[House Report 105-599]
[From the U.S. Government Publishing Office]



105th Congress                                                   Report
                       HOUSE OF REPRESENTATIVES

 2d Session                                                     105-599
_______________________________________________________________________


 
     INTERNAL REVENUE SERVICE RESTRUCTURING AND REFORM ACT OF 1998

                               __________

                           CONFERENCE REPORT

                              to accompany

                               H.R. 2676





                 June 24, 1998.--Ordered to be printed


      INTERNAL REVENUE SERVICE RESTRUCTURING AND REFORM ACT OF 1998


105th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 2d Session                                                     105-599
_______________________________________________________________________



     INTERNAL REVENUE SERVICE RESTRUCTURING AND REFORM ACT OF 1998

                               ----------                              

                           CONFERENCE REPORT

                              to accompany

                               H.R. 2676





                 June 24, 1998.--Ordered to be printed


                            C O N T E N T S

                              ----------                              
                                                                   Page
Title I. Reorganization of Structure and Management of the IRS...   193
    A. IRS Restructuring and Creation of IRS Oversight Board.....   193
        1. IRS restructuring and mission (secs. 1001 and 1002 of 
            the Senate amendment)................................   193
        2. Establishment and duties of IRS Oversight Board (sec. 
            101 of the House bill and sec. 1101 of the Senate 
            amendment)...........................................   194
    B. Appointment and Duties of IRS Commissioner and Chief 
        Counsel and Other Personnel..............................   206
        1. IRS Commissioner and other personnel (secs. 102 and 
            103 of the House bill and secs. 1102(a) and 1104 of 
            the Senate amendment)................................   206
        2. IRS Chief Counsel (sec. 1102(a) of the Senate 
            amendment)...........................................   206
    C. Structure and Funding of the Employee Plans and Exempt 
        Organizations Division (``EP/EO'') (secs. 102 and 342 of 
        the House bill and sec. 1101 of the Senate amendment)....   210
    D. Taxpayer Advocate and Taxpayer Assistance Order (secs. 102 
        and 342 of the House bill and secs. 1102(a), (c), and (d) 
        of the Senate amendment).................................   211
    E. Treasury Office of Inspector General; IRS Office of the 
        Chief Inspector (secs. 1102(a) and 1103 of the Senate 
        amendment)...............................................   217
    F. Prohibition on Executive Branch Influence Over Taxpayer 
        Audits (sec. 104 of the House bill and sec. 1105 of the 
        Senate amendment)........................................   225
    G. Review of Milwaukee and Waukesa IRS Office (sec. 1106 of 
        the Senate amendment.....................................   226
    H. IRS Personnel Flexibilities (sec. 111 of the House bill 
        and secs. 1201-1205 of the Senate amendment).............   227
Title II. Electronic Filing......................................   234
    A. Electronic Filing of Tax and Information Returns (sec. 201 
        of the House bill and sec. 2001 of the Senate amendment).   234
    B.  Due Date for Certain Information Returns (sec. 202 of the 
        House bill and sec. 2002 of the Senate amendment)........   235
    C. Paperless Electronic Filing (sec. 203 of the House bill 
        and sec. 2003 of the Senate amendment)...................   236
    D. Return-Free Tax System (sec. 204 of the House bill and 
        sec. 2004 of the Senate amendment).......................   237
    E. Access to Account Information (sec. 205 of the House bill 
        and sec. 2005 of the Senate amendment)...................   238
Title III. Taxpayer Protection and Rights........................   238
    A. Burden of Proof (sec. 301 of the House bill and sec. 3001 
        of the Senate amendment).................................   238
    B. Proceedings by Taxpayers..................................   242
        1. Expansion of authority to award costs and certain fees 
            (sec. 311 of the House bill and sec. 3101 of the 
            Senate amendment)....................................   242
        2. Civil damages for collection actions (sec. 312 of the 
            House bill and sec. 3102 of the Senate amendment)....   244
        3. Increase in size of cases permitted on small case 
            calendar (sec. 313 of the House bill and sec. 3103 of 
            the Senate amendment)................................   244
        4. Expansion of Tax Court jurisdiction to responsible 
            person penalties (sec. 3104 of the Senate amendment).   245
        5. Actions for refund with respect to certain estates 
            which have elected the installment method of payment 
            (sec. 371 of the House bill and sec. 3105 of the 
            Senate amendment)....................................   246
        6. Tax court jurisdiction to review an adverse IRS 
            determination of a bond issue's tax-exempt status 
            (sec. 3106 of the Senate Amendment)..................   247
        7. Civil action for release of erroneous lien (sec. 3107 
            of the Senate amendment).............................   248
    C. Relief for Innocent Spouses and for Taxpayers Unable to 
        Manage Their Financial Affairs Due to Disabilities.......   249
        1. Relief for innocent spouses (sec. 321 of the House 
            bill and sec. 3201 of the Senate amendment)..........   249
        2. Suspension of statute of limitations on filing refund 
            claims during periods of disability (sec. 322 of the 
