individual's age based on such TIN.''
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years ending after the date of the 
     enactment of this Act.

     SEC. 5004. TERMINATION OF EXCEPTION FOR CERTAIN REAL ESTATE 
                   INVESTMENT TRUSTS FROM THE TREATMENT OF STAPLED 
                   ENTITIES.

       (a) In General.--Notwithstanding paragraph (3) of section 
     136(c) of the Tax Reform Act of 1984 (relating to stapled 
     stock; stapled entities), the REIT gross income provisions 
     shall be applied by treating the activities and gross income 
     of members of the stapled REIT group properly allocable to 
     any nonqualified real property interest held by the exempt 
     REIT or any stapled entity which is a member of such group 
     (or treated under subsection (c) as held by such

[[Page S4172]]

     REIT or stapled entity) as the activities and gross income of 
     the exempt REIT in the same manner as if the exempt REIT and 
     such group were 1 entity.
       (b) Nonqualified Real Property Interest.--For purposes of 
     this section--
       (1) In general.--The term ``nonqualified real property 
     interest'' means, with respect to any exempt REIT, any 
     interest in real property acquired after March 26, 1998, by 
     the exempt REIT or any stapled entity.
       (2) Exception for binding contracts, etc.--Such term shall 
     not include any interest in real property acquired after 
     March 26, 1998, by the exempt REIT or any stapled entity if--
       (A) the acquisition is pursuant to a written agreement 
     which was binding on such date and at all times thereafter on 
     such REIT or stapled entity, or
       (B) the acquisition is described on or before such date in 
     a public announcement or in a filing with the Securities and 
     Exchange Commission.
       (3) Improvements and leases.--
       (A) In general.--Except as otherwise provided in this 
     paragraph, the term ``nonqualified real property interest'' 
     shall not include--
       (i) any improvement to land owned or leased by the exempt 
     REIT or any member of the stapled REIT group, and
       (ii) any repair to, or improvement of, any improvement 
     owned or leased by the exempt REIT or any member of the 
     stapled REIT group,

     if such ownership or leasehold interest is a qualified real 
     property interest.
       (B) Leases.--Such term shall not include any lease of a 
     qualified real property interest.
       (C) Termination where change in use.--
       (i) In general.--Subparagraph (A) shall not apply to any 
     improvement placed in service after December 31, 1999, which 
     is part of a change in the use of the property to which such 
     improvement relates unless the cost of such improvement does 
     not exceed 200 percent of--

       (I) the cost of such property, or
       (II) if such property is substituted basis property (as 
     defined in section 7701(a)(42) of the Internal Revenue Code 
     of 1986), the fair market value of the property at the time 
     of acquisition.

       (ii) Binding contracts.--For purposes of clause (i), an 
     improvement shall be treated as placed in service before 
     January 1, 2000, if such improvement is placed in service 
     before January 1, 2004, pursuant to a binding contract in 
     effect on December 31, 1999, and at all times thereafter.
       (4) Treatment of entities which are not stapled, etc. on 
     march 26, 1998.--Notwithstanding any other provision of this 
     section, all interests in real property held by an exempt 
     REIT or any stapled entity with respect to such REIT (or 
     treated under subsection (c) as held by such REIT or stapled 
     entity) shall be treated as nonqualified real property 
     interests unless--
       (A) such stapled entity was a stapled entity with respect 
     to such REIT as of March 26, 1998, and at all times 
     thereafter, and
       (B) as of March 26, 1998, and at all times thereafter, such 
     REIT was a real estate investment trust.
       (5) Qualified real property interest.--The term ``qualified 
     real property interest'' means any interest in real property 
     other than a nonqualified real property interest.
       (c) Treatment of Property Held by 10-Percent 
     Subsidiaries.--For purposes of this section--
       (1) In general.--Any exempt REIT and any stapled entity 
     shall be treated as holding their proportionate shares of 
     each interest in real property held by any 10-percent 
     subsidiary entity of the exempt REIT or stapled entity, as 
     the case may be.
       (2) Property held by 10-percent subsidiaries treated as 
     nonqualified.--
       (A) In general.--Except as provided in subparagraph (B), 
     any interest in real property held by a 10-percent subsidiary 
     entity of an exempt REIT or stapled entity shall be treated 
     as a nonqualified real property interest.
       (B) Exception for interests in real property held on march 
     26, 1998, etc.--In the case of an entity which was a 10-
     percent subsidiary entity of an exempt REIT or stapled entity 
     on March 26, 1998, and at all times thereafter, an interest 
     in real property held by such subsidiary entity shall be 
     treated as a qualified real property interest if such 
     interest would be so treated if held directly by the exempt 
     REIT or the stapled entity.
       (3) Reduction in qualified real property interests if 
     increase in ownership of subsidiary.--If, after March 26, 
     1998, an exempt REIT or stapled entity increases its 
     ownership interest in a subsidiary entity to which paragraph 
     (2)(B) applies above its ownership interest in such 
     subsidiary entity as of such date, the additional portion of 
     each interest in real property which is treated as held by 
     the exempt REIT or stapled entity by reason of such increased 
     ownership shall be treated as a nonqualified real property 
     interest.
       (4) Special rules for determining ownership.--For purposes 
     of this subsection--
       (A) percentage ownership of an entity shall be determined 
     in accordance with subsection (e)(4),
       (B) interests in the entity which are acquired by the 
     exempt REIT or stapled entity in any acquisition described in 
     an agreement, announcement, or filing described in subsection 
     (b)(2) shall be treated as acquired on March 26, 1998, and
       (C) except as provided in guidance prescribed by the 
     Secretary, any change in proportionate ownership which is 
     attributable solely to fluctuations in the relative fair 
     market values of different classes of stock shall not be 
     taken into account.
       (d) Treatment of Property Secured by Mortgage Held by 
     Exempt REIT or Member of Stapled REIT Group.--
       (1) In general.--In the case of any nonqualified obligation 
     held by an exempt REIT or any member of the stapled REIT 
     group, the REIT gross income provisions shall be applied by 
     treating the exempt REIT as having impermissible tenant 
     service income equal to--
       (A) the interest income from such obligation which is 
     properly allocable to the property described in paragraph 
     (2), and
       (B) the income of any member of the stapled REIT group from 
     services described in paragraph (2) with respect to such 
     property.

     If the income referred to in subparagraph (A) or (B) is of a 
     10-percent subsidiary entity, only the portion of such income 
     which is properly allocable to the exempt REIT's or the 
     stapled entity's interest in the subsidiary entity shall be 
     taken into account.
       (2) Nonqualified obligation.--Except as otherwise provided 
     in this subsection, the term ``nonqualified obligation'' 
     means any obligation secured by a mortgage on an interest in 
     real property if the income of any member of the stapled REIT 
     group for services furnished with respect to such property 
     would be impermissible tenant service income were such 
     property held by the exempt REIT and such services furnished 
     by the exempt REIT.
       (3) Exception for certain market rate obligations.--Such 
     term shall not include any obligation--
       (A) payments under which would be treated as interest if 
     received by a REIT, and
       (B) the rate of interest on which does not exceed an arm's 
     length rate.
       (4) Exception for existing obligations.--Such term shall 
     not include any obligation--
       (A) which is secured on March 26, 1998, by an interest in 
     real property, and
       (B) which is held on such date by the exempt REIT or any 
     entity which is a member of the stapled REIT group on such 
     date and at all times thereafter,

     but only so long as such obligation is secured by such 
     interest. The preceding sentence shall not cease to apply by 
     reason of the refinancing of the obligation if (immediately 
     after the refinancing) the principal amount of the obligation 
     resulting from the refinancing does not exceed the principal 
     amount of the refinanced obligation (immediately before the 
     refinancing).
       (5) Treatment of entities which are not stapled, etc. on 
     march 26, 1998.--A rule similar to the rule of subsection 
     (b)(4) shall apply for purposes of this subsection.
       (6) Increase in amount of nonqualified obligations if 
     increase in ownership of subsidiary.--A rule similar to the 
     rule of subsection (c)(3) shall apply for purposes of this 
     subsection.
       (7) Coordination with subsection (a).--This subsection 
     shall not apply to the portion of any interest in real 
     property that the exempt REIT or stapled entity holds or is 
     treated as holding under this section without regard to this 
     subsection.
       (e) Definitions.--For purposes of this section--
       (1) REIT gross income provisions.--The term ``REIT gross 
     income provisions'' means--
       (A) paragraphs (2), (3), and (6) of section 856(c) of the 
     Internal Revenue Code of 1986, and
       (B) section 857(b)(5) of such Code.
       (2) Exempt reit.--The term ``exempt REIT'' means a real 
     estate investment trust to which section 269B of the Internal 
     Revenue Code of 1986 does not apply by reason of paragraph 
     (3) of section 136(c) of the Tax Reform Act of 1984.
       (3) Stapled reit group.--The term ``stapled REIT group'' 
     means, with respect to an exempt REIT, the group consisting 
     of--
       (A) all entities which are stapled entities with respect to 
     the exempt REIT, and
       (B) all entities which are 10-percent subsidiary entities 
     of the exempt REIT or any such stapled entity.
       (4) 10-percent subsidiary entity.--
       (A) In general.--The term ``10-percent subsidiary entity'' 
     means, with respect to any exempt REIT or stapled entity, any 
     entity in which the exempt REIT or stapled entity (as the 
     case may be) directly or indirectly holds at least a 10-
     percent interest.
       (B) Exception for certain c corporation subsidiaries of 
     reits.--A corporation which would, but for this subparagraph, 
     be treated as a 10-percent subsidiary of an exempt REIT shall 
     not be so treated if such corporation is taxable under 
     section 11 of the Internal Revenue Code of 1986.
       (C) 10-percent interest.--The term ``10-percent interest'' 
     means--
       (i) in the case of an interest in a corporation, ownership 
     of 10 percent (by vote or value) of the stock in such 
     corporation,
       (ii) in the case of an interest in a partnership, ownership 
     of 10 percent of the assets or net profits interest in the 
     partnership, and
       (iii) in any other case, ownership of 10 percent of the 
     beneficial interests in the entity.
       (5) Other definitions.--Terms used in this section which 
     are used in section 269B or section 856 of such Code shall 
     have the respective meanings given such terms by such 
     section.
       (f) Guidance.--The Secretary may prescribe such guidance as 
     may be necessary or appropriate to carry out the purposes of 
     this section, including guidance to prevent the avoidance of 
     such purposes and to prevent the double counting of income.
       (g) Effective Date.--This section shall apply to taxable 
     years ending after March 26, 1998.

     SEC. 5005. CERTAIN CUSTOMER RECEIVABLES INELIGIBLE FOR MARK-
                   TO-MARKET TREATMENT.

       (a) Certain Receivables Not Eligible for Mark to Market.--
     Section 475(c) (relating to definitions) is amended by adding 
     at the end the following new paragraph:
       ``(4) Special rules for certain receivables.--

[[Page S4173]]

       ``(A) In general.--Paragraph (2)(C) shall not include any 
     note, bond, debenture, or other evidence of indebtedness 
     which is nonfinancial customer paper.
       ``(B) Nonfinancial customer paper.--For purposes of 
     subparagraph (A), the term `nonfinancial customer paper' 
     means any receivable--
       ``(i) arising out of the sale of goods or services by a 
     person the principal activity of which is the selling or 
     providing of nonfinancial goods and services, and
       ``(ii) held by such person (or a person who bears a 
     relationship to such person described in section 267(b) or 
     707(b)) at all times since issue.''
       (b) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to taxable years ending after the date of the enactment 
     of this Act.
       (2) Change in method of accounting.--In the case of any 
     taxpayer required by the amendments made by this section to 
     change its method of accounting for its first taxable year 
     ending after the date of the enactment of this Act--
       (A) such change shall be treated as initiated by the 
     taxpayer,
       (B) such change shall be treated as made with the consent 
     of the Secretary of the Treasury, and
       (C) the net amount of the adjustments required to be taken 
     into account by the taxpayer under section 481 of the 
     Internal Revenue Code of 1986 shall be taken into account 
     ratably over the 4-taxable year period beginning with such 
     first taxable year.

     SEC. 5006. INCLUSION OF ROTAVIRUS GASTROENTERITIS TO LIST OF 
                   TAXABLE VACCINES.

       (a) In General.--Section 4132(1) (defining taxable vaccine) 
     is amended by adding at the end the following new 
     subparagraph:
       ``(K) Any vaccine against rotavirus gastroenteritis.''
       (b) Effective Date.--
       (1) Sales.--The amendment made by this section shall apply 
     to sales after the date of the enactment of this Act.
       (2) Deliveries.--For purposes of paragraph (1), in the case 
     of sales on or before the date of the enactment of this Act 
     for which delivery is made after such date, the delivery date 
     shall be considered the sale date.
                    TITLE VI--TECHNICAL CORRECTIONS

     SEC. 6001. SHORT TITLE.

       This title may be cited as the ``Tax Technical Corrections 
     Act of 1998''.

     SEC. 6002. DEFINITIONS.

       For purposes of this title--
       (1) 1986 code.--The term ``1986 Code'' means the Internal 
     Revenue Code of 1986.
       (2) 1997 act.--The term ``1997 Act'' means the Taxpayer 
     Relief Act of 1997.

     SEC. 6003. AMENDMENTS RELATED TO TITLE I OF 1997 ACT.

       (a) Amendments Related to Section 101(a) of 1997 Act.--
       (1) Subsection (d) of section 24 of the 1986 Code is 
     amended--
       (A) by striking paragraphs (3) and (4),
       (B) by redesignating paragraph (5) as paragraph (3), and
       (C) by striking paragraphs (1) and (2) and inserting the 
     following new paragraphs:
       ``(1) In general.--In the case of a taxpayer with 3 or more 
     qualifying children for any taxable year, the aggregate 
     credits allowed under subpart C shall be increased by the 
     lesser of--
       ``(A) the credit which would be allowed under this section 
     without regard to this subsection and the limitation under 
     section 26(a), or
       ``(B) the amount by which the aggregate amount of credits 
     allowed by this subpart (without regard to this subsection) 
     would increase if the limitation imposed by section 26(a) 
     were increased by the excess (if any) of--
       ``(i) the taxpayer's social security taxes for the taxable 
     year, over
       ``(ii) the credit allowed under section 32 (determined 
     without regard to subsection (n)) for the taxable year.

     The amount of the credit allowed under this subsection shall 
     not be treated as a credit allowed under this subpart and 
     shall reduce the amount of credit otherwise allowable under 
     subsection (a) without regard to section 26(a).
       ``(2) Reduction of credit to taxpayer subject to 
     alternative minimum tax.--The credit determined under this 
     subsection for the taxable year shall be reduced by the 
     excess (if any) of--
       ``(A) the amount of tax imposed by section 55 (relating to 
     alternative minimum tax) with respect to such taxpayer for 
     such taxable year, over
       ``(B) the amount of the reduction under section 32(h) with 
     respect to such taxpayer for such taxable year.''
       (2) Paragraph (3) of section 24(d) of the 1986 Code (as 
     redesignated by paragraph (1)) is amended by striking 
     ``paragraph (3)'' and inserting ``paragraph (1)''.
       (b) Amendments Related to Section 101(b) of 1997 Act.--
       (1) The subsection (m) of section 32 of the 1986 Code added 
     by section 101(b) of the 1997 Act is amended to read as 
     follows:
       ``(n) Supplemental Child Credit.--
       ``(1) In general.--In the case of a taxpayer with respect 
     to whom a credit is allowed under section 24(a) for the 
     taxable year, the credit otherwise allowable under this 
     section shall be increased by the lesser of--
       ``(A) the excess of--
       ``(i) the credits allowed under subpart A (determined after 
     the application of section 26 and without regard to this 
     subsection), over
       ``(ii) the credits which would be allowed under subpart A 
     after the application of section 26, determined without 
     regard to section 24 and this subsection, or
       ``(B) the excess of--
       ``(i) the sum of the credits allowed under this part 
     (determined without regard to sections 31, 33, and 34 and 
     this subsection), over
       ``(ii) the sum of the regular tax and the social security 
     taxes (as defined in section 24(d)).

     The credit determined under this subsection shall be allowed 
     without regard to any other provision of this section, 
     including subsection (d).
       ``(2) Coordination with other credits.--The amount of the 
     credit under this subsection shall reduce the amount of the 
     credits otherwise allowable under subpart A for the taxable 
     year (determined after the application of section 26), but 
     the amount of the credit under this subsection (and such 
     reduction) shall not be taken into account in determining the 
     amount of any other credit allowable under this part.''.

     SEC. 6004. AMENDMENTS RELATED TO TITLE II OF 1997 ACT.

       (a) Amendments Related to Section 201 of 1997 Act.--
       (1) The item relating to section 25A in the table of 
     sections for subpart A of part IV of subchapter A of chapter 
     1 of the 1986 Code is amended to read as follows:

``Sec. 25A. Hope and Lifetime Learning credits.''

       (2) Subsection (a) of section 6050S of the 1986 Code is 
     amended to read as follows:
       ``(a) In General.--Any person--
       ``(1) which is an eligible educational institution--
       ``(A) which receives payments for qualified tuition and 
     related expenses with respect to any individual for any 
     calendar year, or
       ``(B) which makes reimbursements or refunds (or similar 
     amounts) to any individual of qualified tuition and related 
     expenses,
       ``(2) which is engaged in a trade or business of making 
     payments to any individual under an insurance arrangement as 
     reimbursements or refunds (or similar amounts) of qualified 
     tuition and related expenses, or
       ``(3) except as provided in regulations, which is engaged 
     in a trade or business and, in the course of which, receives 
     from any individual interest aggregating $600 or more for any 
     calendar year on 1 or more qualified education loans,

     shall make the return described in subsection (b) with 
     respect to the individual at such time as the Secretary may 
     by regulations prescribe.''
       (3) Subparagraph (A) of section 201(c)(2) of the 1997 Act 
     is amended to read as follows:
       ``(A) Subparagraph (B) of section 6724(d)(1) (relating to 
     definitions) is amended by redesignating clauses (x) through 
     (xv) as clauses (xi) through (xvi), respectively, and by 
     inserting after clause (ix) the following new clause:
       `` `(x) section 6050S (relating to returns relating to 
     payments for qualified tuition and related expenses),' ''.
       (b) Amendment Related to Section 202 of 1997 Act.--
     Paragraph (1) of section 221(e) of the 1986 Code is amended 
     by inserting ``by the taxpayer'' after ``incurred'' the first 
     place it appears.
       (c) Amendments Related to Section 211 of 1997 Act.--
       (1) Paragraph (3) of section 135(c) of the 1986 Code is 
     amended to read as follows:
       ``(3) Eligible educational institution.--The term `eligible 
     educational institution' has the meaning given such term by 
     section 529(e)(5).''
       (2) Subparagraph (A) of section 529(c)(3) of the 1986 Code 
     is amended by striking ``section 72(b)'' and inserting 
     ``section 72''.
       (3) Paragraph (2) of section 529(e) of the 1986 Code is 
     amended to read as follows:
       ``(2) Member of family.--The term `member of the family' 
     means, with respect to any designated beneficiary--
       ``(A) the spouse of such beneficiary,
       ``(B) an individual who bears a relationship to such 
     beneficiary which is described in paragraphs (1) through (8) 
     of section 152(a), and
       ``(C) the spouse of any individual described in 
     subparagraph (B).''
       (d) Amendments Related to Section 213 of 1997 Act.--
       (1) Section 530(b)(1) of the 1986 Code (defining education 
     individual retirement account) is amended by inserting ``an 
     individual who is'' before ``the designated beneficiary'' in 
     the material preceding subparagraph (A).
       (2)(A) Section 530(b)(1)(E) of the 1986 Code (defining 
     education individual retirement account) is amended to read 
     as follows:
       ``(E) Except as provided in subsection (d)(7), any balance 
     to the credit of the designated beneficiary on the date on 
     which the beneficiary attains age 30 shall be distributed 
     within 30 days after such date to the beneficiary or, if the 
     beneficiary dies before attaining age 30, shall be 
     distributed within 30 days after the date of death of such 
     beneficiary.''
       (B) Paragraph (7) of section 530(d) of the 1986 Code is 
     amended by inserting at the end the following new sentence: 
     ``In applying the preceding sentence, members of the family 
     of the designated beneficiary shall be treated in the same 
     manner as the spouse under such paragraph (8).''
       (C) Subsection (d) of section 530 of the 1986 Code is 
     amended by adding at the end the following new paragraph:
       ``(8) Deemed distribution on required distribution date.--
     In any case in which a distribution is required under 
     subsection (b)(1)(E), any balance to the credit of a 
     designated beneficiary as of the close of the 30-day period 
     referred to in such subsection for making such distribution 
     shall be deemed distributed at the close of such period.''
       (3)(A) Paragraph (1) of section 530(d) of the 1986 Code is 
     amended by striking ``section 72(b)'' and inserting ``section 
     72''.
       (B) Subsection (e) of section 72 of the 1986 Code is 
     amended by inserting after paragraph (8) the following new 
     paragraph:

[[Page S4174]]

       ``(9) Extension of paragraph (2)(b) to qualified state 
     tuition programs and educational individual retirement 
     accounts.--Notwithstanding any other provision of this 
     subsection, paragraph (2)(B) shall apply to amounts received 
     under a qualified State tuition program (as defined in 
     section 529(b)) or under an education individual retirement 
     account (as defined in section 530(b)). The rule of paragraph 
     (8)(B) shall apply for purposes of this paragraph.''
       (4) Paragraph (2) of section 135(d) of the 1986 Code is 
     amended to read as follows:
       ``(2) Coordination with other higher education benefits.--
     The amount of the qualified higher education expenses 
     otherwise taken into account under subsection (a) with 
     respect to the education of an individual shall be reduced 
     (before the application of subsection (b)) by--
       ``(A) the amount of such expenses which are taken into 
     account in determining the credit allowable to the taxpayer 
     or any other person under section 25A with respect to such 
     expenses, and
       ``(B) the amount of such expenses which are taken into 
     account in determining the exclusion under section 
     530(d)(2).''
       (5) Section 530(d)(2) (relating to distributions for 
     qualified higher education expenses) is amended by adding at 
     the end the following new subparagraph:
       ``(D) Disallowance of excluded amounts as credit or 
     deduction.--No deduction or credit shall be allowed to the 
     taxpayer under any other section of this chapter for any 
     qualified education expenses to the extent taken into account 
     in determining the amount of the exclusion under this 
     paragraph.''
       (6) Section 530(d)(4)(B) of the 1986 Code (relating to 
     exceptions) is amended by striking ``or'' at the end of 
     clause (ii), by striking the period at the end of clause 
     (iii) and inserting ``, or'', and by adding at the end the 
     following new clause:
       ``(iv) an amount which is includible in gross income solely 
     because the taxpayer elected under paragraph (2)(C) to waive 
     the application of paragraph (2) for the taxable year.''
       (7) So much of section 530(d)(4)(C) of the 1986 Code as 
     precedes clause (ii) thereof is amended to read as follows:
       ``(C) Contributions returned before due date of return.--
     Subparagraph (A) shall not apply to the distribution of any 
     contribution made during a taxable year on behalf of the 
     designated beneficiary if--
       ``(i) such distribution is made on or before the day 
     prescribed by law (including extensions of time) for filing 
     the beneficiary's return of tax for the taxable year or, if 
     the beneficiary is not required to file such a return, the 
     15th day of the 4th month of the taxable year following the 
     taxable year, and''.
       (8) Subparagraph (C) of section 135(c)(2) of the 1986 Code 
     is amended--
       (A) by inserting ``and education individual retirement 
     accounts'' in the heading after ``program'', and
       (B) by striking ``section 529(c)(3)(A)'' and inserting 
     ``section 72''.
       (9) Paragraph (1) of section 4973(e) of the 1986 Code is 
     amended to read as follows:
       ``(1) In general.--In the case of education individual 
     retirement accounts maintained for the benefit of any 1 
     beneficiary, the term `excess contributions' means the sum 
     of--
       ``(A) the amount by which the amount contributed for the 
     taxable year to such accounts exceeds $500 (or, if less, the 
     sum of the maximum amounts permitted to be contributed under 
     section 530(c) by the contributors to such accounts for such 
     year),
       ``(B) if any amount is contributed during such year to a 
     qualified State tuition program for the benefit of such 
     beneficiary, any amount contributed to such accounts for any 
     taxable year, and
       ``(C) the amount determined under this subsection for the 
     preceding taxable year, reduced by the sum of--
       ``(i) the distributions out of the accounts for the taxable 
     year which are included in gross income, and
       ``(ii) the excess (if any) of the maximum amount which may 
     be contributed to the accounts for the taxable year (other 
     than excess contributions within the meaning of subparagraphs 
     (A) and (B)) over the amount contributed to the accounts for 
     the taxable year.''
       (e) Amendments Related to Section 224 of 1997 Act.--
       (1) Clauses (vi) and (vii) of section 170(e)(6)(B) of the 
     1986 Code are each amended by striking ``entity's'' and 
     inserting ``donee's''.
       (2) Clause (iv) of section 170(e)(6)(B) of the 1986 Code is 
     amended by striking ``organization or entity'' and inserting 
     ``donee''.
       (3) Subclause (I) of section 170(e)(6)(C)(ii) of the 1986 
     Code is amended by striking ``an entity'' and inserting ``a 
     donee''.
       (4) Section 170(e)(6)(F) of the 1986 Code (relating to 
     termination) is amended by striking ``1999'' and inserting 
     ``2000''.
       (f) Amendments Related to Section 225 of 1997 Act.--
       (1) The last sentence of section 108(f)(2) of the 1986 Code 
     is amended to read as follows:

     ``The term `student loan' includes any loan made by an 
     educational organization described in section 
     170(b)(1)(A)(ii) or by an organization exempt from tax under 
     section 501(a) to refinance a loan to an individual to assist 
     the individual in attending any such educational organization 
     but only if the refinancing loan is pursuant to a program of 
     the refinancing organization which is designed as described 
     in subparagraph (D)(ii).''
       (2) Section 108(f)(3) of the 1986 Code is amended by 
     striking ``(or by an organization described in paragraph 
     (2)(E) from funds provided by an organization described in 
     paragraph (2)(D))''.
       (g) Amendments Related to Section 226 of 1997 Act.--
       (1) Section 226(a) of the 1997 Act is amended by striking 
     ``section 1397E'' and inserting ``section 1397D''.
       (2) Section 1397E(d)(4)(B) of the 1986 Code is amended by 
     striking ``local education agency as defined'' and inserting 
     ``local educational agency as defined''.
       (3) Section 1397E is amended by adding at the end the 
     following new subsection:
       ``(h) Credit Treated as Allowed Under Part IV of Subchapter 
     A.--For purposes of subtitle F, the credit allowed by this 
     section shall be treated as a credit allowable under part IV 
     of subchapter A of this chapter.''

