[House Report 105-51]
[From the U.S. Government Publishing Office]



105th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 1st Session                                                     105-51
_______________________________________________________________________


 
                    TAXPAYER BROWSING PROTECTION ACT

                                _______
                                

 April 14, 1997.--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. 1226]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 1226) to amend the Internal Revenue Code of 1986 to 
prevent the unauthorized inspection of tax returns or tax 
return information, having considered the same, report 
favorably thereon with an amendment and recommend that the bill 
as amended do pass.

                                CONTENTS

                                                                   Page
 I. Summary and Background............................................3
        A. Summary...............................................     3
        B. Background and Reasons for Legislation................     3
        C. Legislative History...................................     3
II. Explanation of the Bill...........................................3
III.Vote of the Committee.............................................5

IV. Budget Effects of the Bill........................................5
        A. Committee Estimates of Budgetary Effects..............     5
        B. Budget Authority and Tax Expenditures.................     5
        C. Cost Estimate Prepared by the Congressional Budget 
            Office...............................................     5
 V. Other Matters To Be Discussed Under the Rules of the House........6
        A. Committee Oversight Findings and Recommendations......     6
        B. Summary of Findings and Recommendations of the 
            Committee on Government Reform and Oversight.........     7
        C. Constitutional Authority Statement....................     7
        D. Information Relating to Unfunded Mandates.............     7
        E. Applicability of House Rule XXI clause 5(c)...........     7
VI. Changes in Existing Law Made by the Bill, as Reported.............7

  The amendment is as follows:
  At the end of the bill insert the following new section:

SEC. 3. CIVIL DAMAGES FOR UNAUTHORIZED INSPECTION OF RETURNS AND RETURN 
                    INFORMATION; NOTIFICATION OF UNLAWFUL INSPECTION OR 
                    DISCLOSURE.

  (a) Civil Damages for Unauthorized Inspection.--Subsection 
(a) of section 7431 of the Internal Revenue Code of 1986 is 
amended--
          (1) by striking ``Disclosure'' in the headings for 
        paragraphs (1) and (2) and inserting ``Inspection or 
        disclosure'', and
          (2) by striking ``discloses'' in paragraphs (1) and 
        (2) and inserting ``inspects or discloses''.
  (b) Notification of Unlawful Inspection or Disclosure.--
Section 7431 of such Code is amended by redesignating 
subsections (e) and (f) as subsections (f) and (g), 
respectively, and by inserting after subsection (d) the 
following new subsection:
  ``(e) Notification of Unlawful Inspection and Disclosure.--If 
any person is criminally charged by indictment or information 
with inspection or disclosure of a taxpayer's return or return 
information in violation of--
          ``(1) paragraph (1) or (2) of section 7213(a),
          ``(2) section 7213A(a), or
          ``(3) subparagraph (B) of section 1030(a)(2) of title 
        18, United States Code,
the Secretary shall notify such taxpayer as soon as practicable 
of such inspection or disclosure.''
  (c) No Damages for Inspection Requested by Taxpayer.--
Subsection (b) of section 7431 of such Code is amended to read 
as follows:
  ``(b) Exceptions.--No liability shall arise under this 
section with respect to any inspection or disclosure--
          ``(1) which results from a good faith, but erroneous, 
        interpretation of section 6103, or
          ``(2) which is requested by the taxpayer.''
  (d) Conforming Amendments.--
          (1) Subsections (c)(1)(A), (c)(1)(B)(i), and (d) of 
        section 7431 of such Code are each amended by inserting 
        ``inspection or'' before ``disclosure''.
          (2) Clause (ii) of section 7431(c)(1)(B) of such Code 
        is amended by striking ``willful disclosure or a 
        disclosure'' and inserting ``willful inspection or 
        disclosure or an inspection or disclosure''.
          (3) Subsection (f) of section 7431 of such Code, as 
        redesignated by subsection (b), is amended to read as 
        follows:
  ``(f) Definitions.--For purposes of this section, the terms 
`inspect', `inspection', `return', and `return information' 
have the respective meanings given such terms by section 
6103(b).''
          (4) The section heading for section 7431 of such Code 
        is amended by inserting ``INSPECTION OR'' before 
        ``DISCLOSURE''.
          (5) The table of sections for subchapter B of chapter 
        76 of such Code is amended by inserting ``inspection 
        or'' before ``disclosure'' in the item relating to 
        section 7431.
          (6) Paragraph (2) of section 7431(g) of such Code, as 
        redesignated by subsection (b), is amended by striking 
        ``any use'' and inserting ``any inspection or use''.
  (e) Effective Date.--The amendments made by this section 
shall apply to inspections and disclosures occurring on and 
after the date of the enactment of this Act.

