[Congressional Record (Bound Edition), Volume 150 (2004), Part 8]
[Senate]
[Pages 10585-10611]
[From the U.S. Government Publishing Office, www.gpo.gov]




                 TAX ADMINISTRATION GOOD GOVERNMENT ACT

  On Wednesday, May 19, 2004, the Senate passed H.R. 1528, as follows:

                               H.R. 1528

       Resolved, That the bill from the House of Representatives 
     (H.R. 1528) entitled ``An Act to amend the Internal Revenue 
     Code of 1986 to protect taxpayers and ensure accountability 
     of the Internal Revenue Service.'', do pass with the 
     following amendment:
       Strike out all after the enacting clause and insert:

     SECTION 1. SHORT TITLE; ETC.

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

Sec. 1. Short title; etc.

  TITLE I--IMPROVEMENTS IN TAX ADMINISTRATION AND TAXPAYER SAFEGUARDS

   Subtitle A--Improvements in Efficiency and Safeguards in Internal 
                       Revenue Service Collection

Sec. 101. Waiver of user fee for installment agreements using automated 
              withdrawals.
Sec. 102. Authorization for IRS to enter into installment agreements 
              that provide for partial payment.
Sec. 103. Termination of installment agreements.
Sec. 104. Office of Chief Counsel review of offers-in-compromise.
Sec. 105. Authorization for IRS to require increased electronic filing 
              of returns prepared by paid return preparers.
Sec. 106. Threshold on tolling of statute of limitations during review 
              by Taxpayer Advocate Service.
Sec. 107. Increase in penalty for bad checks and money orders.
Sec. 108. Extension of time limit for contesting IRS levy.
Sec. 109. Individuals held harmless on improper levy on individual 
              retirement plan.
Sec. 110. Authorization for Financial Management Service retention of 
              transaction fees from levied amounts.
Sec. 111. Elimination of restriction on offsetting refunds from former 
              residents.

                  Subtitle B--Processing and Personnel

Sec. 121. Information regarding statute of limitations.
Sec. 122. Annual report on IRS performance measures.
Sec. 123. Disclosure of tax information to facilitate combined 
              employment tax reporting.
Sec. 124. Extension of declaratory judgment procedures to non-501(c)(3) 
              tax-exempt organizations.
Sec. 125. Amendment to Treasury auction reforms.
Sec. 126. Revisions relating to termination of employment of IRS 
              employees for misconduct.
Sec. 127. Expansion of IRS Oversight Board Authority.
Sec. 128. IRS Oversight Board approval of use of critical pay 
              authority.
Sec. 129. Low-income taxpayer clinics.
Sec. 130. Taxpayer access to financial institutions.
Sec. 131. Enrolled agents.
Sec. 132. Establishment of disaster response team.
Sec. 133. Study of accelerated tax refunds.
Sec. 134. Study on clarifying recordkeeping responsibilities.
Sec. 135. Streamline reporting process for National Taxpayer Advocate.
Sec. 136. IRS Free File program.
Sec. 137. Modification of TIGTA reporting requirements.
Sec. 138. Study of IRS accounts receivable.
Sec. 139. Electronic Commerce Advisory Group.
Sec. 140. Study on modifications to schedules L and M-1.
Sec. 141. Regulation of Federal income tax return preparers and refund 
              anticipation loan providers.
Sec. 142. Joint task force on offers-in-compromise.

                      Subtitle C--Other Provisions

Sec. 151. Penalty for failure to report interests in foreign financial 
              accounts.
Sec. 152. Repeal of application of below-market loan rules to amounts 
              paid to certain continuing care facilities.
Sec. 153. Public support by Indian tribal governments.
Sec. 154. Payroll agents subject to penalty for failure to collect and 
              pay over tax, or attempt to evade or defeat tax.

                TITLE II--REFORM OF PENALTY AND INTEREST

Sec. 201. Individual estimated tax.
Sec. 202. Corporate estimated tax.
Sec. 203. Increase in large corporation threshold for estimated tax 
              payments.
Sec. 204. Abatement of interest.
Sec. 205. Deposits made to suspend running of interest on potential 
              underpayments.
Sec. 206. Freeze of provisions regarding suspension of interest where 
              Secretary fails to contact taxpayer.
Sec. 207. Clarification of application of Federal tax deposit penalty.
Sec. 208. Frivolous tax returns and submissions.
Sec. 209. Extension of notice requirements with respect to interest and 
              penalty calculations.
Sec. 210. Expansion of interest netting.

            TITLE III--UNITED STATES TAX COURT MODERNIZATION

                    Subtitle A--Tax Court Procedure

Sec. 301. Jurisdiction of Tax Court over collection due process cases.
Sec. 302. Authority for special trial judges to hear and decide certain 
              employment status cases.
Sec. 303. Confirmation of authority of Tax Court to apply doctrine of 
              equitable recoupment.
Sec. 304. Tax Court filing fee in all cases commenced by filing 
              petition.
Sec. 305. Amendments to appoint employees.
Sec. 306. Expanded use of Tax Court practice fee for pro se taxpayers.

             Subtitle B--Tax Court Pension and Compensation

Sec. 311. Annuities for survivors of Tax Court judges who are 
              assassinated.
Sec. 312. Cost-of-living adjustments for Tax Court judicial survivor 
              annuities.
Sec. 313. Life insurance coverage for Tax Court judges.
Sec. 314. Cost of life insurance coverage for Tax Court judges age 65 
              or over.
Sec. 315. Modification of timing of lump-sum payment of judges' accrued 
              annual leave.
Sec. 316. Participation of Tax Court judges in the Thrift Savings Plan.
Sec. 317. Exemption of teaching compensation of retired judges from 
              limitation on outside earned income.
Sec. 318. General provisions relating to magistrate judges of the Tax 
              Court.
Sec. 319. Annuities to surviving spouses and dependent children of 
              magistrate judges of the Tax Court.
Sec. 320. Retirement and annuity program.
Sec. 321. Incumbent magistrate judges of the Tax Court.
Sec. 322. Provisions for recall.
Sec. 323. Effective date.

                TITLE IV--CONFIDENTIALITY AND DISCLOSURE

Sec. 401. Clarification of definition of church tax inquiry.
Sec. 402. Collection activities with respect to joint return 
              disclosable to either spouse based on oral request.
Sec. 403. Taxpayer representatives not subject to examination on sole 
              basis of representation of taxpayers.
Sec. 404. Prohibition of disclosure of taxpayer identification 
              information with respect to disclosure of accepted 
              offers-in-compromise.
Sec. 405. Compliance by contractors with confidentiality safeguards.
Sec. 406. Higher standards for requests for and consents to disclosure.
Sec. 407. Civil damages for unauthorized disclosure or inspection.
Sec. 408. Expansion of disclosure in emergency circumstances.
Sec. 409. Disclosure of taxpayer identity for tax refund purposes.
Sec. 410. Disclosure to State officials of proposed actions related to 
              section 501(c) organizations.
Sec. 411. Treatment of public records.
Sec. 412. Employee identity disclosures.

[[Page 10586]]

Sec. 413. Taxpayer identification number matching.
Sec. 414. Form 8300 disclosures.
Sec. 415. Disclosure to law enforcement agencies regarding terrorist 
              activities.

                        TITLE V--SIMPLIFICATION

                Subtitle A--Uniform Definition of Child

Sec. 501. Uniform definition of child, etc.
Sec. 502. Modifications of definition of head of household.
Sec. 503. Modifications of dependent care credit.
Sec. 504. Modifications of child tax credit.
Sec. 505. Modifications of earned income credit.
Sec. 506. Modifications of deduction for personal exemption for 
              dependents.
Sec. 507. Technical and conforming amendments.
Sec. 508. Effective date.

     Subtitle B--Simplification Through Elimination of Inoperative 
                               Provisions

Sec. 511. Simplification through elimination of inoperative provisions.

                      TITLE VI--REVENUE PROVISIONS

        Subtitle A--Provisions Designed to Curtail Tax Shelters

Sec. 601. Penalty for failing to disclose reportable transaction.
Sec. 602. Accuracy-related penalty for listed transactions and other 
              reportable transactions having a significant tax 
              avoidance purpose.
Sec. 603. Modifications of substantial understatement penalty for 
              nonreportable transactions.
Sec. 604. Tax shelter exception to confidentiality privileges relating 
              to taxpayer communications.
Sec. 605. Disclosure of reportable transactions.
Sec. 606. Modifications to penalty for failure to register tax 
              shelters.
Sec. 607. Modification of penalty for failure to maintain lists of 
              investors.
Sec. 608. Modification of actions to enjoin certain conduct related to 
              tax shelters and reportable transactions.
Sec. 609. Understatement of taxpayer's liability by income tax return 
              preparer.
Sec. 610. Regulation of individuals practicing before the Department of 
              Treasury.
Sec. 611. Penalty on promoters of tax shelters.
Sec. 612. Statute of limitations for taxable years for which required 
              listed transactions not reported.
Sec. 613. Denial of deduction for interest on underpayments 
              attributable to tax-motivated transactions.
Sec. 614. Authorization of appropriations for tax law enforcement.

             Part II--Other Corporate Governance Provisions

Sec. 621. Affirmation of consolidated return regulation authority.
Sec. 622. Declaration by chief executive officer relating to Federal 
              annual income tax return of a corporation.
Sec. 623. Denial of deduction for certain fines, penalties, and other 
              amounts.
Sec. 624. Disallowance of deduction for punitive damages.
Sec. 625. Increase in criminal monetary penalty for individuals to the 
              amount of the tax at issue.
Sec. 626. Doubling of certain penalties, fines, and interest on 
              underpayments related to certain offshore financial 
              arrangements.

                  Part III--Extension of IRS User Fees

Sec. 631. Extension of IRS user fees.

                   PART IV--OTHER REVENUE PROVISIONS

Sec. 641. Reporting of taxable mergers and acquisitions.
Sec. 642. Modification of definition of controlled group of 
              corporations.

  TITLE I--IMPROVEMENTS IN TAX ADMINISTRATION AND TAXPAYER SAFEGUARDS

   Subtitle A--Improvements in Efficiency and Safeguards in Internal 
                       Revenue Service Collection

     SEC. 101. WAIVER OF USER FEE FOR INSTALLMENT AGREEMENTS USING 
                   AUTOMATED WITHDRAWALS.

       (a) In General.--Section 6159 (relating to agreements for 
     payment of tax liability in installments) is amended by 
     redesignating subsection (e) as subsection (f) and by 
     inserting after subsection (d) the following:
       ``(e) Waiver of User Fees for Installment Agreements Using 
     Automated Withdrawals.--In the case of a taxpayer who enters 
     into an installment agreement in which automated installment 
     payments are agreed to, the Secretary shall waive the fee (if 
     any) for entering into the installment agreement.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to agreements entered into on or after the date 
     which is 180 days after the date of the enactment of this 
     Act.

     SEC. 102. AUTHORIZATION FOR IRS TO ENTER INTO INSTALLMENT 
                   AGREEMENTS THAT PROVIDE FOR PARTIAL PAYMENT.

       (a) In General.--
       (1) Section 6159(a) (relating to authorization of 
     agreements) is amended--
       (A) by striking ``satisfy liability for payment of'' and 
     inserting ``make payment on'', and
       (B) by inserting ``full or partial'' after ``facilitate''.
       (2) Section 6159(c) (relating to Secretary required to 
     enter into installment agreements in certain cases) is 
     amended in the matter preceding paragraph (1) by inserting 
     ``full'' before ``payment''.
       (b) Requirement To Review Partial Payment Agreements Every 
     Two Years.--Section 6159, as amended by this Act, is amended 
     by redesignating subsections (d), (e), and (f) as subsections 
     (e), (f), and (g), respectively, and inserting after 
     subsection (c) the following new subsection:
       ``(d) Secretary Required To Review Installment Agreements 
     for Partial Collection Every Two Years.--In the case of an 
     agreement entered into by the Secretary under subsection (a) 
     for partial collection of a tax liability, the Secretary 
     shall review the agreement at least once every 2 years with 
     the primary purpose of determining whether the financial 
     condition of the taxpayer has significantly changed so as to 
     warrant an increase in the value of the payments being 
     made.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to agreements entered into on or after the date 
     of the enactment of this Act.

     SEC. 103. TERMINATION OF INSTALLMENT AGREEMENTS.

       (a) In General.--Section 6159(b)(4) (relating to failure to 
     pay an installment or any other tax liability when due or to 
     provide requested financial information) is amended by 
     striking ``or'' at the end of subparagraph (B), by 
     redesignating subparagraph (C) as subparagraph (E), and by 
     inserting after subparagraph (B) the following:
       ``(C) to make a Federal tax deposit under section 6302 at 
     the time such deposit is required to be made,
       ``(D) to file a return of tax imposed under this title by 
     its due date (including extensions), or''.
       (b) Conforming Amendment.--Section 6159(b)(4) is amended by 
     striking ``Failure to pay an installment or any other tax 
     liability when due or to provide requested financial 
     information'' and inserting ``Failure to make payments or 
     deposits or file returns when due or to provide requested 
     financial information''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to failures occurring on or after the date of the 
     enactment of this Act.

     SEC. 104. OFFICE OF CHIEF COUNSEL REVIEW OF OFFERS-IN-
                   COMPROMISE.

       (a) In General.--Section 7122(b) (relating to record) is 
     amended by striking ``Whenever a compromise'' and all that 
     follows through ``his delegate'' and inserting ``If the 
     Secretary determines that an opinion of the General Counsel 
     for the Department of the Treasury, or the Counsel's 
     delegate, is required with respect to a compromise, there 
     shall be placed on file in the office of the Secretary such 
     opinion''.
       (b) Conforming Amendments.--Section 7122(b) is amended by 
     striking the second and third sentences.
       (c) Effective Date.--The amendments made by this section 
     shall apply to offers-in-compromise submitted or pending on 
     or after the date of the enactment of this Act.

     SEC. 105. AUTHORIZATION FOR IRS TO REQUIRE INCREASED 
                   ELECTRONIC FILING OF RETURNS PREPARED BY PAID 
                   RETURN PREPARERS.

       (a) In General.--Section 6011(e) (relating to regulations 
     requiring returns on magnetic media, etc.) is amended--
       (1) by striking the second sentence in paragraph (1), and
       (2) by striking ``250'' in paragraph (2)(A) and inserting 
     ``5''.
       (b) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 106. THRESHOLD ON TOLLING OF STATUTE OF LIMITATIONS 
                   DURING REVIEW BY TAXPAYER ADVOCATE SERVICE.

       (a) In General.--Section 7811(d)(1) (relating to suspension 
     of running of period of limitation) is amended by inserting 
     after ``such application,'' the following: ``but only if the 
     date of such decision is at least 7 days after the date of 
     the taxpayer's application''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to applications filed after the date of the 
     enactment of this Act.

     SEC. 107. INCREASE IN PENALTY FOR BAD CHECKS AND MONEY 
                   ORDERS.

       (a) In General.--Section 6657 (relating to bad checks) is 
     amended--
       (1) by striking ``$750'' and inserting ``$1,250'', and
       (2) by striking ``$15'' and inserting ``$25''.
       (b) Effective Date.--The amendments made by this section 
     apply to checks or money orders received after the date of 
     the enactment of this Act.

     SEC. 108. EXTENSION OF TIME LIMIT FOR CONTESTING IRS LEVY.

       (a) Extension of Time for Return of Property Subject to 
     Levy.--Subsection (b) of section 6343 (relating to return of 
     property) is amended by striking ``9 months'' and inserting 
     ``2 years''.
       (b) Period of Limitation on Suits.--Subsection (c) of 
     section 6532 (relating to suits by persons other than 
     taxpayers) is amended--
       (1) in paragraph (1) by striking ``9 months'' and inserting 
     ``2 years'', and
       (2) in paragraph (2) by striking ``9-month'' and inserting 
     ``2-year''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to--
       (1) levies made after the date of the enactment of this 
     Act, and
       (2) levies made on or before such date if the 9-month 
     period has not expired under section 6343(b) of the Internal 
     Revenue Code of 1986 (without regard to this section) as of 
     such date.

[[Page 10587]]



     SEC. 109. INDIVIDUALS HELD HARMLESS ON IMPROPER LEVY ON 
                   INDIVIDUAL RETIREMENT PLAN.

       (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:
       ``(f) Individuals Held Harmless on Wrongful Levy, etc. on 
     Individual Retirement Plan.--
       ``(1) In general.--If the Secretary determines that an 
     individual retirement plan has been levied upon in a case to 
     which subsection (b) or (d)(2)(A) applies and an amount is 
     returned to the individual who is the beneficiary of such 
     plan, the individual may deposit an amount equal to the sum 
     of--
       ``(A) the amount of money returned by the Secretary on 
     account of such levy, and
       ``(B) interest paid under subsection (c) on such amount of 
     money,
     into an individual retirement plan (other than an endowment 
     contract) to which a rollover from the plan levied upon is 
     permitted.
       ``(2) Treatment as rollover.--The distribution on account 
     of the levy and any deposit under paragraph (1) with respect 
     to such distribution shall be treated for purposes of this 
     title as if such distribution and deposit were part of a 
     rollover described in section 408(d)(3)(A)(i); except that--
       ``(A) interest paid under subsection (c) shall be treated 
     as part of such distribution and as not includible in gross 
     income,
       ``(B) the 60-day requirement in such section shall be 
     treated as met if the deposit is made not later than the 60th 
     day after the day on which the individual receives an amount 
     under paragraph (1) from the Secretary, and
       ``(C) such deposit shall not be taken into account under 
     section 408(d)(3)(B).
       ``(3) Refund, etc., of income tax on levy.--If any amount 
     is includible in gross income for a taxable year by reason of 
     a levy referred to in paragraph (1) and any portion of such 
     amount is treated as a rollover under paragraph (2), any tax 
     imposed by chapter 1 on such portion shall not be assessed, 
     and if assessed shall be abated, and if collected shall be 
     credited or refunded as an overpayment made on the due date 
     for filing the return of tax for such taxable year.
       ``(4) Interest.--Notwithstanding subsection (d), interest 
     shall be allowed under subsection (c) in a case in which the 
     Secretary makes a determination described in subsection 
     (d)(2)(A) with respect to a levy upon an individual 
     retirement plan.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to amounts paid under subsections (b), (c), and 
     (d)(2)(A) of section 6343 of the Internal Revenue Code of 
     1986 after December 31, 2004.

     SEC. 110. AUTHORIZATION FOR FINANCIAL MANAGEMENT SERVICE 
                   RETENTION OF TRANSACTION FEES FROM LEVIED 
                   AMOUNTS.

       (a) In General.--Notwithstanding any other provision of 
     law, the Financial Management Service may charge the Internal 
     Revenue Service, and the Internal Revenue Service may pay the 
     Financial Management Service, a fee sufficient to cover the 
     full cost of implementing a continuous levy program under 
     subsection (h) of section 6331 of the Internal Revenue Code 
     of 1986. Any such fee shall be based on actual levies made 
     and shall be collected by the Financial Management Service by 
     the retention of a portion of amounts collected by levy 
     pursuant to that subsection. Amounts received by the 
     Financial Management Service as fees under that subsection 
     shall be deposited into the account of the Department of the 
     Treasury under section 3711(g)(7) of title 31, United States 
     Code, and shall be collected and accounted for in accordance 
     with the provisions of that section. The amount credited 
     against the taxpayer's liability on account of the continuous 
     levy shall be the amount levied, without reduction for the 
     amount paid to the Financial Management Service as a fee.
       (b) Effective Date.--The provisions of this section shall 
     take effect on the date of the enactment of this Act.

     SEC. 111. ELIMINATION OF RESTRICTION ON OFFSETTING REFUNDS 
                   FROM FORMER RESIDENTS.

       (a) In General.--Section 6402(e) (relating to collection of 
     past-due, legally enforceable State income tax obligations) 
     is amended by striking paragraph (2) and by redesignating 
     paragraphs (3), (4), (5), (6), and (7) as paragraphs (2), 
     (3), (4), (5), and (6), respectively.
       (b) Clarification of Disclosure Authority.--Section 
     6103(l)(10) (relating to disclosure of certain information to 
     agencies requesting a reduction under subsection (c), (d), or 
     (e) or section 6402) is amended--
       (1) by striking ``, (d), or (e)'' each place it appears and 
     inserting ``or (d)'', and
       (2) by striking ``, (d), or (e)'' in the heading and 
     inserting ``or (d)''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

                  Subtitle B--Processing and Personnel

     SEC. 121. INFORMATION REGARDING STATUTE OF LIMITATIONS.

       The Secretary of the Treasury or the Secretary's delegate 
     shall--
       (1) 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), 
     and
       (2) for taxable years beginning after December 31, 2004, 
     revise any instructions booklet accompanying a general income 
     tax return form (including forms 1040, 1040A, 1040EZ, and any 
     similar or successor forms relating thereto),

     to provide for an explanation of the limitations imposed by 
     section 6511 of the Internal Revenue Code of 1986 on credits 
     and refunds, and the consequences under such section 6511 of 
     the failure to file a return of tax.

     SEC. 122. ANNUAL REPORT ON IRS PERFORMANCE MEASURES.

       (a) In General.--Section 7803(a) (relating to Commissioner 
     of Internal Revenue) is amended by adding at the end the 
     following new paragraph:
       ``(4) Annual report on irs performance measures.--Not later 
     than December 31 of each calendar year, the Commissioner 
     shall report to Congress and the Oversight Board on 
     performance goals and projections for the 5-fiscal-year 
     period beginning with the fiscal year ending in such calendar 
     year against which to measure the performance of the Internal 
     Revenue Service in the areas of the public rating of the 
     Internal Revenue Service, customer service, compliance, and 
     management initiatives. The report shall include the long-
     term performance goal for each measurement and a brief 
     narrative explaining how the Commissioner plans to meet each 
     goal. For each performance goal, the report shall include 
     comparisons between the projected performance level and 
     actual performance level. For each performance measurement, 
     the report shall include a volume projection for such period. 
     If the Internal Revenue Service fails to achieve one of its 
     goals, the report shall explain why. The report shall also 
     include data and a narrative regarding the actual and 
     projected level of the workload and resources of the Internal 
     Revenue Service for such 5-year period.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to reports for fiscal year 2004 and thereafter.

     SEC. 123. DISCLOSURE OF TAX INFORMATION TO FACILITATE 
                   COMBINED EMPLOYMENT TAX REPORTING.

       (a) In General.--Paragraph (5) of section 6103(d) (relating 
     to disclosure to State tax officials and State and local law 
     enforcement agencies) is amended to read as follows:
       ``(5) Disclosure for combined employment tax reporting.--
     The Secretary shall disclose taxpayer identity information 
     and signatures to any agency, body, or commission of any 
     State for the purpose of carrying out with such agency, body, 
     or commission a combined Federal and State employment tax 
     reporting program approved by the Secretary. 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.''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 124. EXTENSION OF DECLARATORY JUDGMENT PROCEDURES TO 
                   NON-501(C)(3) TAX-EXEMPT ORGANIZATIONS.

       (a) In General.--Paragraph (1) of section 7428(a) (relating 
     to creation of remedy) is amended--
       (1) in subparagraph (B) by inserting after ``509(a))'' the 
     following: ``or as a private operating foundation (as defined 
     in section 4942(j)(3))''; and
       (2) by amending subparagraph (C) to read as follows:
       ``(C) with respect to the initial qualification or 
     continuing qualification of an organization as an 
     organization described in section 501(c) (other than 
     paragraph (3)) or 501(d) which is exempt from tax under 
     section 501(a), or''.
       (b) Court Jurisdiction.--Subsection (a) of section 7428 is 
     amended in the material following paragraph (2) by striking 
     ``United States Tax Court, the United States Claims Court, or 
     the district court of the United States for the District of 
     Columbia'' and inserting the following: ``United States Tax 
     Court (in the case of any such determination or failure) or 
     the United States Claims Court or the district court of the 
     United States for the District of Columbia (in the case of a 
     determination or failure with respect to an issue referred to 
     in subparagraph (A) or (B) of paragraph (1)),''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to pleadings filed with respect to determinations 
     (or requests for determinations) made after December 31, 
     2004.

     SEC. 125. AMENDMENT TO TREASURY AUCTION REFORMS.

       (a) In General.--Clause (i) of section 202(c)(4)(B) of the 
     Government Securities Act Amendments of 1993 (31 U.S.C. 3121 
     note) is amended by inserting before the semicolon ``(or, if 
     earlier, at the time the Secretary releases the minutes of 
     the meeting in accordance with paragraph (2))''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to meetings held after the date of the enactment 
     of this Act.

     SEC. 126. REVISIONS RELATING TO TERMINATION OF EMPLOYMENT OF 
                   IRS EMPLOYEES FOR MISCONDUCT.

       (a) In General.--Subchapter A of chapter 80 (relating to 
     application of internal revenue laws) is amended by inserting 
     after section 7804 the following new section:

     ``SEC. 7804A. TERMINATION OF EMPLOYMENT FOR MISCONDUCT.

       ``(a) In General.--Subject to subsection (c), the 
     Commissioner 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.

[[Page 10588]]

       ``(b) Acts or Omissions.--The acts or omissions described 
     under this subsection 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 or taxpayer 
     representative, 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 or taxpayer 
     representative, 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 this title, Department of the Treasury 
     regulations, or policies of the Internal Revenue Service 
     (including the Internal Revenue Manual) for the purpose of 
     retaliating against, or harassing, a taxpayer or taxpayer 
     representative,
       ``(7) willful misuse of the provisions of section 6103 for 
     the purpose of concealing information from a congressional 
     inquiry,
       ``(8) willful failure to file any return of tax required 
     under this title on or before the date prescribed therefor 
     (including any extensions) when a tax is due and owing, 
     unless such failure is due to reasonable cause and not due to 
     willful neglect,
       ``(9) willful understatement of Federal tax liability, 
     unless such understatement is due to reasonable cause and not 
     due to willful neglect, and
       ``(10) threatening to audit a taxpayer for the purpose of 
     extracting personal gain or benefit.
       ``(c) Determinations of Commissioner.--
       ``(1) In general.--The Commissioner may take a personnel 
     action other than termination for an act or omission 
     described under subsection (b).
       ``(2) Discretion.--The exercise of authority under 
     paragraph (1) shall be at the sole discretion of the 
     Commissioner and may not be delegated to any other officer. 
     The Commissioner, in the Commissioner's sole discretion, may 
     establish a procedure which will be used to determine whether 
     an individual should be referred to the Commissioner for a 
     determination by the Commissioner under paragraph (1).
       ``(3) No appeal.--Any determination of the Commissioner 
     under this subsection may not be appealed in any 
     administrative or judicial proceeding.
       ``(d) Definition.--For the purposes of the provisions 
     described in clauses (i), (ii), and (iv) of subsection 
     (b)(3)(B), references to a program or activity regarding 
     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.''.
       (b) Clerical Amendment.--The table of sections for chapter 
     80 is amended by inserting after the item relating to section 
     7804 the following new item:

``Sec. 7804A. Termination of employment for misconduct.''.
       (c) Repeal of Superseded Section.--Section 1203 of the 
     Internal Revenue Service Restructuring and Reform Act of 1998 
     (Public Law 105-206; 112 Stat. 720) is repealed.
       (d) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 127. EXPANSION OF IRS OVERSIGHT BOARD AUTHORITY.

       (a) Approval With Respect to Senior Executives.--Section 
     7802(d)(3)(B) (relating to management) is amended by 
     inserting ``and approve'' after ``review''.
       (b) Reports.--
       (1) Budget request.--Section 7802(d) (relating to specific 
     responsibilities) is amended--
       (A) by inserting ``with detailed analysis'' after ``budget 
     request'' in paragraph (4)(B), and
       (B) by inserting ``without any additional review or comment 
     from the Commissioner, the Secretary, any other officer or 
     employee of the Department of the Treasury, or the Office of 
     Management and Budget'' before ``to the President'' in the 
     last sentence thereof.
       (2) Date of submission of annual report.--Section 
     7802(f)(3)(A) (relating to annual reports) is amended by 
     striking ``The Oversight Board shall each year report'' and 
     insert ``Not later than March 1 of each calendar year, the 
     Oversight Board shall report''.
       (c) Continuity in Office.--Section 7802(b)(2) (relating to 
     qualifications and terms) is amended by adding at the end the 
     following new subparagraph:
       ``(E) Continuation in office.--Any member whose term 
     expires shall serve until the earlier of the date on which 
     the member's successor takes office or the date which is 1 
     year after the date of the expiration of the member's term.
       (d) Access to Health Benefits.--Section 7802(e) (relating 
     to Board personnel matters) is amended by adding at the end 
     the following new paragraph:
       ``(5) Members access to fehbp.--Each member of the 
     Oversight Board who--
       ``(A) is described in subsection (b)(1)(A), or
       ``(B) is described in subsection (b)(1)(D) and is not 
     otherwise a Federal officer or employee,

     shall be considered an employee solely for purposes of 
     chapter 89 of title 5, United States Code.''.
       (e) Director of Internal Revenue Service Oversight Board.--
     Subsection (e) of section 7802, as amended by subsection (d), 
     is amended by redesignating paragraphs (3), (4), and (5) as 
     paragraphs (4), (5), and (6), respectively, and by inserting 
     after paragraph (2) the following new paragraph:
       ``(3) Director.--The Chairperson of the Oversight Board 
     shall, without regard to the provisions of title 5, United 
     Stated Code, governing appointments in the competitive 
     service, appoint a Director for the Oversight Board. The 
     Director shall be paid 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.''.
       (f) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 128. IRS OVERSIGHT BOARD APPROVAL OF USE OF CRITICAL PAY 
                   AUTHORITY.

       (a) In General.--Section 7802(d)(3) (relating to 
     management) is amended by striking ``and'' at the end of 
     subparagraph (B), by striking the period at the end of 
     subparagraph (C) and inserting ``; and'', and by adding at 
     the end the following new subparagraph:
       ``(D) review and approve the Commissioner's use of critical 
     pay authority under section 9502 of title 5, United States 
     Code, and streamlined critical pay authority under section 
     9503 of such title.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to personnel hired after the date of the 
     enactment of this Act.

     SEC. 129. LOW-INCOME TAXPAYER CLINICS.

       (a) Grants for Return Preparation Clinics.--
       (1) In general.--Chapter 77 (relating to miscellaneous 
     provisions) is amended by inserting after section 7526 the 
     following new section:

     ``SEC. 7526A. RETURN PREPARATION CLINICS FOR LOW-INCOME 
                   TAXPAYERS.

       ``(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 return preparation clinics.
       ``(b) Definitions.--For purposes of this section--
       ``(1) Qualified return preparation clinic.--
       ``(A) In general.--The term `qualified return preparation 
     clinic' means a clinic which--
       ``(i) does not charge more than a nominal fee for its 
     services (except for reimbursement of actual costs incurred), 
     and
       ``(ii) operates programs which assist low-income taxpayers 
     in preparing and filing their Federal income tax returns, 
     including schedules reporting sole proprietorship or farm 
     income.
       ``(B) Assistance to low-income taxpayers.--A clinic is 
     treated as assisting low-income taxpayers under subparagraph 
     (A)(ii) if at least 90 percent of the taxpayers assisted 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.
       ``(2) Clinic.--The term `clinic' includes--
       ``(A) a clinical program at an eligible educational 
     institution (as defined in section 529(e)(5)) which satisfies 
     the requirements of paragraph (1) through student assistance 
     of taxpayers in return preparation and filing, and
       ``(B) an organization described in section 501(c) and 
     exempt from tax under section 501(a) which satisfies the 
     requirements of paragraph (1).
       ``(c) Special Rules and Limitations.--
       ``(1) Aggregate limitation.--Unless otherwise provided by 
     specific appropriation, the Secretary shall not allocate more 
     than $10,000,000 per year (exclusive of costs of 
     administering the program) to grants under this section.
       ``(2) Other applicable rules.--Rules similar to the rules 
     under paragraphs (2) through (7) of section 7526(c) shall 
     apply with respect to the awarding of grants to qualified 
     return preparation clinics.''.
       (2) Clerical amendment.--The table of sections for chapter 
     77 is amended by inserting after the item relating to section 
     7526 the following new item:

``Sec. 7526A. Return preparation clinics for low-income taxpayers.''.
       (b) Grants for Taxpayer Representation and Assistance 
     Clinics.--
       (1) Increase in authorized grants.--Section 7526(c)(1) 
     (relating to aggregate limitation) is amended by striking 
     ``$6,000,000'' and inserting ``$10,000,000''.
       (2) Use of grants for overhead expenses prohibited.--
       (A) In general.--Section 7526(c) (relating to special rules 
     and limitations) is amended by adding at the end the 
     following new paragraph:
       ``(6) Use of grants for overhead expenses prohibited.--No 
     grant made under this section may be used for the overhead 
     expenses of any clinic or of any institution sponsoring such 
     clinic.''.
       (B) Conforming amendments.--Section 7526(c)(5) is amended--
       (i) by inserting ``qualified'' before ``low-income'', and

[[Page 10589]]

       (ii) by striking the last sentence.
       (3) Promotion of Clinics.--Section 7526(c), as amended by 
     paragraph (2), is amended by adding at the end the following 
     new paragraph:
       ``(7) Promotion of clinics.--The Secretary is authorized to 
     promote the benefits of and encourage the use of low-income 
     taxpayer clinics through the use of mass communications, 
     referrals, and other means.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to grants made after the date of the enactment of 
     this Act.