     SEC. 6005. AMENDMENTS RELATED TO TITLE III OF 1997 ACT.

       (a) Amendments Related to Section 301 of 1997 Act.--
       (1) Section 219(g) of the 1986 Code is amended--
       (A) by inserting ``or the individual's spouse'' after 
     ``individual'' in paragraph (1), and
       (B) by striking paragraph (7) and inserting:
       ``(7) Special rule for spouses who are not active 
     participants.--If this subsection applies to an individual 
     for any taxable year solely because their spouse is an active 
     participant, then, in applying this subsection to the 
     individual (but not their spouse)--
       ``(A) the applicable dollar amount under paragraph 
     (3)(B)(i) shall be $150,000, and
       ``(B) the amount applicable under paragraph (2)(A)(ii) 
     shall be $10,000.''
       (2) Paragraph (2) of section 301(a) of the 1997 Act is 
     amended by inserting ``after `$10,000' '' before the period.
       (b) Amendments Related to Section 302 of 1997 Act.--
       (1) Section 408A(c)(3)(A) of the 1986 Code is amended by 
     striking ``shall be reduced'' and inserting ``shall not 
     exceed an amount equal to the amount determined under 
     paragraph (2)(A) for such taxable year, reduced''.
       (2) Section 408A(c)(3) of the 1986 Code (relating to limits 
     based on modified adjusted gross income) is amended--
       (A) by inserting ``or a married individual filing a 
     separate return'' after ``joint return'' in subparagraph 
     (A)(ii),
       (B) in subparagraph (B)--
       (i) by inserting ``, for the taxable year of the 
     distribution to which such contribution relates'' after 
     ``if'', and
       (ii) by striking ``for such taxable year'' in clause (i), 
     and
       (C) by striking ``and the deduction under section 219 shall 
     be taken into account'' in subparagraph (C)(i).
       (3)(A) Section 408A(d)(2) of the 1986 Code (defining 
     qualified distribution) is amended by striking subparagraph 
     (B) and inserting the following:
       ``(B) Distributions within nonexclusion period.--A payment 
     or distribution from a Roth IRA shall not be treated as a 
     qualified distribution under subparagraph (A) if such payment 
     or distribution is made within the 5-taxable year period 
     beginning with the 1st taxable year for which the individual 
     made a contribution to a Roth IRA (or such individual's 
     spouse made a contribution to a Roth IRA) established for 
     such individual.''
       (B) Section 408A(d)(2) of the 1986 Code is amended by 
     adding at the end the following new subparagraph:
       ``(C) Distributions of excess contributions and earnings.--
     The term `qualified distribution' shall not include any 
     distribution of any contribution described in section 
     408(d)(4) and any net income allocable to the contribution.''
       (4) Section 408A(d)(3) of the 1986 Code (relating to 
     rollovers from IRAs other than Roth IRAs) is amended--
       (A) by striking clause (iii) of subparagraph (A) and 
     inserting:
       ``(iii) unless the taxpayer elects not to have this clause 
     apply for any taxable year, any amount required to be 
     included in gross income for such taxable year by reason of 
     this paragraph for any distribution before January 1, 1999, 
     shall be so included ratably over the 4-taxable year period 
     beginning with such taxable year.

     Any election under clause (iii) for any distributions during 
     a taxable year may not be changed after the due date for such 
     taxable year.''; and
       (B) by adding at the end the following:
       ``(F) Special rules for contributions to which 4-year 
     averaging applies.--In the case of a qualified rollover 
     contribution to a Roth IRA of a distribution to which 
     subparagraph (A)(iii) applied, the following rules shall 
     apply:
       ``(i) Acceleration of inclusion.--

       ``(I) In general.--The amount required to be included in 
     gross income for each of the first 3 taxable years in the 4-
     year period under subparagraph (A)(iii) shall be increased by 
     the aggregate distributions from Roth IRAs for such taxable 
     year which are allocable under paragraph (4) to the portion 
     of such qualified rollover contribution required to be 
     included in gross income under subparagraph (A)(i).
       ``(II) Limitation on aggregate amount included.--The amount 
     required to be included in gross income for any taxable year 
     under subparagraph (A)(iii) shall not exceed the aggregate 
     amount required to be included in gross income under 
     subparagraph (A)(iii) for all taxable years in the 4-year 
     period (without regard to subclause (I)) reduced by amounts 
     included for all preceding taxable years.

       ``(ii) Death of distributee.--

       ``(I) In general.--If the individual required to include 
     amounts in gross income under such subparagraph dies before 
     all of such amounts are included, all remaining amounts shall 
     be included in gross income for the taxable year which 
     includes the date of death.
       ``(II) Special rule for surviving spouse.--If the spouse of 
     the individual described in subclause (I) acquires the 
     individual's entire interest in any Roth IRA to which such 
     qualified rollover contribution is properly allocable, the

[[Page S4175]]

     spouse may elect to treat the remaining amounts described in 
     subclause (I) as includible in the spouse's gross income in 
     the taxable years of the spouse ending with or within the 
     taxable years of such individual in which such amounts would 
     otherwise have been includible. Any such election may not be 
     made or changed after the due date for the spouse's taxable 
     year which includes the date of death.

       ``(G) Special rule for applying section 72.--
       ``(i) In general.--If--

       ``(I) any portion of a distribution from a Roth IRA is 
     properly allocable to a qualified rollover contribution 
     described in this paragraph, and
       ``(II) such distribution is made within the 5-taxable year 
     period beginning with the taxable year in which such 
     contribution was made,

     then section 72(t) shall be applied as if such portion were 
     includible in gross income.
       ``(ii) Limitation.--Clause (i) shall apply only to the 
     extent of the amount of the qualified rollover contribution 
     includible in gross income under subparagraph (A)(i).''
       (5)(A) Section 408A(d)(4) of the 1986 Code is amended to 
     read as follows:
       ``(4) Aggregation and ordering rules.--
       ``(A) Aggregation rules.--Section 408(d)(2) shall be 
     applied separately with respect to Roth IRAs and other 
     individual retirement plans.
       ``(B) Ordering rules.--For purposes of applying this 
     section and section 72 to any distribution from a Roth IRA, 
     such distribution shall be treated as made--
       ``(i) from contributions to the extent that the amount of 
     such distribution, when added to all previous distributions 
     from the Roth IRA, does not exceed the aggregate 
     contributions to the Roth IRA, and
       ``(ii) from such contributions in the following order:

       ``(I) Contributions other than qualified rollover 
     contributions to which paragraph (3) applies.
       ``(II) Qualified rollover contributions to which paragraph 
     (3) applies on a first-in, first-out basis.

     Any distribution allocated to a qualified rollover 
     contribution under clause (ii)(II) shall be allocated first 
     to the portion of such contribution required to be included 
     in gross income.''
       (B) Section 408A(d)(1) of the 1986 Code is amended to read 
     as follows:
       ``(1) Exclusion.--Any qualified distribution from a Roth 
     IRA shall not be includible in gross income.''
       (6)(A) Section 408A(d) of the 1986 Code (relating to 
     distribution rules) is amended by adding at the end the 
     following:
       ``(6) Taxpayer may make adjustments before due date.--
       ``(A) In general.--Except as provided by the Secretary, if, 
     on or before the due date for any taxable year, a taxpayer 
     transfers in a trustee-to-trustee transfer any contribution 
     to an individual retirement plan made during such taxable 
     year from such plan to any other individual retirement plan, 
     then, for purposes of this chapter, such contribution shall 
     be treated as having been made to the transferee plan (and 
     not the transferor plan).
       ``(B) Special rules.--
       ``(i) Transfer of earnings.--Subparagraph (A) shall not 
     apply to the transfer of any contribution unless such 
     transfer is accompanied by any net income allocable to such 
     contribution.
       ``(ii) No deduction.--Subparagraph (A) shall apply to the 
     transfer of any contribution only to the extent no deduction 
     was allowed with respect to the contribution to the 
     transferor plan.''
       (B) Section 408A(d)(3) of the 1986 Code, as amended by this 
     subsection, is amended by striking subparagraph (D) and by 
     redesignating subparagraphs (E), (F), and (G) as 
     subparagraphs (D), (E), and (F), respectively.
       (7) Section 408A(d) of the 1986 Code, as amended by 
     paragraph (6), is amended by adding at the end the following 
     new paragraph:
       ``(7) Due date.--For purposes of this subsection, the due 
     date for any taxable year is the date prescribed by law 
     (including extensions of time) for filing the taxpayer's 
     return for such taxable year.''
       (8)(A) Section 4973(f) of the 1986 Code is amended--
       (i) by striking ``such accounts'' in paragraph (1)(A) and 
     inserting ``Roth IRAs'', and
       (ii) by striking ``to the accounts'' in paragraph (2)(B) 
     and inserting ``by the individual to all individual 
     retirement plans''.
       (B) Section 4973(b) of the 1986 Code is amended--
       (i) by inserting ``a contribution to a Roth IRA or'' after 
     ``other than'' in paragraph (1)(A), and
       (ii) by inserting ``(including the amount contributed to a 
     Roth IRA)'' after ``annuities'' in paragraph (2)(C).
       (C) Section 302(b) of the 1997 Act is amended by striking 
     ``Section 4973(b)'' and inserting ``Section 4973''.
       (9) Section 408A of the 1986 Code is amended by adding at 
     the end the following new subsection:
       ``(f) Individual Retirement Plan.--For purposes of this 
     section--
       ``(1) a simplified employee pension or a simple retirement 
     account may not be designated as a Roth IRA, and
       ``(2) contributions to any such pension or account shall 
     not be taken into account for purposes of subsection 
     (c)(2)(B).''
       (c) Amendments Related to Section 303 of 1997 Act.--
       (1) Section 72(t)(8)(E) of the 1986 Code is amended--
       (A) by striking ``120 days'' and inserting ``120th day'', 
     and
       (B) by striking ``60 days'' and inserting ``60th day''.
       (2)(A) Section 402(c)(4) of the 1986 Code is amended by 
     striking ``and'' at the end of subparagraph (A), by striking 
     the period at the end of subparagraph (B) and inserting ``, 
     and'', by inserting at the end the following new 
     subparagraph:
       ``(C) any hardship distribution described in section 
     401(k)(2)(B)(i)(IV).''
       (B) Section 403(b)(8)(B) of the 1986 Code is amended by 
     inserting ``(including paragraph (4)(C) thereof)'' after 
     ``section 402(c)''.
       (C) The amendments made by this paragraph shall apply to 
     distributions after December 31, 1998.
       (d) Amendments Related to Section 311 of 1997 Act.--
       (1) Subsection (h) of section 1 of the 1986 Code (relating 
     to maximum capital gains rate) is amended to read as follows:
       ``(h) Maximum Capital Gains Rate.--
       ``(1) In general.--If a taxpayer has a net capital gain for 
     any taxable year, the tax imposed by this section for such 
     taxable year shall not exceed the sum of--
       ``(A) a tax computed at the rates and in the same manner as 
     if this subsection had not been enacted on the greater of--
       ``(i) taxable income reduced by the net capital gain, or
       ``(ii) the lesser of--

       ``(I) the amount of taxable income taxed at a rate below 28 
     percent, or
       ``(II) taxable income reduced by the adjusted net capital 
     gain,

       ``(B) 10 percent of so much of the adjusted net capital 
     gain (or, if less, taxable income) as does not exceed the 
     excess (if any) of--
       ``(i) the amount of taxable income which would (without 
     regard to this paragraph) be taxed at a rate below 28 
     percent, over
       ``(ii) the taxable income reduced by the adjusted net 
     capital gain,
       ``(C) 20 percent of the adjusted net capital gain (or, if 
     less, taxable income) in excess of the amount on which a tax 
     is determined under subparagraph (B),
       ``(D) 25 percent of the excess (if any) of--
       ``(i) the unrecaptured section 1250 gain (or, if less, the 
     net capital gain), over
       ``(ii) the excess (if any) of--

       ``(I) the sum of the amount on which tax is determined 
     under subparagraph (A) plus the net capital gain, over
       ``(II) taxable income, and

       ``(E) 28 percent of the amount of taxable income in excess 
     of the sum of the amounts on which tax is determined under 
     the preceding subparagraphs of this paragraph.
       ``(2) Reduced capital gain rates for qualified 5-year 
     gain.--
       ``(A) Reduction in 10-percent rate.--In the case of any 
     taxable year beginning after December 31, 2000, the rate 
     under paragraph (1)(B) shall be 8 percent with respect to so 
     much of the amount to which the 10-percent rate would 
     otherwise apply as does not exceed qualified 5-year gain, and 
     10 percent with respect to the remainder of such amount.
       ``(B) Reduction in 20-percent rate.--The rate under 
     paragraph (1)(C) shall be 18 percent with respect to so much 
     of the amount to which the 20-percent rate would otherwise 
     apply as does not exceed the lesser of--
       ``(i) the excess of qualified 5-year gain over the amount 
     of such gain taken into account under subparagraph (A) of 
     this paragraph, or
       ``(ii) the amount of qualified 5-year gain (determined by 
     taking into account only property the holding period for 
     which begins after December 31, 2000),

     and 20 percent with respect to the remainder of such amount. 
     For purposes of determining under the preceding sentence 
     whether the holding period of property begins after December 
     31, 2000, the holding period of property acquired pursuant to 
     the exercise of an option (or other right or obligation to 
     acquire property) shall include the period such option (or 
     other right or obligation) was held.
       ``(3) Net capital gain taken into account as investment 
     income.--For purposes of this subsection, the net capital 
     gain for any taxable year shall be reduced (but not below 
     zero) by the amount which the taxpayer takes into account as 
     investment income under section 163(d)(4)(B)(iii).
       ``(4) Adjusted net capital gain.--For purposes of this 
     subsection, the term `adjusted net capital gain' means net 
     capital gain reduced (but not below zero) by the sum of--
       ``(A) unrecaptured section 1250 gain, and
       ``(B) 28 percent rate gain.
       ``(5) 28 percent rate gain.--For purposes of this 
     subsection--
       ``(A) In general.--The term `28 percent rate gain' means 
     the excess (if any) of--
       ``(i) the sum of--

       ``(I) the aggregate long-term capital gain from property 
     held for more than 1 year but not more than 18 months,
       ``(II) collectibles gain, and
       ``(III) section 1202 gain, over

       ``(ii) the sum of--

       ``(I) the aggregate long-term capital loss (not described 
     in subclause (IV)) from property referred to in clause 
     (i)(I),
       ``(II) collectibles loss,
       ``(III) the net short-term capital loss, and

       ``(IV) the amount of long-term capital loss carried under 
     section 1212(b)(1)(B) to the taxable year.

       ``(B) Special rules.--
       ``(i) Short sale gains and holding periods.--Rules similar 
     to the rules of section 1233(b) shall apply where the 
     substantially identical property has been held more than 1 
     year but not more than 18 months; except that, for purposes 
     of such rules--

       ``(I) section 1233(b)(1) shall be applied by substituting 
     `18 months' for `1 year' each place it appears, and
       ``(II) the holding period of such property shall be treated 
     as being 1 year on the day before the earlier of the date of 
     the closing of the short sale or the date such property is 
     disposed of.

[[Page S4176]]

       ``(ii) Long-term losses.--Section 1233(d) shall be applied 
     separately by substituting `18 months' for `1 year' each 
     place it appears.
       ``(iii) Options.--A rule similar to the rule of section 
     1092(f) shall apply where the stock was held for more than 18 
     months.
       ``(iv) Section 1256 contracts.--Amounts treated as long-
     term capital gain or loss under section 1256(a)(3) shall be 
     treated as attributable to property held for more than 18 
     months.
       ``(6) Collectibles gain and loss.--For purposes of this 
     subsection--
       ``(A) In general.--The terms `collectibles gain' and 
     `collectibles loss' mean gain or loss (respectively) from the 
     sale or exchange of a collectible (as defined in section 
     408(m) without regard to paragraph (3) thereof) which is a 
     capital asset held for more than 18 months but only to the 
     extent such gain is taken into account in computing gross 
     income and such loss is taken into account in computing 
     taxable income.
       ``(B) Partnerships, etc.--For purposes of subparagraph (A), 
     any gain from the sale of an interest in a partnership, S 
     corporation, or trust which is attributable to unrealized 
     appreciation in the value of collectibles shall be treated as 
     gain from the sale or exchange of a collectible. Rules 
     similar to the rules of section 751 shall apply for purposes 
     of the preceding sentence.
       ``(7) Unrecaptured section 1250 gain.--For purposes of this 
     subsection--
       ``(A) In general.--The term `unrecaptured section 1250 
     gain' means the excess (if any) of--
       ``(i) the amount of long-term capital gain (not otherwise 
     treated as ordinary income) which would be treated as 
     ordinary income if--

       ``(I) section 1250(b)(1) included all depreciation and the 
     applicable percentage under section 1250(a) were 100 percent, 
     and
       ``(II) only gain from property held for more than 18 months 
     were taken into account, over

       ``(ii) the excess (if any) of--

       ``(I) the amount described in paragraph (5)(A)(ii), over
       ``(II) the amount described in paragraph (5)(A)(i).

       ``(B) Limitation with respect to section 1231 property.--
     The amount described in subparagraph (A)(i) from sales, 
     exchanges, and conversions described in section 1231(a)(3)(A) 
     for any taxable year shall not exceed the net section 1231 
     gain (as defined in section 1231(c)(3)) for such year.
       ``(8) Section 1202 gain.--For purposes of this subsection, 
     the term `section 1202 gain' means an amount equal to the 
     gain excluded from gross income under section 1202(a).
       ``(9) Qualified 5-year gain.--For purposes of this 
     subsection, the term `qualified 5-year gain' means the 
     aggregate long-term capital gain from property held for more 
     than 5 years. The determination under the preceding sentence 
     shall be made without regard to collectibles gain, gain 
     described in paragraph (7)(A)(i), and section 1202 gain.
       ``(10) Coordination with recapture of net ordinary losses 
     under section 1231.--If any amount is treated as ordinary 
     income under section 1231(c), such amount shall be allocated 
     among the separate categories of net section 1231 gain (as 
     defined in section 1231(c)(3)) in such manner as the 
     Secretary may by forms or regulations prescribe.
       ``(11) Regulations.--The Secretary may prescribe such 
     regulations as are appropriate (including regulations 
     requiring reporting) to apply this subsection in the case of 
     sales and exchanges by pass-thru entities and of interests in 
     such entities.
       ``(12) Pass-thru entity defined.--For purposes of this 
     subsection, the term `pass-thru entity' means--
       ``(A) a regulated investment company,
       ``(B) a real estate investment trust,
       ``(C) an S corporation,
       ``(D) a partnership,
       ``(E) an estate or trust,
       ``(F) a common trust fund,
       ``(G) a foreign investment company which is described in 
     section 1246(b)(1) and for which an election is in effect 
     under section 1247, and
       ``(H) a qualified electing fund (as defined in section 
     1295).
       ``(13) Special rules for periods during 1997.--
       ``(A) Determination of 28 percent rate gain.--In applying 
     paragraph (5)--
       ``(i) the amount determined under subclause (I) of 
     paragraph (5)(A)(i) shall include long-term capital gain (not 
     otherwise described in paragraph (5)(A)(i)) which is properly 
     taken into account for the portion of the taxable year before 
     May 7, 1997,
       ``(ii) the amounts determined under subclause (I) of 
     paragraph (5)(A)(ii) shall include long-term capital loss 
     (not otherwise described in paragraph (5)(A)(ii)) which is 
     properly taken into account for the portion of the taxable 
     year before May 7, 1997, and
       ``(iii) clauses (i)(I) and (ii)(I) of paragraph (5)(A) 
     shall be applied by not taking into account any gain and loss 
     on property held for more than 1 year but not more than 18 
     months which is properly taken into account for the portion 
     of the taxable year after May 6, 1997, and before July 29, 
     1997.
       ``(B) Other special rules.--
       ``(i) Determination of unrecaptured section 1250 gain not 
     to include pre-may 7, 1997 gain.--The amount determined under 
     paragraph (7)(A)(i) shall not include gain properly taken 
     into account for the portion of the taxable year before May 
     7, 1997.
       ``(ii) Other transitional rules for 18-month holding 
     period.--Paragraphs (6)(A) and (7)(A)(i)(II) shall be applied 
     by substituting `1 year' for `18 months' with respect to gain 
     properly taken into account for the portion of the taxable 
     year after May 6, 1997, and before July 29, 1997.
       ``(C) Special rules for pass-thru entities.--In applying 
     this paragraph with respect to any pass-thru entity, the 
     determination of when gains and loss are properly taken into 
     account shall be made at the entity level.''
       (2) Paragraph (3) of section 55(b) of the 1986 Code is 
     amended to read as follows:
       ``(3) Maximum rate of tax on net capital gain of 
     noncorporate taxpayers.--The amount determined under the 
     first sentence of paragraph (1)(A)(i) shall not exceed the 
     sum of--
       ``(A) the amount determined under such first sentence 
     computed at the rates and in the same manner as if this 
     paragraph had not been enacted on the taxable excess reduced 
     by the lesser of--
       ``(i) the net capital gain, or
       ``(ii) the sum of--

       ``(I) the adjusted net capital gain, plus
       ``(II) the unrecaptured section 1250 gain, plus

       ``(B) 10 percent of so much of the adjusted net capital 
     gain (or, if less, taxable excess) as does not exceed the 
     amount on which a tax is determined under section 1(h)(1)(B), 
     plus
       ``(C) 20 percent of the adjusted net capital gain (or, if 
     less, taxable excess) in excess of the amount on which tax is 
     determined under subparagraph (B), plus
       ``(D) 25 percent of the amount of taxable excess in excess 
     of the sum of the amounts on which tax is determined under 
     the preceding subparagraphs of this paragraph.

     In the case of taxable years beginning after December 31, 
     2000, rules similar to the rules of section 1(h)(2) shall 
     apply for purposes of subparagraphs (B) and (C). Terms used 
     in this paragraph which are also used in section 1(h) shall 
     have the respective meanings given such terms by section 1(h) 
     but computed with the adjustments under this part.''
       (3) Section 57(a)(7) of the 1986 Code is amended by adding 
     at the end the following new sentence: ``In the case of stock 
     the holding period of which begins after December 31, 2000 
     (determined with the application of the last sentence of 
     section 1(h)(2)(B)), the preceding sentence shall be applied 
     by substituting `28 percent' for `42 percent'.''
       (4) Paragraphs (11) and (12) of section 1223, and section 
     1235(a), of the 1986 Code are each amended by striking ``1 
     year'' each place it appears and inserting ``18 months''.
       (e) Amendments Related to Section 312 of 1997 Act.--
       (1) Paragraph (2) of section 121(b) of the 1986 Code is 
     amended to read as follows:
       ``(2) Special rules for joint returns.--In the case of a 
     husband and wife who make a joint return for the taxable year 
     of the sale or exchange of the property--
       ``(A) $500,000 Limitation for certain joint returns.--
     Paragraph (1) shall be applied by substituting `$500,000' for 
     `$250,000' if--
       ``(i) either spouse meets the ownership requirements of 
     subsection (a) with respect to such property,
       ``(ii) both spouses meet the use requirements of subsection 
     (a) with respect to such property, and
       ``(iii) neither spouse is ineligible for the benefits of 
     subsection (a) with respect to such property by reason of 
     paragraph (3).
       ``(B) Other joint returns.--If such spouses do not meet the 
     requirements of subparagraph (A), the limitation under 
     paragraph (1) shall be the sum of the limitations under 
     paragraph (1) to which each spouse would be entitled if such 
     spouses had not been married. For purposes of the preceding 
     sentence, each spouse shall be treated as owning the property 
     during the period that either spouse owned the property.''
       (2) Section 121(c)(1) of the 1986 Code is amended to read 
     as follows:
       ``(1) In general.--In the case of a sale or exchange to 
     which this subsection applies, the ownership and use 
     requirements of subsection (a), and subsection (b)(3), shall 
     not apply; but the dollar limitation under paragraph (1) or 
     (2) of subsection (b), whichever is applicable, shall be 
     equal to--
       ``(A) the amount which bears the same ratio to such 
     limitation (determined without regard to this paragraph) as
       ``(B)(i) the shorter of--
       ``(I) the aggregate periods, during the 5-year period 
     ending on the date of such sale or exchange, such property 
     has been owned and used by the taxpayer as the taxpayer's 
     principal residence, or
       ``(II) the period after the date of the most recent prior 
     sale or exchange by the taxpayer to which subsection (a) 
     applied and before the date of such sale or exchange, bears 
     to
       ``(ii) 2 years.''
       (3) Section 312(d)(2) of the 1997 Act (relating to sales 
     before date of the enactment) is amended by inserting ``on 
     or'' before ``before'' each place it appears in the text and 
     heading.
       (f) Amendment Related to Section 313 of 1997 Act.--Section 
     1045 of the 1986 Code is amended by adding at the end the 
     following new subsection:
       ``(c) Limitation on Application to Partnerships and S 
     Corporations.--Subsection (a) shall apply to a partnership or 
     S corporation for a taxable year only if at all times during 
     such taxable year all of the partners in the partnership, or 
     all of the shareholders of the S corporation, are natural 
     persons, estates, or trusts (other than trusts having any 
     beneficiary which is a C corporation).''

     SEC. 6006. AMENDMENT RELATED TO TITLE IV OF 1997 ACT.

       (a) Amendment Related to Section 401 of 1997 Act.--
     Paragraph (1) of section 55(e) of the 1986 Code is amended to 
     read as follows:
       ``(1) In general.--
       ``(A) $7,500,000 gross receipts test.--The tentative 
     minimum tax of a corporation shall be zero for any taxable 
     year if the corporation's average annual gross receipts for 
     all 3-taxable-year periods ending before such taxable year

[[Page S4177]]

     does not exceed $7,500,000. For purposes of the preceding 
     sentence, only taxable years beginning after December 31, 
     1993, shall be taken into account.
       ``(B) $5,000,000 gross receipts test for first 3-year 
     period.--Subparagraph (A) shall be applied by substituting 
     `$5,000,000' for `$7,500,000' for the first 3-taxable-year 
     period (or portion thereof) of the corporation which is taken 
     into account under subparagraph (A).
       ``(C) First taxable year corporation in existence.--If such 
     taxable year is the first taxable year that such corporation 
     is in existence, the tentative minimum tax of such 
     corporation for such year shall be zero.
       ``(D) Special rules.--For purposes of this paragraph, the 
     rules of paragraphs (2) and (3) of section 448(c) shall 
     apply.''
       (b) Amendment Related to Section 402 of 1997 Act.--
     Subsection (c) of section 168 of the 1986 Code is amended--
       (1) by striking paragraph (2), and
       (2) by striking the portion of such subsection preceding 
     the table in paragraph (1) and inserting the following:
       ``(c) Applicable Recovery Period.--For purposes of this 
     section, the applicable recovery period shall be determined 
     in accordance with the following table:''.

