[House Report 104-506]
[From the U.S. Government Publishing Office]



104th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 2d Session                                                     104-506
_______________________________________________________________________


 
                       TAXPAYER BILL OF RIGHTS 2
                                _______


 March 28, 1996.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______


    Mr. Archer, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 2337]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 2337) to amend the Internal Revenue Code of 1986 to 
provide for increased taxpayer protections, having considered 
the same, report favorably thereon with an amendment and 
recommend that the bill as amended do pass.

                                CONTENTS

                                                                   Page
 I. Introduction.....................................................22
       A. Purpose and summary....................................    22
      B. Background and need for legislation.....................    22
      C. Legislative history.....................................    23
II. Explanation of the bill..........................................23
      A. Taxpayer bill of rights 2 provisions....................    23
        1. Taxpayer advocate.....................................    23
          a. Establishment of taxpayer advocate within Internal 
              Revenue Service (sec. 101).........................    23
          b. Expansion of authority to issue taxpayer assistance 
              orders (sec. 102)..................................    25
        2. Modifications to installment agreement provisions.....    26
          a. Notification of reasons for termination of 
              installment agreements (sec. 201)..................    26
          b. Administrative review of termination of installment 
              agreements (sec. 202)..............................    27
        3. Abatement of interest and penalties...................    27
          a. Expansion of authority to abate interest (sec. 301).    27
          b. Review of IRS failure to abate interest (sec. 302)..    28
          c. Extension of interest-free period for payment of tax 
              after notice and demand (sec. 303).................    28
          d. Abatement of penalty for failure to make required 
              deposit of payroll taxes in certain cases (sec. 
              304)...............................................    29
        4. Joint returns.........................................    29
          a. Studies of joint and several liability for married 
              persons filing joint tax returns and other joint 
              return-related issues (sec. 401)...................    29
          b. Joint return may be made after separate returns 
              without full payment of tax (sec. 402).............    31
          c. Disclosure of collection activities with respect to 
              joint returns (sec. 403)...........................    32
        5. Collection activities.................................    32
          a. Modifications to lien and levy provisions...........    32
            i. Withdrawal of public notice of lien (sec. 501(a)).    32
            ii. Return of levied property (sec. 501(b))..........    33
            iii. Modifications in certain levy exemption amounts 
                (sec. 502).......................................    34
          b. Offers-in-compromise (sec. 503).....................    34
        6. Information returns...................................    35
          a. Civil damages for fraudulent filing of information 
              returns (sec. 601).................................    35
          b. Requirement to conduct reasonable investigations of 
              information returns (sec. 602).....................    36
        7. Awarding of costs and certain fees....................    36
          a. United States must establish that its position in a 
              proceeding was substantially justified (sec. 701)..    36
          b. Increased limit on attorney fees (sec. 702).........    37
          c. Failure to agree to extension not taken into account 
              (sec. 703).........................................    37
          d. Award of litigation costs permitted in declaratory 
              judgment proceedings (sec. 704)....................    38
        8. Modification to recovery of civil damages for 
            unauthorized collection actions......................    38
          a. Increase in limit on recovery of civil damages for 
              unauthorized collection actions (sec. 801).........    38
          b. Court discretion to reduce award for litigation 
              costs for failure to exhaust administrative 
              remedies (sec. 802)................................    39
        9. Modification to penalty for failure to collect and pay 
            over tax.............................................    39
          a. Preliminary notice requirement (sec. 901)...........    39
          b. Disclosure of certain information where more than 
              one person subject to penalty (sec. 902)...........    40
          c. Right of contribution from multiple responsible 
              parties (sec. 903).................................    40
          d. Board members of tax-exempt organizations (sec. 904)    41
        10. Modification of rules relating to summonses..........    42
          a. Enrolled agents included as third-party 
              recordkeepers (sec. 1001)..........................    42
          b. Safeguards relating to designated summonses; annual 
              report to Congress on designated summonses (secs. 
              1002-1003).........................................    42
        11. Relief from retroactive application of Treasury 
            Department Regulations (sec. 1101)...................    44
        12. Miscellaneous provisions.............................    45
          a. Phone numbers of person providing payee statement 
              required to be shown on such statement (sec. 1201).    45
          b. Required notice to taxpayers of certain payments 
              (sec. 1202)........................................    45
          c. Unauthorized enticement of information disclosure 
              (sec. 1203)........................................    46
          d. Annual reminders to taxpayers with outstanding 
              delinquent accounts (sec. 1204)....................    46
          e. Five-year extension of authority for undercover 
              operations (sec. 1205).............................    47
          f. Disclosure of returns on cash transactions (sec. 
              1206)..............................................    48
          g. Disclosure of returns and return information to 
              designee of taxpayer (sec. 1207)...................    49
          h. Report on netting of interest on overpayments and 
              liabilities (sec. 1208)............................    49
          i. Expenses of detection of underpayments and fraud 
              (sec. 1209)........................................    51
          j. Use of private delivery services for timely-mailing-
              as-timely-filed (sec. 1210)........................    51
          k. Reports on misconduct by IRS employees (sec. 1211)..    52
      B. Revenue offsets.........................................    53
        1. Application of failure-to-pay penalty to substitute 
            returns (sec. 1301)..................................    53
        2. Excise taxes on amounts of private excess benefits 
            (secs. 1311-1314)....................................    53
III.Votes of the committee...........................................61

IV. Budget effects of the bill.......................................61
      A. Committee estimates of budgetary effects................    61
      B. Statement regarding new budget authority and tax 
          expenditures...........................................    65
      C. Cost estimate prepared by the Congressional Budget 
          Office.................................................    65
 V. Other matters to be discussed under the rules of the House.......67
      A. Committee oversight findings and recommendations........    67
      B. Summary of findings and recommendations of the Committee 
          on Government Reform and Oversight.....................    67
      C. Inflationary impact statement...........................    67
      D. Information relating to unfunded mandates...............    67
      E. Applicability of House rule XXI5(c).....................    68
VI. Changes in existing law made by the bill, as reported............68

  The amendment is as follows:
  Strike out all after the enacting clause and insert in lieu 
thereof the following:

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

  (a) Short Title.--This Act may be cited as the ``Taxpayer Bill of 
Rights 2''.
  (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.--

Sec. 1. Short title; amendment of 1986 Code; table of contents.

                       TITLE I--TAXPAYER ADVOCATE

Sec. 101. Establishment of position of Taxpayer Advocate within 
Internal Revenue Service.
Sec. 102. Expansion of authority to issue Taxpayer Assistance Orders.

      TITLE II--MODIFICATIONS TO INSTALLMENT AGREEMENT PROVISIONS

Sec. 201. Notification of reasons for termination of installment 
agreements.
Sec. 202. Administrative review of termination of installment 
agreement.

             TITLE III--ABATEMENT OF INTEREST AND PENALTIES

Sec. 301. Expansion of authority to abate interest.
Sec. 302. Review of IRS failure to abate interest.
Sec. 303. Extension of interest-free period for payment of tax after 
notice and demand.
Sec. 304. Abatement of penalty for failure to make required deposits of 
payroll taxes in certain cases.

                        TITLE IV--JOINT RETURNS

Sec. 401. Studies of joint return-related issues.
Sec. 402. Joint return may be made after separate returns without full 
payment of tax.
Sec. 403. Disclosure of collection activities.

                     TITLE V--COLLECTION ACTIVITIES

Sec. 501. Modifications to lien and levy provisions.
Sec. 502. Modifications to certain levy exemption amounts.
Sec. 503. Offers-in-compromise.

                     TITLE VI--INFORMATION RETURNS

Sec. 601. Civil damages for fraudulent filing of information returns.
Sec. 602. Requirement to conduct reasonable investigations of 
information returns.

             TITLE VII--AWARDING OF COSTS AND CERTAIN FEES

Sec. 701. United States must establish that its position in proceeding 
was substantially justified.
Sec. 702. Increased limit on attorney fees.
Sec. 703. Failure to agree to extension not taken into account.
Sec. 704. Award of litigation costs permitted in declaratory judgment 
proceedings.

TITLE VIII--MODIFICATION TO RECOVERY OF CIVIL DAMAGES FOR UNAUTHORIZED 
                           COLLECTION ACTIONS

Sec. 801. Increase in limit on recovery of civil damages for 
unauthorized collection actions.
Sec. 802. Court discretion to reduce award for litigation costs for 
failure to exhaust administrative remedies.

TITLE IX--MODIFICATIONS TO PENALTY FOR FAILURE TO COLLECT AND PAY OVER 
                                  TAX

Sec. 901. Preliminary notice requirement.
Sec. 902. Disclosure of certain information where more than 1 person 
liable for penalty for failure to collect and pay over tax.
Sec. 903. Right of contribution where more than 1 person liable for 
penalty for failure to collect and pay over tax.
Sec. 904. Volunteer board members of tax-exempt organizations exempt 
from penalty for failure to collect and pay over tax.

         TITLE X--MODIFICATIONS OF RULES RELATING TO SUMMONSES

Sec. 1001. Enrolled agents included as third-party recordkeepers.
Sec. 1002. Safeguards relating to designated summonses.
Sec. 1003. Annual report to Congress concerning designated summonses.

 TITLE XI--RELIEF FROM RETROACTIVE APPLICATION OF TREASURY DEPARTMENT 
                              REGULATIONS

Sec. 1101. Relief from retroactive application of Treasury Department 
regulations.

                  TITLE XII--MISCELLANEOUS PROVISIONS

Sec. 1201. Phone number of person providing payee statements required 
to be shown on such statement.
Sec. 1202. Required notice of certain payments.
Sec. 1203. Unauthorized enticement of information disclosure.
Sec. 1204. Annual reminders to taxpayers with outstanding delinquent 
accounts.
Sec. 1205. 5-year extension of authority for undercover operations.
Sec. 1206. Disclosure of Form 8300 information on cash transactions.
Sec. 1207. Disclosure of returns and return information to designee of 
taxpayer.
Sec. 1208. Study of netting of interest on overpayments and 
liabilities.
Sec. 1209. Expenses of detection of underpayments and fraud, etc.
Sec. 1210. Use of private delivery services for timely-mailing-as-
timely-filing rule.
Sec. 1211. Reports on misconduct of IRS employees.

                      TITLE XIII--REVENUE OFFSETS

Subtitle A--Application of Failure-to-Pay Penalty to Substitute Returns

Sec. 1301. Application of failure-to-pay penalty to substitute returns.

     Subtitle B--Excise Taxes on Amounts of Private Excess Benefits

Sec. 1311. Excise taxes for failure by certain charitable organizations 
to meet certain qualification requirements.
Sec. 1312. Reporting of certain excise taxes and other information.
Sec. 1313. Exempt organizations required to provide copy of return.
Sec. 1314. Increase in penalties on exempt organizations for failure to 
file complete and timely annual returns.

                       TITLE I--TAXPAYER ADVOCATE

SEC. 101. ESTABLISHMENT OF POSITION OF TAXPAYER ADVOCATE WITHIN 
                    INTERNAL REVENUE SERVICE.

  (a) General Rule.--Section 7802 (relating to Commissioner of Internal 
Revenue; Assistant Commissioner (Employee Plans and Exempt 
Organizations)) is amended by adding at the end the following new 
subsection:
  ``(d) Office of Taxpayer Advocate.--
          ``(1) In general.--There is established in the Internal 
        Revenue Service an office to be known as the `Office of the 
        Taxpayer Advocate'. Such office shall be under the supervision 
        and direction of an official to be known as the `Taxpayer 
        Advocate' who shall be appointed by and report directly to the 
        Commissioner of Internal Revenue. The Taxpayer Advocate shall 
        be entitled to compensation at the same rate as the highest 
        level official reporting directly to the Deputy Commissioner of 
        the Internal Revenue Service.
          ``(2) Functions of office.--
                  ``(A) In general.--It shall be the function of the 
                Office of Taxpayer Advocate to--
                          ``(i) assist taxpayers in resolving problems 
                        with the Internal Revenue Service,
                          ``(ii) identify areas in which taxpayers have 
                        problems in dealings with the Internal Revenue 
                        Service,
                          ``(iii) to the extent possible, propose 
                        changes in the administrative practices of the 
                        Internal Revenue Service to mitigate problems 
                        identified under clause (ii), and
                          ``(iv) identify potential legislative changes 
                        which may be appropriate to mitigate such 
                        problems.
                  ``(B) Annual reports.--
                          ``(i) Objectives.--Not later than June 30 of 
                        each calendar year after 1995, the Taxpayer 
                        Advocate shall report to the Committee on Ways 
                        and Means of the House of Representatives and 
                        the Committee on Finance of the Senate on the 
                        objectives of the Taxpayer Advocate for the 
                        fiscal year beginning in such calendar year. 
                        Any such report shall contain full and 
                        substantive analysis, in addition to 
                        statistical information.
                          ``(ii) Activities.--Not later than December 
                        31 of each calendar year after 1995, the 
                        Taxpayer Advocate shall report to the Committee 
                        on Ways and Means of the House of 
                        Representatives and the Committee on Finance of 
                        the Senate on the activities of the Taxpayer 
                        Advocate during the fiscal year ending during 
                        such calendar year. Any such report shall 
                        contain full and substantive analysis, in 
                        addition to statistical information, and 
                        shall--
                                  ``(I) identify the initiatives the 
                                Taxpayer Advocate has taken on 
                                improving taxpayer services and 
                                Internal Revenue Service 
                                responsiveness,
                                  ``(II) contain recommendations 
                                received from individuals with the 
                                authority to issue Taxpayer Assistance 
                                Orders under section 7811,
                                  ``(III) contain a summary of at least 
                                20 of the most serious problems 
                                encountered by taxpayers, including a 
                                description of the nature of such 
                                problems,
                                  ``(IV) contain an inventory of the 
                                items described in subclauses (I), 
                                (II), and (III) for which action has 
                                been taken and the result of such 
                                action,
                                  ``(V) contain an inventory of the 
                                items described in subclauses (I), 
                                (II), and (III) for which action 
                                remains to be completed and the period 
                                during which each item has remained on 
                                such inventory,
                                  ``(VI) contain an inventory of the 
                                items described in subclauses (II) and 
                                (III) for which no action has been 
                                taken, the period during which each 
                                item has remained on such inventory, 
                                the reasons for the inaction, and 
                                identify any Internal Revenue Service 
                                official who is responsible for such 
                                inaction,
                                  ``(VII) identify any Taxpayer 
                                Assistance Order which was not honored 
                                by the Internal Revenue Service in a 
                                timely manner, as specified under 
                                section 7811(b),
                                  ``(VIII) contain recommendations for 
                                such administrative and legislative 
                                action as may be appropriate to resolve 
                                problems encountered by taxpayers,
                                  ``(IX) describe the extent to which 
                                regional problem resolution officers 
                                participate in the selection and 
                                evaluation of local problem resolution 
                                officers, and
                                  ``(X) include such other information 
                                as the Taxpayer Advocate may deem 
                                advisable.
                          ``(iii) Report to be submitted directly.--
                        Each report required under this subparagraph 
                        shall be provided directly to the Committees 
                        referred to in clauses (i) and (ii) without any 
                        prior review or comment from the Commissioner, 
                        the Secretary of the Treasury, any other 
                        officer or employee of the Department of the 
                        Treasury, or the Office of Management and 
                        Budget.
          ``(3) Responsibilities of commissioner.--The Commissioner of 
        Internal Revenue shall establish procedures requiring a formal 
        response to all recommendations submitted to the Commissioner 
        by the Taxpayer Advocate within 3 months after submission to 
        the Commissioner.''.
  (b) Conforming Amendments.--
          (1) Section 7811 (relating to Taxpayer Assistance Orders) is 
        amended--
                  (A) by striking ``the Office of Ombudsman'' in 
                subsection (a) and inserting ``the Office of the 
                Taxpayer Advocate'', and
                  (B) by striking ``Ombudsman'' each place it appears 
                (including in the headings of subsections (e) and (f)) 
                and inserting ``Taxpayer Advocate''.
          (2) The heading for section 7802 is amended to read as 
        follows:

``SEC. 7802. COMMISSIONER OF INTERNAL REVENUE; ASSISTANT COMMISSIONERS; 
                    TAXPAYER ADVOCATE.''

          (3) The table of sections for subchapter A of chapter 80 is 
        amended by striking the item relating to section 7802 and 
        inserting the following new item:

                              ``Sec. 7802. Commissioner of Internal 
                                        Revenue; Assistant 
                                        Commissioners; Taxpayer 
                                        Advocate.''

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

SEC. 102. EXPANSION OF AUTHORITY TO ISSUE TAXPAYER ASSISTANCE ORDERS.

  (a) Terms of Orders.--Subsection (b) of section 7811 (relating to 
terms of Taxpayer Assistance Orders) is amended--
          (1) by inserting ``within a specified time period'' after 
        ``the Secretary'', and
          (2) by inserting ``take any action as permitted by law,'' 
        after ``cease any action,''.
  (b) Limitation on Authority To Modify or Rescind.--Section 7811(c) 
(relating to authority to modify or rescind) is amended to read as 
follows:
  ``(c) Authority To Modify or Rescind.--Any Taxpayer Assistance Order 
issued by the Taxpayer Advocate under this section may be modified or 
rescinded--
          ``(1) only by the Taxpayer Advocate, the Commissioner of 
        Internal Revenue, or the Deputy Commissioner of Internal 
        Revenue, and
          ``(2) only if a written explanation of the reasons for the 
        modification or rescission is provided to the Taxpayer 
        Advocate.''
  (c) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

      TITLE II--MODIFICATIONS TO INSTALLMENT AGREEMENT PROVISIONS

SEC. 201. NOTIFICATION OF REASONS FOR TERMINATION OF INSTALLMENT 
                    AGREEMENTS.

  (a) Terminations.--Subsection (b) of section 6159 (relating to extent 
to which agreements remain in effect) is amended by adding at the end 
the following new paragraph:
          ``(5) Notice requirements.--The Secretary may not take any 
        action under paragraph (2), (3), or (4) unless--
                  ``(A) a notice of such action is provided to the 
                taxpayer not later than the day 30 days before the date 
                of such action, and
                  ``(B) such notice includes an explanation why the 
                Secretary intends to take such action.
        The preceding sentence shall not apply in any case in which the 
        Secretary believes that collection of any tax to which an 
        agreement under this section relates is in jeopardy.''
  (b) Conforming Amendment.--Paragraph (3) of section 6159(b) is 
amended to read as follows:
          ``(3) Subsequent change in financial conditions.--If the 
        Secretary makes a determination that the financial condition of 
        a taxpayer with whom the Secretary has entered into an 
        agreement under subsection (a) has significantly changed, the 
        Secretary may alter, modify, or terminate such agreement.''
  (c) Effective Date.--The amendments made by this section shall take 
effect on the date 6 months after the date of the enactment of this 
Act.

SEC. 202. ADMINISTRATIVE REVIEW OF TERMINATION OF INSTALLMENT 
                    AGREEMENT.

  (a) General Rule.--Section 6159 (relating to agreements for payment 
of tax liability in installments) is amended by adding at the end the 
following new subsection:
  ``(c) Administrative Review.--The Secretary shall establish 
procedures for an independent administrative review of terminations of 
installment agreements under this section for taxpayers who request 
such a review.''
  (b) Effective Date.--The amendment made by subsection (a) shall take 
effect on January 1, 1997.

             TITLE III--ABATEMENT OF INTEREST AND PENALTIES

SEC. 301. EXPANSION OF AUTHORITY TO ABATE INTEREST.

  (a) General Rule.--Paragraph (1) of section 6404(e) (relating to 
abatement of interest in certain cases) is amended--
          (1) by inserting ``unreasonable'' before ``error'' each place 
        it appears in subparagraphs (A) and (B), and
          (2) by striking ``in performing a ministerial act'' each 
        place it appears and inserting ``in performing a ministerial or 
        managerial act''.
  (b) Clerical Amendment.--The subsection heading for subsection (e) of 
section 6404 is amended--
          (1) by striking ``Assessments'' and inserting ``Abatement'', 
        and
          (2) by inserting ``Unreasonable'' before ``Errors''.
  (c) Effective Date.--The amendments made by this section shall apply 
to interest accruing with respect to deficiencies or payments for 
taxable years beginning after the date of the enactment of this Act.

SEC. 302. REVIEW OF IRS FAILURE TO ABATE INTEREST.

  (a) In General.--Section 6404 is amended by adding at the end the 
following new subsection:
  ``(g) Review of Denial of Request for Abatement of Interest.--
          ``(1) In general.--The Tax Court shall have jurisdiction over 
        any action brought by a taxpayer who meets the requirements 
        referred to in section 7430(c)(4)(A)(iii) to determine whether 
        the Secretary's failure to abate interest under this section 
        was an abuse of discretion, and may order an abatement, if such 
        action is brought within 180 days after the date of the mailing 
        of the Secretary's final determination not to abate such 
        interest.
          ``(2) Special rules.--
                  ``(A) Date of mailing.--Rules similar to the rules of 
                section 6213 shall apply for purposes of determining 
                the date of the mailing referred to in paragraph (1).
                  ``(B) Relief.--Rules similar to the rules of section 
                6512(b) shall apply for purposes of this subsection.
                  ``(C) Review.--An order of the Tax Court under this 
                subsection shall be reviewable in the same manner as a 
                decision of the Tax Court, but only with respect to the 
                matters determined in such order.''
  (b) Effective Date.--The amendment made by this section shall apply 
to requests for abatement after the date of the enactment of this Act.

SEC. 303. EXTENSION OF INTEREST-FREE PERIOD FOR PAYMENT OF TAX AFTER 
                    NOTICE AND DEMAND.

  (a) General Rule.--Paragraph (3) of section 6601(e) (relating to 
payments made within 10 days after notice and demand) is amended to 
read as follows:
          ``(3) Payments made within specified period after notice and 
        demand.--If notice and demand is made for payment of any amount 
        and if such amount is paid within 21 calendar days (10 business 
        days if the amount for which such notice and demand is made 
        equals or exceeds $100,000) after the date of such notice and 
        demand, interest under this section on the amount so paid shall 
        not be imposed for the period after the date of such notice and 
        demand.''
  (b) Conforming Amendments.--
          (1) Subparagraph (A) of section 6601(e)(2) is amended by 
        striking ``10 days from the date of notice and demand 
        therefor'' and inserting ``21 calendar days from the date of 
        notice and demand therefor (10 business days if the amount for 
        which such notice and demand is made equals or exceeds 
        $100,000)''.
          (2) Paragraph (3) of section 6651(a) is amended by striking 
        ``10 days of the date of the notice and demand therefor'' and 
        inserting ``21 calendar days from the date of notice and demand 
        therefor (10 business days if the amount for which such notice 
        and demand is made equals or exceeds $100,000)''.
  (c) Effective Date.--The amendments made by this section shall apply 
in the case of any notice and demand given after December 31, 1996.

SEC. 304. ABATEMENT OF PENALTY FOR FAILURE TO MAKE REQUIRED DEPOSITS OF 
                    PAYROLL TAXES IN CERTAIN CASES.

  (a) In General.--Section 6656 (relating to failure to make deposit of 
taxes) is amended by adding at the end the following new subsections:
  ``(c) Exception for First-Time Depositors of Employment Taxes.--The 
Secretary may waive the penalty imposed by subsection (a) on a person's 
inadvertent failure to deposit any employment tax if--
          ``(1) such person meets the requirements referred to in 
        section 7430(c)(4)(A)(iii),
          ``(2) such failure occurs during the 1st quarter that such 
        person was required to deposit any employment tax, and
          ``(3) the return of such tax was filed on or before the due 
        date.
For purposes of this subsection, the term `employment taxes' means the 
taxes imposed by subtitle C.
  ``(d) Authority To Abate Penalty Where Deposit Sent to Secretary.--
The Secretary may abate the penalty imposed by subsection (a) with 
respect to the first time a depositor is required to make a deposit if 
the amount required to be deposited is inadvertently sent to the 
Secretary instead of to the appropriate government depository.''
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
to deposits required to be made after the date of the enactment of this 
Act.

                        TITLE IV--JOINT RETURNS

SEC. 401. STUDIES OF JOINT RETURN-RELATED ISSUES.

  The Secretary of the Treasury or his delegate and the Comptroller 
General of the United States shall each conduct separate studies of--
          (1) the effects of changing the liability for tax on a joint 
        return from being joint and several to being proportionate to 
        the tax attributable to each spouse,
          (2) the effects of providing that, if a divorce decree 
        allocates liability for tax on a joint return filed before the 
        divorce, the Secretary may collect such liability only in 
        accordance with the decree,
          (3) whether those provisions of the Internal Revenue Code of 
        1986 intended to provide relief to innocent spouses provide 
        meaningful relief in all cases where such relief is 
        appropriate, and
          (4) the effect of providing that community income (as defined 
        in section 66(d) of such Code) which, in accordance with the 
        rules contained in section 879(a) of such Code, would be 
        treated as the income of one spouse is exempt from a levy for 
        failure to pay any tax imposed by subtitle A by the other 
        spouse for a taxable year ending before their marriage.
The reports of such studies shall be submitted to the Committee on Ways 
and Means of the House of Representatives and the Committee on Finance 
of the Senate within 6 months after the date of the enactment of this 
Act.

SEC. 402. JOINT RETURN MAY BE MADE AFTER SEPARATE RETURNS WITHOUT FULL 
                    PAYMENT OF TAX.

  (a) General Rule.--Paragraph (2) of section 6013(b) (relating to 
limitations on filing of joint return after filing separate returns) is 
amended by striking subparagraph (A) and redesignating the following 
subparagraphs accordingly.
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
to taxable years beginning after the date of the enactment of this Act.

SEC. 403. DISCLOSURE OF COLLECTION ACTIVITIES.

  (a) In General.--Subsection (e) of section 6103 (relating to 
disclosure to persons having material interest) is amended by adding at 
the end the following new paragraph:
          ``(8) Disclosure of collection activities with respect to 
        joint return.--If any deficiency of tax with respect to a joint 
        return is assessed and the individuals filing such return are 
        no longer married or no longer reside in the same household, 
        upon request in writing by either of such individuals, the 
        Secretary shall disclose in writing to the individual making 
        the request whether the Secretary has attempted to collect such 
        deficiency from such other individual, the general nature of 
        such collection activities, and the amount collected. The 
        preceding sentence shall not apply to any deficiency which may 
        not be collected by reason of section 6502.''
  (b) Effective Date.--The amendment made by this section shall apply 
to requests made after the date of the enactment of this Act.

                     TITLE V--COLLECTION ACTIVITIES

SEC. 501. MODIFICATIONS TO LIEN AND LEVY PROVISIONS.

  (a) Withdrawal of Certain Notices.--Section 6323 (relating to 
validity and priority against certain persons) is amended by adding at 
the end the following new subsection:
  ``(j) Withdrawal of Notice in Certain Circumstances.--
          ``(1) In general.--The Secretary may withdraw a notice of a 
        lien filed under this section and this chapter shall be applied 
        as if the withdrawn notice had not been filed, if the Secretary 
        determines that--
                  ``(A) the filing of such notice was premature or 
                otherwise not in accordance with administrative 
                procedures of the Secretary,
                  ``(B) the taxpayer has entered into an agreement 
                under section 6159 to satisfy the tax liability for 
                which the lien was imposed by means of installment 
                payments, unless such agreement provides otherwise,
                  ``(C) the withdrawal of such notice will facilitate 
                the collection of the tax liability, or
                  ``(D) with the consent of the taxpayer or the 
                Taxpayer Advocate, the withdrawal of such notice would 
                be in the best interests of the taxpayer (as determined 
                by the Taxpayer Advocate) and the United States.
        Any such withdrawal shall be made by filing notice at the same 
        office as the withdrawn notice. A copy of such notice of 
        withdrawal shall be provided to the taxpayer.
          ``(2) Notice to credit agencies, etc.--Upon written request 
        by the taxpayer with respect to whom a notice of a lien was 
        withdrawn under paragraph (1), the Secretary shall promptly 
        make reasonable efforts to notify credit reporting agencies, 
        and any financial institution or creditor whose name and 
        address is specified in such request, of the withdrawal of such 
        notice. Any such request shall be in such form as the Secretary 
        may prescribe.''
  (b) Return of Levied Property in Certain Cases.--Section 6343 
(relating to authority to release levy and return property) is amended 
by adding at the end the following new subsection:
  ``(d) Return of Property in Certain Cases.--If--
          ``(1) any property has been levied upon, and
          ``(2) the Secretary determines that--
                  ``(A) the levy on such property was premature or 
                otherwise not in accordance with administrative 
                procedures of the Secretary,
                  ``(B) the taxpayer has entered into an agreement 
                under section 6159 to satisfy the tax liability for 
                which the levy was imposed by means of installment 
                payments, unless such agreement provides otherwise,
                  ``(C) the return of such property will facilitate the 
                collection of the tax liability, or
                  ``(D) with the consent of the taxpayer or the 
                Taxpayer Advocate, the return of such property would be 
                in the best interests of the taxpayer (as determined by 
                the Taxpayer Advocate) and the United States,
the provisions of subsection (b) shall apply in the same manner as if 
such property had been wrongly levied upon, except that no interest 
shall be allowed under subsection (c).''
  (d) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 502. MODIFICATIONS TO CERTAIN LEVY EXEMPTION AMOUNTS.

  (a) Fuel, Etc.--Paragraph (2) of section 6334(a) (relating to fuel, 
provisions, furniture, and personal effects exempt from levy) is 
amended--
          (1) by striking ``If the taxpayer is the head of a family, 
        so'' and inserting ``So'',
          (2) by striking ``his household'' and inserting ``the 
        taxpayer's household'', and
          (3) by striking ``$1,650 ($1,550 in the case of levies issued 
        during 1989)'' and inserting ``$2,500''.
  (b) Books, Etc.--Paragraph (3) of section 6334(a) (relating to books 
and tools of a trade, business, or profession) is amended by striking 
``$1,100 ($1,050 in the case of levies issued during 1989)'' and 
inserting ``$1,250''.
  (c) Inflation Adjustment.--Section 6334 (relating to property exempt 
from levy) is amended by adding at the end the following new 
subsection:
  ``(f) Inflation Adjustment.--
          ``(1) In general.--In the case of any calendar year beginning 
        after 1997, each dollar amount referred to in paragraphs (2) 
        and (3) of subsection (a) shall be increased by an amount equal 
        to--
                  ``(A) such dollar amount, multiplied by
                  ``(B) the cost-of-living adjustment determined under 
                section 1(f)(3) for such calendar year, by substituting 
                `calendar year 1996' for `calendar year 1992' in 
                subparagraph (B) thereof.
          ``(2) Rounding.--If any dollar amount after being increased 
        under paragraph (1) is not a multiple of $10, such dollar 
        amount shall be rounded to the nearest multiple of $10.''.
  (d) Effective Date.--The amendments made by this section shall take 
effect with respect to levies issued after December 31, 1996.

SEC. 503. OFFERS-IN-COMPROMISE.

  (a) Review Requirements.--Subsection (b) of section 7122 (relating to 
records) is amended by striking ``$500.'' and inserting ``$50,000. 
However, such compromise shall be subject to continuing quality review 
by the Secretary.''.
  (b) Effective Date.--The amendment made by this section shall take 
effect on the date of the enactment of this Act.

                     TITLE VI--INFORMATION RETURNS

SEC. 601. CIVIL DAMAGES FOR FRAUDULENT FILING OF INFORMATION RETURNS.

  (a) General Rule.--Subchapter B of chapter 76 (relating to 
proceedings by taxpayers and third parties) is amended by redesignating 
section 7434 as section 7435 and by inserting after section 7433 the 
following new section:

``SEC. 7434. CIVIL DAMAGES FOR FRAUDULENT FILING OF INFORMATION 
                    RETURNS.

  ``(a) In General.--If any person willfully files a fraudulent 
information return with respect to payments purported to be made to any 
other person, such other person may bring a civil action for damages 
against the person so filing such return.
  ``(b) Damages.--In any action brought under subsection (a), upon a 
finding of liability on the part of the defendant, the defendant shall 
be liable to the plaintiff in an amount equal to the greater of $5,000 
or the sum of--
          ``(1) any actual damages sustained by the plaintiff as a 
        proximate result of the filing of the fraudulent information 
        return (including any costs attributable to resolving 
        deficiencies asserted as a result of such filing),
          ``(2) the costs of the action, and
          ``(3) in the court's discretion, reasonable attorneys fees.
  ``(c) Period for Bringing Action.--Notwithstanding any other 
provision of law, an action to enforce the liability created under this 
section may be brought without regard to the amount in controversy and 
may be brought only within the later of--
          ``(1) 6 years after the date of the filing of the fraudulent 
        information return, or
          ``(2) 1 year after the date such fraudulent information 
        return would have been discovered by exercise of reasonable 
        care.
  ``(d) Copy of Complaint Filed With IRS--Any person bringing an action 
under subsection (a) shall provide a copy of the complaint to the 
Internal Revenue Service upon the filing of such complaint with the 
court.
  ``(e) Finding of Court To Include Correct Amount of Payment.--The 
decision of the court awarding damages in an action brought under 
subsection (a) shall include a finding of the correct amount which 
should have been reported in the information return.
  ``(f) Information Return.--For purposes of this section, the term 
`information return' means any statement described in section 
6724(d)(1)(A).''
  (b) Clerical Amendment.--The table of sections for subchapter B of 
chapter 76 is amended by striking the item relating to section 7434 and 
inserting the following:

                              ``Sec. 7434. Civil damages for fraudulent 
                                        filing of information returns.
                              ``Sec. 7435. Cross references.''

  (c) Effective Date.--The amendments made by this section shall apply 
to fraudulent information returns filed after the date of the enactment 
of this Act.

SEC. 602. REQUIREMENT TO CONDUCT REASONABLE INVESTIGATIONS OF 
                    INFORMATION RETURNS.