                       I. SUMMARY AND BACKGROUND

                               A. Summary

    H.R. 1226, as reported by the Committee on Ways and Means, 
provides for a criminal penalty for unauthorized willful 
inspection (``browsing'') of tax returns and return 
information. The bill provides for civil damages for 
unauthorized inspection, and also contains a notification 
requirement.

               B. Background and Reasons for Legislation

    Widespread indications of browsing have made it imperative 
that Congress create a criminal penalty in the Internal Revenue 
Code to penalize this behavior.

                         C. Legislative History

Committee bill

    H.R. 1226 was introduced by Chairman Archer (for himself, 
Ms. Dunn, Mr. Rangel, Mrs. Johnson of Connecticut, Mr. Coyne, 
Mr. Thomas, Mr. Herger, Mr. Camp, Mr. Ensign, Mr. Hayworth, Mr. 
Weller, Mrs. Kennelly of Connecticut, Mr. Levin, Mr. Kleczka, 
Mr. Lewis of Georgia, Mr. Neal of Massachusetts, Mr. Jefferson, 
Mr. Tanner, Mrs. Thurman, and Mr. Portman) on April 8, 1997. 
The bill was considered in a Committee on Ways and Means markup 
on April 9, 1997, and was ordered favorably reported, with an 
amendment, by voice vote.

                      II. EXPLANATION OF THE BILL

                              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 willful 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).
    There is no explicit criminal penalty in the Internal 
Revenue Code for unauthorized inspection (absent subsequent 
disclosure) of tax returns and return information. Such 
inspection is, however, explicitly prohibited by the Internal 
Revenue Service (``IRS'').\1\ In a recent case, an individual 
was convicted of violating the Federal wire fraud statute (18 
U.S.C. 1343 and 1346) and a Federal computer fraud statute (18 
U.S.C. 1030) for unauthorized inspection. However, the U.S. 
First Circuit Court of Appeals overturned this conviction.\2\ 
Unauthorized inspection of information of any department or 
agency of the United States (including the IRS) via computer 
was made a crime under 18 U.S.C. 1030 by the Economic Espionage 
Act of 1996.\3\ This provision does not apply to unauthorized 
inspection of paper documents.
---------------------------------------------------------------------------
    \1\ IRS Declaration of Privacy Principles, May 9, 1994.
    \2\ U.S. v. Czubinski, DTR 2/25/97, p. K-2.
    \3\ P.L. 104-294, sec. 201 (October 11, 1996).
---------------------------------------------------------------------------

                           reasons for change

    The Committee believes that it is important to have a 
criminal penalty in the Internal Revenue Code to punish this 
type of behavior. The Committee also believes that it is 
appropriate to provide for civil damages for unauthorized 
inspection parallel to civil damages for unauthorized 
disclosure.

                       explanation of provisions

Criminal penalties (sec. 2 of the bill and new sec. 7213A of the Code)

