[Congressional Record Volume 144, Number 84 (Wednesday, June 24, 1998)]
[House]
[Pages H5100-H5195]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




CONFERENCE REPORT ON H.R. 2676, INTERNAL REVENUE SERVICE RESTRUCTURING 
                         AND REFORM ACT OF 1998

  Mr. ARCHER submitted the following conference report and statement on 
the bill (H.R. 2676) to amend the Internal Revenue Code of 1986 to 
restructure and reform the Internal Revenue Service, and for other 
purposes:

                  Conference Report (H. Rept. 105-599)

       The committee of conference on the disagreeing votes of the 
     two Houses on the amendment of the Senate to the bill (H.R. 
     2676) to amend the Internal Revenue Code of 1986 to 
     restructure and reform the Internal Revenue Service, and for 
     other purposes, having met, after full and free conference, 
     have agreed to recommend and do recommend to their respective 
     Houses as follows:
       That the House recede from its disagreement to the 
     amendment of the Senate, and agree to the same with an 
     amendment, as follows:
       In lieu of the matter stricken and inserted by said 
     amendment, insert:

     SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; WAIVER OF 
                   ESTIMATED TAX PENALTIES; 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) Waiver of Estimated Tax Penalties.--No addition to tax 
     shall be made under section 6654 or 6655 of the Internal 
     Revenue Code of 1986 with respect to any underpayment of an 
     installment required to be paid on or before the 30th day 
     after the date of the enactment of this Act to the extent 
     such underpayment was created or increased by any provision 
     of this Act.
       (d) Table of Contents.--The table of contents for this Act 
     is as follows:

Sec. 1. Short title; amendment of 1986 Code; waiver of estimated tax 
              penalties; 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.

[[Page H5101]]

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. Actions for refund with respect to certain estates which 
              have elected the installment method of payment.
Sec. 3105. Administrative appeal of adverse IRS determination of tax-
              exempt status of bond issue.
Sec. 3106. 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. Relief from 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 tax overpayments and 
              underpayments.
Sec. 3302. Increase in overpayment rate payable to taxpayers other than 
              corporations.
Sec. 3303. Mitigation 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.
Sec. 3309. Abatement of interest on underpayments by taxpayers in 
              Presidentially declared disaster areas.

 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. Confidentiality privileges relating to taxpayer 
              communications.
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. Notice of IRS contact of third parties.

                    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.
Sec. 3468. Prohibition on requests to taxpayers to give up rights to 
              bring actions.

                  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 disallowance.
Sec. 3506. Statements regarding installment agreements.
Sec. 3507. Notification of change in tax matters partner.
Sec. 3508. Disclosure to taxpayers.
Sec. 3509. Disclosure of Chief Counsel advice.

                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. Illegal tax protester designation.
Sec. 3708. Provision of confidential information to Congress by 
              whistleblowers.
Sec. 3709. Listing of local IRS telephone numbers and addresses.
Sec. 3710. Identification of return preparers.
Sec. 3711. Offset of past-due, legally enforceable State income tax 
              obligations against overpayments.
Sec. 3712. Reporting requirements in connection with education tax 
              credit.

                          Subtitle I--Studies

Sec. 3801. Administration of penalties and interest.
Sec. 3802. Confidentiality of tax return information.
Sec. 3803. Study of noncompliance with internal revenue laws by 
              taxpayers.
Sec. 3804. Study of payments made for detection of underpayments and 
              fraud.

TITLE IV--CONGRESSIONAL ACCOUNTABILITY FOR THE INTERNAL REVENUE SERVICE

                         Subtitle A--Oversight

Sec. 4001. Expansion of duties of the Joint Committee on Taxation.
Sec. 4002. Coordinated oversight reports.

                    Subtitle B--Century Date Change

Sec. 4011. Century date change.

                     Subtitle C--Tax Law Complexity

Sec. 4021. Role of the Internal Revenue Service.
Sec. 4022. Tax law complexity analysis.

                     TITLE V--ADDITIONAL PROVISIONS

Sec. 5001. Lower capital gains rates to apply to property held more 
              than 1 year.
Sec. 5002. Clarification of exclusion of meals for certain employees.
Sec. 5003. Clarification of designation of normal trade relations.

                    TITLE VI--TECHNICAL CORRECTIONS

Sec. 6001. Short title; coordination with other titles.
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. Amendment related to Transportation Equity Act for the 21st 
              Century.
Sec. 6018. Amendments related to Small Business Job Protection Act of 
              1996.
Sec. 6019. Amendments related to Taxpayer Bill of Rights 2.
Sec. 6020. Amendment related to Omnibus Budget Reconciliation Act of 
              1993.
Sec. 6021. Amendment related to Revenue Reconciliation Act of 1990.
Sec. 6022. Amendment related to Tax Reform Act of 1986.
Sec. 6023. Miscellaneous clerical and deadwood changes.
Sec. 6024. Effective date.

                     TITLE VII--REVENUE PROVISIONS

Sec. 7001. Clarification of deduction for deferred compensation.
Sec. 7002. Termination of exception for certain real estate investment 
              trusts from the treatment of stapled entities.
Sec. 7003. Certain customer receivables ineligible for mark-to-market 
              treatment.
Sec. 7004. Modification of AGI limit for conversions to Roth IRAs.

TITLE VIII--IDENTIFICATION OF LIMITED TAX BENEFITS SUBJECT TO LINE ITEM 
                                  VETO

Sec. 8001. Identification of limited tax benefits subject to line item 
              veto.

[[Page H5102]]

 TITLE IX--TECHNICAL CORRECTIONS TO TRANSPORTATION EQUITY ACT FOR THE 
                              21ST CENTURY

Sec. 9001. Short title.
Sec. 9002. Authorization and program subtitle.
Sec. 9003. Restorations to general provisions subtitle.
Sec. 9004. Restorations to program streamlining and flexibility 
              subtitle.
Sec. 9005. Restorations to safety subtitle.
Sec. 9006. Elimination of duplicate provisions.
Sec. 9007. Highway finance.
Sec. 9008. High priority projects technical corrections.
Sec. 9009. Federal Transit Administration programs.
Sec. 9010. Motor carrier safety technical correction.
Sec. 9011. Restorations to research title.
Sec. 9012. Automobile safety and information.
Sec. 9013. Technical corrections regarding subtitle A of title VIII.
Sec. 9014. Corrections to veterans subtitle.
Sec. 9015. Technical corrections regarding title IX.
Sec. 9016. 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 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.
       (c) Effective Date.--This section shall take effect on the 
     date of the enactment of this Act.

     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 full-time 
     Federal employee or a representative of 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.
       ``(vii) The needs and concerns of small businesses.

     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 3 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 
     subparagraph (A) or (D) of paragraph (1) 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.--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.
       ``(B) Restrictions on post-employment.--For purposes of 
     section 207(c) of title 18, United States Code, 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) Members who are special government employees.--If an 
     individual appointed under subparagraph (A) or (D) of 
     paragraph (1) is a special Government employee, the following 
     additional rules apply for purposes of chapter 11 of title 
     18, United States Code:

[[Page H5103]]

       ``(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) Waiver.--The President may, only at the time the 
     President nominates the member of the Oversight Board 
     described in paragraph (1)(D), waive for the term of the 
     member any appropriate provision of chapter 11 of title 18, 
     United States Code, to the extent such waiver is necessary to 
     allow such member to participate in the decisions of the 
     Board while continuing to serve as a full-time Federal 
     employee or a representative of employees. Any such waiver 
     shall not be effective unless a written intent of waiver to 
     exempt such member (and actual waiver language) is submitted 
     to the Senate with the nomination of such member.
       ``(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 subparagraph (A) or (D) of paragraph (1) 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 subparagraph (A) or (D) of paragraph (1) 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.
       ``(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) 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, and
       ``(C) review and approve the Commissioner's plans for any 
     major reorganization of the Internal Revenue Service.
       ``(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--
       ``(i) is described in subsection (b)(1)(A), or
       ``(ii) is described in subsection (b)(1)(D) and is not 
     otherwise a Federal officer or employee,

     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.--
       ``(A) In general.--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, to attend meetings of the Oversight Board and, with the 
     advance approval of the Chairperson of the Oversight Board, 
     while otherwise away from their homes or regular places of 
     business for purposes of duties as a member of the Oversight 
     Board.
       ``(B) Report.--The Oversight Board shall include in its 
     annual report under subsection (f)(3)(A) information with 
     respect to the travel expenses allowed for members of the 
     Oversight Board under this paragraph.
       ``(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.''.
       (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.

[[Page H5104]]

       ``(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.

     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.
       ``(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, and
       ``(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.

     If the Secretary determines not to delegate a power specified 
     in subparagraph (A) or (B), 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) Persons to whom chief counsel reports.--The Chief 
     Counsel shall report directly to the Commissioner of Internal 
     Revenue, except that--
       ``(A) the Chief Counsel shall report to both the 
     Commissioner and the General Counsel for the Department of 
     the Treasury with respect to--
       ``(i) legal advice or interpretation of the tax law not 
     relating solely to tax policy, and
       ``(ii) tax litigation, and
       ``(B) the Chief Counsel shall report to the General Counsel 
     with respect to legal advice or interpretation of the tax law 
     relating solely to tax policy.

     If there is any disagreement between the Commissioner and the 
     General Counsel with respect to any matter jointly referred 
     to them under subparagraph (A), such matter shall be 
     submitted to the Secretary or Deputy Secretary for 
     resolution.
       ``(4) Chief counsel personnel.--All personnel in the Office 
     of Chief Counsel shall report to the Chief Counsel.
       ``(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 rate of basic pay established 
     for the Senior Executive Service under section 5382 of title 
     5, United States Code, or, if the Secretary of the Treasury 
     so determines, at a rate fixed under section 9503 of such 
     title.
       ``(ii) Appointment.--The National Taxpayer Advocate shall 
     be appointed by the Secretary of the Treasury after 
     consultation with the Commissioner of Internal Revenue and 
     the Oversight Board and without regard to the provisions of 
     title 5, United States Code, relating to appointments in the 
     competitive service or the Senior Executive Service.
       ``(iii) Qualifications.--An individual appointed under 
     clause (ii) shall have--

       ``(I) a background in customer service as well as tax law, 
     and
       ``(II) experience in representing individual taxpayers.

       ``(iv) 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. 
     Service as an officer or employee of the Office of the 
     Taxpayer Advocate shall not be taken into account in applying 
     this clause.
       ``(2) Functions of office.--
       ``(A) In general.--It shall be the function of the Office 
     of the 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,

[[Page H5105]]

       ``(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.
       ``(iv) Coordination with report of treasury inspector 
     general for tax administration.--To the extent that 
     information required to be reported under clause (ii) is also 
     required to be reported under paragraph (1) or (2) of 
     subsection (d) by the Treasury Inspector General for Tax 
     Administration, the National Taxpayer Advocate shall not 
     contain such information in the report submitted under such 
     clause.
       ``(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 local taxpayer advocates and make available 
     at least 1 such 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 to the National Taxpayer Advocate or 
     delegate thereof,
       ``(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 taxpayer advocate 
     offices operate independently of any other Internal Revenue 
     Service office and report 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,
       ``(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 upon the 
     filing 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 regarding levies, and
       ``(v) restrictions under section 3707 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,
       ``(F) information regarding improper denial of requests for 
     information from the Internal Revenue Service identified 
     under paragraph (3)(A), and
       ``(G) information regarding any administrative or civil 
     actions with respect to violations of the fair debt 
     collection provisions of section 6304, including--
       ``(i) a summary of such actions initiated since the date of 
     the last report, and
       ``(ii) a summary of any judgments or awards granted as a 
     result of such actions.
       ``(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 by the Internal Revenue Service or the 
     Inspector General 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 (A) 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 a statistically valid 
     sample 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 new 
     sentence: ``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--
       ``(A) the National Taxpayer Advocate determines 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 taxpayer meets such other requirements as are set 
     forth in regulations prescribed by the Secretary.
       ``(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).

[[Page H5106]]

       (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.--Notwithstanding section 
     7803(c)(1)(B)(iv) of such Code, as added by this section, in 
     appointing the first National Taxpayer Advocate after the 
     date of the enactment of this Act, the Secretary of the 
     Treasury--
       (A) shall not appoint any individual who was an officer or 
     employee of the Internal Revenue Service at any time during 
     the 2-year period ending on the date of appointment, and
       (B) need not consult with the Internal Revenue Service 
     Oversight Board if the Oversight Board has not been 
     appointed.
       (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 such Code, as added by 
     this section, shall begin as of the date of such appointment.
       (B) Clauses (ii), (iii), and (iv) 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 new paragraph:
       ``(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 new paragraphs:
       ``(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 ``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 new paragraph:
       ``(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 new subsections:
       ``(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 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, but shall 
     not be responsible for the conducting of background checks 
     and the providing of physical security; 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 Commissioner of Internal Revenue or the 
     Internal Revenue Service Oversight Board may request, in 
     writing, the Treasury Inspector General for Tax 
     Administration to conduct an audit or investigation relating 
     to the Internal Revenue Service. If the Treasury Inspector 
     General for Tax Administration determines not to conduct such 
     audit or investigation, the Inspector General shall timely 
     provide a written explanation for such determination to the 
     person making the request.
       ``(2)(A) Any final report of an audit conducted by the 
     Treasury Inspector General for

[[Page H5107]]

     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 new clause:
       ``(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) 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 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, relocation incentives, and relocation 
              expenses.
``9505. Performance awards for senior executives.
``9506. Limited appointments to career reserved Senior Executive 
              Service positions.
``9507. Streamlined demonstration project authority.

[[Page H5108]]

``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 prior to June 1, 1998;
       ``(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, relocation incentives, 
       and relocation expenses

       ``(a) 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.
       ``(b) For a period of 10 years after the date of enactment 
     of this section, the Secretary of the Treasury may pay from 
     appropriations made to the Internal Revenue Service allowable 
     relocation expenses under section 5724a for employees 
     transferred or reemployed and allowable travel and 
     transportation expenses under section 5723 for new 
     appointees, for any new appointee appointed to a position for 
     which pay is fixed under section 9502 or 9503 after June 1, 
     1998.

     ``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.
       ``(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 shall, 
     within 1 year after the date of enactment of this section, 
     establish for 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

[[Page H5109]]

     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;
       ``(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 new items:

                       ``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

[[Page H5110]]

     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) willful 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 or taxpayer 
     representative;
       (3) with respect to a taxpayer, taxpayer representative, or 
     other employee of the Internal Revenue Service, the violation 
     of--
       (A) any right under the Constitution of the United States; 
     or
       (B) any civil right established under--
       (i) title VI or VII of the Civil Rights Act of 1964;
       (ii) title IX of the Education Amendments of 1972;
       (iii) the Age Discrimination in Employment Act of 1967;
       (iv) the Age Discrimination Act of 1975;
       (v) section 501 or 504 of the Rehabilitation Act of 1973; 
     or
       (vi) title I of the Americans with Disabilities Act of 
     1990;
       (4) falsifying or destroying documents to conceal mistakes 
     made by any employee with respect to a matter involving a 
     taxpayer or taxpayer representative;
       (5) assault or battery on a taxpayer, taxpayer 
     representative, or other employee of the Internal Revenue 
     Service, but only if there is a criminal conviction, or a 
     final judgment by a court in a civil case, with respect to 
     the assault or battery;
       (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, taxpayer representative, or other employee of the 
     Internal Revenue Service;
       (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,
       (8) willful failure to file any return of tax required 
     under the Internal Revenue Code of 1986 on or before the date 
     prescribed therefor (including any extensions), unless such 
     failure is due to reasonable cause and not to willful 
     neglect,
       (9) willful understatement of Federal tax liability, unless 
     such understatement is due to reasonable cause and not to 
     willful neglect, and
       (10) threatening to audit a taxpayer for the purpose of 
     extracting personal gain or benefit.
       (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 subsection may not be appealed in 
     any administrative or judicial proceeding.
       (d) Definition.--For purposes of the provisions described 
     in clauses (i), (ii), and (iv) of subsection (b)(3)(B), 
     references to a program or activity receiving Federal 
     financial assistance or an education program or activity 
     receiving Federal financial assistance shall include any 
     program or activity conducted by the Internal Revenue Service 
     for a taxpayer.

     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; or
       (2) to impose or suggest production quotas or goals with 
     respect to such employees.
       (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 whether or not tax enforcement results are being 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 180 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 Congress that--
       (1) paperless filing should be the preferred and most 
     convenient means of filing Federal tax and information 
     returns,
       (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, and
       (3) the Internal Revenue Service should cooperate with and 
     encourage the private sector by encouraging competition to 
     increase electronic filing of such returns.
       (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

[[Page H5111]]

     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, 
     Government Reform and Oversight, and Small Business of the 
     House of Representatives and the Committees on Finance, 
     Appropriations, Governmental Affairs, and Small Business 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);
       (3) the legislative changes necessary to assist the 
     Internal Revenue Service in meeting such goal; and
       (4) the effects on small businesses and the self-employed 
     of electronically filing tax and information returns.

     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 June 30, 1999, 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--
       ``(A) waive the requirement of a signature for, or
       ``(B) provide for alternative methods of signing or 
     subscribing,
     a particular type or class of return, declaration, statement, 
     or other document 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)(B) 
     shall be treated for all purposes (both civil and criminal, 
     including penalties for perjury) in the same manner as though 
     signed or subscribed.
       ``(3) Published guidance.--The Secretary shall publish 
     guidance as appropriate to define and implement any waiver of 
     the signature requirements or 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, 
     1999, 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) Internet Availability.--In the case of taxable periods 
     beginning after December 31, 1998, the Secretary of the 
     Treasury or the Secretary's delegate shall establish 
     procedures for all tax forms, instructions, and publications 
     created in the most recent 5-year period to be made available 
     electronically on the Internet in a searchable database at 
     approximately the same time such records are available to the 
     public in paper form. In addition, 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 for other taxpayer guidance 
     to be made available electronically on the Internet in a 
     searchable database at approximately the same time such 
     guidance is available to the public in paper form.
       (e) Procedures for Authorizing Disclosure Electronically.--
     The Secretary shall establish procedures for any taxpayer to 
     authorize, on an electronically filed return, the Secretary 
     to disclose information under section 6103(c) of the Internal 
     Revenue Code of 1986 to the preparer of the return.
       (f) 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, the 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).

     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 liability of the 
     taxpayer for any tax imposed by subtitle A or B, 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

[[Page H5112]]

     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.--
       (1) In general.--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.
       (2) Taxable periods or events after date of enactment.--In 
     any case in which there is no examination, such amendments 
     shall apply to court proceedings arising in connection with 
     taxable periods or events beginning or occurring after such 
     date of enactment.
                  Subtitle B--Proceedings by Taxpayers

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

       (a) Increase in Attorney's Fees.--
       (1) Increase in hourly amount.--Clause (iii) of section 
     7430(c)(1)(B) (relating to reasonable litigation costs) is 
     amended by striking ``$110'' and inserting ``$125''.
       (2) Award of higher attorney's fees based on complexity of 
     issues.--Clause (iii) of section 7430(c)(1)(B) (relating to 
     the award of costs and certain fees) is amended by inserting 
     ``the difficulty of the issues presented in the case, or the 
     local availability of tax expertise,'' before ``justifies a 
     higher rate''.
       (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 offered 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.--
       ``(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 disregard of any provision of this 
     title by 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; mitigation; period.--The rules of section 7433(d) 
     shall apply for purposes of this subsection.
       ``(3) Payment authority.--Claims pursuant to this section 
     shall be payable out of funds appropriated under section 1304 
     of title 31, United States Code.''.
       (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 successor provision), or any regulation 
     promulgated under such provision, such taxpayer may petition 
     the bankruptcy court to recover damages against the United 
     States.

[[Page H5113]]

       ``(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 commenced after the date of the 
     enactment of this Act.

     SEC. 3104. 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. 3105. ADMINISTRATIVE APPEAL OF ADVERSE IRS DETERMINATION 
                   OF TAX-EXEMPT STATUS OF BOND ISSUE.

       The Internal Revenue Service shall amend its administrative 
     procedures to provide that if, upon examination, the Internal 
     Revenue Service proposes to an issuer that interest on 
     previously issued obligations of such issuer is not 
     excludable from gross income under section 103(a) of the 
     Internal Revenue Code of 1986, the issuer of such obligations 
     shall have an administrative appeal of right to a senior 
     officer of the Internal Revenue Service Office of Appeals.

     SEC. 3106. 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. RELIEF FROM 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:

[[Page H5114]]

     ``SEC. 6015. RELIEF FROM JOINT AND SEVERAL LIABILITY ON JOINT 
                   RETURN.

       ``(a) In General.--Notwithstanding section 6013(d)(3)--
       ``(1) an individual who has made a joint return may elect 
     to seek relief under the procedures prescribed under 
     subsection (b), and
       ``(2) if such individual is eligible to elect the 
     application of subsection (c), such individual may, in 
     addition to any election under paragraph (1), elect to limit 
     such individual's liability for any deficiency with 
     respect to such joint return in the manner prescribed 
     under subsection (c).

     Any determination under this section shall be made without 
     regard to community property laws.
       ``(b) Procedures For Relief From Liability Applicable to 
     All Joint Filers.--
       ``(1) In general.--Under procedures prescribed by the 
     Secretary, if--
       ``(A) a joint return has been made for a taxable year,
       ``(B) on such return there is an understatement of tax 
     attributable to erroneous items of 1 individual filing the 
     joint return,
       ``(C) the other individual filing the joint return 
     establishes that in signing the return he or she did not 
     know, and had no reason to know, that there was such 
     understatement,
       ``(D) taking into account all the facts and circumstances, 
     it is inequitable to hold the other individual liable for the 
     deficiency in tax for such taxable year attributable to such 
     understatement, and
       ``(E) the other individual elects (in such form as the 
     Secretary may prescribe) the benefits of this subsection not 
     later than the date which is 2 years after the date the 
     Secretary has begun collection activities with respect to the 
     individual making the election,

     then the other individual shall be relieved of liability for 
     tax (including interest, penalties, and other amounts) for 
     such taxable year to the extent such liability is 
     attributable to such understatement.
       ``(2) Apportionment of relief.--If an individual who, but 
     for paragraph (1)(C), would be relieved of liability under 
     paragraph (1), establishes that in signing the return such 
     individual did not know, and had no reason to know, the 
     extent of such understatement, then such individual shall be 
     relieved of liability for tax (including interest, penalties, 
     and other amounts) for such taxable year to the extent that 
     such liability is attributable to the portion of such 
     understatement of which such individual did not know and had 
     no reason to know.
       ``(3) Understatement.--For purposes of this subsection, the 
     term `understatement' has the meaning given to such term by 
     section 6662(d)(2)(A).
       ``(c) Procedures To Limit Liability for Taxpayers No Longer 
     Married or Taxpayers Legally Separated or Not Living 
     Together.--
       ``(1) In general.--Except as provided in this subsection, 
     if an individual who has made a joint return for any taxable 
     year elects the application of this subsection, the 
     individual's liability for any deficiency which is assessed 
     with respect to the return shall not exceed the portion of 
     such deficiency properly allocable to the individual under 
     subsection (d).
       ``(2) Burden of proof.--Except as provided in subparagraph 
     (A)(ii) or (C) of paragraph (3), each individual who elects 
     the application of this subsection shall have the burden of 
     proof with respect to establishing the portion of any 
     deficiency allocable to such individual.
       ``(3) Election.--
       ``(A) Individuals eligible to make election.--
       ``(i) In general.--An individual shall only be eligible to 
     elect the application of this subsection if--

       ``(I) at the time such election is filed, such individual 
     is no longer married to, or is legally separated from, the 
     individual with whom such individual filed the joint return 
     to which the election relates, or
       ``(II) such individual was not a member of the same 
     household as the individual with whom such joint return was 
     filed at any time during the 12-month period ending on the 
     date such election is filed.

       ``(ii) 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 subsection 
     by either individual shall be invalid (and section 6013(d)(3) 
     shall apply to the joint return).
       ``(B) Time for election.--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.
       ``(C) Election not valid with respect to certain 
     deficiencies.--If the Secretary demonstrates that an 
     individual making an election under this subsection had 
     actual knowledge, at the time such individual signed the 
     return, of any item giving rise to a deficiency (or portion 
     thereof) which is not allocable to such individual under 
     subsection (d), such election shall not apply to such 
     deficiency (or portion). This subparagraph shall not apply 
     where the individual with actual knowledge establishes that 
     such individual signed the return under duress.
       ``(4) Liability increased by reason of transfers of 
     property to avoid tax.--
       ``(A) In general.--Notwithstanding any other provision of 
     this subsection, the portion of the deficiency for which the 
     individual electing the application of this subsection is 
     liable (without regard to this paragraph) shall be increased 
     by the value of any disqualified asset transferred to the 
     individual.
       ``(B) Disqualified asset.--For purposes of this paragraph--
       ``(i) In general.--The term `disqualified asset' means any 
     property or right to property transferred to an individual 
     making the election under this subsection 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.
       ``(ii) Presumption.--

       ``(I) In general.--For purposes of clause (i), except as 
     provided in subclause (II), any transfer which is made after 
     the date which is 1 year before 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.--Subclause (I) shall not apply to any 
     transfer pursuant to a decree of divorce or separate 
     maintenance or a written instrument incident to such a decree 
     or to any transfer which an individual establishes did not 
     have as its principal purpose the avoidance of tax or payment 
     of tax.

       ``(d) Allocation of Deficiency.--For purposes of subsection 
     (c)--
       ``(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.--Except as provided in paragraphs (4) and 
     (5), 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.
       ``(4) 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.
       ``(5) 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.
       ``(e) Petition for Review by Tax Court.--
       ``(1) In general.--In the case of an individual who elects 
     to have subsection (b) or (c) 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 
     individual. 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 individual making an 
     election under subsection (b) or (c) 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 (b) or (c) 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

[[Page H5115]]

     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 (b) or (c), 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 (b) or 
     (c) with adequate notice and an opportunity to become a party 
     to a proceeding under either such subsection.
       ``(f) Equitable Relief.--Under procedures prescribed by the 
     Secretary, if--
       ``(1) 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), and
       ``(2) relief is not available to such individual under 
     subsection (b) or (c),
     the Secretary may relieve such individual of such liability.
       ``(g) 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 (d)(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 (b) or (c) by the other 
     individual filing the joint return.''.
       (b) Equitable Relief for Individuals Not Filing Joint 
     Return.--Section 66(c) (relating to spouse relieved of 
     liability in certain other cases) is amended by adding at the 
     end the following new sentence: ``Under procedures prescribed 
     by the Secretary, if, 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 any item for which relief is not 
     available under the preceding sentence, the Secretary may 
     relieve such individual of such liability.''.
       (c) 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.
       (d) 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.
       (e) 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''.
       (f) 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:

``Sec. 6015. Relief from joint and several liability on joint 
              return.''.

       (g) 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 subsection 
     (b)(1)(E) or (c)(3)(B) of section 6015 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 the date of the enactment 
     of this Act.
       Subtitle D--Provisions Relating to Interest and Penalties

     SEC. 3301. ELIMINATION OF INTEREST RATE DIFFERENTIAL ON 
                   OVERLAPPING PERIODS OF INTEREST ON 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 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 this 
     title, 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 Dates.--
       (1) In general.--Except as provided under paragraph (2), 
     the amendments made by this section shall apply to interest 
     for periods beginning after the date of the enactment of this 
     Act.
       (2) Special rule.--The amendments made by this section 
     shall apply to interest for periods beginning before the date 
     of the enactment of this Act if the taxpayer--
       (A) reasonably identifies and establishes periods of such 
     tax overpayments and underpayments for which the zero rate 
     applies, and
       (B) not later than December 31, 1999, requests the 
     Secretary of the Treasury to apply section 6621(d) of the 
     Internal Revenue Code of 1986, as added by subsection (a), to 
     such periods.

     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 the second and succeeding 
     calendar quarters beginning after the date of the enactment 
     of this Act.

     SEC. 3303. MITIGATION 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), 
     paragraphs (2) and (3) of subsection (a) shall each be 
     applied by substituting `0.25' for `0.5' each place it 
     appears for purposes of determining the addition to tax 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 December 31, 1999.

     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, with respect to any 
     deposit of tax to be reported on such person's return for a 
     specified tax period, designate the period or periods within 
     such specified tax period to which the deposit is to be 
     applied for purposes of this section.
       ``(2) Time for making designation.--A person may make a 
     designation under paragraph (1) only during the 90-day period 
     beginning on the date of a notice that a penalty under 
     subsection (a) has been imposed for the specified tax period 
     to which the deposit relates.''.
       (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

[[Page H5116]]

       ``(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) Periods Apply to Current Liabilities Unless Designated 
     Otherwise.--Paragraph (1) of section 6656(e) (as added by 
     subsection (a) of this section) is amended to read as 
     follows:
       ``(e) Designation of Periods to Which Deposits Apply.--
       ``(1) In general.--A deposit made under this section shall 
     be applied to the most recent period or periods within the 
     specified tax period to which the deposit relates, unless the 
     person making such deposit designates a different period or 
     periods to which such deposit is to be applied.''.
       (d) Effective Date.--
       (1) In general.--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.
       (2) Application to current liabilities.--The amendment made 
     by subsection (c) shall apply to deposits required to be made 
     after December 31, 2001.

     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) Suspension.--
       ``(A) 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 to the taxpayer 
     specifically stating the taxpayer's liability and the basis 
     for the liability before the close of the 1-year period (18-
     month period in the case of taxable years beginning before 
     January 1, 2004) beginning on the later of--
       ``(i) the date on which the return is filed, or
       ``(ii) 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.
       ``(B) Separate application.--This paragraph shall be 
     applied separately with respect to each item or adjustment.
       ``(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,
       ``(C) any interest, penalty, addition to tax, or additional 
     amount with respect to any tax liability shown on the return, 
     or
       ``(D) 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 (18-month period in the case of taxable years 
     beginning before January 1, 2004) under paragraph (1), and
       ``(B) ending on the date which is 21 days after the date on 
     which notice described in paragraph (1)(A) is provided 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 
     December 31, 2000.

     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.
       (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 December 31, 2000.

     SEC. 3309. ABATEMENT OF INTEREST ON UNDERPAYMENTS BY 
                   TAXPAYERS IN PRESIDENTIALLY DECLARED DISASTER 
                   AREAS.

       (a) In General.--Section 6404 (relating to abatements), as 
     amended by section 3305, is amended by redesignating 
     subsection (h) as subsection (i) and by inserting after 
     subsection (g) the following new subsection:
       ``(h) Abatement of Interest on Underpayments by Taxpayers 
     in Presidentially Declared Disaster Areas.--
       ``(1) In general.--If the Secretary extends for any period 
     the time for filing income tax returns under section 6081 and 
     the time for paying income tax with respect to such returns 
     under section 6161 for any taxpayer located in a 
     Presidentially declared disaster area, the Secretary shall 
     abate for such period the assessment of any interest 
     prescribed under section 6601 on such income tax.
       ``(2) Presidentially declared disaster area.--For purposes 
     of paragraph (1), the term `Presidentially declared disaster 
     area' means, with respect to any taxpayer, any area which the 
     President has determined warrants assistance by the Federal 
     Government under the Disaster Relief and Emergency Assistance 
     Act.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to disasters declared after December 31, 1997, 
     with respect to taxable years beginning after December 31, 
     1997.
       (c) Emergency Designation.--
       (1) For the purposes of section 252(e) of the Balanced 
     Budget and Emergency Deficit Control Act, Congress designates 
     the provisions of this section as an emergency requirement.
       (2) The amendments made by subsections (a) and (b) of this 
     section shall only take effect upon the transmittal by the 
     President to the Congress of a message designating the 
     provisions of subsections (a) and (b) as an emergency 
     requirement pursuant to section 252(e) of the Balanced Budget 
     and Emergency Deficit Control Act.
 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 Upon 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 upon filing of notice 
              of lien.

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

       ``(a) Requirement of Notice.--
       ``(1) In general.--The Secretary shall notify in writing 
     the person described in section 6321 of the filing of a 
     notice of lien under section 6323.
       ``(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 more than 5 business days after 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 beginning on the day after the 5-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) One hearing per period.--A person shall be entitled 
     to only one hearing under this section with respect to the 
     taxable period to

[[Page H5117]]

     which the unpaid tax specified in subsection (a)(3)(A) 
     relates.
       ``(3) 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 6330. A taxpayer may waive the requirement 
     of this paragraph.
       ``(4) Coordination with section 6330.--To the extent 
     practicable, a hearing under this section shall be held in 
     conjunction with a hearing under section 6330.
       ``(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 their right to a hearing 
     under this section before such levy is made. Such notice 
     shall be required only once for the taxable period to which 
     the unpaid tax specified in paragraph (3)(A) relates.
       ``(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, return receipt 
     requested, to such person's last known address,
     not less than 30 days before the day of the first levy with 
     respect to the amount of the unpaid tax for the taxable 
     period.
       ``(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 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 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) One hearing per period.--A person shall be entitled 
     to only one hearing under this section with respect to the 
     taxable period to which the unpaid tax specified in 
     subsection (a)(3)(A) relates.
       ``(3) 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 appeals officer 
     shall at the hearing obtain verification from the Secretary 
     that the requirements of any applicable law or administrative 
     procedure have been met.
       ``(2) Issues at hearing.--
       ``(A) In general.--The person may raise at the hearing any 
     relevant issue relating to the unpaid tax or the proposed 
     levy, including--
       ``(i) appropriate spousal defenses,
       ``(ii) challenges to the appropriateness of collection 
     actions, and
       ``(iii) 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.
       ``(B) Underlying liability.--The person may also raise at 
     the hearing challenges to the existence or amount of the 
     underlying tax liability for any tax period if the person did 
     not receive any statutory notice of deficiency for such tax 
     liability or did not otherwise have an opportunity to dispute 
     such tax liability.
       ``(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 any proposed collection action balances the 
     need for the efficient collection of taxes with the 
     legitimate concern of the person that any 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 and considered at a previous 
     hearing under 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, 
     within 30 days of a determination under this section, appeal 
     such determination--
       ``(A) to the Tax Court (and the Tax Court shall have 
     jurisdiction to hear such matter), or
       ``(B) if the Tax Court does not have jurisdiction of the 
     underlying tax liability, to a district court of the United 
     States.
     If a court determines that the appeal was to an incorrect 
     court, a person shall have 30 days after the court 
     determination to file such appeal with the correct court.
       ``(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.--
       ``(1) In general.--Except as provided in paragraph (2), 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.
       ``(2) Levy upon appeal.--Paragraph (1) shall not apply to a 
     levy action while an appeal is pending if the underlying tax 
     liability is not at issue in the appeal and the court 
     determines that the Secretary has shown good cause not to 
     suspend the levy.
       ``(f) Jeopardy and State Refund Collection.--If--
       ``(1) the Secretary has made a finding under the last 
     sentence of section 6331(a) that the collection of tax is in 
     jeopardy, or
       ``(2) the Secretary has served a levy on a State to collect 
     a Federal tax liability from a State tax refund,
     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 new paragraph:
       ``(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) 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. CONFIDENTIALITY PRIVILEGES RELATING TO TAXPAYER 
                   COMMUNICATIONS.

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

     ``SEC. 7525. CONFIDENTIALITY PRIVILEGES RELATING TO TAXPAYER 
                   COMMUNICATIONS.

       ``(a) Uniform Application to Taxpayer Communications With 
     Federally Authorized Practitioners.--
       ``(1) 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.
       ``(2) Limitations.--Paragraph (1) may only be asserted in--
       ``(A) any noncriminal tax matter before the Internal 
     Revenue Service, and
       ``(B) any noncriminal tax proceeding in Federal court 
     brought by or against the United States.
       ``(3) Definitions.--For purposes of this subsection--
       ``(A) 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.

[[Page H5118]]

       ``(B) 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 
     subparagraph (A).
       ``(b) Section Not To Apply to Communications Regarding 
     Corporate Tax Shelters.--The privilege under subsection (a) 
     shall not apply to any written communication between a 
     federally authorized tax practitioner and a director, 
     shareholder, officer, or employee, agent, or representative 
     of a corporation in connection with the promotion of the 
     direct or indirect participation of such corporation in any 
     tax shelter (as defined in section 6662(d)(2)(C)(iii)).''.
       (b) Conforming Amendment.--The table of sections for such 
     chapter 77 is amended by adding at the end the following new 
     item:

``Sec. 7525. Confidentiality privileges relating to taxpayer 
              communications.''.
       (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 new section:

     ``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 tax-related 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 tax-related 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 tax-related computer software source code 
     acquired or developed by the taxpayer or a related person 
     primarily for internal use by the taxpayer or such person 
     rather than for commercial distribution,
       ``(C) any communications between the owner of the tax-
     related computer software source code and the taxpayer or 
     related persons, or
       ``(D) any tax-related computer software source code which 
     is required to be provided or made available pursuant to any 
     other provision of this title.
       ``(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,
       ``(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 
     persons to whom such information could be disclosed for tax 
     administration purposes under section 6103, or
       ``(ii) participate for 2 years in the development of 
     software which is intended for a similar purpose as the 
     software examined, and
       ``(H) the software shall be treated as return information 
     for purposes of section 6103.
     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 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).
       ``(6) Tax-related computer software source code.--The term 
     `tax-related computer software source code' means the 
     computer source code for any computer software program 
     intended for accounting, tax return preparation or 
     compliance, or tax planning.''.
       (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 new 
     subsection:
       ``(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 new subparagraph:
       ``(J) any owner or developer of a computer software source 
     code (as defined in section 7612(d)(2)).

[[Page H5119]]

     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 new 
     item:

``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 relating to, 
     the production of any portion of records made or kept on or 
     relating to, or the production of any computer software 
     source code (as defined in 7612(d)(2)) with respect to, any 
     person (other than the person summoned) who is identified in 
     the summons, then''.
       (b) Coordination With Other Authority.--Section 7609 
     (relating to special procedures for third-party summonses) is 
     amended by adding at the end the following new subsection:
       ``(j) Use of Summons Not Required.--Nothing in this section 
     shall be construed to limit the Secretary's ability to obtain 
     information, other than by summons, through formal or 
     informal procedures authorized by sections 7601 and 7602.''.
       (c) 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), 6427(j)(2), or 7612.
       ``(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.''.
       (d) 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. NOTICE OF IRS CONTACT OF THIRD PARTIES.

       (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) Notice of Contact of Third Parties.--
       ``(1) General notice.--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 in advance to the taxpayer that 
     contacts with persons other than the taxpayer may be made.
       ``(2) Notice of specific contacts.--The Secretary shall 
     periodically provide to a taxpayer a record of persons 
     contacted during such period by the Secretary with respect to 
     the determination or collection of the tax liability of such 
     taxpayer. Such record shall also be provided upon request of 
     the taxpayer.
       ``(3) Exceptions.--This subsection shall not apply--
       ``(A) to any contact which the taxpayer has authorized,
       ``(B) if the Secretary determines for good cause shown that 
     such notice would jeopardize collection of any tax or such 
     notice may involve reprisal against any person, or
       ``(C) with respect to any pending criminal 
     investigation.''.
       (b) Effective Date.--The amendments made by subsection (a) 
     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.
       (c) Effective Dates.--

[[Page H5120]]

       (1) In general.--Except as provided in paragraph (2), this 
     section shall take effect on the date of the enactment of 
     this Act.
       (2) Automated collection system actions.--In the case of 
     any action under an automated collection system, this section 
     shall apply to actions initiated after December 31, 2000.

                      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) is amended by 
     striking ``$2,500'' and inserting ``$6,250''.
       (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 ``$3,125''.
       (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) 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 release such levy as soon as practicable.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to levies imposed after December 31, 1999.

     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 Federal 
     trial 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 that a final 
     order or judgment from which an appeal may be taken is 
     entered in such proceeding.''.
       (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 distributions after December 31, 1999.

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

     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

[[Page H5121]]

     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 3433, is amended by 
     redesignating subsection (j) as subsection (k) and by 
     inserting after subsection (i) the following new subsection:
       ``(j) 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 which is to be sold under section 6335 
     until a thorough investigation of the status of such property 
     has been completed.
       ``(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--
       ``(i) any real property used as a residence by the 
     taxpayer, or
       ``(ii) any real property of the taxpayer (other than real 
     property which is rented) used by any other individual as a 
     residence.
       ``(B) Principal residences and certain business assets.--
     Except to the extent provided in subsection (e)--
       ``(i) the principal residence of the taxpayer (within the 
     meaning of section 121), and
       ``(ii) tangible personal property or real property (other 
     than real property which is rented) used in the trade or 
     business of an individual taxpayer.''.
       (b) Levy Allowed in Certain Circumstances.--Section 6334(e) 
     is amended to read as follows:
       ``(e) Levy Allowed on Principal Residences and Certain 
     Business Assets in Certain Circumstances.--
       ``(1) Principal residences.--
       ``(A) Approval required.--A principal residence shall not 
     be exempt from levy if a judge or magistrate of a district 
     court of the United States approves (in writing) the levy of 
     such residence.
       ``(B) Jurisdiction.--The district courts of the United 
     States shall have exclusive jurisdiction to approve a levy 
     under subparagraph (A).
       ``(2) Certain business assets.--Property (other than a 
     principal residence) described in subsection (a)(13)(B) shall 
     not be exempt from levy if--
       ``(A) a district director or assistant district director of 
     the Internal Revenue Service personally approves (in writing) 
     the levy of such property, or
       ``(B) the Secretary finds that the collection of tax is in 
     jeopardy.
     An official may not approve a levy under subparagraph (A) 
     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.''.
       (c) State Fish and Wildlife Permits.--
       (1) In general.--With respect to permits issued by a State 
     and required under State law for the harvest of fish or 
     wildlife in the trade or business of an individual taxpayer, 
     the term ``other assets'' as used in section 6334(e)(2) of 
     the Internal Revenue Code of 1986 shall include future income 
     which may be derived by such taxpayer from the commercial 
     sale of fish or wildlife under such permit.
       (2) Construction.--Paragraph (1) shall not be construed to 
     invalidate or in any way prejudice any assertion that the 
     privilege embodied in permits described in paragraph (1) is 
     not property or a right to property under the Internal 
     Revenue Code of 1986.
       (d) 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) 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--
       ``(A) there is an installment agreement between the 
     taxpayer and the Secretary, prior to the date which is 90 
     days after the expiration of any period for collection agreed 
     upon in writing by the Secretary and the taxpayer at the time 
     the installment agreement was entered into, or
       ``(B) 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 December 31, 1999.
       (2) Prior request.--If, in any request to extend the period 
     of limitations made on or before December 31, 1999, 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 latest of--
       (A) the last day of such 10-year period,
       (B) December 31, 2002, or
       (C) in the case of an extension in connection with an 
     installment agreement, the 90th day after the end of the 
     period of such extension.

     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 and 
     should be accepted to resolve a dispute.
       ``(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 or 
     Installment Agreement Pending or in Effect.--Section 6331 
     (relating to levy and distraint), as amended by sections 3433 
     and 3444, is amended by redesignating subsection (k) as 
     subsection (l) and by inserting after subsection (j) the 
     following new subsection:
       ``(k) No Levy While Certain Offers Pending or Installment 
     Agreement Pending or in Effect.--
       ``(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-in-compromise by such 
     person 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) Installment agreements.--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 for an 
     installment agreement under section 6159 for payment of such 
     unpaid tax is pending with the Secretary,
       ``(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),
       ``(C) during the period that such an installment agreement 
     for payment of such unpaid tax is in effect, and
       ``(D) if such agreement is terminated by the Secretary, 
     during the 30 days thereafter (and, if an appeal of such 
     termination is filed within such 30 days, during the period 
     that such appeal is pending).
       ``(3) Certain rules to apply.--Rules similar to the rules 
     of paragraphs (3), (4), and (5) of

[[Page H5122]]

     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 new subsection:
       ``(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 December 31, 1999.

     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
       (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--

[[Page H5123]]

       ``(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.

     SEC. 3468. PROHIBITION ON REQUESTS TO TAXPAYERS TO GIVE UP 
                   RIGHTS TO BRING ACTIONS.

       (a) Prohibition.--No officer or employee of the United 
     States may request a taxpayer to waive the taxpayer's right 
     to bring a civil action against the United States or any 
     officer or employee of the United States for any action taken 
     in connection with the internal revenue laws.
       (b) Exceptions.--Subsection (a) shall not apply in any case 
     where--
       (1) a taxpayer waives the right described in subsection (a) 
     knowingly and voluntarily, or
       (2) the request by the officer or employee is made in 
     person and the taxpayer's attorney or other federally 
     authorized tax practitioner (within the meaning of section 
     7525(a)(3)(A) of the Internal Revenue Code of 1986) is 
     present, or the request is made in writing to the taxpayer's 
     attorney or other representative.
                  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 relief 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, 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 DISALLOWANCE.

       (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 Disallowance.--In 
     the case of a disallowance of a claim for refund, the 
     Secretary shall provide the taxpayer with an explanation for 
     such disallowance.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to disallowances 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, beginning not later than July 1, 2000, 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 person 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.

     SEC. 3508. DISCLOSURE TO TAXPAYERS.

       The Secretary of the Treasury or the Secretary's delegate 
     shall ensure that any instructions booklet accompanying an 
     individual Federal income tax return form (including forms 
     1040, 1040A, 1040EZ, and any similar or successor forms) 
     shall include, in clear language, in conspicuous print, and 
     in a conspicuous place, a concise description of the 
     conditions under which return information may be disclosed to 
     any party outside the Internal Revenue Service, including 
     disclosure to any State or agency, body, or commission (or 
     legal representative) thereof.

     SEC. 3509. DISCLOSURE OF CHIEF COUNSEL ADVICE.

       (a) In General.--Section 6110(b)(1) (defining written 
     determination) is amended by striking ``or technical advice 
     memorandum'' and inserting ``technical advice memorandum, or 
     Chief Counsel advice''.
       (b) Chief Counsel Advice.--Section 6110 (relating to public 
     inspection of written determinations) is amended by 
     redesignating subsections (i), (j), (k), and (l) as 
     subsections (j), (k), (l), and (m), respectively, and by 
     inserting after subsection (h) the following new subsection:
       ``(i) Special Rules for Disclosure of Chief Counsel 
     Advice.--
       ``(1) Chief counsel advice defined.--
       ``(A) In general.--For purposes of this section, the term 
     `Chief Counsel advice' means written advice or instruction, 
     under whatever name or designation, prepared by any national 
     office component of the Office of Chief Counsel which--
       ``(i) is issued to field or service center employees of the 
     Service or regional or district employees of the Office of 
     Chief Counsel, and
       ``(ii) conveys--

       ``(I) any legal interpretation of a revenue provision,
       ``(II) any Internal Revenue Service or Office of Chief 
     Counsel position or policy concerning a revenue provision, or
       ``(III) any legal interpretation of State law, foreign law, 
     or other Federal law relating to the assessment or collection 
     of any liability under a revenue provision.

       ``(B) Revenue provision defined.--For purposes of 
     subparagraph (A), the term `revenue provision' means any 
     existing or former internal revenue law, regulation, revenue 
     ruling, revenue procedure, other published or unpublished 
     guidance, or tax treaty, either in general or as applied to 
     specific taxpayers or groups of specific taxpayers.
       ``(2) Additional documents treated as chief counsel 
     advice.--The Secretary may by regulation provide that this 
     section shall apply to any advice or instruction prepared and 
     issued by the Office of Chief Counsel which is not described 
     in paragraph (1).
       ``(3) Deletions for chief counsel advice.--In the case of 
     Chief Counsel advice open to public inspection pursuant to 
     this section--
       ``(A) paragraphs (2) through (7) of subsection (c) shall 
     not apply, but
       ``(B) the Secretary may make deletions of material in 
     accordance with subsections (b) and (c) of section 552 of 
     title 5, United States Code, except that in applying 
     subsection (b)(3) of such section, no statutory provision of 
     this title shall be taken into account.
       ``(4) Notice of intention to disclose.--
       ``(A) Nontaxpayer-specific chief counsel advice.--In the 
     case of Chief Counsel advice which is written without 
     reference to a specific taxpayer or group of specific 
     taxpayers--
       ``(i) subsection (f)(1) shall not apply, and
       ``(ii) the Secretary shall, within 60 days after the 
     issuance of the Chief Counsel advice, complete any deletions 
     described in subsection (c)(1) or paragraph (3) and make the 
     Chief Counsel advice, as so edited, open for public 
     inspection.
       ``(B) Taxpayer-specific chief counsel advice.--In the case 
     of Chief Counsel advice which is written with respect to a 
     specific taxpayer or group of specific taxpayers, the 
     Secretary shall, within 60 days after the issuance of the 
     Chief Counsel advice, mail the notice required by subsection 
     (f)(1) to each such taxpayer. The notice shall include a copy 
     of the Chief Counsel advice on which is indicated the 
     information that the Secretary proposes to delete pursuant to 
     subsection (c)(1). The Secretary

[[Page H5124]]

     may also delete from the copy of the text of the Chief 
     Counsel advice any of the information described in paragraph 
     (3), and shall delete the names, addresses, and other 
     identifying details of taxpayers other than the person to 
     whom the advice pertains, except that the Secretary shall not 
     delete from the copy of the Chief Counsel advice that is 
     furnished to the taxpayer any information of which that 
     taxpayer was the source.''.
       (c) Conforming Amendments.--
       (1) Section 6110(f)(1) is amended by striking ``The 
     Secretary'' and inserting ``Except as otherwise provided by 
     subsection (i), the Secretary''.
       (2) Paragraphs (1)(B) and (2) of section 6110(j)(1), as 
     redesignated by this section, are amended by striking 
     ``subsection (g)'' each place it appears and inserting 
     ``subsection (g) or (i)(4)(B)''.
       (3) Section 6110(k)(1)(B), as so redesignated, is amended 
     by striking ``subsection (c)'' and inserting ``subsection 
     (c)(1) or (i)(3)''.
       (d) Effective Dates.--
       (1) In general.--Except as otherwise provided in this 
     subsection, the amendments made by this section shall apply 
     to any Chief Counsel advice issued more than 90 days after 
     the date of the enactment of this Act.
       (2) Transition rules.--The amendments made by this section 
     shall apply to any Chief Counsel advice issued after December 
     31, 1985, and before the 91st day after the date of the 
     enactment of this Act by the offices of the associate chief 
     counsel for domestic, employee benefits and exempt 
     organizations, and international, except that any such Chief 
     Counsel advice shall be treated as made available on a timely 
     basis if such advice is made available for public inspection 
     not later than the following dates:
       (A) One year after the date of the enactment of this Act, 
     in the case of all litigation guideline memoranda, service 
     center advice, tax litigation bulletins, criminal tax 
     bulletins, and general litigation bulletins.
       (B) Eighteen months after such date of enactment, in the 
     case of field service advice and technical assistance to the 
     field issued on or after January 1, 1994.
       (C) Three years after such date of enactment, in the case 
     of field service advice and technical assistance to the field 
     issued on or after January 1, 1992, and before January 1, 
     1994.
       (D) Six years after such date of enactment, in the case of 
     any other Chief Counsel advice issued after December 31, 
     1985.
       (3) Documents treated as chief counsel advice.--If the 
     Secretary of the Treasury by regulation provides pursuant to 
     section 6110(i)(2) of the Internal Revenue Code of 1986, as 
     added by this section, that any additional advice or 
     instruction issued by the Office of Chief Counsel shall be 
     treated as Chief Counsel advice, such additional advice or 
     instruction shall be made available for public inspection 
     pursuant to section 6110 of such Code, as amended by this 
     section, only in accordance with the effective date set forth 
     in such regulation.
       (4) Chief counsel advice to be available electronically.--
     The Internal Revenue Service shall make any Chief Counsel 
     advice issued more than 90 days after the date of the 
     enactment of this Act and made available for public 
     inspection pursuant to section 6110 of such Code, as amended 
     by this section, also available by computer 
     telecommunications within 1 year after issuance.
                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 that--
       ``(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 $6,000,000 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, as amended by section 3411, is amended by adding at the 
     end the following new item:

``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, 
     not later than January 1, 2000, 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--
       (1) any manually generated correspondence received by a 
     taxpayer from the Internal Revenue Service shall include in a 
     prominent manner the name, telephone number, and unique 
     identifying number of an Internal Revenue Service employee 
     the taxpayer may contact with respect to the correspondence,
       (2) any other correspondence or notice received by a 
     taxpayer from the Internal Revenue Service shall include in a 
     prominent manner a telephone number that the taxpayer may 
     contact, and
       (3) an Internal Revenue Service employee shall give a 
     taxpayer during a telephone or personal contact the 
     employee's name and unique identifying number.
       (b) Single Contact.--The Secretary of the Treasury or the 
     Secretary's delegate shall develop a procedure under which, 
     to the extent

[[Page H5125]]

     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) Telephone Helpline in Spanish.--The Secretary of the 
     Treasury or the Secretary's delegate shall provide, in 
     appropriate circumstances, that taxpayer questions on 
     telephone helplines of the Internal Revenue Service are 
     answered in Spanish.
       (d) Other Telephone Helpline Options.--The Secretary of the 
     Treasury or the Secretary's delegate shall provide, in 
     appropriate circumstances, on telephone helplines of the 
     Internal Revenue Service an option for any taxpayer to talk 
     to an Internal Revenue Service employee during normal 
     business hours. The person shall direct phone questions of 
     the taxpayer to other Internal Revenue Service personnel who 
     can provide assistance to the taxpayer.
       (e) Effective Dates.--
       (1) In general.--Except as otherwise provided in this 
     subsection, this section shall take effect 60 days after the 
     date of the enactment of this Act.
       (2) Subsection (c).--Subsection (c) shall take effect on 
     January 1, 2000.
       (3) Subsection (d).--Subsection (d) shall take effect on 
     January 1, 2000.
       (4) Unique identifying number.--Any requirement under this 
     section to provide a unique identifying number shall take 
     effect 6 months 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. ILLEGAL TAX PROTESTER DESIGNATION.

       (a) Prohibition.--The officers and employees of the 
     Internal Revenue Service--
       (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, except 
     that the removal of any designation under subsection 
     (a)(2)(A) shall not be required to begin before January 1, 
     1999.

     SEC. 3708. PROVISION OF CONFIDENTIAL INFORMATION TO CONGRESS 
                   BY WHISTLEBLOWERS.

       (a) In General.--Section 6103(f) (relating to disclosure to 
     committees of Congress) is amended by adding at the end the 
     following new paragraph:
       ``(5) Disclosure by whistleblower.--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 committee referred to in paragraph 
     (1) or any individual authorized to receive or inspect 
     information under paragraph (4)(A) if such person believes 
     such return or return information may relate to possible 
     misconduct, maladministration, or taxpayer abuse.''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 3709. LISTING OF LOCAL IRS TELEPHONE NUMBERS AND 
                   ADDRESSES.

       The Secretary of the Treasury or the Secretary's delegate 
     shall, as soon as practicable, provide that the local 
     telephone numbers and addresses of Internal Revenue Service 
     offices located in any particular area be listed in a 
     telephone book for that area.

     SEC. 3710. 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. 3711. 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), as amended by section 3505, is 
     amended by redesignating subsections (e) through (j) as 
     subsections (f) through (k), 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 Federal return for such taxable year of the overpayment 
     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 by certified mail with return receipt 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)(i) which resulted from--
       ``(I) a judgment rendered by a court of competent 
     jurisdiction which has determined an amount of State income 
     tax to be due, or
       ``(II) a determination after an administrative hearing 
     which has determined an amount of State income tax to be due, 
     and
       ``(ii) which is no longer subject to judicial review, or
       ``(B) which resulted from a State income tax which has been 
     assessed but not collected, the time for redetermination of 
     which has expired, and which has not been delinquent for more 
     than 10 years.

     For purposes of this paragraph, the term `State income tax' 
     includes any local income 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

[[Page H5126]]

       (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, 1999.

     SEC. 3712. REPORTING REQUIREMENTS IN CONNECTION WITH 
                   EDUCATION TAX CREDIT.

       (a) Amounts to be Reported.--Subparagraph (C) of section 
     6050S(b)(2) is amended--
       (1) by redesignating clauses (ii) and (iii) as clauses 
     (iii) and (iv), respectively, and by inserting after clause 
     (i) the following new clause:
       ``(ii) the amount of any grant received by such individual 
     for payment of costs of attendance and processed by the 
     person making such return during such calendar year,'',
       (2) in clause (iii) (as so redesignated), by inserting ``by 
     the person making such return'' after ``year'', and
       (3) in clause (iv) (as so redesignated), by inserting 
     ``and'' at the end.
       (b) Conforming Amendments.--
       (1) Paragraph (2) of section 6050S(d) is amended by 
     striking ``aggregate''.
       (2) Subsection (e) of section 6050S is amended by inserting 
     ``(without regard to subsection (g)(2) thereof)'' after 
     ``section 25A''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to returns required to be filed with respect to 
     taxable years beginning after December 31, 1998.
                          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 1 year 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 18 months 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,
       (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''),
       (5) the impact on taxpayer privacy of the sharing of income 
     tax return information for purposes of enforcement of State 
     and local tax laws other than income tax laws, and including 
     the impact on the taxpayer privacy intended to be protected 
     at the Federal, State, and local levels under Public Law 105-
     35, the Taxpayer Browsing Protection Act of 1997, and
       (6) whether the public interest would be served by greater 
     disclosure of information relating to tax exempt 
     organizations described in section 501 of the Internal 
     Revenue Code of 1986.

     SEC. 3803. STUDY OF NONCOMPLIANCE WITH INTERNAL REVENUE LAWS 
                   BY TAXPAYERS.

       Not later than 1 year after the date of the enactment of 
     this Act, the Secretary of the Treasury and the Commissioner 
     of Internal Revenue shall conduct jointly a study, in 
     consultation with the Joint Committee on Taxation, of the 
     noncompliance with internal revenue laws by taxpayers 
     (including willful noncompliance and noncompliance due to tax 
     law complexity or other factors) and report the findings of 
     such study to Congress.

     SEC. 3804. STUDY OF PAYMENTS MADE FOR DETECTION OF 
                   UNDERPAYMENTS AND FRAUD.

       Not later than 1 year after the date of the enactment of 
     this Act, the Secretary of the Treasury shall conduct a study 
     and report to Congress on the use of section 7623 of the 
     Internal Revenue Code of 1986 including--
       (1) an analysis of the present use of such section and the 
     results of such use, and
       (2) any legislative or administrative recommendations 
     regarding the provisions of such section and its application.
TITLE IV--CONGRESSIONAL ACCOUNTABILITY FOR THE INTERNAL REVENUE SERVICE
                         Subtitle A--Oversight

     SEC. 4001. EXPANSION OF DUTIES OF THE JOINT COMMITTEE ON 
                   TAXATION.

       (a) In General.--Section 8021 (relating to the powers of 
     the Joint Committee on Taxation) is amended by adding at the 
     end the following new subsections:
       ``(e) Investigations.--The Joint Committee shall review all 
     requests (other than requests by the chairman or ranking 
     member of a Committee or Subcommittee) for investigations of 
     the Internal Revenue Service by the General Accounting 
     Office, and approve such requests when appropriate, with a 
     view towards eliminating overlapping investigations, ensuring 
     that the General Accounting Office has the capacity to handle 
     the investigation, and ensuring that investigations focus on 
     areas of primary importance to tax administration.
       ``(f) Relating to Joint Reviews.--
       ``(1) In general.--The Chief of Staff, and the staff of the 
     Joint Committee, shall provide such assistance as is required 
     for joint reviews described in paragraph (2).
       ``(2) Joint reviews.--Before June 1 of each calendar year 
     after 1998 and before 2004, there shall be a joint review of 
     the strategic plans and budget for the Internal Revenue 
     Service and such other matters as the Chairman of the Joint 
     Committee deems appropriate. Such joint review shall be held 
     at the call of the Chairman of the Joint Committee and shall 
     include two members of the majority and one member of the 
     minority from each of the Committees on Finance, 
     Appropriations, and Governmental Affairs of the Senate, and 
     the Committees on Ways and Means, Appropriations, and 
     Government Reform and Oversight of the House of 
     Representatives.''.
       (b) Effective Dates.--
       (1) Subsection (e) of section 8021 of the Internal Revenue 
     Code of 1986, as added by subsection (a) of this section, 
     shall apply to requests made after the date of the enactment 
     of this Act.
       (2) Subsection (f) of such section shall take effect on the 
     date of the enactment of this Act.

     SEC. 4002. COORDINATED OVERSIGHT REPORTS.

       (a) In General.--Paragraph (3) of section 8022 (relating to 
     the duties of the Joint Committee on Taxation) is amended to 
     read as follows:
       ``(3) Reports.--
       ``(A) To report, from time to time, to the Committee on 
     Finance and the Committee on Ways and Means, and, in its 
     discretion, to the Senate or House of Representatives, or 
     both, the results of its investigations, together with such 
     recommendations as it may deem advisable.
       ``(B) Subject to amounts specifically appropriated to carry 
     out this subparagraph, to report, at least once each 
     Congress, to the Committee on Finance and the Committee on 
     Ways and Means on the overall state of the Federal tax 
     system, together with recommendations with respect to 
     possible simplification proposals and other matters relating 
     to the administration of the Federal tax system as it may 
     deem advisable.
       ``(C) To report, for each calendar year after 1998 and 
     before 2004, to the Committees on Finance, Appropriations, 
     and Governmental Affairs of the Senate, and to the Committees 
     on Ways and Means, Appropriations, and Government Reform and 
     Oversight of the House of Representatives, with respect to--
       ``(i) strategic and business plans for the Internal Revenue 
     Service;
       ``(ii) progress of the Internal Revenue Service in meeting 
     its objectives;
       ``(iii) the budget for the Internal Revenue Service and 
     whether it supports its objectives;
       ``(iv) progress of the Internal Revenue Service in 
     improving taxpayer service and compliance;
       ``(v) progress of the Internal Revenue Service on 
     technology modernization; and
       ``(vi) the annual filing season.''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect on the date of the enactment of this Act.
                    Subtitle B--Century Date Change

     SEC. 4011. CENTURY DATE CHANGE.

       It is the sense of Congress that--
       (1) the Internal Revenue Service should place a high 
     priority on resolving the century date change computing 
     problems, and
       (2) the Internal Revenue Service efforts to resolve the 
     century date change computing problems should be funded fully 
     to provide for certain resolution of such problems.
                     Subtitle C--Tax Law Complexity

     SEC. 4021. ROLE OF THE INTERNAL REVENUE SERVICE.

       It is the sense of Congress that the Internal Revenue 
     Service should provide Congress with an independent view of 
     tax administration, and that during the legislative process, 
     the tax writing committees of Congress should hear from 
     front-line technical experts at the Internal Revenue Service 
     with respect to the administrability of pending amendments to 
     the Internal Revenue Code of 1986.

     SEC. 4022. TAX LAW COMPLEXITY ANALYSIS.

       (a) Commissioner Study.--
       (1) In general.--The Commissioner of Internal Revenue shall 
     conduct each year after 1998 an analysis of the sources of 
     complexity in 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.

[[Page H5127]]

       (2) Report.--The Commissioner shall not later than March 1 
     of each year report the results of the analysis conducted 
     under paragraph (1) for the preceding year to the Committee 
     on Ways and Means of the House of Representatives and the 
     Committee on Finance of the Senate. The report shall include 
     any recommendations--
       (A) for reducing the complexity of the administration of 
     Federal tax laws, and
       (B) for repeal or modification of any provision the 
     Commissioner believes adds undue and unnecessary complexity 
     to 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) Legislation subject to point of order in house of 
     representatives.--
       (A) Legislation reported by committee on ways and means.--
     Clause 2(l) of rule XI of the Rules of the House of 
     Representatives is amended by adding at the end the following 
     new subparagraph:
       ``(8) The report of the Committee on Ways and Means on any 
     bill or joint resolution containing any provision amending 
     the Internal Revenue Code of 1986 shall include a Tax 
     Complexity Analysis prepared by the Joint Committee on 
     Taxation in accordance with section 4022(b) of the Internal 
     Revenue Service Restructuring and Reform Act of 1998 unless 
     the Committee on Ways an d Means causes to have such Analysis 
     printed in the Congressional Record prior to the 
     consideration of the bill or joint resolution.''.
       (B) Conference reports.--Rule XXVIII of the Rules of the 
     House of Representatives is amended by adding at the end the 
     following new clause:
       ``7. It shall not be in order to consider the report of a 
     committee of conference which contains any provision amending 
     the Internal Revenue Code of 1986 unless--
       ``(a) the accompanying joint explanatory statement contains 
     a Tax Complexity Analysis prepared by the Joint Committee on 
     Taxation in accordance with section 4022(b) of the Internal 
     Revenue Service Restructuring and Reform Act of 1998, or
       ``(b) such Analysis is printed in the Congressional Record 
     prior to the consideration of the report.''.
       (C) Rules of house of representatives.--This paragraph is 
     enacted by the House of Representatives--
       (i) as an exercise of the rulemaking power of the House of 
     Representatives, and as such it is deemed a part of the Rules 
     of the House, and it supersedes other rules only to the 
     extent that it is inconsistent therewith; and
       (ii) with full recognition of the constitutional right of 
     the House to change its rules at any time, in the same manner 
     and to the same extent as in the case of any other rule of 
     the House.
       (4) Effective date.--This subsection shall apply to 
     legislation considered on and after January 1, 1999.
                     TITLE V--ADDITIONAL PROVISIONS

     SEC. 5001. LOWER CAPITAL GAINS RATES TO APPLY TO PROPERTY 
                   HELD MORE THAN 1 YEAR.

       (a) General Rule.--
       (1) Paragraph (5) of section 1(h) is amended to read as 
     follows:
       ``(5) 28-percent rate gain.--For purposes of this 
     subsection, the term `28-percent rate gain' means the excess 
     (if any) of--
       ``(A) the sum of--
       ``(i) collectibles gain, and
       ``(ii) section 1202 gain, over
       ``(B) the sum of--
       ``(i) collectibles loss,
       ``(ii) the net short-term capital loss, and
       ``(iii) the amount of long-term capital loss carried under 
     section 1212(b)(1)(B) to the taxable year.''.
       (2) Subparagraph (A) of section 1(h)(6) is amended by 
     striking ``18 months'' and inserting ``1 year''.
       (3) Clauses (i) and (ii) of section 1(h)(7)(A) are amended 
     to read as follows:
       ``(i) the amount of long-term capital gain (not otherwise 
     treated as ordinary income) which would be treated as 
     ordinary income if section 1250(b)(1) included all 
     depreciation and the applicable percentage under section 
     1250(a) were 100 percent, over
       ``(ii) the excess (if any) of--

       ``(I) the amount described in paragraph (5)(B), over
       ``(II) the amount described in paragraph (5)(A).''.

       (4) So much of paragraph (13) of section 1(h) as precedes 
     subparagraph (C) is amended to read as follows:
       ``(13) Special rules.--
       ``(A) Determination of 28-percent rate gain.--In applying 
     paragraph (5)--
       ``(i) the amount determined under subparagraph (A) of 
     paragraph (5) shall include long-term capital gain (not 
     otherwise described in such subparagraph)--

       ``(I) which is properly taken into account for the portion 
     of the taxable year before May 7, 1997, or
       ``(II) from property held not more than 18 months which is 
     properly taken into account for the portion of the taxable 
     year after July 28, 1997, and before January 1, 1998,

       ``(ii) the amount determined under subparagraph (B) of 
     paragraph (5) shall include long-term capital loss (not 
     otherwise described in such subparagraph)--

       ``(I) which is properly taken into account for the portion 
     of the taxable year before May 7, 1997, or
       ``(II) from property held not more than 18 months which is 
     properly taken into account for the portion of the taxable 
     year after July 28, 1997, and before January 1, 1998, and

       ``(iii) subparagraph (B) of paragraph (5) (as in effect 
     immediately before the enactment of this clause) shall apply 
     to amounts properly taken into account before January 1, 
     1998.
       ``(B) Determination of unrecaptured section 1250 gain.--The 
     amount determined under paragraph (7)(A) shall not include 
     gain--
       ``(i) which is properly taken into account for the portion 
     of the taxable year before May 7, 1997, or
       ``(ii) from property held not more than 18 months which is 
     properly taken into account for the portion of the taxable 
     year after July 28, 1997, and before January 1, 1998.''.
       (5) Paragraphs (11) and (12) of section 1223, and section 
     1235(a), are each amended by striking ``18 months'' each 
     place it appears and inserting ``1 year''.
       (b) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to taxable years 
     ending after December 31, 1997.
       (2) Subsection (a)(5).--The amendments made by subsection 
     (a)(5) shall take effect on January 1, 1998.

     SEC. 5002. CLARIFICATION OF EXCLUSION OF MEALS FOR CERTAIN 
                   EMPLOYEES.

       (a) In General.--Subsection (b) of section 119 (relating to 
     meals or lodging furnished for the convenience of the 
     employer) is amended by adding at the end the following new 
     paragraph:
       ``(4) Meals furnished to employees on business premises 
     where meals of most employees are otherwise excludable.--All 
     meals furnished on the business premises of an employer to 
     such employer's employees shall be treated as furnished for 
     the convenience of the employer if, without regard to this 
     paragraph, more than half of the employees to whom such meals 
     are furnished on such premises are furnished such meals for 
     the convenience of the employer.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to taxable years beginning before, on, or after 
     the date of the enactment of this Act.

     SEC. 5003. CLARIFICATION OF DESIGNATION OF NORMAL TRADE 
                   RELATIONS.

       (a) Findings and Policy.--
       (1) Findings.--The Congress makes the following findings:
       (A) Since the 18th century, the principle of 
     nondiscrimination among countries with which the United 
     States has trade relations, commonly referred to as ``most-
     favored-nation'' treatment, has been a cornerstone of United 
     States trade policy.
       (B) Although the principle remains firmly in place as a 
     fundamental concept in United States trade relations, the 
     term ``most-favored-nation'' is a misnomer which has led to 
     public misunderstanding.
       (C) It is neither the purpose nor the effect of the most-
     favored-nation principle to treat any country as ``most 
     favored''. To the contrary, the principle reflects the 
     intention to confer on a country the same trade benefits that 
     are conferred on any other country, that is, the intention 
     not to discriminate among trading partners.
       (D) The term ``normal trade relations'' is a more accurate 
     description of the principle of nondiscrimination as it 
     applies to the tariffs applicable generally to imports from 
     United States trading partners, that is, the general rates of 
     duty set forth in column 1 of the Harmonized Tariff Schedule 
     of the United States.
       (2) Policy.--It is the sense of the Congress that--
       (A) the language used in United States laws, treaties, 
     agreements, executive orders, directives, and regulations 
     should more clearly and accurately reflect the underlying 
     principles of United States trade policy; and
       (B) accordingly, the term ``normal trade relations'' 
     should, where appropriate, be substituted for the term 
     ``most-favored-nation''.

[[Page H5128]]

       (b) Change in Terminology.--
       (1) Trade expansion act of 1962.--The heading for section 
     251 of the Trade Expansion Act of 1962 (19 U.S.C. 1881) is 
     amended to read as follows: ``NORMAL TRADE RELATIONS''.
       (2) Trade act of 1974.--(A) Section 402 of the Trade Act of 
     1974 (19 U.S.C. 2432) is amended by striking ``(most-favored-
     nation treatment)'' each place it appears and inserting 
     ``(normal trade relations)''.
       (B) Section 601(9) of the Trade Act of 1974 (19 U.S.C. 
     2481(9)) is amended by striking ``most-favored-nation 
     treatment'' and inserting ``trade treatment based on normal 
     trade relations (known under international law as most-
     favored-nation treatment)''.
       (3) CFTA.--Section 302(a)(3)(C) of the United States Canada 
     Free-Trade Agreement Implementation Act of 1988 (19 U.S.C. 
     2112 note) is amended by striking ``the most-favored-nation 
     rate of duty'' each place it appears and inserting ``the 
     general subcolumn of the column 1 rate of duty set forth in 
     the Harmonized Tariff Schedule of the United States''.
       (4) NAFTA.--Section 202(n) of the North American Free Trade 
     Agreement Implementation Act (19 U.S.C. 3332(n)) is amended 
     by striking ``most-favored-nation''.
       (5) Uruguay round agreements act.--Section 135(a)(2) of the 
     Uruguay Round Agreements Act (19 U.S.C. 3555(a)(2)) is 
     amended by striking ``most-favored-nation'' and inserting 
     ``normal trade relations''.
       (6) SEED act.--Section 2(c)(11) of the Support for East 
     European Democracy (SEED) Act of 1989 (22 U.S.C. 5401(c)(11)) 
     is amended--
       (A) by striking ``(commonly referred to as `most favored 
     nation status')'', and
       (B) by striking ``Most favored nation trade status'' in the 
     heading and inserting ``Normal trade relations''.
       (7) United States-Hong Kong Policy Act of 1992.--Section 
     103(4) of the United States-Hong Kong Policy Act of 1992 (22 
     U.S.C. 5713(4)) is amended by striking ``(commonly referred 
     to as `most-favored-nation status')''.
       (c) Savings Provisions.--Nothing in this section shall 
     affect the meaning of any provision of law, Executive order, 
     Presidential proclamation, rule, regulation, delegation of 
     authority, other document, or treaty or other international 
     agreement of the United States relating to the principle of 
     ``most-favored-nation'' (or ``most favored nation'') 
     treatment. Any Executive order, Presidential proclamation, 
     rule, regulation, delegation of authority, other document, or 
     treaty or other international agreement of the United States 
     that has been issued, made, granted, or allowed to become 
     effective and that is in effect on the effective date of this 
     Act, or was to become effective on or after the effective 
     date of this Act, shall continue in effect according to its 
     terms until modified, terminated, superseded, set aside, or 
     revoked in accordance with law.
                    TITLE VI--TECHNICAL CORRECTIONS

     SEC. 6001. SHORT TITLE; COORDINATION WITH OTHER TITLES.

       (a) Short Title.--This title may be cited as the ``Tax 
     Technical Corrections Act of 1998''.
       (b) Coordination With Other Titles.--For purposes of 
     applying the amendments made by any title of this Act other 
     than this title, the provisions of this title shall be 
     treated as having been enacted immediately before the 
     provisions of such other titles.

     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) Amendments Related to Section 202 of 1997 Act.--
       (1) Paragraph (1) of section 221(e) of the 1986 Code is 
     amended by inserting ``by the taxpayer solely'' after 
     ``incurred'' the first place it appears.
       (2) Subsection (d) of section 221 of the 1986 Code is 
     amended by adding at the end the following new sentence: 
     ``Such 60 months shall be determined in the manner prescribed 
     by the Secretary in the case of multiple loans which are 
     refinanced by, or serviced as, a single loan and in the case 
     of loans incurred before the date of the enactment of this 
     section.''.
       (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

[[Page H5129]]

     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 
     (as so defined) 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:
       ``(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) of the 1986 Code (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)(A) Paragraph (5) of section 530(d) of the 1986 Code is 
     amended by striking the first sentence and inserting the 
     following new sentence: ``Paragraph (1) shall not apply to 
     any amount paid or distributed from an education individual 
     retirement account to the extent that the amount received is 
     paid, not later than the 60th day after the date of such 
     payment or distribution, into another education individual 
     retirement account for the benefit of the same beneficiary or 
     a member of the family (within the meaning of section 
     529(e)(2)) of such beneficiary who has not attained age 30 as 
     of such date.''.
       (B) Paragraph (6) of section 530(d) of the 1986 Code is 
     amended by inserting before the period ``and has not attained 
     age 30 as of the date of such change''.
       (9) 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''.
       (10)(A) 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 (other than a 
     contribution described in section 530(b)(2)(B)) during such 
     year to a qualified State tuition program for the benefit of 
     such beneficiary, any amount contributed to such accounts for 
     such 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 (other than rollover distributions), and
       ``(ii) the excess (if any) of the maximum amount which may 
     be contributed to the accounts for the taxable year over the 
     amount contributed to the accounts for the taxable year.''.
       (B) Paragraph (2) of section 4973(e) of the 1986 Code is 
     amended by striking subparagraph (B) and by redesignating 
     subparagraph (C) as subparagraph (B).
       (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.''.
       (4) Subsection (g) of section 1397E of the 1986 Code is 
     amended by inserting ``(determined without regard to 
     subsection (c))'' after ``section''.
       (5) Subparagraph (D) of section 42(j)(4) of the 1986 Code 
     is amended by striking ``subpart A, B, D, or G of this part'' 
     and inserting ``this chapter''.
       (6) Paragraph (4) of section 49(b) of the 1986 Code is 
     amended by striking ``subpart A, B, D, or G'' and inserting 
     ``this chapter''.
       (7) Subparagraph (C) of section 50(a)(5) of the 1986 Code 
     is amended by striking ``subpart A, B, D, or G'' and 
     inserting ``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 new subparagraph:
       ``(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

[[Page H5130]]

     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 new subparagraph:
       ``(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 
     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 new paragraph:
       ``(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

[[Page H5131]]

     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.