  (a) General Rule.--Section 6201 (relating to assessment authority) is 
amended by redesignating subsection (d) as subsection (e) and by 
inserting after subsection (c) the following new subsection:
  ``(d) Required Reasonable Verification of Information Returns.--In 
any court proceeding, if a taxpayer asserts a reasonable dispute with 
respect to any item of income reported on an information return filed 
with the Secretary under subpart B or C of part III of subchapter A of 
chapter 61 by a third party and the taxpayer has fully cooperated with 
the Secretary (including providing, within a reasonable period of time, 
access to and inspection of all witnesses, information, and documents 
within the control of the taxpayer as reasonably requested by the 
Secretary), the Secretary shall have the burden of producing reasonable 
and probative information concerning such deficiency in addition to 
such information return.''
  (b) Effective Date.--The amendment made by subsection (a) shall take 
effect on the date of the enactment of this Act.

             TITLE VII--AWARDING OF COSTS AND CERTAIN FEES

SEC. 701. UNITED STATES MUST ESTABLISH THAT ITS POSITION IN PROCEEDING 
                    WAS SUBSTANTIALLY JUSTIFIED.

  (a) General Rule.--Subparagraph (A) of section 7430(c)(4) (defining 
prevailing party) is amended by striking clause (i) and by 
redesignating clauses (ii) and (iii) as clauses (i) and (ii), 
respectively.
  (b) Burden of Proof on United States.--Paragraph (4) of section 
7430(c) is amended by redesignating subparagraph (B) as subparagraph 
(C) and by inserting after subparagraph (A) the following new 
subparagraph:
                  ``(B) Exception if united states establishes that its 
                position was substantially justified.--
                          ``(i) General rule.--A party shall not be 
                        treated as the prevailing party in a proceeding 
                        to which subsection (a) applies if the United 
                        States establishes that the position of the 
                        United States in the proceeding was 
                        substantially justified.
                          ``(ii) Presumption of no justification if 
                        internal revenue service didn't follow certain 
                        published guidance.--For purposes of clause 
                        (i), the position of the United States shall be 
                        presumed not to be substantially justified if 
                        the Internal Revenue Service did not follow its 
                        applicable published guidance in the 
                        administrative proceeding. Such presumption may 
                        be rebutted.
                          ``(iii) Applicable published guidance.--For 
                        purposes of clause (ii), the term `applicable 
                        published guidance' means--
                                  ``(I) regulations, revenue rulings, 
                                revenue procedures, information 
                                releases, notices, and announcements, 
                                and
                                  ``(II) any of the following which are 
                                issued to the taxpayer: private letter 
                                rulings, technical advice memoranda, 
                                and determination letters.''
  (c) Conforming Amendments.--
          (1) Subparagraph (B) of section 7430(c)(2) is amended by 
        striking ``paragraph (4)(B)'' and inserting ``paragraph 
        (4)(C)''.
          (2) Subparagraph (C) of section 7430(c)(4), as redesignated 
        by subsection (b), is amended by striking ``subparagraph (A)'' 
        and inserting ``this paragraph''.
          (3) Sections 6404(g) and 6656(c)(1), as amended by this Act, 
        are each amended by striking ``section 7430(c)(4)(A)(iii)'' and 
        inserting ``section 7430(c)(4)(A)(ii)''.
  (d) Effective Date.--The amendments made by this section shall apply 
in the case of proceedings commenced after the date of the enactment of 
this Act.

SEC. 702. INCREASED LIMIT ON ATTORNEY FEES.

  (a) In General.--Paragraph (1) of section 7430(c) (defining 
reasonable litigation costs) is amended--
          (1) by striking ``$75'' in clause (iii) of subparagraph (B) 
        and inserting ``$110'',
          (2) by striking ``an increase in the cost of living or'' in 
        clause (iii) of subparagraph (B), and
          (3) by adding after clause (iii) the following:
        ``In the case of any calendar year beginning after 1996, the 
        dollar amount referred to in clause (iii) shall be increased by 
        an amount equal to such dollar amount multiplied by the cost-
        of-living adjustment determined under section 1(f)(3) for such 
        calendar year, by substituting `calendar year 1995' for 
        `calendar year 1992' in subparagraph (B) thereof. If any dollar 
        amount after being increased under the preceding sentence is 
        not a multiple of $10, such dollar amount shall be rounded to 
        the nearest multiple of $10.''
  (b) Effective Date.--The amendment made by this section shall apply 
in the case of proceedings commenced after the date of the enactment of 
this Act.

SEC. 703. FAILURE TO AGREE TO EXTENSION NOT TAKEN INTO ACCOUNT.

  (a) In General.--Paragraph (1) of section 7430(b) (relating to 
requirement that administrative remedies be exhausted) is amended by 
adding at the end the following new sentence: ``Any failure to agree to 
an extension of the time for the assessment of any tax shall not be 
taken into account for purposes of determining whether the prevailing 
party meets the requirements of the preceding sentence.''
  (b) Effective Date.--The amendment made by this section shall apply 
in the case of proceedings commenced after the date of the enactment of 
this Act.

SEC. 704. AWARD OF LITIGATION COSTS PERMITTED IN DECLARATORY JUDGMENT 
                    PROCEEDINGS.

  (a) In General.--Subsection (b) of section 7430 is amended by 
striking paragraph (3) and by redesignating paragraph (4) as paragraph 
(3).
  (b) Effective Date.--The amendment made by this section shall apply 
in the case of proceedings commenced after the date of the enactment of 
this Act.

TITLE VIII--MODIFICATION TO RECOVERY OF CIVIL DAMAGES FOR UNAUTHORIZED 
                           COLLECTION ACTIONS

SEC. 801. INCREASE IN LIMIT ON RECOVERY OF CIVIL DAMAGES FOR 
                    UNAUTHORIZED COLLECTION ACTIONS.

  (a) General Rule.--Subsection (b) of section 7433 (relating to 
damages) is amended by striking ``$100,000'' and inserting 
``$1,000,000''.
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
to actions by officers or employees of the Internal Revenue Service 
after the date of the enactment of this Act.

SEC. 802. COURT DISCRETION TO REDUCE AWARD FOR LITIGATION COSTS FOR 
                    FAILURE TO EXHAUST ADMINISTRATIVE REMEDIES.

  (a) General Rule.--Paragraph (1) of section 7433(d) (relating to 
civil damages for certain unauthorized collection actions) is amended 
to read as follows:
          ``(1) Award for damages may be reduced if administrative 
        remedies not exhausted.--The amount of damages awarded under 
        subsection (b) may be reduced if the court determines that the 
        plaintiff has not exhausted the administrative remedies 
        available to such plaintiff within the Internal Revenue 
        Service.''
  (b) Effective Date.--The amendment made by this section shall apply 
in the case of proceedings commenced after the date of the enactment of 
this Act.

TITLE IX--MODIFICATIONS TO PENALTY FOR FAILURE TO COLLECT AND PAY OVER 
                                  TAX

SEC. 901. PRELIMINARY NOTICE REQUIREMENT.

  (a) In General.--Section 6672 (relating to failure to collect and pay 
over tax, or attempt to evade or defeat tax) is amended by 
redesignating subsection (b) as subsection (c) and by inserting after 
subsection (a) the following new subsection:
  ``(b) Preliminary Notice Requirement.--
          ``(1) In general.--No penalty shall be imposed under 
        subsection (a) unless the Secretary notifies the taxpayer in 
        writing by mail to an address as determined under section 
        6212(b) that the taxpayer shall be subject to an assessment of 
        such penalty.
          ``(2) Timing of notice.--The mailing of the notice described 
        in paragraph (1) shall precede any notice and demand of any 
        penalty under subsection (a) by at least 60 days.
          ``(3) Statute of limitations.--If a notice described in 
        paragraph (1) with respect to any penalty is mailed before the 
        expiration of the period provided by section 6501 for the 
        assessment of such penalty (determined without regard to this 
        paragraph), the period provided by such section for the 
        assessment of such penalty shall not expire before the later 
        of--
                  ``(A) the date 90 days after the date on which such 
                notice was mailed, or
                  ``(B) if there is a timely protest of the proposed 
                assessment, the date 30 days after the Secretary makes 
                a final administrative determination with respect to 
                such protest.
          ``(4) Exception for jeopardy.--This subsection shall not 
        apply if the Secretary finds that the collection of the penalty 
        is in jeopardy.''
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
to proposed assessments made after June 30, 1996.

SEC. 902. DISCLOSURE OF CERTAIN INFORMATION WHERE MORE THAN 1 PERSON 
                    LIABLE FOR PENALTY FOR FAILURE TO COLLECT AND PAY 
                    OVER TAX.

  (a) In General.--Subsection (e) of section 6103 (relating to 
disclosure to persons having material interest), as amended by section 
403, is amended by adding at the end the following new paragraph:
          ``(9) Disclosure of certain information where more than 1 
        person subject to penalty under section 6672.--If the Secretary 
        determines that a person is liable for a penalty under section 
        6672(a) with respect to any failure, upon request in writing of 
        such person, the Secretary shall disclose in writing to such 
        person--
                  ``(A) the name of any other person whom the Secretary 
                has determined to be liable for such penalty with 
                respect to such failure, and
                  ``(B) whether the Secretary has attempted to collect 
                such penalty from such other person, the general nature 
                of such collection activities, and the amount 
                collected.''
  (b) Effective Date.--The amendment made by subsection (a) shall take 
effect on the date of the enactment of this Act.

SEC. 903. RIGHT OF CONTRIBUTION WHERE MORE THAN 1 PERSON LIABLE FOR 
                    PENALTY FOR FAILURE TO COLLECT AND PAY OVER TAX.

  (a) In General.--Section 6672 (relating to failure to collect and pay 
over tax, or attempt to evade or defeat tax) is amended by adding at 
the end the following new subsection:
  ``(d) Right of Contribution Where More Than 1 Person Liable for 
Penalty.--If more than 1 person is liable for the penalty under 
subsection (a) with respect to any tax, each person who paid such 
penalty shall be entitled to recover from other persons who are liable 
for such penalty an amount equal to the excess of the amount paid by 
such person over such person's proportionate share of the penalty. Any 
claim for such a recovery may be made only in a proceeding which is 
separate from, and is not joined or consolidated with--
          ``(1) an action for collection of such penalty brought by the 
        United States, or
          ``(2) a proceeding in which the United States files a 
        counterclaim or third-party complaint for the collection of 
        such penalty.''
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
to penalties assessed after the date of the enactment of this Act.

SEC. 904. VOLUNTEER BOARD MEMBERS OF TAX-EXEMPT ORGANIZATIONS EXEMPT 
                    FROM PENALTY FOR FAILURE TO COLLECT AND PAY OVER 
                    TAX.

  (a) In General.--Section 6672 is amended by adding at the end the 
following new subsection:
  ``(e) Exception for Voluntary Board Members of Tax-Exempt 
Organizations.--No penalty shall be imposed by subsection (a) on any 
unpaid, volunteer member of any board of trustees or directors of an 
organization exempt from tax under subtitle A if such member--
          ``(1) is solely serving in an honorary capacity,
          ``(2) does not participate in the day-to-day or financial 
        operations of the organization, and
          ``(3) does not have actual knowledge of the failure on which 
        such penalty is imposed.
The preceding sentence shall not apply if it results in no person being 
liable for the penalty imposed by subsection (a).''
  (b) Public Information Requirements.--
          (1) In general.--The Secretary of the Treasury or the 
        Secretary's delegate (hereafter in this subsection referred to 
        as the ``Secretary'') shall take such actions as may be 
        appropriate to ensure that employees are aware of their 
        responsibilities under the Federal tax depository system, the 
        circumstances under which employees may be liable for the 
        penalty imposed by section 6672 of the Internal Revenue Code of 
        1986, and the responsibility to promptly report to the Internal 
        Revenue Service any failure referred to in subsection (a) of 
        such section 6672. Such actions shall include--
                  (A) printing of a warning on deposit coupon booklets 
                and the appropriate tax returns that certain employees 
                may be liable for the penalty imposed by such section 
                6672, and
                  (B) the development of a special information packet.
          (2) Development of explanatory materials.--The Secretary 
        shall develop materials explaining the circumstances under 
        which board members of tax-exempt organizations (including 
        voluntary and honorary members) may be subject to penalty under 
        section 6672 of such Code. Such materials shall be made 
        available to tax-exempt organizations.
          (3) IRS instructions.--The Secretary shall clarify the 
        instructions to Internal Revenue Service employees on the 
        application of the penalty under section 6672 of such Code with 
        regard to voluntary members of boards of trustees or directors 
        of tax-exempt organizations.

         TITLE X--MODIFICATIONS OF RULES RELATING TO SUMMONSES

SEC. 1001. ENROLLED AGENTS INCLUDED AS THIRD-PARTY RECORDKEEPERS.

  (a) In General.--Paragraph (3) of section 7609(a) (relating to third-
party recordkeeper defined) is amended by striking ``and'' at the end 
of subparagraph (G), by striking the period at the end of subparagraph 
(H) and inserting ``; and'', and by adding at the end the following the 
subparagraph:
                  ``(I) any enrolled agent.''
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
to summonses issued after the date of the enactment of this Act.

SEC. 1002. SAFEGUARDS RELATING TO DESIGNATED SUMMONSES.

  (a) Standard of Review.--Subparagraph (A) of section 6503(k)(2) 
(defining designated summons) is amended by redesignating clauses (i) 
and (ii) as clauses (ii) and (iii), respectively, and by inserting 
before clause (ii) (as so redesignated) the following new clause:
                          ``(i) the issuance of such summons is 
                        preceded by a review of such issuance by the 
                        regional counsel of the Office of Chief Counsel 
                        for the region in which the examination of the 
                        corporation is being conducted,''.
  (b) Limitation on Persons to Whom Designated Summons May Be Issued.--
Paragraph (1) of section 6503(k) is amended by striking ``with respect 
to any return of tax by a corporation'' and inserting ``to a 
corporation (or to any other person to whom the corporation has 
transferred records) with respect to any return of tax by such 
corporation for a taxable year (or other period) for which such 
corporation is being examined under the coordinated examination program 
(or any successor program) of the Internal Revenue Service''.
  (c) Clerical Amendment.--Section 6503 is amended by redesignating 
subsections (k) and (l) (as amended by this section) as subsections (j) 
and (k), respectively.
  (d) Effective Date.--The amendments made by this section shall apply 
to summonses issued after the date of the enactment of this Act.

SEC. 1003. ANNUAL REPORT TO CONGRESS CONCERNING DESIGNATED SUMMONSES.

  Not later than December 31 of each calendar year after 1995, the 
Secretary of the Treasury or his delegate shall report to the Committee 
on Ways and Means of the House of Representatives and the Committee on 
Finance of the Senate on the number of designated summonses (as defined 
in section 6503(j) of the Internal Revenue Code of 1986) which were 
issued during the preceding 12 months.

 TITLE XI--RELIEF FROM RETROACTIVE APPLICATION OF TREASURY DEPARTMENT 
                              REGULATIONS

SEC. 1101. RELIEF FROM RETROACTIVE APPLICATION OF TREASURY DEPARTMENT 
                    REGULATIONS.

  (a) In General.--Subsection (b) of section 7805 (relating to rules 
and regulations) is amended to read as follows:
  ``(b) Retroactivity of Regulations.--
          ``(1) In general.--Except as otherwise provided in this 
        subsection, no temporary, proposed, or final regulation 
        relating to the internal revenue laws shall apply to any 
        taxable period ending before the earliest of the following 
        dates:
                  ``(A) The date on which such regulation is filed with 
                the Federal Register.
                  ``(B) In the case of any final regulation, the date 
                on which any proposed or temporary regulation to which 
                such final regulation relates was filed with the 
                Federal Register.
                  ``(C) The date on which any notice substantially 
                describing the expected contents of any temporary, 
                proposed, or final regulation is issued to the public.
          ``(2) Exception for promptly issued regulations.--Paragraph 
        (1) shall not apply to regulations filed or issued within 18 
        months of the date of the enactment of the statutory provision 
        to which the regulation relates.
          ``(3) Prevention of abuse.--The Secretary may provide that 
        any regulation may take effect or apply retroactively to 
        prevent abuse.
          ``(4) Correction of procedural defects.--The Secretary may 
        provide that any regulation may apply retroactively to correct 
        a procedural defect in the issuance of any prior regulation.
          ``(5) Internal regulations.--The limitation of paragraph (1) 
        shall not apply to any regulation relating to internal Treasury 
        Department policies, practices, or procedures.
          ``(6) Congressional authorization.--The limitation of 
        paragraph (1) may be superseded by a legislative grant from 
        Congress authorizing the Secretary to prescribe the effective 
        date with respect to any regulation.
          ``(7) Election to apply retroactively.--The Secretary may 
        provide for any taxpayer to elect to apply any regulation 
        before the dates specified in paragraph (1).
          ``(8) Application to rulings.--The Secretary may prescribe 
        the extent, if any, to which any ruling (including any judicial 
        decision or any administrative determination other than by 
        regulation) relating to the internal revenue laws shall be 
        applied without retroactive effect.''
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
with respect to regulations which relate to statutory provisions 
enacted on or after the date of the enactment of this Act.

                  TITLE XII--MISCELLANEOUS PROVISIONS

SEC. 1201. PHONE NUMBER OF PERSON PROVIDING PAYEE STATEMENTS REQUIRED 
                    TO BE SHOWN ON SUCH STATEMENT.

  (a) General Rule.--The following provisions are each amended by 
striking ``name and address'' and inserting ``name, address, and phone 
number of the information contact'':
          (1) Section 6041(d)(1).
          (2) Section 6041A(e)(1).
          (3) Section 6042(c)(1).
          (4) Section 6044(e)(1).
          (5) Section 6045(b)(1).
          (6) Section 6049(c)(1)(A).
          (7) Section 6050B(b)(1).
          (8) Section 6050H(d)(1).
          (9) Section 6050I(e)(1).
          (10) Section 6050J(e).
          (11) Section 6050K(b)(1).
          (12) Section 6050N(b)(1).
  (b) Effective Date.--The amendments made by subsection (a) shall 
apply to statements required to be furnished after December 31, 1996 
(determined without regard to any extension).

SEC. 1202. REQUIRED NOTICE OF CERTAIN PAYMENTS.

  If any payment is received by the Secretary of the Treasury or his 
delegate from any taxpayer and the Secretary cannot associate such 
payment with such taxpayer, the Secretary shall make reasonable efforts 
to notify the taxpayer of such inability within 60 days after the 
receipt of such payment.

SEC. 1203. UNAUTHORIZED ENTICEMENT OF INFORMATION DISCLOSURE.

  (a) In General.--Subchapter B of chapter 76 (relating to proceedings 
by taxpayers and third parties), as amended by section 601(a), is 
amended by redesignating section 7435 as section 7436 and by inserting 
after section 7434 the following new section:

``SEC. 7435. CIVIL DAMAGES FOR UNAUTHORIZED ENTICEMENT OF INFORMATION 
                    DISCLOSURE.

  ``(a) In General.--If any officer or employee of the United States 
intentionally compromises the determination or collection of any tax 
due from an attorney, certified public accountant, or enrolled agent 
representing a taxpayer in exchange for information conveyed by the 
taxpayer to the attorney, certified public accountant, or enrolled 
agent for purposes of obtaining advice concerning the taxpayer's tax 
liability, such taxpayer may bring a civil action for damages against 
the United States in a district court of the United States. Such civil 
action shall be the exclusive remedy for recovering damages resulting 
from such actions.
  ``(b) Damages.--In any action brought under subsection (a), upon a 
finding of liability on the part of the defendant, the defendant shall 
be liable to the plaintiff in an amount equal to the lesser of $500,000 
or the sum of--
          ``(1) actual, direct economic damages sustained by the 
        plaintiff as a proximate result of the information disclosure, 
        and
          ``(2) the costs of the action.
Damages shall not include the taxpayer's liability for any civil or 
criminal penalties, or other losses attributable to incarceration or 
the imposition of other criminal sanctions.
  ``(c) Payment Authority.--Claims pursuant to this section shall be 
payable out of funds appropriated under section 1304 of title 31, 
United States Code.
  ``(d) Period for Bringing Action.--Notwithstanding any other 
provision of law, an action to enforce liability created under this 
section may be brought without regard to the amount in controversy and 
may be brought only within 2 years after the date the actions creating 
such liability would have been discovered by exercise of reasonable 
care.
  ``(e) Mandatory Stay.--Upon a certification by the Commissioner or 
the Commissioner's delegate that there is an ongoing investigation or 
prosecution of the taxpayer, the district court before which an action 
under this section is pending shall stay all proceedings with respect 
to such action pending the conclusion of the investigation or 
prosecution.
  ``(f) Crime-Fraud Exception.--Subsection (a) shall not apply to 
information conveyed to an attorney, certified public accountant, or 
enrolled agent for the purpose of perpetrating a fraud or crime.''
  (b) Clerical Amendment.--The table of sections for subchapter B of 
chapter 76, as amended by section 601(b), is amended by striking the 
item relating to section 7435 and by adding at the end the following 
new items:

                              ``Sec. 7435. Civil damages for 
                                        unauthorized enticement of 
                                        information disclosure.
                              ``Sec. 7436. Cross references.''

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

SEC. 1204. ANNUAL REMINDERS TO TAXPAYERS WITH OUTSTANDING DELINQUENT 
                    ACCOUNTS.

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

``SEC. 7524. ANNUAL NOTICE OF TAX DELINQUENCY.

  ``Not less often than annually, the Secretary shall send a written 
notice to each taxpayer who has a tax delinquent account of the amount 
of the tax delinquency as of the date of the notice.''
  (b) Clerical Amendment.--The table of sections for chapter 77 is 
amended by adding at the end the following new item:

                              ``Sec. 7524. Annual notice of tax 
                                        delinquency.''

  (c) Effective Date.--The amendments made by this section shall apply 
to calendar years after 1996.

SEC. 1205. 5-YEAR EXTENSION OF AUTHORITY FOR UNDERCOVER OPERATIONS.

  (a) In General.--Paragraph (3) of section 7601(c) of the Anti-Drug 
Abuse Act of 1988 is amended by striking all that follows ``this Act'' 
and inserting a period.
  (b) Restoration of Authority for 5 Years.--Subsection (c) of section 
7608 is amended by adding at the end the following new paragraph:
          ``(6) Application of section.--The provisions of this 
        subsection--
                  ``(A) shall apply after November 17, 1988, and before 
                January 1, 1990, and
                  ``(B) shall apply after the date of the enactment of 
                this paragraph and before January 1, 2001.
        All amounts expended pursuant to this subsection during the 
        period described in subparagraph (B) shall be recovered to the 
        extent possible, and deposited in the Treasury of the United 
        States as miscellaneous receipts, before January 1, 2001.''
  (c) Enhanced Oversight.--
          (1) Additional information required in reports to congress.--
        Subparagraph (B) of section 7608(c)(4) is amended--
                  (A) by striking ``preceding the period'' in clause 
                (ii),
                  (B) by striking ``and'' at the end of clause (ii), 
                and
                  (C) by striking clause (iii) and inserting the 
                following:
                          ``(iii) the number, by programs, of 
                        undercover investigative operations closed in 
                        the 1-year period for which such report is 
                        submitted, and
                          ``(iv) the following information with respect 
                        to each undercover investigative operation 
                        pending as of the end of the 1-year period for 
                        which such report is submitted or closed during 
                        such 1-year period--
                                  ``(I) the date the operation began 
                                and the date of the certification 
                                referred to in the last sentence of 
                                paragraph (1),
                                  ``(II) the total expenditures under 
                                the operation and the amount and use of 
                                the proceeds from the operation,
                                  ``(III) a detailed description of the 
                                operation including the potential 
                                violation being investigated and 
                                whether the operation is being 
                                conducted under grand jury auspices, 
                                and
                                  ``(IV) the results of the operation 
                                including the results of criminal 
                                proceedings.''
          (2) Audits required without regard to amounts involved.--
        Subparagraph (C) of section 7608(c)(5) is amended to read as 
        follows:
                  ``(C) Undercover investigative operation.--The term 
                `undercover investigative operation' means any 
                undercover investigative operation of the Service; 
                except that, for purposes of subparagraphs (A) and (C) 
                of paragraph (4), such term only includes an operation 
                which is exempt from section 3302 or 9102 of title 31, 
                United States Code.''
          (3) Effective date.--The amendments made by this subsection 
        shall take effect on the date of the enactment of this Act.

SEC. 1206. DISCLOSURE OF FORM 8300 INFORMATION ON CASH TRANSACTIONS.

  (a) In General.--Subsection (l) of section 6103 (relating to 
disclosure of returns and return information for purposes other than 
tax administration) is amended by adding at the end the following new 
paragraph:
          ``(15) Disclosure of returns filed under section 6050i.--The 
        Secretary may, upon written request, disclose to officers and 
        employees of--
                  ``(A) any Federal agency,
                  ``(B) any agency of a State or local government, or
                  ``(C) any agency of the government of a foreign 
                country,
        information contained on returns filed under section 6050I. Any 
        such disclosure shall be made on the same basis, and subject to 
        the same conditions, as apply to disclosures of information on 
        reports filed under section 5313 of title 31, United States 
        Code; except that no disclosure under this paragraph shall be 
        made for purposes of the administration of any tax law.''
  (b) Conforming Amendments.--
          (1) Subsection (i) of section 6103 is amended by striking 
        paragraph (8).
          (2) Subparagraph (A) of section 6103(p)(3) is amended--
                  (A) by striking ``(7)(A)(ii), or (8)'' and inserting 
                ``or (7)(A)(ii)'', and
                  (B) by striking ``or (14)'' and inserting ``(14), or 
                (15)''.
          (3) The material preceding subparagraph (A) of section 
        6103(p)(4) is amended--
                  (A) by striking ``(5), or (8)'' and inserting ``or 
                (5)'',
                  (B) by striking ``(i)(3)(B)(i), or (8)'' and 
                inserting ``(i)(3)(B)(i),'', and
                  (C) by striking ``or (12)'' and inserting ``(12), or 
                (15)''.
          (4) Clause (ii) of section 6103(p)(4)(F) is amended--
                  (A) by striking ``(5), or (8)'' and inserting ``or 
                (5)'', and
                  (B) by striking ``or (14)'' and inserting ``(14), or 
                (15)''.
          (5) Paragraph (2) of section 7213(a) is amended by striking 
        ``or (12)'' and inserting ``(12), or (15)''.
  (c) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 1207. DISCLOSURE OF RETURNS AND RETURN INFORMATION TO DESIGNEE OF 
                    TAXPAYER.

  Subsection (c) of section 6103 (relating to disclosure of returns and 
return information to designee of taxpayer) is amended by striking 
``written request for or consent to such disclosure'' and inserting 
``request for or consent to such disclosure''.

SEC. 1208. STUDY OF NETTING OF INTEREST ON OVERPAYMENTS AND 
                    LIABILITIES.

  (a) In General.--The Secretary of the Treasury or his delegate 
shall--
          (1) conduct a study of the manner in which the Internal 
        Revenue Service has implemented the netting of interest on 
        overpayments and underpayments and of the policy and 
        administrative implications of global netting, and
          (2) before submitting the report of such study, hold a public 
        hearing to receive comments on the matters included in such 
        study.
  (b) Report.--The report of such study shall be submitted not later 
than 6 months after the date of the enactment of this Act to the 
Committee on Ways and Means of the House of Representatives and the 
Committee on Finance of the Senate.

SEC. 1209. EXPENSES OF DETECTION OF UNDERPAYMENTS AND FRAUD, ETC.

  (a) In General.--Section 7623 (relating to expenses of deduction and 
punishment of frauds) is amended to read as follows:

``SEC. 7623. EXPENSES OF DETECTION OF UNDERPAYMENTS AND FRAUD, ETC.

  ``The Secretary, under regulations prescribed by the Secretary, is 
authorized to pay such sums as he deems necessary for--
          ``(1) detecting underpayments of tax, and
          ``(2) detecting and bringing to trial and punishment persons 
        guilty of violating the internal revenue laws or conniving at 
        the same,

in cases where such expenses are not otherwise provided for by law. Any 
amount payable under the preceding sentence shall be paid from the 
proceeds of amounts (other than interest) collected by reason of the 
information provided, and any amount so collected shall be available 
for such payments.''.
  (b) Clerical Amendment.--The table of sections for subchapter B of 
chapter 78 is amended by striking the item relating to section 7623 and 
inserting the following new item:

                              ``Sec. 7623. Expenses of detection of 
                                        underpayments and fraud, 
                                        etc.''.

  (c) Effective Date.--The amendments made by this section shall take 
effect on the date which is 6 months after the date of the enactment of 
this Act.
  (d) Report.--The Secretary of the Treasury or his delegate shall 
submit an annual report to the Committee on Ways and Means of the House 
of Representatives and the Committee on Finance of the Senate on the 
payments under section 7623 of the Internal Revenue Code of 1986 during 
the year and on the amounts collected for which such payments were 
made.

SEC. 1210. USE OF PRIVATE DELIVERY SERVICES FOR TIMELY-MAILING-AS-
                    TIMELY-FILING RULE.

  Section 7502 (relating to timely mailing treated as timely filing and 
paying) is amended by adding at the end the following new subsection:
  ``(f) Treatment of Private Delivery Services.--
          ``(1) In general.--Any reference in this section to the 
        United States mail shall be treated as including a reference to 
        any designated delivery service, and any reference in this 
        section to a postmark by the United States Postal Service shall 
        be treated as including a reference to any date recorded or 
        marked as described in paragraph (2)(C) by any designated 
        delivery service.
          ``(2) Designated delivery service.--For purposes of this 
        subsection, the term `designated delivery service' means any 
        delivery service provided by a trade or business if such 
        service is designated by the Secretary for purposes of this 
        section. The Secretary may designate a delivery service under 
        the preceding sentence only if the Secretary determines that 
        such service--
                  ``(A) is available to the general public,
                  ``(B) is at least as timely and reliable on a regular 
                basis as the United States mail,
                  ``(C) records electronically to its data base, kept 
                in the regular course of its business, or marks on the 
                cover in which any item referred to in this section is 
                to be delivered, the date on which such item was given 
                to such trade or business for delivery, and
                  ``(D) meets such other criteria as the Secretary may 
                prescribe.
          ``(3) Equivalents of registered and certified mail.--The 
        Secretary may provide a rule similar to the rule of paragraph 
        (1) with respect to any service provided by a designated 
        delivery service which is substantially equivalent to United 
        States registered or certified mail.''

SEC. 1211. REPORTS ON MISCONDUCT OF IRS EMPLOYEES.

  On or before June 1 of each calendar year after 1996, the Secretary 
of the Treasury shall submit to the Committee on Ways and Means of the 
House of Representatives and the Committee on Finance of the Senate a 
report on--
          (1) all categories of instances involving the misconduct of 
        employees of the Internal Revenue Service during the preceding 
        calendar year, and
          (2) the disposition during the preceding calendar year of any 
        such instances (without regard to the year of the misconduct).

                      TITLE XIII--REVENUE OFFSETS

Subtitle A--Application of Failure-to-Pay Penalty to Substitute Returns

SEC. 1301. APPLICATION OF FAILURE-TO-PAY PENALTY TO SUBSTITUTE RETURNS.

  (a) General Rule.--Section 6651 (relating to failure to file tax 
return or to pay tax) is amended by adding at the end the following new 
subsection:
  ``(g) Treatment of Returns Prepared by Secretary Under Section 
6020(b).--In the case of any return made by the Secretary under section 
6020(b)--
          ``(1) such return shall be disregarded for purposes of 
        determining the amount of the addition under paragraph (1) of 
        subsection (a), but
          ``(2) such return shall be treated as the return filed by the 
        taxpayer for purposes of determining the amount of the addition 
        under paragraphs (2) and (3) of subsection (a).''.
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
in the case of any return the due date for which (determined without 
regard to extensions) is after the date of the enactment of this Act.

     Subtitle B--Excise Taxes on Amounts of Private Excess Benefits

SEC. 1311. EXCISE TAXES FOR FAILURE BY CERTAIN CHARITABLE ORGANIZATIONS 
                    TO MEET CERTAIN QUALIFICATION REQUIREMENTS.

  (a) In General.--Chapter 42 (relating to private foundations and 
certain other tax-exempt organizations) is amended by redesignating 
subchapter D as subchapter E and by inserting after subchapter C the 
following new subchapter:

  ``Subchapter D--Failure by Certain Charitable Organizations To Meet 
                   Certain Qualification Requirements

                              ``Sec. 4958. Taxes on excess benefit 
                                        transactions.

``SEC. 4958. TAXES ON EXCESS BENEFIT TRANSACTIONS.