     SEC. 6007. AMENDMENTS RELATED TO TITLE V OF 1997 ACT.

       (a) Amendments Related to Section 501 of 1997 Act.--
       (1) Paragraph (2) of section 2001(c) of the 1986 Code is 
     amended by striking ``$10,000,000'' and all that follows and 
     inserting ``$10,000,000. The amount of the increase under the 
     preceding sentence shall not exceed the sum of the applicable 
     credit amount under section 2010(c) (determined without 
     regard to section 2057(a)(3), and $359,200.''
       (2) Subsection (c) of section 2631 of the 1986 Code is 
     amended to read as follows:
       ``(c) Inflation Adjustment.--
       ``(1) In general.--In the case of any calendar year after 
     1998, the $1,000,000 amount contained in subsection (a) shall 
     be increased by an amount equal to--
       ``(A) $1,000,000, multiplied by
       ``(B) the cost-of-living adjustment determined under 
     section 1(f)(3) for such calendar year by substituting 
     `calendar year 1997' for `calendar year 1992' in subparagraph 
     (B) thereof.

     If any amount as adjusted under the preceding sentence is not 
     a multiple of $10,000, such amount shall be rounded to the 
     next lowest multiple of $10,000.
       ``(2) Allocation of increase.--Any increase under paragraph 
     (1) for any calendar year shall apply only to generation-
     skipping transfers made during or after such calendar year; 
     except that no such increase for calendar years after the 
     calendar year in which the transferor dies shall apply to 
     transfers by such transferor.''
       (3) Subsection (f) of section 501 of the 1997 Act is 
     amended by inserting ``(other than the amendment made by 
     subsection (d))'' after ``this section''.
       (b) Amendments Related to Section 502 of 1997 Act.--
       (1)(A) Section 2033A of the 1986 Code is hereby moved to 
     the end of part IV of subchapter A of chapter 11 of the 1986 
     Code and redesignated as section 2057.
       (B) So much of such section 2057 (as so redesignated) as 
     precedes subsection (b) thereof is amended to read as 
     follows:

     ``SEC. 2057. FAMILY-OWNED BUSINESS INTERESTS.

       ``(a) General Rule.--
       ``(1) Allowance of deduction.--For purposes of the tax 
     imposed by section 2001, in the case of an estate of a 
     decedent to which this section applies, the value of the 
     taxable estate shall be determined by deducting from the 
     value of the gross estate the adjusted value of the qualified 
     family-owned business interests of the decedent which are 
     described in subsection (b)(2).
       ``(2) Maximum deduction.--The deduction allowed by this 
     section shall not exceed $675,000.
       ``(3) Coordination with unified credit.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     if this section applies to an estate, the applicable 
     exclusion amount under section 2010 shall be $625,000.
       ``(B) Increase in unified credit if deduction is less than 
     $675,000.--If the deduction allowed by this section is less 
     than $675,000, the amount of the applicable exclusion amount 
     under section 2010 shall be increased (but not above the 
     amount which would apply to the estate without regard to this 
     section) by the excess of $675,000 over the amount of the 
     deduction allowed.''
       (C) Subparagraph (A) of section 2057(b)(2) of the 1986 Code 
     (as so redesignated) is amended by striking ``(without regard 
     to this section)''.
       (D) Subsection (c) of section 2057 of the 1986 Code (as so 
     redesignated) is amended by striking ``(determined without 
     regard to this section)''.
       (E) The table of sections for part III of subchapter A of 
     chapter 11 of the 1986 Code is amended by striking the item 
     relating to section 2033A.
       (F) The table of sections for part IV of such subchapter is 
     amended by adding at the end the following new item:

``Sec. 2057. Family-owned business interests.''

       (2) Section 2057(b)(3) of the 1986 Code (as so 
     redesignated) is amended to read as follows:
       ``(3) Includible gifts of interests.--The amount of the 
     gifts of qualified family-owned business interests determined 
     under this paragraph is the sum of--
       ``(A) the amount of such gifts from the decedent to members 
     of the decedent's family taken into account under section 
     2001(b)(1)(B), plus
       ``(B) the amount of such gifts otherwise excluded under 
     section 2503(b),

     to the extent such interests are continuously held by members 
     of such family (other than the decedent's spouse) between the 
     date of the gift and the date of the decedent's death.''
       (3)(A) Section 2057(e)(2)(C) of the 1986 Code (as so 
     redesignated) is amended by striking ``(as defined in section 
     543(a))'' and inserting ``(as defined in section 543(a) 
     without regard to paragraph (2)(B) thereof) if such trade or 
     business were a corporation''.
       (B) Clause (ii) of section 2057(e)(2)(D) of the 1986 Code 
     (as so redesignated) is amended by striking ``income of which 
     is described in section 543(a) or'' and inserting ``personal 
     holding company income (as defined in subparagraph (C)) or 
     income described''.
       (4) Paragraph (2) of section 2057(f) of the 1986 Code (as 
     so redesignated) is amended--
       (A) by striking ``(as determined under rules similar to the 
     rules of section 2032A(c)(2)(B))'', and
       (B) by adding at the end the following new subparagraph:
       ``(C) Adjusted tax difference.--For purposes of 
     subparagraph (A)--
       ``(i) In general.--The adjusted tax difference attributable 
     to a qualified family-owned business interest is the amount 
     which bears the same ratio to the adjusted tax difference 
     with respect to the estate (determined under clause (ii)) as 
     the value of such interest bears to the value of all 
     qualified family-owned business interests described in 
     subsection (b)(2).
       ``(ii) Adjusted tax difference with respect to the 
     estate.--For purposes of clause (i), the term `adjusted tax 
     difference with respect to the estate' means the excess of 
     what would have been the estate tax liability but for the 
     election under this section over the estate tax liability. 
     For purposes of this clause, the term `estate tax liability' 
     means the tax imposed by section 2001 reduced by the credits 
     allowable against such tax.''
       (5)(A) Paragraph (1) of section 2057(e) of the 1986 Code 
     (as so redesignated) is amended by adding at the end the 
     following:

     ``For purposes of the preceding sentence, a decedent shall be 
     treated as engaged in a trade or business if any member of 
     the decedent's family is engaged in such trade or business.''
       (B) Subsection (f) of section 2057 of the 1986 Code (as so 
     redesignated) is amended by adding at the end the following 
     new paragraph:
       ``(3) Use in trade or business by family members.--A 
     qualified heir shall not be treated as disposing of an 
     interest described in subsection (e)(1)(A) by reason of 
     ceasing to be engaged in a trade or business so long as the 
     property to which such interest relates is used in a trade or 
     business by any member of such individual's family.''
       (6) Paragraph (1) of section 2057(g) of the 1986 Code (as 
     so redesignated) is amended by striking ``or (M)''.
       (7) Paragraph (3) of section 2057(i) of the 1986 Code (as 
     so redesignated) is amended by redesignating subparagraphs 
     (L), (M), and (N) as subparagraphs (N), (O), and (P), 
     respectively, and by inserting after subparagraph (K) the 
     following new subparagraphs:
       ``(L) Section 2032A(g) (relating to application to 
     interests in partnerships, corporations, and trusts).
       ``(M) Subsections (h) and (i) of section 2032A.''
       (c) Amendments Related to Section 503 of the 1997 Act.--
       (1) Clause (iii) of section 6166(b)(7)(A) of the 1986 Code 
     is amended to read as follows:
       ``(iii) for purposes of applying section 6601(j), the 2-
     percent portion (as defined in such section) shall be treated 
     as being zero.''
       (2) Clause (iii) of section 6166(b)(8)(A) of the 1986 Code 
     is amended to read as follows:
       ``(iii) 2-percent interest rate not to apply.--For purposes 
     of applying section 6601(j), the 2-percent portion (as 
     defined in such section) shall be treated as being zero.''
       (d) Amendment Related to Section 505 of the 1997 Act.--
     Paragraphs (1) and (2) of section 7479(a) of the 1986 Code 
     are each amended by striking ``an estate,'' and inserting 
     ``an estate (or with respect to any property included 
     therein),''.
       (e) Amendments Related to Section 506 of the 1997 Act.--
       (1) Paragraph (1) of section 506(e) of the 1997 Act is 
     amended by striking ``and (c)'' and inserting ``, (c), and 
     (d)''.
       (2)(A) Paragraph (9) of section 6501(c) of the 1986 Code is 
     amended by striking the last sentence.
       (B) Subsection (f) of section 2001 of the 1986 Code is 
     amended to read as follows:
       ``(f) Valuation of Gifts.--
       ``(1) In general--If the time has expired under section 
     6501 within which a tax may be assessed under chapter 12 (or 
     under corresponding provisions of prior laws) on--
       ``(A) the transfer of property by gift made during a 
     preceding calendar period (as defined in section 2502(b)), or
       ``(B) an increase in taxable gifts required under section 
     2701(d),

     the value thereof shall, for purposes of computing the tax 
     under this chapter, be the value as finally determined for 
     purposes of chapter 12.
       ``(2) Final determination.--For purposes of paragraph (1), 
     a value shall be treated as finally determined for purposes 
     of chapter 12 if--
       ``(A) the value is shown on a return under such chapter and 
     such value is not contested by the Secretary before the 
     expiration of the time referred to in paragraph (1) with 
     respect to such return,
       ``(B) in a case not described in subparagraph (A), the 
     value is specified by the Secretary and such value is not 
     timely contested by the taxpayer, or
       ``(C) the value is determined by a court or pursuant to a 
     settlement agreement with the Secretary.''
       (B) Subsection (c) of section 2504 of the 1986 Code is 
     amended to read as follows:

[[Page S4178]]

       ``(c) Valuation of Gifts.--If the time has expired under 
     section 6501 within which a tax may be assessed under this 
     chapter 12 (or under corresponding provisions of prior laws) 
     on--
       ``(1) the transfer of property by gift made during a 
     preceding calendar period (as defined in section 2502(b)), or
       ``(2) an increase in taxable gifts required under section 
     2701(d),

     the value thereof shall, for purposes of computing the tax 
     under this chapter, be the value as finally determined 
     (within the meaning of section 2001(f)(2)) for purposes of 
     this chapter.''
       (f) Amendments Related to Section 507 of 1997 Act.--
       (1) Paragraph (3) of section 1(g) of the 1986 Code is 
     amended by striking subparagraph (C) and by redesignating 
     subparagraph (D) as subparagraph (C).
       (2) Section 641 of the 1986 Code is amended by striking 
     subsection (c) and by redesignating subsection (d) as 
     subsection (c).
       (3) Paragraph (4) of section 1361(e) of the 1986 Code is 
     amended by striking ``section 641(d)'' and inserting 
     ``section 641(c)''.
       (4) Subparagraph (A) of section 6103(e)(1) of the 1986 Code 
     is amended by striking clause (ii) and by redesignating 
     clauses (iii) and (iv) as clauses (ii) and (iii), 
     respectively.
       (g) Amendments Related to Section 508 of 1997 Act.--
       (1) Subsection (c) of section 2031 of the 1986 Code is 
     amended by redesignating paragraph (9) as paragraph (10) and 
     by inserting after paragraph (8) the following new paragraph:
       ``(9) Treatment of easements granted after death.--In any 
     case in which the qualified conservation easement is granted 
     after the date of the decedent's death and on or before the 
     due date (including extensions) for filing the return of tax 
     imposed by section 2001, the deduction under section 2055(f) 
     with respect to such easement shall be allowed to the estate 
     but only if no charitable deduction is allowed under chapter 
     1 to any person with respect to the grant of such easement.''
       (2) The first sentence of paragraph (6) of section 2031(c) 
     of the 1986 Code is amended by striking all that follows 
     ``shall be made'' and inserting ``on or before the due date 
     (including extensions) for filing the return of tax imposed 
     by section 2001 and shall be made on such return.''

     SEC. 6008. AMENDMENTS RELATED TO TITLE VII OF 1997 ACT.

       (a) Amendment Related to Section 1400 of 1986 Code.--
     Section 1400(b)(2)(B) of the 1986 Code is amended by 
     inserting ``as determined on the basis of the 1990 census'' 
     after ``percent''.
       (b) Amendment Related to Section 1400A of 1986 Code.--
     Subsection (a) of section 1400A of the 1986 Code is amended 
     by inserting before the period ``and section 
     1394(b)(3)(B)(iii) shall be applied without regard to the 
     employee residency requirement''.
       (c) Amendments Related to Section 1400B of 1986 Code.--
       (1) Section 1400B(b) of the 1986 Code is amended by 
     inserting after paragraph (4) the following new paragraph:
       ``(5) Treatment of dc zone termination.--The termination of 
     the designation of the DC Zone shall be disregarded for 
     purposes of determining whether any property is a DC Zone 
     asset.''
       (2) Paragraph (6) of section 1400B(b) of the 1986 Code is 
     amended by striking ``(4)(A)(ii)'' and inserting ``(4)(A)(i) 
     or (ii)''.
       (3) Section 1400B(c) of the 1986 Code is amended by 
     striking ``entity which is an''.
       (4) Section 1400B(d)(2) of the 1986 Code is amended by 
     inserting ``as determined on the basis of the 1990 census'' 
     after ``percent''.
       (d) Amendments Related to Section 1400C of 1986 Code.--
       (1) Paragraph (1) of section 1400C(b) of the 1986 Code is 
     amended by inserting ``and subsection (d)'' after ``this 
     subsection''.
       (2) Paragraph (1) of section 1400C(c) of the 1986 Code is 
     amended to read as follows:
       ``(1) In general.--The term `first-time homebuyer' means 
     any individual if such individual (and if married, such 
     individual's spouse) had no present ownership interest in a 
     principal residence in the District of Columbia during the 1-
     year period ending on the date of the purchase of the 
     principal residence to which this section applies.''
       (3) Subparagraph (B) of section 1400C(e)(2) of the 1986 
     Code is amended by inserting before the period ``on the date 
     the taxpayer first occupies such residence''.
       (4) Paragraph (3) of section 1400C(e) of the 1986 Code is 
     amended by striking all that follows ``principal residence'' 
     and inserting ``on the date such residence is purchased.''
       (5) Subsection (i) of section 1400C of the 1986 Code is 
     amended to read as follows:
       ``(i) Application of Section.--This section shall apply to 
     property purchased after August 4, 1997, and before January 
     1, 2001.''
       (6) Subsection (c) of section 23 of the 1986 Code is 
     amended by inserting ``and section 1400C'' after ``other than 
     this section''.
       (7) Subparagraph (C) of section 25(e)(1) of the 1986 Code 
     is amended by striking ``section 23'' and inserting 
     ``sections 23 and 1400C''.

     SEC. 6009. AMENDMENTS RELATED TO TITLE IX OF 1997 ACT.

       (a) Amendment Related to Section 901 of 1997 Act.--Section 
     9503(c)(7) of the 1986 Code is amended--
       (1) by striking ``resulting from the amendments made by'' 
     and inserting ``(and transfers to the Mass Transit Account) 
     resulting from the amendments made by subsections (a) and (b) 
     of section 901 of'', and
       (2) by inserting before the period ``and deposits in the 
     Highway Trust Fund (and transfers to the Mass Transit 
     Account) shall be treated as made when they would have been 
     required to be made without regard to section 901(e) of the 
     Taxpayer Relief Act of 1997''.
       (b) Amendment Related to Section 907 of 1997 Act.--
     Paragraph (2) of section 9503(e) of the 1986 Code is amended 
     by striking the last sentence and inserting the following new 
     sentence: ``For purposes of the preceding sentence, the term 
     `mass transit portion' means, for any fuel with respect to 
     which tax was imposed under section 4041 or 4081 and 
     deposited into the Highway Trust Fund, the amount determined 
     at the rate of--
       ``(A) except as otherwise provided in this sentence, 2.86 
     cents per gallon,
       ``(B) 1.43 cents per gallon in the case of any partially 
     exempt methanol or ethanol fuel (as defined in section 
     4041(m)) none of the alcohol in which consists of ethanol,
       ``(C) 1.86 cents per gallon in the case of liquefied 
     natural gas,
       ``(D) 2.13 cents per gallon in the case of liquefied 
     petroleum gas, and
       ``(E) 9.71 cents per MCF (determined at standard 
     temperature and pressure) in the case of compressed natural 
     gas.''
       (c) Amendment Related to Section 908 of 1997 Act.--
     Paragraph (6) of section 5041(b) of the 1986 Code is amended 
     by inserting ``which is a still wine'' after ``hard cider''.
       (d) Amendment Related to Section 964 of 1997 Act.--
       (1) In general.--Subparagraph (C) of section 7704(g)(3) of 
     the 1986 Code is amended by striking the period at the end 
     and inserting ``and shall be paid by the partnership. Section 
     6655 shall be applied to such partnership with respect to 
     such tax in the same manner as if the partnership were a 
     corporation, such tax were imposed by section 11, and 
     references in such section to taxable income were references 
     to the gross income referred to in subparagraph (A).''
       (2) Effective date.--The second sentence of section 
     7704(g)(3)(C) of the 1986 Code (as added by paragraph (1)) 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.
       (e) Amendment Related to Section 971 of 1997 Act.--Clause 
     (ii) of section 280F(a)(1)(C) is amended by striking 
     ``subparagraph (A)'' and inserting ``subparagraphs (A) and 
     (B)''.
       (f) Amendment Related to Section 976 of 1997 Act.--Section 
     6103(d)(5) of the 1986 Code is amended by striking ``section 
     967 of the Taxpayer Relief Act of 1997.'' and inserting 
     ``section 976 of the Taxpayer Relief Act of 1997. Subsections 
     (a)(2) and (p)(4) and sections 7213 and 7213A shall not apply 
     with respect to disclosures or inspections made pursuant to 
     this paragraph.''
       (g) Amendment Related to Section 977 of 1997 Act.--
     Paragraph (2) of section 977(e) of the 1997 Act is amended to 
     read as follows:
       ``(2) Non-amtrak state.--The term `non-Amtrak State' means 
     any State which is not receiving intercity passenger rail 
     service from the Corporation as of the date of the enactment 
     of this Act.''

     SEC. 6010. AMENDMENTS RELATED TO TITLE X OF 1997 ACT.

       (a) Amendments Related to Section 1001 of 1997 Act.--
       (1) Paragraph (2) of section 1259(b) of the 1986 Code is 
     amended--
       (A) by striking ``debt'' each place it appears in 
     subparagraph (A) and inserting ``position'',
       (B) by striking ``and'' at the end of subparagraph (A), and
       (C) by redesignating subparagraph (B) as subparagraph (C) 
     and by inserting after subparagraph (A) the following new 
     subparagraph:
       ``(B) any hedge with respect to a position described in 
     subparagraph (A), and''.
       (2) Section 1259(d)(1) of the 1986 Code is amended by 
     inserting ``(including cash)'' after ``property''.
       (3) Subparagraph (D) of section 475(f)(1) of the 1986 Code 
     is amended by adding at the end the following new sentence: 
     ``Subsection (d)(3) shall not apply under the preceding 
     sentence for purposes of applying sections 1402 and 7704.''
       (4) Subparagraph (C) of section 1001(d)(3) of the 1997 Act 
     is amended by striking ``within the 30-day period beginning 
     on'' and inserting ``before the close of the 30th day 
     after''.
       (b) Amendment Related to Section 1011 of 1997 Act.--
     Paragraph (1) of section 1059(g) of the 1986 Code is amended 
     by striking ``and in the case of stock held by pass-thru 
     entities'' and inserting ``, in the case of stock held by 
     pass-thru entities, and in the case of consolidated groups''.
       (c) Amendments Related to Section 1012 of 1997 Act.--
       (1) Paragraph (1) of section 1012(d) of the 1997 Act is 
     amended by striking ``1997, pursuant'' and inserting ``1997; 
     except that the amendment made by subsection (a) shall apply 
     to such distributions only if pursuant''.
       (2) Subparagraph (A) of section 355(e)(3) of the 1986 Code 
     is amended--
       (A) by striking ``shall not be treated as described in'' 
     and inserting ``shall not be taken into account in 
     applying'', and
       (B) by striking clause (iv) and inserting the following new 
     clause:
       ``(iv) The acquisition of stock in the distributing 
     corporation or any controlled corporation to the extent that 
     the percentage of stock owned directly or indirectly in such 
     corporation by each person owning stock in such corporation 
     immediately before the acquisition does not decrease.''
       (3)(A) Subsection (c) of section 351 of the 1986 Code is 
     amended to read as follows:
       ``(c) Special Rules Where Distribution to Shareholders.--
       ``(1) In general.--In determining control for purposes of 
     this section, the fact that any corporate transferor 
     distributes part or all of the stock in the corporation which 
     it receives in the exchange to its shareholders shall not be 
     taken into account.
       ``(2) Special rule for section 355.--If the requirements of 
     section 355 (or so much of section

[[Page S4179]]

     356 as relates to section 355) are met with respect to a 
     distribution described in paragraph (1), then, solely for 
     purposes of determining the tax treatment of the transfers of 
     property to the controlled corporation by the distributing 
     corporation, the fact that the shareholders of the 
     distributing corporation dispose of part or all of the 
     distributed stock shall not be taken into account in 
     determining control for purposes of this section.''
       (B) Clause (ii) of section 368(a)(2)(H) of the 1986 Code is 
     amended to read as follows:
       ``(ii) in the case of a transaction with respect to which 
     the requirements of section 355 (or so much of section 356 as 
     relates to section 355) are met, the fact that the 
     shareholders of the distributing corporation dispose of part 
     or all of the distributed stock shall not be taken into 
     account.''
       (d) Amendments Related to Section 1013 of 1997 Act.--
       (1) Paragraph (5) of section 304(b) of the 1986 Code is 
     amended by striking subparagraph (B) and by redesignating 
     subparagraph (C) as subparagraph (B).
       (2) Subsection (b) of section 304 of the 1986 Code is 
     amended by adding at the end the following new paragraph:
       ``(6) Avoidance of multiple inclusions, etc.--In the case 
     of any acquisition to which subsection (a) applies in which 
     the acquiring corporation or the issuing corporation is a 
     foreign corporation, the Secretary shall prescribe such 
     regulations as are appropriate in order to eliminate a 
     multiple inclusion of any item in income by reason of this 
     subpart and to provide appropriate basis adjustments 
     (including modifications to the application of sections 959 
     and 961).''
       (e) Amendments Related to Section 1014 of 1997 Act.--
       (1) Paragraph (1) of section 351(g) of the 1986 Code is 
     amended by adding ``and'' at the end of subparagraph (A) and 
     by striking subparagraphs (B) and (C) and inserting the 
     following new subparagraph:
       ``(B) if (and only if) the transferor receives stock other 
     than nonqualified preferred stock--
       ``(i) subsection (b) shall apply to such transferor, and
       ``(ii) such nonqualified preferred stock shall be treated 
     as other property for purposes of applying subsection (b).''
       (2) Clause (ii) of section 354(a)(2)(C) of 1986 Code is 
     amended by adding at the end the following new subclause:

       ``(III) Extension of statute of limitations.--The statutory 
     period for the assessment of any deficiency attributable to a 
     corporation failing to be a family-owned corporation shall 
     not expire before the expiration of 3 years after the date 
     the Secretary is notified by the corporation (in such manner 
     as the Secretary may prescribe) of such failure, and such 
     deficiency may be assessed before the expiration of such 3-
     year period notwithstanding the provisions of any other law 
     or rule of law which would otherwise prevent such 
     assessment.''