    The bill creates a new criminal penalty in the Internal 
Revenue Code. The penalty is imposed for willful inspection 
(except as authorized by the Code) of any tax return or return 
information by any Federal employee or IRS contractor. The 
penalty also applies to willful inspection (except as 
authorized) by any State employee or other person who acquired 
the tax return or return information under specific provisions 
of section 6103. Upon conviction, the penalty is a fine in any 
amount not exceeding $1,000,\4\ or imprisonment of not more 
than 1 year, or both, together with the costs of prosecution. 
In addition, upon conviction, an officer or employee of the 
United States would be dismissed from office or discharged from 
employment.
---------------------------------------------------------------------------
    \4\ Pursuant to 18 U.S.C. sec. 3571 (added by the Sentencing Reform 
Act of 1984), the amount of the fine is not more than the greater of 
the amount specified in this new Code section or $100,000.
---------------------------------------------------------------------------
    The Congress views any unauthorized inspection of tax 
return information as a very serious offense; this new criminal 
penalty reflects that view. The Congress also believes that 
unauthorized inspection warrants very serious personnel 
sanctions against IRS employees who engage in unauthorized 
inspection, and that it is appropriate to fire employees who do 
this.

Civil damages (sec. 3 of the bill and sec. 7431 of the Code)

    The bill amends the provision providing for civil damages 
for unauthorized disclosure by also providing for civil damages 
for unauthorized inspection. Damages are available for 
unauthorized inspection that occurs either knowingly or by 
reason of negligence. Accidental or inadvertent inspection that 
may occur (such as, for example, by making an error in typing 
in a TIN) would not be subject to damages because it would not 
meet this standard. The bill also provides that no damages are 
available to a taxpayer if that taxpayer requested the 
inspection or disclosure.
    The bill also requires that, if any person is criminally 
charged by indictment or information with inspection or 
disclosure of a taxpayer's return or return information in 
violation of section 7213 (a) or (b), section 7213A (as added 
by the bill), or 18 USC section 1030 (a)(2)(B), the Secretary 
notify that taxpayer as soon as practicable of the inspection 
or disclosure.

                             effective date

    The bill is effective for violations occurring on or after 
the date of enactment.

                       III. VOTE 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 vote on the motion to report the bill. 
The bill (H.R. 1226) was ordered favorably reported, as amended 
by voice vote on April 9, 1997, with a quorum present.

                     IV. BUDGET EFFECTS OF THE BILL

                         A. Committee Estimates

    In compliance with clause 7(a) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the estimated budget effects of the bill as 
reported.
    The bill, as reported, is estimated to have an 
indeterminate revenue effect.

                B. Budget Authority and Tax Expenditures

Budget authority

    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 provisions of the bill as reported 
involve no new or increased budget authority.

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 provisions of the bill as reported 
involve no new or increased 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 
cost estimate prepared by the Congressional Budget Office, the 
Committee advises that the Congressional Budget Office has 
submitted the following statement on this bill.

                                     U.S. Congress,
                               Congressional Budget Office,
                                    Washington, DC, April 11, 1997.
Hon. Bill Archer,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 1226, the Taxpayer 
Browsing Protection Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Mark 
Grabowicz.
            Sincerely,
                                         June E. O'Neill, Director.
    Enclosure.

H.R. 1226--Taxpayer Browsing Protection Act

    H.R. 1226 would ban the authorized inspection of federal 
tax returns or tax return information. Violators of the bill's 
provisions would be subject to a criminal fine and 
imprisonment. In addition, H.R. 1226 would permit taxpayers 
whose returns are unlawfully inspected to bring a civil action 
against the United States.
    CBO estimates that enacting this legislation would have no 
significant impact on the federal budget. While the bill could 
lead to increases in both direct spending and receipts, the 
amounts involved would be less than $500,000 a year. Because 
H.R. 1226 could affect direct spending and receipts, pay-as-
you-go procedures would apply.
    Enacting H.R. 1226 could increase government receipts from 
criminal fines. Such fines would be deposited in the Crime 
Victims Fund and would be spent in the following year. Thus, 
direct spending from the fund would match the increase in 
revenues with a one-year lag. In any case, CBO estimates that 
the criminal fines would likely total less than $500,000 a 
year.
    Enacting this legislation also could increase civil actions 
by taxpayers against the Internal Revenue Service. Successful 
litigants would be paid from a permanent, indefinite 
appropriation for Claims, Judgments, and Relief Acts. CBO 
estimates that any increase in direct spending from such 
payments also would total less than $500,000 annually.
    H.R. 1226 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act of 1995 
and would not impose costs on state, local, or tribal 
governments.
    The CBO staff contact for this estimate is Mark Grabowicz. 
This estimate was approved by Robert A. Sunshine, Deputy 
Assistant Director for Budget Analysis.