  ``(a) Initial Taxes.--
          ``(1) On the disqualified person.--There is hereby imposed on 
        each excess benefit transaction a tax equal to 25 percent of 
        the excess benefit. The tax imposed by this paragraph shall be 
        paid by any disqualified person referred to in subsection 
        (f)(1) with respect to such transaction.
          ``(2) On the management.--In any case in which a tax is 
        imposed by paragraph (1), there is hereby imposed on the 
        participation of any organization manager in the excess benefit 
        transaction, knowing that it is such a transaction, a tax equal 
        to 10 percent of the excess benefit, unless such participation 
        is not willful and is due to reasonable cause. The tax imposed 
        by this paragraph shall be paid by any organization manager who 
        participated in the excess benefit transaction.
  ``(b) Additional Tax on the Disqualified Person.--In any case in 
which an initial tax is imposed by subsection (a)(1) on an excess 
benefit transaction and the excess benefit involved in such transaction 
is not corrected within the taxable period, there is hereby imposed a 
tax equal to 200 percent of the excess benefit involved. The tax 
imposed by this subsection shall be paid by any disqualified person 
referred to in subsection (f)(1) with respect to such transaction.
  ``(c) Excess Benefit Transaction; Excess Benefit.--For purposes of 
this section--
          ``(1) Excess benefit transaction.--
                  ``(A) In general.--The term `excess benefit 
                transaction' means any transaction in which an economic 
                benefit is provided by an applicable tax-exempt 
                organization directly or indirectly to or for the use 
                of any disqualified person if the value of the economic 
                benefit provided exceeds the value of the consideration 
                (including the performance of services) received for 
                providing such benefit. For purposes of the preceding 
                sentence, an economic benefit shall not be treated as 
                consideration for the performance of services unless 
                such organization clearly indicated its intent to so 
                treat such benefit.
                  ``(B) Excess benefit.--The term `excess benefit' 
                means the excess referred to in subparagraph (A).
          ``(2) Authority to include certain other private inurement.--
        To the extent provided in regulations prescribed by the 
        Secretary, the term `excess benefit transaction' includes any 
        transaction in which the amount of any economic benefit 
        provided to or for the use of a disqualified person is 
        determined in whole or in part by the revenues of 1 or more 
        activities of the organization but only if such transaction 
        results in inurement not permitted under paragraph (3) or (4) 
        of section 501(c), as the case may be. In the case of any such 
        transaction, the excess benefit shall be the amount of the 
        inurement not so permitted.
  ``(d) Special Rules.--For purposes of this section--
          ``(1) Joint and several liability.--If more than 1 person is 
        liable for any tax imposed by subsection (a) or subsection (b), 
        all such persons shall be jointly and severally liable for such 
        tax.
          ``(2) Limit for management.--With respect to any 1 excess 
        benefit transaction, the maximum amount of the tax imposed by 
        subsection (a)(2) shall not exceed $10,000.
  ``(e) Applicable Tax-Exempt Organization.--For purposes of this 
subchapter, the term `applicable tax-exempt organization' means--
          ``(1) any organization which (without regard to any excess 
        benefit) would be described in paragraph (3) or (4) of section 
        501(c) and exempt from tax under section 501(a), and
          ``(2) any organization which was described in paragraph (1) 
        at any time during the 5-year period ending on the date of the 
        transaction.
Such term shall not include a private foundation (as defined in section 
509(a)).
  ``(f) Other Definitions.--For purposes of this section--
          ``(1) Disqualified person.--The term `disqualified person' 
        means, with respect to any transaction--
                  ``(A) any person who was, at any time during the 5-
                year period ending on the date of such transaction, in 
                a position to exercise substantial influence over the 
                affairs of the organization,
                  ``(B) a member of the family of an individual 
                described in subparagraph (A), and
                  ``(C) a 35-percent controlled entity.
          ``(2) Organization manager.--The term `organization manager' 
        means, with respect to any applicable tax-exempt organization, 
        any officer, director, or trustee of such organization (or any 
        individual having powers or responsibilities similar to those 
        of officers, directors, or trustees of the organization).
          ``(3) 35-percent controlled entity.--
                  ``(A) In general.--The term `35-percent controlled 
                entity' means--
                          ``(i) a corporation in which persons 
                        described in subparagraph (A) or (B) of 
                        paragraph (1) own more than 35 percent of the 
                        total combined voting power,
                          ``(ii) a partnership in which such persons 
                        own more than 35 percent of the profits 
                        interest, and
                          ``(iii) a trust or estate in which such 
                        persons own more than 35 percent of the 
                        beneficial interest.
                  ``(B) Constructive ownership rules.--Rules similar to 
                the rules of paragraphs (3) and (4) of section 4946(a) 
                shall apply for purposes of this paragraph.
          ``(4) Family members.--The members of an individual's family 
        shall be determined under section 4946(d); except that such 
        members also shall include the brothers and sisters (whether by 
        the whole or half blood) of the individual and their spouses.
          ``(5) Taxable period.--The term `taxable period' means, with 
        respect to any excess benefit transaction, the period beginning 
        with the date on which the transaction occurs and ending on the 
        earliest of--
                  ``(A) the date of mailing a notice of deficiency 
                under section 6212 with respect to the tax imposed by 
                subsection (a)(1), or
                  ``(B) the date on which the tax imposed by subsection 
                (a)(1) is assessed.
          ``(6) Correction.--The terms `correction' and `correct' mean, 
        with respect to any excess benefit transaction, undoing the 
        excess benefit to the extent possible, and taking any 
        additional measures necessary to place the organization in a 
        financial position not worse than that in which it would be if 
        the disqualified person were dealing under the highest 
        fiduciary standards.''
  (b) Application of Private Inurement Rule to Tax-Exempt Organizations 
Described in Section 501(c)(4).--
          (1) In general.--Paragraph (4) of section 501(c) is amended 
        by inserting ``(A)'' after ``(4)'' and by adding at the end the 
        following:
          ``(B) Subparagraph (A) shall not apply to an entity unless no 
        part of the net earnings of such entity inures to the benefit 
        of any private shareholder or individual.''
          (2) Special rule for certain cooperatives.--In the case of an 
        organization operating on a cooperative basis which, before the 
        date of the enactment of this Act, was determined by the 
        Secretary of the Treasury or his delegate, to be described in 
        section 501(c)(4) of the Internal Revenue Code of 1986 and 
        exempt from tax under section 501(a) of such Code, the 
        allocation or return of net margins or capital to the members 
        of such organization in accordance with its incorporating 
        statute and bylaws shall not be treated for purposes of such 
        Code as the inurement of the net earnings of such organization 
        to the benefit of any private shareholder or individual. The 
        preceding sentence shall apply only if such statute and bylaws 
        are substantially as such statute and bylaws were in existence 
        on the date of the enactment of this Act.
  (c) Technical and Conforming Amendments.--
          (1) Subsection (e) of section 4955 is amended--
                  (A) by striking ``Section 4945'' in the heading and 
                inserting ``Sections 4945 and 4958'', and
                  (B) by inserting before the period ``or an excess 
                benefit for purposes of section 4958''.
          (2) Subsections (a), (b), and (c) of section 4963 are each 
        amended by inserting ``4958,'' after ``4955,''.
          (3) Subsection (e) of section 6213 is amended by inserting 
        ``4958 (relating to private excess benefit),'' before ``4971''.
          (4) Paragraphs (2) and (3) of section 7422(g) are each 
        amended by inserting ``4958,'' after ``4955,''.
          (5) Subsection (b) of section 7454 is amended by inserting 
        ``or whether an organization manager (as defined in section 
        4958(f)(2)) has `knowingly' participated in an excess benefit 
        transaction (as defined in section 4958(c)),'' after ``section 
        4912(b),''.
          (6) The table of subchapters for chapter 42 is amended by 
        striking the last item and inserting the following:

                              ``Subchapter D. Failure by certain 
                                        charitable organizations to 
                                        meet certain qualification 
                                        requirements.
                              ``Subchapter E. Abatement of first and 
                                        second tier taxes in certain 
                                        cases.''

  (d) Effective Dates.--
          (1) In general.--The amendments made by this section (other 
        than subsection (b)) shall apply to excess benefit transactions 
        occurring on or after September 14, 1995.
          (2) Binding contracts.--The amendments referred to in 
        paragraph (1) shall not apply to any benefit arising from a 
        transaction pursuant to any written contract which was binding 
        on September 13, 1995, and at all times thereafter before such 
        transaction occurred.
          (3) Application of private inurement rule to tax-exempt 
        organizations described in section 501(c)(4).--
                  (A) In general.--The amendment made by subsection (b) 
                shall apply to inurement occurring on or after 
                September 14, 1995.
                  (B) Binding contracts.--The amendment made by 
                subsection (b) shall not apply to any inurement 
                occurring before January 1, 1997, pursuant to a written 
                contract which was binding on September 13, 1995, and 
                at all times thereafter before such inurement occurred.

SEC. 1312. REPORTING OF CERTAIN EXCISE TAXES AND OTHER INFORMATION.

  (a) Reporting by Organizations Described in Section 501(c)(3).--
Subsection (b) of section 6033 (relating to certain organizations 
described in section 501(c)(3)) is amended by striking ``and'' at the 
end of paragraph (9), by redesignating paragraph (10) as paragraph 
(14), and by inserting after paragraph (9) the following new 
paragraphs:
          ``(10) the respective amounts (if any) of the taxes paid by 
        the organization during the taxable year under the following 
        provisions:
                  ``(A) section 4911 (relating to tax on excess 
                expenditures to influence legislation),
                  ``(B) section 4912 (relating to tax on disqualifying 
                lobbying expenditures of certain organizations), and
                  ``(C) section 4955 (relating to taxes on political 
                expenditures of section 501(c)(3) organizations),
          ``(11) the respective amounts (if any) of the taxes paid by 
        the organization, or any disqualified person with respect to 
        such organization, during the taxable year under section 4958 
        (relating to taxes on private excess benefit from certain 
        charitable organizations),
          ``(12) such information as the Secretary may require with 
        respect to any excess benefit transaction (as defined in 
        section 4958),
          ``(13) such information with respect to disqualified persons 
        as the Secretary may prescribe, and''.
  (b) Organizations Described in Section 501(c)(4).--Section 6033 is 
amended by redesignating subsection (f) as subsection (g) and by 
inserting after subsection (e) the following new subsection:
  ``(f) Certain Organizations Described in Section 501(c)(4).--Every 
organization described in section 501(c)(4) which is subject to the 
requirements of subsection (a) shall include on the return required 
under subsection (a) the information referred to in paragraphs (11), 
(12) and (13) of subsection (b) with respect to such organization.''
  (c) Effective Date.--The amendments made by this section shall apply 
to returns for taxable years beginning after the date of the enactment 
of this Act.

SEC. 1313. EXEMPT ORGANIZATIONS REQUIRED TO PROVIDE COPY OF RETURN.

  (a) Requirement To Provide Copy.--
          (1) Subparagraph (A) of section 6104(e)(1) (relating to 
        public inspection of annual returns) is amended to read as 
        follows:
                  ``(A) In general.--During the 3-year period beginning 
                on the filing date--
                          ``(i) a copy of the annual return filed under 
                        section 6033 (relating to returns by exempt 
                        organizations) by any organization to which 
                        this paragraph applies shall be made available 
                        by such organization for inspection during 
                        regular business hours by any individual at the 
                        principal office of such organization and, if 
                        such organization regularly maintains 1 or more 
                        regional or district offices having 3 or more 
                        employees, at each such regional or district 
                        office, and
                          ``(ii) upon request of an individual made at 
                        such principal office or such a regional or 
                        district office, a copy of such annual return 
                        shall be provided to such individual without 
                        charge other than a reasonable fee for any 
                        reproduction and mailing costs.
                The request described in clause (ii) must be made in 
                person or in writing. If the request under clause (ii) 
                is made in person, such copy shall be provided 
                immediately and, if made in writing, shall be provided 
                within 30 days.''
          (2) Clause (ii) of section 6104(e)(2)(A) is amended by 
        inserting before the period at the end the following: ``(and, 
        upon request of an individual made at such principal office or 
        such a regional or district office, a copy of the material 
        requested to be available for inspection under this 
        subparagraph shall be provided (in accordance with the last 
        sentence of paragraph (1)(A)) to such individual without charge 
        other than reasonable fee for any reproduction and mailing 
        costs)''.
          (3) Subsection (e) of section 6104 is amended by adding at 
        the end the following new paragraph:
          ``(3) Limitation.--Paragraph (1)(A)(ii) (and the 
        corresponding provision of paragraph (2)) shall not apply to 
        any request if, in accordance with regulations promulgated by 
        the Secretary, the organization has made the requested 
        documents widely available, or, the Secretary determines, upon 
        application by an organization, that such request is part of a 
        harassment campaign and that compliance with such request is 
        not in the public interest.''
  (b) Increase in Penalty for Willful Failure To Allow Public 
Inspection of Certain Returns, Etc.--Section 6685 is amended by 
striking ``$1,000'' and inserting ``$5,000''.
  (c) Effective Date.--The amendments made by this section shall apply 
to requests made on or after the 60th day after the Secretary of the 
Treasury first issues the regulations referred to section 6104(e)(3) of 
the Internal Revenue Code of 1986 (as added by subsection (a)(3)).

SEC. 1314. INCREASE IN PENALTIES ON EXEMPT ORGANIZATIONS FOR FAILURE TO 
                    FILE COMPLETE AND TIMELY ANNUAL RETURNS.

  (a) In General.--Subparagraph (A) of section 6652(c)(1) (relating to 
annual returns under section 6033) is amended by striking ``$10'' and 
inserting ``$20'' and by striking ``$5,000'' and inserting ``$10,000''.
  (b) Larger Penalty on Organizations Having Gross Receipts in Excess 
of $1,000,000.--Subparagraph (A) of section 6652(c)(1) is amended by 
adding at the end the following new sentence: ``In the case of an 
organization having gross receipts exceeding $1,000,000 for any year, 
with respect to the return required under section 6033 for such year, 
the first sentence of this subparagraph shall be applied by 
substituting `$100' for `$20' and, in lieu of applying the second 
sentence of this subparagraph, the maximum penalty under this 
subparagraph shall not exceed $50,000.''
  (c) Effective Date.--The amendments made by this section shall apply 
to returns for taxable years ending on or after the date of the 
enactment of this Act.

                            I. Introduction

                         A. Purpose and summary

    H.R. 2337, as amended, provides amendments relating to 
``Taxpayer Bill of Rights 2'' (Titles I-XII) and two revenue 
offsets to pay for these provisions (Title XIII). The revenue 
offsets are (1) apply failure-to-pay penalty to substitute 
returns and (2) intermediate sanctions for certain tax-exempt 
organizations.

                 B. Background and need for legislation

    The bill, as amended, is intended to provide for increased 
protections of taxpayer rights in complying with the Internal 
Revenue Code and in dealing with the Internal Revenue Service 
(IRS) in its administration of the tax laws.
    The bill, as amended, establishes a Taxpayer Advocate 
within the IRS, expands the authority to issue Taxpayer 
Assistance Orders, modifies installment payment agreement 
provisions, revises provisions relating to abatement of 
interest and penalties and joint returns, modifies lien and 
levy and offers-in-compromise provisions, provides that the 
Government must establish that its position in a proceeding was 
substantially justified, increases the limit on recovery of 
civil damages for unauthorized collection actions from $100,000 
to $1,000,000, provides safeguards relating to designated 
summonses, provides relief from retroactive application of 
Treasury Department Regulations, requires notice to taxpayers 
of certain payments and annual reminders to taxpayers with 
outstanding delinquent accounts, and certain other provisions. 
The bill also applies the failure-to-pay penalty to substitute 
returns in the same manner as the penalty applies to delinquent 
filers. Further, the bill provides intermediate sanctions for 
certain tax-exempt organizations.

                         C. Legislative history

    H.R. 2337 was introduced by Mrs. Johnson of Connecticut and 
Mr. Matsui on September 14, 1995, and was amended by the 
Committee in a markup on March 21, 1996. An amendment in the 
nature of a substitute (offered by Mrs. Johnson and Mr. Matsui) 
was adopted, as amended, by a voice vote. The bill, as amended, 
was ordered favorably reported by a voice vote on March 21, 
1996.
    Two amendments offered en bloc by Mrs. Johnson to the 
amendment in the nature of a substitute were adopted in one 
voice vote: (1) require annual reports on misconduct by IRS 
employees and (2) authorize the use of ``qualified private 
delivery services'' as meeting the ``timely-mailing as timely-
filing'' rule of Code section 7502.
    The provisions of Titles I-XII of the bill generally were 
included in the Committee's 1995 reconciliation submission to 
the House Committee on the Budget: Subtitle C of Title XIII of 
H.R. 2491 as passed by the House of Representatives in 1995. 
(See H.Rept. 104-280, October 17, 1995.) The conference 
agreement on H.R. 2491 contained certain of the House-passed 
Taxpayer Bill of Rights 2 provisions. The revenue-offset 
provisions in title XIII of the bill also were included in H.R. 
2491 as passed by the Congress. H.R. 2491 was vetoed by the 
President.

                      II. Explanation of the Bill

                A. Taxpayer bill of rights 2 provisions

                          1. taxpayer advocate

   a. Establishment of position of taxpayer advocate within Internal 
    Revenue Service (sec. 101 of the bill and sec. 7802 of the code)

            Present Law
    The Office of the Taxpayer Ombudsman was created by the 
Internal Revenue Service (IRS) in 1979. The Taxpayer 
Ombudsman's duties are to serve as the primary advocate, within 
the IRS, for taxpayers. As the taxpayers' advocate, the 
Taxpayer Ombudsman participates in an ongoing review of IRS 
policies and procedures to determine their impact on taxpayers, 
receives ideas from the public concerning tax administration, 
identifies areas of the tax law that confuse or create an 
inequity for taxpayers, and supervises cases handled under the 
Problem Resolution Program. Under current procedures, the 
Taxpayer Ombudsman is selected by the Commissioner of the IRS 
and serves at the Commissioner's discretion.
            Reasons for change
    To date, the Taxpayer Ombudsman has been a career civil 
servant selected by and serving at the pleasure of the IRS 
Commissioner. Some may perceive that the Taxpayer Ombudsman is 
not an independent advocate for taxpayers. In order to ensure 
that the Taxpayer Ombudsman has the necessary stature within 
the IRS to represent fully the interests of taxpayers, it is 
believed to be appropriate that the position be elevated to a 
position comparable to that of the Chief Counsel. In addition, 
in order to ensure that the Congress is systematically made 
aware of recurring and unresolved problems and difficulties 
taxpayers encounter in dealing with the IRS, the Taxpayer 
Ombudsman should have the authority and responsibility to make 
independent reports to the Congress in order to advise the tax-
writing committees of those areas.
            Explanation of provision
    The bill establishes a new position, Taxpayer Advocate, 
within the IRS. This replaces the position of Taxpayer 
Ombudsman. The Taxpayer Advocate is appointed by and reports 
directly to the Commissioner. Compensation of the Taxpayer 
Advocate is at a level equal to that of the highest level 
official reporting directly to the Deputy Commissioner of the 
IRS.
    The bill also establishes the Office of Taxpayer Advocate 
within the IRS. The functions of the office are (1) to assist 
taxpayers in resolving problems with the IRS, (2) to identify 
areas in which taxpayers have problems in dealings with the 
IRS, (3) to propose changes (to the extent possible) in the 
administrative practices of the IRS that will mitigate those 
problems, and (4) to identify potential legislative changes 
that may mitigate those problems.
    While the Taxpayer Advocate would not have direct line 
authority over the regional and local Problem Resolution 
Officers (PROs), the Committee believes that all PROs should 
take direction from the Taxpayer Advocate and that they should 
operate with sufficient independence to assure that taxpayer 
rights are not being subordinated to pressure from local 
revenue officers, district directors, etc. Accordingly, the 
Committee recommends and encourages that regional PROs actively 
participate in the selection and evaluation of local PROs.
    The Taxpayer Advocate is required to make two annual 
reports to the tax-writing committees. The first report is to 
contain the objectives of the Taxpayer Advocate for the next 
calendar year. This report is to contain full and substantive 
analysis, in addition to statistical information, and is due 
not later than June 30 of each year.
    The second report is on the activities of the Taxpayer 
Advocate during the previous fiscal year. The report must 
identify the initiatives the Taxpayer Advocate has taken to 
improve taxpayer services and IRS responsiveness, contain 
recommendations received from individuals who have the 
authority to issue a Taxpayer Assistance Order (TAO), describe 
in detail the progress made in implementing these 
recommendations, contain a summary of at least 20 of the most 
serious problems which taxpayers have in dealing with the IRS, 
include recommendations for such administrative and legislative 
action as may be appropriate to resolve such problems, describe 
the extent to which regional problem resolution officers 
participate in the selection and evaluation of local problem 
resolution officers, and include other such information as the 
Taxpayer Advocate may deem advisable. The Commissioner is 
required to establish internal procedures that will ensure a 
formal IRS response within three months to all recommendations 
submitted to the Commissioner by the Taxpayer Advocate. This 
second report is due not later than December 31 of each year.
    The reports submitted to Congress by the Taxpayer Advocate 
are not subject to prior review by the Commissioner, the 
Secretary of the Treasury, any other officer or employee of the 
Department of the Treasury, or the Office of Management and 
Budget. The objective is for Congress to receive an unfiltered 
and candid report of the problems taxpayers are experiencing 
and what can be done to address them. The reports by the 
Taxpayer Advocate are not official legislative recommendations 
of the Administration; providing official legislative 
recommendations remains the responsibility of the Department of 
Treasury.
            Effective date
    The provision is effective on the date of enactment. The 
first annual reports of the Taxpayer Advocate are due in June 
and December, 1996.

b. Expansion of authority to issue taxpayer assistance orders (sec. 102 
                 of the bill and sec. 7811 of the Code)

            Present law
    Section 7811(a) authorizes the Taxpayer Ombudsman to issue 
a Taxpayer Assistance Order (TAO). TAOs may order the release 
of taxpayer property levied upon by the IRS and may require the 
IRS to cease any action, or refrain from taking any action if, 
in the determination of the Taxpayer Ombudsman, the taxpayer is 
suffering or about to suffer a significant hardship as a result 
of the manner in which the internal revenue laws are being 
administered.
            Reasons for change
    The requirement that the significant hardship be as a 
result of the manner in which the internal revenue laws are 
being administered has resulted in confusion as to the 
circumstances which justify the issuance of a TAO. The most 
frequent situation where a TAO may be needed, but may not be 
authorized under present law, involves income tax refunds that 
are needed to relieve severe hardship of taxpayers. Another 
example involves the re-issuance of refund checks which have 
been sent by the IRS to an address at which the taxpayer no 
longer resides. While the mailing of the check to the incorrect 
address might in no way be due to the fault of the IRS, the 
normal delays in reissuing such a check may cause great 
hardship for the taxpayer. Also, the IRS Collection Division 
may take an enforcement action when the taxpayer has had no 
actual notice of the deficiency and is not afforded any 
opportunity to obtain an administrative review of the validity 
of the tax deficiency. In cases like these, it may be 
appropriate for the Taxpayer Advocate to issue a TAO to 
temporarily stay the IRS collection action in order to allow 
for a review of the appropriateness of the proposed action.
            Explanation of provision
    The bill provides the Taxpayer Advocate with broader 
authority to affirmatively take any action as permitted by law 
with respect to taxpayers who would otherwise suffer a 
significant hardship as a result of the manner in which the IRS 
is administering the tax laws. In addition, the bill provides 
that a TAO may specify a time period within which the TAO must 
be followed. Further, the bill provides that only the Taxpayer 
Advocate, the Commissioner of the IRS, or the Deputy 
Commissioner, may modify or rescind a TAO. Any official who 
modifies or rescinds a TAO must provide the Taxpayer Advocate a 
written explanation of the reasons for the modification or 
rescission.
            Effective date
    The provision is effective on the date of enactment.

          2. modifications to installment agreement provisions

 a. Notification of reasons for termination of installment agreements 
            (sec. 201 of the bill and sec. 6159 of the Code)

            Present law
    Section 6159 authorizes the IRS to enter into written 
installment agreements with taxpayers to facilitate the 
collection of tax liabilities. In general, the IRS has the 
right to terminate (or in some instances, alter or modify) such 
agreements if the taxpayer provided inaccurate or incomplete 
information before the agreement was entered into, if the 
taxpayer fails to make a timely payment of an installment or 
another tax liability, if the taxpayer fails to provide the IRS 
with a requested update of financial condition, if the IRS 
determines that the financial condition of the taxpayer has 
changed significantly, or if the IRS believes collection of the 
tax liability is in jeopardy. If the IRS determines that the 
financial condition of a taxpayer that has entered into an 
installment agreement has changed significantly, the IRS must 
provide the taxpayer with a written notice that explains the 
IRS determination at least 30 days before altering, modifying, 
or terminating the installment agreement. No notice is 
statutorily required if the installment agreement is altered, 
modified, or terminated for other reasons.
            Reasons for change
    The Committee believes that the IRS generally should notify 
taxpayers if an installment agreement is altered, modified, or 
terminated.
            Explanation of provision
    The bill requires the IRS to notify taxpayers 30 days 
before altering, modifying, or terminating any installment 
agreement for any reason other than that the collection of tax 
is determined to be in jeopardy. The IRS must include in the 
notification an explanation of why the IRS intends to take this 
action.
            Effective date
    The provision is effective six months after the date of 
enactment.

b. Administrative review of termination of installment agreements (sec. 
               202 of the bill and sec. 6159 of the Code)

            Present law
    The IRS is currently testing an appeal process for various 
collection actions, including installment agreements, that will 
permit taxpayers to appeal these collection actions to Appeals 
Division personnel.
            Reasons for change
    The Committee believes that taxpayers should be able to 
obtain an independent administrative review of terminations of 
installment agreements.
            Explanation of provision
    The bill requires the IRS to establish additional 
procedures for an independent administrative review of 
terminations of installment agreements for taxpayers who 
request a review.
            Effective Date
    The provision is effective on January 1, 1997.

                 3. Abatement of interest and penalties

 a. Expansion of authority to abate interest (sec. 301 of the bill and 
                         sec. 6404 of the code)

            Present law
    Any assessment of interest on any deficiency attributable 
in whole or in part to any error or delay by an officer or 
employee of the IRS (acting in his official capacity) in 
performing a ministerial act may be abated.
            Reasons for change
    The Committee believes that it is appropriate to expand the 
authority to abate interest to include delays caused by 
managerial acts of the IRS.
            Explanation of provision
    The bill permits the IRS to abate interest with respect to 
any unreasonable error or delay resulting from managerial acts 
as well as ministerial acts. This would include extensive 
delays resulting from managerial acts such as: the loss of 
records by the IRS, IRS personnel transfers, extended 
illnesses, extended personnel training, or extended leave. On 
the other hand, interest would not be abated for delays 
resulting from general administrative decisions. For example, 
the taxpayer could not claim that the IRS's decision on how to 
organize the processing of tax returns or its delay in 
implementing an improved computer system resulted in an 
unreasonable delay in the Service's action on the taxpayer's 
tax return, and so the interest on any subsequent deficiency 
should be waived.
            Effective date
    The provision applies to interest accruing with respect to 
deficiencies or payments for taxable years beginning after the 
date of enactment.

 b. Review of IRS failure to abate interest (sec. 302 of the bill and 
                         sec. 6404 of the Code)

            Present law
    Federal courts generally do not have the jurisdiction to 
review the IRS's failure to abate interest.
            Reasons for change
    The Committee believes that it is appropriate for the Tax 
Court to have jurisdiction to review IRS's failure to abate 
interest with respect to certain taxpayers.
            Explanation of provision
    The bill grants the Tax Court jurisdiction to determine 
whether the IRS's failure to abate interest for an eligible 
taxpayer was an abuse of discretion. The Tax Court may order an 
abatement of interest. The action must be brought within 180 
days after the date of mailing of the Secretary's final 
determination not to abate interest. An eligible taxpayer must 
meet the net worth and size requirements imposed with respect 
to awards of attorney's fees. No inference is intended as to 
whether under present law any court has jurisdiction to review 
IRS's failure to abate interest.
            Effective date
    The provision applies to requests for abatement after the 
date of enactment.

 c. Extension of interest-free period for payment of tax after notice 
      and demand (sec. 303 of the bill and sec. 6601 of the code)

            Present law
    In general, a taxpayer must pay interest on late payments 
of tax. An interest-free period of 10 calendar days is provided 
to taxpayers who pay the tax due within 10 calendar days of 
notice and demand.
            Reasons for change
    The 10-day interest-free period was designed to give 
taxpayers time to receive the notice and pay the amount due. 
Because it may be very difficult for some taxpayers to remit 
payment within the ten-day period, particularly if the mail has 
delayed delivery of the notice, the IRS must recompute interest 
and send another notice to taxpayers.
            Explanation of provision
    The bill extends the interest-free period provided to 
taxpayers for the payment of the tax liability reflected in the 
notice from 10 calendar days to 10 business days (21 calendar 
days, provided that the total tax liability shown on the notice 
of deficiency is less than $100,000).
            Effective date
    The provision applies in the case of any notice and demand 
given after December 31, 1996.

   d. Abatement of penalty for failure to make required deposits of 
 payroll taxes in certain cases (sec. 304 of the bill and sec. 6656 of 
                               the Code)

            Present law
    If any person who is required to deposit taxes imposed by 
the Internal Revenue Code with a government depository fails to 
deposit such taxes on or before the prescribed date, a penalty 
may be imposed, unless it is shown that such failure is due to 
reasonable cause and not willful neglect. The penalty contains 
a four-tiered structure in which the amount of the penalty 
varies with the length of time within which the taxpayer 
corrects the failure. The amount of the underpayment for this 
purpose is the excess of the amount of the tax required to be 
deposited over the amount of the tax, if any, deposited on or 
before the prescribed date.
            Reasons for change
    The Committee believes that it is appropriate to enumerate 
additional circumstances under which this penalty may be waived 
or abated.
            Explanation of provision
    The bill provides that the Secretary may waive this penalty 
with respect to an inadvertent failure to deposit any 
employment tax if: (a) the depositing entity meets the net 
worth requirements applicable for awards of attorney's fees; 
(b) the failure to deposit occurs during the first quarter that 
the depositing entity was required to deposit any employment 
tax; and (c) the return for the employment tax was filed on or 
before the due date.
    The bill also provides that the Secretary may abate any 
penalty for failure to make deposits for the first time a 
depositing entity makes a deposit if it inadvertently sends the 
deposit to the Secretary instead of to the required government 
depository.
            Effective date
    The provision is effective on the date of enactment.

                            4. Joint returns

 a. Studies of joint and several liability for married persons filing 
 joint tax returns and other joint return-related issues (sec. 401 of 
                               the bill)

            Present law
    Spouses who file a joint tax return are each fully 
responsible for the accuracy of the return and for the full tax 
liability. This is true even though only one spouse may have 
earned the wages or income which is shown on the return. This 
is ``joint and several'' liability. Spouses who wish to avoid 
joint liability may file as a ``married person filing 
separately.''
    Spouses often file a joint tax return but then later are 
separated or divorced. If the IRS later disputes the accuracy 
of the joint tax returns, one spouse may be held liable for the 
entire tax deficiency stemming from erroneous deductions or 
omitted income attributable to the other spouse. Therefore, the 
``innocent'' spouse may be held liable for the full deficiency 
in a subsequent audit occurring after the separation or 
divorce. This has resulted in a serious hardship being imposed 
on an ``innocent spouse'' in a number of cases.
    In some cases, a couple addresses the responsibility for 
tax liability as part of their divorce decree. However, these 
agreements are not binding on the IRS because the IRS was not a 
party to the divorce proceeding. Thus, if a former spouse 
violates the tax responsibilities assigned to him or her in a 
divorce decree, the other spouse may not rely on the decree in 
dealing with the IRS.
    While present law does contain provisions which give relief 
to certain innocent spouses in these situations, the provisions 
are narrowly drawn and strictly interpreted. Therefore, many 
former spouses are not able to qualify for the protections of 
the current ``innocent spouse'' rules.
    In 1930, the Supreme Court ruled in Poe v. Seaborn, 282 
U.S. 101 (1930), that all the earnings of a married couple in 
community property states were part of the marital property to 
which each spouse had an equal right. At the time, married 
couples generally welcomed this decision because it allowed 
couples in community property states to benefit from income 
``splitting'' between the husband and wife for income tax 
purposes. Later, the Federal tax law was changed to allow all 
married taxpayers to ``split'' their income by means of filing 
a joint tax return.
    While the income-splitting effect of Poe v. Seaborn is now 
moot, the decision continues to affect married couples in 
community property states, but in an adverse way. For example, 
there are cases where a divorced spouse owes the IRS a tax 
liability based on his or her joint return filed during the 
marital years. When this spouse remarries, the new spouse's 
income may become subject to levy in order to satisfy the tax 
deficiency of the prior spouse. In contrast, if the couple did 
not live in a community property state, the second spouse's 
wages could not be levied to pay a tax liability arising from 
this spouse's first marriage.
            Reasons for change
    The Committee believes that the traditional standard of 
joint and several liability for married couples filing a joint 
tax return should be re-examined.
            Explanation of provision
    The bill directs the Treasury Department and the General 
Accounting Office (GAO) to conduct separate studies analyzing 
the following:
    (1) The effects of changing the current standard of ``joint 
and several'' liability for married couples to a 
``proportionate'' liability standard. That is, each spouse 
would be liable only for the income tax attributable to the 
income of each spouse.
    (2) The effects of requiring the IRS to be bound by the 
terms of a divorce decree which addresses the responsibility 
for the tax liability on prior joint tax returns.
    (3) Whether the current ``innocent spouse'' provisions 
provide meaningful relief to former spouses.
    (4) The effects of overturning the application of Poe v. 
Seaborn for income tax purposes in community property states.
    The Treasury Department and the GAO must examine the tax 
policy implications, the equity implications, and operational 
changes which would face the IRS if the liability standard were 
changed. For example, the studies must consider how a system of 
proportionate liability would change the way the IRS 
communicates with taxpayers, conducts audits of joint returns, 
and enforces tax lien and levies against married couples.
            Effective date
    The studies are due six months after the date of enactment.

b. Joint return may be made after separate returns without full payment 
        of tax (sec. 402 of the bill and sec. 6013 of the Code)

            Present law
    Taxpayers who file separate returns and subsequently 
determine that their tax liability would have been less if they 
had filed a joint return are precluded by statute from reducing 
their tax liability by filing jointly if they are unable to pay 
the entire amount of the joint return liability before the 
expiration of the three-year period for making the election to 
file jointly.
            Reasons for change
    Not all taxpayers are able to pay the full amount owed on 
their returns by the filing deadline. In such circumstances, 
the IRS encourages the taxpayer to pay the tax as soon as 
possible or enter into an installment agreement. However, 
taxpayers who file separate returns and subsequently determine 
that their tax liability would have been less if they had filed 
a joint return are precluded from reducing their tax liability 
by filing jointly if they are unable to pay the entire amount 
of the joint return liability. This rule may be unfair to 
taxpayers experiencing financial difficulties.
            Explanation of provision
    The bill repeals the requirement of full payment of tax 
liability as a precondition to switching from married filing 
separately status to married filing jointly status.
            Effective date
    The provision applies to taxable years beginning after the 
date of the enactment.

 c. Disclosure of collection activities with respect to joint returns 
            (sec. 403 of the bill and sec. 6103 of the Code)

            Present law
    The IRS does not routinely disclose collection information 
to a former spouse that relates to tax liabilities attributable 
to a joint return that was filed when married.
            Reasons for change
    The Committee believes that it is appropriate to require 
the IRS to discuss with one former spouse the efforts it has 
made to collect the joint return tax liability from the other 
spouse.
            Explanation of provision
    If a tax deficiency with respect to a joint return is 
assessed, and the individuals filing the return are no longer 
married or no longer reside in the same household, the bill 
requires the IRS to disclose in writing (in response to a 
written request by one of the individuals) to that individual 
whether the IRS has attempted to collect the deficiency from 
the other individual, the general nature of the collection 
activities, and the amount (if any) collected.
    Such requests must be made in writing. The IRS may develop 
procedures to address the frequency of such requests in order 
to prevent taxpayers from abusing this provision by making 
numerous requests without good cause. For example, one request 
per quarter would be a reasonable rate unless the taxpayer had 
good cause to seek more frequent information.
    In making these disclosures, the IRS may omit the current 
home address and business location of the former spouse. This 
is designed to prevent the disclosure of such personal 
information to persons who might be hostile towards a former 
spouse.
            Effective date
    The provision is effective on the date of enactment.