       (f) Amendment Related to Section 1024 of 1997 Act.--Section 
     6331(h)(1) of the 1986 Code is amended by striking ``The 
     effect of a levy'' and inserting ``If the Secretary approves 
     a levy under this subsection, the effect of such levy''.
       (g) Amendments Related to Section 1031 of 1997 Act.--
       (1) Subsection (l) of section 4041 of the 1986 Code is 
     amended by striking ``subsection (e) or (f)'' and inserting 
     ``subsection (f) or (g)''.
       (2) Subsection (b) of section 9502 of the 1986 Code is 
     amended by moving the sentence added at the end of paragraph 
     (1) to the end of such subsection.
       (3) Subsection (c) of section 6421 of the 1986 Code is 
     amended--
       (A) by striking ``(2)(A)'' and inserting ``(2)'', and
       (B) by adding at the end the following sentence: 
     ``Subsection (a) shall not apply to gasoline to which this 
     subsection applies.''
       (h) Amendments Related to Section 1032 of 1997 Act.--
       (1) Section 1032(a) of the 1997 Act is amended by striking 
     ``Subsection (a) of section 4083'' and inserting ``Paragraph 
     (1) of section 4083(a)''.
       (2) Section 1032(e)(12)(A) of the 1997 Act shall be applied 
     as if ``gasoline, diesel fuel,'' were the material proposed 
     to be stricken.
       (3) Paragraph (1) of section 4101(e) of the 1986 Code is 
     amended by striking ``dyed diesel fuel and kerosene'' and 
     inserting ``such fuel in a dyed form''.
       (i) Amendment Related to Section 1034 of 1997 Act.--
     Paragraph (3) of section 4251(d) of the 1986 Code is amended 
     by striking ``other similar arrangement'' and inserting ``any 
     other similar arrangement''.
       (j) Amendments Related to Section 1041 of 1997 Act.--
       (1) Subparagraph (A) of section 512(b)(13) of the 1986 Code 
     is amended by inserting ``or accrues'' after ``receives''.
       (2) Subclause (I) of section 512(b)(13)(B)(i) of the 1986 
     Code is amended by striking ``(as defined in section 
     513A(a)(5)(A))''.
       (3) Paragraph (2) of section 1041(b) of the 1997 Act is 
     amended to read as follows:
       ``(2) Binding contracts.--The amendments made by this 
     section shall not apply to any amount received or accrued 
     during the first 2 taxable years beginning on or after the 
     date of the enactment of this Act if such amount is received 
     or accrued pursuant to a written binding contract in effect 
     on June 8, 1997, and at all times thereafter before such 
     amount is received or accrued. The preceding sentence shall 
     not apply to any amount which would (but for the exercise of 
     an option to accelerate payment of such amount) be received 
     or accrued after such 2 taxable years.''
       (k) Amendments Related to Section 1053 of 1997 Act.--
       (1) Section 853 of the 1986 Code is amended by 
     redesignating subsection (e) as subsection (f) and by 
     inserting after subsection (d) the following new subsection:
       ``(e) Treatment of Taxes Not Allowed as a Credit Under 
     Section 901(k).--This section shall not apply to any tax with 
     respect to which the regulated investment company is not 
     allowed a credit under section 901 by reason of section 
     901(k).''
       (2) Subsection (c) of section 853 of the 1986 Code is 
     amended by striking the last sentence.
       (l) Amendment Related to Section 1055 of 1997 Act.--Section 
     6611(g)(1) of the 1986 Code is amended by striking ``(e), and 
     (h)'' and inserting ``and (e)''.
       (m) Amendment Related to Section 1061 of 1997 Act.--
     Subsection (c) of section 751 of the 1986 Code is amended by 
     striking ``731'' each place it appears and inserting ``731, 
     732,''.
       (n) Amendment Related to Section 1083 of 1997 Act.--Section 
     1083(a)(2) of the 1997 Act is amended--
       (1) by striking ``21'' and inserting ``20'', and
       (2) by striking ``22'' and inserting ``21''.
       (o) Amendment Related to Section 1084 of 1997 Act.--
       (1) Paragraph (3) of section 264(a) of the 1986 Code is 
     amended by striking ``subsection (c)'' and inserting 
     ``subsection (d)''.
       (2) Paragraph (4) of section 264(a) of the 1986 Code is 
     amended by striking ``subsection (d)'' and inserting 
     ``subsection (e)''.
       (3)(A) Paragraph (4) of section 264(f) of the 1986 Code is 
     amended by adding at the end the following new subparagraph:
       ``(E) Master contracts.--If coverage for each insured under 
     a master contract is treated as a separate contract for 
     purposes of sections 817(h), 7702, and 7702A, coverage for 
     each such insured shall be treated as a separate contract for 
     purposes of subparagraph (A). For purposes of the preceding 
     sentence, the term `master contract' shall not include any 
     group life insurance contract (as defined in section 
     848(e)(2)).''
       (B) The second sentence of section 1084(d) of the 1997 Act 
     is amended by striking ``but'' and all that follows and 
     inserting ``except that, in the case of a master contract 
     (within the meaning of section 264(f)(4)(E) of the Internal 
     Revenue Code of 1986), the addition of covered lives shall be 
     treated as a new contract only with respect to such 
     additional covered lives.''
       (4)(A) Clause (iv) of section 264(f)(5)(A) of the 1986 Code 
     is amended by striking the second sentence.
       (B) Subparagraph (B) of section 6724(d)(1) of the 1986 Code 
     is amended by striking ``or'' at the end of clause (xv), by 
     striking the period at the end of clause (xvi) and inserting 
     ``, or'', and by adding at the end the following new clause:
       ``(xvii) section 264(f)(5)(A)(iv) (relating to reporting 
     with respect to certain life insurance and annuity 
     contracts).''
       (C) Paragraph (2) of section 6724(d) of the 1986 Code is 
     amended by striking ``or'' at the end of subparagraph (Y), by 
     striking the period at the end of subparagraph (Z) and 
     inserting ``or'', and by adding at the end the following new 
     subparagraph:
       ``(AA) section 264(f)(5)(A)(iv) (relating to reporting with 
     respect to certain life insurance and annuity contracts).''
       (p) Amendments Related to Section 1085 of 1997 Act.--
       (1) Paragraph (5) of section 32(c) of the 1986 Code is 
     amended--
       (A) by inserting before the period at the end of 
     subparagraph (A) ``and increased by the amounts described in 
     subparagraph (C)'',
       (B) by adding ``or'' at the end of clause (iii) of 
     subparagraph (B), and
       (C) by striking all that follows subclause (II) of 
     subparagraph (B)(iv) and inserting the following:

       ``(III) other trades or businesses.

     For purposes of clause (iv), there shall not be taken into 
     account items which are attributable to a trade or business 
     which consists of the performance of services by the taxpayer 
     as an employee.
       ``(C) Certain amounts included.--An amount is described in 
     this subparagraph if it is--
       ``(i) interest received or accrued during the taxable year 
     which is exempt from tax imposed by this chapter, or
       ``(ii) amounts received as a pension or annuity, and any 
     distributions or payments received from an individual 
     retirement plan, by the taxpayer during the taxable year to 
     the extent not included in gross income.

     Clause (ii) shall not include any amount which is not 
     includible in gross income by reason of a trustee-to-trustee 
     transfer or a rollover distribution.''
       (2) Clause (v) of section 32(c)(2)(B) of the 1986 Code is 
     amended by inserting ``shall be taken into account'' before 
     ``, but only''.
       (3) The text of paragraph (3) of section 1085(a) of the 
     1997 Act is amended to read as follows: ``Paragraph (2) of 
     section 6213(g) (relating to the definition of mathematical 
     or clerical errors) is amended by striking ``and'' at the end 
     of subparagraph (I), by striking the period at the end of 
     subparagraph (J) and inserting ``, and'', and by inserting 
     after subparagraph (J) the following new subparagraph:
       ``(K) an omission of information required by section 
     32(k)(2) (relating to taxpayers making improper prior claims 
     of earned income credit).''
       (q) Amendment Related to Section 1088 of 1997 Act.--Section 
     1088(b)(2)(C) of the 1997 Act is amended by inserting ``more 
     than 1 year'' before ``after''.
       (r) Amendment Related to Section 1089 of 1997 Act.--
     Paragraphs (1)(C) and (2)(C) of section 664(d) of the 1986 
     Code are each amended by adding ``, and'' at the end.

     SEC. 6011. AMENDMENTS RELATED TO TITLE XI OF 1997 ACT.

       (a) Amendment Related to Section 1103 of 1997 Act.--The 
     paragraph (3) of section 59(a) added by section 1103 of the 
     1997 Act is redesignated as paragraph (4).

[[Page S4180]]

       (b) Amendments Related to Section 1121 of 1997 Act.--
       (1) Subsection (e) of section 1297 of the 1986 Code is 
     amended by adding at the end the following new paragraph:
       ``(4) Treatment of holders of options.--Paragraph (1) shall 
     not apply to stock treated as owned by a person by reason of 
     section 1298(a)(4) (relating to the treatment of a person 
     that has an option to acquire stock as owning such stock) 
     unless such person establishes that such stock is owned 
     (within the meaning of section 958(a)) by a United States 
     shareholder (as defined in section 951(b)) who is not exempt 
     from tax under this chapter.''
       (2) Section 1298(a)(2)(B) of the 1986 Code is amended by 
     adding at the end the following new sentence: ``Section 
     1297(e) shall not apply in determining whether a corporation 
     is a passive foreign investment company for purposes of this 
     subparagraph.''
       (c) Amendments Related to Section 1122 of 1997 Act.--
       (1) Section 672(f)(3)(B) of the 1986 Code is amended by 
     striking ``section 1296'' and inserting ``section 1297''.
       (2) Paragraph (1) of section 1291(d) of the 1986 Code is 
     amended by adding at the end the following new sentence: ``In 
     the case of stock which is marked to market under section 475 
     or any other provision of this chapter, this section shall 
     not apply, except that rules similar to the rules of section 
     1296(j) shall apply.''
       (3) Subsection (d) of section 1296 of the 1986 Code is 
     amended by adding at the end the following new sentence: ``In 
     the case of a regulated investment company which elected to 
     mark to market the stock held by such company as of the last 
     day of the taxable year preceding such company's first 
     taxable year for which such company elects the application of 
     this section, the amount referred to in paragraph (1) shall 
     include amounts included in gross income under such mark to 
     market with respect to such stock for prior taxable years.''
       (d) Amendment Related to Section 1123 of 1997 Act.--The 
     subsection (e) of section 1297 of the 1986 Code added by 
     section 1123 of the 1997 Act is redesignated as subsection 
     (f).
       (e) Amendments Related to Section 1131 of 1997 Act.--
       (1) Section 991 of the 1986 Code is amended by striking 
     ``except for the tax imposed by chapter 5''.
       (2) Section 6013 of the 1986 Code is amended by striking 
     ``chapters 1 and 5'' each place it appears in paragraphs 
     (1)(A) and (5) of subsection (g) and in subsection (h)(1) and 
     inserting ``chapter 1'' .
       (f) Amendment Related to Section 1144 of 1997 Act.--
     Paragraphs (1) and (2) of section 1144(c) of the 1997 Act are 
     each amended by striking ``6038B(b)'' and inserting 
     ``6038B(c) (as redesignated by subsection (b))''.

     SEC. 6012. AMENDMENTS RELATED TO TITLE XII OF 1997 ACT.

       (a) Amendment Related to Section 1204 of 1997 Act.--The 
     last sentence of section 162(a) of the 1986 Code is amended 
     by striking ``investigate'' and all that follows and 
     inserting ``investigate or prosecute, or provide support 
     services for the investigation or prosecution of, a Federal 
     crime.''
       (b) Amendments Related to Section 1205 of 1997 Act.--
       (1) Section 6311(e)(1) of the 1986 Code is amended by 
     striking ``section 6103(k)(8)'' and inserting ``section 
     6103(k)(9)''.
       (2) Paragraph (8) of section 6103(k) of the 1986 Code (as 
     added by section 1205(c)(1) of the 1997 Act) is redesignated 
     as paragraph (9).
       (3) The subsection (g) of section 7431 of the 1986 Code 
     added by section 1205 of the 1997 Act is redesignated as 
     subsection (h) and is amended by striking ``(8)'' in the 
     heading and inserting ``(9)''.
       (4) Section 1205(c)(3) of the 1997 Act shall be applied as 
     if it read as follows:
       ``(3) Section 6103(p)(3)(A), as amended by section 
     1026(b)(1)(A) of the 1997 Act, is amended by striking ``or 
     (8)'' and inserting ``(8), or (9)''.
       (5) Section 1213(b) of the 1997 Act is amended by striking 
     ``section 6724(d)(1)(A)'' and inserting ``section 
     6724(d)(1)''.
       (c) Amendment Related to Section 1221 of 1997 Act.--
     Paragraph (2) of section 774(d) of the 1986 Act is amended by 
     inserting before the period ``or 857(b)(3)(D)''.
       (d) Amendment Related to Section 1226 of 1997 Act.--Section 
     1226 of the 1997 Act is amended by striking ``ending on or'' 
     and inserting ``beginning''.
       (e) Amendment Related to Section 1231 of 1997 Act.--
     Subsection (c) of section 6211 of the 1986 Code is amended--
       (1) by striking ``Subchapter C'' in the heading and 
     inserting ``Subchapters C and D'', and
       (2) by striking ``subchapter C'' in the text and inserting 
     ``subchapters C and D''.
       (f) Amendment Related to Section 1256 of 1997 Act.--
     Subparagraph (A) of section 857(d)(3) of the 1986 Code is 
     amended by striking ``earliest accumulated earnings and 
     profits (other than earnings and profits to which subsection 
     (a)(2)(A) applies)'' and inserting ``earliest earnings and 
     profits accumulated in any taxable year to which the 
     provisions of this part did not apply''.
       (g) Amendment Related to Section 1285 of 1997 Act.--Section 
     7430(b) of the 1986 Code is amended by redesignating 
     paragraph (5) as paragraph (4).

     SEC. 6013. AMENDMENTS RELATED TO TITLE XIII OF 1997 ACT.

       (a) Amendments Related to Section 1305 of 1997 Act.--
       (1) Section 646 of the 1986 Code is redesignated as section 
     645.
       (2) The item relating to section 646 in the table of 
     sections for subpart A of part I of subchapter J of chapter 1 
     of the 1986 Code is amended by striking ``Sec. 646'' and 
     inserting ``Sec. 645''.
       (3) Paragraph (1) of section 2652(b) of the 1986 Code is 
     amended by striking ``section 646'' and inserting ``section 
     645''.
       (4)(A) Paragraph (1) of section 2652(b) of the 1986 Code is 
     amended by striking the second sentence.
       (B) Subsection (b) of section 2654 of the 1986 Code is 
     amended by adding at the end the following new sentence: 
     ``For purposes of this subsection, a trust shall be treated 
     as part of an estate during any period that the trust is so 
     treated under section 645.''
       (b) Amendments Related to Section 1309 of 1997 Act.--
       (1) Subsection (b) of section 685 of the 1986 Code is 
     amended by adding at the end the following flush sentence:

     ``A trust shall not fail to be treated as meeting the 
     requirement of paragraph (6) by reason of the death of an 
     individual but only during the 60-day period beginning on the 
     date of such death.''
       (2) Subsection (f) of section 685 of the 1986 Code is 
     amended by inserting before the period at the end ``and of 
     trusts terminated during the year''.

     SEC. 6014. AMENDMENTS RELATED TO TITLE XIV OF 1997 ACT.

       (a) Amendment Related to Section 1422 of 1997 Act.--Section 
     5364 of the 1986 Code is amended by striking ``Wine imported 
     or brought into'' and inserting ``Natural wine (as defined in 
     section 5381) imported or brought into''.
       (b) Amendment Related to Section 1434 of 1997 Act.--
     Paragraph (2) of section 4052(f) of the 1986 Code is amended 
     by striking ``this section'' and inserting ``such section''.
       (c) Amendment Related to Section 1436 of 1997 Act.--
     Paragraph (2) of section 4091(a) of the 1986 Code is amended 
     by inserting ``or on which tax has been credited or 
     refunded'' after ``such paragraph''.
       (d) Amendment Related to Section 1453 of 1997 Act.--
     Subparagraph (D) of section 7430(c)(4) of the 1986 Code is 
     amended by striking ``subparagraph (A)(iii)'' and inserting 
     ``subparagraph (A)(ii)''.

     SEC. 6015. AMENDMENTS RELATED TO TITLE XV OF 1997 ACT.

       (a) Amendment Related to Section 1501 of 1997 Act.--The 
     paragraph (8) of section 408(p) of the 1986 Code added by 
     section 1501(b) of the 1997 Act is redesignated as paragraph 
     (9).
       (b) Amendment Related to Section 1505 of 1997 Act.--Section 
     1505(d)(2) of the 1997 Act is amended by striking ``(b)(12)'' 
     and inserting ``(b)(12)(A)(i)''.
       (c) Amendments Related to Section 1529 of 1997 Act.--
       (1) Section 1529(a) of the 1997 Act is amended to read as 
     follows:
       ``(a) General Rule.--Amounts to which this section applies 
     which are received by an individual (or the survivors of the 
     individual) as a result of hypertension or heart disease of 
     the individual shall be excludable from gross income under 
     section 104(a)(1) of the Internal Revenue Code of 1986.''
       (2) Section 1529(b)(1)(B) of the 1997 Act is amended to 
     read as follows:
       ``(B) under--
       ``(i) a State law (as amended on May 19, 1992) which 
     irrebuttably presumed that heart disease and hypertension are 
     work-related illnesses but only for employees hired before 
     July 1, 1992, or
       ``(ii) any other statute, ordinance, labor agreement, or 
     similar provision as a disability pension payment or in the 
     nature of a disability pension payment attributable to 
     employment as a police officer or fireman, but only if the 
     individual is referred to in the State law described in 
     clause (i); and''.
       (d) Amendment Related to Section 1530 of 1997 Act.--
     Subparagraph (C) of section 404(a)(9) of the 1986 Code (as 
     added by section 1530 of the 1997 Act) is redesignated as 
     subparagraph (D) and is amended by striking ``A qualified'' 
     and inserting ``Qualified gratuitous transfers.--A 
     qualified''.
       (e) Amendment Related to Section 1531 of 1997 Act.--
     Subsection (f) of section 9811 of the 1986 Code (as added by 
     section 1531 of the 1997 Act) is redesignated as subsection 
     (e).

     SEC. 6016. AMENDMENTS RELATED TO TITLE XVI OF 1997 ACT.

       (a) Amendments Related to Section 1601(d) of 1997 Act.--
       (1) Amendments related to section 1601(d)(1)--
       (A) Section 408(p)(2)(D)(i) of the 1986 Code is amended by 
     striking ``or (B)'' in the last sentence.
       (B) Section 408(p) of the 1986 Code is amended by adding at 
     the end the following:
       ``(10) Special rules for acquisitions, dispositions, and 
     similar transactions.--
       ``(A) In general.--An employer which fails to meet any 
     applicable requirement by reason of an acquisition, 
     disposition, or similar transaction shall not be treated as 
     failing to meet such requirement during the transition period 
     if--
       ``(i) the employer satisfies requirements similar to the 
     requirements of section 410(b)(6)(C)(i)(II), and
       ``(ii) the qualified salary reduction arrangement 
     maintained by the employer would satisfy the requirements of 
     this subsection after the transaction if the employer which 
     maintained the arrangement before the transaction had 
     remained a separate employer.
       ``(B) Applicable requirement.--For purposes of this 
     paragraph, the term `applicable requirement' means--
       ``(i) the requirement under paragraph (2)(A)(i) that an 
     employer be an eligible employer,
       ``(ii) the requirement under paragraph (2)(D) that an 
     arrangement be the only plan of an employer, and
       ``(iii) the participation requirements under paragraph (4).
       ``(C) Transition period.--For purposes of this paragraph, 
     the term `transition period'

[[Page S4181]]

     means the period beginning on the date of any transaction 
     described in subparagraph (A) and ending on the last day of 
     the second calendar year following the calendar year in which 
     such transaction occurs.''
       (C) Section 408(p)(2) of the 1986 Code is amended--
       (i) by striking ``the preceding sentence shall apply only 
     in accordance with rules similar to the rules of section 
     410(b)(6)(C)(i)'' in the last sentence of subparagraph 
     (C)(i)(II) and inserting ``the preceding sentence shall not 
     apply'', and
       (ii) by striking clause (iii) of subparagraph (D).
       (2) Amendment to section 1601(d)(4).--Section 1601(d)(4)(A) 
     of the 1997 Act is amended--
       (A) by striking ``Section 403(b)(11)'' and inserting 
     ``Paragraphs (7)(A)(ii) and (11) of section 403(b)'', and
       (B) by striking ``403(b)(1)'' in clause (ii) and inserting 
     ``403(b)(10)''.
       (b) Amendment Related to Section 1601(f)(4) of 1997 Act.--
     Subsection (d) of section 6427 of the 1986 Code is amended--
       (1) by striking ``Helicopters'' in the heading and 
     inserting ``Other Aircraft Uses'', and
       (2) by inserting ``or a fixed-wing aircraft'' after 
     ``helicopter''.

     SEC. 6017. AMENDMENTS RELATED TO SMALL BUSINESS JOB 
                   PROTECTION ACT OF 1996.

       (a) Amendment Relating to Section 1116.--Subparagraph (C) 
     of section 1116(b)(2) of the Small Business Job Protection 
     Act of 1996 is amended by striking ``chapter 68'' and 
     inserting ``chapter 61''.
       (b) Amendment Relating to Section 1421.--Section 408(d)(7) 
     of the 1986 Code is amended--
       (1) by inserting ``or 402(k)'' after ``section 402(h)'' in 
     subparagraph (B) thereof, and
       (2) by inserting ``or simple retirement accounts'' after 
     ``pensions'' in the heading thereof.
       (c) Amendment Relating to Section 1431.--Subparagraph (E) 
     of section 1431(c)(1) of the Small Business Job Protection 
     Act of 1996 is amended to read as follows:
       ``(E) Section 414(q)(5), as redesignated by subparagraph 
     (A), is amended by striking `under paragraph (4) or the 
     number of officers taken into account under paragraph (5)' 
     ''.
       (d) Amendment Relating to Section 1604.--Paragraph (3) of 
     section 1604(b) of such Act is amended--
       (1) by striking ``such Code'' and inserting ``the Internal 
     Revenue Code of 1986'', and
       (2) by striking ``such date of enactment'' and inserting 
     ``the date of the enactment of this Act''.
       (e) Amendment Relating to Section 1609.--Paragraph (1) of 
     section 1609(h) of such Act is amended by striking 
     ``paragraph (3)(A)(i)'' and inserting ``paragraph (3)(A)''.
       (f) Amendments Relating to Section  1807.--
       (1) Subparagraph (A) of section 23(b)(2) of the 1986 Code 
     (relating to income limitation on credit for adoption 
     expenses) is amended by inserting ``(determined without 
     regard to subsection (c))'' after ``for any taxable year''.
       (2) Paragraph (3) of section 1807(c) of the Small Business 
     Job Protection Act of 1996 is amended by striking ``Clause 
     (i)'' and inserting ``Clause (ii)''.
       (g) Amendment Relating to Section 1903.--Subsection (b) of 
     section 1903 of such Act shall be applied as if ``or'' in the 
     material proposed to be stricken were capitalized.
       (h) Effective Date.--The amendments made by this section 
     shall take effect as if included in the provisions of the 
     Small Business Job Protection Act of 1996 to which they 
     relate.

     SEC. 6018. AMENDMENTS RELATED TO TAXPAYER BILL OF RIGHTS 2.

       (a) In General.--Subsection (b) of section 6104 of the 1986 
     Code is amended by adding at the end the following new 
     sentence: ``In the case of an organization described in 
     section 501(d), this subsection shall not apply to copies 
     referred to in section 6031(b) with respect to such 
     organization.''
       (b) Public Inspection.--Subparagraph (C) of section 
     6104(e)(1) of the 1986 Code is amended by adding at the end 
     the following new sentence: ``In the case of an organization 
     described in section 501(d), subparagraph (A) shall not 
     require the disclosure of the copies referred to in section 
     6031(b) with respect to such organization.''
       (c) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 6019. AMENDMENT RELATED TO OMNIBUS BUDGET RECONCILIATION 
                   ACT OF 1993.

       (a) In General.--Section 196(c) of the 1986 Code is amended 
     by striking ``and'' at the end of paragraph (6), by striking 
     the period at the end of paragraph (7), and insert ``, and'', 
     and by adding at the end the following new paragraph:
       ``(8) the employer social security credit determined under 
     section 45B(a).''
       (b) Effective Date.--The amendment made by this section 
     shall take effect as if included in the amendments made by 
     section 13443 of the Revenue Reconciliation Act of 1993.

     SEC. 6020. AMENDMENT RELATED TO REVENUE RECONCILIATION ACT OF 
                   1990.

       (a) Identification Requirement for Individuals Eligible for 
     Earned Income Credit.--Subparagraph (F) of section 32(c)(1) 
     of the 1986 Code is amended by striking ``The term `eligible 
     individual' does not include any individual who does not 
     include on the return of tax for the taxable year--'' and 
     inserting ``No credit shall be allowed under this section to 
     an eligible individual who does not include on the return of 
     tax for the taxable year--''.
       (b) Identification Requirement for Qualifying Children 
     Under Earned Income Credit.--
       (1) In general.--Clause (i) of section 32(c)(3)(D) of the 
     1986 Code is amended--
       (A) by striking ``The requirements of this subparagraph are 
     met'' and inserting ``A qualifying child shall not be taken 
     into account under subsection (b)'',
       (B) by striking ``each'' and inserting ``the'', and
       (C) by striking ``(without regard to this subparagraph)''.
       (2) Individuals who do not include tin, etc., of any 
     qualifying child.--Paragraph (1) of section 32(c) of the 1986 
     Code is amended by adding at the end the following new 
     subparagraph:
       ``(G) Individuals who do not include tin, etc., of any 
     qualifying child.--No credit shall be allowed under this 
     section to any eligible individual who has 1 or more 
     qualifying children if no qualifying child of such individual 
     is taken into account under subsection (b) by reason of 
     paragraph (3)(D).''
       (3) Conforming amendment.--Subparagraph (A) of section 
     32(c)(3) is amended by inserting ``and'' at the end of clause 
     (ii), by striking ``, and'' at the end of clause (iii) and 
     inserting a period, and by striking clause (iv).
       (c) Effective Dates.--
       (1) Eligible individuals.--The amendment made by subsection 
     (a) shall take effect as if included in the amendments made 
     by section 451 of the Personal Responsibility and Work 
     Opportunity Reconciliation Act of 1996.
       (2) Qualifying children.--The amendments made by subsection 
     (b) shall take effect as if included in the amendments made 
     by section 11111 of Revenue Reconciliation Act of 1990.

     SEC. 6021. AMENDMENT RELATED TO TAX REFORM ACT OF 1986.

       (a) In General.--Section 6401(b)(1) of the 1986 Code is 
     amended by striking ``and D'' and inserting ``D, and G''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall take effect as if included in the amendments made by 
     section 701(b) of the Tax Reform Act of 1986.

     SEC. 6022. MISCELLANEOUS CLERICAL AND DEADWOOD CHANGES.

       (1) The heading for subparagraph (B) of section 45A(b)(1) 
     of the 1986 Code is amended by striking ``targeted jobs 
     credit'' and inserting ``work opportunity credit''.
       (2) The subsection heading for section 59(b) of the 1986 
     Code is amended by striking ``Section 936 Credit'' and 
     inserting ``Credits Under Section 30A or 936''.
       (3) Subsection (n) of section 72 of the 1986 Code is 
     amended by inserting ``(as in effect on the day before the 
     date of the enactment of the Small Business Job Protection 
     Act of 1996)'' after ``section 101(b)(2)(D)''.
       (4) Subparagraph (A) of section 72(t)(3) of the 1986 Code 
     is amended by striking ``(A)(v),'' and inserting ``(A)(v)''.
       (5) Clause (ii) of section 142(f)(3)(A) of the 1986 Code is 
     amended by striking ``1997, ('' and inserting ``1997 (''.
       (6) The last sentence of paragraph (3) of section 501(n) of 
     the 1986 Code is amended by striking ``subparagraph (C)(ii)'' 
     and inserting ``subparagraph (E)(ii)''.
       (7) The heading for subclause (II) of section 
     512(b)(17)(B)(ii) of the 1986 Code is amended by striking 
     ``Rule'' and inserting ``rule''.
       (8) Clause (ii) of section 543(d)(5)(A) of the 1986 Code is 
     amended by striking ``section 563(c)'' and inserting 
     ``section 563(d)''.
       (9) Subparagraph (B) of section 871(f)(2) of the 1986 Code 
     is amended by striking ``(19 U.S.C. 2462)'' and inserting 
     ``19 U.S.C. 2461 et seq.)''.
       (10) Paragraph (2) of section 1017(a) of the 1986 Code is 
     amended by striking ``(b)(2)(D)'' and inserting 
     ``(b)(2)(E)''.
       (11) Subparagraph (D) of section 1250(d)(4) of the 1986 
     Code is amended by striking ``the last sentence of section 
     1033(b)'' and inserting ``section 1033(b)(2)''.
       (12) Paragraph (5) of section 3121(a) of the 1986 Code is 
     amended--
       (A) by striking the semicolon at the end of subparagraph 
     (F) and inserting a comma,
       (B) by striking ``or'' at the end of subparagraph (G), and
       (C) by striking the period at the end of subparagraph (I) 
     and inserting a semicolon.
       (13) Paragraph (19) of section 3401(a) of the 1986 Code is 
     amended by inserting ``for'' before ``any benefit provided 
     to''.
       (14) Paragraph (21) of section 3401(a) of the 1986 Code is 
     amended by inserting ``for'' before ``any payment made''.
       (15) Sections 4092(b) and 6427(q)(2) of the 1986 Code are 
     each amended by striking ``section 4041(c)(4)'' and inserting 
     ``section 4041(c)(2)''.
       (16) Sections 4221(c) and 4222(d) of the 1986 Code are each 
     amended by striking ``4053(a)(6)'' and inserting ``4053(6)''.
       (17)(A) The heading of section 4973 of the 1986 Code is 
     amended to read as follows:

     ``SEC. 4973. TAX ON EXCESS CONTRIBUTIONS TO CERTAIN TAX-
                   FAVORED ACCOUNTS AND ANNUITIES.''