     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 the 
result of the Committee's oversight activities concerning 
reports of unauthorized ``browsing'' of taxpayer's returns and 
return information by Internal Revenue Service personnel that 
the Committee concluded that it is appropriate to enact the 
provisions contained in the bill as reported.

    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. Constitutional Authority Statement

    With respect to clause 2(l)(4) of Rule XI of the Rules of 
the House of Representatives (relating to Constitutional 
Authority), the Committee states that the Committee's action in 
reporting this bill is derived from Article I of the 
Constitution, Section 7 (``All bills for raising revenue shall 
originate in the House of Representatives'') and Section 8 
(``The Congress shall have power to lay and collect taxes, 
duties, imposts and excises, to pay the debts * * * of the 
United States'').

              D. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Act of 1995 (P.L. 104-4).
    The Committee has determined that the provisions of the 
bill do not impose a Federal mandate on the private sector nor 
a Federal intergovernmental mandate. Thus, the provisions of 
the bill do not affect the competitive balance between the 
private sector and State, local, and tribal government.

                 E. Applicability of House Rule XXI5(c)

    Rule XXI5(c) of the Rules of the House of Representatives 
provides, in part, 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.'' The Committee has carefully reviewed the provisions 
of the bill, and states that the provisions of the bill do not 
involve any Federal income tax rate increase within the meaning 
of the rule.

       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 F--Procedure and Administration

          * * * * * * *

          CHAPTER 75--CRIMES, OTHER OFFENSES, AND FORFEITURES

                          Subchapter A--Crimes

                       PART I--GENERAL PROVISIONS

        Sec. 7201. Attempt to evade or defeat tax.
     * * * * * * *
        Sec. 7213A. Unauthorized inspection of returns or return 
                  information.
          * * * * * * *

SEC. 7213. UNAUTHORIZED DISCLOSURE OF INFORMATION.

  (a) Returns and return information.--
          (1) * * *
          (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), (12), or 
        (15) or (m)(2), (4), (5), (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.
          * * * * * * *

SEC. 7213A. UNAUTHORIZED INSPECTION OF RETURNS OR RETURN INFORMATION.

  (a) Prohibitions.--
          (1) Federal employees and other persons.--It shall be 
        unlawful for--
                  (A) any officer or employee of the United 
                States, or
                  (B) any person described in section 6103(n) 
                or an officer or employee of any such person,
        willfully to inspect, except as authorized in this 
        title, any return or return information.
          (2) State and other employees.--It shall be unlawful 
        for any person (not described in paragraph (1)) 
        willfully to inspect, except as authorized in this 
        title, any return or return information acquired by 
        such person or another person under a provision of 
        section 6103 referred to in section 7213(a)(2).
  (b) Penalty.--
          (1)  In general.--Any violation of subsection (a) 
        shall be punishable upon conviction by a fine in any 
        amount not exceeding $1,000, or imprisonment of not 
        more than 1 year, or both, together with the costs of 
        prosecution.
          (2) Federal officers or employees.--An officer or 
        employee of the United States who is convicted of any 
        violation of subsection (a) shall, in addition to any 
        other punishment, be dismissed from office or 
        discharged from employment.
  (c) Definitions.--For purposes of this section, the terms 
``inspect'', ``return'', and ``return information'' have the 
respective meanings given such terms by section 6103(b).
          * * * * * * *

                    CHAPTER 76--JUDICIAL PROCEEDINGS

          * * * * * * *

        Subchapter B--Proceedings by Taxpayers and Third Parties

        Sec. 7421. Prohibition of suits to restrain assessment or 
                  collection.
     * * * * * * *
        Sec. 7431. Civil damages for unauthorized inspection or 
                  disclosure of returns and return information.
     * * * * * * *

SEC. 7431. CIVIL DAMAGES FOR UNAUTHORIZED INSPECTION OR DISCLOSURE OF 
                    RETURNS AND RETURN INFORMATION.