                        5. Collection activities

              a. Modifications to lien and levy provisions

i. Withdrawal of public notice of lien (sec. 501(a) the bill and sec. 
        6323 of the Code)

            Present law
    The IRS must file a notice of lien in the public record, in 
order to protect the priority of a tax lien. A notice of tax 
lien provides public notice that a taxpayer owes the Government 
money. The IRS has discretion in filing such a notice, but may 
withdraw a filed notice only if the notice (and the underlying 
lien) was erroneously filed or if the underlying lien has been 
paid, bonded, or become unenforceable.
            Reasons for change
    The Committee believes that it is appropriate to give the 
IRS discretion to withdraw a notice of lien in other situations 
as well.
            Explanation of provision
    The bill allows the IRS to withdraw a public notice of tax 
lien prior to payment in full by the indebted taxpayer without 
prejudice, if the Secretary determines that (1) the filing of 
the notice was premature or otherwise not in accordance with 
the administrative procedures of the IRS, (2) the taxpayer has 
entered into an installment agreement to satisfy the tax 
liability with respect to which the lien was filed, (3) the 
withdrawal of the lien will facilitate collection of the tax 
liability, or (4) the withdrawal of the lien would be in the 
best interests of the taxpayer (as determined by the Taxpayer 
Advocate) and of the Government. The IRS must also provide a 
copy of the notice of withdrawal to the taxpayer. The bill also 
requires that, at the written request of the taxpayer, the IRS 
make reasonable efforts to give notice of the withdrawal of a 
lien to creditors, credit reporting agencies, and financial 
institutions specified by the taxpayer.
            Effective date
    The provision is effective on the date of enactment.

ii. Return of levied property (sec. 501(b) of the bill and sec. 6343 of 
        the Code)

            Present law
    The IRS is authorized to levy on the property of a taxpayer 
as a means of collecting unpaid taxes. The IRS is able to 
return levied property to a taxpayer only when the taxpayer has 
fully paid its liability with respect to tax, interest, and 
penalty for which the property was levied.
            Reasons for change
    There are several situations where the IRS is not 
authorized to return levied-upon amounts, even when it believes 
doing so would be equitable and in the best interests of the 
taxpayer and the Government. For example, if the IRS enters 
into an installment agreement and, in contradiction to the 
terms of the installment agreement, the IRS levies on the 
taxpayer's property, the IRS is prohibited from returning the 
property to the taxpayer. The Committee believes that it is 
appropriate to give the IRS authority to return levied property 
in other circumstances as well.
            Explanation of provision
    The bill allows the IRS to return property (including money 
deposited in the Treasury) that has been levied upon if the 
Secretary determines that (1) the levy was premature or 
otherwise not in accordance with the administrative procedures 
of the IRS, (2) the taxpayer has entered into an installment 
agreement to satisfy the tax liability, (3) the return of the 
property will facilitate collection of the tax liability, or 
(4) the return of the property would be in the best interests 
of the taxpayer (as determined by the Taxpayer Advocate) and 
the Government.
            Effective date
    The provision is effective on the date of enactment.

iii. Modifications in certain levy exemption amounts (sec. 502 of the 
        bill and sec. 6334 of the Code)

            Present law
    Property exempt from levy includes personal property with a 
value of up to $1,650 and books and tools of a trade with a 
value of up to $1,100.
            Reasons for change
    The Committee believes that these amounts should be 
increased and indexed for inflation.
            Explanation of provision
    The bill increases the exemption amount to $2,500 for 
personal property and increases the exemption amount to $1,250 
for books and tools of a trade. These amounts are indexed for 
inflation commencing January 1, 1997.
            Effective date
    The provision is effective with respect to levies issued 
after December 31, 1996.

  b. Offers-in-compromise (sec. 503 of the bill and sec. 7122 of the 
                                 Code)

            Present law
    The IRS has the authority to settle a tax debt pursuant to 
an offer-in-compromise. IRS regulations provide that such 
offers can be accepted if: the taxpayer is unable to pay the 
full amount of the tax liability and it is doubtful that the 
tax, interest, and penalties can be collected or there is doubt 
as to the validity of the actual tax liability. Amounts over 
$500 can only be accepted if the reasons for the acceptance are 
documented in detail and supported by an opinion of the IRS 
Chief Counsel.
            Reasons for change
    The Committee believes that the $500 threshold amount 
requiring a written opinion from the IRS Chief Counsel slows 
the approval process for most offers-in-compromise and is 
unnecessarily low.
            Explanation of provision
    The bill increases from $500 to $50,000 the amount 
requiring a written opinion from the Office of Chief Counsel. 
Compromises below the $50,000 threshold must be subject to 
continuing quality review by the IRS.
            Effective date
    The provision is effective on the date of enactment.

                         6. Information returns

a. Civil damages for fraudulent filing of information returns (sec. 601 
               of the bill and new sec. 7434 of the Code)

            Present law
    Federal law provides no private cause of action to a 
taxpayer who is injured because a fraudulent information return 
has been filed with the IRS asserting that payments have been 
made to the taxpayer.
            Reasons for change
    Some taxpayers may suffer significant personal loss and 
inconvenience as the result of the IRS receiving fraudulent 
information returns, which have been filed by persons intent on 
either defrauding the IRS or harassing taxpayers.
            Explanation of provision
    The bill provides that, if any person willfully files a 
fraudulent information return with respect to payments 
purported to have been made to another person, the other person 
may bring a civil action for damages against the person filing 
that return. A copy of the complaint initiating the action must 
be provided to the IRS. Recoverable damages are the greater of 
(1) $5,000 or (2) the amount of actual damages (including the 
costs of the action) and, in the court's discretion, reasonable 
attorney's fees. The court must specify in any decision 
awarding damages the correct amount (if any) that should have 
been reported on the information return. An action seeking 
damages under this provision must be brought within six years 
after the filing of the fraudulent information return, or one 
year after the fraudulent information return would have been 
discovered through the exercise of reasonable care, whichever 
is later.
    The Committee does not want to open the door to unwarranted 
or frivolous actions or abusive litigation practices. The 
Committee is concerned, for example, about the possibility that 
an unfounded or frivolous action might be brought under this 
section by a current or former employee of an employer who is 
not pleased with one or more items that his or her current or 
former employer has included on the employee's Form W-2. 
Therefore, actions brought under this section will be subject 
to Rule 11 of the Federal Rules of Civil Procedure, relating to 
the imposition of sanctions in the case of unfounded or 
frivolous claims, to the same extent as other civil actions.
            Effective date
    The provision applies to fraudulent information returns 
filed after the date of enactment.

  b. Requirement to conduct reasonable investigations of information 
        returns (sec. 602 of the bill and sec. 6201 of the Code)

            Present law
    Deficiencies determined by the IRS are generally afforded a 
presumption of correctness.
            Reasons for change
    Taxpayers may encounter difficulties when a payor issues an 
erroneous information return and refuses to correct the 
information and report the change to the IRS, or when a 
fraudulent information return is filed.
            Explanation of provision
    The bill provides that, in any court proceeding, if a 
taxpayer asserts a reasonable dispute with respect to any item 
of income reported on an information return (Form 1099 or Form 
W-2) filed by a third party and the taxpayer has fully 
cooperated with the IRS, the Government has the burden of 
producing reasonable and probative information concerning the 
deficiency (in addition to the information return itself). 
Fully cooperating with the IRS includes (but is not limited to) 
the following: bringing the reasonable dispute over the item of 
income to the attention of the IRS within a reasonable period 
of time, and providing (within a reasonable period of time) 
access to and inspection of all witnesses, information, and 
documents within the control of the taxpayer (as reasonably 
requested by the Secretary).
            Effective date
    The provision is effective on the date of enactment.

                 7. Awarding of costs and certain fees

 a. United States must establish that its position in a proceeding was 
  substantially justified (sec. 701 of the bill and sec. 7430 of the 
                                 Code)

            Present law
    Under section 7430, a taxpayer who successfully challenges 
a determination of deficiency by the IRS may recover attorney's 
fees and other administrative and litigation costs if the 
taxpayer qualifies as a ``prevailing party.'' A taxpayer 
qualifies as a prevailing party if it: (1) establishes that the 
position of the United States was not substantially justified; 
(2) substantially prevails with respect to the amount in 
controversy or with respect to the most significant issue or 
set of issues presented; and (3) meets certain net worth and 
(if the taxpayer is a business) size requirements. A taxpayer 
must exhaust administrative remedies to be eligible to receive 
an award of attorney's fees.
            Reasons for change
    The Committee believes that it is appropriate for the IRS 
to demonstrate that it was substantially justified in 
maintaining its position when the taxpayer substantially 
prevails and that the IRS should be required to follow its 
published guidance and private guidance provided to taxpayers.
            Explanation of provision
    The bill provides that, once a taxpayer substantially 
prevails over the IRS in a tax dispute, the IRS has the burden 
of proof to establish that it was substantially justified in 
maintaining its position against the taxpayer. This will switch 
the current procedure which places the burden of proof on the 
taxpayer to establish that the IRS was not substantially 
justified in maintaining its position. Therefore, the 
successful taxpayer will receive an award of attorney's fees 
unless the IRS satisfies its burden of proof. The bill also 
establishes a rebuttable presumption that the position of the 
United States was not substantially justified if the IRS did 
not follow in the administrative proceeding (1) its published 
regulations, revenue rulings, revenue procedures, information 
releases, notices, or announcements, or (2) a private letter 
ruling, determination letter, or technical advice memorandum 
issued to the taxpayer. This provision only applies to the 
version of IRS guidance that is most current on the date the 
IRS's position was taken.
            Effective date
    The provision is effective for proceedings commenced after 
the date of enactment.

 b. Increased limit on attorney's fees (sec. 702 of the bill and sec. 
                           7430 of the Code)

            Present law
    Attorney's fees recoverable by prevailing parties as 
litigation or administrative costs was originally set at $75 
per hour.
            Reasons for change
    The Committee believes that these amounts should be raised 
and indexed for inflation.
            Explanation of provision
    The bill raises the statutory rate to $110 per hour, 
indexed for inflation beginning after 1996.
            Effective date
    The provision applies to proceedings commenced after the 
date of enactment.

 c. Failure to agree to extension not taken into account (sec. 703 of 
                  the bill and sec. 7430 of the Code)

            Present law
    To qualify for an award of attorney's fees, the taxpayer 
must have exhausted the administrative remedies available 
within the IRS.
            Reasons for change
    The IRS has taken the position in regulations that 
attorney's fees cannot be awarded if the taxpayer has not 
agreed to extend the statute of limitations. In Minahan v. 
Commissioner, 88 T.C. 492 (1987), the Tax Court held that 
regulation invalid insofar as it provides that a taxpayer's 
refusal to consent to extend the statute of limitations is to 
be taken into account in determining whether the taxpayer has 
exhausted administrative remedies available to the taxpayer.
            Explanation of provision
    The bill provides that any failure to agree to an extension 
of the statute of limitations cannot be taken into account for 
purposes of determining whether a taxpayer has exhausted the 
administrative remedies for purposes of determining eligibility 
for an award of attorney's fees.
            Effective date
    The provision applies to proceedings commenced after the 
date of enactment.

    d. Award of litigation costs permitted in declaratory judgment 
      proceedings (sec. 704 of the bill and sec. 7430 of the Code)

            Present law
    Section 7430(b)(3) denies any reimbursement for attorney's 
fees in all declaratory judgment actions, except those actions 
related to the revocation of an organization's qualification 
under section 501(c)(3) (relating to tax-exempt status).
            Reasons for change
    It is appropriate to treat declaratory judgment proceedings 
similar to other tax proceedings, with respect to eligibility 
for attorney's fees.
            Explanation of provision
    The bill eliminates the present-law restrictions on 
awarding attorney's fees in all declaratory judgment 
proceedings.
            Effective date
    The provision applies to proceedings commenced after the 
date of enactment.

     8. Modification to recovery of civil damages for unauthorized 
                           collection actions

  a. Increase in limit on recovery of civil damages for unauthorized 
  collection actions (sec. 801 of the bill and sec. 7433 of the Code)

            Present law
    A taxpayer may sue the United States for up to $100,000 of 
damages caused by an officer or employee of the IRS who 
recklessly or intentionally disregards provisions of the 
Internal Revenue Code or the Treasury regulations promulgated 
thereunder in connection with the collection of Federal tax 
with respect to the taxpayer.
            Reasons for change
    The Committee believes that the cap for damages caused by 
IRS employees should be raised.
            Explanation of provision
    The bill increases the cap from $100,000 to $1 million.
            Effective date
    The provision applies to unauthorized collection actions by 
IRS employees that occur after the date of enactment.

b. Court discretion to reduce award for litigation costs for failure to 
exhaust administrative remedies (sec. 802 of the bill and sec. 7433 of 
                               the Code)

            Present law
    A taxpayer suing the United States for civil damages for 
unauthorized collection activities must exhaust administrative 
remedies to be eligible for an award.
            Reasons for change
    There may be circumstances in which it is inappropriate to 
require a taxpayer to exhaust administrative remedies.
            Explanation of provision
    The bill permits (but does not require) a court to reduce 
an award if the taxpayer has not exhausted administrative 
remedies.
            Effective date
    The provision is effective for proceedings commenced after 
the date of enactment.

   9. modification to penalty for failure to collect and pay over tax

 a. Preliminary notice requirement (sec. 901 of the bill and sec. 6672 
                              of the Code)

            Present law
    Under section 6672, a ``responsible person'' is subject to 
a penalty equal to the amount of trust fund taxes that are not 
collected or paid to the government on a timely basis. An 
individual the IRS has identified as a responsible person is 
permitted an administrative appeal on the question of 
responsibility.
            Reasons for change
    Some employees may not be fully aware of their personal 
liability under section 6672 for the failure to pay over trust 
fund taxes. The Committee believes that IRS could make 
additional efforts to assist the public in understanding its 
responsibilities.
            Explanation of provision
    The bill requires the IRS to issue a notice to an 
individual the IRS had determined to be a responsible person 
with respect to unpaid trust fund taxes at least 60 days prior 
to issuing a notice and demand for the penalty. The statute of 
limitations shall not expire before the date 90 days after the 
date on which the notice was mailed. The provision does not 
apply if the Secretary finds that the collection of the penalty 
is in jeopardy.
            Effective date
    The provision applies to assessments made after June 30, 
1996.

b. Disclosure of certain information where more than one person subject 
      to penalty (sec. 902 of the bill and sec. 6103 of the Code)

            Present law
    The IRS may not disclose to a responsible person the IRS's 
efforts to collect unpaid trust fund taxes from other 
responsible persons, who may also be liable for the same tax 
liability.
            Reasons for change
    The Committee believes that it is appropriate to permit the 
IRS to disclose to a responsible person whether the IRS is 
imposing the penalty on any other responsible person, and 
whether the IRS has been successful in collecting the penalty 
against such a person.
            Explanation of provision
    The bill requires the IRS, if requested in writing by a 
person considered by the IRS to be a responsible person, to 
disclose in writing to that person the name of any other person 
the IRS has determined to be a responsible person with respect 
to the tax liability. The IRS is required to disclose in 
writing whether it has attempted to collect this penalty from 
other responsible persons, the general nature of those 
collection activities, and the amount (if any) collected. 
Failure by the IRS to follow this provision does not absolve 
any individual for any liability for this penalty.
            Effective date
    The provision is effective on the date of enactment.

c. Right of contribution from multiple responsible parties (sec. 903 of 
                  the bill and sec. 6672 of the code)

            Present law
    A responsible person may seek to recover part of the amount 
which he has paid to the IRS from other individuals who also 
may have the obligations of a responsible person but who have 
not yet contributed their proportionate share of their 
liability under section 6672. Taxpayers must pursue such claims 
for contribution under state law (to the extent state law 
permits such claims). The variations in state law sometimes 
make it difficult or impossible to press successful suits in 
state courts to force a contribution from other responsible 
persons.
            Reasons for change
    The IRS may collect this penalty from a responsible person 
from whom it can collect most easily, rather than from the 
person with the greatest culpability for the failure. It would 
accordingly promote fairness in the administration of the tax 
laws to establish a right of contribution among multiple 
responsible parties.
            Explanation of provision
    If more than one person is liable for this penalty, each 
person who paid the penalty is entitled to recover from other 
persons who are liable for the penalty an amount equal to the 
excess of the amount paid by such person over such person's 
proportionate share of the penalty. This proceeding is a 
Federal cause of action and must be entirely separate from any 
proceeding involving IRS's collection of the penalty from any 
responsible party (including a proceeding in which the United 
States files a counterclaim or third-party complaint for 
collection of the penalty).
            Effective date
    The provision applies to penalties assessed after the date 
of enactment.

d. Board members of tax-exempt organizations (sec. 904 of the bill and 
                         sec. 6672 of the code)

            Present law
    Under section 6672, ``responsible persons'' of tax-exempt 
organizations are subject to a penalty equal to the amount of 
trust fund taxes that are not collected and paid to the 
Government on a timely basis.
            Reasons for change
    Individuals who serve on the boards of tax-exempt 
organizations, on a voluntary or honorary basis, are often 
concerned that they will be held liable for unpaid taxes of the 
organization as a responsible person, even though their service 
may be strictly voluntary in nature, and they may not be 
involved in the day-to-day operations and financial decisions 
of the organization. The Committee believes that the IRS has 
not made adequate efforts to clarify the rules applicable to 
tax-exempt organizations.
            Explanation of provision
    The bill clarifies that the section 6672 responsible person 
penalty is not to be imposed on volunteer, unpaid members of 
any board of trustees or directors of a tax-exempt organization 
to the extent such members are solely serving in an honorary 
capacity, do not participate in the day-to-day or financial 
activities of the organization, and do not have actual 
knowledge of the failure. The provision cannot operate in such 
a way as to eliminate all responsible persons from 
responsibility.
    The bill requires the IRS to develop materials to better 
inform board members of tax-exempt organizations (including 
voluntary or honorary members) that they may be treated as 
responsible persons. The IRS is required to make such materials 
routinely available to tax-exempt organizations. The bill also 
requires the IRS to clarify its instructions to IRS employees 
on application of the responsible person penalty with regard to 
honorary or volunteer members of boards of trustees or 
directors of tax-exempt organizations.
            Effective date
    The provision is effective on the date of enactment.

            10. Modifications of rules relating to summonses

a. Enrolled agents included as third-party recordkeepers (sec. 1001 of 
                  the bill and sec. 7609 of the code)

            Present law
    Section 7609 contains special procedures that the IRS must 
follow before it issues a third-party summons. A third-party 
summons is a summons issued to a third-party recordkeeper 
compelling him to provide information with respect to the 
taxpayer. An example of this would be a summons served on a 
stock brokerage house to provide data on the securities trading 
of the taxpayer-client.
    If a third-party summons is served on a third-party 
recordkeeper listed in section 7609(a)(3), then the taxpayer 
must receive notice of the summons and have an opportunity to 
challenge the summons in court. Otherwise the taxpayer has no 
statutory right to receive notice of the summons and 
accordingly he will not have the opportunity to challenge it in 
court.
    Section 7609(a)(3) lists attorneys and accountants as 
third-party recordkeepers, but it does not list ``enrolled 
agents'', who are authorized to practice before the IRS.
            Reasons for change
    Because enrolled agents are authorized to practice before 
the IRS in a similar manner to attorneys and accountants, they 
should be accorded the same status as third-party recordkeepers 
as are attorneys and accountants.
            Explanation of provision
    The bill includes enrolled agents as third-party 
recordkeepers.
            Effective date
    The provision applies to summonses issued after the date of 
enactment.

   b. Safeguards relating to designated summonses; annual report to 
 Congress on designated summonses (secs. 1002 and 1003 of the bill and 
                         sec. 6503 of the Code)

            Present law
    The period for assessment of additional tax with respect to 
most tax returns, corporate or otherwise, is three years. The 
IRS and the taxpayer can together agree to extend the period, 
either for a specified period of time or indefinitely. The 
taxpayer may terminate an indefinite agreement to extend the 
period by providing notice to the IRS.
    During an audit, the IRS may informally request that the 
taxpayer provide additional information necessary to arrive at 
a fair and accurate audit adjustment, if any adjustment is 
warranted. Not all taxpayers cooperate by providing the 
requested information on a timely basis. In some cases the IRS 
seeks information by issuing an administrative summons. Such a 
summons will not be judicially enforced unless the Government 
(as a practical matter, the Department of Justice) seeks and 
obtains an order for enforcement in Federal court. In addition, 
a taxpayer may petition the court to quash an administrative 
summons where this is permitted by statute.1
    \1\ Petitions to quash are permitted, for example, in connection 
with the examination of certain related party transactions under 
section 6038A(e)(4), and in the case of certain third-party summonses 
under section 7609(b)(2).
---------------------------------------------------------------------------
    In certain cases, the running of the assessment period is 
suspended during the period when the parties are in court to 
obtain or avoid judicial enforcement of an administrative 
summons. Such a suspension is provided in the case of 
litigation over a third-party summons (sec. 7609(e)) or 
litigation over a summons regarding the examination of a 
related party transaction. Such a suspension can also occur 
with respect to a corporate tax return if a summons is issued 
at least 60 days before the day on which the assessment period 
(as extended) is scheduled to expire. In this case, suspension 
is only permitted if the summons clearly states that it is a 
``designated summons'' for this purpose. Only one summons may 
be treated as a designated summons for purposes of any one tax 
return. The limitations period is suspended during the judicial 
enforcement period of the designated summons and of any other 
summons relating to the same tax return that is issued within 
30 days after the designated summons is issued.
    Under current internal procedures of the IRS, no designated 
summons is issued unless first reviewed by the Office of Chief 
Counsel to the IRS, including review by an IRS Deputy Regional 
Counsel for the Region in which the examination of the 
corporation's return is being conducted.
            Reasons for change
    The Committee recognizes that issuance of a designated 
summons is a serious step in the examination of a tax return, 
given the fact that litigation over the summons would suspend 
the running of the period for assessing additional tax against 
the taxpayer under audit. The Committee believes that, in 
recognition of the seriousness of such a step, the IRS should 
be required to institute additional procedures to ensure high-
level IRS review before any such summons is issued. The 
Committee also believes that it is important to place some 
restrictions on the taxpayers to whom IRS can issue a 
designated summons.
            Explanation of provision
    The bill requires that issuance of any designated summons 
with respect to a corporation's tax return must be preceded by 
review of such issuance by the Regional Counsel, Office of 
Chief Counsel to the IRS, for the Region in which the 
examination of the corporation's return is being conducted.
    The bill also limits the use of a designated summons to 
corporations (or to any other person to whom the corporation 
has transferred records) that are being examined as part of the 
Coordinated Examination Program (CEP) or its successor. CEP 
audits cover about 1,600 of the largest corporate taxpayers. If 
a corporation moves between CEP and non-CEP audit categories, 
only the tax years covered by the CEP may be the subject of a 
designated summons. The bill does not affect Code section 
6038A(e)(1), which relates to a U.S. reporting corporation that 
acts merely as the agent of the foreign related party by 
receiving summonses on behalf of the foreign party.
    The bill also requires that the Treasury report annually to 
the Congress on the number of designated summonses issued in 
the preceding 12 months.
            Effective date
    The provision applies to summonses issued after date of 
enactment.

    11. relief from retroactive application of treasury department 
     regulations (sec. 1101 of the bill and sec. 7805 of the code)

            Present law
    Under section 7805(b), Treasury may prescribe the extent 
(if any) to which regulations shall be applied without 
retroactive effect.
            Reasons for change
    The Committee believes that it is generally inappropriate 
for Treasury to issue retroactive regulations.
            Explanation of provision
    The bill provides that temporary and proposed regulations 
must have an effective date no earlier than the date of 
publication in the Federal Register or the date on which any 
notice substantially describing the expected contents of such 
regulation is issued to the public. Any regulations filed or 
issued within 18 months of the enactment of the statutory 
provision to which the regulation relates may be issued with 
retroactive effect. This general prohibition on retroactive 
regulations may be superseded by a legislative grant 
authorizing the Treasury to prescribe the effective date with 
respect to a statutory provision. The Treasury may issue 
retroactive temporary or proposed regulations to prevent abuse. 
The Treasury also may issue retroactive temporary, proposed, or 
final regulations to correct a procedural defect in the 
issuance of a regulation. Treasury may provide that taxpayers 
may elect to apply a temporary or proposed regulation 
retroactively from the date of publication of the regulation. 
Final regulations may take effect from the date of publication 
of the temporary or proposed regulation to which they relate. 
The provision does not apply to any regulation relating to 
internal Treasury Department policies, practices, or 
procedures. Present law with respect to rulings is unchanged.
            Effective date
    The provision applies with respect to regulations that 
relate to statutory provisions enacted on or after the date of 
enactment.

                      12. miscellaneous provisions

  a. Phone numbers of person providing payee statement required to be 
 shown on such statement (sec. 1201 of the bill and secs. 6041, 6041A, 
6042, 6044, 6045, 6049, 6050B, 6050H, 6050I, 6050J, 6050K and 6050N of 
                               the Code)

            Present law
    Information returns must contain the name and address of 
the payor.
            Reasons for change
    Taxpayers often need to contact payors issuing information 
returns in order to resolve questions about the accuracy of the 
information provided to the IRS. Currently, payors are only 
required to provide their names and addresses on information 
returns. As a result, taxpayers may have difficulty in 
contacting the payor and resolving questions quickly.
            Explanation of provision
    The bill requires that information returns contain the 
name, address, and phone number of the information contact of 
the person required to make the information return. A payor 
may, for example, provide the phone number of the department 
with the relevant information. It is intended that the 
telephone number provide direct access to individuals with 
immediate resources to resolve a taxpayer's questions in an 
expeditious manner.
            Effective date
    The provision applies to statements required to be 
furnished after December 31, 1996 (determined without regard to 
any extension).

 b. Required notice to taxpayers of certain payments (sec. 1202 of the 
                                 bill)

            Present law
    If the IRS receives a payment without sufficient 
information to properly credit it to a taxpayer's account, the 
IRS may attempt to contact the taxpayer. If contact cannot be 
made, the IRS places the payment in an unidentified remittance 
file.
            Reasons for change
    If the IRS cannot associate a taxpayer's payment with a 
balance due, the IRS generally deposits the money and may not 
inform the taxpayer of the overpayment. For example, a check 
that is separated from a balance-due income tax return, which 
is subsequently lost, may not get credited to that taxpayer's 
account.
            Explanation of provision
    The bill requires the IRS to make reasonable efforts to 
notify, within 60 days, those taxpayers who have made payments 
which the IRS cannot associate with the taxpayer.
            Effective date
    The provision is effective on the date of enactment.

c. Unauthorized enticement of information disclosure (sec. 1203 of the 
                  bill and new sec. 7435 of the Code)

            Present law
    No statutory disincentive applies to IRS employees who 
entice a tax professional to disclose information about clients 
in exchange for the favorable treatment of the taxes of the 
professional.
            Reasons for change
    The Committee believes that it is improper for IRS 
employees to entice tax professionals into breaching their 
fiduciary responsibilities to their clients in exchange for 
favorable treatment on their own returns.
            Explanation of provision
    If any officer or employee of the United States 
intentionally compromises the determination or collection of 
any tax due from an attorney, certified public accountant, or 
enrolled agent representing a taxpayer in exchange for 
information conveyed by the taxpayer to the attorney, certified 
public accountant, or enrolled agent for purposes of obtaining 
advice concerning the taxpayer's tax liability, the taxpayer 
may bring a civil action for damages against the United States 
in a district court of the United States. Upon a finding of 
liability, damages shall equal the lesser of $500,000 or the 
sum of (1) actual economic damages sustained by the taxpayer as 
a proximate result of the information disclosure and (2) the 
costs of the action. These remedies shall not apply to 
information conveyed to an attorney, certified public 
accountant, or enrolled agent for the purpose of perpetrating a 
fraud or crime.
            Effective date
    The provision applies to actions taken after the date of 
enactment.

 d. Annual reminders to taxpayers with outstanding delinquent accounts 
         (sec. 1204 of the bill and new sec. 7524 of the Code)

            Present law
    There is no statutory requirement in the Code that the IRS 
send annual reminders to persons who have outstanding tax 
liabilities.
            Reasons for change
    Numerous taxpayers become delinquent in paying their tax 
liability. The delinquencies may occur because the person did 
not make enough payments through payroll withholding or 
quarterly estimated payments or because of an adjustment 
following an audit.
    The IRS generally pursues larger tax deficiencies first, 
and then it pursues small deficiencies. Because of the limited 
amount of IRS resources to work collection cases, cases with 
smaller deficiencies may not be addressed for years. In the 
meantime, the taxpayer may come to believe that the apparent 
lack of IRS collection activity means that it has abandoned its 
claim against the taxpayer. The taxpayer may be surprised when 
the IRS resumes collection action years later, when the 10-year 
statute of limitations on collections is close to expiring.
            Explanation of provision
    The bill requires the IRS to send taxpayers an annual 
reminder of their outstanding tax liabilities. The fact that a 
taxpayer did not receive a timely, annual reminder notice does 
not affect the tax liability.
            Effective date
    The provision requires the IRS to send annual reminder 
notices beginning in 1997.

  e. Five-year extension of authority for undercover operations (sec. 
              1205 of the bill and sec. 7608 of the Code)

            Present law
    The Anti-Drug Abuse Act of 1988 exempted IRS undercover 
operations from the otherwise applicable statutory restrictions 
controlling the use of Government funds (which generally 
provide that all receipts be deposited in the general fund of 
the Treasury and all expenses be paid out of appropriated 
funds). In general, the exemption permits the IRS to ``churn'' 
the income earned by an undercover operation to pay additional 
expenses incurred in the undercover operation. The IRS is 
required to conduct a detailed financial audit of large 
undercover operations in which the IRS is churning funds and to 
provide an annual audit report to the Congress on all such 
large undercover operations. The exemption originally expired 
on December 31, 1989, and was extended by the Comprehensive 
Crime Control Act of 1990 to December 31, 1991. The IRS has not 
had the authority to churn funds from its undercover operations 
since 1991.
            Reasons for change
    Many other law enforcement agencies have churning 
authority. It is appropriate for IRS to have this authority as 
well.
            Explanation of provision
    The bill reinstates the IRS's offset authority under 
section 7608(c) from the date of enactment until January 1, 
2001. The bill amends the IRS annual reporting requirement 
under section 7608(c)(4)(B) to require the provision of the 
following data: (1) the date the operation was initiated; (2) 
the date offsetting was approved; (3) the total current 
expenditures and the amount and use of proceeds of the 
operation; (4) a detailed description of the undercover 
operation projected to generate proceeds, including the 
potential violation being investigated, and whether the 
operation is being conducted under grand jury auspices; and (5) 
the results of the operation to date, including the results of 
criminal proceedings.
            Effective date
    The provision would be effective on the date of enactment.

 f. Disclosure of returns on cash transactions (sec. 1206 of the bill 
                       and sec. 6103 of the Code)

            Present law
    The Internal Revenue Code prohibits disclosure of tax 
returns and return information, except to the extent 
specifically authorized by the Internal Revenue Code (sec. 
6103). Unauthorized disclosure is a felony punishable by a fine 
not exceeding $5,000 or imprisonment of not more than five 
years, or both (sec. 7213). An action for civil damages also 
may be brought for unauthorized disclosure (sec. 7431). No tax 
information may be furnished by the IRS to another agency 
unless the other agency establishes procedures satisfactory to 
the IRS for safeguarding the tax information it receives (sec. 
6103(p)).
    Under section 6050I, any person who receives more than 
$10,000 in cash in one transaction (or two or more related 
transactions) in the course of a trade or business generally 
must file an information return (Form 8300) with the IRS 
specifying the name, address, and taxpayer identification 
number of the person from whom the cash was received and the 
amount of cash received.
    The Anti-Drug Abuse Act of 1988 provided a special rule 
permitting the IRS to disclose these information returns to 
other Federal agencies for the purpose of administering Federal 
criminal statutes. The special rule originally was to expire 
after November 18, 1990, and was extended by the Comprehensive 
Crime Control Act of 1990 to November 18, 1992.
            Reasons for change
    Information filed on Form 8300 is very similar to 
information filed on Currency Transaction Reports (CTRs) under 
the Bank Secrecy Act. Both types of information reports should 
be subject to the same disclosure rules.
            Explanation of provision
    The bill permanently extends the special rule for 
disclosing Form 8300 information. Moreover, the bill permits 
disclosures not only to Federal agencies but also to State, 
local and foreign agencies and for civil, criminal and 
regulatory purposes (i.e., generally in the same manner as 
Currency Transaction Reports filed by financial institutions 
under the Bank Secrecy Act). Disclosure, however, is not 
permitted to any such agency for purposes of tax 
administration. The bill also (1) extends the dissemination 
policies and guidelines under section 6103 to people having 
access to Form 8300 information, and (2) applies section 6103 
sanctions to persons having access to Form 8300 information 
that disclose this information without proper authorization.
            Effective date
    The provision is effective on the date of enactment.

g. Disclosure of returns and return information to designee of taxpayer 
           (sec. 1207 of the bill and sec. 6103 of the Code)

            Present law
    Under present law, the IRS is authorized to disclose the 
return of any taxpayer, or return information pertaining to a 
taxpayer, to such person(s) as the taxpayer has designated in a 
written request.
            Reasons for change
    The IRS's move to a paperless system depends on the ease 
and functionality of electronic communication systems, e.g., 
telephones, facsimile machines, computers, communications 
networks, etc.
            Explanation of provision
    The bill deletes the word ``written'' from the requirement 
that ``written consent'' from the taxpayer is necessary for the 
disclosure of taxpayer information to a designated third party. 
Allowing the IRS to adopt alternatives to the written request 
requirement will expedite such changes and facilitate the 
development and implementation of Tax System Modernization 
projects. It is anticipated that the IRS will continue to 
utilize its regulatory authority to impose reasonable 
restrictions on the form in which a request is made, and that 
the IRS will in no event accept an unconfirmed verbal request.
            Effective date
    The provision is effective on the date of enactment.

h. Report on netting of interest on overpayments and liabilities (sec. 
                           1208 of the bill)

            Present law
    If any portion of a tax is satisfied through the crediting 
of an overpayment of tax, no interest is imposed on that 
portion of the tax for any period during which, if the credit 
had not been made, interest would have been allowable.
    The Tax Reform Act of 1986 first implemented an interest 
rate differential. The underpayment rate was set 1 percent 
higher than the overpayment rate. The Conference Report to the 
Tax Reform Act of 1986 stated:

        [t]o the extent a portion of tax due is satisfied by a 
        credit of an overpayment, no interest is imposed on 
        that portion of the tax. Consequently, if an 
        underpayment of $1,000 occurs in year 1, and an 
        overpayment of $1,000 occurs in year 2, no interest is 
        imposed in year 2 because of the rule of section 
        6601(f). The IRS can at present net many of these 
        offsetting overpayments and underpayments. 
        Nevertheless, the IRS will require a transition period 
        during which to coordinate differential interest rates 
        . . . [t]he Secretary of the Treasury may prescribe 
        regulations providing for netting of tax underpayments 
        and overpayments through the period ending three years 
        after the date of enactment of the bill. By that date, 
        the IRS should have implemented the most comprehensive 
        netting procedures that are consistent with sound 
        administrative practice.