       (B) The item relating to section 4973 in the table of 
     sections for chapter 43 of the 1986 Code is amended to read 
     as follows:

``Sec. 4973. Tax on excess contributions to certain tax-favored 
              accounts and annuities.''

       (18) Section 4975 of the 1986 Code is amended--
       (A) in subsection (c)(3) by striking ``exempt for the tax'' 
     and inserting ``exempt from the tax'', and
       (B) in subsection (i) by striking ``Secretary of Treasury'' 
     and inserting ``Secretary of the Treasury''.
       (19) Paragraph (1) of section 6039(a) of the 1986 Code is 
     amended by inserting ``to any person'' after ``transfers''.
       (20) Subparagraph (A) of section 6050R(b)(2) of the 1986 
     Code is amended by striking the

[[Page S4182]]

     semicolon at the end thereof and inserting a comma.
       (21) Subparagraph (A) of section 6103(h)(4) of the 1986 
     Code is amended by inserting ``if'' before ``the taxpayer is 
     a party to''.
       (22) Paragraph (5) of section 6416(b) of the 1986 Code is 
     amended by striking ``section 4216(e)(1)'' each place it 
     appears and inserting ``section 4216(d)(1)''.
       (23)(A) Section 6421 of the 1986 Code is amended by 
     redesignating subsections (j) and (k) as subsections (i) and 
     (j), respectively.
       (B) Subsection (b) of section 34 of the 1986 Code is 
     amended by striking ``section 6421(j)'' and inserting 
     ``section 6421(i)''.
       (C) Subsections (a) and (b) of section 6421 of the 1986 
     Code are each amended by striking ``subsection (j)'' and 
     inserting ``subsection (i)''.
       (24) Paragraph (3) of section 6427(f) of the 1986 Code is 
     amended by striking ``, (e),''.
       (25)(A) Section 6427 of the 1986 Code, as amended by 
     paragraph (2), is amended by redesignating subsections (n), 
     (p), (q), and (r) as subsections (m), (n), (o), and (p), 
     respectively.
       (B) Paragraphs (1) and (2)(A) of section 6427(i) of the 
     1986 Code are each amended by striking ``(q)'' and inserting 
     ``(o)''.
       (26) Subsection (m) of section 6501 of the 1986 Code is 
     amended by striking ``election under'' and all that follows 
     through ``(or any'' and inserting ``election under section 
     30(d)(4), 40(f), 43, 45B, 45C(d)(4), or 51(j) (or any''.
       (27) The paragraph heading of paragraph (2) of section 
     7702B(e) of the 1986 Code is amended by inserting ``section'' 
     after ``Application of''.
       (28) Paragraph (3) of section 7435(b) of the 1986 Code is 
     amended by striking ``attorneys fees'' and inserting 
     ``attorneys' fees''.
       (29) Subparagraph (B) of section 7872(f)(2) of the 1986 
     Code is amended by striking ``foregone'' and inserting 
     ``forgone''.
       (30) Subsection (e) of section 9502 of the 1986 Code is 
     amended to read as follows:
       ``(e) Certain Taxes on Alcohol Mixtures To Remain in 
     General Fund.--For purposes of this section, the amounts 
     which would (but for this subsection) be required to be 
     appropriated under subparagraphs (A), (C), and (D) of 
     subsection (b)(1) shall be reduced by--
       ``(1) 0.6 cent per gallon in the case of taxes imposed on 
     any mixture at least 10 percent of which is alcohol (as 
     defined in section 4081(c)(3)) if any portion of such alcohol 
     is ethanol, and
       ``(2) 0.67 cent per gallon in the case of fuel used in 
     producing a mixture described in paragraph (1).''
       (31)(A) Clause (i) of section 9503(c)(2)(A) of the 1986 
     Code is amended by adding ``and'' at the end of subclause 
     (II), by striking subclause (III), and by redesignating 
     subclause (IV) as subclause (III).
       (B) Clause (ii) of such section is amended by striking 
     ``gasoline, special fuels, and lubricating oil'' each place 
     it appears and inserting ``fuel''.
       (32) The amendments made by this section shall take effect 
     on the date of the enactment of this Act.

     SEC. 6023. EFFECTIVE DATE.

       Except as otherwise provided in this title, the amendments 
     made by this title shall take effect as if included in the 
     provisions of the Taxpayer Relief Act of 1997 to which they 
     relate.


                         Privilege of the Floor

  Mr. ROTH. Mr. President, I ask unanimous consent that the following 
staff from the Joint Committee on Taxation be granted floor privileges 
during consideration of the IRS restructuring bill, H.R. 2676: Thomas 
A. Barthold, Lauralee A. Matthews, Alysa M. McDaniel, John F. Navratil, 
Joseph W. Nega, Judy K. Owens, Lindy L. Paull, Oren S. Penn, Cecily W. 
Rock, Melbert E. Schwarz, Carolyn E. Smith, Maxine B. Terry, Michael A. 
Udell, and Barry L. Wold.

  I further ask unanimous consent that Eric Thorson of the Finance 
Committee staff also be granted floor privileges during the 
consideration of this bill.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. ROTH addressed the Chair.
  The PRESIDING OFFICER. The Senator from Delaware.
  Mr. ROTH. Mr. President, the need for this Internal Revenue Service 
restructuring legislation is clear. Last summer, the National 
Commission on Restructuring--following an extensive review of the IRS--
issued a report to revamp the agency.
  Last September, the Finance Committee held 3 days of hearings 
regarding practices and procedures of the Internal Revenue Service, 
which raised even more startling problems that have been festering 
within the IRS for years.
  Following these hearings, the agency's new Commissioner, Charles 
Rossotti, released a report that validated the concerns we raised, and 
he made a commitment to reform the Service. Likewise, in response to 
these hearings, the House considered and passed an IRS restructuring 
bill in November, and the Finance Committee began the new year with a 
series of five hearings on restructuring, which included testimony from 
past IRS Commissioners. Those restructuring hearings were followed with 
what can only be considered the most in-depth IRS oversight hearings 
ever, which concluded only last Friday. Throughout this extensive 
effort at oversight restructuring, my colleagues and I have been 
working on the legislation before us today. Our staffs have been 
meeting. There have been countless hours, late nights, and early 
mornings spent to develop a restructured bill that is strong, thorough, 
and workable. I appreciate these efforts. I also compliment the House 
on its swift action on the earlier version, and recognize the very 
effective leadership of Ways and Means Committee Chairman Bill Archer. 
Their efforts provided a solid foundation for restructuring the agency, 
and made it clear that Congress is ready to respond to the demands of 
the American people and reform the IRS. That, again, became clear when 
the Senate Finance Committee voted 20 to nothing in support of the 
legislation which we are about to consider--legislation that takes a 
major step toward changing the way that the IRS does business with the 
American people.
  I call this legislation a major step because it provides greater 
protections and reforms that were included in the House bill. It goes 
much further than the House bill, offering powerful provisions to 
correct the abuses and inefficiencies our extensive investigation and 
oversight efforts have uncovered. But I also want to refer to this 
effort as a step, because I believe reform of the IRS must be an 
ongoing process. It must be a process of continued vigilance, 
constructive hearings, and cooperation between Congress and the 
executive branch. But anyone who reads all this legislation proposes 
will realize that it is a strong product of a collective effort. If 
this legislation were a collegiate athlete, it would be considered a 
blue-chip recruit. While it is not perfect, it is ready to play and 
includes numerous provisions that strengthen taxpayer protections. It 
makes IRS employees more accountable, provides enhanced oversight, 
gives the Commissioner the tools necessary to bring the IRS into the 
next century, and offers greater due process to taxpayers who are 
trying to comply with our complex tax laws.
  The legislation pending before us today allows Commissioner Rossotti 
to eliminate the current national office, regional office, and the 
district office structure of the IRS. It gives him the authority to 
replace these antiquated management models with operating units that 
will directly serve particular groups of taxpayers, better meeting 
their needs and making the agency much more efficient and user 
friendly.
  Commissioner Rossotti should be complimented on his tremendous work 
and managerial skills. His plan to restructure the agency is as bold as 
it is necessary, and this legislation gives him the authority he needs 
to move forward.
  One of the major concerns we've listened to throughout our oversight 
initiative--a theme that repeated itself over and over again--was that 
the taxpayers who get caught in the IRS hall of mirrors have no place 
to turn that is truly independent and structured to represent their 
concerns. With this legislation, we require the agency to establish an 
independent Office of Appeals--one that may not be influenced by tax 
collection employees or auditors. Appeals officers will be made 
available in every state, and they will be better able to work with 
taxpayers who proceed through the appeals process.
  We heard a lot about the need for independence in our hearings. 
Agency employees themselves made it clear that there is no dependable 
and consistent mechanism in place to represent taxpayer interests. Just 
as this bill will give the appeals process greater independence, it 
will also make the Office of Taxpayer Advocate as well as local problem 
resolution officers more independent. In the future, the Secretary of 
Treasury, rather than the Commissioner will appoint the National 
Taxpayer Advocate. And the Taxpayer Advocate will be just that.
  Criteria to fill this position will include that the Advocate must 
not be an IRS employee two years before and five years after holding 
this position. In addition, this bill provides the Advocate with much 
greater discretion to issue an assistance order to help taxpayers.
  In an effort to ensure that independent review and accountability 
become part of the IRS culture--top to bottom--our legislation creates 
a nine-

[[Page S4183]]

member IRS Oversight Board--a board composed of six experts from 
various professional fields in the private sector, the Commissioner, 
the Secretary of Treasury, and a representative of IRS employees.
  As we heard in our oversight hearings, one of the key elements 
missing in the current agency is a powerful influence independent 
enough from management and the senior executive corps that it can 
monitor and hold managers and executives accountable for their actions, 
and the actions of their employees. Under our legislation, the 
Oversight Board will have broad responsibility and will ensure that the 
IRS has procedures in place to carry out its mission.
  In order to help prevent the types of abuses disclosed in our Finance 
Committee hearings, the Board will have ``big picture'' authority over 
law enforcement and collection activities. While the Board may not 
intervene in particular taxpayer or employee cases, it will have access 
to information in order to help prevent the types of abuses that are 
brought to the Board's attention. If the Commissioner does not respond 
to issues raised by the Board, the Board may contact the chairmen of 
the tax writing committees.
  We discovered in our hours and hours of testimony from IRS employees, 
and in the countless letters we received, that part of the intimidating 
culture of the agency is sustained by the fact that they feel there are 
no independent protections for them if they report wrong-doing. I was 
most disturbed to find in our investigation that there is a dangerous 
kill-the-messenger syndrome within the agency. Over 50% of employees 
servicewide believe that management does not communicate honestly with 
the rank-and-file. Fifty-four percent were adamant that there is 
distrust between management and employees.
  When asked if there is adequate protection from retaliation against 
employees who report misconduct, 72% either disagreed, strongly 
disagreed, or did not care to comment. More than one in four indicated 
that they believe management fails to treat employees with respect. And 
30% strongly disagree that, ``Disciplinary actions are applied fairly 
to employees.'' If we are to have an agency that the public trusts and 
that the employees are proud of, these statistics must change.
  In an effort to do this, our legislation eliminates the IRS Office of 
Chief Inspector. It transfers its full time equivalents to a new 
Treasury Inspector General for Tax Administration. There have been too 
many allegations that the current IRS Office of Chief Inspector does 
not have sufficient independence from the IRS to adequately fulfill its 
obligation. Likewise, the current Treasury Inspector General, which 
lacks resources and has experienced problems of its own, does not 
provide seamless oversight over the IRS.
  This change is one of the most important distinctions between the 
House bill and the Senate bill, and it is of critical importance.
  Our bill creates a new Treasury IG for Tax Administration which will 
have greater independence than the IRS Chief Inspector. This provision 
is supported by Commissioner Rossotti, and will create a structure 
where the new Treasury IG for Tax Administration will not allow 
oversight to fall through the cracks, and will provide a seamless check 
on how tax laws are being administered.
  This new Treasury IG for Tax Administration will provide independent 
investigations of alleged IRS employee misconduct without management 
interference. The new Treasury IG will also respond in a timely manner 
to requests to investigate or audit made by the Commissioner or the IRS 
Oversight Board.
  I believe that an intimidating edge now exists in the current 
management structure. The statistics I've just disclosed confirm that 
this is true.
  One of the problems is that the Commissioner does not have the kind 
of authority that is necessary to eliminate those managers who 
contaminate the culture of the agency. And the Commissioner does not 
have sufficient authority to hire those who will work toward making the 
kinds of changes that are necessary. This legislation gives the 
Commissioner the tools he needs to hire top-flight managers who are 
experts in their field.
  It gives him the wherewithal to transform the agency's workforce by 
providing bonuses and other incentives, and to sufficiently discipline 
employees whose inappropriate actions are a plague on the agency.
  As we have seen--even this past week--the Finance Committee has 
disclosed egregious conduct by IRS employees. We have received 
thousands of letters relating the same.
  They have come from taxpayers and agency employees, alike. The 
stories we have heard are outrageous, as is the fact that many of those 
who perpetrate these abuses do so without consequence. This will not 
stand. Our bill requires the IRS to terminate an employee if it is 
proven that the employee failed to obtain required authorization to 
seize a taxpayer's property, committed perjury material to a taxpayer's 
matter, or falsified or destroyed documents to conceal the employee's 
mistakes with respect to a taxpayer's case.
  This legislation allows terminations to take place if an IRS employee 
engages in abuses or egregious misconduct. Conditions for which an 
employee can be dismissed include, but are not limited to, assaulting 
or battering a taxpayer or other IRS employee, violating the civil 
rights of a taxpayer or other IRS employee, or breaking the law, 
regulations, or IRS policies for the purpose of retaliating or 
harassing a taxpayer or other IRS employee.
  Our legislation also allows an employee to be fired for willfully 
misusing section 6103 authority to conceal information from Congress.
  With this legislation, we show that we mean business. An environment 
that allows employees guilty of these kinds of behaviors to continue to 
work within the system is not acceptable to me, the Finance Committee, 
or to the American people. We have heard enough excuses. And 
Commissioner Rossotti agrees that enough is enough!
  One of the most troubling issues raised in our September hearings was 
the widespread use of enforcement statistics to evaluate front line IRS 
employees and their supervisors.
  Subsequent reports by the IRS Chief Inspector substantiated our 
findings that the agency was, in fact, illegally evaluating employees 
based on enforcement statistics. Then, in our hearings just last week, 
we heard that such evaluations continue. In my mind, Mr. President, 
this mocks Congress. It demonstrates that the IRS believes it is above 
the law. It is indicative of a culture that believes that if it will 
simply hold on long enough oversight and accountability will go away 
and the managers and executives who have made careers out of bending 
the law can get back to business as usual.
  The bill pending before us strengthens the law against this. It 
prohibits the use of enforcement statistics to evaluate any IRS 
employee, not merely front line collection employees and their 
supervisors. And the new Treasury IG would be required to report on 
whether the IRS is abiding by the law.
  Each of the measures I have outlined thus far demonstrates just how 
serious we are in our effort to change the Internal Revenue Service.
  Each will go a long way towards protecting the taxpayer and honest 
employees who are working to make the IRS a true service-oriented 
agency. But we don't stop here. We offer much more in the way of 
taxpayer protections. We shift the burden of proof to the IRS if the 
taxpayer maintains records, cooperates with the agency, and provides 
credible evidence to the court. In addition, the IRS will have the 
burden of providing a taxpayer's income if it uses arbitrary statistics 
to determine that income.
  This legislation also allows taxpayers to recover attorney fees and 
costs from the date the taxpayer rightfully appeals an audit, and it 
eliminates the $110 per hour cap on recoverable attorney fees. 
Taxpayers should not be forced to litigate if the IRS is unreasonable. 
In order to level the playing field, if the agency forces a taxpayer to 
litigate and go to trial, our bill allows a taxpayer to recover all 
attorney fees and costs from the time the taxpayer makes a qualified 
offer if the amount of the court judgment is equal to or less than the 
taxpayer's offer.
  Taxpayers should not have to foot the bill if the IRS is 
unreasonable. Beyond this, our legislation includes various provisions 
which allow taxpayers

[[Page S4184]]

and third parties to recover against the IRS for civil damages. It also 
establishes procedures for third parties to have erroneous liens 
removed from their property.
  Another major taxpayer protection in this legislation is our 
provision to strengthen innocent spouse relief. This legislation 
overhauls the current innocent spouse relief which is wholly 
inadequate.
  We do this by limiting a spouse's tax liability to the proportion of 
his or her income reported on the tax return, or returns, in question. 
As a result of concerns raised by members of the Finance Committee, 
relief would not be available in cases of fraud, or if the IRS proves 
the taxpayer claiming innocent spouse relief had actual knowledge of an 
item giving rise to the tax liability.
  Some of the most tragic stories our committee heard concerned 
innocent spouses whose economic lives have been ruined by the 
unrelenting pursuit of IRS collections officers.
  What we propose here are needed changes--changes that will bring a 
semblance of sanity to the current system and protect honest spouses 
who, under no circumstances, should be held accountable for the 
liabilities of their former spouses just because they are easier to 
find or more vulnerable to intimidation. Many of the innocent spouses 
we listened to in our hearings--and many of the letters I have reviewed 
since--told us how they have been placed under terrible burdens because 
of interest and penalties that continue to grow as their cases age.
  Again, with this legislation, we do something about that. We make 
necessary and important changes to how penalties and interest are 
applied. In order to prevent IRS employees from arbitrarily using 
penalties as leverage against taxpayers, our legislation requires non-
computer determined penalties to be approved by management. 
Furthermore, each notice to taxpayers which includes a penalty or 
interest must specify how the amount was calculated. Our legislation 
disallows the imposition of the failure-to-pay penalty while the 
taxpayer is in an installment agreement.
  It allows the taxpayer to designate deposits for each payroll period 
rather than using the first-in-first-out--``FIFO''--method that results 
in cascading penalties.
  Under this bill, if the IRS does not provide a notice of deficiency 
within one year after a return is timely filed, then interest and 
penalties will be suspended until 21 days after demand for payment. Of 
course, this increased protection--as all increased protections--are 
meant to protect honest taxpayers.
  We will not excuse those who evade their responsibility or cheat on 
their income tax returns. These protections exclude the failure to 
file, failure to pay, and penalties related to fraud.
  Increased protections for honest taxpayers will also affect due 
process. This was one of the glaring issues raised in our IRS hearings.
  Currently there is a woeful lack of protection in this area, 
particularly during collection activity, where the IRS is the judge and 
jury, and where some agency employees take a cavalier approach to 
issuing a notice of lien, levy, or seizure of a taxpayer's home, 
personal belongings, or business property. In order to ensure due 
process to taxpayers, our bill requires the IRS to provide 30-days 
notice to a taxpayer before it may issue a notice of lien, levy, or 
seizure.
  If the taxpayer requests a hearing, all collection activity must 
stop. If the taxpayer disputes the findings of the appeals officer, the 
taxpayer may petition the tax court for relief.
  Our legislation requires the IRS to implement a review process under 
which liens, levies, and seizures would be approved by a supervisor who 
would review the taxpayer's information, verify that a balance is due, 
and affirm that a lien, levy, or seizure is appropriate under the 
circumstances, including the amount due and the value of the asset.
  Failure to follow these procedures, under our legislation, would 
result in disciplinary action against the revenue officer and his or 
her supervisor. We also require the Treasury Inspector General to 
collect this information and annually report to the tax writing 
committees of Congress.
  On those occasions when the IRS makes seizures, the agency will be 
required to follow certain procedures and provide an accounting to the 
taxpayers. It is unbelievable that the IRS does not currently provide a 
receipt to taxpayers when their property is seized and sold.
  Revenue Officers have incredible discretion. As such, this bill 
requires the IRS to implement a uniform asset disposal system for sales 
of seized property to prevent revenue officers from conducting sales.
  It would prohibit the IRS from seizing real property used as a 
residence if the unpaid tax liability is less than $5,000. Also, a 
principal residence or business property would only be seized as a last 
resort.
  In the area of examination, our bill expands the attorney-client 
privilege to other tax practitioners to the extent such communications 
would be privileged between an attorney and his client.
  It limits IRS authority to require the production of computer source 
code and establishes a number of protections against the disclosure and 
improper use of trade secrets and confidential information of any 
computer software program or source code that comes into the possession 
of the IRS as part of an examination of a taxpayer.
  The legislation allows taxpayers to bring an action to quash all 
third-party summonses by informing the taxpayers of such summonses 
before the IRS contacts the third party.
  Beyond these important changes, this legislation introduces several 
other measures to protect the taxpayer. It is surprising how long some 
IRS cases remain open and how long some taxpayers remain in the 
crosshairs of the agency. This is accomplished when the IRS pressures 
taxpayers, often by threatening them, to waive the 10-year statute of 
limitations on collection. Mr. President, 10 years is long enough, and 
to protect these taxpayers, our bill would prohibit waivers of the 
collection statute. It would also make it easier for taxpayers, who 
dispute the amount of their tax liability or can't pay the full amount, 
to compromise with the IRS or enter into installment agreements.
  The legislation that we introduce today also provides taxpayers with 
an enhanced mechanism to appeal an audit, request early referral to 
appeals, and request alternative dispute resolution. It includes 
various routine requirements, including an explanation of the reason 
for denial of a refund and annual statement to taxpayers regarding the 
amount remaining on their installment agreement.
  The bill also requires IRS notices to include the name and phone 
number of an IRS employee the taxpayer should contact to resolve any 
issue on the notice.
  In order to protect innocent taxpayers who are improperly labeled as 
``illegal tax protesters,'' this bill will, out and out, prohibit such 
designation. It will also take an important step towards helping 
Congress simplify the law by requiring the Joint Tax Committee to 
prepare a complexity analysis on tax legislation.
  As you can see, Mr. President, this is a very thorough, comprehensive 
piece of legislation. It is extremely important. There is no question 
that it is well worth the wait. When our hearing began last September, 
an agency employee made a complaint that lodged itself in my mind, one 
that I have not been able to forget. He said, ``If the true number of 
incidents of taxpayer abuse was ever known, the public would be 
appalled. If the public also knew the number of abuses covered up by 
the IRS, there would be a taxpayer revolt.''
  What we bring with this important legislation is a new era of 
openness to an agency that for too long has been able to operate beyond 
the view of Congress.
  We bring a new era of accountability to an agency marked by a culture 
that protects even the most lawless employees from the consequences of 
their actions.
  We bring a new era of efficiency and modern management to an 
organizational structure that dates back to before the industrial age.
  We bring forward a promise of hope to honest taxpayers and valued 
employees who have waited too long. With this legislation, Commissioner 
Rossotti will be able to transform the IRS, provide accountability, and 
establish much-needed taxpayer protection.

[[Page S4185]]

 Americans, for the first time ever, will have a tax collection agency 
marked by a sincere dedication to service.
  Mr. President, I yield the floor.
  Mr. MOYNIHAN addressed the Chair.
  The PRESIDING OFFICER. The Chair recognizes the Senator from New 
York.
  Mr. MOYNIHAN. Mr. President, I rise, in the first instance, to 
commend our chairman for his commitment to restoring public confidence 
in the Internal Revenue Service and for the legislation he has so ably 
crafted and now so succinctly set forth in the opening statement of 
this debate, which I think will probably consume the better part of the 
Senate's time for this week.
  He, of course, stood on the shoulders of giants, you might say. In 
the report of the National Commission on Restructuring the Internal 
Revenue Service, ``A Vision for a New IRS,'' which was a statutory 
commission established in 1996, and which reported in June of 1997--
chaired by our distinguished and gallant committee member Bob Kerrey, 
J. Robert Kerrey, whom I will ask to manage this legislation in the 
days ahead, he having been the principal author here, along with his 
colleague from the other side of the aisle, Senator Chuck Grassley, 
Charles Grassley, ``Chuck'' to his friends. They anticipated the work 
we did, although I don't think they could have anticipated some of the 
things we encountered in those hearings. Those two Senators have been 
indefatigable in their endeavor to transform the IRS into a consumer-
based agency.
  As two rounds of hearings held by the Finance Committee illustrate, 
there is much room for improvement at the IRS. There is much room for 
improvement in almost any of our Government agencies, but few, other 
than the Social Security Administration, so directly affect the 
citizenry, and none other has the capacity to be punitive, to extract 
resources, to impose fines. There is no other agency such as this. It 
is extraordinary, the fact that we have paid so little attention to the 
management of the Service.
  The Internal Revenue Service was created in 1862 in the 
administration of President Lincoln, at the time when an income tax was 
established to help finance the Civil War. President Lincoln signed the 
Civil War Income Tax Act into law July 1, 1862. However, it was not 
until last September, nearly a century and a half later, that the full 
Finance Committee exercised its oversight jurisdiction, and no credit 
can be too great to be given Senator Roth as the new chairman for this 
effort.
  It is our duty to know what is going on in this large public agency. 
It has more than 100,000 employees. In 1997, it collected $1.5 trillion 
and processed 210 million tax returns. We get used to these numbers, 
Mr. President, but to give a sense of dimension, 1 billion minutes ago, 
Julius Caesar ruled the Roman Empire. If that is what 1 billion minutes 
is, think what 1.5 trillion minutes would be.
  Some, mind you, contend that the IRS is out of control and somehow 
should be abolished. In truth, we simply need to get it under control 
and shaped in the mode of modern management.
  Last November, the Senate took an important first step to getting the 
agency in such a working mode by unanimously confirming Charles O. 
Rossotti as Commissioner of Internal Revenue. We have previously, for 
generations, had tax lawyers as the Commissioners. They were superb tax 
lawyers, gifted and committed, but not necessarily managers for the 
management problem that needed to be addressed. And particularly not 
technologies. The Service had a huge problem bringing itself along into 
the computer age. Vast amounts have been spent with systems that do not 
interact well. And now, of course, we have the year 2000 problem, which 
all agencies of Government face. All activities you can imagine 
compounding that earlier difficulty.
  Commissioner Rossotti has already made a visible difference. He has 
put in motion a plan to modernize the agency by reorganizing according 
to type of taxpayer, such as the individual payer, the small business, 
the large corporation, or the exempt organization, of which there are 
so many, rather than according to the simple organization of regional 
offices that do everything.
  In addition to establishing programs to improve the treatment of 
taxpayers, such as problem-solving days and extended telephone service, 
Commissioner Rossotti has done two things very specifically addressed 
to the concerns of the Finance Committee. He has appointed former 
Comptroller General Charles Bowsher to conduct an independent review of 
the IRS internal Inspection Service. It was remarkable that the 
Comptroller General, after 15 years of dealing with the Congress' often 
unfortunate demands on the General Accounting Office, came back to 
public service to do this. A more qualified person you could not 
imagine.
  Secondly, and again an achievement of some considerable measure, Mr. 
Rossotti has persuaded Judge William Webster, formerly the Director of 
the Central Intelligence Agency, and prior to that the Federal Bureau 
of Investigation, to look into the activities and the operations of the 
Criminal Investigation Division of the Internal Revenue Service.
  This is, obviously, a troubled branch of the agency. We do not 
associate the Internal Revenue Service with men in body armor carrying 
automatic weapons, breaking into offices and telling everyone to 
freeze, if you will. Yet, we heard testimony that could not be doubted 
that just such things are happening, and they need to be very carefully 
controlled and obviously have not been. How widespread that behavior 
is, we do not know. But we will learn from Judge Webster, and not a 
moment too soon.
  The legislation before us represents a second major step. It would 
establish an Internal Revenue Service oversight board consisting of six 
private citizens, a representative of the IRS employees' union, the 
Secretary of the Treasury, and the Commissioner of the IRS itself. The 
board will be responsible for certifying the strategic direction and 
goals of the agency, while the Commissioner will continue to manage all 
day-to-day operations. The Finance Committee specifically voted to 
include the Secretary and a union representative on the board, making 
the composition of that board identical to that of the House bill 
reported out of the Committee on Ways and Means, which passed the House 
of Representatives by an extraordinary vote of 426-4.
  But now it should be clear in anticipation of some amendments, not 
necessary but in anticipation of the possibility, it should be clear 
that if this board is to have any stature within the Government and 
with the public, the Secretary of the Treasury must be on it. That is 
basic management practice. As Senator Breaux aptly stated during the 
Finance Committee markup, it is also far better to have the union 
working cooperatively on the inside rather than working in opposition 
on the outside.
  I would also point out that the bill includes a number of provisions 
to create flexibility for the Commissioner in the area of personnel. In 
recognition of the great disparity between the salary structures in 
Government and those in the private sector on parallel activities, the 
legislation provides a streamlined process by which the Commissioner 
can appoint up to 40 individuals designated critical technical and 
professional positions for up to 4-year terms at an annual compensation 
equivalent to the pay of the Vice President, currently $175,400.