       ``(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

[[Page H5132]]

       ``(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) Amendments Related to Section 313 of 1997 Act.--
       (1) Subsection (a) of section 1045 of such Code is 
     amended--
       (A) by striking ``an individual'' and inserting ``a 
     taxpayer other than a corporation'', and
       (B) by striking ``such individual'' and inserting ``such 
     taxpayer''.
       (2) Subsection (b) of section 1045 of the 1986 Code is 
     amended by adding at the end the following new paragraph:
       ``(5) Certain rules to apply.--Rules similar to the rules 
     of subsections (f), (g), (h), (i), (j), and (k) of section 
     1202 shall apply.''.

     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 
     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) 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.''.
       (2) 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''.
       (C) Paragraph (2) of section 2057(e) of the 1986 Code (as 
     so redesignated) is amended by adding at the end the 
     following new flush sentence:

     ``In the case of a lease of property on a net cash basis by 
     the decedent to a member of the decedent's family, income 
     from such lease shall not be treated as personal holding 
     company income for purposes of subparagraph (C), and such 
     property shall not be treated as an asset described in 
     subparagraph (D)(ii), if such income and property would not 
     be so treated if the lessor had engaged directly in the 
     activities engaged in by the lessee with respect to such 
     property.''.
       (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 new flush sentence:

     ``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)''.

[[Page H5133]]

       (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:
       ``(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 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''.
       (b) 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.
       (c) 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)''.
       (d) 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.''.
       (e) 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 clauses 
     (i), (ii), and (iii) of 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

[[Page H5134]]

     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 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 4082(d) of the 1986 Code is 
     amended to read as follows:
       ``(1) Aviation-grade kerosene.--Subsection (a)(2) shall not 
     apply to aviation-grade kerosene (as determined under 
     regulations prescribed by the Secretary) which the Secretary 
     determines is destined for use as a fuel in an aircraft.''.
       (4) Paragraph (3) of section 4082(d) of the 1986 Code is 
     amended by striking ``a removal, entry, or sale of kerosene 
     to'' and inserting ``kerosene received by''.
       (5) 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.
       (3) Subparagraph (A) of section 901(k)(4) of the 1986 Code 
     is amended by striking ``securities business'' and inserting 
     ``business as a securities dealer''.
       (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) Amendments 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).''.
       (5) Subparagraph (A) of section 264(f)(8) of the 1986 Code 
     is amended by striking ``subsection (d)(5)(B)'' and inserting 
     ``subsection (e)(5)(B)''.
       (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)'',

[[Page H5135]]

       (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).
       (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 1142 of 1997 Act.--
       (1) Paragraph (2) of section 6038(a) of the 1986 Code is 
     amended by striking ``by regulations''.
       (2) Paragraph (3) of section 6038(a) of the 1986 Code is 
     amended by striking ``such information'' and all that follows 
     through the period and inserting ``the Secretary has 
     prescribed the furnishing of such information on or before 
     the first day of such annual accounting period.''.
       (3) Paragraph (4) of section 6038(e) of the 1986 Code is 
     amended by striking ``corporation'' and inserting ``foreign 
     business entity'' each place it appears.
       (g) 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 Code is amended 
     by inserting before the period ``or 857(b)(3)(D)''.
       (d) Amendment Related to Section 1223 of 1997 Act.--
     Subsection (c) of section 6724 of the 1986 Code is amended by 
     inserting before the period ``(more than 100 information 
     returns in the case of a partnership having more than 100 
     partners)''.
       (e) Amendment Related to Section 1226 of 1997 Act.--Section 
     1226 of the 1997 Act is amended by striking ``ending on or'' 
     and inserting ``beginning''.
       (f) 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''.
       (g) 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''.
       (h) 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 new 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) Amendments Related to Section 1421 of 1997 Act.--
       (1) Paragraph (1) of section 5054(a) of the 1986 Code is 
     amended--
       (A) by inserting ``, or imported into the United States and 
     transferred to a brewery free of tax under section 5418,'' 
     after ``produced in the United States'' in the text, and
       (B) by inserting ``; certain imported beer'' after 
     ``produced in the united states'' in the heading.
       (2) Paragraph (2) of section 5054(a) of the 1986 Code is 
     amended by inserting ``and not transferred to a brewery free 
     of tax under section 5418'' after ``United States''.
       (3) Section 5056 of the 1986 Code is amended by striking 
     ``produced in the United States'' each place it appears and 
     inserting ``removed for consumption or sale''.
       (b) Amendments Related to Section 1422 of 1997 Act.--
       (1) Paragraph (2) of section 5043(a) of the 1986 Code is 
     amended by inserting ``which are not transferred to a bonded 
     wine cellar free of tax under section 5364'' after ``foreign 
     wines''.
       (2) Subsection (a) of section 5044 of the 1986 Code is 
     amended by striking ``produced in the

[[Page H5136]]

     United States'' and inserting ``removed from a bonded wine 
     cellar''.
       (3) 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''.
       (c) 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''.
       (d) 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''.
       (e) 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 new paragraph:
       ``(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' 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. AMENDMENT RELATED TO TRANSPORTATION EQUITY ACT FOR 
                   THE 21ST CENTURY.

       (a) In General.--Subparagraph (B) of section 6427(i)(2) of 
     the 1986 Code is amended to read as follows:
       ``(B) Time for filing claim.--No claim filed under this 
     paragraph shall be allowed unless filed during the 1st 
     quarter following the last quarter included in the claim.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall take effect as if included in the amendments made by 
     section 9009 of the Transportation Equity Act for the 21st 
     Century.

     SEC. 6018. 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. 6019. 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) Disclosure to Authorized Representatives of the 
     Taxpayer.--Paragraph (6) of section 6103(e) of the 1986 Code 
     is amended by striking ``or (5)'' and inserting ``(5), (8), 
     or (9)''.
       (d) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 6020. 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. 6021. 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 to read as follows:
       ``(i) In general.--A qualifying child shall not be taken 
     into account under subsection (b) unless the taxpayer 
     includes the name, age, and TIN of the qualifying child on 
     the return of tax for the taxable year.''.
       (2) Individuals who do not include tin, etc., of any 
     qualifying child.--Paragraph (1)

[[Page H5137]]

     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. 6022. 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. 6023. 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) Subsection (o) of section 501 of the 1986 Code is 
     amended by striking ``section 1853(e)'' and inserting 
     ``section 1855(d)''.
       (8) The heading for subclause (II) of section 
     512(b)(17)(B)(ii) of the 1986 Code is amended by striking 
     ``Rule'' and inserting ``rule''.
       (9) Clause (ii) of section 543(d)(5)(A) of the 1986 Code is 
     amended by striking ``section 563(c)'' and inserting 
     ``section 563(d)''.
       (10) 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.)''.
       (11) Paragraph (2) of section 1017(a) of the 1986 Code is 
     amended by striking ``(b)(2)(D)'' and inserting 
     ``(b)(2)(E)''.
       (12) 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)''.
       (13) 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.
       (14) Paragraph (19) of section 3401(a) of the 1986 Code is 
     amended by inserting ``for'' before ``any benefit provided 
     to''.
       (15) Paragraph (21) of section 3401(a) of the 1986 Code is 
     amended by inserting ``for'' before ``any payment made''.
       (16) 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)''.
       (17) Sections 4221(c) and 4222(d) of the 1986 Code are each 
     amended by striking ``4053(a)(6)'' and inserting ``4053(6)''.
       (18)(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.''.
       (19) 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''.
       (20) Paragraph (1) of section 6039(a) of the 1986 Code is 
     amended by inserting ``to any person'' after ``transfers''.
       (21) Subparagraph (A) of section 6050R(b)(2) of the 1986 
     Code is amended by striking the semicolon at the end thereof 
     and inserting a comma.
       (22) Subparagraph (A) of section 6103(h)(4) of the 1986 
     Code is amended by inserting ``if'' before ``the taxpayer is 
     a party to''.
       (23) 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)''.
       (24)(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)''.
       (25) Paragraph (3) of section 6427(f) of the 1986 Code is 
     amended by striking ``, (e),''.
       (26)(A) Section 6427 of the 1986 Code, as amended by 
     paragraph (16), 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)''.
       (27) 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''.
       (28) The paragraph heading of paragraph (2) of section 
     7702B(e) of the 1986 Code is amended by inserting ``section'' 
     after ``Application of''.
       (29) Paragraph (3) of section 7434(b) of the 1986 Code is 
     amended by striking ``attorneys fees'' and inserting 
     ``attorneys' fees''.
       (30) Subparagraph (B) of section 7872(f)(2) of the 1986 
     Code is amended by striking ``foregone'' and inserting 
     ``forgone''.
       (31) 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).''.
       (32) The amendments made by this section shall take effect 
     on the date of the enactment of this Act.

     SEC. 6024. 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.
                     TITLE VII--REVENUE PROVISIONS

     SEC. 7001. 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 
     ratably over the 3-taxable year period beginning with such 
     first taxable year.

     SEC. 7002. 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 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 
     (including a put option, buy-sell agreement, and an agreement 
     relating to a third party default) 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.

[[Page H5138]]

       (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.--The term ''nonqualified real property 
     interest' shall not include--
       (i) any lease of a qualified real property interest if such 
     lease is not otherwise such an interest, or
       (ii) any renewal of a lease which is a qualified real 
     property interest,

     but only if the rent on any lease referred to in clause (i) 
     or any renewal referred to in clause (ii) does not exceed an 
     arm's length rate.
       (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) Exception for permitted transfers, etc.--The term 
     ``nonqualified real property interest'' shall not include any 
     interest in real property acquired solely as a result of a 
     direct or indirect contribution, distribution, or other 
     transfer of such interest from the exempt REIT or any member 
     of the stapled REIT group to such REIT or any such member, 
     but only to the extent the aggregate of the interests of the 
     exempt REIT and all stapled entities in such interest in real 
     property (determined in accordance with subsection (c)(1)) is 
     not increased by reason of the transfer.
       (5) 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.
       (6) 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 or acquired 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 an exempt 
     REIT or a member of the stapled REIT group 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.
       (5) Treatment of 60-percent partnerships.--
       (A) In general.--If, as of March 26, 1998--
       (i) an exempt REIT or stapled entity held directly or 
     indirectly at least 60 percent of the capital or profits 
     interest in a partnership, and
       (ii) 90 percent or more of the capital interests and 90 
     percent or more of the profits interests in such partnership 
     (other than interests held directly or indirectly by the 
     exempt REIT or stapled entity) are, or will be, redeemable or 
     exchangeable for consideration the amount of which is 
     determined by reference to the value of shares of stock in 
     the exempt REIT or stapled entity (or both),

     paragraph (3) shall not apply to such partnership, and such 
     REIT or entity shall be treated for all purposes of this 
     section as holding all of the capital and profits interests 
     in such partnership.
       (B) Limitation to 1 partnership.--If, as of January 1, 
     1999, more than 1 partnership owned by any exempt REIT or 
     stapled entity meets the requirements of subparagraph (A), 
     only the largest such partnership on such date (determined by 
     aggregate asset bases) shall be treated as meeting such 
     requirements.
       (C) Mirror entity.--For purposes of subparagraph (A), an 
     interest in a partnership formed after March 26, 1998, shall 
     be treated as held by an exempt REIT or stapled entity on 
     March 26, 1998, if such partnership is formed to mirror the 
     stapling of an exempt REIT and a stapled entity in connection 
     with an acquisition agreed to or announced on or before March 
     26, 1998.
       (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, and the interest payable on such obligation is not 
     changed to a rate which exceeds an arm's length rate unless 
     such change is pursuant to the terms of the obligation in 
     effect on March 26, 1998. 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) and the interest payable 
     on such refinanced obligation does not exceed an arm's length 
     rate.
       (5) Treatment of entities which are not stapled, etc. on 
     march 26, 1998.--A rule similar to the rule of subsection 
     (b)(5) 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

[[Page H5139]]

     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 capital or 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. 7003. 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.--
       ``(A) In general.--Paragraph (2)(C) shall not include any 
     nonfinancial customer paper.
       ``(B) Nonfinancial customer paper.--For purposes of 
     subparagraph (A), the term `nonfinancial customer paper' 
     means any receivable which--
       ``(i) is a note, bond, debenture, or other evidence of 
     indebtedness,
       ``(ii) arises out of the sale of nonfinancial goods or 
     services by a person the principal activity of which is the 
     selling or providing of nonfinancial goods or services, and
       ``(iii) is 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) Regulations.--Section 475(g) 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) to prevent the use by taxpayers of subsection (c)(4) 
     to avoid the application of this section to a receivable that 
     is inventory in the hands of the taxpayer (or a person who 
     bears a relationship to the taxpayer described in sections 
     267(b) of 707(b)).''.
       (c) 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. 7004. MODIFICATION OF AGI LIMIT FOR CONVERSIONS TO ROTH 
                   IRAS.

       (a) In General.--Section 408A(c)(3)(C)(i) (relating to 
     limits based on modified adjusted gross income) is amended to 
     read as follows:
       ``(i) adjusted gross income shall be determined in the same 
     manner as under section 219(g)(3), except that--

       ``(I) any amount included in gross income under subsection 
     (d)(3) shall not be taken into account, and
       ``(II) any amount included in gross income by reason of a 
     required distribution under a provision described in 
     paragraph (5) shall not be taken into account for purposes of 
     subparagraph (B)(i).''.

       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2004.
TITLE VIII--IDENTIFICATION OF LIMITED TAX BENEFITS SUBJECT TO LINE ITEM 
                                  VETO

     SEC. 8001. IDENTIFICATION OF LIMITED TAX BENEFITS SUBJECT TO 
                   LINE ITEM VETO.

       Section 1021(a)(3) of the Congressional Budget and 
     Impoundment Control Act of 1974 shall only apply to--
       (1) section 3105 (relating to administrative appeal of 
     adverse IRS determination of tax-exempt status of bond 
     issue), and
       (2) section 3445(c) (relating to State fish and wildlife 
     permits).
 TITLE IX--TECHNICAL CORRECTIONS TO TRANSPORTATION EQUITY ACT FOR THE 
                              21ST CENTURY

     SEC. 9001. SHORT TITLE.

       This title may be cited as the ``TEA 21 Restoration Act''.

     SEC. 9002. AUTHORIZATION AND PROGRAM SUBTITLE.

       (a) Authorization of Appropriations.--Section 1101(a) of 
     the Transportation Equity Act for the 21st Century is 
     amended--
       (1) in paragraph (13)--
       (A) by striking ``$1,025,695,000'' and inserting 
     ``$1,029,583,500'';
       (B) by striking ``$1,398,675,000'' and inserting 
     ``$1,403,977,500'';
       (C) by striking ``$1,678,410,000'' the first place it 
     appears and inserting ``$1,684,773,000'';
       (D) by striking ``$1,678,410,000'' the second place it 
     appears and inserting ``$1,684,773,000'';
       (E) by striking ``$1,771,655,000'' the first place it 
     appears and inserting ``$1,778,371,500''; and
       (F) by striking ``$1,771,655,000'' the second place it 
     appears and inserting ``$1,778,371,500''; and
       (2) in paragraph (14)--
       (A) by striking ``1998'' and inserting ``1999''; and
       (B) by inserting before ``$5,000,000'' the following: 
     ``$10,000,000 for fiscal year 1998''.
       (b) Obligation Limitations.--
       (1) General limitation.--Section 1102(a) of such Act is 
     amended--
       (A) in paragraph (2) by striking ``$25,431,000,000'' and 
     inserting ``$25,511,000,000'';
       (B) in paragraph (3) by striking ``$26,155,000,000'' and 
     inserting ``$26,245,000,000'';
       (C) in paragraph (4) by striking ``$26,651,000,000'' and 
     inserting ``$26,761,000,000'';
       (D) in paragraph (5) by striking ``$27,235,000,000'' and 
     inserting ``$27,355,000,000''; and
       (E) in paragraph (6) by striking ``$27,681,000,000'' and 
     inserting ``$27,811,000,000''.
       (2) Transportation research programs.--Section 1102(e) of 
     such Act is amended--
       (A) by striking ``3'' and inserting ``5'';
       (B) by striking ``VI'' and inserting ``V''; and
       (C) by inserting before the period at the end the 
     following: ``; except that obligation authority made 
     available for such programs under such limitations shall 
     remain available for a period of 3 fiscal years''.
       (3) Redistribution of certain authorized funds.--Section 
     1102(f) of such Act is amended by striking ``(other than the 
     program under section 160 of title 23, United States Code)''.
       (c) Apportionments.--Section 1103 of such Act is amended--
       (1) in subsection (l) by adding at the end the following:
       ``(5) Section 150 of such title, and the item relating to 
     such section in the analysis for chapter 1 of such title, are 
     repealed.'';
       (2) in subsection (n) by inserting ``of title 23, United 
     States Code'' after ``206''; and
       (3) by adding at the end the following:
       ``(o) Technical Adjustments.--Section 104 of title 23, 
     United States Code, is amended--
       ``(1) in subsection (a)(1) (as amended by subsection (a) of 
     this section) by striking `under section 103';
       ``(2) in subsection (b) (as amended by subsection (b) of 
     this section)--
       ``(A) in paragraph (1)(A) by striking `1999 through 2003' 
     and inserting `1998 through 2002'; and
       ``(B) in paragraph (4)(B)(i) by striking `on lanes on 
     Interstate System' and all that follows through `in each 
     State' and inserting `on Interstate System routes open to 
     traffic in each State'; and
       ``(3) in subsection (e)(2) (as added by subsection (d)(6) 
     of this section) by striking `104, 144, or 157' and inserting 
     `104, 105, or 144'.''.
       (d) Minimum Guarantee.--Section 1104 of such Act is amended 
     by adding at the end the following:
       ``(c) Technical Adjustments.--Section 105 of title 23, 
     United States Code (as amended by subsection (a) of this 
     section), is amended--
       ``(1) in subsection (a) by adding at the end the following: 
     `The minimum amount allocated to a State under this section 
     for a fiscal year shall be $1,000,000.';
       ``(2) in subsection (c)(1) by striking `50 percent of';
       ``(3) in subsection (c)(1)(A) by inserting `(other than 
     metropolitan planning, minimum guarantee, high priority 
     projects, Appalachian development highway system, and 
     recreational trails programs)' after `subsection (a)';
       ``(4) in subsection (c)(1)(B) by striking `all States' and 
     inserting `each State';
       ``(5) in subsection (c)(2)--
       ``(A) by striking `apportion' and inserting `administer'; 
     and
       ``(B) by striking `apportioned' and inserting 
     `administered'; and
       ``(6) in subsection (f)--
       ``(A) by inserting `percentage' before `return' each place 
     it appears;
       ``(B) in paragraph (2) by striking `for the preceding 
     fiscal year was equal to or less than' and inserting `in the 
     table in subsection (b) was equal to'; and
       ``(C) in paragraph (3)--
       ``(i) by inserting `proportionately' before `adjust';
       ``(ii) by striking `set forth'; and
       ``(iii) by striking `do not exceed' and inserting `is equal 
     to'.''.
       (e) Revenue Aligned Budget Authority.--Section 1105 of such 
     Act is amended by adding at the end the following:
       ``(c) Technical Corrections.--Section 110 of such title (as 
     amended by subsection (a)) is amended--
       ``(1) by striking subsection (a) and inserting the 
     following:
       `(a) In General.--
       `(1) Allocation.--On October 15 of fiscal year 2000 and 
     each fiscal year thereafter, the Secretary shall allocate for 
     such fiscal year an amount of funds equal to the amount 
     determined pursuant to section 251(b)(1)(B)(ii)(I)(cc) of the 
     Balanced Budget and Emergency Deficit Control Act of 1985 (2 
     U.S.C 901(b)(2)(B)(ii)(I)(cc)) if the amount determined 
     pursuant to such section for such fiscal year is greater than 
     zero.
       `(2) Reduction.--If the amount determined pursuant to 
     section 251(b)(1)(B)(ii)(I)(cc) of the Balanced Budget and 
     Emergency Deficit Control Act of 1985 (2 U.S.C 
     901(b)(2)(B)(ii)(I)(cc)) for fiscal year 2000 or any fiscal 
     year thereafter is less than zero, the Secretary on October 1 
     of

[[Page H5140]]

     the succeeding fiscal year shall reduce proportionately the 
     amount of sums authorized to be appropriated from the Highway 
     Trust Fund (other than the Mass Transit Account) to carry out 
     each of the Federal-aid highway and highway safety 
     construction programs (other than emergency relief) by an 
     aggregate amount equal to the amount determined pursuant to 
     such section.';
       ``(2) in subsections (b)(2) and (b)(4) by striking 
     `subsection (a)' and inserting `subsection (a)(1)'; and
       ``(3) in subsection (c) by striking `Maintenance program, 
     the' and inserting `and'.''.
       (f) Interstate Maintenance Program.--Section 1107 of such 
     Act is amended by adding at the end the following:
       ``(d) Technical Amendments.--Section 119 of such title (as 
     amended by subsection (a)) is amended--
       ``(1) in subsection (b)--
       ``(A) by striking `104(b)(5)(B)' and inserting `104(b)(4)'; 
     and
       ``(B) by striking `104(b)(5)(A)' each place it appears and 
     inserting `104(b)(5)(A) (as in effect on the date before the 
     date of enactment of the Transportation Equity Act for the 
     21st Century)'; and
       ``(2) in subsection (c) by striking `104(b)(5)(B)' each 
     place it appears and inserting `104(b)(4)'.''.
       (g) Congestion Mitigation and Air Quality Improvement 
     Program.--Section 1110(d)(2) of such Act is amended--
       (1) by striking ``149(c)'' and inserting ``149(e)''; and
       (2) by striking ``that reduce'' and inserting ``reduce''.
       (h) Highway Use Tax Evasion Projects.--Section 1114 of such 
     Act is amended by adding at the end the following:
       ``(c) Technical Adjustments.--Section 143 of title 23, 
     United States Code (as amended by subsection (a) of this 
     section), is amended--
       ``(1) in subsection (c)(1) by striking `April 1' and 
     inserting `August 1';
       ``(2) in subsection (c)(3) by inserting `priority' after 
     `Funding'; and
       ``(3) in subsection (c)(3) by inserting `and prior to 
     funding any other activity under this section,' after 
     `2003,'.''.
       (i) Federal Lands Highways Program.--Section 1115 of the 
     Transportation Equity Act for the 21st Century is amended by 
     adding at the end the following:
       ``(f) Conforming Amendments.--
       ``(1) Federal share.--Subsections (j) and (k) of section 
     120 of title 23, United States Code (as added by subsection 
     (a) of this section), are redesignated as subsections (k) and 
     (l), respectively.
       ``(2) Reservation of funds.--Section 202(d)(4)(B) of such 
     title (as added by subsection (b)(4) of this section) is 
     amended by striking `to, apply sodium acetate/formate de-icer 
     to,' and inserting `, sodium acetate/formate, or other 
     environmentally acceptable, minimally corrosive anti-icing 
     and de-icing compositions'.
       ``(3) Elimination of duplicative provision.--Section 144(g) 
     of such title is amended by striking paragraph (4).''.
       (j) Woodrow Wilson Memorial Bridge Correction.--Section 
     1116 of such Act is amended by adding at the end the 
     following:
       ``(e) Technical Correction.--Sections 404(5) and 
     407(c)(2)(C)(iii) of such Act (as amended by subsections 
     (a)(2) and (b)(2), respectively) are amended by striking `the 
     record of decision' each place it appears and inserting `a 
     record of decision'.''.
       (k) Technical Correction.--Section 1117 of such Act is 
     amended in subsections (a) and (b) by striking ``section 
     102'' each place it appears and inserting ``section 
     1101(a)(6)''.

     SEC. 9003. RESTORATIONS TO GENERAL PROVISIONS SUBTITLE.

       (a) In General.--Subtitle B of title I of the 
     Transportation Equity Act for the 21st Century is amended by 
     adding at the end the following:

     ``SEC. 1224. NATIONAL HISTORIC COVERED BRIDGE PRESERVATION.

       ``(a) Historic Covered Bridge Defined.--In this section, 
     the term `historic covered bridge' means a covered bridge 
     that is listed or eligible for listing on the National 
     Register of Historic Places.
       ``(b) Historic Covered Bridge Preservation.--Subject to the 
     availability of appropriations under subsection (d), the 
     Secretary shall--
       ``(1) collect and disseminate information concerning 
     historic covered bridges;
       ``(2) foster educational programs relating to the history 
     and construction techniques of historic covered bridges;
       ``(3) conduct research on the history of historic covered 
     bridges; and
       ``(4) conduct research, and study techniques, on protecting 
     historic covered bridges from rot, fire, natural disasters, 
     or weight-related damage.
       ``(c) Direct Federal Assistance.--
       ``(1) In general.--Subject to the availability of 
     appropriations, the Secretary shall make a grant to a State 
     that submits an application to the Secretary that 
     demonstrates a need for assistance in carrying out 1 or more 
     historic covered bridge projects described in paragraph (2).
       ``(2) Types of project.--A grant under paragraph (1) may be 
     made for a project--
       ``(A) to rehabilitate or repair a historic covered bridge; 
     and
       ``(B) to preserve a historic covered bridge, including 
     through--
       ``(i) installation of a fire protection system, including a 
     fireproofing or fire detection system and sprinklers;
       ``(ii) installation of a system to prevent vandalism and 
     arson; or
       ``(iii) relocation of a bridge to a preservation site.
       ``(3) Authenticity.--A grant under paragraph (1) may be 
     made for a project only if--
       ``(A) to the maximum extent practicable, the project--
       ``(i) is carried out in the most historically appropriate 
     manner; and
       ``(ii) preserves the existing structure of the historic 
     covered bridge; and
       ``(B) the project provides for the replacement of wooden 
     components with wooden components, unless the use of wood is 
     impracticable for safety reasons.
       ``(4) Federal share.--The Federal share of the cost of a 
     project carried out with a grant under this subsection shall 
     be 80 percent.
       ``(d) Funding.--There is authorized to be appropriated to 
     carry out this section $10,000,000 for each of fiscal years 
     1999 through 2003. Such funds shall remain available until 
     expended.

     ``SEC. 1225. SUBSTITUTE PROJECT.

       ``(a) Approval of Project.--Notwithstanding any other 
     provision of law, upon the request of the Mayor of the 
     District of Columbia, the Secretary may approve substitute 
     highway and transit projects under section 103(e)(4) of title 
     23, United States Code (as in effect on the day before the 
     date of enactment of this Act), in lieu of construction of 
     the Barney Circle Freeway project in the District of 
     Columbia, as identified in the 1991 Interstate Cost Estimate.
       ``(b) Eligibility for Federal Assistance.--Upon approval of 
     any substitute project or projects under subsection (a)--
       ``(1) the cost of construction of the Barney Circle Freeway 
     Modification project shall not be eligible for funds 
     authorized under section 108(b) of the Federal-Aid Highway 
     Act of 1956; and
       ``(2) substitute projects approved pursuant to this section 
     shall be funded from interstate construction funds 
     apportioned or allocated to the District of Columbia that are 
     not expended and not subject to lapse on the date of 
     enactment of this Act.
       ``(c) Federal Share.--The Federal share payable on account 
     of a project or activity approved under this section shall be 
     85 percent of the cost thereof; except that the exception set 
     forth in section 120(b)(2) of title 23, United States Code, 
     shall apply.
       ``(d) Limitation on Eligibility.--Any substitute project 
     approved pursuant to subsection (a) (for which the Secretary 
     finds that sufficient Federal funds are available) must be 
     under contract for construction, or construction must have 
     commenced, before the last day of the 4-year period beginning 
     on the date of enactment of this Act. If the substitute 
     project is not under contract for construction, or 
     construction has not commenced, by such last day, the 
     Secretary shall withdraw approval of the substitute project.

     ``SEC. 1226. FISCAL, ADMINISTRATIVE, AND OTHER AMENDMENTS.

       ``(a) Advanced Construction.--Section 115 of title 23, 
     United States Code, is amended--
       ``(1) in subsection (b)--
       ``(A) by moving the text of paragraph (1) (including 
     subparagraphs (A) and (B)) 2 ems to the left;
       ``(B) by striking `Projects' and all that follows through 
     `When a State' and inserting `Projects.--When a State';
       ``(C) by striking paragraphs (2) and (3);
       ``(D) by striking `(A) prior' and inserting `(1) prior'; 
     and
       ``(E) by striking `(B) the project' and inserting `(2) the 
     project';
       ``(2) by striking subsection (c); and
       ``(3) by redesignating subsection (d) as subsection (c).
       ``(b) Availability of Funds.--Section 118 of such title is 
     amended--
       ``(1) in the subsection heading of subsection (b) by 
     striking `; Discretionary Projects'; and
       ``(2) by striking subsection (e) and inserting the 
     following:
       `(e) Effect of Release of Funds.--Any Federal-aid highway 
     funds released by the final payment on a project, or by the 
     modification of the project agreement, shall be credited to 
     the same program funding category previously apportioned to 
     the State and shall be immediately available for 
     expenditure.'.''.
       ``(c) Advances to States.--Section 124 of such title is 
     amended--
       ``(1) by striking `(a)' the first place it appears; and
       ``(2) by striking subsection (b).
       ``(d) Diversion.--Section 126 of such title, and the item 
     relating to such section in the analysis for chapter 1 of 
     such title, are repealed.''.
       (b) Conforming Amendment.--The table of contents contained 
     in section 1(b) of such Act is amended by inserting after the 
     item relating to section 1222 the following:

``Sec. 1223. Transportation assistance for Olympic cities.
``Sec. 1224. National historic covered bridge preservation.
``Sec. 1225. Substitute project.
``Sec. 1226. Fiscal, administrative, and other amendments.''.
       (c) Metropolitan Planning Technical Adjustment.--Section 
     1203 of such Act is amended by adding at the end the 
     following:
       ``(o) Technical Adjustment.--Section 134(h)(5)(A) of title 
     23, United States Code (as amended by subsection (h) of this 
     section), is amended by striking `for implementation'.''.
       (d) Amendments to Prior Surface Transportation Laws.--
     Section 1211 of such Act is amended--
       (1) in subsection (i)(3)(E) by striking ``subparagraph 
     (D)'' and inserting ``subparagraph (C)'';
       (2) in subsection (i) by adding at the end the following:
       ``(4) Technical amendments.--Section 1105(e)(5)(B)(i) of 
     such Act (as amended by paragraph (3) of this subsection) is 
     amended--
       ``(A) by striking `subsection (c)(18)(B)(i)' and inserting 
     `subsection (c)(18)(D)(i)';

[[Page H5141]]

       ``(B) by striking `subsection (c)(18)(B)(ii)' and inserting 
     `subsection (c)(18)(D)(ii)'; and
       ``(C) by adding at the end the following: `The portion of 
     the route referred to in subsection (c)(36) is designated as 
     Interstate Route I-86.'.'';
       (3) by striking subsection (j);
       (4) in subsection (k)--
       (A) by striking ``along'' in paragraph (1) and inserting 
     ``from''; and
       (B) by adding at the end the following:
       ``(4) Texas state highway 99.--Texas State Highway 99 (also 
     known as `Grand Parkway') shall be considered as 1 option in 
     the I-69 route studies performed by the Texas Department of 
     Transportation for the designation of I-69 Bypass in Houston, 
     Texas.''; and
       (5) by redesignating subsections (g) through (i) and (k) 
     through (n) as subsections (f) through (h) and (i) through 
     (l), respectively.
       (e) Miscellaneous.--Section 1212 of such Act is amended--
       (1) in the second sentence of subsection (q)(1) by striking 
     ``advance curriculum'' and inserting ``advanced curriculum'';
       (2) in subsection (r)--
       (A) by redesignating paragraph (2) as paragraph (3); and
       (B) by inserting after paragraph (1) the following:
       ``(2) Authorization of appropriations.--There are 
     authorized to be appropriated from the Highway Trust Fund 
     (other than the Mass Transit Account) to carry out paragraph 
     (1) $2,000,000 for fiscal year 1999 and $2,500,000 for fiscal 
     year 2000.'';
       (3) in subsection (s)--
       (A) by redesignating paragraph (2) as paragraph (3); and
       (B) by inserting after paragraph (1) the following:
       ``(2) Authorization of appropriations.--There is authorized 
     to be appropriated from the Highway Trust Fund (other than 
     the Mass Transit Account) to carry out paragraph (1) 
     $23,000,000 for fiscal year 1999.'';
       (4) in subsection (u)--
       (A) by inserting ``the Secretary shall approve, and'' 
     before ``the Commonwealth'';
       (B) by inserting a comma after ``with''; and
       (C) by inserting ``(as redefined by this Act)'' after 
     ``80''; and
       (5) by redesignating subsections (k) through (z) as 
     subsections (e) through (t), respectively.
       (f) Puerto Rico Highway Program.--Section 1214(r) of the 
     Transportation Equity Act for the 21st Century is amended by 
     adding at the end the following:
       ``(3) Treatment of funds.--Amounts made available to carry 
     out this subsection for a fiscal year shall be administered 
     as follows:
       ``(A) For purposes of this subsection, such amounts shall 
     be treated as being apportioned to Puerto Rico under sections 
     104(b), 144, and 206 of title 23, United States Code, for 
     each program funded under such sections in an amount 
     determined by multiplying--
       ``(i) the aggregate of such amounts for the fiscal year; by
       ``(ii) the ratio that--

       ``(I) the amount of funds apportioned to Puerto Rico for 
     each such program for fiscal year 1997; bears to
       ``(II) the total amount of funds apportioned to Puerto Rico 
     for all such programs for fiscal year 1997.

       ``(B) The amounts treated as being apportioned to Puerto 
     Rico under each section referred to in subparagraph (A) shall 
     be deemed to be required to be apportioned to Puerto Rico 
     under such section for purposes of the imposition of any 
     penalty provisions in titles 23 and 49, United States Code.
       ``(C) Subject to subparagraph (B), nothing in this 
     subsection shall be construed as affecting any allocation 
     under section 105 of title 23, United States Code, and any 
     apportionment under sections 104 and 144 of such title.''.
       (g) Designated Transportation Enhancement Activities.--
     Section 1215 of such Act--
       (1) is amended in each of subsections (d), (e), (f), and 
     (g)--
       (A) by redesignating paragraph (2) as paragraph (3); and
       (B) by inserting after paragraph (1) the following:
       ``(2) Authorization of appropriations.--There are 
     authorized to be appropriated from the Highway Trust Fund 
     (other than the Mass Transit Account) to carry out paragraph 
     (1) the amounts specified in such paragraph for the fiscal 
     years specified in such paragraph.''; and
       (2) in subsection (d)(1) by inserting ``on Route 50'' after 
     ``measures''.
       (h) Eligibility.--Section 1217 of such Act is amended--
       (1) in subsection (d) by striking ``104(b)(4)'' and 
     inserting ``104(b)(5)(A)'';
       (2) in subsection (i) by striking ``120(l)(1)'' and 
     inserting ``120(j)(1)''; and
       (3) in subsection (j) by adding at the end the following: 
     ``$3,000,000 of the amounts made available for item 164 of 
     the table contained in section 1602 shall be made available 
     on October 1, 1998, to the Pennsylvania Turnpike Commission 
     to carry out this subsection.''.
       (i) Magnetic Levitation Transportation Technology 
     Deployment Program.--Section 1218 of such Act is amended by 
     adding at the end the following:
       ``(c) Technical Amendments.--Section 322 of title 23, 
     United States Code (as added by subsection (a) of this 
     section), is amended--
       ``(1) in subsection (a)(3) by striking `or under 50 miles 
     per hour';
       ``(2) in subsection (d)--
       ``(A) in paragraph (1) by striking `or low-speed'; and
       ``(B) in paragraph (2)--
       ``(i) in subparagraph (A) by striking `(h)(1)(A)' and 
     inserting `(h)(1)'; and
       ``(ii) in subparagraph (B) by striking `(h)(4)' and 
     inserting `(h)(3)';
       ``(3) in subsection (h)(1)(B)(i) by inserting `(other than 
     subsection (i))' after `this section'; and
       ``(4) by adding at the end the following:
       `(i) Low-Speed Project.--
       `(1) In general.--Notwithstanding any other provision of 
     this section, of the funds made available by subsection 
     (h)(1)(A) to carry out this section, $5,000,000 shall be made 
     available to the Secretary to make grants for the research 
     and development of low-speed superconductivity magnetic 
     levitation technology for public transportation purposes in 
     urban areas to demonstrate energy efficiency, congestion 
     mitigation, and safety benefits.
       `(2) Noncontract authority authorization of 
     appropriations.--
       `(A) In general.--There are authorized to be appropriated 
     from the Highway Trust Fund (other than the Mass Transit 
     Account) to carry out this subsection such sums as are 
     necessary for each of fiscal years 2000 through 2003.
       `(B) Availability.--Notwithstanding section 118(a), funds 
     made available under subparagraph (A)--
       `(i) shall not be available in advance of an annual 
     appropriation; and
       `(ii) shall remain available until expended.'.''.
       (j) Transportation Assistance for Olympic Cities.--Section 
     1223(f) of such Act is amended by inserting before the period 
     at the end the following: ``or Special Olympics 
     International''.

     SEC. 9004. RESTORATIONS TO PROGRAM STREAMLINING AND 
                   FLEXIBILITY SUBTITLE.

       (a) In General.--Subtitle C of title I of the 
     Transportation Equity Act for the 21st Century is amended by 
     adding at the end the following:

     ``SEC. 1311. DISCRETIONARY GRANT SELECTION CRITERIA AND 
                   PROCESS.

       ``(a) Establishment of Criteria.--The Secretary shall 
     establish criteria for all discretionary programs funded from 
     the Highway Trust Fund (other than the Mass Transit Account). 
     To the extent practicable, such criteria shall conform to the 
     Executive Order No. 12893 (relating to infrastructure 
     investment).
       ``(b) Selection Process.--
       ``(1) Limitation on acceptance of applications.--Before 
     accepting applications for grants under any discretionary 
     program for which funds are authorized to be appropriated 
     from the Highway Trust Fund (other than the Mass Transit 
     Account) by this Act (including the amendments made by this 
     Act), the Secretary shall publish the criteria established 
     under subsection (a). Such publication shall identify all 
     statutory criteria and any criteria established by regulation 
     that will apply to the program.
       ``(2) Explanation.--Not less often than quarterly, the 
     Secretary shall submit to the Committee on Environment and 
     Public Works of the Senate and the Committee on 
     Transportation and Infrastructure of the House of 
     Representatives a list of the projects selected under 
     discretionary programs funded from the Highway Trust Fund 
     (other than the Mass Transit Account) and an explanation of 
     how the projects were selected based on the criteria 
     established under subsection (a).
       ``(c) Minimum Covered Programs.--At a minimum, the criteria 
     established under subsection (a) and the selection process 
     established by subsection (b) shall apply to the following 
     programs:
       ``(1) The intelligent transportation system deployment 
     program under title V.
       ``(2) The national corridor planning and development 
     program.
       ``(3) The coordinated border infrastructure and safety 
     program.
       ``(4) The construction of ferry boats and ferry terminal 
     facilities.
       ``(5) The national scenic byways program.
       ``(6) The Interstate discretionary program.
       ``(7) The discretionary bridge program.''.
       (b) Conforming Amendments.--The table of contents contained 
     in section 1(b) of such Act is amended--
       (1) by striking the following:

``Sec. 1309. Major investment study integration.''.
       and inserting the following:

``Sec. 1308. Major investment study integration.'';
       and
       (2) by inserting after the item relating to section 1310 
     the following:

``Sec. 1311. Discretionary grant selection criteria and process.''.
       (c) Review Process.--Section 1309 of the Transportation 
     Equity Act for the 21st Century is amended--
       (1) in subsection (a)(1) by inserting after ``highway 
     construction'' the following: ``and mass transit'';
       (2) in subsection (d) by inserting after ``Code,'' the 
     following: ``or chapter 53 of title 49, United States 
     Code,''; and
       (3) in subsection (e)(1)--
       (A) by inserting ``or recipient'' after ``a State'';
       (B) by inserting after ``provide funds'' the following: 
     ``for a highway project''; and
       (C) by inserting after ``Code,'' the following: ``or for a 
     mass transit project made available under chapter 53 of title 
     49, United States Code,''.

     SEC. 9005. RESTORATIONS TO SAFETY SUBTITLE.

       (a) In General.--Subtitle D of title I of the 
     Transportation Equity Act for the 21st Century is amended by 
     adding at the end the following:

     ``SEC. 1405. OPEN CONTAINER LAWS.

       ``(a) Establishment.--Chapter 1 of title 23, United States 
     Code, is amended by inserting after section 153 the 
     following:

     `Sec. 154. Open container requirements

       `(a) Definitions.--In this section, the following 
     definitions apply:
       `(1) Alcoholic beverage.--The term ``alcoholic beverage'' 
     has the meaning given the term in section 158(c).

[[Page H5142]]

       `(2) Motor vehicle.--The term ``motor vehicle'' means a 
     vehicle driven or drawn by mechanical power and manufactured 
     primarily for use on public highways, but does not include a 
     vehicle operated exclusively on a rail or rails.
       `(3) Open alcoholic beverage container.--The term ``open 
     alcoholic beverage container'' means any bottle, can, or 
     other receptacle--
       `(A) that contains any amount of alcoholic beverage; and
       `(B)(i) that is open or has a broken seal; or
       `(ii) the contents of which are partially removed.
       `(4) Passenger area.--The term ``passenger area'' shall 
     have the meaning given the term by the Secretary by 
     regulation.
       `(b) Open Container Laws.--
       `(1) In general.--For the purposes of this section, each 
     State shall have in effect a law that prohibits the 
     possession of any open alcoholic beverage container, or the 
     consumption of any alcoholic beverage, in the passenger area 
     of any motor vehicle (including possession or consumption by 
     the driver of the vehicle) located on a public highway, or 
     the right-of-way of a public highway, in the State.
       `(2) Motor vehicles designed to transport many 
     passengers.--For the purposes of this section, if a State has 
     in effect a law that makes unlawful the possession of any 
     open alcoholic beverage container by the driver (but not by a 
     passenger)--
       `(A) in the passenger area of a motor vehicle designed, 
     maintained, or used primarily for the transportation of 
     persons for compensation, or
       `(B) in the living quarters of a house coach or house 
     trailer,

     the State shall be deemed to have in effect a law described 
     in this subsection with respect to such a motor vehicle for 
     each fiscal year during which the law is in effect.
       `(c) Transfer of Funds.--
       `(1) Fiscal years 2001 and 2002.--On October 1, 2000, and 
     October 1, 2001, if a State has not enacted or is not 
     enforcing an open container law described in subsection (b), 
     the Secretary shall transfer an amount equal to 1\1/2\ 
     percent of the funds apportioned to the State on that date 
     under each of paragraphs (1), (3), and (4) of section 104(b) 
     to the apportionment of the State under section 402--
       `(A) to be used for alcohol-impaired driving 
     countermeasures; or
       `(B) to be directed to State and local law enforcement 
     agencies for enforcement of laws prohibiting driving while 
     intoxicated or driving under the influence and other related 
     laws (including regulations), including the purchase of 
     equipment, the training of officers, and the use of 
     additional personnel for specific alcohol-impaired driving 
     countermeasures, dedicated to enforcement of the laws 
     (including regulations).
       `(2) Fiscal year 2003 and fiscal years thereafter.--On 
     October 1, 2002, and each October 1 thereafter, if a State 
     has not enacted or is not enforcing an open container law 
     described in subsection (b), the Secretary shall transfer an 
     amount equal to 3 percent of the funds apportioned to the 
     State on that date under each of paragraphs (1), (3), and (4) 
     of section 104(b) to the apportionment of the State under 
     section 402 to be used or directed as described in 
     subparagraph (A) or (B) of paragraph (1).
       `(3) Use for hazard elimination program.--A State may elect 
     to use all or a portion of the funds transferred under 
     paragraph (1) or (2) for activities eligible under section 
     152.
       `(4) Federal share.--The Federal share of the cost of a 
     project carried out with funds transferred under paragraph 
     (1) or (2), or used under paragraph (3), shall be 100 
     percent.
       `(5) Derivation of amount to be transferred.--The amount to 
     be transferred under paragraph (1) or (2) may be derived from 
     1 or more of the following:
       `(A) The apportionment of the State under section 
     104(b)(1).
       `(B) The apportionment of the State under section 
     104(b)(3).
       `(C) The apportionment of the State under section 
     104(b)(4).
       `(6) Transfer of obligation authority.--
       `(A) In general.--If the Secretary transfers under this 
     subsection any funds to the apportionment of a State under 
     section 402 for a fiscal year, the Secretary shall transfer 
     an amount, determined under subparagraph (B), of obligation 
     authority distributed for the fiscal year to the State for 
     Federal-aid highways and highway safety construction programs 
     for carrying out projects under section 402.
       `(B) Amount.--The amount of obligation authority referred 
     to in subparagraph (A) shall be determined by multiplying--
       `(i) the amount of funds transferred under subparagraph (A) 
     to the apportionment of the State under section 402 for the 
     fiscal year; by
       `(ii) the ratio that--

       `(I) the amount of obligation authority distributed for the 
     fiscal year to the State for Federal-aid highways and highway 
     safety construction programs; bears to
       `(II) the total of the sums apportioned to the State for 
     Federal-aid highways and highway safety construction programs 
     (excluding sums not subject to any obligation limitation) for 
     the fiscal year.

       `(7) Limitation on applicability of obligation 
     limitation.--Notwithstanding any other provision of law, no 
     limitation on the total of obligations for highway safety 
     programs under section 402 shall apply to funds transferred 
     under this subsection to the apportionment of a State under 
     such section.'.
       ``(b) Conforming Amendment.--The analysis for chapter 1 of 
     such title is amended by inserting after the item relating to 
     section 153 the following:

`154. Open container requirements.'.

     ``SEC. 1406. MINIMUM PENALTIES FOR REPEAT OFFENDERS FOR 
                   DRIVING WHILE INTOXICATED OR DRIVING UNDER THE 
                   INFLUENCE.

       ``(a) In General.--Chapter 1 of title 23, United States 
     Code, is amended by adding at the end the following:

     `Sec. 164. Minimum penalties for repeat offenders for driving 
       while intoxicated or driving under the influence

       `(a) Definitions.--In this section, the following 
     definitions apply:
       `(1) Alcohol concentration.--The term ``alcohol 
     concentration'' means grams of alcohol per 100 milliliters of 
     blood or grams of alcohol per 210 liters of breath.
       `(2) Driving while intoxicated; driving under the 
     influence.--The terms ``driving while intoxicated'' and 
     ``driving under the influence'' mean driving or being in 
     actual physical control of a motor vehicle while having an 
     alcohol concentration above the permitted limit as 
     established by each State.
       `(3) License suspension.--The term ``license suspension'' 
     means the suspension of all driving privileges.
       `(4) Motor vehicle.--The term ``motor vehicle'' means a 
     vehicle driven or drawn by mechanical power and manufactured 
     primarily for use on public highways, but does not include a 
     vehicle operated solely on a rail line or a commercial 
     vehicle.
       `(5) Repeat intoxicated driver law.--The term ``repeat 
     intoxicated driver law'' means a State law that provides, as 
     a minimum penalty, that an individual convicted of a second 
     or subsequent offense for driving while intoxicated or 
     driving under the influence after a previous conviction for 
     that offense shall--
       `(A) receive a driver's license suspension for not less 
     than 1 year;
       `(B) be subject to the impoundment or immobilization of 
     each of the individual's motor vehicles or the installation 
     of an ignition interlock system on each of the motor 
     vehicles;
       `(C) receive an assessment of the individual's degree of 
     abuse of alcohol and treatment as appropriate; and
       `(D) receive--
       `(i) in the case of the second offense--

       `(I) an assignment of not less than 30 days of community 
     service; or
       `(II) not less than 5 days of imprisonment; and

       `(ii) in the case of the third or subsequent offense--

       `(I) an assignment of not less than 60 days of community 
     service; or
       `(II) not less than 10 days of imprisonment.

       `(b) Transfer of Funds.--
       `(1) Fiscal years 2001 and 2002.--On October 1, 2000, and 
     October 1, 2001, if a State has not enacted or is not 
     enforcing a repeat intoxicated driver law, the Secretary 
     shall transfer an amount equal to 1\1/2\ percent of the funds 
     apportioned to the State on that date under each of 
     paragraphs (1), (3), and (4) of section 104(b) to the 
     apportionment of the State under section 402--
       `(A) to be used for alcohol-impaired driving 
     countermeasures; or
       `(B) to be directed to State and local law enforcement 
     agencies for enforcement of laws prohibiting driving while 
     intoxicated or driving under the influence and other related 
     laws (including regulations), including the purchase of 
     equipment, the training of officers, and the use of 
     additional personnel for specific alcohol-impaired driving 
     countermeasures, dedicated to enforcement of the laws 
     (including regulations).
       `(2) Fiscal year 2003 and fiscal years thereafter.--On 
     October 1, 2002, and each October 1 thereafter, if a State 
     has not enacted or is not enforcing a repeat intoxicated 
     driver law, the Secretary shall transfer an amount equal to 3 
     percent of the funds apportioned to the State on that date 
     under each of paragraphs (1), (3), and (4) of section 104(b) 
     to the apportionment of the State under section 402 to be 
     used or directed as described in subparagraph (A) or (B) of 
     paragraph (1).
       `(3) Use for hazard elimination program.--A State may elect 
     to use all or a portion of the funds transferred under 
     paragraph (1) or (2) for activities eligible under section 
     152.
       `(4) Federal share.--The Federal share of the cost of a 
     project carried out with funds transferred under paragraph 
     (1) or (2), or used under paragraph (3), shall be 100 
     percent.
       `(5) Derivation of amount to be transferred.--The amount to 
     be transferred under paragraph (1) or (2) may be derived from 
     1 or more of the following:
       `(A) The apportionment of the State under section 
     104(b)(1).
       `(B) The apportionment of the State under section 
     104(b)(3).
       `(C) The apportionment of the State under section 
     104(b)(4).
       `(6) Transfer of obligation authority.--
       `(A) In general.--If the Secretary transfers under this 
     subsection any funds to the apportionment of a State under 
     section 402 for a fiscal year, the Secretary shall transfer 
     an amount, determined under subparagraph (B), of obligation 
     authority distributed for the fiscal year to the State for 
     Federal-aid highways and highway safety construction programs 
     for carrying out projects under section 402.
       `(B) Amount.--The amount of obligation authority referred 
     to in subparagraph (A) shall be determined by multiplying--
       `(i) the amount of funds transferred under subparagraph (A) 
     to the apportionment of the State under section 402 for the 
     fiscal year; by
       `(ii) the ratio that--

       `(I) the amount of obligation authority distributed for the 
     fiscal year to the State for Federal-aid highways and highway 
     safety construction programs; bears to
       `(II) the total of the sums apportioned to the State for 
     Federal-aid highways and highway

[[Page H5143]]

     safety construction programs (excluding sums not subject to 
     any obligation limitation) for the fiscal year.

       `(7) Limitation on applicability of obligation 
     limitation.--Notwithstanding any other provision of law, no 
     limitation on the total of obligations for highway safety 
     programs under section 402 shall apply to funds transferred 
     under this subsection to the apportionment of a State under 
     such section.'.
       ``(b) Conforming Amendment.--The analysis for chapter 1 of 
     such title is amended by adding at the end the following:

`164. Minimum penalties for repeat offenders for driving while 
              intoxicated or driving under the influence.'.''.
       (b) Conforming Amendment.--The table of contents contained 
     in section 1(b) of such Act is amended by inserting after the 
     item relating to section 1403 the following:

``Sec. 1404. Safety incentives to prevent operation of motor vehicles 
              by intoxicated persons.
``Sec. 1405. Open container laws.
``Sec. 1406. Minimum penalties for repeat offenders for driving while 
              intoxicated or driving under the influence.''.
       (c) Roadside Safety Technologies.--Section 1402(a)(2) of 
     such Act is amended by striking ``directive'' and inserting 
     ``redirective''.

     SEC. 9006. ELIMINATION OF DUPLICATE PROVISIONS.

       (a) San Mateo County, California.--Section 1113 of the 
     Transportation Equity Act for the 21st Century is amended--
       (1) by striking subsection (c); and
       (2) by redesignating subsection (c) as subsection (d).
       (b) Value Pricing Pilot Program.--Section 1216(a) of such 
     Act is amended by adding at the end the following:
       ``(8) Conforming amendments.--
       ``(A) Section 1012(b)(6) of such Act (as amended by 
     paragraph (5) of this subsection) is amended by striking 
     `146(c)' and inserting `102(a)'.
       ``(B) Section 1012(b)(8) of such Act (as added by paragraph 
     (7) of this subsection) is amended--
       ``(i) in subparagraph (C) by striking `under this 
     subsection' and inserting `to carry out this subsection';
       ``(ii) in subparagraph (D)--

       ``(I) by striking `under this paragraph' and inserting `to 
     carry out this subsection'; and
       ``(II) by striking `by this paragraph' and inserting `to 
     carry out this subsection';

       ``(iii) by striking subparagraph (A); and
       ``(iv) by redesignating subparagraphs (B), (C), and (D) as 
     subparagraphs (A), (B), and (C), respectively.''.
       (c) National Defense Highways Outside the United States.--
     Section 1214(e) of such Act is amended to read as follows:
       ``(e) Minnesota Transportation History Network.--
       ``(1) In general.--The Secretary shall award a grant to the 
     Minnesota Historical Society for the establishment of the 
     Minnesota Transportation History Network to include major 
     exhibits, interpretive programs at national historic landmark 
     sites, and outreach programs with county and local historical 
     organizations.
       ``(2) Coordination.--In carrying out subsection (a), the 
     Secretary shall coordinate with officials of the Minnesota 
     Historical Society.
       ``(3) Authorization of appropriations.--There is authorized 
     to be appropriated out of the Highway Trust Fund (other than 
     the Mass Transit Account) $1,000,000 for each of fiscal years 
     1998 through 2003 to carry out this subsection.
       ``(4) Applicability of title 23.--Funds authorized by this 
     subsection shall be available for obligation in the same 
     manner as if such funds were apportioned under chapter 1 of 
     title 23, United States Code; except that such funds shall 
     remain available until expended.''.
       (d) Entrance Paving at Ninigret National Wildlife Refuge.--
     Section 1214(i) of such Act is amended by striking 
     ``$750,000'' each place it appears and inserting ``$75,000''.

     SEC. 9007. HIGHWAY FINANCE.

       (a) In General.--Section 1503 of the Transportation Equity 
     Act for the 21st Century is amended by adding at the end the 
     following:
       ``(c) Technical Amendments.--Section 188 of title 23, 
     United States Code (as added by subsection (a) of this 
     section), is amended--
       ``(1) in subsection (a)(2) by striking `1998' and inserting 
     `1999'; and
       ``(2) in subsection (c)--
       ``(A) by striking `1998' and inserting `1999'; and
       ``(B) by striking the table and inserting the following:

                                                         Maximum amount
`Fiscal year:                                              of credit:  
  1999..................................................$1,600,000,000 
  2000..................................................$1,800,000,000 
  2001..................................................$2,200,000,000 
  2002..................................................$2,400,000,000 
  2003.............................................$2,600,000,000.'.''.
       (b) Conforming Amendments.--The table of contents contained 
     in section 1(b) of the Transportation Equity Act for the 21st 
     Century is amended--
       (1) in the item relating to section 1119 by striking ``and 
     safety''; and
       (2) by striking the items relating to subtitle E of title I 
     and inserting the following:

                         ``Subtitle E--Finance

   ``Chapter 1--Transportation Infrastructure Finance and Innovation

``Sec. 1501. Short title.
``Sec. 1502. Findings.
``Sec. 1503. Establishment of program.
``Sec. 1504. Duties of the Secretary.

          ``Chapter 2--State Infrastructure Bank Pilot Program

``Sec. 1511. State infrastructure bank pilot program.''.

     SEC. 9008. HIGH PRIORITY PROJECTS TECHNICAL CORRECTIONS.

       The table contained in section 1602 of the Transportation 
     Equity Act for the 21st Century is amended--
       (1) in item 1 by striking ``1.275'' and inserting ``1.7'';
       (2) in item 82 by striking ``30.675'' and inserting 
     ``32.4'';
       (3) in item 107 by striking ``1.125'' and inserting 
     ``1.44'';
       (4) in item 121 by striking ``10.5'' and inserting ``5.0'';
       (5) in item 140 by inserting ``-VFHS Center'' after 
     ``Park'';
       (6) in item 151 by striking ``5.666'' and inserting 
     ``8.666'';
       (7) in item 164--
       (A) by inserting ``, and $3,000,000 for the period of 
     fiscal years 1998 and 1999 shall be made available to carry 
     out section 1217(j)'' after ``Pennsylvania''; and
       (B) by striking ``25'' and inserting ``24.78'';
       (8) by striking item 166 and inserting the following:
       

``166 Michigan                    Improve Tenth Street, Port            
    .                              Huron....................    1.8'';  
------------------------------------------------------------------------

       (9) by striking item 242 and inserting the following:
       

``242 Minnesota                   Construct Third Street                
    .                              North, CSAH 81, Waite                
                                   Park and St. Cloud.......    1.0'';  
------------------------------------------------------------------------

       (10) by striking item 250 and inserting the following:
       

``250 Indiana                     Reconstruct Old Merridan              
    .                              Corridor from                        
                                   Pennsylvania Avenue to               
                                   Gilford Road.............   1.35'';  
------------------------------------------------------------------------

       (11) in item 255 by striking ``2.25'' and inserting 
     ``3.0'';
       (12) in item 263 by striking ``Upgrade Highway 99 between 
     State Highway 70 and Lincoln Road, Sutter County'' and 
     inserting ``Upgrade Highway 99, Sutter County'';
       (13) in item 288 by striking ``3.75'' and inserting 
     ``5.0'';
       (14) in item 290 by striking ``3.5'' and inserting ``3.0'';
       (15) in item 345 by striking ``8'' and inserting ``19.4'';
       (16) in item 418 by striking ``2'' and inserting ``2.5'';
       (17) in item 421 by striking ``11'' and inserting ``6'';
       (18) in item 508 by striking ``1.8'' and inserting ``2.4'';
       (19) by striking item 525 and inserting the following:
       

``525 Alaska                      Construct Bradfield Canal             
    .                              Road.....................      1'';  
------------------------------------------------------------------------

       (20) in item 540 by striking ``1.5'' and inserting ``2.0'';
       (21) in item 576 by striking ``0.52275'' and inserting 
     ``0.69275'';
       (22) in item 588 by striking ``2.5'' and inserting ``3.0'';
       (23) in item 591 by striking ``10'' and inserting ``5'';
       (24) in item 635 by striking ``1.875'' and inserting 
     ``2.15'';
       (25) in item 669 by striking ``3'' and inserting ``3.5'';
       (26) in item 702 by striking ``10.5'' and inserting ``10'';
       (27) in item 746 by inserting ``, and for the purchase of 
     the Block House in Scott County, Virginia'' after ``Forest'';
       (28) in item 755 by striking ``1.125'' and inserting 
     ``1.5'';
       (29) in item 769 by striking ``Construct new I-95 
     interchange with Highway 99W, Tehama County'' and inserting 
     ``Construct new I-5 interchange with Highway 99W, Tehama 
     County'';
       (30) in item 770 by striking ``1.35'' and inserting 
     ``1.0'';
       (31) in item 789 by striking ``2.0625'' and inserting 
     ``1.0'';
       (32) in item 803 by striking ``Tomahark'' and inserting 
     ``Tomahawk'';
       (33) in item 836 by striking ``Construct'' and all that 
     follows through ``for'' and inserting ``To the National Park 
     Service for construction of the'';
       (34) in item 854 by striking ``0.75'' and inserting ``1'';
       (35) in item 863 by striking ``9'' and inserting ``4.75'';
       (36) in item 887 by striking ``0.75'' and inserting 
     ``3.21'';
       (37) in item 891 by striking ``19.5'' and inserting 
     ``25.0'';
       (38) in item 902 by striking ``10.5'' and inserting 
     ``14.0'';
       (39) by striking item 1065 and inserting the following:
       

``1065. Texas                       Construct a 4-lane divided          
                                     highway on Artcraft Road           
                                     from I-10 to Route 375 in          
                                     El Paso..................    5'';  
------------------------------------------------------------------------

       (40) in item 1192 by striking ``24.97725'' and inserting 
     ``24.55725'';
       (41) in item 1200 by striking ``Upgrade (all weather) on 
     U.S. 2, U.S. 41, and M 35'' and inserting ``Upgrade (all 
     weather) on Delta County's reroute of U.S. 2, U.S. 41, and M 
     35'';
       (42) in item 1245 by striking ``3'' and inserting ``3.5'';

[[Page H5144]]

       (43) in item 1271 by striking ``Spur'' and all that follows 
     through ``U.S. 59'' and inserting ``rail-grade separations 
     (Rosenberg Bypass) at U.S. 59(S)'';
       (44) in item 1278 by striking ``28.18'' and inserting 
     ``22.0'';
       (45) in item 1288 by inserting ``30'' after ``U.S.'';
       (46) in item 1338 by striking ``5.5'' and inserting 
     ``3.5'';
       (47) in item 1383 by striking ``0.525'' and inserting 
     ``0.35'';
       (48) in item 1395 by striking ``Construct'' and all that 
     follows through ``Road'' and inserting ``Upgrade Route 219 
     between Meyersdale and Somerset'';
       (49) in item 1468 by striking ``Reconstruct'' and all that 
     follows through ``U.S. 23'' and inserting ``Conduct 
     engineering and design and improve I-94 in Calhoun and 
     Jackson Counties'';
       (50) in item 1474--
       (A) by striking ``in Euclid'' and inserting ``and London 
     Road in Cleveland''; and
       (B) by striking ``3.75'' and inserting ``8.0'';
       (51) in item 1535 by striking ``Stanford'' and inserting 
     ``Stamford'';
       (52) in item 1538 by striking ``and Winchester'' and 
     inserting ``, Winchester, and Torrington'';
       (53) by striking item 1546 and inserting the following:
       

``1546. Michigan                  Construct Bridge-to-Bay               
                                   bike path, St. Clair                 
                                   County..................   0.450'';  
------------------------------------------------------------------------

       (54) by striking item 1549 and inserting the following:
       

``1549. New York                  Center for Advanced                   
                                   Simulation and                       
                                   Technology, at Dowling               
                                   College.................     0.6'';  
------------------------------------------------------------------------

       (55) in item 1663 by striking ``26.5'' and inserting 
     ``27.5'';
       (56) in item 1703 by striking ``I-80'' and inserting ``I-
     180'';
       (57) in item 1726 by striking ``I-179'' and inserting ``I-
     79'';
       (58) by striking item 1770 and inserting the following:
       

``1770. Virginia                  Operate and conduct                   
                                   research on the `Smart               
                                   Road' in Blacksburg.....   6.025'';  
------------------------------------------------------------------------

       (59) in item 1810 by striking ``Construct Rio Rancho 
     Highway'' and inserting ``Northwest Albuquerque/Rio Rancho 
     high priority roads'';
       (60) in item 1815 by striking ``High'' and all that follows 
     through ``projects'' and inserting ``Highway and bridge 
     projects that Delaware provides for by law'';
       (61) in item 1844 by striking ``Prepare'' and inserting 
     ``Repair'';
       (62) by striking item 1850 and inserting the following:
       

``1850. Missouri                  Resurface and maintain                
                                   roads located in                     
                                   Missouri State parks....       5'';  
------------------------------------------------------------------------

       (63) in item 661 by striking ``SR 800'' and inserting ``SR 
     78'';
       (64) in item 1704 by inserting ``, Pittsburgh,'' after 
     ``Road'';
       (65) in item 1710 by inserting ``, Bethlehem'' after 
     ``site''; and
       (66) in item 1626 by striking ``1'' and inserting ``2''.

     SEC. 9009. FEDERAL TRANSIT ADMINISTRATION PROGRAMS.

       (a) Definitions.--Section 3003 of the Federal Transit Act 
     of 1998 is amended--
       (1) by inserting ``(a) In General.--'' before ``Section 
     5302''; and
       (2) by adding at the end the following:
       ``(b) Conforming Amendments.--Section 5302 (as amended by 
     subsection (a) of this section) is amended in subsection 
     (a)(1)(G)(i) by striking `daycare and' and inserting `daycare 
     or'.''.
       (b) Metropolitan Planning.--Section 3004 of the Federal 
     Transit Act of 1998 is amended--
       (1) in subsection (b)--
       (A) in paragraph (1) by striking subparagraph (A) and 
     inserting the following:
       ``(A) by striking `general local government representing' 
     and inserting `general purpose local government that together 
     represent'; and'';
       (B) in paragraph (3) by striking ``and'' at the end;
       (C) in paragraph (4) by striking subparagraph (A) and 
     inserting the following:
       ``(A) by striking `general local government representing' 
     and inserting `general purpose local government that together 
     represent'; and'';
       (D) by redesignating paragraph (4) as paragraph (5); and
       (E) by inserting after paragraph (3) the following:
       ``(3) in paragraph (4)(A) by striking `(3)' and inserting 
     `(5)'; and'';
       (2) in subsection (d) by striking the closing quotation 
     marks and the final period at the end and inserting the 
     following:
       `(5) Coordination.--If a project is located within the 
     boundaries of more than 1 metropolitan planning organization, 
     the metropolitan planning organizations shall coordinate 
     plans regarding the project.
       `(6) Lake tahoe region.--
       `(A) Definition.--In this paragraph, the term ``Lake Tahoe 
     region'' has the meaning given the term ``region'' in 
     subdivision (a) of article II of the Tahoe Regional Planning 
     Compact, as set forth in the first section of Public Law 96-
     551 (94 Stat. 3234).
       `(B) Transportation planning process.--The Secretary 
     shall--
       `(i) establish with the Federal land management agencies 
     that have jurisdiction over land in the Lake Tahoe region a 
     transportation planning process for the region; and
       `(ii) coordinate the transportation planning process with 
     the planning process required of State and local governments 
     under this chapter and sections 134 and 135 of title 23.
       `(C) Interstate compact.--
       `(i) In general.--Subject to clause (ii) and 
     notwithstanding subsection (b), to carry out the 
     transportation planning process required by this section, the 
     consent of Congress is granted to the States of California 
     and Nevada to designate a metropolitan planning organization 
     for the Lake Tahoe region, by agreement between the Governors 
     of the States of California and Nevada and units of general 
     purpose local government that together represent at least 75 
     percent of the affected population (including the central 
     city or cities (as defined by the Bureau of the Census)), or 
     in accordance with procedures established by applicable State 
     or local law.
       `(ii) Involvement of federal land management agencies.--

       `(I) Representation.--The policy board of a metropolitan 
     planning organization designated under clause (i) shall 
     include a representative of each Federal land management 
     agency that has jurisdiction over land in the Lake Tahoe 
     region.
       `(II) Funding.--In addition to funds made available to the 
     metropolitan planning organization under other provisions of 
     this chapter and under title 23, not more than 1 percent of 
     the funds allocated under section 202 of title 23 may be used 
     to carry out the transportation planning process for the Lake 
     Tahoe region under this subparagraph.