    The Omnibus Budget Reconciliation Act of 1990 increased the 
underpayment rate on certain large corporate underpayments to 3 
percent higher than the overpayment rate. The Conference Report 
stated:

          Under present law, the Secretary has the authority to 
        credit the amount of any overpayment against any 
        liability under the Code * * * to the extent a portion 
        of tax due is satisfied by a credit of an overpayment, 
        no interest is imposed on that portion of the tax * * 
        *. The Secretary should implement the most 
        comprehensive crediting procedures under section 6402 
        that are consistent with sound administrative practice.

    The General Agreement on Tariffs and Trade (GATT) reduced 
the overpayment rate on certain corporate tax refunds. The 
legislative history of the GATT legislation stated that:

          The Secretary of the Treasury should implement the 
        most comprehensive crediting procedures under section 
        6402 that are consistent with sound administrative 
        practice, and should do so as rapidly as is 
        practicable.
            Reasons for change
    The Committee believes that it is important for the 
Committee to understand in detail how the IRS has implemented 
netting procedures to date. Congress has never adopted 
differential interest rates, or increased the amount of such 
differential, without at the same time also encouraging the IRS 
to implement comprehensive interest netting procedures. The 
Committee is concerned that the IRS has failed to implement 
comprehensive interest netting procedures and is interested in 
learning whether the delay stems from technical difficulties or 
substantive questions about the scope of such interest netting 
procedures.
            Explanation of provision
    The bill requires the Secretary of the Treasury to conduct 
a study of the manner in which the IRS has implemented the 
netting of interest on overpayments and underpayments and the 
policy and administrative implications of global netting. The 
Treasury is required to hold a public hearing to receive 
comments from any interested party prior to submitting the 
report of its study to the tax writing committees.
            Effective date
    The report is due six months after the date of enactment. 
The Committee understands that the Treasury has already 
announced that it will conduct this study and will complete it 
by October 1, 1996. The Committee anticipates that the Treasury 
will meet its own deadline.

 i. Expenses of detection of underpayments and fraud (sec. 1209 of the 
                    bill and sec. 7623 of the Code)

            Present law
    Secretary may, pursuant to regulations, pay rewards for 
information leading to the detection and punishment of 
violations of the Internal Revenue laws.
            Reasons for change
    The Committee believes that improvements should be made to 
this program.
            Explanation of provision
    The bill clarifies that rewards may be paid for information 
relating to civil violations, as well as criminal violations. 
The bill also provides that the rewards are to be paid out of 
the proceeds of amounts (other than interest) collected by 
reason of the information provided. The bill also requires an 
annual report on the rewards program.
            Effective date
    The provision is effective six months after the date of 
enactment.

j. Use of private delivery services for timely-mailing-as-timely-filing 
         rule (sec. 1210 of the bill and sec. 7502 of the Code)

            Present law
    The Code sets forth the rules for determining when a 
return, payment of tax, or other document required to be filed 
with the IRS is deemed to be filed or delivered on a timely 
basis (sec. 7502). In a recent case interpreting this section 
(V.L.Correia, 58 F.3d 468 (1995)), the U.S. Court of Appeals 
for the 9th Circuit upheld the Tax Court's ruling that the 
section's so-called ``timely-mailing as timely-filing'' rule 
does not apply to private delivery companies. Although the 
Appeals Court agreed that there is a legitimate policy 
rationale for extending the rule to private delivery companies, 
it concluded that only Congress, and not the courts, had the 
power to make such a change.
            Reasons for change
    There are many private delivery companies operating today 
which meet the U.S. Postal Service's ability to deliver 
documents quickly and securely. Every year, many taxpayers 
needlessly run afoul of the present-law rule because they make 
a reasonable assumption that using a private delivery service 
is adequate to show timely filing of their tax returns.
            Explanation of provision
    The Secretary of the Treasury is given authority to expand 
the ``timely-mailing as timely-filing'' rule to include a 
designated delivery service. A designated delivery service must 
be designated as such by the Secretary. The Secretary may 
designate a delivery service only if it meets the following 
criteria: (1) it is available to the general public; (2) it is 
at least as timely and reliable on a regular basis as the 
United States mail; (3) it satisfies recordkeeping criteria; 
and (4) it meets any additional criteria as the Secretary may 
prescribe. The provision also gives the Secretary similar 
authority with respect to equivalents for United States 
certified or registered mail.
            Effective date
    The provision is effective on the date of enactment.

   k. Reports on misconduct by IRS employees (sec. 1211 of the bill)

            Present law
    The IRS Inspection Division investigates allegations of 
criminal misconduct or serious violations of the ``Standards of 
Ethical Conduct for Employees of the Executive Branch'' (5 CFR 
2635) by IRS employees. In addition, IRS management addresses 
other types of taxpayer complaints relating to inappropriate 
behavior by IRS employees.
            Reasons for change
    Criminal actions resulting from Inspection Service 
investigations are a matter of public record, and press 
releases are issued in conjunction with the U.S. Attorney's 
office about such matters in accordance with exceptions that 
exist to tax disclosure and privacy constraints. However, 
information about administrative disciplinary actions are 
generally not available to the public. This may lead to a 
public perception that allegations of misconduct by IRS 
employees are not investigated or that misconduct goes 
unpunished.
            Explanation of provision
    The bill requires the IRS to make an annual report to the 
tax-writing committees, beginning June 1, 1997, on all 
categories of instances involving allegations of misconduct by 
IRS employees, arising either from internally identified cases 
or from taxpayer or third-party initiated complaints. The 
report must identify by IRS Region and primary activity 
involved (e.g., examination, collection, etc.), the nature of 
the misconduct or complaint, the number of instances received 
by category, and the disposition of these instances. This would 
include, but not be limited to, the following categories: 
number of employees reprimanded, terminated, or prosecuted; 
instances dismissed because of a finding that proper procedures 
were followed; and those initiated but not yet resolved. 
Instances covered by this process must include both written 
complaints of misconduct and those received by telephone 
through management channels. Each annual report will cover 
instances of misconduct that occurred during the preceding 
calendar year. Disposition of complaints not resolved by the 
time the report is prepared must be included in the report for 
the year in which resolution occurs.
            Effective date
    The first report is due by June 1, 1997.

                           B. Revenue Offsets

 1. Application of failure-to-pay penalty to substitute returns (sec. 
              1301 of the bill and sec. 6651 of the Code)

            Present law
    Section 6651(a)(2) provides that the IRS may assess a 
penalty for failure to pay tax from the due date of the return 
until the tax is paid. If no return is filed by the taxpayer 
and the IRS files a substitute return under section 6020, the 
tax on which the penalty is measured is considered a deficiency 
assessable under section 6212 or 6213, and the failure to pay 
penalty begins to accumulate 10 days after the IRS sends the 
taxpayer a notice and demand for payment of the tax.
            Reasons for change
    Under the current penalty system, there is an inequity 
between voluntarily filed delinquent returns and substitute 
returns. Taxpayers who file delinquent returns must pay a 
failure to file penalty from the due date of the return, 
whereas the taxpayer who forces the IRS to utilize a substitute 
return is not assessed the penalty until billed by the IRS.
            Explanation of provision
    The bill applies the failure to pay penalty to substitute 
returns in the same manner as the penalty applies to delinquent 
filers.
            Effective date
    The provision applies in the case of any return the due 
date for which (determined without regard to extensions) is 
after the date of enactment.

 2. Excise taxes on amounts of private excess benefits (sec. 1311-1314 
 of the bill and secs. 501, 6033, 6104, 6652, 6685 and new secs. 4958, 
                      6116, and 6716 of the Code)

            Present law

Private inurement

    Charities.--Section 501(c)(3) specifically conditions tax-
exempt status for all organizations described in that section 
on the requirement that no part of the net earnings of the 
organization inures to the benefit of any private shareholder 
or individual (the so-called ``private inurement test'').
    Social welfare organizations.--A tax-exempt social welfare 
organization described in section 501(c)(4) must be organized 
on a non-profit basis and must be operated exclusively for the 
promotion of social welfare. In contrast to section 501(c)(3), 
however, there is no specific statutory rule in section 
501(c)(4) prohibiting the net earnings of a social welfare 
organization described in section 501(c)(4) from inuring to the 
benefit of a private shareholder or individual.2
    \2\ Even where no prohibited private inurement exists, however, 
more than incidental private benefits conferred on individuals may 
result in the organization not being operated ``exclusively'' for an 
exempt purpose. See, e.g., American Campaign Academy v. Commissioner, 
92 T.C. 1053 (1989).
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    Other organizations.--Other tax-exempt organizations, such 
as labor and agricultural organizations described in section 
501(c)(5) and business leagues described in section 501(c)(6) 
are subject to the private inurement test, as a result of 
explicit statutory language or Treasury Department regulations.

Sanctions for private inurement and other violations of exemption 
        standards

    Organizations described in section 501(c)(3) are classified 
as either public charities or private foundations. Penalty 
excise taxes may be imposed under the Code when a public 
charity makes political expenditures (sec. 4955) or excessive 
lobbying expenditures (secs. 4911 and 4912). However, the Code 
generally does not provide for the imposition of penalty excise 
taxes in cases where a 501(c)(3) public charity or a section 
501(c)(4) social welfare organization engages in a transaction 
that results in private inurement. In such cases, the only 
sanction that specifically is authorized under the Code is 
revocation of the organization's tax-exempt status. A 
transaction engaged in by a private foundation (but not a 
public charity) is subject to special penalty excise taxes 
under the Code if the transaction is a prohibited ``self-
dealing'' transaction (sec. 4941) or does not accomplish a 
charitable purpose (sec. 4945).

Filing and public disclosure rules

    Tax-exempt organizations (other than churches and certain 
small organizations) are required to file an annual information 
return (Form 990) with the Internal Revenue Service (``IRS''), 
setting forth the organization's items of gross income and 
expenses attributable to such income, disbursements for tax-
exempt purposes, plus certain other information for the taxable 
year. Private foundations are required to allow public 
inspection at the foundation's principal office of their 
current annual information return. Other tax-exempt 
organizations, including public charities, are required to 
allow public inspection at the organization's principal office 
(and certain regional or district offices) of their annual 
information returns for the three most recent taxable years 
(sec. 6104(e)). The Code also requires that tax-exempt 
organizations allow public inspection of the organization's 
application to the IRS for recognition of tax-exempt status, 
the IRS determination letter, and certain related documents. In 
addition, upon written request to the IRS, members of the 
general public are permitted to inspect annual information 
returns of tax-exempt organizations and applications for 
recognition of tax-exempt status (and related documents) at the 
National Office of the IRS in Washington, D.C. A person making 
such a written request is notified by the IRS when the material 
is available for inspection at the National Office, where notes 
may be taken of the material open for inspection, photographs 
taken with the person's own equipment, or copies of such 
material obtained from the IRS for a fee (Treas. Reg. secs. 
301.6104(a)-6 and 301.6104(b)-1).
    Section 6652(c)(1)(A) provides that a tax-exempt 
organization that fails to file a complete and accurate Form 
990 is subject to a penalty of $10 for each day during which 
such failure continues (with a maximum penalty with respect to 
any one return of the lesser of $5,000 or five percent of the 
organization's gross receipts for the year). Section 
6652(c)(1)(C) provides that tax-exempt organizations that fail 
to make certain annual returns and applications for exemption 
available for public inspection are subject to a penalty of $10 
for each day the failure continues (with a maximum penalty with 
respect to any one return not to exceed $5,000, and without 
limitation with respect to applications). In addition, section 
6685 provides a penalty for willfully failing to make an annual 
return or application available for public inspection of $1,000 
per return or application.
            Reasons for change
    To ensure that the advantages of tax-exempt status 
ultimately benefit the community and not private individuals, 
the bill extends the present-law section 501(c)(3) private 
inurement prohibition to nonprofit organizations described in 
section 501(c)(4) and provides for intermediate sanctions that 
may be imposed when nonprofit organizations described in 
section 501(c)(3) or 501(c)(4) engage in transactions with 
certain insiders that result in private inurement. The bill 
also enhances the oversight and public accountability of 
nonprofit organizations through additional reporting of 
information by nonprofit organizations to the Internal Revenue 
Service (IRS) and increased public access to documents filed by 
such organizations with the IRS.
            Explanation of provision

Extend private inurement prohibition to social welfare organizations

    The bill amends section 501(c)(4) explicitly to provide 
that a social welfare organization or other organization 
described in that section would be eligible for tax-exempt 
status only if no part of its net earnings inures to the 
benefit of any private shareholder or individual.
    In addition, the bill provides that the private inurement 
rule will not be violated solely because of an allocation or 
return of net margins or capital to the members of a nonprofit 
association or organization that operates on a cooperative 
basis in accordance with its incorporating statute and bylaws 
(substantially as in existence on the date of enactment) and 
was determined to be exempt from Federal income tax under 
section 501(c)(4) prior to the date of enactment. However, such 
cooperative organizations are subject to the general private 
inurement proscription with respect to any other type of 
transaction.
    Effective date.--This provision generally is effective on 
September 14, 1995. However, under a special transition rule, 
the provision does not apply to inurement occurring prior to 
January 1, 1997, if such inurement results from a written 
contract that was binding on September 13, 1995, and at all 
times thereafter before such inurement occurred, and the terms 
of which have not materially changed.

Intermediate sanctions for excess benefit transactions

    The bill imposes penalty excise taxes as an intermediate 
sanction in cases where organizations exempt from tax under 
section 501(c)(3) or 501(c)(4) (other than private foundations, 
which are subject to a separate penalty regime under current 
law) engage in an ``excess benefit transaction.'' In such 
cases, intermediate sanctions may be imposed on certain 
disqualified persons (i.e., insiders) who improperly benefit 
from an excess benefit transaction and on organization managers 
who participate in such a transaction knowing that it is 
improper.
    An ``excess benefit transaction'' is defined as: (1) any 
transaction in which an economic benefit is provided to, or for 
the use of, any disqualified person if the value of the 
economic benefit provided directly by the organization (or 
indirectly through a controlled entity 3) to such person 
exceeds the value of consideration (including performance of 
services) received by the organization for providing such 
benefit; and (2) to the extent provided in Treasury Department 
regulations, any transaction in which the amount of any 
economic benefit provided to, or for the use of, any 
disqualified person is determined in whole or in part by the 
revenues of the organization, provided that the transaction 
constitutes prohibited inurement under present-law section 
501(c)(3) or under section 501(c)(4), as amended. Thus, 
``excess benefit transactions'' subject to excise taxes include 
transactions in which a disqualified person engages in a non-
fair-market-value transaction with an organization or receives 
unreasonable compensation, as well as financial arrangements 
(to the extent provided in Treasury regulations) under which a 
disqualified person receives payment based on the 
organization's income in a transaction that violates the 
present-law private inurement prohibition. The Treasury 
Department is instructed to issue prompt guidance providing 
examples of revenue-sharing arrangements that violate the 
private inurement prohibition; such guidance shall be 
applicable on a prospective basis. 4
    \3\ A tax-exempt organization cannot avoid the private inurement 
proscription by causing a controlled entity to engage in an excess 
benefit transaction. Thus, for example, if a tax-exempt organization 
causes its taxable subsidiary to pay excessive compensation to an 
individual who is a disqualified person with respect to the parent 
organization, such transaction would be an excess benefit transaction.
    \4\ Under present law, certain revenue sharing arrangements have 
been determined not to constitute private inurement (see e.g., GCM 
38283; GCM 38905; and GCM 39674) and, under the proposal, it would 
continue to be the case that not all revenue sharing arrangements would 
be improper private inurement. However, the Committee intends no 
inference that Treasury or the Internal Revenue Service are bound by 
any particular prior unpublished rulings in this area.
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    Existing tax-law standards (see sec. 162) apply in 
determining reasonableness of compensation and fair market 
value. 5 In applying such standards, the Committee intends 
that the parties to a transaction are entitled to rely on a 
rebuttable presumption of reasonableness with respect to a 
compensation arrangement with a disqualified person if such 
arrangement was approved by a board of directors or trustees 
(or committee thereof) that: (1) was composed entirely of 
individuals unrelated to and not subject to the control of the 
disqualified person(s) involved in the arrangement;\6\ (2) 
obtained and relied upon appropriate data as to comparability 
(e.g., compensation levels paid by similarly situated 
organizations, both taxable and tax-exempt, for functionally 
comparable positions; the location of the organization, 
including the availability of similar specialties in the 
geographic area; independent compensation surveys by nationally 
recognized independent firms; or actual written offers from 
similar institutions competing for the services of the 
disqualified person); and (3) adequately documented the basis 
for its determination (e.g., the record includes an evaluation 
of the individual whose compensation was being established and 
the basis for determining that the individual's compensation 
was reasonable in light of that evaluation and data).\7\ If 
these three criteria are satisfied, penalty excise taxes could 
be imposed under the proposal only if the IRS develops 
sufficient contrary evidence to rebut the probative value of 
the evidence put forth by the parties to the transaction (e.g., 
the IRS could establish that the compensation data relied upon 
by the parties was not for functionally comparable positions or 
that the disqualified person, in fact, did not substantially 
perform the responsibilities of such position). A similar 
rebuttable presumption would arise with respect to the 
reasonableness of the valuation of property sold or otherwise 
transferred (or purchased) by an organization to (or from) a 
disqualified person if the sale or transfer (or purchase) is 
approved by an independent board that uses appropriate 
comparability data and adequately documents its determination. 
The Secretary of the Treasury and IRS are instructed to issue 
guidance in connection with the reasonableness standard that 
incorporates this presumption.
    \5\ In this regard, the Committee intends that an individual need 
not necessarily accept reduced compensation merely because he or she 
renders services to a tax-exempt, as opposed to a taxable, 
organization. Cf. Treas. Reg. sec. 53.4941(d)-3(c)(1).
    \6\ A reciprocal approval arrangement whereby an individual 
approves compensation of the disqualified person, and the disqualified 
person, in turn, approves the individual's compensation does not 
satisfy the independence requirement.
    \7\ The fact that a State or local legislative or agency body may 
have authorized or approved of a particular compensation package paid 
to a disqualified person is not determinative of the reasonableness of 
compensation paid for purposes of the excise tax penalties provided for 
by the proposal. Similarly, such authorization or approval is not 
determinative of whether a revenue sharing arrangement violates the 
private inurement proscription.
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    The bill specifically provides that the payment of personal 
expenses and benefits to or for the benefit of disqualified 
persons, and non-fair-market-value transactions benefiting such 
persons, would be treated as compensation only if it is clear 
that the organization intended and made the payments as 
compensation for services. In determining whether such payments 
or transactions are, in fact, compensation, the relevant 
factors include whether the appropriate decision-making body 
approved the transfer as compensation in accordance with 
established procedures and whether the organization and the 
recipient reported the transfer (except in the case of non-
taxable fringe benefits) as compensation on the relevant forms 
(i.e., the organization's Form 990, the Form W-2 or Form 1099 
provided by the organization to the recipient, the recipient's 
Form 1040, and other required returns). 8
    \8\ With the exception of nontaxable fringe benefits described in 
present-law section 132 and other types of nontaxable transfers such as 
employer-provided health benefits and contributions to qualified 
pension plans, an organization cannot demonstrate at the time of an IRS 
audit that it clearly indicated its intent to treat economic benefits 
provided to a disqualified person as compensation for services merely 
by claiming that such benefits may be viewed as part of the 
disqualified person's total compensation package. Rather, the 
organization would be required to provide substantiation that is 
contemporaneous with the transfer of economic benefits at issue.
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    Consistent with the rule that payment of personal expenses 
and benefits to or for the benefit of disqualified persons and 
nonfair-market value transactions benefiting such persons are 
treated as compensation only if it is clear that the 
organization intended and made the payments as compensation for 
services, any reimbursements by the organization of excise tax 
liability are treated as an excess benefit unless they are 
included in the disqualified person's compensation during the 
year the reimbursement is made. The total compensation package, 
including the amount of any reimbursement, is subject to the 
reasonableness requirement. Similarly, the payment by an 
applicable tax-exempt organization of premiums for an insurance 
policy providing liability insurance to a disqualified person 
for excess benefit taxes is an excess benefit transaction 
unless such premiums are treated as part of the compensation 
paid to such disqualified person. 9
    \9\ In addition, because individuals may be both members of, and 
disqualified persons with respect to, a non-exclusive applicable tax-
exempt organization (e.g., a museum or neighborhood civic organization) 
and receive certain benefits (e.g., free admission, discounted gift 
shop purchases) in their capacity as members (rather than in their 
capacity as disqualified persons), the Committee expects that the 
Treasury Department will provide guidance clarifying that such 
membership benefits may be excluded from consideration under the 
private inurement proscription and intermediate sanction rules.
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    ``Disqualified person'' means any individual who is in a 
position to exercise substantial influence over the affairs of 
the organization, whether by virtue of being an organization 
manager or otherwise.\10\ In addition, ``disqualified persons'' 
include certain family members and 35-percent owned entities 
11 of a disqualified person, as well as any person who was 
a disqualified person at any time during the five-year period 
prior to the transaction at issue. A person having the title of 
``officer, director, or trustee'' does not automatically have 
the status of a disqualified person.\12\ In addition, the 
Secretary of Treasury has authority to promulgate rules 
exempting broad categories of individuals from the category of 
``disqualified persons'' (e.g., full-time bona fide employees 
who receive economic benefits of less than a threshold amount 
or persons who have taken a vow of poverty).
    \10\ Under the bill, a person could be in a position to exercise 
substantial influence over a tax- exempt organization despite the fact 
that such person is not an employee of (and receives no compensation 
directly from) a tax-exempt organization, but is formally an employee 
of (and is directly compensated by) a subsidiary--even a taxable 
subsidiary--controlled by the parent tax- exempt organization.
    \11\ Family members are determined under present-law section 
4946(d), except that such members also would include siblings (whether 
by whole or half blood) of the individual, and spouses of such 
siblings. ``35-percent owned entities'' mean corporations in which 
disqualified persons own stock possessing more than 35 percent of the 
combined voting power, as well as partnerships and trusts or estates in 
which disqualified persons own more than 35 percent of the profits 
interest or beneficial interest. As under present-law section 4946(a), 
the term ``combined voting power'' includes voting power represented by 
holdings of voting stock, actual or constructive, but does not include 
voting rights held only as a director or trustee. See Treas. Reg. sec. 
53.4946-1(a)(5).
    \12\ The IRS has issued a general counsel memorandum indicating 
that all physicians are considered ``insiders'' for purposes of 
applying the private inurement proscription. The Committee intends that 
physicians will be disqualified persons only if they are in a position 
to exercise substantial influence over the affairs of an organization.
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    A disqualified person who benefits from an excess benefit 
transaction is subject to a first-tier penalty tax equal to 25 
percent of the amount of the excess benefit (i.e., the amount 
by which a transaction differs from fair market value, the 
amount of compensation exceeding reasonable compensation, or 
(under Treasury regulations) the amount of a prohibited 
transaction based on the organization's gross or net income). 
Organization managers who participate in an excess benefit 
transaction knowing that it is an improper transaction are 
subject to a first-tier penalty tax of 10 percent of the amount 
of the excess benefit (subject to a maximum penalty of 
$10,000).\13\
    \13\ In determining who is an organization manager, the Committee 
intends that principles similar to those set forth in regulations 
issued under sections 4946 and 4955 with respect to final authority or 
responsibility for an expenditure be applied. (See Treas. Reg. secs. 
53.4946-1(f)(1)(ii), 53.4946-1(f)(2), 53.4955-1(b)(2)(ii)(B), and 
53.4955-1(b)(2)(iii)).
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    Additional, second-tier taxes may be imposed on a 
disqualified person if there is no correction of the excess 
benefit transaction within a specified time period.\14\ In such 
cases, the disqualified person is subject to a penalty tax 
equal to 200 percent of the amount of excess benefit. For this 
purpose, the term ``correction'' means undoing the excess 
benefit to the extent possible and taking any additional 
measures necessary to place the organization in a financial 
position not worse than that in which it would be if the 
disqualified person were dealing under the highest fiduciary 
standards.
    \14\ Correction must be made on or prior to the earlier of (1) the 
date of mailing of a notice of deficiency under section 6212 with 
respect to the first-tier penalty excise tax imposed on the 
disqualified person, or (2) the date on which such tax is assessed.
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    The intermediate sanctions for ``excess benefit 
transactions'' may be imposed by the IRS in lieu of (or in 
addition to) revocation of an organization's tax-exempt 
status.\15\ If more than one disqualified person or manager is 
liable for a penalty excise tax, then all such persons are 
jointly and severally liable for such tax. As under current 
law, a three-year statute of limitations applies, except in the 
case of fraud (sec. 6501). Under the bill, the IRS has 
authority to abate the excise tax penalty (under present-law 
section 4962) if it is established that the violation was due 
to reasonable cause and not due to willful neglect and the 
transaction at issue was corrected within the specified period.
    \15\ In general, the intermediate sanctions are the sole sanction 
imposed in those cases in which the excess benefit does not rise to a 
level where it calls into question whether, on the whole, the 
organization functions as a charitable or other tax-exempt 
organization. In practice, revocation of tax-exempt status, with or 
without the imposition of excise taxes, would occur only when the 
organization no longer operates as a charitable organization.
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    To prevent avoidance of the penalty excise taxes in cases 
of private inurement of assets of a previously tax-exempt 
organization, the bill provides that an organization will be 
treated as an applicable tax-exempt organization subject to the 
excise taxes on excess benefit transactions if, at any time 
during the 5-year period preceding the transaction, it was a 
tax-exempt organization described in section 501(c)(3) or 
501(c)(4), or a successor to such an organization.
    Effective date.--The provision generally applies to excess 
benefit transactions occurring on or after September 14, 1995. 
The provision does not apply, however, to any benefits arising 
out of a transaction pursuant to a written contract which was 
binding on September 13, 1995, and at all times thereafter 
before such benefits arose, and the terms of which have not 
materially changed.
    In addition, the Committee intends that parties to 
transactions entered into after September 13, 1995, and before 
January 1, 1997, are entitled to rely on the rebuttable 
presumption of reasonableness if, within a reasonable period 
(e.g., 90 days) after entering into the compensation package, 
the parties satisfy the three criteria that give rise to the 
presumption. After December 31, 1996, the rebuttable 
presumption should arise only if the three criteria are 
satisfied prior to payment of the compensation (or, to the 
extent provided by the Secretary of the Treasury, within a 
reasonable period thereafter).

Additional filing and public disclosure rules

    Reporting of information with respect to certain 
disqualified persons, excise tax penalties and excess benefit 
transactions.--Tax-exempt organizations are required to 
disclose on their Form 990 such information with respect to 
disqualified persons as the Secretary of the Treasury may 
prescribe. The Committee intends that this requirement is not 
intended to limit the Secretary's authority under section 
6033(a)(1) to require information on annual returns filed by 
exempt organizations for the purpose of carrying out the 
internal revenue laws. In addition, exempt organizations are 
required to disclose on their Form 990 such information as the 
Secretary of the Treasury may require with respect to ``excess 
benefit transactions'' (described above) and any other excise 
tax penalties paid during the year under present-law sections 
4911 (excess lobbying expenditures), 4912 (disqualifying 
lobbying expenditures), or 4955 (political expenditures), 
including the amount of the excise tax penalties paid with 
respect to such transactions, the nature of the activity, and 
the parties involved. 16
    \16\ The penalties applicable to failure to file a timely, 
complete, and accurate return apply for failure to comply with these 
requirements. In addition, the Committee intends that the IRS implement 
its plan to require additional Form 990 reporting regarding (1) changes 
to the governing board or the certified accounting firm, (2) such 
information as the Treasury Secretary may require relating to 
professional fundraising fees paid by the organization, and (3) 
aggregate payments (by related entities) in excess of $100,000 to the 
highest-paid employees.
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    Furnishing copies of documents.--The bill also provides 
that a tax-exempt organization that is subject to the public 
inspection rules of present-law section 6104(e)(1) (i.e., any 
tax-exempt organization, other than a private foundation, that 
files a Form 990) is required to comply with requests made in 
writing or in person from individuals who seek a copy of the 
organization's Form 990 or the organization's application for 
recognition of tax-exempt status and certain related documents. 
Upon such a request, the organization is required to supply 
copies without charge other than a reasonable fee for 
reproduction and mailing costs. If so requested, copies must be 
supplied of the Forms 990 for any of the organization's three 
most recent taxable years. If the request for copies is made in 
person, then the organization must immediately provide such 
copies. If the request for copies is made in writing, then 
copies must be provided within 30 days. However, an 
organization may be relieved of its obligation to provide 
copies if, in accordance with regulations to be promulgated by 
the Secretary of the Treasury, (1) the organization has made 
the requested documents widely available or (2) the Secretary 
of the Treasury determined, upon application by the 
organization, that the organization was subject to a harassment 
campaign such that a waiver of the obligation to provide copies 
would be in the public interest.
    Penalties for failure to file timely or complete return.--
The section 6652(c)(1)(A) penalty imposed on a tax-exempt 
organization that either fails to file a Form 990 in a timely 
manner or fails to include all required information on a Form 
990 is increased from the present-law level of $10 for each day 
the failure continues (with a maximum penalty with respect to 
any one return of the lesser of $5,000 or five percent of the 
organization's gross receipts) to $20 for each day the failure 
continues (with a maximum penalty with respect to any one 
return of the lesser of $10,000 or five percent of the 
organization's gross receipts). Under the bill, organizations 
with annual gross receipts exceeding $1 million are subject to 
a penalty under section 6652(c)(1)(A) of $100 for each day the 
failure continues (with a maximum penalty with respect to any 
one return of $50,000). As under present law, no penalty may be 
imposed under section 6652(c)(1)(A) if it were shown that the 
failure to file a complete return was due to reasonable cause 
(sec. 6652(c)(3)).
    Penalties for failure to allow public inspection or provide 
copies.--The section 6652(c)(1)(C) penalty imposed on tax-
exempt organizations that fail to allow public inspection or 
provide copies of certain annual returns or applications for 
exemption is increased from the present-law level of $10 per 
day (with a maximum of $5,000) to $20 per day (with a maximum 
of $10,000). In addition, the section 6685 penalty for willful 
failure to allow public inspections or provide copies is 
increased from the present-law level of $1,000 to $5,000.
    Effective date.--The public inspection provisions governing 
tax-exempt organizations generally apply to requests made no 
earlier than 60 days after the date on which the Treasury 
Department publishes the anti-harassment regulations required 
under the provisions. However, the Committee expects that 
organizations will comply voluntarily with the public 
inspection provisions prior to the issuance of such 
regulations. The provisions regarding the reporting on annual 
returns of excise tax penalties and excess benefit transactions 
are effective for returns with respect to taxable years 
beginning on or after the date of enactment.

                      III. Votes of the Committee

    In compliance with clause 2(l)(2)(B) of rule XI of the 
Rules of the House of Representatives, the following statement 
is made concerning the votes of the Committee in its 
consideration of the bill, H.R. 2337.
            Motion to report the bill
    The bill, H.R. 2337, as amended, was ordered favorably 
reported by voice vote on March 21, 1996, with a quorum 
present.