  The Commissioner can go out and find this person to do this 
particular job and make it a 4-year appointment. Persons who obviously 
are in the private sector will come into Government at not too large a 
sacrifice, and for most it would be a considerable one. I do not want 
to use the word ``sacrifice''--lachrymose, perhaps--just a large 
reduction in income for the kinds of persons that will be sought after, 
but not so large that they cannot manage the transition.
  Other provisions will permit the establishment of a new performance 
management system focused on individual accountability and will allow 
for the creation of an award system to provide incentives for and 
recognition of individual group and organizational achievements. 
Additional measures call for the termination of IRS employees for 
violations committed in connection with the performance of their 
official duties.
  The bill contains two provisions of special interest to this Senator, 
the

[[Page S4186]]

first of which Senator Kerrey and I particularly supported, and Senator 
Roth mentioned in his opening statement. It would require the staff of 
the Joint Committee on Taxation to provide an analysis of complexity 
and administrability issues associated with all pending tax 
legislation.
  Many of the problems faced by the IRS arise from the Tax Code itself. 
One of the clearest visions of the National Commission on Restructuring 
the Internal Revenue Service was simplification of the tax law which 
says it is necessary to reduce taxpayer burden and facilitate improved 
tax administration. One has to note, regrettably perhaps, that our 
proposal for simplification goes on some 511 pages. This is a pattern 
we have gotten into which we ought to avoid.

  If enacted, and this bill will be enacted, it will be the 64th public 
law to amend the Internal Revenue Code since the great Tax Reform Act 
of 1986. In 1986, led by Senator Packwood, we greatly simplified the 
Code. We lowered tax rates, we broadened the base, we got rid of all 
manner of absurdities and irrational provisions in the Code.
  The core group, as we called ourselves, would meet each morning in 
Senator Packwood's office and talk about the day's plans. It would be 
my particular job to provide a reading from the Wall Street Journal. I 
would find--never failed--an advertisement somewhere in the Journal of 
that day talking about mountain sheep or billy goats, or what have you, 
in which it would say ``losses guaranteed.'' Such were the provisions 
of the Tax Code at that time--you made money by investing in activities 
that lost money. We cleared all that out, or thought we did, and we 
brought rates down and hoped they would stay there.
  This will be the 64th law since that time amending and complexifying. 
I recall last year we passed a bill, 802 pages, called the Taxpayer 
Relief Act of 1997, and the only copy on the Senate floor was here at 
this desk. The copy for the chairman was spirited away to be examined 
in the Budget Committee for violations of the Byrd rule, as I recall. 
And Senators would come up and ask the Senator from New York if there 
were certain provisions in the bill. They had no way of knowing because 
there was no copy on the floor.
  This sort of analysis will take time to do it, but 20 years from now 
we may look back and think that one of the most important provisions 
that was contained in this measure was the report by the Joint 
Committee on Taxation of the complexity of a tax measure, and how well, 
in fact, the IRS could handle its administration. Because if we failed 
to simplify the Code, we failed to address the heart of this problem. 
Complexity contributes to taxpayer frustration, obviously, and to tax 
evasion, as well.
  We look forward to working with the chairman to try to reduce tax 
evasion, which is a much larger matter than we have tended to assume.
  Commissioner Rossotti, in his testimony before the Finance Committee 
on Friday, stated that tax evasion is now at an estimated $195 billion 
a year. If we were to do no more than collect half the taxes now owed 
and deliberately not paid, our revenue situation would be profoundly 
changed. And that can be done, and I think Commissioner Rossotti 
intends to at least attempt it. We are talking about laws here. If we 
are a nation of laws, not only do taxpayers have rights, but they have 
responsibilities. Both should be pursued with energy and effectiveness.
  A second provision has to do with the so-called year 2000 problem or 
the century date change, as Commissioner Rossotti terms it. The IRS has 
had some well-publicized difficulties with its computer modernization 
efforts. These problems have been exacerbated by programming changes 
required by the Taxpayer Relief Act last year and by the year 2000 
problem.
  It is beginning to sink in that we have a real problem here. Our 
majority leader and the minority leader are much to be congratulated. 
We have now created a special committee on this matter with our 
distinguished colleague, Senator Bennett, as the chairman. This is not 
a problem in the ordinary sense, a difficulty to be looked after or 
endured. No. The General Accounting Office testified before us 
September of last year that the computer conversion problem could be 
catastrophic. The whole system could crash. We are not alone in this 
regard. The IRS is just another large information center dependent on 
information processing which it cannot do if the computers are not 
changed in time. The adjustments are not that complicated but the 
pressure of time is extraordinary.
  I recently had the occasion of introducing the Chairman of the 
Securities and Exchange Commission, our distinguished Chairman Arthur 
Levitt, who was nominated for a second term. We were talking while we 
were waiting for the hearing in the Banking Committee to begin. He 
mentioned this issue and said that for the banks and such he is 
responsible for, if they do not get this done it is terminal. Not just 
that the profits drop a bit or some activities can't survive--it is 
terminal.
  The Defense Department has unimaginable difficulties. They will get 
it done or they hope they will get it done, or our missiles won't be 
aimed in the right direction, things like that. And the Commissioner 
has asked that some of the provisions in this bill be delayed not for a 
long time but until after the year 2000 so he can have the year 2000 
problem solved before he puts in these new provisions. It is a very 
reasonable, orderly, sane recommendation and we would be disorderly not 
to heed it. He has already sent us a six-page letter that tells us when 
he can have this provision in place, when he can have that provision in 
place. He knows what he is talking about. I hope we will listen.
  Two final points: The bill requires the Joint Committee and the 
Treasury to study the issue of taxpayer confidentiality. We must strike 
a balance between taxpayer privacy on the one hand and the ability of 
Government to function on the other. In our hearings we have had a 
matter where IRS officials, faced with specific charges, will often 
seem evasive or unresponsive in their answers. What they are doing is 
responding to the law that forbids them to discuss things they know, 
but which are confidential. Some balancing of that is in order, and I 
hope we can see it brought about.
  Finally, Mr. President, a comment on the cost of the legislation. 
Through the ingenuity of the chairman, we have fully funded this 
measure for the first 5 years of its operation. It is underfunded by 
$10 billion in the second 5 years. We hope to do something about this. 
I think it is unseemly of us to bring tax reform legislation to the 
Senate and fully ignore the fact that we aren't paying for it. We can 
pay for it; it is not an impossible sum, and it is surely incumbent 
upon the committee and the managers of the legislation to see if we 
can't find that extra $10 billion.
  Mr. ROTH. Will the Senator yield for a comment?
  Mr. MOYNIHAN. I am happy to; yes.
  Mr. ROTH. I want to make it clear that it is the intent of the 
chairman to fully pay for both the first 5 years and the second 5 
years.
  Mr. MOYNIHAN. Yes. I am not surprised. We pay our bills--or we ought 
to pay our bills. As I said, it would be unseemly to bring a measure of 
this kind to the floor saying, ``Let's manage these matters better,'' 
and not manage to pay for it. That is welcome news, and the Senator has 
my cooperation on that, to be sure.
  Finally, Mr. President, I am going to ask Senator Kerrey to manage 
the legislation on our side. As I said, he was co-chairman of the 
National Commission on Restructuring the Internal Revenue Service. 
Their superb report, ``A New Vision for the IRS,'' which was issued 
last June--11 months ago--has led to the work we are doing now, which 
we bring to the floor with pride and with the expectation that we will 
be successful.
  On that note, sir, I yield the floor.
  Mr. JOHNSON addressed the Chair.
  The PRESIDING OFFICER (Mr. Smith of Oregon). The Senator from South 
Dakota is recognized.
  Mr. JOHNSON. I ask unanimous consent to speak for such time as I may 
consume.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. JOHNSON. Mr. President, I thank the ranking member, Senator 
Moynihan of New York, and the chairman, Senator Roth of Delaware, for 
their excellent work on this legislation and for bringing this to the 
floor.
  I rise today to express my qualified support for this legislation 
that is long

[[Page S4187]]

overdue, the IRS Reform and Restructuring Act. When I say 
``qualified,'' that qualification is primarily over the question of 
paying for this legislation in full. As a member of the Senate Budget 
Committee, it is a matter of great importance to me. I am very 
heartened that Chairman Roth has expressed very clearly on the floor 
here today that there will, in fact, be offsets sufficient to pay for 
this legislation not only during the first 5 years but the remaining 5 
years as well. I look forward to reviewing those offsets, of course. 
But I am very heartened by that, because I think that is a key 
underlying requirement for this body to responsibly take up IRS reform 
legislation.
  The road bringing us to this day has been long indeed. It was, after 
all, in the fall of 1995 that the legislation was enacted calling for 
the establishment of a commission on restructuring the IRS. Nearly 1 
year ago, this commission submitted its report to Congress.
  After a period of congressional hearings and negotiation, compromise 
legislation was agreed upon by President Clinton, Secretary of Treasury 
Rubin, and the minority leadership of both Houses of Congress. With 
this support, it is not surprising that the House passed H.R. 2676 last 
November by an overwhelming margin of 424-6. The administration, since 
that time, has appointed former FBI and CIA Director William H. Webster 
to review the practices of the IRS and its Criminal Investigation 
Division. I think that is a very important and responsible step on the 
part of the administration, which is consistent with the direction and 
concerns expressed by both the House and the Senate.
  It has been frustrating that it has taken so long to bring this 
legislation to the floor. During the State of the Union Address at the 
beginning of the year, President Clinton called for passage of this 
bill as his first item of business. One week later, the majority leader 
pledged that IRS reform would be considered on this floor by March 30. 
Once again, unfortunately, the Senate did nothing. We spent days 
debating such items as renaming airports, but there was no action on 
this critical legislation. March 30 came and went, and so did an even 
more significant date for over 100 million Americans, and that was 
April 15, tax day. As the American people met the deadline for filing 
their tax forms, the Senate had not yet taken this legislation up on 
the floor.

  Finally, after much delay, this measure has reached the Senate floor. 
It has often been said that, ``It is better late than never.'' This 
week's Congressional Quarterly, a respected nonpartisan political 
publication, observes that one reason for the delay may have been a 
desire to raise campaign money. I certainly hope that was not the case. 
I believe that this legislation could, in fact, go a long way toward 
addressing many of the fundamental organizational problems that we see 
in the IRS today. That agency, as we all know very well, has antiquated 
computer systems, customer service phone lines that typically have busy 
signals, and many other operational inefficiencies. Furthermore, we 
have all heard about the large number of complaints about overzealous 
enforcement, rude service, and simple inability to get a clear answer. 
These are problems that clearly must be addressed.
  Of course, it should be recognized that during the course of Senate 
hearings, the IRS was not in a position to refute individual cases 
brought before the committee because of their confidentiality 
restrictions, and so the ``rest of the story,'' as is sometimes heard, 
went untold. Nonetheless, it is clear, both through hearings and 
individual complaints to our respective offices, that there have been 
abuses. There is no room for that, and there ought to be zero tolerance 
for that abuse.
  This bill will create an IRS governance and oversight board, which 
will be charged with overseeing the long-term strategic and operational 
plans for the agency. Personnel policies will be made more flexible. 
Expanded use of electronic filing will become a significant goal, with 
the hope that by the year 2007 only 20 percent of the tax returns will 
be filed on paper.
  Additionally, this bill will expand taxpayer rights. The burden of 
proof in Tax Court proceedings will lie with the IRS rather than with 
the taxpayer. Penalties will be allowed for IRS collection activities 
that negligently violate the Internal Revenue Code. Relief will be 
granted to spouses who are innocent of an underpayment filed on a 
return. Taxpayers will be granted expanded confidentiality protection 
as well as explicit notice of their rights.
  One of the more overlooked provisions of this bill, however, is 
perhaps one of the most important. The bill states--albeit in a sense 
of the Congress, nonetheless an important expression of the point of 
view of this body--that front-line IRS technical experts should be 
heard during congressional consideration of tax legislation in an 
effort to avoid additional complexity to the Tax Code. It has been 
Congresses and Presidents, after all, not the IRS, that have been 
responsible for creating a Tax Code which is overly complex and 
difficult to enforce.
  In a sense, the IRS has been an easy target for this whole debate, as 
has always been the case, I suppose. Few people like an agency 
responsible for collecting taxes.
  We must instead recognize, however, that a great deal of the 
responsibility for this problem rests on the doorstep of Congress 
itself. The Taxpayer Relief Act of 1997, for example, while an 
excellent piece of legislation in very many respects, contains hundreds 
of new tax provisions, most of which increased the complexity of the 
Tax Code. We have in this debate the remarkable inconsistency of those 
who decry the complexity of the Tax Code on the one hand, but never 
miss an opportunity to worsen the situation by supporting every 
conceivable tax provision complication that comes along.
  I do have a serious reservation already expressed at the outset, and 
that is the Senate version of the bill as it now stands is expected to 
cost the Treasury $19.3 billion over the next 10 years. The proposed 
offsets are nearly $10 billion short of paying for this cost, meaning 
this bill, until it is amended, is in violation of the pay-as-you-go 
rules in the Budget Act, and costing three times the cost of the House-
passed IRS reform legislation. As a member of the Senate Budget 
Committee, I believe it is extremely important that we maintain the 
budget discipline that has brought us the first balanced unified budget 
in three decades, and not jeopardize even as worthy a cause as this. I 
look forward, again, to reviewing the chairman's offers that he will 
raise later on in this debate.
  Additionally, I would be remiss if I failed to point out there are, 
in fact, a great number of IRS employees who deserve to be recognized 
for the exemplary service they provide for this Nation. Although I have 
certainly heard my share of complaints about the IRS, I have also heard 
from constituents who relate their stories of problems they have had. I 
am also very much aware of IRS employees who go about their duties 
every day as public servants in a professional and competent and able 
manner. We in Congress must be careful not to use too broad a brush in 
the heat of this debate. The vast majority of IRS employees are good 
and capable public servants with a tough job on their hands. The fact 
is that fact has been lost as we listened to one side of the story, one 
side that does indeed, however, need to be corrected.
  But I think it is important for us to go about this debate and 
recognize that on the one hand elected officials have created a complex 
Tax Code, though we want aggressive tax collection in order to address 
the problem of tax evasion in this country, which costs the taxpayers 
$100 billion a year in uncollected taxes, an unfair tax on those 
Americans who fairly and legally pay their taxes. So on the one hand we 
want the IRS to be aggressive about making those collections, but on 
the other hand we also want an IRS with a human face on it that 
recognizes that intimidation and overaggressiveness has no place. This 
is a fine line to walk--a line that has been crossed in numerous 
instances about unfortunate situations with the IRS--but one that is 
difficult to walk in some instances.
  Mr. President, I look forward to the debate on this legislation. It 
is a positive step forward in our efforts to create a tax system that 
is simpler and less burdensome on taxpayers. We cannot rest with the 
debate on this bill, however, since the more difficult and more complex 
job lies ahead. To truly resolve this problem, we will need to

[[Page S4188]]

get to the ultimate source, which is the complexity and the difficulty 
of the Tax Code itself, and there the guilty party is not the IRS but 
the Congress itself.
  I yield the floor.
  Mr. President, I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mr. BRYAN. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. BRYAN. I thank the Chair.
  Mr. President, April 15, the day on which we pay our annual tribute 
to the IRS, will never be one of the happiest days on the calendar for 
Americans. It is a time in which all of us are required to pay that 
which we owe to the Federal Government by way of the tax system that 
we, as Members of the Congress, have imposed upon the American people.
  We have heard in the past few days a number of the abuses that have 
been foisted upon the American public, and I will speak to those issues 
in more detail in a moment. In the meantime, we have an opportunity to 
pass a reform and restructuring piece of legislation which, as a member 
of the Senate Finance Committee, I am pleased to support and endorse, 
and I hope we can get this to the President for his signature as soon 
as possible.
  Many of us believe that it would have been possible to have passed 
this legislation last year so that the benefits that are provided in 
this legislation to the American taxpayer could have been available in 
the early part of this year before this year's tax collections went 
into effect. Nevertheless, we do have an opportunity to move forward on 
this important piece of legislation.
  Reform of the IRS is not a partisan issue. In my judgment, by acting 
quickly on this legislation, we can provide some much-needed 
protections and service improvements to the American taxpayers.
  I think it is fair to acknowledge that the problems with the IRS are 
not of recent origin or vintage. They have existed for many years. But 
it does seem to me that the timing for change is most fortuitous an 
opportunity for us to pass a broad, far-reaching IRS reform bill in a 
time when we have a Commissioner of the Internal Revenue Service, Mr. 
Rossotti, who has a unique and, I believe, highly qualified background 
to help us implement these changes.
  Mr. Rossotti, unlike his distinguished predecessors, is not a man 
with a tax or an accounting background, but brings a distinctive 
business perspective. Many of the problems of the IRS deal with 
fundamental change of structure, so I believe that his background 
provides a unique opportunity, combined with this legislation, to 
produce the kind of changes which will benefit the American public and 
which Democrats and Republicans alike are prepared to embrace.
  Already, in the few short months that he has served as our 
Commissioner, he has demonstrated a commitment to reform and change, 
and I believe that is highly encouraging.
  Our responsibility as Members of Congress, in my view, is to give 
Commissioner Rossotti the tools that he needs to do the job, and the 
legislation before the Senate today does just that. Thanks to the 
leadership of Chairman Roth and the ranking member, Senator Moynihan, 
the public today is more aware than ever of the types of abuses we need 
to correct in the IRS.
  Last week's hearings in particular reveal that the agency is in 
serious need of reform. I think all Americans were truly shocked and 
outraged by the testimony that we heard.
  The task of collecting taxes is always a difficult one, but little, 
if any, circumstances would dictate the strong-armed, police-style 
tactics that we listened to last week were necessary in dealing with 
the taxpayers who testified before the Finance Committee.

  The IRS, like any other agency, should attempt to use the least 
intrusive, the least confrontational method available to carrying out 
its duties.
  Having said that, the abuses that we heard last week, I think, 
engendered the justifiable outrage by all of us, but there are those 
who are part of our country who are involved in criminal and other kind 
of nefarious activities, and so we must, at the time we reform this 
agency, not deprive the agency of the ability to move against those who 
are truly involved in either criminal conspiracies or other kind of 
activities in which they are underpaying their taxes.
  Each of us who pay our taxes on time as required--and that is the 
vast majority of the American people--will suffer the consequences if 
changes that we bring into the system makes it more difficult to 
collect from those who would evade the taxes.
  The consequence of that course of action will mean that all of us 
will pay more, not less, as a result of failing to collect taxes that 
are lawfully due pursuant to the IRS Code. So we clearly need to be 
mindful of that.
  That testimony, nevertheless, I think was shocking to most Americans 
and certainly to the members of the committee where dozens of armed, 
flak-jacketed agents raided well-established businesses and 
individuals. This clearly appears to be an agency, at least in respect 
to those circumstances that we were informed about last week, that is 
out of control. Nothing that we heard, assuming that there was a tax 
liability owed by the taxpayers who testified, justified that kind of 
egregious conduct.
  That kind of conduct gives a bad name to those 100,000 IRS employees 
who are decent, law-abiding citizens. They are our neighbors. They are 
our friends. They are involved in the civic culture of our community. 
They are involved in Little League and all of the other activities that 
make up a community. But this kind of conduct is egregious, it is 
unacceptable, and it cannot be allowed to continue.
  I believe that the chairman and the committee have produced a strong 
bill that will give the Commissioner the tools he needs to make real 
reforms in the IRS possible. I would like to spend a couple of minutes 
addressing several of those reforms.
  Establishing an IRS oversight board to provide input and oversight 
from the customers of the IRS, the American taxpayer, in addition to 
those who have responsibility for enforcing the Code, I believe, 
broadens the perspective of the oversight, and I fully support that 
provision.
  Providing some kind of continuity for the Commissioner, as this 
legislation provides a 5-year term, I think is important for the 
stability and management of the agency. If, as I suspect, many of the 
agency's problems are deep-seated, institutional and cultural in 
nature, it is very difficult for an IRS Commissioner, no matter what 
his enthusiasm or her enthusiasm for reform might be, to make those 
kinds of changes in a couple of years. It takes a longer period of time 
to turn around a bureaucracy that is as large and encrusted as the IRS.
  It will strengthen the Office of the Taxpayer Advocate by ensuring 
that the taxpayer advocate is truly independent from the IRS 
bureaucracy and increasing the ability of the taxpayer advocate to 
provide relief to taxpayers.
  We have sought in the past, by establishing such an office, to 
provide that kind of assistance to the American taxpayer, but I believe 
candor requires us to acknowledge that we have fallen short of the 
mark, because the perception, if not the reality, is that the taxpayer 
advocate of the past is still part of the IRS structure, and the 
individual who holds that position looks to his or her future--the IRS 
itself--and therefore has been reluctant to aggressively intervene on 
behalf of the American taxpayer who has a legitimate grievance or issue 
to raise.
  It will enhance oversight of IRS activities by strengthening the 
Treasury Inspector General Office. We heard much in the last week about 
employees who have complained about misconduct on the part of some of 
their coemployees, reporting this misconduct only to be ignored. 
Hopefully, a more effective oversight responsibility on the part of the 
inspector general's office will provide assurance that those comments 
and concerns--shared, as I have indicated, by the vast majority of 
employees of the IRS who are responsible, dedicated public servants 
who, as we were abhorred by what we heard, they, too, are greatly 
troubled by that kind of misconduct on the part of the few employees 
who engage in that type of excessive conduct.

[[Page S4189]]

  This legislation requires the IRS to use fair and equitable treatment 
of taxpayers as a basis for employee evaluation.
  Mr. President, one of the ongoing concerns in my own State has been 
the so-called quota system. This Congress has in the past attempted to 
send a message indicating that the quota system can no longer be used 
either to evaluate employees or as part of a collection tool.
  Unhappily, notwithstanding those earlier directions from the 
Congress, we found last year as we were beginning our discussion of the 
reform measures in the Finance Committee that indeed, in the district 
in Nevada, such quotas were in fact being used, although they were not 
described as quotas. From all appearances, those who are part of the 
evaluating process could, in my judgment, have reached no other 
conclusion but that their performance would be judged by the amount of 
money that would be extracted from each taxpayer who came to the office 
by reason of some conflict or disagreement as to the amount of revenue 
that the taxpayer owed.
  A quota system is inherently wrong and unfair because it engenders a 
confrontational attitude. That is to say, the IRS revenue officer looks 
at the taxpayer not as a consumer, one who has a problem that needs to 
be addressed, but basically as an individual that the revenue agent 
must collect a certain amount of taxes from in order to be evaluated 
positively by his or her superiors for purposes of tenure or promotion 
within the system.
  I have to say that once we called this practice to the attention of 
the Acting IRS Commissioner at the time, he was forceful in his 
denunciation, as is Mr. Rossotti, our new director. But, nevertheless, 
notwithstanding directions from the past, these quotas were still 
there. That needs to be changed. And I believe that we provide not only 
the specifics, but the tenure in this legislation that directs that to 
be accomplished.
  This legislation establishes goals for increased electronic filing, 
which offers benefits to both the taxpayers and the IRS. If there is a 
part of this cloud that has a shining moment, it is in the system that 
has been created that allows for telefiling. It is a system available 
to millions of taxpayers, a paperless system that allows the taxpayer 
to get his or her refund, if one is due, much quicker than the old 
process. It relieves an enormous paperwork burden on the part of the 
IRS. So it is a win-win, a win for the taxpayer and a win for the IRS. 
I am pleased to see that more taxpayers are availing themselves of 
this. And electronic filing also provides simplification for the 
taxpayer as well as for the IRS, and that practice has increased as 
well.
  By shifting the burden of proof in certain cases where the taxpayer 
has cooperated with the IRS in providing all documentation to a tax 
case, again, it has the effect of leveling the playing field for the 
taxpayer in an issue of dispute or controversy with the IRS.
  Expanding the opportunity for taxpayers to recover reasonable costs 
and attorney's fees when a taxpayer prevails over the IRS--this, too, 
levels the playing field and is in the essence of fair play.
  Enhancing the ability of taxpayers to recover civil damages when they 
are victims of IRS abuse or negligence--this provision that we have 
added to the code treats taxpayers more equitably by eliminating 
interest rate differentials between many overpayments and underpayments 
so that the taxpayer is treated as the IRS is treated for purposes of 
interest payments that may be due as a result of money owed to the 
taxpayer.