     SEC. 130. TAXPAYER ACCESS TO FINANCIAL INSTITUTIONS.

       (a) Establishment of Program.--The Secretary is authorized 
     to award demonstration project grants (including multi-year 
     grants) to eligible entities to provide tax preparation 
     services and assistance in connection with establishing an 
     account in a federally insured depository institution for 
     individuals that currently do not have such an account.
       (b) Eligible Entities.--
       (1) In general.--An entity is eligible to receive a grant 
     under this section if such an entity is--
       (A) an organization described in section 501(c)(3) of the 
     Internal Revenue Code of 1986 and exempt from tax under 
     section 501(a) of such Code,
       (B) a federally insured depository institution,
       (C) an agency of a State or local government,
       (D) a community development financial institution,
       (E) an Indian tribal organization,
       (F) an Alaska Native Corporation,
       (G) a Native Hawaiian organization,
       (H) a labor organization, or
       (I) a partnership comprised of 1 or more of the entities 
     described in the preceding subparagraphs.
       (2) Definitions.--For purposes of this section--
       (A) Federally insured depository institution.--The term 
     ``federally insured depository institution'' means any 
     insured depository institution (as defined in section 3 of 
     the Federal Deposit Insurance Act (12 U.S.C. 1813)) and any 
     insured credit union (as defined in section 101 of the 
     Federal Credit Union Act (12 U.S.C. 1752)).
       (B) Community development financial institution.--The term 
     ``community development financial institution'' means any 
     organization that has been certified as such pursuant to 
     section 1805.201 of title 12, Code of Federal Regulations.
       (C) Alaska native corporation.--The term ``Alaska Native 
     Corporation'' has the same meaning as the term ``Native 
     Corporation'' under section 3(m) of the Alaska Native Claims 
     Settlement Act (43 U.S.C. 1602(m)).
       (D) Native hawaiian organization.--The term ``Native 
     Hawaiian organization'' means any organization that--
       (i) serves and represents the interests of Native 
     Hawaiians, and
       (ii) has as a primary and stated purpose the provision of 
     services to Native Hawaiians.
       (E) Labor organization.--The term ``labor organization'' 
     means an organization--
       (i) in which employees participate,
       (ii) which exists for the purpose, in whole or in part, of 
     dealing with employers concerning grievances, labor disputes, 
     wages, rates of pay, hours of employment, or conditions of 
     work, and
       (iii) which is described in section 501(c)(5).
       (c) Application.--An eligible entity desiring a grant under 
     this section shall submit an application to the Secretary in 
     such form and containing such information as the Secretary 
     may require.
       (d) Limitation on Administrative Costs.--A recipient of a 
     grant under this section may not use more than 6 percent of 
     the total amount of such grant in any fiscal year for the 
     administrative costs of carrying out the programs funded by 
     such grant in such fiscal year.
       (e) Evaluation and Report.--For each fiscal year in which a 
     grant is awarded under this section, the Secretary shall 
     submit a report to Congress containing a description of the 
     activities funded, amounts distributed, and measurable 
     results, as appropriate and available.
       (f) Authorization of Appropriations.--There is authorized 
     to be appropriated to the Secretary, for the grant program 
     described in this section, $10,000,000, or such additional 
     amounts as deemed necessary, to remain available until 
     expended.
       (g) Regulations.--The Secretary is authorized to promulgate 
     regulations to implement and administer the grant program 
     under this section.

     SEC. 131. ENROLLED AGENTS.

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

     ``SEC. 7529. ENROLLED AGENTS.

       ``(a) In General.--The Secretary may prescribe such 
     regulations as may be necessary to regulate the conduct of 
     enrolled agents in regards to their practice before the 
     Internal Revenue Service.
       ``(b) Use of Credentials.--Any enrolled agents properly 
     licensed to practice as required under rules promulgated 
     under section (a) herein shall be allowed to use the 
     credentials or designation as `enrolled agent', `EA', or 
     `E.A.'.''.
       (b) Clerical Amendment.--The table of sections for chapter 
     77 is amended by adding at the end the following new item:

``Sec. 7529. Enrolled agents.''.

       (c) Prior Regulations.--The authorization to prescribe 
     regulations under the amendments made by this section may not 
     be construed to have any effect on part 10 of title 31, Code 
     of Federal Regulations, or any other related Federal rule or 
     regulation issued before the date of the enactment of this 
     Act.
       (d) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 132. ESTABLISHMENT OF DISASTER RESPONSE TEAM.

       (a) In General.--Section 7803 (relating to Commissioner of 
     Internal Revenue; other officials) is amended by adding at 
     the end the following new subsection:
       ``(e) Disaster Response Team.--
       ``(1) Response to disasters.--The Secretary shall--
       ``(A) establish as a permanent office in the national 
     office of the Internal Revenue Service a disaster response 
     team composed of members, who in addition to their regular 
     responsibilities, shall assist taxpayers in clarifying and 
     resolving Federal tax matters associated with or resulting 
     from any Presidentially declared disaster (as defined in 
     section 1033(h)(3)), and
       ``(B) respond to requests by such taxpayers for filing 
     extensions and technical guidance expeditiously.
       ``(2) Personnel of disaster response team.--The disaster 
     response team shall be composed of--
       ``(A) personnel from the Office of the Taxpayer Advocate, 
     and
       ``(B) personnel from the national office of the Internal 
     Revenue Service with expertise in individual, corporate, and 
     small business tax matters.
       ``(3) Coordination with fema.--The disaster response team 
     shall operate in coordination with the Director of the 
     Federal Emergency Management Agency.
       ``(4) Toll-free telephone number.--The Commissioner of 
     Internal Revenue shall establish and maintain a toll-free 
     telephone number for taxpayers to use to receive assistance 
     from the disaster response team.
       ``(5) Internet webpage site.--The Commissioner of Internal 
     Revenue shall establish and maintain a site on the Internet 
     webpage of the Internal Revenue Service for information for 
     taxpayers described in paragraph (1)(A).''.
       (b) FEMA.--The Director of the Federal Emergency Management 
     Agency shall work in coordination with the disaster response 
     team established under section 7803(e) of the Internal 
     Revenue Code of 1986 to provide timely assistance to disaster 
     victims described in such section, including--
       (1) informing the disaster response team regarding any tax-
     related problems or issues arising in connection with the 
     disaster,
       (2) providing the toll-free telephone number established 
     and maintained by the Internal Revenue Service for the 
     disaster victims in all materials provided to such victims, 
     and
       (3) providing the information described in section 
     7803(e)(5) of such Code on the Internet webpage of the 
     Federal Emergency Management Agency or through a link on such 
     webpage to the Internet webpage site of the Internal Revenue 
     Service described in such section.
       (c) Effective Date.--The amendment made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 133. STUDY OF ACCELERATED TAX REFUNDS.

       (a) Study.--The Secretary of the Treasury shall study the 
     implementation of an accelerated refund program for taxpayers 
     who--
       (1) maintain the same filing characteristics from year to 
     year, and
       (2) elect the direct deposit option for any refund under 
     the program.
       (b) Report.--Not later than the date which is 1 year after 
     the date of the enactment of this Act, the Secretary of the 
     Treasury shall transmit a report of the study described in 
     subsection (a), including recommendations, to the Committee 
     on Finance of the Senate and the Committee on Ways and Means 
     of the House of Representatives.

     SEC. 134. STUDY ON CLARIFYING RECORDKEEPING RESPONSIBILITIES.

       (a) Study.--The Secretary of the Treasury shall study--
       (1) the scope of the records required to be maintained by 
     taxpayers under section 6001 of the Internal Revenue Code of 
     1986,
       (2) the utility of requiring taxpayers to maintain all 
     records indefinitely,
       (3) such requirement given the necessity to upgrade 
     technological storage for outdated records,
       (4) the number of negotiated records retention agreements 
     requested by taxpayers and the number entered into by the 
     Internal Revenue Service, and
       (5) proposals regarding taxpayer record-keeping.
       (b) Report.--Not later than the date which is 1 year after 
     the date of the enactment of this Act, the Secretary of the 
     Treasury shall transmit a report of the study described in 
     subsection (a), including recommendations, to the Committee 
     on Finance of the Senate and the Committee on Ways and Means 
     of the House of Representatives.

     SEC. 135. STREAMLINE REPORTING PROCESS FOR NATIONAL TAXPAYER 
                   ADVOCATE.

       (a) One Annual Report.--Subparagraph (B) of section 
     7803(c)(2) (relating to functions of Office) is amended--
       (1) by striking all matter preceding subclause (I) of 
     clause (ii) and inserting the following:
       ``(B) Annual report.--
       ``(i) In general.--Not later than December 31 of each 
     calendar year, the National Taxpayer Advocate shall report to 
     the Committee of Ways and Means of the House of 
     Representatives and

[[Page 10590]]

     the Committee on Finance of the Senate on the objectives of 
     the Office of the Taxpayer of Advocate for the fiscal year 
     beginning in such calendar year and the activities of such 
     Office 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--
     '',
       (2) by striking ``clause (ii)'' in clause (iv) and 
     inserting ``clause (i)'', and
       (3) by redesignating clauses (iii) and (iv) as clauses (ii) 
     and (iii), respectively.
       (b) Additional Reports.--Section 7803(c)(2)(C) (relating to 
     other responsibilities) is amended by striking ``and'' at the 
     end of clause (iii), by striking the period at the end of 
     clause (iv) and inserting ``; and'', and by adding at the end 
     the following new clause:
       ``(v) at the discretion of the National Taxpayer Advocate, 
     report at any time to the Committee of Ways and Means of the 
     House of Representatives and the Committee on Finance of the 
     Senate on significant issues affecting taxpayer rights.''.
       (c) Effective Dates.--
       (1) Annual reports.--The amendments made by subsection (a) 
     shall apply to reports in calendar year 2005 and thereafter.
       (2) Additional reports.--The amendments made by subsection 
     (b) shall take effect on the date of the enactment of this 
     Act.

     SEC. 136. IRS FREE FILE PROGRAM.

       (a) In General.--The Commissioner of Internal Revenue shall 
     require that a taxpayer must provide an affirmative consent 
     before such taxpayer may be solicited with respect to any 
     product or service by an entity participating in the Internal 
     Revenue Service Free File program. Any request for such 
     consent must be prominently displayed and clearly written, in 
     large print, on any material relating to such program.
       (b) Effective Date.--This section shall take effect with 
     respect to returns filed after December 31, 2004.

     SEC. 137. MODIFICATION OF TIGTA REPORTING REQUIREMENTS.

       (a) In General.--Paragraph (1) of section 7803(d) (relating 
     to additional duties of the Treasury Inspector General for 
     Tax Administration) is amended--
       (1) by striking ``Annual'' in the heading and inserting 
     ``Biennial'',
       (2) by inserting ``every 2 years (beginning in 2004)'' 
     after ``one of the semiannual reports'' in the matter 
     preceding subparagraph (A),
       (3) by striking clause (ii) of subparagraph (A),
       (4) by redesignating clauses (iii), (iv), and (v) of 
     subparagraph (A) as clauses (ii), (iii), and (iv) of 
     subparagraph (A), respectively,
       (5) by striking subparagraph (B),
       (6) by striking ``and'' at the end of subparagraph (F),
       (7) by redesignating subparagraphs (C), (D), (E), and (F) 
     as subparagraphs (B), (C), (D), and (E), respectively, and
       (8) by striking subparagraph (G) and inserting the 
     following new subparagraphs:
       ``(F) 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; and
       ``(G) with respect to allegations of serious employee 
     misconduct--
       ``(i) a summary of the status of such allegations; and
       ``(ii) a summary of the disposition of such allegations, 
     including the outcome of any Department of Justice action and 
     any monies paid as a settlement of such allegations.''.
       (b) Conforming Amendments.--Section 7803(d) is amended by 
     striking paragraph (2) and by redesignating paragraph (3) as 
     paragraph (2).
       (c) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 138. STUDY OF IRS ACCOUNTS RECEIVABLE.

       (a) Study.--The Secretary of the Treasury shall conduct a 
     study of the provisions of the Internal Revenue Code of 1986, 
     and the application of such provisions, regarding collection 
     procedures to determine if impediments exist to the efficient 
     and timely collection of tax debts. Such study shall include 
     an examination of the accounts receivable inventory of the 
     Internal Revenue Service.
       (b) Report.--Not later than 1 year after the date of the 
     enactment of this Act, the Secretary of the Treasury shall 
     submit a report to the Committee on Ways and Means of the 
     House of Representatives and the Committee on Finance of the 
     Senate, including the findings of the study described in 
     subsection (a) and such legislative or administrative 
     recommendations as the Secretary deems appropriate to 
     increase the efficient and timely collection of tax debts.

     SEC. 139. ELECTRONIC COMMERCE ADVISORY GROUP.

       (a) In General.--Section 2001(b)(2) of the Internal Revenue 
     Service Restructuring and Reform Act of 1998 is amended by 
     inserting ``, and at least 2 representatives from the 
     consumer advocate community'' after ``industry''.
       (b) Application of Amendment.--The initial appointments in 
     accordance with the amendment made by this section shall be 
     made not later than the date which is 180 days after the date 
     of the enactment of this Act.

     SEC. 140. STUDY ON MODIFICATIONS TO SCHEDULES L AND M-1.

       (a) In General.--Not later than 6 months after the date of 
     the enactment of this Act, the Secretary of the Treasury 
     shall report to the Committee on Finance of the Senate and 
     the Committee on Ways and Means of the House of 
     Representatives on proposals to modify tax schedules L and M-
     1 of Form 1120 to require the disclosure of additional 
     information, such as the items described in subsection (b).
       (b) Items of Disclosure.--The items described in this 
     subsection is as follows:
       (1) The parent company names and identification numbers for 
     both tax and book purposes.
       (2) An asset reconciliation of consolidated book assets on 
     the public financial disclosures with the consolidated tax 
     return.
       (3) Worldwide net income from public financial disclosures.
       (4) The components of tax expense presently recorded in 
     financial statement tax footnotes.
       (5) The reconciliation of the book income of entities 
     included in the consolidated financial statement with book 
     income included in the consolidated tax return.
       (6) The adjustment for book income from domestic and 
     foreign entities excluded from financial reporting but 
     included for tax reconciliation.
       (7) The book income of United States entities included in 
     the United States consolidated return.
       (8) Taxable income due to actual or deemed dividends from 
     foreign subsidiaries.
       (9) A reconciliation which should reflect pretax book 
     income of United States consolidated tax group plus taxable 
     deemed or actual foreign repatriations.
       (10) The differences in the reporting of income and expense 
     between book and tax reporting, including specific reporting 
     on pension expense, stock options, and the amortization of 
     goodwill.
       (11) Other reconciliation items in a consistent manner 
     among all entities.
       (c) Public Availability of Specified Information.--Not 
     later than 1 year after the date of the enactment of this 
     Act, the Securities and Exchange Commission and the 
     Commissioner of Internal Revenue shall each report to the 
     Committee on Finance of the Senate and the Committee on Ways 
     and Means of the House of Representatives on proposals to 
     expand the public availability and clarity of information 
     relating to book and tax differences and Federal tax 
     liability with respect to corporations.

     SEC. 141. REGULATION OF FEDERAL INCOME TAX RETURN PREPARERS, 
                   REFUND ANTICIPATION LOAN PROVIDERS, AND PAYROLL 
                   AGENTS.

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

     ``SEC. 7530. FEDERAL INCOME TAX RETURN PREPARERS, REFUND 
                   ANTICIPATION LOAN PROVIDERS, AND PAYROLL 
                   AGENTS.

       ``(a) Registration.--
       ``(1) In general.--The Secretary shall prescribe such 
     regulations as may be necessary--
       ``(A) to require the registration of Federal income tax 
     return preparers, refund anticipation loan providers, and 
     payroll agents with the Secretary or the designee of the 
     Secretary,
       ``(B) to prohibit the payment of a refund of tax to a 
     Federal income tax return preparer or refund anticipation 
     loan provider that is the result of a tax return which is 
     prepared by such preparer or provider which does not include 
     the preparer's or provider's registration number, and
       ``(C) to require the posting of a resonable bond by each 
     registered payroll agent.
       ``(2) No disciplinary action.--The regulations under 
     paragraph (1) shall require that an applicant for 
     registration must not have demonstrated any conduct that 
     would warrant disciplinary action under part 10 of title 31, 
     Code of Federal Regulations.
       ``(3) Burden of registration.--In promulgating the 
     regulations under paragraph (1), the Secretary shall minimize 
     the burden and cost on the registrant.
       ``(b) Examination.--In promulgating the regulations under 
     subsection (a)--
       ``(1) In general.--The Secretary shall develop a series of 
     examinations designed to test the technical knowledge and 
     competency of each applicant for registration to prepare 
     Federal tax returns, including an examination testing 
     knowledge of individual income tax return preparation, 
     including the earned income tax credit under section 32.
       ``(2) Initial examination.--The Secretary shall require 
     that each applicant for registration pass an initial 
     examination testing the applicant's technical knowledge and 
     competency to prepare individual and business Federal income 
     tax returns.
       ``(c) Rules of Conduct.--All registrants shall be subject 
     to rules of conduct that are consistent with the rules that 
     govern any federally authorized tax practitioner within the 
     meaning of section 7525(a)(3)(A).
       ``(d) Disclosure of Information.--The Secretary shall 
     provide guidance on the manner and timing of disclosure to 
     taxpayers of information relating to fees and interest rates 
     imposed in connection with loans made to taxpayers by refund 
     anticipation loan providers.
       ``(e) Annual Renewal of Registration.--
       ``(1) In general.--The regulations under subsection (a) 
     shall require an annual renewal of registration and shall set 
     forth the manner in which a registered Federal income tax 
     return preparer, refund anticipation loan provider, or 
     payroll agent must renew such registration.
       ``(2) Annual examinations.--As part of the annual 
     registration, such regulations shall require that each 
     registrant pass an annual refresher examination (including 
     tax law updates).
       ``(f) Fees.--

[[Page 10591]]

       ``(1) In general.--The Secretary may require the payment of 
     reasonable fees for registration and for renewal of 
     registration under the regulations promulgated under 
     subsection (a).
       ``(2) Purpose of fees.--Any fees described in paragraph (1) 
     shall be available without fiscal year limitation to the 
     Secretary for the purpose of reimbursement of the costs of 
     administering the requirements of the regulations.
       ``(g) Federal Income Tax Return Preparer.--For purposes of 
     this section--
       ``(1) In general.--The term `Federal income tax return 
     preparer' means any individual who is an income tax return 
     preparer (within the meaning of section 7701(a)(36)) who 
     prepares not less than 5 returns of tax imposed by subtitle A 
     or claims for refunds of tax imposed by subtitle A per 
     taxable year.
       ``(2) Exception.--Such term shall not include a federally 
     authorized tax practitioner (as defined in section 
     7525(a)(3)(A).
       ``(h) Refund Anticipation Loan Provider.--For purposes of 
     this section, the term `refund anticipation loan provider' 
     means a person who makes a loan of money or of any other 
     thing of value to a taxpayer in connection with the 
     taxpayer's anticipated receipt of a Federal tax refund.''.
       (b) Prohibition.--
       (1) In general.--Section 6695 (relating to other assessable 
     penalties with respect to the preparation of income tax 
     returns for other persons) is amended by adding at the end 
     the following new subsection:
       ``(h) Actions on a Taxpayer's Behalf by a Non-Registered 
     Person.--Any person not registered pursuant to the 
     regulations promulgated by the Secretary under section 7530 
     who--
       ``(1) prepares a tax return for another taxpayer, or
       ``(2) provides a loan of money or of any other thing of 
     value to a taxpayer in connection with the taxpayer's 
     anticipated receipt of a Federal tax refund,

     shall be subject to a $500 penalty for each incident of 
     noncompliance.''.
       (2) Use of penalties.--There is authorized to be 
     appropriated and is appropriated to the Secretary of the 
     Treasury for each fiscal year for the administration of the 
     requirements of the regulations promulgated under section 
     7530 of the Internal Revenue Code of 1986 an amount equal to 
     the penalties imposed under section 6695(h) of such Code for 
     the preceding fiscal year.
       (c) Coordination With Section 6060(a).--The Secretary of 
     the Treasury shall coordinate the registration required under 
     the regulations promulgated under section 7530 of the 
     Internal Revenue Code of 1986 with the return requirements of 
     section 6060 of such Code.
       (d) Public Awareness Campaign.--
       (1) In general.--The Secretary of the Treasury shall 
     conduct a public information and consumer education campaign, 
     utilizing paid advertising, to inform the public of the 
     requirements that Federal income tax return preparers (as 
     defined in section 7530(g) of the Internal Revenue Code of 
     1986) must sign the return prepared for a fee and display 
     notice of their registration under the regulations 
     promulgated under section 7530 of such Code.
       (2) Public list.--The Secretary of the Treasury shall 
     maintain a public list (in print and electronic media, 
     including Internet-based) of Federal income tax return 
     preparers (as so defined) who are so registered and whose 
     registration has been revoked.
       (3) Notification.--The Secretary of the Treasury shall 
     notify any taxpayer if such taxpayer's return was prepared by 
     such an unregistered Federal income tax return preparer .
       (e) Additional Funds Available for Compliance Activities.--
     The Secretary of the Treasury may use any specifically 
     appropriated funds for earned income tax credit compliance to 
     improve and expand enforcement of Federal income tax 
     preparers under the regulations promulgated under section 
     7530 of the Internal Revenue Code of 1986.
       (f) Clerical Amendment.--The table of sections for chapter 
     77, as amended by this Act, is amended by adding at the end 
     the following new item:

``Sec. 7530. Federal income tax return preparers and refund 
              anticipation loan providers.''.

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

     SEC. 142. JOINT TASK FORCE ON OFFERS-IN-COMPROMISE.

       (a) In General.--The Secretary of the Treasury shall 
     establish a joint task force--
       (1) to review the Internal Revenue Service's determinations 
     with respect to offers which raise equitable, public policy, 
     or economic hardship grounds for compromise of a tax 
     liability under section 7122 of the Internal Revenue Code of 
     1986,
       (2) to review the extent to which the Internal Revenue 
     Service has used its authority to resolve longstanding cases 
     by forgoing penalties and interest which have accumulated as 
     a result of delay in determining the taxpayer's liability,
       (3) to provide recommendations as to whether the Internal 
     Revenue Service's evaluation of offers-in-compromise should 
     include--
       (A) the taxpayer's compliance history,
       (B) errors by the Internal Revenue Service with respect to 
     the underlying tax,
       (C) wrongful acts by a third party which gave rise to the 
     liability, and
       (D) whether the taxpayer has made payments on the 
     liability, and
       (4) to annually report to the Committee on Finance of the 
     Senate and the Committee on Ways and Means of the House of 
     Representatives (beginning in 2005) regarding such review and 
     recommendations.
       (b) Members of Joint Task Force.--The membership of the 
     joint task force under subsection (a) shall consist of 1 
     representative each from the Department of the Treasury, the 
     Internal Revenue Service Oversight Board, the Office of the 
     Chief Counsel for the Internal Revenue Service, the Office of 
     the Taxpayer Advocate, the Office of Appeals, and the 
     division of the Internal Revenue Service charged with 
     operating the offer-in-compromise program.
       (c) Report of National Taxpayer Advocate.--
       (1) In general.--Clause (i) of section 7803(c)(2)(B) 
     (relating to annual reports), as amended by this Act, is 
     amended by striking ``and'' at the end of subclause (X), by 
     redesignating subclause (XI) as subclause (XII), and by 
     inserting after subclause (X) the following new subclause:

       ``(XI) include a list of the factors taxpayers have raised 
     to support their claims for offers-in-compromise relief, the 
     number of such offers submitted, accepted, and rejected, the 
     number of such offers appealed, the period during which 
     review of such offers have remained pending, and the efforts 
     the Internal Revenue Service has made to correctly identify 
     such offers, including the training of employees in 
     identifying and evaluating such offers.''.

       (2) Effective date.--The amendment made by paragraph (1) 
     shall apply to reports in calendar year 2005 and thereafter.

                      Subtitle C--Other Provisions

     SEC. 151. PENALTY FOR FAILURE TO REPORT INTERESTS IN FOREIGN 
                   FINANCIAL ACCOUNTS.

       (a) In General.--Section 5321(a)(5) of title 31, United 
     States Code, is amended to read as follows:
       ``(5) Foreign financial agency transaction violation.--
       ``(A) Penalty authorized.--The Secretary of the Treasury 
     may impose a civil money penalty on any person who violates, 
     or causes any violation of, any provision of section 5314.
       ``(B) Amount of penalty.--
       ``(i) In general.--Except as provided in subparagraph (C), 
     the amount of any civil penalty imposed under subparagraph 
     (A) shall not exceed $5,000.
       ``(ii) Reasonable cause exception.--No penalty shall be 
     imposed under subparagraph (A) with respect to any violation 
     if--

       ``(I) such violation was due to reasonable cause, and
       ``(II) the amount of the transaction or the balance in the 
     account at the time of the transaction was properly reported.

       ``(C) Willful violations.--In the case of any person 
     willfully violating, or willfully causing any violation of, 
     any provision of section 5314--
       ``(i) the maximum penalty under subparagraph (B)(i) shall 
     be increased to the greater of--

       ``(I) $25,000, or
       ``(II) the amount (not exceeding $100,000) determined under 
     subparagraph (D), and

       ``(ii) subparagraph (B)(ii) shall not apply.
       ``(D) Amount.--The amount determined under this 
     subparagraph is--
       ``(i) in the case of a violation involving a transaction, 
     the amount of the transaction, or
       ``(ii) in the case of a violation involving a failure to 
     report the existence of an account or any identifying 
     information required to be provided with respect to an 
     account, the balance in the account at the time of the 
     violation.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to violations occurring after the date of the 
     enactment of this Act.

     SEC. 152. REPEAL OF APPLICATION OF BELOW-MARKET LOAN RULES TO 
                   AMOUNTS PAID TO CERTAIN CONTINUING CARE 
                   FACILITIES.

       (a) In General.--Section 7872(c)(1) (relating to below-
     market loans to which section applies) is amended--
       (1) by striking subparagraph (F), and
       (2) by striking ``(C), or (F)'' in subparagraph (E) and 
     inserting ``or (C)''.
       (b) Full Exception.--Section 7872(g) (relating to exception 
     for certain loans to qualified continuing care facilities) is 
     amended--
       (1) by striking ``made by a lender to a qualified 
     continuing care facility pursuant to a continuing care 
     contract'' in paragraph (1) and inserting ``owed by a 
     facility which on the last day of such year is a qualified 
     continuing care facility, if such loan was made pursuant to a 
     continuing care contract and'',
       (2) by striking ``increased personal care services or'' in 
     paragraph (3)(C),
       (3) by adding at the end of paragraph (3) the following new 
     flush sentence:

     ``The Secretary shall issue guidance which limits such term 
     to contracts which provide to an individual or individual's 
     spouse only facilities, care, and services described in this 
     paragraph which are customarily offered by continuing care 
     facilities.'',
       (4) by inserting ``independent living unit'' after ``all of 
     the'' in paragraph (4)(A)(ii),
       (5) by striking paragraphs (2) and (5),
       (6) by redesignating paragraphs (3) and (4) as paragraphs 
     (2) and (3), respectively, and
       (7) by striking ``Certain'' in the heading thereof.
       (c) Effective Date.--The amendments made by this section 
     shall apply to calendar years beginning after 2004.

     SEC. 153. PUBLIC SUPPORT BY INDIAN TRIBAL GOVERNMENTS.

       (a) In General.--Section 7871(a) (relating to Indian tribal 
     governments treated as States for

[[Page 10592]]

     certain purposes) is amended by striking ``and'' at the end 
     of subparagraph (C) of paragraph (6), by striking the period 
     at the end of subparagraph (B) of paragraph (7) and inserting 
     ``; and'', and by adding at the end the following new 
     paragraph:
       ``(8) for purposes of--
       ``(A) determining support of an organization described in 
     section 170(b)(1)(A)(vi), and
       ``(B) determining whether an organization is described in 
     paragraph (1) or (2) of section 509(a) for purposes of 
     section 509(a)(3).''.
       (b) Effective Date.--The amendments made by this section 
     shall apply with respect to--
       (1) support received before, on, or after the date of the 
     enactment of this Act, and
       (2) the determination of the status of any organization 
     with respect to any taxable year beginning after such date of 
     enactment.

     SEC. 154. PAYROLL AGENTS SUBJECT TO PENALTY FOR FAILURE TO 
                   COLLECT AND PAY OVER TAX, OR ATTEMPT TO EVADE 
                   OR DEFEAT TAX.

       (a) In General.--Section 6672(a) is amended by inserting 
     ``, including any payroll agent,'' after ``Any person''.
       (b) Penalty Not Subject To Discharge in Bankruptcy.--
     Section 6672(a) is amended by adding at the end the following 
     new sentence: ``Notwithstanding any other provision of law, 
     no penalty imposed under this section may be discharged in 
     bankruptcy.''.
       (c) Construction.--The amendment made by subsection (a) 
     shall not be construed to create any inference with respect 
     to the interpretation of section 6672 of the Internal Revenue 
     Code of 1986 as such section was in effect on the day before 
     the date of the enactment of this Act.
       (d) Effective Date.--The amendments made by this section 
     shall apply to failures occurring after the date of the 
     enactment of this Act.

                TITLE II--REFORM OF PENALTY AND INTEREST

     SEC. 201. INDIVIDUAL ESTIMATED TAX.

       (a) Increase in Exception for Individuals Owing Small 
     Amount of Tax.--Section 6654(e)(1) (relating to exception 
     where tax is small amount) is amended by striking ``$1,000'' 
     and inserting ``$2,000''.
       (b) Computation of Addition to Tax.--Subsections (a) and 
     (b) of section 6654 (relating to failure by individual to pay 
     estimated taxes) are amended to read as follows:
       ``(a) Addition to the Tax.--
       ``(1) In general.--Except as otherwise provided in this 
     section, in the case of any underpayment of estimated tax by 
     an individual for a taxable year, there shall be added to the 
     tax under chapters 1 and 2 for the taxable year the amount 
     determined under paragraph (2) for each day of underpayment.
       ``(2) Amount.--The amount of the addition to tax for any 
     day shall be the product of the underpayment rate established 
     under subsection (b)(2) multiplied by the amount of the 
     underpayment.
       ``(b) Amount of Underpayment; Underpayment Rate.--For 
     purposes of subsection (a)--
       ``(1) Amount.--The amount of the underpayment on any day 
     shall be the excess of--
       ``(A) the sum of the required installments for the taxable 
     year the due dates for which are on or before such day, over
       ``(B) the sum of the amounts (if any) of estimated tax 
     payments made on or before such day on such required 
     installments.
       ``(2) Determination of underpayment rate.--
       ``(A) In general.--The underpayment rate with respect to 
     any day in an installment underpayment period shall be the 
     underpayment rate established under section 6621 for the 
     first day of the calendar quarter in which such installment 
     underpayment period begins.
       ``(B) Installment underpayment period.--For purposes of 
     subparagraph (A), the term `installment underpayment period' 
     means the period beginning on the day after the due date for 
     a required installment and ending on the due date for the 
     subsequent required installment (or in the case of the 4th 
     required installment, the 15th day of the 4th month following 
     the close of a taxable year).
       ``(C) Daily rate.--The rate determined under subparagraph 
     (A) shall be applied on a daily basis and shall be based on 
     the assumption of 365 days in a calendar year.
       ``(3) Termination of estimated tax underpayment.--No day 
     after the end of the installment underpayment period for the 
     4th required installment specified in paragraph (2)(B) for a 
     taxable year shall be treated as a day of underpayment with 
     respect to such taxable year.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to estimated tax payments made for taxable years 
     beginning after December 31, 2004.