                     IV. Budget Effects of the Bill

               A. Committee Estimate of Budgetary Effects

    In compliance with clause 7(a) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the effects on the budget of the bill, H.R. 2337, as 
reported.
    The bill, as amended, is estimated to have the following 
effects on budget receipts for fiscal years 1996-2002:

                      ESTIMATED BUDGET EFFECTS OF H.R. 2337 AS APPROVED BY THE COMMITTEE ON WAYS AND MEANS, FISCAL YEARS 1996-2002                      
                                                                  [Millions of Dollars]                                                                 
--------------------------------------------------------------------------------------------------------------------------------------------------------
             Provision                   Effective        1996       1997       1998       1999       2000       2001       2002     1996-00    1996-02 
--------------------------------------------------------------------------------------------------------------------------------------------------------
    I. Taxpayer Bill of Rights 2                                                                                                                        
          (Titles I-XIII)                                                                                                                               
                                                                                                                                                        
 1. Establishment of position of     DOE                                                                                                                
 Taxpayer Advocate.                                                                                                                                     
(8) No Revenue Effect                                                                                                                                   
 2. Expansion of authority to issue  DOE                                                                                                                
 Taxpayer Assistance Orders.                                                                                                                            
(8) No Revenue Effect                                                                                                                                   
 3. Notification of reasons for      6 ma DOE                                                                                                           
 termination of installment                                                                                                                             
 agreements.                                                                                                                                            
(8) No Revenue Effect                                                                                                                                   
 4. Administrative review of         1/1/97                                                                                                             
 termination of installment                                                                                                                             
 agreements.                                                                                                                                            
(8) No Revenue Effect                                                                                                                                   
 5. Expansion of authority to abate  DOE                   (\1\)      (\1\)      (\1\)      (\1\)      (\1\)      (\1\)      (\1\)      (\2\)      (\2\)
 interest.                                                                                                                                              
 6. Review of IRS failure to abate   DOE                   (\1\)      (\1\)      (\1\)      (\1\)      (\1\)      (\1\)      (\1\)      (\2\)      (\2\)
 interest.                                                                                                                                              
 7. Extension of interest-free       6/30/96                  -2         -7         -8         -8         -8         -9         -9        -33        -51
 period for payment of tax.                                                                                                                             
 8. Abate penalty for failure to                                                                                                                        
 deposit payroll tax:                                                                                                                                   
     a. On-budget..................  DOE                     -23         -1         -1         -1         -1         -1         -1        -27        -29
     b. Off-budget (not reflected    DOE                     -38         -1         -1         -1         -1         -1         -1        -42        -44
     in net total).                                                                                                                                     
 9. Studies of joint return-related  DOE                                                                                                                
 issues.                                                                                                                                                
(8) No Revenue Effect                                                                                                                                   
10. Joint return may be made after   DOE                   (\1\)      (\1\)      (\1\)      (\1\)      (\1\)      (\1\)      (\1\)      (\2\)      (\2\)
 separate returns without full                                                                                                                          
 payment of tax.                                                                                                                                        
11. Disclosure of collection         DOE                                                                                                                
 activities.                                                                                                                                            
(8) No Revenue Effect                                                                                                                                   
12. Withdraw notice of lien........  1/1/97                                                                                                             
(8) No Revenue Effect                                                                                                                                   
13. Return levied property.........  1/1/97                                                                                                             
(8) No Revenue Effect                                                                                                                                   
14. Increase levy exemption........  1/1/97            .........      (\1\)      (\1\)      (\1\)      (\1\)      (\1\)      (\1\)      (\2\)      (\2\)
15. Offers-in-compromise...........  DOE                   (\1\)      (\1\)      (\1\)      (\1\)      (\1\)      (\1\)      (\1\)      (\2\)      (\2\)
16. Civil damages for fraudulent     DOE                                                                                                                
 filing of information return.                                                                                                                          
(8) No Revenue Effect                                                                                                                                   
17. Requirement to conduct           DOE                      -3         -6         -6         -6         -7         -8         -8        -28        -44
 reasonable investigation.                                                                                                                              
18. United States must establish     DOE                      -2         -2         -2         -3         -3         -3         -3        -12        -18
 that position in proceeding was                                                                                                                        
 substantially jusitified.                                                                                                                              
19. Increased limit on attorney      DOE                      -1         -1         -1         -1         -1         -1         -1         -5         -7
 fees.                                                                                                                                                  
20. Failure to agree to extension    DOE                                                                                                                
 not taken into account.                                                                                                                                
(8) No Revenue Effect                                                                                                                                   
21. Award of litigation costs        DOE                   (\1\)      (\1\)      (\1\)      (\1\)      (\1\)      (\1\)      (\1\)      (\2\)      (\2\)
 permitted in declaratory judgment                                                                                                                      
 proceedings.                                                                                                                                           
22. Increase in limit on recovery    DOE                      -3         -3         -3         -3         -3         -3         -3        -15        -21
 of civil damages.                                                                                                                                      
23. Court discretion to reduce       DOE                      -1         -1         -1         -1         -1         -1         -1         -5         -7
 award for litigation costs.                                                                                                                            
24. Preliminary notice requirement.  6/30/96                                                                                                            
(8) No Revenue Effect                                                                                                                                   
25. Disclosure of certain            DOE                                                                                                                
 information where more than one                                                                                                                        
 person liable for penalty.                                                                                                                             
(8) No Revenue Effect                                                                                                                                   
26. Right of contribution where      DOE                                                                                                                
 more than one person liable for                                                                                                                        
 penalty.                                                                                                                                               
(8) No Revenue Effect                                                                                                                                   
27. Volunteer board members of tax-  DOE                                                                                                                
 exempt organizations exempt from                                                                                                                       
 penalty.                                                                                                                                               
(8) No Revenue Effect                                                                                                                                   
28. Enrolled agents included as      DOE                   (\1\)      (\1\)      (\1\)      (\1\)      (\1\)      (\1\)      (\1\)      (\2\)      (\2\)
 third-party recordkeepers.                                                                                                                             
29. Safeguards relating to           DOE                   (\1\)      (\1\)      (\1\)      (\1\)      (\1\)      (\1\)      (\1\)      (\2\)      (\2\)
 designated summonses.                                                                                                                                  
30. Report on designated summonses.  DOE                                                                                                                
(8) No Revenue Effect                                                                                                                                   
31. Relief from retroactive          DOE               .........         -1         -4         -4         -4         -4         -4        -13        -21
 application of Treasury Department                                                                                                                     
 regulations with 18 month safe-                                                                                                                        
 harbor.                                                                                                                                                
32. Phone number of person           1/1/97                                                                                                             
 providing payee statements.                                                                                                                            
(8) No Revenue Effect                                                                                                                                   
33. Required notice of certain       DOE                                                                                                                
 payments.                                                                                                                                              
(8) No Revenue Effect                                                                                                                                   
34. Unauthorized enticement of       DOE                                                                                                                
 information disclosure.                                                                                                                                
(8) No Revenue Effect                                                                                                                                   
35. Annual reminders to taxpayers    1/1/97            .........      (\3\)      (\3\)      (\3\)      (\3\)      (\3\)      (\3\)      (\4\)      (\4\)
 with delinquent accounts.                                                                                                                              
36. Reinstatement of authority for   DOE                   (\3\)      (\3\)      (\3\)      (\3\)      (\3\)      (\3\)      (\3\)      (\4\)      (\4\)
 undercover operations through 12/                                                                                                                      
 31/00.                                                                                                                                                 
37. Disclosure of returns            DOE                                                                                                                
 concerning cash transactions.                                                                                                                          
(8) No Revenue Effect                                                                                                                                   
38. Disclosure of returns and        DOE                                                                                                                
 return information to designee of                                                                                                                      
 taxpayer.                                                                                                                                              
(8) No Revenue Effect                                                                                                                                   
39. Study of netting of interest on  DOE                                                                                                                
 overpayments and liabilities.                                                                                                                          
(8) No Revenue Effect                                                                                                                                   
40. Expenses of detection of         6 ma DOE                                                                                                           
 underpayments and fraud.                                                                                                                               
(8) Negligible Revenue Effect                                                                                                                           
41. Use of private delivery          DOE                                                                                                                
 services for ``timely-mailing-as-                                                                                                                      
 timely-filing'' rule.                                                                                                                                  
(8) No Revenue Effect                                                                                                                                   
42. Reports on misconduct by IRS     DOE                                                                                                                
 employees.                                                                                                                                             
(8) No Revenue Effect                                                                                                                                   
                                    --------------------------------------------------------------------------------------------------------------------
    Subtotal: Taxpayer Bill of       ................        -35        -22        -26        -27        -28        -30        -30       -138       -198
     Rights 2.                                                                                                                                          
                                    ====================================================================================================================
                                                                                                                                                        
  II. REVENUE OFFSETS (Title XIII)                                                                                                                      
                                                                                                                                                        
 1. Apply failure to pay penalty to  rda DOE                   1          3         29         30         32         33         35         95        163
 substitute returns.                                                                                                                                    
 2. Intermediate sanctions for       9/14/95/ 1/1/96           4          4          4          5          5          5          6         22         33
 certain tax-exempt organizations.                                                                                                                      
                                    --------------------------------------------------------------------------------------------------------------------
    Subtotal: Revenue Offsets......  ................          5          7         33         35         37         38         41        117        196
                                    ====================================================================================================================
      Net totals...................  ................        -30        -15          7          8          9          8         11        -21         -2
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Joint Committee on Taxation:                                                                                                                    
                                                                                                                                                        
\1\ Loss of less than $1 million.                                                                                                                       
\2\ Loss of less than $5 million.                                                                                                                       
\3\ Gain of less than $1 million.                                                                                                                       
\4\ Gain of less than $5 million.                                                                                                                       
\5\ Gain of less than $10 million.                                                                                                                      
\6\ Estimates provided by the Congressional Budget Office (CBO).                                                                                        
                                                                                                                                                        
Note: Details may not add to totals due to rounding.                                                                                                    
Legend for ``Effective'' column: DOE=date of enactment; rda DOE-returns due after date of enactment; 6 ma DOE=6 months after date of enactment.         

    B. Statement Regarding New Budget Authority and Tax Expenditures

    In compliance with subdivision (B) of clause 2(l)(3) of 
rule XI of the Rules of the House of Representatives, the 
Committee states that the bill, as amended, involves no new or 
increased budget authority or tax expenditures.

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with subdivision (C) of clause 2(l)(3) of 
rule XI of the Rules of the House of Representatives, requiring 
a cost estimate prepared by the Congressional Budget Office 
(CBO), the following statement by CBO is provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                    Washington, DC, March 27, 1996.
Hon. Bill Archer,
Chairman, Committee on Ways and Means, U.S. House of Representatives, 
        Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office and the 
Joint Committee on Taxation (JCT) have reviewed H.R. 2337, the 
``Taxpayer Bill of Rights,'' as ordered reported by the House 
Committee on Ways and Means on March 21, 1996. The JCT 
estimates that this bill would decrease governmental receipts 
by $30 million in fiscal year 1996 and by $21 million over 
fiscal years 1996 through 2000. The revenue effects of H.R. 
2337 are summarized in the table below. Please refer to the 
enclosed table for a more detailed estimate of the bill.

                                          REVENUE EFFECTS OF H.R. 2337                                          
                                    [By fiscal year, in billions of dollars]                                    
----------------------------------------------------------------------------------------------------------------
                                        1996       1997       1998       1999       2000       2001       2002  
----------------------------------------------------------------------------------------------------------------
Projected revenues under current                                                                                
 law a.............................   1417.581   1475.165   1546.076   1617.969   1697.155   1786.356   1879.335
Proposed changes:..................     -0.030     -0.015      0.007      0.008      0.009      0.008      0.011
Projected revenues under H.R. 2337.   1417.551   1475.150   1546.083   1617.977   1697.164   1786.364  1879.346 
----------------------------------------------------------------------------------------------------------------
a. Includes the revenue effects of P.L. 104-7 (H.R. 831), and P.L. 104-117 (H.R. 2778).                         

    In accordance with the requirements of Public Law 104-4, 
the Unfunded Mandates Reform Act of 1995, JCT has determined 
that the provisions of the bill contain one unfunded 
intergovernmental mandate and three unfunded private sector 
mandates. These provisions would impose direct costs on the 
private sector of less than $100 million in each year and on 
governmental units of less than $50 million in each year from 
1996-2002. Please refer to the enclosed letter for a more 
detailed account of these provisions.
    Section 252 of the Balanced Budget and Emergency Deficit 
Control Act of 1985 sets up pay-as-you-go procedures for 
legislation affecting receipts or direct spending through 1998. 
Because H.R. 2337 would affect receipts, pay-as-you-go 
procedures would apply to the bill. These effects are 
summarized in the table below.

                      PAY-AS-YOU-GO CONSIDERATIONS                      
                [By fiscal year, in millions of dollars]                
------------------------------------------------------------------------
                                            1996       1997       1998  
------------------------------------------------------------------------
Changes in receipts....................        -30        -15          7
Changes in outlays.....................        (2)                      
(2) Not Applicable                                                      
------------------------------------------------------------------------

    If you wish further details, please feel free to contact me 
or your staff may wish to contact Stephanie Weiner.
            Sincerely,
                                 June E. O'Neill, Director.
                              ----------                              

                                     U.S. Congress,
                               Joint Committee on Taxation,
                                    Washington, DC, March 27, 1996.
Mrs. June O'Neill,
Director, Congressional Budget Office, U.S. Congress, Washington, DC.
    Dear Mrs. O'Neill: We have reviewed H.R. 2337, the 
``Taxpayer Bill of Rights 2,'' as amended and passed by the 
House Committee on Ways and Means on March 21, 1996. In 
accordance with the requirements of Public Law 104-4, the 
Unfunded Mandates Reform Act of 1995 (the ``Unfunded Mandates 
Act''), we have determined that the provisions of the bill 
contain one unfunded intergovernmental mandate and three 
unfunded private sector mandates.
    Section 1201 of the bill requires that information returns 
include the phone number of the information contact. This is in 
addition to other information (such as name and address of the 
payor) that is already required to be included on information 
returns. The bill does not require that any additional 
information returns be filed. This provision would impose 
direct costs on the private sector of less than $100 million in 
each year and on governmental units of less than $50 million in 
each year 1996-2002.
    Section 1311 of the bill extends the private inurement 
prohibition currently applicable to organization exempt from 
tax under Code section 501(c)(3) to organizations exempt from 
tax under Code section 501(c)(4). Section 1312 of the bill 
requires tax-exempt organizations to disclose on their annual 
information returns certain information with respect to 
disqualified persons, excise tax penalties, and excess benefit 
transactions. This information would be in addition to the 
information currently required to be provided. These provisions 
would impose direct costs on the private sector of less than 
$100 million in each year 1996-2002.
    If you would like to discuss this matter in further detail, 
please feel free to contact me. Thank you for your cooperation 
in this matter.
            Sincerely,
                           Kenneth J. Kies, Chief of Staff.

     V. Other Matters To Be Discussed Under the Rules of the House

          A. Committee Oversight Findings and Recommendations

    With respect to subdivision (A) of clause 2(l)(3) of rule 
XI of the Rules of the House of Representatives (relating to 
oversight findings), the Committee advises that it was a result 
of the Committee's oversight activities concerning protection 
of taxpayer rights and needed revenue offsets (applying 
failure-to-pay penalty to substitute returns and intermediate 
sanctions for certain tax-exempt organizations) that the 
Committee concluded that it is appropriate and timely to enact 
the provisions contained in the bill as amended.

    B. Summary of Findings and Recommendations of the Committee on 
                    Government Reform and Oversight

    With respect to subdivision (D) of clause 2(l)(3) of rule 
XI of the Rules of the House of Representatives, the Committee 
advises that no oversight findings or recommendations have been 
submitted to this Committee by the Committee on Government 
Reform and Oversight with respect to the provisions contained 
in the bill.

                    C. Inflationary Impact Statement

    In compliance with clause 2(l)(4) of rule XI of the Rules 
of the House of Representatives, the Committee states that the 
provisions of the bill are not expected to have an overall 
inflationary impact on prices and costs in the national 
economy. As indicated in Part IV.A of this report, the 
estimated net budget effect of the bill, as amended, is 
projected to be a revenue reduction of only $2 million over the 
fiscal year period, 1996-2002.

              D. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995 (Public Law 104-4).
    The Committee has determined that the provisions of the 
bill contain one intergovernmental mandate and three unfunded 
private sector mandates.
    Section 1201 of the bill requires that information returns 
include the telephone number of the information contact of the 
person required to make the information return. Currently, 
payors are only required to provide their names and addresses 
on information returns. This information would be in addition 
to the information that is currently required to be provided, 
but the bill would not require that any additional information 
returns be filed. The Committee believes that inclusion of the 
telephone number of the payor's information contact will make 
it easier for taxpayers to resolve questions about the accuracy 
of the information provided to the IRS on the information 
return. This provision would impose direct costs on the private 
sector of less than $100 million in each year and on 
governmental units of less than $50 million in each year 1996-
2002.
    Section 1311 of the bill extends the private inurement 
prohibition currently applicable to organizations exempt from 
tax under Code section 501(c)(3) to organizations exempt from 
tax under Code section 501(c)(4). Section 1312 of the bill 
requires tax-exempt organizations to disclose on their annual 
information returns certain information with respect to 
disqualified persons, excise taxes on amounts of private excess 
benefits, and excess benefit transactions. This information 
would be in addition to the information currently required to 
be provided, but the bill would not require that any additional 
information returns be filed. The Committee believes that 
inclusion of this information will enhance the oversight and 
public accountability of nonprofit organizations. These 
provisions would impose direct costs on the private sector of 
less than $100 million in each year 1996-2002.

                 E. Applicability of House Rule XXI5(c)

    Rule XXI5(c) of the Rules of the House of Representatives 
provides that ``No bill or joint resolution, amendment, or 
conference report carrying a Federal income tax rate increase 
shall be considered as passed or agreed to unless so determined 
by a vote of not less than three-fifths of the Members 
voting.'' The Committee has carefully reviewed the provisions 
of the bill to determine whether any of these provisions 
constitute a Federal income tax rate increase within the 
meaning of the House rules. It is the opinion of the Committee 
that there is no provision in the bill that constitutes a 
Federal income tax rate increase within the meaning of House 
rule XXI5(c) or (d).

       VI. Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3 of rule XIII of the Rules of the 
House of Representatives, changes in existing law made by the 
bill, as reported, are shown as follows (existing law proposed 
to be omitted is enclosed in black brackets, new matter is 
printed in italic, existing law in which no change is proposed 
is shown in roman):

                     INTERNAL REVENUE CODE OF 1986

          * * * * * * *

                        Subtitle A--Income Taxes

          * * * * * * *

                  CHAPTER 1--NORMAL TAXES AND SURTAXES

          * * * * * * *

                   Subchapter F--Exempt Organizations

                          PART I--GENERAL RULE

          * * * * * * *

SEC. 501. EXEMPTION FROM TAX ON CORPORATIONS, CERTAIN TRUSTS, ETC.

  (a) * * *
          * * * * * * *
  (c) List of Exempt Organizations.--The following 
organizations are referred to in subsection (a):
          (1) * * *
          * * * * * * *
          (4)(A) Civic leagues or organizations not organized 
        for profit but operated exclusively for the promotion 
        of social welfare, or local associations of employees, 
        the membership of which is limited to the employees of 
        a designated person or persons in a particular 
        municipality, and the net earnings of which are devoted 
        exclusively to charitable, educational, or recreational 
        purposes.
          (B) Subparagraph (A) shall not apply to an entity 
        unless no part of the net earnings of such entity 
        inures to the benefit of any private shareholder or 
        individual.
          * * * * * * *

                 Subtitle D--Miscellaneous Excise Taxes

          * * * * * * *

  CHAPTER 42--PRIVATE EXEMPT FOUNDATIONS AND CERTAIN OTHER TAX-EXEMPT 
                             ORGANIZATIONS

          * * * * * * *
        [Subchapter D. Abatement of first and second tier taxes in 
                  certain cases.]
        Subchapter D. Failure by certain charitable organizations to 
                  meet certain qualification requirements.
        Subchapter E. Abatement of first and second tier taxes in 
                  certain cases.
          * * * * * * *

Subchapter C--Political Expenditures of Section 501(c)(3) Organizations

          * * * * * * *

SEC. 4955. TAXES ON POLITICAL EXPENDITURES OF SECTION 501(c)(3) 
                    ORGANIZATIONS.

  (a) * * *
          * * * * * * *
  (e) Coordination With [Section 4945] Sections 4945 and 
4958.--If tax is imposed under this section with respect to any 
political expenditure, such expenditure shall not be treated as 
a taxable expenditure for purposes of section 4945 or an excess 
benefit for purposes of section 4958.
          * * * * * * *

   Subchapter D--Failure by Certain Charitable Organizations To Meet 
                   Certain Qualification Requirements

        Sec. 4958. Taxes on excess benefit transactions.

SEC. 4958. TAXES ON EXCESS BENEFIT TRANSACTIONS.

  (a) Initial Taxes.--
          (1) On the disqualified person.--There is hereby 
        imposed on each excess benefit transaction a tax equal 
        to 25 percent of the excess benefit. The tax imposed by 
        this paragraph shall be paid by any disqualified person 
        referred to in subsection (f)(1) with respect to such 
        transaction.
          (2) On the management.--In any case in which a tax is 
        imposed by paragraph (1), there is hereby imposed on 
        the participation of any organization manager in the 
        excess benefit transaction, knowing that it is such a 
        transaction, a tax equal to 10 percent of the excess 
        benefit, unless such participation is not willful and 
        is due to reasonable cause. The tax imposed by this 
        paragraph shall be paid by any organization manager who 
        participated in the excess benefit transaction.
  (b) Additional Tax on the Disqualified Person.--In any case 
in which an initial tax is imposed by subsection (a)(1) on an 
excess benefit transaction and the excess benefit involved in 
such transaction is not corrected within the taxable period, 
there is hereby imposed a tax equal to 200 percent of the 
excess benefit involved. The tax imposed by this subsection 
shall be paid by any disqualified person referred to in 
subsection (f)(1) with respect to such transaction.
  (c) Excess Benefit Transaction; Excess Benefit.--For purposes 
of this section--
          (1) Excess benefit transaction.--
                  (A) In general.--The term ``excess benefit 
                transaction'' means any transaction in which an 
                economic benefit is provided by an applicable 
                tax-exempt organization directly or indirectly 
                to or for the use of any disqualified person if 
                the value of the economic benefit provided 
                exceeds the value of the consideration 
                (including the performance of services) 
                received for providing such benefit. For 
                purposes of the preceding sentence, an economic 
                benefit shall not be treated as consideration 
                for the performance of services unless such 
                organization clearly indicated its intent to so 
                treat such benefit.
                  (B) Excess benefit.--The term ``excess 
                benefit'' means the excess referred to in 
                subparagraph (A).
          (2) Authority to include certain other private 
        inurement.--To the extent provided in regulations 
        prescribed by the Secretary, the term ``excess benefit 
        transaction'' includes any transaction in which the 
        amount of any economic benefit provided to or for the 
        use of a disqualified person is determined in whole or 
        in part by the revenues of 1 or more activities of the 
        organization but only if such transaction results in 
        inurement not permitted under paragraph (3) or (4) of 
        section 501(c), as the case may be. In the case of any 
        such transaction, the excess benefit shall be the 
        amount of the inurement not so permitted.
  (d) Special Rules.--For purposes of this section--
          (1) Joint and several liability.--If more than 1 
        person is liable for any tax imposed by subsection (a) 
        or subsection (b), all such persons shall be jointly 
        and severally liable for such tax.
          (2) Limit for management.--With respect to any 1 
        excess benefit transaction, the maximum amount of the 
        tax imposed by subsection (a)(2) shall not exceed 
        $10,000.
  (e) Applicable Tax-Exempt Organization.--For purposes of this 
subchapter, the term ``applicable tax-exempt organization'' 
means--
          (1) any organization which (without regard to any 
        excess benefit) would be described in paragraph (3) or 
        (4) of section 501(c) and exempt from tax under section 
        501(a), and
          (2) any organization which was described in paragraph 
        (1) at any time during the 5-year period ending on the 
        date of the transaction.
Such term shall not include a private foundation (as defined in 
section 509(a)).
  (f) Other Definitions.--For purposes of this section--
          (1) Disqualified person.--The term ``disqualified 
        person'' means, with respect to any transaction--
                  (A) any person who was, at any time during 
                the 5-year period ending on the date of such 
                transaction, in a position to exercise 
                substantial influence over the affairs of the 
                organization,
                  (B) a member of the family of an individual 
                described in subparagraph (A), and
                  (C) a 35-percent controlled entity.
          (2) Organization manager.--The term ``organization 
        manager'' means, with respect to any applicable tax-
        exempt organization, any officer, director, or trustee 
        of such organization (or any individual having powers 
        or responsibilities similar to those of officers, 
        directors, or trustees of the organization).
          (3) 35-percent controlled entity.--
                  (A) In general.--The term ``35-percent 
                controlled entity'' means--
                          (i) a corporation in which persons 
                        described in subparagraph (A) or (B) of 
                        paragraph (1) own more than 35 percent 
                        of the total combined voting power,
                          (ii) a partnership in which such 
                        persons own more than 35 percent of the 
                        profits interest, and
                          (iii) a trust or estate in which such 
                        persons own more than 35 percent of the 
                        beneficial interest.
                  (B) Constructive ownership rules.--Rules 
                similar to the rules of paragraphs (3) and (4) 
                of section 4946(a) shall apply for purposes of 
                this paragraph.
          (4) Family members.--The members of an individual's 
        family shall be determined under section 4946(d); 
        except that such members also shall include the 
        brothers and sisters (whether by the whole or half 
        blood) of the individual and their spouses.
          (5) Taxable period.--The term ``taxable period'' 
        means, with respect to any excess benefit transaction, 
        the period beginning with the date on which the 
        transaction occurs and ending on the earliest of--
                  (A) the date of mailing a notice of 
                deficiency under section 6212 with respect to 
                the tax imposed by subsection (a)(1), or
                  (B) the date on which the tax imposed by 
                subsection (a)(1) is assessed.
          (6) Correction.--The terms ``correction'' and 
        ``correct'' mean, with respect to any excess benefit 
        transaction, undoing the excess benefit to the extent 
        possible, and taking any additional measures necessary 
        to place the organization in a financial position not 
        worse than that in which it would be if the 
        disqualified person were dealing under the highest 
        fiduciary standards.

 Subchapter [D] E--Abatement of First and Second Tier Taxes in Certain 
                                 Cases

          * * * * * * *

SEC. 4963. DEFINITIONS.

  (a) First Tier Tax.--For purposes of this subchapter, the 
term ``first tier tax'' means any tax imposed by subsection (a) 
of section 4941, 4942, 4943, 4944, 4945, 4951, 4952, 4955, 
4958, 4971, or 4975.
  (b) Second Tier Tax.--For purposes of this subchapter, the 
term ``second tier tax'' means any tax imposed by subsection 
(b) of section 4941, 4942, 4943, 4944, 4945, 4951, 4952, 4955, 
4958, 4971, or 4975.
  (c) Taxable Event.--For purposes of this subchapter, the term 
``taxable event'' means any act (or failure to act) giving rise 
to liability for tax under section 4941, 4942, 4943, 4944, 
4945, 4951, 4952, 4955, 4958, 4971, or 4975.

                Subtitle F--Procedure and Administration

          * * * * * * *

                  CHAPTER 61--INFORMATION AND RETURNS

          * * * * * * *

                   Subchapter A--Returns and Records

          * * * * * * *

                   PART II--TAX RETURNS OR STATEMENTS

          * * * * * * *

                     Subpart B--Income Tax Returns

          * * * * * * *

SEC. 6013. JOINT RETURNS OF INCOME TAX BY HUSBAND AND WIFE.

  (a) * * *
  (b) Joint Return After Filing Separate Return.--
          (1) * * *
          (2) Limitations for making of election.--The election 
        provided for in paragraph (1) may not be made--
                  [(A) unless there is paid in full at or 
                before the time of the filing of the joint 
                return the amount shown as tax upon such joint 
                return; or]
                  [(B)] (A) after the expiration of 3 years 
                from the last date prescribed by law for filing 
                the return for such taxable year (determined 
                without regard to any extension of time granted 
                to either spouse); or
                  [(C)] (B) after there has been mailed to 
                either spouse, with respect to such taxable 
                year, a notice of deficiency under section 
                6212, if the spouse, as to such notice, files a 
                petition with the Tax Court within the time 
                prescribed in section 6213; or
                  [(D)] (C) after either spouse has commenced a 
                suit in any court for the recovery of any part 
                of the tax for such taxable year; or
                  [(E)] (D) after either spouse has entered 
                into a closing agreement under section 7121 
                with respect to such taxable year, or after any 
                civil or criminal case arising against either 
                spouse with respect to such taxable year has 
                been compromised under section 7122.
          * * * * * * *

                     PART III--INFORMATION RETURNS

          * * * * * * *

Subpart A--Information Concerning Persons Subject to Special Provisions

          * * * * * * *

SEC. 6033. RETURNS BY EXEMPT ORGANIZATIONS.

  (a) * * *
  (b) Certain Organizations Described in Section 501(c)(3).--
Every organization described in section 501(c)(3) which is 
subject to the requirements of subsection (a) shall furnish 
annually information, at such time and in such manner as the 
Secretary may by forms or regulations prescribe, setting 
forth--
          (1) * * *
          * * * * * * *
          (9) such other information with respect to direct or 
        indirect transfers to, and other direct or indirect 
        transactions and relationships with, other 
        organizations described in section 501(c) (other than 
        paragraph (3) thereof) or section 527 as the Secretary 
        may require to prevent--
                  (A) diversion of funds from the 
                organization's exempt purpose, or
                  (B) misallocation of revenues or expenses, 
                [and]
          (10) the respective amounts (if any) of the taxes 
        paid by the organization during the taxable year under 
        the following provisions:
                  (A) section 4911 (relating to tax on excess 
                expenditures to influence legislation),
                  (B) section 4912 (relating to tax on 
                disqualifying lobbying expenditures of certain 
                organizations), and
                  (C) section 4955 (relating to taxes on 
                political expenditures of section 501(c)(3) 
                organizations),
          (11) the respective amounts (if any) of the taxes 
        paid by the organization, or any disqualified person 
        with respect to such organization, during the taxable 
        year under section 4958 (relating to taxes on private 
        excess benefit from certain charitable organizations),
          (12) such information as the Secretary may require 
        with respect to any excess benefit transaction (as 
        defined in section 4958),
          (13) such information with respect to disqualified 
        persons as the Secretary may prescribe, and
          [(10)] (14) such other information for purposes of 
        carrying out the internal revenue laws as the Secretary 
        may require.
          * * * * * * *
  (f) Certain Organizations Described in Section 501(c)(4).--
Every organization described in section 501(c)(4) which is 
subject to the requirements of subsection (a) shall include on 
the return required under subsection (a) the information 
referred to in paragraphs (11), (12) and (13) of subsection (b) 
with respect to such organization.
  [(f)] (g) Cross Reference.--

          For provisions relating to statements, etc., regarding exempt 
        status of organizations, see section 6001.
          * * * * * * *

   Subpart B--Information Concerning Transactions With Other Persons

          * * * * * * *

SEC. 6041. INFORMATION AT SOURCE.

  (a) * * *
          * * * * * * *
  (d) Statements To Be Furnished to Persons With Respect to 
Whom Information is Required.--Every person required to make a 
return under subsection (a) shall furnish to each person with 
respect to whom such a return is required a written statement 
showing--
  (1) the [name and address] name, address, and phone number of 
the information contact of the person required to make such 
return, and
          * * * * * * *

SEC. 6041A. RETURNS REGARDING PAYMENTS OF REMUNERATION FOR SERVICES AND 
                    DIRECT SALES.

  (a) * * *
          * * * * * * *
  (e) Statements To Be Furnished to Persons With Respect to 
Whom Information is Required To Be Furnished.--Every person 
required to make a return under subsection (a) or (b) shall 
furnish to each person whose name is required to be set forth 
in such return a written statement showing--
          (1) the [name and address]name, address, and phone 
        number of the information contact of the person 
        required to make such return, and * * *

SEC. 6042. RETURNS REGARDING PAYMENTS OF DIVIDENDS AND CORPORATE 
                    EARNINGS AND PROFITS.

  (a) * * *
          * * * * * * *
  (c) Statements To Be Furnished to Persons With Respect to 
Whom Information is Required.--Every person required to make a 
return under subsection (a) shall furnish to each person whose 
name is required to be set forth in such return a written 
statement showing--
  (1) the [name and address] name, address, and phone number of 
the information contact of the person required to make such 
return, and
          * * * * * * *

SEC. 6044. RETURNS REGARDING PAYMENTS OF PATRONAGE DIVIDENDS.

  (a) * * *
          * * * * * * *
  (e) Statements To Be Furnished to Persons With Respect to 
Whom Information is Required.--Every cooperative required to 
make a return under subsection (a) shall furnish to each person 
whose name is required to be set forth in such return a written 
statement showing--
  (1) the [name and address] name, address, and phone number of 
the information contact of the cooperative required to make 
such return, and
          * * * * * * *

SEC. 6045. RETURNS OF BROKERS.

  (a) * * *
  (b) Statements To Be Furnished to Customers.--Every person 
required to make a return under subsection (a) shall furnish to 
each customer whose name is required to be set forth in such 
return a written statement showing--
          (1) the [name and address] name, address, and phone 
        number of the information contact of the person 
        required to make such return, and
          * * * * * * *

SEC. 6049. RETURNS REGARDING PAYMENTS OF INTEREST.

  (a) * * *
          * * * * * * *
  (c) Statements To Be Furnished to Persons With Respect to 
Whom Information is Required.--
          (1) In general.--Every person required to make a 
        return under subsection (a) shall furnish to each 
        person whose name is required to be set forth in such 
        return a written statement showing--
                  (A) the [name and address] name, address, and 
                phone number of the information contact of the 
                person required to make such return, and
          * * * * * * *

SEC. 6050B. RETURNS RELATING TO UNEMPLOYMENT COMPENSATION.

  (a) * * *
  (b) Statements To Be Furnished to Individuals With Respect to 
Whom Information is Required.--Every person required to make a 
return under subsection (a) shall furnish to each individual 
whose name is required to be set forth in such return a written 
statement showing--
          (1) the [name and address] name, address, and phone 
        number of the information contact of the person 
        required to make such return, and
          * * * * * * *

SEC. 6050H. RETURNS RELATING TO MORTGAGE INTEREST RECEIVED IN TRADE OR 
                    BUSINESS FROM INDIVIDUALS.