       `(D) Activities.--Highway projects included in 
     transportation plans developed under this paragraph--
       `(i) shall be selected for funding in a manner that 
     facilitates the participation of the Federal land management 
     agencies that have jurisdiction over land in the Lake Tahoe 
     region; and
       `(ii) may, in accordance with chapter 2 of title 23, be 
     funded using funds allocated under section 202 of title 
     23.'.''; and
       (3) by adding at the end the following:
       ``(f) Technical Adjustments.--Section 5303(f) is amended--
       ``(1) in paragraph (1) (as amended by subsection (e)(1) of 
     this subsection)--
       ``(A) in subparagraph (C) by striking `and' at the end;
       ``(B) in subparagraph (D) by striking the period at the end 
     and inserting `; and';
       ``(C) by adding at the end the following:
       `(E) the financial plan may include, for illustrative 
     purposes, additional projects that would be included in the 
     adopted long-range plan if reasonable additional resources 
     beyond those identified in the financial plan were available, 
     except that, for the purpose of developing the long-range 
     plan, the metropolitan planning organization and the State 
     shall cooperatively develop estimates of funds that will be 
     available to support plan implementation.'; and
       ``(2) by adding at the end the following:
       `(6) Selection of projects from illustrative list.--
     Notwithstanding paragraph (1)(E), a State or metropolitan 
     planning organization shall not be required to select any 
     project from the illustrative list of additional projects 
     included in the financial plan under paragraph (1)(B).'.''.
       (c) Metropolitan Transportation Improvement Program.--
     Section 3005 of the Federal Transit Act of 1998 is amended--
       (1) in the section heading by inserting ``metropolitan'' 
     before ``transportation''; and
       (2) by adding at the end the following:
       ``(d) Technical Adjustments.--Section 5304 is amended--
       ``(1) in subsection (a) (as amended by subsection (a) of 
     this section)--
       ``(A) by striking `In cooperation with' and inserting the 
     following:
       `(1) In general.--In cooperation with'; and
       ``(B) by adding at the end the following:
       `(2) Funding estimate.--For the purpose of developing the 
     transportation improvement program, the metropolitan planning 
     organization, public transit agency, and the State shall 
     cooperatively develop estimates of funds that are reasonably 
     expected to be available to support program implementation.';
       ``(2) in subsection (b)(2)--
       ``(A) in subparagraph (B) by striking `and' at the end; and
       ``(B) in subparagraph (C) (as added by subsection (b) of 
     this section) by striking `strategies which may include' and 
     inserting the following: `strategies; and
       `(D) may include'; and
       ``(3) in subsection (c) by striking paragraph (4) (as 
     amended by subsection (c) of this section) and inserting the 
     following:
       `(4) Selection of projects from illustrative list.--
       `(A) In general.--Notwithstanding subsection (b)(2)(D), a 
     State or metropolitan planning organization shall not be 
     required to select any project from the illustrative list of 
     additional projects included in the financial plan under 
     subsection (b)(2)(D).
       `(B) Action by secretary.--Action by the Secretary shall be 
     required for a State or metropolitan planning organization to 
     select any project from the illustrative list of additional 
     projects included in the plan under subsection (b)(2) for 
     inclusion in an approved transportation improvement 
     plan.'.''.
       (d) Transportation Management Areas.--Section 3006(d) of 
     the Federal Transit Act of 1998 is amended to read as 
     follows:
       ``(d) Project Selection.--Section 5305(d)(1) is amended to 
     read as follows: `(1)(A) All federally funded projects 
     carried out within the boundaries of a transportation 
     management area under title 23 (excluding projects carried 
     out on the National Highway System and

[[Page H5145]]

     projects carried out under the bridge and interstate 
     maintenance program) or under this chapter shall be selected 
     from the approved transportation improvement program by the 
     metropolitan planning organization designated for the area in 
     consultation with the State and any affected public transit 
     operator.
       `(B) Projects carried out within the boundaries of a 
     transportation management area on the National Highway System 
     and projects carried out within such boundaries under the 
     bridge program or the interstate maintenance program shall be 
     selected from the approved transportation improvement program 
     by the State in cooperation with the metropolitan planning 
     organization designated for the area.'.''.
       (e) Urbanized Area Formula Grants.--Section 3007 of the 
     Federal Transit Act of 1998 is amended by adding at the end 
     the following:
       ``(h) Technical Adjustments.--
       ``(1) General authority.--Section 5307(b) (as amended by 
     subsection (c)(1)(B) of this section) is amended by adding at 
     the end the following: `The Secretary may make grants under 
     this section from funds made available for fiscal year 1998 
     to finance the operating costs of equipment and facilities 
     for use in mass transportation in an urbanized area with a 
     population of at least 200,000.'.
       ``(2) Report.--Section 5307(k)(3) (as amended by subsection 
     (f) of this section) is amended by inserting `preceding' 
     before `fiscal year'.''.
       (f) Clean Fuels Formula Grant Program.--Section 3008 of the 
     Federal Transit Act of 1998 is amended by adding at the end 
     the following:
       ``(c) Technical Adjustments.--Section 5308(e)(2) (as added 
     by subsection (a) of this section) is amended by striking 
     `$50,000,000' and inserting `35 percent'.''.
       (g) Capital Investment Grants and Loans.--Section 3009 of 
     the Federal Transit Act of 1998 is amended by adding at the 
     end the following:
       ``(k) Technical Adjustments.--
       ``(1) Criteria.--Section 5309(e) (as amended by subsection 
     (e) of this section) is amended--
       ``(A) in paragraph (3)(C) by striking `urban' and inserting 
     `suburban';
       ``(B) in the second sentence of paragraph (6) by striking 
     `or not' and all that follows through `, based' and inserting 
     `or ``not recommended'', based'; and
       ``(C) in the last sentence of paragraph (6) by inserting 
     `of the' before `criteria established'.
       ``(2) Letters of intent and full funding grant 
     agreements.--Section 5309(g) (as amended by subsection (f) of 
     this section) is amended in paragraph (4) by striking 
     `5338(a)' and all that follows through `2003' and inserting 
     `5338(b) of this title for new fixed guideway systems and 
     extensions to existing fixed guideway systems and the amount 
     appropriated under section 5338(h)(5) or an amount equivalent 
     to the last 2 fiscal years of funding authorized under 
     section 5338(b) for new fixed guideway systems and extensions 
     to existing fixed guideway systems'.
       ``(3) Allocating amounts.--Section 5309(m) (as amended by 
     subsection (g) of this section) is amended--
       ``(A) in paragraph (1) by inserting `(b)' after `5338';
       ``(B) by striking paragraph (2) and inserting the 
     following:
       `(2) New fixed guideway grants.--
       `(A) Limitation on amounts available for activities other 
     than final design and construction.--Not more than 8 percent 
     of the amounts made available in each fiscal year by 
     paragraph (1)(B) shall be available for activities other than 
     final design and construction.
       `(B) Funding for ferry boat systems.--
       `(i) Amounts under (1)(b).--Of the amounts made available 
     under paragraph (1)(B), $10,400,000 shall be available in 
     each of fiscal years 1999 through 2003 for capital projects 
     in Alaska or Hawaii, for new fixed guideway systems and 
     extensions to existing fixed guideway systems that are ferry 
     boats or ferry terminal facilities, or that are approaches to 
     ferry terminal facilities.
       `(ii) Amounts under 5338(h)(5).--Of the amounts 
     appropriated under section 5338(h)(5), $3,600,000 shall be 
     available in each of fiscal years 1999 through 2003 for 
     capital projects in Alaska or Hawaii, for new fixed guideway 
     systems and extensions to existing fixed guideway systems 
     that are ferry boats or ferry terminal facilities, or that 
     are approaches to ferry terminal facilities.';
       ``(C) by redesignating paragraph (4) as paragraph (3)(C);
       ``(D) in paragraph (3) by adding at the end the following:
       `(D) Other than urbanized areas.--Of amounts made available 
     by paragraph (1)(C), not less than 5.5 percent shall be 
     available in each fiscal year for other than urbanized 
     areas.';
       ``(E) by striking paragraph (5); and
       ``(F) by inserting after paragraph (3) the following:
       `(4) Eligibility for assistance for multiple projects.--A 
     person applying for or receiving assistance for a project 
     described in subparagraph (A), (B), or (C) of paragraph (1) 
     may receive assistance for a project described in any other 
     of such subparagraphs.'.''.
       (h) References to Full Funding Grant Agreements.--Section 
     3009(h)(3) of the Federal Transit Act of 1998 is amended--
       (1) by striking ``and'' at the end of subparagraph (A)(ii);
       (2) by striking the period at the end of subparagraph (B) 
     and inserting a semicolon; and
       (3) by adding at the end the following:
       ``(C) in section 5328(a)(4) by striking `section 5309(m)(2) 
     of this title' and inserting `5309(o)(1)'; and
       ``(D) in section 5309(n)(2) by striking `in a way' and 
     inserting `in a manner'.''.
       (i) Dollar Value of Mobility Improvements.--Section 
     3010(b)(2) of the Federal Transit Act of 1998 is amended by 
     striking ``Secretary'' and inserting ``Comptroller General''.
       (j) Intelligent Transportation System Applications.--
     Section 3012 of the Federal Transit Act of 1998 is amended by 
     moving paragraph (3) of subsection (a) to the end of 
     subsection (b) and by redesignating such paragraph (3) as 
     paragraph (4).
       (k) Advanced Technology Pilot Project.--Section 3015 of the 
     Federal Transit Act of 1998 is amended--
       (1) in subsection (c)(2) by adding at the end the 
     following: ``Financial assistance made available under this 
     subsection and projects assisted with the assistance shall be 
     subject to section 5333(a) of title 49, United States 
     Code.''; and
       (2) by adding at the end the following:
       ``(d) Training and Curriculum Development.--
       ``(1) In general.--Any funds made available by section 
     5338(e)(2)(C)(iii) of title 49, United States Code, shall be 
     available in equal amounts for transportation research, 
     training, and curriculum development at institutions 
     identified in subparagraphs (E) and (F) of section 5505(j)(3) 
     of such title.
       ``(2) Special rule.--If the institutions identified in 
     paragraph (1) are selected pursuant to 5505(i)(3)(B) of such 
     title in fiscal year 2002 or 2003, the funds made available 
     to carry out this subsection shall be available to those 
     institutions to carry out the activities required pursuant to 
     section 5505(i)(3)(B) of such title for that fiscal year.''.
       (l) National Transit Institute.--Section 3017(a) of the 
     Federal Transit Act of 1998 is amended to read as follows:
       ``(a) In General.--Section 5315 is amended--
       ``(1) in the section heading by striking `mass 
     transportation and inserting `transit';
       ``(2) in subsection (a)--
       ``(A) by striking `mass transportation' in the first 
     sentence and inserting `transit';
       ``(B) in paragraph (5) by inserting `and architectural 
     design' before the semicolon at the end;
       ``(C) in paragraph (7) by striking `carrying out' and 
     inserting `delivering';
       ``(D) in paragraph (11) by inserting `, construction 
     management, insurance, and risk management' before the 
     semicolon at the end;
       ``(E) in paragraph (13) by striking `and' at the end;
       ``(F) in paragraph (14) by striking the period at the end 
     and inserting a semicolon; and
       ``(G) by adding at the end the following:
       `(15) innovative finance; and
       `(16) workplace safety.'.''.
       (m) Pilot Program.--Section 3021(a) of the Federal Transit 
     Act of 1998 is amended by inserting ``single-State'' before 
     ``pilot program''.
       (n) Architectural, Engineering, and Design Contracts.--
     Section 3022 of the Federal Transit Act of 1998 is amended by 
     adding at the end the following:
       ``(b) Conforming Amendment.--Section 5325(b) (as 
     redesignated by subsection (a)(2) of this section) is 
     amended--
       ``(1) by inserting `or requirement' after `A contract'; and
       ``(2) by inserting before the last sentence the following: 
     `When awarding such contracts, recipients of assistance under 
     this chapter shall maximize efficiencies of administration by 
     accepting nondisputed audits conducted by other governmental 
     agencies, as provided in subparagraphs (C) through (F) of 
     section 112(b)(2) of title 23.'.''.
       (o) Conforming Amendment.--Section 3027 of the Federal 
     Transit Act of 1998 is amended--
       (1) in subsection (c) by striking ``600,000'' each place it 
     appears and inserting ``900,000''; and
       (2) by adding at the end the following:
       ``(d) Conforming Amendment.--The item relating to section 
     5336 in the table of sections for chapter 53 is amended by 
     striking `block grants' and inserting `formula grants'.''.
       (p) Apportionment for Fixed Guideway Modernization.--
     Section 3028 of the Federal Transit Act of 1998 is amended by 
     adding at the end the following:
       ``(c) Conforming Amendments.--Section 5337(a) (as amended 
     by subsection (a) of this section) is amended--
       ``(1) in paragraph (2)(B) by striking `(e)' and inserting 
     `(e)(1)';
       ``(2) in paragraph (3)(D)--
       ``(A) by striking `(ii)'; and
       ``(B) by striking `(e)' and inserting `(e)(1)';
       ``(3) in paragraph (4) by striking `(e)' and inserting 
     `(e)(1)';
       ``(4) in paragraph (5)(A) by striking `(e)' and inserting 
     `(e)(2)';
       ``(5) in paragraph (5)(B) by striking `(e)' and inserting 
     `(e)(2)';
       ``(6) in paragraph (6) by striking `(e)' each place it 
     appears and inserting `(e)(2)'; and
       ``(7) in paragraph (7) by striking `(e)' each place it 
     appears and inserting `(e)(2)'.''.
       (q) Authorizations.--Section 3029 of the Federal Transit 
     Act of 1998 is amended by adding at the end the following:
       ``(c) Technical Adjustments.--Section 5338 (as amended by 
     subsection (a) of this section) is amended--
       ``(1) in subsection (c)(2)(A)(i) by striking `$43,200,000' 
     and inserting `$42,200,000';
       ``(2) in subsection (c)(2)(A)(ii) by striking `$46,400,000' 
     and inserting `$48,400,000';
       ``(3) in subsection (c)(2)(A)(iii) by striking 
     `$51,200,000' and inserting `$50,200,000';
       ``(4) in subsection (c)(2)(A)(iv) by striking `$52,800,000' 
     and inserting `$53,800,000';
       ``(5) in subsection (c)(2)(A)(v) by striking `$57,600,000' 
     and inserting `$58,600,000';
       ``(6) in subsection (d)(2)(C)(iii) by inserting before the 
     semicolon `, including not more than $1,000,000 shall be 
     available to carry out section 5315(a)(16)';
       ``(7) in subsection (e)--
       ``(A) by striking `5317(b)' each place it appears and 
     inserting `5505';

[[Page H5146]]

       ``(B) in paragraph (1) by striking `There are' and 
     inserting `Subject to paragraph (2)(C), there are';
       ``(C) in paragraph (2)--
       ``(i) in subparagraph (A) by striking `There shall' and 
     inserting `Subject to subparagraph (C), there shall';
       ``(ii) in subparagraph (B) by striking `In addition' and 
     inserting `Subject to subparagraph (C), in addition'; and
       ``(iii) by adding at the end the following:
       `(C) Funding of centers.--
       `(i) Of the amounts made available under subparagraph (A) 
     and paragraph (1) for each fiscal year--

       `(I) $2,000,000 shall be available for the center 
     identified in section 5505(j)(4)(A); and
       `(II) $2,000,000 shall be available for the center 
     identified in section 5505(j)(4)(F).

       `(ii) For each of fiscal years 1998 through 2001, of the 
     amounts made available under this paragraph and paragraph 
     (1)--

       `(I) $400,000 shall be available from amounts made 
     available under subparagraph (A) of this paragraph and under 
     paragraph (1) for each of the centers identified in 
     subparagraphs (E) and (F) of section 5505(j)(3); and
       `(II) $350,000 shall be available from amounts made 
     available under subparagraph (B) of this paragraph and under 
     paragraph (1) for each of the centers identified in 
     subparagraphs (E) and (F) of section 5505(j)(3).

       `(iii) Any amounts made available under this paragraph or 
     paragraph (1) for any fiscal year that remain after 
     distribution under clauses (i) and (ii), shall be available 
     for the purposes identified in section 3015(d) of the Federal 
     Transit Act of 1998.'; and
       ``(D) by adding at the end the following:
       `(3) Special rule.--Nothing in this subsection shall be 
     construed to limit the transportation research conducted by 
     the centers funded by this section.';
       ``(8) in subsection (g)(2) by striking `(c)(2)(B),' and all 
     that follows through `(f)(2)(B),' and inserting `(c)(1), 
     (c)(2)(B), (d)(1), (d)(2)(B), (e)(1), (e)(2)(B), (f)(1), 
     (f)(2)(B),';
       ``(9) in subsection (h) by inserting `under the 
     Transportation Discretionary Spending Guarantee for the Mass 
     Transit Category' after `through (f)'; and
       ``(10) in subsection (h)(5) by striking subparagraphs (A) 
     through (E) and inserting the following:
       `(A) for fiscal year 1999 $400,000,000;
       `(B) for fiscal year 2000 $410,000,000;
       `(C) for fiscal year 2001 $420,000,000;
       `(D) for fiscal year 2002 $430,000,000; and
       `(E) for fiscal year 2003 $430,000,000;'.''.
       (r) Projects for Fixed Guideway Systems.--Section 3030 of 
     the Federal Transit Act of 1998 is amended--
       (1) in subsection (a)--
       (A) in paragraph (8) by inserting ``North-'' before 
     ``South'';
       (B) in paragraph (42) by striking ``Maryland'' and 
     inserting ``Baltimore'';
       (C) in paragraph (103) by striking ``busway'' and inserting 
     ``Boulevard transitway'';
       (D) in paragraph (106) by inserting ``CTA'' before 
     ``Douglas'';
       (E) by striking paragraph (108) and inserting the 
     following:
       ``(108) Greater Albuquerque Mass Transit Project.''; and
       (F) by adding at the end the following:
       ``(109) Hartford City Light Rail Connection to Central 
     Business District.
       ``(110) Providence-Boston Commuter Rail.
       ``(111) New York-St. George's Ferry Intermodal Terminal.
       ``(112) New York-Midtown West Ferry Terminal.
       ``(113) Pinellas County-Mobility Initiative Project.
       ``(114) Atlanta-MARTA Extension (S. De Kalb-Lindbergh).'';
       (2) in subsection (b)--
       (A) by striking paragraph (2) and inserting the following:
       ``(2) Sioux City-Light Rail.'';
       (B) by striking paragraph (40) and inserting the following:
       ``(40) Santa Fe-El Dorado Rail Link.'';
       (C) by striking paragraph (44) and inserting the following:
       ``(44) Albuquerque-High Capacity Corridor.'';
       (D) by striking paragraph (53) and inserting the following:
       ``(53) San Jacinto-Branch Line (Riverside County).''; and
       (E) by adding at the end the following:
       ``(69) Chicago-Northwest Rail Transit Corridor.
       ``(70) Vermont-Burlington-Essex Commuter Rail.''; and
       (3) in subsection (c)--
       (A) in paragraph (1)(A)--
       (i) in the matter preceding clause (i) by inserting ``(even 
     if the project is not listed in subsection (a) or (b))'' 
     before the colon;
       (ii) by striking clause (ii) and inserting the following:
       ``(ii) San Diego Mission Valley and Mid-Coast Corridor, 
     $325,000,000.'';
       (iii) by striking clause (v) and inserting the following:
       ``(v) Hartford City Light Rail Connection to Central 
     Business District, $33,000,000.'';
       (iv) by striking clause (xxiii) and inserting the 
     following:
       ``(xxiii) Kansas City-I-35 Commuter Rail, $30,000,000.'';
       (v) in clause (xxxii) by striking ``Whitehall Ferry 
     Terminal'' and inserting ``Staten Island Ferry-Whitehall 
     Intermodal Terminal'';
       (vi) by striking clause (xxxv) and inserting the following:
       ``(xxxv) New York-Midtown West Ferry Terminal, 
     $16,300,000.'';
       (vii) in clause (xxxix) by striking ``Allegheny County'' 
     and inserting ``Pittsburgh'';
       (viii) by striking clause (xvi) and inserting the 
     following:
       ``(xvi) Northeast Indianapolis Corridor, $10,000,000.'';
       (ix) by striking clause (xxix) and inserting the following:
       ``(xxix) Greater Albuquerque Mass Transit Project, 
     $90,000,000.'';
       (x) by striking clause (xliii) and inserting the following:
       ``(xliii) Providence-Boston Commuter Rail, $10,000,000.''; 
     and
       (xi) by striking clause (li) and inserting the following:
       ``(li) Dallas-Ft. Worth RAILTRAN (Phase-II), 
     $12,000,000.'';
       (B) by striking the heading for subsection (c)(2) and 
     inserting ``Additional amounts''; and
       (C) in paragraph (3) by inserting after the first sentence 
     the following: ``The project shall also be exempted from all 
     requirements relating to criteria for grants and loans for 
     fixed guideway systems under section 5309(e) of such title 
     and from regulations required under that section.''.
       (s) New Jersey Urban Core Project.--Section 3030(e) of the 
     Federal Transit Act of 1998 is amended by adding at the end 
     the following:
       ``(4) Technical adjustment.--Section 3031(d) of the 
     Intermodal Surface Transportation Efficiency Act of 1991 (as 
     amended by paragraph (3)(B) of this subsection) is amended--
       ``(A) by striking `of the West Shore Line' and inserting 
     `or the West Shore Line'; and
       ``(B) by striking `directly connected to' and all that 
     follows through `Newark International Airport' the first 
     place it appears.''.
       (t) Baltimore-Washington Transportation Improvements.--
     Section 3030 of the Federal Transit Act of 1998 is amended by 
     adding at the end the following:
       ``(h) Technical Adjustment.--Section 3035(nn) of the 
     Intermodal Surface Transportation Efficiency Act of 1991 (105 
     Stat. 2134) (as amended by subsection (g)(1)(C) of this 
     section) is amended by inserting after `expenditure of' the 
     following: `section 5309 funds to the aggregate expenditure 
     of'.''.
       (u) Bus Projects.--Section 3031 of the Federal Transit Act 
     of 1998 is amended--
       (1) in the table contained in subsection (a)--
       (A) by striking item 64;
       (B) in item 69 by striking ``Rensslear'' each place it 
     appears and inserting ``Rensselaer'';
       (C) in item 103 by striking ``facilities and''; and
       (D) by striking item 150;
       (2) by striking the heading for subsection (b) and 
     inserting ``Additional Amounts'';
       (3) in subsection (b) by inserting after ``2000'' the first 
     place it appears ``with funds made available under section 
     5338(h)(6) of such title''; and
       (4) in item 2 of the table contained in subsection (b) by 
     striking ``Rensslear'' each place it appears and inserting 
     ``Rensselaer''.
       (v) Contracting Out Study.--Section 3032 of the Federal 
     Transit Act of 1998 is amended--
       (1) in subsection (a) by striking ``3'' and inserting 
     ``6'';
       (2) in subsection (d) by striking ``the Mass Transit 
     Account of the Highway Trust Fund'' and inserting ``funds 
     made available under section 5338(f)(2) of title 49, United 
     States Code,'';
       (3) in subsection (d) by striking ``1998'' and inserting 
     ``1999''; and
       (4) in subsection (e) by striking ``subsection (c)'' and 
     inserting ``subsection (d)''.
       (w) Job Access and Reverse Commute Grants.--Section 3037 of 
     the Federal Transit Act of 1998 is amended--
       (1) in subsection (b)(4)(A)--
       (A) by inserting ``designated recipients under section 
     5307(a)(2) of title 49, United States Code,'' after ``from 
     among''; and
       (B) by inserting a comma after ``and agencies'';
       (2) in subsection (b)(4)(B)--
       (A) by striking ``at least'' and inserting ``less than'';
       (B) by inserting ``designated recipients under section 
     5307(a)(2) of title 49, United States Code,'' after ``from 
     among''; and
       (C) by inserting ``and agencies,'' after ``authorities'';
       (3) in subsection (f)(2)--
       (A) by striking ``(including bicycling)''; and
       (B) by inserting ``(including bicycling)'' after 
     ``additional services'';
       (4) in subsection (h)(2)(B) by striking 
     ``403(a)(5)(C)(ii)'' and inserting ``403(a)(5)(C)(vi)'';
       (5) in the heading for subsection (l)(1)(C) by striking 
     ``from the general fund'';
       (6) in subsection (l)(1)(C) by inserting ``under the 
     Transportation Discretionary Spending Guarantee for the Mass 
     Transit Category'' after ``(B)''; and
       (7) in subsection (l)(3)(B) by striking ``at least'' and 
     inserting ``less than''.
       (x) Rural Transportation Accessibility Incentive Program.--
     Section 3038 of the Federal Transit Act of 1998 is amended--
       (1) in subsection (a)(1)(A) by inserting before the 
     semicolon ``or connecting 1 or more rural communities with an 
     urban area not in close proximity'';
       (2) in subsection (g)(1)--
       (A) by inserting ``over-the-road buses used substantially 
     or exclusively in'' after ``operators of''; and
       (B) by inserting at the end the following:
     ``Such sums shall remain available until expended.''; and
       (3) in subsection (g)(2)--
       (A) by striking ``each of''; and
       (B) by adding at the end the following: ``Such sums shall 
     remain available until expended.''.
       (y) Study of Transit Needs in National Parks and Related 
     Public Lands.--Section 3039(b) of the Federal Transit Act of 
     1998 is amended--

[[Page H5147]]

       (1) in paragraph (1) by striking ``in order to carry'' and 
     inserting ``assist in carrying''; and
       (2) by adding at the end the following:
       ``(3) Definition.--For purposes of this subsection, the 
     term `Federal land management agencies' means the National 
     Park Service, the United States Fish and Wildlife Service, 
     and the Bureau of Land Management.''.
       (z) Obligation Ceiling.--Section 3040 of the Federal 
     Transit Act of 1998 is amended--
       (1) by striking paragraph (2) and inserting the following:
       ``(2) $5,797,000,000 in fiscal year 2000;''; and
       (2) in paragraph (4) by striking ``$6,746,000,000'' and 
     inserting ``$6,747,000,000''.

     SEC. 9010. MOTOR CARRIER SAFETY TECHNICAL CORRECTION.

       Section 4011 of the Transportation Equity Act for the 21st 
     Century is amended by adding at the end the following:
       ``(h) Technical Amendments.--Section 31314 (as amended by 
     subsection (g) of this section) is amended--
       ``(1) in subsections (a) and (b) by striking `(3), and (5)' 
     each place it appears and inserting `(3), and (4)'; and
       ``(2) by striking subsection (d).''.

     SEC. 9011. RESTORATIONS TO RESEARCH TITLE.

       (a) University Transportation Research Funding.--Section 
     5001(a)(7) of the Transportation Equity Act for the 21st 
     Century is amended--
       (1) by striking ``$31,150,000'' each place it appears and 
     inserting ``$25,650,000'';
       (2) by striking ``$32,750,000'' each place it appears and 
     inserting ``$27,250,000''; and
       (3) by striking ``$32,000,000'' each place it appears and 
     inserting ``$26,500,000''.
       (b) Obligation Ceiling.--Section 5002 of such Act is 
     amended by striking ``$403,150,000'' and all that follows 
     through ``$468,000,000'' and inserting ``$397,650,000 for 
     fiscal year 1998, $403,650,000 for fiscal year 1999, 
     $422,450,000 for fiscal year 2000, $437,250,000 for fiscal 
     year 2001, $447,500,000 for fiscal year 2002, and 
     $462,500,000''.
       (c) Use of Funds for ITS.--Section 5210 of the 
     Transportation Equity Act for the 21st Century is amended by 
     adding at the end the following:
       ``(d) Use of Innovative Financing.--
       ``(1) In general.--The Secretary may use up to 25 percent 
     of the funds made available to carry out this subtitle to 
     make available loans, lines of credit, and loan guarantees 
     for projects that are eligible for assistance under this 
     subtitle and that have significant intelligent transportation 
     system elements.
       ``(2) Consistency with other law.--Credit assistance 
     described in paragraph (1) shall be made available in a 
     manner consistent with the Transportation Infrastructure 
     Finance and Innovation Act of 1998.''.
       (d) University Transportation Research.--Section 5110 of 
     such Act is amended by adding at the end the following:
       ``(d) Technical Adjustments.--Section 5505 of title 49, 
     United States Code (as added by subsection (a) of this 
     section), is amended--
       ``(1) in subsection (g)(2) by striking `section 5506,' and 
     inserting `section 508 of title 23, United States Code,';
       ``(2) in subsection (i)--
       ``(A) by inserting `Subject to section 5338(e):' after `(i) 
     Number and Amount of Grants.--'; and
       ``(B) by striking `institutions' each place it appears and 
     inserting `institutions or groups of institutions'; and
       ``(3) in subsection (j)(4)(B) by striking `on behalf of' 
     and all that follows before the period and inserting `on 
     behalf of a consortium which may also include West Virginia 
     University Institute of Technology, the College of West 
     Virginia, and Bluefield State College'.''.
       (e) Technical Corrections.--Section 5115 of such Act is 
     amended--
       (1) in subsection (a) by striking ``Director'' and 
     inserting ``Director of the Bureau of Transportation 
     Statistics'';
       (2) in subsection (b) by striking ``Bureau'' and inserting 
     ``Bureau of Transportation Statistics,''; and
       (3) in subsection (c) by striking ``paragraph (1)'' and 
     inserting ``subsection (a)''.
       (f) Corrections to Certain Oklahoma Projects.--Section 5116 
     of such Act is amended--
       (1) in subsection (e)(2) by striking ``$1,000,000 for 
     fiscal year 1999, $1,000,000 for fiscal year 2000, and 
     $500,000 for fiscal year 2001'' and inserting ``$1,000,000 
     for fiscal year 1999, $1,000,000 for fiscal year 2000, 
     $1,000,000 for fiscal year 2001, and $500,000 for fiscal year 
     2002''; and
       (2) in subsection (f)(2) by striking ``$1,000,000 for 
     fiscal year 1999, $1,000,000 for fiscal year 2000, $1,000,000 
     for fiscal year 2001, and $500,000 for fiscal year 2002'' and 
     inserting ``$1,000,000 for fiscal year 1999, $1,000,000 for 
     fiscal year 2000, and $500,000 for fiscal year 2001''.
       (g) Intelligent Transportation Infrastructure Reference.--
     Section 5117(b)(3)(B)(ii) of such Act is amended by striking 
     ``local departments of transportation'' and inserting ``the 
     Department of Transportation''.
       (h) Fundamental Properties of Asphalts and Modified 
     Asphalts.--Section 5117(b)(5)(B) of such Act is amended--
       (1) by striking ``1999'' and inserting ``1998''; and
       (2) by striking ``$3,000,000 per fiscal year'' and 
     inserting ``$1,000,000 for fiscal year 1998 and $3,000,000 
     for each of fiscal years 1999 through 2003''.

     SEC. 9012. AUTOMOBILE SAFETY AND INFORMATION.

       (a) Reference.--Section 7104 of the Transportation Equity 
     Act for the 21st Century is amended by adding at the end the 
     following:
       ``(c) Conforming Amendment.--Section 30105(a) of title 49, 
     United States Code (as amended by subsection (a) of this 
     section), is amended by inserting after `Secretary' the 
     following: `for the National Highway Traffic Safety 
     Administration'.''.
       (b) Clean Vessel Act Funding.--Section 7403 of such Act is 
     amended--
       (1) by inserting ``(a) In General.--'' before ``Section 
     4(b)''; and
       (2) by adding at the end the following:
       ``(b) Technical Amendment.--Section 4(b)(3)(B) of the 1950 
     Act (as amended by subsection (a) of this section) is amended 
     by striking `6404(d)' and inserting `7404(d)'.''.
       (c) Boating Infrastructure.--Section 7404(b) of such Act is 
     amended by striking ``6402'' and inserting ``7402''.

     SEC. 9013. TECHNICAL CORRECTIONS REGARDING SUBTITLE A OF 
                   TITLE VIII.

       (a) Amendment to Offsetting Adjustment for Discretionary 
     Spending Limit.--Section 8101(b) of the Transportation Equity 
     Act for the 21st Century is amended--
       (1) in paragraph (1) by striking ``$25,173,000,000'' and 
     inserting ``$25,144,000,000''; and
       (2) in paragraph (2) by striking ``$26,045,000,000'' and 
     inserting ``$26,009,000,000''.
       (b) Amendments for Highway Category.--Section 8101 of the 
     Transportation Equity Act for the 21st Century is amended by 
     adding at the end the following:
       ``(f) Technical Amendments.--Section 250(c)(4)(C) of the 
     Balanced Budget and Emergency Deficit Control Act of 1985 (as 
     amended by subsection (c) of this Act) is amended--
       ``(1) by striking `Century and' and inserting `Century or';
       ``(2) by striking `as amended by this section,' and 
     inserting `as amended by the Transportation Equity Act for 
     the 21st Century,'; and
       ``(3) by adding at the end the following new flush 
     sentence:
     `Such term also refers to the Washington Metropolitan Transit 
     Authority account (69-1128-0-1-401) only for fiscal year 1999 
     only for appropriations provided pursuant to authorizations 
     contained in section 14 of Public Law 96-184 and Public Law 
     101-551.'.''.
       (c) Technical Amendment.--Section 8102 of the 
     Transportation Equity Act for the 21st Century is amended by 
     inserting before the period at the end the following: ``or 
     from section 1102 of this Act''.

     SEC. 9014. CORRECTIONS TO VETERANS SUBTITLE.

       (a) Tobacco-Related Illnesses in Veterans.--Section 8202 of 
     the Transportation Equity Act for the 21st Century is amended 
     to read as follows (and the amendments made by that section 
     as originally enacted shall be treated for all purposes as 
     not having been made):

     ``SEC. 8202. TREATMENT OF TOBACCO-RELATED ILLNESSES OF 
                   VETERANS.

       ``(a) In General.--(1) Chapter 11 of title 38, United 
     States Code, is amended by inserting after section 1102 the 
     following new section:

     `Sec. 1103. Special provisions relating to claims based upon 
       effects of tobacco products

       `(a) Notwithstanding any other provision of law, a 
     veteran's disability or death shall not be considered to have 
     resulted from personal injury suffered or disease contracted 
     in the line of duty in the active military, naval, or air 
     service for purposes of this title on the basis that it 
     resulted from injury or disease attributable to the use of 
     tobacco products by the veteran during the veteran's service.
       `(b) Nothing in subsection (a) shall be construed as 
     precluding the establishment of service connection for 
     disability or death from a disease or injury which is 
     otherwise shown to have been incurred or aggravated in active 
     military, naval, or air service or which became manifest to 
     the requisite degree of disability during any applicable 
     presumptive period specified in section 1112 or 1116 of this 
     title.'.
       ``(2) The table of sections at the beginning of such 
     chapter is amended by inserting after the item relating to 
     section 1102 the following new item:

`1103. Special provisions relating to claims based upon effects of 
              tobacco products.'.
       ``(b) Effective Date.--Section 1103 of title 38, United 
     States Code, as added by subsection (a), shall apply with 
     respect to claims received by the Secretary of Veterans 
     Affairs after the date of the enactment of this Act.''.
       (b) GI Bill Educational Assistance for Survivors and 
     Dependents of Veterans.--Subtitle B of title VIII of the 
     Transportation Equity Act for the 21st Century is amended by 
     adding at the end the following new section:

     ``SEC. 8210. TWENTY PERCENT INCREASE IN RATES OF SURVIVORS 
                   AND DEPENDENTS EDUCATIONAL ASSISTANCE.

       ``(a) Survivors and Dependents Educational Assistance.--
     Section 3532 of title 38, United States Code, is amended--
       ``(1) in subsection (a)(1)--
       ``(A) by striking out `$404' and inserting in lieu thereof 
     `$485';
       ``(B) by striking out `$304' and inserting in lieu thereof 
     `$365'; and
       ``(C) by striking out `$202' and inserting in lieu thereof 
     `$242';
       ``(2) in subsection (a)(2), by striking out `$404' and 
     inserting in lieu thereof `$485';
       ``(3) in subsection (b), by striking out `$404' and 
     inserting in lieu thereof `$485'; and
       ``(4) in subsection (c)(2)--
       ``(A) by striking out `$327' and inserting in lieu thereof 
     `$392';
       ``(B) by striking out `$245' and inserting in lieu thereof 
     `$294'; and
       ``(C) by striking out `$163' and inserting in lieu thereof 
     `$196'.
       ``(b) Correspondence Course.--Section 3534(b) of such title 
     is amended by striking out `$404' and inserting in lieu 
     thereof `$485'.

[[Page H5148]]

       ``(c) Special Restorative Training.--Section 3542(a) of 
     such title is amended--
       ``(1) by striking out `$404' and inserting in lieu thereof 
     `$485';
       ``(2) by striking out `$127' each place it appears and 
     inserting in lieu thereof `$152'; and
       ``(3) by striking out `$13.46' and inserting in lieu 
     thereof `$16.16'.
       ``(d) Apprenticeship Training.--Section 3687(b)(2) of such 
     title is amended--
       ``(1) by striking out `$294' and inserting in lieu thereof 
     `$353';
       ``(2) by striking out `$220' and inserting in lieu thereof 
     `$264';
       ``(3) by striking out `$146' and inserting in lieu thereof 
     `$175'; and
       ``(4) by striking out `$73' and inserting in lieu thereof 
     `$88'.
       ``(e) Effective Date.--The amendments made by this section 
     shall take effect on October 1, 1998, and shall apply with 
     respect to educational assistance allowances paid for months 
     after September 1998.''.

     SEC. 9015. TECHNICAL CORRECTIONS REGARDING TITLE IX.

       (a) Highway Trust Fund.--Subsection (f) of section 9002 of 
     the Transportation Equity Act for the 21st Century is amended 
     by adding at the end the following new paragraphs:
       ``(4) The last sentence of section 9503(c)(1), as amended 
     by subsection (d), is amended by striking `the date of 
     enactment of the Transportation Equity Act for the 21st 
     Century' and inserting `the date of the enactment of the TEA 
     21 Restoration Act'.
       ``(5) Paragraph (3) of section 9503(e), as amended by 
     subsection (d), is amended by striking `the date of enactment 
     of the Transportation Equity Act for the 21st Century' and 
     inserting `the date of the enactment of the TEA 21 
     Restoration Act'.''.
       (b) Boat Safety Account and Sport Fish Restoration 
     Account.--Section 9005 of the Transportation Equity Act for 
     the 21st Century is amended by adding at the end the 
     following new subsection:
       ``(f) Clerical Amendments.--
       ``(1) Subparagraph (A) of section 9504(b)(2), as amended by 
     subsection (b)(1), is amended by striking `the date of the 
     enactment of the Transportation Equity Act for the 21st 
     Century' and inserting `the date of the enactment of the TEA 
     21 Restoration Act'.
       ``(2) Subparagraph (B) of section 9504(b)(2), as added by 
     subsection (b)(3), is amended by striking `such Act' and 
     inserting `the TEA 21 Restoration Act'.
       ``(3) Subparagraph (C) of section 9504(b)(2), as amended by 
     subsection (b)(2) and redesignated by subsection (b)(3), is 
     amended by striking `the date of the enactment of the 
     Transportation Equity Act for the 21st Century' and inserting 
     `the date of the enactment of the TEA 21 Restoration Act'.
       ``(4) Subsection (c) of section 9504, as amended by 
     subsection (c)(2), is amended by striking `the date of 
     enactment of the Transportation Equity Act for the 21st 
     Century' and inserting `the date of the enactment of the TEA 
     21 Restoration Act'.''.

     SEC. 9016. EFFECTIVE DATE.

       This title and the amendments made by this title shall take 
     effect simultaneously with the enactment of the 
     Transportation Equity Act for the 21st Century. For purposes 
     of all Federal laws, the amendments made by this title shall 
     be treated as being included in the Transportation Equity Act 
     for the 21st Century at the time of the enactment of such 
     Act, and the provisions of such Act (including the amendments 
     made by such Act) (as in effect on the day before the date of 
     enactment of this Act) that are amended by this title shall 
     be treated as not being enacted.
       And the Senate agree to the same.

     Bill Archer,
     Nancy L. Johnson,
     Rob Portman,
     Charles B. Rangel,
     William J. Coyne,
                                Managers on the Part of the House.

     Bill Roth,
     John H. Chafee,
     Chuck Grassley,
     Orrin Hatch,
     Frank H. Murkowski,
     Don Nickles,
     Phil Gramm,
     Daniel P. Moynihan,
     Max Baucus,
     Bob Graham,
     John Breaux,
     Bob Kerrey,
     From the Committee on Governmental Affairs:
     Fred Thompson,
     Sam Brownback,
     Thad Cochran,
                               Managers on the Part of the Senate.

       JOINT EXPLANATORY STATEMENT OF THE COMMITTEE OF CONFERENCE

       The managers on the part of the House and the Senate at the 
     conference on the disagreeing votes of the two Houses on the 
     amendment of the Senate to the bill (H.R. 2676) to amend the 
     Internal Revenue Code of 1986 to restructure and reform the 
     Internal Revenue Service, and for other purposes, submit the 
     following joint statement to the House and the Senate in 
     explanation of the effect of the action agreed upon by the 
     managers and recommended in the accompanying conference 
     report:
       The Senate amendment struck all of the House bill after the 
     enacting clause and inserted a substitute text.
       The House recedes from its disagreement to the amendment of 
     the Senate with an amendment that is a substitute for the 
     House bill and the Senate amendment. The differences between 
     the House bill, the Senate amendment, and the substitute 
     agreed to in conference are noted below, except for clerical 
     corrections, conforming changes made necessary by agreements 
     reached by the conferees, and minor drafting and clerical 
     changes.

     TITLE I. REORGANIZATION OF STRUCTURE AND MANAGEMENT OF THE IRS

        A. IRS Restructuring and Creation of IRS Oversight Board

     1. IRS mission and restructuring (secs. 1001 and 1002 of the 
         Senate amendment)

                              Present Law

     IRS mission statement
       The IRS mission statement provides that:
       The purpose of the Internal Revenue Service is to collect 
     the proper amount of tax revenue at the least cost; serve the 
     public by continually improving the quality of our products 
     and services; and perform in a manner warranting the highest 
     degree of public confidence in our integrity and fairness.
     IRS organizational plan
       Under Reorganization Plan No. 1 of 1952, the Internal 
     Revenue Service (``IRS'') is organized into a 3-tier 
     geographic structure with a multi-functional National Office, 
     Regional Offices, and District Offices. A number of IRS 
     reorganizations have occurred since then, but no major 
     changes have been made to the basic 3-tier structure. 
     Currently, as a result of a 1995 reorganization, there is a 
     Regional Commissioner, a Regional Counsel and a Regional 
     Director of Appeals for each of the following 4 regions: (1) 
     the Northeast Region (headquartered in New York); (2) the 
     Southeast Region (Atlanta); (3) the Midstates Region 
     (Dallas); and (4) the Western Region (San Francisco). There 
     are 33 District Offices, 10 service centers, and 3 computing 
     centers.

                               House Bill

       No provision.

                            Senate Amendment

       Under the Senate amendment, the IRS is directed to revise 
     its mission statement to provide greater emphasis on serving 
     the public and meeting the needs of taxpayers.
       The IRS Commissioner is directed to restructure the IRS by 
     eliminating or substantially modifying the present-law three-
     tier geographic structure and replacing it with an 
     organizational structure that features operating units 
     serving particular groups of taxpayers with similar needs. 
     The plan is also required to ensure an independent appeals 
     function within the IRS. As part of ensuring an independent 
     appeals function, the reorganization plan is to prohibit 
     ex parte communications between appeals officers and other 
     IRS employees to the extent such communications appear to 
     compromise the independence of the appeals officers. The 
     legality of IRS actions will not be affected pending 
     further appropriate statutory changes relating to such a 
     reorganization (e.g., eliminating statutory references to 
     obsolete positions).
       Effective date.--The provision is effective on the date of 
     enactment.

                          Conference Agreement

       The conference agreement follows the Senate amendment.
       Effective date.--The provision is effective on the date of 
     enactment.
     2. Establishment and duties of IRS Oversight Board (sec. 101 
         of the House bill and sec. 1101 of the Senate amendment)

                              Present Law

       Under present law, the administration and enforcement of 
     the internal revenue laws are performed by or under the 
     supervision of the Secretary of the Treasury.\1\ The 
     Secretary has delegated the responsibility to administer and 
     enforce the Internal Revenue laws to the Commissioner of 
     Internal Revenue (``Commissioner''). The Commissioner has the 
     final authority of the IRS concerning the substantive 
     interpretation of the tax laws as reflected in legislative 
     and regulatory proposals, revenue rulings, letter rulings, 
     and technical advice memoranda. The duties of the Chief 
     Counsel of the IRS are prescribed by the Secretary. The 
     Secretary has delegated authority over the Chief Counsel to 
     the General Counsel of the Treasury. The General Counsel has 
     delegated authority to serve as the legal adviser to the 
     Commissioner to the Chief Counsel.
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     \1\ Code sec. 7801(a).
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       Federal employees are subject to rules designed to prevent 
     conflicts of interest or the appearance of conflicts of 
     interest. The rules applicable to any particular employee 
     depend in part on whether the employee is a regular, full-
     time Federal Government employee or a special government 
     employee, the length of service of the employee, and the pay 
     grade of the employee. A ``special government employee'' is, 
     in general, an officer or employee of the executive or 
     legislative branch of the U.S. government who is appointed or 
     employed to perform (with or without compensation), for a 
     period not to exceed 130 days during any period of 365 
     consecutive days, temporary duties either on a full-time or 
     intermittent basis. Violations of the ethical conduct rules 
     are generally punishable by imprisonment for up to 1 year (5 
     years in the case of wilful misconduct), a civil fine, or 
     both. The amount of the civil fine with respect to each 
     violation cannot exceed the greater of $50,000 or the 
     compensation received by the employee in connection with the 
     prohibited conduct.

[[Page H5149]]

        Under the ethical conduct rules, all Federal Government 
     employees (including special government employees) are 
     precluded from participating in a matter in which the 
     employee (or a related party) has a financial interest. In 
     addition, special government employees cannot represent a 
     party (whether or not for compensation) or receive 
     compensation for representation of a party in relation to a 
     particular matter involving specific parties (1) in which the 
     employee has at any time participated personally and 
     substantially, or (2) which is pending in the department or 
     agency of the Government in which the special government 
     employee is serving. In the case of a special government 
     employee who has served in a department no more than 60 days 
     during the immediately preceding 365 days, item (2) does not 
     apply.\2\ Thus, for example, such an individual can receive 
     compensation for representational services with respect to 
     matters pending in the department in which the employee 
     serves, as long as it is not a matter involving parties in 
     which the employee personally and substantially 
     participated.\3\
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     \2\ The prohibition on receipt of compensation applies 
     regardless of whether the services are performed by the 
     Federal employee or someone else. For example, it would 
     preclude a Federal employee from sharing in the compensation 
     received by a partner of the Federal employee for 
     representations on covered matters.
     \3\ More stringent rules apply to regular Federal Government 
     employees. Such employees cannot receive compensation for 
     representational services (whether rendered by the individual 
     or another) in matters in which the United States is a party 
     or has a direct and substantial interest before any 
     department, agency or court. In addition, a Federal 
     Government employee cannot act as agent or attorney (whether 
     or not for compensation) for prosecuting any claim against 
     the United States or act as agent or attorney for anyone 
     before any department, agency, or court in which the United 
     States is a party or has a direct and substantial interest.
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       The conflict of interest rules also impose restrictions on 
     what a Federal Government employee can do after leaving the 
     Government. In general, senior level officers and employees 
     (including special government employees) who served at least 
     60 days during the immediately preceding 1-year period cannot 
     represent anyone other than the United States before the 
     individual's former department or agency for 1 year after 
     terminating employment. Whether an employee is a senior level 
     officer or employee is determined by pay grade. The one-year 
     post employment restriction does not apply to special 
     government employees who serve less than 60 days during the 
     immediately preceding 1-year period before termination of 
     employment.\4\
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     \4\ All Executive branch employees are permanently prohibited 
     from representing a party other than the government in 
     connection with a particular matter (1) in which the 
     government is a party or has an interest, (2) in which the 
     individual participated personally and substantially, and (3) 
     which involved a specific party or parties at the time of 
     their participation. In addition, Federal employees cannot, 
     within 2 years after terminating employment, represent any 
     person other than the United States in connection with any 
     matter (1) in which the government is a party or has a direct 
     and substantial interest, (2) which the person knows or 
     reasonably should know was actually pending under his or her 
     official responsibility within one year before termination of 
     employment, and (3) which involved a specific party or 
     parties at the time it was pending.
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       Federal employees with pay grades (or pay rates) above 
     certain levels (and who have at least 60 days of service) are 
     required to file annually public financial disclosures.

                               House Bill

     Duties, responsibilities, and powers of the IRS Oversight 
         Board
       General responsibilities of the Board
       The House bill provides for the establishment within the 
     Treasury Department of the Internal Revenue Service Oversight 
     Board (the ``Board''). The general responsibilities of the 
     Board are to oversee the Internal Revenue Service (the 
     ``IRS'') in its administration, management, conduct, 
     direction, and supervision of the execution and application 
     of the internal revenue laws. The Board has no 
     responsibilities or authority with respect to: (1) the 
     development and formulation of Federal tax policy relating to 
     existing or proposed internal revenue laws; (2) law 
     enforcement activities of the IRS, including compliance 
     activities such as criminal investigations, examinations, and 
     collection activities;\5\ and (3) specific procurement 
     activities of the IRS (e.g., selecting vendors or awarding 
     contracts). The Board also has the authority to recommend 
     candidates for IRS Commissioner to the President, and to 
     recommend removal of the Commissioner.
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     \5\ This provision is not intended to limit the Board's 
     authority with respect to the review and approval of 
     strategic plans and the budget of the Commissioner or to 
     preclude the Board from review of IRS operations generally.
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       Specific responsibilities of the Board
       The Board has the following specific responsibilities: (1) 
     to review and approve strategic plans of the IRS, including 
     the establishment of mission and objectives (and standards of 
     performance) and annual and long-range strategic plans; (2) 
     to review the operational functions of the IRS, including 
     plans for modernization of the tax system, outsourcing or 
     managed competition, and training and education; (3) to 
     provide for the review of the Commissioner's selection, 
     evaluation and compensation of senior managers; and (4) to 
     review and approve the Commissioner's plans for major 
     reorganization of the IRS. It is intended that major 
     reorganizations subject to the Board's review and approval 
     are limited to major changes in organizational structure, 
     such as the 1995 IRS reorganization that combined 7 regions 
     into 4 and 63 districts into 33. In addition, the Board will 
     review and approve the budget request of the IRS prepared by 
     the Commissioner, submit such budget request to the 
     Secretary, and ensure that the budget request supports the 
     annual and long-range strategic plans of the IRS. The 
     Secretary is required to submit the budget request approved 
     by the Board to the President, who is required to submit such 
     request, without revision, to the Congress together with the 
     President's annual budget request for the IRS. The House bill 
     does not affect the ability of the President to include, in 
     addition, his own budget request relating to the IRS.
       It is intended that the Board will reach a formal decision 
     on all matters subject to its review. With respect to those 
     matters over which the Board has approval authority, the 
     Board's decisions are determinative. It is fully expected 
     that, with respect to those matters over which the Board has 
     approval authority (other than as relates to the development 
     of the budget), the Secretary will exert his or her oversight 
     responsibility over the IRS by working through and with the 
     Board.\6\
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     \6\ The budget is excepted from this expectation because the 
     bill provides a separate mechanism through which the 
     Secretary may act. The procedures relating to the Board 
     permit the President to submit his own budget in addition to 
     that approved by the Board.
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       The Board is required to report each year to the President 
     and the Congress regarding the conduct of its 
     responsibilities.
       It is expected that the Treasury Department will no longer 
     utilize the IRS Management Board once the new Board created 
     by the bill is in place, as the functions of the IRS 
     Management Board would be taken over by the new Board.
     Composition of the Board
       The Board is composed of 11 members. Eight of the members 
     are so-called ``private-life'' members who are not Federal 
     officers or employees. These private-life members will be 
     appointed by the President, with the advice and consent of 
     the Senate. The remaining members are (1) the Secretary of 
     the Treasury (or, if the Secretary so designates, the Deputy 
     Secretary of the Treasury), (2) a representative from an 
     organization representing a substantial number of IRS 
     employees, who will be appointed by the President with the 
     advice and consent of the Senate, and \7\ (3) the 
     Commissioner of the IRS.
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     \7\ In appointing the employee organization representative, 
     the President is not constrained to choose an individual 
     recommended by an organization covering IRS employees, but 
     may choose whoever the President determines to be an 
     appropriate representative of the organization.
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     Qualifications of Board members
       The private-life members of the Board are to be appointed 
     based on their expertise in the following areas: management 
     of large service organizations; customer service; the Federal 
     tax laws, including administration and compliance; 
     information technology; organization development; and the 
     needs and concerns of taxpayers. In the aggregate, the 
     members of the Board should collectively bring to bear 
     expertise in all these enumerated areas.
     Ethical standards for private-life members
       Representational activities and compensation matters
       The private-life members are considered special government 
     employees during the entire period of their appointment. That 
     is, they will be considered to be performing services as a 
     special government employee on each day during their 
     appointment, not just on those days on which they actually 
     perform services. Thus, they will be subject to the ethical 
     conduct rules applicable to special government employees who 
     serve more than 60 days during any 365-day period. Thus, for 
     example, private-life Board members would not be able to 
     represent clients before the IRS on matters involving 
     specific parties during their terms as Board members.
       Post-employment restrictions
       Private-life Board members are to be subject to the one-
     year post-employment restriction applicable to senior-level 
     employees.
       Financial disclosure reports
       Private-life members are to be subject to the public 
     financial disclosure rules generally applicable to special 
     government employees above certain pay grades.
     Administrative matters
       Term of appointments
       The 8 private-life Board members and the employee 
     organization representative generally will be appointed for 
     5-year terms. The private-life members may serve no more than 
     two 5-year terms. Each 5-year term begins upon appointment. 
     Board member terms are staggered, as a result of a special 
     rule providing that some private-life members first appointed 
     to the Board will serve initial terms of less than 5 years. 
     The members of the Board are to elect a chairperson from 
     among the private-life Board members for a 2-year term. Any 
     member of the Board can be removed at the will of the 
     President. In addition, the Secretary of the Treasury (or, if 
     so delegated, the Deputy Secretary) and the IRS Commissioner 
     are removed from the Board upon termination of employment in 
     such positions and the representative of IRS

[[Page H5150]]

     employees is removed from the Board upon termination of their 
     employment, membership, or other affiliation with the 
     organization representing IRS employees.
       Meetings and quorum
       The Board is required to meet at least once a month, and 
     can meet at such other times as the Board determines 
     appropriate. A quorum of 6 members is required in order for 
     the Board to conduct business. Actions of the Board are taken 
     by a majority vote of those members present and voting.
       Staffing
       The Board will not have its own permanent staff, but will 
     have such staff as detailed by the Commissioner at the 
     request of the Chair of the Board. The Chair can procure 
     temporary and intermittent services under section 3109(b) of 
     title 5 of the U.S. Code.
       Compensation and travel expenses
       The private-life members of the Board will be compensated 
     at a rate not to exceed $30,000 per year, except that the 
     Chair will be compensated at a rate not to exceed $50,000 a 
     year. Other members of the Board will receive no compensation 
     for their services as Board members. The members of the Board 
     will be entitled to travel expenses for purposes of attending 
     meetings of the Board.
       Reports
       The Board is required to report each year regarding the 
     conduct of its responsibilities. The annual report shall be 
     provided to the President and Congress.
     Effective date
       The House bill provisions are effective on the date of 
     enactment. The President is directed to submit nominations 
     for Board members to the Senate within 6 months of the date 
     of enactment.

                            Senate Amendment

     Duties, responsibilities, and powers of the IRS Oversight 
         Board
       General responsibilities of the Board
       The Senate amendment generally follows the House bill, 
     except that under the Senate amendment, the Board has no 
     authority (1) to intervene in specific taxpayer cases, 
     including compliance activities involving specific taxpayers 
     such as criminal investigations, examinations, and collection 
     activities, and (2) to intervene in specific individual 
     personnel matters. The Board does have authority with respect 
     to general law enforcement matters, and it has the 
     responsibility to ensure that the organization and operation 
     of the IRS allows it to carry out its mission.
       Specific responsibilities of the Board
       Under the Senate amendment, the Board's specific 
     responsibilities and budget responsibilities are the same as 
     in the House bill, except that: (1) the Board's review and 
     approval authority for the Commissioner's plans for major 
     reorganization does not apply to the reorganization provided 
     in the Senate amendment; (2) the Board, after taking into 
     account the recommendations, if any, of the Commissioner, 
     shall recommend to the Secretary 3 candidates for appointment 
     as the National Taxpayer Advocate from individuals who have a 
     background in customer service and tax law, and experience 
     representing individual taxpayers (and to recommend the 
     removal of the National Taxpayer Advocate); (3) the Board 
     shall review procedures of the IRS relating to financial 
     audits; (4) the Board is to review operations of the IRS in 
     order to ensure the proper treatment of taxpayers; and (5) in 
     exercising its duties, the members of the Board shall 
     maintain appropriate confidentiality (e.g., regarding 
     enforcement matters).

                        Composition of the Board

       Under the Senate amendment, the Board is composed of 9 
     members. Six of the members are so-called ``private-life'' 
     members who are not otherwise Federal officers or employees. 
     These private-life members are appointed by the President, 
     with the advice and consent of the Senate. The other members 
     are: (1) the Secretary (or, if the Secretary so designates, 
     the Deputy Secretary); (2) the Commissioner; and (3) a 
     representative from an employee organization that represents 
     a substantial number of IRS employees and who is appointed by 
     the President, with the advice and consent of the Senate. In 
     appointing the representative of an employee organization, 
     the President is not required to choose an individual 
     recommended by the employee organization, but may choose 
     whoever the President determines to be an appropriate 
     representative of the employee organization.

                         Section 6103 authority

       Under the Senate amendment, Board members would have 
     limited access to confidential tax return and return 
     information under section 6103. This limited access would 
     permit the Board to receive such information (i.e., 
     information that has not been redacted to remove confidential 
     tax return and return information) from the Treasury IG for 
     Tax Administration or the Commissioner in connection with 
     reports to the Board. This access to section 6103 information 
     does not include the taxpayer's name, address, or taxpayer or 
     employer identification number. The Board members are subject 
     to the anti-browsing rules applicable to IRS employees under 
     present law.\8\
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     \8\ The provision does not affect the Secretary's (or Deputy 
     Secretary's) or the Commissioner's access to section 6103 
     information or the application of the anti-browsing rules to 
     the Secretary (or Deputy Secretary) or the Commissioner.
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                    Qualifications of Board members

       Under the Senate amendment, the private-life members of the 
     Board will be appointed without regard to political 
     affiliation, and based solely on their expertise in the same 
     areas as the House bill, except that the Senate amendment 
     adds the further qualification that a private-life member 
     have experience and expertise in the needs and concerns of 
     small business.

               Ethical standards for private-life members

       Representational activities and compensation matters
       Under the Senate amendment, the ethical conduct rules 
     applicable to private-life Board members depend on whether or 
     not such members are determined to be ``special government 
     employees'' under current law. It is expected that they 
     generally will be.\9\ In that case, they will be subject, at 
     a minimum, to the ethical conduct rules applicable to special 
     government employees. In addition, during their term as a 
     Board member, a private-life Board member cannot represent 
     any party (whether or not for compensation) with respect to 
     (1) any matter before the Board or the IRS, (2) any tax-
     related matter before the Treasury Department, or (3) any 
     court proceeding with respect to a matter described in (1) or 
     (2). Thus, for example, the day after appointment to the 
     Board, a private-life Board member could not meet with 
     representatives of the IRS or Treasury on behalf of a client 
     or the Board member's corporate employer with respect to 
     proposed tax regulations. On the other hand, the Board member 
     could, for example, represent clients before the U.S. Customs 
     Service. The special rules applicable to private-life Board 
     members generally do not preclude the Board member from 
     sharing in compensation from representation of clients by 
     another person (e.g., a partner of the Board member) before 
     the IRS or Treasury.\10\
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     \9\ If the Board members are determined not to be special 
     government employees under the present-law rules, then they 
     will be subject to the ethical conduct rules relating to 
     regular Federal Government employees.
     \10\ Certain limitations to this exception to the otherwise 
     applicable ethical rules would apply. For example, this 
     exception would not apply if the matter was one in which the 
     Board member personally and substantially participated. 
     Similarly, the Board member could not act with respect to a 
     matter in which he or she has a personal financial interest, 
     including the potential to receive a share in compensation as 
     a result of another's representation.
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       Post-employment restrictions
       Under the Senate amendment, private-life Board members are 
     subject to the 1-year post employment restriction applicable 
     to individuals above certain pay grades and who have served 
     at least 60 days (whether or not the members are special 
     government employees under the present-law rules).
       Financial disclosure reports
       Under the Senate amendment, the private-life Board members 
     are subject to the public financial disclosure rules 
     applicable to Federal Government employees above certain pay 
     grades and who have at least 60 days of service. Thus, the 
     private-life Board members are required to file a public 
     financial disclosure report for purposes of confirmation, 
     annually during their tenure on the Board, and upon 
     termination of appointment.
     Ethical standards for IRS employee organization 
         representative
       Waiver of conflict-of-interest laws
       The Senate amendment provides that the IRS employee 
     organization representative is subject to the same ethical 
     conduct rules as the private-life Board members. However, the 
     Senate amendment modifies the otherwise applicable ethical 
     conduct rules so that they do not preclude the employee 
     representative from carrying out his or her duties as a Board 
     member and his or her duties with respect to the employee 
     organization. In particular, the employee representative is 
     not prohibited from (1) representing the interests of the 
     employee organization before the Federal Government on any 
     matter, or (2) acting on a Board matter because the employee 
     organization has a financial interest in the matter. In 
     addition, the employee representative can continue to receive 
     his or her compensation from the employee organization.\11\
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     \11\ Certain limitations on this exception would apply. For 
     example, the rules relating to bribery would continue to 
     apply. In addition, the employee representative would be 
     precluded from acting on a matter in which he or she has a 
     financial interest.
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       Post-employment restrictions
       The employee representative is subject to the same 1-year 
     post employment restriction applicable to the private-life 
     Board members, except to the extent the representative is 
     acting in his capacity as a representative of the employee 
     organization.
       Financial disclosure reports
       The employee representative is subject to the same public 
     financial disclosure rules as the private-life Board members. 
     In addition, the employee organization is required to provide 
     an annual financial report with the House Ways and Means 
     Committee and the Senate Finance Committee. Such report is 
     required to include the compensation paid to the individual 
     serving on the Board, the compensation of individuals 
     employed by the employee organization, and membership dues 
     collected by the organization.
     Administrative matters
       Term of appointments
       The 6 private-life Board members will be appointed for 5-
     year terms. The private-life

[[Page H5151]]

     members may serve no more than two 5-year terms. Board member 
     terms will be staggered, as a result of a special rule 
     providing that some private-life members first appointed to 
     the Board would serve terms of less than 5 years. Under this 
     rule, 2 members first appointed will have a term of 2 years, 
     2 for a term of 4 years, and 2 for a term of 5 years. The 
     terms of the initial Board members will run from the date of 
     appointment. Subsequent terms will run from expiration of the 
     previous term. A Board member appointed to fill a vacancy 
     before the expiration of a term will be appointed to the 
     remainder of the term. Such a member could be appointed to a 
     subsequent 5-year term.
       A private-life Board member and the IRS employee 
     representative Board member may be removed at the will of the 
     President. In addition, the Secretary (or Deputy Secretary) 
     and the IRS Commissioner are automatically removed from the 
     Board upon his or her termination of employment as such.
       Chair of the Board
       The members of the Board are to elect a Chair from the 
     private-life members for a 2-year term. Except as otherwise 
     provided by a majority of the Board, the authority of the 
     Chair includes the authority to hire appropriate staff, call 
     meetings, establish committees, establish the agenda for 
     meetings, and develop rules for the conduct of business.
       Meetings and quorum
       Under the Senate amendment, the Board is required to meet 
     on a regular basis (as determined necessary by the Chair), 
     but no less frequently than quarterly. The Board can meet 
     privately, and is not subject to public disclosure laws. A 
     quorum of 5 members is required in order for the Board to 
     conduct business. Actions of the Board can be taken by a 
     majority vote of those members present and voting.
       Staffing
       Under the Senate amendment, the Chair is authorized to hire 
     (and terminate) such personnel as the Chair finds necessary 
     to enable the Board to carry out its duties. In addition, the 
     Board will have such staff as detailed by the Commissioner or 
     from another Federal agency at the request of the Chair of 
     the Board. The Chair can procure temporary and intermittent 
     services under section 3109(b) of title 5 of the U.S. Code.
       Compensation and travel expenses
       Under the Senate amendment, the private-life members of the 
     Board will be compensated at a rate of $30,000 per year, 
     except that the Chair will be compensated at a rate of 
     $50,000 a year. The other Board members will receive no 
     compensation for their services as a Board member. In 
     addition, members of the Board are entitled to travel 
     expenses for purposes of attending Board meetings or other 
     duties as a member of the Board.
       Reports
       Under the Senate amendment, the Board is required to report 
     each year regarding the conduct of its responsibilities. The 
     annual report shall be provided to the President and the 
     House Committees on Ways and Means, Government Reform and 
     Oversight, and Appropriations and the Senate Committees on 
     Finance, Governmental Affairs, and Appropriations. In 
     addition, the Board is required to report to the Ways and 
     Means and Finance Committees if the IRS does not address 
     problems identified by the Board.
     Effective date
       The provision is effective on the date of enactment. The 
     President is directed to submit nominations for Board members 
     to the Senate within 6 months of the date of enactment. The 
     legality of the actions of the IRS are not affected pending 
     appointment of the Board. Under the Senate amendment, the 
     Board will sunset September 30, 2008.

                          Conference Agreement

     Duties, responsibilities, and powers of the IRS Oversight 
         Board
       General responsibilities of the Board
       The conference agreement follows the Senate amendment.
       Specific responsibilities of the Board
       Under the conference agreement, the specific 
     responsibilities of the Board are the same as under the 
     Senate amendment, except that they do not include the 
     responsibility (1) to recommend to the Secretary (taking into 
     account the recommendations, if any, of the Commissioner) 3 
     candidates for appointment as the National Taxpayer Advocate; 
     or (2) to review procedures of the IRS relating to financial 
     audits. However, the conferees intend that the Chairman of 
     the Board will consider establishing a financial management 
     subcommittee.
       Consistent with the Board's responsibility to review and 
     approve plans for major reorganizations, the conferees intend 
     for the Board to have the authority to review and approve the 
     reorganization plan that is contained in Title I of this 
     legislation. However, to the extent that the Commissioner has 
     already taken measures to develop and implement such a plan, 
     the conferees do not want to impede such efforts. Thus, the 
     conferees do not intend in any way that the Commissioner 
     should be precluded from moving ahead with such planning and 
     implementation prior to the appointment of the Board.
     Composition of the Board
       The conference agreement follows the Senate amendment, 
     except that in lieu of a Board member who is a representative 
     of an organization that represents a substantial number of 
     IRS employees, the conference agreement provides for an 
     individual who is a full-time Federal employee or a 
     representative of employees (``employee representative'').
     Section 6103 authority
       The conference agreement follows the Senate amendment.
     Qualifications of Board members
       The conference agreement follows the Senate amendment.
     Ethical standards for private-life members
       The conference agreement follows the Senate amendment with 
     respect to the application of the ethics rules to the 
     private-life Board members regarding representational 
     activities and compensation matters, post-employment 
     restrictions, and financial disclosure requirements.
     Ethical standards for employee representative
       Under the conference agreement, the same ethics rules 
     applicable to the private-life members regarding the 
     representational activities and compensation matters apply to 
     the employee representative if the individual is a special 
     Government employee (i.e., the individual is not already an 
     officer or employee of the Federal Government). In addition, 
     the same post-employment restrictions and the financial 
     disclosure requirements applicable to the private-life 
     members apply to the employee representative. The conference 
     agreement does not include the Senate amendment requirement 
     for filing annual financial reports that applies to the 
     organization representing a substantial number of IRS 
     employees, a representative of which is a Board member.
       The conference agreement does not include the Senate 
     amendment provision for waiver of the conflict-of-interest 
     laws. Instead, the conference agreement grants the President 
     the authority to waive, at the time the President nominates 
     the employee representative to the Board, for the term of the 
     member, any appropriate provisions of chapter 11 of title 18 
     of the United States Code, to the extent such waiver is 
     necessary to allow such member to participate in the 
     decisions of the Board while continuing to serve as an 
     employee representative. Any such waiver is not effective 
     unless a written intent of waiver to exempt the member (and 
     the actual waiver language) is submitted to the Senate with 
     the nomination of the member. It is not intended that waiver 
     of the restrictions on post-employment provided under the 
     conference agreement be necessary to allow such member to 
     participate in the decisions of the Board while continuing to 
     serve as an employee representative.
     Administrative matters
       Term of appointments
       The conference agreement follows the Senate amendment, with 
     modifications. First, the staggered term of the initial Board 
     shall be as follows: 2 members first appointed will have a 
     term of 3 years, 2 members shall have a term of 4 years, and 
     2 members shall have a term of 5 years. In addition, the 
     limitation of the Senate amendment that private-life members 
     may serve no more than two five-year terms also applies to 
     the employee representative under the conference agreement.
       Chair of the Board
       The conference agreement follows the Senate amendment.
       Meetings and quorum
       The conference agreement follows the Senate amendment.
       Staffing
       The conference agreement follows the Senate amendment. 
     However, the conferees intend that the size of the staff be 
     limited to a small number, and the Board is encouraged to use 
     outside consultants whenever necessary.
       Compensation and travel expenses
       The conference agreement follows the Senate amendment with 
     respect to compensation of Board members, with a 
     modification. The employee representative member of the Board 
     will be compensated at a rate of $30,000 per year unless the 
     individual is already an officer or employee of the Federal 
     Government.
       The conference agreement follows the House bill provision 
     on travel expenses, with a modification. Travel expenses 
     other than those incurred to attend Board meetings are 
     allowed if approved in advance by the Chair, and the Board 
     shall report annually to Congress the amount of travel 
     expenditures incurred by the Board.
       Reports
       The conference agreement follows the Senate amendment, with 
     a modification providing that the Board is to include in its 
     annual report information on travel expenses allowed.
     Effective date
       The conference agreement follows the House bill. The 
     conference agreement does not include the Senate amendment 
     provision for termination of the Board on September 30, 2008. 
     The conference agreement provides that the provisions 
     relating to the Board are not to be construed to invalidate 
     the actions and authority of the IRS prior to the appointment 
     of members of the Board.

[[Page H5152]]

  B. Appointment and Duties of IRS Commissioner and Chief Counsel and 
                            Other Personnel

     1. IRS Commissioner and other personnel (secs. 102 and 103 of 
         the House bill and secs. 1102(a) and 1104 of the Senate 
         amendment)

                              Present Law

       Within the Department of the Treasury is a Commissioner of 
     Internal Revenue (``Commissioner''), who is appointed by the 
     President, with the advice and consent of the Senate. The 
     Commissioner has such duties and powers as may be prescribed 
     by the Secretary.\12\ The Secretary has delegated to the 
     Commissioner the administration and enforcement of the 
     internal revenue laws.\13\ The Commissioner generally does 
     not have authority with respect to tax policy matters.\14\
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     \12\ Code sec. 7802(a).
     \13\ Treasury Order 150-10 (April 22, 1982).
     \14\ See, e.g., Treasury Order 111-2 (March 16, 1981), which 
     delegates to the Assistant Secretary (Tax Policy) the 
     exclusive authority to make the final determination of the 
     Treasury Department's position with respect to issues of tax 
     policy arising in connection with regulations, published 
     Revenue Rulings and Revenue Procedures, and tax return forms 
     and to determine the time, form and manner for the public 
     communication of such position.
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       The Secretary is authorized to employ such persons as the 
     Secretary deems appropriate for the administration and 
     enforcement of the internal revenue laws and to assign posts 
     of duty.

                               House Bill

       As under present law, the House bill provides that 
     Commissioner will be appointed by the President, with the 
     advice and consent of the Senate, and can be removed at will 
     by the President. The Commissioner will be appointed to a 5-
     year term, beginning with the date of appointment. The Board 
     has the power to recommend candidates to the President for 
     Commissioner. The Board has the authority to recommend the 
     removal of the Commissioner. Although the President is not 
     required to nominate for Commissioner a candidate recommended 
     by the Board (or to remove a Commissioner when the Board so 
     recommends), it is expected that the President will generally 
     give deference to the Board's expertise and familiarly with 
     the needs and functions of the IRS and will act in accordance 
     with the Board's recommendations.
       The Commissioner has such duties and powers as prescribed 
     by the Secretary. Unless otherwise specified by the 
     Secretary, such duties and powers include the power to 
     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 and to recommend to the President a 
     candidate for Chief Counsel (and recommend the removal of the 
     Chief Counsel). It is intended that the listed duties codify 
     present delegations. However, if the Secretary changes such 
     orders, they may be subject to the notice requirement of the 
     bill, described below.
       If the Secretary determines not to delegate the specified 
     duties to the Commissioner, such determination will not take 
     effect until 30 days after the Secretary notifies the House 
     Committees on Ways and Means, Government Reform and 
     Oversight, and Appropriations, the Senate Committees on 
     Finance, Government Operations, and Appropriations, and the 
     Joint Committee on Taxation.
       This provision is not intended to alter the Secretary's 
     existing authority to delegate to agencies other than the IRS 
     the authority to administer and enforce certain portions of 
     the internal revenue laws. For example, the Secretary 
     currently has delegated to the Bureau of Alcohol, Tobacco and 
     Firearms the authority to administer and enforce the taxes 
     under section 4181 and chapters 51, 52, and 53 of the 
     Internal Revenue Code (regarding excise and other taxes on 
     alcohol, tobacco, firearms, and destructive devices).
       The Commissioner is to consult with the Board on all 
     matters within the Board's authority (other than the 
     recommendation of candidates for Commissioner and the 
     recommendation to remove the Commissioner). With respect to 
     those matters within the Board's approval authority (other 
     than with respect to the development of the budget), it is 
     fully expected that the Secretary will exert his or her 
     oversight responsibility over the IRS by working through and 
     with the Board.\15\
---------------------------------------------------------------------------
     \15\ The budget is excepted from this expectation because the 
     House bill provides a separate mechanism through which the 
     Secretary may act.
---------------------------------------------------------------------------
       Unless otherwise specified by the Secretary, the 
     Commissioner is authorized to employ such persons as the 
     Commissioner deems proper for the administration and 
     enforcement of the internal revenue laws and would be 
     required to issue all necessary directions, instructions, 
     orders, and rules applicable to such persons. Unless 
     otherwise provided by the Secretary, the Commissioner will 
     determine and designate the posts of duty.
       The Commissioner is compensated as under present law.
       Effective date.--The provisions of the House bill relating 
     to the Commissioner generally are effective on the date of 
     enactment. The provision relating to the 5-year term of 
     office applies to the Commissioner in office on the date of 
     enactment. This 5-year term runs from the date of 
     appointment.

                            Senate Amendment

       As under present law, the Senate amendment provides that 
     the Commissioner is appointed by the President, with the 
     advice and consent of the Senate, and may be removed at 
     will by the President. Under the provision, one of the 
     qualifications of the Commissioner is demonstrated ability 
     in management. The Commissioner is appointed to a 5-year 
     term, beginning with the date of appointment. The 
     Commissioner may be reappointed for more than one 5-year 
     term. The Board recommends candidates to the President for 
     the position of Commissioner; however, the President is 
     not required to nominate for Commissioner a candidate 
     recommended by the Board. The Board has the authority to 
     recommend the removal of the Commissioner.
       The Commissioner has such duties and powers as prescribed 
     by the Secretary. Unless otherwise specified by the 
     Secretary, such duties and powers include the power to 
     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, to exercise the IRS' final authority 
     concerning the substantive interpretation of the tax laws, to 
     recommend to the President a candidate for Chief Counsel (and 
     recommend the removal of the Chief Counsel), and to recommend 
     candidates for the position of National Taxpayer Advocate to 
     the IRS Board. If the Secretary determines not to delegate 
     such specified duties to the Commissioner, such determination 
     will not take effect until 30 days after the Secretary 
     notifies the House Committees on Ways and Means, Government 
     Reform and Oversight, and Appropriations, and the Senate 
     Committees on Finance, Governmental Affairs, and 
     Appropriations. The Commissioner is to consult with the Board 
     on all matters within the Board's authority (other than the 
     recommendation of candidates for Commissioner and the 
     recommendation to remove the Commissioner).
       Unless otherwise specified by the Secretary, the 
     Commissioner is authorized to employ such persons as the 
     Commissioner deems proper for the administration and 
     enforcement of the internal revenue laws and is required to 
     issue all necessary directions, instructions, orders, and 
     rules applicable to such persons. Unless otherwise provided 
     by the Secretary, the Commissioner will determine and 
     designate the posts of duty.
       Effective date.--Same as the House bill.

                          Conference Agreement

       The conference agreement follows the Senate amendment, with 
     a modification. Instead of the Senate amendment provision 
     relating to the duty of the Commissioner to recommend 
     candidates for the position of National Taxpayer Advocate to 
     the IRS Board, the conference agreement provides that the 
     Treasury Secretary is to consult with the Commissioner and 
     the Board before selecting the National Taxpayer Advocate.
       Effective date.--The conference agreement follows the 
     Senate amendment and the House bill.
     2. IRS Chief Counsel (sec. 1102(a) of the Senate amendment)

                              Present Law

       The President is authorized to appoint, by and with the 
     consent of the Senate, an Assistant General Counsel of the 
     Treasury, who is the Chief Counsel of the IRS. The Chief 
     Counsel is the chief law officer for the IRS and has such 
     duties as may be prescribed by the Secretary. The Secretary 
     has delegated authority over the Chief Counsel to the 
     Treasury General Counsel. The Chief Counsel does not report 
     to the Commissioner, but to the Treasury General Counsel. As 
     delegated by the Treasury General Counsel, the duties of the 
     Chief Counsel include: (1) to be the legal advisor to the 
     Commissioner and his or her officers and employees; (2) to 
     furnish such legal opinions as may be required in the 
     preparation and review of rulings and memoranda of technical 
     advice and the performance of other duties delegated to the 
     Chief Counsel; (3) to prepare, review, or assist in the 
     preparation of proposed legislation, treaties, regulations 
     and Executive Orders relating to laws affecting the IRS; (4) 
     to represent the Commissioner in cases before the Tax Court; 
     (5) to determine what civil actions should be brought in the 
     courts under the laws affecting the IRS and to prepare 
     recommendations to the Department of Justice for the 
     commencement of such actions and to authorize or sanction 
     commencement of such actions.

                               House Bill

       No provision.

                            Senate Amendment

       As under present law, the Senate amendment provides that 
     the Chief Counsel is appointed by the President, with the 
     advice and consent of the Senate. Under the Senate amendment, 
     the Chief Counsel is not an Assistant General Counsel of the 
     Treasury and reports directly to the Commissioner.
       The Chief Counsel has such duties and powers as prescribed 
     by the Secretary. Unless otherwise specified by the 
     Secretary, these duties include the duties currently 
     delegated to the Chief Counsel as described above. If the 
     Secretary determined not to delegate such specified duties to 
     the Chief Counsel, such determination is subject to the same 
     notice requirement applicable to changes in the delegation of 
     authority with respect to the Commissioner.

[[Page H5153]]

       Effective date.--The provision is generally effective on 
     the date of enactment. The provision providing that the Chief 
     Counsel reports directly to the Commissioner is effective 90 
     days after the date of enactment.

                          Conference Agreement

       The conference agreement follows the Senate amendment, with 
     modifications. Under the conference agreement, the Chief 
     Counsel is to report directly to the Commissioner, with 
     two exceptions.
       First, the Chief Counsel is to report to both the 
     Commissioner and the General Counsel of the Treasury 
     Department with respect to (1) legal advice or interpretation 
     of the tax law not relating solely to tax policy, and (2) tax 
     litigation. Under this rule, the conferees intend that the 
     Chief Counsel's dual reporting to the Commissioner and to the 
     General Counsel include reporting with respect to legal 
     advice or interpretation of the tax law set forth in 
     regulations, revenue rulings and revenue procedures, 
     technical advice and other similar memoranda, private letter 
     rulings, and published guidance not described in the 
     foregoing.
       Second, the Chief Counsel is to report to the General 
     Counsel with respect to legal advice or interpretation of the 
     tax law relating solely to tax policy. Under this rule, the 
     conferees intend that the Chief Counsel's reporting to the 
     General Counsel include proposed legislation and 
     international tax treaties.
       The conference agreement provides that if there is any 
     disagreement between the Commissioner and the General Counsel 
     with respect to any matter on which the Chief Counsel has 
     dual reporting to both the Commissioner and the General 
     Counsel, the matter is to be submitted to the Secretary or 
     the Deputy Secretary of the Treasury for resolution.
       The conferees intend that under the general rule, the Chief 
     Counsel's reporting directly to the Commissioner include 
     reporting with respect to budget, organizational structure 
     and reorganizations, mission and strategic plans. In 
     addition, the conferees intend that the Chief Counsel's 
     reporting directly to the Commissioner include reporting with 
     respect to all matters relating to the day-to-day operations 
     of the IRS, such as management of the IRS and procurement.
       The conference agreement provides that all personnel in the 
     Office of the Chief Counsel are to report to the Chief 
     Counsel (and not to any person at the IRS or elsewhere within 
     the Treasury Department).

C. Structure and Funding of the Employee Plans and Exempt Organizations 
Division (``EP/EO'') (sec. 1102 of the House bill and sec. 1101 of the 
                           Senate amendment)

                              Present Law

       Prior to 1974, no one specific office in the IRS had 
     primary responsibility for employee plans and tax-exempt 
     organizations. As part of the reforms contained in the 
     Employee Retirement Income Security Act of 1974 (``ERISA''), 
     Congress statutorily created the Office of Employee Plans and 
     Exempt Organizations (``EP/EO'') under the direction of an 
     Assistant Commissioner.\16\ EP/EO was created to oversee 
     deferred compensation plans governed by sections 401-414 of 
     the Code and organizations exempt from tax under Code section 
     501(a).
---------------------------------------------------------------------------
     \16\ Code section 7802(b).
---------------------------------------------------------------------------
       In general, EP/EO was established in response to concern 
     about the level of IRS resources devoted to oversight of 
     employee plans and exempt organizations. The legislative 
     history of Code section 7802(b) states that, with respect to 
     administration of laws relating to employee plans and exempt 
     organizations, ``the natural tendency is for the Service to 
     emphasize those areas that produce revenue rather than those 
     areas primarily concerned with maintaining the integrity and 
     carrying out the purposes of exemption provisions.'' \17\
---------------------------------------------------------------------------
     \17\ S. Rept. 93-383, 108 (1973). See also H. Rept. 93-807, 
     104 (1974).
---------------------------------------------------------------------------
       To provide funding for the new EP/EO office, ERISA 
     authorized the appropriation of an amount equal to the sum of 
     the section 4940 excise tax on investment income of private 
     foundations (assuming a rate of 2 percent) as would have been 
     collected during the second preceding year plus the greater 
     of the same amount or $30 million.\18\ However, amounts 
     raised by the section 4940 excise tax have never been 
     dedicated to the administration of EP/EO, but are transferred 
     instead to general revenues. Thus, the level of EP/EO 
     funding, like that of the rest of the IRS, is dependent on 
     annual Congressional appropriations to the Treasury 
     Department.
---------------------------------------------------------------------------
     \18\ Code section 7802(b)(2).
---------------------------------------------------------------------------

                               House Bill

       The House bill retains the Office of Employee Plans and 
     Exempt Organizations under the supervision and direction of 
     an Assistant Commissioner of the Internal Revenue. As under 
     present law, EP/EO is responsible for carrying out functions 
     and duties associated with organizations designed to be 
     exempt from tax under section 501(a) of the Code and with 
     respect to plans designed to be qualified under section 
     401(a). In addition, however, EP/EO's responsibilities are 
     expanded to include nonqualified deferred compensation 
     arrangements. The House bill also provides that the Assistant 
     Commissioner shall report annually to the Commissioner on EP/
     EO operations.
       In addition, the House bill repeals the funding mechanism 
     for EP/EO set forth in section 7802(b). Thus, the appropriate 
     level of funding for EP/EO is, consistent with current 
     practice, subject to annual Congressional appropriations, as 
     are other functions within the IRS.
       Effective date.--The provision is effective on the date of 
     enactment.