     SEC. 202. CORPORATE ESTIMATED TAX.

       (a) Increase in Small Tax Amount Exception.--Section 
     6655(f) (relating to exception where tax is small amount) is 
     amended by striking ``$500'' and inserting ``$1,000''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2004.

     SEC. 203. INCREASE IN LARGE CORPORATION THRESHOLD FOR 
                   ESTIMATED TAX PAYMENTS.

       (a) In General.--Section 6655(g)(2) (defining large 
     corporation) is amended--
       (1) by striking ``$1,000,000'' in subparagraph (A) and 
     inserting ``the applicable amount'',
       (2) by striking ``the $1,000,000 amount specified in 
     subparagraph (A)'' in subparagraph (B)(ii) and inserting 
     ``the applicable amount'',
       (3) by redesignating subparagraph (B) as subparagraph (C), 
     and
       (4) by inserting after subparagraph (A) the following new 
     subparagraph:
       ``(B) Applicable amount.--For purposes of this paragraph, 
     the applicable amount is $1,000,000 increased (but not above 
     $1,500,000) by $50,000 for each taxable year beginning after 
     2004.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2004.

     SEC. 204. ABATEMENT OF INTEREST.

       (a) Abatement of Interest for Periods Attributable to Any 
     Unreasonable IRS Error or Delay.--Section 6404(e)(1) is 
     amended--
       (1) by striking ``in performing a ministerial or managerial 
     act'' in subparagraphs (A) and (B),
       (2) by striking ``deficiency'' in subparagraph (A) and 
     inserting ``underpayment of any tax, addition to tax, or 
     penalty imposed by this title'', and
       (3) by striking ``tax described in section 6212(a)'' in 
     subparagraph (B) and inserting ``tax, addition to tax, or 
     penalty imposed by this title''.
       (b) Abatement of Interest to Extent Interest Is 
     Attributable to Taxpayer Reliance on Written Statements of 
     the IRS.--Subsection (f) of section 6404 is amended--
       (1) in the subsection heading, by striking ``Penalty or 
     Addition'' and inserting ``Interest, Penalty, or Addition''; 
     and
       (2) in paragraph (1) and in subparagraph (B) of paragraph 
     (2), by striking ``penalty or addition'' and inserting 
     ``interest, penalty, or addition''.
       (c) Effective Date.--The amendments made by this section 
     shall apply with respect to interest accruing on or after the 
     date of the enactment of this Act.

     SEC. 205. DEPOSITS MADE TO SUSPEND RUNNING OF INTEREST ON 
                   POTENTIAL UNDERPAYMENTS.

       (a) In General.--Subchapter A of chapter 67 (relating to 
     interest on underpayments) is amended by adding at the end 
     the following new section:

     ``SEC. 6603. DEPOSITS MADE TO SUSPEND RUNNING OF INTEREST ON 
                   POTENTIAL UNDERPAYMENTS, ETC.

       ``(a) Authority To Make Deposits Other Than as Payment of 
     Tax.--A taxpayer may make a cash deposit with the Secretary 
     which may be used by the Secretary to pay any tax imposed 
     under subtitle A or B or chapter 41, 42, 43, or 44 which has 
     not been assessed at the time of the deposit. Such a deposit 
     shall be made in such manner as the Secretary shall 
     prescribe.
       ``(b) No Interest Imposed.--To the extent that such deposit 
     is used by the Secretary to pay tax, for purposes of section 
     6601 (relating to interest on underpayments), the tax shall 
     be treated as paid when the deposit is made.
       ``(c) Return of Deposit.--Except in a case where the 
     Secretary determines that collection of tax is in jeopardy, 
     the Secretary shall return to the taxpayer any amount of the 
     deposit (to the extent not used for a payment of tax) which 
     the taxpayer requests in writing.
       ``(d) Payment of Interest.--
       ``(1) In general.--For purposes of section 6611 (relating 
     to interest on overpayments), a deposit which is returned to 
     a taxpayer shall be treated as a payment of tax for any 
     period to the extent (and only to the extent) attributable to 
     a disputable tax for such period. Under regulations 
     prescribed by the Secretary, rules similar to the rules of 
     section 6611(b)(2) shall apply.
       ``(2) Disputable tax.--
       ``(A) In general.--For purposes of this section, the term 
     `disputable tax' means the amount of tax specified at the 
     time of the deposit as the taxpayer's reasonable estimate of 
     the maximum amount of any tax attributable to disputable 
     items.
       ``(B) Safe harbor based on 30-day letter.--In the case of a 
     taxpayer who has been issued a 30-day letter, the maximum 
     amount of tax under subparagraph (A) shall not be less than 
     the amount of the proposed deficiency specified in such 
     letter.
       ``(3) Other definitions.--For purposes of paragraph (2)--
       ``(A) Disputable item.--The term `disputable item' means 
     any item of income, gain, loss, deduction, or credit if the 
     taxpayer--
       ``(i) has a reasonable basis for its treatment of such 
     item, and
       ``(ii) reasonably believes that the Secretary also has a 
     reasonable basis for disallowing the taxpayer's treatment of 
     such item.
       ``(B) 30-day letter.--The term `30-day letter' means the 
     first letter of proposed deficiency which allows the taxpayer 
     an opportunity for administrative review in the Internal 
     Revenue Service Office of Appeals.
       ``(4) Rate of interest.--The rate of interest allowable 
     under this subsection shall be the Federal short-term rate 
     determined under section 6621(b), compounded daily.
       ``(e) Use of Deposits.--
       ``(1) Payment of tax.--Except as otherwise provided by the 
     taxpayer, deposits shall be treated as used for the payment 
     of tax in the order deposited.
       ``(2) Returns of deposits.--Deposits shall be treated as 
     returned to the taxpayer on a last-in, first-out basis.''.
       (b) Clerical Amendment.--The table of sections for 
     subchapter A of chapter 67 is amended by adding at the end 
     the following new item:

``Sec. 6603. Deposits made to suspend running of interest on potential 
              underpayments, etc.''.


[[Page 10593]]


       (c) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to deposits made after the date which is 1 year after 
     the date of the enactment of this Act.
       (2) Coordination with deposits made under revenue procedure 
     84-58.--In the case of an amount held by the Secretary of the 
     Treasury or the Secretary's delegate on the date which is 1 
     year after the date of the enactment of this Act as a deposit 
     in the nature of a cash bond deposit pursuant to Revenue 
     Procedure 84-58, the date that the taxpayer identifies such 
     amount as a deposit made pursuant to section 6603 of the 
     Internal Revenue Code (as added by this Act) shall be treated 
     as the date such amount is deposited for purposes of such 
     section 6603.

     SEC. 206. FREEZE OF PROVISIONS REGARDING SUSPENSION OF 
                   INTEREST WHERE SECRETARY FAILS TO CONTACT 
                   TAXPAYER.

       (a) In General.--Section 6404(g) (relating to suspension of 
     interest and certain penalties where Secretary fails to 
     contact taxpayer) is amended by striking ``1-year period (18-
     month period in the case of taxable years beginning before 
     January 1, 2004)'' both places it appears and inserting ``18-
     month period''.
       (b) Exception for Gross Misstatement.--Section 6404(g)(2) 
     (relating to exceptions) is amended by striking ``or'' at the 
     end of subparagraph (C), by redesignating subparagraph (D) as 
     subparagraph (E), and by inserting after subparagraph (C) the 
     following new subparagraph:
       ``(D) any interest, penalty, addition to tax, or additional 
     amount with respect to any gross misstatement; or''.
       (c) Exception for Reportable and Listed Transactions.--
     Section 6404(g)(2) (relating to exceptions), as amended by 
     subsection (b), is amended by striking ``or'' at the end of 
     subparagraph (D), by redesignating subparagraph (E) as 
     subparagraph (F), and by inserting after subparagraph (D) the 
     following new subparagraph:
       ``(E) any interest, penalty, addition to tax, or additional 
     amount with respect to any reportable transaction or listed 
     transaction (as defined in 6707A(c)); or''.
       (d) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to taxable years 
     beginning after December 31, 2003.
       (2) Exception for reportable or listed transactions.--The 
     amendments made by subsection (c) shall apply with respect to 
     interest accruing after May 5, 2004.

     SEC. 207. CLARIFICATION OF APPLICATION OF FEDERAL TAX DEPOSIT 
                   PENALTY.

       Nothing in section 6656 of the Internal Revenue Code of 
     1986 shall be construed to permit the percentage specified in 
     subsection (b)(1)(A)(iii) thereof to apply other than in a 
     case where the failure is for more than 15 days.

     SEC. 208. FRIVOLOUS TAX RETURNS AND SUBMISSIONS.

       (a) Civil Penalties.--Section 6702 is amended to read as 
     follows:

     ``SEC. 6702. FRIVOLOUS TAX SUBMISSIONS.

       ``(a) Civil Penalty for Frivolous Tax Returns.--A person 
     shall pay a penalty of $5,000 if--
       ``(1) such person files what purports to be a return of a 
     tax imposed by this title but which--
       ``(A) does not contain information on which the substantial 
     correctness of the self-assessment may be judged, or
       ``(B) contains information that on its face indicates that 
     the self-assessment is substantially incorrect; and
       ``(2) the conduct referred to in paragraph (1)--
       ``(A) is based on a position which the Secretary has 
     identified as frivolous under subsection (c), or
       ``(B) reflects a desire to delay or impede the 
     administration of Federal tax laws.
       ``(b) Civil Penalty for Specified Frivolous Submissions.--
       ``(1) Imposition of penalty.--Except as provided in 
     paragraph (3), any person who submits a specified frivolous 
     submission shall pay a penalty of $5,000.
       ``(2) Specified frivolous submission.--For purposes of this 
     section--
       ``(A) Specified frivolous submission.--The term `specified 
     frivolous submission' means a specified submission if any 
     portion of such submission--
       ``(i) is based on a position which the Secretary has 
     identified as frivolous under subsection (c), or
       ``(ii) reflects a desire to delay or impede the 
     administration of Federal tax laws.
       ``(B) Specified submission.--The term `specified 
     submission' means--
       ``(i) a request for a hearing under--

       ``(I) section 6320 (relating to notice and opportunity for 
     hearing upon filing of notice of lien), or
       ``(II) section 6330 (relating to notice and opportunity for 
     hearing before levy), and

       ``(ii) an application under--

       ``(I) section 6159 (relating to agreements for payment of 
     tax liability in installments),
       ``(II) section 7122 (relating to compromises), or
       ``(III) section 7811 (relating to taxpayer assistance 
     orders).

       ``(3) Opportunity to withdraw submission.--If the Secretary 
     provides a person with notice that a submission is a 
     specified frivolous submission and such person withdraws such 
     submission within 30 days after such notice, the penalty 
     imposed under paragraph (1) shall not apply with respect to 
     such submission.
       ``(c) Listing of Frivolous Positions.--The Secretary shall 
     prescribe (and periodically revise) a list of positions which 
     the Secretary has identified as being frivolous for purposes 
     of this subsection. The Secretary shall not include in such 
     list any position that the Secretary determines meets the 
     requirement of section 6662(d)(2)(B)(ii)(II).
       ``(d) Reduction of Penalty.--The Secretary may reduce the 
     amount of any penalty imposed under this section if the 
     Secretary determines that such reduction would promote 
     compliance with and administration of the Federal tax laws.
       ``(e) Penalties in Addition to Other Penalties.--The 
     penalties imposed by this section shall be in addition to any 
     other penalty provided by law.''.
       (b) Treatment of Frivolous Requests for Hearings Before 
     Levy.--
       (1) Frivolous requests disregarded.--Section 6330 (relating 
     to notice and opportunity for hearing before levy) is amended 
     by adding at the end the following new subsection:
       ``(g) Frivolous Requests for Hearing, etc.--Notwithstanding 
     any other provision of this section, if the Secretary 
     determines that any portion of a request for a hearing under 
     this section or section 6320 meets the requirement of clause 
     (i) or (ii) of section 6702(b)(2)(A), then the Secretary may 
     treat such portion as if it were never submitted and such 
     portion shall not be subject to any further administrative or 
     judicial review.''.
       (2) Preclusion from raising frivolous issues at hearing.--
     Section 6330(c)(4) is amended--
       (A) by striking ``(A)'' and inserting ``(A)(i)'';
       (B) by striking ``(B)'' and inserting ``(ii)'';
       (C) by striking the period at the end of the first sentence 
     and inserting ``; or''; and
       (D) by inserting after subparagraph (A)(ii) (as so 
     redesignated) the following:
       ``(B) the issue meets the requirement of clause (i) or (ii) 
     of section 6702(b)(2)(A).''.
       (3) Statement of grounds.--Section 6330(b)(1) is amended by 
     striking ``under subsection (a)(3)(B)'' and inserting ``in 
     writing under subsection (a)(3)(B) and states the grounds for 
     the requested hearing''.
       (c) Treatment of Frivolous Requests for Hearings Upon 
     Filing of Notice of Lien.--Section 6320 is amended--
       (1) in subsection (b)(1), by striking ``under subsection 
     (a)(3)(B)'' and inserting ``in writing under subsection 
     (a)(3)(B) and states the grounds for the requested hearing'', 
     and
       (2) in subsection (c), by striking ``and (e)'' and 
     inserting ``(e), and (g)''.
       (d) Treatment of Frivolous Applications for Offers-in-
     Compromise and Installment Agreements.--Section 7122 is 
     amended by adding at the end the following new subsection:
       ``(e) Frivolous Submissions, etc.--Notwithstanding any 
     other provision of this section, if the Secretary determines 
     that any portion of an application for an offer-in-compromise 
     or installment agreement submitted under this section or 
     section 6159 meets the requirement of clause (i) or (ii) of 
     section 6702(b)(2)(A), then the Secretary may treat such 
     portion as if it were never submitted and such portion shall 
     not be subject to any further administrative or judicial 
     review.''.
       (e) Clerical Amendment.--The table of sections for part I 
     of subchapter B of chapter 68 is amended by striking the item 
     relating to section 6702 and inserting the following new 
     item:

``Sec. 6702. Frivolous tax submissions.''.

       (f) Effective Date.--The amendments made by this section 
     shall apply to submissions made and issues raised after the 
     date on which the Secretary first prescribes a list under 
     section 6702(c) of the Internal Revenue Code of 1986, as 
     amended by subsection (a).

     SEC. 209. EXTENSION OF NOTICE REQUIREMENTS WITH RESPECT TO 
                   INTEREST AND PENALTY CALCULATIONS.

       Sections 3306(c) and 3308(c) of the Internal Revenue 
     Service Restructuring and Reform Act of 1998 are each amended 
     by inserting ``and during the period beginning on the date of 
     the enactment of the Tax Administration Good Government Act, 
     and ending before July 1, 2006,'' after ``July 1, 2003,''.

     SEC. 210. EXPANSION OF INTEREST NETTING.

       (a) In General.--Subsection (d) of section 6621 (relating 
     to elimination of interest on overlapping periods of tax 
     overpayments and underpayments) is amended by adding at the 
     end the following: ``Solely for purposes of the preceding 
     sentence, section 6611(e) shall not apply.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to interest accrued after December 31, 2010.

            TITLE III--UNITED STATES TAX COURT MODERNIZATION

                    Subtitle A--Tax Court Procedure

     SEC. 301. JURISDICTION OF TAX COURT OVER COLLECTION DUE 
                   PROCESS CASES.

       (a) In General.--Paragraph (1) of section 6330(d) (relating 
     to proceeding after hearing) is amended to read as follows:
       ``(1) Judicial review of determination.--The person may, 
     within 30 days of a determination under this section, appeal 
     such determination to the Tax Court (and the Tax Court shall 
     have jurisdiction with respect to such matter).''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to determinations made after the date which is 60 
     days after the date of the enactment of this Act.

     SEC. 302. AUTHORITY FOR SPECIAL TRIAL JUDGES TO HEAR AND 
                   DECIDE CERTAIN EMPLOYMENT STATUS CASES.

       (a) In General.--Section 7443A(b) (relating to proceedings 
     which may be assigned to special trial judges) is amended by 
     striking ``and'' at

[[Page 10594]]

     the end of paragraph (4), by redesignating paragraph (5) as 
     paragraph (6), and by inserting after paragraph (4) the 
     following new paragraph:
       ``(5) any proceeding under section 7436(c), and''.
       (b) Conforming Amendment.--Section 7443A(c) is amended by 
     striking ``or (4)'' and inserting ``(4), or (5)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to any proceeding under section 7436(c) of the 
     Internal Revenue Code of 1986 with respect to which a 
     decision has not become final (as determined under section 
     7481 of such Code) before the date of the enactment of this 
     Act.

     SEC. 303. CONFIRMATION OF AUTHORITY OF TAX COURT TO APPLY 
                   DOCTRINE OF EQUITABLE RECOUPMENT.

       (a) Confirmation of Authority of Tax Court To Apply 
     Doctrine of Equitable Recoupment.--Section 6214(b) (relating 
     to jurisdiction over other years and quarters) is amended by 
     adding at the end the following new sentence: 
     ``Notwithstanding the preceding sentence, the Tax Court may 
     apply the doctrine of equitable recoupment to the same extent 
     that it is available in civil tax cases before the district 
     courts of the United States and the United States Court of 
     Federal Claims.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to any action or proceeding in the United States 
     Tax Court with respect to which a decision has not become 
     final (as determined under section 7481 of the Internal 
     Revenue Code of 1986) as of the date of the enactment of this 
     Act.

     SEC. 304. TAX COURT FILING FEE IN ALL CASES COMMENCED BY 
                   FILING PETITION.

       (a) In General.--Section 7451 (relating to fee for filing a 
     Tax Court petition) is amended by striking all that follows 
     ``petition'' and inserting a period.
       (b) Effective Date.--The amendment made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 305. AMENDMENTS TO APPOINT EMPLOYEES.

       (a) In General.--Subsection (a) of section 7471 (relating 
     to Tax Court employees) is amended to read as follows:
       ``(a) Appointment and Compensation.--
       ``(1) Clerk.--The Tax Court may appoint a clerk without 
     regard to the provisions of title 5, United States Code, 
     governing appointments in the competitive service. The clerk 
     shall serve at the pleasure of the Tax Court.
       ``(2) Law clerks and secretaries.--
       ``(A) In general.--The judges and special trial judges of 
     the Tax Court may appoint law clerks and secretaries, in such 
     numbers as the Tax Court may approve, without regard to the 
     provisions of title 5, United States Code, governing 
     appointments in the competitive service. Any such law clerk 
     or secretary shall serve at the pleasure of the appointing 
     judge.
       ``(B) Exemption from federal leave provisions.--A law clerk 
     appointed under this subsection shall be exempt from the 
     provisions of subchapter I of chapter 63 of title 5, United 
     States Code. Any unused sick leave or annual leave standing 
     to the employee's credit as of the effective date of this 
     subsection shall remain credited to the employee and shall be 
     available to the employee upon separation from the Federal 
     Government.
       ``(3) Other employees.--The Tax Court may appoint necessary 
     employees without regard to the provisions of title 5, United 
     States Code, governing appointments in the competitive 
     service. Such employees shall be subject to removal by the 
     Tax Court.
       ``(4) Pay.--The Tax Court may fix and adjust the 
     compensation for the clerk and other employees of the Tax 
     Court without regard to the provisions of chapter 51, 
     subchapter III of chapter 53, or section 5373 of title 5, 
     United States Code. To the maximum extent feasible, the Tax 
     Court shall compensate employees at rates consistent with 
     those for employees holding comparable positions in the 
     judicial branch.
       ``(5) Programs.--The Tax Court may establish programs for 
     employee evaluations, incentive awards, flexible work 
     schedules, premium pay, and resolution of employee 
     grievances.
       ``(6) Discrimination prohibited.--The Tax Court shall--
       ``(A) prohibit discrimination on the basis of race, color, 
     religion, age, sex, national origin, political affiliation, 
     marital status, or handicapping condition; and
       ``(B) promulgate procedures for resolving complaints of 
     discrimination by employees and applicants for employment.
       ``(7) Experts and consultants.--The Tax Court may procure 
     the services of experts and consultants under section 3109 of 
     title 5, United States Code.
       ``(8) Rights to certain appeals reserved.--Notwithstanding 
     any other provision of law, an individual who is an employee 
     of the Tax Court on the day before the effective date of this 
     subsection and who, as of that day, was entitled to--
       ``(A) appeal a reduction in grade or removal to the Merit 
     Systems Protection Board under chapter 43 of title 5, United 
     States Code,
       ``(B) appeal an adverse action to the Merit Systems 
     Protection Board under chapter 75 of title 5, United States 
     Code,
       ``(C) appeal a prohibited personnel practice described 
     under section 2302(b) of title 5, United States Code, to the 
     Merit Systems Protection Board under chapter 77 of that 
     title,
       ``(D) make an allegation of a prohibited personnel practice 
     described under section 2302(b) of title 5, United States 
     Code, with the Office of Special Counsel under chapter 12 of 
     that title for action in accordance with that chapter, or
       ``(E) file an appeal with the Equal Employment Opportunity 
     Commission under part 1614 of title 29 of the Code of Federal 
     Regulations,

     shall be entitled to file such appeal or make such an 
     allegation so long as the individual remains an employee of 
     the Tax Court.
       ``(9) Competitive status.--Notwithstanding any other 
     provision of law, any employee of the Tax Court who has 
     completed at least 1 year of continuous service under a non-
     temporary appointment with the Tax Court acquires a 
     competitive status for appointment to any position in the 
     competitive service for which the employee possesses the 
     required qualifications.
       ``(10) Merit system principles; prohibited personnel 
     practices; and preference eligibles.--Any personnel 
     management system of the Tax Court shall--
       ``(A) include the principles set forth in section 2301(b) 
     of title 5, United States Code;
       ``(B) prohibit personnel practices prohibited under section 
     2302(b) of title 5, United States Code; and
       ``(C) in the case of any individual who would be a 
     preference eligible in the executive branch, the Tax Court 
     will provide preference for that individual in a manner and 
     to an extent consistent with preference accorded to 
     preference eligibles in the executive branch.''.
       (b) Effective Date.--The amendments made by this section 
     shall take effect on the date the United States Tax Court 
     adopts a personnel management system after the date of the 
     enactment of this Act.

     SEC. 306. EXPANDED USE OF TAX COURT PRACTICE FEE FOR PRO SE 
                   TAXPAYERS.

       (a) In General.--Section 7475(b) (relating to use of fees) 
     is amended by inserting before the period at the end ``and to 
     provide services to pro se taxpayers''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect on the date of the enactment of this Act.

             Subtitle B--Tax Court Pension and Compensation

     SEC. 311. ANNUITIES FOR SURVIVORS OF TAX COURT JUDGES WHO ARE 
                   ASSASSINATED.

       (a) Eligibility in Case of Death by Assassination.--
     Subsection (h) of section 7448 (relating to annuities to 
     surviving spouses and dependent children of judges) is 
     amended to read as follows:
       ``(h) Entitlement to Annuity.--
       ``(1) In general.--
       ``(A) Annuity to surviving spouse.--If a judge described in 
     paragraph (2) is survived by a surviving spouse but not by a 
     dependent child, there shall be paid to such surviving spouse 
     an annuity beginning with the day of the death of the judge 
     or following the surviving spouse's attainment of the age of 
     50 years, whichever is the later, in an amount computed as 
     provided in subsection (m).
       ``(B) Annuity to child.--If such a judge is survived by a 
     surviving spouse and a dependent child or children, there 
     shall be paid to such surviving spouse an immediate annuity 
     in an amount computed as provided in subsection (m), and 
     there shall also be paid to or on behalf of each such child 
     an immediate annuity equal to the lesser of--
       ``(i) 10 percent of the average annual salary of such judge 
     (determined in accordance with subsection (m)), or
       ``(ii) 20 percent of such average annual salary, divided by 
     the number of such children.
       ``(C) Annuity to surviving dependent children.--If such a 
     judge leaves no surviving spouse but leaves a surviving 
     dependent child or children, there shall be paid to or on 
     behalf of each such child an immediate annuity equal to the 
     lesser of--
       ``(i) 20 percent of the average annual salary of such judge 
     (determined in accordance with subsection (m)), or
       ``(ii) 40 percent of such average annual salary, divided by 
     the number of such children.
       ``(2) Covered judges.--Paragraph (1) applies to any judge 
     electing under subsection (b)--
       ``(A) who dies while a judge after having rendered at least 
     5 years of civilian service computed as prescribed in 
     subsection (n), for the last 5 years of which the salary 
     deductions provided for by subsection (c)(1) or the deposits 
     required by subsection (d) have actually been made or the 
     salary deductions required by the civil service retirement 
     laws have actually been made, or
       ``(B) who dies by assassination after having rendered less 
     than 5 years of civilian service computed as prescribed in 
     subsection (n) if, for the period of such service, the salary 
     deductions provided for by subsection (c)(1) or the deposits 
     required by subsection (d) have actually been made.
       ``(3) Termination of annuity.--
       ``(A) In the case of a surviving spouse.--The annuity 
     payable to a surviving spouse under this subsection shall be 
     terminable upon such surviving spouse's death or such 
     surviving spouse's remarriage before attaining age 55.
       ``(B) In the case of a child.--The annuity payable to a 
     child under this subsection shall be terminable upon (i) the 
     child attaining the age of 18 years, (ii) the child's 
     marriage, or (iii) the child's death, whichever first occurs, 
     except that if such child is incapable of self-support by 
     reason of mental or physical disability the child's annuity 
     shall be terminable only upon death, marriage, or recovery 
     from such disability.
       ``(C) In the case of a dependent child after death of 
     surviving spouse.--In case of the death of a surviving spouse 
     of a judge leaving a dependent child or children of the judge

[[Page 10595]]

     surviving such spouse, the annuity of such child or children 
     shall be recomputed and paid as provided in paragraph (1)(C).
       ``(D) Recomputation.--In any case in which the annuity of a 
     dependent child is terminated under this subsection, the 
     annuities of any remaining dependent child or children, based 
     upon the service of the same judge, shall be recomputed and 
     paid as though the child whose annuity was so terminated had 
     not survived such judge.
       ``(4) Special rule for assassinated judges.--In the case of 
     a survivor or survivors of a judge described in paragraph 
     (2)(B), there shall be deducted from the annuities otherwise 
     payable under this section an amount equal to--
       ``(A) the amount of salary deductions provided for by 
     subsection (c)(1) that would have been made if such 
     deductions had been made for 5 years of civilian service 
     computed as prescribed in subsection (n) before the judge's 
     death, reduced by
       ``(B) the amount of such salary deductions that were 
     actually made before the date of the judge's death.''.
       (b) Definition of Assassination.--Section 7448(a) (relating 
     to definitions) is amended by adding at the end the following 
     new paragraph:
       ``(8) The terms `assassinated' and `assassination' mean the 
     killing of a judge that is motivated by the performance by 
     that judge of his or her official duties.''.
       (c) Determination of Assassination.--Subsection (i) of 
     section 7448 is amended--
       (1) by striking the subsection heading and inserting the 
     following:
       ``(i) Determinations by Chief Judge.--
       ``(1) Dependency and disability.--'',
       (2) by moving the text 2 ems to the right, and
       (3) by adding at the end the following new paragraph:
       ``(2) Assassination.--The chief judge shall determine 
     whether the killing of a judge was an assassination, subject 
     to review only by the Tax Court. The head of any Federal 
     agency that investigates the killing of a judge shall provide 
     information to the chief judge that would assist the chief 
     judge in making such a determination.''.
       (d) Computation of Annuities.--Subsection (m) of section 
     7448 is amended--
       (1) by striking the subsection heading and inserting the 
     following:
       ``(m) Computation of Annuities.--
       ``(1) In general.--'',
       (2) by moving the text 2 ems to the right, and
       (3) by adding at the end the following new paragraph:
       ``(2) Assassinated judges.--In the case of a judge who is 
     assassinated and who has served less than 3 years, the 
     annuity of the surviving spouse of such judge shall be based 
     upon the average annual salary received by such judge for 
     judicial service.''.
       (e) Other Benefits.--Section 7448 is amended by adding at 
     the end the following:
       ``(u) Other Benefits.--In the case of a judge who is 
     assassinated, an annuity shall be paid under this section 
     notwithstanding a survivor's eligibility for or receipt of 
     benefits under chapter 81 of title 5, United States Code, 
     except that the annuity for which a surviving spouse is 
     eligible under this section shall be reduced to the extent 
     that the total benefits paid under this section and chapter 
     81 of that title for any year would exceed the current salary 
     for that year of the office of the judge.''.

     SEC. 312. COST-OF-LIVING ADJUSTMENTS FOR TAX COURT JUDICIAL 
                   SURVIVOR ANNUITIES.

       (a) In General.--Subsection (s) of section 7448 (relating 
     to annuities to surviving spouses and dependent children of 
     judges) is amended to read as follows:
       ``(s) Increases in Survivor Annuities.--Each time that an 
     increase is made under section 8340(b) of title 5, United 
     States Code, in annuities payable under subchapter III of 
     chapter 83 of that title, each annuity payable from the 
     survivors annuity fund under this section shall be increased 
     at the same time by the same percentage by which annuities 
     are increased under such section 8340(b).''.
       (b) Effective Date.--The amendments made by this section 
     shall apply with respect to increases made under section 
     8340(b) of title 5, United States Code, in annuities payable 
     under subchapter III of chapter 83 of that title, taking 
     effect after the date of the enactment of this Act.

     SEC. 313. LIFE INSURANCE COVERAGE FOR TAX COURT JUDGES.

       (a) In General.--Section 7447 (relating to retirement of 
     judges) is amended by adding at the end the following new 
     subsection:
       ``(j) Life Insurance Coverage.--For purposes of chapter 87 
     of title 5, United States Code (relating to life insurance), 
     any individual who is serving as a judge of the Tax Court or 
     who is retired under this section is deemed to be an employee 
     who is continuing in active employment.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to any individual serving as a judge of the 
     United States Tax Court or to any retired judge of the United 
     States Tax Court on the date of the enactment of this Act.

     SEC. 314. COST OF LIFE INSURANCE COVERAGE FOR TAX COURT 
                   JUDGES AGE 65 OR OVER.

       Section 7472 (relating to expenditures) is amended by 
     inserting after the first sentence the following new 
     sentence: ``Notwithstanding any other provision of law, the 
     Tax Court is authorized to pay on behalf of its judges, age 
     65 or over, any increase in the cost of Federal Employees' 
     Group Life Insurance imposed after April 24, 1999, including 
     any expenses generated by such payments, as authorized by the 
     chief judge in a manner consistent with such payments 
     authorized by the Judicial Conference of the United States 
     pursuant to section 604(a)(5) of title 28, United States 
     Code.''.

     SEC. 315. MODIFICATION OF TIMING OF LUMP-SUM PAYMENT OF 
                   JUDGES' ACCRUED ANNUAL LEAVE.