  (a) * * *
          * * * * * * *
  (d) Statements To Be Furnished to Individuals With Respect to 
Whom Information is Required.--Every person required to make a 
return under subsection (a) shall furnish to each individual 
whose name is required to be set forth in such return a written 
statement showing--
          (1) the [name and address] name, address, and phone 
        number of the information contact of the person 
        required to make such return, and
          * * * * * * *

SEC. 6050I. RETURNS RELATING TO CASH RECEIVED IN TRADE OR BUSINESS, 
                    ETC.

  (a) * * *
          * * * * * * *
  (e) Statements To Be Furnished to Persons With Respect to 
Whom Information is Required.--Every person required to make a 
return under subsection (a) shall furnish to each person whose 
name is required to be set forth in such return a written 
statement showing--
          (1) the [name and address] name, address, and phone 
        number of the information contact of the person 
        required to make such return, and
          * * * * * * *

SEC. 6050J. RETURNS RELATING TO FORECLOSURES AND ABANDONMENTS OF 
                    SECURITY.

  (a) * * *
          * * * * * * *
  (e) Statements To Be Furnished to Persons With Respect to 
Whom Information is Required To Be Furnished.--Every person 
required to make a return under subsection (a) shall furnish to 
each person whose name is required to be set forth in such 
return a written statement showing the [name and address] name, 
address, and phone number of the information contact of the 
person required to make such return. The written statement 
required under the preceding sentence shall be furnished to the 
person on or before January 31 of the year following the 
calendar year for which the return under subsection (a) was 
made.

SEC. 6050K. RETURNS RELATING TO EXCHANGES OF CERTAIN PARTNERSHIP 
                    INTERESTS.

  (a) * * *
  (b) Statements To Be Furnished to Transferor and 
Transferee.--Every partnership required to make a return under 
subsection (a) shall furnish to each person whose name is 
required to be set forth in such return a written statement 
showing--
          (1) the [name and address] name, address, and phone 
        number of the information contact of the partnership 
        required to make such return, and

SEC. 6050N. RETURNS REGARDING PAYMENTS OF ROYALTIES.

  (a) * * *
  (b) Statements To Be Furnished to Persons With Respect to 
Whom Information is Furnished.--Every person required to make a 
return under subsection (a) shall furnish to each person whose 
name is required to be set forth in such return a written 
statement showing--
          (1) the [name and address] name, address, and phone 
        number of the information contact of the person 
        required to make such return, and
          * * * * * * *

                 Subchapter B--Miscellaneous Provisions

          * * * * * * *

SEC. 6103. CONFIDENTIALITY AND DISCLOSURE OF RETURNS AND RETURN 
                    INFORMATION.

  (a) * * *
          * * * * * * *
  (c) Disclosure of Returns and Return Information to Designee 
of Taxpayer.--The Secretary may, subject to such requirements 
and conditions as he may prescribe by regulations, disclose the 
return of any taxpayer, or return information with respect to 
such taxpayer, to such person or persons as the taxpayer may 
designate in a [written request for or consent to such 
disclosure] request for or consent to such disclosure, or to 
any other person at the taxpayer's request to the extent 
necessary to comply with a request for information or 
assistance made by the taxpayer to such other person. However, 
return information shall not be disclosed to such person or 
persons if the Secretary determines that such disclosure would 
seriously impair Federal tax administration.
          * * * * * * *
  (e) Disclosure to Persons Having Material Interest.
          (1) * * *
          * * * * * * *
          (8) Disclosure of collection activities with respect 
        to joint return.--If any deficiency of tax with respect 
        to a joint return is assessed and the individuals 
        filing such return are no longer married or no longer 
        reside in the same household, upon request in writing 
        by either of such individuals, the Secretary shall 
        disclose in writing to the individual making the 
        request whether the Secretary has attempted to collect 
        such deficiency from such other individual, the general 
        nature of such collection activities, and the amount 
        collected. The preceding sentence shall not apply to 
        any deficiency which may not be collected by reason of 
        section 6502.
          (9) Disclosure of certain information where more than 
        1 person subject to penalty under section 6672.--If the 
        Secretary determines that a person is liable for a 
        penalty under section 6672(a) with respect to any 
        failure, upon request in writing of such person, the 
        Secretary shall disclose in writing to such person--
                  (A) the name of any other person whom the 
                Secretary has determined to be liable for such 
                penalty with respect to such failure, and
                  (B) whether the Secretary has attempted to 
                collect such penalty from such other person, 
                the general nature of such collection 
                activities, and the amount collected.
          * * * * * * *
  (i) Disclosure to Federal Officers or Employees for 
Administration of Federal Laws Not Relating to Tax 
Administration.--
          (1) * * *
          * * * * * * *
          [(8) Disclosure of returns filed under section 
        6050i.--The Secretary may, upon written request, 
        disclose returns filed under section 6050I to officers 
        and employees of any Federal agency whose official 
        duties require such disclosure for the administration 
        of Federal criminal statutes not related to tax 
        administration.]
          * * * * * * *
  (l) Disclosure of Returns and Return Information for Purposes 
Other Than Tax Administration.--
          (1) * * *
          * * * * * * *
          (15) Disclosure of returns filed under section 
        6050i.--The Secretary may, upon written request, 
        disclose to officers and employees of--
                  (A) any Federal agency,
                  (B) any agency of a State or local 
                government, or
                  (C) any agency of the government of a foreign 
                country,
        information contained on returns filed under section 
        6050I. Any such disclosure shall be made on the same 
        basis, and subject to the same conditions, as apply to 
        disclosures of information on reports filed under 
        section 5313 of title 31, United States Code; except 
        that no disclosure under this paragraph shall be made 
        for purposes of the administration of any tax law.
          * * * * * * *
  (p) Procedure and Recordkeeping.--
          (1) * * *
          * * * * * * *
          (3) Records of inspection and disclosure.--
                  (A) System of recordkeeping.--Except as 
                otherwise provided by this paragraph, the 
                Secretary shall maintain a permanent system of 
                standardized records or accountings of all 
                requests for inspection or disclosure of 
                returns and return information (including the 
                reasons for and dates of such requests) and of 
                returns and return information inspected or 
                disclosed under this section. Notwithstanding 
                the provisions of section 552a(c) of title 5, 
                United States Code, the Secretary shall not be 
                required to maintain a record or accounting of 
                requests for inspection or disclosure of 
                returns and return information, or of returns 
                and return information inspected or disclosed, 
                under the authority of subsections (c), (e), 
                (h)(1), (3)(A), or (4), (i)(4), [(7)(A)(ii), or 
                (8)] or (7)(A)(ii), (k)(1), (2), or (6), 
                (l)(1), (4)(B), (5), (7), (8), (9), (10), or 
                (11), (12), (13), [or (14)] (14), or (15), (m) 
                or (n). The records or accountings required to 
                be maintained under this paragraph shall be 
                available for examination by the Joint 
                Committee on Taxation or the Chief of Staff of 
                such joint committee. Such record or accounting 
                shall also be available for examination by such 
                person or persons as may be, but only to the 
                extent, authorized to make such examination 
                under section 552a(c)(3) of title 5, United 
                States Code.
          * * * * * * *
          (4) Safeguards.--Any Federal agency described in 
        subsection (h)(2), (h)(6), (i)(1), (2), (3), [(5), or 
        (8)] or (5), (j)(1) or (2), (l)(1), (2), (3), (5), 
        (10), (11), (13), or (14) or (o)(1), the General 
        Accounting Office, or any agency, body, or commission 
        described in subsection (d), [(i)(3)(B)(i) or (8)] 
        (i)(3)(B)(i), or (l)(6), (7), (8), (9), [or (12)] (12), 
        or (15) shall, as a condition for receiving returns or 
        return information--
                  (A) * * *
          * * * * * * *
                  (F) upon completion of use of such returns or 
                return information--
                          (i) in the case of an agency, body, 
                        or commission described in subsection 
                        (d), (i)(3)(B)(i), or (l)(6), (7), (8), 
                        or (9) return to the Secretary such 
                        returns or return information (along 
                        with any copies made therefrom) or make 
                        such returns or return information 
                        undisclosable in any manner and furnish 
                        a written report to the Secretary 
                        describing such manner,
                          (ii) in the case of an agency 
                        described in subsections (h)(2), 
                        (h)(6), (i)(1), (2), (3), [(5), or (8)] 
                        or (5), (j)(1) or (2), (l)(1), (2), 
                        (3), (5), (10), or (11), (12), (13), 
                        [or (14)] (14), or (15), or (o)(1), or 
                        the General Accounting Office, either--
                                  (I) * * *
          * * * * * * *

SEC. 6104. PUBLICITY OF INFORMATION REQUIRED FROM CERTAIN EXEMPT 
                    ORGANIZATIONS AND CERTAIN TRUSTS.

  (a) * * *
          * * * * * * *
  (e) Public Inspection of Certain Annual Returns and 
Applications for Exemption.--
          (1) Annual returns.
                  [(A) In general.--During the 3-year period 
                beginning on the filing date, a copy of the 
                annual return filed under section 6033 
                (relating to returns by exempt organizations) 
                by any organization to which this paragraph 
                applies shall be made available by such 
                organization for inspection during regular 
                business hours by any individual at the 
                principal office of the organization and, if 
                such organization regularly maintains 1 or more 
                regional or district offices having 3 or more 
                employees, at each such regional or district 
                office.]
                  (A) In general.--During the 3-year period 
                beginning on the filing date--
                          (i) a copy of the annual return filed 
                        under section 6033 (relating to returns 
                        by exempt organizations) by any 
                        organization to which this paragraph 
                        applies shall be made available by such 
                        organization for inspection during 
                        regular business hours by any 
                        individual at the principal office of 
                        such organization and, if such 
                        organization regularly maintains 1 or 
                        more regional or district offices 
                        having 3 or more employees, at each 
                        such regional or district office, and
                          (ii) upon request of an individual 
                        made at such principal office or such a 
                        regional or district office, a copy of 
                        such annual return shall be provided to 
                        such individual without charge other 
                        than a reasonable fee for any 
                        reproduction and mailing costs.
                The request described in clause (ii) must be 
                made in person or in writing. If the request 
                under clause (ii) is made in person, such copy 
                shall be provided immediately and, if made in 
                writing, shall be provided within 30 days.
          * * * * * * *
          (2) Application for exemption.--
                  (A) In general.--If--
                          (i) an organization described in 
                        subsection (c) or (d) of section 501 is 
                        exempt from taxation under section 
                        501(a), and
                          (ii) such organization filed an 
                        application for recognition of 
                        exemption under section 501, a copy of 
                        such application (together with a copy 
                        of any papers submitted in support of 
                        such application and any letter or 
                        other document issued by the Internal 
                        Revenue Service with respect to such 
                        application) shall be made available by 
                        the organization for inspection during 
                        regular business hours by any 
                        individual at the principal office of 
                        the organization and, if the 
                        organization regularly maintains 1 or 
                        more regional or district offices 
                        having 3 or more employees, at each 
                        such regional or district office (and, 
                        upon request of an individual made at 
                        such principal office or such a 
                        regional or district office, a copy of 
                        the material requested to be available 
                        for inspection under this subparagraph 
                        shall be provided (in accordance with 
                        the last sentence of paragraph (1)(A)) 
                        to such individual without charge other 
                        than reasonable fee for any 
                        reproduction and mailing costs).
          * * * * * * *
          (3) Limitation.--Paragraph (1)(A)(ii) (and the 
        corresponding provision of paragraph (2)) shall not 
        apply to any request if, in accordance with regulations 
        promulgated by the Secretary, the organization has made 
        the requested documents widely available, or, the 
        Secretary determines, upon application by an 
        organization, that such request is part of a harassment 
        campaign and that compliance with such request is not 
        in the public interest.
          * * * * * * *

               CHAPTER 62--TIME AND PLACE FOR PAYING TAX

          * * * * * * *

          Subchapter A--Place and Due Date for Payment of Tax

          * * * * * * *

SEC. 6159. AGREEMENTS FOR PAYMENT OF TAX LIABILITY IN INSTALLMENTS.

  (a) * * *
  (b) Extent to Which Agreements Remain in Effect.--
          (1) * * *
          * * * * * * *
          [(3) Subsequent change in financial conditions.--
                  [(A) In general.--If the Secretary makes a 
                determination that the financial condition of a 
                taxpayer with whom the Secretary has entered 
                into an agreement under subsection (a) has 
                significantly changed, the Secretary may alter, 
                modify, or terminate such agreement.
                  [(B) Notice.--Action may be taken by the 
                Secretary under subparagraph (A) only if--
                          [(i) notice of such determination is 
                        provided to the taxpayer no later than 
                        30 days prior to the date of such 
                        action, and
                          [(ii) such notice includes the 
                        reasons why the Secretary believes a 
                        significant change in the financial 
                        condition of the taxpayer has 
                        occurred.]
          (3) Subsequent change in financial conditions.--If 
        the Secretary makes a determination that the financial 
        condition of a taxpayer with whom the Secretary has 
        entered into an agreement under subsection (a) has 
        significantly changed, the Secretary may alter, modify, 
        or terminate such agreement.
          * * * * * * *
          (5) Notice requirements.--The Secretary may not take 
        any action under paragraph (2), (3), or (4) unless--
                  (A) a notice of such action is provided to 
                the taxpayer not later than the day 30 days 
                before the date of such action, and
                  (B) such notice includes an explanation why 
                the Secretary intends to take such action.
        The preceding sentence shall not apply in any case in 
        which the Secretary believes that collection of any tax 
        to which an agreement under this section relates is in 
        jeopardy.
  (c) Administrative Review.--The Secretary shall establish 
procedures for an independent administrative review of 
terminations of installment agreements under this section for 
taxpayers who request such a review.
          * * * * * * *

                         CHAPTER 63--ASSESSMENT

          * * * * * * *

                        Subchapter A--In General

          * * * * * * *

SEC. 6201. ASSESSMENT AUTHORITY.

  (a) * * *
          * * * * * * *
  (d) Required Reasonable Verification of Information 
Returns.--In any court proceeding, if a taxpayer asserts a 
reasonable dispute with respect to any item of income reported 
on an information return filed with the Secretary under subpart 
B or C of part III of subchapter A of chapter 61 by a third 
party and the taxpayer has fully cooperated with the Secretary 
(including providing, within a reasonable period of time, 
access to and inspection of all witnesses, information, and 
documents within the control of the taxpayer as reasonably 
requested by the Secretary), the Secretary shall have the 
burden of producing reasonable and probative information 
concerning such deficiency in addition to such information 
return.
  [(d)] (e) Deficiency Proceedings.--For special rules 
applicable to deficiencies of income, estate, gift, and certain 
excise taxes, see subchapter B.
          * * * * * * *

  Subchapter B--Deficiency Procedures in the Case of Income, Estate, 
                     Gift, and Certain Excise Taxes

          * * * * * * *

SEC. 6213. RESTRICTIONS APPLICABLE TO DEFICIENCIES; PETITION TO TAX 
                    COURT.

  (a) * * *
          * * * * * * *
  (e) Suspension of Filing Period for Certain Excise Taxes.--
The running of the time prescribed by subsection (a) for filing 
a petition in the Tax Court with respect to the taxes imposed 
by section 4941 (relating to taxes on self-dealing), 4942 
(relating to taxes on failure to distribute income), 4943 
(relating to taxes on excess business holdings), 4944 (relating 
to investments which jeopardize charitable purpose), 4945 
(relating to taxes on taxable expenditures), 4951 (relating to 
taxes on self-dealing), or 4952 (relating to taxes on taxable 
expenditures), 4955 (relating to taxes on political 
expenditures), 4958 (relating to private excess benefit), 4971 
(relating to excise taxes on failure to meet minimum funding 
standard), 4975 (relating to excise taxes on prohibited 
transactions) shall be suspended for any period during which 
the Secretary has extended the time allowed for making 
correction under section 4963(e).
          * * * * * * *

                         CHAPTER 64--COLLECTION

          * * * * * * *

                      Subchapter C--Lien for Taxes

          * * * * * * *

SEC. 6323. VALIDITY AND PRIORITY AGAINST CERTAIN PERSONS.

  (a) * * *
          * * * * * * *
  (j) Withdrawal of Notice in Certain Circumstances.--
          (1) In general.--The Secretary may withdraw a notice 
        of a lien filed under this section and this chapter 
        shall be applied as if the withdrawn notice had not 
        been filed, if the Secretary determines that--
                  (A) the filing of such notice was premature 
                or otherwise not in accordance with 
                administrative procedures of the Secretary,
                  (B) the taxpayer has entered into an 
                agreement under section 6159 to satisfy the tax 
                liability for which the lien was imposed by 
                means of installment payments, unless such 
                agreement provides otherwise,
                  (C) the withdrawal of such notice will 
                facilitate the collection of the tax liability, 
                or
                  (D) with the consent of the taxpayer or the 
                Taxpayer Advocate, the withdrawal of such 
                notice would be in the best interests of the 
                taxpayer (as determined by the Taxpayer 
                Advocate) and the United States.
        Any such withdrawal shall be made by filing notice at 
        the same office as the withdrawn notice. A copy of such 
        notice of withdrawal shall be provided to the taxpayer.
          (2) Notice to credit agencies, etc.--Upon written 
        request by the taxpayer with respect to whom a notice 
        of a lien was withdrawn under paragraph (1), the 
        Secretary shall promptly make reasonable efforts to 
        notify credit reporting agencies, and any financial 
        institution or creditor whose name and address is 
        specified in such request, of the withdrawal of such 
        notice. Any such request shall be in such form as the 
        Secretary may prescribe.
          * * * * * * *

       Subchapter D--Seizure of Property for Collection of Taxes

          * * * * * * *

SEC. 6334. PROPERTY EXEMPT FROM LEVY.

  (a) Enumeration.--There shall be exempt from levy--
          (1) Wearing apparel and school books.--Such items of 
        wearing apparel and such school books as are necessary 
        for the taxpayer or for members of his family;
          (2) Fuel, provisions, furniture, and personal 
        effects.--[If the taxpayer is the head of a family, so] 
        So much of the fuel, provisions, furniture, and 
        personal effects in [his household] the taxpayer's 
        household, and of the arms for personal use, livestock, 
        and poultry of the taxpayer, as does not exceed [$1,650 
        ($1,550 in the case of levies issued during 1989)] 
        $2,500 in value;
          (3) Books and tools of a trade, business, or 
        profession.--So many of the books and tools necessary 
        for the trade, business, or profession of the taxpayer 
        as do not exceed in the aggregate [$1,100 ($1,050 in 
        the case of levies issued during 1989)] $1,250, in 
        value;
          * * * * * * *
  (f) Inflation Adjustment.--
          (1) In general.--In the case of any calendar year 
        beginning after 1997, each dollar amount referred to in 
        paragraphs (2) and (3) of subsection (a) shall be 
        increased by an amount equal to--
                  (A) such dollar amount, multiplied by
                  (B) the cost-of-living adjustment determined 
                under section 1(f)(3) for such calendar year, 
                by substituting `calendar year 1996' for 
                ``calendar year 1992'' in subparagraph (B) 
                thereof.
          (2) Rounding.--If any dollar amount after being 
        increased under paragraph (1) is not a multiple of $10, 
        such dollar amount shall be rounded to the nearest 
        multiple of $10.
          * * * * * * *

SEC. 6343. AUTHORITY TO RELEASE LEVY AND RETURN PROPERTY.

  (a) * * *
          * * * * * * *
  (d) Return of Property in Certain Cases.--If--
          (1) any property has been levied upon, and
          (2) the Secretary determines that--
                  (A) the levy on such property was premature 
                or otherwise not in accordance with 
                administrative procedures of the Secretary,
                  (B) the taxpayer has entered into an 
                agreement under section 6159 to satisfy the tax 
                liability for which the levy was imposed by 
                means of installment payments, unless such 
                agreement provides otherwise,
                  (C) the return of such property will 
                facilitate the collection of the tax liability, 
                or
                  (D) with the consent of the taxpayer or the 
                Taxpayer Advocate, the return of such property 
                would be in the best interests of the taxpayer 
                (as determined by the Taxpayer Advocate) and 
                the United States,
the provisions of subsection (b) shall apply in the same manner 
as if such property had been wrongly levied upon, except that 
no interest shall be allowed under subsection (c).
          * * * * * * *

              CHAPTER 65--ABATEMENTS, CREDITS, AND REFUNDS

          * * * * * * *

                   Subchapter A--Procedure in General

          * * * * * * *

SEC. 6404. ABATEMENTS.

  (a) * * *
          * * * * * * *
  (e) [Assessments] Abatement of Interest Attributable to 
Unreasonable Errors and Delays by Internal Revenue Service.--
          (1) In general.--In the case of any assessment of 
        interest on--
                  (A) any deficiency attributable in whole or 
                in part to any unreasonable error or delay by 
                an officer or employee of the Internal Revenue 
                Service (acting in his official capacity) in 
                performing a ministerial or managerial act, or
                  (B) any payment of any tax described in 
                section 6212(a) to the extent that any 
                unreasonable error or delay in such payment is 
                attributable to such an officer or employee 
                being erroneous or dilatory in performing a 
                ministerial or managerial act,
        the Secretary may abate the assessment of all or any 
        part of such interest for any period. For purposes of 
        the preceding sentence, an error or delay shall be 
        taken into account only if no significant aspect of 
        such error or delay can be attributed to the taxpayer 
        involved, and after the Internal Revenue Service has 
        contacted the taxpayer in writing with respect to such 
        deficiency or payment.
          * * * * * * *
  (g) Review of Denial of Request for Abatement of Interest.--
          (1) In general.--The Tax Court shall have 
        jurisdiction over any action brought by a taxpayer who 
        meets the requirements referred to in section 
        7430(c)(4)(A)(ii) to determine whether the Secretary's 
        failure to abate interest under this section was an 
        abuse of discretion, and may order an abatement, if 
        such action is brought within 180 days after the date 
        of the mailing of the Secretary's final determination 
        not to abate such interest.
          (2) Special rules.--
                  (A) Date of mailing.--Rules similar to the 
                rules of section 6213 shall apply for purposes 
                of determining the date of the mailing referred 
                to in paragraph (1).
                  (B) Relief.--Rules similar to the rules of 
                section 6512(b) shall apply for purposes of 
                this subsection.
                  (C) Review.--An order of the Tax Court under 
                this subsection shall be reviewable in the same 
                manner as a decision of the Tax Court, but only 
                with respect to the matters determined in such 
                order.
          * * * * * * *

                        CHAPTER 66--LIMITATIONS

          * * * * * * *

         Subchapter A--Limitations on Assessment and Collection

          * * * * * * *

SEC. 6503. SUSPENSION OF RUNNING OF PERIOD OF LIMITATION.

  (a) * * *
          * * * * * * *
  [(k)] (j) Extension in Case of Certain Summonses.--
          (1) In general.--If any designated summons is issued 
        by the Secretary [with respect to any return of tax by 
        a corporation] to a corporation (or to any other person 
        to whom the corporation has transferred records) with 
        respect to any return of tax by such corporation for a 
        taxable year (or other period) for which such 
        corporation is being examined under the coordinated 
        examination program (or any successor program) of the 
        Internal Revenue Service, the running of any period of 
        limitations provided in section 6501 on the assessment 
        of such tax shall be suspended--
                  (A) * * *
          * * * * * * *
          (2) Designated summons.--For purposes of this 
        subsection--
                  (A) In general.--The term ``designated 
                summons'' means any summons issued for purposes 
                of determining the amount of any tax imposed by 
                this title if--
                          (i) the issuance of such summons is 
                        preceded by a review of such issuance 
                        by the regional counsel of the Office 
                        of Chief Counsel for the region in 
                        which the examination of the 
                        corporation is being conducted,
                          [(i)] (ii) such summons is issued at 
                        least 60 days before the day on which 
                        the period prescribed in section 6501 
                        for the assessment of such tax expires 
                        (determined with regard to extensions), 
                        and
                          [(ii)] (iii) such summons clearly 
                        states that it is a designated summons 
                        for purposes of this subsection.
  [(l)] (k) Cross References.--

        For suspension in case of--
          * * * * * * *

                          CHAPTER 67--INTEREST

          * * * * * * *

                Subchapter A--Interest on Underpayments

          * * * * * * *

SEC. 6601. INTEREST ON UNDERPAYMENT, NONPAYMENT, OR EXTENSIONS OF TIME 
                    FOR PAYMENT, OF TAX.

  (a) * * *
          * * * * * * *
  (e) Applicable Rules.--Except as otherwise provided in this 
title--
          (1) * * *
          (2) Interest on penalties, additional amounts, or 
        additions to the tax.--
                  (A) In general.--Interest shall be imposed 
                under subsection (a) in respect of any 
                assessable penalty, additional amount, or 
                addition to the tax (other than an addition to 
                tax imposed under section 6651(a)(1), or 6653 
                or under part II of subchapter A of chapter 68) 
                only if such assessable penalty, additional 
                amount, or addition to the tax is not paid 
                within [10 days from the date of notice and 
                demand therefor] 21 calendar days from the date 
                of notice and demand therefor (10 business days 
                if the amount for which such notice and demand 
                is made equals or exceeds $100,000), and in 
                such case interest shall be imposed only for 
                the period from the date of the notice and 
                demand to the date of payment.
          * * * * * * *
          [(3) Payments made within 10 days after notice and 
        demand.---If notice and demand is made for payment of 
        any amount, and if such amount is paid within 10 days 
        after the date of such notice and demand interest under 
        this section on the amount so paid shall not be imposed 
        for the period after the date of such notice and 
        demand.]
          (3) Payments made within specified period after 
        notice and demand.--If notice and demand is made for 
        payment of any amount and if such amount is paid within 
        21 calendar days (10 business days if the amount for 
        which such notice and demand is made equals or exceeds 
        $100,000) after the date of such notice and demand, 
        interest under this section on the amount so paid shall 
        not be imposed for the period after the date of such 
        notice and demand.
          * * * * * * *

 CHAPTER 68--ADDITIONS TO THE TAX, ADDITIONAL AMOUNTS, AND ASSESSABLE 
                               PENALTIES

          * * * * * * *

        Subchapter A--Additions to the Tax and Additionl Amounts

          * * * * * * *

                       PART I--GENERAL PROVISIONS

          * * * * * * *

SEC. 6651. FAILURE TO FILE TAX RETURN OR TO PAY TAX.

  (a) Addition to the Tax.--In case of failure--
          (1) * * *
          * * * * * * *
          (3) to pay any amount in respect of any tax required 
        to be shown on a return specified in paragraph (1) 
        which is not so shown (including an assessment made 
        pursuant to section 6213(b)) within [10 days of the 
        date of the notice and demand therefor] 21 calendar 
        days from the date of notice and demand therefor (10 
        business days if the amount for which such notice and 
        demand is made equals or exceeds $100,000), unless it 
        is shown that such failure is due to reasonable cause 
        and not due to willful neglect, there shall be added to 
        the amount of tax stated in such notice and demand 0.5 
        percent of the amount of such tax if the failure is for 
        not more than 1 month, with an additional 0.5 percent 
        for each additional month or fraction thereof during 
        which such failure continues, not exceeding 25 percent 
        in the aggregate.
          * * * * * * *
  (g) Treatment of Returns Prepared by Secretary Under Section 
6020(b).--In the case of any return made by the Secretary under 
section 6020(b)--
          (1) such return shall be disregarded for purposes of 
        determining the amount of the addition under paragraph 
        (1) of subsection (a), but
          (2) such return shall be treated as the return filed 
        by the taxpayer for purposes of determining the amount 
        of the addition under paragraphs (2) and (3) of 
        subsection (a).

SEC. 6652. FAILURE TO FILE CERTAIN INFORMATION RETURNS, REGISTRATION 
                    STATEMENTS, ETC.

  (a) * * *
          * * * * * * *
  (c) Returns by Exempt Organizations and by Certain Trusts.--
          (1) Annual returns under section 6033.--
                  (A) Penalty on organization.--In the case 
                of--
                          (i) a failure to file a return 
                        required under section 6033 (relating 
                        to returns by exempt organizations) on 
                        the date and in the manner prescribed 
                        therefor (determined with regard to any 
                        extension of time for filing), or
                          (ii) a failure to include any of the 
                        information required to be shown on a 
                        return filed under section 6033 or to 
                        show the correct information,
                there shall be paid by the exempt organization 
                [$10] $20 for each day during which such 
                failure continues. The maximum penalty under 
                this subparagraph on failures with respect to 
                any 1 return shall not exceed the lesser of 
                [$5,000] $10,000 or 5 percent of the gross 
                receipts of the organization for the year. In 
                the case of an organization having gross 
                receipts exceeding $1,000,000 for any year, 
                with respect to the return required under 
                section 6033 for such year, the first sentence 
                of this subparagraph shall be applied by 
                substituting ``$100'' for ``$20'' and, in lieu 
                of applying the second sentence of this 
                subparagraph, the maximum penalty under this 
                subparagraph shall not exceed $50,000.
          * * * * * * *

SEC. 6656. FAILURE TO MAKE DEPOSIT OF TAXES OR OVERSTATEMENT OF 
                    DEPOSITS.

  (a) * * *
          * * * * * * *
  (c) Exception for First-Time Depositors of Employment 
Taxes.--The Secretary may waive the penalty imposed by 
subsection (a) on a person's inadvertent failure to deposit any 
employment tax if--
          (1) such person meets the requirements referred to in 
        section 7430(c)(4)(A)(ii),
          (2) such failure occurs during the 1st quarter that 
        such person was required to deposit any employment tax, 
        and
          (3) the return of such tax was filed on or before the 
        due date.
For purposes of this subsection, the term ``employment taxes'' 
means the taxes imposed by subtitle C.
  (d) Authority To Abate Penalty Where Deposit Sent to 
Secretary.--The Secretary may abate the penalty imposed by 
subsection (a) with respect to the first time a depositor is 
required to make a deposit if the amount required to be 
deposited is inadvertently sent to the Secretary instead of to 
the appropriate government depository.
          * * * * * * *

                   Subchapter B--Assessable Penalties

          * * * * * * *

                       PART I--GENERAL PROVISIONS

          * * * * * * *

SEC. 6672. FAILURE TO COLLECT AND PAY OVER TAX, OR ATTEMPT TO EVADE OR 
                    DEFEAT TAX.

  (a) * * *
  (b) Preliminary Notice Requirement.--
          (1) In general.--No penalty shall be imposed under 
        subsection (a) unless the Secretary notifies the 
        taxpayer in writing by mail to an address as determined 
        under section 6212(b) that the taxpayer shall be 
        subject to an assessment of such penalty.
          (2) Timing of notice.--The mailing of the notice 
        described in paragraph (1) shall precede any notice and 
        demand of any penalty under subsection (a) by at least 
        60 days.
          (3) Statute of limitations.--If a notice described in 
        paragraph (1) with respect to any penalty is mailed 
        before the expiration of the period provided by section 
        6501 for the assessment of such penalty (determined 
        without regard to this paragraph), the period provided 
        by such section for the assessment of such penalty 
        shall not expire before the later of--
                  (A) the date 90 days after the date on which 
                such notice was mailed, or
                  (B) if there is a timely protest of the 
                proposed assessment, the date 30 days after the 
                Secretary makes a final administrative 
                determination with respect to such protest.
          (4) Exception for jeopardy.--This subsection shall 
        not apply if the Secretary finds that the collection of 
        the penalty is in jeopardy.
  [(b)] (c) Extension of Period of Collection Where Bond is 
Filed.--
          (1) In general.--If, within 30 days after the day on 
        which notice and demand of any penalty under subsection 
        (a) is made against any person, such person--
                  (A) * * *
          * * * * * * *
  (d) Right of Contribution Where More Than 1 Person Liable for 
Penalty.--If more than 1 person is liable for the penalty under 
subsection (a) with respect to any tax, each person who paid 
such penalty shall be entitled to recover from other persons 
who are liable for such penalty an amount equal to the excess 
of the amount paid by such person over such person's 
proportionate share of the penalty. Any claim for such a 
recovery may be made only in a proceeding which is separate 
from, and is not joined or consolidated with--
          (1) an action for collection of such penalty brought 
        by the United States, or
          (2) a proceeding in which the United States files a 
        counterclaim or third-party complaint for the 
        collection of such penalty.
  (e) Exception for Voluntary Board Members of Tax-Exempt 
Organizations.--No penalty shall be imposed by subsection (a) 
on any unpaid, volunteer member of any board of trustees or 
directors of an organization exempt from tax under subtitle A 
if such member--
          (1) is solely serving in an honorary capacity,
          (2) does not participate in the day-to-day or 
        financial operations of the organization, and
          (3) does not have actual knowledge of the failure on 
        which such penalty is imposed.
The preceding sentence shall not apply if it results in no 
person being liable for the penalty imposed by subsection (a).
          * * * * * * *

SEC. 6685. ASSESSABLE PENALTY WITH RESPECT TO PUBLIC INSPECTION 
                    REQUIREMENTS FOR CERTAIN TAX-EXEMPT ORGANIZATIONS.

          In addition to the penalty imposed by section 7207 
        (relating to fraudulent returns, statements, or other 
        documents), any person who is required to comply with 
        the requirements of subsection (d) or (e) of section 
        6104 and who fails to so comply with respect to any 
        return or application, if such failure is willful, 
        shall pay a penalty of [$1,000] $5,000 with respect to 
        each such return or application.
          * * * * * * *

             CHAPTER 74--CLOSING AGREEMENTS AND COMPROMISES

          * * * * * * *

SEC. 7122. COMPROMISES.

  (a) Authorization.--The Secretary may compromise any civil or 
criminal case arising under the internal revenue laws prior to 
reference to the Department of Justice for prosecution or 
defense; and the Attorney General or his delegate may 
compromise any such case after reference to the Department of 
Justice for prosecution or defense.
  (b) Record.--Whenever a compromise is made by the Secretary 
in any case, there shall be placed on file in the office of the 
Secretary the opinion of the General Counsel for the Department 
of the Treasury or his delegate, with his reasons therefor, 
with a statement of--
          (1) The amount of tax assessed,
          (2) The amount of interest, additional amount, 
        addition to the tax, or assessable penalty, imposed by 
        law on the person against whom the tax is assessed, and
          (3) The amount actually paid in accordance with the 
        terms of the compromise.
Notwithstanding the foregoing provisions of this subsection, no 
such opinion shall be required with respect to the compromise 
of any civil case in which the unpaid amount of tax assessed 
(including any interest, additional amount, addition to the 
tax, or assessable penalty) is less than [$500.] $50,000. 
However, such compromise shall be subject to continuing quality 
review by the Secretary.
          * * * * * * *

          CHAPTER 75--CRIMES, OTHER OFFENSES, AND FORFEITURES

          * * * * * * *

                          Subchapter A--Crimes

          * * * * * * *

                       PART I--GENERAL PROVISIONS

          * * * * * * *

SEC. 7213. UNAUTHORIZED DISCLOSURE OF INFORMATION.