                            Senate Amendment

       The Senate amendment eliminates the statutory requirement 
     contained in section 7802(b) that there be an ``Office of 
     Employee Plans and Exempt Organizations'' under the 
     supervision and direction of an Assistant Commissioner. The 
     legislative history expresses the Committee's intent that a 
     comparable structure be created administratively to ensure 
     that adequate resources within the IRS are devoted to 
     oversight of the tax-exempt sector.
       In addition, like the House bill, the Senate amendment 
     repeals the funding mechanism for EP/EO set forth in section 
     7802(b).\19\
---------------------------------------------------------------------------
     \19\ The legislative history of the provision states that it 
     is not intended that the elimination of the statutory 
     requirement contained in section 7802(b)(1) of the self-
     funding mechanism described in section 7802(b)(2) impede the 
     implementation of certain self-correction programs and EP/
     EO's other programs and activities. Rather, the legislative 
     history indicates that, given the magnitude of the sector EP/
     EO is charged with regulating, as well as the unique nature 
     of its mandate, an adequately funded EP/EO is extremely 
     important to the fair and efficient administration of the 
     Federal tax system.
---------------------------------------------------------------------------
       Effective date.--The provision is effective on the date of 
     enactment.

                          Conference Agreement

       The conference agreement follows the Senate amendment.

D. Taxpayer Advocate and Taxpayer Assistance Orders (secs. 102 and 342 
    of the House bill and secs. 1102(a), (c), and (d) of the Senate 
                               amendment)

                              Present Law

     Taxpayer Advocate
       In 1996, the Taxpayer Bill of Rights 2 (``TBOR 2'') 
     established the position of Taxpayer Advocate, which replaced 
     the position of Taxpayer Ombudsman, created in 1979 by the 
     IRS. The Taxpayer Advocate is appointed by and reports 
     directly to the IRS Commissioner.
       TBOR 2 also created the Office of the Taxpayer Advocate. 
     The functions of the office are (1) to assist taxpayers in 
     resolving problems with the IRS, (2) to identify areas in 
     which taxpayers have problems in dealings with the IRS, (3) 
     to propose changes (to the extent possible) in the 
     administrative practices of the IRS that will mitigate those 
     problems, and (4) to identify potential legislative changes 
     that may mitigate those problems.
     Taxpayer assistance orders
       Taxpayers can request that the Taxpayer Advocate issue a 
     taxpayer assistance order (``TAO'') if 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. A TAO may require the IRS to release 
     property of the taxpayer that has been levied upon, or to 
     cease any action, take any action as permitted by law, or 
     refrain from taking any action with respect to the taxpayer.
       Under present law, the direct point of contact for 
     taxpayers seeking taxpayer assistance orders is a problem 
     resolution officer appointed by a District Director or a 
     Regional Director of Appeals. The Taxpayer Advocate has 
     designated the authority to issue taxpayer assistance orders 
     to the local and regional problem resolution officers.
     Reports of the Taxpayer Advocate
       The Taxpayer Advocate is required to report annually to the 
     House Committee on Ways and Means and the Senate Finance 
     Committee on the objectives of the Taxpayer Advocate for the 
     up-coming fiscal year. This report is required to be provided 
     no later than June 30 of each calendar year and is to contain 
     full and substantive analysis, in addition to statistical 
     information.
       The Taxpayer Advocate is also required to report annually 
     to the House Committee on Ways and Means and the Senate 
     Finance Committee on the activities of the Taxpayer Advocate 
     during the most recently ended fiscal year. This report is 
     required to be provided no later than December 31 of each 
     calendar year, and is to contain full and substantive 
     analysis, in addition to statistical information. This report 
     is also required to: (1) identify the initiatives the 
     Taxpayer Advocate has taken on improving taxpayer services 
     and IRS responsiveness; (2) contain recommendations received 
     from individuals with the authority to issue TAOs; (3) 
     contain a summary of at least 20 of the most serious problems 
     encountered by taxpayers, including a description of the 
     nature of such problems; (4) contain an inventory of the 
     items described in (1), (2), and (3) for which action has 
     been taken and the result of such action; (5) contain an 
     inventory of the items described in (1), (2), and (3) for 
     which action remains to be completed and the period during 
     which each item has remained on such inventory; (6) 
     contain an inventory of the items described in (1), (2) 
     and (3) for which no action has been taken, the period 
     during which the item has remained on the inventory, the 
     reasons for the inaction, and identify any

[[Page H5154]]

     IRS official who is responsible for the inaction; (7) 
     identify any TAO that was not honored by the IRS in a 
     timely manner; (8) contain recommendations for such 
     administrative and legislative action as may be 
     appropriate to resolve problems encountered by taxpayers; 
     (9) describe the extent to which regional problem 
     resolution officers participate in the selection and 
     evaluation of local problem resolution officers, and (10) 
     include such other information as the Taxpayer Advocate 
     deems advisable.
       The reports of the Taxpayer Advocate are to be submitted 
     directly to the Congressional Committees without prior review 
     or comment from the Commissioner, Secretary, any other 
     officer or employee of the Treasury, or the Office of 
     Management and Budget.

                               House Bill

       The House bill requires the Commissioner to obtain the 
     approval of the IRS Oversight Board on the selection of the 
     Taxpayer Advocate. A candidate for the Taxpayer Advocate must 
     have either substantial experience representing taxpayers 
     before the IRS or have substantial experience within the IRS. 
     If the prospective Taxpayer Advocate was an officer or an 
     employee of the IRS before being appointed as the Taxpayer 
     Advocate, the individual is required to agree not to accept 
     any employment with the IRS for at least 5 years after 
     ceasing to be the Taxpayer Advocate.
       The House bill modifies the information to be included in 
     the December 31 report to the tax-writing committees. The 
     report no longer needs to include information about the 
     extent to which regional problem resolution officers 
     participate in the selection and evaluation of local problem 
     resolution officers. The report identifies areas of the tax 
     law that impose significant compliance burdens on taxpayers 
     or the IRS, including specific recommendations for solving 
     these problems. The Taxpayer Advocate also is required to 
     work in conjunction with the National Director of Appeals to 
     identify the 10 most litigated issues for each category of 
     taxpayers, and include the list of issues and recommendations 
     for mitigating such disputes in the report. Categories of 
     taxpayers include, for example, individuals, self-employed 
     individuals, small businesses, etc.
       As under present law, the reports are submitted directly to 
     the tax-writing committees, without review by the IRS 
     Oversight Board, the Secretary of the Treasury, or any other 
     officer or employee of the Department of the Treasury or the 
     Office of Management and Budget.
       In addition, the House bill imposes new responsibilities on 
     the Taxpayer Advocate. The Taxpayer Advocate is requested to 
     monitor the coverage and geographical allocation of problem 
     resolution officers and develop guidance that outlines 
     criteria to be used by IRS employees in referring taxpayer 
     inquiries to problem resolution officers. In connection with 
     these responsibilities, it is anticipated that the Taxpayer 
     Advocate will work with the IRS District Offices to ensure 
     convenient taxpayer access to the local problem resolution 
     officer. For example, the local telephone number for the 
     problem resolution officer in each district should be 
     published and available to taxpayers.
       It is intended that the Taxpayer Advocate will work with 
     the Commissioner in developing career paths for local problem 
     resolution officers, so that individuals can progress through 
     the General Schedule in the same manner as examination 
     employees, without having to leave the problem resolution 
     system. In that regard, it is contemplated that the 
     compensation levels of local and regional problem resolution 
     officers should be the same as those of IRS personnel 
     operating in other functional units. Under the current 
     system, local problem resolution officers generally must 
     return to an audit or collection function to achieve 
     promotion. This lack of a career path within the problem 
     resolution system reduces the independence of the system. It 
     is contemplated that, to the extent feasible, regional 
     problem resolution officers should be selected from the 
     available pool of local problem resolution officers.
       Effective date.--The House bill provision is effective on 
     the date of enactment, except that the post-employment 
     restrictions on the Taxpayer Advocate do not apply to an 
     individual holding that position on the date of enactment.

                            Senate Amendment

     National Taxpayer Advocate
       The Senate amendment renames the Taxpayer Advocate the 
     ``National Taxpayer Advocate.'' The Senate amendment provides 
     that the IRS Oversight Board is to recommend to the Secretary 
     3 candidates for National Taxpayer Advocate from among 
     individuals with a background in customer service as well as 
     tax law and with experience representing individual 
     taxpayers. The Secretary is required to choose a National 
     Taxpayer Advocate from among the individuals recommended by 
     the Oversight Board. An individual may be appointed as the 
     National Taxpayer Advocate only if the individual was not an 
     officer or employee of the IRS during the 2-year period 
     ending with such appointment and the individual agrees not to 
     accept employment with the IRS for at least 5 years after 
     ceasing to be the National Taxpayer Advocate.
       The Senate amendment replaces the present-law problem 
     resolution system with a system of local Taxpayer Advocates 
     who report directly to the National Taxpayer Advocate and who 
     will be employees of the Taxpayer Advocate's Office, 
     independent from the IRS examination, collection, and appeals 
     functions. The National Taxpayer Advocate has the 
     responsibility to evaluate and take personnel actions 
     (including dismissal) with respect to any local 
     Taxpayer Advocate or any employee in the Office of the 
     National Taxpayer Advocate. In conjunction with the 
     Commissioner, the National Taxpayer Advocate is required 
     to develop career paths for local Taxpayer Advocates.
       The National Taxpayer Advocate is required to monitor the 
     coverage and geographical allocation of the local Taxpayer 
     Advocates, develop guidance to be distributed to all IRS 
     officers and employees outlining the criteria for referral of 
     taxpayer inquires to local taxpayer advocates, ensure that 
     the local telephone number for the local taxpayer advocate is 
     published and available to taxpayers.
       Each local Taxpayer Advocate may consult with the 
     appropriate supervisory personnel of the IRS regarding the 
     daily operation of the office of the Taxpayer Advocate. At 
     the initial meeting with any taxpayer seeking the assistance 
     of the Office of the Taxpayer Advocate, the local taxpayer 
     advocate is required to notify the taxpayer that the Office 
     operated independently of any other IRS office and reports 
     directly to Congress through the National Taxpayer Advocate. 
     At the discretion of the local taxpayer advocate, the 
     advocate shall not disclose to the IRS any contact with or 
     information provided by the taxpayer. Each local office of 
     the Taxpayer Advocate is to maintain a separate phone, 
     facsimile, and other electronic communication access, and a 
     separate post office address.
       The IRS would be required to publish the taxpayer's right 
     to contact the local Taxpayer Advocate on the statutory 
     notice of deficiency.
       Under the Senate amendment, the National Taxpayer Advocate 
     is to appoint a counsel in the Office of the Taxpayer 
     Advocate to report directly to the National Taxpayer 
     Advocate.
     Taxpayer assistance orders
       The provision expands the circumstances under which a TAO 
     may be issued. The Senate amendment provides that a 
     ``significant hardship'' is deemed to occur if one of the 
     following four factors exists: (1) there is an immediate 
     threat of adverse action; (2) there has been a delay of more 
     than 30 days in resolving the taxpayer's account problems; 
     (3) the taxpayer will have to pay significant costs 
     (including fees for professional services) if relief is not 
     granted; or (4) the taxpayer will suffer irreparable injury, 
     or a long-term adverse impact, if relief is not granted. 
     These factors are not an exclusive list of what constitutes a 
     significant hardship; a TAO may also be issued in other 
     circumstances in which it is determined that the taxpayer is 
     or will suffer a significant hardship. The Taxpayer Advocate 
     is also authorized to issue a TAO in any circumstances that 
     the Taxpayer Advocate considers appropriate for the issuance 
     of a TAO.
       In determining whether to issue a TAO in cases in which the 
     IRS failed to follow applicable published guidance (including 
     procedures set forth in the Internal Revenue Manual), the 
     Taxpayer Advocate is to construe the matter in a manner most 
     favorable to the taxpayer.
     Reports of the National Taxpayer Advocate
       The provision requires the annual report regarding the 
     activities of the National Taxpayer Advocate for the most 
     recently ended fiscal year to (in addition to the information 
     required under present law): (1) identify areas of the tax 
     law that impose significant compliance burdens on taxpayers 
     or the IRS, including specific recommendations for remedying 
     such problems; and (2) identify the 10 most litigated issues 
     for each category of taxpayers, including recommendations for 
     mitigating such disputes.
     Effective date
       The Senate amendment provision is generally effective on 
     the date of enactment. During the period before the 
     appointment of the IRS Oversight Board, the National Taxpayer 
     Advocate shall be appointed by the Secretary (taking into 
     consideration individuals nominated by the Commissioner) from 
     among individuals who have a background in customer service 
     as well as tax law and experience in representing individual 
     taxpayers. The provision providing that the Taxpayer Advocate 
     reports directly to the Commissioner, the provision providing 
     that the Taxpayer Advocate is appointed by the Secretary, and 
     the restrictions on previous and subsequent employment of the 
     Taxpayer Advocate do not apply to the individual serving as 
     the Taxpayer Advocate on the date of enactment.

                          Conference Agreement

     National Taxpayer Advocate
       The conference agreement follows the Senate amendment, with 
     modifications. The conference agreement does not include the 
     Senate amendment provision that the IRS Oversight Board is to 
     recommend to the Secretary 3 candidates for National Taxpayer 
     Advocate; instead, the conference agreement provides that the 
     National Taxpayer Advocate is appointed by the Secretary 
     after consultation with the Commissioner and the Board 
     (without regard to the provisions of Title 5 of the U.S. 
     Code, relating to appointments in the competitive service or 
     the Senior Executive Service). The conference agreement 
     modifies the Senate amendment provision that an individual 
     may be appointed as

[[Page H5155]]

     the National Taxpayer Advocate only if the individual was not 
     an officer or employee of the IRS during the 2-year period 
     ending with such appointment and the individual agrees not to 
     accept employment with the IRS for at least 5 years after 
     ceasing to be the National Taxpayer Advocate. The conference 
     agreement provides that service as an officer or employee of 
     the Office of the Taxpayer Advocate is not taken into 
     account, for purposes of these 2-year and 5-year rules. The 
     conference agreement also clarifies that the National 
     Taxpayer Advocate's compensation is to be at the highest rate 
     of basic pay established for the Senior Executive Service, 
     or, if the Treasury Secretary so determines, at a rate fixed 
     under 5 U.S.Code section 9503.
       The conferees intend that the National Taxpayer Advocate's 
     responsibility to appoint local taxpayer advocates and make 
     available at least one local taxpayer advocate for each 
     State means that a local taxpayer advocate will be 
     available to taxpayers in each State.
       The conference agreement does not include the Senate 
     amendment provision that the National Taxpayer Advocate has 
     the responsibility and authority to appoint a counsel in the 
     Office of the Taxpayer Advocate to report directly to the 
     National Taxpayer Advocate. The conferees intend that the 
     National Taxpayer Advocate be able to hire and consult 
     counsel as appropriate.
       The conference agreement provides that each local taxpayer 
     advocate reports to the National Taxpayer Advocate or his 
     delegate. The committees intend that a delegate mean the 
     taxpayer advocate for the appropriate organizational unit. It 
     is not intended that a local taxpayer advocate report to a 
     District Director of the IRS, for example. Providing 
     reporting to a delegate of the National Taxpayer Advocate 
     under the conference agreement is intended to provide 
     reporting flexibility sufficient to take into account the 
     necessities of any reorganization of the IRS.
     Taxpayer assistance orders
       The conference agreement follows the Senate amendment, 
     except that the conference agreement does not include the 
     Senate amendment provision that the Taxpayer Advocate is 
     authorized to issue a TAO in any circumstances that the 
     Taxpayer Advocate considers appropriate for the issuance of a 
     TAO. Instead, the conference agreement provides that the 
     National Taxpayer Advocate may issue a TAO if the taxpayer 
     meets requirements set forth in regulations. It is intended 
     that the circumstances set forth in regulations be based on 
     considerations of equity.
     Effective date
       The conference agreement follows the Senate amendment, with 
     modifications. Under the conference agreement, the provisions 
     are effective on date of enactment, except that in appointing 
     the first National Taxpayer Advocate after date of enactment, 
     the Treasury Secretary may not appoint anyone who was an 
     officer or employee of the IRS at any time during the 2-year 
     period ending on the date of appointment, and the Treasury 
     Secretary need not consult with the Board if the Board has 
     not been appointed.

   E. Treasury Office of Inspector General; IRS Office of the Chief 
        Inspector (secs. 1102 and 1103 of the Senate amendment)

                              Present Law

     Treasury Inspector General
       The Treasury Office of Inspector General (``Treasury IG'') 
     was established in 1988 and charged with conducting 
     independent audits, investigations and review to help the 
     Department of Treasury accomplish its mission, improve its 
     programs and operations, promote economy, efficiency and 
     effectiveness, and prevent and detect fraud and abuse. The 
     Treasury IG derives its statutory authority under the 
     Inspector General Act of 1978, as amended (``IG Act of 
     1978'').
       Appointment and qualifications
       The IG Act of 1978 provides that the Treasury IG is 
     selected by the President, with the advice and consent of the 
     Senate, without regard to political affiliation and solely on 
     the basis of integrity and demonstrated ability in 
     accounting, auditing, financial analysis, law, management 
     analysis, public administration, or investigations. The 
     Treasury IG can be removed from office by the President. The 
     President must communicate the reasons for such removal to 
     both Houses of Congress.
       Duties and responsibilities
       The Treasury IG generally is authorized to conduct, 
     supervise and coordinate internal audits and investigations 
     relating to the programs and operations of the Treasury, 
     including all of its bureaus and offices.\20\ Special rules 
     apply, however, with respect to the Treasury IG's 
     jurisdiction over ATF, Customs, the Secret Service and the 
     IRS--the four so-called ``law enforcement bureaus.'' Upon its 
     establishment, the Treasury IG assumed the internal audit 
     functions previously performed by the offices of internal 
     affairs of ATF, Customs and the Secret Service. Although the 
     Treasury IG was granted oversight responsibility for the 
     internal investigations performed by the Office of Internal 
     Affairs of ATF, the Office of Internal Affairs of Customs, 
     and the Office of Inspections of the Secret Service, the 
     internal investigation or inspection functions of these 
     offices remained with the respective bureaus. The Treasury IG 
     did not assume responsibility for either the internal audit 
     or inspection functions of the IRS Office of the Chief 
     Inspector. However, it was directed to oversee the internal 
     audits and internal investigations performed by the IRS 
     Office of the Chief Inspector.
---------------------------------------------------------------------------
     \20\ The Treasury Department organization includes the 
     Departmental offices as well as the Bureau of Alcohol, 
     Tobacco and Firearms (``ATF''), the Office of the Comptroller 
     of the Currency (``OCC''), the U.S. Customs Service 
     (``Customs''), the Bureau of Engraving and Printing, the 
     Federal Law Enforcement Training Center, the Financial 
     Management Service, the U.S. Mint, the Bureau of the Public 
     Debt, the U.S. Secret Service (``Secret Service''), the 
     Office of Thrift Supervision, and the IRS.
---------------------------------------------------------------------------
       The Commissioner and the Treasury IG have entered into two 
     Memorandums of Understanding (``MOUs'')\21\ to clarify the 
     respective roles of the IRS Office of the Chief Inspector and 
     the Treasury IG in two primary areas: (1) the investigation 
     of allegations of wrongdoing by IRS executives and employees 
     in situations where the independence of the Office of the 
     Chief Inspector could be questioned, and (2) oversight by the 
     Treasury IG of the IRS Office of the Chief Inspector.\22\ 
     Pursuant to the 1990 MOU, the Commissioner agreed to transfer 
     21 FTEs and $1.9 million from the IRS appropriation to the 
     Treasury IG appropriation to be used for the following 
     purposes: (1) oversight of the operations of the Office of 
     the Chief Inspector; (2) conduct of special reviews of IRS 
     operations; (3) investigation of allegations of misconduct 
     concerning the Commissioner, the Senior Deputy Commissioner, 
     and employees of the IRS Office of the Chief Inspector; and 
     (4) investigation of allegations of misconduct where the 
     independence of the IRS Office of the Chief Inspector might 
     be questioned. With respect to item (4), the Commissioner and 
     Treasury IG agreed that all allegations of misconduct 
     involving IRS executives and managers (Grade 15 and above), 
     as well as any other allegation involving ``significant or 
     notorious'' matters were to be referred to the Treasury IG, 
     and that investigations arising out of such referrals 
     generally would be conducted by the Treasury IG.
---------------------------------------------------------------------------
     \21\ The first MOU was entered into in 1990 and the second in 
     1994.
     \22\ Treasury Directive 40-01 (September 21, 1992) reiterates 
     that the Treasury IG is responsible for investigating alleged 
     misconduct on the part of IRS employees at the grade 15 level 
     and above, all employees of the Office of the Chief 
     Inspector, In addition, Treasury Directive 40-01 states that 
     the Treasury IG is responsible for investigating alleged 
     misconduct on the part of Office of Chief Counsel employees 
     (excluding employees of the National Director, Office of 
     Appeals).
---------------------------------------------------------------------------
       In general, under the IG Act of 1978, Inspectors General 
     are instructed to report expeditiously to the Attorney 
     General whenever the Inspector General has reasonable grounds 
     to believe there has been a violation of Federal criminal 
     law. However, in matters involving criminal violations of the 
     Internal Revenue Code, the Treasury IG may report to the 
     Attorney General only those offenses under section 7214 of 
     the Code (unlawful acts of revenue officers or agents, 
     including extortion, bribery and fraud) without the consent 
     of the Commissioner.
       Authority
       The Treasury IG reports to and is under the general 
     supervision of the Secretary of Treasury, acting through the 
     Deputy Secretary. In general, the Secretary cannot prevent or 
     prohibit the Treasury IG from initiating, carrying out, or 
     completing any audit or investigation or from issuing any 
     subpoena during the course of any audit or investigation.
       However, section 8D of the IG Act of 1978 grants the 
     Secretary authority to prohibit audits or investigations by 
     the Treasury IG under certain circumstances. In 
     particular, the Treasury IG is under the authority, 
     direction, and control of the Secretary with respect to 
     audits or investigations, or the issuance of subpoenas, 
     which require access to sensitive information concerning: 
     (1) ongoing criminal investigations or proceedings; (2) 
     undercover operations; (3) the identity of confidential 
     sources, including protected witnesses; (4) deliberations 
     and decisions on policy matters, including documented 
     information used as a basis for making policy decisions, 
     the disclosure of which could reasonably be expected to 
     have a significant influence on the economy or market 
     behavior; (5) intelligence or counterintelligence matters; 
     (6) other matters the disclosure of which would constitute 
     a serious threat to national security or to the protection 
     of certain persons. With respect to audits, investigations 
     or subpoenas that require access to the above-listed 
     information, the Secretary may prohibit the Treasury IG 
     from carrying out such audit, investigation or subpoena if 
     the Secretary determines that such prohibition is 
     necessary to prevent the disclosure of such information or 
     to prevent significant impairment to the national 
     interests of the United States. The Secretary must provide 
     written notice of such a prohibition to the Treasury IG, 
     who must, in turn, transmit a copy of such notice to the 
     Committees on Government Reform and Oversight and Ways and 
     Means of the House and the Committees on Governmental 
     Affairs and Finance of the Senate.
       Access to taxpayer returns and return information
       The Treasury IG has access to taxpayer returns and return 
     information under section 6103(h)(1) of the Code. However, 
     such access is subject to certain special requirements, 
     including the requirement that the Treasury IG notify the IRS 
     Office of the Chief Inspector (or the Deputy Commissioner in 
     certain circumstances) of its intent to access returns and 
     return information.

[[Page H5156]]

       Reporting requirements
       Under the IG Act of 1978, the Treasury IG reports to the 
     Congress semiannually on its activities. Reports from the 
     Treasury IG are transmitted to the Committees on Government 
     Reform and Oversight and Ways and Means of the House and the 
     Committees on Governmental Affairs and Finance of the Senate.
       Resources
       For fiscal year 1997, the Treasury IG had 296 FTEs and 
     total funding of $29.7 million. 174 FTEs were assigned to the 
     Treasury IG's audit function and 61 were assigned to the 
     investigative function. The remaining FTEs were divided among 
     the following functions: evaluations, legal, program, 
     technology and administrative support. Of the total Treasury 
     IG FTEs, approximately 23 were used for IRS oversight 
     activities in fiscal year 1997.
     IRS Office of Chief Inspector
       The IRS Office of the Chief Inspector (also known as the 
     ``Inspection Service'') was established on October 1, 1951, 
     in response to publicity revealing widespread corruption in 
     the IRS. At the time of its creation, President Harry S. 
     Truman stated, ``A strong, vigorous inspection service will 
     be established and will be made completely independent of the 
     rest of the Internal Revenue Service.''
       Appointment of the Chief Inspector
       In 1952, the Office of the Assistant Commissioner 
     (Inspection) was established. The office was redesignated as 
     the Office of the Chief Inspector on March 25, 1990. The 
     Chief Inspector is appointed by the Commissioner. In this 
     regard, pursuant to Treasury Director 40-01, the Commissioner 
     must consult with the Treasury IG before selecting candidates 
     for the position of Chief Inspector (and all other senior 
     executive service (``SES'') positions in the Office of the 
     Chief Inspector). The Commissioner must also consult with the 
     Treasury IG regarding annual performance appraisals for the 
     Chief Inspector and other SES officials.
       The Office of the Chief Inspector consists of a National 
     Office and the offices of the Regional Inspectors. The 
     offices of the Regional Inspectors are located in the same 
     cities and have the same geographic boundaries as the offices 
     of the four IRS Regional Commissioners. The Regional 
     Inspectors report directly to the Chief Inspector.
       Duties and responsibilities
       The Office of the Chief Inspector generally is responsible 
     for carrying out internal audits and investigations that: (1) 
     promote the economic, efficient, and effective administration 
     of the nation's tax laws; (2) detect and deter fraud and 
     abuse in IRS programs and operations; and (3) protect the IRS 
     against external attempts to corrupt or threaten its 
     employees. The Chief Inspector reports directly to the 
     Commissioner and Deputy Commissioner of the IRS.
       The IRS Inspection Service is divided into three functions: 
     Internal Security, Internal Audit, and Integrity 
     Investigations and Activities. Internal Security's 
     responsibilities include criminal investigations (employee 
     conduct, bribery, assault and threat and investigations of 
     non-IRS employees for acts such as impersonation, theft, 
     enrolled agent misconduct, disclosure, and anti-domestic 
     terrorism) investigative support activities (including 
     forensic lab, computer investigative support, and maintenance 
     of law enforcement equipment), protection, and background 
     investigations.
       Internal Audit is responsible for providing IRS management 
     with independent reviews and appraisals of all IRS activities 
     and operations. In addition, Internal Audit makes 
     recommendations to improve the efficiency and effectiveness 
     of programs and to assist IRS officials in carrying out their 
     program and operational responsibilities. In this regard, 
     Internal Audit generally conducts performance reviews 
     (program audits, system development audits, internal control 
     audits) and financial reviews (financial statement audits and 
     financial related reviews).
       Integrity Investigations and Activities are joint internal 
     audit and internal security operations undertaken as a 
     proactive effort to detect and deter fraud and abuse within 
     the IRS. Integrity Investigations and Activities also 
     includes the UNAX Central Case Development Center. The Center 
     was developed in October, 1997, in response to the Taxpayer 
     Browsing Protection Act of 1997. Its purpose is to detect 
     unauthorized accesses to IRS computer systems by IRS 
     employees and to refer such instances to Internal Security 
     investigators for further investigation.
       Authority
       The Chief Inspector derives specific and general authority 
     from delegation by the Commissioner and Deputy Commissioner. 
     In addition, under section 7608(b) of the Code, the Chief 
     Inspector is authorized to perform certain functions in 
     connection with the duty of enforcing any of the criminal 
     provisions of the Code, including executing and serving 
     search and arrest warrants, serving subpoenas and summonses, 
     making arrests without warrant, carrying firearms, and 
     seizing property subject to forfeiture under the Code.
       Access to taxpayer returns and return information
       The Office of the Chief Inspector has full access to 
     taxpayer returns and return information.
       Reporting requirements
       The Office of the Chief Inspector reports facts developed 
     through its internal audit and internal security activities 
     to IRS management officials, who are charged with the 
     responsibility of reviewing IRS activities. The results of 
     the Chief Inspector's internal audit and internal security 
     activities also are reported to the Treasury IG and are 
     included in the Treasury IG's semiannual reports to Congress.
       Internal audit reports prepared by the Office of the Chief 
     Inspector are provided monthly to the Government Accounting 
     Office, as well as to the House and Senate Appropriations 
     Committees. In addition, a monthly list of Internal Audit 
     reports is provided to Treasury and the Office of Management 
     and Budget. Reports of Investigation regarding criminal 
     conduct are referred to the Department of Justice for 
     prosecution.
       Resources
       The IRS Office of the Chief Inspector had 1,202 FTEs for 
     1997 and total funding of $100.1 million. Of these FTEs, 
     approximately 442 performed Internal Audit functions, 511 
     performed Internal Security functions, and 94 performed 
     Integrity Investigations and Activities. Of the remaining 
     FTEs, approximately 95 were dedicated to information 
     technology functions and 60 staffed the offices of the Chief 
     Inspector and the Regional Inspectors.

                               House Bill

       No provision.

                            Senate Amendment

     In general
       The Senate amendment establishes a new, independent, 
     Treasury Inspector General for Tax Administration (``Treasury 
     IG for Tax Administration'') within the Department of 
     Treasury. The IRS Office of the Chief Inspector is 
     eliminated, and all of its powers and responsibilities are 
     transferred to the Treasury IG for Tax Administration. The 
     Treasury IG for Tax Administration has the powers and 
     responsibilities generally granted to Inspectors General 
     under the IG Act of 1978, without the limitations that 
     currently apply to the Treasury IG under section D of the 
     Act. The role of the existing Treasury IG is redefined to 
     exclude responsibility for the IRS. The Treasury IG for Tax 
     Administration is under the supervision of the Secretary of 
     Treasury, with certain additional reporting to the Board and 
     the Congress.
     Appointment and qualifications of Treasury IG for Tax 
         Administration
       The Treasury IG for Tax Administration is selected by the 
     President, with the advice and consent of the Senate. The 
     Treasury IG for Tax Administration can be removed from office 
     by the President. The President must communicate the reasons 
     for such removal to both Houses of Congress.
       The Treasury IG for Tax Administration must be selected 
     without regard to political affiliation and solely on the 
     basis of integrity and demonstrated ability in accounting, 
     auditing, financial analysis, law, management analysis, 
     public administration, or investigations. In addition, 
     however, the Treasury IG for Tax Administration should have 
     experience in tax administration and demonstrated ability to 
     lead a large and complex organization. The Treasury IG for 
     Tax Administration may not be employed by the IRS within the 
     two years preceding and the five years following his or her 
     appointment.
       The Treasury IG for Tax Administration is required to 
     appoint an Assistant Inspector General for Auditing and an 
     Assistant Inspector for Inspections. Under the Senate 
     amendment, such appointees, as well as any Deputy Inspector 
     General(s) appointed by the Treasury IG for Tax 
     Administration, may not be employed by the IRS within the two 
     years preceding and the five years following their 
     appointments.
     Duties and responsibilities of Treasury IG for Tax 
         Administration
       The Treasury IG for Tax Administration has the present-law 
     duties and responsibilities currently delegated to the 
     Treasury IG with respect to the IRS. In addition, the 
     Treasury IG for Tax Administration assumes all of the duties 
     and responsibilities currently delegated to the IRS Office of 
     the Chief Inspector. The Treasury IG for Tax Administration 
     has jurisdiction over IRS matters, as well as matters 
     involving the Board.
       Accordingly, the Treasury IG for Tax Administration is 
     charged with conducting audits, investigations, and 
     evaluations of IRS programs and operations (including the 
     Board) to promote the economic, efficient and effective 
     administration of the nation's tax laws and to detect and 
     deter fraud and abuse in IRS programs and operations. In this 
     regard, the Treasury IG for Tax Administration specifically 
     is directed to evaluate the adequacy and security of IRS 
     technology on an ongoing basis. In addition, the Treasury IG 
     for Tax Administration is responsible for protecting the IRS 
     against external attempts to corrupt or threaten its 
     employees. The Treasury IG for Tax Administration is charged 
     with investigating allegations of criminal misconduct (e.g., 
     Code sections 7212, 7213, 7214, 7216 and new section 7217), 
     as well as administrative misconduct (e.g., violations of the 
     Taxpayer Bill of Rights and the Taxpayer Bill of Rights 2, 
     the Office of Government Ethics Standards of Ethical Conduct 
     and the IRS Supplemental Standards of Ethical Conduct).
       In addition, the Senate amendment directs the Treasury IG 
     for Tax Administration to implement a program periodically to 
     audit at least one percent of all determinations

[[Page H5157]]

     (identified through a random selection process) where the IRS 
     has asserted either section 6103 (directly or in connection 
     with the Freedom of Information Act or the Privacy Act) or 
     law enforcement considerations (i.e., executive privilege) as 
     a rationale for refusing to disclose requested information. 
     The program must be implemented within 6 months after 
     establishment of the Treasury IG for Tax Administration. The 
     Treasury IG for Tax Administration is directed to report any 
     findings of improper assertion of section 6103 or law 
     enforcement considerations to the Board.
       Further, the Treasury IG for Tax Administration is directed 
     to establish a toll-free confidential telephone number for 
     taxpayers to register complaints of misconduct by IRS 
     employees and to publish the telephone number in IRS 
     Publication 1.
       There are no restrictions on the Treasury IG for Tax 
     Administration's ability to refer matters to the Department 
     of Justice. Thus, the Treasury IG for Tax Administration is 
     required to report to the Attorney General whenever the 
     Treasury IG for Tax Administration has reasonable grounds to 
     believe that there has been a violation of Federal criminal 
     law.
     Authority of Treasury IG for Tax Administration
       The Treasury IG for Tax Administration reports to and is 
     under the general supervision of the Secretary of Treasury. 
     Under the Senate amendment, the Secretary cannot prevent or 
     prohibit the Treasury IG for Tax Administration from 
     initiating, carrying out, or completing any audit or 
     investigation or from issuing any subpoena during the course 
     of any audit or investigation.
       Under the Senate amendment, the Treasury IG for Tax 
     Administration must provide to the Board all reports 
     regarding IRS matters on a timely basis and conduct audits or 
     investigations requested by the Board. The Treasury IG for 
     Tax Administration also must, in a timely manner, conduct 
     such audits or investigations and provide such reports as may 
     be requested by the Commissioner.
       In carrying out the duties and responsibilities described 
     above, the Treasury IG for Tax Administration has the 
     present-law authority generally granted to Inspectors General 
     under the IG Act of 1978. The limitations on the authority of 
     the Treasury IG under such Act do not apply to the Treasury 
     IG for Tax Administration. In addition, the Treasury IG for 
     Tax Administration has the authority granted to the IRS 
     Office of the Chief Inspector under present-law Code section 
     7608, including the right to execute and serve search and 
     arrest warrants, to serve subpoenas and summonses, to make 
     arrests without warrant, to carry firearms, and to seize 
     property subject to forfeiture under the Code.
     Resources
       To ensure that the Treasury IG for Tax Administration has 
     sufficient resources to carry out his or her duties and 
     responsibilities under the Senate amendment, all but 300 FTEs 
     from the IRS Office of the Chief Inspector are transferred to 
     the Treasury IG for Tax Administration. Such FTEs include all 
     of the FTEs performing investigative functions in the Office 
     of the Chief Inspector Internal Security and Integrity 
     Investigations and Activities. In addition, the 21 FTEs 
     previously transferred from Inspection to Treasury IG 
     pursuant to the 1990 MOU to perform oversight of the IRS are 
     transferred to the Treasury IG for Tax Administration.
       The Commissioner will retain approximately 300 FTEs from 
     the IRS Office of the Chief Inspector to staff an audit 
     function (including support staff) for internal IRS 
     management purposes. Like other IRS functions, however, this 
     audit function is subject to oversight and review by the 
     Treasury IG for Tax Administration.
     Access to taxpayer returns and return information
       Taxpayer returns and return information are available for 
     inspection by the Treasury IG for Tax Administration pursuant 
     to section 6103(h)(1). Thus, the Treasury IG for Tax 
     Administration has the same access to taxpayer returns and 
     return information as does the Chief Inspector under present 
     law.
     Reporting requirements
       The Treasury IG for Tax Administration is subject to the 
     semiannual reporting requirements set forth in section 5 of 
     the IG Act of 1978. As under present law, reports are made to 
     the Committees on Government Reform and Oversight and Ways 
     and Means of the House and the Committees on Governmental 
     Affairs and Finance of the Senate. The reports must contain 
     the information that is required to be reported by the 
     Treasury IG with respect to the IRS under present law, as 
     well as information regarding the source, nature and status 
     of taxpayer complaints and allegations of serious misconduct 
     by IRS employees received by the IRS or by the Treasury IG 
     for Tax Administration. In addition, the Treasury IG for 
     Tax Administration is required to report annually on 
     certain additional information (e.g., regarding the use of 
     enforcement statistics in evaluating IRS employees, the 
     implementation of various taxpayer rights protections, and 
     IRS employee terminations and mitigations) required by the 
     Senate amendment.
     Treasury IG
       The Treasury IG generally continues to have its present-law 
     responsibilities and authority with respect to all Treasury 
     functions other than the IRS and the Board. However, the 
     Treasury IG generally does not have access to taxpayer 
     returns and return information under section 6103 (unless the 
     Secretary specifically authorizes such access).
       The Treasury IG for Tax Administration operates 
     independently of the Treasury IG. The Secretary of Treasury 
     is directed to establish procedures pursuant to which the 
     Treasury IG for Tax Administration and the Treasury IG shall 
     coordinate audits and investigations in cases involving 
     overlapping jurisdiction.
       The Treasury IG continues to have responsibility for 
     providing an opinion on the Department of Treasury's 
     consolidated financial statement as required under the Chief 
     Financial Officer Act. The Treasury IG for Tax Administration 
     is responsible for rendering an opinion on the IRS custodial 
     and administrative accounts (to the extent the Government 
     Accounting Office does not exercise its option to preempt 
     under the CFO Act).
       Effective date.--The provision is effective 180 days after 
     the date of enactment.

                          Conference Agreement

       The conference agreement follows the Senate amendment, 
     except as follows. The conference agreement provides that 
     experience in tax administration is not among the 
     qualifications applicable to the Treasury IG for Tax 
     Administration. With respect to the authority of the Treasury 
     IG for Tax Administration, the conference agreement provides 
     that the Commissioner or the Oversight Board may request the 
     Treasury IG for Tax Administration to conduct an audit or 
     investigation relating to the IRS. If the Treasury IG for Tax 
     Administration determines not to conduct an audit or 
     investigation requested by the Commissioner or the Oversight 
     Board, the Treasury IG for Tax Administration shall timely 
     provide the requesting party with a written explanation of 
     its determination. In this regard, the conferees intend that 
     the Treasury IG for Tax Administration shall make all 
     reasonable efforts to be responsive to the requests of the 
     Commissioner and the Oversight Board. In addition, the 
     conference agreement modifies the duties and responsibilities 
     of the Treasury IG for Tax Administration by providing that 
     the responsibility for (1) protecting IRS employees and (2) 
     investigating the backgrounds of prospective IRS employees 
     shall not be transferred to the Treasury IG for Tax 
     Administration, but rather shall remain with the IRS.

F. Prohibition on Executive Branch Influence Over Taxpayer Audits (sec. 
      104 of the House bill and sec. 1105 of the Senate amendment)

                              Present Law

       There is no explicit prohibition in the Code on high-level 
     Executive Branch influence over taxpayer audits and 
     collection activity.
       The Internal Revenue Code prohibits disclosure of tax 
     returns and return information, except to the extent 
     specifically authorized by the Internal Revenue Code (sec. 
     6103). Unauthorized disclosure is a felony punishable by a 
     fine not exceeding $5,000 or imprisonment of not more than 
     five years, or both (sec. 7213). An action for civil damages 
     also may be brought for unauthorized disclosure (sec. 7431).

                               House Bill

       The House bill makes it unlawful for a specified person to 
     request that any officer or employee of the IRS conduct or 
     terminate an audit or otherwise investigate or terminate the 
     investigation of any particular taxpayer with respect to the 
     tax liability of that taxpayer. The prohibition applies to 
     the President, the Vice President, and employees of the 
     executive offices of either the President or Vice President, 
     as well as any individual (except the Attorney General) 
     serving in a position specified in section 5312 of Title 5 of 
     the United States Code (these are generally Cabinet-level 
     positions). The prohibition applies to both direct requests 
     and requests made through an intermediary.
       Any request made in violation of this rule must be reported 
     by the IRS employee to whom the request was made to the Chief 
     Inspector of the IRS, who has the authority to investigate 
     such violations and to refer any violations to the Department 
     of Justice for possible prosecution, as appropriate. Anyone 
     convicted of violating this provision will be punished by 
     imprisonment of not more than 5 years or a fine not exceeding 
     $5,000 (or both).
       The general prohibition does not apply (1) to a request 
     made to a specified person by a taxpayer or a taxpayer's 
     representative that is forwarded by the specified person to 
     the IRS; (2) to requests for disclosure of returns or return 
     information under section 6103 if the request is made in 
     accordance with the requirements of section 6103; and (3) to 
     requests made by the Secretary of the Treasury as a 
     consequence of the implementation of a change in tax policy.
       Effective date.--The provision applies to violations 
     occurring after the date of enactment.

                            Senate Amendment

       Same as the House bill; in addition, the Senate amendment 
     clarifies that the prohibition applies to direct or indirect 
     requests.
       Effective date.--Same as the House bill.

                          Conference Agreement

       The conference agreement follows the Senate amendment.

[[Page H5158]]

   G. Review of Milwaukee and Waukesha IRS Offices (sec. 1106 of the 
                           Senate amendment)

                              Present Law

       A task force was initiated in January, 1998, to conduct an 
     investigation of the equal employment opportunity process in 
     the IRS' Milwaukee and Waukesha, Wisconsin offices.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment directs the IRS Commissioner to 
     appoint an independent expert in employment and personnel 
     matters to review the investigation conducted by the task 
     force and report to Congress with recommendations for action 
     not later than July 1, 1999. The review should include a 
     determination of the accuracy and validity of such 
     investigation; and if determined necessary by the expert, a 
     further investigation of such offices relating to: (1) the 
     equal employment opportunity process; and (2) any alleged 
     discriminatory employment-related actions, including any 
     alleged violation of Federal law.
       Effective date.--The Senate amendment provisions is 
     effective on date of enactment.

                          Conference Agreement

       The conference agreement follows the House bill. However, 
     the conferees intend that the task force continue to its 
     conclusion. The conferees intend that the General Accounting 
     Office review the report of the task force and report to the 
     House Committee on Ways and Means and the Senate Committee on 
     Finance.

 H. IRS Personnel Flexibilities (sec. 111 of the House bill and secs. 
                   1201-1205 of the Senate amendment)

                              Present Law

       The IRS is subject to the personnel rules and procedures 
     set forth in title 5, United States Code, which regulate 
     hiring, evaluating, promoting, and firing employees. Under 
     these rules, IRS employees generally are classified under the 
     General Schedule or the Senior Executive Service.

                               House Bill

     In general
       The House bill provides that the IRS exercise the personnel 
     flexibilities consistently with existing rules relating to 
     merit system principles, prohibited personnel practices, and 
     preference eligibles. In those cases where the exercise of 
     personnel flexibilities would affect members of the 
     employees' union, such employees would not be subject to the 
     exercise of any flexibility unless there is a written 
     agreement between the IRS and the employees' union. The 
     written agreement would not be a contract that could be 
     appealed to the Federal Services Impasse Panel, or otherwise 
     create additional appeal rights.
     Performance management system
       The House bill requires the IRS to establish a new 
     performance management system within one year from the date 
     of enactment. The performance management system would 
     maintain individual accountability by: (1) establishing at 
     least 2 standards of performance, the lowest of which would 
     be the retention standard and would be equivalent to fully 
     successful performance; (2) providing for periodic 
     performance evaluations to determine whether employees are 
     meeting all applicable retention standards; and (3) using the 
     results of such employee's performance evaluation as a basis 
     for adjustments in pay and other appropriate personnel 
     actions. In addition, the performance management system would 
     provide for: (1) establishing goals or objectives for 
     individual, group or organizational performance and taxpayer 
     service surveys; (2) communicating such goals or objectives 
     to employees; and (3) using such goals or objectives to make 
     performance distinctions among employees or groups of 
     employees. It is intended the in no event would performance 
     measures be used which rank employees or groups of employees 
     based solely on enforcement results, establish dollar goals 
     for assessments or collections, or otherwise undermine fair 
     treatment of taxpayers.
     Awards
       The House bill addresses three types of awards. First, 
     certain awards for superior accomplishments would continue to 
     require certification to the Office of Personnel Management 
     (OPM), but absent objection from OPM within 60 days, the 
     Commissioner's recommendations for such awards would take 
     effect. As with all awards, these awards would be made 
     based on performance under the new performance management 
     system, and in no case would awards be made (or 
     performance measured) based solely or principally on tax 
     enforcement results.
       The second category of awards relates to the most senior 
     managers in the IRS. The Commissioner has discretion, upon 
     consultation with the IRS Oversight Board established under 
     section 101 of the House bill, to make awards of up to 50 
     percent of salary to such manager, so long as the total 
     compensation for an employee as a result of such award does 
     not equal or exceed the annual rate of compensation for the 
     Vice President for such calendar year. As with awards for 
     superior accomplishments, OPM would have 60 days to object. 
     The Commissioner would be required to prescribe regulations 
     defining how determinations would be made as to whether an 
     employee is eligible for such awards. In no case, however, 
     would more than 8 employees be eligible to receive such 
     awards in any calendar year.
       The third category of awards would be based on savings and 
     would encourage the practice of rewarding employees for 
     developing more efficient methods of administration. A cash 
     award under this category would not be based solely on tax 
     enforcement results.
     Streamlined procedures
       The House bill streamlines the process of taking certain 
     adverse actions for poor performance by (1) reducing the 
     notice period for taking adverse actions from 30 days to 15 
     days, and (2) prohibiting appeals of the denial of a step 
     increase to the Merit Systems Protections Board. Aggrieved 
     employees could appeal such actions pursuant to internal 
     agency procedures, including any procedures agreed to 
     pursuant to collective bargaining agreements or pursuant to 
     the written agreement authorizing the use of this 
     flexibility.
     Staffing flexibilities
       The House bill provides the IRS with flexibility in filling 
     certain permanent appointments in the competitive service by 
     authorizing the IRS to fill such vacancies with either 
     qualified veterans or qualified temporary employees. For 
     purpose of this provision, a qualified veteran is an 
     individual who is either a preference eligible or has been 
     separated from the armed forces under honorable conditions 
     after at least three years of active service, and who meets 
     the minimum qualifications for the vacant position. A 
     qualified temporary employee is defined under the bill as a 
     temporary employee of the IRS with at least two years of 
     continuous service, who has met all applicable retention 
     standards and who meets the minimum qualifications for the 
     vacant position.
       The House bill authorizes the IRS to establish category 
     rating systems for evaluating job applicants, under which 
     qualified candidates are divided into two or more quality 
     categories on the basis of relative degrees of merit, rather 
     than assigned individual numerical ratings. Managers would be 
     authorized to select any candidate from the highest quality 
     category, and would not be limited to the three highest 
     ranked candidates. In administering these category rating 
     systems, the IRS generally would be required to list 
     preference eligibles ahead of other individuals within each 
     quality category. The appointing authority, however, could 
     select any candidate from the highest quality category, as 
     long as existing requirements relating to passing over 
     preference eligibles were satisfied.
       The House bill authorizes the Commissioner to reassign or 
     remove career appointees in the Senior Executive Service 
     immediately upon taking office.
       The House bill authorizes the Commissioner to establish 
     probation periods for IRS employees of up to 3 years, when 
     the Commissioner determines that a shorter period is not 
     sufficient for an employee to demonstrate proficiency in a 
     position.
     Demonstration projects
       The House bill authorizes the Commissioner to conduct 1 or 
     more demonstration projects to (1) improve personnel 
     management, (2) provide increased individual accountability, 
     (3) eliminate obstacles to the removal or imposing any 
     disciplinary action with respect to poor performers, subject 
     to the requirements of due process, (4) expedite appeals from 
     adverse actions or performance-based actions, and (5) promote 
     pay based on performance.
       The House bill maintains a number of the existing 
     prohibitions on demonstration projects, including the 
     prohibition on using demonstration projects to waive any 
     requirement of title 5 relating to family and medical leave. 
     The House bill requires the IRS to negotiate a written 
     agreement with the employees' union to the extent that the 
     implementation of a demonstration project affects such 
     employees.
       The House bill establishes a general time limitation of 5 
     years on the duration of any demonstration project. However, 
     if the Commissioner and the Director of OPM concur, a 
     demonstration project could be extended for an additional 2 
     years if necessary to validate the results of the project. 
     Not later than 6 months prior to the termination of a 
     project, the House bill would require the Commissioner to 
     submit a legislative proposal to the Congress if the 
     Commissioner determines that such project should be made 
     permanent.
     Effective date
       The provision is effective on the date of enactment.

                            Senate Amendment

     In general
       The Senate amendment is the same as the House bill except 
     that negotiation impasses between the IRS and the employees' 
     union may be appealed to the Federal Services Impasse Panel.
     Senior management and technical positions
       Streamlined critical pay authority
       The Senate amendment provides a streamlined process for the 
     Secretary of the Treasury, or his delegate, to fix the 
     compensation of, and appoint up to 40 individuals to, 
     designated critical technical and professional positions, 
     provided that: (1) the positions require expertise of an 
     extremely high level in a technical, administrative or 
     professional field and are critical to the IRS; (2) exercise 
     of the authority is necessary to recruit or retain an 
     individual exceptionally well qualified for the position; (3) 
     designation of such

[[Page H5159]]

     positions is approved by the Secretary; (4) the terms of such 
     appointments are limited to no more than four years; (5) 
     appointees to such positions are not IRS employees 
     immediately prior to such appointment; and (6) the total 
     annual compensation for any position (including performance 
     bonuses) does not exceed the rate of pay of the Vice 
     President (currently, $175,400).
       These appointments are not subject to the otherwise 
     applicable requirements under title 5. All such appointments 
     will be excluded from the collective bargaining unit and the 
     appointments will not be subject to approval of the Office of 
     Management and Budget (``OMB'') or the Office of Personnel 
     Management (``OPM'').
       The streamlined authority will be limited to a period of 10 
     years.
       Critical pay authority
       The Senate amendment provides OMB with authority to set the 
     pay for certain critical pay positions requested by the 
     Secretary under section 5377 of title 5 of the United States 
     Code at levels higher than authorized under current law. 
     These critical pay positions would be critical technical, 
     administrative and professional positions other than those 
     designated under the streamlined authority. The Senate 
     amendment authorizes OMB to approve requests for critical 
     position pay up to the rate of pay of the Vice President 
     (currently, $175,400).
       Recruitment, retention and relocation incentives
       The Senate amendment authorizes the Secretary to vary from 
     the existing provisions governing recruitment, retention and 
     relocation incentives. The authority will be for a period of 
     10 years and will be subject to OPM approval.
       Career-reserve Senior Executive Service (``SES'') positions
       The Senate amendment broadens the definition of a ``career 
     reserved position'' in the SES to include a limited emergency 
     appointee or a limited term appointee who, immediately upon 
     entering the career-reserved position, was serving under a 
     career or a career-conditional appointment outside the SES or 
     whose limited emergency or limited term appointment is 
     approved in advance by OPM. The number of appointments to 
     these SES positions will be limited to up to 10 percent of 
     the total number of SES positions available to the IRS. These 
     positions will be limited to a 3-year term, with the option 
     of extending the term for 2 more 3-year terms.
     Performance management system
       The Senate amendment is the same as the House bill except 
     that (1) the Senate amendment does not require that the IRS 
     establish the performance management system within one year 
     from the date of enactment, and (2) the Senate amendment does 
     not provide for the establishment of at least 2 standards of 
     performance. The Senate amendment permits the IRS to 
     establish one or more retention standards for each employee 
     related to the work of the employee and expressed in terms of 
     performance.
     Awards
       The Senate amendment is the same as the House bill except 
     that the Senate amendment (1) provides that awards for 
     superior accomplishments between $10,000 and $25,000 would 
     not be subject to OPM approval, and (2) provides the 
     Secretary with the authority to provide performance bonus 
     awards to IRS senior executives of up to one-third of the 
     individual's annual compensation. The bonus award would be 
     based on meeting preset performance goals established by the 
     IRS. An individual's total annual compensation, including the 
     bonus, cannot exceed the rate of pay of the Vice President. 
     The authority will not be subject to OPM approval. It is 
     anticipated that the bonuses will not be available to more 
     than 25 IRS senior executives annually.
     Staffing flexibilities
       The Senate amendment is the same as the House bill, except 
     that the Senate amendment (1) does not include the 
     requirement that the IRS fill vacancies with qualified 
     veterans, and (2) does not authorize the Commissioner to 
     reassign or remove career appointees in the Senior Executive 
     Service immediately upon taking office. The current law rule 
     which provides that career appointees may not be 
     involuntarily removed within 120 days after the appointment 
     of the head of the agency continues to apply.
       The Senate amendment authorizes the Secretary to establish 
     one or more broad band pay systems covering all or any 
     portion of the IRS workforce, subject to OPM criteria.
       The Senate amendment authorizes the IRS to use Voluntary 
     Separation Incentive Pay (``buyouts'') through December 31, 
     2002. The use of voluntary separation incentive is not 
     intended to reduce the total number of Full-Time Equivalent 
     (``FTE'') positions in the IRS.
     Demonstration projects
       The Senate amendment is the same as the House bill except 
     that the Senate amendment (1) does not include the 
     prohibitions on demonstration projects, and (2) provides 
     authority to the Secretary and OPM to waive the termination 
     of a demonstration project, thereby making it permanent. At 
     least 90 days prior to waiving the termination date OPM will 
     be required to publish a notice of such intent in the Federal 
     Register and inform the appropriate Committees (including the 
     House Ways and Means Committee, the House Government Reform 
     and Oversight Committee, the Senate Finance Committee and the 
     Senate Governmental Affairs Committee) of both Houses of 
     Congress in writing.
     Mandatory employee terminations
       The Senate amendment requires the IRS to terminate an 
     employee for certain proven violations committed by the 
     employee in connection with the performance of official 
     duties. The violations include: (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 
     material to a matter involving a taxpayer; (3) falsifying or 
     destroying documents to avoid uncovering mistakes made by the 
     employee with respect to a matter involving a taxpayer; (4) 
     assault or battery on a taxpayer or other IRS employee; (5) 
     violation of the civil rights of a taxpayer or other IRS 
     employee; (6) violations of the Internal Revenue Code, 
     Treasury Regulations, or policies of the IRS (including the 
     Internal Revenue Manual) for the purpose of retaliating or 
     harassing a taxpayer or other IRS employee; (7) willful 
     misuse of section 6103 for the purpose of concealing data 
     from a Congressional inquiry; (8) willful failure to file any 
     tax return required under the Code on or before the due date 
     (including extensions) unless failure is due to reasonable 
     cause; (9) willful understatement of Federal tax liability, 
     unless such understatement is due to reasonable cause; and 
     (10) threatening to audit a taxpayer for the purpose of 
     extracting personal gain or benefit.
       The Senate amendment provides non-delegable authority to 
     the Commissioner to determine that mitigating factors exist, 
     that, in the Commissioner's sole discretion, mitigate against 
     terminating the employee. The Senate amendment also provides 
     that the Commissioner, in his sole discretion, may establish 
     a procedure which will be used to determine whether an 
     individual should be referred for such a determination by the 
     Commissioner. The Treasury IG is required to track employee 
     terminations and terminations that would have occurred had 
     the Commissioner not determined that there were mitigation 
     factors and include such information in the IG's annual 
     report.
     IRS employee training program
       The Senate amendment requires the IRS to place a high 
     priority on employee training and to adequately fund employee 
     training programs. The bill also requires the IRS to provide 
     to the Congressional tax writing committees a comprehensive 
     multi-year plan to: (1) ensure adequate customer service 
     training; (2) review the organizational design of customer 
     service; (3) implement a performance development system; and 
     (4) provide for at least sixteen hours of conflict management 
     training during 1999 for collection employees.
     Effective date
       The provision is effective on the date of enactment except 
     that the IRS employee training program would be effective 90 
     days after the date of enactment.

                          Conference Agreement

       The conference agreement follows the Senate amendment, with 
     modifications. The conference agreement includes the House 
     bill provision requiring the IRS to establish a new 
     performance management system within one year from the date 
     of enactment.
       The conferees intend to give the IRS flexibility to 
     establish a new performance management system. The conferees 
     expect that this will refocus the IRS' personnel system on 
     the overall mission of the IRS and how each employee's 
     performance relates to that mission. Although the new 
     performance standards are premised on the notion of 
     retention, such standards should go beyond simply 
     establishing a retention/non-retention or pass-fail 
     performance system. At a minimum, the conferees believe that 
     there should be at least one standard above the retention 
     standard. This will enable managers to make meaningful 
     distinctions among employees based on performance, to 
     encourage employees to perform at a higher level and to 
     reward superior performance.
       The conference agreement permits the Secretary to appoint 
     an individual, who was appointed an IRS employee on or after 
     June 1, 1998, to a critical pay position under the 
     streamlined critical pay authority.
       The conference agreement also authorizes the IRS to pay 
     certain relocation expenses for individuals appointed to 
     critical pay positions after June 1, 1998. This authority is 
     for a period of 10 years after the date of enactment.
       The provision (in particular the written agreement 
     requirement) is not intended to expand the jurisdiction of 
     the Federal Service Impasses Panel.
       With respect to mandatory terminations of employees for 
     certain proven violations committed by the employee in 
     connection with the performance of official duties, the 
     conference agreement modifies the definitions of some of the 
     violations. The definitions of the other violations are the 
     same as the Senate amendment. The modified definitions are: 
     (1) willful failure to obtain the required approval 
     signatures on documents authorizing the seizure of a 
     taxpayer's home, personal belongings, or business assets; (2) 
     assault or battery on a taxpayer or other IRS employee, but 
     only if there is a criminal conviction or a final judgment by 
     a court in a civil case, with respect to the assault or 
     battery; (3) falsifying or destroying documents to

[[Page H5160]]

     conceal mistakes made by any employee with respect to a 
     matter involving a taxpayer or taxpayer representative; and 
     (4) with respect to a taxpayer, taxpayer representative, or 
     other IRS employee, the violation of any right under the U.S. 
     Constitution, or any civil right established under titles VI 
     or VII of the Civil Rights Act of 1964, title IX of the 
     Educational Amendments of 1972, the Age Discrimination in 
     Employment Act of 1967, the Age Discrimination Act of 1975, 
     sections 501 or 504 of the Rehabilitation Act of 1973 and 
     title I of the Americans with Disabilities Act of 1990.
       The conference agreement also provides that the 
     Commissioner is to implement an employee training program no 
     later than 180 days after enactment.

                      TITLE II. ELECTRONIC FILING

 A. Electronic Filing of Tax and Information Returns (sec. 201 of the 
           House bill and sec. 2001 of the Senate amendment)

                              Present Law

       Treasury Regulations section 1.6012-5 provides that the 
     Commissioner may authorize a taxpayer to elect to file a 
     composite return in lieu of a paper return. An electronically 
     filed return is a composite return consisting of 
     electronically transmitted data and certain paper documents 
     that cannot be electronically transmitted.
       The IRS periodically publishes a list of the forms and 
     schedules that may be electronically transmitted, as well as 
     a list of forms, schedules, and other information that cannot 
     be electronically filed.
       During the 1997 tax filing season, the IRS received 
     approximately 20 million individual income tax returns 
     electronically.

                               House Bill

       The House bill states that the policy of Congress is to 
     promote paperless filing, with a long-range goal of providing 
     for the filing of at least 80 percent of all tax returns in 
     electronic form by the year 2007. The provision requires the 
     Secretary of the Treasury to establish a strategic plan to 
     eliminate barriers, provide incentives, and use competitive 
     market forces to increase taxpayer use of electronic filing. 
     The provision requires all returns prepared in electronic 
     form but filed in paper form to be filed electronically, to 
     the extent feasible, by the year 2002.
       The provision requires the Secretary to promote electronic 
     filing and to create an electronic commerce advisory group 
     and to report annually to the Congress on electronic filing 
     implementation issues.
       Effective date.--Date of enactment.

                            Senate Amendment

       Same as the House bill, except as follows. The Senate 
     amendment also states that it is the policy of Congress that 
     electronic filing should be a voluntary option for taxpayers. 
     The Senate amendment also requires that the annual report 
     discuss the effects on small businesses and the self-employed 
     of electronically filing tax and information returns.
       In addition, the Senate amendment states that the policy of 
     Congress is that the IRS should cooperate with the private 
     sector by encouraging competition to increase electronic 
     filing.
       Effective date.--Same as the House bill.

                          Conference Agreement

       The conference agreement generally follows the Senate 
     amendment, except that the provision in the Senate amendment 
     that states that it is the policy of Congress that electronic 
     filing should be a voluntary option for taxpayers is 
     deleted.\1\ The provision on private sector cooperation is 
     clarified to provide that the IRS should cooperate with and 
     encourage the private sector by encouraging competition to 
     increase electronic filing of returns. The intent of the 
     conferees with respect to this provision is for the IRS and 
     Treasury to press for robust private sector competition. When 
     disputes arise between the IRS and the private sector on the 
     question of whether services offered by the IRS inhibit 
     competition or are appropriate services not reasonably 
     available to taxpayers or tax preparers, the Electronic 
     Commerce Advisory Group shall recommend to the IRS 
     Commissioner an appropriate course of action. Those 
     recommendations shall also be made available to the Congress. 
     Notwithstanding the previous sentence, the conferees also 
     intend that the IRS should continue to offer and improve its 
     Telefile program and make available a comparable program on 
     the Internet.
---------------------------------------------------------------------------
     \1\ No inference is intended by this deletion. Present law 
     (section 6011(e)(1) of the Code) already states that returns 
     of any tax imposed by subtitle A (income taxes and self-
     employment taxes) on individuals, estates and trusts may not 
     be required to be filed in any format (such as by electronic 
     means) other than on paper forms supplied by the IRS.
---------------------------------------------------------------------------

B. Due Date for Certain Information Returns (sec. 202 of the House bill 
                 and sec. 2002 of the Senate amendment)

                              Present Law

       Information such as the amount of dividends, partnership 
     distributions, and interest paid during the calendar year 
     must be supplied to taxpayers by the payors by January 31 of 
     the following calendar year. The payors must file an 
     information return with the IRS with the information by 
     February 28 of the year following the calendar year for which 
     the return must be filed. Under present law, the due date for 
     filing information returns with the IRS is the same whether 
     such returns are filed on paper, on magnetic media, or 
     electronically. Most information returns are filed on 
     magnetic media (such as computer tapes), which are physically 
     shipped to the IRS.

                               House Bill

       The House bill provides an incentive to filers of 
     information returns to use electronic filing by extending the 
     due date for filing such returns with the IRS from February 
     28 (under present law) to March 31 of the year following the 
     calendar year to which the return relates.
       Effective date.--Information returns required to be filed 
     after December 31, 1999.

                            Senate Amendment

       Same as the House bill except that the Senate amendment 
     also requires the Treasury to issue a study evaluating the 
     merits and disadvantages, if any, of extending the deadline 
     for providing taxpayers with copies of information returns 
     (other than Forms W-2) from January 31 to February 15.
       Effective date.--Same as the House bill, except that the 
     Treasury study is due by December 31, 1998.

                          Conference Agreement

       The conference agreement follows the Senate amendment, 
     except that the Treasury study is due by June 30, 1999.

  C. Paperless Electronic Filing (sec. 203 of the House bill and sec. 
                     2003 of the Senate amendment)

                              Present Law

       Code section 6061 requires that tax forms be signed as 
     required by the Secretary. The IRS will not accept an 
     electronically filed return unless it has also received a 
     Form 8453, which is a paper form that contains signature 
     information of the filer.
       A return generally is considered timely filed when it is 
     received by the IRS on or before the due date of the return. 
     If the requirements of Code section 7502 are met, timely 
     mailing is treated as timely filing. If the return is mailed 
     by registered mail, the dated registration statement is prima 
     facie evidence of delivery.
       The IRS periodically publishes a list of the forms and 
     schedules that may be electronically transmitted, as well as 
     a list of forms, schedules, and other information that cannot 
     be electronically filed.

                               House Bill

       The House bill requires the Secretary to develop procedures 
     that would eliminate the need to file a paper form relating 
     to signature information. Until the procedures are in place, 
     the provision authorizes the Secretary to provide for 
     alternative methods of signing all returns, declarations, 
     statements, or other documents or to waive the signature 
     requirement. An alternative method of signature would be 
     treated identically, for both civil and criminal purposes, as 
     a signature on a paper form.
       The provision also provides rules for determining when 
     electronic returns are deemed filed and for authorization for 
     return preparers to communicate with the IRS on matters 
     included on electronically filed returns.
       The provision requires the Secretary to establish 
     procedures, to the extent practicable, to receive all forms 
     electronically for taxable periods beginning after December 
     31, 1998.
       Effective date.--Date of enactment.

                            Senate Amendment

       Same as the House bill, with the following exceptions. (1) 
     The Senate amendment deletes the provision permitting the 
     Secretary to waive the signature requirement. (2) The 
     Secretary of the Treasury must establish procedures for all 
     tax forms, instructions, and publications created in the most 
     recent 5-year period to be made available electronically on 
     the Internet in a searchable database not later than the date 
     such records are available to the public in printed form. (3) 
     The Secretary of the Treasury must, to the extent 
     practicable, establish procedures for other taxpayer guidance 
     to be made available electronically on the Internet in a 
     searchable database not later than the date such guidance is 
     available to the public in printed form.
       Effective date.--Generally effective on the date of 
     enactment. The provision which relates to Internet access to 
     IRS forms, instructions, publications, and guidance is 
     effective for taxable periods beginning after December 31, 
     1998.

                          Conference Agreement

       The conference agreement follows the Senate amendment, 
     except as follows. The Secretary is permitted to waive the 
     signature requirement, but only returns signed or subscribed 
     under alternative methods prescribed by the Secretary (not 
     including waiver) are entitled to be treated as though signed 
     or subscribed. The provision that requires the Secretary, to 
     the extent practicable, to receive all forms electronically 
     applies to taxable periods after December 31, 1999. The 
     provision relating to authorizing return preparers to 
     communicate with the IRS on matters included on 
     electronically filed returns is clarified.

D. Return-Free Tax System (sec. 204 of the House bill and sec. 2004 of 
                         the Senate amendment)

                              Present Law

       Under present law, taxpayers generally are required to 
     calculate their own tax liabilities and submit returns 
     showing their calculations.

[[Page H5161]]

                               House Bill

       The provision requires the Secretary or his delegate to 
     study the feasibility of, and develop procedures for, the 
     implementation of a return-free tax system for appropriate 
     individuals for taxable years beginning after 2007. The 
     Secretary is required annually to report to the tax-writing 
     committees on the progress of the development of such system. 
     The Secretary is required to make the first report on the 
     development of the return-free tax system to the tax-writing 
     committees by June 30, 2000.
       Effective date.--Date of enactment.

                            Senate Amendment

       Same as the House bill.

                          Conference Agreement

       The conference agreement follows the House bill and the 
     Senate amendment.

 E. Access to Account Information (sec. 205 of the House bill and sec. 
                     2005 of the Senate amendment)

                              Present Law

       Taxpayers who file their returns electronically cannot 
     review their accounts electronically.

                               House Bill

       The House bill requires the Secretary to develop procedures 
     not later than December 31, 2006, under which a taxpayer 
     filing returns electronically (or the taxpayer's designee 
     under section 6103(c)) could review the taxpayer's own 
     account electronically, but only if all necessary privacy 
     safeguards are in place by that date.
       Effective date.--Date of enactment.

                            Senate Amendment

       Same as the House bill, except that the Secretary is also 
     required to issue an interim progress report to the tax-
     writing committees by December 31, 2003.
       Effective date.--Same as the House bill.

                          Conference Agreement

       The conference agreement follows the Senate amendment.

               TITLE III. TAXPAYER PROTECTION AND RIGHTS

  A. Burden of Proof (sec. 301 of the House bill and sec. 3001 of the 
                           Senate amendment)

                              Present Law

       Under present law, a rebuttable presumption exists that the 
     Commissioner's determination of tax liability is correct. 
     ``This presumption in favor of the Commissioner is a 
     procedural device that requires the plaintiff to go forward 
     with prima facie evidence to support a finding contrary to 
     the Commissioner's determination. Once this procedural burden 
     is satisfied, the taxpayer must still carry the ultimate 
     burden of proof or persuasion on the merits. Thus, the 
     plaintiff not only has the burden of proof of establishing 
     that the Commissioner's determination was incorrect, but also 
     of establishing the merit of its claims by a preponderance of 
     the evidence'' (Danville Plywood Corp. v. U.S., U.S. Cl. Ct., 
     63 AFTR 2d 89-1036, 1043 (1989).
       The general rebuttable presumption that the Commissioner's 
     determination of tax liability is correct is a fundamental 
     element of the structure of the Internal Revenue Code. 
     Although this presumption is judicially based, rather than 
     legislatively based, there is considerable evidence that the 
     presumption has been repeatedly considered and approved by 
     the Congress. This is the case because the Internal Revenue 
     Code contains a number of civil provisions that explicitly 
     place the burden of proof on the Commissioner in specifically 
     designated circumstances.

                               House Bill

       The House bill provides that the Secretary shall have the 
     burden of proof in any court proceeding with respect to a 
     factual issue if the taxpayer asserts a reasonable dispute 
     with respect to any such issue relevant to ascertaining the 
     taxpayer's income tax liability. Two conditions apply. First, 
     the taxpayer must fully cooperate at all times with the 
     Secretary (including providing, within a reasonable period of 
     time, access to and inspection of all witnesses, information, 
     and documents within the control of the taxpayer, as 
     reasonably requested by the Secretary).\2\ Full cooperation 
     also includes providing reasonable assistance to the 
     Secretary in obtaining access to and inspection of witnesses, 
     information, or documents not within the control of the 
     taxpayer (including any witnesses, information, or documents 
     located in foreign countries).\3\ A necessary element of 
     fully cooperating with the Secretary is that the taxpayer 
     must exhaust his or her administrative remedies (including 
     any appeal rights provided by the IRS). The taxpayer is not 
     required to agree to extend the statute of limitations to be 
     considered to have fully cooperated with the Secretary. 
     Second, certain taxpayers must meet the net worth limitations 
     that apply for awarding attorney's fees. In general, 
     corporations, trusts, and partnerships whose net worth 
     exceeds $7 million are not eligible for the benefits of the 
     provision. The taxpayer has the burden of proving that it 
     meets each of these conditions, because they are necessary 
     prerequisites to establishing that the burden of proof is on 
     the Secretary.
---------------------------------------------------------------------------
     \2\ This requirement parallels the present-law provision 
     relating to reasonable verification of informatin returns 
     (sec. 6201(d)).
     \3\ Full cooperation also includes providing English 
     translations, as reasonably requested by the Secretary.
---------------------------------------------------------------------------
       The provision explicitly states that nothing in the 
     provision shall be construed to override any requirement 
     under the Code or regulations to substantiate any item. 
     Accordingly, taxpayers must meet all applicable 
     substantiation requirements, whether generally imposed or 
     imposed \4\ with respect to specific items, such as 
     charitable contributions \5\ or meals, entertainment, travel, 
     and certain other expenses.\6\ Substantiation requirements 
     include any requirement of the Code or regulations that the 
     taxpayer establish an item to the satisfaction of the 
     Secretary.\7\ Taxpayers who fail to substantiate any item in 
     accordance with the legal requirement of substantiation will 
     not have satisfied all of the legal conditions that are 
     prerequisite to claiming the item on the taxpayer's tax 
     return and will accordingly be unable to avail themselves of 
     this provision regarding the burden of proof. Thus, if a 
     taxpayer required to substantiate an item fails to do so in 
     the manner required (or destroys the substantiation), this 
     burden of proof provision is inapplicable.\8\
---------------------------------------------------------------------------
     \4\ See e.g., Sec. 6001 and Treas. Reg. sec. 1.6001-1 
     requiring every person liable for any tax imposed by this 
     Title to keep such records as the Secretary may from time to 
     time prescribe, and secs. 6038 and 6038A requiring United 
     States persons to furnish certain information the Secretary 
     may prescribe with respect to foreign businesses controlled 
     by the U.S. person.
     \5\ Sec. 170(a)(1) and (f)(8) and Treas. Reg. sec. 1.170A-13.
     \6\ Sec. 274(d) and Treas. Reg. sec. 1.274(d)-1, 1.274-5T, 
     and 1.274-5A.
     \7\ For example, sec. 905(b) of the Code provides that 
     foreign tax credits shall be allowed only if the taxpayer 
     establishes to the satisfaction of the Secretary all 
     information necessary for the verification and computation of 
     the credit. Instructions for meeting that requirement are set 
     forth in Treas. Reg. sec. 1.905-2.
     \8\ If, however, the taxpayer can demonstrate that he had 
     maintained the required substantiation but that it was 
     destroyed or lost through no fault of the taxpayer, such as 
     by fire or flood, existing tax rules regarding reconstruction 
     of those records would continue to apply.
---------------------------------------------------------------------------
       Effective date.--The provision applies to court proceedings 
     arising in connection with examinations commencing after the 
     date of enactment.