       (a) In General.--Section 7443 (relating to membership of 
     the Tax Court) is amended by adding at the end the following 
     new subsection:
       ``(h) Lump-Sum Payment of Judges' Accrued Annual Leave.--
     Notwithstanding the provisions of sections 5551 and 6301 of 
     title 5, United States Code, when an individual subject to 
     the leave system provided in chapter 63 of that title is 
     appointed by the President to be a judge of the Tax Court, 
     the individual shall be entitled to receive, upon appointment 
     to the Tax Court, a lump-sum payment from the Tax Court of 
     the accumulated and accrued current annual leave standing to 
     the individual's credit as certified by the agency from which 
     the individual resigned.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to any judge of the United States Tax Court who 
     has an outstanding leave balance on the date of the enactment 
     of this Act and to any individual appointed by the President 
     to serve as a judge of the United States Tax Court after such 
     date.

     SEC. 316. PARTICIPATION OF TAX COURT JUDGES IN THE THRIFT 
                   SAVINGS PLAN.

       (a) In General.--Section 7447 (relating to retirement of 
     judges), as amended by this Act, is amended by adding at the 
     end the following new subsection:
       ``(k) Thrift Savings Plan.--
       ``(1) Election to contribute.--
       ``(A) In general.--A judge of the Tax Court may elect to 
     contribute to the Thrift Savings Fund established by section 
     8437 of title 5, United States Code.
       ``(B) Period of election.--An election may be made under 
     this paragraph only during a period provided under section 
     8432(b) of title 5, United States Code, for individuals 
     subject to chapter 84 of such title.
       ``(2) Applicability of title 5 provisions.--Except as 
     otherwise provided in this subsection, the provisions of 
     subchapters III and VII of chapter 84 of title 5, United 
     States Code, shall apply with respect to a judge who makes an 
     election under paragraph (1).
       ``(3) Special rules.--
       ``(A) Amount contributed.--The amount contributed by a 
     judge to the Thrift Savings Fund in any pay period shall not 
     exceed the maximum percentage of such judge's basic pay for 
     such period as allowable under section 8440f of title 5, 
     United States Code. Basic pay does not include any retired 
     pay paid pursuant to this section.
       ``(B) Contributions for benefit of judge.--No contributions 
     may be made for the benefit of a judge under section 8432(c) 
     of title 5, United States Code.
       ``(C) Applicability of section 8433(b) of title 5 whether 
     or not judge retires.--Section 8433(b) of title 5, United 
     States Code, applies with respect to a judge who makes an 
     election under paragraph (1) and who either--
       ``(i) retires under subsection (b), or
       ``(ii) ceases to serve as a judge of the Tax Court but does 
     not retire under subsection (b).

     Retirement under subsection (b) is a separation from service 
     for purposes of subchapters III and VII of chapter 84 of that 
     title.
       ``(D) Applicability of section 8351(b)(5) of title 5.--The 
     provisions of section 8351(b)(5) of title 5, United States 
     Code, shall apply with respect to a judge who makes an 
     election under paragraph (1).
       ``(E) Exception.--Notwithstanding subparagraph (C), if any 
     judge retires under this section, or resigns without having 
     met the age and service requirements set forth under 
     subsection (b)(2), and such judge's nonforfeitable account 
     balance is less than an amount that the Executive Director of 
     the Office of Personnel Management prescribes by regulation, 
     the Executive Director shall pay the nonforfeitable account 
     balance to the participant in a single payment.''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect on the date of the enactment of this Act, 
     except that United States Tax Court judges may only begin to 
     participate in the Thrift Savings Plan at the next open 
     season beginning after such date.

     SEC. 317. EXEMPTION OF TEACHING COMPENSATION OF RETIRED 
                   JUDGES FROM LIMITATION ON OUTSIDE EARNED 
                   INCOME.

       (a) In General.--Section 7447 (relating to retirement of 
     judges), as amended by this Act, is amended by adding at the 
     end the following new subsection:
       ``(l) Teaching Compensation of Retired Judges.--For 
     purposes of the limitation under section 501(a) of the Ethics 
     in Government Act of 1978 (5 U.S.C. App.), any compensation 
     for teaching approved under section 502(a)(5) of such Act 
     shall not be treated as outside earned income when received 
     by a judge of the Tax Court who has retired under subsection 
     (b) for teaching performed during any calendar year for which 
     such a judge has met the requirements of subsection (c), as 
     certified by the chief judge of the Tax Court.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to any individual serving as a retired judge of 
     the United States Tax Court on or after the date of the 
     enactment of this Act.

[[Page 10596]]



     SEC. 318. GENERAL PROVISIONS RELATING TO MAGISTRATE JUDGES OF 
                   THE TAX COURT.

       (a) Title of Special Trial Judge Changed to Magistrate 
     Judge of the Tax Court.--The heading of section 7443A is 
     amended to read as follows:

     ``SEC. 7443A. MAGISTRATE JUDGES OF THE TAX COURT.''.

       (b) Appointment, Tenure, and Removal.--Subsection (a) of 
     section 7443A is amended to read as follows:
       ``(a) Appointment, Tenure, and Removal.--
       ``(1) Appointment.--The chief judge may, from time to time, 
     appoint and reappoint magistrate judges of the Tax Court for 
     a term of 8 years. The magistrate judges of the Tax Court 
     shall proceed under such rules as may be promulgated by the 
     Tax Court.
       ``(2) Removal.--Removal of a magistrate judge of the Tax 
     Court during the term for which he or she is appointed shall 
     be only for incompetency, misconduct, neglect of duty, or 
     physical or mental disability, but the office of a magistrate 
     judge of the Tax Court shall be terminated if the judges of 
     the Tax Court determine that the services performed by the 
     magistrate judge of the Tax Court are no longer needed. 
     Removal shall not occur unless a majority of all the judges 
     of the Tax Court concur in the order of removal. Before any 
     order of removal shall be entered, a full specification of 
     the charges shall be furnished to the magistrate judge of the 
     Tax Court, and he or she shall be accorded by the judges of 
     the Tax Court an opportunity to be heard on the charges.''.
       (c) Salary.--Section 7443A(d) (relating to salary) is 
     amended by striking ``90'' and inserting ``92''.
       (d) Exemption From Federal Leave Provisions.--Section 7443A 
     is amended by adding at the end the following new subsection:
       ``(f) Exemption From Federal Leave Provisions.--
       ``(1) In general.--A magistrate judge of the Tax Court 
     appointed under this section shall be exempt from the 
     provisions of subchapter I of chapter 63 of title 5, United 
     States Code.
       ``(2) Treatment of unused leave.--
       ``(A) After service as magistrate judge.--If an individual 
     who is exempted under paragraph (1) from the subchapter 
     referred to in such paragraph was previously subject to such 
     subchapter and, without a break in service, again becomes 
     subject to such subchapter on completion of the individual's 
     service as a magistrate judge, the unused annual leave and 
     sick leave standing to the individual's credit when such 
     individual was exempted from this subchapter is deemed to 
     have remained to the individual's credit.
       ``(B) Computation of annuity.--In computing an annuity 
     under section 8339 of title 5, United States Code, the total 
     service of an individual specified in subparagraph (A) who 
     retires on an immediate annuity or dies leaving a survivor or 
     survivors entitled to an annuity includes, without regard to 
     the limitations imposed by subsection (f) of such section 
     8339, the days of unused sick leave standing to the 
     individual's credit when such individual was exempted from 
     subchapter I of chapter 63 of title 5, United States Code, 
     except that these days will not be counted in determining 
     average pay or annuity eligibility.
       ``(C) Lump sum payment.--Any accumulated and current 
     accrued annual leave or vacation balances credited to a 
     magistrate judge as of the date of the enactment of this 
     subsection shall be paid in a lump sum at the time of 
     separation from service pursuant to the provisions and 
     restrictions set forth in section 5551 of title 5, United 
     States Code, and related provisions referred to in such 
     section.''.
       (e) Conforming Amendments.--
       (1) The heading of subsection (b) of section 7443A is 
     amended by striking ``Special Trial Judges'' and inserting 
     ``Magistrate Judges of the Tax Court''.
       (2) Section 7443A(b) is amended by striking ``special trial 
     judges of the court'' and inserting ``magistrate judges of 
     the Tax Court''.
       (3) Subsections (c) and (d) of section 7443A are amended by 
     striking ``special trial judge'' and inserting ``magistrate 
     judge of the Tax Court'' each place it appears.
       (4) Section 7443A(e) is amended by striking ``special trial 
     judges'' and inserting ``magistrate judges of the Tax 
     Court''.
       (5) Section 7456(a) is amended by striking ``special trial 
     judge'' each place it appears and inserting ``magistrate 
     judge''.
       (6) Subsection (c) of section 7471 is amended--
       (A) by striking the subsection heading and inserting 
     ``Magistrate Judges of the Tax Court.--'', and
       (B) by striking ``special trial judges'' and inserting 
     ``magistrate judges''.

     SEC. 319. ANNUITIES TO SURVIVING SPOUSES AND DEPENDENT 
                   CHILDREN OF MAGISTRATE JUDGES OF THE TAX COURT.

       (a) Definitions.--Section 7448(a) (relating to 
     definitions), as amended by this Act, is amended by 
     redesignating paragraphs (5), (6), (7), and (8) as paragraphs 
     (7), (8), (9), and (10), respectively, and by inserting after 
     paragraph (4) the following new paragraphs:
       ``(5) The term `magistrate judge' means a judicial officer 
     appointed pursuant to section 7443A, including any individual 
     receiving an annuity under section 7443B, or chapters 83 or 
     84, as the case may be, of title 5, United States Code, 
     whether or not performing judicial duties under section 
     7443C.
       ``(6) The term `magistrate judge's salary' means the salary 
     of a magistrate judge received under section 7443A(d), any 
     amount received as an annuity under section 7443B, or 
     chapters 83 or 84, as the case may be, of title 5, United 
     States Code, and compensation received under section 
     7443C.''.
       (b) Election.--Subsection (b) of section 7448 (relating to 
     annuities to surviving spouses and dependent children of 
     judges) is amended--
       (1) by striking the subsection heading and inserting the 
     following:
       ``(b) Election.--
       ``(1) Judges.--'',
       (2) by moving the text 2 ems to the right, and
       (3) by adding at the end the following new paragraph:
       ``(2) Magistrate judges.--Any magistrate judge may by 
     written election filed with the chief judge bring himself or 
     herself within the purview of this section. Such election 
     shall be filed not later than the later of 6 months after--
       ``(A) 6 months after the date of the enactment of this 
     paragraph,
       ``(B) the date the judge takes office, or
       ``(C) the date the judge marries.''.
       (c) Conforming Amendments.--
       (1) The heading of section 7448 is amended by inserting 
     ``AND MAGISTRATE JUDGES'' after ``JUDGES''.
       (2) The item relating to section 7448 in the table of 
     sections for part I of subchapter C of chapter 76 is amended 
     by inserting ``and magistrate judges'' after ``judges''.
       (3) Subsections (c)(1), (d), (f), (g), (h), (j), (m), (n), 
     and (u) of section 7448, as amended by this Act, are each 
     amended--
       (A) by inserting ``or magistrate judge'' after ``judge'' 
     each place it appears other than in the phrase ``chief 
     judge'', and
       (B) by inserting ``or magistrate judge's'' after 
     ``judge's'' each place it appears.
       (4) Section 7448(c) is amended--
       (A) in paragraph (1), by striking ``Tax Court judges'' and 
     inserting ``Tax Court judicial officers'',
       (B) in paragraph (2)--
       (i) in subparagraph (A), by inserting ``and section 
     7443A(d)'' after ``(a)(4)'', and
       (ii) in subparagraph (B), by striking ``subsection (a)(4)'' 
     and inserting ``subsections (a)(4) and (a)(6)''.
       (5) Section 7448(g) is amended by inserting ``or section 
     7443B'' after ``section 7447'' each place it appears, and by 
     inserting ``or an annuity'' after ``retired pay''.
       (6) Section 7448(j)(1) is amended--
       (A) in subparagraph (A), by striking ``service or retired'' 
     and inserting ``service, retired'', and by inserting ``, or 
     receiving any annuity under section 7443B or chapters 83 or 
     84 of title 5, United States Code,'' after ``section 7447'', 
     and
       (B) in the last sentence, by striking ``subsections (a)(6) 
     and (7)'' and inserting ``paragraphs (8) and (9) of 
     subsection (a)''.
       (7) Section 7448(m)(1), as amended by this Act, is 
     amended--
       (A) by inserting ``or any annuity under section 7443B or 
     chapters 83 or 84 of title 5, United States Code'' after 
     ``7447(d)'', and
       (B) by inserting ``or 7443B(m)(1)(B) after ``7447(f)(4)''.
       (8) Section 7448(n) is amended by inserting ``his years of 
     service pursuant to any appointment under section 7443A,'' 
     after ``of the Tax Court,''.
       (9) Section 3121(b)(5)(E) is amended by inserting ``or 
     magistrate judge'' before ``of the United States Tax Court''.
       (10) Section 210(a)(5)(E) of the Social Security Act is 
     amended by inserting ``or magistrate judge'' before ``of the 
     United States Tax Court''.

     SEC. 320. RETIREMENT AND ANNUITY PROGRAM.

       (a) Retirement and Annuity Program.--Part I of subchapter C 
     of chapter 76 is amended by inserting after section 7443A the 
     following new section:

     ``SEC. 7443B. RETIREMENT FOR MAGISTRATE JUDGES OF THE TAX 
                   COURT.

       ``(a) Retirement Based on Years of Service.--A magistrate 
     judge of the Tax Court to whom this section applies and who 
     retires from office after attaining the age of 65 years and 
     serving at least 14 years, whether continuously or otherwise, 
     as such magistrate judge shall, subject to subsection (f), be 
     entitled to receive, during the remainder of the magistrate 
     judge's lifetime, an annuity equal to the salary being 
     received at the time the magistrate judge leaves office.
       ``(b) Retirement Upon Failure of Reappointment.--A 
     magistrate judge of the Tax Court to whom this section 
     applies who is not reappointed following the expiration of 
     the term of office of such magistrate judge, and who retires 
     upon the completion of the term shall, subject to subsection 
     (f), be entitled to receive, upon attaining the age of 65 
     years and during the remainder of such magistrate judge's 
     lifetime, an annuity equal to that portion of the salary 
     being received at the time the magistrate judge leaves office 
     which the aggregate number of years of service, not to exceed 
     14, bears to 14, if--
       ``(1) such magistrate judge has served at least 1 full term 
     as a magistrate judge, and
       ``(2) not earlier than 9 months before the date on which 
     the term of office of such magistrate judge expires, and not 
     later than 6 months before such date, such magistrate judge 
     notified the chief judge of the Tax Court in writing that 
     such magistrate judge was willing to accept reappointment to 
     the position in which such magistrate judge was serving.
       ``(c) Service of at Least 8 Years.--A magistrate judge of 
     the Tax Court to whom this section applies and who retires 
     after serving at least 8 years, whether continuously or 
     otherwise, as such a magistrate judge shall, subject to 
     subsection (f), be entitled to receive, upon attaining the 
     age of 65 years and during the remainder of the magistrate 
     judge's lifetime, an

[[Page 10597]]

     annuity equal to that portion of the salary being received at 
     the time the magistrate judge leaves office which the 
     aggregate number of years of service, not to exceed 14, bears 
     to 14. Such annuity shall be reduced by \1/6\ of 1 percent 
     for each full month such magistrate judge was under the age 
     of 65 at the time the magistrate judge left office, except 
     that such reduction shall not exceed 20 percent.
       ``(d) Retirement for Disability.--A magistrate judge of the 
     Tax Court to whom this section applies, who has served at 
     least 5 years, whether continuously or otherwise, as such a 
     magistrate judge, and who retires or is removed from office 
     upon the sole ground of mental or physical disability shall, 
     subject to subsection (f), be entitled to receive, during the 
     remainder of the magistrate judge's lifetime, an annuity 
     equal to 40 percent of the salary being received at the time 
     of retirement or removal or, in the case of a magistrate 
     judge who has served for at least 10 years, an amount equal 
     to that proportion of the salary being received at the time 
     of retirement or removal which the aggregate number of years 
     of service, not to exceed 14, bears to 14.
       ``(e) Cost-of-Living Adjustments.--A magistrate judge of 
     the Tax Court who is entitled to an annuity under this 
     section is also entitled to a cost-of-living adjustment in 
     such annuity, calculated and payable in the same manner as 
     adjustments under section 8340(b) of title 5, United States 
     Code, except that any such annuity, as increased under this 
     subsection, may not exceed the salary then payable for the 
     position from which the magistrate judge retired or was 
     removed.
       ``(f) Election; Annuity in Lieu of Other Annuities.--
       ``(1) In general.--A magistrate judge of the Tax Court 
     shall be entitled to an annuity under this section if the 
     magistrate judge elects an annuity under this section by 
     notifying the chief judge of the Tax Court not later than the 
     later of--
       ``(A) 5 years after the magistrate judge of the Tax Court 
     begins judicial service, or
       ``(B) 5 years after the date of the enactment of this 
     subsection.

     Such notice shall be given in accordance with procedures 
     prescribed by the Tax Court.
       ``(2) Annuity in lieu of other annuity.--A magistrate judge 
     who elects to receive an annuity under this section shall not 
     be entitled to receive--
       ``(A) any annuity to which such magistrate judge would 
     otherwise have been entitled under subchapter III of chapter 
     83, or under chapter 84 (except for subchapters III and VII), 
     of title 5, United States Code, for service performed as a 
     magistrate or otherwise,
       ``(B) an annuity or salary in senior status or retirement 
     under section 371 or 372 of title 28, United States Code,
       ``(C) retired pay under section 7447, or
       ``(D) retired pay under section 7296 of title 38, United 
     States Code.
       ``(3) Coordination with title 5.--A magistrate judge of the 
     Tax Court who elects to receive an annuity under this 
     section--
       ``(A) shall not be subject to deductions and contributions 
     otherwise required by section 8334(a) of title 5, United 
     States Code,
       ``(B) shall be excluded from the operation of chapter 84 
     (other than subchapters III and VII) of such title 5, and
       ``(C) is entitled to a lump-sum credit under section 
     8342(a) or 8424 of such title 5, as the case may be.
       ``(g) Calculation of Service.--For purposes of calculating 
     an annuity under this section--
       ``(1) service as a magistrate judge of the Tax Court to 
     whom this section applies may be credited, and
       ``(2) each month of service shall be credited as \1/12\ of 
     a year, and the fractional part of any month shall not be 
     credited.
       ``(h) Covered Positions and Service.--This section applies 
     to any magistrate judge of the Tax Court or special trial 
     judge of the Tax Court appointed under this subchapter, but 
     only with respect to service as such a magistrate judge or 
     special trial judge after a date not earlier than 9\1/2\ 
     years before the date of the enactment of this subsection.
       ``(i) Payments Pursuant to Court Order.--
       ``(1) In general.--Payments under this section which would 
     otherwise be made to a magistrate judge of the Tax Court 
     based upon his or her service shall be paid (in whole or in 
     part) by the chief judge of the Tax Court to another person 
     if and to the extent expressly provided for in the terms of 
     any court decree of divorce, annulment, or legal separation, 
     or the terms of any court order or court-approved property 
     settlement agreement incident to any court decree of divorce, 
     annulment, or legal separation. Any payment under this 
     paragraph to a person bars recovery by any other person.
       ``(2) Requirements for payment.--Paragraph (1) shall apply 
     only to payments made by the chief judge of the Tax Court 
     after the date of receipt by the chief judge of written 
     notice of such decree, order, or agreement, and such 
     additional information as the chief judge may prescribe.
       ``(3) Court defined.--For purposes of this subsection, the 
     term `court' means any court of any State, the District of 
     Columbia, the Commonwealth of Puerto Rico, Guam, the Northern 
     Mariana Islands, or the Virgin Islands, and any Indian tribal 
     court or courts of Indian offense.
       ``(j) Deductions, Contributions, and Deposits.--
       ``(1) Deductions.--Beginning with the next pay period after 
     the chief judge of the Tax Court receives a notice under 
     subsection (f) that a magistrate judge of the Tax Court has 
     elected an annuity under this section, the chief judge shall 
     deduct and withhold 1 percent of the salary of such 
     magistrate judge. Amounts shall be so deducted and withheld 
     in a manner determined by the chief judge. Amounts deducted 
     and withheld under this subsection shall be deposited in the 
     Treasury of the United States to the credit of the Tax Court 
     Judicial Officers' Retirement Fund. Deductions under this 
     subsection from the salary of a magistrate judge shall 
     terminate upon the retirement of the magistrate judge or upon 
     completion of 14 years of service for which contributions 
     under this section have been made, whether continuously or 
     otherwise, as calculated under subsection (g), whichever 
     occurs first.
       ``(2) Consent to deductions; discharge of claims.--Each 
     magistrate judge of the Tax Court who makes an election under 
     subsection (f) shall be deemed to consent and agree to the 
     deductions from salary which are made under paragraph (1). 
     Payment of such salary less such deductions (and any 
     deductions made under section 7448) is a full and complete 
     discharge and acquittance of all claims and demands for all 
     services rendered by such magistrate judge during the period 
     covered by such payment, except the right to those benefits 
     to which the magistrate judge is entitled under this section 
     (and section 7448).
       ``(k) Deposits for Prior Service.--Each magistrate judge of 
     the Tax Court who makes an election under subsection (f) may 
     deposit, for service performed before such election for which 
     contributions may be made under this section, an amount equal 
     to 1 percent of the salary received for that service. Credit 
     for any period covered by that service may not be allowed for 
     purposes of an annuity under this section until a deposit 
     under this subsection has been made for that period.
       ``(l) Individual Retirement Records.--The amounts deducted 
     and withheld under subsection (j), and the amounts deposited 
     under subsection (k), shall be credited to individual 
     accounts in the name of each magistrate judge of the Tax 
     Court from whom such amounts are received, for credit to the 
     Tax Court Judicial Officers' Retirement Fund.
       ``(m) Annuities Affected in Certain Cases.--
       ``(1) 1-year forfeiture for failure to perform judicial 
     duties.--Subject to paragraph (3), any magistrate judge of 
     the Tax Court who retires under this section and who fails to 
     perform judicial duties required of such individual by 
     section 7443C shall forfeit all rights to an annuity under 
     this section for a 1-year period which begins on the 1st day 
     on which such individual fails to perform such duties.
       ``(2) Permanent forfeiture of retired pay where certain 
     non-government services performed.--Subject to paragraph (3), 
     any magistrate judge of the Tax Court who retires under this 
     section and who thereafter performs (or supervises or directs 
     the performance of) legal or accounting services in the field 
     of Federal taxation for the individual's client, the 
     individual's employer, or any of such employer's clients, 
     shall forfeit all rights to an annuity under this section for 
     all periods beginning on or after the first day on which the 
     individual performs (or supervises or directs the performance 
     of) such services. The preceding sentence shall not apply to 
     any civil office or employment under the Government of the 
     United States.
       ``(3) Forfeitures not to apply where individual elects to 
     freeze amount of annuity.--
       ``(A) In general.--If a magistrate judge of the Tax Court 
     makes an election under this paragraph--
       ``(i) paragraphs (1) and (2) (and section 7443C) shall not 
     apply to such magistrate judge beginning on the date such 
     election takes effect, and
       ``(ii) the annuity payable under this section to such 
     magistrate judge, for periods beginning on or after the date 
     such election takes effect, shall be equal to the annuity to 
     which such magistrate judge is entitled on the day before 
     such effective date.
       ``(B) Election requirements.--An election under 
     subparagraph (A)--
       ``(i) may be made by a magistrate judge of the Tax Court 
     eligible for retirement under this section, and
       ``(ii) shall be filed with the chief judge of the Tax 
     Court.

     Such an election, once it takes effect, shall be irrevocable.
       ``(C) Effective date of election.--Any election under 
     subparagraph (A) shall take effect on the first day of the 
     first month following the month in which the election is 
     made.
       ``(4) Accepting other employment.--Any magistrate judge of 
     the Tax Court who retires under this section and thereafter 
     accepts compensation for civil office or employment under the 
     United States Government (other than for the performance of 
     functions as a magistrate judge of the Tax Court under 
     section 7443C) shall forfeit all rights to an annuity under 
     this section for the period for which such compensation is 
     received. For purposes of this paragraph, the term 
     `compensation' includes retired pay or salary received in 
     retired status.
       ``(n) Lump-Sum Payments.--
       ``(1) Eligibility.--
       ``(A) In general.--Subject to paragraph (2), an individual 
     who serves as a magistrate judge of the Tax Court and--
       ``(i) who leaves office and is not reappointed as a 
     magistrate judge of the Tax Court for at least 31 consecutive 
     days,

[[Page 10598]]

       ``(ii) who files an application with the chief judge of the 
     Tax Court for payment of a lump-sum credit,
       ``(iii) is not serving as a magistrate judge of the Tax 
     Court at the time of filing of the application, and
       ``(iv) will not become eligible to receive an annuity under 
     this section within 31 days after filing the application,

     is entitled to be paid the lump-sum credit. Payment of the 
     lump-sum credit voids all rights to an annuity under this 
     section based on the service on which the lump-sum credit is 
     based, until that individual resumes office as a magistrate 
     judge of the Tax Court.
       ``(B) Payment to survivors.--Lump-sum benefits authorized 
     by subparagraphs (C), (D), and (E) of this paragraph shall be 
     paid to the person or persons surviving the magistrate judge 
     of the Tax Court and alive on the date title to the payment 
     arises, in the order of precedence set forth in subsection 
     (o) of section 376 of title 28, United States Code, and in 
     accordance with the last 2 sentences of paragraph (1) of that 
     subsection. For purposes of the preceding sentence, the term 
     `judicial official' as used in subsection (o) of such section 
     376 shall be deemed to mean `magistrate judge of the Tax 
     Court' and the terms `Administrative Office of the United 
     States Courts' and `Director of the Administrative Office of 
     the United States Courts' shall be deemed to mean `chief 
     judge of the Tax Court'.
       ``(C) Payment upon death of judge before receipt of 
     annuity.--If a magistrate judge of the Tax Court dies before 
     receiving an annuity under this section, the lump-sum credit 
     shall be paid.
       ``(D) Payment of annuity remainder.--If all annuity rights 
     under this section based on the service of a deceased 
     magistrate judge of the Tax Court terminate before the total 
     annuity paid equals the lump-sum credit, the difference shall 
     be paid.
       ``(E) Payment upon death of judge during receipt of 
     annuity.--If a magistrate judge of the Tax Court who is 
     receiving an annuity under this section dies, any accrued 
     annuity benefits remaining unpaid shall be paid.
       ``(F) Payment upon termination.--Any accrued annuity 
     benefits remaining unpaid on the termination, except by 
     death, of the annuity of a magistrate judge of the Tax Court 
     shall be paid to that individual.
       ``(G) Payment upon accepting other employment.--Subject to 
     paragraph (2), a magistrate judge of the Tax Court who 
     forfeits rights to an annuity under subsection (m)(4) before 
     the total annuity paid equals the lump-sum credit shall be 
     entitled to be paid the difference if the magistrate judge of 
     the Tax Court files an application with the chief judge of 
     the Tax Court for payment of that difference. A payment under 
     this subparagraph voids all rights to an annuity on which the 
     payment is based.
       ``(2) Spouses and former spouses.--
       ``(A) In general.--Payment of the lump-sum credit under 
     paragraph (1)(A) or a payment under paragraph (1)(G)--
       ``(i) may be made only if any current spouse and any former 
     spouse of the magistrate judge of the Tax Court are notified 
     of the magistrate judge's application, and
       ``(ii) shall be subject to the terms of a court decree of 
     divorce, annulment, or legal separation, or any court or 
     court approved property settlement agreement incident to such 
     decree, if--

       ``(I) the decree, order, or agreement expressly relates to 
     any portion of the lump-sum credit or other payment involved, 
     and
       ``(II) payment of the lump-sum credit or other payment 
     would extinguish entitlement of the magistrate judge's spouse 
     or former spouse to any portion of an annuity under 
     subsection (i).

       ``(B) Notification.--Notification of a spouse or former 
     spouse under this paragraph shall be made in accordance with 
     such procedures as the chief judge of the Tax Court shall 
     prescribe. The chief judge may provide under such procedures 
     that subparagraph (A)(i) may be waived with respect to a 
     spouse or former spouse if the magistrate judge establishes 
     to the satisfaction of the chief judge that the whereabouts 
     of such spouse or former spouse cannot be determined.
       ``(C) Resolution of 2 or more orders.--The chief judge 
     shall prescribe procedures under which this paragraph shall 
     be applied in any case in which the chief judge receives 2 or 
     more orders or decrees described in subparagraph (A).
       ``(3) Definition.--For purposes of this subsection, the 
     term `lump-sum credit' means the unrefunded amount consisting 
     of--
       ``(A) retirement deductions made under this section from 
     the salary of a magistrate judge of the Tax Court,
       ``(B) amounts deposited under subsection (k) by a 
     magistrate judge of the Tax Court covering earlier service, 
     and
       ``(C) interest on the deductions and deposits which, for 
     any calendar year, shall be equal to the overall average 
     yield to the Tax Court Judicial Officers' Retirement Fund 
     during the preceding fiscal year from all obligations 
     purchased by the Secretary during such fiscal year under 
     subsection (o); but does not include interest--
       ``(i) if the service covered thereby aggregates 1 year or 
     less, or
       ``(ii) for the fractional part of a month in the total 
     service.
       ``(o) Tax Court Judicial Officers' Retirement Fund.--
       ``(1) Establishment.--There is established in the Treasury 
     a fund which shall be known as the `Tax Court Judicial 
     Officers' Retirement Fund'. Amounts in the Fund are 
     authorized to be appropriated for the payment of annuities, 
     refunds, and other payments under this section.
       ``(2) Investment of fund.--The Secretary shall invest, in 
     interest bearing securities of the United States, such 
     currently available portions of the Tax Court Judicial 
     Officers' Retirement Fund as are not immediately required for 
     payments from the Fund. The income derived from these 
     investments constitutes a part of the Fund.
       ``(3) Unfunded liability.--
       ``(A) In general.--There are authorized to be appropriated 
     to the Tax Court Judicial Officers' Retirement Fund amounts 
     required to reduce to zero the unfunded liability of the 
     Fund.
       ``(B) Unfunded liability.--For purposes of subparagraph 
     (A), the term `unfunded liability' means the estimated 
     excess, determined on an annual basis in accordance with the 
     provisions of section 9503 of title 31, United States Code, 
     of the present value of all benefits payable from the Tax 
     Court Judicial Officers' Retirement Fund over the sum of--
       ``(i) the present value of deductions to be withheld under 
     this section from the future basic pay of magistrate judges 
     of the Tax Court, plus
       ``(ii) the balance in the Fund as of the date the unfunded 
     liability is determined.
       ``(p) Participation in Thrift Savings Plan.--
       ``(1) Election to contribute.--
       ``(A) In general.--A magistrate judge of the Tax Court who 
     elects to receive an annuity under this section or under 
     section 321 of the Tax Administration Good Government Act may 
     elect to contribute an amount of such individual's basic pay 
     to the Thrift Savings Fund established by section 8437 of 
     title 5, United States Code.
       ``(B) Period of election.--An election may be made under 
     this paragraph only during a period provided under section 
     8432(b) of title 5, United States Code, for individuals 
     subject to chapter 84 of such title.
       ``(2) Applicability of title 5 provisions.--Except as 
     otherwise provided in this subsection, the provisions of 
     subchapters III and VII of chapter 84 of title 5, United 
     States Code, shall apply with respect to a magistrate judge 
     who makes an election under paragraph (1).
       ``(3) Special rules.--
       ``(A) Amount contributed.--The amount contributed by a 
     magistrate judge to the Thrift Savings Fund in any pay period 
     shall not exceed the maximum percentage of such judge's basic 
     pay for such pay period as allowable under section 8440f of 
     title 5, United States Code.
       ``(B) Contributions for benefit of judge.--No contributions 
     may be made for the benefit of a magistrate judge under 
     section 8432(c) of title 5, United States Code.
       ``(C) Applicability of section 8433(b) of title 5.--Section 
     8433(b) of title 5, United States Code, applies with respect 
     to a magistrate judge who makes an election under paragraph 
     (1) and--
       ``(i) who retires entitled to an immediate annuity under 
     this section (including a disability annuity under subsection 
     (d) of this section) or section 321 of the Tax Administration 
     Good Government Act,
       ``(ii) who retires before attaining age 65 but is entitled, 
     upon attaining age 65, to an annuity under this section or 
     section 321 of the Tax Administration Good Government Act, or
       ``(iii) who retires before becoming entitled to an 
     immediate annuity, or an annuity upon attaining age 65, under 
     this section or section 321 of the Tax Administration Good 
     Government Act.
       ``(D) Separation from service.--With respect to a 
     magistrate judge to whom this subsection applies, retirement 
     under this section or section 321 of the Tax Administration 
     Good Government Act is a separation from service for purposes 
     of subchapters III and VII of chapter 84 of title 5, United 
     States Code.
       ``(4) Definitions.--For purposes of this subsection, the 
     terms `retirement' and `retire' include removal from office 
     under section 7443A(a)(2) on the sole ground of mental or 
     physical disability.
       ``(5) Offset.--In the case of a magistrate judge who 
     receives a distribution from the Thrift Savings Fund and who 
     later receives an annuity under this section, that annuity 
     shall be offset by an amount equal to the amount which 
     represents the Government's contribution to that person's 
     Thrift Savings Account, without regard to earnings 
     attributable to that amount. Where such an offset would 
     exceed 50 percent of the annuity to be received in the first 
     year, the offset may be divided equally over the first 2 
     years in which that person receives the annuity.
       ``(6) Exception.--Notwithstanding clauses (i) and (ii) of 
     paragraph (3)(C), if any magistrate judge retires under 
     circumstances making such magistrate judge eligible to make 
     an election under subsection (b) of section 8433 of title 5, 
     United States Code, and such magistrate judge's 
     nonforfeitable account balance is less than an amount that 
     the Executive Director of the Office of Personnel Management 
     prescribes by regulation, the Executive Director shall pay 
     the nonforfeitable account balance to the participant in a 
     single payment.''.
       (b) Conforming Amendment.--The table of section for part I 
     of subchapter C of chapter 76 is amended by inserting after 
     the item relating to section 7443A the following new item:

``Sec. 7443B. Retirement for magistrate judges of the Tax Court.''.