  The bill that we have before us provides relief from certain 
penalties when a taxpayer is making a good-faith effort to pay past due 
taxes.
  This legislation enhances due process rights prior to seizures and 
levies and improves the ability of taxpayers to take advantage of 
``offers in compromise'' and installment agreements.
  This legislation increases disclosure to taxpayers of reasons for IRS 
actions, including providing reasons for denying a refund and clearly 
informing taxpayers of their rights during audits or other IRS 
procedures, thereby making the process less mystifying and secretive 
but more open and understood by the American taxpayer.
  It requires all IRS correspondence to identify by name, phone number, 
and address, and to provide the IRS contact regarding the 
correspondence, and to require the Joint Tax Committee to analyze the 
change in tax complexity of legislation being considered by the 
Congress.
  Mr. President, there is plenty of blame to spread around regarding 
the many problems with the IRS. It is certainly clear that for far too 
long a culture has existed within the agency that views the taxpayer as 
the adversary rather than as the customer. Overcoming this taxpayer-
hostile culture is not something that we can accomplish instantaneously 
through legislative fiat, but I believe if we give Commissioner 
Rossotti the tools he needs to do his job, problems in this agency can 
be resolved and long-entrenched attitudes can be changed.
  Most of the more than 100,000 employees of the IRS are conscientious 
public servants dedicated to doing their job in a fair, impartial, and 
effective manner. With strong leadership from the top, increased 
taxpayer protections and increased flexibility to reward employees who 
do their job well and to, conversely, penalize those who do not, I 
think, are what this agency needs before it can be turned around.
  The IRS will never be the most popular Federal agency. But if, by 
passing this legislation, we ensure that honest, hard-working taxpayers 
are treated fairly and with respect by the IRS, we will have made a 
major improvement. I do not mean to suggest that by simply passing this 
legislation we will solve every problem with the IRS. Of course, that 
is not the case.
  A great part of the problems with the IRS rests with this body, the 
Congress itself. The code is extraordinarily complex, difficult to 
administer, ambiguous in parts, uncertain in terms of its intended 
consequence. With every good intention Congress has had, for many, many 
years the IRS Tax Code has become more complicated, not less so. I want 
to be clear that I supported the changes in the Tax Code that were part 
of the balanced budget agreement last year. But last year's tax bill is 
a good example of the code becoming more complex.
  While I believe that there were many solid policy reasons for every 
provision of last year's bill, no one can argue that last year's 
legislative enactment will provide for tax simplification. It has made 
the code more complex. And in recent weeks on the floor of this 
Chamber, we have heard proposals being offered on behalf of some of the 
educational issues that have been debated that will make the code even 
more complicated.
  The bill before the Senate today will, however, provide great 
improvements in the management of the IRS. And until such time as we 
can provide for a simpler Tax Code that can be more effectively 
administered, we have a responsibility to provide the necessary tools 
so that the code can be more fairly enforced and implemented.
  Mr. President, I strongly support this legislation and hope the 
Senate will pass this bill in the near future.
  I note that the distinguished senior Senator from Nebraska joins us 
on the floor and undoubtedly will have much to say. I would like to pay 
tribute to him and his congressional counterparts for the years that 
they spent as part of a review of this Tax Code, the testimony they 
heard, the stories that were told to them. The genesis for this reform 
lies largely with the action of the distinguished senior Senator from 
Nebraska, Mr. Kerrey. I acknowledge that. All of us ought to be 
grateful.

  He and Senator Grassley and others, in a bipartisan way, during the 
interim, took the many hours out of their time to canvas some of the 
more outrageous and objectionable provisions of the code, some of the 
practices that have occurred over the years, the injustices that have 
occurred. The legislation that they framed, which is the basis for 
action today, moves us a long way in the direction of reform.
  The American people ought to be very grateful to him, Senator 
Grassley, and others, for their efforts in moving this reform along the 
way.
  I yield the floor.
  Mr. ENZI address the Chair.
  The PRESIDING OFFICER. The Senator from Wyoming.
  Mr. ENZI. Mr. President, I rise this afternoon in support of this 
bill that

[[Page S4190]]

we have been addressing since noon, H.R. 2637, the Internal Revenue 
Service Restructuring and Reform Act of 1998. By passing this 
legislation, Congress will take an important step in reforming what 
many Americans believe to be the most feared agency in the United 
States.
  I want to congratulate Chairman Roth of the Finance Committee for the 
tremendous effort he made last year to begin some oversight hearings. 
We heard earlier today those may be the first oversight hearings in the 
history of the IRS, an IRS that was formed during the Civil War.
  The hearings that we heard last year were frightening, revealing, and 
to most of the American public, not surprising, unfortunately. We 
learned a lot from that process. It provided emphasis and timing to be 
able to do the reform bill that we are presently debating, a reform 
bill that will bring a little bit of a sense of security to the honest 
American taxpayer.
  Last year I had so much interest in the hearings that were going on 
that we arranged for each day's hearings to be on our web site, the web 
site for my office, each day. Those were available within 24 hours. We 
have also been taking the hearings that were just held and getting them 
posted on the web site so they would be accessible to every American in 
the United States. I think that access to that will lend more urgency 
to the work before the Senate today.
  The bill before the Senate today, and I appreciate the very detailed 
explanation that Chairman Roth gave earlier this afternoon, this bill 
will first overhaul the IRS organizational structure; secondly, it will 
provide necessary protections for American taxpayers; and third, it 
will require greater accountability from the IRS employees.
  I will talk about that in a little more depth. First, the IRS Reform 
Act will overhaul the organizational structure of the IRS. In order for 
any organization to perform its function well, it is necessary for it 
to know what that function is, to know its mission. When I was in the 
Wyoming State Legislature, I worked with a number of agencies as they 
implemented strategic plans. We passed a bill that forced each of them 
to say what they do and how we could tell if they got it done. I think 
that is key to anything in government. There is no bottom line, but 
there is a mission.
  I watched that process as they did it in the State. We heard from 
directors, from the agencies, and we heard from the employees as it got 
down to their level on what they do and how we could tell if they got 
it done. I have to say I was so pleased, there were employees that came 
forward and said, ``My job shouldn't exist. It doesn't fit with what we 
say we are doing.'' It is my earnest hope that every one of those 
people were promoted, not eliminated.

  It worked so well in our State that we were able to get our budget 
balancing process down to a record 3 weeks and then to 13 days. I was 
pretty excited when I got elected to come back to Washington. I thought 
that was one of the things that the Federal Government could do--have a 
mission process. But when I got back here, I was excited to find that 
it already existed. We have a Government Performance and Results Act. 
It requires every Federal agency to have a mission statement, to have 
goals, to define them, so that they are measurable and prioritized, and 
then to see that the goals match up with the budget so they are 
spending the money on what they said they would.
  As a result of my excitement over that act, I got copies of a number 
of agencies I was interested in to see what they said they were doing 
and how we would know if they got it done. One of those agencies was 
the IRS. Something else I did was to go on a field trip to those 
agencies and let them explain to me, through their government 
performance and results, what it was they thought they were doing. It 
was an interesting trip to the IRS. I will admit to say they were 
extremely cooperative and had a lot of insights they were willing to 
share with me on problems they have and solutions they are arriving at.
  One of the things that I asked about was when a taxpayer calls in and 
asks a question about their taxes, how do they know they can rely on 
that? I want to tell you there isn't a good answer to that. I have 
asked for written confirmation when that answer is given so you can put 
that with your tax records and then show that to the agent if you are 
audited.
  We talked about having error notices that are easier to read. I don't 
know how many people have received an error notice, but they are 
computer-generated letters, and the computer-generated letter generates 
a series of codes that might be the reason you are being audited. You 
can take those series of codes and you can look in an extremely long 
document that comes with the letter and see what the range of 
possibilities are on what may have been done wrong and what is not 
right. It is computer generated. The computer is spewing out a series 
of letters. It could at least transform those letters into the exact 
words from the text of what those possibilities are. We are suggesting 
they ought to tell you what the problem is that brought you up for an 
audit.
  There are also problems with dollar thresholds. I remember when one 
of my clients--and I am the only accountant in the U.S. Senate--one of 
my clients, on a $3 million report, was told they were off by 58 cents. 
It took 3 months and about nine letters to get that straightened out. I 
suggest that when the IRS sent that very first letter they had already 
used as much money as they had the possibility of correcting--58 cents. 
It turned out they had made a mistake in their addition--58 cents.
  Then there is the problem of random audits. The IRS has been randomly 
auditing people in extreme detail. No reason showed up for the need for 
the audit. It was to get an estimate of how many dollars they might be 
missing. Those people were required to produce more documents than if 
they had been chosen for an audit. They had to find the documents for 
every single line of their audit. What would it achieve? It would give 
us a better state of how much money is not being collected. It wouldn't 
collect a dime. We have asked for that process to be stopped, and we 
have been told it is, but you will hear numbers still brought out about 
the possibility that we are doing random audits.
  I congratulate the new Commissioner. The new Commissioner brings a 
management perspective instead of a tax perspective to an agency that 
needs some management perspective. He has already changed some of the 
phone overflow so that people who may not have as heavy a work load can 
be answering questions. He is looking at a lot of things that need to 
be done.
  I have to admit that Congress has a big task ahead of it because part 
of the problem is the Tax Code itself. It is too cumbersome, too hard 
to understand, too many provisions, too many exceptions, too many 
interpretations.
  So it is up to Congress to take a look at the Tax Code and the 
American taxpayers to demand that we take a look at that Tax Code. We 
have to decide if it is going to be a Tax Code of policy or just one of 
collecting money. So far, we say it is a tax policy. But we really 
haven't taken the step of sitting down and determining tax policy and 
what we are trying to achieve. We always jump to the solution without 
agreement on the problem. I think the voters would buy and be excited 
over a clearly defined problem. They would hope for a solution.
  We talk about the American dream. We talk about strong families. We 
talk about home ownership. We talk about health care for everyone. We 
talk about the need and importance for investment and savings. We take 
about the role that small business plays as the backbone of our economy 
and the economic hope and dream for individuals across this country. In 
the land of freedom, we hide taxes. And it gets worse. We double tax 
some people. I ask you, with the exception of home ownership, where are 
those things reflected in the Tax Code?
  Stronger families? No, we penalize marriage. We discourage parents 
from raising their own children. We only give big corporations a health 
care tax break. We don't even give the same break to individuals paying 
their portion of health care. We tax investment and interest and at an 
escalated rate, unearned income. Our current tax system discourages the 
small, the beginning businesses, particularly those beginning in the 
home, which brings us back to families. America has become

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the home of the ``tax trap,'' and the IRS gets to spring it. Let's see, 
the way the tax trap works is, the harder you work, the more taxes you 
pay. The more taxes you have to pay, the longer and harder you have to 
work. You end up with more work, and Washington ends up with more 
money. I don't think that is how our forefathers saw the system 
happening.
  We in Congress have to make filing easier, and that means less forms, 
that means less instructions, that means less chance of making a 
mistake, and that means less chance of an audit.
  When I was at the IRS on the field trip, I asked about paperwork 
simplification--a major effort by the Federal Government. We have to 
reduce the amount of paperwork Americans have to do. Well, I want to 
tell you how they told me how that is rated. The IRS generates more 
paperwork than the other agencies combined; 75 percent of all 
Government paperwork comes through the IRS.
  We had some suggestions for ways the tax forms could be a little 
easier to fill out. A couple of those required adding another line so 
that you knew how the number got from here to here. Can't do that. The 
way the Paperwork Reduction Act works is, to get any credit under 
paperwork reduction, you have to remove lines from the tax forms or any 
other Government form, regardless of whether that makes it more 
difficult or not. That will give you a little explanation why the EZ-
1040 form--the simplest form we are supposed to fill out--has a 33-page 
instruction manual. You have to be a lawyer to read the detail to 
figure out what to put on this ``simplified'' tax form. That is not 
right. But that is why we have it.
  The Paperwork Reduction Act only gives credit for taking lines off 
the form, not for building millions of pages of explanation for the 
lines that you do not understand. I thought of an ``Enzi Form 1040,'' a 
1-page form. It would still provide the auditing capability that the 
IRS would need. It can be done if we go to tax policy and if we get 
together and work on simplification.

  Now, the IRS reform bill makes some important structural changes, 
which I believe will help to focus the agency's mission. This 
legislation creates a separate board to oversee the management and 
operations of the IRS. This board would include six private life 
experts, who will bring their collective private sector experience to 
such tasks as reviewing and approving the agency's strategic plans and 
budget requests. The board would also have big picture authority over 
IRS enforcement and collection activities. Board members would not, 
however, be permitted to intervene in particular tax disputes. 
Moreover, in order to ensure the agency's autonomy from improper 
influence, these board members would be governed by conflict of 
interest restrictions. I believe this new board, which will be 
comprised largely of people with experience in the private sector, will 
help the agency better meet the needs and concerns of the agency's 
customers--the American taxpayer.
  Secondly, the IRS reform legislation provides important safeguards 
for the American taxpayers. For too long, the IRS has actively filled 
the roles of judge, jury, and executioner in collection actions against 
taxpayers. This Reform Act would shift the burden of proof from the 
taxpayer to the IRS in most court proceedings, as long as the taxpayer 
introduces credible evidence relevant to determining his or her income 
tax liability. It would also place the burden of proof on the IRS in 
determining whether penalties should be imposed. The bill expands a 
taxpayer's ability to collect attorney fees when the IRS brings 
unwarranted action against them and allows taxpayers to recover civil 
damages when an IRS employee is negligent in collection actions. 
Taxpayers may also recover attorney fees in civil actions against the 
IRS when the IRS engages in unauthorized browsing or disclosure of 
taxpayer information. It would also provide substantial relief for 
innocent spouses in collection actions based on past joint returns by 
allowing spouses to be liable only for tax attributable to their 
income.
  Many of the taxpayer provisions in the IRS Reform Act are a direct 
result of the abuses uncovered last year by the Senate Finance 
Committee hearings. Many people were shocked to learn that a number of 
the due process protections Americans take for granted in other legal 
proceedings do not apply to actions involving the IRS. The bill 
corrects many of these injustices. Once this bill becomes law, the IRS 
will be required to provide notice to taxpayers 30 days before the 
Service files a notice of a Federal tax lien. A taxpayer would then 
have 30 days to request a hearing by IRS appeals. No collection 
activity would be allowed until after the hearing. The taxpayer would 
likewise be able to petition the Tax Court to contest the appeals 
decision. Finally, the communications privilege now granted only to 
attorneys would be extended to accountants and other tax practitioners. 
This charge would provide taxpayers with the necessary confidentiality 
in communications with their tax preparers, whether or not they are 
licensed attorneys.
  I hope this reform activity will spread to some of the other 
agencies. We have people across America who are living in fear of the 
Government that they vote for, that they pay for, that is supposed to 
be working for them--people who really want to do the right thing, but 
are afraid to ask the right questions for fear that question will be 
used to penalize them, for fear that question will put them in the 
public spotlight and embarrass them. It isn't just the IRS; the 
Environmental Protection Agency is one that a number of small 
businesses live in fear of asking a question about: Is it pollution? 
How do I stop it? Can I clean it up and spend the money myself and not 
be penalized?
  OSHA is another one of those, where the small businessman lives in 
fear of asking the right question for fear it will result in a penalty 
and not an answer. Sometimes they are not even allowed to give an 
answer, but they are allowed to penalize.
  So what we are talking about in this bill is allowing the taxpayer to 
ask his accountant the right question to see if that is what he really 
owes and not have that become a road map for the IRS for future action. 
I believe these changes will help rein in many of the intimidation 
tactics used to target the unsuspecting taxpayers.
  Thirdly, and lastly, the IRS reform bill will bring and demand 
greater accountability from the more than 100,000 employees who work 
for the Internal Revenue Service.
  It requires all IRS notices and correspondence to include the name, 
phone number, and address of the IRS employee whom the taxpayer should 
contact regarding the notice. Imagine that--being able to talk to the 
person that knows the problem. Moreover, this bill requires the IRS to 
maintain complaints of any employee misconduct on an individual 
employee basis. This won't be just the IRS. Each person will have 
accountability. It will prohibit the IRS from labeling individual 
taxpayers as ``illegal tax protesters'' and maintaining lists of these 
individuals. The IRS will also have to disclose to taxpayers in simple 
terms the criteria and procedures for selecting taxpayers for audit. I 
believe this will decrease the ability of the IRS to target innocent 
taxpayers and innocent small businesses for audit.
  Mr. President, the IRS Reform Act will go a long way in reforming our 
Government's tax collection practices. By returning customer services 
and accountability to the IRS, this legislation helps ensure that the 
American taxpayers are treated with the decency and respect they 
deserve.
  Again, I want to thank the chairman for the hearings that he held to 
lend emphasis to the need for this bill and the desire to have this 
bill.
  I appreciate the bipartisan effort that has been made to get this 
bill moving through the process this week and look forward to the 
debate that we will have on it.
  I urge my colleagues to join me in supporting the IRS Restructuring 
and Reform Act of 1998.
  I thank the Chair.
  I yield the floor.
  Mr. KERREY addressed the Chair.
  The PRESIDING OFFICER. The Senator from Nebraska is recognized.
  Mr. KERREY. Mr. President, I thank my friend from Wyoming for his 
excellent statement about the need for this legislation. All of us 
involved in this over the years, including the distinguished chairman, 
hope the debate that we are having will be constructive and

[[Page S4192]]

lead to enactment and passage by this body as quickly as possible after 
conference with the House and the signature of the President for 
substantial new powers, and the reason to believe that this change in 
the law will improve the quality of service that every single American 
taxpayer gets, and cause all of us to want to make certain that this 
bill passes as quickly as possible.
  Mr. President, the legislation we begin debate on today--the Internal 
Revenue Service Reform and Restructuring Act of 1998--will touch the 
lives of every taxpaying American. The law which authorizes the federal 
agency known as the IRS to collect taxes affects more Americans than 
any other.
  Before I discuss what is in this legislation I must offer praise to 
several who have played key roles in developing the bill before us 
today. First among them is Senator Bill Roth, Chairman of the Senate's 
Finance Committee. Chairman Roth's enthusiasm for protecting American 
taxpayers who fear this agency, his desire to make certain the 
Commissioner of this agency has the statutory authority to manage it, 
and his willingness to accommodate the ideas of all members of his 
committee made it possible to produce a unanimous vote of support.
  Likewise, Senator Moynihan, our ranking member stood steadfastly with 
our Chairman to make certain our rhetorical excesses did not lead to 
changes in the law which would have the perverse effect of increasing 
the tax burden on law abiding Americans who experience no difficulty 
with the IRS. One of the most difficult judgments we have to make is to 
separate the legitimate and constructive complaint from those who 
simply do not want to pay their taxes. To paraphrase H.L. Mencken: 
``Injustice is not so difficult to bear as people say; it is justice 
that is difficult to bear.''
  In addition I want to thank Senator Richard Shelby, Chairman of the 
Treasury Postal Subcommittee of the Senate's Appropriations Committee. 
His support in 1995 for the creation of the National Commission of 
Restructuring the Internal Revenue Service--along with Congressmen Jim 
Ross Lightfoot and Steny Hoyer--was in response to the IRS having 
wasted $4 billion of taxpayers' money on a failed investment known as 
Tax Systems Modernization.
  Mr. President, I also want to praise the work done by Congressman Rob 
Portman, who was my co-chair of the National Commission.
  Congressman Portman and I became partners in this year long effort 
during which we received extensive input from American taxpayers and 
experts on the IRS and tax system, holding 12 days of public hearings 
and spending hundreds of hours in private sessions with public and 
private sector experts, academics, and citizen's groups to review IRS 
operations and services. In addition to holding three field hearings in 
Cincinnati, Omaha, and Des Moines, the Commission met privately with 
over 500 individuals, including senior level and front-line IRS 
employees across the country.
  Mr. President, let me also congratulate the men and women who served 
on the National Commission beginning with Senator Grassley and 
Congressman Ben Cardin who cosponsored the House legislation. Together, 
we worked hard to ensure this effort remained bipartisan and bicameral. 
Restructuring this agency so that taxpayer satisfaction becomes 
paramount at the new IRS by making certain this agency initiates 
contact with a taxpayer only if the agency is prepared to devote the 
resources necessary for a proper and timely resolution of the matter is 
not a partisan issue. Americans of all political persuasions are 
demanding we change this law.
  Finally, I want to extend my thanks and appreciation to Secretary of 
the Treasury Bob Rubin and President Clinton. While our early 
disagreements about governance were getting public attention, Secretary 
Rubin was making substantial changes in the operation of IRS in 
response to the National Commission's work. Most notable was the 
decision to break with precedent and nominate a person with business 
and management experience to be the IRS Commissioner, Mr. Charles 
Rossotti.
  The last time this law was changed was in 1952 in response to the 
problem of widespread fraud and allegations of bribery. This time a key 
reason for taxpayer frustration with the IRS is the lack of appropriate 
attention to taxpayer needs especially when compared with service from 
comparable private sector financial institutions. To increase customer 
service without causing a deterioration in the IRS's ability to collect 
the taxes Congress has directed the agency to collect is not as simple 
as it appears. Multiple changes are needed.
  The key areas where this legislation makes changes are in executive 
branch governance and management of the IRS, Congressional oversight of 
the IRS, personnel flexibilities, customer service and compliance, 
technology modernization, electronic filing, tax law simplification, 
taxpayer rights and financial accountability. Each add to a whole which 
I believe will be noted by taxpayers as improving the service they 
receive and reducing the abuses they report.
  As we debate this legislation remember that the IRS collects 95% of 
the tax revenue this Congress uses to pay for spending this Congress 
has authorized. Last year we appropriated $7 billion to the IRS to 
collect $1.6 billion. This represents less than half of one percent of 
total revenues and makes the U.S. Tax collection agency the most 
efficient amongst all our industrial competitors. We would not be 
debating this bill if we believed that we could not do better, but it 
is useful to understand the challenges presented to the IRS and to give 
this agency credit for the successes it has achieved.
  Mr. President, it is also useful to remember that a majority of 
Americans (including those who testified before the National 
Commission) believe that when it comes time to apportion blame, 
Congress is more at fault than the IRS. And, given our enthusiasm for 
constantly changing the tax code and inconsistent oversight, the 
American people have figured this one out right.
  The just passed Education IRA bill for K-12 expenses, would be the 
64th tax law added to the books since 1986 and will add significantly 
to the nearly $75 billion spent annually by taxpayers in an effort to 
comply with the tax code. It is also an example of how Congress passes 
tax law without considering the cost of administering this new tax law 
and its real impact on the American taxpayers it is supposed to help.
  The prospects are dizzying. I am not on the floor to argue the merits 
of this legislation, but I would like to discuss instead the facts of 
its results. This legislation allows for tax-free withdrawals from 
education accounts for room and board, uniforms, transportation 
expenses, or supplementary items or services, but only if these things 
are required or provided by the school. So this new law will not only 
require families to have a pretty sophisticated understanding of the 
law before they take their money out but will require the IRS to become 
even more invasive in their efforts to make certain that parents can 
justify their expenditures with detailed records.
  Anyone who expresses surprise that the IRS will be asking taxpayers 
to submit busfare receipts and clothing bills with their tax returns is 
not paying attention to the connection between the tax law and the 
actions of the IRS.
  And the confusion does not end there, because when the bill sunsets 
in 2002, we will have established three separate rules governing 
education savings accounts. This year, we have education savings 
accounts that can be used for higher education but not K through 12. 
Next year and through the year 2002, we have different rules which 
allow tax-free withdrawals from these accounts. After 2003, K through 
12 withdrawals could be made, but only from the contributions and 
earnings from 1999 and 2002.
  So how will the taxpayers know what they are to take out is tax free? 
How will the IRS know and how will the IRS attempt to explain these new 
rules to taxpayers, and who will understand them? Indeed, will anybody 
understand them? But that is the challenge the IRS will face. We pass a 
law; they have to write the changes in the code; they have to 
disseminate those changes to the taxpayer; and then they have to judge 
whether or not the taxpayer is abiding by the new rules and abiding by 
the new code as written, as dictated by changes in the law that we have 
just passed.

[[Page S4193]]

  There are no shortages of examples of actions taken by Congress to 
change our tax laws that result in increased burdens on the American 
taxpayers coupled--and I say it again. It isn't just an increased 
burden on the taxpayer, but every change we make in the tax law says to 
the IRS: We want you to invade even more and find out more of what the 
American people are doing before you allow this tax break to occur.
  I urge citizens, if they are in doubt--we have the bill itself. That 
is what we are debating, a change in the law--Title VI of this law, 
this bill before us today, is called Technical Corrections. Now, most 
of these technical corrections are to the Balanced Budget Act of 1997. 
And lest anybody think I am down here taking a shot at someone who 
voted for it, I voted for the Balanced Budget Act of 1997. With an 
interest in saying that we balance our budget, I voted for the bill. 
But all the provisions and technical corrections are technical 
corrections as a consequence of confusion in the law, and that 
confusion increases the burden on the taxpayer, increases their 
requirement to go to accountants to figure out what the Tax Code is, 
and increases the likelihood when there is a dispute between the IRS 
and the taxpayer, the taxpayer is going to come to us with a complaint 
about the invasive nature of the IRS.
  I urge citizens to read what is called ``Explanation of Provision'' 
in the Finance Committee report, the much smaller document that is 
available to citizens as they follow this debate, especially those who 
are staff of Members on the floor. Read the ``Explanation of 
Provision.'' You get an understanding of the difficulty that the 
American people are having and why they are right to conclude that, in 
spite of our rhetoric, we have created many of the problems they 
experience with the IRS.