                            Senate Amendment

       The Senate amendment provides that the Secretary shall have 
     the burden of proof in any court proceeding with respect to a 
     factual issue if the taxpayer introduces credible evidence 
     with respect to the factual issue relevant to ascertaining 
     the taxpayer's income tax liability. Four conditions apply. 
     First, the taxpayer must comply with the requirements of the 
     Internal Revenue Code and the regulations issued thereunder 
     to substantiate any item (as under present law). Second, the 
     taxpayer must maintain records required by the Code and 
     regulations (as under present law). Third, the taxpayer must 
     cooperate with reasonable requests by the Secretary for 
     meetings, interviews, witnesses, information, and documents 
     (including providing, within a reasonable period of time, 
     access to and inspection of witnesses, information, and 
     documents within the control of the taxpayer, as reasonably 
     requested by the Secretary). Cooperation also includes 
     providing reasonable assistance to the Secretary in obtaining 
     access to and inspection of witnesses, information, or 
     documents not within the control of the taxpayer (including 
     any witnesses, information, or documents located in foreign 
     countries).\9\ A necessary element of cooperating with the 
     Secretary is that the taxpayer must exhaust his or her 
     administrative remedies (including any appeal rights provided 
     by the IRS). The taxpayer is not required to agree to extend 
     the statute of limitations to be considered to have 
     cooperated with the Secretary. Cooperating also means that 
     the taxpayer must establish the applicability of any 
     privilege. Fourth, taxpayers other than individuals must meet 
     the net worth limitations that apply for awarding attorney's 
     fees (accordingly, no net worth limitation would be 
     applicable to individuals). Corporations, trusts, and 
     partnerships whose net worth exceeds $7 million are not 
     eligible for the benefits of the provision. The taxpayer has 
     the burden of proving that it meets each of these conditions, 
     because they are necessary prerequisites to establishing that 
     the burden of proof is on the Secretary.
---------------------------------------------------------------------------
     \9\ Cooperation also includes providing English translations, 
     as reasonably requested by the Secretary.
---------------------------------------------------------------------------
       In the case of court proceedings arising in connection with 
     examinations commencing six months after the date of 
     enactment and before June 1, 2001, the provision applies to 
     any tax liability of the taxpayer.
       The burden will shift to the Secretary under this provision 
     only if the taxpayer first introduces credible evidence with 
     respect to a factual issue relevant to ascertaining the 
     taxpayer's income tax liability. Credible evidence is the 
     quality of evidence which, after critical analysis, the court 
     would find sufficient upon which to base a decision on the 
     issue if no contrary evidence were submitted (without regard 
     to the judicial presumption of IRS correctness). A taxpayer 
     has not produced credible evidence for these purposes if the 
     taxpayer merely makes implausible factual assertions, 
     frivolous claims, or tax protestor-type arguments. The 
     introduction of evidence will not meet this standard if the 
     court is not convinced that it is worthy of belief. If after 
     evidence from both sides, the court believes that the 
     evidence is equally balanced, the court shall find that the 
     Secretary has not sustained his burden of proof.
       Nothing in the provision shall be construed to override any 
     requirement under the Code

[[Page H5162]]

     or regulations to substantiate any item. Accordingly, 
     taxpayers must meet applicable substantiation requirements, 
     whether generally imposed \10\ or imposed with respect to 
     specific items, such as charitable contributions \11\ or 
     meals, entertainment, travel, and certain other expenses.\12\ 
     Substantiation requirements include any requirement of the 
     Code or regulations that the taxpayer establish an item to 
     the satisfaction of the Secretary.\13\ Taxpayers who fail to 
     substantiate any item in accordance with the legal 
     requirement of substantiation will not have satisfied the 
     legal conditions that are prerequisite to claiming the item 
     on the taxpayer's tax return and will accordingly be unable 
     to avail themselves of this provision regarding the burden of 
     proof. Thus, if a taxpayer required to substantiate an item 
     fails to do so in the manner required (or destroys the 
     substantiation), this burden of proof provision is 
     inapplicable.\14\
---------------------------------------------------------------------------
     \10\ See e.g., Sec. 6001 and Treas. Reg. sec. 1.6001-1 
     requiring every person liable for any tax imposed by this 
     Title to keep such records as the Secretary may from time to 
     time prescribe, and secs. 6038 and 6038A requiring United 
     States persons to furnish certain information the Secretary 
     may prescribe with respect to foreign businesses controlled 
     by the U.S. person.
     \11\ Sec. 170(a)(1) and (f)(8) and Treas. Reg. sec. 1.170A-
     13.
     \12\ Sec. 274(d) and Treas. Reg. sec. 1.274(d)-1, 1.274-5T, 
     and 1.274-5A.
     \13\ For example, sec. 905(b) of the Code provides that 
     foreign tax credits shall be allowed only if the taxpayer 
     establishes to the satisfaction of the Secretary all 
     information necessary for the verification and computation of 
     the credit. Instructions for meeting that requirement are set 
     forth in Treas. Reg. sec. 1.905-2.
     \14\ If, however, the taxpayer can demonstrate that he had 
     maintained the required substantiation but that it was 
     destroyed or lost through no fault of the taxpayer, such as 
     by fire or flood, existing tax rules regarding reconstruction 
     of those records would continue to apply.
---------------------------------------------------------------------------
       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.
       Further, the provision provides that, in any court 
     proceeding, the Secretary must initially come forward with 
     evidence that it is appropriate to apply a particular penalty 
     to the taxpayer before the court can impose the penalty. This 
     provision is not intended to require the Secretary to 
     introduce evidence of elements such as reasonable cause or 
     substantial authority. Rather, the Secretary must come 
     forward initially with evidence regarding the appropriateness 
     of applying a particular penalty to the taxpayer; if the 
     taxpayer believes that, because of reasonable cause, 
     substantial authority, or a similar provision, it is 
     inappropriate to impose the penalty, it is the taxpayer's 
     responsibility (and not the Secretary's obligation) to raise 
     those issues.
       Effective date.--The provision applies to court proceedings 
     arising in connection with examinations commencing after the 
     date of enactment.

                          Conference Agreement

       The conference agreement follows the Senate amendment, 
     except as follows. The provision applies to income,\15\ 
     estate, gift, and generation-skipping transfer taxes, 
     permanently (i.e., without the June 1, 2001 termination of 
     some taxes as under the Senate amendment). The effective date 
     is clarified by adding that in any case in which there is no 
     examination, the provision applies to court proceedings 
     arising in connection with taxable periods or events 
     beginning or occurring after the date of enactment. An audit 
     is not the only event that would be considered an examination 
     for purposes of this provision. For example, the matching of 
     an information return against amounts reported on a tax 
     return is intended to be an examination for purposes of this 
     provision. Similarly, the review of a claim for refund prior 
     to issuing that refund is also intended to be an examination 
     for purposes of this provision.
---------------------------------------------------------------------------
     \15\ For this purpose, self-employment taxes are treated as 
     income taxes.
---------------------------------------------------------------------------

                      B. Proceedings by Taxpayers

     1. Expansion of authority to award costs and certain fees 
         (sec. 311 of the House bill and sec. 3101 of the Senate 
         amendment)

                              Present Law

       Any person who substantially prevails in any action by or 
     against the United States in connection with the 
     determination, collection, or refund of any tax, interest, or 
     penalty may be awarded reasonable administrative costs 
     incurred before the IRS and reasonable litigation costs 
     incurred in connection with any court proceeding. Reasonable 
     administrative costs are defined as (1) any administrative 
     fees or similar charges imposed by the IRS and (2) expenses, 
     costs and fees related to attorneys, expert witnesses, and 
     studies or analyses necessary for preparation of the case, to 
     the extent that such costs are incurred before the earlier of 
     the date of the notice of decision by IRS Appeals or the 
     notice of deficiency. Net worth limitations apply.
       Reasonable litigation costs include reasonable fees paid or 
     incurred for the services of attorneys, except that the 
     attorney's fees will not be reimbursed at a rate in excess of 
     $110 per hour (indexed for inflation) unless the court 
     determines that a special factor, such as the limited 
     availability of qualified attorneys for the proceeding, 
     justifies a higher rate.
       Rule 68 of the Federal Rules of Civil Procedure (FRCP) 
     provides a procedure under which a party may recover costs if 
     the party's offer for judgment was rejected and the 
     subsequent court judgment was less favorable to the opposing 
     party than the offer. The offering party's costs are limited 
     to the costs (excluding attorney's fees) incurred after the 
     offer was made. The FRCP generally apply to tax litigation in 
     the district courts and the United States Court of Federal 
     Claims.
       Code section 7431 permits the award of civil damages for 
     unauthorized inspection or disclosure of return information. 
     The Federal appellate courts are split over whether a party 
     who substantially prevails over the United States in an 
     action under Code section 7431 is eligible for an award of 
     fees and reasonable costs.

                               House Bill

       The House bill:
       (1) Moves the point in time after which reasonable 
     administrative costs can be awarded to the date on which the 
     first letter of proposed deficiency that allows the taxpayer 
     an opportunity for administrative review in the IRS Office of 
     Appeals is sent;
       (2) Provides that the difficulty of the issues presented on 
     the unavailability of local tax expertise can be used to 
     justify an award of attorney's fees of more than the 
     statutory limit of $110 per hour;
       (3) Permits the award of reasonable attorney's fees to 
     specified persons who represent for no more than a nominal 
     fee a taxpayer who is a prevailing party; and
       (4) Provides that in determining whether the position of 
     the United States was substantially justified, the court 
     shall take into account whether the United States has lost in 
     other courts of appeal on substantially similar issues.
       Effective date.--Costs incurred and services performed more 
     than 180 days after the date of enactment.

                            Senate Amendment

       The Senate amendment:
       (1) Is the same as the House bill;
       (2) Permits awards of reasonable attorney's fees by 
     deleting the hourly rate caps (and the exceptions to those 
     caps);
       (3) Is the same as the House bill; and
       (4) Is the same as the House bill.
       In addition, the Senate amendment:
       (5) Provides that if a taxpayer makes an offer after the 
     taxpayer has a right to administrative review in the IRS 
     Office of Appeals, the IRS rejects the offer, and later 
     the IRS obtains a judgment against the taxpayer in an 
     amount that is equal to or less than the taxpayer's offer 
     for the amount of the tax liability (excluding interest), 
     reasonable costs and attorney's fees from the date of the 
     offer would be awarded; and
       (6) Clarifies that the award of attorney's fees is 
     permitted in actions for civil damages for unauthorized 
     inspection or disclosure of taxpayer returns and return 
     information.
       Effective date.--Same as the House bill.

                          Conference Agreement

       The conference agreement follows the Senate amendment, 
     except that the conference agreement follows the House bill 
     with respect to the hourly rate caps, with the following 
     modification. The hourly rate is raised to $125 per hour, 
     which parallels the rate utilized under the Equal Access to 
     Justice Act (the statute that authorizes the awarding of 
     attorney's fees in non-tax Federal cases). This new cap will 
     continue to be indexed for inflation (as under present law). 
     With respect to the award of attorney's fees in unauthorized 
     inspection and disclosure cases, the conferees wish to 
     clarify that fees are payable by the United States only when 
     the United States is the defendant and the plaintiff is a 
     prevailing party. Also, individual defendants (such as State 
     employees or contractors) may be liable for attorneys' fees 
     and costs in cases where the United States is not a party, 
     whenever they are found to have made a wrongful disclosure.

2. Civil damages for collection actions (sec. 312 of the House bill and 
                   sec. 3102 of the Senate amendment)

                              Present Law

       A taxpayer may sue the United States for up to $1 million 
     of civil damages caused by an officer or employee of the IRS 
     who recklessly or intentionally disregards provisions of the 
     Internal Revenue Code or Treasury regulations in connection 
     with the collection of Federal tax with respect to the 
     taxpayer.

                               House Bill

       The House bill permits up to $100,000 in civil damages 
     caused by an officer or employee of the IRS who negligently 
     disregards provisions of the Internal Revenue Code or 
     Treasury regulations in connection with the collection of 
     Federal tax with respect to the taxpayer.
       Effective date.--Actions of officers or employees of the 
     IRS occurring after the date of enactment.

                            Senate Amendment

       Same as the House bill, except that the provision also 
     permits up to $1 million in civil damages caused by an 
     officer or employee of the IRS who willfully violates 
     provisions of the Bankruptcy Code relating to automatic stays 
     or discharges. The provision also provides that persons other 
     than the taxpayer may sue for civil damages for unauthorized 
     collection actions.
       Effective date.--Same as the House bill.

                          Conference Agreement

       The conference agreement follows the Senate amendment.

[[Page H5163]]

3. Increase in size of cases permitted on small case calendar (sec. 313 
        of the House bill and sec. 3103 of the Senate amendment)

                              Present Law

       Taxpayers may choose to contest many tax disputes in the 
     Tax Court. Special small case procedures apply to disputes 
     involving $10,000 or less, if the taxpayer chooses to utilize 
     these procedures (and the Tax Court concurs). The IRS cannot 
     require the taxpayer to use the small case procedures. The 
     Tax Court generally concurs with the taxpayer's request to 
     use the small case procedures, unless it decides that the 
     case involves an issue that should be heard under the normal 
     procedures. After the case has commenced, the Tax Court may 
     order that the small case procedures should be discontinued 
     only if (1) there is reason to believe that the amount in 
     controversy will exceed $10,000 or (2) justice would require 
     the change in procedure.

                               House Bill

       The House bill increases the cap for small case treatment 
     from $10,000 to $25,000.
       Effective date.--Proceedings commenced after the date of 
     enactment.

                            Senate Amendment

       The Senate amendment increases the cap for small case 
     treatment from $10,000 to $50,000.
       Effective date.--Same as the House bill.

                          Conference Agreement

       The conference agreement follows the Senate amendment. The 
     conferees recognize that an increase of this size may 
     encompass a small number of cases of significant 
     precedential value. Accordingly, the conferees anticipate 
     that the Tax Court will carefully consider (1) IRS 
     objections to small case treatment, such as objections 
     based upon the potential precedential value of the case, 
     as well as (2) the financial impact on the taxpayer, 
     including additional legal fees and costs, of not 
     utilizing small case treatment.
     4. Expansion of Tax Court jurisdiction to responsible person 
         penalties (sec. 3104 of the Senate amendment)

                              Present Law

       In general, employers are required to withhold income taxes 
     and social security taxes from their employee's wages. These 
     withheld taxes constitute a trust in favor of the United 
     States from the time that the employer deducts them from the 
     employee's wages, and the employer is liable to the 
     government for the payment of such taxes. All persons 
     considered responsible for the withholding and payment of 
     taxes are subject to a penalty equal to the amount of taxes 
     due where the employer fails to turn over such funds to the 
     government (the ``responsible person'' penalty, also known as 
     the ``100 percent'' penalty). Generally, the determination of 
     whether a person is a ``responsible person'' is a question of 
     the person's status, duty, and authority in the context of 
     the business which has failed to collect and pay over taxes 
     required to be withheld. A responsible person penalty may 
     also be imposed on a payroll lender.
       The Tax Court has no jurisdiction over the determination of 
     the correctness of the assessment of the responsible person 
     penalty. Accordingly, as the Tax Court is the only pre-
     payment forum for the determination of tax liability, the 
     imposition of the responsible person penalty can only be 
     challenged in a refund suit in the appropriate district court 
     or the U.S. Court of Federal Claims after payment of such 
     penalty. The responsible person penalty is a divisible tax. 
     Thus, unlike a refund suit for income taxes, a responsible 
     person need not pay the full amount of the assessment to 
     invoke the jurisdiction of the district court or the U.S. 
     Court of Federal Claims. Instead, the alleged responsible 
     person may commence a refund suit after payment of the 
     portion of the penalty attributable to one employee for one 
     quarter.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment provides Tax Court jurisdiction over 
     the ``responsible person'' penalty. Accordingly, the 
     responsible person does not have to make a payment before 
     challenging the imposition of the penalty.
       Effective date.--Penalties imposed after the date of 
     enactment.

                          Conference Agreement

       The conference agreement does not include the Senate 
     amendment.
     5. Actions for refund with respect to certain estates which 
         have elected the installment method of payment (sec. 371 
         of the House bill and 3105 of the Senate amendment)

                              Present Law

       In general, the U.S. Court of Federal Claims and the U.S. 
     district courts have jurisdiction over suits for the refund 
     of taxes, as long as full payment of the assessed tax 
     liability has been made. Under Code section 6166, if certain 
     conditions are met, the executor of a decedent's estate may 
     elect to pay the estate tax attributable to certain closely-
     held businesses over a 14-year period. Courts have held that 
     U.S. district courts and the U.S. Court of Federal Claims do 
     not have jurisdiction over claims for refunds by taxpayers 
     deferring estate tax payments pursuant to section 6166 unless 
     the entire estate tax liability has been paid. Under section 
     7479, the U.S. Tax Court has limited authority to provide 
     declaratory judgments regarding initial or continuing 
     eligibility for deferral under section 6166.

                               House Bill

       The House bill grants the U.S. Court of Federal Claims and 
     the U.S. district courts jurisdiction to determine the 
     correct amount of estate tax liability (or refund) in actions 
     brought by taxpayers deferring estate tax payments under 
     section 6166, as long as certain conditions are met. In order 
     to qualify for the provision: (1) the estate must have made 
     an election pursuant to section 6166; (2) the estate must 
     have fully paid each installment of principal and/or interest 
     due (and all non-6166-related estate taxes due) before the 
     date the suit is filed; (3) no portion of the payments due 
     may have been accelerated; (4) there must be no suits for 
     declaratory judgment pursuant to section 7479 pending; and 
     (5) there must be no outstanding deficiency notices against 
     the estate. In general, to the extent that a taxpayer has 
     previously litigated its estate tax liability, the taxpayer 
     would not be able to take advantage of this procedure under 
     principles of res judicata. Taxpayers are not relieved of the 
     liability to make any installment payments that become due 
     during the pendency of the suit (i.e., failure to make such 
     payments would subject the taxpayer to the existing 
     provisions of section 6166(g)(3)).
       The House bill further provides that once a final judgment 
     has been entered by a district court or the U.S. Court of 
     Federal Claims, the IRS is not permitted to collect any 
     amount disallowed by the court, and any amounts paid by the 
     taxpayer in excess of the amount the court finds to be 
     currently due and payable are refunded to the taxpayer, with 
     interest. Lastly, the provision provides that the two-year 
     statute of limitations for filing a refund action is 
     suspended during the pendency of any action brought by a 
     taxpayer pursuant to section 7479 for a declaratory judgment 
     as to an estate's eligibility for section 6166.
       Effective date.--Claims for refunds filed after the date of 
     enactment.

                            Senate Amendment

       Generally same as the House bill, with technical 
     modifications.
       Effective date.--Same as the House bill.

                          Conference Agreement

       The conference agreement follows the Senate amendment.
     6. Tax Court jurisdiction to review an adverse IRS 
         determination of a bond issue's tax-exempt status (sec. 
         3106 of the Senate amendment)

                              Present Law

       Interest on debt incurred by States or local governments 
     generally is excluded from gross income if the proceeds of 
     the borrowing are used to carry out governmental functions of 
     those entities and the debt is repaid with governmental 
     funds.
       A State or local government that seeks to issue bonds, the 
     interest on which is intended to be excludable from gross 
     income, can request a ruling from the IRS regarding the 
     eligibility of such bonds for tax-exemption. The prospective 
     issuer can challenge the IRS's determination (or failure to 
     make a timely determination) in a declaratory judgment 
     proceeding in the Tax Court. Because bondholders, not 
     issuers, are the parties whose tax liability is affected, 
     issuers are not allowed to litigate the tax-exempt status of 
     the bonds directly after the bonds are issued.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment expands the declaratory judgment 
     procedures currently applicable to prospective bond issuers 
     to allow issuers to litigate in the Tax Court issues related 
     to the tax- exempt status of outstanding bonds. In such 
     cases, the issuer must provide adequate notice to outstanding 
     bondholders, and the bondholders are authorized to intervene 
     in court proceedings brought under this provision. The 
     statute of limitations on assessment and collection of the 
     tax liability of the bondholders is suspended during the 
     pendency of the proceeding.
       Effective date.--Determinations of tax-exempt status made 
     after the date of enactment. In the case of a determination 
     under a technical advice memorandum the public release of 
     which occurred within one year of the date of enactment, a 
     pleading may be filed not later than 90 days after the date 
     of enactment.

                          Conference Agreement

       In lieu of the Senate amendment provision, the conference 
     agreement directs the Internal Revenue Service to modify its 
     administrative procedures to allow tax-exempt bond issuers 
     examined by the IRS to appeal adverse examination 
     determinations to the Appeals Division of the IRS as a matter 
     of right. Because of the complexity of the issues involved, 
     the IRS is directed to provide that these appeals will be 
     heard by senior appeals officers having experience in 
     resolving complex cases.
       The conferees further express their intent that Congress 
     will evaluate judicial remedies in future legislation once 
     the IRS's tax-exempt bond examination program has developed 
     more fully and the Congress is better able to ensure that any 
     such future measure protects all parties in interest to these 
     determinations (i.e., issuers, bondholders, conduit 
     borrowers, and the Federal Government).
       Effective date.--The direction to the IRS is effective on 
     the date of enactment.

[[Page H5164]]

     7. Civil action for release of erroneous lien (sec. 3107 of 
         the Senate amendment)

                              Present Law

       Prior to 1995, the provisions governing jurisdiction over 
     refund suits had generally been interpreted to apply only if 
     an action was brought by the taxpayer against whom tax was 
     assessed. Remedies for third parties from whom tax was 
     collected (rather than assessed) were found in other 
     provisions of the Internal Revenue Code. The Supreme Court 
     has held that a third party who paid another person's tax 
     under protest to remove a lien on the third party's property 
     could bring a refund suit, because she had no other adequate 
     administrative or judicial remedy. The Supreme Court held 
     that parties who are forced to pay another's tax under duress 
     could bring a refund suit, because no other judicial remedy 
     was adequate.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment creates an administrative procedure 
     permitting a record owner of property against which a Federal 
     tax lien has been filed to obtain a certificate of discharge 
     of property from the lien as a matter of right. The third 
     party is required to apply to the Secretary of the Treasury 
     for such a certificate and either to deposit cash or to 
     furnish a bond sufficient to protect the lien interest of the 
     United States.
       The Senate amendment also establishes a judicial cause of 
     action for third parties challenging a lien. The period 
     within which such an action must be commenced is 120 days 
     after the date the certificate of discharge is issued to 
     ensure an early resolution of the parties' interests.
       Effective date.--Date of enactment.

                          Conference Agreement

       The conference agreement follows the Senate amendment.

C. Relief for Innocent Spouses and for Taxpayers Unable to Manage Their 
                 Financial Affairs Due to Disabilities

     1. Relief for innocent spouses (sec. 321 of the House bill 
         and sec. 3201 of the Senate amendment)

                              Present Law

       Under present law, relief from liability for tax, interest 
     and penalties is available for ''innocent spouses'' in 
     certain circumstances. To qualify for such relief, the 
     innocent spouse must establish: (1) that a joint return was 
     made; (2) that an understatement of tax, which exceeds the 
     greater of $500 or a specified percentage of the innocent 
     spouse's adjusted gross income for the preadjustment (most 
     recent) year, is attributable to a grossly erroneous item of 
     the other spouse; (3) that in signing the return, the 
     innocent spouse did not know, and had no reason to know, that 
     there was an understatement of tax; and (4) that taking into 
     account all the facts and circumstances, it is inequitable to 
     hold the innocent spouse liable for the deficiency in tax. 
     The specified percentage of adjusted gross income is 10 
     percent if adjusted gross income is $20,000 or less. 
     Otherwise, the specified percentage is 25 percent.
       The proper forum for contesting the Secretary's denial of 
     innocent spouse relief is determined by whether an 
     underpayment is asserted or the taxpayer is seeking a refund 
     of overpaid taxes. Accordingly, the Tax Court may not have 
     jurisdiction to review all denials of innocent spouse relief.

                               House Bill

       The House bill generally makes innocent spouse status 
     easier to obtain. The bill eliminates all of the 
     understatement thresholds and requires only that the 
     understatement of tax be attributable to an erroneous (and 
     not just a grossly erroneous) item of the other spouse.
       The House bill provides that innocent spouse relief may be 
     provided on an apportioned basis. A spouse may be relieved of 
     liability for the portion of an understatement of tax even if 
     the spouse knew or had reason to know of other 
     understatements of tax on the same return.
       The House bill specifically provides that the Tax Court has 
     jurisdiction to review any denial of innocent spouse relief. 
     Except for termination and jeopardy assessments, the 
     Secretary may not levy or proceed in court to collect any tax 
     from a taxpayer claiming innocent spouse status with regard 
     to such tax until the expiration of the 90-day period in 
     which such taxpayer may petition the Tax Court or, if the Tax 
     Court considers such petition, before the decision of the Tax 
     Court has become final. The running of the statute of 
     limitations is suspended in such situations with respect to 
     the spouse claiming innocent spouse status.
       The House bill requires the Secretary of the Treasury to 
     develop a separate form with instructions for taxpayers to 
     use in applying for innocent spouse relief within 180 days 
     from the date of enactment. An innocent spouse seeking relief 
     under this provision must claim innocent spouse status with 
     regard to any assessment not later than two years after the 
     date of such assessment.
       Effective date.--Understatements with respect to taxable 
     years beginning after the date of enactment.

                            Senate Amendment

     In general
       The Senate amendment modifies the innocent spouse 
     provisions to permit a spouse to elect to limit his or her 
     liability for unpaid taxes on a joint return to the spouse's 
     separate liability amount. In the case of a deficiency 
     arising from a joint return, a spouse could elect to be 
     liable only to the extent that items giving rise to the 
     deficiency are allocable to the spouse. The separate 
     liability election also applies in situations where the tax 
     shown on a joint return is not paid with the return. In this 
     case, the amount determined under the separate liability 
     election equals the amount that would have been reported by 
     the electing spouse on a separate return. However, if any 
     item of credit or deduction would be disallowed solely 
     because a separate return is filed, the item of credit or 
     deduction will be computed without regard to such 
     prohibition. Special rules apply to prevent the inappropriate 
     use of the election. The separate liability election may not 
     be used to create a refund, or to direct a refund to a 
     particular spouse.
       Items are generally allocated between spouses in the same 
     manner as they would have been allocated had the spouses 
     filed separate returns. The Secretary may prescribe other 
     methods of allocation by regulation. The allocation of items 
     is to be accomplished without regard to community property 
     laws.
       The election applies to all unpaid taxes under subtitle A 
     of the Internal Revenue Code, including the income tax and 
     the self-employment tax. The election may be made at any time 
     not later than 2 years after collection activities begin with 
     respect to the electing spouse. It is intended that the 2 
     year period not begin until collection activities have 
     been undertaken against the electing spouse that have the 
     effect of giving the spouse notice of the IRS' intention 
     to collect the joint liability from such spouse. For 
     example, garnishment of wages or a notice of intent to 
     levy against the property of the electing spouse would 
     constitute collection activity against the electing 
     spouse. The mailing of a notice of deficiency and demand 
     for payment to the last known address of the electing 
     spouse, addressed to both spouses, would not.
       The Tax Court has jurisdiction of disputes arising from the 
     separate liability election. For example, a spouse who makes 
     the separate liability election may petition the Tax Court to 
     determine the limits on liability applicable under this 
     provision. The Tax Court is authorized to establish rules 
     that would allow the Secretary of the Treasury and the 
     electing spouse to require, with adequate notice, the other 
     spouse to become a party to any proceeding before the Tax 
     Court. The Secretary of the Treasury is required to develop a 
     separate form with instructions for taxpayers to use in 
     electing to limit liability.
       The Internal Revenue Service is required to notify all 
     taxpayers who have filed joint returns of their rights to 
     elect to limit their joint and several liability under this 
     provision. It is expected that notice will appear in 
     appropriate IRS publications, including IRS Publication 1, 
     and in collection related notices sent to taxpayers. In 
     addition, the Internal Revenue Service should, whenever 
     practicable, send appropriate notifications separately to 
     each spouses.
     Effective date
       The Senate amendment applies to any liability for tax 
     arising after the date of enactment and any liability for tax 
     arising on or before such date, but remaining unpaid as of 
     such date.
       The period in which an election may be made under the 
     provision will not expire before the later of the date that 
     is 2 years after the date of enactment or 2 years after the 
     date of the first collection action that has the effect of 
     giving the spouse notice of the IRS' intention to collect the 
     joint liability from the spouse is undertaken after the date 
     of enactment. This rule does not extend the statute of 
     limitations.
       An individual may elect under the provision without regard 
     to whether such individual has previously been denied 
     innocent spouse relief under present law.

                          Conference Agreement

     In general
       The conference agreement follows the Senate amendment with 
     respect to deficiencies of a taxpayer who is no longer 
     married to, is legally separated from, or has been living 
     apart for at least 12 months from the person with whom the 
     taxpayer originally filed the joint return. The conference 
     agreement also includes the provision in the House bill 
     expanding the circumstances in which innocent spouse relief 
     is available. Taxpayers, whether or not eligible to make the 
     separate liability election, may be granted innocent spouse 
     relief where appropriate. In addition, the conference 
     agreement authorizes the Secretary to provide equitable 
     relief in appropriate situations. The conference agreement 
     follows the House bill and the Senate amendment in 
     establishing jurisdiction in the Tax Court over disputes 
     arising in this area.
     Deficiencies of certain taxpayers
       The conference agreement follows the Senate amendment with 
     respect to deficiencies of a taxpayer who, at the time of 
     election, is no longer married \16\ to, is legally separated 
     from, or has been living apart for at least 12 months from 
     the person with whom the taxpayer originally filed the joint 
     return. Such taxpayers may elect to limit their liability for 
     any deficiency limited to the portion of the deficiency that 
     is attributable to items allocable to the taxpayer.
---------------------------------------------------------------------------
     \16\ For the purpose of this rule, a taxpayer is no longer 
     married if he or she is widowed.
---------------------------------------------------------------------------
       For example, a deficiency is assessed after IRS audit of a 
     joint return. The deficiency

[[Page H5165]]

     relates to income earned by the husband that was not reported 
     on the return. If the spouses who joined in the return are no 
     longer married, are legally separated, or have lived apart 
     for at least 12 months, either may elect limited liability 
     under this provision. If the wife elects, she would owe none 
     of the deficiency. The deficiency would be the sole 
     responsibility of the husband whose income gave rise to the 
     deficiency.
       If the deficiency relates to the items of both spouses, the 
     separate liability for the deficiency is allocated between 
     the spouses in the same proportion as the net items taken 
     into account in determining the deficiency. For example, a 
     deficiency is assessed that is attributable to $70,000 of 
     unreported income allocable to the husband and the 
     disallowance of a $30,000 miscellaneous itemized deduction 
     allocable to the wife. If the spouses who joined in the 
     return are no longer married, are legally separated, or have 
     lived apart for at least 12 months, either may elect limited 
     liability under this provision. If either the husband and 
     wife elect, the husband's liability would be limited to 70 
     percent of the deficiency (if he elects) and the wife's 
     liability limited to 30 percent (if she elects). This would 
     be the case even if a portion of the miscellaneous itemized 
     deductions had been disallowed under section 67(a). The 
     election is required in order to limit liability. If either 
     spouse fails to elect, that spouse would be liable for the 
     full amount of the deficiency, unless reduced by innocent 
     spouse relief or pursuant to the grant of authority to the 
     Secretary to provide equitable relief.
       If the deficiency arises as a result of the denial of an 
     item of deduction or credit, the amount of the deficiency 
     allocated to the spouse to whom the item of deduction or 
     credit is allocated is limited to the amount of income or tax 
     allocated to such spouse that was offset by the deduction or 
     credit. The remainder of the liability is allocated to the 
     other spouse to reflect the fact that income or tax allocated 
     to that spouse was originally offset by a portion of the 
     disallowed deduction or credit.
       For example, a married couple files a joint return with 
     wage income of $100,000 allocable to the wife and $30,000 of 
     self employment income allocable to the husband. On 
     examination, a $20,000 deduction allocated to the husband is 
     disallowed, resulting in a deficiency of $5,600. Under the 
     provision, the liability is allocated in proportion to the 
     items giving rise to the deficiency. Since the only item 
     giving rise to the deficiency is allocable to the husband, 
     and because he reported sufficient income to offset the item 
     of deduction, the entire deficiency is allocated to the 
     husband and the wife has no liability with regard to the 
     deficiency, regardless of the ability of the IRS to collect 
     the deficiency from the husband.
       If the joint return had shown only $15,000 (instead of 
     $30,000) of self employment income for the husband, the 
     income offset limitation rule discussed above would apply. In 
     this case, the disallowed $20,000 deduction entirely offsets 
     the $15,000 of income of the husband, and $5,000 remains. 
     This remaining $5,000 of the disallowed deduction offsets 
     income of the wife. The liability for the deficiency is 
     therefore divided in proportion to the amount of income 
     offset for each spouse. In this example, the husband is 
     liable for 3/4 of the deficiency ($4,200), and the wife is 
     liable for the remaining 1/4 ($1,400).
       Where a deficiency is attributable to the disallowance of a 
     credit, or to any tax other than regular or alternative 
     minimum income tax, the portion of the deficiency 
     attributable to such credit or other tax is considered first. 
     For example, on examination a deficiency of $10,000 ($2,800 
     of self-employment tax and $7,200 of income tax) is 
     determined to be attributable to $20,000 of unreported self-
     employment income of the husband and a disallowed itemized 
     deduction of $5,000 allocable to the wife. The $2,800 of 
     deficient self-employment taxes is first allocated to the 
     husband, and the remaining $7,200 of income tax deficiency is 
     allocated 80 percent to the husband and 20 percent to the 
     wife.
       The special rules included in the Senate bill to prevent 
     the inappropriate use of the election are included in the 
     conference agreement.
       First, if the IRS demonstrates that assets were transferred 
     between the spouses in a fraudulent scheme joined in by both 
     spouses, neither spouse is eligible to make the election 
     under the provision (and consequently joint and several 
     liability applies to both spouses).
       Second, if the IRS proves that the electing spouse had 
     actual knowledge that an item on a return is incorrect, the 
     election will not apply to the extent any deficiency is 
     attributable to such item. Such actual knowledge must be 
     established by the evidence and shall not be inferred based 
     on indications that the electing spouse had a reason to know.
       The rule that the election will not apply to the extent any 
     deficiency is attributable to an item the electing spouse had 
     actual knowledge of is expected to be applied by treating the 
     item as fully allocable to both spouses. For example a 
     married couple files a joint return with wage income of 
     $150,000 allocable to the wife and $30,000 of self employment 
     income allocable to the husband. On examination, an 
     additional $20,000 of the husband's self-employment income is 
     discovered, resulting in a deficiency of $9,000. The IRS 
     proves that the wife had actual knowledge that $5,000 of this 
     additional self-employment income, but had no knowledge of 
     the remaining $15,000. In this case, the husband would be 
     liable for the full amount of the deficiency, since the item 
     giving rise to the deficiency is fully allocable to him. In 
     addition, the wife would be liable for the amount that would 
     have been calculated as the deficiency based on the $5,000 of 
     unreported income of which she had actual knowledge. The IRS 
     would be allowed to collect that amount from either spouse, 
     while the remainder of the deficiency could be collected from 
     only the husband.
       Third, the portion of the deficiency for which the electing 
     spouse is liable is increased by the value of any 
     disqualified assets received from the other spouse. 
     Disqualified assets include any property or right to property 
     that was transferred to an electing spouse if the principle 
     purpose of the transfer is the avoidance of tax (including 
     the avoidance of payment of tax). A rebuttable presumption 
     exists that a transfer is made for tax avoidance purposes if 
     the transfer was made less than one year before the earlier 
     of the payment due date or the date of the notice of proposed 
     deficiency. The rebuttable presumption does not apply to 
     transfers pursuant to a decree of divorce or separate 
     maintenance. The presumption may be rebutted by a showing 
     that the principal purpose of the transfer was not the 
     avoidance of tax or the payment of tax.
     Other deficiencies
       The conference agreement also includes the provision in the 
     House bill modifying innocent spouse relief. Taxpayers who do 
     not make the separate liability election may be eligible for 
     innocent spouse relief. For example, a taxpayer may be 
     ineligible to make the separate liability election for a 
     deficiency because he or she is not widowed, divorced, 
     legally separated, or living apart (for at least 12 months) 
     from the person with whom the taxpayer originally joined in 
     filing the joint return. Such a taxpayer may apply for relief 
     of any deficiency that is attributable to an erroneous item 
     of the other spouse, provided he or she did not know or have 
     reason to know of the understatement of tax and it would be 
     inequitable to hold the taxpayer responsible for the 
     deficiency. The election is required to be made no later than 
     the date that is two years after the Secretary has begun 
     collection actions with respect to the individual. The rule 
     in the House bill allowing innocent spouse relief to be 
     provided on an apportioned basis is included in the 
     conference agreement.
     Other circumstances, including tax shown on a return but not 
         paid
       The conference agreement does not include the portion of 
     the Senate amendment that could provide relief in situations 
     where tax was shown on a joint return, but not paid with the 
     return. The conferees intend that the Secretary will consider 
     using the grant of authority to provide equitable relief in 
     appropriate situations to avoid the inequitable treatment of 
     spouses in such situations. For example, the conferees intend 
     that equitable relief be available to a spouse that does not 
     know, and had no reason to know, that funds intended for 
     the payment of tax were instead taken by the other spouse 
     for such other spouse's benefit.
       The conferees do not intend to limit the use of the 
     Secretary's authority to provide equitable relief to 
     situations where tax is shown on a return but not paid. The 
     conferees intend that such authority be used where, taking 
     into account all the facts and circumstances, it is 
     inequitable to hold an individual liable for all or part of 
     any unpaid tax or deficiency arising from a joint return. The 
     conferees intend that relief be available where there is both 
     an understatement and an underpayment of tax.
     Procedural rules
       The conference agreement follows the House bill and the 
     Senate amendment with respect to procedural rules, including 
     the jurisdiction of the Tax Court to review matters relating 
     to this provision. The conference agreement also follows the 
     Senate amendment in requiring the IRS to notify taxpayers of 
     their rights under this provision, and, whenever practicable, 
     to send notifications separately to each spouse.
     Effective date
       The conference agreement follows the Senate amendment. The 
     separate liability election, expanded innocent spouse relief 
     and authority to provide equitable relief all apply to 
     liabilities for tax arising after the date of enactment, as 
     well as any liability for tax arising on or before the date 
     of enactment that remains unpaid on the date of enactment. 
     The applicable 2-year election periods do not expire before 
     the date that is two years after the first collection 
     activity taken by the IRS after the date of enactment. The 
     Secretary is required to develop a separate form for electing 
     innocent spouse relief within 180 days after the date of 
     enactment.
     2. Suspension of statute of limitations on filing refund 
         claims during periods of disability (sec. 322 of the 
         House bill and sec. 3202 of the Senate amendment)

                              Present Law

       In general, a taxpayer must file a refund claim within 
     three years of the filing of the return or within two years 
     of the payment of the tax, whichever period expires later (if 
     no return is filed, the two-year limit applies) (sec. 
     6511(a)). A refund claim that is not filed within these time 
     periods is rejected as untimely.
       There is no explicit statutory rule providing for equitable 
     tolling of the statute of

[[Page H5166]]

     limitations. The U.S. Supreme Court has held that Congress 
     did not intend the equitable tolling doctrine to apply to the 
     statutory limitations of section 6511 on the filing of tax 
     refund claims.

                               House Bill

       The House bill permits equitable tolling of the statute of 
     limitations for refund claims of an individual taxpayer 
     during any period of the individual's life in which he or she 
     is unable to manage his or her financial affairs by reason of 
     a medically determinable physical or mental impairment that 
     can be expected to result in death or to last for a 
     continuous period of not less than 12 months. Tolling does 
     not apply during periods in which the taxpayer's spouse or 
     another person is authorized to act on the taxpayer's behalf 
     in financial matters.
       Effective date.--The provision applies to periods of 
     disability before, on, or after the date of enactment but 
     does not apply to any claim for refund or credit that 
     (without regard to the provision) is barred by the operation 
     of any law, including the statute of limitations, as of 
     January 1, 1998.

                            Senate Amendment

       Same as the House bill.

                          Conference Agreement

       The conference agreement follows the House bill and the 
     Senate amendment.
       Effective date.--The provision applies to periods of 
     disability before, on, or after the date of enactment but 
     does not apply to any claim for refund or credit that 
     (without regard to the provision) is barred by the operation 
     of any law, including the statute of limitations, as of the 
     date of enactment.

            D. Provisions Relating to Interest and Penalties

     1. Elimination of interest differential on overlapping 
         periods of interest on income tax overpayments and 
         underpayments (sec. 331 of the House bill and sec. 3301 
         of the Senate amendment)

                              Present Law

       A taxpayer that underpays its taxes is required to pay 
     interest on the underpayment at a rate equal to the Federal 
     short term interest rate plus three percentage points. A 
     special ``hot interest'' rate equal to the Federal short term 
     interest rate plus five percentage points applies in the case 
     of certain large corporate underpayments.
       A taxpayer that overpays its taxes receives interest on the 
     overpayment at a rate equal to the Federal short term 
     interest rate plus two percentage points. In the case of 
     corporate overpayments in excess of $10,000, this is reduced 
     to the Federal short term interest rate plus one-half of a 
     percentage point.
       If a taxpayer has an underpayment of tax from one year and 
     an overpayment of tax from a different year that are 
     outstanding at the same time, the IRS will typically offset 
     the overpayment against the underpayment and apply the 
     appropriate interest to the resulting net underpayment or 
     overpayment. However, if either the underpayment or 
     overpayment has been satisfied, the IRS will not typically 
     offset the two amounts, but rather will assess or credit 
     interest on the full underpayment or overpayment at the 
     underpayment or overpayment rate. This has the effect of 
     assessing the underpayment at the higher underpayment rate 
     and crediting the overpayment at the lower overpayment rate. 
     This results in the taxpayer being assessed a net interest 
     charge, even if the amounts of the overpayment and 
     underpayment are the same.
       The Secretary has the authority to credit the amount of any 
     overpayment against any liability under the Code. Congress 
     has previously directed the Internal Revenue Service to 
     implement procedures for ``netting'' overpayments and 
     underpayments to the extent a portion of tax due is satisfied 
     by a credit of an overpayment.

                               House Bill

       The House bill establishes a net interest rate of zero 
     where interest is payable and allowable on equivalent amounts 
     of overpayment and underpayment of income tax that exist for 
     any period. Each overpayment and underpayment is considered 
     only once in determining whether equivalent amounts of 
     overpayment and underpayment exist. The special rules that 
     increase the interest rate paid on large corporate 
     underpayments and decrease the interest rate received on 
     corporate underpayments in excess of $10,000 do not prevent 
     the application of the net zero rate. The provision applies 
     to income taxes and self-employment taxes.
       Effective date.--Interest for calendar quarters beginning 
     after the date of enactment.

                            Senate Amendment

       Generally same as the House bill, except that the Senate 
     amendment applies where interest is payable and allowable on 
     equivalent amounts of overpayment and underpayment of any 
     taxes imposed by Title 26 (the Internal Revenue Code), and 
     not only income taxes.
       Effective date.--Same as the House bill. In addition, the 
     provision applies to interest for periods beginning before 
     the date of enactment if: (1) the statute of limitations has 
     not expired with respect to either the underpayment or 
     overpayment; (2) the taxpayer identifies the periods of 
     underpayment and overpayment for which the zero rate applies; 
     and (3) on or before December 31, 1999, the taxpayer asks the 
     Secretary to apply the zero rate.

                          Conference Agreement

       The conference agreement follows the Senate amendment. It 
     is anticipated that the Secretary will take into account 
     interest paid on previously determined deficiencies or 
     refunds for the purpose of determining the rate of interest 
     under this provision without regard to whether the 
     underpayments or overpayments are currently outstanding. It 
     is also anticipated that where interest is both payable from 
     and allowable to an individual taxpayer for the same period, 
     the Secretary will take all reasonable efforts to offset the 
     liabilities, rather than process them separately using the 
     net interest rate of zero. Where interest is payable and 
     allowable on an equivalent amount of underpayment and 
     overpayment that is attributable to a taxpayer's interest in 
     a pass-thru entity (e.g., a partnership), the conferees 
     intend that the benefits of the provision apply.
     2. Increase in overpayment rate payable to taxpayers other 
         than corporations (sec. 332 of the House bill and sec. 
         3302 of the Senate amendment)

                              Present Law

       A taxpayer that underpays its taxes is required to pay 
     interest on the underpayment at a rate equal to the Federal 
     short-term interest rate (AFR) plus three percentage points. 
     A taxpayer that overpays its taxes receives interest on the 
     overpayment at a rate equal to the Federal short-term 
     interest rate (AFR) plus two percentage points.

                               House Bill

       The House bill provides that the overpayment interest rate 
     will be AFR plus three percentage points, except that for 
     corporations, the rate remains at AFR plus two percentage 
     points.
       Effective date.--Interest for calendar quarters beginning 
     after the date of enactment.

                            Senate Amendment

       Same as the House bill, except for the effective date.
       Effective date.--Interest for the second and succeeding 
     calendar quarters beginning after the date of enactment.

                          Conference Agreement

       The conference agreement follows the Senate amendment.
     3. Mitigation of penalty for individual's failure to pay 
         during period of installment agreement (sec. 376 of the 
         House bill and sec. 3303 of the Senate amendment)

                              Present Law

       Taxpayers who fail to pay their taxes are subject to a 
     penalty of one-half percent per month on the unpaid amount, 
     up to a maximum of 25 percent. If the liability is shown on 
     the return, the penalty begins to accrue on the date 
     prescribed for payment of the tax (with regard to 
     extensions). If the liability should have been shown on the 
     return but was not, the penalty generally begins to accrue 
     after the date that is 21 days from the date of the IRS 
     notice and demand for payment with respect to such liability. 
     Taxpayers who make installment payments pursuant to an 
     agreement with the IRS are also subject to this penalty.

                               House Bill

       The House bill provides that the penalty for failure to pay 
     taxes is not imposed with respect to the tax liability of an 
     individual with respect to any month in which an installment 
     payment agreement with the IRS is in effect to the extent 
     that doing so would result in the cumulative penalty 
     percentage exceeding 9.5 percent (instead of 25 percent).
       Effective date.--Installment agreement payments made after 
     the date of enactment.

                            Senate Amendment

       The Senate amendment provides that the penalty for failure 
     to pay taxes is not imposed with respect to the tax liability 
     of an individual for any month in which an installment 
     payment agreement with the IRS is in effect, provided that 
     the individual filed the tax return in a timely manner 
     (including extensions).
       Effective date.--Installment agreement payments made after 
     December 31, 1999.

                          Conference Agreement

       The conference agreement follows the Senate amendment, 
     except that the rate of the penalty is half the usual rate 
     (0.25 percent instead of 0.5 percent) for any month in which 
     an installment payment agreement with the IRS is in effect.
     4. Mitigation of failure to deposit penalty (sec. 3304 of the 
         Senate amendment)

                              Present Law

       Deposits of payroll taxes are allocated to the earliest 
     period for which such a deposit is due. If a taxpayer misses 
     or makes an insufficient deposit, later deposits will first 
     be applied to satisfy the shortfall for the earlier period; 
     the remainder is then applied to satisfy the obligation for 
     the current period. Cascading penalties may result as 
     payments that would otherwise be sufficient to satisfy 
     current liabilities are applied to satisfy earlier 
     shortfalls. The Secretary may waive the failure to make 
     deposit penalty for inadvertent failures by first-time 
     depositors of employment taxes.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment allows the taxpayer to designate the 
     period to which each deposit is applied. The designation must 
     be made no later than 90 days after the related IRS penalty 
     notice. The provision also extends the authorization to waive 
     the failure to deposit penalty to the first deposit a 
     taxpayer is required to make after the taxpayer

[[Page H5167]]

     is required to change the frequency of the taxpayer's 
     deposits.
       Effective date.--Deposits made more than 180 days after the 
     date of enactment.

                          Conference Agreement

       The conference agreement follows the Senate amendment, with 
     technical modifications. Also, the designation must be made 
     during the 90 days immediately following the sending of the 
     related IRS penalty notice. The conference agreement also 
     provides that, for deposits required to be made after 
     December 31, 2001, any deposit is to be applied to the most 
     recent period to which the deposit relates, unless the 
     taxpayer explicitly designates otherwise.
     5. Suspension of interest and certain penalties if Secretary 
         fails to contact individual taxpayer (sec. 3305 of the 
         Senate amendment)

                              Present Law

       In general, interest and penalties accrue during periods 
     for which taxes are unpaid without regard to whether the 
     taxpayer is aware that there is tax due.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment suspends the accrual of penalties and 
     interest after 1 year if the IRS has not sent the taxpayer a 
     notice of deficiency within 1 year following the date which 
     is the later of (1) the original due date of the return or 
     (2) the date on which the individual taxpayer timely filed 
     the return. The suspension only applies to taxpayers who file 
     a timely tax return. The Senate amendment applies only to 
     individuals and does not apply to the failure to pay penalty, 
     in the case of fraud, or with respect to criminal penalties. 
     Interest and penalties resume 21 days after the IRS sends a 
     notice and demand for payment to the taxpayer.
       Effective date.--Taxable years ending after the date of 
     enactment.

                          Conference Agreement

       The conference agreement follows the Senate amendment, with 
     the following modifications. With respect to taxable years 
     beginning before January 1, 2004, the 1-year period is 
     increased to 18 months. Interest and penalties are suspended 
     if the IRS fails to send a notice specifically stating the 
     taxpayer's liability and the basis for the liability within 
     the specified period. Interest and penalties resume 21 days 
     after the IRS sends that notice to the taxpayer. The 
     provision is applied separately with respect to each item or 
     adjustment. The provision does not apply where a taxpayer has 
     self-assessed the tax.
       For example, if the IRS sends a math error notice to a 
     taxpayer 2 months after the return is filed and also sends a 
     notice of deficiency related to a different item 2 years 
     later, the provision applies to the item reflected on the 
     second notice (notwithstanding that the first notice was sent 
     within the applicable time period).
     6. Procedural requirements for imposition of penalties and 
         additions to tax (sec. 3306 of the Senate amendment)

                              Present Law

       Present law does not require the IRS to show how penalties 
     are computed on the notice of penalty. In some cases, 
     penalties may be imposed without supervisory approval.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment requires that each notice imposing a 
     penalty include the name of the penalty, the code section 
     imposing the penalty, and a computation of the penalty.
       The Senate amendment also requires the specific approval of 
     IRS management to assess all non-computer generated penalties 
     unless excepted. This provision does not apply to failure to 
     file penalties, failure to pay penalties, or to penalties for 
     failure to pay estimated tax.
       Effective date.--Notices issued, and penalties assessed, 
     more than 180 days after the date of enactment.

                          Conference Agreement

       The conference agreement follows the Senate amendment.
       Effective date.--Notices issued, and penalties assessed 
     after December 31, 2000.
     7. Personal delivery of notice of penalty under section 6672 
         (sec. 3307 of the Senate amendment)

                              Present Law

       Any person who is required to collect, truthfully account 
     for, and pay over any tax imposed by the Internal Revenue 
     Code who willfully fails to do so is liable for a penalty 
     equal to the amount of the tax. Before the IRS may assess any 
     such ``100-percent penalty,'' it must mail a written 
     preliminary notice informing the person of the proposed 
     penalty to that person's last known address. The mailing of 
     such notice must precede any notice and demand for payment of 
     the penalty by at least 60 days. The statute of limitations 
     on assessments shall not expire before the date 90 days after 
     the date on which the notice was mailed. These restrictions 
     do not apply if the Secretary finds the collection of the 
     penalty is in jeopardy.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment permits in person delivery, as an 
     alternative to delivery by mail, of a preliminary notice that 
     the IRS intends to assess a 100-percent penalty.
       Effective date.--Date of enactment.

                          Conference Agreement

       The conference agreement follows the Senate amendment.
     8. Notice of interest charges (sec. 3308 of the Senate 
         amendment)

                              Present Law

       Taxpayer generally must pay interest on amounts due to the 
     IRS.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment requires every IRS notice that 
     includes an amount of interest required to be paid by the 
     taxpayer that is sent to an individual taxpayer to include a 
     detailed computation of the interest charged and a citation 
     to the Code section under which such interest is imposed.
       Effective date.--Notices issued after June 30, 2000.

                          Conference Agreement

       The conference agreement follows the Senate amendment.
       Effective date.--Notices issued after December 31, 2000.
     9. Abatement of interest on underpayments by taxpayers in 
         Presidentially declared disaster areas (sec. 3309 of the 
         Senate amendment)

                              Present Law

       In the case of a Presidentially declared disaster, the 
     Secretary of the Treasury has the authority to postpone some 
     tax-related deadlines, but there is no authority to abate 
     interest.
       Under a provision of the Taxpayer Relief Act of 1997, if 
     the Secretary of the Treasury extends the filing date of an 
     individual tax return for individuals living in an area that 
     has been declared a disaster area by the President during 
     1997, no interest is charged as a result of the failure of 
     the individual taxpayer to file an individual tax return, or 
     to pay the taxes shown on such return, during the extension.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment provides that taxpayers located in a 
     Presidentially declared disaster area do not have to pay 
     interest on taxes due for the length of any extension for 
     filing their tax returns granted by the Secretary of the 
     Treasury.
       Effective date.--Disasters declared after December 31, 
     1996, with respect to taxable years beginning after December 
     31, 1996.

                          Conference Agreement

       The conference agreement follows the Senate amendment.
       This provision is designated as emergency legislation under 
     section 252(e) of the Balanced Budget and Emergency Deficit 
     Control Act.
       Effective date.--Disasters declared after December 31, 
     1997, with respect to taxable years beginning after December 
     31, 1997. The conferees have modified the effective date 
     because section 915 of The Taxpayer Relief Act of 1997 
     already applies to 1997 disasters. The conferees intend that 
     no gap between the two provisions exists.

 E. Protections for Taxpayers Subject to Audit or Collection Activities

     1. Due process in IRS collection actions (sec. 3401 of the 
         Senate amendment)

                              Present Law

       Levy is the IRS's administrative authority to seize a 
     taxpayer's property to pay the taxpayer's tax liability. The 
     IRS is entitled to seize a taxpayer's property by levy if the 
     Federal tax lien has attached to such property. The Federal 
     tax lien arises automatically where (1) a tax assessment has 
     been made, (2) the taxpayer has been given notice of the 
     assessment stating the amount and demanding payment, and (3) 
     the taxpayer has failed to pay the amount assessed within 10 
     days after the notice and demand.
       The IRS may collect taxes by levy upon a taxpayer's 
     property or rights to property (including accrued salary and 
     wages) if the taxpayer neglects or refuses to pay the tax 
     within 10 days after notice and demand that the tax be paid. 
     Notice of the IRS's intent to collect taxes by levy must be 
     given no less than 30 days (90 days in the case of a life 
     insurance contract) before the day of the levy. The notice of 
     levy must describe the procedures that will be used, the 
     administrative appeals available to the taxpayer and the 
     procedures relating to such appeals, the alternatives 
     available to the taxpayer that could prevent levy, and the 
     procedures for redemption of property and release of liens.
       The effect of a levy on salary or wages payable to or 
     received by a taxpayer is continuous from the date the levy 
     is first made until it is released.
       If the IRS district director finds that the collection of 
     any tax is in jeopardy, collection by levy may be made 
     without regard to either notice period. A similar rule 
     applies in the case of termination assessments.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment establishes formal procedures designed 
     to insure due process where the IRS seeks to collect taxes by 
     levy (including by seizure). The due process procedures also 
     apply after the Federal tax lien

[[Page H5168]]

     attaches, but before the notice of the Federal tax lien has 
     been given to the taxpayer.
       As under present law, notice of the intent to levy must be 
     given at least 30 days (90 days in the case of a life 
     insurance contract) before property can be seized or salary 
     and wages garnished. During the 30-day (90-day) notice 
     period, the taxpayer may demand a hearing to take place 
     before an appeals officer who has had no prior involvement in 
     the taxpayer's case. If, within that period, the taxpayer 
     demands a hearing, the proposed collection action may not 
     proceed until the hearing has concluded and the appeals 
     officer has issued his or her determination.
       During the hearing, the IRS is required to verify that all 
     statutory, regulatory, and administrative requirements for 
     the proposed collection action have been met. IRS 
     verifications are expected to include (but not be limited to) 
     showings that:
       (1) the revenue officer recommending the collection action 
     has verified the taxpayer's liability;
       (2) the estimated expenses of levy and sale will not exceed 
     the value of the property to be seized;
       (3) the revenue officer has determined that there is 
     sufficient equity in the property to be seized to yield net 
     proceeds from sale to apply to the unpaid tax liabilities; 
     and
       (4) with respect to the seizure of the assets of a going 
     business, the revenue officer recommending the collection 
     action has thoroughly considered the facts of the case, 
     including the availability of alternative collection methods, 
     before recommending the collection action.
       The taxpayer (or affected third party) is allowed to raise 
     any relevant issue at the hearing. Issues eligible to be 
     raised include (but are not limited to):
       (1) challenges to the underlying liability as to existence 
     or amount;
       (2) appropriate spousal defenses;
       (3) challenges to the appropriateness of collection 
     actions; and
       (4) collection alternatives, which could include the 
     posting of a bond, substitution of other assets, an 
     installment agreement or an offer-in-compromise.
       Once the taxpayer has had a hearing with respect to an 
     issue, the taxpayer would not be permitted to raise the same 
     issue in another hearing.
       The determination of the appeals officer is to address 
     whether the proposed collection action balances the need for 
     the efficient collection of taxes with the legitimate concern 
     of the taxpayer that the collection action be no more 
     intrusive than necessary.
       The taxpayer may contest the determination of the appellate 
     officer in Tax Court by filing a petition within 30 days of 
     the date of the determination. The IRS may not take any 
     collection action pursuant to the determination during such 
     30-day period or while the taxpayer's contest is pending in 
     Tax Court.
       IRS Appeals would retain jurisdiction over its 
     determinations. IRS Appeals could enter an order requiring 
     the IRS collection division to adhere to the original 
     determination. In addition, the taxpayer would be allowed to 
     return to IRS Appeals to seek a modification of the original 
     determination based on any change of circumstances.
       In the case of a continuous levy, the due process 
     procedures would apply to the original imposition of the 
     levy.
       This provision does not apply in the case of jeopardy and 
     termination assessments. Jeopardy and termination assessments 
     would be subject to post-seizure review as part of the 
     Appeals determination hearing as well as through any existing 
     judicial procedure. A jeopardy or termination assessment must 
     be approved by the IRS District Counsel responsible for the 
     case. Failure to obtain District Counsel approval would 
     render the jeopardy or termination assessment void.
       Effective date.--The due process procedures apply to 
     collection actions initiated more than six months after the 
     date of enactment.

                          Conference Agreement

     Liens
       The conference agreement generally follows the Senate 
     amendment, except that taxpayers would have a right to a 
     hearing after the Notice of Lien is filed. The IRS would be 
     required to notify the taxpayer that a Notice of Lien had 
     been filed within 5 days after filing. During the 30-day 
     period beginning with the mailing or delivery of such 
     notification, the taxpayer may demand a hearing before an 
     appeals officer who has had no prior involvement with the 
     taxpayer's case. In general, any issue relevant to the 
     appropriateness of the proposed collection against the 
     taxpayer can be raised at this hearing. For example, the 
     taxpayer can request innocent spouse status, make an offer-
     in-compromise, request an installment agreement or suggest 
     which assets should be used to satisfy the tax liability. 
     However, the validity of the tax liability can be challenged 
     only if the taxpayer did not actually receive the 
     statutory notice of deficiency or has not otherwise had an 
     opportunity to dispute the liability. This hearing right 
     applies only after the first Notice of Lien with regard to 
     each tax liability is filed.
     Levies
       The conference agreement includes a modified form of the 
     Senate amendment. The IRS would be required to provide the 
     taxpayer with a ``Notice of Intent to Levy,'' formally 
     stating its intention to collect a tax liability by levy 
     against the taxpayer's property or rights to property. The 
     conferees intend that the Secretary have the discretion to 
     provide the Notice of Intent to Levy in combination with the 
     notice required by present law under section 6331(d). Service 
     by registered or certified mail, return receipt requested 
     would be required. The Notice of Intent to Levy would not be 
     required to itemize the property the Secretary seeks to levy 
     on.
       Subject to the exceptions noted below, no levy could occur 
     within the 30-day period beginning with the mailing of the 
     ``Notice of Intent to Levy.'' During that 30-day period, the 
     taxpayer may demand a hearing before an appeals officer who 
     has had no prior involvement with the taxpayer's case, other 
     than in connection with a hearing after the filing of a 
     notice of tax lien. If a hearing is requested within the 30-
     day period, no levy could occur until a determination by the 
     appeals officer is rendered. In general, any issue that is 
     relevant to the appropriateness of the proposed collection 
     against the taxpayer can be raised at the pre-levy hearing. 
     For example, the taxpayer can request innocent spouse status, 
     make an offer-in-compromise, request an installment agreement 
     or suggest which assets should be used to satisfy the tax 
     liability. However, the validity of the tax liability can be 
     challenged only if the taxpayer did not actually receive the 
     statutory notice of deficiency or has not otherwise had an 
     opportunity to dispute the liability.
       If a return receipt is not returned, the Secretary may 
     proceed to levy on the taxpayer's property or rights to 
     property 30 days after the Notice of Intent to Levy was 
     mailed. The Secretary must provide a hearing equivalent to 
     the pre-levy hearing if later requested by the taxpayer. 
     However, the Secretary is not required to suspend the levy 
     process pending the completion of a hearing that is not 
     requested within 30 days of the mailing of the Notice. If the 
     taxpayer did not receive the required notice and requests a 
     hearing after collection activity has begun, then collection 
     shall be suspended and a hearing provided to the taxpayer.
       The conferees anticipate that the IRS will combine Notice 
     of Intent to Levy and Notice of Lien hearings whenever 
     possible. If multiple hearings are held, it is expected that, 
     to the extent practicable, the same appellate officer will 
     hear the taxpayer with regard to both lien and levy issues. 
     If the taxpayer requests a hearing following receipt of a 
     Notice of Lien or Notice of Intent to Levy and, prior to the 
     date of the hearing, receives the other notice, the scheduled 
     hearing will serve for both purposes and the taxpayer is 
     obligated to raise all relevant issues at such hearing.
     Judicial review
       The conferees expect the appeals officer will prepare a 
     written determination addressing the issues presented by the 
     taxpayer and considered at the hearing. The determination of 
     the appeals officer may be appealed to Tax Court or, where 
     appropriate, the Federal district court. Where the validity 
     of the tax liability was properly at issue in the hearing, 
     and where the determination with regard to the tax liability 
     is a part of the appeal, no levy may take place during the 
     pendency of the appeal. The amount of the tax liability will 
     in such cases be reviewed by the appropriate court on a de 
     novo basis. Where the validity of the tax liability is not 
     properly part of the appeal, the taxpayer may challenge the 
     determination of the appeals officer for abuse of discretion. 
     In such cases, the appeals officer's determination as to the 
     appropriateness of collection activity will be reviewed using 
     an abuse of discretion standard of review. Levies will not be 
     suspended during the appeal if the Secretary shows good cause 
     why the levy should be allowed to proceed.
       No further hearings are provided under this provision as a 
     matter of right. It is the responsibility of the taxpayer to 
     raise all relevant issues at the time of the pre-levy 
     hearing. A taxpayer could apply for consideration of new 
     information, make an offer-in-compromise, request an 
     installment agreement, or raise other considerations at any 
     time before, during, or after the Notice of Intent to Levy 
     hearing. However, after the 30 day period had expired, the 
     IRS is not required to provide a hearing or delay any levy or 
     sale of levied property. Nothing in this provision is 
     intended to limit any remedy that is otherwise available 
     under present law.
       An exception to the general rule prohibiting levies during 
     the 30-day period would apply in the case of state tax offset 
     procedures, and in the case of jeopardy or termination 
     assessments.
     Prior judicial approval required for seizures of principal 
         residences
       No seizure of a dwelling that is the principal residence of 
     the taxpayer or the taxpayer's spouse, former spouse, or 
     minor child would be allowed without prior judicial approval. 
     Notice of the judicial hearing must be provided to the 
     taxpayer and family members residing in the property. At the 
     judicial hearing, the Secretary would be required to 
     demonstrate (1) that the requirements of any applicable law 
     or administrative procedure relevant to the levy have been 
     met, (2) that the liability is owed, and (3) that no 
     reasonable alternative for the collection of the taxpayer's 
     debt exists.
     Effective date
       The provision is effective for collection actions initiated 
     more than 180 days after the date of enactment.

[[Page H5169]]

     2. Examination activities
       a. Uniform application of confidentiality privilege to 
           taxpayer communications with federally authorized 
           practitioners (sec. 341 of the House bill and sec. 3411 
           of the Senate amendment)

                              Present Law

       A common law privilege of confidentiality exists for 
     communications between an attorney and client with respect to 
     the legal advice the attorney gives the client. 
     Communications protected by the attorney-client privilege 
     must be based on facts of which the attorney is informed by 
     the taxpayer, for the purpose of securing the professional 
     advice of the attorney. The privilege may not be claimed 
     where the purpose of the communication is the commission of a 
     crime or tort. The taxpayer must either be a client of the 
     attorney or be seeking to become a client of the attorney.
       The privilege of confidentiality applies only where the 
     attorney is advising the client on legal matters. It does not 
     apply in situations where the attorney is acting in other 
     capacities. Thus, a taxpayer may not claim the benefits of 
     the attorney-client privilege simply by hiring an attorney to 
     perform some other function. For example, if an attorney is 
     retained to prepare a tax return, the attorney-client 
     privilege will not automatically apply to communications and 
     documents generated in the course of preparing the return.
       The privilege of confidentiality also does not apply where 
     the communication is made for further communication to third 
     parties. For example, information that is communicated to an 
     attorney for inclusion in a tax return is not privileged 
     because it is communicated for the purpose of disclosure. The 
     privilege of confidentiality does not apply where an attorney 
     is acting in another capacity, or where an attorney who is 
     licensed to practice another profession is performing such 
     other profession.
       The attorney-client privilege is considered waived if the 
     communication is voluntarily disclosed to anyone other than 
     the attorney, the client or the agents of the client or the 
     attorney.
       The attorney-client privilege is limited to communications 
     between taxpayers and attorneys. No equivalent privilege is 
     provided for communications between taxpayers and other 
     professionals authorized to practice before the Internal 
     Revenue Service, such as accountants or enrolled agents.

                               House Bill

       The House bill extends the present law attorney-client 
     privilege of confidentiality to tax advice that is furnished 
     by any individual who is authorized to practice before the 
     Internal Revenue Service, acting in a manner consistent with 
     State law for such individual's profession, to a client-
     taxpayer (or potential client-taxpayer) in any noncriminal 
     proceeding before the Internal Revenue Service.
       The House bill does not modify the attorney-client 
     privilege. Accordingly, except for criminal proceedings, the 
     privilege of confidentiality under this provision applies in 
     the same manner and with the same limitations as the 
     attorney-client privilege of present law.
       Effective date.--The provision is effective with regard to 
     communications made on or after the date of enactment.

                            Senate Amendment

       The Senate amendment extends the present law attorney-
     client privilege of confidentiality to tax advice that is 
     furnished to a client-taxpayer (or potential client-taxpayer) 
     by any individual who is authorized under Federal law to 
     practice before the IRS if such practice is subject to 
     regulation under section 330 of Title 31, United States Code. 
     Individuals subject to regulation under section 330 of Title 
     31, United States Code include attorneys, certified public 
     accountants, enrolled agents and enrolled actuaries. Tax 
     advice means advice that is within the scope of authority for 
     such individual's practice with respect to matters under 
     Title 26 (the Internal Revenue Code). The privilege of 
     confidentiality may be asserted in any noncriminal tax 
     proceeding before the IRS, as well as in noncriminal tax 
     proceedings in the Federal Courts where the IRS is a party to 
     the proceeding.
       The provision allows taxpayers to consult with other 
     qualified tax advisors in the same manner they currently may 
     consult with tax advisors that are licensed to practice law. 
     The provision does not modify the attorney-client privilege 
     of confidentiality, other than to extend it to other 
     authorized practitioners. The privilege established by the 
     provision applies only to the extent that communications 
     would be privileged if they were between a taxpayer and an 
     attorney. Accordingly, the privilege does not apply to any 
     communication between a certified public accountant, enrolled 
     agent, or enrolled actuary and such individual's client (or 
     prospective client) if the communication would not have been 
     privileged between an attorney and the attorney's client or 
     prospective client. For example, information disclosed to an 
     attorney for the purpose of preparing a tax return is not 
     privileged under present law. Such information would not be 
     privileged under the provision whether it was disclosed to an 
     attorney, certified public accountant, enrolled agent or 
     enrolled actuary.
       The privilege granted by the provision may only be asserted 
     in noncriminal tax proceedings before the IRS and in the 
     Federal Courts with regard to such noncriminal tax matters in 
     proceedings where the IRS is a party. The privilege may not 
     be asserted to prevent the disclosure of information to any 
     regulatory body other than the IRS. The ability of any other 
     regulatory body, including the Securities and Exchange 
     Commission (SEC), to gain or compel information is unchanged 
     by the provision. No privilege may be asserted under this 
     provision by a taxpayer in dealings with such other 
     regulatory bodies in an administrative or court proceeding.

                          Conference Agreement

       The conference agreement follows the Senate amendment with 
     a modification. The privilege of confidentiality created by 
     this provision will not apply to any written communication 
     between a federally authorized tax practitioner and any 
     director, shareholder, officer, employee, agent, or 
     representative of a corporation in connection with the 
     promotion of the direct or indirect participation of such 
     corporation in any tax shelter (as defined in section 
     6662(d)(2)(C)(iii)).
       A tax shelter for this purpose is any partnership, entity, 
     plan, or arrangement a significant purpose of which is the 
     avoidance or evasion of income tax. Tax shelters for which no 
     privilege of confidentiality will apply include, but are not 
     limited to, those required to be registered as confidential 
     corporate tax shelter arrangements under section 6111(d). The 
     Conferees do not understand the promotion of tax shelters to 
     be part of the routine relationship between a tax 
     practitioner and a client. Accordingly, the Conferees do not 
     anticipate that the tax shelter limitation will adversely 
     affect such routine relationships.
       The privilege created by this provision may be waived in 
     the same manner as the attorney-client privilege. For 
     example, if a taxpayer or federally authorized tax 
     practitioner discloses to a third party the substance of a 
     communication protected by the privilege, the privilege for 
     that communication and any related communications is 
     considered to be waived to the same extent and in the same 
     manner as the privilege would be waived if the disclosure 
     related to an attorney-client communication.
       The conference agreement also clarifies that the privilege 
     created by this provision may be asserted in noncriminal tax 
     proceedings before the IRS and in the Federal courts with 
     regard to a noncriminal tax proceeding where the United 
     States is a party.
       This provision relates only to matters of privileged 
     communications. No inference is intended as to whether 
     aspects of federal tax practice covered by the new privilege 
     constitute the authorized or unauthorized practice of law 
     under various State laws.
       Effective date.--The provision is effective with regard to 
     communications made on or after the date of enactment.
       b. Limitation on financial status audit techniques (sec. 
           343 of the House bill and sec. 3412 of the Senate 
           amendment)

                              Present Law

       The Secretary is authorized and required to make the 
     inquiries and determinations necessary to insure the 
     assessment of Federal income taxes. For this purpose, any 
     reasonable method may be used to determine the amount of 
     Federal income tax owed. The courts have upheld the use of 
     financial status and economic reality examination 
     techniques to determine the existence of unreported income 
     in appropriate circumstances.

                               House Bill

       The provision prohibits the IRS from using financial status 
     or economic reality examination techniques to determine the 
     existence of unreported income of any taxpayer unless the IRS 
     has a reasonable indication that there is a likelihood of 
     unreported income.
       Effective date.--Date of enactment.

                            Senate Amendment

       Same as the House bill.

                          Conference Agreement

       The conference agreement follows the House bill and the 
     Senate amendment.
       c. Software trade secrets protection (sec. 344 of the House 
           bill and sec. 3413 of the Senate amendment)

                              Present Law

       The Secretary of the Treasury is authorized to examine any 
     books, papers, records, or other data that may be relevant or 
     material to an inquiry into the correctness of any Federal 
     tax return. The Secretary may issue and serve summonses 
     necessary to obtain such data, including summonses on certain 
     third-party recordkeepers.
       The Secretary is considered to have made a prima facie case 
     for the enforcement of a summons if the so-called ``Powell 
     standards'' are met.\17\ The Powell standards require: (1) 
     that the examination to which the summons relates is being 
     conducted pursuant to a legitimate purpose; (2) that the 
     summons seek information that may be relevant to such 
     examination; (3) that the IRS not already be in possession of 
     the information; and (4) that the administrative steps 
     required by the Code have been followed. However, a summons 
     will not be enforced if the burden it places on the summonsed 
     party is out of proportion to the end sought.\18\ Where the 
     summons is issued against a third-party, particularly one 
     that is a stranger to the taxpayer's affairs, the IRS has 
     been required to show

[[Page H5170]]

     that the circumstances of the investigation indicate a 
     realistic expectation, and not merely an idle hope, that 
     something relevant to the investigation may be discovered in 
     order to have the summons enforced.\19\
---------------------------------------------------------------------------
     \17\ See Powell v. U.S., 379 U.S. 48 (1964).
     \18\ Harrington v. U.S., 388 F. 2d 520 (2nd Cir, 1968).
     \19\ Harrington, supra.
---------------------------------------------------------------------------
       There are no specific statutory restrictions on the ability 
     of the Secretary to demand the production of computer 
     records, programs, source code or similar materials; whether 
     held by the taxpayer or by a third-party.

                               House Bill

       The House bill prohibits the Secretary from issuing (or 
     beginning an action to enforce) a summons in a civil action 
     for any portion of any third-party tax-related computer 
     source code unless (1) the Secretary is unable to otherwise 
     reasonably ascertain the correctness of an item on a return 
     from the taxpayer's other books, papers, records, other data, 
     or the computer software program and associated data itself 
     and (2) the Secretary first identifies with reasonable 
     specificity the portion of the computer source code to be 
     used to verify the correctness of the item.
       The Secretary is considered to have satisfied these 
     requirements with regard to the identified portion of the 
     source code if the Secretary makes a formal request for such 
     materials to both the taxpayer and the owner or developer of 
     the software that is not satisfied within 90 days.
       The Secretary's determination that the identified portion 
     of the third-party tax-related computer source code may be 
     summoned may be contested in any proceeding to enforce the 
     summons, by any person to whom the summons is addressed. For 
     this purpose, the special procedures for third-party 
     summonses will apply. In any such proceeding, the court may 
     issue any order that is necessary to prevent the disclosure 
     of trade secrets or other confidential information.
       The prohibition on issuing summons for tax-related computer 
     source code does not apply in connection with any inquiry 
     into any offense connected with the administration or 
     enforcement of the internal revenue laws. A computer software 
     program will not be treated as tax advice for the purpose of 
     the professional-client privilege contained in section 341 of 
     the House bill.
       Effective date.--Summonses issued more than 90 days after 
     the date of enactment.