     SEC. 321. INCUMBENT MAGISTRATE JUDGES OF THE TAX COURT.

       (a) Retirement Annuity Under Title 5 and Section 7443B of 
     the Internal Revenue Code

[[Page 10599]]

     of 1986.--A magistrate judge of the United States Tax Court 
     in active service on the date of the enactment of this Act 
     shall, subject to subsection (b), be entitled, in lieu of the 
     annuity otherwise provided under the amendments made by this 
     title, to--
       (1) an annuity under subchapter III of chapter 83, or under 
     chapter 84 (except for subchapters III and VII), of title 5, 
     United States Code, as the case may be, for creditable 
     service before the date on which service would begin to be 
     credited for purposes of paragraph (2), and
       (2) an annuity calculated under subsection (b) or (c) and 
     subsection (g) of section 7443B of the Internal Revenue Code 
     of 1986, as added by this Act, for any service as a 
     magistrate judge of the United States Tax Court or special 
     trial judge of the United States Tax Court but only with 
     respect to service as such a magistrate judge or special 
     trial judge after a date not earlier than 9\1/2\ years prior 
     to the date of the enactment of this Act (as specified in the 
     election pursuant to subsection (b)) for which deductions and 
     deposits are made under subsections (j) and (k) of such 
     section 7443B, as applicable, without regard to the minimum 
     number of years of service as such a magistrate judge of the 
     United States Tax Court, except that--
       (A) in the case of a magistrate judge who retired with less 
     than 8 years of service, the annuity under subsection (c) of 
     such section 7443B shall be equal to that proportion of the 
     salary being received at the time the magistrate judge leaves 
     office which the years of service bears to 14, subject to a 
     reduction in accordance with subsection (c) of such section 
     7443B if the magistrate judge is under age 65 at the time he 
     or she leaves office, and
       (B) the aggregate amount of the annuity initially payable 
     on retirement under this subsection may not exceed the rate 
     of pay for the magistrate judge which is in effect on the day 
     before the retirement becomes effective.
       (b) Filing of Notice of Election.--A magistrate judge of 
     the United States Tax Court shall be entitled to an annuity 
     under this section only if the magistrate judge files a 
     notice of that election with the chief judge of the United 
     States Tax Court specifying the date on which service would 
     begin to be credited under section 7443B of the Internal 
     Revenue Code of 1986, as added by this Act, in lieu of 
     chapter 83 or chapter 84 of title 5, United States Code. Such 
     notice shall be filed in accordance with such procedures as 
     the chief judge of the United States Tax Court shall 
     prescribe.
       (c) Lump-Sum Credit Under Title 5.--A magistrate judge of 
     the United States Tax Court who makes an election under 
     subsection (b) shall be entitled to a lump-sum credit under 
     section 8342 or 8424 of title 5, United States Code, as the 
     case may be, for any service which is covered under section 
     7443B of the Internal Revenue Code of 1986, as added by this 
     Act, pursuant to that election, and with respect to which any 
     contributions were made by the magistrate judge under the 
     applicable provisions of title 5, United States Code.
       (d) Recall.--With respect to any magistrate judge of the 
     United States Tax Court receiving an annuity under this 
     section who is recalled to serve under section 7443C of the 
     Internal Revenue Code of 1986, as added by this Act--
       (1) the amount of compensation which such recalled 
     magistrate judge receives under such section 7443C shall be 
     calculated on the basis of the annuity received under this 
     section, and
       (2) such recalled magistrate judge of the United States Tax 
     Court may serve as a reemployed annuitant to the extent 
     otherwise permitted under title 5, United States Code.

     Section 7443B(m)(4) of the Internal Revenue Code of 1986, as 
     added by this Act, shall not apply with respect to service as 
     a reemployed annuitant described in paragraph (2).

     SEC. 322. PROVISIONS FOR RECALL.

       (a) In General.--Part I of subchapter C of chapter 76, as 
     amended by this Act, is amended by inserting after section 
     7443B the following new section:

     ``SEC. 7443C. RECALL OF MAGISTRATE JUDGES OF THE TAX COURT.

       ``(a) Recalling of Retired Magistrate Judges.--Any 
     individual who has retired pursuant to section 7443B or the 
     applicable provisions of title 5, United States Code, upon 
     reaching the age and service requirements established 
     therein, may at or after retirement be called upon by the 
     chief judge of the Tax Court to perform such judicial duties 
     with the Tax Court as may be requested of such individual for 
     any period or periods specified by the chief judge; except 
     that in the case of any such individual--
       ``(1) the aggregate of such periods in any 1 calendar year 
     shall not (without such individual's consent) exceed 90 
     calendar days, and
       ``(2) such individual shall be relieved of performing such 
     duties during any period in which illness or disability 
     precludes the performance of such duties.

     Any act, or failure to act, by an individual performing 
     judicial duties pursuant to this subsection shall have the 
     same force and effect as if it were the act (or failure to 
     act) of a magistrate judge of the Tax Court.
       ``(b) Compensation.--For the year in which a period of 
     recall occurs, the magistrate judge shall receive, in 
     addition to the annuity provided under the provisions of 
     section 7443B or under the applicable provisions of title 5, 
     United States Code, an amount equal to the difference between 
     that annuity and the current salary of the office to which 
     the magistrate judge is recalled. The annuity of the 
     magistrate judge who completes that period of service, who is 
     not recalled in a subsequent year, and who retired under 
     section 7443B, shall be equal to the salary in effect at the 
     end of the year in which the period of recall occurred for 
     the office from which such individual retired.
       ``(c) Rulemaking Authority.--The provisions of this section 
     may be implemented under such rules as may be promulgated by 
     the Tax Court.''.
       (b) Conforming Amendment.--The table of sections for part I 
     of subchapter C of chapter 76, as amended by this Act, is 
     amended by inserting after the item relating to section 7443B 
     the following new item:

``Sec. 7443C. Recall of magistrate judges of the Tax Court.''.

     SEC. 323. EFFECTIVE DATE.

       Except as otherwise provided, the amendments made by this 
     subtitle shall take effect on the date of the enactment of 
     this Act.

                TITLE IV--CONFIDENTIALITY AND DISCLOSURE

     SEC. 401. CLARIFICATION OF DEFINITION OF CHURCH TAX INQUIRY.

       (a) In General.--Subsection (i) of section 7611 (relating 
     to section not to apply to criminal investigations, etc.) is 
     amended by striking ``or'' at the end of paragraph (4), by 
     striking the period at the end of paragraph (5) and inserting 
     ``, or'', and by inserting after paragraph (5) the following:
       ``(6) information provided by the Secretary related to the 
     standards for exemption from tax under this title and the 
     requirements under this title relating to unrelated business 
     taxable income.''.
       (b) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 402. COLLECTION ACTIVITIES WITH RESPECT TO JOINT RETURN 
                   DIS-
                   CLOSABLE TO EITHER SPOUSE BASED ON ORAL 
                   REQUEST.

       (a) In General.--Paragraph (8) of section 6103(e) (relating 
     to disclosure of collection activities with respect to joint 
     return) is amended by striking ``in writing'' the first place 
     it appears.
       (b) Elimination of Reporting Requirement.--Section 
     7803(d)(1) (relating to annual reporting), as amended by this 
     Act, is amended by striking subparagraph (B) and by 
     redesignating subparagraphs (C), (D), (E), (F), (G), and (H) 
     as subparagraphs (B), (C), (D), (E), (F), and (G), 
     respectively.
       (c) Effective Dates.--
       (1) Subsection (a).--The amendment made by subsection (a) 
     shall apply to requests made after the date of the enactment 
     of this Act.
       (2) Subsection (b).--The amendments made by subsection (b) 
     shall apply to reports made after the date of the enactment 
     of this Act.

     SEC. 403. TAXPAYER REPRESENTATIVES NOT SUBJECT TO EXAMINATION 
                   ON SOLE BASIS OF REPRESENTATION OF TAXPAYERS.

       (a) In General.--Paragraph (1) of section 6103(h) (relating 
     to disclosure to certain Federal officers and employees for 
     purposes of tax administration, etc.) is amended--
       (1) by striking ``treasury.--Returns and return 
     information'' and inserting ``treasury.--
       ``(A) In general.--Returns and return information'', and
       (2) by adding at the end the following new subparagraph:
       ``(B) Taxpayer representatives.--Notwithstanding 
     subparagraph (A), the return or return information of the 
     representative of a taxpayer whose return is being examined 
     by an officer or employee of the Department of the Treasury 
     shall not be open to inspection by such officer or employee 
     on the sole basis of the representative's relationship to the 
     taxpayer unless a supervisor of such officer or employee has 
     approved the inspection of the return or return information 
     of such representative on a basis other than by reason of 
     such relationship.''.
       (b) Effective Date.--The amendments made by this section 
     shall take effect after the date of the enactment of this 
     Act.

     SEC. 404. PROHIBITION OF DISCLOSURE OF TAXPAYER 
                   IDENTIFICATION INFORMATION WITH RESPECT TO 
                   DISCLOSURE OF ACCEPTED OFFERS-IN-COMPROMISE.

       (a) In General.--Paragraph (1) of section 6103(k) (relating 
     to disclosure of certain returns and return information for 
     tax administrative purposes) is amended by inserting ``(other 
     than the taxpayer's TIN)'' after ``Return information''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to disclosures made after the date of the 
     enactment of this Act.

     SEC. 405. COMPLIANCE BY CONTRACTORS WITH CONFIDENTIALITY 
                   SAFEGUARDS.

       (a) In General.--Section 6103(p) (relating to State law 
     requirements) is amended by adding at the end the following 
     new paragraph:
       ``(9) Disclosure to contractors and other agents.--
     Notwithstanding any other provision of this section, no 
     return or return information shall be disclosed to any 
     contractor or other agent of a Federal, State, or local 
     agency unless such agency, to the satisfaction of the 
     Secretary--
       ``(A) has requirements in effect which require each such 
     contractor or other agent which would have access to returns 
     or return information to provide safeguards (within the 
     meaning of paragraph (4)) to protect the confidentiality of 
     such returns or return information,
       ``(B) agrees to conduct an on-site review every 3 years 
     (mid-point review in the case of contracts or agreements of 
     less than 1 year in duration) of each contractor or other 
     agent to determine compliance with such requirements,
       ``(C) submits the findings of the most recent review 
     conducted under subparagraph (B) to

[[Page 10600]]

     the Secretary as part of the report required by paragraph 
     (4)(E), and
       ``(D) certifies to the Secretary for the most recent annual 
     period that such contractor or other agent is in compliance 
     with all such requirements.

     The certification required by subparagraph (D) shall include 
     the name and address of each contractor and other agent, a 
     description of the contract or agreement with such contractor 
     or other agent, and the duration of such contract or 
     agreement. The requirements of this paragraph shall not apply 
     to disclosures pursuant to subsection (n) for purposes of 
     Federal tax administration.''.
       (b) Conforming Amendment.--Subparagraph (B) of section 
     6103(p)(8) is amended by inserting ``or paragraph (9)'' after 
     ``subparagraph (A)''.
       (c) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to disclosures made after the date of the enactment of 
     this Act.
       (2) Certifications.--The first certification under section 
     6103(p)(9)(D) of the Internal Revenue Code of 1986, as added 
     by subsection (a), shall be made with respect to the portion 
     of calendar year 2004 following the date of the enactment of 
     this Act.

     SEC. 406. HIGHER STANDARDS FOR REQUESTS FOR AND CONSENTS TO 
                   DISCLOSURE.

       (a) In General.--Subsection (c) of section 6103 (relating 
     to disclosure of returns and return information to designee 
     of taxpayer) is amended--
       (1) by striking ``Taxpayer.--The Secretary'' and inserting 
     ``Taxpayer.--
       ``(1) In general.--The Secretary'', and
       (2) by adding at the end the following new paragraphs:
       ``(2) Restrictions on persons obtaining information.--The 
     return of any taxpayer, or return information with respect to 
     such taxpayer, disclosed to a person or persons under 
     paragraph (1) for a purpose specified in writing, 
     electronically, or orally may be disclosed or used by such 
     person or persons only for the purpose of, and to the extent 
     necessary in, accomplishing the purpose for disclosure 
     specified and shall not be disclosed or used for any other 
     purpose.
       ``(3) Requirements for form prescribed by secretary.--For 
     purposes of this subsection, the Secretary shall prescribe a 
     form for written requests and consents which shall--
       ``(A) contain a warning, prominently displayed, informing 
     the taxpayer that the form should not be signed unless it is 
     completed,
       ``(B) state that if the taxpayer believes there is an 
     attempt to coerce him to sign an incomplete or blank form, 
     the taxpayer should report the matter to the Treasury 
     Inspector General for Tax Administration, and
       ``(C) contain the address and telephone number of the 
     Treasury Inspector General for Tax Administration.
       ``(4) Cross reference.--

  ``For provision providing for civil damages for violation of 
paragraph (2), see section 7431(i).''.

       (b) Civil Damages.--Section 7431 (relating to civil damages 
     for unauthorized inspection or disclosure of returns and 
     return information) is amended by adding at the end the 
     following new subsection:
       ``(i) Disclosure or Use of Returns and Return Information 
     Obtained Under Subsection 6103(c).--Disclosure or use of 
     returns or return information obtained under section 6103(c) 
     other than for the purpose of, and to the extent necessary 
     in, accomplishing the purpose for disclosure specified in 
     writing, electronically, or orally, shall be treated as a 
     violation of section 6103(a).''.
       (c) Report.--Not later than 18 months after the date of the 
     enactment of this Act, the Secretary of the Treasury shall 
     submit a report to the Congress on compliance with the 
     designation and certification requirements applicable to 
     requests for or consent to disclosure of returns and return 
     information under section 6103(c) of the Internal Revenue 
     Code of 1986, as amended by subsection (a). Such report 
     shall--
       (1) evaluate (on the basis of random sampling) whether--
       (A) the amendment made by subsection (a) is achieving the 
     purposes of this section;
       (B) requesters and submitters for such disclosure are 
     continuing to evade the purposes of this section and, if so, 
     how; and
       (C) the sanctions for violations of such requirements are 
     adequate; and
       (2) include such recommendations that the Secretary of the 
     Treasury considers necessary or appropriate to better achieve 
     the purposes of this section.
       (d) Sunset of Existing Consents.--Notwithstanding any other 
     provision of law, any request for or consent to disclose any 
     return or return information under section 6103(c) of the 
     Internal Revenue Code of 1986 made before the date of the 
     enactment of this Act shall remain in effect until the 
     earlier of the date such request or consent is otherwise 
     terminated or the date which is 3 years after such date of 
     enactment.
       (e) Effective Date.--The amendments made by this section 
     shall apply to requests and consents made after the date 
     which is 3 months after the date of the enactment of this 
     Act.

     SEC. 407. CIVIL DAMAGES FOR UNAUTHORIZED DISCLOSURE OR 
                   INSPECTION.

       (a) Notice to Taxpayer.--Subsection (e) of section 7431 
     (relating to notification of unlawful inspection and 
     disclosure) is amended by adding at the end the following: 
     ``The Secretary shall also notify such taxpayer if the 
     Internal Revenue Service or, upon notice to the Secretary by 
     a Federal or State agency, if such Federal or State agency, 
     proposes an administrative determination as to disciplinary 
     or adverse action against an employee arising from the 
     employee's unauthorized inspection or disclosure of the 
     taxpayer's return or return information. The notice described 
     in this subsection shall include the date of the inspection 
     or disclosure and the rights of the taxpayer under such 
     administrative determination.''.
       (b) Exhaustion of Administrative Remedies Required.--
     Section 7431, as amended by this Act, is amended by adding at 
     the end the following new subsection:
       ``(j) Exhaustion of Administrative Remedies Required.--A 
     judgment for damages shall not be awarded under subsection 
     (c) unless the court determines that the plaintiff has 
     exhausted the administrative remedies available to such 
     plaintiff.''.
       (c) Payment Authority Clarified.--
       (1) In general.--Section 7431, as amended by subsection 
     (b), is amended by adding at the end the following new 
     subsection:
       ``(k) Payment Authority.--Claims pursuant to this section 
     shall be payable out of funds appropriated under section 1304 
     of title 31, United States Code.''.
       (2) Annual reports of payments.--The Secretary of the 
     Treasury shall annually report to the Committee of Finance of 
     the Senate and the Committee on Ways and Means of the House 
     of Representatives regarding payments made from the United 
     States Judgment Fund under section 7431(k) of the Internal 
     Revenue Code of 1986.
       (d) Burden of Proof for Good Faith Exception Rests With 
     Individual Making Inspection or Disclosure.--Section 7431(b) 
     (relating to exceptions) is amended by adding at the end the 
     following new flush sentence:

     ``In any proceeding involving the issue of the existence of 
     good faith, the burden of proof with respect to such issue 
     shall be on the individual who made the inspection or 
     disclosure.''.
       (e) Reports.--Subsection (p) of section 6103 (relating to 
     procedure and recordkeeping), as amended by this Act, is 
     amended by adding at the end the following new paragraph:
       ``(10) Report on willful unauthorized disclosure and 
     inspection.--As part of the report required by paragraph 
     (3)(C) for each calendar year, the Secretary shall furnish 
     information regarding the willful unauthorized disclosure and 
     inspection of returns and return information, including the 
     number, status, and results of--
       ``(A) administrative investigations,
       ``(B) civil lawsuits brought under section 7431 (including 
     the amounts for which such lawsuits were settled and the 
     amounts of damages awarded), and
       ``(C) criminal prosecutions.''.
       (f) Effective Dates.--
       (1) Notice.--The amendment made by subsection (a) shall 
     apply to determinations made after the date which is 180 days 
     after the date of the enactment of this Act.
       (2) Exhaustion of remedies and burden of proof.--The 
     amendments made by subsections (b) and (d) shall apply to 
     inspections and disclosures occurring on and after the date 
     which is 180 days after the date of the enactment of this 
     Act.
       (3) Payment authority.--The amendment made by subsection 
     (c)(1) shall take effect on the date which is 180 days after 
     the date of the enactment of this Act.
       (4) Reports.--The amendment made by subsection (e) shall 
     apply to calendar years ending after the date which is 180 
     days after the date of the enactment of this Act.

     SEC. 408. EXPANSION OF DISCLOSURE IN EMERGENCY CIRCUMSTANCES.

       (a) In General.--Section 6103(i)(3)(B)(i) (relating to 
     danger of death or physical injury) is amended by striking 
     ``or State law enforcement agency'' and inserting ``, State, 
     or local law enforcement agency''.
       (b) Conforming Amendments.--Section 6103(p)(4) is amended--
       (1) by striking ``(i)(3)(B)(i) or (7)(A)(ii)'' and 
     inserting ``(i)(7)(A)(ii)'', and
       (2) by striking ``, (i)(3)(B)(i),''.
       (c) Effective Date.--The amendment made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 409. DISCLOSURE OF TAXPAYER IDENTITY FOR TAX REFUND 
                   PURPOSES.

       (a) In General.--Section 6103(m)(1) (relating to tax 
     refunds) is amended by striking ``taxpayer identity 
     information to the press and other media'' and by inserting 
     ``a person's name and the city, State, and zip code of the 
     person's mailing address to the press, other media, and 
     through any other means of mass communication,''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 410. DISCLOSURE TO STATE OFFICIALS OF PROPOSED ACTIONS 
                   RELATED TO SECTION 501(C) ORGANIZATIONS.

       (a) In General.--Subsection (c) of section 6104 is amended 
     by striking paragraph (2) and inserting the following new 
     paragraphs:
       ``(2) Disclosure of proposed actions related to charitable 
     organizations.--
       ``(A) Specific notifications.--In the case of an 
     organization to which paragraph (1) applies, the Secretary 
     may disclose to the appropriate State officer--
       ``(i) a notice of proposed refusal to recognize such 
     organization as an organization described in section 
     501(c)(3) or a notice of proposed revocation of such 
     organization's recognition as an organization exempt from 
     taxation,
       ``(ii) the issuance of a letter of proposed deficiency of 
     tax imposed under section 507 or chapter 41 or 42, and

[[Page 10601]]

       ``(iii) the names, addresses, and taxpayer identification 
     numbers of organizations which have applied for recognition 
     as organizations described in section 501(c)(3).
       ``(B) Additional disclosures.--Returns and return 
     information of organizations with respect to which 
     information is disclosed under subparagraph (A) may be made 
     available for inspection by or disclosed to an appropriate 
     State officer.
       ``(C) Procedures for disclosure.--Information may be 
     inspected or disclosed under subparagraph (A) or (B) only--
       ``(i) upon written request by an appropriate State officer, 
     and
       ``(ii) for the purpose of, and only to the extent necessary 
     in, the administration of State laws regulating such 
     organizations.

     Such information may only be inspected by or disclosed to 
     representatives of the appropriate State officer designated 
     as the individuals who are to inspect or to receive the 
     returns or return information under this paragraph on behalf 
     of such officer. Such representatives shall not include any 
     contractor or agent.
       ``(D) Disclosures other than by request.--The Secretary may 
     make available for inspection or disclose returns and return 
     information of an organization to which paragraph (1) applies 
     to an appropriate State officer of any State if the Secretary 
     determines that such inspection or disclosure may facilitate 
     the resolution of Federal or State issues relating to the 
     tax-exempt status of such organization.
       ``(3) Disclosure with respect to certain other exempt 
     organizations.--Upon written request by an appropriate State 
     officer, the Secretary may make available for inspection or 
     disclosure returns and return information of an organization 
     described in paragraph (2), (4), (6), (7), (8), (10), or (13) 
     of section 501(c) for the purpose of, and to the extent 
     necessary in, the administration of State laws regulating the 
     solicitation or administration of the charitable funds or 
     charitable assets of such organizations. Such information may 
     be inspected only by or disclosed only to representatives of 
     the appropriate State officer designated as the individuals 
     who are to inspect or to receive the returns or return 
     information under this paragraph on behalf of such officer. 
     Such representatives shall not include any contractor or 
     agent.
       ``(4) Use in civil judicial and administrative 
     proceedings.--Returns and return information disclosed 
     pursuant to this subsection may be disclosed in civil 
     administrative and civil judicial proceedings pertaining to 
     the enforcement of State laws regulating such organizations 
     in a manner prescribed by the Secretary similar to that for 
     tax administration proceedings under section 6103(h)(4).
       ``(5) No disclosure if impairment.--Returns and return 
     information shall not be disclosed under this subsection, or 
     in any proceeding described in paragraph (4), to the extent 
     that the Secretary determines that such disclosure would 
     seriously impair Federal tax administration.
       ``(6) Definitions.--For purposes of this subsection--
       ``(A) Return and return information.--The terms `return' 
     and `return information' have the respective meanings given 
     to such terms by section 6103(b).
       ``(B) Appropriate state officer.--The term `appropriate 
     State officer' means--
       ``(i) the State attorney general,
       ``(ii) in the case of an organization to which paragraph 
     (1) applies, any other State official charged with overseeing 
     organizations of the type described in section 501(c)(3), and
       ``(iii) in the case of an organization to which paragraph 
     (3) applies, the head of an agency designated by the State 
     attorney general as having primary responsibility for 
     overseeing the solicitation of funds for charitable 
     purposes.''.
       (b) Conforming Amendments.--
       (1) Subsection (a) of section 6103 is amended--
       (A) by inserting ``or any appropriate State officer who has 
     or had access to returns or return information under section 
     6104(c)'' after ``this section'' in paragraph (2), and
       (B) by striking ``or subsection (n)'' in paragraph (3) and 
     inserting ``subsection (n), or section 6104(c)''.
       (2) Subparagraph (A) of section 6103(p)(3) is amended by 
     inserting ``and section 6104(c)'' after ``section'' in the 
     first sentence.
       (3) Paragraph (4) of section 6103(p), as amended by section 
     202(b)(2)(B) of the Trade Act of 2002 (Public Law 107-210; 
     116 Stat. 961), is amended by striking ``or (17)'' after 
     ``any other person described in subsection (l)(16)'' each 
     place it appears and inserting ``or (18) or any appropriate 
     State officer (as defined in section 6104(c))''.
       (4) The heading for paragraph (1) of section 6104(c) is 
     amended by inserting ``for charitable organizations''.
       (5) Paragraph (2) of section 7213(a) is amended by 
     inserting ``or under section 6104(c)'' after ``6103''.
       (6) Paragraph (2) of section 7213A(a) is amended by 
     inserting ``or 6104(c)'' after ``6103''.
       (7) Paragraph (2) of section 7431(a) is amended by 
     inserting ``(including any disclosure in violation of section 
     6104(c))'' after ``6103''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act 
     but shall not apply to requests made before such date.

     SEC. 411. TREATMENT OF PUBLIC RECORDS.

       (a) In General.--Section 6103(b) (relating to definitions) 
     is amended by adding at the end the following new paragraph:
       ``(12) Treatment of public records.--Returns and return 
     information shall not be subject to subsection (a) if 
     disclosed--
       ``(A) in the course of any judicial or administrative 
     proceeding or pursuant to tax administration activities, and
       ``(B) properly made part of the public record.''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect before, on, and after the date of the 
     enactment of this Act.

     SEC. 412. EMPLOYEE IDENTITY DISCLOSURES.

       (a) In General.--Section 6103 (confidentiality and 
     disclosure of returns and return information) is amended by 
     redesignating subsection (q) as subsection (r) and by 
     inserting after subsection (p) the following new subsection:
       ``(q) Employee Identity Disclosures.--Nothing in this 
     section may be construed to prohibit agents of the Department 
     of the Treasury from identifying themselves, their 
     organizational affiliation, and the nature of an 
     investigation when contacting third parties in writing or in 
     person.''.
       (b) Construction.--The amendments made by this section 
     shall not be construed to create any inference with respect 
     to the interpretation of any provision of law as such 
     provision was in effect on the day before the date of 
     enactment of this Act.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 413. TAXPAYER IDENTIFICATION NUMBER MATCHING.

       (a) In General.--Section 6103(k) (relating to disclosure of 
     certain returns and return information for tax administration 
     purposes) is amended by adding at the end the following new 
     paragraph:
       ``(10) TIN matching.--The Secretary may disclose to any 
     person required to provide a TIN (as defined in section 
     7701(a)(41)) to the Secretary whether such information 
     matches records maintained by the Secretary.''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 414. FORM 8300 DISCLOSURES.

       (a) In General.--Section 6103(p)(4) (relating to 
     safeguards) is amended by striking ``(15),'' both places it 
     appears.
       (b) Effective Date.--The amendment made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 415. DISCLOSURE TO LAW ENFORCEMENT AGENCIES REGARDING 
                   TERRORIST ACTIVITIES.

       (a) In General.--Section 6103(i)(7)(A) (relating to 
     disclosure to law enforcement agencies) is amended by adding 
     at the end the following new clause:
       ``(v) Taxpayer identity.--For purposes of this 
     subparagraph, a taxpayer's identity shall not be treated as 
     taxpayer return information.''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect on the date of the enactment of this Act.

                        TITLE V--SIMPLIFICATION

                Subtitle A--Uniform Definition of Child

     SEC. 501. UNIFORM DEFINITION OF CHILD, ETC.

       Section 152 is amended to read as follows:

     ``SEC. 152. DEPENDENT DEFINED.