  (a) Returns and Return Information.--
          (1) Federal employees and other persons.--It shall be 
        unlawful for any officer or employee of the United 
        States or any person described in section 6103(n) (or 
        an officer or employee of any such person), or any 
        former officer or employee, willfully to disclose to 
        any person, except as authorized in this title, any 
        return or return information (as defined in section 
        6103(b)). Any violation of this paragraph shall be a 
        felony punishable upon conviction by a fine in any 
        amount not exceeding $5,000, or imprisonment of not 
        more than 5 years, or both, together with the costs of 
        prosecution, and if such offense is committed by any 
        officer or employee of the United States, he shall, in 
        addition to any other punishment, be dismissed from 
        office or discharged from employment upon conviction 
        for such offense.
          (2) State and other employees.--It shall be unlawful 
        for any person (not described in paragraph (1)) 
        willfully to disclose to any person, except as 
        authorized in this title, any return or return 
        information (as defined in section 6103(b)) acquired by 
        him or another person under subsection (d), 
        (i)(3)(B)(i), (l)(6), (7), (8), (9), (10), [or (12)] 
        (12), or (15), or (m)(2), (4), (6), or (7) of section 
        6103. Any violation of this paragraph shall be a felony 
        punishable by a fine in any amount not exceeding 
        $5,000, or imprisonment of not more than 5 years, or 
        both, together with the costs of prosecution.
          * * * * * * *

                    CHAPTER 76--JUDICIAL PROCEEDINGS

          * * * * * * *

        Subchapter B--Proceedings by Taxpayers and Third Parties

        Sec. 7421. Prohibition of suits to restrain assessment or 
                  collection.
     * * * * * * *
        [Sec. 7434. Cross references.]
        Sec. 7434. Civil damages for fraudulent filing of information 
                  returns.
        Sec. 7435. Civil damages for unauthorized enticement of 
                  information disclosure.
        Sec. 7436. Cross references.
          * * * * * * *

SEC. 7422. CIVIL ACTIONS FOR REFUND

  (a)  * * *
          * * * * * * *
  (g) Special Rules for Certain Excise Taxes Imposed By Chapter 
42 or 43.--
          (1)  * * *
          (2) Limitation on suit for refund.--No suit may be 
        maintained under this section for the credit or refund 
        of any tax imposed under section 4941, 4942, 4943, 
        4944, 4945, 4951, 4952, 4955, 4958, 4971, or 4975 with 
        respect to any act (or failure to act) giving rise to 
        liability for tax under such sections, unless no other 
        suit has been maintained for credit or refund of, and 
        no petition has been filed in the Tax Court with 
        respect to a deficiency in, any other tax imposed by 
        such sections with respect to such act (or failure to 
        act).
          (3) Final determination of issues.--For purposes of 
        this section, any suit for the credit or refund of any 
        tax imposed under section 4941, 4942, 4943, 4944, 4945, 
        4951, 4952, 4955, 4958, 4971, or 4975 with respect to 
        any act (or failure to act) giving rise to liability 
        for tax under such sections, shall constitute a suit to 
        determine all questions with respect to any other tax 
        imposed with respect to such act (or failure to act) 
        under such sections, and failure by the parties to such 
        suit to bring any such question before the Court shall 
        constitute a bar to such question.
          * * * * * * *

SEC. 7430. AWARDING OF COSTS AND CERTAIN FEES

  (a)  * * *
  (b) Limitations.--
          (1) Requirement that administrative remedies be 
        exhausted.--A judgment for reasonable litigation costs 
        shall not be awarded under subsection (a) in any court 
        proceeding unless the court determines that the 
        prevailing party has exhausted the administrative 
        remedies available to such party within the Internal 
        Revenue Service. Any failure to agree to an extension 
        of the time for the assessment of any tax shall not be 
        taken into account for purposes of determining whether 
        the prevailing party meets the requirements of the 
        preceding sentence.
          (2) Only costs allocable to the United States.--An 
        award under subsection (a) shall be made only for 
        reasonable litigation and administrative costs which 
        are allocable to the United States and not to any other 
        party.
          [(3) Exclusion of declaratory judgment proceedings.--
                  [(A) In general.--No award for reasonable 
                litigation costs may be made under subsection 
                (a) with respect to any declaratory judgment 
                proceeding.
                  [(B) Exception for section 501(c)(3) 
                determination revocation proceedings.--
                Subparagraph (A) shall not apply to any 
                proceeding which involves the revocation of a 
                determination that the organization is 
                described in section 501(c)(3).
          [(4)] (3) Costs denied where party prevailing 
        protracts proceedings.--No award for reasonable 
        litigation and administrative costs may be made under 
        subsection (a) with respect to any portion of the 
        administrative or court proceeding during which the 
        prevailing party has unreasonably protracted such 
        proceeding.
  (c) Definitions.--For purposes of this section--
          (1) Reasonable litigation costs.--The term 
        ``reasonable litigation costs'' includes--
                  (A) reasonable court costs, and
                  (B) based upon prevailing market rates for 
                the kind or quality of services furnished--
                          (i)  * * *
          * * * * * * *
                          (iii) reasonable fees paid or 
                        incurred for the services of attorneys 
                        in connection with the court 
                        proceeding, except that such fees shall 
                        not be in excess of [$75] $110 per hour 
                        unless the court determines that [an 
                        increase in the cost of living or] a 
                        special factor, such as the limited 
                        availability of qualified attorneys for 
                        such proceeding, justifies a higher 
                        rate.
        In the case of any calendar year beginning after 1996, 
        the dollar amount referred to in clause (iii) shall be 
        increased by an amount equal to such dollar amount 
        multiplied by the cost-of-living adjustment determined 
        under section 1(f)(3) for such calendar year, by 
        substituting ``calendar year 1995'' for ``calendar year 
        1992'' in subparagraph (B) thereof. If any dollar 
        amount after being increased under the preceding 
        sentence is not a multiple of $10, such dollar amount 
        shall be rounded to the nearest multiple of $10.
          (2) Reasonable administrative costs.--The term 
        ``reasonable administrative costs'' means--
                  (A) any administrative fees or similar 
                charges imposed by the Internal Revenue 
                Service, and
                  (B) expenses, costs, and fees described in 
                paragraph (1)(B), except that any determination 
                made by the court under clause (ii) or (iii) 
                thereof shall be made by the Internal Revenue 
                Service in cases where the determination under 
                [paragraph (4)(B)] paragraph (4)(C) of the 
                awarding of reasonable administrative costs is 
                made by the Internal Revenue Service.
          Such term shall only include costs incurred on or 
        after the earlier of (i) the date of the receipt by the 
        taxpayer of the notice of the decision of the Internal 
        Revenue Service Office of Appeals, or (ii) the date of 
        the notice of deficiency.
          * * * * * * *
          (4) Prevailing party.--
                  (A) In general.--The term ``prevailing 
                party'' means any party in any proceeding to 
                which subsection (a) applies (other than the 
                United States or any creditor of the taxpayer 
                involved)--
                          [(i) which establishes that the 
                        position of the United States in the 
                        proceeding was not substantially 
                        justified,
                          [(ii)] (i) which--
                                  (I) has substantially 
                                prevailed with respect to the 
                                amount in controversy, or
                                  (II) has substantially 
                                prevailed with respect to the 
                                most significant issue or set 
                                of issues presented, and
                          [(iii)] (ii) which meets the 
                        requirements of the 1st sentence of 
                        section 2412(d)(1)(B) of title 28, 
                        United States Code (as in effect on 
                        October 22, 1986) except to the extent 
                        differing procedures are established by 
                        rule of court and meets the 
                        requirements of section 2412(d)(2)(B) 
                        of such title 28 (as so in effect).
                  (B) Exception if united states establishes 
                that its position was substantially 
                justified.--
                          (i) General rule.--A party shall not 
                        be treated as the prevailing party in a 
                        proceeding to which subsection (a) 
                        applies if the United States 
                        establishes that the position of the 
                        United States in the proceeding was 
                        substantially justified.
                          (ii) Presumption of no justification 
                        if internal revenue service didn't 
                        follow certain published guidance.--For 
                        purposes of clause (i), the position of 
                        the United States shall be presumed not 
                        to be substantially justified if the 
                        Internal Revenue Service did not follow 
                        its applicable published guidance in 
                        the administrative proceeding. Such 
                        presumption may be rebutted.
                          (iii) Applicable published 
                        guidance.--For purposes of clause (ii), 
                        the term ``applicable published 
                        guidance'' means--
                                  (I) regulations, revenue 
                                rulings, revenue procedures, 
                                information releases, notices, 
                                and announcements, and
                                  (II) any of the following 
                                which are issued to the 
                                taxpayer: private letter 
                                rulings, technical advice 
                                memoranda, and determination 
                                letters.
                  [(B)] (C) Determination as to prevailing 
                party.--Any determination under [subparagraph 
                (A)] this paragraph as to whether a party is a 
                prevailing party shall be made by agreement of 
                the parties or--
                          (i)  * * *
          * * * * * * *

SEC. 7433. CIVIL DAMAGES FOR CERTAIN UNAUTHORIZED COLLECTION ACTIONS

  (a)  * * *
  (b) Damages.--In any action brought under subsection (a), 
upon a finding of liability on the part of the defendant, the 
defendant shall be liable to the plaintiff in an amount equal 
to the lesser of [$100,000] $1,000,000 or the sum of--
          (1)  * * *
          * * * * * * *
  (d) Limitations.--
          [(1) Requirement that administrative remedies be 
        exhausted.--A judgment for damages shall not be awarded 
        under subsection (b) unless the court determines that 
        the plaintiff has exhausted the administrative remedies 
        available to such plaintiff within the Internal Revenue 
        Service.]
          (1) Award for damages may be reduced if 
        administrative remedies not exhausted.--The amount of 
        damages awarded under subsection (b) may be reduced if 
        the court determines that the plaintiff has not 
        exhausted the administrative remedies available to such 
        plaintiff within the Internal Revenue Service.
          * * * * * * *

SEC. 7434. CIVIL DAMAGES FOR FRAUDULENT FILING OF INFORMATION RETURNS.

  (a) In General.--If any person willfully files a fraudulent 
information return with respect to payments purported to be 
made to any other person, such other person may bring a civil 
action for damages against the person so filing such return.
  (b) Damages.--In any action brought under subsection (a), 
upon a finding of liability on the part of the defendant, the 
defendant shall be liable to the plaintiff in an amount equal 
to the greater of $5,000 or the sum of--
          (1) any actual damages sustained by the plaintiff as 
        a proximate result of the filing of the fraudulent 
        information return (including any costs attributable to 
        resolving deficiencies asserted as a result of such 
        filing),
          (2) the costs of the action, and
          (3) in the court's discretion, reasonable attorneys 
        fees.
  (c) Period for Bringing Action.--Notwithstanding any other 
provision of law, an action to enforce the liability created 
under this section may be brought without regard to the amount 
in controversy and may be brought only within the later of--
          (1) 6 years after the date of the filing of the 
        fraudulent information return, or
          (2) 1 year after the date such fraudulent information 
        return would have been discovered by exercise of 
        reasonable care.
  (d) Copy of Complaint Filed With IRS--Any person bringing an 
action under subsection (a) shall provide a copy of the 
complaint to the Internal Revenue Service upon the filing of 
such complaint with the court.
  (e) Finding of Court To Include Correct Amount of Payment.--
The decision of the court awarding damages in an action brought 
under subsection (a) shall include a finding of the correct 
amount which should have been reported in the information 
return.
  (f) Information Return.--For purposes of this section, the 
term ``information return'' means any statement described in 
section 6724(d)(1)(A).

SEC. 7435. CIVIL DAMAGES FOR UNAUTHORIZED ENTICEMENT OF INFORMATION 
                    DISCLOSURE.

  (a) In General.--If any officer or employee of the United 
States intentionally compromises the determination or 
collection of any tax due from an attorney, certified public 
accountant, or enrolled agent representing a taxpayer in 
exchange for information conveyed by the taxpayer to the 
attorney, certified public accountant, or enrolled agent for 
purposes of obtaining advice concerning the taxpayer's tax 
liability, such taxpayer may bring a civil action for damages 
against the United States in a district court of the United 
States. Such civil action shall be the exclusive remedy for 
recovering damages resulting from such actions.
  (b) Damages.--In any action brought under subsection (a), 
upon a finding of liability on the part of the defendant, the 
defendant shall be liable to the plaintiff in an amount equal 
to the lesser of $500,000 or the sum of--
          (1) actual, direct economic damages sustained by the 
        plaintiff as a proximate result of the information 
        disclosure, and
          (2) the costs of the action.
Damages shall not include the taxpayer's liability for any 
civil or criminal penalties, or other losses attributable to 
incarceration or the imposition of other criminal sanctions.
  (c) Payment Authority.--Claims pursuant to this section shall 
be payable out of funds appropriated under section 1304 of 
title 31, United States Code.
  (d) Period for Bringing Action.--Notwithstanding any other 
provision of law, an action to enforce liability created under 
this section may be brought without regard to the amount in 
controversy and may be brought only within 2 years after the 
date the actions creating such liability would have been 
discovered by exercise of reasonable care.
  (e) Mandatory Stay.--Upon a certification by the Commissioner 
or the Commissioner's delegate that there is an ongoing 
investigation or prosecution of the taxpayer, the district 
court before which an action under this section is pending 
shall stay all proceedings with respect to such action pending 
the conclusion of the investigation or prosecution.
  (f) Crime-Fraud Exception.--Subsection (a) shall not apply to 
information conveyed to an attorney, certified public 
accountant, or enrolled agent for the purpose of perpetrating a 
fraud or crime.

SEC. [7434.] 7436. CROSS REFERENCES

          (1)  * * *
          * * * * * * *

                      Subchapter C--The Tax Court

          * * * * * * *

                           PART II--PROCEDURE

          * * * * * * *

SEC. 7454. BURDEN OF PROOF IN FRAUD, FOUNDATION MANAGER, AND TRANSFEREE 
                    CASES

  (a)  * * *
  (b) Foundation Managers.--In any proceeding involving the 
issue whether a foundation manager (as defined in section 
4946(b)) has ``knowingly'' participated in an act of self-
dealing (within the meaning of section 4941), participated in 
an investment which jeopardizes the carrying out of exempt 
purposes (within the meaning of section 4944), or agreed to the 
making of a taxable expenditure (within the meaning of section 
4945), or whether the trustee of a trust described in section 
501(c)(21) has ``knowingly'' participated in an act of self-
dealing (within the meaning of section 4951) or agreed to the 
making of a taxable expenditure (within the meaning of section 
4952), or whether an organization manager (as defined in 
section 4955(e)(2)) has ``knowingly'' agreed to the making of a 
political expenditure (within the meaning of section 4955), or 
whether an organization manager (as defined in section 
4912(d)(2)) has ``knowingly'' agreed to the making of 
disqualifying lobbying expenditures within the meaning of 
section 4912(b), or whether an organization manager (as defined 
in section 4958(f)(2)) has ``knowingly'' participated in an 
excess benefit transaction (as defined in section 4958(c)), the 
burden of proof in respect of such issue shall be upon the 
Secretary.
          * * * * * * *

                  CHAPTER 77--MISCELLANEOUS PROVISIONS

        Sec. 7501. Liability for taxes withheld of collected.
     * * * * * * *
        Sec. 7524. Annual notice of tax delinquency.
          * * * * * * *

SEC. 7502. TIMELY MAILING TREATED AS TIMELY FILING AND PAYING

  (a)  * * *
          * * * * * * *
  (f) Treatment of Private Delivery Services.--
          (1) In general.--Any reference in this section to the 
        United States mail shall be treated as including a 
        reference to any designated delivery service, and any 
        reference in this section to a postmark by the United 
        States Postal Service shall be treated as including a 
        reference to any date recorded or marked as described 
        in paragraph (2)(C) by any designated delivery service.
          (2) Designated delivery service.--For purposes of 
        this subsection, the term ``designated delivery 
        service'' means any delivery service provided by a 
        trade or business if such service is designated by the 
        Secretary for purposes of this section. The Secretary 
        may designate a delivery service under the preceding 
        sentence only if the Secretary determines that such 
        service--
                  (A) is available to the general public,
                  (B) is at least as timely and reliable on a 
                regular basis as the United States mail,
                  (C) records electronically to its data base, 
                kept in the regular course of its business, or 
                marks on the cover in which any item referred 
                to in this section is to be delivered, the date 
                on which such item was given to such trade or 
                business for delivery, and
                  (D) meets such other criteria as the 
                Secretary may prescribe.
          (3) Equivalents of registered and certified mail.--
        The Secretary may provide a rule similar to the rule of 
        paragraph (1) with respect to any service provided by a 
        designated delivery service which is substantially 
        equivalent to United States registered or certified 
        mail.
          * * * * * * *

SEC. 7524. ANNUAL NOTICE OF TAX DELINQUENCY.

  Not less often than annually, the Secretary shall send a 
written notice to each taxpayer who has a tax delinquent 
account of the amount of the tax delinquency as of the date of 
the notice.
          * * * * * * *

      CHAPTER 78--DISCOVERY OF LIABILITY AND ENFORCEMENT OF TITLE

          * * * * * * *

                Subchapter A--Examination and Inspection

          * * * * * * *

SEC. 7608. AUTHORITY OF INTERNAL REVENUE ENFORCEMENT OFFICERS

  (a)  * * *
          * * * * * * *
  (c) Rules Relating to Undercover Operations.--
          (1)  * * *
          * * * * * * *
          (4) Audits
                  (A)  * * *
                  (B) The Service shall also submit a report 
                annually to the Congress specifying as to its 
                undercover investigative operations--
                          (i) the number, by programs, of 
                        undercover investigative operations 
                        pending as of the end of the 1-year 
                        period for which such report is 
                        submitted;
                          (ii) the number, by programs, of 
                        undercover investigative operations 
                        commenced in the 1-year period 
                        [preceding the period] for which such 
                        report is submitted; [and
                          [(iii) the number, by programs, of 
                        undercover investigative operations 
                        closed in the 1-year period preceding 
                        the period for which such report is 
                        submitted and, with respect to each 
                        such closed undercover operation, the 
                        results obtained and any civil claims 
                        made with respect thereto.]
                          (iii) the number, by programs, of 
                        undercover investigative operations 
                        closed in the 1-year period for which 
                        such report is submitted, and
                          (iv) the following information with 
                        respect to each undercover 
                        investigative operation pending as of 
                        the end of the 1-year period for which 
                        such report is submitted or closed 
                        during such 1-year period--
                                  (I) the date the operation 
                                began and the date of the 
                                certification referred to in 
                                the last sentence of paragraph 
                                (1),
                                  (II) the total expenditures 
                                under the operation and the 
                                amount and use of the proceeds 
                                from the operation,
                                  (III) a detailed description 
                                of the operation including the 
                                potential violation being 
                                investigated and whether the 
                                operation is being conducted 
                                under grand jury auspices, and
                                  (IV) the results of the 
                                operation including the results 
                                of criminal proceedings.
          (5) Definitions.--For purposes of paragraph (4)--
                  (A)  * * *
          * * * * * * *
                  [(C) Undercover investigative operation.--The 
                terms ``undercover investigative operation'' 
                and ``undercover operation'' mean any 
                undercover investigative operation of the 
                Service--
                          [(i) in which--
                                  [(I) the gross receipts 
                                (excluding interest earned) 
                                exceed $50,000; or
                                  [(II) expenditures, both 
                                recoverable and nonrecoverable 
                                (other than expenditures for 
                                salaries of employees), exceed 
                                $150,000; and
                          [(ii) which is exempt from section 
                        3302 or 9102 of title 31, United States 
                        Code.
                        Clauses (i) and (ii) shall not apply 
                        with respect to the report required 
                        under subparagraph (B) of paragraph 
                        (4).]
                  (C) Undercover investigative operation.--The 
                term ``undercover investigative operation'' 
                means any undercover investigative operation of 
                the Service; except that, for purposes of 
                subparagraphs (A) and (C) of paragraph (4), 
                such term only includes an operation which is 
                exempt from section 3302 or 9102 of title 31, 
                United States Code.
          (6) Application of section.--The provisions of this 
        subsection--
                  (A) shall apply after November 17, 1988, and 
                before January 1, 1990, and
                  (B) shall apply after the date of the 
                enactment of this paragraph and before January 
                1, 2001.
        All amounts expended pursuant to this subsection during 
        the period described in subparagraph (B) shall be 
        recovered to the extent possible, and deposited in the 
        Treasury of the United States as miscellaneous 
        receipts, before January 1, 2001.

SEC. 7609. SPECIAL PROCEDURES FOR THIRD-PARTY SUMMONSES

  (a) Notice.--
          (1)  * * *
          * * * * * * *
          (3) Third-party recordkeeper defined.--For purposes 
        of this subsection, the term ``third-party 
        recordkeeper'' means--
                  (A)  * * *
          * * * * * * *
                  (G) any barter exchange (as defined in 
                section 6045(c)(3)); [and]
                  (H) any regulated investment company (as 
                defined in section 851) and any agent of such 
                regulated investment company when acting as an 
                agent thereof[.]; and
                  (I) any enrolled agent.
          * * * * * * *

                Subchapter B--General Powers and Duties

        Sec. 7621. Internal revenue districts.
     * * * * * * *
        [Sec. 7623. Expenses of detection and punishment of frauds.]
        Sec. 7623. Expenses of detection of underpayments and fraud, 
                  etc.
          * * * * * * *

[SEC. 7623. EXPENSES OF DETECTION AND PUNISHMENT OF FRAUDS

  [The Secretary, under regulations prescribed by the 
Secretary, is authorized to pay such sums, not exceeding in the 
aggregate the sum appropriated therefor, as he may deem 
necessary for detecting and bringing to trial and punishment 
persons guilty of violating the internal revenue laws, or 
conniving at the same, in cases where such expenses are not 
otherwise provided for by law.]

SEC. 7623. EXPENSES OF DETECTION OF UNDERPAYMENTS AND FRAUD, ETC.

  The Secretary, under regulations prescribed by the Secretary, 
is authorized to pay such sums as he deems necessary for--
          (1) detecting underpayments of tax, and
          (2) detecting and bringing to trial and punishment 
        persons guilty of violating the internal revenue laws 
        or conniving at the same,
in cases where such expenses are not otherwise provided for by 
law. Any amount payable under the preceding sentence shall be 
paid from the proceeds of amounts (other than interest) 
collected by reason of the information provided, and any amount 
so collected shall be available for such payments.
          * * * * * * *

                       CHAPTER 80--GENERAL RULES

          * * * * * * *

           Subchapter A--Application of Internal Revenue Law

        Sec. 7801. Authority of the Department of the Treasury.
        [Sec. 7802. Commissioner of Internal Revenue; Assistant 
                  Commissioner (Employee Plans and Exempt 
                  Organizations).]
        Sec. 7802. Commissioner of Internal Revenue; Assistant 
                  Commissioners; Taxpayer Advocate.
          * * * * * * *

[SEC. 7802. COMMISSIONER OF INTERNAL REVENUE; ASSISTANT COMMISSIONER 
                    (EMPLOYEE PLANS AND EXEMPT ORGANIZATIONS)]

SEC. 7802. COMMISSIONER OF INTERNAL REVENUE; ASSISTANT COMMISSIONERS; 
                    TAXPAYER ADVOCATE.

  (a)  * * *
          * * * * * * *
  (d) Office of Taxpayer Advocate.--
          (1) In general.--There is established in the Internal 
        Revenue Service an office to be known as the ``Office 
        of the Taxpayer Advocate''. Such office shall be under 
        the supervision and direction of an official to be 
        known as the ``Taxpayer Advocate'' who shall be 
        appointed by and report directly to the Commissioner of 
        Internal Revenue. The Taxpayer Advocate shall be 
        entitled to compensation at the same rate as the 
        highest level official reporting directly to the Deputy 
        Commissioner of the Internal Revenue Service.
          (2) Functions of office.--
                  (A) In general.--It shall be the function of 
                the Office of Taxpayer Advocate to--
                          (i) assist taxpayers in resolving 
                        problems with the Internal Revenue 
                        Service,
                          (ii) identify areas in which 
                        taxpayers have problems in dealings 
                        with the Internal Revenue Service,
                          (iii) to the extent possible, propose 
                        changes in the administrative practices 
                        of the Internal Revenue Service to 
                        mitigate problems identified under 
                        clause (ii), and
                          (iv) identify potential legislative 
                        changes which may be appropriate to 
                        mitigate such problems.
                  (B) Annual reports.--
                          (i) Objectives.--Not later than June 
                        30 of each calendar year after 1995, 
                        the Taxpayer Advocate shall report to 
                        the Committee on Ways and Means of the 
                        House of Representatives and the 
                        Committee on Finance of the Senate on 
                        the objectives of the Taxpayer Advocate 
                        for the fiscal year beginning in such 
                        calendar year. Any such report shall 
                        contain full and substantive analysis, 
                        in addition to statistical information.
                          (ii) Activities.--Not later than 
                        December 31 of each calendar year after 
                        1995, the Taxpayer Advocate shall 
                        report to the Committee on Ways and 
                        Means of the House of Representatives 
                        and the Committee on Finance of the 
                        Senate on the activities of the 
                        Taxpayer Advocate during the fiscal 
                        year ending during such calendar year. 
                        Any such report shall contain full and 
                        substantive analysis, in addition to 
                        statistical information, and shall--
                                  (I) identify the initiatives 
                                the Taxpayer Advocate has taken 
                                on improving taxpayer services 
                                and Internal Revenue Service 
                                responsiveness,
                                  (II) contain recommendations 
                                received from individuals with 
                                the authority to issue Taxpayer 
                                Assistance Orders under section 
                                7811,
                                  (III) contain a summary of at 
                                least 20 of the most serious 
                                problems encountered by 
                                taxpayers, including a 
                                description of the nature of 
                                such problems,
                                  (IV) contain an inventory of 
                                the items described in 
                                subclauses (I), (II), and (III) 
                                for which action has been taken 
                                and the result of such action,
                                  (V) contain an inventory of 
                                the items described in 
                                subclauses (I), (II), and (III) 
                                for which action remains to be 
                                completed and the period during 
                                which each item has remained on 
                                such inventory,
                                  (VI) contain an inventory of 
                                the items described in 
                                subclauses (II) and (III) for 
                                which no action has been taken, 
                                the period during which each 
                                item has remained on such 
                                inventory, the reasons for the 
                                inaction, and identify any 
                                Internal Revenue Service 
                                official who is responsible for 
                                such inaction,
                                  (VII) identify any Taxpayer 
                                Assistance Order which was not 
                                honored by the Internal Revenue 
                                Service in a timely manner, as 
                                specified under section 
                                7811(b),
                                  (VIII) contain 
                                recommendations for such 
                                administrative and legislative 
                                action as may be appropriate to 
                                resolve problems encountered by 
                                taxpayers,
                                  (IX) describe the extent to 
                                which regional problem 
                                resolution officers participate 
                                in the selection and evaluation 
                                of local problem resolution 
                                officers, and
                                  (X) include such other 
                                information as the Taxpayer 
                                Advocate may deem advisable.
                          (iii) Report to be submitted 
                        directly.--Each report required under 
                        this subparagraph shall be provided 
                        directly to the Committees referred to 
                        in clauses (i) and (ii) without any 
                        prior review or comment from the 
                        Commissioner, the Secretary of the 
                        Treasury, any other officer or employee 
                        of the Department of the Treasury, or 
                        the Office of Management and Budget.
          (3) Responsibilities of commissioner.--The 
        Commissioner of Internal Revenue shall establish 
        procedures requiring a formal response to all 
        recommendations submitted to the Commissioner by the 
        Taxpayer Advocate within 3 months after submission to 
        the Commissioner.
          * * * * * * *

SEC. 7805. RULES AND REGULATIONS

  (a)  * * *
  [(b) Retroactivity of Regulations or Rulings.--The Secretary 
may prescribe the extent, if any, to which any ruling or 
regulation, relating to the internal revenue laws, shall be 
applied without retroactive effect.]
  (b) Retroactivity of Regulations.--
          (1) In general.--Except as otherwise provided in this 
        subsection, no temporary, proposed, or final regulation 
        relating to the internal revenue laws shall apply to 
        any taxable period ending before the earliest of the 
        following dates:
                  (A) The date on which such regulation is 
                filed with the Federal Register.
                  (B) In the case of any final regulation, the 
                date on which any proposed or temporary 
                regulation to which such final regulation 
                relates was filed with the Federal Register.
                  (C) The date on which any notice 
                substantially describing the expected contents 
                of any temporary, proposed, or final regulation 
                is issued to the public.
          (2) Exception for promptly issued regulations.--
        Paragraph (1) shall not apply to regulations filed or 
        issued within 18 months of the date of the enactment of 
        the statutory provision to which the regulation 
        relates.
          (3) Prevention of abuse.--The Secretary may provide 
        that any regulation may take effect or apply 
        retroactively to prevent abuse.
          (4) Correction of procedural defects.--The Secretary 
        may provide that any regulation may apply retroactively 
        to correct a procedural defect in the issuance of any 
        prior regulation.
          (5) Internal regulations.--The limitation of 
        paragraph (1) shall not apply to any regulation 
        relating to internal Treasury Department policies, 
        practices, or procedures.
          (6) Congressional authorization.--The limitation of 
        paragraph (1) may be superseded by a legislative grant 
        from Congress authorizing the Secretary to prescribe 
        the effective date with respect to any regulation.
          (7) Election to apply retroactively.--The Secretary 
        may provide for any taxpayer to elect to apply any 
        regulation before the dates specified in paragraph (1).
          (8) Application to rulings.--The Secretary may 
        prescribe the extent, if any, to which any ruling 
        (including any judicial decision or any administrative 
        determination other than by regulation) relating to the 
        internal revenue laws shall be applied without 
        retroactive effect.
          * * * * * * *

SEC. 7811. TAXPAYER ASSISTANCE ORDERS

  (a) Authority To Issue.--Upon application filed by a taxpayer 
with [the Office of Ombudsman] the Office of the Taxpayer 
Advocate (in such form, manner, and at such time as the 
Secretary shall by regulations prescribe), the [Ombudsman] 
Taxpayer Advocate may issue a Taxpayer Assistance Order if, in 
the determination of the [Ombudsman] Taxpayer Advocate, the 
taxpayer is suffering or about to suffer a significant hardship 
as a result of the manner in which the internal revenue laws 
are being administered by the Secretary.
  (b) Terms of a Taxpayer Assistance Order.--The terms of a 
Taxpayer Assistance Order may require the Secretary within a 
specified time period--
          (1) to release property of the taxpayer levied upon, 
        or
          (2) to cease any action, take any action as permitted 
        by law, or refrain from taking any action, with respect 
        to the taxpayer under--
                  (A) chapter 64 (relating to collection),
                  (B) subchapter B of chapter 70 (relating to 
                bankruptcy and receiverships),
                  (C) chapter 78 (relating to discovery of 
                liability and enforcement of title), or
                  (D) any other provision of law which is 
                specifically described by the [Ombudsman] 
                Taxpayer Advocate in such order.
  [(c) Authority to Modify or Rescind.--Any Taxpayer Assistance 
Order issued by the Ombudsman under this section may be 
modified or rescinded only by the Ombudsman, a district 
director, a service center director, a compliance center 
director, a regional director of appeals, or any superior of 
any such person.]
  (c) Authority To Modify or Rescind.--Any Taxpayer Assistance 
Order issued by the Taxpayer Advocate under this section may be 
modified or rescinded--
          (1) only by the Taxpayer Advocate, the Commissioner 
        of Internal Revenue, or the Deputy Commissioner of 
        Internal Revenue, and
          (2) only if a written explanation of the reasons for 
        the modification or rescission is provided to the 
        Taxpayer Advocate.
  (d) Suspension of Running of Period of Limitation.--The 
running of any period of limitation with respect to any action 
described in subsection (b) shall be suspended for--
          (1) the period beginning on the date of the 
        taxpayer's application under subsection (a) and ending 
        on the date of the [Ombudsman's] Taxpayer Advocate's 
        decision with respect to such application, and
          (2) any period specified by the [Ombudsman] Taxpayer 
        Advocate in a Taxpayer Assistance Order issued pursuant 
        to such application.
  (e) Independent Action of [Ombudsman] Taxpayer Advocate.--
Nothing in this section shall prevent the [Ombudsman] Taxpayer 
Advocate from taking any action in the absence of an 
application under subsection (a).
  (f) [Ombudsman] Taxpayer Advocate.--For purposes of this 
section, the term ``[Ombudsman] Taxpayer Advocate'' includes 
any designee of the [Ombudsman] Taxpayer Advocate.
          * * * * * * *
                              ----------                              


            SECTION 7601 OF THE ANTI-DRUG ABUSE ACT OF 1988

SEC. 7601. DISCLOSURE OF INFORMATION ON CASH TRANSACTIONS; UNDERCOVER 
                    ACTIVITIES OF INTERNAL REVENUE SERVICE.

  (a) * * *
          * * * * * * *
  (c) Enhancement of Undercover Capabilities of the Internal 
Revenue Service.--
          (1) * * *
          * * * * * * *
          (3) Effective date.--The amendments made by this 
        subsection shall take effect on the date of the 
        enactment of this Act [and shall cease to apply after 
        December 31, 1989; and all amounts expended pursuant to 
        such amendments shall be recovered to the extent 
        possible, and deposited in the Treasury of the United 
        States as miscellaneous receipts, before January 1, 
        1990.].
          * * * * * * *