                            Senate Amendment

       The Senate amendment expands the limitations in the House 
     bill in the following manner:
       (1) The prohibitions apply to all computer source code 
     unless developed for the internal use of the taxpayer or a 
     related person.
       (2) In order to summons source code, the Secretary is 
     required to determine that the need for the source code 
     outweighs the risks of disclosure of the computer source code 
     in addition to being unable to otherwise reasonably ascertain 
     the correctness of an item on a taxpayer's return and 
     identifying the portion of the Code with reasonable 
     specificity.
       (3) If the Secretary makes such a determination he will be 
     considered to have satisfied the statutory requirements to 
     summons source code if he (a) makes a good faith 
     determination that it is not feasible to determine the 
     correctness of the return item in question without access to 
     the computer software program and associated data, (b) makes 
     a formal request for such program and any data from the 
     taxpayer and requests such program from the owner of the 
     source code after reaching such determination, and (c) has 
     not received such program and data within 180 days of making 
     the formal request.
       In addition to authorizing any court enforcing a subpoena 
     to issue any order necessary to prevent the disclosure of 
     confidential information, the Senate amendments establishes a 
     number of specific protections against the disclosure and 
     improper use of trade secrets and confidential information 
     incident to the examination by the Secretary of any computer 
     software program or source code that comes into the 
     possession or control of the Secretary in the course of any 
     examination with respect to any taxpayer. These protections 
     include the following:
       (1) Such software or source code may be examined only in 
     connection with the examination of the taxpayer's return with 
     regard to which it was received.
       (2) Such software or source code must be maintained in a 
     secure area.
       (3) Such source code may not be removed from the owner's 
     place of business without the owner's consent unless such 
     removal is pursuant to a court order.
       (4) Such software or source code may not be decompiled or 
     disassembled.
       (5) Such software or source code may only be copied as 
     necessary to perform the specific examination. The owner of 
     the software must be informed of any copies that are made, 
     such copies must be numbered, and at the conclusion of the 
     examination and any related court proceedings, all such 
     copies must be accounted for and returned to the owner, 
     permanently deleted, or destroyed. The Secretary must provide 
     the owner of such software or source code with the names of 
     any individuals who will have access to such software or 
     source code.
       (6) If an individual who is not an officer or employee of 
     the U.S. Government will examine the software or source code, 
     such individual must enter into a written agreement with the 
     Secretary that such individual will not disclose such 
     software or source code to any person other than authorized 
     employees or agents of the Secretary at any time, and that 
     such individual will not participate in the development of 
     software that is intended for a similar purpose as the 
     summoned software for a period of two years.
       (7) Criminal penalties are provided where any person 
     willfully divulges or makes known software that was obtained 
     (whether or not by summons) for the purpose of examining a 
     taxpayer's return in violation of this provision.
       Effective date.--Summons issued and software acquired after 
     the date of enactment. In addition, 90 days after the date of 
     enactment, the protections against the disclosure and 
     improper use of trade secrets and confidential information 
     added by the provision (except for the requirement that the 
     Secretary provide a written agreement from non-U.S. 
     government officers and employees) apply to software and 
     source code acquired on or before the date of enactment.

                          Conference Agreement

       The conference agreement generally follows the Senate 
     amendment with regard to the safeguards for protection of 
     computer software and source code that is obtained by the IRS 
     in the course of the examination of a taxpayer's return. The 
     conference agreement specifically provides that computer 
     software or source code that is obtained by the IRS in the 
     course of the examination of a taxpayer's return will be 
     treated as return information for the purposes of section 
     6103. The conference agreement follows the Senate amendment 
     with regard to the standards the Secretary must meet in order 
     to summons certain types of computer source code. The 
     conference agreement follows the House bill in limiting the 
     higher standards for a summons to third-party tax-related 
     computer source code.
       Under the conference agreement, no summons may be issued 
     for tax-related computer software source code unless (1) the 
     Secretary is unable otherwise to ascertain the correctness of 
     any item on a return from the taxpayer's books and records or 
     the computer software program and associated data, (2) the 
     Secretary identifies with reasonable specificity the portion 
     of the computer source code needed to verify the correctness 
     of the item and (3) the Secretary determines that the need 
     for the source code outweighs the risk of unauthorized 
     disclosure of trade secrets. The Secretary is considered to 
     have satisfied the first two of these requirements if the 
     Secretary makes a formal request for such materials to both 
     the taxpayer and the owner of the software that is not 
     satisfied within 180 days.
       This limitation on the summons of tax-related computer 
     software source code does not apply if the summons is issued 
     in connection with an inquiry into any offense connected with 
     the administration or enforcement of the internal revenue 
     laws. The limitation also does not apply to a summons of 
     computer software source code that was acquired or developed 
     by the taxpayer or a related person primarily for internal 
     use by the taxpayer or such person rather than for commercial 
     distribution. A finding that computer software source code 
     was developed for internal use, and thus not eligible for the 
     limitation in summons authority in this provision, is not 
     intended to be dispositive of whether such software was 
     intended for internal use for any other purpose of this 
     title.
       Communications between the owner of the tax-related 
     computer software source code and the taxpayer are not 
     protected from summons by this provision. Communications 
     between the owner of the tax-related source code and persons 
     not related to the taxpayer that are related to the 
     functioning and operation of the software may be treated as a 
     part of the computer software source code.
       The provision does not change or eliminate any other 
     requirement of the Code. A summons for third-party tax-
     related computer source code that meets the standards 
     established by the provision will not be enforced if it would 
     not be enforced under present law. For example, if the 
     Secretary's purpose in issuing the summons is shown to be 
     improper, the summons would not be enforced, even if the 
     Secretary otherwise met the standards for the summons of 
     computer source code established by the provision. The 
     limitations on the summons of tax-related computer software 
     source code apply only with respect to computer software that 
     is used for accounting tax return preparation, tax compliance 
     or tax planning purposes. No inference is intended with 
     respect to computer software used for all other purposes. In 
     such cases, current law will continue to apply, subject to 
     the protections against the disclosure and improper use of 
     trade secrets and other confidential information added by 
     this provision.
       Software or source code that is required to be provided 
     under present law must be provided without regard to this 
     provision. For example, computer software or source code that 
     is required to be provided in connection with the 
     registration of a confidential corporate tax shelter 
     arrangements under section 6111 would continue to be required 
     to be provided without regard to this provision. Thus, the 
     registration requirement of section 6111 cannot be avoided 
     where the tax benefits of the shelter are discernible only 
     from the operation of a computer program.

[[Page H5171]]

       The conference agreement includes the protections against 
     the disclosure and improper use of trade secrets and 
     confidential information contained in the Senate amendment. 
     The requirement that software or source code obtained by the 
     Secretary in the course of an examination be used only in 
     connection with that examination is intended to prevent the 
     Secretary from using the software for the purpose of 
     examining other, unrelated taxpayers. The requirement is not 
     intended to prevent the Secretary from using knowledge it 
     obtains in the course of the examination, so long as such use 
     does not result in the disclosure of tax return information 
     (including the software or source code) or the violation of 
     any statutory protection or judicial order.
       Effective date.--The conference agreement follows the 
     Senate effective date.
       d. Threat of audit prohibited to coerce tip reporting 
           alternative commitment agreements (sec. 349 of the 
           House bill and sec. 3414 of the Senate amendment)

                              Present Law

       Restaurants may enter into Tip Reporting Alternative 
     Commitment (TRAC) agreements. A restaurant entering into a 
     TRAC agreement is obligated to educate its employees on their 
     tip reporting obligations, to institute formal tip reporting 
     procedures, to fulfill all filing and record keeping 
     requirements, and to pay and deposit taxes. In return, the 
     IRS agrees to base the restaurant's liability for employment 
     taxes solely on reported tips and any unreported tips 
     discovered during an IRS audit of an employee.

                               House Bill

       The provision requires the IRS to instruct its employees 
     that they may not threaten to audit any taxpayer in an 
     attempt to coerce the taxpayer to enter into a TRAC 
     agreement.
       Effective date.--Date of enactment.

                            Senate Amendment

       Same as the House bill.

                          Conference Agreement

       The conference agreement follows the House bill and the 
     Senate amendment.
       e. Taxpayers allowed motion to quash all third-party 
           summonses (sec. 3415 of the Senate amendment)

                              Present Law

       When the IRS issues a summons to a ``third-party 
     recordkeeper'' relating to the business transactions or 
     affairs of a taxpayer, notice of the summons must be given to 
     the taxpayer within three days by certified or registered 
     mail. The taxpayer is thereafter given up to 23 days to begin 
     a court proceeding to quash the summons. If the taxpayer does 
     so, third-party recordkeepers are prohibited from complying 
     with the summons until the court rules on the taxpayer's 
     petition or motion to quash, but the statute of limitations 
     for assessment and collection with respect to the taxpayer is 
     stayed during the pendency of such a proceeding. Third-party 
     recordkeepers are generally persons who hold financial 
     information about the taxpayer, such as banks, brokers, 
     attorneys, and accountants.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment generally expands the current ``third-
     party recordkeeper'' procedures to apply to summonses issued 
     to persons other than the taxpayer. Thus, the taxpayer whose 
     liability is being investigated receives notice of the 
     summons and is entitled to bring an action in the appropriate 
     U.S. District Court to quash the summons. As under the 
     current third-party recordkeeper provision, the statute of 
     limitations on assessment and collection is stayed during the 
     litigation, and certain kinds of summonses specified under 
     present law are not subject to these requirements.
       Effective date.--Summonses served after the date of 
     enactment.

                          Conference Agreement

       The conference agreement follows the Senate amendment with 
     a clarification that nothing in section 7609 of the Code 
     (relating to special procedures for third-party summonses) 
     shall be construed to limit the ability of the IRS to obtain 
     information (other than by summons) through formal or 
     informal procedures authorized by the Code.
       f. Service of summonses to third-party recordkeepers 
           permitted by mail (sec. 3416 of the Senate amendment)

                              Present Law

       A summons must be served ``by an attested copy delivered in 
     hand to the person to whom it is directed or left at his last 
     and usual place of abode.'' If a third-party recordkeeper 
     summons is served, the IRS may give the taxpayer notice of 
     the summons via certified or registered mail. The Federal 
     Rules of Civil Procedure permits service of process by mail 
     even in summons enforcement proceedings.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment allows the IRS the option of serving 
     any summons either in person or by certified or registered 
     mail.
       Effective date.--Summonses served after the date of 
     enactment.

                          Conference Agreement

       The conference agreement follows the Senate amendment.
       g. Notice of IRS contact of third parties (sec. 3417 of the 
           Senate amendment)

                              Present Law

       Third parties may be contacted by the IRS in connection 
     with the examination of a taxpayer or the collection of the 
     tax liability of the taxpayer. The IRS has the right to 
     summon third-party recordkeepers. In general, the taxpayer 
     must be notified of the service of summons on a third party 
     within three days of the date of service. The IRS also has 
     the right to seize property of the taxpayer that is held in 
     the hands of third parties. Except in jeopardy situations, 
     the Internal Revenue Manual provides that IRS will personally 
     contact the taxpayer and inform the taxpayer that seizure of 
     the asset is planned.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment requires the IRS to notify the 
     taxpayer before contacting third parties regarding 
     examination or collection activities (including summonses) 
     with respect to the taxpayer. Contacts with government 
     officials relating to matters such as the location of assets 
     or the taxpayer's current address are not restricted by this 
     provision. The provision does not apply to criminal tax 
     matters, if the collection of the tax liability is in 
     jeopardy, or if the taxpayer authorized the contact.
       Effective date.--Contacts made after 180 days after the 
     date of enactment.

                          Conference Agreement

       The conference agreement provides that the IRS may not 
     contact any person other than the taxpayer with respect to 
     the determination or collection of the tax liability of the 
     taxpayer without providing reasonable notice in advance to 
     the taxpayer that the IRS may contact persons other than the 
     taxpayer. It is intended that in general this notice will be 
     provided as part of an existing IRS notice provided to 
     taxpayers. The conference agreement also requires the IRS to 
     provide periodically to the taxpayer a record of persons 
     previously contacted during that period by the IRS with 
     respect to the determination or collection of that taxpayer's 
     tax liability. This record shall also be provided upon 
     request of the taxpayer. The provision does not apply to 
     criminal tax matters, if the collection of the tax liability 
     is in jeopardy, if the Secretary determines for good cause 
     shown that disclosure may involve reprisal against any 
     person, or if the taxpayer authorized the contact.
       Effective date.--Contacts made after 180 days after the 
     date of enactment.
     3. Collection activities
       a. Approval process for liens, levies, and seizures (sec. 
           3421 of the Senate amendment)

                              Present Law

       Supervisory approval of liens, levies or seizures is only 
     required under certain circumstances. For example, a levy on 
     a taxpayer's principal residence is only permitted upon the 
     written approval of the District Director or Assistant 
     District Director.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment requires the IRS to implement an 
     approval process under which any lien, levy or seizure would, 
     where appropriate, 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. Circumstances to be considered 
     include the amount due and the value of the asset.
       Effective date.--Collection actions commenced after date of 
     enactment, except for automated collection system actions 
     initiated before January 1, 2000.

                          Conference Agreement

       The conference agreement follows the Senate amendment. The 
     conferees intend that the Commissioner have discretion in 
     promulgating the procedures required by this provision to 
     determine the circumstances under which supervisory review of 
     liens or levies issued by the automated collection system is 
     or is not appropriate.
       Effective date.--Collection actions commenced after date of 
     enactment, except in the case of any action under the 
     automated collection system, the provision applies to actions 
     initiated after December 31, 2000.
       b. Modifications to certain levy exemption amounts (sec. 
           3431 of the Senate amendment)

                              Present Law

       IRS may levy on all non-exempt property of the taxpayer. 
     Property exempt from levy includes up to $2,500 in value of 
     fuel, provisions, furniture, and personal effects in the 
     taxpayer's household and up to $1,250 in value of books and 
     tools necessary for the trade, business or profession of the 
     taxpayer.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment increases the value of personal 
     effects exempt from levy to $10,000 and the value of books 
     and tools exempt from levy to $5,000. These amounts are 
     indexed for inflation.
       Effective date.--Levies issued after date of enactment.

                          Conference Agreement

       The conference agreement increases the value of personal 
     effects exempt from levy to

[[Page H5172]]

     $6,250 and the value of books and tools exempt from levy to 
     $3,125. These amounts are indexed for inflation.
       Effective date.--Levies issued after date of enactment.
       c. Release of levy upon agreement that amount is 
           uncollectible (sec. 3432 of the Senate amendment)

                              Present Law

       Some taxpayers have contended that the IRS does not release 
     a wage levy immediately upon receipt of proof that the tax is 
     not collectible. Instead, they claim, the IRS levies on one 
     period's wage payment before releasing the levy.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment requires the IRS to immediately 
     release a wage levy upon agreement with the taxpayer that the 
     tax is not collectible.
         
       Effective date.--Levies imposed after December 31, 1999.

                          Conference Agreement

       The conference agreement follows the Senate amendment, with 
     a clarification that the release is to occur as soon as 
     practicable. The IRS is not to intentionally delay until 
     after one wage payment has been made and levied upon before 
     releasing the levy.
       d. Levy prohibited during pendency of refund proceedings 
           (sec. 3433 of the Senate amendment)

                              Present Law

       The IRS is prohibited from making a tax assessment (and 
     thus prohibited from collecting payment) with respect to a 
     tax liability while it is being contested in Tax Court. 
     However, the IRS is permitted to assess and collect tax 
     liabilities during the pendency of a refund suit relating to 
     such tax liabilities, under the circumstances described 
     below.
       Generally, full payment of the tax at issue is a 
     prerequisite to a refund suit. However, if the tax is 
     divisible (such as employment taxes or the trust fund penalty 
     under Code section 6672), the taxpayer need only pay the tax 
     for the applicable period before filing a refund claim.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment requires the IRS to withhold 
     collection of liabilities that are the subject of a refund 
     suit during the pendency of the litigation. This will only 
     apply when refund suits can be brought without the full 
     payment of the tax, i.e., in the case of divisible taxes. 
     Collection by levy would be withheld unless jeopardy exists 
     or the taxpayer waives the suspension of collection in 
     writing (because collection will stop the running of interest 
     and penalties on the tax liability). The Secretary could not 
     commence a civil action to collect a liability except in a 
     proceeding related to the initial refund proceeding. The 
     statute of limitations on collection is stayed for the period 
     during which the IRS is prohibited from collecting by levy or 
     otherwise.
       Effective date.--Unpaid tax attributable to taxable periods 
     beginning after December 31, 1998.

                          Conference Agreement

       The conference agreement follows the Senate amendment, with 
     a technical modification. The conferees wish to clarify that 
     proceedings related to a proceeding\20\ under this provision 
     include, but are not limited to, civil actions or third-party 
     complaints initiated by the United States or another person 
     with respect to the same kinds of tax (or related taxes or 
     penalties) for the same (or overlapping) tax periods. For 
     example, if a taxpayer brings a suit for a refund of a 
     portion of a penalty that the taxpayer has paid under section 
     6672, the United States could, consistent with this 
     provision, counterclaim against the taxpayer for the balance 
     of the penalty or initiate related claims against other 
     persons assessed penalties under section 6672 for the same 
     employment taxes.
---------------------------------------------------------------------------
     \20\ For purposes of new section 6331(i)(4)(A)(ii) of the 
     Code.
---------------------------------------------------------------------------
       e. Approval required for jeopardy and termination 
           assessments and jeopardy levies (sec. 3434 of the 
           Senate amendment)

                              Present Law

       In general, a 30-day waiting period is imposed after 
     assessment of all types of taxes. In certain circumstances, 
     the waiting period puts the collection of taxes at risk. The 
     Code provides special procedures that allow the IRS to make 
     jeopardy assessments or termination assessments in certain 
     extraordinary circumstances, such as if the taxpayer is 
     leaving or removing property from the United States, or if 
     assessment or collection would be jeopardized by delay. In 
     jeopardy or termination situations, a levy may be made 
     without the 30-days' notice of intent to levy that is 
     ordinarily required.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment requires IRS Counsel review and 
     approval before the IRS can make a jeopardy assessment, a 
     termination assessment, or a jeopardy levy. If Counsel's 
     approval is not obtained, the taxpayer is entitled to obtain 
     abatement of the assessment or release of the levy, and, if 
     the IRS fails to offer such relief, to appeal first to IRS 
     Appeals under the new due process procedure for IRS 
     collections and then to court.
       Effective date.--Taxes assessed and levies made after the 
     date of enactment.

                          Conference Agreement

       The conference agreement follows the Senate amendment.
       f. Increase in amount of certain property on which lien not 
           valid (sec. 3435 of the Senate amendment)

                              Present Law

       A Federal tax lien attaches to all property and rights in 
     property of the taxpayer, if the taxpayer fails to pay the 
     assessed tax liability after notice and demand. However, the 
     Federal tax lien is not valid as to certain ``superpriority'' 
     interests.
       Two of these interests are limited by a specific dollar 
     amount. Purchasers of personal property at a casual sale are 
     presently protected against a Federal tax lien attached to 
     such property to the extent the sale is for less than $250. 
     In addition, present law provides protection to mechanic's 
     lienors with respect to the repairs or improvements made to 
     owner-occupied personal residences, but only to the extent 
     that the contract for repair or improvement is for not more 
     than $1,000.
       In addition, a superpriority is granted to banks and 
     building and loan associations which make passbook loans to 
     their customers, provided that those institutions retain the 
     passbooks in their possession until the loan is completely 
     paid off.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment increases the dollar limit for 
     purchasers at a casual sale from $250 to $1,000, and further 
     increases the dollar limit from $1,000 to $5,000 for 
     mechanics lienors providing home improvement work for owner-
     occupied personal residences. The Senate amendment indexes 
     these amounts for inflation. The Senate amendment also 
     clarifies the superpriority rules to reflect present banking 
     practices, where a passbook-type loan may be made even though 
     an actual passbook is not used.
       Effective date.--Date of enactment.

                          Conference Agreement

       The conference agreement follows the Senate amendment.
       g. Waiver of early withdrawal tax for IRS levies on 
           employer-sponsored retirement plans or IRAs (sec. 3436 
           of the Senate amendment)

                              Present Law

       Under present law, a distribution of benefits from a 
     employer-sponsored retirement plan or an Individual 
     Retirement Arrangement (``IRA'') generally is includible in 
     gross income in the year it is paid or distributed, except to 
     the extent the amount distributed represents the employee's 
     after-tax contributions or investment in the contract (i.e., 
     basis). Special rules apply to lump-sum distributions from 
     qualified retirement plans, distributions rolled over to an 
     IRA or employer-sponsored retirement plan, and distributions 
     of employer securities.
       Early distributions from qualified plans and IRAs 
     includible in income generally are subject to a 10-percent 
     early withdrawal tax, unless an exception to the tax applies. 
     Includible amounts withdrawn prior to attainment of age 59\1/
     2\ are subject to the additional 10-percent early withdrawal 
     tax, unless the withdrawal is due to death or disability, is 
     made in the form of certain periodic payments, is used to pay 
     medical expenses in excess of 7.5 percent of adjusted gross 
     income (``AGI''), or is used to purchase health insurance of 
     an unemployed individual. Certain additional exceptions to 
     the tax apply separately to withdrawals from IRAs and 
     qualified plans. Distributions from IRAs for education 
     expenses and for up to $10,000 of first-time homebuyer 
     expenses, or to unemployed individuals to purchase health 
     insurance are not subject to the 10-percent early withdrawal 
     tax. A distribution from a qualified plan made by an employee 
     after separation from service after attainment of age 55 is 
     not subject to the 10-percent early withdrawal tax.
       Under present law, the IRS is authorized to levy on all 
     non-exempt property of the taxpayer. Benefits under employer-
     sponsored retirement plans (including 403(b) and 457 plans) 
     and IRAs are not exempt from levy by the IRS.
       Distributions from employer-sponsored retirement plans or 
     IRAs made on account of an IRS levy would be includible in 
     the gross income of the individual, except to the extent the 
     amount distributed represents after-tax contributions. In 
     addition, the amount includible in income would be subject to 
     the 10-percent early withdrawal tax, unless an exception 
     described above applies.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment provides an exception from the 10-
     percent early withdrawal tax for amounts withdrawn from an 
     employer-sponsored retirement plan or an IRA that are subject 
     to a levy by the IRS. The exception applies only if the plan 
     or IRA is levied; it does not apply, for example, if the 
     taxpayer withdraws funds to pay taxes in the absence of a 
     levy, in order to release a levy on other interests.
       Effective date.--The provision is effective for withdrawals 
     after the date of enactment.

[[Page H5173]]

                          Conference Agreement

       The conference agreement follows the Senate amendment, with 
     a modification to the effective date. The provision is 
     effective for distributions after December 31, 1999.
       h. Prohibition of sales of seized property at less than 
           minimum bid (sec. 3441 of the Senate amendment)

                              Present Law

       A minimum bid price must be established for seized property 
     offered for sale. To conserve the taxpayer's equity, the 
     minimum bid price should normally be computed at 80 percent 
     or more of the forced sale value of the property less 
     encumbrances having priority over the Federal tax lien. If 
     the group manager concurs, the minimum sales price may be set 
     at less than 80 percent. The taxpayer is to receive notice of 
     the minimum bid price within 10 days of the sale. The 
     taxpayer has the opportunity to challenge the minimum bid 
     price, which cannot be more than the tax liability plus the 
     expenses of sale. Present law does not contemplate a sale of 
     the seized property at less than the minimum bid price. 
     Rather, if no person offers the minimum bid price, the IRS 
     may buy the property at the minimum bid price or the property 
     may be released to the owner.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment prohibits the IRS from selling seized 
     property for less than the minimum bid price. The Senate 
     amendment provides that the sale of property for less than 
     the minimum bid price would constitute an unauthorized 
     collection action, which would permit an affected person to 
     sue for civil damages.
       Effective date.--Sales occurring after the date of 
     enactment.

                          Conference Agreement

       The conference agreement follows the Senate amendment.
       i. Accounting of sales of seized property (sec. 3442 of the 
           Senate amendment)

                              Present Law

       The IRS is authorized to seize and sell a taxpayer's 
     property to satisfy an unpaid tax liability. The IRS is 
     required to give written notice to the taxpayer before 
     seizure of the property. The IRS must also give written 
     notice to the taxpayer at least 10 days before the sale of 
     the seized property.
       The IRS is required to keep records of all sales of real 
     property. The records must set forth all proceeds and 
     expenses of the sale. The IRS is required to apply the 
     proceeds first against the expenses of the sale, then against 
     a specific tax liability on the seized property, if any, and 
     finally against any unpaid tax liability of the taxpayer. Any 
     surplus proceeds are credited to the taxpayer or persons 
     legally entitled to the proceeds.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment requires the IRS to provide a written 
     accounting of all sales of seized property, whether real or 
     personal, to the taxpayer. The accounting must include a 
     receipt for the amount credited to the taxpayer's account.
       Effective date.--Seizures occurring after the date of 
     enactment.

                          Conference Agreement

       The conference agreement follows the Senate amendment.
       j. Uniform asset disposal mechanism (sec. 3443 of the 
           Senate amendment)

                              Present Law

       The IRS must sell property seized by levy either by public 
     auction or by public sale under sealed bids. These are often 
     conducted by the revenue officer charged with collecting the 
     tax liability.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment requires the IRS to implement a 
     uniform asset disposal mechanism for sales of seized 
     property. The disposal mechanism should be designed to remove 
     any participation in the sale of seized assets by revenue 
     officers. The provision authorizes the consideration of 
     outsourcing of the disposal mechanism.
       Effective date.--Requires a uniform asset disposal system 
     to be implemented within two years from the date of 
     enactment.

                          Conference Agreement

       The conference agreement follows the Senate amendment.
       k. Codification of IRS administrative procedures for 
           seizure of taxpayer's property (sec. 3444 of the Senate 
           amendment)

                              Present Law

       The Internal Revenue Manual (IRM) provides general 
     guidelines for seizure actions.
       Prior to the levy action, the revenue officer must 
     determine that there is sufficient equity in the property to 
     be seized to yield net proceeds from the sale to apply to 
     unpaid tax liabilities. If it is determined after seizure 
     that the taxpayer's equity is insufficient to yield net 
     proceeds from sale to apply to the unpaid tax, the revenue 
     officer will immediately release the seized property.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment codifies the IRS administrative 
     procedures which require the IRS to investigate the status of 
     property prior to levy.
       Effective date.--Date of enactment.

                          Conference Agreement

       The conference agreement follows the Senate amendment, with 
     a technical modification applying the investigation 
     requirement only to property to be sold pursuant to section 
     6335.
       l. Procedures for seizure of residences and businesses 
           (sec. 3445 of the Senate amendment)

                              Present Law

       Subject to certain procedural rules and limitations, the 
     Secretary may seize the property of the taxpayer who neglects 
     or refuses to pay any tax within 10 days after notice and 
     demand. The IRS may not levy on the personal residence of the 
     taxpayer unless the District Director (or the assistant 
     District Director) personally approves in writing or in cases 
     of jeopardy. There are no special rules for property that is 
     used as a residence by parties other than the taxpayer. IRS 
     Policy Statement P-5-34 states that the facts of a case and 
     alternative collection methods must be thoroughly considered 
     before deciding to seize the assets of a going business.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment prohibits the IRS from seizing real 
     property that is used as a residence (by the taxpayer or 
     another person) to satisfy an unpaid liability of $5,000 or 
     less, including penalties and interest.
       The Senate amendment requires the IRS to exhaust all other 
     payment options before seizing the taxpayer's business assets 
     or principal residence. For this purpose, future income that 
     may be derived by a taxpayer from the commercial sale of fish 
     or wildlife under a specified State permit must be considered 
     in evaluating other payment options before seizing the 
     taxpayer's business assets. The provision does not apply in 
     cases of jeopardy.
       Effective date.--Date of enactment.

                          Conference Agreement

       The conference agreement follows the Senate amendment, 
     except as follows. The prohibition on seizing a residence to 
     satisfy an unpaid liability of $5,000 or less is clarified to 
     apply to any real property used as a residence by the 
     taxpayer or any nonrental real property of the taxpayer used 
     by any other individual as a residence. The definition of 
     business assets is clarified to apply to tangible personal 
     property or real property used in the trade or business of an 
     individual taxpayer (other than real property that is 
     rented). The conference agreement provides that a levy is 
     permitted on a principal residence only if a judge or 
     magistrate of a United States district court approves (in 
     writing) of the levy.
     4. Provisions relating to examination and collection 
         activities
       a. Procedures relating to extensions of statute of 
           limitations by agreement (sec. 345 of the House bill 
           and sec. 3461 of the Senate amendment)

                              Present Law

       The statute of limitations within which the IRS may assess 
     additional taxes is generally three years from the date a 
     return is filed. Prior to the expiration of the statute of 
     limitations, both the taxpayer and the IRS may agree in 
     writing to extend the statute. An extension may be for either 
     a specified period or an indefinite period. The statute of 
     limitations within which a tax may be collected after 
     assessment is 10 years after assessment. Prior to the 
     expiration of the statute of limitations on collection, both 
     the taxpayer and the IRS may agree in writing to extend the 
     statute.

                               House Bill

       The House bill requires that, on each occasion on which the 
     taxpayer is requested by the IRS to extend the statute of 
     limitations, the IRS must notify the taxpayer of the 
     taxpayer's right to refuse to extend the statute of 
     limitations or to limit the extension to particular issues.
       Effective date.--Requests to extend the statute of 
     limitations made after the date of enactment.

                            Senate Amendment

       The Senate amendment eliminates the provision of present 
     law that allows the statute of limitations on collections to 
     be extended by agreement between the taxpayer and the IRS.
       The Senate amendment also requires that, on each occasion 
     on which the taxpayer is requested by the IRS to extend the 
     statute of limitations on assessment, the IRS must notify the 
     taxpayer of the taxpayer's right to refuse to extend the 
     statute of limitations or to limit the extension to 
     particular issues.
       Effective date.--Requests to extend the statute of 
     limitations made after December 31, 1999 and to all 
     extensions of the statute of limitations on collection that 
     are open on December 31, 1999.

                          Conference Agreement

       The conference agreement follows the Senate amendment, 
     except that extensions of the statute of limitations on 
     collection may be made in connection with an installment 
     agreement; the extension is only for the period for which the 
     waiver of the statute of limitations entered in connection 
     with the original written terms of the installment agreement 
     extends beyond the end of the

[[Page H5174]]

     otherwise applicable 10-year period, plus 90 days.
       Effective date. Requests to extend the statute of 
     limitations made after December 31, 1999. If, in any request 
     to extend the period of limitations made on or before 
     December 31, 1999, a taxpayer agreed to extend that period 
     beyond the 10-year statute of limitations on collection, that 
     extension shall expire on the latest of: the last day of such 
     10-year period, December 31, 2002, or, in the case of an 
     extension in connection with an installment agreement, the 
     90th day after the end of the period of such extension.
       b. Offers-in-compromise (sec. 346 of the House bill and 
           sec. 3462 of the Senate amendment)

                              Present Law

       The Code permits the IRS to compromise a taxpayer's tax 
     liability. An offer-in-compromise is an offer by the taxpayer 
     to settle unpaid tax accounts for less than the full amount 
     of the assessed balance due. An offer-in-compromise may be 
     submitted for all types of taxes, as well as interest and 
     penalties, arising under the Internal Revenue Code.
       There are two bases on which an offer can be made: doubt as 
     to liability for the amount owed and doubt as to ability to 
     pay the amount owed.
       A compromise agreement based on doubt as to ability to pay 
     requires the taxpayer to file returns and pay taxes for five 
     years from the date the IRS accepts the offer. Failure to do 
     so permits the IRS to begin immediate collection actions for 
     the original amount of the liability. The Internal Revenue 
     Manual provides guidelines for revenue officers to determine 
     whether an offer-in-compromise is adequate. An offer is 
     adequate if it reasonably reflects collection potential. 
     Although the revenue officer is instructed to consider the 
     taxpayer's assets and future and present income, the IRM 
     advises that rejection of an offer solely based on narrow 
     asset and income evaluations should be avoided.
       Pursuant to the IRM, collection normally is withheld during 
     the period an offer-in-compromise is pending, unless it is 
     determined that the offer is a delaying tactic and collection 
     is in jeopardy.

                               House Bill

       Rights of taxpayers entering into offers-in-compromise.--
     The House bill requires the IRS to develop and publish 
     schedules of national and local allowances that will provide 
     taxpayers entering into an offer-in-compromise with adequate 
     means to provide for basic living expenses.
       Suspend collection by levy while offer-in-compromise is 
     pending.--No provision.
       Procedures for reviews of rejections of offers-in-
     compromise and installment agreements.--No provision.
       Publication of taxpayer's rights with respect to offers-in-
     compromise.--The House bill requires the IRS to publish 
     guidance on the rights and obligations of taxpayers and the 
     IRS relating to offers in compromise, including a compliant 
     spouse's right to apply to reinstate an agreement that would 
     otherwise be revoked due to the nonfiling or nonpayment of 
     the other spouse, providing all payments required under the 
     compromise agreement are current.
       Liberal acceptance policy.--No provision.
       Effective date.--Date of enactment.

                            Senate Amendment

       Rights of taxpayers entering into offers-in-compromise.--
     Same as the House bill, except as follows. Under the Senate 
     amendment, the IRS also is required to consider the facts and 
     circumstances of a particular taxpayer's case in determining 
     whether the national and local schedules are adequate for 
     that particular taxpayer. If the facts indicate that use of 
     scheduled allowances would be inadequate under the 
     circumstances, the taxpayer is not limited by the national or 
     local allowances.
       The Senate amendment prohibits the IRS from rejecting an 
     offer-in-compromise from a low-income taxpayer solely on the 
     basis of the amount of the offer. The Senate amendment 
     provides that, in the case of an offer-in-compromise 
     submitted solely on the basis of doubt as to liability, the 
     IRS may not reject the offer merely because the IRS cannot 
     locate the taxpayer's file. The Senate amendment prohibits 
     the IRS from requesting a financial statement if the taxpayer 
     makes an offer-in-compromise based solely on doubt as to 
     liability.
       Suspend collection by levy while offer-in-compromise is 
     pending.--The Senate amendment prohibits the IRS from 
     collecting a tax liability by levy (1) during any period that 
     a taxpayer's offer-in-compromise for that liability is being 
     processed, (2) during the 30 days following rejection of an 
     offer, and (3) during any period in which an appeal of the 
     rejection of an offer is being considered. Taxpayers whose 
     offers are rejected and who made good faith revisions of 
     their offers and resubmitted them within 30 days of the 
     rejection or return would be eligible for a continuous period 
     of relief from collection by levy. This prohibition on 
     collection by levy would not apply if the IRS determines that 
     collection is in jeopardy or that the offer was submitted 
     solely to delay collection. The Senate amendment provides 
     that the statute of limitations on collection would be tolled 
     for the period during which collection by levy is barred.
       Procedures for reviews of rejections of offers-in-
     compromise and installment agreements.--The Senate amendment 
     requires that the IRS implement procedures to review all 
     proposed IRS rejections of taxpayer offers-in-compromise and 
     requests for installment agreements prior to the rejection 
     being communicated to the taxpayer. The Senate amendment 
     requires the IRS to allow the taxpayer to appeal any 
     rejection of such offer or agreement to the IRS Office of 
     Appeals. The IRS must notify taxpayers of their right to have 
     an appeals officer review a rejected offer-in-compromise on 
     the application form for an offer-in-compromise.
       Publication of taxpayer's rights with respect to offers-in-
     compromise.--Same as the House bill.
       Liberal acceptance policy.--The Senate amendment provides 
     that the IRS will adopt a liberal acceptance policy for 
     offers-in-compromise to provide an incentive for taxpayers to 
     continue to file tax returns and continue to pay their taxes.
       Effective date.--Generally effective for offers-in-
     compromise submitted after the date of enactment. The 
     provision suspending levy is effective with respect to 
     offers-in-compromise pending on or made after December 31, 
     1999.

                          Conference Agreement

       The conference agreement follows the Senate amendment, with 
     the following additions. First, the provision suspending 
     collection by levy while an offer-in-compromise is pending is 
     also expanded to apply while an installment agreement is 
     pending.
       Second, the provision authorizes the Secretary to prescribe 
     guidelines for the IRS to determine whether an offer-in-
     compromise is adequate and should be accepted to resolve a 
     dispute. Accordingly, the conferees expect that the present 
     regulations will be expanded so as to permit the IRS, in 
     certain circumstances, to consider additional factors (i.e., 
     factors other than doubt as to liability or collectibility) 
     in determining whether to compromise the income tax 
     liabilities of individual taxpayers. For example, the 
     conferees anticipate that the IRS will take into account 
     factors such as equity, hardship, and public policy where a 
     compromise of an individual taxpayer's income tax liability 
     would promote effective tax administration. The conferees 
     anticipate that, among other situations, the IRS may utilize 
     this new authority to resolve longstanding cases by forgoing 
     penalties and interest which have accumulated as a result of 
     delay in determining the taxpayer's liability. The conferees 
     believe that the ability to compromise tax liability and to 
     make payments of tax liability by installment enhances 
     taxpayer compliance. In addition, the conferees believe that 
     the IRS should be flexible in finding ways to work with 
     taxpayers who are sincerely trying to meet their obligations 
     and remain in the tax system. Accordingly, the conferees 
     believe that the IRS should make it easier for taxpayers to 
     enter into offer-in-compromise agreements, and should do more 
     to educate the taxpaying public about the availability of 
     such agreements.
       c. Notice of deficiency to specify deadlines for filing Tax 
           Court petition (sec. 347 of the House bill and sec. 
           3463 of the Senate amendment)

                              Present Law

       Taxpayers must file a petition with the Tax Court within 90 
     days after the deficiency notice is mailed (150 days if the 
     person is outside the United States) (sec. 6213). If the 
     petition is not filed within that time period, the Tax Court 
     does not have jurisdiction to consider the petition.

                               House Bill

       The provision requires the IRS to include on each 
     deficiency notice the date determined by the IRS as the last 
     day on which the taxpayer may file a petition with the Tax 
     Court. The provision provides that a petition filed with the 
     Tax Court by this date is treated as timely filed.
       Effective date.--Notices mailed after December 31, 1998.

                            Senate Amendment

       Same as the House bill.

                          Conference Agreement

       The conference agreement follows the House bill and the 
     Senate amendment.
       d. Refund or credit of overpayments before final 
           determination (sec. 348 of the House bill and sec. 3464 
           of the Senate amendment)

                              Present Law

       Generally, the IRS may not take action to collect a 
     deficiency during the period a taxpayer may petition the Tax 
     Court, or if the taxpayer petitions the Tax Court, until the 
     decision of the Tax Court becomes final. Actions to collect a 
     deficiency attempted during this period may be enjoined, but 
     there is no authority for ordering the refund of any amount 
     collected by the IRS during the prohibited period.
       If a taxpayer contests a deficiency in the Tax Court, no 
     credit or refund of income tax for the contested taxable year 
     generally may be made, except in accordance with a decision 
     of the Tax Court that has become final. Where the Tax Court 
     determines that an overpayment has been made and a refund is 
     due the taxpayer, and a party appeals a portion of the 
     decision of the Tax Court, no provision exists for the refund 
     of any portion of any overpayment that is not contested in 
     the appeal.

                               House Bill

       The provision provides that a proper court (including the 
     Tax Court) may order a refund of any amount that was 
     collected within the

[[Page H5175]]

     period during which the Secretary is prohibited from 
     collecting the deficiency by levy or other proceeding.
       The provision also allows the refund of that portion of any 
     overpayment determined by the Tax Court to the extent the 
     overpayment is not contested on appeal.
       Effective date.--Date of enactment.

                            Senate Amendment

       Same as the House bill.

                          Conference Agreement

       The conference agreement follows the House bill and the 
     Senate amendment.
       e. IRS procedures relating to appeal of examinations and 
           collections (sec. 3465 of the Senate amendment)

                              Present Law

       IRS Appeals operates through regional Appeals offices which 
     are independent of the local District Director and Regional 
     Commissioner's offices. In general, IRS Appeals offices have 
     jurisdiction over both pre-assessment and post-assessment 
     cases. The taxpayer generally has an opportunity to seek 
     Appeals jurisdiction after failing to reach agreement with 
     the Examination function and before filing a petition in Tax 
     Court, after filing a petition in Tax Court (but before 
     litigation), after assessment of certain penalties, after a 
     claim for refund has been rejected by the District Director's 
     office, and after a proposed rejection of an offer-in-
     compromise in a collection case.
       In certain cases under Coordinated Examination Program 
     procedures, the taxpayer has an opportunity to seek early 
     Appeals jurisdiction over some issues while an examination is 
     still pending on other issues. The early referral procedures 
     also apply to employment tax issues on a limited basis.
       A mediation or alternative dispute resolution (ADR) process 
     is also available in certain cases. ADR is used at the end of 
     the administrative process as a final attempt to resolve a 
     dispute before litigation. ADR is currently only available 
     for cases with more than $10 million in dispute. ADR 
     processes are also available in bankruptcy cases and cases 
     involving a competent authority determination.
       In April 1996, the IRS implemented a Collections Appeals 
     Program within the Appeals function, which allows taxpayers 
     to appeal lien, levy, or seizure actions proposed by the IRS. 
     In January 1997, appeals for installment agreements proposed 
     for termination were added to the program.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment codifies existing IRS procedures with 
     respect to early referrals to Appeals and the Collections 
     Appeals Process. The Senate amendment also codifies the 
     existing ADR procedures, as modified by eliminating the 
     dollar threshold.
       In addition, the IRS is required to establish a pilot 
     program of binding arbitration for disputes of all sizes. 
     Under the pilot program, binding arbitration must be agreed 
     to by both the taxpayer and the IRS.
       The Senate amendment requires the IRS to make Appeals 
     officers available on a regular basis in each State, and 
     consider videoconferencing of Appeals conferences for 
     taxpayers seeking appeals in rural or remote areas.
       Effective date.--Date of enactment.

                          Conference Agreement

       The conference agreement follows the Senate amendment.
       f. Application of certain fair debt collection practices 
           (sec. 3466 of the Senate amendment)

                              Present Law

       The Fair Debt Collection Practices Act provides a number of 
     rules relating to debt collection practices. Among these are 
     restrictions on communication with the consumer, such as a 
     general prohibition on telephone calls outside the hours of 
     8:00 a.m. to 9:00 p.m. local time, and prohibitions on 
     harassing or abusing the consumer. In general, these 
     provisions do not apply to the Federal Government.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment applies the restrictions relating to 
     communication with the taxpayer/debtor and the prohibitions 
     on harassing or abusing the debtor to the IRS. The 
     restrictions relating to communication with the taxpayer/
     debtor are not intended to hinder the ability of the IRS to 
     respond to taxpayer inquiries (such as answering telephone 
     calls from taxpayers).
       Effective date.--Date of enactment.

                          Conference Agreement

       The conference agreement follows the Senate amendment.
       g. Guaranteed availability of installment agreements (sec. 
           3467 of the Senate amendment)

                              Present Law

       The Code authorizes the IRS to enter into written 
     agreements with any taxpayer under which the taxpayer is 
     allowed to pay taxes owed, as well as interest and penalties, 
     in installment payments if the IRS determines that doing so 
     will facilitate collection of the amounts owed. An 
     installment agreement does not reduce the amount of taxes, 
     interest, or penalties owed, but does provide for a longer 
     period during which payments may be made during which other 
     IRS enforcement actions (such as levies or seizures) are held 
     in abeyance. The IRS in most instances readily approves these 
     requests if the amounts involved are not large (in general, 
     below $10,000) and if the taxpayer has filed tax returns on 
     time in the past. Some taxpayers are required to submit 
     background information to the IRS substantiating their 
     application.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment requires the Secretary to enter an 
     installment agreement, at the taxpayer's option, if: (1) the 
     liability is $10,000, or less (excluding penalties and 
     interest); (2) within the previous 5 years, the taxpayer has 
     not failed to file or to pay, nor entered an installment 
     agreement under this provision; (3) if requested by the 
     Secretary, the taxpayer submits financial statements, and the 
     Secretary determines that the taxpayer is unable to pay the 
     tax due in full; (4) the installment agreement provides for 
     full payment of the liability within 3 years; and (5) the 
     taxpayer agrees to continue to comply with the tax laws and 
     the terms of the agreement for the period (up to 3 years) 
     that the agreement is in place.
       Effective date.--Date of enactment.

                          Conference Agreement

       The conference agreement follows the Senate amendment.
     h. Prohibition on requests to taxpayers to waive rights to 
         bring actions (sec. 3468 of the Senate amendment)

                              Present Law

       There is no restriction on the circumstances under which 
     the Government may request a taxpayer to waive the taxpayer's 
     right to sue the United States or one of its employees for 
     any action taken in connection with the tax laws.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment provides that the Government may not 
     request a taxpayer to waive the taxpayer's right to sue the 
     United States or one of its employees for any action taken in 
     connection with the tax laws, unless (1) the taxpayer 
     knowingly and voluntarily waives that right, or (2) the 
     request is made to the taxpayer's attorney or other 
     representative.
       Effective date.--Date of enactment.

                          Conference Agreement

       The conference agreement follows the Senate amendment. The 
     conferees do not intend this provision to apply to the waiver 
     of claims for attorneys' fees or costs or to the waiver of 
     one or more claims brought in the same administrative or 
     judicial proceeding with other claims that are being settled.

                      F. Disclosures to Taxpayers

     1. Explanation of joint and several liability (sec. 351 of 
         the House bill and sec. 3501 of the Senate amendment)

                              Present Law

       In general, spouses who file a joint tax return are each 
     fully responsible for the accuracy of the tax return and for 
     the full liability. Spouses who wish to avoid such joint and 
     several liability may file as married persons filing 
     separately. Special rules apply in the case of innocent 
     spouses.

                               House Bill

       The House bill requires that the IRS establish procedures 
     clearly to alert married taxpayers of their joint and several 
     liability on all appropriate tax publications and 
     instructions. The IRS will make an appropriate cross 
     reference to these statements near the signature line on 
     appropriate tax forms.
       Effective date.--Requires that the procedures be 
     established as soon as practicable, but no later than 180 
     days after the date of enactment.

                            Senate Amendment

       Same as the House bill, except that the Senate amendment 
     also requires notification of the availability of electing 
     separate liability.
       Effective date.--Same as the House bill.

                          Conference Agreement

       The conference agreement follows the Senate amendment, 
     except that notification must be given of an individual's 
     right to relief under new section 6015 of the Code.
     2. Explanation of taxpayers' rights in interviews with the 
         IRS (sec. 352 of the House bill and sec. 3502 of the 
         Senate amendment)

                              Present Law

       Prior to or at initial in-person audit interviews, the IRS 
     must explain to taxpayers the audit process and taxpayers' 
     rights under that process and the collection process and 
     taxpayers' rights under that process. If a taxpayer clearly 
     states during an interview with the IRS that the taxpayer 
     wishes to consult with the taxpayer's representative, the 
     interview must be suspended to afford the taxpayer a 
     reasonable opportunity to consult with the representative.

                               House Bill

       The House bill requires that the IRS rewrite Publication 1 
     (``Your Rights as a Taxpayer'') to inform taxpayers more 
     clearly of their rights (1) to be represented by a 
     representative and (2) if the taxpayer is so represented, 
     that the interview may not proceed

[[Page H5176]]

     without the presence of the representative unless the 
     taxpayer consents.
       Effective date.--The addition to Publication 1 must be made 
     not later than 180 days after the date of enactment.

                            Senate Amendment

       Same as the House bill.

                          Conference Agreement

       The conference agreement follows the House bill and the 
     Senate amendment.
     3. Disclosure of criteria for examination selection (sec. 353 
         of the House bill and sec. 3503 of the Senate amendment)

                              Present Law

       The IRS examines Federal tax returns to determine the 
     correct liability of taxpayers. The IRS selects returns to be 
     audited in a number of ways, such as through a computerized 
     classification system (the discriminant function (``DIF'') 
     system).

                               House Bill

       The provision requires that IRS add to Publication 1 
     (``Your Rights as a Taxpayer'') a statement which sets forth 
     in simple and nontechnical terms the criteria and procedures 
     for selecting taxpayers for examination. The statement must 
     not include any information the disclosure of which would be 
     detrimental to law enforcement. The statement must specify 
     the general procedures used by the IRS, including whether 
     taxpayers are selected for examination on the basis of 
     information in the media or from informants.
       Effective date.--The addition to Publication 1 must be made 
     not later than 180 days after the date of enactment.

                            Senate Amendment

       Same as the House bill.

                          Conference Agreement

       The conference agreement follows the House bill and the 
     Senate amendment.
     4. Explanation of the appeals and collection process (sec. 
         354 of the House bill and sec. 3504 of the Senate 
         amendment)

                              Present Law

       There is no statutory requirement that specific notices be 
     given to taxpayers with the first letter of proposed 
     deficiency that allows the taxpayer an opportunity for 
     administrative review in the IRS Office of Appeals.

                               House Bill

       The House bill requires that an explanation of the appeals 
     process and the collection process be provided with the first 
     letter of proposed deficiency that allows the taxpayer an 
     opportunity for administrative review in the IRS Office of 
     Appeals.
       Effective date.--Requires that the explanation be included 
     as soon as practicable, but no later than 180 days after the 
     date of enactment.

                            Senate Amendment

       The Senate amendment requires that, no later than 180 days 
     after the date of enactment, a description of the entire 
     process from examination through collections, including the 
     assistance available to taxpayers from the Taxpayer Advocate 
     at various points in the process, be provided with the first 
     letter of proposed deficiency that allows the taxpayer an 
     opportunity for administrative review in the IRS Office of 
     Appeals.
       Effective date.--Same as the House bill.

                          Conference Agreement

       The conference agreement follows the Senate amendment.
     5. Explanation of reason for refund disallowance (sec. 3505 
         of the Senate amendment)

                              Present Law

       The Examination Division of the IRS examines claims for 
     refund submitted by taxpayers. The Internal Revenue Manual 
     requires examination or other audit action on refund claims 
     within 30 days after receipt of the claims. The refund claim 
     is preliminarily examined to determine if it should be 
     disallowed. The taxpayer will receive a form from the IRS 
     stating that the claim for refund cannot be considered. Other 
     cases will be examined as quickly as possible and the 
     disposition of the case, including the reasons for the 
     disallowance or partial disallowance of the refund claim, 
     must be stated in the portion of the revenue agent's 
     report that is sent to the taxpayer.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment requires the IRS to notify the 
     taxpayer of the specific reasons for the disallowance (or 
     partial disallowance) of the refund claim.
       Effective date.--180 days after the date of enactment.

                          Conference Agreement

       The conference agreement follows the Senate amendment, with 
     technical modifications.
     6. Statements to taxpayers with installment agreements (sec. 
         3506 of the Senate amendment)

                              Present Law

       A taxpayer entering into an installment agreement to pay 
     tax liabilities due to the IRS must complete a Form 433-D 
     which sets forth the installment amounts to be paid monthly 
     and the total amount of tax due. The IRS does not provide the 
     taxpayer with an annual statement reflecting the amounts paid 
     and the amount due remaining.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment requires the IRS to send every 
     taxpayer in an installment agreement an annual statement of 
     the initial balance owed, the payments made during the year, 
     and the remaining balance.
       Effective date.--No later than 180 days after the date of 
     enactment.

                          Conference Agreement

       The conference agreement follows the Senate amendment.
       Effective date.--July 1, 2000.
     7. Notification of change in tax matters partner (sec. 3507 
         of the Senate amendment)

                              Present Law

       In general, the tax treatment of items of partnership 
     income, loss, deductions and credits are determined at the 
     partnership level in a unified partnership proceeding rather 
     than in separate proceedings with each partner. In providing 
     notice to taxpayers with respect to partnership proceedings, 
     the IRS relies on information furnished by a party designated 
     as the tax matters partner (TMP) of the partnership. The TMP 
     is required to keep each partner informed of all 
     administrative and judicial proceedings with respect to the 
     partnership. Under certain circumstances, the IRS may require 
     the resignation of the incumbent TMP and designate another 
     partner as the TMP of a partnership

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment requires the IRS to notify all 
     partners of any resignation of the tax matters partner that 
     is required by the IRS, and to notify the partners of any 
     successor tax matters partner.
       Effective date.--Selections of tax matters partners made by 
     the Secretary after the date of enactment.

                          Conference Agreement

       The conference agreement follows the Senate amendment.
     8. Conditions under which taxpayers' returns may be disclosed 
         (sec. 3508 of the Senate amendment)

                              Present Law

       There is no requirement that the general tax forms 
     instruction booklets include a description of conditions 
     under which tax return information may be disclosed outside 
     the IRS (including to States).

                               House Bill

                            Senate Amendment

       The Senate amendment requires that general tax forms 
     instruction booklets include a description of conditions 
     under which tax return information may be disclosed outside 
     the IRS (including to States).
       Effective date.--Date of enactment.

                          Conference Agreement

       The conference agreement follows the Senate amendment with 
     technical modifications; the conferees consider the statement 
     currently contained in the general tax forms instruction 
     booklets to be sufficient to fulfill the requirements of this 
     provision.
     9. Disclosure of Chief Counsel advice

                              Present Law

       Section 6110 of the Code provides for the public inspection 
     of written determinations, i.e., rulings, determination 
     letters, and technical advice memoranda. The IRS issues 
     annual revenue procedures setting forth the procedures for 
     requests for these various forms of written determinations 
     and participation in the formulation of such 
     determinations.21 Under section 6110 and the 
     regulations promulgated thereunder, the taxpayer who is the 
     subject of a written determination can participate in the 
     redaction of the documents to ensure that the taxpayer's 
     privacy is protected and that sensitive private information 
     is removed before the determination is publicly disclosed. In 
     the event there is disagreement as to the information to be 
     deleted, the section provides for litigation in the courts to 
     resolve such disagreements.
---------------------------------------------------------------------------
     \21\ See e.g., Rev. Procs. 98-1 and 98-2.
---------------------------------------------------------------------------
       One of the Office of Chief Counsel's major roles is to 
     advise Internal Revenue Service personnel on legal matters at 
     all stages of case development. The Office of Chief Counsel 
     thus issues various forms of written legal advice to field 
     agents of the IRS and to its own field attorneys that do not 
     fall within the current definition of ``written 
     determination'' under section 6110. Traditionally, field 
     Counsel offices provided most of the assistance to the IRS, 
     usually at IRS field offices, but since 1988, the National 
     Office of Chief Counsel has been rendering more assistance to 
     field Counsel and IRS offices. National Office of Chief 
     Counsel assistance in taxpayer-specific cases is generally 
     called ``field service advice.'' The taxpayers who are the 
     subject of field service advice generally do not participate 
     in the process, leading some tax commentators to express 
     concern that the field service advice process was displacing 
     the technical advice process.
       There has been controversy as to whether the Office of 
     Chief Counsel must release forms of advice other than written 
     determinations pursuant to the Freedom of Information Act 
     (FOIA). In Tax Analysts v. IRS,22 the D.C. Circuit 
     held that the legal analysis portions of field service advice 
     created in the context of specific taxpayers' cases are not 
     ``return information,'' as defined by section 6103(b)(2), and 
     must be released under FOIA. The court also found that 
     portions of field

[[Page H5177]]

     service advice issued in docketed cases may be withheld as 
     privileged attorney work product. However, some issues remain 
     outstanding. Although the extent to which such materials must 
     be released is still in dispute, it is clear that they are 
     not expressly covered by section 6110. As a consequence, 
     there exists no mechanism by which taxpayers may participate 
     in the administrative process of redacting their private 
     information from such documents or to resolve disagreements 
     in court.
---------------------------------------------------------------------------
     \22\ 117 F.3d 607 (D.C. Cir. 1997).
---------------------------------------------------------------------------

                               House Bill

       No provision.

                            Senate Amendment

       No provision.

                          Conference Agreement

     In general
       The conferees believe that written documents issued by the 
     National Office of Chief Counsel to its field components and 
     field agents of the IRS should be subject to public release 
     in a manner similar to technical advice memoranda or other 
     written determinations. In this way, all taxpayers can be 
     assured of access to the ``considered view of the Chief 
     Counsel's national office on significant tax issues.'' 
     23 Creating a structured mechanism by which these 
     types of legal memoranda are open to public inspection will 
     increase the public's confidence that the tax system operates 
     fairly and in an even-handed manner with respect to all 
     taxpayers.
---------------------------------------------------------------------------
     \23\ 117 F.3d at 617.
---------------------------------------------------------------------------
       As part of making these documents public, however, the 
     privacy of the taxpayer who is the subject of the advice must 
     be protected. Any procedure for making such advice public 
     must therefore include adequate safeguards for taxpayers 
     whose privacy interests are implicated. There should be a 
     mechanism for taxpayer participation in the deletion of any 
     private information. There should also be a process whereby 
     appropriate governmental privileges may be asserted by the 
     IRS and contested by the public or the taxpayer.
       The provision amends section 6110 of the Code, establishing 
     a structured process by which the IRS will make certain work 
     products, designated as ``Chief Counsel Advice,'' open to 
     public inspection on an ongoing basis. It is designed to 
     protect taxpayer privacy while allowing the public inspection 
     of these documents in a manner generally consistent with the 
     mechanism of section 6110 for the public inspection of 
     written determinations. In general, the provision operates by 
     establishing that Chief Counsel Advice are written 
     determinations subject to the public inspection provisions of 
     section 6110.
     Definition of Chief Counsel Advice
       For purposes of this provision, Chief Counsel Advice is 
     written advice or instruction prepared and issued by any 
     national office component of the Office of Chief Counsel to 
     field employees of the Service or the Office of Chief Counsel 
     that convey certain legal interpretations or positions of the 
     IRS or the Office of Chief Counsel concerning existing or 
     former revenue provisions. For these purposes, the term 
     ``revenue provisions'' includes, without limitation: the 
     Internal Revenue Code itself; regulations, revenue rulings, 
     revenue procedures, or other administrative interpretations 
     or guidance, whether published or unpublished (including, for 
     example, other Chief Counsel Advice); tax treaties; and court 
     decisions and opinions. Chief Counsel Advice also includes 
     legal interpretations of State law, foreign law, or other 
     federal law relating to the assessment or collection of 
     liabilities under revenue provisions.
       Chief Counsel Advice may interpret or set forth policies 
     concerning the internal revenue laws either in general or as 
     applied to specific taxpayers or groups of specific 
     taxpayers. The definition is, however, not meant to include 
     advice written with respect to nontax matters, including but 
     not limited to employment law, conflicts of interest, or 
     procurement matters.
       The new statutory category of written determination 
     encompasses certain existing categories of advisory memoranda 
     or instructions written by the National Office of Chief 
     Counsel to field personnel of either the IRS or the Office of 
     Chief Counsel. Specifically, Chief Counsel Advice includes 
     field service advice, technical assistance to the field, 
     service center advice, litigation guideline memoranda, tax 
     litigation bulletins, general litigation bulletins, and 
     criminal tax bulletins. The definition applies not only to 
     the case-specific field service advice issued from the 
     offices of the Associate Chief Counsel (International), 
     Associate Chief Counsel (Employee Benefits and Exempt 
     Organizations), and the Assistant Chief Counsel (Field 
     Service), which were at issue in the Tax Analysts decision, 
     but any case-specific or noncase-specific written advice or 
     instructions issued by the National Office of Chief Counsel 
     to field personnel of either the IRS or the Office of Chief 
     Counsel.
       Moreover, Chief Counsel Advice includes any documents 
     created subsequent to the enactment of this provision that 
     satisfy the general statutory definition, regardless of their 
     name or designation. Chief Counsel Advice also includes any 
     such advice or instruction even if the organizations 
     currently issuing them are reorganized or reconstituted as 
     part of any IRS restructuring.
       The new subsection covers written advice ``issued'' to 
     field personnel of either the IRS or the Office of Chief 
     Counsel in its final form. With respect to Chief Counsel 
     Advice, issuance occurs when the Chief Counsel Advice has 
     been approved within the national office component of the 
     office of Chief Counsel in which the Chief Counsel Advice was 
     proposed, signed by the person authorized to do so (usually 
     the Assistant Chief Counsel or a Branch Chief), and sent to 
     the field. Chief Counsel Advice does not include written 
     recordations of informal telephonic advice by the National 
     Office of Chief Counsel to field personnel of either the IRS 
     or the Office of Chief Counsel. Drafts of Chief Counsel 
     Advice sent to the field for review, criticism, or comment 
     prior to approval within the National Office also need not be 
     made public. However, Chief Counsel Advice may be treated as 
     issued even if supplemental advice is contemplated. The 
     Secretary is expected to issue regulations to clarify the 
     distinction between issuance as it applies to Chief Counsel 
     Advice and as it applies to other documents disclosed under 
     section 6110.
       The provision also allows the Secretary to promulgate 
     regulations providing that additional types of advice or 
     instruction issued by the Office of Chief Counsel (or 
     components of the Office of Chief Counsel, such as regional 
     or local Counsel offices) will be treated as Chief Counsel 
     Advice and subject to public inspection pursuant to this 
     provision. No inference shall be drawn from the failure of 
     the Secretary to treat additional types of advice or 
     instruction as Chief Counsel Advice in determining whether 
     such advice or instruction is to be disclosed under FOIA.
       As with other written determinations, Chief Counsel Advice 
     may not be used or cited as precedent, except as the 
     Secretary otherwise establishes by regulation.
     Redaction process
       Under this provision, Chief Counsel Advice will be redacted 
     prior to their public release in a manner similar to that 
     provided for private letter rulings, technical advice 
     memoranda, and determination letters. Specific taxpayers or 
     groups of specific taxpayers who are the subject of Chief 
     Counsel Advice will be afforded the opportunity to 
     participate in the process of redacting the Chief Counsel 
     Advice prior to their public release.
       In addition, the new provision affords additional 
     protection for certain governmental interests implicated by 
     Chief Counsel Advice. Information may be redacted from Chief 
     Counsel Advice under subsections (b) and (c) of the Freedom 
     of Information Act, 5 U.S.C. sec. 552 (except, with respect 
     to 5 U.S.C. sec. 552(b)(3), only material required to be 
     withheld under a Federal statute, other than title 26, may be 
     redacted), as those provisions have been, or shall be, 
     interpreted by the courts of the United States. For those 
     deletions that are discretionary, such as those under FOIA 
     section 552(b)(5), it is expected that the Office of Chief 
     Counsel and the IRS will apply any discretionary standards 
     applicable to federal agencies in general or the Chief 
     Counsel or the IRS in particular.\24\
---------------------------------------------------------------------------
     \24\ The current standards for the exercise of such 
     discretion are set forth in the Internal Revenue Manual (part 
     1230, section 293(2)) and the Attorney General's October 4, 
     1993, Memorandum for Heads of Departments and Agencies.
---------------------------------------------------------------------------
       Under new section 6110(i), as with current section 
     6110(c)(1), identifying details consisting of names, 
     addresses, and any other information that the Secretary 
     determines could identify any person, including the 
     taxpayer's representative, will be redacted, after the 
     participation of the taxpayer in the redaction process. In 
     some situations, information included in a Chief Counsel 
     Advice (other than a name or address) may not identify a 
     person as of the time the advice is made open to public 
     inspection, but that information, together with information 
     that is expected to be disclosed by another source at a later 
     date, will serve to identify a person. Consequently, in 
     deciding whether a Chief Counsel Advice contains identifying 
     information, the Secretary is to take into account 
     information that is available to the public at the time that 
     the advice is made open to public inspection as well as 
     information that is expected to be publicly available from 
     other sources within a reasonable time after the Chief 
     Counsel Advice is made open to public inspection. Generally, 
     it is intended that the standard the IRS is to use in 
     determining whether information will identify a person is a 
     standard of a reasonable person generally knowledgeable with 
     respect to the appropriate community. The standard is not, 
     however, to be one of a person with inside knowledge of the 
     particular taxpayer.
       As under current section 6110, taxpayers who are the 
     subject of Chief Counsel Advice, as well as members of the 
     public, will be afforded the opportunity to challenge 
     judicially the redaction determinations by the Secretary.
     Relation to present law
       The public inspection of Chief Counsel Advice is to be 
     accomplished only pursuant to the rules and procedures set 
     forth in section 6110, as amended, and not under those of any 
     other provision of law, such as FOIA. This provision is not 
     intended to affect the disclosure under FOIA, or under any 
     other provision of law, of any documents not included within 
     the definition of Chief Counsel Advice in new sections 
     6110(i)(1) and (i)(2). The only FOIA exemption affected by 
     this provision is 5 U.S.C. section 552(b)(3), to the extent 
     that it incorporates section 6103 of the Code. The timetable 
     and the manner in which existing Chief Counsel Advice may 
     ultimately be open to public inspection shall be governed

[[Page H5178]]

     by this provision, except that the provision is inapplicable 
     to Chief Counsel Advice that any federal district court has, 
     prior to the date of enactment, ordered be disclosed. 
     Disclosure of any documents that are subject to such a court 
     order is to proceed pursuant to the order rather than this 
     provision. Finally, no inference is intended with respect to 
     the disclosure, under FOIA or any other provision of law, of 
     any other documents produced by the Office of Chief Counsel 
     that are not included in the definition of Chief Counsel 
     Advice.
     Effective date
       The provision applies to Chief Counsel Advice issued more 
     than ninety days after enactment. In addition, the provision 
     contains certain rules governing disclosure of any document 
     fitting the definition of Chief Counsel Advice issued after 
     1985 and before 90 days after the date of enactment by the 
     offices of the associate chief counsel for domestic, employee 
     benefits and exempt organizations, and international. It sets 
     forth a schedule for the IRS to release such Chief Counsel 
     Advice over a six year period after the date of enactment. 
     Finally, additional advice or instruction that the Secretary 
     determines by regulations to treat as Chief Counsel Advice 
     shall be made public pursuant to this provision in accordance 
     with the effective dates set forth in such regulations.

  G. Low-Income Taxpayer Clinics (sec. 361 of the House bill and sec. 
                     3601 of the Senate amendment)

                              Present Law

       There are no provisions in present law providing for 
     assistance to clinics that assist low-income taxpayers.

                               House Bill

       The House bill provides that the Secretary is authorized to 
     provide up to $3,000,000 per year in matching grants to 
     certain low-income taxpayer clinics. No clinic could receive 
     more than $100,000 per year. Eligible clinics would be those 
     that charge no more than a nominal fee to either represent 
     low-income taxpayers in controversies with the IRS or provide 
     tax information to individuals for whom English is a second 
     language.
       A ``clinic'' includes (1) a clinical program at an 
     accredited law school, in which students represent low-income 
     taxpayers, or (2) an organization exempt from tax under Code 
     section 501(c) which either represents low-income taxpayers 
     or provides referral to qualified representatives.
       Effective date.--Date of enactment.

                            Senate Amendment

       The Senate amendment is the same as the House bill, except 
     that the Secretary is authorized to provide up to $6,000,000 
     per year in matching grants. A clinic also includes an 
     accredited business school or an accredited accounting 
     school. Grants can also be made to volunteer income tax 
     assistance programs. Grants can also be made to training and 
     technical assistance programs, up to 7.5 percent of total 
     amount available for grants, and without regard to the 
     $100,000 per clinic per year limitation.
       Effective date.--Same as the House bill.

                          Conference Agreement

       The conference agreement follows the House bill, except 
     that the overall limit is $6,000,000 and clinical programs at 
     accredited business schools or accounting schools would be 
     eligible for grants.

                          H. Other Provisions

     1. Cataloging complaints (sec. 372 of the House bill and sec. 
         3701 of the Senate amendment)

                              Present Law

       The IRS is required to make an annual report to the 
     Congress, beginning in 1997, on all categories of instances 
     involving allegations of misconduct by IRS employees, arising 
     either from internally identified cases or from taxpayer or 
     third-party initiated complaints. The report must identify 
     the nature of the misconduct or complaint, the number of 
     instances received by category, and the disposition of the 
     complaints.

                               House Bill

       The provision requires that, in collecting data for this 
     report, records of taxpayer complaints of misconduct by IRS 
     employees must be maintained on an individual employee basis. 
     These individual records are not to be listed in the report.
       Effective date.--Date of enactment.

                            Senate Amendment

       Same as the House bill.

                          Conference Agreement

       The conference agreement follows the House bill and the 
     Senate amendment.
       Effective date.--January 1, 2000.
     2. Archive of records of Internal Revenue Service (sec. 373 
         of the House bill and sec. 3702 of the Senate amendment)

                              Present Law

       The IRS is obligated to transfer agency records to the 
     National Archives and Records Administration (``NARA'') for 
     retention or disposal. The IRS is also obligated to protect 
     confidential taxpayer records from disclosure. These two 
     obligations have created conflict between NARA and the IRS. 
     Under present law, the IRS determines whether records contain 
     taxpayer information. Once the IRS has made that 
     determination, NARA is not permitted to examine those 
     records. NARA has expressed concern that the IRS may be using 
     the disclosure prohibition to improperly conceal agency 
     records with historical significance.
       The Internal Revenue Code prohibits disclosure of tax 
     returns and return information, except to the extent 
     specifically authorized by the Internal Revenue Code (sec. 
     6103). Unauthorized disclosure is a felony punishable by a 
     fine not exceeding $5,000 or imprisonment of not more than 
     five years, or both (sec. 7213). An action for civil damages 
     also may be brought for unauthorized disclosure (sec. 7431). 
     Section 6103 does not authorize the disclosure of 
     confidential return information to NARA.

                               House Bill

       The House bill provides an exception to the disclosure 
     rules to require IRS to disclose IRS records to officers or 
     employees of NARA, upon written request from the U.S. 
     Archivist, for purposes of the appraisal of such records for 
     destruction or retention. The present-law prohibitions on and 
     penalties for disclosure of tax information would generally 
     apply to NARA.
       Effective date.--Effective for requests made by the 
     Archivist after the date of enactment.

                            Senate Amendment

       Same as the House bill.

                          Conference Agreement

       The conference agreement follows the House bill and the 
     Senate amendment.
     3. Payment of taxes (sec. 374 of the House bill and sec. 3703 
         of the Senate amendment)

                              Present Law

       The Code provides that it is lawful for the Secretary to 
     accept checks or money orders as payment for taxes, to the 
     extent and under the conditions provided in regulations 
     prescribed by the Secretary (sec. 6311). Those regulations 
     state that checks or money orders should be made payable to 
     the Internal Revenue Service.

                               House Bill

       The House bill requires the Secretary or his delegate to 
     establish such rules, regulations, and procedures as are 
     necessary to allow payment of taxes by check or money order 
     to be made payable to the United States Treasury.
       Effective date.--Date of enactment.

                            Senate Amendment

       Same as the House bill.

                          Conference Agreement

       The conference agreement follows the House bill and the 
     Senate amendment.
     4. Clarification of authority of Secretary relating to the 
         making of elections (sec. 375 of the House bill and sec. 
         3704 of the Senate amendment)

                              Present Law

       Except as otherwise provided, elections provided by the 
     Code are to be made in such manner as the Secretary shall by 
     regulations or forms prescribe.

                               House Bill

       The provision clarifies that, except as otherwise provided, 
     the Secretary may prescribe the manner of making of any 
     election by any reasonable means.
       Effective date.--Date of enactment.

                            Senate Amendment

       Same as the House bill.

                          Conference Agreement

       The conference agreement follows the House bill and the 
     Senate amendment.
     5. IRS employee contacts (sec. 3705 of the Senate amendment)

                              Present Law

       The IRS sends many different notices to taxpayers. Some 
     (but not all) of these notices contain a name and telephone 
     number of an IRS employee whom the taxpayer may call if the 
     taxpayer has any questions.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment requires that all IRS notices and 
     correspondence contain a name and telephone number of an IRS 
     employee whom the taxpayer may call. In addition, to the 
     extent practicable and advantageous to the taxpayer, the IRS 
     should assign one employee to handle a matter with respect to 
     a taxpayer until that matter is resolved.
       The Senate amendment also requires that all IRS telephone 
     helplines provide an option for any taxpayer questions to be 
     answered in Spanish.
       Further, the Senate amendment requires that all IRS 
     telephone helplines provide an option for any taxpayer to 
     talk to a live person in addition to hearing a recorded 
     message. That person can then direct the taxpayer to other 
     IRS personnel who can provide understandable information to 
     the taxpayer.
       Effective date.--Effective January 1, 2000.

                          Conference Agreement

       The conference agreement generally follows the Senate 
     amendment, with modifications. Any manually generated 
     correspondence received by a taxpayer from the IRS must 
     include in a prominent manner the name, telephone number, and 
     unique identifying number of an IRS employee the taxpayer may 
     contact with respect to the correspondence. Any other 
     correspondence or notice received by a taxpayer from the IRS 
     must include in a prominent manner a telephone number that 
     the taxpayer may contact. An IRS employee must give a 
     taxpayer during a telephone or personal contact the 
     employee's name and unique identifying number. The 
     requirements pertaining to a unique identifying number are 
     effective six months after the date of enactment.

[[Page H5179]]

     6. Use of pseudonyms by IRS employees (sec. 3706 of the 
         Senate amendment)

                              Present Law

       The Federal Service Impasses Panel has ruled that if an 
     employee believes that use of the employee's last name only 
     will identify the employee due to the unique nature of the 
     employee's last name, and/or nature of the office locale, 
     then the employee may ``register'' a pseudonym with the 
     employee's supervisor.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment provides that an IRS employee may use 
     a pseudonym only if (1) adequate justification, such as 
     protecting personal safety, for using the pseudonym was 
     provided by the employee as part of the employee's request, 
     and (2) management has approved the request to use the 
     pseudonym prior to its use.
       Effective date.--Requests made after the date of enactment.

                          Conference Agreement

       The conference agreement follows the Senate amendment.
     7. Conferences of right in the National Office of IRS (sec. 
         3707 of the Senate amendment)

                              Present Law

       In any matter involving the submission of a substantive 
     legal matter involving a specific taxpayer to the National 
     Office of the IRS, the taxpayer is entitled to at least one 
     conference (the ''conference of right'') at which it can 
     explain its position.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment gives a taxpayer the right to limit 
     participation in its conference of right to IRS national 
     office personnel.
       Effective date.--Requests made after the date of enactment.

                          Conference Agreement

       The conference agreement does not include the Senate 
     amendment.
     8. Illegal tax protester designations (sec. 3708 of the 
         Senate amendment)

                              Present Law

       The IRS designates individuals who meet certain criteria as 
     ``illegal tax protesters'' in the IRS master file.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment prohibits the use by the IRS of the 
     ``illegal tax protester'' designation. Any extant designation 
     in the individual master file (the main computer file) must 
     be removed and any other extant designation (such as on paper 
     records that have been archived) must be disregarded. The IRS 
     is, however, permitted to designate appropriate taxpayers as 
     nonfilers. The IRS must remove the nonfiler designation once 
     the taxpayer has filed valid tax returns for two consecutive 
     years and paid all taxes shown on those returns.
       Effective date.--Date of enactment, except that the removal 
     of any designation from the master file, is not required to 
     begin before January 1, 1999.

                          Conference Agreement

       The conference agreement follows the Senate amendment. 
     While this provision prohibits the use by the IRS of the 
     ``illegal tax protester'' designation, it does allow the IRS 
     to continue its current practice of tracking ``potentially 
     dangerous taxpayers.'' The conferees recognize the potential 
     hazards connected with the assessment and collection of 
     taxes, and this provision is not intended to jeopardize the 
     safety of IRS employees. Accordingly, if the IRS needs to 
     implement additional procedures, such as the maintenance of 
     appropriate records, in connection with this provision so as 
     to ensure IRS employees' safety, it has the authority to do 
     so.
     9. Provision of confidential information to Congress by 
         whistleblowers (sec. 3709 of the Senate amendment)

                              Present Law

       Tax return information generally may not be disclosed, 
     except as specifically provided by statute. The Secretary of 
     the Treasury may furnish tax return information to the Senate 
     Committee on Finance, the House Committee on Ways and Means, 
     and the Joint Committee on Taxation upon a written request 
     from the chairmen of such committees. If the information can 
     be associated with, or otherwise identify, directly or 
     indirectly, a particular taxpayer, the information may be 
     furnished to the committee only while sitting in closed 
     executive session unless such taxpayer otherwise consents in 
     writing to such disclosure.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment allows any person who is (or was) 
     authorized to receive confidential tax return information to 
     disclose tax return information directly to the Chairman of 
     the Senate Committee on Finance, the Chairman of the House 
     Committee on Ways and Means, or the Chief of Staff of the 
     Joint Committee on Taxation provided: (1) such disclosure is 
     for the purpose of disclosing an incident of IRS employee or 
     taxpayer abuse, and (2) the Chairman of the committee to 
     which the information will be disclosed gives prior approval 
     for the disclosure in writing.
       Effective date.--Date of enactment.