       ``(a) In General.--For purposes of this subtitle, the term 
     `dependent' means--
       ``(1) a qualifying child, or
       ``(2) a qualifying relative.
       ``(b) Exceptions.--For purposes of this section--
       ``(1) Dependents ineligible.--If an individual is a 
     dependent of a taxpayer for any taxable year of such taxpayer 
     beginning in a calendar year, such individual shall be 
     treated as having no dependents for any taxable year of such 
     individual beginning in such calendar year.
       ``(2) Married dependents.--An individual shall not be 
     treated as a dependent of a taxpayer under subsection (a) if 
     such individual has made a joint return with the individual's 
     spouse under section 6013 for the taxable year beginning in 
     the calendar year in which the taxable year of the taxpayer 
     begins.
       ``(3) Citizens or nationals of other countries.--
       ``(A) In general.--The term `dependent' does not include an 
     individual who is not a citizen or national of the United 
     States unless such individual is a resident of the United 
     States or a country contiguous to the United States.
       ``(B) Exception for adopted child.--Subparagraph (A) shall 
     not exclude any child of a taxpayer (within the meaning of 
     subsection (f)(1)(B)) from the definition of `dependent' if--
       ``(i) for the taxable year of the taxpayer, the child has 
     the same principal place of abode as the taxpayer and is a 
     member of the taxpayer's household, and
       ``(ii) the taxpayer is a citizen or national of the United 
     States.
       ``(c) Qualifying Child.--For purposes of this section--
       ``(1) In general.--The term `qualifying child' means, with 
     respect to any taxpayer for any taxable year, an individual--
       ``(A) who bears a relationship to the taxpayer described in 
     paragraph (2),
       ``(B) who has the same principal place of abode as the 
     taxpayer for more than one-half of such taxable year,
       ``(C) who meets the age requirements of paragraph (3), and
       ``(D) who has not provided over one-half of such 
     individual's own support for the calendar year in which the 
     taxable year of the taxpayer begins.
       ``(2) Relationship.--For purposes of paragraph (1)(A), an 
     individual bears a relationship

[[Page 10602]]

     to the taxpayer described in this paragraph if such 
     individual is--
       ``(A) a child of the taxpayer or a descendant of such a 
     child, or
       ``(B) a brother, sister, stepbrother, or stepsister of the 
     taxpayer or a descendant of any such relative.
       ``(3) Age requirements.--
       ``(A) In general.--For purposes of paragraph (1)(C), an 
     individual meets the requirements of this paragraph if such 
     individual--
       ``(i) has not attained the age of 19 as of the close of the 
     calendar year in which the taxable year of the taxpayer 
     begins, or
       ``(ii) is a student who has not attained the age of 24 as 
     of the close of such calendar year.
       ``(B) Special rule for disabled.--In the case of an 
     individual who is permanently and totally disabled (as 
     defined in section 22(e)(3)) at any time during such calendar 
     year, the requirements of subparagraph (A) shall be treated 
     as met with respect to such individual.
       ``(4) Special rule relating to 2 or more claiming 
     qualifying child.--
       ``(A) In general.--Except as provided in subparagraph (B) 
     and subsection (e), if (but for this paragraph) an individual 
     may be and is claimed as a qualifying child by 2 or more 
     taxpayers for a taxable year beginning in the same calendar 
     year, such individual shall be treated as the qualifying 
     child of the taxpayer who is--
       ``(i) a parent of the individual, or
       ``(ii) if clause (i) does not apply, the taxpayer with the 
     highest adjusted gross income for such taxable year.
       ``(B) More than 1 parent claiming qualifying child.--If the 
     parents claiming any qualifying child do not file a joint 
     return together, such child shall be treated as the 
     qualifying child of--
       ``(i) the parent with whom the child resided for the 
     longest period of time during the taxable year, or
       ``(ii) if the child resides with both parents for the same 
     amount of time during such taxable year, the parent with the 
     highest adjusted gross income.
       ``(d) Qualifying Relative.--For purposes of this section--
       ``(1) In general.--The term `qualifying relative' means, 
     with respect to any taxpayer for any taxable year, an 
     individual--
       ``(A) who bears a relationship to the taxpayer described in 
     paragraph (2),
       ``(B) whose gross income for the calendar year in which 
     such taxable year begins is less than the exemption amount 
     (as defined in section 151(d)),
       ``(C) with respect to whom the taxpayer provides over one-
     half of the individual's support for the calendar year in 
     which such taxable year begins, and
       ``(D) who is not a qualifying child of such taxpayer or of 
     any other taxpayer for any taxable year beginning in the 
     calendar year in which such taxable year begins.
       ``(2) Relationship.--For purposes of paragraph (1)(A), an 
     individual bears a relationship to the taxpayer described in 
     this paragraph if the individual is any of the following with 
     respect to the taxpayer:
       ``(A) A child or a descendant of a child.
       ``(B) A brother, sister, stepbrother, or stepsister.
       ``(C) The father or mother, or an ancestor of either.
       ``(D) A stepfather or stepmother.
       ``(E) A son or daughter of a brother or sister of the 
     taxpayer.
       ``(F) A brother or sister of the father or mother of the 
     taxpayer.
       ``(G) A son-in-law, daughter-in-law, father-in-law, mother-
     in-law, brother-in-law, or sister-in-law.
       ``(H) An individual (other than an individual who at any 
     time during the taxable year was the spouse, determined 
     without regard to section 7703, of the taxpayer) who, for the 
     taxable year of the taxpayer, has the same principal place of 
     abode as the taxpayer and is a member of the taxpayer's 
     household.
       ``(3) Special rule relating to multiple support 
     agreements.--For purposes of paragraph (1)(C), over one-half 
     of the support of an individual for a calendar year shall be 
     treated as received from the taxpayer if--
       ``(A) no one person contributed over one-half of such 
     support,
       ``(B) over one-half of such support was received from 2 or 
     more persons each of whom, but for the fact that any such 
     person alone did not contribute over one-half of such 
     support, would have been entitled to claim such individual as 
     a dependent for a taxable year beginning in such calendar 
     year,
       ``(C) the taxpayer contributed over 10 percent of such 
     support, and
       ``(D) each person described in subparagraph (B) (other than 
     the taxpayer) who contributed over 10 percent of such support 
     files a written declaration (in such manner and form as the 
     Secretary may by regulations prescribe) that such person will 
     not claim such individual as a dependent for any taxable year 
     beginning in such calendar year.
       ``(4) Special rule relating to income of handicapped 
     dependents.--
       ``(A) In general.--For purposes of paragraph (1)(B), the 
     gross income of an individual who is permanently and totally 
     disabled (as defined in section 22(e)(3)) at any time during 
     the taxable year shall not include income attributable to 
     services performed by the individual at a sheltered workshop 
     if--
       ``(i) the availability of medical care at such workshop is 
     the principal reason for the individual's presence there, and
       ``(ii) the income arises solely from activities at such 
     workshop which are incident to such medical care.
       ``(B) Sheltered workshop defined.--For purposes of 
     subparagraph (A), the term `sheltered workshop' means a 
     school--
       ``(i) which provides special instruction or training 
     designed to alleviate the disability of the individual, and
       ``(ii) which is operated by an organization described in 
     section 501(c)(3) and exempt from tax under section 501(a), 
     or by a State, a possession of the United States, any 
     political subdivision of any of the foregoing, the United 
     States, or the District of Columbia.
       ``(5) Special rules for support.--For purposes of this 
     subsection--
       ``(A) payments to a spouse which are includible in the 
     gross income of such spouse under section 71 or 682 shall not 
     be treated as a payment by the payor spouse for the support 
     of any dependent, and
       ``(B) in the case of the remarriage of a parent, support of 
     a child received from the parent's spouse shall be treated as 
     received from the parent.
       ``(e) Special Rule for Divorced Parents.--
       ``(1) In general.--Notwithstanding subsection (c)(4) or 
     (d)(1)(C), if--
       ``(A) a child receives over one-half of the child's support 
     during the calendar year from the child's parents--
       ``(i) who are divorced or legally separated under a decree 
     of divorce or separate maintenance,
       ``(ii) who are separated under a written separation 
     agreement, or
       ``(iii) who live apart at all times during the last 6 
     months of the calendar year, and
       ``(B) such child is in the custody of 1 or both of the 
     child's parents for more than one-half of the calendar year,
     such child shall be treated as being the qualifying child or 
     qualifying relative of the noncustodial parent for a calendar 
     year if the requirements described in paragraph (2) are met.
       ``(2) Requirements.--For purposes of paragraph (1), the 
     requirements described in this paragraph are met if--
       ``(A) a decree of divorce or separate maintenance or 
     written separation agreement between the parents applicable 
     to the taxable year beginning in such calendar year provides 
     that--
       ``(i) the noncustodial parent shall be entitled to any 
     deduction allowable under section 151 for such child, or
       ``(ii) the custodial parent will sign a written declaration 
     (in such manner and form as the Secretary may prescribe) that 
     such parent will not claim such child as a dependent for such 
     taxable year, or
       ``(B) in the case of such an agreement executed before 
     January 1, 1985, the noncustodial parent provides at least 
     $600 for the support of such child during such calendar year.

     For purposes of subparagraph (B), amounts expended for the 
     support of a child or children shall be treated as received 
     from the noncustodial parent to the extent that such parent 
     provided amounts for such support.
       ``(3) Custodial parent and noncustodial parent.--For 
     purposes of this subsection--
       ``(A) Custodial parent.--The term `custodial parent' means 
     the parent with whom a child shared the same principal place 
     of abode for the greater portion of the calendar year.
       ``(B) Noncustodial parent.--The term `noncustodial parent' 
     means the parent who is not the custodial parent.
       ``(4) Exception for multiple-support agreements.--This 
     subsection shall not apply in any case where over one-half of 
     the support of the child is treated as having been received 
     from a taxpayer under the provision of subsection (d)(3).
       ``(f) Other Definitions and Rules.--For purposes of this 
     section--
       ``(1) Child defined.--
       ``(A) In general.--The term `child' means an individual who 
     is--
       ``(i) a son, daughter, stepson, or stepdaughter of the 
     taxpayer, or
       ``(ii) an eligible foster child of the taxpayer.
       ``(B) Adopted child.--In determining whether any of the 
     relationships specified in subparagraph (A)(i) or paragraph 
     (4) exists, a legally adopted individual of the taxpayer, or 
     an individual who is lawfully placed with the taxpayer for 
     legal adoption by the taxpayer, shall be treated as a child 
     of such individual by blood.
       ``(C) Eligible foster child.--For purposes of subparagraph 
     (A)(ii), the term `eligible foster child' means an individual 
     who is placed with the taxpayer by an authorized placement 
     agency or by judgment, decree, or other order of any court of 
     competent jurisdiction.
       ``(2) Student defined.--The term `student' means an 
     individual who during each of 5 calendar months during the 
     calendar year in which the taxable year of the taxpayer 
     begins--
       ``(A) is a full-time student at an educational organization 
     described in section 170(b)(1)(A)(ii), or
       ``(B) is pursuing a full-time course of institutional on-
     farm training under the supervision of an accredited agent of 
     an educational organization described in section 
     170(b)(1)(A)(ii) or of a State or political subdivision of a 
     State.
       ``(3) Determination of household status.--An individual 
     shall not be treated as a member of the taxpayer's household 
     if at any time during the taxable year of the taxpayer the 
     relationship between such individual and the taxpayer is in 
     violation of local law.
       ``(4) Brother and sister.--The terms `brother' and `sister' 
     include a brother or sister by the half blood.

[[Page 10603]]

       ``(5) Special support test in case of students.--For 
     purposes of subsections (c)(1)(D) and (d)(1)(C), in the case 
     of an individual who is--
       ``(A) a child of the taxpayer, and
       ``(B) a student,

     amounts received as scholarships for study at an educational 
     organization described in section 170(b)(1)(A)(ii) shall not 
     be taken into account.
       ``(6) Treatment of missing children.--
       ``(A) In general.--Solely for the purposes referred to in 
     subparagraph (B), a child of the taxpayer--
       ``(i) who is presumed by law enforcement authorities to 
     have been kidnapped by someone who is not a member of the 
     family of such child or the taxpayer, and
       ``(ii) who had, for the taxable year in which the 
     kidnapping occurred, the same principal place of abode as the 
     taxpayer for more than one-half of the portion of such year 
     before the date of the kidnapping,

     shall be treated as meeting the requirement of subsection 
     (c)(1)(B) with respect to a taxpayer for all taxable years 
     ending during the period that the child is kidnapped.
       ``(B) Purposes.--Subparagraph (A) shall apply solely for 
     purposes of determining--
       ``(i) the deduction under section 151(c),
       ``(ii) the credit under section 24 (relating to child tax 
     credit),
       ``(iii) whether an individual is a surviving spouse or a 
     head of a household (as such terms are defined in section 2), 
     and
       ``(iv) the earned income credit under section 32.
       ``(C) Comparable treatment of certain qualifying 
     relatives.--For purposes of this section, a child of the 
     taxpayer--
       ``(i) who is presumed by law enforcement authorities to 
     have been kidnapped by someone who is not a member of the 
     family of such child or the taxpayer, and
       ``(ii) who was (without regard to this paragraph) a 
     qualifying relative of the taxpayer for the portion of the 
     taxable year before the date of the kidnapping,

     shall be treated as a qualifying relative of the taxpayer for 
     all taxable years ending during the period that the child is 
     kidnapped.
       ``(D) Termination of treatment.--Subparagraphs (A) and (C) 
     shall cease to apply as of the first taxable year of the 
     taxpayer beginning after the calendar year in which there is 
     a determination that the child is dead (or, if earlier, in 
     which the child would have attained age 18).
       ``(7) Cross references.--

``For provision treating child as dependent of both parents for 
purposes of certain provisions, see sections 105(b), 132(h)(2)(B), and 
213(d)(5).''.

     SEC. 502. MODIFICATIONS OF DEFINITION OF HEAD OF HOUSEHOLD.

       (a) Head of Household.--Clause (i) of section 2(b)(1)(A) is 
     amended to read as follows:
       ``(i) a qualifying child of the individual (as defined in 
     section 152(c), determined without regard to section 152(e)), 
     but not if such child--

       ``(I) is married at the close of the taxpayer's taxable 
     year, and
       ``(II) is not a dependent of such individual by reason of 
     section 152(b)(2) or 152(b)(3), or both, or''.

       (b) Conforming Amendments.--
       (1) Section 2(b)(2) is amended by striking subparagraph (A) 
     and by redesignating subparagraphs (B), (C), and (D) as 
     subparagraphs (A), (B), and (C), respectively.
       (2) Clauses (i) and (ii) of section 2(b)(3)(B) are amended 
     to read as follows:
       ``(i) subparagraph (H) of section 152(d)(2), or
       ``(ii) paragraph (3) of section 152(d).''.

     SEC. 503. MODIFICATIONS OF DEPENDENT CARE CREDIT.

       (a) In General.--Section 21(a)(1) is amended by striking 
     ``In the case of an individual who maintains a household 
     which includes as a member one or more qualifying individuals 
     (as defined in subsection (b)(1))'' and inserting ``In the 
     case of an individual for which there are 1 or more 
     qualifying individuals (as defined in subsection (b)(1)) with 
     respect to such individual''.
       (b) Qualifying Individual.--Paragraph (1) of section 21(b) 
     is amended to read as follows:
       ``(1) Qualifying individual.--The term `qualifying 
     individual' means--
       ``(A) a dependent of the taxpayer (as defined in section 
     152(a)(1)) who has not attained age 13,
       ``(B) a dependent of the taxpayer who is physically or 
     mentally incapable of caring for himself or herself and who 
     has the same principal place of abode as the taxpayer for 
     more than one-half of such taxable year, or
       ``(C) the spouse of the taxpayer, if the spouse is 
     physically or mentally incapable of caring for himself or 
     herself and who has the same principal place of abode as the 
     taxpayer for more than one-half of such taxable year.''.
       (c) Conforming Amendment.--Paragraph (1) of section 21(e) 
     is amended to read as follows:
       ``(1) Place of abode.--An individual shall not be treated 
     as having the same principal place of abode of the taxpayer 
     if at any time during the taxable year of the taxpayer the 
     relationship between the individual and the taxpayer is in 
     violation of local law.''.

     SEC. 504. MODIFICATIONS OF CHILD TAX CREDIT.

       (a) In General.--Paragraph (1) of section 24(c) is amended 
     to read as follows:
       ``(1) In general.--The term `qualifying child' means a 
     qualifying child of the taxpayer (as defined in section 
     152(c)) who has not attained age 17.''.
       (b) Conforming Amendment.--Section 24(c)(2) is amended by 
     striking ``the first sentence of section 152(b)(3)'' and 
     inserting ``subparagraph (A) of section 152(b)(3)''.

     SEC. 505. MODIFICATIONS OF EARNED INCOME CREDIT.

       (a) Qualifying Child.--Paragraph (3) of section 32(c) is 
     amended to read as follows:
       ``(3) Qualifying child.--
       ``(A) In general.--The term `qualifying child' means a 
     qualifying child of the taxpayer (as defined in section 
     152(c), determined without regard to paragraph (1)(D) thereof 
     and section 152(e)).
       ``(B) Married individual.--The term `qualifying child' 
     shall not include an individual who is married as of the 
     close of the taxpayer's taxable year unless the taxpayer is 
     entitled to a deduction under section 151 for such taxable 
     year with respect to such individual (or would be so entitled 
     but for section 152(e)).
       ``(C) Place of abode.--For purposes of subparagraph (A), 
     the requirements of section 152(c)(1)(B) shall be met only if 
     the principal place of abode is in the United States.
       ``(D) Identification requirements.--
       ``(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.
       ``(ii) Other methods.--The Secretary may prescribe other 
     methods for providing the information described in clause 
     (i).''.
       (b) Conforming Amendments.--
       (1) Section 32(c)(1) is amended by striking subparagraph 
     (C) and by redesignating subparagraphs (D), (E), (F), and (G) 
     as subparagraphs (C), (D), (E), and (F), respectively.
       (2) Section 32(c)(4) is amended by striking ``(3)(E)'' and 
     inserting ``(3)(C)''.
       (3) Section 32(m) is amended by striking ``subsections 
     (c)(1)(F)'' and inserting ``subsections (c)(1)(E)''.

     SEC. 506. MODIFICATIONS OF DEDUCTION FOR PERSONAL EXEMPTION 
                   FOR DEPENDENTS.

       Subsection (c) of section 151 is amended to read as 
     follows:
       ``(c) Additional Exemption for Dependents.--An exemption of 
     the exemption amount for each individual who is a dependent 
     (as defined in section 152) of the taxpayer for the taxable 
     year.''.

     SEC. 507. TECHNICAL AND CONFORMING AMENDMENTS.

       (1) Section 2(a)(1)(B)(i) is amended by inserting ``, 
     determined without regard to subsections (b)(1), (b)(2), and 
     (d)(1)(B) thereof'' after ``section 152''.
       (2) Section 21(e)(5) is amended--
       (A) by striking ``paragraph (2) or (4) of'' in subparagraph 
     (A), and
       (B) by striking ``within the meaning of section 152(e)(1)'' 
     and inserting ``as defined in section 152(e)(3)(A)''.
       (3) Section 21(e)(6)(B) is amended by striking ``section 
     151(c)(3)'' and inserting ``section 152(f)(1)''.
       (4) Section 25B(c)(2)(B) is amended by striking 
     ``151(c)(4)'' and inserting ``152(f)(2)''.
       (5)(A) Subparagraphs (A) and (B) of section 51(i)(1) are 
     each amended by striking ``paragraphs (1) through (8) of 
     section 152(a)'' both places it appears and inserting 
     ``subparagraphs (A) through (G) of section 152(d)(2)''.
       (B) Section 51(i)(1)(C) is amended by striking 
     ``152(a)(9)'' and inserting ``152(d)(2)(H)''.
       (6) Section 72(t)(2)(D)(i)(III) is amended by inserting ``, 
     determined without regard to subsections (b)(1), (b)(2), and 
     (d)(1)(B) thereof'' after ``section 152''.
       (7) Section 72(t)(7)(A)(iii) is amended by striking 
     ``151(c)(3)'' and inserting ``152(f)(1)''.
       (8) Section 42(i)(3)(D)(ii)(I) is amended by inserting ``, 
     determined without regard to subsections (b)(1), (b)(2), and 
     (d)(1)(B) thereof'' after ``section 152''.
       (9) Subsections (b) and (c)(1) of section 105 are amended 
     by inserting ``, determined without regard to subsections 
     (b)(1), (b)(2), and (d)(1)(B) thereof'' after ``section 
     152''.
       (10) Section 120(d)(4) is amended by inserting 
     ``(determined without regard to subsections (b)(1), (b)(2), 
     and (d)(1)(B) thereof)'' after ``section 152''.
       (11) Section 125(e)(1)(D) is amended by inserting ``, 
     determined without regard to subsections (b)(1), (b)(2), and 
     (d)(1)(B) thereof'' after ``section 152''.
       (12) Section 129(c)(2) is amended by striking ``151(c)(3)'' 
     and inserting ``152(f)(1)''.
       (13) The first sentence of section 132(h)(2)(B) is amended 
     by striking ``151(c)(3)'' and inserting ``152(f)(1)''.
       (14) Section 153 is amended by striking paragraph (1) and 
     by redesignating paragraphs (2), (3), and (4) as paragraphs 
     (1), (2), and (3), respectively.
       (15) Section 170(g)(1) is amended by inserting 
     ``(determined without regard to subsections (b)(1), (b)(2), 
     and (d)(1)(B) thereof)'' after ``section 152''.
       (16) Section 170(g)(3) is amended by striking ``paragraphs 
     (1) through (8) of section 152(a)'' and inserting 
     ``subparagraphs (A) through (G) of section 152(d)(2)''.
       (17) Section 213(a) is amended by inserting ``, determined 
     without regard to subsections (b)(1), (b)(2), and (d)(1)(B) 
     thereof'' after ``section 152''.
       (18) The second sentence of section 213(d)(11) is amended 
     by striking ``paragraphs (1) through (8) of section 152(a)'' 
     and inserting ``subparagraphs (A) through (G) of section 
     152(d)(2)''.
       (19) Section 220(d)(2)(A) is amended by inserting ``, 
     determined without regard to subsections (b)(1), (b)(2), and 
     (d)(1)(B) thereof'' after ``section 152''.

[[Page 10604]]

       (20) Section 221(d)(4) is amended by inserting 
     ``(determined without regard to subsections (b)(1), (b)(2), 
     and (d)(1)(B) thereof)'' after ``section 152''.
       (21) Section 529(e)(2)(B) is amended by striking 
     ``paragraphs (1) through (8) of section 152(a)'' and 
     inserting ``subparagraphs (A) through (G) of section 
     152(d)(2)''.
       (22) Section 2032A(c)(7)(D) is amended by striking 
     ``section 151(c)(4)'' and inserting ``section 152(f)(2)''.
       (23) Section 2057(d)(2)(B) is amended by inserting ``, 
     determined without regard to subsections (b)(1), (b)(2), and 
     (d)(1)(B) thereof'' after ``section 152''.
       (24) Section 7701(a)(17) is amended by striking 
     ``152(b)(4), 682,'' and inserting ``682''.
       (25) Section 7702B(f)(2)(C)(iii) is amended by striking 
     ``paragraphs (1) through (8) of section 152(a)'' and 
     inserting ``subparagraphs (A) through (G) of section 
     152(d)(2)''.
       (26) Section 7703(b)(1) is amended--
       (A) by striking ``151(c)(3)'' and inserting ``152(f)(1)'', 
     and
       (B) by striking ``paragraph (2) or (4) of''.

     SEC. 508. EFFECTIVE DATE.

       The amendments made by this subtitle shall apply to taxable 
     years beginning after December 31, 2004.

     Subtitle B--Simplification Through Elimination of Inoperative 
                               Provisions

     SEC. 511. SIMPLIFICATION THROUGH ELIMINATION OF INOPERATIVE 
                   PROVISIONS.

       (a) In General.--
       (1) Adjustments in tax tables so that inflation will not 
     result in tax increases.--Paragraph (7) of section 1(f) is 
     amended to read as follows:
       ``(7) Special rule for certain brackets.--In prescribing 
     tables under paragraph (1) which apply to taxable years 
     beginning in a calendar year after 1994, the cost-of-living 
     adjustment used in making adjustments to the dollar amounts 
     at which the 36 percent rate bracket begins or at which the 
     39.6 percent rate bracket begins shall be determined under 
     paragraph (3) by substituting `1993' for `1992'.''.
       (2) Credit for producing fuel from nonconventional 
     source.--Section 29 is amended by striking subsection (e) and 
     by redesignating subsections (f) and (g) as subsections (e) 
     and (f), respectively.
       (3) Earned income credit.--Paragraph (1) of section 32(b) 
     is amended--
       (A) by striking subparagraphs (B) and (C), and
       (B) in subparagraph (A) by striking ``(A) In general.--In 
     the case of taxable years beginning after 1995'' and moving 
     the table 2 ems to the left.
       (4) General business credits.--Subsection (d) of section 38 
     is amended by striking paragraph (3).
       (5) Carryback and carryforward of unused credits.--
     Subsection (d) of section 39 is amended by striking 
     paragraphs (1) through (8) and by redesignating paragraphs 
     (9) and (10) as paragraphs (1) and (2), respectively.
       (6) Adjustments based on adjusted current earnings.--Clause 
     (ii) of section 56(g)(4)(F) is amended by striking ``In the 
     case of any taxable year beginning after December 31, 1992, 
     clause'' and inserting ``Clause''.
       (7) Items of tax preference; depletion.--Paragraph (1) of 
     section 57(a) is amended by striking ``Effective with respect 
     to taxable years beginning after December 31, 1992, this'' 
     and inserting ``This''.
       (8) Intangible drilling costs.--
       (A) Clause (i) of section 57(a)(2)(E) is amended by 
     striking ``In the case of any taxable year beginning after 
     December 31, 1992, this'' and inserting ``This''.
       (B) Clause (ii) of section 57(a)(2)(E) is amended by 
     striking ``(30 percent in the case of taxable years beginning 
     in 1993)''.
       (9) Annuities; certain proceeds of endowment and life 
     insurance contracts.--Section 72 is amended--
       (A) in subsection (c)(4) by striking ``; except that if 
     such date was before January 1, 1954, then the annuity 
     starting date is January 1, 1954'', and
       (B) in subsection (g)(3) by striking ``January 1, 1954, 
     or'' and ``, whichever is later''.
       (10) Accident and health plans.--Section 105(f) is amended 
     by striking ``or (d)''.
       (11) Flexible spending arrangements.--Section 106(c)(1) is 
     amended by striking ``Effective on and after January 1, 1997, 
     gross'' and inserting ``Gross''.
       (12) Certain combat zone compensation of members of the 
     armed forces.--Subsection (c) of section 112 is amended--
       (A) by striking ``(after June 24, 1950)'' in paragraph (2), 
     and
       (B) striking ``such zone;'' and all that follows in 
     paragraph (3) and inserting ``such zone.''.
       (13) Principal residence.--Section 121(b)(3) is amended--
       (A) by striking subparagraph (B); and
       (B) in subparagraph (A) by striking ``(A) In general.--'' 
     and moving the text 2 ems to the left.
       (14) Certain reduced uniformed services retirement pay.--
     Section 122(b)(1) is amended by striking ``after December 31, 
     1965,''.
       (15) Great plains conservation program.--Section 126(a) is 
     amended by striking paragraph (6) and by redesignating 
     paragraphs (7), (8), (9), and (10) as paragraphs (6), (7), 
     (8), and (9), respectively.
       (16) Mortgage revenue bonds for residences in federal 
     disaster areas.--Section 143(k) is amended by striking 
     paragraph (11).
       (17) Treble damage payments under the antitrust law.--
     Section 162(g) is amended by striking the last sentence.
       (18) State legislators' travel expenses away from home.--
     Paragraph (4) of section 162(h) is amended by striking ``For 
     taxable years beginning after December 31, 1980, this'' and 
     inserting ``This''.
       (19) Health insurance costs of self-employed individuals.--
     Paragraph (1) of section 162(l) is amended to read as 
     follows:
       ``(1) Allowance of deduction.--In the case of an individual 
     who is an employee within the meaning of section 401(c)(1), 
     there shall be allowed as a deduction under this section an 
     amount equal to 100 percent of the amount paid during the 
     taxable year for insurance which constitutes medical care for 
     the taxpayer and the taxpayer's spouse and dependents.''.
       (20) Interest.--
       (A) Section 163 is amended by striking paragraph (6) of 
     subsection (d) and paragraph (5) (relating to phase-in of 
     limitation) of subsection (h).
       (B) Section 56(b)(1)(C) is amended by striking clause (ii) 
     and by redesignating clauses (iii), (iv), and (v) as clauses 
     (ii), (iii), and (iv), respectively.
       (21) Charitable, etc., contributions and gifts.--Section 
     170 is amended by striking subsection (k).
       (22) Amortizable bond premium.--Subparagraph (B) of section 
     171(b)(1) is amended to read as follows:
       ``(B)(i) in the case of a bond described in subsection 
     (a)(2), with reference to the amount payable on maturity or 
     earlier call date, and
       ``(ii) in the case of a bond described in subsection 
     (a)(1), with reference to the amount payable on maturity (or 
     if it results in a smaller amortizable bond premium 
     attributable to the period of earlier call date, with 
     reference to the amount payable on earlier call date), and''.
       (23) Net operating loss carrybacks and carryovers.--
       (A) Section 172 is amended--
       (i) by striking subparagraph (D) of subsection (b)(1) and 
     by redesignating subparagraphs (E), (F), (G), and (H) as 
     subparagraphs (D), (E), (F), and (G), respectively,
       (ii) by striking ``ending after August 2, 1989'' in 
     subsection (b)(1)(D)(i)(II) (as redesignated by clause (i)),
       (iii) by striking ``subparagraph (F)'' in subsection 
     (b)(1)(G) (as redesignated by clause (i)) and inserting 
     ``subparagraph (E)'',
       (iv) by striking subsection (g), and
       (v) by striking subparagraph (F) of subsection (h)(2).
       (B) Section 172(h)(4) is amended by striking ``subsection 
     (b)(1)(E)'' each place it appears and inserting ``subsection 
     (b)(1)(D)''.
       (C) Section 172(i)(3) is amended by striking ``subsection 
     (b)(1)(G)'' each place it appears and inserting ``subsection 
     (b)(1)(F)''.
       (D) Section 172(j) is amended by striking ``subsection 
     (b)(1)(H)'' each place it appears and inserting ``subsection 
     (b)(1)(G)''.
       (E) Section 172, as amended by subparagraphs (A) through 
     (D) of this paragraph, is amended--
       (i) by redesignating subsections (h), (i), and (j) as 
     subsections (g), (h), and (i), respectively,
       (ii) by striking ``subsection (h)'' each place it appears 
     and inserting ``subsection (g)'', and
       (iii) by striking ``subsection (i)'' each place it appears 
     and inserting ``subsection (h)''.
       (24) Research and experimental expenditures.--Subparagraph 
     (A) of section 174(a)(2) is amended to read as follows:
       ``(A) Without consent.--A taxpayer may, without the consent 
     of the Secretary, adopt the method provided in this 
     subsection for his first taxable year for which expenditures 
     described in paragraph (1) are paid or incurred.''.
       (25) Amortization of certain research and experimental 
     expenditures.--Paragraph (2) of section 174(b)(2) is amended 
     by striking ``beginning after December 31, 1953''.
       (26) Soil and water conservation expenditures.--Paragraph 
     (1) of section 175(d) is amended to read as follows:
       ``(1) Without consent.--A taxpayer may, without the consent 
     of the Secretary, adopt the method provided in this section 
     for his first taxable year for which expenditures described 
     in subsection (a) are paid or incurred.''.
       (27) Activities not engaged in for profit.--Section 
     183(e)(1) is amended by striking the last sentence.
       (28) Dividends received on certain preferred stock; and 
     dividends paid on certain preferred stock of public 
     utilities.--
       (A) Sections 244 and 247 are hereby repealed and the table 
     of sections for part VIII of subchapter B of chapter 1 is 
     amended by striking the items relating to sections 244 and 
     247.
       (B) Paragraph (5) of section 172(d) is amended to read as 
     follows:
       ``(5) Computation of deduction for dividends received.--The 
     deductions allowed by section 243 (relating to dividends 
     received by corporations) and 245 (relating to dividends 
     received from certain foreign corporations) shall be computed 
     without regard to section 246(b) (relating to limitation on 
     aggregate amount of deductions).''.
       (C) Paragraph (1) of section 243(c) is amended to read as 
     follows:
       ``(1) In general.--In the case of any dividend received 
     from a 20-percent owned corporation, subsection (a)(1) shall 
     be applied by substituting `80 percent' for `70 percent'.''.
       (D) Section 243(d) is amended by striking paragraph (4).
       (E) Section 246 is amended--
       (i) by striking ``, 244,'' in subsection (a)(1),
       (ii) in subsection (b)(1)--

[[Page 10605]]

       (I) by striking ``sections 243(a)(1), and 244(a),'' the 
     first place it appears and inserting ``section 243(a)(1),'',
       (II) by striking ``244(a),'' the second place it appears 
     therein, and
       (III) by striking ``subsection (a) or (b) of section 245, 
     and 247,'' and inserting ``and subsection (a) or (b) of 
     section 245,'', and