  (a) In general.--
          (1) [Disclosure] Inspection or disclosure by employee 
        of United States.--If any officer or employee of the 
        United States knowingly, or by reason of negligence, 
        inspects or discloses any return or return information 
        with respect to a taxpayer in violation of any 
        provision of section 6103, such taxpayer may bring a 
        civil action for damages against the United States in a 
        district court of the United States.
          (2) [Disclosure] Inspection or disclosure by a person 
        who is not an employee of United States.--If any person 
        who is not an officer or employee of the United States 
        knowingly, or by reason of negligence, inspects or 
        discloses any return or return information with respect 
        to a taxpayer in violation of any provision of section 
        6103, such taxpayer may bring a civil action for 
        damages against such person in a district court of the 
        United States.
  [(b) No liability for good faith but erroneous 
interpretation.--No liability shall arise under this section 
with respect to any disclosure which results from a good faith, 
but erroneous, interpretation of section 6103.]
  (b) Exceptions.--No liability shall arise under this section 
with respect to any inspection or disclosure--
          (1) which results from a good faith, but erroneous, 
        interpretation of section 6103, or
          (2) which is requested by the taxpayer.
  (c) 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 sum of--
          (1) the greater of--
                  (A) $1,000 for each act of unauthorized 
                inspection or disclosure of a return or return 
                information with respect to which such 
                defendant is found liable, or
                  (B) the sum of--
                          (i) the actual damages sustained by 
                        the plaintiff as a result of such 
                        unauthorized inspection or disclosure, 
                        plus
                          (ii) in the case of a [willful 
                        disclosure or a disclosure] willful 
                        inspection or disclosure or an 
                        inspection or disclosure which is the 
                        result of gross negligence, punitive 
                        damages, plus
          (2) the costs of the action.
  (d) Period for bringing action.--Notwithstanding any other 
provision of law, an action to enforce any liability created 
under this section may be brought, without regard to the amount 
in controversy, at any time within 2 years after the date of 
discovery by the plaintiff of the unauthorized inspection or 
disclosure.
  [(e) Return; return information.--For purposes of this 
section, the terms ``return'' and ``return information'' have 
the respective meanings given such terms in section 6103(b).]
  (e) Notification of Unlawful Inspection and Disclosure.--If 
any person is criminally charged by indictment or information 
with inspection or disclosure of a taxpayer's return or return 
information in violation of--
          (1) paragraph (1) or (2) of section 7213(a),
          (2) section 7213A(a), or
          (3) subparagraph (B) of section 1030(a)(2) of title 
        18, United States Code,
the Secretary shall notify such taxpayer as soon as practicable 
of such inspection or disclosure.
  (f) Definitions.--For purposes of this section, the terms 
``inspect'', ``inspection'', ``return'', and ``return 
information'' have the respective meanings given such terms by 
section 6103(b).
  [(f)] (g) Extension to information obtained under section 
3406.--For purposes of this section--
          (1) any information obtained under section 3406 
        (including information with respect to any payee 
        certification failure under subsection (d) thereof) 
        shall be treated as return information, and
          (2) any inspection or use of such information other 
        than for purposes of meeting any requirement under 
        section 3406 or (subject to the safeguards set forth in 
        section 6103) for purposes permitted under section 6103 
        shall be treated as a violation of section 6103.
For purposes of subsection (b), the reference to section 6103 
shall be treated as including a reference to section 3406.
          * * * * * * *