                          Conference Agreement

       The conference agreement provides that any person (i.e., a 
     whistleblower) who otherwise has or had access to any return 
     or return information under section 6103 may disclose such 
     return or return information to the House Ways and Means 
     Committee, the Senate Finance Committee, or the Joint 
     Committee on Taxation or to any individual authorized by one 
     of those committees to receive or inspect any return or 
     return information if such person (the whistleblower) 
     believes such return or return information may relate to 
     evidence of possible misconduct, maladministration, or 
     taxpayer abuse. Disclosure to one of these committees could 
     be made either to the Chairman or to the full committee 
     (sitting in closed executive session), but would not be 
     permitted to be made to an individual Member of Congress 
     (unless explicitly authorized as an agent). No inference is 
     intended that such whistleblower disclosures are not 
     permitted under present law.
       Effective date.--Date of enactment.
     10. Listing of local IRS telephone numbers and addresses 
         (sec. 3710 of the Senate amendment)

                              Present Law

       The IRS is not statutorily required to publish the local 
     telephone number or address of its local offices.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment requires the IRS, as soon as is 
     practicable but no later than 180 days after the date of 
     enactment, to publish addresses and local telephone numbers 
     of local IRS offices in appropriate local telephone 
     directories.
       Effective date.--Date of enactment.

                          Conference Agreement

       The conference agreement generally follows the Senate 
     amendment. The conferees intend that (1) the IRS not be 
     required to publish in more than one directory in any local 
     area and (2) publication in alternate language directories is 
     permissible.
       Effective date.--As soon as is practicable.
     11. Identification of return preparers (sec. 3711 of the 
         Senate amendment)

                              Present Law

       Any return or claim for refund prepared by an income tax 
     return preparer must bear the social security number of the 
     return preparer, if such preparer is an individual.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment authorizes the IRS to approve 
     alternatives to social security numbers to identify tax 
     return preparers.
       Effective date.--Date of enactment.

                          Conference Agreement

       The conference agreement follows the Senate amendment.
     12. Offset of past-due, legally enforceable State income tax 
         obligations against overpayments (sec. 3712 of the Senate 
         amendment)

                              Present Law

       Overpayments of Federal tax may be used to pay past-due 
     child support and debts owed to Federal agencies, without the 
     consent of the taxpayer. Such amount for past-due child 
     support may be paid directly to a State. Present law provides 
     that offsets are made in the following priority: (1) child 
     support and (2) other Federal debts, in the order in which 
     such debts accrued.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment permits States to participate in the 
     IRS refund offset program for specified past-due, legally 
     enforceable State income tax debts, providing the person 
     making the Federal tax overpayment has shown on the Federal 
     return for the taxable year of the overpayment an address 
     that is within the State seeking the tax offset. The offset 
     applies after the offsets provided in present law for 
     internal revenue tax liabilities, past-due support, and past-
     due, legally enforceable obligations owed a Federal agency. 
     The offset occurs before the designation of any refund toward 
     future Federal tax liability.
       Effective date.--Federal income tax refunds payable after 
     December 31, 1998.

                          Conference Agreement

       The conference agreement follows the Senate amendment, with 
     technical modifications. The provision permits the Secretary 
     to prescribe additional conditions (pursuant to new section 
     6402(e)(4)(D)) to ensure that the determination is valid that 
     the State or local income tax liability is past-due and 
     legally enforceable. The conferees intend that this include 
     consideration of questions that may arise as a result of the 
     taxpayer being a Native American.
       Effective date.--Federal income tax refunds payable after 
     December 31, 1999.
     13. Moratorium regarding regulations under Notice 98-11 (sec. 
         3713(a)(1) of the Senate amendment)

                              Present Law

     Overview
       U.S. citizens and residents and U.S. corporations are taxed 
     currently by the United

[[Page H5180]]

     States on their worldwide income, subject to a credit against 
     U.S. tax on foreign-source income for foreign income taxes 
     paid with respect to such income. A foreign corporation 
     generally is not subject to U.S. tax on its income from 
     operations outside the United States.
       Income of a foreign corporation generally is taxed by the 
     United States when it is repatriated to the United States 
     through payment to the corporation's U.S. shareholders, 
     subject to a foreign tax credit. However, various regimes 
     imposing current U.S. tax on income earned through a foreign 
     corporation are reflected in the Code. One anti-deferral 
     regime set forth in the Code is the controlled foreign 
     corporation rules of subpart F (secs. 951-964).
       A controlled foreign corporation (``CFC'') is defined 
     generally as any foreign corporation if U.S. persons own more 
     than 50 percent of the corporation's stock (measured by vote 
     or value), taking into account only those U.S. persons that 
     own at least 10 percent of the stock (measured by vote only) 
     (sec. 957). Stock ownership includes not only stock owned 
     directly, but also stock owned indirectly or constructively 
     (sec. 958).
       The United States generally taxes the U.S. 10-percent 
     shareholders of a CFC currently on their pro rata shares of 
     certain income of the CFC (so-called ``subpart F income'') 
     (sec. 951). In effect, the Code treats those shareholders as 
     having received a current distribution out of the CFC's 
     subpart F income. Such shareholders also are subject to 
     current U.S. tax on their pro rata shares of the CFC's 
     earnings invested in U.S. property (sec. 951). The foreign 
     tax credit may reduce the U.S. tax on these amounts.
       Subpart F income includes, among other items, foreign base 
     company income (sec. 952). Foreign base company income, in 
     turn, includes foreign personal holding company income, 
     foreign base company sales income, foreign base company 
     services income, foreign base company shipping income and 
     foreign base company oil related income (sec. 954). Foreign 
     personal holding company income includes, among other items, 
     dividends, interest, rents, and royalties. An exception from 
     foreign personal holding company income applies to certain 
     dividends and interest received from a related person which 
     is created or organized in the same country as the CFC and 
     which has a substantial part of its assets in that country, 
     and to certain rents and royalties received from a related 
     person for the use of property in the same country in which 
     the CFC was created or organized (the so-called ``same-
     country exception'').
       Foreign base company sales income includes income derived 
     by a CFC from certain related-party transactions, including 
     the purchase of personal property from a related person and 
     its sale to any person, the purchase of personal property 
     from any person and its sale to a related person, and the 
     purchase or sale of personal property on behalf of a related 
     person, where the property which is purchased or sold is 
     manufactured outside the country in which the CFC was created 
     or organized and the property is purchased or sold for use or 
     consumption outside such foreign country. A special branch 
     rule applies for purposes of determining a CFC's foreign base 
     company sales income. Under this rule, a branch of a CFC is 
     treated as a separate corporation (only for purposes of 
     determining the CFC's foreign base company sales income) 
     where the activities of the CFC through the branch outside 
     the CFC's country of incorporation have substantially the 
     same effect as if such branch were a subsidiary.
       Because of differences in U.S. and foreign laws, it is 
     possible for a taxpayer to enter into transactions that are 
     treated in one manner for U.S. tax purposes and in another 
     manner for foreign tax purposes. These transactions are 
     referred to as hybrid transactions. For example, a hybrid 
     transaction may involve the use of an entity that is treated 
     as a corporation for purposes of the tax law of one 
     jurisdiction but is treated as a branch or partnership for 
     purposes of the tax law of another jurisdiction.
     Notice 98-11 and the regulations issued thereunder
       Notice 98-11, issued on January 16, 1998, addressed the 
     treatment of hybrid branches under the subpart F provisions 
     of the Code. The Notice stated that the Treasury Department 
     and the Internal Revenue Service have concluded that the use 
     of certain arrangements involving hybrid branches is contrary 
     to the policy and rules of subpart F. The hybrid branch 
     arrangements identified in Notice 98-11 involve structures 
     that are characterized for U.S. tax purposes as part of a CFC 
     but are characterized for purposes of the tax law of the 
     country in which the CFC is incorporated as a separate 
     entity. The Notice stated that regulations will be issued to 
     prevent the use of hybrid branch arrangements to reduce 
     foreign tax while avoiding the corresponding creation of 
     subpart F income. The Notice stated that such regulations 
     will provide that the branch and the CFC will be treated as 
     separate corporations for purposes of subpart F. The Notice 
     also stated that similar issues raised under subpart F by 
     certain partnership or trust arrangements will be addressed 
     in separate regulation projects.
       On March 23, 1998, temporary and proposed regulations were 
     issued to address the issues raised in Notice 98-11 and to 
     address certain partnership and other issues raised under 
     subpart F. Under the regulations, certain payments between a 
     CFC and its hybrid branch or between hybrid branches of the 
     CFC (so-called ``hybrid branch payments'') are treated as 
     giving rise to subpart F income. The regulations generally 
     provide that non-subpart F income of the CFC, in the amount 
     of the hybrid branch payment, is recharacterized as subpart F 
     income of the CFC if: (1) the hybrid branch payment reduces 
     the foreign tax of the payor, (2) the hybrid branch payment 
     would have been foreign personal holding company income if 
     made between separate CFCs, and (3) there is a disparity 
     between the effective tax rate on the payment in the hands of 
     the payee and the effective tax rate that would have applied 
     if the income had been taxed in the hands of the payor. The 
     regulations also apply to other hybrid branch arrangements 
     involving a partnership, including a CFC's proportionate 
     share of any hybrid branch payment made between a partnership 
     in which the CFC is a partner and a hybrid branch of the 
     partnership or between hybrid branches of such a partnership. 
     Under the regulations, if a partnership is treated as 
     fiscally transparent by the CFC's taxing jurisdiction, the 
     recharacterization rules are applied by treating the hybrid 
     branch payment as if it had been made directly between the 
     CFC and the hybrid branch, or as if the hybrid branches of 
     the partnership were hybrid branches of the CFC, as 
     applicable. If the partnership is treated as a separate 
     entity by the CFC's taxing jurisdiction, the 
     recharacterization rules are applied to treat the 
     partnership as if it were a CFC.
       The regulations also address the application of the same-
     country exception to the foreign personal holding company 
     income rules under subpart F in the case of certain hybrid 
     branch arrangements. Under the regulations, the same-country 
     exception applies to payments by a CFC to a hybrid branch of 
     a related CFC only if the payment would have qualified for 
     the exception if the hybrid branch had been a separate CFC 
     incorporated in the jurisdiction in which the payment is 
     subject to tax (other than a withholding tax). The 
     regulations provide additional rules regarding the 
     application of the same-country exception in the case of 
     certain hybrid arrangements involving a partnership.
       The regulations generally apply to amounts paid or accrued 
     pursuant to hybrid branch arrangements entered into or 
     substantially modified on or after January 16, 1998. As a 
     result, the regulations generally do not apply to amounts 
     paid or accrued pursuant to hybrid branch arrangements 
     entered into before January 16, 1998 and not substantially 
     modified on or after that date.
       In the case of certain hybrid arrangements involving 
     partnerships, the regulations generally apply to amounts paid 
     or accrued pursuant to such arrangements entered into or 
     substantially modified on or after March 23, 1998. As a 
     result, the regulations generally do not apply to amounts 
     paid or accrued pursuant to such arrangements entered into 
     before March 23, 1998 and not substantially modified on or 
     after that date.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment provides that no temporary or final 
     regulations with respect to Notice 98-11 may be implemented 
     prior to six months after the date of enactment of this 
     provision. This moratorium applies to the regulations with 
     respect to hybrid branches and to the regulations with 
     respect to hybrid arrangements involving partnerships. It is 
     intended that the moratorium delaying implementation of the 
     regulations would not require a modification to the effective 
     dates of the regulations. No inference is intended regarding 
     the authority of the Department of the Treasury or the 
     Internal Revenue Service to issue the Notice or the 
     regulations.
       Effective date.--Date of enactment.

                          Conference Agreement

       The conference agreement does not include the Senate 
     amendment. The conferees have agreed not to include the 
     Senate amendment because the Department of the Treasury has 
     withdrawn Notice 98-11 and has announced its intention to 
     withdraw the temporary and proposed regulations issued under 
     Notice 98-11, and to reissue regulations in proposed form to 
     be finalized no earlier than January 1, 2000. See Notice 98-
     35, 1998-26 I.R.B. 1. The conferees expect that the Congress 
     will consider the international tax policy issues relating to 
     the treatment of hybrid transactions under the subpart F 
     provisions of the Code, and will consider taking legislative 
     action as deemed appropriate. In this regard, the conferees 
     expect that the Congress will consider the impact of any 
     legislation or administrative guidance in this area on 
     affected taxpayers and industries. The conferees strongly 
     recommend that the Department of the Treasury also take into 
     account the impact of any administrative guidance in this 
     area on affected taxpayers and industries. No inference is 
     intended regarding the authority of the Department of the 
     Treasury or the Internal Revenue Service to issue the Notice 
     or the regulations, or to issue any other notice or 
     regulation which reaches the same or similar results with 
     respect to the treatment of hybrid transactions under subpart 
     F.
     14. Sense of the Senate regarding Notices 98-5 and 98-11 
         (secs. 3713(a)(2) and (b) of the Senate amendment)

                              Present Law

     Overview
       U.S. citizens and residents and U.S. corporations are taxed 
     currently by the United

[[Page H5181]]

     States on their worldwide income. U.S. persons may credit 
     foreign taxes against U.S. tax on foreign-source income. The 
     amount of foreign tax credits that can be claimed in a year 
     is subject to a limitation that prevents taxpayers from using 
     foreign tax credits to offset U.S. tax on U.S.-source income. 
     Separate limitations are applied to specific categories of 
     income.
       A foreign corporation generally is not subject to U.S. tax 
     on its income from operations outside the United States. 
     Income of a foreign corporation generally is taxed by the 
     United States when it is repatriated to the United States 
     through payment to the corporation's U.S. shareholders, 
     subject to a foreign tax credit. However, various regimes 
     imposing current U.S. tax on income earned through a foreign 
     corporation are reflected in the Code. One anti-deferral 
     regime set forth in the Code is the controlled foreign 
     corporation rules of subpart F (secs. 951-964).
       A controlled foreign corporation (``CFC'') is defined 
     generally as any foreign corporation if U.S. persons own more 
     than 50 percent of the corporation's stock (measured by vote 
     or value), taking into account only those U.S. persons that 
     own at least 10 percent of the stock (measured by vote only) 
     (sec. 957). Stock ownership includes not only stock owned 
     directly, but also stock owned indirectly or constructively 
     (sec. 958).
       The United States generally taxes the U.S. 10-percent 
     shareholders of a CFC currently on their pro rata shares of 
     certain income of the CFC (so-called ``subpart F income'') 
     (sec. 951). In effect, the Code treats those shareholders as 
     having received a current distribution out of the CFC's 
     subpart F income. Such shareholders also are subject to 
     current U.S. tax on their pro rata shares of the CFC's 
     earnings invested in U.S. property (sec. 951). The foreign 
     tax credit may reduce the U.S. tax on these amounts.
       Subpart F income includes, among other items, foreign base 
     company income (sec. 952). Foreign base company income, in 
     turn, includes foreign personal holding company income, 
     foreign base company sales income, foreign base company 
     services income, foreign base company shipping income and 
     foreign base company oil related income (sec. 954). Foreign 
     personal holding company income includes, among other items, 
     dividends, interest, rents, and royalties. An exception from 
     foreign personal holding company income applies to certain 
     dividends and interest received from a related person which 
     is created or organized in the same country as the CFC and 
     which has a substantial part of its assets in that country, 
     and to certain rents and royalties received from a related 
     person for the use of property in the same country in which 
     the CFC was created or organized (the so-called ``same-
     country exception'').
       Foreign base company sales income includes income derived 
     by a CFC from certain related-party transactions, including 
     the purchase of personal property from a related person and 
     its sale to any person, the purchase of personal property 
     from any person and its sale to a related person, and the 
     purchase or sale of personal property on behalf of a related 
     person, where the property which is purchased or sold is 
     manufactured outside the country in which the CFC was created 
     or organized and the property is purchased or sold for use or 
     consumption outside such foreign country. A special branch 
     rule applies for purposes of determining a CFC's foreign base 
     company sales income. Under this rule, a branch of a CFC is 
     treated as a separate corporation (only for purposes of 
     determining the CFC's foreign base company sales income) 
     where the activities of the CFC through the branch outside 
     the CFC's country of incorporation have substantially the 
     same effect as if such branch were a subsidiary.
       Because of differences in U.S. and foreign laws, it is 
     possible for a taxpayer to enter into transactions that are 
     treated in one manner for U.S. tax purposes and in another 
     manner for foreign tax purposes. These transactions are 
     referred to as hybrid transactions. For example, a hybrid 
     transaction may involve the use of an entity that is treated 
     as a corporation for purposes of the tax law of one 
     jurisdiction but is treated as a branch or partnership for 
     purposes of the tax law of another jurisdiction.
     Notices 98-5 and 98-11
       Notice 98-5, issued on December 23, 1997, addresses the 
     treatment of certain types of transactions under the foreign 
     tax credit provisions of the Code. The Notice states that the 
     Treasury Department and the Internal Revenue Service have 
     concluded that the use of certain transactions creates the 
     potential for foreign tax credit abuse. The Notice states 
     that such transactions typically involve either: (1) the 
     acquisition of an asset that generates an income stream 
     (e.g., royalties or interest) subject to a foreign 
     withholding tax, or (2) the effective duplication of tax 
     benefits through the use of certain structures designed to 
     exploit inconsistencies between U.S. and foreign tax laws. 
     The Notice includes five specific transactions as 
     illustrations of arrangements creating the potential for 
     foreign tax credit abuse. The Notice states that it is 
     intended that regulations will be issued to disallow foreign 
     tax credits for abusive transactions in cases where the 
     reasonably expected economic profit from the transaction is 
     insubstantial compared to the value of the foreign tax 
     credits expected to be obtained as a result of the 
     arrangement. The Notice further states that it is intended 
     that regulations generally will apply with respect to such 
     transactions for taxes paid or accrued on or after December 
     23, 1997. Regulations have not yet been issued under Notice 
     98-5.
       Notice 98-11, issued on January 16, 1998, addressed the 
     treatment of hybrid branches under the subpart F provisions 
     of the Code. The Notice stated that the Treasury Department 
     and the Internal Revenue Service have concluded that the use 
     of certain arrangements involving hybrid branches is contrary 
     to the policy and rules of subpart F. The hybrid branch 
     arrangements identified in Notice 98-11 involve structures 
     that are characterized for U.S. tax purposes as part of a CFC 
     but are characterized for purposes of the tax law of the 
     country in which the CFC is incorporated as a separate 
     entity. The Notice stated that regulations will be issued to 
     prevent the use of hybrid branch arrangements to reduce 
     foreign tax while avoiding the corresponding creation of 
     subpart F income. The Notice stated that such regulations 
     will provide that the branch and the CFC will be treated as 
     separate corporations for purposes of subpart F. The Notice 
     also stated that similar issues raised under subpart F by 
     certain partnership or trust arrangements will be addressed 
     in separate regulation projects.
       On March 23, 1998, temporary and proposed regulations were 
     issued to address the issues raised in Notice 98-11 and to 
     address certain partnership and other issues raised under 
     subpart F. Under the regulations, certain payments between a 
     CFC and its hybrid branch or between hybrid branches of the 
     CFC (so-called ``hybrid branch payments'') are treated as 
     giving rise to subpart F income. The regulations generally 
     provide that non-subpart F income of the CFC, in the amount 
     of the hybrid branch payment, is recharacterized as subpart F 
     income of the CFC if: (1) the hybrid branch payment reduces 
     the foreign tax of the payor, (2) the hybrid branch payment 
     would have been foreign personal holding company income if 
     made between separate CFCs, and (3) there is a disparity 
     between the effective tax rate on the payment in the hands of 
     the payee and the effective tax rate that would have applied 
     if the income had been taxed in the hands of the payor. The 
     regulations also apply to other hybrid branch arrangements 
     involving a partnership, including a CFC's proportionate 
     share of any hybrid branch payment made between a partnership 
     in which the CFC is a partner and a hybrid branch of the 
     partnership or between hybrid branches of such a partnership. 
     Under the regulations, if a partnership is treated as 
     fiscally transparent by the CFC's taxing jurisdiction, the 
     recharacterization rules are applied by treating the hybrid 
     branch payment as if it had been made directly between the 
     CFC and the hybrid branch, or as if the hybrid branches of 
     the partnership were hybrid branches of the CFC, as 
     applicable. If the partnership is treated as a separate 
     entity by the CFC's taxing jurisdiction, the 
     recharacterization rules are applied to treat the 
     partnership as if it were a CFC.
       The regulations also address the application of the same-
     country exception to the foreign personal holding company 
     income rules under subpart F in the case of certain hybrid 
     branch arrangements. Under the regulations, the same-country 
     exception applies to payments by a CFC to a hybrid branch of 
     a related CFC only if the payment would have qualified for 
     the exception if the hybrid branch had been a separate CFC 
     incorporated in the jurisdiction in which the payment is 
     subject to tax (other than a withholding tax). The 
     regulations provide additional rules regarding the 
     application of the same-country exception in the case of 
     certain hybrid arrangements involving a partnership.
       The regulations generally apply to amounts paid or accrued 
     pursuant to hybrid branch arrangements entered into or 
     substantially modified on or after January 16, 1998. As a 
     result, the regulations generally do not apply to amounts 
     paid or accrued pursuant to hybrid branch arrangements 
     entered into before January 16, 1998 and not substantially 
     modified on or after that date.
       In the case of certain hybrid arrangements involving 
     partnerships, the regulations generally apply to amounts paid 
     or accrued pursuant to such arrangements entered into or 
     substantially modified on or after March 23, 1998. As a 
     result, the regulations generally do not apply to amounts 
     paid or accrued pursuant to such arrangements entered into 
     before March 23, 1998 and not substantially modified on or 
     after that date.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment provides that it is the sense of the 
     Senate that the Department of the Treasury and the Internal 
     Revenue Service should withdraw Notice 98-11 and the 
     regulations issued thereunder, and that the Congress, and not 
     the Department of the Treasury or the Internal Revenue 
     Service, should determine the international tax policy issues 
     relating to the treatment of hybrid transactions under the 
     subpart F provisions of the Code.
       The Senate amendment further provides that it is the sense 
     of the Senate that the Department of the Treasury and the 
     Internal Revenue Service should limit any regulations issued 
     under Notice 98-5 to the specific transactions described 
     therein. In addition, such regulations should: (a) not affect 
     transactions undertaken in the ordinary course of business, 
     (b) not have an effective date any earlier than the date of 
     issuance of proposed regulations, and (c) be issued in 
     accordance

[[Page H5182]]

     with normal regulatory procedures which include an 
     opportunity for comment. Nothing in this sense of the Senate 
     should be construed to limit the ability of the Department of 
     the Treasury or the Internal Revenue Service to address 
     abusive transactions.
       Effective date.--Date of enactment.

                          Conference Agreement

     Notices 98-5 and 98-11
       The conference agreement does not include the Senate 
     amendment. The conferees are aware that the Department of the 
     Treasury has withdrawn Notice 98-11 and has announced its 
     intention to withdraw the temporary and proposed regulations 
     issued under Notice 98-11, and to reissue regulations in 
     proposed form to be finalized no earlier than January 1, 
     2000. See Notice 98-35, 1998-26 I.R.B. 1. The conferees 
     expect that the Congress will consider the international tax 
     policy issues relating to the treatment of hybrid 
     transactions under the subpart F provisions of the Code, and 
     will consider taking legislative action as deemed 
     appropriate. In this regard, the conferees expect that the 
     Congress will consider the impact of any legislation or 
     administrative guidance in this area on affected taxpayers 
     and industries. The conferees strongly recommend that the 
     Department of the Treasury also take into account the impact 
     of any administrative guidance in this area on affected 
     taxpayers and industries. No inference is intended regarding 
     the authority of the Department of the Treasury or the 
     Internal Revenue Service to issue the Notice or the 
     regulations, or to issue any other notice or regulation which 
     reaches the same or similar results with respect to the 
     treatment of hybrid transactions under subpart F.
       The conferees believe that regulations under Notice 98-5 
     should be issued in accordance with normal regulatory 
     procedures which include an opportunity for public comment. 
     The conferees acknowledge recent actions by the Department of 
     the Treasury to address legitimate taxpayer concerns 
     regarding Notice 98-5 without compromising the ability of the 
     Department of the Treasury or the Internal Revenue Service to 
     address abusive transactions.
       The conferees are concerned about the potential disruptive 
     effect of the issuance of an administrative notice that 
     describes general principles to be reflected in regulations 
     that will be issued in the future, but provides that such 
     future regulations will be effective as of the date of 
     issuance of the notice. The conferees strongly encourage the 
     Department of the Treasury and the Internal Revenue Service 
     to limit similar types of action in the future.
     Other matters
       The conferees are aware of the Department of the Treasury's 
     commitment to withdraw temporary and proposed regulations 
     issued on March 2, 1998, with respect to a special sourcing 
     rule under the foreign sales corporation provisions, and to 
     reinstate the rule contained in the prior temporary 
     regulations. See Temp. Treas. Reg. sec. 1.927(e)-1T, T.D. 
     8764 (March 2, 1998). In good faith reliance on this 
     commitment, the conferees are deferring action on this 
     issue at this time.
     15. Combined employment tax reporting demonstration project 
         (sec. 3715 of the Senate amendment)

                              Present Law

       Traditionally, Federal tax forms are filed with the Federal 
     government and State tax forms are filed with individual 
     States. This necessitates duplication of items common to both 
     returns.
       The Taxpayer Relief Act permitted implementation of a 
     demonstration project to assess the feasibility and 
     desirability of expanding combined reporting in the future. 
     There are several limitations on the demonstration project. 
     First, it is limited to the State of Montana and the IRS. 
     Second, it is limited to employment tax reporting. Third, it 
     is limited to disclosure of the name, address, TIN, and 
     signature of the taxpayer, which is information common to 
     both the Montana and Federal portions of the combined form. 
     Fourth, it is limited to a period of five years.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment authorizes a parallel demonstration 
     project with Iowa.
       Effective date.--Effective on the date of enactment and 
     will expire on the date five years after the date of 
     enactment.

                          Conference Agreement

       The conference agreement does not include the Senate 
     amendment.
     16. Reporting requirements relating to education tax credits 
         (sec. 3716 of the Senate amendment)

                              Present Law

       Individual taxpayers are allowed to claim a nonrefundable 
     HOPE credit against Federal income taxes up to $1,500 per 
     student per year for qualified tuition and related expenses 
     paid for the first two years of the student's post-secondary 
     education in a degree program. A Lifetime Learning credit 
     against Federal income taxes equal to 20 percent of qualified 
     expenses (up to a maximum credit of $1,000 per taxpayer 
     return for 1998 through 2002 and $2,000 per taxpayer return 
     after 2002) is also available. Qualified tuition and related 
     expenses do not include expenses covered by educational 
     assistance that is not required to be included in the gross 
     income of either the student or the taxpayer claiming the 
     credit (e.g., scholarship or fellowship grants).
       Code section 6050S requires information reporting by 
     eligible educational institutions which receive payments for 
     qualified tuition and related expenses, and certain other 
     persons who make reimbursement or refunds of qualified 
     tuition and related expenses, in order to assist students, 
     their parents, and the IRS in calculating the amount of the 
     HOPE and Lifetime Learning credits potentially available. 
     Section 6050S(b) provides that the annual information report 
     to the Secretary must be in the form prescribed by the 
     Secretary and must contain the following: (1) the name, 
     address, and taxpayer identification number (TIN) of the 
     individual which respect to whom the qualified tuition and 
     related expenses were received or the reimbursement or refund 
     was paid; (2) the name, address, and TIN of any individual 
     certified by the student as the taxpayer who will claim that 
     student as a dependent for purposes of the deduction under 
     section 151 for any taxable years ending with or within the 
     year for which the information return is filed; (3) the 
     aggregate amount of payments of qualified tuition and related 
     expenses received by the eligible educational institution and 
     the aggregate amount of reimbursements or refunds (or similar 
     amounts) paid during the calendar year with respect to the 
     student; and (4) such other information as the Secretary may 
     prescribe. Under section 6050S(d), an educational institution 
     also must provide to each person identified on the 
     information return submitted to the Secretary (e.g., the 
     student and his or her parent(s)) a written statement showing 
     the name, address, and phone number of the reporting person's 
     information contact, and the amounts set forth in (3) above.
       On December 22, 1997, the Department of Treasury issued 
     Notice 97-73 setting forth the information reporting 
     requirements under section 6050S for 1998. Notice 97-73 
     describes who must report information and the nature of the 
     information that must be reported for 1998. In general, the 
     required reporting under Notice 97-73 is more limited than 
     that which will ultimately be required under section 6050S 
     upon the issuance of final regulations. Accordingly, for 
     1998, educational institutions must report the following 
     information: (1) the name, address, and TIN of the 
     educational institution; (2) the name, address, and TIN of 
     the student with respect to whom payments of qualified 
     tuition and related expenses were received during 1998; (3) 
     an indication as to whether the student was enrolled for at 
     least half the full-time academic workload during any 
     academic period commencing in 1998; and (4) an indication as 
     to whether the student was enrolled exclusively in a program 
     or programs leading to a graduate-level degree, graduate-
     level certificate, or other recognized graduate-level 
     educational credential. Educational institutions must provide 
     to students the information listed above, as well as the 
     phone number of the information contact at the school. 
     Information returns must be provided to students by February 
     1, 1999 and filed with the IRS by March 1, 1999. Notice 97-73 
     states that until final regulations are adopted, no penalties 
     will be imposed under sections 6721 and 6722 for failure to 
     file correct information returns or to furnish correct 
     statements to the individuals with respect to 
     whom information reporting is required under section 
     6050S. In addition, Notice 97-73 states that, even after 
     final regulations are adopted, no penalties will be 
     imposed under sections 6721 and 6722 for 1998 if the 
     institution made a good faith effort to file information 
     returns and furnish statements in accordance with Notice 
     97-73.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment modifies the information reporting 
     requirements under section 6050S. In addition to reporting 
     the aggregate amount of payments for qualified tuition and 
     related expenses received by the educational institution with 
     respect to a student, the institution must report any grant 
     amount received by the student and processed through the 
     institution during the applicable calendar year. The 
     institution is not required to report on grant aid that is 
     paid directly to the student and is not processed through the 
     institution. In addition, an educational institution is 
     required to report only the aggregate amount of 
     reimbursements or refunds paid to a student by the 
     institution (and not by any other party).
       Effective date.--The provision applies to returns required 
     to be filed with respect to taxable years beginning after 
     December 31, 1998.

                          Conference Agreement

       The conference agreement follows the Senate amendment, but 
     includes certain additional clarifications intended to 
     minimize the reporting burdens imposed on educational 
     institutions while preserving the ability of the IRS to 
     monitor compliance with respect to the HOPE Scholarship and 
     Lifetime Learning credits. In particular, the conference 
     agreement clarifies that the definition of the term 
     ``qualified tuition and related expenses'' shall be as set 
     forth in section 25A, determined without regard to section 
     25A(g)(2) (which requires adjustments for certain 
     scholarships). Eligible educational institutions that receive 
     payments of qualified tuition and related expenses (or 
     reimburse or refund such payments) are required separately to 
     report the following items with respect to each student under

[[Page H5183]]

     section 6050S(b)(2)(C): (1) the aggregate amount of qualified 
     tuition and related expenses (not including certain expenses 
     relating to sports, games, or hobbies, or nonacademic fees); 
     (2) any grant amount (whether or not excludable from income) 
     received by such individual for payment of costs of 
     attendance and processed through the institution during the 
     applicable calendar year; and (3) the aggregate amount of 
     reimbursements or refunds (or similar amounts) paid to such 
     individual during the calendar year by the institution.
       The conferees understand that the Department of Treasury is 
     in the process of issuing regulatory guidance with respect to 
     the education credit reporting requirements. In developing 
     such guidance, the conferees urge Treasury to minimize the 
     reporting burdens imposed on educational institutions in 
     connection with the HOPE Scholarship and Lifetime Learning 
     credits. For example, section 472(1) of the Higher Education 
     Act contains a definition of tuition and fees that is used in 
     calculating a student's total ``cost of attendance.'' The 
     conferees urge Treasury to conform the definition of 
     ``qualified tuition and related expenses'' for purposes of 
     the HOPE Scholarship and Lifetime Learning credits to the 
     definition set forth in section 472(1) to the extent 
     possible, so as to minimize the additional reporting burden 
     on educational institutions.
       In general, the conferees expect that the regulatory 
     guidance regarding the education credit reporting 
     requirements will have an effective date that will provide 
     educational institutions with sufficient time, after any 
     notice and comment period, to implement additional required 
     reporting. In addition, although the provision generally 
     applies to taxable years beginning after December 31, 1998, 
     the conferees intend that no reporting beyond the reporting 
     currently required in Notice 97-73 would be required of 
     educational institutions until such final regulatory guidance 
     is available.
       In furtherance of the objective of minimizing the reporting 
     burden on educational institutions, the conferees note that, 
     pursuant to the regulatory authority granted in section 
     25A(i), Treasury may exempt educational institutions from the 
     reporting requirements with respect to certain categories of 
     students, such as non-degree students enrolled in a course 
     for which academic credit is not granted by the institution, 
     provided that such exemptions do not undermine the overall 
     compliance objectives of the provision. The conferees further 
     expect that Treasury will provide clarification regarding the 
     reasonable cause exception contained in section 6724(a) as it 
     may apply to the education information reporting 
     requirements. Finally, the conferees urge that any update and 
     modernization of IRS computer systems incorporate the 
     capacity to match a dependent's TIN with the return filed by 
     the person claiming the individual as a dependent.

                               I. Studies

     1. Administration of penalties and interest (sec. 381 of the 
         House bill and sec. 3801 of the Senate amendment)

                              Present Law

       The last major comprehensive revision of the overall 
     penalty structure in the Internal Revenue Code was the 
     ``Improved Penalty Administration and Compliance Tax Act,'' 
     enacted as part of the Omnibus Budget Reconciliation Act of 
     1989.

                               House Bill

       The House bill requires the Joint Committee on Taxation to 
     conduct a study reviewing the administration and 
     implementation of the penalty reform provisions of the 
     Omnibus Budget Reconciliation Act of 1989, and making any 
     legislative and administrative recommendations it deems 
     appropriate to simplify penalty administration and reduce 
     taxpayer burden.
       Effective date.--The report must be provided not later than 
     nine months after the date of enactment.

                            Senate Amendment

       The Senate amendment requires the Joint Committee on 
     Taxation and the Treasury to each conduct a separate study 
     reviewing the interest and penalty provisions of the Code, 
     and making any legislative and administrative recommendations 
     it deems appropriate to simplify penalty administration and 
     reduce taxpayer burden.
       Effective date.--The reports must be provided not later 
     than nine months after the date of enactment.

                          Conference Agreement

       The conference agreement follows the Senate amendment. The 
     conferees expect that the Joint Committee on Taxation and the 
     Treasury Department studies will examine whether the current 
     penalty and interest provisions encourage voluntary 
     compliance. The studies should also consider whether the 
     provisions operate fairly, whether they are effective 
     deterrents to undesired behavior, and whether they are 
     designed in a manner that promotes efficient and effective 
     administration of the provisions by the IRS. The conferees 
     expect that the Joint Committee on Taxation and the Treasury 
     Department will consider comments from taxpayers and 
     practitioners on issues relevant to the studies.
       Effective date.--The reports must be provided not later 
     than one year after the date of enactment.
     2. Confidentiality of tax return information (sec. 382 of the 
         House bill and sec. 3802 of the Senate amendment)

                              Present Law

       The Internal Revenue Code prohibits disclosure of tax 
     returns and return information, except to the extent 
     specifically authorized by the Internal Revenue Code. 
     Unauthorized disclosure is a felony punishable by a fine not 
     exceeding $5,000 or imprisonment of not more than five years, 
     or both. An action for civil damages also may be brought for 
     unauthorized disclosure. No tax information may be furnished 
     by the IRS to another agency unless the other agency 
     establishes procedures satisfactory to the IRS for 
     safeguarding the tax information it receives.

                               House Bill

       The House bill requires the Joint Committee on Taxation to 
     conduct a study on provisions regarding taxpayer 
     confidentiality. The study is to examine:
       (1) present-law protections of taxpayer privacy;
       (2) the need for third parties to use tax return 
     information; and
       (3) the ability to achieve greater levels of voluntary 
     compliance by allowing the public to know who is legally 
     required to file tax returns but does not do so.
       Effective date.--The findings of the study, along with any 
     recommendations, are required to be reported to the Congress 
     no later than one year after the date of enactment.

                            Senate Amendment

       The Senate amendment requires the Joint Committee on 
     Taxation and Treasury to each conduct a separate study on 
     provisions regarding taxpayer confidentiality. The studies 
     are to examine:
       (1) present-law protections of taxpayer privacy;
       (2) the need, if any, for third parties to use tax return 
     information;
       (3) whether greater levels of voluntary compliance can be 
     achieved by allowing the public to know who is legally 
     required to file tax returns but does not do so;
       (4) the interrelationship of the taxpayer confidentiality 
     provisions in the Internal Revenue Code with those elsewhere 
     in the United States Code (such as the Freedom of Information 
     Act);
       (5) whether return information should be disclosed to a 
     State unless the State has first notified personally in 
     advance each person with respect to whom information has been 
     requested; and
       (6) the impact on taxpayer privacy of sharing tax 
     information for the purposes of enforcing State and local tax 
     laws (other than income tax laws).
       Effective date.--Same as the House bill.

                          Conference Agreement

       The conference agreement generally follows the Senate 
     amendment. The conference agreement adds to the study an 
     examination of whether the public interest would be served by 
     greater disclosure of information relating to tax-exempt 
     organizations (described in section 501 of the Code). The 
     conference agreement deletes from the study an examination of 
     whether return information should be disclosed to a State 
     unless the State has first notified personally in advance 
     each person with respect to whom information has been 
     requested.
       Effective date.--The findings of the study, along with any 
     recommendations, are required to be reported to the Congress 
     no later than 18 months after the date of enactment.
     3. Study of transfer pricing enforcement (sec. 3803 of the 
         Senate amendment)

                              Present Law

       Section 482 authorizes the Secretary of the Treasury to 
     distribute, apportion or allocate gross income, deductions, 
     credits or allowances between or among commonly controlled 
     parties to prevent tax evasion or to clearly reflect income. 
     Regulations under section 482 generally provide for certain 
     transfer pricing methods that are used to determine whether 
     prices for transactions between or among commonly controlled 
     parties are based on arm's-length terms.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment directs the Internal Revenue Service 
     Oversight Board to undertake a study on whether the Internal 
     Revenue Service has the resources to prevent tax avoidance by 
     companies using unlawful transfer pricing methods. The Senate 
     amendment also directs the Internal Revenue Service to assist 
     in the study by analyzing its enforcement of transfer pricing 
     abuses, including the effectiveness of current enforcement 
     tools used to ensure compliance with section 482 and the 
     scope of nonpayment of U.S. taxes by reason of such abuses. 
     The findings of the study, including recommendations to 
     improve the Internal Revenue Service's enforcement tools to 
     ensure that multinational companies doing business in the 
     United States pay their fair share of U.S. taxes, are 
     required to be reported to the Congress no later than one 
     year after the date of enactment.
       Effective date.--Date of enactment.

                          Conference Agreement

       The conference agreement does not include the Senate 
     amendment.

[[Page H5184]]

     4. Noncompliance with internal revenue laws by taxpayers 
         (sec. 3804 of the Senate amendment)

                              Present Law

       No provision.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment provides that the Joint Committee on 
     Taxation, the Secretary of the Treasury and the Commissioner 
     of the Internal Revenue Service must jointly conduct a study 
     of taxpayers' willful noncompliance with the tax law. The 
     study must be reported to the Congress within one year of the 
     date of enactment.
       Effective date.--Date of enactment.

                          Conference Agreement

       The conference agreement follows the Senate amendment, with 
     clarifications that the study is to examine noncompliance 
     with the internal revenue laws by taxpayers (including 
     willful noncompliance and noncompliance due to tax law 
     complexity or other factors). Treasury and IRS are to conduct 
     the study, in consultation with the Joint Committee on 
     Taxation.
     5. Payments for informants (sec. 3714 of the Senate 
         amendment)

                              Present Law

       Under present law, rewards may be paid for information 
     relating to civil violations, as well as criminal violations. 
     Present law also provides that the rewards are paid out of 
     the proceeds of amounts (other than interest) collected by 
     reason of the information provided. An annual report on the 
     rewards program is required.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment requires a study and report by 
     Treasury to the Congress (within one year of the date of 
     enactment) of the present-law reward program (including 
     results) and any legislative or administrative 
     recommendations regarding the program and its application.
       Effective date.--Date of enactment.

                          Conference Agreement

       The conference agreement follows the Senate amendment.

           TITLE IV. CONGRESSIONAL ACCOUNTABILITY FOR THE IRS

 A. Review of Requests for GAO Investigations of the IRS (sec. 401 of 
                            the House bill)

                              Present Law

       There is currently no specific statutory requirement that 
     requests for investigations by the General Accounting Office 
     (``GAO'') relating to the IRS be reviewed by the Joint 
     Committee on Taxation (the ``Joint Committee''). However, 
     some of the studies that GAO conducts relating to taxation 
     and oversight of the IRS require access under section 6103 of 
     the Code to confidential tax returns and return information. 
     Under section 6103, the GAO may inform the Joint Committee of 
     its initiation of an audit of the IRS and obtain access to 
     confidential taxpayer information unless, within 30 days, \3/
     5\ths of the Members of the Joint Committee disapprove of the 
     audit. This provision has not been utilized; the GAO 
     generally seeks advance access to confidential taxpayer 
     return information from the Joint Committee.

                               House Bill

       Under the House bill, the Joint Committee on Taxation 
     reviews all requests (other than requests by the chair or 
     ranking member of a Committee or Subcommittee of the 
     Congress) for investigations of the IRS by the GAO and 
     approves such requests when appropriate. In reviewing such 
     requests, the Joint Committee is to eliminate overlapping 
     investigations, ensure that the GAO has the capacity to 
     handle the investigation, and ensure that investigations 
     focus on areas of primary importance to tax administration.
       The provision does not change the present-law rules under 
     section 6103.
       Effective date.--The House bill provision is effective with 
     respect to requests for GAO investigations made after the 
     date of enactment.

                            Senate Amendment

       No provision.

                          Conference Agreement

       The conference agreement follows the House bill. The 
     conferees intend that the provision exclude requests made by 
     the chairman or ranking member of a committee or 
     subcommittee, investigations required by statute, and work 
     initiated by GAO under its basic statutory authorities.
       Effective date.--Same as the House bill.

   B. Joint Congressional Hearings and Coordinated Oversight Reports 
                 (secs. 401 and 402 of the House bill)

                              Present Law

       Under the present Congressional committee structure, a 
     number of committees have jurisdiction with respect to IRS 
     oversight. The committees most responsible for IRS oversight 
     are the House Committees on Ways and Means, Appropriations, 
     Government Reform and Oversight, the corresponding Senate 
     Committees on Finance, Appropriations, and Governmental 
     Affairs, and the Joint Committee on Taxation. While these 
     Committees have a shared interest in IRS matters, they 
     typically act independently, and have separate hearings and 
     make separate investigations into IRS matters. Each committee 
     also has jurisdiction over certain issues. For example, the 
     House Ways and Means Committee and the Senate Finance 
     Committee have exclusive jurisdiction over changes to the tax 
     laws. Similarly, the House and Senate Appropriations 
     Committees have exclusive jurisdiction over IRS annual 
     appropriations. The Joint Committee does not have legislative 
     jurisdiction, but has significant responsibilities with 
     respect to tax matters and IRS oversight.

                               House Bill

       Under the House bill, there will be two annual joint 
     hearings of two majority and one minority members of each of 
     the Senate Committees on Finance, Appropriations, and 
     Governmental Affairs and the House Committees on Ways and 
     Means, Appropriations, and Government Reform and Oversight. 
     The first annual hearing is to take place before April 1 of 
     each calendar year and is to review the strategic plans and 
     budget for the IRS (including whether the budget supports IRS 
     objectives). The second annual hearing is to be held after 
     the conclusion of the annual tax filing season, and is to 
     review the progress of the IRS in meeting its objectives 
     under the strategic and business plans, the progress of the 
     IRS in improving taxpayer service and compliance, progress of 
     the IRS on technology modernization, and the annual filing 
     season. The bill does not modify the existing jurisdiction of 
     the Committees involved in the joint hearings.
       The House bill provides that the Joint Committee is to make 
     annual reports to the Committee on Finance and the Committee 
     on Ways and Means on the overall state of the Federal tax 
     system, together with recommendations with respect to 
     possible simplification proposals and other matters relating 
     to the administration of the Federal tax system as it may 
     deem advisable. The Joint Committee also is to report 
     annually to the Senate Committees on Finance, Appropriations, 
     and Governmental Affairs and the House Committees on Ways and 
     Means, Appropriations, and Government Reform and Oversight 
     with respect to the matters that are the subject of the 
     annual joint hearings of members of such Committees.
       Effective date.--The House bill provision is effective on 
     the date of enactment.

                            Senate Amendment

       No provision.

                          Conference Agreement

       The conference agreement follows the House bill, with 
     modifications. The conference agreement provides that there 
     will be one annual joint hearing to review: (1) the progress 
     of the IRS in meeting its objectives under the strategic and 
     business plans; (2) the progress of the IRS in improving 
     taxpayer service and compliance; (3) the progress of the IRS 
     on technology modernization; and (4) the annual filing 
     season. The joint review will be held at the call of the 
     Chairman of the Joint Committee on Taxation, and is to take 
     place before June 1 of each calendar year.
       In addition, the conference agreement modifies the House 
     bill provision requiring the Joint Committee on Taxation to 
     report on the overall state of the Federal tax system to 
     provide that such report shall be prepared once in each 
     Congress, but only if amounts necessary to carry out this 
     requirement are specifically appropriated to the Joint 
     Committee on Taxation.
       Effective date.--Same as House bill, except that the 
     requirement for an annual joint review, and report by the 
     Joint Committee on Taxation, shall apply only for calendar 
     years 1999-2003.

                           C. Budget Matters

     1. Funding for century date change (sec. 411 of the House 
         bill and sec. 4001 of the Senate amendment)

                              Present Law

       No specific provision.

                               House Bill

       The House bill provides that it is the sense of the 
     Congress that the IRS efforts to resolve the century date 
     change computing problems should be fully funded to provide 
     for certain resolution of such problems.
       Effective date.--The House bill provision is effective on 
     the date of enactment.

                            Senate Amendment

       The Senate amendment provides that it is the sense of the 
     Congress that the IRS should place resolving the century date 
     change computing problems as a high priority. The Senate 
     amendment also provides that the Commissioner shall 
     expeditiously submit a report to the Congress on the overall 
     impact of the Senate amendment on the ability of the IRS 
     to resolve the century date change computing problems and 
     on the provisions of the Senate amendment that will 
     require significant amounts of computer programming 
     changes prior to December 31, 1999, in order to carry out 
     the provisions.
       Effective date.--The Senate amendment provision is 
     effective on the date of enactment.

                          Conference Agreement

       The conference agreement follows the House bill and the 
     Senate amendment with respect to the Sense of the Congress 
     with respect to resolving the century date change conversion 
     problems. The conference agreement does not include the 
     Senate amendment provision requiring the Commissioner to 
     report to the Congress on the impact of the legislation on 
     the ability of the IRS to resolve century date change 
     problems.

[[Page H5185]]

       Effective date. Same as the House bill and Senate 
     amendment.
     2. Financial management advisory group (sec. 412 of the House 
         bill)

                              Present Law

       No provision.

                               House Bill

       The House bill directs the Commissioner to convene a 
     financial management advisory group consisting of individuals 
     with expertise in governmental accounting and auditing from 
     both the private sector and the Government to advise the 
     Commissioner on financial management issues.
       Effective date.--The House bill provision is effective on 
     the date of enactment.

                            Senate Amendment

       No provision.

                          Conference Agreement

       The conference agreement does not include the House bill 
     provision. However, the conferees expect that the Chairman of 
     the Oversight Board will consider establishing a financial 
     management subcommittee to advise the Commissioner on 
     financial management issues.

  D. Tax Law Complexity Analysis (sec. 421 and 422 of the House bill, 
                   sec. 4002 of the Senate amendment)

                              Present Law

       Present law does not require a formal complexity analysis 
     with respect to changes to the tax laws.

                               House Bill

       Role of the IRS.--The House bill provides that it is the 
     sense of the Congress that the IRS should provide the 
     Congress with an independent view of tax administration and 
     that the tax-writing committees should hear from front-line 
     technical experts at the IRS during the legislative process 
     with respect to the administrability of pending amendments to 
     the Internal Revenue Code.
       Complexity analysis.--The House bill requires the staff of 
     the Joint Committee on Taxation to provide a ``Tax Complexity 
     Analysis'' for legislation reported by the Senate Committee 
     on Finance and the House Committee on Ways and Means and 
     conference reports amending the tax laws. The Tax Complexity 
     Analysis is to identify those provisions in the bill or 
     conference report that, as determined by the staff of the 
     Joint Committee, add significant complexity to the tax laws, 
     or provide significant simplification. The Complexity 
     Analysis is required to include a discussion of the basis for 
     the determination by the staff of the Joint Committee. It is 
     expected that, in general, the Complexity Analysis will be 
     limited to no more than 20 provisions. If the staff of the 
     Joint Committee determines that a bill or conference report 
     does not contain any provisions that add significant 
     complexity or simplification to the tax laws, then the 
     Complexity Analysis is to contain a statement to that effect.
       Factors that may be taken into account by the staff of the 
     Joint Committee in preparing the Complexity Analysis include 
     the following: (1) whether the provision is new, modifies or 
     replaces existing law, and whether hearings were held to 
     discuss the proposal and whether the IRS provided input as to 
     its administrability; (2) when the provision becomes 
     effective and corresponding compliance requirements on 
     taxpayers; (3) whether new IRS forms or worksheets are 
     needed, whether existing forms or worksheets must be 
     modified, and whether the effective date allows sufficient 
     time for the IRS to prepare such forms and educate taxpayers; 
     (4) necessity of additional interpretive guidance (e.g., 
     regulations, rulings, notices); (5) the extent to which the 
     proposal relies on concepts contained in existing law, 
     including definitions; (6) effect on existing record keeping 
     requirements and the activities of taxpayers, complexity of 
     calculations and likely behavioral response, and standard 
     business practices and resource requirements; (7) number, 
     type, and sophistication of affected taxpayers; and (8) 
     whether the proposal requires the IRS to assume 
     responsibilities not directly related to raising revenue 
     which could be handled through another Federal agency.
       The House bill requires the Commissioner to provide the 
     Joint Committee with such information as is necessary to 
     prepare each required Tax Complexity Analysis.
       A point of order arises with respect to the floor 
     consideration of a bill or conference report that does not 
     contain the required Complexity Analysis. The point of order 
     may be waived by a majority vote.
       Effective date.--The requirement of the House bill for a 
     Tax Complexity Analysis is effective with respect to 
     legislation considered on or after January 1, 1998.

                            Senate Amendment

       Role of the IRS.--The IRS is to report to the House Ways 
     and Means Committee and the Senate Finance Committee annually 
     regarding sources of complexity in the administration of the 
     Federal tax laws. Factors the IRS may take into account 
     include: (1) frequently asked questions by taxpayers; (2) 
     common errors made by taxpayers in filling out returns; (3) 
     areas of the law that frequently result in disagreements 
     between taxpayers and the IRS; (4) major areas in which there 
     is no or incomplete published guidance or in which the law is 
     uncertain; (5) areas in which revenue agents make frequent 
     errors in interpreting or applying the law; (6) impact of 
     recent legislation on complexity; (7) information regarding 
     forms, including a listing of IRS forms, the time it takes 
     for taxpayers to complete and review forms, the number of 
     taxpayers who use each form, and how the time required 
     changed as a result of recently enacted legislation; and (8) 
     recommendations for reducing complexity in the administration 
     of the Federal tax system.
       Complexity analysis with respect to current legislation.--
     The Senate amendment requires the Joint Committee on Taxation 
     (in consultation with the IRS and Treasury) to provide an 
     analysis of complexity or administrability concerns raised by 
     tax provisions of widespread applicability to individuals or 
     small businesses. The analysis is to be included in any 
     Committee Report of the House Ways and Means Committee or 
     Senate Finance Committee or Conference Report containing tax 
     provisions, or provided to the Members of the relevant 
     Committee or Committees as soon as practicable after the 
     report is filed. The analysis is to include: (1) an estimate 
     of the number and type of taxpayers affected; and (2) if 
     applicable, the income level of affected individual 
     taxpayers. In addition, such analysis should include, if 
     determinable, the following: (1) the extent to which existing 
     tax forms would require revision and whether a new form or 
     forms would be required; (2) whether and to what extent 
     taxpayers would be required to keep additional records; (3) 
     the estimated cost to taxpayers to comply with the provision; 
     (4) the extent to which enactment of the provision would 
     require the IRS to develop or modify regulatory guidance; (5) 
     whether and to what extent the provision can be expected to 
     lead to disputes between taxpayers and the IRS; and (6) how 
     the IRS can be expected to respond to the provision 
     (including the impact on internal training, whether the 
     Internal Revenue Manual would require revision, whether the 
     change would require reprogramming of computers, and the 
     extent to which the IRS would be required to divert or 
     redirect resources in response to the provision).
       Effective date.--The provision of the Senate amendment 
     requiring the Joint Committee on Taxation to provide a 
     complexity analysis is effective with respect to legislation 
     considered on or after January 1, 1999. The provision 
     requiring the IRS to report on sources of complexity is 
     effective on the date of enactment.

                          Conference Agreement

       Role of the IRS.--The conference agreement follows the 
     House bill and the Senate amendment. Under the conference 
     agreement, the Commissioner's report on complexity is to be 
     transmitted to the Congress not later than March 1 of each 
     year.
       Complexity analysis.--The conference agreement follows the 
     Senate amendment with a modification to provide that a point 
     of order arises in the House of Representatives with respect 
     to the floor consideration of a bill or conference report if 
     the required complexity analysis has not been completed. The 
     point of order may be waived by a majority vote. The point of 
     order is subject to the Constitutional right of each House of 
     the Congress to establish its own rules and procedures; thus, 
     such point of order may be changed at any time pursuant to 
     the procedures of the House of Representatives.
       The conferees intend that the complexity analysis be 
     prepared by the staff of the Joint Committee on Taxation, and 
     that it shall, to the extent feasible, be included in 
     committee or conference committee reports.
       Effective date. The provisions of the conference agreement 
     are effective for calendar years after 1998.

                     TITLE V. ADDITIONAL PROVISIONS

      A. Elimination of 18-Month Holding Period for Capital Gains

                              Present Law

       The Taxpayer Relief Act of 1997 Act (``the 1997 Act'') 
     provided lower capital gains rates for individuals. 
     Generally, the 1997 Act reduced the maximum rate on the 
     adjusted net capital gain of an individual from 28 percent to 
     20 percent and provided a 10-percent rate for the adjusted 
     net capital gain otherwise taxed at a 15-percent rate. The 
     ``adjusted net capital gain'' is the net capital gain 
     determined without regard to certain gain for which the 1997 
     Act provided a higher maximum rate of tax. The 1997 Act 
     retained the prior-law 28-percent maximum rate for net long-
     term capital gain attributable to the sale or exchange of 
     collectibles, certain small business stock to the extent the 
     gain is included in income, and property held more than one 
     year but not more than 18 months. In addition, the 1997 Act 
     provided a maximum rate of 25 percent for the long-term 
     capital gain attributable to depreciation from real estate 
     held more than 18 months. Beginning in 2001, lower rates of 8 
     and 18 percent will apply to the gain from certain property 
     held more than five years.

                               House Bill

       No provision.

                            Senate Amendment

       No provision.

                          Conference Agreement

       Under the conference agreement, property held more than one 
     year (rather than more than 18 months) will be eligible for 
     the 10-, 20-, and 25-percent capital gain rates provided by 
     the 1997 Act.
       Effective date.--The conference agreement applies to 
     amounts properly taken into account on or after January 1, 
     1998.

[[Page H5186]]

 B. Deductibility of Meals Provided for the Convenience of the Employer

                              Present Law

       In general, subject to several exceptions, only 50 percent 
     of business meals and entertainment expenses are allowed as a 
     deduction (sec. 274(n)). Under one exception, meals that are 
     excludable from employees' incomes as a de minimis fringe 
     benefit (sec. 132) are fully deductible by the employer.
       In addition, the courts that have considered the issue have 
     held that if substantially all of the meals are provided for 
     the convenience of the employer pursuant to section 119, the 
     cost of such meals is fully deductible because the employer 
     is treated as operating a de minimis eating facility within 
     the meaning of section 132(e)(2) (Boyd Gaming Corp. v. 
     Commissioner \1\ and Gold Coast Hotel & Casino v. I.R.S.\2\).
---------------------------------------------------------------------------
     \1\ 106 T.C. No. 19 (May 23, 1996).
     \2\ U.S. D.C. Nev. CV-5-94-1146-HDM(LRL) (September 26, 
     1996).
---------------------------------------------------------------------------

                               House Bill

       No provision.

                            Senate Amendment

       No provision.

                          Conference Agreement

       The bill provides that all meals furnished to employees at 
     a place of business for the convenience of the employer are 
     treated as provided for the convenience of the employer under 
     section 119 if more than one-half of employees to whom such 
     meals are furnished on the premises are furnished such meals 
     for the convenience of the employer under section 119. If 
     these conditions are satisfied, the value of all such meals 
     would be excludable from the employee's income and fully 
     deductible to the employer. No inference is intended as to 
     whether such meals are fully deductible under present law.
       Effective date.--The provision is effective for taxable 
     years beginning before, on, or after the date of enactment.

                       C. Normal Trade Relations

                              Present Law

       In the context of U.S. tariff legislation, section 251 of 
     the Trade Expansion Act of 1962 states the principle of 
     ``most-favored-nation'' (MFN) treatment, requiring tariff 
     treatment to be applied to all countries equally. 
     Specifically, the products of a country given MFN treatment 
     are subject to rates of duty found in column 1 of the 
     Harmonized Tariff Schedule (HTS) of the United States. 
     Products from countries not eligible for MFN treatment under 
     U.S. law are subject to higher rates of duty (found in column 
     2 of the HTS). Under current U.S. law, only six countries are 
     subject to column 2 treatment: Afghanistan, Cuba, Laos, 
     North Korea, Serbia and Montenegro, and Vietnam. The 
     remaining U.S. trading partners are subject to either 
     conditional or unconditional MFN treatment, or to even 
     more preferential rates than MFN under free trade 
     agreements (Israel, Canada, and Mexico) and under 
     unilateral grants of tariff preference (the Generalized 
     System of Preferences, the Caribbean Basin Initiative, and 
     the Andean Trade Preferences Act).

                               House Bill

       No provision.

                            Senate Amendment

       No provision.

                          Conference Agreement

       The provision would change the terminology used in U.S. 
     trade statutes from ``most-favored-nation'' (MFN) to ``normal 
     trade relations'' (NTR) in order to reflect more accurately 
     the nature of the trade relationship in question. The 
     legislation would not change the tariff treatment received by 
     any country.
       The Committee has long been concerned that the term ``most-
     favored-nation'' is a misnomer and does not accurately 
     reflect the nature of the trading relationship in question. 
     The terminology implies that a country receiving MFN is 
     somehow receiving treatment that is special or better than 
     what a country would normally receive. In reality, however, a 
     country receiving MFN receives nothing more than ordinary or 
     normal treatment. Only six countries receive treatment that 
     is less favorable than this normal treatment. In addition, 
     three countries actually receive tariff treatment that is 
     better than MFN because they participate in a free trade 
     agreement with the United States and numerous others receive 
     treatment more favorable than MFN under unilateral grants of 
     trade preference signifying that the ``most'' favored 
     terminology is misleading.
       The Committee believes that the MFN terminology has led to 
     confusion and a misunderstanding of Congressional and 
     Presidential action concerning the trade statutes. 
     Accordingly, the Subcommittee strongly believes that the 
     terminology should be changed to reflect the true nature of 
     the trading relationship: merely normal relations.
       The Committee does not intend that the change in 
     terminology from MFN to NTR have any affect whatsoever on the 
     meaning of any existing U.S. law or practice. It would not 
     change any procedures under existing law for granting or 
     removing MFN status. Rather, the new term is to have the same 
     meaning as MFN as is currently defined in domestic 
     legislation and international agreements and would not change 
     the tariff treatment granted by the United States to any of 
     its trading partners.

                  TITLE VI. TAX TECHNICAL CORRECTIONS

                               House Bill

       The House bill contains technical, clerical and conforming 
     amendments to the Taxpayer Relief Act of 1997 (the ``1997 
     Act'') and other recently enacted legislation. The provisions 
     generally are effective as if enacted in the original 
     legislation to which each provision relates.\1\
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     \1\ For a description of the House provisions, see H. Rept. 
     105-356 (H.R. 2645), October 29, 1997. The provisions of H.R. 
     2645, as reported by the House Committee on Ways and Means, 
     were included as an amendment (Title VI) to H.R. 2676, as 
     passed by the House on November 5, 1997.
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                            Senate Amendment

       The Senate amendment is the same as the House bill, with 
     the following modifications, additions, and deletion:
     1. Child Tax Credit Provisions of the 1997 Act
       Treatment of a portion of the child credit as a 
     supplemental child credit.--The Senate amendment modifies the 
     provision of the House bill intended to clarify the treatment 
     of a portion of the child credit as a supplemental child 
     credit under the earned income credit and an offsetting 
     reduction of the child credit. Specifically, the Senate 
     amendment clarifies the computation of the amount of the 
     child credit that is treated as a supplemental child credit. 
     Both the House bill and the Senate amendment clarify that 
     such treatment does not affect the total tax credits allowed 
     to the taxpayer or any other tax credit available to the 
     taxpayer.
     2. Education Incentives of the 1997 Act
       Education IRAs.--The Senate amendment adds provisions to: 
     (1) provide that the excise tax of section 4973 applies to 
     each year that an excess contribution remains in an education 
     IRA; (2) clarify that a beneficiary of an education IRA must 
     be a life-in-being; (3) clarify that the 10-percent excise 
     tax provided under section 530(d)(4) will not be imposed in 
     cases where a distribution from an education IRA is 
     includable in gross income solely because the taxpayer elects 
     the HOPE or Lifetime Learning credit with respect to the 
     beneficiary; (4) clarify that, in the event of the death of 
     the designated beneficiary, the balance remaining in an 
     education IRA may be distributed to any other beneficiary or 
     to the estate of the deceased designated beneficiary, and a 
     tax-free rollover of the account will be allowed if any 
     member of the family becomes the new beneficiary; and (5) 
     provide that if expenses are taken into account in 
     determining the amount of the exclusion under section 530 for 
     a distribution from an education IRA, then no deduction, 
     exclusion, or credit is allowed under the Code with respect 
     to such expenses.
       Student loan interest.--The Senate amendment adds a 
     provision to clarify that only a taxpayer who is required to 
     make interest payments under the terms of the loan may deduct 
     such payments as student loan interest.
       Enhanced deduction for corporate donations of computers.--
     The Senate amendment adds a provision to clarify the 
     requirements applicable to entities and organizations to 
     which computers may be donated for purposes of the enhanced 
     deduction.
       Qualified State tuition programs.--The Senate amendment 
     adds a provision that includes the original beneficiary's 
     spouse within the definition of ``member of the family.''
       Qualified zone academy bonds.--The Senate amendment adds a 
     provision that clarifies the treatment of the credit for 
     purposes of the estimated tax and overpayment rules.
     3. Savings Incentives of the 1997 Act
       Conversion of IRAs into Roth IRAs.--Under the Senate 
     amendment, in the case of conversions of IRAs into Roth IRAs, 
     the taxpayer is able to elect to have the amount converted 
     includible in income in the year of the conversion (or the 
     year of withdrawal if the conversion is accomplished through 
     a rollover) rather than ratably over 4 years. The Senate 
     amendment does not include the additional 10-percent 
     recapture tax applicable to premature withdrawals of amounts 
     to which the 4-year spread applies. Instead, under the Senate 
     amendment, if an individual elects application of the 4-year 
     spread and withdraws amounts before the entire amount of the 
     conversion has been included in income, the amount withdrawn 
     is includible in income (in addition to any amount required 
     to be included under the 4-year spread). In no case will the 
     amount includible under this provision exceed the amount 
     converted. The Senate amendment does not include the rules in 
     the House bill regarding separate accounts for converted 
     amounts and instead includes ordering rules for determining 
     the character of withdrawals from Roth IRAs.
       Under the Senate amendment, a new 5-year holding period for 
     determining whether distributions from a Roth IRA are 
     qualified distributions does not apply to converted amounts. 
     Thus, the 5-year holding period begins with the year for 
     which a contribution (including a rollover contribution) was 
     made.
       The Senate amendment also clarifies calculation of adjusted 
     gross income for purposes of applying the $100,000 adjusted 
     gross income (``AGI'') limit on individuals eligible to 
     convert IRAs to Roth IRAs. Under the Senate amendment, the 
     applicable AGI is AGI for the year of the distribution to 
     which the conversion relates. In addition, under the Senate 
     amendment, it is intended that in determining AGI, the 
     conversion amount (to

[[Page H5187]]

     the extent otherwise includible in AGI) is subtracted from 
     AGI for the year of the distribution.
       Penalty-free distributions for education expenses and 
     purchase of first homes.--The Senate amendment modifies the 
     provision in the House bill intended to prevent avoidance of 
     the 10-percent early withdrawal tax by providing that 
     hardship distributions from qualified cash or deferred 
     arrangements and tax-sheltered annuities are not eligible 
     rollover distributions (and not subject to 20-percent 
     withholding). The Senate amendment also modifies the 
     effective date of the House bill provision. The Senate 
     amendment is effective for distributions after December 31, 
     1998.
     4. Capital Gains Provisions of the 1997 Act
       The Senate amendment modifies two provisions of the House 
     bill to: (1) clarify the provision relating to the holding 
     period of positions in certain short sales and straddles; and 
     (2) provide that new section 1045 (relating to rollovers of 
     small business stock) applies to stock held by certain 
     partnerships with trusts as partners. The Senate amendment 
     adds a provision to clarify the amount of exclusion 
     applicable to the sale of a principal residence by a married 
     couple filing a joint return who do not qualify for the full 
     $500,000 exclusion.
     5. Alternative Minimum Tax Provisions of the 1997 Act
       The Senate amendment adds provisions that: (1) conform the 
     regular-tax election to use AMT depreciation to the changes 
     made to AMT depreciation by the 1997 Act; and (2) clarify the 
     eligibility of the small corporation exemption.
     6. Estate and Gift Tax Provisions of the 1997 Act
       The Senate amendment modifies the provisions of the House 
     bill to: (1) clarify the effective date for the generation-
     skipping exemption; (2) coordinate the unified credit and the 
     qualified family-owned business exclusion; and (3) clarify 
     the rules governing revaluation of gifts. The Senate 
     amendment also adds provisions that: (1) clarify the phaseout 
     range for the 5-percent surtax to phase out the benefits of 
     the unified credit and graduated rates; (2) clarify that 
     interests eligible for the family-owned business exclusion 
     must be passed to a qualified heir; (3) clarify the ''trade 
     or business'' requirement for the family-owned business 
     exclusion; (4) convert the family-owned business exclusion 
     into a deduction; (5) make other technical changes to items 
     cross-referenced in the family-owned business provision; and 
     (6) clarify the treatment of post-mortem conservation 
     contributions.
     7. D.C. Zone Incentives of the 1997 Act
       The Senate amendment adds provisions that clarify the 
     definitions of businesses and property eligible for special 
     incentives available with respect to the D.C. Zone. In 
     addition, the Senate amendment provides that the income 
     phase-out rules applicable to the D.C. first-time homebuyer 
     credit apply only in the year the credit is generated and not 
     in subsequent carryover years.
     8. Miscellaneous Provisions of the 1997 Act
       The Senate amendment adds provisions that: (1) clarify the 
     qualification of the reduced rate of tax on hard ciders; (2) 
     clarify the treatment of the tax paid by electing publicly 
     treated partnerships; (3) modify the depreciation limitation 
     of electric vehicles; and (4) modify the definition of ``non-
     Amtrak State'' for purposes of the Amtrak net operating loss 
     provision.
     9. Revenue-Increase Provisions of the 1997 Act
       The Senate amendment adds provisions that: (1) clarify that 
     the exception to the constructive sales rules for positions 
     with respect to straight debt instruments does not apply to 
     positions that are convertible into stock; (2) provide 
     coordination between the basis adjustment rules relating to 
     extraordinary dividends and similar rules applicable to 
     consolidated returns; (3) clarify the interaction of section 
     355 and rules relating to certain divisive transactions 
     involving asset contributions to a subsidiary; (4) clarify 
     the application of section 304 to certain international 
     transactions; (5) clarify the treatment of prepaid telephone 
     cards for telephone excise tax purposes; (6) modify the 
     unrelated business income tax rules applicable to second-tier 
     subsidiaries; (7) modify the interaction between section 
     901(k) and the foreign tax credit flow- through rules for 
     RICs; (8) clarify the treatment of additional covered lives 
     under a master contract for purposes of the effective date of 
     the provision relating to company owned life insurance; (9) 
     make a clerical amendment to the definition of wages under 
     the earned income credit; and (10) clarify the allocation of 
     basis of properties distributed by a partnership.
     10. Foreign Provisions of the 1997 Act
       The Senate amendment adds provisions that: (1) clarify the 
     treatment of PFIC option holders; (2) clarify the application 
     of PFIC mark-to-market rules to RICs; and (3) clarify the 
     interaction between the PFIC and other mark-to-market 
     regimes.
     11. Simplification Provisions of the 1997 Act
       The Senate amendment adds a provision that provides that 
     distributions from a REIT are deemed to first come from any 
     non-REIT earnings.
     12. Estate, Gift, and Trust Simplification Provisions of the 
         1997 Act
       The Senate amendment adds provisions that: (1) clarify the 
     treatment of revocable trusts for purposes of the generation-
     skipping transfer tax; and (2) provide regulatory authority 
     for simplified reporting of funeral trusts terminated during 
     the taxable year.
     13. Excise Tax Simplification Provisions of the 1997 Act
       The Senate amendment clarifies that the 1997 Act's 
     provision liberalizing rules for bulk importation of wine 
     applies only to alcohol that would qualify as a natural wine 
     if produced in the United States.
     14. Pension and Employee Benefits Provisions of the 1997 Act
       The Senate amendment adds a clarification to the scope of 
     the provision relating to the treatment of disability 
     payments made to public safety employees.
     15. Technical Corrections Relating to Other Legislation
       Adoption credit.--The Senate amendment adds a provision 
     that provides that the phase out rules applicable to the 
     adoption credit are not applicable to credit carryovers.
       Disclosure requirements of apostolic organizations.--The 
     Senate amendment adds a provision that provides that section 
     501(d) apostolic organizations are not required to disclose 
     Schedules K-1.
       Earned income credit qualification.--The Senate amendment 
     adds provisions that clarify the application of the taxpayer 
     identification number rules for purposes of determining 
     eligibility for the earned income credit.
       Stapled REIT grandfather rule.--The Senate amendment does 
     not include the provision of the House bill relating to the 
     grandfather rule applicable to stapled REITs.