       (iii) by striking ``, 244,'' in subsection (c)(1).
       (F) Section 246A is amended by striking ``, 244,'' both 
     places it appears in subsections (a) and (e).
       (G) Sections 263(g)(2)(B)(iii), 277(a), 301(e)(2), 
     469(e)(4), 512(a)(3)(A), subparagraphs (A), (C), and (D) of 
     section 805(a)(4), 805(b)(5), 812(e)(2)(A), 
     815(c)(2)(A)(iii), 832(b)(5), 833(b)(3)(E), 1059(b)(2)(B), 
     and 1244(c)(2)(C) are each amended by striking ``, 244,'' 
     each place it appears.
       (H) Section 805(a)(4)(B) is amended by striking ``, 
     244(a),'' each place it appears.
       (I) Section 810(c)(2)(B) is amended by striking ``244 
     (relating to dividends on certain preferred stock of public 
     utilities),''.
       (29) Organization expenses.--Section 248(c) is amended by 
     striking ``beginning after December 31, 1953,'' and by 
     striking the last sentence.
       (30) Bond repurchase premium.--Section 249(b)(1) is amended 
     by striking ``, in the case of bonds or other evidences of 
     indebtedness issued after February 28, 1913,''.
       (31) Amount of gain where loss previously disallowed.--
     Section 267(d) is amended by striking ``(or by reason of 
     section 24(b) of the Internal Revenue Code of 1939)'' in 
     paragraph (1), by striking ``after December 31, 1953,'' in 
     paragraph (2), by striking the second sentence, and by 
     striking ``or by reason of section 118 of the Internal 
     Revenue Code of 1939'' in the last sentence.
       (32) Acquisitions made to evade or avoid income tax.--
     Paragraphs (1) and (2) of section 269(a) are each amended by 
     striking ``or acquired on or after October 8, 1940,''.
       (33) Interest on indebtedness incurred by corporations to 
     acquire stock or assets of another corporation.--Section 279 
     is amended--
       (A) by striking ``after December 31, 1967,'' in subsection 
     (a)(2),
       (B) by striking ``after October 9, 1969,'' in subsection 
     (b),
       (C) by striking ``after October 9, 1969, and'' in 
     subsection (d)(5), and
       (D) by striking subsection (i) and by redesignating 
     subsection (j) as subsection (i).
       (34) Special rules relating to corporate preference 
     items.--Paragraph (4) of section 291(a) is amended by 
     striking ``In the case of taxable years beginning after 
     December 31, 1984, section'' and inserting ``Section''.
       (35) Qualifications for tax credit employee stock ownership 
     plan.--Section 409 is amended by striking subsections (a), 
     (g), and (q).
       (36) Funding standards.--Section 412(m)(4) is amended--
       (A) by striking ``the applicable percentage'' in 
     subparagraph (A) and inserting ``25 percent'', and
       (B) by striking subparagraph (C) and by redesignating 
     subparagraph (D) as subparagraph (C).
       (37) Retiree health accounts.--Section 420 is amended--
       (A) by striking paragraph (4) in subsection (b) and by 
     redesignating paragraph (5) as paragraph (4), and
       (B) by amending paragraph (2) of subsection (c) to read as 
     follows:
       ``(2) Requirements relating to pension benefits accruing 
     before transfer.--The requirements of this paragraph are met 
     if the plan provides that the accrued pension benefits of any 
     participant or beneficiary under the plan become 
     nonforfeitable in the same manner which would be required if 
     the plan had terminated immediately before the qualified 
     transfer (or in the case of a participant who separated 
     during the 1-year period ending on the date of the transfer, 
     immediately before such separation).''.
       (38) Employee stock purchase plans.--Section 423(a) is 
     amended by striking ``after December 31, 1963,''.
       (39) Limitation on deductions for certain farming.--Section 
     464 is amended--
       (A) by striking ``any farming syndicate (as defined in 
     subsection (c))'' both places it appears in subsections (a) 
     and (b) and inserting ``any taxpayer to whom subsection (f) 
     applies'', and
       (B) by striking subsection (g).
       (40) Deductions limited to amount at risk.--
       (A) Paragraph (3) of section 465(c) is amended by striking 
     ``In the case of taxable years beginning after December 31, 
     1978, this'' and inserting ``This''.
       (B) Paragraph (2) of section 465(e)(2)(A) is amended by 
     striking ``beginning after December 31, 1978''.
       (41) Nuclear decommissioning costs.--Section 468A(e)(2) is 
     amended--
       (A) by striking ``at the rate set forth in subparagraph 
     (B)'' in subparagraph (A) and inserting ``at a rate of 20 
     percent'', and
       (B) by striking subparagraph (B) and by redesignating 
     subparagraphs (C) and (D) as subparagraphs (B) and (C), 
     respectively.
       (42) Passive activity losses and credits limited.--
       (A) Section 469 is amended by striking subsection (m).
       (B) Subsection (b) of section 58 is amended by adding 
     ``and'' at the end of paragraph (1), by striking paragraph 
     (2), and by redesignating paragraph (3) as paragraph (2).
       (43) Adjustments required by changes in method of 
     accounting.--Section 481(b)(3) is amended by striking 
     subparagraph (C).
       (44) Exemption from tax on corporations, certain trusts, 
     etc.--Section 501 is amended by striking subsection (q).
       (45) Requirements for exemption.--
       (A) Section 503(a)(1) is amended to read as follows:
       ``(1) General rule.--An organization described in paragraph 
     (17) or (18) of section 501(c) or described in section 401(a) 
     and referred to in section 4975(g)(2) or (3) shall not be 
     exempt from taxation under section 501(a) if it has engaged 
     in a prohibited transaction.''.
       (B) Paragraph (2) of section 503(a) is amended by striking 
     ``described in section 501(c)(17) or (18) or paragraph 
     (a)(1)(B)'' and inserting ``described in paragraph (1)''.
       (C) Subsection (c) of section 503 is amended by striking 
     ``described in section 501(c)(17) or (18) or subsection 
     (a)(1)(B)'' and inserting ``described in subsection (a)(1)''.
       (46) Amounts received by surviving annuitant under joint 
     and survivor annuity contract.--Subparagraph (A) of section 
     691(d)(1) is amended by striking ``after December 31, 1953, 
     and''.
       (47) Income taxes of members of armed forces on death.--
     Section 692(a)(1) is amended by striking ``after June 24, 
     1950''.
       (48) Insurance company taxable income.--
       (A) Section 832(e) is amended by striking ``of taxable 
     years beginning after December 31, 1966,''.
       (B) Section 832(e)(6) is amended by striking ``In the case 
     of any taxable year beginning after December 31, 1970, the'' 
     and by inserting ``The''.
       (49) Tax on nonresident alien individuals.--Subparagraph 
     (B) of section 871(a)(1) is amended to read as follows:
       ``(B) gains described in subsection (b) or (c) of section 
     631,''.
       (50) Property on which lessee has made improvements.--
     Section 1019 is amended by striking the last sentence.
       (51) Involuntary conversion.--Section 1033 is amended by 
     striking subsection (j) and by redesignating subsection (k) 
     as subsection (j).
       (52) Property acquired during affiliation.--Section 1051 is 
     repealed and the table of sections for part IV of subchapter 
     O of chapter 1 is amended by striking the item relating to 
     section 1051.
       (53) Holding period of property.--
       (A) Paragraph (5) of section 1223 is amended by striking 
     ``(or under so much of section 1052(c) as refers to section 
     113(a)(23) of the Internal Revenue Code of 1939)''.
       (B) Paragraph (7) of section 1223 is amended by striking 
     the last sentence.
       (C) Paragraph (9) of section 1223 is repealed.
       (54) Property used in the trade or business and involuntary 
     conversions.--Subparagraph (A) of section 1231(c)(2) is 
     amended by striking ``beginning after December 31, 1981''.
       (55) Sale or exchange of patents.--Section 1235 is 
     amended--
       (A) by striking subsection (c) and by redesignating 
     subsections (d) and (e) as (c) and (d), respectively, and
       (B) by striking ``(d)'' in subsection (b) and inserting 
     ``(c)''.
       (56) Dealers in securities.--Subsection (b) of section 1236 
     is amended by striking ``after November 19, 1951,''.
       (57) Sale of patents.--Subsection (a) of section 1249 is 
     amended by striking ``after December 31, 1962,''.
       (58) Gain from disposition of farm land.--Paragraph (1) of 
     section 1252(a) is amended by striking ``after December 31, 
     1969,'' both places it appears.
       (59) Treatment of amounts received on retirement or sale or 
     exchange of debt instruments.--Subsection (c) of section 1271 
     is amended to read as follows:
       ``(c) Special Rule for Certain Obligations With Respect to 
     Which Original Issue Discount Not Currently Includible.--
       ``(1) In general.--On the sale or exchange of debt 
     instruments issued by a government or political subdivision 
     thereof after December 31, 1954, and before July 2, 1982, or 
     by a corporation after December 31, 1954, and on or before 
     May 27, 1969, any gain realized which does not exceed--
       ``(A) an amount equal to the original issue discount, or
       ``(B) if at the time of original issue there was no 
     intention to call the debt instrument before maturity, an 
     amount which bears the same ratio to the original issue 
     discount as the number of complete months that the debt 
     instrument was held by the taxpayer bears to the number of 
     complete months from the date of original issue to the date 
     of maturity,

     shall be considered as ordinary income.
       ``(2) Subsection (a)(2)(A) not to apply.--Subsection 
     (a)(2)(A) shall not apply to any debt instrument referred to 
     in subparagraph (A) of this paragraph.
       ``(3) Cross reference.--

  ``For current inclusion of original issue discount, see section 
1272.''.

       (60) Amount and method of adjustment.--Section 1314 is 
     amended by striking subsection (d) and by redesignating 
     subsection (e) as subsection (d).
       (61) Election; revocation; termination.--Clause (iii) of 
     section 1362(d)(3) is amended by striking ``unless'' and all 
     that follows and inserting ``unless the corporation was an S 
     corporation for such taxable year.''.
       (62) Old-age, survivors, and disability insurance.--
     Subsection (a) of section 1401 is

[[Page 10606]]

     amended by striking ``the following percent'' and all that 
     follows and inserting ``12.4 percent of the amount of the 
     self-employment income for such taxable year.''.
       (63) Hospital insurance.--Subsection (b) of section 1401 is 
     amended by striking ``the following percent'' and all that 
     follows and inserting ``2.9 percent of the amount of the 
     self-employment income for such taxable year.''.
       (64) Ministers, members of religious orders, and christian 
     science practitioners.--Paragraph (3) of section 1402(e) is 
     amended by striking ``whichever of the following dates is 
     later: (A)'' and by striking ``; or (B)'' and all that 
     follows and by inserting a period.
       (65) Withholding of tax on nonresident aliens.--The first 
     sentence of subsection (b) of section 1441 and the first 
     sentence of paragraph (5) of section 1441(c) are each amended 
     by striking ``gains subject to tax'' and all that follows 
     through ``October 4, 1966'' and inserting ``and gains subject 
     to tax under section 871(a)(1)(D)''.
       (66) Affiliated group defined.--Subparagraph (A) of section 
     1504(a)(3) is amended by striking ``for a taxable year which 
     includes any period after December 31, 1984'' in clause (i) 
     and by striking ``in a taxable year beginning after December 
     31, 1984'' in clause (ii).
       (67) Disallowance of the benefits of the graduated 
     corporate rates and accumulated earnings credit.--
       (A) Subsection (a) of section 1551 is amended by striking 
     paragraph (1) and by redesignating paragraphs (2) and (3) as 
     paragraphs (1) and (2), respectively.
       (B) Section 1551(b) is amended--
       (i) by striking ``or (2)'' in paragraph (1), and
       (ii) by striking ``(a)(3)'' in paragraph (2) and inserting 
     ``(a)(2)''.
       (68) Definition of wages.--Section 3121(b) is amended by 
     striking paragraph (17).
       (69) Credits against tax.--
       (A) Paragraph (4) of section 3302(f) is amended by striking 
     ``subsection--'' and all that follows through ``(A) In 
     general.--'', by striking subparagraph (B), by redesignating 
     clauses (i) and (ii) as subparagraphs (A) and (B), 
     respectively, and by moving the text of such subparagraphs 
     (as so redesignated) 2 ems to the left.
       (B) Paragraph (5) of section 3302(f) is amended by striking 
     subparagraphs (D) and by redesignating subparagraph (E) as 
     subparagraph (D).
       (70) Domestic service employment taxes.--Section 3510(b) is 
     amended by striking paragraph (4).
       (71) Tax on fuel used in commercial transportation on 
     inland waterways.--Section 4042(b)(2)(A) is amended to read 
     as follows:
       ``(A) The Inland Waterways Trust Fund financing rate is 20 
     cents per gallon.''.
       (72) Transportation by air.--Section 4261(e) is amended--
       (A) in paragraph (1) by striking subparagraph (C), and
       (B) by striking paragraph (5).
       (73) Taxes on failure to distribute income.--Section 4942 
     is amended--
       (A) by striking subsection (f)(2)(D),
       (B) in subsection (g)(2)(A) by striking ``For all taxable 
     years beginning on or after January 1, 1975, subject'' and 
     inserting ``Subject'',
       (C) in subsection (g) by striking paragraph (4), and
       (D) in subsection (i)(2) by striking ``beginning after 
     December 31, 1969, and''.
       (74) Taxes on taxable expenditures.--Section 4945(f) is 
     amended by striking ``(excluding therefrom any preceding 
     taxable year which begins before January 1, 1970)''.
       (75) Returns.--Subsection (a) of section 6039D is amended 
     by striking ``beginning after December 31, 1984,''.
       (76) Information returns.--Subsection (c) of section 6060 
     is amended by striking ``year'' and all that follows and 
     inserting ``year.''.
       (77) Abatements.--Section 6404(f) is amended by striking 
     paragraph (3).
       (78) Failure by corporation to pay estimated income tax.--
     Clause (i) of section 6655(g)(4)(A) is amended by striking 
     ``(or the corresponding provisions of prior law)''.
       (79) Retirement.--Section 7447(i)(3)(B)(ii) is amended by 
     striking ``at 4 percent per annum to December 31, 1947, and 
     at 3 percent per annum thereafter'', and inserting ``at 3 
     percent per annum''.
       (80) Annuities to surviving spouses and dependent children 
     of judges.--
       (A) Paragraph (2) of section 7448(a) is amended by striking 
     ``or under section 1106 of the Internal Revenue Code of 
     1939'' and by striking ``or pursuant to section 1106(d) of 
     the Internal Revenue Code of 1939''.
       (B) Subsection (g) of section 7448 is amended by striking 
     ``or other than pursuant to section 1106 of the Internal 
     Revenue Code of 1939''.
       (C) Subsections (g), (j)(1), and (j)(2) of section 7448 are 
     each amended by striking ``at 4 percent per annum to December 
     31, 1947, and at 3 percent per annum thereafter'' and 
     inserting ``at 3 percent per annum''.
       (81) Merchant marine capital construction funds.--Paragraph 
     (4) of section 7518(g) is amended by striking ``any 
     nonqualified withdrawal'' and all that follows through 
     ``shall be determined'' and inserting ``any nonqualified 
     withdrawal shall be determined''.
       (82) Valuation tables.--Paragraph (3) of section 7520(c) is 
     amended--
       (A) by striking ``Not later than December 31, 1989, the'' 
     and inserting ``The'', and
       (B) by striking ``thereafter'' in the last sentence 
     thereof.
       (83) Administration and collection of taxes in 
     possessions.--Section 7651 is amended by striking paragraph 
     (4) and by redesignating paragraph (5) as paragraph (4).
       (84) Definition of employee.--(A) Section 7701(a)(20) is 
     amended by striking ``chapter 21'' and all that follows and 
     inserting ``chapter 21.''.
       (b) Effective Date.--
       (1) General rule.--Except as otherwise provided in 
     paragraph (2), the amendments made by subsection (a) shall 
     take effect on the date of enactment of this Act.
       (2) Savings provision.--If--
       (A) any provision amended or repealed by subsection (a) 
     applied to--
       (i) any transaction occurring before the date of the 
     enactment of this Act,
       (ii) any property acquired before such date of enactment, 
     or
       (iii) any item of income, loss, deduction, or credit taken 
     into account before such date of enactment, and
       (B) the treatment of such transaction, property, or item 
     under such provision would (without regard to the amendments 
     made by subsection (a)) affect the liability for tax for 
     periods ending after such date of enactment,

     nothing in the amendments made by subsection (a) shall be 
     construed to affect the treatment of such transaction, 
     property, or item for purposes of determining liability for 
     tax for periods ending after such date of enactment.

                      TITLE VI--REVENUE PROVISIONS

        Subtitle A--Provisions Designed To Curtail Tax Shelters

     SEC. 601. PENALTY FOR FAILING TO DISCLOSE REPORTABLE 
                   TRANSACTION.

       (a) In General.--Part I of subchapter B of chapter 68 
     (relating to assessable penalties) is amended by inserting 
     after section 6707 the following new section:

     ``SEC. 6707A. PENALTY FOR FAILURE TO INCLUDE REPORTABLE 
                   TRANSACTION INFORMATION WITH RETURN OR 
                   STATEMENT.

       ``(a) Imposition of Penalty.--Any person who fails to 
     include on any return or statement any information with 
     respect to a reportable transaction which is required under 
     section 6011 to be included with such return or statement 
     shall pay a penalty in the amount determined under subsection 
     (b).
       ``(b) Amount of Penalty.--
       ``(1) In general.--Except as provided in paragraphs (2) and 
     (3), the amount of the penalty under subsection (a) shall be 
     $50,000.
       ``(2) Listed transaction.--The amount of the penalty under 
     subsection (a) with respect to a listed transaction shall be 
     $100,000.
       ``(3) Increase in penalty for large entities and high net 
     worth individuals.--
       ``(A) In general.--In the case of a failure under 
     subsection (a) by--
       ``(i) a large entity, or
       ``(ii) a high net worth individual,
     the penalty under paragraph (1) or (2) shall be twice the 
     amount determined without regard to this paragraph.
       ``(B) Large entity.--For purposes of subparagraph (A), the 
     term `large entity' means, with respect to any taxable year, 
     a person (other than a natural person) with gross receipts in 
     excess of $10,000,000 for the taxable year in which the 
     reportable transaction occurs or the preceding taxable year. 
     Rules similar to the rules of paragraph (2) and subparagraphs 
     (B), (C), and (D) of paragraph (3) of section 448(c) shall 
     apply for purposes of this subparagraph.
       ``(C) High net worth individual.--For purposes of 
     subparagraph (A), the term `high net worth individual' means, 
     with respect to a reportable transaction, a natural person 
     whose net worth exceeds $2,000,000 immediately before the 
     transaction.
       ``(c) Definitions.--For purposes of this section--
       ``(1) Reportable transaction.--The term `reportable 
     transaction' means any transaction with respect to which 
     information is required to be included with a return or 
     statement because, as determined under regulations prescribed 
     under section 6011, such transaction is of a type which the 
     Secretary determines as having a potential for tax avoidance 
     or evasion.
       ``(2) Listed transaction.--Except as provided in 
     regulations, the term `listed transaction' means a reportable 
     transaction which is the same as, or substantially similar 
     to, a transaction specifically identified by the Secretary as 
     a tax avoidance transaction for purposes of section 6011.
       ``(d) Authority To Rescind Penalty.--
       ``(1) In general.--The Commissioner of Internal Revenue may 
     rescind all or any portion of any penalty imposed by this 
     section with respect to any violation if--
       ``(A) the violation is with respect to a reportable 
     transaction other than a listed transaction,
       ``(B) the person on whom the penalty is imposed has a 
     history of complying with the requirements of this title,
       ``(C) it is shown that the violation is due to an 
     unintentional mistake of fact;
       ``(D) imposing the penalty would be against equity and good 
     conscience, and
       ``(E) rescinding the penalty would promote compliance with 
     the requirements of this title and effective tax 
     administration.
       ``(2) Discretion.--The exercise of authority under 
     paragraph (1) shall be at the sole discretion of the 
     Commissioner and may be delegated only to the head of the 
     Office of Tax Shelter Analysis. The Commissioner, in the 
     Commissioner's sole discretion, may establish a procedure to 
     determine if a penalty should be referred to the Commissioner 
     or the head of such Office for a determination under 
     paragraph (1).
       ``(3) No appeal.--Notwithstanding any other provision of 
     law, any determination under this subsection may not be 
     reviewed in any administrative or judicial proceeding.

[[Page 10607]]

       ``(4) Records.--If a penalty is rescinded under paragraph 
     (1), the Commissioner shall place in the file in the Office 
     of the Commissioner the opinion of the Commissioner or the 
     head of the Office of Tax Shelter Analysis with respect to 
     the determination, including--
       ``(A) the facts and circumstances of the transaction,
       ``(B) the reasons for the rescission, and
       ``(C) the amount of the penalty rescinded.
       ``(5) Report.--The Commissioner shall each year report to 
     the Committee on Ways and Means of the House of 
     Representatives and the Committee on Finance of the Senate--
       ``(A) a summary of the total number and aggregate amount of 
     penalties imposed, and rescinded, under this section, and
       ``(B) a description of each penalty rescinded under this 
     subsection and the reasons therefor.
       ``(e) Penalty Reported to SEC.--In the case of a person--
       ``(1) which is required to file periodic reports under 
     section 13 or 15(d) of the Securities Exchange Act of 1934 or 
     is required to be consolidated with another person for 
     purposes of such reports, and
       ``(2) which--
       ``(A) is required to pay a penalty under this section with 
     respect to a listed transaction, or
       ``(B) is required to pay a penalty under section 6662A with 
     respect to any reportable transaction at a rate prescribed 
     under section 6662A(c),
     the requirement to pay such penalty shall be disclosed in 
     such reports filed by such person for such periods as the 
     Secretary shall specify. Failure to make a disclosure in 
     accordance with the preceding sentence shall be treated as a 
     failure to which the penalty under subsection (b)(2) applies.
       ``(f) Coordination With Other Penalties.--The penalty 
     imposed by this section is in addition to any penalty imposed 
     under this title.''.
       (b) Conforming Amendment.--The table of sections for part I 
     of subchapter B of chapter 68 is amended by inserting after 
     the item relating to section 6707 the following:

``Sec. 6707A. Penalty for failure to include reportable transaction 
              information with return or statement.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to returns and statements the due date for which 
     is after the date of the enactment of this Act.

     SEC. 602. ACCURACY-RELATED PENALTY FOR LISTED TRANSACTIONS 
                   AND OTHER REPORTABLE TRANSACTIONS HAVING A 
                   SIGNIFICANT TAX AVOIDANCE PURPOSE.

       (a) In General.--Subchapter A of chapter 68 is amended by 
     inserting after section 6662 the following new section:

     ``SEC. 6662A. IMPOSITION OF ACCURACY-RELATED PENALTY ON 
                   UNDERSTATEMENTS WITH RESPECT TO REPORTABLE 
                   TRANSACTIONS.

       ``(a) Imposition of Penalty.--If a taxpayer has a 
     reportable transaction understatement for any taxable year, 
     there shall be added to the tax an amount equal to 20 percent 
     of the amount of such understatement.
       ``(b) Reportable Transaction Understatement.--For purposes 
     of this section--
       ``(1) In general.--The term `reportable transaction 
     understatement' means the sum of--
       ``(A) the product of--
       ``(i) the amount of the increase (if any) in taxable income 
     which results from a difference between the proper tax 
     treatment of an item to which this section applies and the 
     taxpayer's treatment of such item (as shown on the taxpayer's 
     return of tax), and
       ``(ii) the highest rate of tax imposed by section 1 
     (section 11 in the case of a taxpayer which is a 
     corporation), and
       ``(B) the amount of the decrease (if any) in the aggregate 
     amount of credits determined under subtitle A which results 
     from a difference between the taxpayer's treatment of an item 
     to which this section applies (as shown on the taxpayer's 
     return of tax) and the proper tax treatment of such item.
     For purposes of subparagraph (A), any reduction of the excess 
     of deductions allowed for the taxable year over gross income 
     for such year, and any reduction in the amount of capital 
     losses which would (without regard to section 1211) be 
     allowed for such year, shall be treated as an increase in 
     taxable income.
       ``(2) Items to which section applies.--This section shall 
     apply to any item which is attributable to--
       ``(A) any listed transaction, and
       ``(B) any reportable transaction (other than a listed 
     transaction) if a significant purpose of such transaction is 
     the avoidance or evasion of Federal income tax.
       ``(c) Higher Penalty for Nondisclosed Listed and Other 
     Avoidance Transactions.--
       ``(1) In general.--Subsection (a) shall be applied by 
     substituting `30 percent' for `20 percent' with respect to 
     the portion of any reportable transaction understatement with 
     respect to which the requirement of section 6664(d)(2)(A) is 
     not met.
       ``(2) Rules applicable to assertion and compromise of 
     penalty.--
       ``(A) In general.--Only upon the approval by the Chief 
     Counsel for the Internal Revenue Service or the Chief 
     Counsel's delegate at the national office of the Internal 
     Revenue Service may a penalty to which paragraph (1) applies 
     be included in a 1st letter of proposed deficiency which 
     allows the taxpayer an opportunity for administrative review 
     in the Internal Revenue Service Office of Appeals. If such a 
     letter is provided to the taxpayer, only the Commissioner of 
     Internal Revenue may compromise all or any portion of such 
     penalty.
       ``(B) Applicable rules.--The rules of paragraphs (2), (3), 
     (4), and (5) of section 6707A(d) shall apply for purposes of 
     subparagraph (A).
       ``(d) Definitions of Reportable and Listed Transactions.--
     For purposes of this section, the terms `reportable 
     transaction' and `listed transaction' have the respective 
     meanings given to such terms by section 6707A(c).
       ``(e) Special Rules.--
       ``(1) Coordination with penalties, etc., on other 
     understatements.--In the case of an understatement (as 
     defined in section 6662(d)(2))--
       ``(A) the amount of such understatement (determined without 
     regard to this paragraph) shall be increased by the aggregate 
     amount of reportable transaction understatements for purposes 
     of determining whether such understatement is a substantial 
     understatement under section 6662(d)(1), and
       ``(B) the addition to tax under section 6662(a) shall apply 
     only to the excess of the amount of the substantial 
     understatement (if any) after the application of subparagraph 
     (A) over the aggregate amount of reportable transaction 
     understatements.
       ``(2) Coordination with other penalties.--
       ``(A) Application of fraud penalty.--References to an 
     underpayment in section 6663 shall be treated as including 
     references to a reportable transaction understatement.
       ``(B) No double penalty.--This section shall not apply to 
     any portion of an understatement on which a penalty is 
     imposed under section 6663.
       ``(3) Special rule for amended returns.--Except as provided 
     in regulations, in no event shall any tax treatment included 
     with an amendment or supplement to a return of tax be taken 
     into account in determining the amount of any reportable 
     transaction understatement if the amendment or supplement is 
     filed after the earlier of the date the taxpayer is first 
     contacted by the Secretary regarding the examination of the 
     return or such other date as is specified by the Secretary.
       ``(4) Cross reference.--

  ``For reporting of section 6662A(c) penalty to the Securities and 
Exchange Commission, see section 6707A(e).''.

       (b) Determination of Other Understatements.--Subparagraph 
     (A) of section 6662(d)(2) is amended by adding at the end the 
     following flush sentence:
     ``The excess under the preceding sentence shall be determined 
     without regard to items to which section 6662A applies.''.
       (c) Reasonable Cause Exception.--
       (1) In general.--Section 6664 is amended by adding at the 
     end the following new subsection:
       ``(d) Reasonable Cause Exception for Reportable Transaction 
     Understatements.--
       ``(1) In general.--No penalty shall be imposed under 
     section 6662A with respect to any portion of a reportable 
     transaction understatement if it is shown that there was a 
     reasonable cause for such portion and that the taxpayer acted 
     in good faith with respect to such portion.
       ``(2) Special rules.--Paragraph (1) shall not apply to any 
     reportable transaction understatement unless--
       ``(A) the relevant facts affecting the tax treatment of the 
     item are adequately disclosed in accordance with the 
     regulations prescribed under section 6011,
       ``(B) there is or was substantial authority for such 
     treatment, and
       ``(C) the taxpayer reasonably believed that such treatment 
     was more likely than not the proper treatment.
     A taxpayer failing to adequately disclose in accordance with 
     section 6011 shall be treated as meeting the requirements of 
     subparagraph (A) if the penalty for such failure was 
     rescinded under section 6707A(d).
       ``(3) Rules relating to reasonable belief.--For purposes of 
     paragraph (2)(C)--
       ``(A) In general.--A taxpayer shall be treated as having a 
     reasonable belief with respect to the tax treatment of an 
     item only if such belief--
       ``(i) is based on the facts and law that exist at the time 
     the return of tax which includes such tax treatment is filed, 
     and
       ``(ii) relates solely to the taxpayer's chances of success 
     on the merits of such treatment and does not take into 
     account the possibility that a return will not be audited, 
     such treatment will not be raised on audit, or such treatment 
     will be resolved through settlement if it is raised.
       ``(B) Certain opinions may not be relied upon.--
       ``(i) In general.--An opinion of a tax advisor may not be 
     relied upon to establish the reasonable belief of a taxpayer 
     if--

       ``(I) the tax advisor is described in clause (ii), or
       ``(II) the opinion is described in clause (iii).

       ``(ii) Disqualified tax advisors.--A tax advisor is 
     described in this clause if the tax advisor--

       ``(I) is a material advisor (within the meaning of section 
     6111(b)(1)) who participates in the organization, management, 
     promotion, or sale of the transaction or who is related 
     (within the meaning of section 267(b) or 707(b)(1)) to any 
     person who so participates,
       ``(II) is compensated directly or indirectly by a material 
     advisor with respect to the transaction,
       ``(III) has a fee arrangement with respect to the 
     transaction which is contingent on all or part of the 
     intended tax benefits from the transaction being sustained, 
     or
       ``(IV) as determined under regulations prescribed by the 
     Secretary, has a disqualifying financial interest with 
     respect to the transaction.

[[Page 10608]]

       ``(iii) Disqualified opinions.--For purposes of clause (i), 
     an opinion is disqualified if the opinion--

       ``(I) is based on unreasonable factual or legal assumptions 
     (including assumptions as to future events),
       ``(II) unreasonably relies on representations, statements, 
     findings, or agreements of the taxpayer or any other person,
       ``(III) does not identify and consider all relevant facts, 
     or
       ``(IV) fails to meet any other requirement as the Secretary 
     may prescribe.''.

       (2) Conforming amendment.--The heading for subsection (c) 
     of section 6664 is amended by inserting ``for Underpayments'' 
     after ``Exception''.
       (d) Conforming Amendments.--
       (1) Subparagraph (C) of section 461(i)(3) is amended by 
     striking ``section 6662(d)(2)(C)(iii)'' and inserting 
     ``section 1274(b)(3)(C)''.
       (2) Paragraph (3) of section 1274(b) is amended--
       (A) by striking ``(as defined in section 
     6662(d)(2)(C)(iii))'' in subparagraph (B)(i), and
       (B) by adding at the end the following new subparagraph:
       ``(C) Tax shelter.--For purposes of subparagraph (B), the 
     term `tax shelter' means--
       ``(i) a partnership or other entity,
       ``(ii) any investment plan or arrangement, or
       ``(iii) any other plan or arrangement,
     if a significant purpose of such partnership, entity, plan, 
     or arrangement is the avoidance or evasion of Federal income 
     tax.''.
       (3) Section 6662(d)(2) is amended by striking subparagraphs 
     (C) and (D).
       (4) Section 6664(c)(1) is amended by striking ``this part'' 
     and inserting ``section 6662 or 6663''.
       (5) Subsection (b) of section 7525 is amended by striking 
     ``section 6662(d)(2)(C)(iii)'' and inserting ``section 
     1274(b)(3)(C)''.
       (6)(A) The heading for section 6662 is amended to read as 
     follows:

     ``SEC. 6662. IMPOSITION OF ACCURACY-RELATED PENALTY ON 
                   UNDERPAYMENTS.''.

       (B) The table of sections for part II of subchapter A of 
     chapter 68 is amended by striking the item relating to 
     section 6662 and inserting the following new items:

``Sec. 6662. Imposition of accuracy-related penalty on underpayments.
``Sec. 6662A. Imposition of accuracy-related penalty on understatements 
              with respect to reportable transactions.''.

       (e) Effective Date.--The amendments made by this section 
     shall apply to taxable years ending after the date of the 
     enactment of this Act.

     SEC. 603. MODIFICATIONS OF SUBSTANTIAL UNDERSTATEMENT PENALTY 
                   FOR NONREPORTABLE TRANSACTIONS.