  Now, Mr. President, I would like to go briefly through the provisions 
of this proposed new law to make the point that Congress has finally 
got the message from the American people. With the enactment of this 
legislation, we will make dealing with the IRS much easier than it has 
been in the past.
  The first of the four titles is the most relevant. Title I, Mr. 
President, deals with executive branch governance and management of the 
IRS. In addition to directing the IRS to revise its mission statement 
to provide greater emphasis on serving the public and meeting the needs 
of taxpayers, there are five major changes in this title that deserve 
attention.
  First, the IRS Commissioner would be directed under law to 
restructure the IRS by eliminating or substantially modifying the 
present law three-tier geographic area structure and replacing it with 
an organizational structure that features operating units serving four 
groups of taxpayers with similar needs.
  Mr. President, this three-tier structure was created in 1952, and 
what the Commissioner has proposed to do is follow the lead, the 
recommendation, of the Restructuring Commission to organize by four 
functional categories--that is to say, individual taxpayers, small 
businesses, large businesses, and the tax-exempt sector.
  Under this structure, each unit will be charged with end-to-end 
responsibility for serving a particular group of taxpayers. Today, each 
of the 33 district offices and then 10 service centers are required to 
deal with every kind of taxpayer and every type of issue. The proposed 
plan would enable IRS personnel to understand the needs and problems 
affecting and protecting groups of taxpayers and better address those 
issues.
  I am going to digress a bit and talk about an amendment that is going 
to come before this floor to knock out a provision that would have on 
the nine-member oversight board a member of the Treasury Employees 
Union or someone who represents a large number of employees. This 
provision is why there needs to be a Treasury employee representative 
on there. This will require significant personnel changes. This is not 
an easy thing for the Commissioner to do. We, I think, are quite 
correct in putting in statute that we want him to do that, that we 
direct him to either eliminate or substantially eliminate this three-
tier system. But this will require significant personnel structuring. I 
believe we need to have that representative on the inside of the tent 
when these decisions are made. It is much more likely that a 
satisfactory result will occur.
  So my colleagues will understand, both Congressman Portman and I 
support this. And support for the idea came from a number of other 
people who have gone through this, most notable of which is Australia. 
When they restructured their tax collection agency, they found lots of 
personnel issues that were surfacing, and they made the decision early 
on. They testified that it was a sound decision to put that employee 
representative on the governing board.
  Mr. WELLSTONE. Will the Senator yield?
  Mr. KERREY. Yes.
  Mr. WELLSTONE. I am in the Chamber now, and I wanted to make it clear 
to the Senator that I am learning a lot as I hear him go through the 
bill, and I hope the Senator will take his time in explaining the 
provisions. This is an important piece of legislation, and I just want 
to make that clear out of courtesy.

  Please go forward with the arguments. I am learning in the Chamber.
  Mr. KERREY. I appreciate it. I thank the Senator.
  The present-law structure impedes continuity and accountability. I 
emphasize this. This is one of the big complaints to the Restructuring 
Commission and the hearings that Senator Roth had. We heard repeatedly 
from taxpayers that they just didn't know what was going on; something 
would start and stop. They did not get continuity and accountability 
under present law.
  For example, if a taxpayer moves--let's say a taxpayer decides that 
they would rather live in Omaha, NE, than Portland, OR--a logical move, 
it seems to me. They decide they want to go from Oregon to Nebraska. 
Responsibility for the taxpayer's account would move to another 
geographical area. It would transfer to the Nebraska area. Every 
taxpayer is served by a service center in at least one district. So in 
addition to the new service area, there is a new service center. Thus, 
many taxpayers have to work with different offices on the same issue. 
Thus, again, they fail to provide the continuity. They fail to provide 
the accountability that everybody expects when they are dealing with 
any private sector organization.
  The proposed structure would eliminate many of these problems. Not 
only would this proposed structure eliminate that problem, but it is 
much more likely the Commissioner is going to be able to come to us 
with some real exciting changes. For example, by putting all small 
businesses together, I believe it is likely--every other tax 
commissioner that talked to us about this said that its likely the 
Commissioner will come and say, We have got 35, 40, maybe 50 percent of 
our small businesses that are paying no taxes but they are spending $1 
billion or so, they are spending a lot of money, complying. We can 
reduce the cost of compliance without reducing the amount of money 
coming in to us by simply exempting a significant number of people.
  Likewise, if there is a huge difference between the problems faced in 
collecting taxes from individuals, most of whom have withholding 
accounts--and 99 percent of the American people who have withholding 
comply with the Tax Code. They are the easiest to collect taxes from. 
They are just trying to figure out what the amount is so they can get 
it paid in an expeditious fashion to factor it into the family budget. 
Whereas a large business, $600,000 to $1 million or more, they have a 
complicated set of circumstances, much more labor intensive, much more 
likely to have accountants and lawyers, and so forth, working with 
them.
  What the Commissioner is proposing to do is get rid of this three-
tiered structure, and what we have done with this legislation is 
incorporate it into law.
  Let me say the chairman and I have had many disagreements about the 
timing of this thing. The Senate has made substantial improvements to 
its bill, and this is one of them. This is an area where we have 
substantially improved what the House passed by incorporating the 
recommendation of the Restructuring Commission to knock

[[Page S4194]]

out this three-tiered system and go to a functionalized system. I 
predict that for small business, large business, as well as nonprofit, 
they are going to find a big improvement in the way they get services 
from the IRS. I think we are going to find happier customers and we are 
going to find ourselves with an IRS that costs even less on a unit 
basis than it currently does.
  (Ms. COLLINS assumed the Chair.)
  Another major change made by this law, Madam President, is the 
creation of a new executive branch oversight board. This bill sets up a 
nine-member, public-private board to oversee the IRS in the 
``administration, management, conduct, direction and supervision of the 
execution and application of the internal revenue laws.'' There are 
some specific references to what is not covered in this legislation, 
what this board would not be doing. It is not expected to be 
micromanaging. It will not be given information about taxpayers' 
returns, except in unusual circumstances where they need to know. They 
are not going to be involved in procurement. They are not going to be 
involved in personnel issues. There are lots of things that are 
specifically excluded. They are going to be subject to all the 
conflict-of-interest laws that any executive branch appointment would 
be. All these things have been laid out in the legislation and are 
worth reviewing by Members who are wondering how this new oversight 
board is going to operate.
  Specifically, Madam President, the board will review and approve 
strategic plans for the IRS, review the operational functions of the 
IRS--including plans for tax administration systems modernization, 
review and approve major reorganizations and review operations of the 
IRS to ensure the proper treatment of taxpayers.
  Madam President, we tried to avoid what I think is a common mistake 
when creating boards like this, and that is to specify precisely what 
each member has to be in order to be nominated. What we did was we set 
out a half a dozen or so different areas that we think are important, 
different knowledge bases that we think are important in order for this 
board to be able to do its job, and we give the President a substantial 
amount of authority to make those decisions. We stagger the appointment 
terms so that eventually you get to a point where everybody is on a 5-
year term. They can be extended for 5 years. We stagger the Chair as 
well. I think we have created an administrative structure that will 
dramatically increase the accountability and will make it much easier 
for us in Congress to do good oversight of the IRS.
  This title I also, Madam President, establishes a 5-year term for the 
Commissioner of the IRS. That has been discussed before. We need 
increased continuity. Both the Commissioner and the Assistant Treasury 
Secretary, who has principal first line authority over the 
Commissioner, have, over the last 10 years, been on the job somewhere 
like an average of 2 or 3 years. This presents serious continuity 
problems. We establish a 5-year term for the Commissioner and we 
require the Commissioner to have demonstrated ability in management. 
This title also gives the Commissioner a great amount of flexibility in 
hiring those persons necessary to administer and enforce the Nation's 
tax laws.
  Another important part of title I is the way that this title beefs up 
and makes more independent, the taxpayer advocate. Later, if the floor 
is vacated, I may come down here, I may stand here and read the various 
provisions in this part of title I. Colleagues need to understand that 
this taxpayer advocate is going to be completely different than the 
current taxpayer advocate. The bill gives the IRS oversight board input 
into the selection of the taxpayer advocate. It limits prior and future 
employment of the advocate with the IRS, and gives the advocate broad 
discretion to provide relief with regard to taxpayers. It provides a 
problem resolution system with local taxpayer advocates who report 
directly to the national taxpayer advocate.

  Currently, we have a thing called a taxpayer advocate. We are going 
to have a national taxpayer advocate and I guarantee every single 
Member is going to find that this taxpayer advocate provides a much 
different kind of service, much more independent service than with what 
we are currently dealing. The advocate is required to report to 
Congress on a variety of compliance problems, identify those repetitive 
problems that may be there as a result of the code, may be there as a 
result of the law.
  This is a very, very powerful new position, Madam President. I thank 
Senator Breaux of Louisiana. He is the principal author of this change. 
I would put it second on the list of things that the Senate changed in 
the House bill that are substantial improvements. My guess is 
Congressman Portman and the others on the House side, Chairman Archer, 
will accept these changes. Senator Breaux made it a point to figure out 
how to better help taxpayers with a complaint about their treatment by 
the IRS. This section is a substantial improvement.
  Another improvement was made by the chairman, which establishes a 
new, independent Treasury inspector general for tax administration 
within the Department of Treasury. Currently, we have two. We have an 
inspection division in the IRS; we have an IG over Treasury. We still 
have an IG at Treasury under this new law, but we move the IG for tax 
administration over to Treasury. We leave the audit function in the 
IRS. There will be two IGs. The IG for Treasury will be responsible for 
Treasury items and the tax administration IG will be responsible for 
the IRS. It is a big improvement over the current status quo. We have 
had difficulty finding out who is responsible, going to point the 
finger back and forth as to who had the authority. This makes it clear 
who does and who does not have the authority for doing IG reports and 
investigations of the Internal Revenue Service.
  As the committee report notes, Madam President, this will give the 
IRS Office of the Chief Inspector ``sufficient structural and actual 
autonomy from the agency it is charged with monitoring and 
overseeing.'' That is the goal. It is the hope of the chairman, and 
indeed the hope of the entire committee, this provision will improve 
the quality as well as the credibility of IRS oversight.
  Madam President, in title II we deal with an arcane issue that I 
consider to be quite important, and that is the issue of electronic 
filing, where the potential for increasing efficiency and decreasing 
complaints is substantial. Indeed, I envision the IRS in this 
legislation being the first of a long line of Government agencies 
migrating from the old world of paper transactions to the new world of 
electronic commerce. Indeed, my vision also includes the law enabling 
the Commissioner to establish rules and regulations so the private 
sector has a substantial opportunity to compete for businesses from the 
customers who it is already handling. We had some very exciting 
testimony in this regard from the IRS in the National Restructuring 
Commission about what the private sector is doing already to try to 
help taxpayers reduce the cost to comply with the tax law.
  It is very important to point out that for most American taxpayers, 
if not all American taxpayers, the largest bill they pay every year is 
their tax bill. It is important for them to understand what that tax 
bill is and to get it paid for in an efficient fashion in order for 
them to do financial planning for their families.

  I hope that this electronic filing provision, by stating the goal of 
promotion of electronic filing and setting a long-range goal of 80 
percent of all tax returns by the year 2007, will make it more likely 
that taxpayers, as they migrate to this electronic field of commerce, 
will have lower costs and an easier time of complying.
  Title III is a portion that has been given a lot of attention. As I 
said at the beginning, there are lots of parts to this overall whole. 
There is no question that taxpayer rights are important. Senator 
Grassley and Senator Pryor, while he was still in the Senate, were sort 
of alternating chair and ranking members of the Subcommittee on Finance 
that dealt with a piece of legislation called the Taxpayer Bill of 
Rights I, Taxpayer Bill of Rights II. This is effectively Taxpayer Bill 
of Rights III. Also, I want to call attention to the fact that for an 
entire year, Congressman Portman, who was my cochair of this 
Commission, steadily made me a convert of the need to extend additional 
powers to taxpayers. There are lots of them in this title III.

[[Page S4195]]

  The goal of this change in the law is to reach a point where all 
taxpayers are presumed to be law-abiding citizens who just want to know 
the amount of their tax so they can pay, rather than presuming that all 
taxpayers are criminals or cheats. But the goal is also to preserve the 
important law enforcement functions of reducing the threat of drugs, 
money laundering, and fraudulent commercial transactions. None of us 
want to change the law and then find out 2 years later that we made it 
easier for drug dealers, money launderers, and commercial cheats out 
there to do business as a result of decreasing the power of the 
criminal investigation division of the IRS. We must also make certain 
that the IRS has the authority and the resources to go after those 
citizens who intentionally avoid paying taxes. We need to make certain 
the IRS has the full force of law to leverage against them.
  Madam President, there are seven provisions in title III that are 
worthy of comment at this time. First is the burden of proof. Once a 
dispute reaches Tax Court under this new law, the burden of proof in a 
civil case shifts from the taxpayer to the IRS. There are a lot of 
concerns expressed about this from the standpoint of actually 
increasing the cost to complying taxpayers. We have limited the 
opportunity for this shift. I think it is a responsible provision in 
the legislation, and I am hopeful it will be retained as is.
  Second, the bill increases the leverage of taxpayers in civil 
proceedings by expanding the authority to award costs and certain fees 
and increasing potential civil damages for collection actions.
  A lot of people on the administration side, not this administration 
but who administer tax law, were concerned about this provision. I 
think it is a terribly important provision if we are going to try to 
get to a point where, when collection notices are send out, the IRS 
knows with certainty they are going to be able to devote enough 
resources to be able to get the collection, because very often what 
happens is they send a collection notice out, start an action, and then 
they don't have enough resources, they stop, it drags on for years and 
years and years, and that is where you end up with taxpayers spending 
an enormous amount of money trying to comply with something the IRS, at 
the end of the day, finds out they didn't think was much of a case 
anyway.
  This will, I think, create a healthy amount of constraint on the IRS 
from sending collection notices out knowing there is an expanded right 
of action and expanded right, as well, to collect civil damages if 
negligence can be proved.
  Third, the bill provides significant relief for what are known as 
``innocent spouses'' and for taxpayers who are unable to manage their 
financial affairs because of disabilities.
  Fourth, the bill gives the taxpayer new protections against the 
piling on of interest and penalties.
  Fifth, title III contains protections for taxpayers subject to audit 
or collection activities.
  Sixth, this title requires better disclosures to taxpayers. One of 
the most important things we heard repetitively was that the taxpayer 
simply didn't know what the case was, didn't understand what was going 
on. This requires the IRS to make full disclosure so that the taxpayer 
can better accommodate the needs of the IRS.
  Seventh, the bill authorizes establishment of low-income taxpayer 
clinics. This is very important. There are an awful lot of Americans 
who simply don't have the resources to either hire a private sector 
individual or to do it themselves. They are confused about it. Our law 
ought to always be written so that everybody has a shot at the American 
dream, and they should not be precluded from achieving that American 
dream because they don't have enough resources to understand how the 
IRS works.
  Title IV of this legislation deals with congressional accountability. 
Most of the changes which the Senate Finance Committee has made in the 
House bill have made the legislation better. I indicated several of 
them already. However, I don't believe title IV represents an 
improvement over the House bill.
  The goal of congressional oversight must be to overcome two 
substantial barriers that the Restructuring Commission found. Barrier 
No. 1 is that the IRS has 535 members of its board of directors, many 
of whom don't know what the IRS does or what the budget is. It is easy 
to complain about what the IRS does, but the IRS gets inconsistent 
signals--we want you to go out and collect the taxes; we don't want you 
to be too aggressive; we want you to be more aggressive, less 
aggressive; Congress changes, new Members come on board with new ideas, 
and it is inconsistent oversight that comes as a consequence of all 
these kind of changes.
  The second barrier is that the Commissioner, now required to have 
management expertise, when he or she comes to Congress with their plan 
of what they want to do, they have to go to six different oversight 
committees--three in the Senate and three in the House.
  What the Commission found repeatedly--again, remember, we started 
this whole thing with Senator Shelby and I saying $4 billion wasted on 
tax system modernization is a call for action. One of the things we 
heard both from public sector and private sector people is that if you 
can't get shared consensus about where it is you want to go with 
technology--as the man said, any road is likely to take you there--you 
are apt then, as a consequence, to make mistakes.
  It is this increased activity from all the different congressional 
oversight committees that may have good intentions but also may make it 
difficult for us to achieve consensus. We recommended in our bill and 
the House-passed bill that some kind of super-oversight occur on a 
biennial basis with these consolidated committees. It may be the 
Finance Committee can simply change its internal rules. I made a 
recommendation last week in the Finance Committee. It may be there is 
some way we can deal with that. But let's not pass a bill which 
restructures the executive branch and then doesn't restructure anything 
we do. Remember, if you ask the American people who the problem is, 70 
percent say it is Congress. We write the laws and determine what kind 
of oversight IRS gets, and one of the problems is inconsistent 
oversight. My hope is we can take a look at title IV and look for ways 
to strengthen the congressional oversight.

  There is a tax complexity analysis in title IV which I consider to be 
terribly important. I cited earlier the example of the education IRA. 
There was no discussion of the impact upon the taxpayers, no discussion 
of complexity analysis, no attempt to measure whether or not the IRS is 
going to be more invasive or less invasive. There was no cost analysis 
done at all.
  The Commissioner is not at the table when the tax laws are written. 
Under this new law, the Commissioner will be empowered to comment. It 
could be the President stands up and has some new tax law idea--HOPE 
scholarships, for example. It could be ``Senator Blowhard'' giving a 
speech about some new idea that he or she has. Whoever it is who has 
some change in the Tax Code, typically it is designed to give an 
audience some sense of, we are doing something without spending any 
money. We have to be very careful that we don't, in the process of 
doing something that is earning a round of applause, do something that 
will increase the cost to the taxpayer to comply, as well, Madam 
President, as increasing the invasiveness of the IRS.
  I appreciate very much there is a tax complexity analysis and the 
Commissioner is given new authorities to comment on tax bills, but I 
believe we can go a bit further in increasing the oversight and the 
accountability of the Congress. In title VI, as I said, these are 
mostly what are called technical corrections, but it is a real window 
into this problem of tax complexity.
  I don't know what the vote was--maybe the Senator from Minnesota 
remembers--but there was a big vote on the Balanced Budget Act, with 80 
votes. I voted for it. We passed this thing, issued press releases, 
``The budget is balanced.'' Most of these technical corrections in 
title IV deal with the complexity that we created and the confusion 
that we created. It is an effort to clarify what we tried to do last 
fall.
  I want to point out that the members of the Finance Committee and the 
staff

[[Page S4196]]

of the Finance Committee, both on the majority and minority side, have 
scrubbed this section very carefully to ensure that all the provisions 
in this title are appropriate and relatively noncontroversial. We have 
not added new loopholes or some new, special provision. These are only 
technical corrections that clarify what we intended to do mostly, as I 
said, in 1997.
  In brief, these are the provisions of the bill that we are 
considering today. I no doubt will have plenty of opportunity to come 
down again and describe some further detail that is in this proposed 
law. I will end as I began, by praising the outstanding leadership and 
work of Senators Roth and Moynihan as well as the longstanding work on 
taxpayers' rights performed by Senator Grassley. With the 426-to-4 vote 
last fall by the House of Representatives and the support of President 
Clinton, we should be able to change the law and achieve our objective 
of giving the American people an IRS that is more user friendly and 
customer oriented.
  I yield the floor.
  Mr. WELLSTONE addressed the Chair.
  The PRESIDING OFFICER. The Senator from Minnesota.
  Mr. WELLSTONE. Madam President, first, I thank the Senator from 
Nebraska. He has really led the way on this issue. He is well known for 
his outspokenness as a Senator, and he has been outspoken on this 
question long before the rest of us.
  I think we will pass this bill this week. I think it will be a very 
strong, bipartisan effort. Senator Kerrey mentioned Senator Grassley 
and Senator Roth, Senator Moynihan, but on any one piece of legislation 
or any one issue, at least it is my view as a Senator, you need a 
Senator who is a catalyst, you need someone who is out there ahead of 
other people, who is willing to be very outspoken and push very hard. 
The Senator from Nebraska has done just that.


                      TAX RETURN FILING EXTENSION

  Mr. WELLSTONE. Madam President, let me just say to the authors of 
this legislation, and I thank them for their fine support, I will have 
one amendment that is terribly important to my State of Minnesota.
  Last year, we were hit by floods that had a devastating effect on our 
community. I think people all over the country know about Grand Forks 
and East Grand Forks and other communities. Last year, we said to 
people who were struggling because of what happened that we would 
extend the time for them to file their tax returns, and when they had 
to pay their taxes. We also were willing to forgive them on the 
interest they would have to pay for late filing and late payment.
  This time around, this past year, just a few months ago, we were hit 
with tornadoes that were just devastating to communities like Saint 
Peter and Le Center and a number of other different communities. I 
could list many. What we have now in the bill is the assurance from 
last year that Minnesotans who have been hit by tornadoes, communities 
that have been hit by tornadoes, can again extend the filing of their 
tax return and when they make their payments, but we don't have any 
provision that would allow them forgiveness on the interest.
  I will have an amendment that will give them forgiveness on the 
interest payment. It will be a huge help to people who have really been 
through it, colleagues. I think there will be strong support for this. 
What I will essentially say in this amendment, for the next year what 
we will do is for all citizens across the country, including 
Minnesotans who have been hit with these disasters, that they will, No. 
1, have an extension again on the filing and payment of tax; and for 
those that have been personally affected--not everyone, because the 
cost runs up--but for those personally affected, they will again be 
forgiven the interest on this payment.
  It is not a huge expenditure. We will have an offset. I say to 
colleagues it is terribly important to a lot of people in Minnesota and 
I think a lot of people around the country. I hope this amendment will 
be approved. I think other colleagues will come to the floor with 
similar amendments. We can do this together, Democrats and Republicans, 
Republicans and Democrats. I am trying to make sure we get help to 
people.
  Mr. KYL. Madam President, I rise in support of the Internal Revenue 
Service Restructuring and Reform Act. This is a much stronger and much 
more effective bill because of the time that the chairman of the 
Finance Committee, Senator Bill Roth, has taken to thoroughly 
investigate problems at the agency and identify meaningful solutions. I 
want to commend him for his work.
  The politically easy thing to do would have been to rush the original 
bill to a vote, as many on the other side tried to do on numerous 
occasions. But by taking the time to do the job right, we have a much 
better bill. For one thing, we now have far stronger provisions to 
protect innocent spouses. The legislation would ensure that innocent 
spouses are responsible only for their own tax liability.
  Madam President, it was two and a half months ago that I came before 
the Senate to discuss the plight of a constituent of mine, a woman who 
divorced in late 1995. She paid her taxes in full and on time during 
the last two years of her marriage, but her husband apparently did not. 
The IRS ultimately came after her for the taxes that her former spouse 
did not pay. It did not aggressively pursue the tax bill with him.
  After two weeks after hearing from my constituent, I sent Chairman 
Roth a letter identifying ways of improving the IRS reform bill, and on 
that short list was a recommendation to make innocent-spouse relief 
easier to obtain, and to make it available retroactively, or at least 
to all cases pending on the date of enactment of the bill.
  So obviously, I am delighted that the Finance Committee has focused 
on the issue of innocent-spouse protection and has included provisions 
that better protect my constituent and women across the country in 
similar situations.
  The Finance Committee has improved upon the bill in other ways, too. 
For example, it would suspend interest charges and penalties after one 
year if the IRS fails to notify a taxpayer of a deficiency. Without 
that provision, taxpayers can find that penalties and interest started 
accruing years before they were ever made aware that there was a 
problem with their tax returns.
  The bill would make the Taxpayer Advocate's office independent of the 
agency to ensure that it represents the taxpayers' interest, not just 
the agency's interest. It would give the IRS Commissioner the statutory 
authority he needs to restructure the agency. It would hold IRS 
employees accountable for their actions by requiring the agency to 
terminate employees who commit perjury, falsify documents, or violate 
the rules to retaliate against a taxpayer. It would make the offers-in-
compromise program more fair to taxpayers. And it would ensure due 
process in collections activities.
  These are important things--changes worth taking the time to make. We 
have got to try to get things right. Too many past attempts to rein in 
the IRS have come up short, and once Congress's attention turns to 
other things, the agency has gone back to business as usual.
  This is a good bill. It deserves an ``aye'' vote. But let us be under 
no illusion that even a good reform bill will solve the myriad problems 
that exist. Our nation's Tax Code, as currently written, amounts to 
thousands of pages of confusing, seemingly contradictory tax-law 
provisions. We need to reform the IRS, but unless that reform is 
followed up with a more fundamental overhaul of the Internal Revenue 
Code, problems with collections and enforcement are likely to persist. 
If the Tax Code cannot be deciphered, it does not matter what kind of 
personnel or process changes we make at the agency. Complexity invites 
different interpretations of the tax laws from different people, and 
that is where most of the problems at the IRS arise.
  Replacing the existing code with a simpler, fairer, flatter tax would 
facilitate compliance by taxpayers, offer fewer occasions for intrusive 
IRS investigations, and eliminate the need for special interests to 
lobby for complicated tax loopholes.
  There are a variety of approaches to fundamental reform that are 
pending before Congress: a flat-rate income tax; a national sales tax, 
the Kemp Commission's simpler single-rate tax. Each has its passionate 
advocates in Congress and around the country, and any

[[Page S4197]]

one of these options would be preferable to the existing income-tax 
system.
  So why, many people will ask, have we not been able to settle on one 
of them and act on fundamental tax reform? The answer is that, while 
there is overwhelming public consensus in favor of an overhaul of the 
Tax Code, a public consensus has yet to emerge in favor of a sales tax 
over a flat tax or some alternative. And given President Clinton's lack 
of support for fundamental tax reform, it is likely to take a public 
consensus, the likes of which we have not seen in recent years, to 
drive such a tax-overhaul plan through Congress, past the President, 
and into law.
  Steve Forbes made tax reform the central theme of his campaign for 
the presidency two years ago. He carried Arizona in the Republican 
presidential primary, in large part because his tax plan resonated 
among the people in my state. Yet he failed to win the nomination, and 
neither Bill Clinton nor Bob Dole pursued the issue with as much 
passion or conviction. And it will take a national campaign to build 
the kind of consensus that will be needed to move forward with 
fundamental tax reform, which is probably the most momentous 
undertaking of the century.
  The IRS reform bill, Finance Committee hearings about taxpayer abuse 
by the IRS, the Kemp Commission's recommendations in favor of 
fundamental tax reform, new proposals to sunset the IRS Code, and the 
debate that sponsors of the flat tax and sales tax have taken on the 
road in recent months, will all help to move the discussion forward.
  In conclusion, we can pass an IRS reform bill to try to rein in the 
IRS and make sure that it treats taxpayers fairly, reasonably, and 
respectfully. But let us not fool ourselves. The IRS cannot be faulted 
for a Tax Code that is too complex and filled with contradictory 
provisions.
  Until the Tax Code is simplified, problems in one form or another are 
likely to persist. We must use this opportunity to begin the debate 
about fundamental tax reform.
  Mr. WELLSTONE. Madam President, I ask unanimous consent to speak as 
in morning business.
  The PRESIDING OFFICER. Without objection, it is so ordered.

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