                          Conference Agreement

       The conference agreement follows the Senate amendment, with 
     the following modifications, additions, and deletions.
     1. Education Incentives of the 1997 Act
       Education IRAs.--The conference agreement clarifies that 
     for purposes of the special rules regarding tax-free 
     rollovers and changes of designated beneficiaries, the new 
     beneficiary must be under the age of 30.
       Deduction for student loan interest.--The conference 
     agreement clarifies that a ``qualified education loan'' means 
     any indebtedness incurred solely to pay qualified higher 
     education expenses. Thus, revolving lines of credit generally 
     would not constitute qualified education loans unless the 
     borrower agreed to use the line of credit to pay only 
     qualifying education expenses. The conference agreement 
     further provides Treasury with authority to issue regulations 
     regarding the calculation of the 60-month period in the case 
     of consolidated loans, collapsed loans, and loans made before 
     the date of enactment of the Taxpayer Relief Act of 1997 
     (August 5, 1997) for purposes of determining the 
     deductibility of interest paid on such loans. In this regard, 
     the conferees expect that such regulations would mirror the 
     guidance contained in Notice 98-7 issued regarding the 
     establishment of the 60-month period with respect to such 
     loans for reporting purposes. The provision is effective 
     for interest payments due and paid after December 31, 
     1997, on any qualified education loan.
     2. Savings and Investment Incentives of the 1997 Act
       Conversion of IRAs into Roth IRAs.--The conferees wish to 
     clarify that for purposes of determining the $100,000 
     adjusted gross income (``AGI'') limit on IRA conversions to 
     Roth IRAs, the conversion amount is not taken into account. 
     Thus, for this purpose, AGI (and all AGI-based phaseouts) are 
     to be determined without taking into account the conversion 
     amount. For purposes of computing taxable income, the 
     conversion amount (to the extent otherwise includible in AGI) 
     is to be taken into account in computing the AGI-based 
     phaseout amounts. The conferees wish to clarify that the 
     language of the Senate Finance committee report (appearing in 
     connection with section 6005(b) of the Senate amendment) 
     relating to calculation of AGI limit for conversions is 
     superceded.
       Small business stock rollover.--The conference agreement 
     provides that rules similar to the rules contained in 
     subsections (f) through (k) of section 1202 will apply for 
     purposes of the rollover provision (sec. 1045). Under these 
     rules, for example, the benefit of a tax-free rollover with 
     respect to the sale of small business stock by a partnership 
     will flow through to a partner who is not a corporation if 
     the partner held its partnership interest at all times the 
     partnership held the small business stock. A similar rule 
     applies to S corporations. The conference agreement does not 
     contain any provision limiting the types of partners or 
     shareholders that a partnership or S corporation may have in 
     order for the benefits of section 1045 to apply to a 
     noncorporate partner or shareholder.
     3. Estate and Gift Tax Provisions of the 1997 Act
       Phaseout range for the 5-percent surtax to phase out the 
     benefits of the unified credit and graduated rates.--The 
     conference agreement does not include the provision in the 
     Senate amendment clarifying the phaseout range for the 5-
     percent surtax to phase out the benefits of the unified 
     credit and graduated rates.
       Qualification for an estate tax deduction for qualified 
     family-owned business interest in the case of cash leases by 
     decedent to family member.--The conference agreement 
     clarifies that an interest in property will not be 
     disqualified, in whole or in part, as an interest in a 
     family-owned business where the decedent leases that interest 
     on a net cash basis

[[Page H5188]]

     to a member of the decedent's family who uses the leased 
     property in an active business. The rental income derived by 
     the decedent from the net cash lease in those circumstances 
     is not treated as personal holding company income for 
     purposes of Code section 2057.
     4. Miscellaneous Provisions of the 1997 Act
       Fuel excise tax provisions.--The conference agreement does 
     not include the provisions in the Senate amendment relating 
     to fuel excise taxes that were enacted in the Transportation 
     Equity Act for the 21st Century.
     5. Revenue Increase Provisions of the 1997 Act
       Coordination between basis adjustment rules relating to 
     extraordinary dividends and similar rules applicable to 
     consolidated returns.--With respect to the Senate amendment 
     regarding gain recognition for certain extraordinary 
     dividends, the conference agreement clarifies that Congress 
     intends that, except as provided in regulations to be issued, 
     section 1059 does not cause current gain recognition to the 
     extent that the consolidated return regulations require the 
     creation or increase of an excess loss account with respect 
     to a distribution. Thus, current Treas. Reg. sec. 1.1059(e)-
     1(a) does not result in gain recognition with respect to 
     distributions within a consolidated group to the extent such 
     distribution results in the creation or increase of an excess 
     loss account under the consolidated return regulations.
       Holding period requirement for claiming foreign tax credits 
     with respect to dividends.--The 1997 Act added section 
     901(k), which denies a shareholder foreign tax credits 
     normally available with respect to a dividend if the 
     shareholder has not held the stock for a minimum period 
     during which it is not protected from risk of loss. Section 
     901(k)(4), ``Exception for certain taxes paid by securities 
     dealers,'' provides an exception for foreign tax credits with 
     respect to certain dividends received on stock held in the 
     active conduct of a securities business in a foreign country. 
     The Ways and Means and Finance committee reports provide that 
     the exception is available only for dividends received on 
     ``stock which the shareholder holds in its capacity as a 
     dealer in securities.'' H. Rept. 105-148, 105th Cong., 1st 
     Sess. 546 (1997); S. Rept. 105-33, 105th Cong., 1st Sess 176 
     (1997). The conference agreement clarifies that the exception 
     of section 901(k)(4) is available only for dividends received 
     on stock that the shareholder holds in its capacity as a 
     dealer in securities.
       Extension of diesel fuel excise taxes to kerosene.--The 
     conference agreement includes clarifications of the rules 
     under which aviation grade kerosene may be removed for use as 
     aviation fuel without payment of the highway excise taxes.
     6. Individual and Business Simplification Provisions of the 
         1997 Act
       Magnetic media returns for partnerships having more than 
     100 partners.--Present law, as amended by the 1997 Act, 
     provides that the Treasury Secretary is to require 
     partnerships with more than 100 partners to file returns on 
     magnetic media (sec. 6011(e)). Present law also imposes a 
     penalty in the case of failure to meet magnetic media 
     requirements. The conference agreement clarifies that the 
     penalty under section 6724(c) for failure to comply with the 
     requirement of filing returns on magnetic media applies to 
     the extent such a failure occurs with respect to more than 
     100 information returns, in the case of a partnership with 
     more than 100 partners.
     7. Foreign Tax Provisions of the 1997 Act
       Information reporting with respect to certain foreign 
     corporations and partnerships.--Present law, as amended by 
     the 1997 Act, provides that reporting rules apply to 
     controlled foreign corporations and foreign partnerships 
     (sec. 6038). The conference agreement clarifies that guidance 
     relating to the furnishing of required information is to be 
     provided by the Secretary of the Treasury (not specifically 
     through regulations), and conforms the use of the defined 
     term, foreign business entity.
     8. Excise Tax and Other Simplification Provisions of the 1997 
         Act
       Refunds when wine returned to wineries or beer returned to 
     breweries.--The 1997 Act added a provision that tax is 
     refunded when tax-paid wine is returned to a winery or tax-
     paid beer is returned to a brewery (secs. 5044 and 5056). The 
     Code provisions allowing these refunds speak of beverages 
     produced in the United States. A separate provision of the 
     1997 Act provided that beer and wine imported ``in bulk'' 
     would be taxed under the rules for domestically produced 
     beverages. The conference agreement provides that the refund 
     provisions are coordinated with the provision on tax 
     treatment of bulk imports.
       Transfers of bulk imports of wine to wineries or beer to 
     breweries.--Prior to the 1997 Act, imported beer and wine 
     always were taxed upon importation (secs. 5043 and 5054). The 
     1997 Act added provisions for non-tax-paid transfers of bulk 
     imports to breweries and wineries (secs. 5364 and 5418). The 
     conference agreement conforms the provisions imposing tax in 
     all cases on importation to recognize these allowed 
     transfers. Under the conference agreement, liability for tax 
     payment shifts to the brewery or winery when bulk imports are 
     transferred with payment of tax, just as those parties are 
     liable for payment of tax on domestically produced beer and 
     wine.
     9. Taxpayer Bill of Rights 2 (1996)
       Disclosure of returns and return information.--The rules 
     regarding disclosure of returns and return information were 
     amended in 1996 to permit certain disclosures in two 
     additional circumstances. Present law provides that, in the 
     case of a deficiency with respect to a joint return of 
     individuals who are no longer married or no longer residing 
     in the same household, the Treasury Secretary is permitted to 
     disclose to one such individual whether there has been an 
     attempt to collect the deficiency from the other individual, 
     the general nature of such collection activities, and the 
     amount collected (sec. 6103(e)(8)). Present law also provides 
     that if the Treasury Secretary determines that a person is 
     liable for a penalty for failure to collect and pay over tax, 
     the Secretary is permitted to disclose to that person the 
     name of any other person liable for that penalty, and whether 
     there has been an attempt to collect the deficiency from the 
     other individual, the general nature of such collection 
     activities, and the amount collected (sec. 6103(e)(9)). The 
     conference agreement clarifies that these disclosures, like 
     certain other disclosures permitted under present law, may be 
     made under section 6103(e)(6) to the duly authorized attorney 
     in fact of the person making the disclosure request. The 
     provision takes effect on date of enactment.
     10. Transportation Equity Act for the 21st Century (``TEA 
         21'') (1998)
       Simplified refund provisions for tax on gasoline, diesel 
     fuel and kerosene.--TEA 21 included a provision combining the 
     Code refund provisions for gasoline, diesel fuel, and 
     kerosene and reducing the minimum claim amount. Under TEA 21, 
     claims may be filed once a $750 threshold is reached for 
     gasoline, diesel fuel, and kerosene combined, and 
     overpayments attributable to multiple calendar quarters may 
     be aggregated in determining whether this threshold is met 
     (rather than claims being filed only with respect to a single 
     calendar quarter). The conference agreement adds a provision 
     conforming a current Code timing provision to reflect the 
     portion of the TEA 21 provision that allows aggregation of 
     multiple calendar quarters into a single refund claim.

                       TITLE VII. REVENUE OFFSETS

A. Employer Deductions for Vacation and Severance Pay (sec. 501 of the 
           House Bill and sec. 5001 of the Senate Amendment)

                              Present Law

       For deduction purposes, any method or arrangement that has 
     the effect of a plan deferring the receipt of compensation or 
     other benefits for employees is treated as a deferred 
     compensation plan (sec 404(b)). In general, contributions 
     under a deferred compensation plan (other than certain 
     pension, profit-sharing and similar plans) are deductible in 
     the taxable year in which an amount attributable to the 
     contribution is includible in income of the employee. 
     However, vacation pay which is treated as deferred 
     compensation is deductible for the taxable year of the 
     employer in which the vacation pay is paid to the employee 
     (sec. 404(a)(5)).
       Temporary Treasury regulations provide that a plan, method, 
     or arrangement defers the receipt of compensation or benefits 
     to the extent it is one under which an employee receives 
     compensation or benefits more than a brief period of time 
     after the end of the employer's taxable year in which the 
     services creating the right to such compensation or benefits 
     are performed. A plan, method or arrangement is presumed to 
     defer the receipt of compensation for more than a brief 
     period of time after the end of an employer's taxable year to 
     the extent that compensation is received after the 15th day 
     of the 3rd calendar month after the end of the employer's 
     taxable year in which the related services are rendered (the 
     ``2\1/2\ month'' period). A plan, method or arrangement is 
     not considered to defer the receipt of compensation or 
     benefits for more than a brief period of time after the end 
     of the employer's taxable year to the extent that 
     compensation or benefits are received by the employee on or 
     before the end of the applicable 2\1/2\ month period. (Temp. 
     Treas. Reg. Sec. 1.404(b)-1T A-2).
       The Tax Court recently addressed the issue of when vacation 
     pay and severance pay are considered deferred compensation in 
     Schmidt Baking Co., Inc., 107 T.C. 271 (1996). In Schmidt 
     Baking, the taxpayer was an accrual basis taxpayer with a 
     fiscal year that ended December 28, 1991. The taxpayer funded 
     its accrued vacation and severance pay liabilities for 1991 
     by purchasing an irrevocable letter of credit on March 13, 
     1992. The parties stipulated that the letter of credit 
     represented a transfer of substantially vested interest in 
     property to employees for purposes of section 83, and that 
     the fair market value of such interest was includible in the 
     employees' gross incomes for 1992 as a result of the 
     transfer.\1\ The Tax Court held that the purchase of the 
     letter of credit, and the resulting income inclusion, 
     constituted payment of the vacation and severance pay within 
     the 2\1/2\ month period. Thus, the vacation and severance pay 
     were treated as received by the employees within the 2\1/2\ 
     month period and were not treated as deferred compensation. 
     The vacation pay and severance pay were deductible by the 
     taxpayer for its 1991 fiscal year pursuant to its normal 
     accrual method of accounting.
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     \1\ While the rules of section 83 may govern the income 
     inclusion, section 404 governs the deduction if the amount 
     involved is deferred compensation.

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[[Page H5189]]

                               House Bill

       The House bill provides that, for purposes of determining 
     whether an item of compensation (other than severance pay), 
     is deferred compensation (under Code sec. 404), the 
     compensation is not considered to be paid or received until 
     actually received by the employee. In addition, an item of 
     deferred compensation is not considered paid to an employee 
     until actually received by the employee. The House bill is 
     intended to overrule the result in Schmidt Baking. For 
     example, with respect to the determination of whether 
     vacation pay is deferred compensation, the fact that the 
     value of the vacation pay is includible in the income of 
     employees within the applicable 2\1/2\ month period is not 
     relevant. Rather, the vacation pay must have been actually 
     received by employees within the 2\1/2\ month period in order 
     for the compensation not to be treated as deferred 
     compensation.
       It is intended that similar arrangements, in addition to 
     the letter of credit approach used in Schmidt Baking, do not 
     constitute actual receipt by the employee, even if there is 
     an income inclusion. Thus, for example, actual receipt does 
     not include the furnishing of a note or letter or other 
     evidence of indebtedness of the taxpayer, whether or not the 
     evidence is guaranteed by any other instrument or by any 
     third party. As a further example, actual receipt does not 
     include a promise of the taxpayer to provide service or 
     property in the future (whether or not the promise is 
     evidenced by a contract or other written agreement). In 
     addition, actual receipt does not include an amount 
     transferred as a loan, refundable deposit, or contingent 
     payment. Amounts set aside in a trust for employees generally 
     are not considered to be actually received by the employee.
       Under the House bill, sick pay that is deferred 
     compensation is treated the same as vacation pay that is 
     deferred compensation, and is not deductible until paid to 
     employees. The bill does not change the rule under which 
     deferred compensation (other than vacation pay and sick pay 
     and deferred compensation under qualified plans) is 
     deductible in the year includible in the gross income of 
     employees participating in the plan if separate accounts are 
     maintained for each employee.
       While Schmidt Baking involved only vacation pay and 
     severance pay, there is concern that this type of arrangement 
     may be tried to circumvent other provisions of the Code where 
     payment is required in order for a deduction to occur. Thus, 
     it is intended that the Secretary will prevent the use of 
     similar arrangements. No inference is intended that the 
     result in Schmidt Baking is present law beyond its immediate 
     facts or that the use of similar arrangements is permitted 
     under present law.
       Effective date.--The provision is effective for taxable 
     years ending after October 8, 1997. Any change in method of 
     accounting required by the provision will be treated as 
     initiated by the taxpayer with the consent of the Secretary 
     of the Treasury. Any adjustment required by section 481 as a 
     result of the change will be taken into account in the year 
     of the change.

                            Senate Amendment

       The Senate amendment is the same as the House bill, except 
     that the provision also applies to severance pay as well as 
     other types of compensation.
       Effective date.--The provision is effective for taxable 
     years ending after the date of enactment. With respect to the 
     change in method of accounting, the Senate amendment is the 
     same as the House bill.

                          Conference Agreement

       The conference agreement follows the Senate amendment. As 
     under the Senate amendment, the fact that an item of 
     compensation is includible in employees' incomes or wages 
     within the applicable 2\1/2\ month period is not relevant to 
     determining whether an item of compensation is deferred 
     compensation.
       As under the Senate amendment, many arrangements in 
     addition to the letter of credit approach used in Schmidt 
     Baking do not constitute actual receipt by employees. For 
     example, actual receipt does not include the furnishing of a 
     note or letter or other evidence of indebtedness of the 
     taxpayer, whether or not the evidence is guaranteed by any 
     other instrument or by any third party. As a further example, 
     actual receipt does not include a promise of the taxpayer to 
     provide service or property in the future (whether or not the 
     promise is evidenced by a contract or other written 
     agreement). In addition, actual receipt does not include an 
     amount transferred as a loan, refundable deposit, or 
     contingent payment. Further, amounts set aside in a trust for 
     employees are not considered to be actually received by the 
     employee.
       In light of the change being made and its effect on all 
     cases involving this issue, the conferees ask the Secretary 
     to consider whether, on a case-by-case basis, continued 
     challenge of these arrangements for prior years represents 
     the best use of litigation resources.
       Effective date.--The provision is effective for taxable 
     years ending after the date of enactment. Any change in 
     method of accounting required by the provision will be 
     treated as initiated by the taxpayer with the consent of the 
     Secretary of the Treasury. Any adjustment required by section 
     481 as a result of the change will be taken into account over 
     a three-year period beginning with the first year for which 
     the provision is effective.

 B. Modify Foreign Tax Credit Carryover Rules (sec. 5002 of the Senate 
                               amendment)

                              Present Law

       U.S. persons may credit foreign taxes against U.S. tax on 
     foreign-source income. The amount of foreign tax credits that 
     can be claimed in a year is subject to a limitation that 
     prevents taxpayers from using foreign tax credits to offset 
     U.S. tax on U.S.-source income. Separate foreign tax credit 
     limitations are applied to specific categories of income.
       The amount of creditable taxes paid or accrued (or deemed 
     paid) in any taxable year which exceeds the foreign tax 
     credit limitation is permitted to be carried back two years 
     and forward five years. The amount carried over may be used 
     as a credit in a carryover year to the extent the taxpayer 
     otherwise has excess foreign tax credit limitation for such 
     year. The separate foreign tax credit limitations apply for 
     purposes of the carryover rules.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment reduces the carryback period for 
     excess foreign tax credits from two years to one year. The 
     Senate amendment also extends the excess foreign tax credit 
     carryforward period from five years to seven years.
       Effective date.--The provision applies to foreign tax 
     credits arising in taxable years beginning after December 31, 
     1998.

                          Conference Agreement

       The conference agreement does not include the Senate 
     amendment.

 C. Clarify and Expand Mathematical Error Procedures (sec. 5003 of the 
                           Senate amendment)

                              Present Law

     Taxpayer identification numbers (``TINs'')
       The IRS may deny a personal exemption for a taxpayer, the 
     taxpayer's spouse or the taxpayer's dependents if the 
     taxpayer fails to provide a correct TIN for each person for 
     whom the taxpayer claims an exemption. This TIN requirement 
     also indirectly effects other tax benefits currently 
     conditioned on a taxpayer being able to claim a personal 
     exemption for a dependent (e.g., head-of-household filing 
     status and the dependent care credit). Other tax benefits, 
     including the adoption credit, the child tax credit, the Hope 
     Scholarship credit and Lifetime Learning credit, and the 
     earned income credit also have TIN requirements. For most 
     individuals, their TIN is their Social Security Number 
     (``SSN''). The mathematical and clerical error procedure 
     currently applies to the omission of a correct TIN for 
     purposes of personal exemptions and all of the credits listed 
     above except for the adoption credit.
     Mathematical or clerical errors
       The IRS may summarily assess additional tax due as a result 
     of a mathematical or clerical error without sending the 
     taxpayer a notice of deficiency and giving the taxpayer an 
     opportunity to petition the Tax Court. Where the IRS uses the 
     summary assessment procedure for mathematical or clerical 
     errors, the taxpayer must be given an explanation of the 
     asserted error and a period of 60 days to request that the 
     IRS abate its assessment. The IRS may not proceed to collect 
     the amount of the assessment until the taxpayer has agreed to 
     it or has allowed the 60-day period for objecting to expire. 
     If the taxpayer files a request for abatement of the 
     assessment specified in the notice, the IRS must abate the 
     assessment. Any reassessment of the abated amount is subject 
     to the ordinary deficiency procedures. The request for 
     abatement of the assessment is the only procedure a taxpayer 
     may use prior to paying the assessed amount in order to 
     contest an assessment arising out of a mathematical or 
     clerical error. Once the assessment is satisfied, however, 
     the taxpayer may file a claim for refund if he or she 
     believes the assessment was made in error.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment provides in the application of the 
     mathematical and clerical error procedure that a correct TIN 
     is a TIN that was assigned by the Social Security 
     Administration (or in certain limited cases, the IRS) to the 
     individual identified on the return. For this purpose the IRS 
     is authorized to determine that the individual identified on 
     the tax return corresponds in every aspect (including, name, 
     age, date of birth, and SSN) to the individual to whom the 
     TIN is issued. The IRS also is authorized to use the 
     mathematical and clerical error procedure to deny eligibility 
     for the dependent care tax credit, the child tax credit, and 
     the earned income credit even though a correct TIN has been 
     supplied if the IRS determines that the statutory age 
     restrictions for eligibility for any of the respective 
     credits is not satisfied (e.g., the TIN issued for the child 
     claimed as the basis of the child tax credit identifies the 
     child as over the age of 17 at the end of the taxable year).
       Effective date.--The provision is effective for taxable 
     years ending after the date of enactment.

                          Conference Agreement

       The conference agreement does not include the Senate 
     amendment.

D. Freeze Grandfather Status of Stapled REITs (sec. 5004 of the Senate 
                               amendment)

                              Present Law

       A real estate investment trust (``REIT'') is an entity that 
     receives most of its income from passive real estate related 
     investments

[[Page H5190]]

     and that essentially receives pass-through treatment for 
     income that is distributed to shareholders. If an electing 
     entity meets the qualifications for REIT status, the portion 
     of its income that is distributed to the investors each year 
     generally is taxed to the investors without being subjected 
     to a tax at the REIT level. In general, a REIT must derive 
     its income from passive sources and not engage in any active 
     trade or business.
       A REIT must satisfy a number of tests on a year-by-year 
     basis that relate to the entity's: (1) organizational 
     structure; (2) source of income; (3) nature of assets; and 
     (4) distribution of income. Under the source-of-income tests, 
     at least 95 percent of its gross income generally must be 
     derived from rents, dividends, interest and certain other 
     passive sources (the ``95-percent test''). In addition, at 
     least 75 percent of its income generally must be from real 
     estate sources, including rents from real property and 
     interest on mortgages secured by real property (the ``75-
     percent test'').
       A REIT is permitted to have a wholly-owned subsidiary 
     subject to certain restrictions (a ``qualified REIT 
     subsidiary''). All of the assets, liabilities, income, 
     deductions and credits of a qualified REIT subsidiary are 
     treated as attributes of the REIT.
       In a stapled REIT structure, both the shares of a REIT and 
     a C corporation may be traded, but are subject to a provision 
     that they may not be sold separately. In the Deficit 
     Reduction Act of 1984 (the ``1984 Act''), Congress required 
     that, in applying the tests for REIT status, all stapled 
     entities are treated as one entity (sec. 269B(a)(3)). The 
     1984 Act included grandfather rules, one of which provided 
     that certain then-existing stapled REITs were not subject to 
     the new provision (sec. 136(c)(3) of the 1984 Act). That 
     grandfather rule provided that the new provision did not 
     apply to a REIT that was a part of a group of stapled 
     entities if the group of entities was stapled on June 30, 
     1983, and included a REIT on that date.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment treats activities and gross income of 
     a stapled REIT group with respect to real property interests 
     acquired after March 26, 1998, by any member of a stapled 
     REIT group (and not grandfathered under the rules described 
     below) as activities and income of the REIT for certain 
     purposes, including the 75-percent and 95-percent tests for 
     REIT qualification. The stapled REIT group includes the 
     existing stapled REIT, a stapled entity, or a subsidiary or 
     partnership in which a 10-percent-or-greater interest is 
     owned by an existing stapled REIT or stapled entity.
       Under the Senate amendment, there is an exception to this 
     treatment for certain grandfathered real property interests. 
     Grandfathered interests include interests that had been 
     acquired by a member of the REIT group on or before March 26, 
     1998. In addition, grandfathered real property interests 
     include interests acquired by a member of the REIT group 
     after March 26, 1998, pursuant to a binding written agreement 
     in effect on March 26, 1998, or which were described in a 
     public announcement or in a filing with the Securities and 
     Exchange Commission (``SEC'') on or before March 26, 1998.
       In general, a grandfathered real property interest does not 
     lose its grandfathered status by reason of a repair to, an 
     improvement of, or a lease of, a grandfathered property. 
     Thus, if a REIT owns a grandfathered real property interest 
     that it leases to a stapled entity, the interest remains a 
     grandfathered interest. Similarly, a renewal of the lease to 
     the stapled entity would not cause the real property interest 
     to lose its grandfather status, whether the renewal is 
     pursuant to the terms of the lease or otherwise. However, an 
     improvement of a grandfathered real property interest causes 
     loss of grandfathered status and become a nonqualified real 
     property interest in certain circumstances. Any expansion 
     beyond the boundaries of the land of the otherwise 
     grandfathered interest occurring after March 26, 1998, is 
     treated as a non-qualified real property interest to the 
     extent of such expansion. Moreover, any improvement of an 
     otherwise grandfathered real property interest (within its 
     land boundaries) that is placed in service after December 31, 
     1999, is treated as a separate nonqualified real property 
     interest in certain circumstances. There is an exception for 
     improvements placed in service before January 1, 2004, 
     pursuant to a binding contract in effect on December 31, 
     1999, and at all times thereafter.
       If a REIT or stapled entity owns, directly or indirectly, a 
     10-percent-or-greater interest in a corporate subsidiary or 
     partnership (or other entity described below) that owns a 
     real property interest, the above rules apply with respect to 
     a proportionate part of the entity's real property interest, 
     activities and gross income. Similar rules attributing the 
     proportionate part of the subsidiary's or partnership's real 
     property interests and gross income apply when a REIT or 
     stapled entity acquires a 10-percent-or-greater interest (or 
     in the case of a previously-owned entity, acquires an 
     additional interest) after March 26, 1998, with exceptions 
     for interests acquired pursuant to binding written 
     agreements, public announcements, or SEC filings described 
     above.
       Special rules apply where a member of the stapled REIT 
     group holds a mortgage (that is not an existing obligation 
     under the rules described below) that is secured by an 
     interest in real property, where either the REIT or a stapled 
     entity engages in certain activities with respect to that 
     property. In such cases, all interest on the mortgage and all 
     gross income received by a member of the REIT group from the 
     activity is treated as income of the REIT that is not 
     qualifying income under the 75-percent or 95-percent tests, 
     with the result that REIT status might be lost. An exception 
     to these rules is provided for certain mortgages the interest 
     on which does not exceed an arm's-length rate and which would 
     be treated as interest for purposes of the REIT rules. An 
     exception is also available for certain mortgages that are 
     held on March 26, 1998. The exception for existing mortgages 
     ceases to apply if the mortgage is refinanced and the 
     principal amount is increased in such refinancing.
       For a corporate subsidiary owned by a stapled entity, the 
     10-percent ownership test is met if a stapled entity owns, 
     directly or indirectly, 10 percent or more of the 
     corporation's stock, by either vote or value. For interests 
     in partnerships, the ownership test is met if either the REIT 
     or a stapled entity owns, directly or indirectly, a 10-
     percent or greater interest in the partnership's assets or 
     net profits.
       Effective date.--The Senate amendment is effective for 
     taxable years ending after March 26, 1998.

                          Conference Agreement

       The conference agreement generally follows the Senate 
     amendment with the following technical modifications. The 
     conference agreement clarifies that a real property interest 
     acquired pursuant to the exercise of a put option, buy-sell 
     agreement or an agreement relating to a third party default 
     that was binding on March 26, 1998, and at all times 
     thereafter, is generally treated as a grandfathered real 
     property interest. It is the intention of the conferees that 
     this rule apply only to substantive economic arrangements 
     that are outside of the control of the stapled REIT group. 
     The conference agreement clarifies that a renewal of a lease 
     of property from a third party to a member of the stapled 
     REIT group, like a lease or renewal between group members, 
     does not generally terminate grandfather status, whether the 
     renewal is pursuant to the terms of the lease or 
     otherwise.\2\ However, renewal of a lease can cause loss of 
     grandfather status if the property is improved to the extent 
     that grandfather status would be lost under the improvement 
     rules described above. Moreover, the conference agreement 
     provides that, for leases and renewals entered into after 
     March 26, 1998 (whether from members of the stapled REIT 
     group or third parties), grandfather status is lost if the 
     rent on the lease or renewal exceeds an arm's length rate.
---------------------------------------------------------------------------
     \2\ In the case of a lease from a third party, a renewal will 
     not qualify if there is a significant time period between the 
     two tenancies.
---------------------------------------------------------------------------
       The conference agreement makes certain changes to the rule 
     attributing ownership of real property interests, mortgages 
     and other items from a partnership or subsidiary in which the 
     REIT or a stapled entity owns a 10-percent-or-greater 
     interest, directly or indirectly. Under the conference 
     agreement, the percentage ownership interest in a partnership 
     is to be determined by the owner's share of capital or 
     profits, whichever is larger. The conference agreement 
     clarifies that an interest in real property acquired by a 10-
     percent-or-greater partnership or subsidiary pursuant to a 
     binding written agreement, public announcement, SEC filing, 
     put option, buy-sell agreement or agreement relating to a 
     third-party default (a ``qualified transaction'') is treated 
     as grandfathered if such interest would be a grandfathered 
     interest if acquired directly by the REIT or stapled entity. 
     The conference agreement also provides that the exception for 
     10-percent-or- greater interests in partnerships or 
     subsidiaries acquired pursuant to a qualified transaction 
     applies to interests acquired by any member of the stapled 
     REIT group. The conferees also wish to clarify that all real 
     property interests, mortgages, activities and gross income of 
     a qualified REIT subsidiary are treated as attributes of the 
     REIT for purposes of the provision.
       The conference agreement adds a rule that provides that a 
     transfer, direct or indirect, of a grandfathered real 
     property interest between members of a stapled REIT group 
     does not result in a loss of grandfather status if the total 
     direct and indirect interests of both the exempt REIT and 
     stapled entity in the real property interest does not 
     increase as a result of the transfer. If the total direct and 
     indirect interest of the exempt REIT and stapled entity 
     increases, the transferred real property interest will be 
     deemed to lose grandfather status only to the extent of such 
     increase. The provision applies to all types of transfers of 
     real property interests among group members, such as sales, 
     contributions and distributions, whether taxable or tax-free. 
     Moreover, the provision applies both to direct transfers of 
     real property interests and transfers of such interests 
     indirectly through transfer of interests in 10-percent-or-
     greater owned partnerships and subsidiaries. The application 
     of the new provision is illustrated by the following 
     examples. First, assume that an exempt REIT sells a portion 
     of a grandfathered real property interest to a stapled 
     entity. The real property interest remains grandfathered 
     because there is no increase in the total interests of the 
     REIT and the stapled entity (100 percent both before and 
     after the transfer). Second, assume that

[[Page H5191]]

     a grandfathered real property interest is contributed by a 
     stapled entity to a partnership or subsidiary in which the 
     stapled entity owns a 10-percent-or-greater interest (either 
     prior to, or as a result of, the contribution). The real 
     property interest remains grandfathered because the previous 
     total interests of the exempt REIT and stapled entity (the 
     stapled entity's 100-percent interest) are not increased by 
     the transfer.\3\ Third, assume a REIT owns a 50-percent 
     interest in a partnership that distributes a grandfathered 
     real property interest to the REIT in complete liquidation of 
     its interest. The 50-percent interest that was previously 
     deemed owned by the REIT will continue to be grandfathered; 
     the remaining 50-percent interest will become a non-
     grandfathered interest because it represents an increase in 
     the total direct and indirect interests of the REIT and 
     stapled entity in the real property interest. Fourth, assume 
     that a partnership in which an exempt REIT or stapled entity 
     owns a 10-percent or greater interest terminates as a result 
     of a sale of 50 percent or more of the total partnership 
     interests during a 12-month period that does not involve the 
     REIT or a stapled entity (sec. 708(b)(1)(B)). Grandfather 
     status of real property interests owned by the partnership is 
     not lost in the transfer because, as a result of the 
     termination, the partnership's assets are deemed contributed 
     to a new partnership and interests in that partnership are 
     deemed distributed to the purchasing and other partners in 
     proportion to their interests (Treas. reg. sec. 1.708-
     1(b)(1)(iv)). Thus, there is no change in the total interest 
     of the REIT and stapled entity in the partnership's assets.
---------------------------------------------------------------------------
     \3\ Nevertheless, if the REIT's interest in the partnership 
     or subsidirary increases as a result of the contribution, a 
     portion of each of the entity's real property interests other 
     than the interest contributed, reflecting the proportionate 
     increase in the REIT's interest in the entity, will be 
     treated as a non-grandfathered real property interest.
---------------------------------------------------------------------------
       The conference agreement adds a provision intended to deal 
     with the special situation of so-called ``UPREIT'' 
     partnerships (see Treas. reg. 1.701-2(d)(example 4)), which 
     generally treats 100 percent of the real property interests, 
     mortgages, activities and gross income of such partnerships 
     as interests, activities and gross income of the REIT or 
     stapled entity that owns a partnership interest. The 
     provision applies where (i) an exempt REIT or stapled 
     entity owned directly or indirectly) at least a 60-percent 
     interest in a partnership as of March 26, 1998, (ii) 90 
     percent or more of the interests in the partnership (other 
     than those held by the exempt REIT or stapled entity) are 
     or will be redeemable or exchangeable for consideration 
     with a value determined with reference to the stock of the 
     REIT or stapled entity or both. The provision also applies 
     to an interest in a partnership formed after March 26, 
     1998, which meets the provision's other requirements, 
     where the partnership was formed to mirror the stapling of 
     an exempt REIT and a stapled entity in connection with an 
     acquisition agreed to or announced on or before March 26, 
     1998. If, as of January 1, 1999, more than one partnership 
     owned (directly or indirectly) by either an exempt REIT or 
     stapled entity meets the requirements of the provision, 
     only the largest such partnership (determined by aggregate 
     asset bases) is treated as meeting such requirements.
       The conference agreement provides that, for purposes of the 
     exception to the mortgage rules for mortgages held on March 
     26, 1998, an increase in interest payable on a mortgage 
     (except pursuant to an interest arrangement, such as variable 
     interest, under the mortgage's terms as of March 26, 1998), 
     or an increase in interest payable as a result of a 
     refinancing, causes the mortgage to cease to qualify for the 
     exception unless the new interest rate meets an arm's-length 
     standard.
       The conferees also wish to clarify that in the event that a 
     stapled REIT group ceases to be stapled, the rules treating 
     assets, activities and gross income of members or the stapled 
     REIT group as attributes of the REIT apply only to the 
     portion of the year in which the group was a stapled REIT 
     group. Similarly, where a REIT's or stapled entity's interest 
     in a partnership or subsidiary changes during the year, the 
     rules treating a proportionate part of the assets, activities 
     and gross income of the partnership or subsidiary as 
     attributes of the REIT or stapled entity also apply on a 
     partial-year basis.

    E. Make Certain Trade Receivables Ineligible for Mark-to-Market 
             Treatment (sec. 5005 of the Senate amendment)

                              Present Law

       In general, a dealer in securities is required to use a 
     mark-to-market method of accounting for securities (sec. 
     475). A dealer in securities is a taxpayer who regularly 
     purchases securities from or sells securities to customers in 
     the ordinary course of a trade or business, or who regularly 
     offers to enter into, assume, offset, assign, or otherwise 
     terminate positions in certain types of securities with 
     customers in the ordinary course of a trade or business. A 
     security includes an evidence of indebtedness.
       Treasury regulations provide that if a taxpayer would be a 
     dealer in securities only because of its purchases and sales 
     of debt instruments that, at the time of purchase or sale, 
     are customer paper with respect to either the taxpayer or a 
     corporation that is a member of the same consolidated group, 
     the taxpayer will not normally be treated as a dealer in 
     securities. However, the regulations allow such a taxpayer to 
     elect out of this exception to dealer status.\4\ For this 
     purpose, a debt instrument is customer paper with respect to 
     a person if: (1) the person's principal activity is selling 
     nonfinancial goods or providing nonfinancial services; (2) 
     the debt instrument was issued by the purchaser of the goods 
     or services at the time of the purchase of those goods and 
     services in order to finance the purchase; and (3) at all 
     times since the debt instrument was issued, it has been held 
     either by the person selling those goods or services or by a 
     corporation that is a member of the same consolidated group 
     as that person.
---------------------------------------------------------------------------
     \4\ Treas. reg. sec. 1.475(c)-1(b), issued December 23, 1996; 
     the ``customer paper election.''
---------------------------------------------------------------------------

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment provides that certain trade 
     receivables are not eligible for mark-to-market treatment. A 
     trade receivable is subject to the provision if it is a note, 
     bond, debenture, or other evidence of indebtedness arising 
     out of the sale of goods or services by a person the 
     principal activity of which is selling or providing non-
     financial goods and services and it is held by such person 
     (or a related person) at all times since it was issued.
       Under the Senate amendment, a receivable meeting the above 
     definition is not treated as a security for purposes of the 
     mark-to-market rules (sec. 475). Thus, such a receivable is 
     not marked-to-market, even if the taxpayer qualifies as a 
     dealer in other securities. Because trade receivables cease 
     to meet the above definition when they are disposed of (other 
     than to a related person), a taxpayer who regularly sells 
     trade receivables is treated as a dealer in securities as 
     under present law, with the result that the taxpayer's other 
     securities would be subject to mark-to-market treatment 
     unless an exception applies.
       Effective date.--The Senate amendment generally is 
     effective for taxable years ending after the date of 
     enactment. Adjustments required under section 481 as a result 
     of the change in method of accounting generally are required 
     to be taken into account ratably over the four-year period 
     beginning in the first taxable year for which the provision 
     is in effect. However, where the taxpayer terminates its 
     existence or ceases to engage in the trade or business that 
     generated the receivables (except as a result of a tax-free 
     transfer), any remaining balance of the section 481 
     adjustment is taken into account entirely in the year of such 
     cessation or termination (see sec. 5.04(3)(c) of Rev. Proc. 
     97-37, 1997-33 I.R.B. 18).

                          Conference Agreement

       The conference agreement follows the Senate amendment with 
     modifications. The conferees wish to clarify that the new 
     provision applies to trade receivables arising from 
     services performed by independent contractors, as well as 
     employees. Thus, for example, if a taxpayer's principal 
     activity is selling non-financial services and some or all 
     of such services are performed by independent contractors, 
     no receivables that the taxpayer accepts for services can 
     be marked-to-market under the new provision. The conferees 
     intend that, pursuant to the authority granted by section 
     475(g)(1), the Secretary of the Treasury is authorized to 
     issue regulations to prevent abuse of the new exception, 
     including through independent contractor arrangements.
       The conference agreement provides that, to the extent 
     provided in Treasury regulations, trade receivables that are 
     held for sale to customers by the taxpayer or a related 
     person may be treated as ``securities'' for purposes of the 
     mark-to-market rules, and transactions in such receivables 
     could result in a taxpayer being treated as a dealer in 
     securities (sec. 475(c)(1)). It is the intention of the 
     conferees that, unlike the Senate amendment, a taxpayer will 
     not be treated as a dealer in securities based on sales to 
     unrelated persons of receivables subject to the new provision 
     unless the regulatory exception for receivables held for sale 
     to customers applies.
       It is the intention of the conferees that, for trade 
     receivables that are excepted from the statutory mark-to-
     market rules (sec. 475) under the new provision, mark-to-
     market or lower-of-cost-or-market will not be treated as 
     methods of accounting that clearly reflect income under 
     general tax principles (see sec. 446(b)).

   F. Add Vaccines Against Rotavirus Gastroenteritis to the List of 
          Taxable Vaccines (sec. 5006 of the Senate amendment)

                              Present Law

       A manufacturer's excise tax is imposed at the rate of 75 
     cents per dose on the following vaccines routinely 
     recommended for administration to children: diphtheria, 
     pertussis, tetanus, measles, mumps, rubella, polio, HIB 
     (haemophilus influenza type B), hepatitis B, and varicella 
     (chicken pox). Amounts equal to net revenues from this excise 
     tax are deposited in the Vaccine Injury Compensation Trust 
     Fund.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment adds any vaccine against rotavirus 
     gastroenteritis to the list of taxable vaccines.

[[Page H5192]]

       Effective date.--The provision is effective for vaccines 
     sold by a manufacturer or importer after the date of 
     enactment.

                          Conference Agreement

       The conference agreement does not include the Senate 
     amendment.
     G. Restrict Special Net Operating Loss Carryback Rules for 
         Specified Liability Losses (sec. 5007 of the Senate 
         amendment)

                              Present Law

       Under present law, that portion of a net operating loss 
     that qualifies as a ``specified liability loss'' may be 
     carried back 10 years rather than being limited to the 
     general two-year carryback period. A specified liability loss 
     includes amounts allowable as a deduction with respect to 
     product liability, and also certain liabilities that arise 
     under Federal or State law or out of any tort of the 
     taxpayer. In the case of a liability arising out of a Federal 
     or State law, the act (or failure to act) giving rise to the 
     liability must occur at least 3 years before the beginning of 
     the taxable year. In the case of a liability arising out of a 
     tort, the liability must arise out of a series of actions (or 
     failures to act) over an extended period of time a 
     substantial portion of which occurred at least three years 
     before the beginning of the taxable year. A specified 
     liability loss cannot exceed the amount of the net operating 
     loss, and is only available to taxpayers that used an accrual 
     method of accounting throughout the period that the acts (or 
     failures to act) occurred.

                               House Bill

       No provision.

                            Senate Amendment

       Under the Senate amendment, specified liability losses are 
     defined and limited to include (in addition to product 
     liability losses) only amounts allowable as a deduction that 
     are attributable to a liability under a Federal or State law 
     requiring the reclamation of land, decommissioning of a 
     nuclear power plant (or any unit thereof), dismantlement of 
     an offshore drilling platform, remediation of environmental 
     contamination, or payment of workers' compensation, if the 
     act (or failure to act) giving rise to such liability occurs 
     at least 3 years before the beginning of the taxable year. As 
     under current law, the redefined specified liability loss 
     cannot exceed the amount of the net operating loss and is 
     only available to taxpayers that used an accrual method of 
     accounting throughout the period that the acts (or failures 
     to act) giving rise to the liability occurred. No inference 
     regarding the interpretation of the specified liability loss 
     carryback rules under present law is intended.
       Effective date.--The provision is effective for net 
     operating losses arising in taxable years beginning after the 
     date of enactment.

                          Conference Agreement

       The conference agreement does not include the Senate 
     amendment.
     H. Exclusion of Minimum Required Distributions from AGI for 
         Roth IRA Conversions (Sec. 5008 of the Senate Amendment)

                              Present Law

       Under present law, uniform minimum distribution rules 
     generally apply to all types of tax-favored retirement 
     vehicles, including qualified retirement plans and annuities, 
     individual retirement arrangements (``IRAs'') other than Roth 
     IRAs, and tax-sheltered annuities (sec 403(b)).
       Under present law, distributions are required to begin no 
     later than the individual's required beginning date (sec. 
     401(a)(9)). In the case of an IRA, the required beginning 
     date, means the April 1 of the calendar year following the 
     calendar year in which the IRA owner attains age 70\1/2\. The 
     Internal Revenue Service has issued extensive Regulations for 
     purposes of calculating minimum distributions. In general, 
     minimum distributions are includible in gross income in the 
     year of distribution. An excise tax equal to 50 percent of 
     the required distribution applies to the extent a required 
     distribution is not made.
       Under present law, all or any part of amounts in a 
     deductible or nondeductible IRA may be converted into a Roth 
     IRA. Only taxpayers with adjusted gross income (``AGI'') of 
     $100,000 or less are eligible to convert an IRA into a Roth 
     IRA. In the case of a married taxpayer, AGI is the combined 
     AGI of the couple. Married taxpayers filing a separate return 
     are not eligible to make a conversion.

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment excludes minimum required 
     distributions from IRAs from the definition of AGI solely for 
     purposes of determining eligibility to convert from an IRA to 
     a Roth IRA. As under present law, the required minimum 
     distribution would not be eligible for conversion and would 
     be includible in gross income.
       Effective date.--The provision is effective for taxable 
     years beginning after December 31, 2004.

                          Conference Agreement

       The conference agreement follows the Senate amendment.
       Effective date.--Same as Senate amendment.

   I. Extension of IRS User Fees (sec. 5009 of the Senate amendment)

                              Present Law

       The IRS provides written responses to questions of 
     individuals, corporations, and organizations relating to 
     their tax status or the effects of particular transactions 
     for tax purposes in the form of ruling letters, determination 
     letters, opinion letters, and other similar rulings or 
     determinations. The IRS is directed by statute to establish a 
     user fee program with respect to such rulings and 
     determinations. Pursuant to this statutory authorization, the 
     IRS establishes a schedule of user fees. The statutory 
     authorization for the IRS user fee program is in effect for 
     requests made before October 1, 2003 (P.L. 104-117).

                               House Bill

       No provision.

                            Senate Amendment

       The Senate amendment extends the IRS user fee program for 
     requests made before October 1, 2007.
       Effective date.--The provision is effective on the date of 
     enactment.

                          Conference Agreement

       The conference agreement does not include the Senate 
     amendment.
     J. Clarify Definition of ``Subject to'' Liabilities Under 
         Section 357(c) (sec. 3301A of the Senate amendment)

                              Present Law

       Present law provides that the transferor of property 
     recognizes no gain or loss if the property is exchanged 
     solely for qualified stock in a controlled corporation (sec. 
     351). Code section 357(c) provides that the transferor 
     generally recognizes gain to the extent that the sum of the 
     liabilities assumed by the controlled corporation and the 
     liabilities to which the transferred property is subject 
     exceeds the transferor's basis in the transferred property. 
     If the transferred property is ``subject to'' a liability, 
     Treasury regulations have indicated that the amount of the 
     liability is included in the calculation regardless of 
     whether the underlying liability is assumed by the 
     controlled corporation. Treas. Reg. sec. 1.357-2(a).
       The gain recognition rule of section 357(c) is applied 
     separately to each transferor in a section 351 exchange.
       The basis of the property in the hands of the controlled 
     corporation equals the transferor's basis in such property, 
     increased by the amount of gain recognized by the transferor, 
     including section 357(c) gain.
       Section 357(c) also applies to reorganizations described in 
     section 368(a)(1)(D).

                               House Bill

       No provision.

                            Senate Amendment

       Under the Senate amendment, the distinction between the 
     assumption of a liability and the acquisition of an asset 
     subject to a liability is eliminated. A liability is treated 
     as having been assumed to the extent that, as determined on 
     the basis of facts and circumstances, the transferor is 
     relieved of such liability or any portion thereof (including 
     through an indemnity agreement or other similar arrangement). 
     In the case of the transfer of any property subject to a 
     nonrecourse liability, unless the facts and circumstances 
     indicate otherwise, the transferee is treated as assuming 
     with respect to such property a ratable portion of such 
     liability determined on the basis of the relative fair market 
     values (determined without regard to section 7701(g)) of all 
     assets subject to such liability. No inference regarding the 
     tax treatment under present law is intended.
       Effective date.--The provision is effective for transfers 
     after the date of enactment.

                          Conference Agreement

       The conference agreement does not include the Senate 
     amendment.

     TITLE VIII. LIMITED TAX BENEFITS UNDER THE LINE ITEM VETO ACT

                              Present Law

       The Line Item Veto Act amended the Congressional Budget and 
     Impoundment Act of 1974 to grant the President the limited 
     authority to cancel specific dollar amounts of discretionary 
     budget authority, certain new direct spending, and limited 
     tax benefits. The Line Item Veto Act provides that the Joint 
     Committee on Taxation is required to examine any revenue or 
     reconciliation bill or joint resolution that amends the 
     Internal Revenue Code of 1986 prior to its filing by a 
     conference committee in order to determine whether or not the 
     bill or joint resolution contains any ``limited tax 
     benefits,'' and to provide a statement to the conference 
     committee that either (1) identifies each limited tax benefit 
     contained in the bill or resolution, or (2) states that the 
     bill or resolution contains no limited tax benefits. The 
     conferees determine whether or not to include the Joint 
     Committee on Taxation statement in the conference report. If 
     the conference report includes the information from the Joint 
     Committee on Taxation identifying provisions that are limited 
     tax benefits, then the President may cancel one or more of 
     those, but only those, provisions that have been identified. 
     If such a conference report contains a statement from the 
     Joint Committee on Taxation that none of the provisions in 
     the conference report are limited tax benefits, then the 
     President has no authority to cancel any of the specific tax 
     provisions, because there are no tax provisions that are 
     eligible for cancellation under the Line Item Veto Act. If 
     the conference report contains no statement with respect to 
     limited tax

[[Page H5193]]

     benefits, then the President may cancel any revenue provision 
     in the conference report that he determines to be a limited 
     tax benefit.

                          Conference Statement

       The Joint Committee on Taxation has determined that H.R. 
     2676 contains the following provisions that constitute 
     limited tax benefits within the meaning of the Line Item Veto 
     Act:
      Section 3105 (relating to administrative appeal of adverse 
     IRS determination of tax-exempt status of bond issue)
      Section 3445(c) (relating to State fish and wildlife 
     permits)

  TITLE IX. CORRECTIONS TO THE TRANSPORTATION EQUITY ACT FOR THE 21ST 
                                CENTURY

       The conference agreement includes corrections to the 
     Transportation Equity Act for the 21st Century.

               ESTIMATED BUDGET EFFECTS OF TITLES I--VIII OF THE CONFERENCE AGREEMENT RELATING TO H.R. 2676, THE ``INTERNAL REVENUE SERVICE RESTRUCTURING AND REFORM ACT OF 1998''              
                                                                        [Fiscal years 1998-2007, in millions of dollars]                                                                        
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
            Provision                      Effective          1998     1999     2000     2001     2002      2003       2004       2005       2006       2007    1998-2002  2003-2007   1998-2007
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Title I. Reorganization of         ........................                                                                                                                                     
 Structure and Management of the                                                                                                                                                                
 Internal Revenue Service.                                                                                                                                                                      
(12) No Revenue Effect                                                                                                                                                                          
Title II. Electronic Filing......  ........................                                                                                                                                     
(12) No Revenue Effect                                                                                                                                                                          
Title III. Taxpayer Protection                                                                                                                                                                  
 and Rights:                                                                                                                                                                                    
    A. Burden of Proof--apply to   eca DOE                    (\1\)     -231     -256     -269     -278       -297       -311       -327       -344       -360     -1,035     -1,639      -2,674
     only income, estate and gift                                                                                                                                                               
     taxes (permanent).                                                                                                                                                                         
    B. Proceedings by Taxpayers:                                                                                                                                                                
        1. Expansion of authority  180da DOE                 ......      -11      -12      -13      -14        -16        -18        -19        -20        -22        -51        -95        -145
         to award costs and                                                                                                                                                                     
         certain fees at                                                                                                                                                                        
         prevailing rate and rule                                                                                                                                                               
         68 provision with net                                                                                                                                                                  
         worth limitation                                                                                                                                                                       
         (includes outlay                                                                                                                                                                       
         effects): with modified                                                                                                                                                                
         hourly cap.                                                                                                                                                                            
        2. Civil damages with      aoa DOE                       -2      -15      -25      -50      -30        -25        -25        -25        -25        -25       -122       -125        -247
         respect to unauthorized                                                                                                                                                                
         collection actions                                                                                                                                                                     
         (includes outlay                                                                                                                                                                       
         effects).                                                                                                                                                                              
        3. Increase size of cases  pca DOE                                                                                                                                                      
         permitted on small case                                                                                                                                                                
         calendar to $50,000.                                                                                                                                                                   
(12) No Revenue Effect                                                                                                                                                                          
        4. Actions for refund      rfa DOE                                                                                                                                                      
         with respect to certain                                                                                                                                                                
         estates which have                                                                                                                                                                     
         elected the installment                                                                                                                                                                
         method of payment.                                                                                                                                                                     
(12) Negligible Revenue Effect                                                                                                                                                                  
        5. Extend IRS              DOE                        (\1\)       -5       -2       -2       -2         -2         -2         -2         -2         -2        -11        -10         -21
         administrative appeals                                                                                                                                                                 
         right to issuers of tax-                                                                                                                                                               
         exempt bonds.                                                                                                                                                                          
        6. Civil action for        DOE                                                                                                                                                          
         release of erroneous                                                                                                                                                                   
         lien.                                                                                                                                                                                  
(12) Negligible Revenue Effect                                                                                                                                                                  
    C. Relief for Innocent                                                                                                                                                                      
     Spouses and for Taxpayers                                                                                                                                                                  
     Unable to Manage Their                                                                                                                                                                     
     Financial Affairs Due to                                                                                                                                                                   
     Disabilities:                                                                                                                                                                              
        1. Relief for innocent     laa & ulb DOE                -10     -131      -92      -74      -86       -121       -157       -204       -243       -288       -393     -1,013      -1,406
         spouses who are no                                                                                                                                                                     
         longer married, legally                                                                                                                                                                
         separated, or living                                                                                                                                                                   
         apart for 12 consecutive                                                                                                                                                               
         months; House relief for                                                                                                                                                               
         other cases; Secretary                                                                                                                                                                 
         of Treasury has                                                                                                                                                                        
         authority to reach                                                                                                                                                                     
         equitable result.                                                                                                                                                                      
        2. Suspension of statute   tyoo/a DOE                   -10      -70      -35      -15      -16        -17        -18        -19        -20        -21       -146        -95        -241
         of limitations on filing                                                                                                                                                               
         refund claims during                                                                                                                                                                   
         periods of disability.                                                                                                                                                                 
    D. Provisions Relating to                                                                                                                                                                   
     Interest and Penalties:                                                                                                                                                                    
        1. Elimination of          tyoo/a DOE                   -26      -68      -58      -61      -56        -59        -62        -65        -68        -72       -267       -326        -593
         interest rate                                                                                                                                                                          
         differential on                                                                                                                                                                        
         overlapping periods of                                                                                                                                                                 
         interest on income tax                                                                                                                                                                 
         overpayments and                                                                                                                                                                       
         underpayments.                                                                                                                                                                         
        2. Increase refund         2nd & scaqa DOE           ......      -36      -54      -56      -59        -62        -65        -69        -72        -76       -205       -344        -549
         interest rate of                                                                                                                                                                       
         Applicable Federal Rate                                                                                                                                                                
         (``AFR'') +3 for                                                                                                                                                                       
         individual's taxpayers                                                                                                                                                                 
         [2].                                                                                                                                                                                   
        3. Reduced penalty on      iapma 12/31/99            ......  .......     -108     -136     -143       -152       -159       -167       -175       -185       -387       -838      -1,225
         individual's failure to                                                                                                                                                                
         pay during installment                                                                                                                                                                 
         agreements.                                                                                                                                                                            
        4. Mitigation of failure   drma 180da DOE            ......      -47      -64      -64      -65        -66        -66        -67        -68        -68       -240       -335        -575
         to deposit penalty.                                                                                                                                                                    
        5. Suspend accrual of      tyea DOE                  ......  .......     -146     -174     -196       -209       -248       -431       -435       -439       -516     -1,762      -2,278
         interest and penalties                                                                                                                                                                 
         if IRS fails to contact                                                                                                                                                                
         taxpayer within 12                                                                                                                                                                     
         months after a timely-                                                                                                                                                                 
         filed return (except for                                                                                                                                                               
         fraud and criminal                                                                                                                                                                     
         penalties); (1) for                                                                                                                                                                    
         first 5 years, time                                                                                                                                                                    
         period is 18 months                                                                                                                                                                    
         (instead of 12 months);                                                                                                                                                                
         and (2) provide that                                                                                                                                                                   
         termination with respect                                                                                                                                                               
         to specific additional                                                                                                                                                                 
         tax liability occurs on                                                                                                                                                                
         earliest notice of such                                                                                                                                                                
         liability.                                                                                                                                                                             
        6. Procedural              nia & paa 12/31/00                                                                                                                                           
         requirements for                                                                                                                                                                       
         imposition of penalties                                                                                                                                                                
         and additions to tax.                                                                                                                                                                  
(12) Negligible Revenue Effect                                                                                                                                                                  
        7. Permit personal         DOE                                                                                                                                                          
         delivery of section 6672                                                                                                                                                               
         notices.                                                                                                                                                                               
(12)No Revenue Effect                                                                                                                                                                           
        8. Notice of interest      nia 12/31/00                                                                                                                                                 
         charges.                                                                                                                                                                               
(12)No Revenue Effect                                                                                                                                                                           
    E. Protections for Taxpayers                                                                                                                                                                
     Subject to Audit or                                                                                                                                                                        
     Collection Activities:                                                                                                                                                                     
        1. Due process for IRS     caia 180da DOE            ......      -11       -7       -7       -7         -7         -7         -8         -8         -8        -32        -38         -70
         collection actions.                                                                                                                                                                    
        2. Examination                                                                                                                                                                          
         activities:                                                                                                                                                                            
            a. Extend the          cmo/a DOE                  (\3\)    (\3\)    (\3\)    (\3\)    (\3\)      (\3\)      (\3\)      (\3\)      (\3\)      (\3\)      (\4\)      (\4\)       (\5\)
             attorney client                                                                                                                                                                    
             privilege to                                                                                                                                                                       
             accountants and                                                                                                                                                                    
             other tax                                                                                                                                                                          
             practitioners; with                                                                                                                                                                
             exception from both                                                                                                                                                                
             attorney/client                                                                                                                                                                    
             privilege and tax                                                                                                                                                                  
             practitioner/client                                                                                                                                                                
             privilege for                                                                                                                                                                      
             communications                                                                                                                                                                     
             relating to                                                                                                                                                                        
             corporate tax                                                                                                                                                                      
             shelters.                                                                                                                                                                          
            b. Limitation on       DOE                                                                                                                                                          
             financial status                                                                                                                                                                   
             audits.                                                                                                                                                                            
(12)No Revenue Effect                                                                                                                                                                           
            c. Limitation on IRS   sia & saa DOE             ......      -13      -16      -20      -22        -26        -30        -33        -36        -37        -71       -162        -233
             authority to require                                                                                                                                                               
             production of                                                                                                                                                                      
             computer source code                                                                                                                                                               
             and protections                                                                                                                                                                    
             against improper                                                                                                                                                                   
             disclosure.                                                                                                                                                                        
            d. Prohibition on      DOE                                                                                                                                                          
             improper threat of                                                                                                                                                                 
             audit activity for                                                                                                                                                                 
             tip reporting.                                                                                                                                                                     
(12)No Revenue Effect                                                                                                                                                                           
            e. Allow taxpayers to  ssa DOE                                                                                                                                                      
             quash all third-                                                                                                                                                                   
             party summonses.                                                                                                                                                                   
(12)Negligible Revenue Effect                                                                                                                                                                   
            f. Permit service of   ssa DOE                                                                                                                                                      
             summonses by mail or                                                                                                                                                               
             in person.                                                                                                                                                                         
(12)No Revenue Effect                                                                                                                                                                           
            g. IRS must provide    180da DOE                 ......    (\3\)    (\3\)    (\3\)    (\3\)      (\3\)      (\3\)      (\3\)      (\3\)      (\3\)      (\4\)      (\4\)       (\5\)
             general notice and                                                                                                                                                                 
             periodic reports to                                                                                                                                                                
             taxpayers before                                                                                                                                                                   
             contacting third                                                                                                                                                                   
             parties regarding                                                                                                                                                                  
             IRS examination or                                                                                                                                                                 
             collection                                                                                                                                                                         
             activities with                                                                                                                                                                    
             respect to the                                                                                                                                                                     
             taxpayer.                                                                                                                                                                          
        3. Collection activities:                                                                                                                                                               
            a. Approval process--  (\6\)                                                                                                                                                        
             IRS to implement                                                                                                                                                                   
             approval process for                                                                                                                                                               
             liens, levies, or                                                                                                                                                                  
             seizures;                                                                                                                                                                          
             clarification of                                                                                                                                                                   
             ``appropriate''.                                                                                                                                                                   
(12)Negligible Revenue Effect                                                                                                                                                                   
            b. Increase the        Lia DOE                    (\1\)       -1       -1       -1       -1         -2         -2         -2         -2         -2         -6         -8         -13
             amount exempt from                                                                                                                                                                 
             levy to $6.250 for                                                                                                                                                                 
             personal property                                                                                                                                                                  
             and $3,125 for books                                                                                                                                                               
             and tools of trade,                                                                                                                                                                
             indexed for                                                                                                                                                                        
             inflation.                                                                                                                                                                         
            c. Require the IRS to  lia 12/31/99                                                                                                                                                 
             release a levy upon                                                                                                                                                                
             agreement that the                                                                                                                                                                 
             amount is not                                                                                                                                                                      
             collectible.                                                                                                                                                                       
(12)Negligible Revenue Effect                                                                                                                                                                   
            d. Suspend collection  tyba 12/31/98                                                                                                                                                
             by levy during                                                                                                                                                                     
             refund suit.                                                                                                                                                                       
(12)Negligible Revenue Effect                                                                                                                                                                   
            e. Require District    taa & lma DOE                                                                                                                                                
             Counsel review of                                                                                                                                                                  
             jeopardy and                                                                                                                                                                       
             termination                                                                                                                                                                        
             assessments and                                                                                                                                                                    
             jeopardy levies.                                                                                                                                                                   
(12)Negligible Revenue Effect                                                                                                                                                                   
            f. Increase in amount  DOE                                                                                                                                                          
             of certain property                                                                                                                                                                
             on which lien not                                                                                                                                                                  
             valid.                                                                                                                                                                             
(12)Negligible Revenue Effect                                                                                                                                                                   
            g. Waive the 10%       wa 12/31/99               ......  .......       -1       -3       -4         -4         -5         -5         -5         -5         -9        -24         -33
             early withdrawal tax                                                                                                                                                               
             when IRA or                                                                                                                                                                        
             qualified plan is                                                                                                                                                                  
             levied.                                                                                                                                                                            

[[Page H5194]]

                                                                                                                                                                                                
            h. Prohibit the IRS    Soa DOE                                                                                                                                                      
             from selling                                                                                                                                                                       
             taxpayer's property                                                                                                                                                                
             for less than the                                                                                                                                                                  
             minimum bid.                                                                                                                                                                       
(12)No Revenue Effect                                                                                                                                                                           
            j. Require the IRS to  soa DOE                                                                                                                                                      
             provide an                                                                                                                                                                         
             accounting and                                                                                                                                                                     
             receipt to the                                                                                                                                                                     
             taxpayer (including                                                                                                                                                                
             the amount credited                                                                                                                                                                
             to the taxpayer's                                                                                                                                                                  
             account) for                                                                                                                                                                       
             property seized and                                                                                                                                                                
             sold.                                                                                                                                                                              
(12) Negligible Revenue Effect                                                                                                                                                                  
            J. Require the IRS to  DOE & 2 years                                                                                                                                                
             study and implement                                                                                                                                                                
             a uniform asset                                                                                                                                                                    
             disposal mechanism                                                                                                                                                                 
             for sales of seized                                                                                                                                                                
             property to prevent                                                                                                                                                                
             revenue officers                                                                                                                                                                   
             from conducting                                                                                                                                                                    
             sales.                                                                                                                                                                             
(12) No Revenue Effect                                                                                                                                                                          
            K. Codify IRS          DOE                                                                                                                                                          
             administrative                                                                                                                                                                     
             procedures for                                                                                                                                                                     
             seizure of                                                                                                                                                                         
             taxpayer's property.                                                                                                                                                               
(12) No Revenue Effect                                                                                                                                                                          
            l. Procedures for      DOE                        (\1\)       -3       -3       -3       -3         -3         -3         -3         -3         -3        -12        -15         -27
             seizure of                                                                                                                                                                         
             residences and                                                                                                                                                                     
             businesses.                                                                                                                                                                        
        4. Provisions relating to                                                                                                                                                               
         examination and                                                                                                                                                                        
         collection activities:                                                                                                                                                                 
            a. Prohibition on      (\7\)                     ......  .......       -9      -13      -16        -18        -19        -19        -21        -14        -38       -101        -139
             extension of statute                                                                                                                                                               
             of limitation for                                                                                                                                                                  
             collection beyond 10                                                                                                                                                               
             years with                                                                                                                                                                         
             installment payment                                                                                                                                                                
             exception.                                                                                                                                                                         
            b. Offers-in-          generally DOE                 -1  .......        9        4        4          4          4          4          4          4         17         21          38
             compromise.                                                                                                                                                                        
            c. Notice of           nma12/13/98                                                                                                                                                  
             deficiency to                                                                                                                                                                      
             specify deadlines                                                                                                                                                                  
             for filing Tax Court                                                                                                                                                               
             petition.                                                                                                                                                                          
(12) Negligible Revenue Effect                                                                                                                                                                  
            d. Refund or credit    DOE                                                                                                                                                          
             of overpayments                                                                                                                                                                    
             before final                                                                                                                                                                       
             determination.                                                                                                                                                                     
(12) Negligible Revenue Effect                                                                                                                                                                  
            e. IRS procedures      DOE                                                                                                                                                          
             relating to appeal                                                                                                                                                                 
             of examination and                                                                                                                                                                 
             collections.                                                                                                                                                                       
(12) No Revenue Effect                                                                                                                                                                          
            f. Codify certain      DOE                                                                                                                                                          
             fair debt collection                                                                                                                                                               
             procedures.                                                                                                                                                                        
(12) No Revenue Effect                                                                                                                                                                          
            g. Ensure              DOE                                                                                                                                                          
             availability of                                                                                                                                                                    
             installment                                                                                                                                                                        
             agreements.                                                                                                                                                                        
(12) No Revenue Effect                                                                                                                                                                          
            h. Prohibit Federal    DOE                                                                                                                                                          
             Government officers                                                                                                                                                                
             and employees from                                                                                                                                                                 
             requesting taxpayers                                                                                                                                                               
             to give up their                                                                                                                                                                   
             rights to sue.                                                                                                                                                                     
(12) No Revenue Effect                                                                                                                                                                          
    F. Disclosures to Taxpayers:                                                                                                                                                                
        1. Explanation of joint    180da DOE                                                                                                                                                    
         and several liability.                                                                                                                                                                 
(12) No Revenue Effect                                                                                                                                                                          
        2. Explanation of          180da DOE                 ......      -13    (\1\)    (\1\)    (\1\)      (\1\)      (\1\)      (\1\)      (\1\)      (\1\)      (\4\)      (\3\)       (\4\)
         Taxpayers' rights in                                                                                                                                                                   
         interviews with IRS.                                                                                                                                                                   
        3. Disclosure of criteria  180da DOE                                                                                                                                                    
         for examination                                                                                                                                                                        
         selection.                                                                                                                                                                             
(12) No Revenue Effect                                                                                                                                                                          
        4. Explanations of         180da DOE                                                                                                                                                    
         appeals and collection                                                                                                                                                                 
         process.                                                                                                                                                                               
(12) No Revenue Effect                                                                                                                                                                          
        5. Require IRS to explain  180da DOE                                                                                                                                                    
         reason for denial for                                                                                                                                                                  
         refund.                                                                                                                                                                                
(12) No Revenue Effect                                                                                                                                                                          
        6. Statement to taxpayers  7/1/00                                                                                                                                                       
         with installation                                                                                                                                                                      
         agreements.                                                                                                                                                                            
(12) No Revenue Effect                                                                                                                                                                          
        7. Require IRS to notify   sotmpa DOE                 (\8\)    (\8\)    (\8\)    (\8\)    (\8\)      (\8\)      (\8\)      (\8\)      (\8\)      (\8\)         -1         -1          -2
         all partners of any                                                                                                                                                                    
         resignation of the tax                                                                                                                                                                 
         matters partner that is                                                                                                                                                                
         required by the IRS, and                                                                                                                                                               
         of the identity of any                                                                                                                                                                 
         successor tax matters                                                                                                                                                                  
         partnership who was                                                                                                                                                                    
         appointed to fill the                                                                                                                                                                  
         vacancy created by such                                                                                                                                                                
         resignation.                                                                                                                                                                           
        8. Require information to  DOE                                                                                                                                                          
         taxpayers concerning                                                                                                                                                                   
         disclosure of their                                                                                                                                                                    
         income tax return                                                                                                                                                                      
         information to parties                                                                                                                                                                 
         outside the IRS.                                                                                                                                                                       
(12) No Revenue Effect                                                                                                                                                                          
        9. Disclosure of Chief     ai 90da DOE                                                                                                                                                  
         Counsel advice.                                                                                                                                                                        
(12) No Revenue Effect                                                                                                                                                                          
    G. Low-Income Taxpayer         DOE                                                                                                                                                          
     Clinics.                                                                                                                                                                                   
(12) No Revenue Effect                                                                                                                                                                          
    H. Other Provisions:                                                                                                                                                                        
        1. Cataloging complaints   1/1/00                                                                                                                                                       
         of IRS employee                                                                                                                                                                        
         misconduct.                                                                                                                                                                            
(12) No Revenue Effect                                                                                                                                                                          
        2. Archive of records of   DOE                                                                                                                                                          
         Internal Revenue Service.                                                                                                                                                              
(12) No Revenue Effect                                                                                                                                                                          
        3. Payment of taxes to     DOE                                                                                                                                                          
         the U.S. Treasury [2].                                                                                                                                                                 
(12) No Revenue Effect                                                                                                                                                                          
        4. Clarification of        DOE                                                                                                                                                          
         authority of Secretary                                                                                                                                                                 
         relating to the making                                                                                                                                                                 
         of elections.                                                                                                                                                                          
(12) No Revenue Effect                                                                                                                                                                          
        5. IRS employee contracts  6ma DOE                                                                                                                                                      
(12) No Revenue Effect                                                                                                                                                                          
        6. Require approval of     DOE                                                                                                                                                          
         use of pseudonyms by IRS                                                                                                                                                               
         employees.                                                                                                                                                                             
(12) No Revenue Effect                                                                                                                                                                          
        7. Require the IRS to end  DOE & rdnrb 1/1/99                                                                                                                                           
         the use of the illegal                                                                                                                                                                 
         tax protestor label.                                                                                                                                                                   
(12) No Revenue Effect                                                                                                                                                                          
        8. Modify section 6103 to  DOE                                                                                                                                                          
         allow the tax-writing                                                                                                                                                                  
         committees to obtain                                                                                                                                                                   
         data from IRS employees                                                                                                                                                                
         regarding employee and                                                                                                                                                                 
         taxpayer abuse.                                                                                                                                                                        
(12) No Revenue Effect                                                                                                                                                                          
        9. Publish telephone       DOE                                                                                                                                                          
         numbers for local IRS                                                                                                                                                                  
         offices.                                                                                                                                                                               
(12) No Revenue Effect                                                                                                                                                                          
        10. Alternative to Social  DOE                                                                                                                                                          
         Security numbers for tax                                                                                                                                                               
         return preparers.                                                                                                                                                                      
(12) No Revenue Effect                                                                                                                                                                          
        11. Authorize the Federal  rpa 12/31/99              ......  .......        2        3        3          3          3          4          4          4          8         18          26
         government to offset a                                                                                                                                                                 
         Federal income tax                                                                                                                                                                     
         refund to satisfy a past-                                                                                                                                                              
         due, legally owing State                                                                                                                                                               
         income tax debt.                                                                                                                                                                       
        12. Modify section 6050S   tyba 12/31/98                                                                                                                                                
         to require educational                                                                                                                                                                 
         institutions to report                                                                                                                                                                 
         grant amounts processed                                                                                                                                                                
         through and refunds made                                                                                                                                                               
         by the institution; with                                                                                                                                                               
         clarifications regarding                                                                                                                                                               
         the definition of                                                                                                                                                                      
         ``qualified tuition and                                                                                                                                                                
         related expenses'' and                                                                                                                                                                 
         certain other                                                                                                                                                                          
         educational institution                                                                                                                                                                
         reporting requirements.                                                                                                                                                                
(12) Negligible Revenue Effect                                                                                                                                                                  
    I. Studies:                                                                                                                                                                                 
        1. Administration of       1ya DOE                                                                                                                                                      
         penalties and interest.                                                                                                                                                                
(12) No Revenue Effect                                                                                                                                                                          
        2. Confidentiality of tax  18ma DOE                                                                                                                                                     
         return information.                                                                                                                                                                    
(12) No Revenue Effect                                                                                                                                                                          
        3. Noncompliance with      1ya DOE                                                                                                                                                      
         internal revenue laws by                                                                                                                                                               
         taxpayers.                                                                                                                                                                             
(12) No Revenue Effect                                                                                                                                                                          
        4. Payments for            1ya DOE                                                                                                                                                      
         informants.                                                                                                                                                                            
(12) No Revenue Effect                                                                                                                                                                          
                                                            ------------------------------------------------------------------------------------------------------------------------------------
          Subtotal, Taxpayer       ........................     -53     -661     -885     -961     -998     -1,085     -1,196     -1,463     -1,545     -1,635     -3,559     -6,925     -10,483
           Protections and Rights.                                                                                                                                                              
                                                            ====================================================================================================================================
Title IV. Congressional            ........................                                                                                                                                     
 Accountability for the Internal                                                                                                                                                                
 Revenue Service.                                                                                                                                                                               
(12) No Revenue Effect                                                                                                                                                                          
Title V. Additional Provisions:                                                                                                                                                                 
    A. Change the Holding Period   aptiao/a 1/1/98               35      611     -312     -335     -335       -337       -341       -347       -354       -362       -336     -1,741      -2,077
     for Long-Term Capital Gains                                                                                                                                                                
     to 12 months.                                                                                                                                                                              
    B. Deductibility of Means      tybbo/a DOE               ......      -20      -33      -34      -35        -36        -38        -39        -40        -41       -122       -194        -316
     Provided for the Convenience                                                                                                                                                               
     of Employer on Employer's                                                                                                                                                                  
     Premises.                                                                                                                                                                                  
    C. Instead of Most Favored     ........................                                                                                                                                     
     Nation Status Use Normal                                                                                                                                                                   
     Trade Relations Terminology                                                                                                                                                                
     [2].                                                                                                                                                                                       
(12) No Revenue Effect                                                                                                                                                                          
      Subtotal, Additional         ........................      35      591     -345     -369     -370       -373       -379       -386       -394       -403       -458     -1,935      -2,393
       Provisions.                                                                                                                                                                              
Title VI. Tax Technical            ........................                                                                                                                                     
 Corrections.                                                                                                                                                                                   
(12) No Revenue Effect                                                                                                                                                                          
Title VII. Revenue Offsets:                                                                                                                                                                     
    A. Overrule Schmidt Baking     tyea DOE                     593      839      997      456      308        156        163        172        180        189      3,193        860       4,053
     with Respect to Vacation Pay                                                                                                                                                               
     and Severance and Other                                                                                                                                                                    
     Types of Compensation With                                                                                                                                                                 
     Spread.                                                                                                                                                                                    
    B. Freeze Grandfathered        tyea 3/26/98               (\9\)        1        3        6       10         14         19         26         35         45         20        139         159
     Status of Stapled or Paired--                                                                                                                                                              
     Share REITs.                                                                                                                                                                               
    C. Make Certain Trade          tyea DOE                      33      317      500      333      117         70         73         77         81         85      1,300        386       1,686
     Receivables Ineligible for                                                                                                                                                                 
     Mark-to-Market Treatment.                                                                                                                                                                  
    D. Disregard Minimum           tyba 12/31/04             ......  .......  .......  .......  .......  .........  .........      2,362      2,854      2,812  .........      8,028       8,028
     Distributions in Determining                                                                                                                                                               
     AGI for IRA Conversions to a                                                                                                                                                               
     Roth IRA.                                                                                                                                                                                  
                                                            ------------------------------------------------------------------------------------------------------------------------------------

[[Page H5195]]

                                                                                                                                                                                                
      Subtotal, Revenue Offsets..  ........................     626    1,157    1,500      795      435        240        255      2,637      3,150      3,131      4,513      9,413      13,926
                                                            ====================================================================================================================================
Title VIII. Limited Tax Benefits   ........................                                                                                                                                     
 Under the Line Veto Act.                                                                                                                                                                       
(12) No Revenue Effect                                                                                                                                                                          
                                                            ------------------------------------------------------------------------------------------------------------------------------------
      Net Total (Reserved for      ........................     608    1,087      270     -535     -933     -1,218     -1,320        788      1,211      1,093        496        553       1,050
       Future Tax Reduction).                                                                                                                                                                   
Revenue Effect From Emergency                                                                                                                                                                   
 Legislation Per Section 252(e)                                                                                                                                                                 
 of the Balanced Budget and                                                                                                                                                                     
 Emergency Deficit Control Act:                                                                                                                                                                 
    1. Abate interest on           dda 12/31/97                  -8      -25      -25      -25      -25        -25        -25        -25        -25        -25       -108       -126       -234 
     underpayments by taxpayers                                                                                                                                                                 
     in Presidentially declared                                                                                                                                                                 
     disaster areas.                                                                                                                                                                            
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Loss of less than $1 million.                                                                                                                                                               
\2\ Estimate provided by the Congressional Budget Office.                                                                                                                                       
\3\ Loss of less than $5 million.                                                                                                                                                               
\4\ Loss of less than $25 million.                                                                                                                                                              
\5\ Loss of less than $50 million.                                                                                                                                                              
\6\ Generally effective for collection actions commencing after the date of enactment; collections at ACS sites effective for levies imposed after 12/31/00.                                    
\7\ Effective for requests to extend the statute of limitations made after 12/31/99 and to all extensions of the statute of limitations on collections that are open after 12/31/99.            
\8\ Loss of less than $500,000.                                                                                                                                                                 
\9\ Gain of less than $500,000.                                                                                                                                                                 
                                                                                                                                                                                                
Legend for ``Effective'' column: ai=advice issued; aoa=actions occurring after; aptiao/a=amounts properly taken into account on or after; caia=collection actions initiated after; cmo/         
  a=communications made on or after; dda=disasters declared after; DOE=date of enactment; drma=deposits required to be made after; eca=examinations commencing after; iapma=installment         
  agreement payments made after; laa=liability arising after; lia=levies imposed after; Lia=levies issued after; Ima=levies made after; nia=notices issued after; nma=notices mailed after;     
  paa=penalties assessed after; pca=proceedings commencing after; rdnrb=removal designation not required before; rfa=refunds filed after; rpa=refunds payable after; saa=software acquired      
  after; scqa=succeeding calendar quarters beginning after; sia=summonses issued after; soa=seizures occurring after; Soa=sales occurring after; sotmpa=selections of tax matters partners      
  after; ssa=summonses served after; taa=taxes assessed after; tyba=taxable years beginning after; tyea=taxable years ending after; tybbo/a=taxable years beginning before, on, or after; tyoo/ 
  a=taxable years open on or after; ulb=unpaid liability before; wa=withdrawals after; 1ya=1 year after; 6ma=6 months after; 18ma=18 months after; 60da=60 days after; 90da=90 days after; and  
  180da=180 days after.                                                                                                                                                                         
                                                                                                                                                                                                
Note.--Details may not add to totals due to rounding.                                                                                                                                           
Source: Joint Committee on Taxation.                                                                                                                                                            

     Bill Archer,
     Nancy L. Johnson,
     Rob Portman,
     Charles B. Rangel,
     William J. Coyne,
                                Managers on the Part of the House.

     Bill Roth,
     John H. Chafee,
     Chuck Grassley,
     Orrin Hatch,
     Frank H. Murkowski,
     Don Nickles,
     Phil Gramm,
     Daniel P. Moynihan,
     Max Baucus,
     Bob Graham,
     John Breaux,
     Bob Kerrey,
     From the Committee on Governmental Affairs:
     Fred Thompson,
     Sam Brownback,
     Thad Cochran,
     Managers on the Part of the Senate.

                          ____________________