       (a) Substantial Understatement of Corporations.--Section 
     6662(d)(1)(B) (relating to special rule for corporations) is 
     amended to read as follows:
       ``(B) Special rule for corporations.--In the case of a 
     corporation other than an S corporation or a personal holding 
     company (as defined in section 542), there is a substantial 
     understatement of income tax for any taxable year if the 
     amount of the understatement for the taxable year exceeds the 
     lesser of--
       ``(i) 10 percent of the tax required to be shown on the 
     return for the taxable year (or, if greater, $10,000), or
       ``(ii) $10,000,000.''.
       (b) Reduction for Understatement of Taxpayer Due to 
     Position of Taxpayer or Disclosed Item.--
       (1) In general.--Section 6662(d)(2)(B)(i) (relating to 
     substantial authority) is amended to read as follows:
       ``(i) the tax treatment of any item by the taxpayer if the 
     taxpayer had reasonable belief that the tax treatment was 
     more likely than not the proper treatment, or''.
       (2) Conforming amendment.--Section 6662(d) is amended by 
     adding at the end the following new paragraph:
       ``(3) Secretarial list.--For purposes of this subsection, 
     section 6664(d)(2), and section 6694(a)(1), the Secretary may 
     prescribe a list of positions for which the Secretary 
     believes there is not substantial authority or there is no 
     reasonable belief that the tax treatment is more likely than 
     not the proper tax treatment. Such list (and any revisions 
     thereof) shall be published in the Federal Register or the 
     Internal Revenue Bulletin.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 604. TAX SHELTER EXCEPTION TO CONFIDENTIALITY PRIVILEGES 
                   RELATING TO TAXPAYER COMMUNICATIONS.

       (a) In General.--Section 7525(b) (relating to section not 
     to apply to communications regarding corporate tax shelters) 
     is amended to read as follows:
       ``(b) Section Not To Apply to Communications Regarding Tax 
     Shelters.--The privilege under subsection (a) shall not apply 
     to any written communication which is--
       ``(1) between a federally authorized tax practitioner and--
       ``(A) any person,
       ``(B) any director, officer, employee, agent, or 
     representative of the person, or
       ``(C) any other person holding a capital or profits 
     interest in the person, and
       ``(2) in connection with the promotion of the direct or 
     indirect participation of the person in any tax shelter (as 
     defined in section 1274(b)(3)(C)).''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to communications made on or after the date of 
     the enactment of this Act.

     SEC. 605. DISCLOSURE OF REPORTABLE TRANSACTIONS.

       (a) In General.--Section 6111 (relating to registration of 
     tax shelters) is amended to read as follows:

     ``SEC. 6111. DISCLOSURE OF REPORTABLE TRANSACTIONS.

       ``(a) In General.--Each material advisor with respect to 
     any reportable transaction shall make a return (in such form 
     as the Secretary may prescribe) setting forth--
       ``(1) information identifying and describing the 
     transaction,
       ``(2) information describing any potential tax benefits 
     expected to result from the transaction, and
       ``(3) such other information as the Secretary may 
     prescribe.
     Such return shall be filed not later than the date specified 
     by the Secretary.
       ``(b) Definitions.--For purposes of this section--
       ``(1) Material advisor.--
       ``(A) In general.--The term `material advisor' means any 
     person--
       ``(i) who provides any material aid, assistance, or advice 
     with respect to organizing, managing, promoting, selling, 
     implementing, or carrying out any reportable transaction, and
       ``(ii) who directly or indirectly derives gross income in 
     excess of the threshold amount for such aid, assistance, or 
     advice.
       ``(B) Threshold amount.--For purposes of subparagraph (A), 
     the threshold amount is--
       ``(i) $50,000 in the case of a reportable transaction 
     substantially all of the tax benefits from which are provided 
     to natural persons, and
       ``(ii) $250,000 in any other case.
       ``(2) Reportable transaction.--The term `reportable 
     transaction' has the meaning given to such term by section 
     6707A(c).
       ``(c) Regulations.--The Secretary may prescribe regulations 
     which provide--
       ``(1) that only 1 person shall be required to meet the 
     requirements of subsection (a) in cases in which 2 or more 
     persons would otherwise be required to meet such 
     requirements,
       ``(2) exemptions from the requirements of this section, and
       ``(3) such rules as may be necessary or appropriate to 
     carry out the purposes of this section.''.
       (b) Conforming Amendments.--
       (1) The item relating to section 6111 in the table of 
     sections for subchapter B of chapter 61 is amended to read as 
     follows:

``Sec. 6111. Disclosure of reportable transactions.''.

       (2)(A) So much of section 6112 as precedes subsection (c) 
     thereof is amended to read as follows:

     ``SEC. 6112. MATERIAL ADVISORS OF REPORTABLE TRANSACTIONS 
                   MUST KEEP LISTS OF ADVISEES.

       ``(a) In General.--Each material advisor (as defined in 
     section 6111) with respect to any reportable transaction (as 
     defined in section 6707A(c)) shall maintain, in such manner 
     as the Secretary may by regulations prescribe, a list--
       ``(1) identifying each person with respect to whom such 
     advisor acted as such a material advisor with respect to such 
     transaction, and
       ``(2) containing such other information as the Secretary 
     may by regulations require.
     This section shall apply without regard to whether a material 
     advisor is required to file a return under section 6111 with 
     respect to such transaction.''.
       (B) Section 6112 is amended by redesignating subsection (c) 
     as subsection (b).
       (C) Section 6112(b), as redesignated by subparagraph (B), 
     is amended--
       (i) by inserting ``written'' before ``request'' in 
     paragraph (1)(A), and
       (ii) by striking ``shall prescribe'' in paragraph (2) and 
     inserting ``may prescribe''.
       (D) The item relating to section 6112 in the table of 
     sections for subchapter B of chapter 61 is amended to read as 
     follows:

``Sec. 6112. Material advisors of reportable transactions must keep 
              lists of advisees.''.

       (3)(A) The heading for section 6708 is amended to read as 
     follows:

     ``SEC. 6708. FAILURE TO MAINTAIN LISTS OF ADVISEES WITH 
                   RESPECT TO REPORTABLE TRANSACTIONS.''.

       (B) The item relating to section 6708 in the table of 
     sections for part I of subchapter B of chapter 68 is amended 
     to read as follows:

``Sec. 6708. Failure to maintain lists of advisees with respect to 
              reportable transactions.''.

       (c) Required Disclosure Not Subject to Claim of 
     Confidentiality.--Subparagraph (A) of section 6112(b)(1), as 
     redesignated by subsection (b)(2)(B), is amended by adding at 
     the end the following new flush sentence:
     ``For purposes of this section, the identity of any person on 
     such list shall not be privileged.''.
       (d) Effective Date.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to transactions 
     with respect to which material aid, assistance, or advice 
     referred to in section 6111(b)(1)(A)(i) of the Internal 
     Revenue Code of 1986 (as added by this section) is provided 
     after the date of the enactment of this Act.
       (2) No claim of confidentiality against disclosure.--The 
     amendment made by subsection (c) shall take effect as if 
     included in the

[[Page 10609]]

     amendments made by section 142 of the Deficit Reduction Act 
     of 1984.

     SEC. 606. MODIFICATIONS TO PENALTY FOR FAILURE TO REGISTER 
                   TAX SHELTERS.

       (a) In General.--Section 6707 (relating to failure to 
     furnish information regarding tax shelters) is amended to 
     read as follows:

     ``SEC. 6707. FAILURE TO FURNISH INFORMATION REGARDING 
                   REPORTABLE TRANSACTIONS.

       ``(a) In General.--If a person who is required to file a 
     return under section 6111(a) with respect to any reportable 
     transaction--
       ``(1) fails to file such return on or before the date 
     prescribed therefor, or
       ``(2) files false or incomplete information with the 
     Secretary with respect to such transaction,
     such person shall pay a penalty with respect to such return 
     in the amount determined under subsection (b).
       ``(b) Amount of Penalty.--
       ``(1) In general.--Except as provided in paragraph (2), the 
     penalty imposed under subsection (a) with respect to any 
     failure shall be $50,000.
       ``(2) Listed transactions.--The penalty imposed under 
     subsection (a) with respect to any listed transaction shall 
     be an amount equal to the greater of--
       ``(A) $200,000, or
       ``(B) 50 percent of the gross income derived by such person 
     with respect to aid, assistance, or advice which is provided 
     with respect to the listed transaction before the date the 
     return including the transaction is filed under section 6111.
     Subparagraph (B) shall be applied by substituting `75 
     percent' for `50 percent' in the case of an intentional 
     failure or act described in subsection (a).
       ``(c) Certain Rules To Apply.--The provisions of section 
     6707A(d) shall apply to any penalty imposed under this 
     section.
       ``(d) Reportable and Listed Transactions.--The terms 
     `reportable transaction' and `listed transaction' have the 
     respective meanings given to such terms by section 
     6707A(c).''.
       (b) Clerical Amendment.--The item relating to section 6707 
     in the table of sections for part I of subchapter B of 
     chapter 68 is amended by striking ``tax shelters'' and 
     inserting ``reportable transactions''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to returns the due date for which is after the 
     date of the enactment of this Act.

     SEC. 607. MODIFICATION OF PENALTY FOR FAILURE TO MAINTAIN 
                   LISTS OF INVESTORS.

       (a) In General.--Subsection (a) of section 6708 is amended 
     to read as follows:
       ``(a) Imposition of Penalty.--
       ``(1) In general.--If any person who is required to 
     maintain a list under section 6112(a) fails to make such list 
     available upon written request to the Secretary in accordance 
     with section 6112(b)(1)(A) within 20 business days after the 
     date of the Secretary's request, such person shall pay a 
     penalty of $10,000 for each day of such failure after such 
     20th day.
       ``(2) Reasonable cause exception.--No penalty shall be 
     imposed by paragraph (1) with respect to the failure on any 
     day if such failure is due to reasonable cause.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to requests made after the date of the enactment 
     of this Act.

     SEC. 608. MODIFICATION OF ACTIONS TO ENJOIN CERTAIN CONDUCT 
                   RELATED TO TAX SHELTERS AND REPORTABLE 
                   TRANSACTIONS.

       (a) In General.--Section 7408 (relating to action to enjoin 
     promoters of abusive tax shelters, etc.) is amended by 
     redesignating subsection (c) as subsection (d) and by 
     striking subsections (a) and (b) and inserting the following 
     new subsections:
       ``(a) Authority To Seek Injunction.--A civil action in the 
     name of the United States to enjoin any person from further 
     engaging in specified conduct may be commenced at the request 
     of the Secretary. Any action under this section shall be 
     brought in the district court of the United States for the 
     district in which such person resides, has his principal 
     place of business, or has engaged in specified conduct. The 
     court may exercise its jurisdiction over such action (as 
     provided in section 7402(a)) separate and apart from any 
     other action brought by the United States against such 
     person.
       ``(b) Adjudication and Decree.--In any action under 
     subsection (a), if the court finds--
       ``(1) that the person has engaged in any specified conduct, 
     and
       ``(2) that injunctive relief is appropriate to prevent 
     recurrence of such conduct,
     the court may enjoin such person from engaging in such 
     conduct or in any other activity subject to penalty under 
     this title.
       ``(c) Specified Conduct.--For purposes of this section, the 
     term `specified conduct' means any action, or failure to take 
     action, subject to penalty under section 6700, 6701, 6707, or 
     6708.''.
       (b) Conforming Amendments.--
       (1) The heading for section 7408 is amended to read as 
     follows:

     ``SEC. 7408. ACTIONS TO ENJOIN SPECIFIED CONDUCT RELATED TO 
                   TAX SHELTERS AND REPORTABLE TRANSACTIONS.''.

       (2) The table of sections for subchapter A of chapter 67 is 
     amended by striking the item relating to section 7408 and 
     inserting the following new item:

``Sec. 7408. Actions to enjoin specified conduct related to tax 
              shelters and reportable transactions.''.

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

     SEC. 609. UNDERSTATEMENT OF TAXPAYER'S LIABILITY BY INCOME 
                   TAX RETURN PREPARER.

       (a) Standards Conformed to Taxpayer Standards.--Section 
     6694(a) (relating to understatements due to unrealistic 
     positions) is amended--
       (1) by striking ``realistic possibility of being sustained 
     on its merits'' in paragraph (1) and inserting ``reasonable 
     belief that the tax treatment in such position was more 
     likely than not the proper treatment'',
       (2) by striking ``or was frivolous'' in paragraph (3) and 
     inserting ``or there was no reasonable basis for the tax 
     treatment of such position'', and
       (3) by striking ``Unrealistic'' in the heading and 
     inserting ``Improper''.
       (b) Amount of Penalty.--Section 6694 is amended--
       (1) by striking ``$250'' in subsection (a) and inserting 
     ``$1,000'', and
       (2) by striking ``$1,000'' in subsection (b) and inserting 
     ``$5,000''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to documents prepared after the date of the 
     enactment of this Act.

     SEC. 610. REGULATION OF INDIVIDUALS PRACTICING BEFORE THE 
                   DEPARTMENT OF TREASURY.

       (a) Censure; Imposition of Penalty.--
       (1) In general.--Section 330(b) of title 31, United States 
     Code, is amended--
       (A) by inserting ``, or censure,'' after ``Department'', 
     and
       (B) by adding at the end the following new flush sentence:
     ``The Secretary may impose a monetary penalty on any 
     representative described in the preceding sentence. If the 
     representative was acting on behalf of an employer or any 
     firm or other entity in connection with the conduct giving 
     rise to such penalty, the Secretary may impose a monetary 
     penalty on such employer, firm, or entity if it knew, or 
     reasonably should have known, of such conduct. Such penalty 
     shall not exceed the gross income derived (or to be derived) 
     from the conduct giving rise to the penalty and may be in 
     addition to, or in lieu of, any suspension, disbarment, or 
     censure of the representative.''.
       (2) Effective date.--The amendments made by this subsection 
     shall apply to actions taken after the date of the enactment 
     of this Act.
       (b) Tax Shelter Opinions, etc.--Section 330 of such title 
     31 is amended by adding at the end the following new 
     subsection:
       ``(d) Nothing in this section or in any other provision of 
     law shall be construed to limit the authority of the 
     Secretary of the Treasury to impose standards applicable to 
     the rendering of written advice with respect to any entity, 
     transaction plan or arrangement, or other plan or 
     arrangement, which is of a type which the Secretary 
     determines as having a potential for tax avoidance or 
     evasion.''.

     SEC. 611. PENALTY ON PROMOTERS OF TAX SHELTERS.

       (a) Penalty on Promoting Abusive Tax Shelters.--Section 
     6700(a) is amended by adding at the end the following new 
     sentence: ``Notwithstanding the first sentence, if an 
     activity with respect to which a penalty imposed under this 
     subsection involves a statement described in paragraph 
     (2)(A), the amount of the penalty shall be equal to 50 
     percent of the gross income derived (or to be derived) from 
     such activity by the person on which the penalty is 
     imposed.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to activities after the date of the enactment of 
     this Act.

     SEC. 612. STATUTE OF LIMITATIONS FOR TAXABLE YEARS FOR WHICH 
                   REQUIRED LISTED TRANSACTIONS NOT REPORTED.

       (a) In General.--Section 6501(c) (relating to exceptions) 
     is amended by adding at the end the following new paragraph:
       ``(10) Listed transactions.--If a taxpayer fails to include 
     on any return or statement for any taxable year any 
     information with respect to a listed transaction (as defined 
     in section 6707A(c)(2)) which is required under section 6011 
     to be included with such return or statement, the time for 
     assessment of any tax imposed by this title with respect to 
     such transaction shall not expire before the date which is 1 
     year after the earlier of--
       ``(A) the date on which the Secretary is furnished the 
     information so required; or
       ``(B) the date that a material advisor (as defined in 
     section 6111) meets the requirements of section 6112 with 
     respect to a request by the Secretary under section 6112(b) 
     relating to such transaction with respect to such 
     taxpayer.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years with respect to which the period 
     for assessing a deficiency did not expire before the date of 
     the enactment of this Act.

     SEC. 613. DENIAL OF DEDUCTION FOR INTEREST ON UNDERPAYMENTS 
                   ATTRIBUTABLE TO TAX-MOTIVATED TRANSACTIONS.

       (a) In General.--Section 163 (relating to deduction for 
     interest) is amended by redesignating subsection (m) as 
     subsection (n) and by inserting after subsection (l) the 
     following new subsection:
       ``(m) Interest on Unpaid Taxes Attributable To Nondisclosed 
     Reportable Transactions.--No deduction shall be allowed under 
     this chapter for any interest paid or accrued under section 
     6601 on any underpayment of tax which is attributable to the 
     portion of any reportable transaction understatement (as 
     defined

[[Page 10610]]

     in section 6662A(b)) with respect to which the requirement of 
     section 6664(d)(2)(A) is not met.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to transactions in taxable years beginning after 
     the date of the enactment of this Act.

     SEC. 614. AUTHORIZATION OF APPROPRIATIONS FOR TAX LAW 
                   ENFORCEMENT.

       There is authorized to be appropriated $300,000,000 for 
     each fiscal year beginning after September 30, 2003, for the 
     purpose of carrying out tax law enforcement to combat tax 
     avoidance transactions and other tax shelters, including the 
     use of offshore financial accounts to conceal taxable income.

             PART II--OTHER CORPORATE GOVERNANCE PROVISIONS

     SEC. 621. AFFIRMATION OF CONSOLIDATED RETURN REGULATION 
                   AUTHORITY.

       (a) In General.--Section 1502 (relating to consolidated 
     return regulations) is amended by adding at the end the 
     following new sentence: ``In prescribing such regulations, 
     the Secretary may prescribe rules applicable to corporations 
     filing consolidated returns under section 1501 that are 
     different from other provisions of this title that would 
     apply if such corporations filed separate returns.''.
       (b) Result Not Overturned.--Notwithstanding subsection (a), 
     the Internal Revenue Code of 1986 shall be construed by 
     treating Treasury regulation Sec. 1.1502-20(c)(1)(iii) (as in 
     effect on January 1, 2001) as being inapplicable to the type 
     of factual situation in 255 F.3d 1357 (Fed. Cir. 2001).
       (c) Effective Date.--The provisions of this section shall 
     apply to taxable years beginning before, on, or after the 
     date of the enactment of this Act.

     SEC. 622. DECLARATION BY CHIEF EXECUTIVE OFFICER RELATING TO 
                   FEDERAL ANNUAL INCOME TAX RETURN OF A 
                   CORPORATION.

       (a) In General.--The Federal annual tax return of a 
     corporation with respect to income shall also include a 
     declaration signed by the chief executive officer of such 
     corporation (or other such officer of the corporation as the 
     Secretary of the Treasury may designate if the corporation 
     does not have a chief executive officer), under penalties of 
     perjury, that the corporation has in place processes and 
     procedures to ensure that such return complies with the 
     Internal Revenue Code of 1986 and that the chief executive 
     officer was provided reasonable assurance of the accuracy of 
     all material aspects of such return. The preceding sentence 
     shall not apply to any return of a regulated investment 
     company (within the meaning of section 851 of such Code).
       (b) Effective Date.--This section shall apply to the 
     Federal annual tax return of a corporation with respect to 
     income for taxable years ending after the date of the 
     enactment of this Act.

     SEC. 623. DENIAL OF DEDUCTION FOR CERTAIN FINES, PENALTIES, 
                   AND OTHER AMOUNTS.

       (a) In General.--Subsection (f) of section 162 (relating to 
     trade or business expenses) is amended to read as follows:
       ``(f) Fines, Penalties, and Other Amounts.--
       ``(1) In general.--Except as provided in paragraph (2), no 
     deduction otherwise allowable shall be allowed under this 
     chapter for any amount paid or incurred (whether by suit, 
     agreement, or otherwise) to, or at the direction of, a 
     government or entity described in paragraph (4) in relation 
     to the violation of any law or the investigation or inquiry 
     by such government or entity into the potential violation of 
     any law.
       ``(2) Exception for amounts constituting restitution.--
     Paragraph (1) shall not apply to any amount which the 
     taxpayer establishes constitutes restitution (including 
     remediation of property) for damage or harm caused by or 
     which may be caused by the violation of any law or the 
     potential violation of any law. This paragraph shall not 
     apply to any amount paid or incurred as reimbursement to the 
     government or entity for the costs of any investigation or 
     litigation.
       ``(3) Exception for amounts paid or incurred as the result 
     of certain court orders.--Paragraph (1) shall not apply to 
     any amount paid or incurred by order of a court in a suit in 
     which no government or entity described in paragraph (4) is a 
     party.
       ``(4) Certain nongovernmental regulatory entities.--An 
     entity is described in this paragraph if it is--
       ``(A) a nongovernmental entity which exercises self-
     regulatory powers (including imposing sanctions) in 
     connection with a qualified board or exchange (as defined in 
     section 1256(g)(7)), or
       ``(B) to the extent provided in regulations, a 
     nongovernmental entity which exercises self-regulatory powers 
     (including imposing sanctions) as part of performing an 
     essential governmental function.
       ``(5) Exception for taxes due.--Paragraph (1) shall not 
     apply to any amount paid or incurred as taxes due.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to amounts paid or incurred after April 27, 2003, 
     except that such amendment shall not apply to amounts paid or 
     incurred under any binding order or agreement entered into on 
     or before April 27, 2003. Such exception shall not apply to 
     an order or agreement requiring court approval unless the 
     approval was obtained on or before April 27, 2003.

     SEC. 624. DISALLOWANCE OF DEDUCTION FOR PUNITIVE DAMAGES.

       (a) Disallowance of Deduction.--
       (1) In general.--Section 162(g) (relating to treble damage 
     payments under the antitrust laws) is amended by adding at 
     the end the following new paragraph:
       ``(2) Punitive damages.--No deduction shall be allowed 
     under this chapter for any amount paid or incurred for 
     punitive damages in connection with any judgment in, or 
     settlement of, any action. This paragraph shall not apply to 
     punitive damages described in section 104(c).''.
       (2) Conforming amendments.--
       (A) Section 162(g) is amended--
       (i) by striking ``If'' and inserting:
       ``(1) Treble damages.--If'', and
       (ii) by redesignating paragraphs (1) and (2) as 
     subparagraphs (A) and (B), respectively.
       (B) The heading for section 162(g) is amended by inserting 
     ``or Punitive Damages'' after ``Laws''.
       (b) Inclusion in Income of Punitive Damages Paid by Insurer 
     or Otherwise.--
       (1) In general.--Part II of subchapter B of chapter 1 
     (relating to items specifically included in gross income) is 
     amended by adding at the end the following new section:

     ``SEC. 91. PUNITIVE DAMAGES COMPENSATED BY INSURANCE OR 
                   OTHERWISE.

       ``Gross income shall include any amount paid to or on 
     behalf of a taxpayer as insurance or otherwise by reason of 
     the taxpayer's liability (or agreement) to pay punitive 
     damages.''.
       (2) Reporting requirements.--Section 6041 (relating to 
     information at source) is amended by adding at the end the 
     following new subsection:
       ``(f) Section To Apply to Punitive Damages Compensation.--
     This section shall apply to payments by a person to or on 
     behalf of another person as insurance or otherwise by reason 
     of the other person's liability (or agreement) to pay 
     punitive damages.''.
       (3) Conforming amendment.--The table of sections for part 
     II of subchapter B of chapter 1 is amended by adding at the 
     end the following new item:

``Sec. 91. Punitive damages compensated by insurance or otherwise.''.

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

     SEC. 625. INCREASE IN CRIMINAL MONETARY PENALTY FOR 
                   INDIVIDUALS TO THE AMOUNT OF THE TAX AT ISSUE.

       (a) In General.--Section 7206 (relating to fraud and false 
     statements) is amended--
       (1) by striking ``Any person who--'' and inserting ``(a) In 
     General.--Any person who--'', and
       (2) by adding at the end the following new subsection:
       ``(b) Increase in Monetary Limitation for Underpayment or 
     Overpayment of Tax Due To Fraud.--If any portion of any 
     underpayment (as defined in section 6664(a)) or overpayment 
     (as defined in section 6203(a)) of tax required to be shown 
     on a return is attributable to fraudulent action described in 
     subsection (a), the applicable dollar amount under subsection 
     (a) shall in no event be less than an amount equal to such 
     portion. A rule similar to the rule under section 6663(b) 
     shall apply for purposes of determining the portion so 
     attributable.''.
       (b) Increase in Penalties.--
       (1) Attempt to evade or defeat tax.--Section 7201 is 
     amended--
       (A) by striking ``$100,000'' and inserting ``$250,000'',
       (B) by striking ``$500,000'' and inserting ``$1,000,000'', 
     and
       (C) by striking ``5 years'' and inserting ``10 years''.
       (2) Willful failure to file return, supply information, or 
     pay tax.--Section 7203 is amended--
       (A) in the first sentence--
       (i) by striking ``misdemeanor'' and inserting ``felony'', 
     and
       (ii) by striking ``1 year'' and inserting ``10 years'', and
       (B) by striking the third sentence.
       (3) Fraud and false statements.--Section 7206(a) (as 
     redesignated by subsection (a)) is amended--
       (A) by striking ``$100,000'' and inserting ``$250,000'',
       (B) by striking ``$500,000'' and inserting ``$1,000,000'', 
     and
       (C) by striking ``3 years'' and inserting ``5 years''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to underpayments and overpayments attributable to 
     actions occurring after the date of the enactment of this 
     Act.

     SEC. 626. DOUBLING OF CERTAIN PENALTIES, FINES, AND INTEREST 
                   ON UNDERPAYMENTS RELATED TO CERTAIN OFFSHORE 
                   FINANCIAL ARRANGEMENTS.

       (a) General Rule.--If--
       (1) a taxpayer eligible to participate in--
       (A) the Department of the Treasury's Offshore Voluntary 
     Compliance Initiative, or
       (B) the Department of the Treasury's voluntary disclosure 
     initiative which applies to the taxpayer by reason of the 
     taxpayer's underreporting of United States income tax 
     liability through financial arrangements which rely on the 
     use of offshore arrangements which were the subject of the 
     initiative described in subparagraph (A), and
       (2) any interest or applicable penalty is imposed with 
     respect to any arrangement to which any initiative described 
     in paragraph (1) applied or to any underpayment of Federal 
     income tax attributable to items arising in connection with 
     any arrangement described in paragraph (1),

[[Page 10611]]

     then, notwithstanding any other provision of law, the amount 
     of such interest or penalty shall be equal to twice that 
     determined without regard to this section.
       (b) Definitions and Rules.--For purposes of this section--
       (1) Applicable penalty.--The term ``applicable penalty'' 
     means any penalty, addition to tax, or fine imposed under 
     chapter 68 of the Internal Revenue Code of 1986.
       (2) Voluntary offshore compliance initiative.--The term 
     ``Voluntary Offshore Compliance Initiative'' means the 
     program established by the Department of the Treasury in 
     January of 2003 under which any taxpayer was eligible to 
     voluntarily disclose previously undisclosed income on assets 
     placed in offshore accounts and accessed through credit card 
     and other financial arrangements.
       (3) Participation.--A taxpayer shall be treated as having 
     participated in the Voluntary Offshore Compliance Initiative 
     if the taxpayer submitted the request in a timely manner and 
     all information requested by the Secretary of the Treasury or 
     his delegate within a reasonable period of time following the 
     request.
       (c) Effective Date.--The provisions of this section shall 
     apply to interest, penalties, additions to tax, and fines 
     with respect to any taxable year if as of the date of the 
     enactment of this Act, the assessment of any tax, penalty, or 
     interest with respect to such taxable year is not prevented 
     by the operation of any law or rule of law.

                  PART III--EXTENSION OF IRS USER FEES

     SEC. 631. EXTENSION OF IRS USER FEES.

       (a) In General.--Section 7528(c) (relating to termination) 
     is amended by striking ``December 31, 2004'' and inserting 
     ``September 30, 2013''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to requests after the date of the enactment of 
     this Act.

                   PART IV--OTHER REVENUE PROVISIONS

     SEC. 641. REPORTING OF TAXABLE MERGERS AND ACQUISITIONS.

       (a) In General.--Subpart B of part III of subchapter A of 
     chapter 61 is amended by inserting after section 6043 the 
     following new section:

     ``SEC. 6043A. TAXABLE MERGERS AND ACQUISITIONS.

       ``(a) In General.--The acquiring corporation in any taxable 
     acquisition shall make a return (according to the forms or 
     regulations prescribed by the Secretary) setting forth--
       ``(1) a description of the acquisition,
       ``(2) the name and address of each shareholder of the 
     acquired corporation who is required to recognize gain (if 
     any) as a result of the acquisition,
       ``(3) the amount of money and the fair market value of 
     other property transferred to each such shareholder as part 
     of such acquisition, and
       ``(4) such other information as the Secretary may 
     prescribe.
     To the extent provided by the Secretary, the requirements of 
     this section applicable to the acquiring corporation shall be 
     applicable to the acquired corporation and not to the 
     acquiring corporation.
       ``(b) Nominee Reporting.--Any person who holds stock as a 
     nominee for another person shall furnish in the manner 
     prescribed by the Secretary to such other person the 
     information provided by the corporation under subsection (d).
       ``(c) Taxable Acquisition.--For purposes of this section, 
     the term `taxable acquisition' means any acquisition by a 
     corporation of stock in or property of another corporation if 
     any shareholder of the acquired corporation is required to 
     recognize gain (if any) as a result of such acquisition.
       ``(d) Statements To Be Furnished to Shareholders.--Every 
     person required to make a return under subsection (a) shall 
     furnish to each shareholder whose name is required to be set 
     forth in such return a written statement showing--
       ``(1) the name, address, and phone number of the 
     information contact of the person required to make such 
     return,
       ``(2) the information required to be shown on such return 
     with respect to such shareholder, and
       ``(3) such other information as the Secretary may 
     prescribe.
     The written statement required under the preceding sentence 
     shall be furnished to the shareholder on or before January 31 
     of the year following the calendar year during which the 
     taxable acquisition occurred.''.
       (b) Assessable Penalties.--
       (1) Subparagraph (B) of section 6724(d)(1) (defining 
     information return) is amended by redesignating clauses (ii) 
     through (xviii) as clauses (iii) through (xix), respectively, 
     and by inserting after clause (i) the following new clause:
       ``(ii) section 6043A(a) (relating to returns relating to 
     taxable mergers and acquisitions),''.
       (2) Paragraph (2) of section 6724(d) (relating to 
     definitions) is amended by redesignating subparagraphs (F) 
     through (BB) as subparagraphs (G) through (CC), respectively, 
     and by inserting after subparagraph (E) the following new 
     subparagraph:
       ``(F) subsections (b) and (d) of section 6043A (relating to 
     returns relating to taxable mergers and acquisitions).''.
       (c) Clerical Amendment.--The table of sections for subpart 
     B of part III of subchapter A of chapter 61 is amended by 
     inserting after the item relating to section 6043 the 
     following new item:

``Sec. 6043A. Returns relating to taxable mergers and acquisitions.''.

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

     SEC. 642. MODIFICATION OF DEFINITION OF CONTROLLED GROUP OF 
                   CORPORATIONS.

       (a) In General.--Section 1563(a)(2) (relating to brother-
     sister controlled group) is amended by striking 
     ``possessing--'' and all that follows through ``(B)'' and 
     inserting ``possessing''.
       (b) Application of Existing Rules to Other Code 
     Provisions.--Section 1563(f) (relating to other definitions 
     and rules) is amended by adding at the end the following new 
     paragraph:
       ``(5) Brother-sister controlled group definition for 
     provisions other than this part.--
       ``(A) In general.--Except as specifically provided in an 
     applicable provision, subsection (a)(2) shall be applied to 
     an applicable provision as if it read as follows:
       ```(2) Brother-sister controlled group.--Two or more 
     corporations if 5 or fewer persons who are individuals, 
     estates, or trusts own (within the meaning of subsection 
     (d)(2) stock possessing--
       ```(A) at least 80 percent of the total combined voting 
     power of all classes of stock entitled to vote, or at least 
     80 percent of the total value of shares of all classes of 
     stock, of each corporation, and
       ```(B) more than 50 percent of the total combined voting 
     power of all classes of stock entitled to vote or more than 
     50 percent of the total value of shares of all classes of 
     stock of each corporation, taking into account the stock 
     ownership of each such person only to the extent such stock 
     ownership is identical with respect to each such 
     corporation.'
       ``(B) Applicable provision.--For purposes of this 
     paragraph, an applicable provision is any provision of law 
     (other than this part) which incorporates the definition of 
     controlled group of corporations under subsection (a).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

  The PRESIDING OFFICER. The majority leader.

                          ____________________