            House bill and sec. 3202 of the Senate amendment.....   255
    D. Provisions Relating to Interest and Penalties.............   256
        1. Elimination of interest differential on overlapping 
            periods of interest on income tax overpayments and 
            underpayments (sec. 331 of the House bill and sec. 
            3301 of the Senate amendment)........................   256
        2. Increase in overpayment rate payable to taxpayers 
            other than corporations (sec. 332 of the House bill 
            and sec 3302 of the Senate amendment)................   257
        3. Mitigation of penalty for individual's failure to pay 
            during period of installment agreement (sec. 376 of 
            the House bill and sec. 3303 of the Senate amendment)   258
        4. Mitigation of failure to deposit penalty (sec. 3304 of 
            the Senate amendment)................................   259
        5. Suspension of interest and certain penalties if 
            Secretary fails to contact individual taxpayers (sec. 
            3305 of the Senate amendment)........................   259
        6. Procedural requirements for imposition of penalties 
            and additions to tax (sec. 3306 of the Senate 
            amendment)...........................................   260
        7. Personal delivery of notice of penalty under section 
            6672 (sec. 3307 of the Senate amendment).............   261
        8. Notice of interest charges (sec. 3308 of the Senate 
            amendment)...........................................   261
        9. Abatement of interest on underpayments by taxpayers in 
            Presidentially declared disaster areas (sec. 3309 of 
            the Senate amendment)................................   262
    E. Protections for Taxpayers Subject to Audit or Collection 
        Activities...............................................   263
        1. Due process in IRS collection actions (sec. 3401 of 
            the Senate amendment)................................   263
        2. Examination activities................................   267
            a. Uniform application of confidentiality privilege 
                to taxpayer communications with federally 
                authorized practitioners (sec. 341 of the House 
                bill and sec. 3411 of the Senate amendment)......   267
            b. Limitation on financial status audit techniques 
                (sec. 343 of the House bill and sec. 3412 of the 
                Senate amendment)................................   270
            c. Software trade secrets protections (sec. 344 of 
                the House bill and sec. 3413 of the Senate 
                amendment).......................................   270
            d. Threat of audit prohibited to coerce tip reporting 
                alternative commitment agreements (sec. 349 of 
                the House bill and sec. 3414 of the Senate 
                amendment).......................................   274
            e. Taxpayers allowed motion to quash all third-party 
                summonses (sec. 3415 of the Senate amendment)....   275
            f. Service of summonses to third-party recordkeepers 
                permitted by mail (sec. 3416 of the Senate 
                amendment).......................................   276
            g. Notice of IRS contact of third parties (sec. 3417 
                of the Senate amendment).........................   276
        3. Collection activities.................................   277
            a. Approval process for liens, levies, and seizures 
                (sec. 3421 of the Senate amendment)..............   277
            b. Modifications to certain levy exemption amounts 
                (sec. 3431 of the Senate amendment)..............   278
            c. Release of levy upon agreement that amount is 
                uncollectible (sec. 3432 of the Senate amendment)   278
            d. Levy prohibited during pendency of refund 
                proceedings (sec. 3433 of the Senate amendment)..   279
            e. Approval required for jeopardy and termination 
                assessments and jeopardy levies (sec. 3434 of the 
                Senate amendment)................................   280
            f. Increase in amount of certain property on which 
                lien not valid (sec. 3435 of the Senate 
                amendment).......................................   280
            g. Waiver of early withdrawal tax for IRS levies on 
                employer-sponsored retirement plans or IRAs (sec. 
                3436 of the Senate amendment)....................   281
            h. Prohibition of sales of seized property at less 
                than minimum bid (sec. 3441 of the Senate 
                amendment).......................................   282
            i. Accounting of sales of seized property (sec. 3442 
                of the Senate amendment).........................   283
            j. Uniform asset disposal mechanism (sec. 3443 of the 
                Senate amendment)................................   284
            k. Codification of IRS administrative procedures for 
                seizure of taxpayer's property (sec. 3444 of the 
                Senate amendment)................................   284
            l. Procedures for seizure of residences and 
                businesses (sec. 3445 of the Senate amendment)...   285
        4. Provisions relating to examination and collection 
            activities...........................................   286
            a. Procedures relating to extensions of statute of 
                limitations by agreement (sec. 345 of the House 
                bill and sec. 3461 of the Senate amendment)......   286
            b. Offers-in-compromise (sec. 346 of the House bill 
                and sec. 3462 of the Senate amendment)...........   287
            c. Notice of deficiency to specify deadlines for 
                filing Tax Court petition (sec. 347 of the House 
                bill and sec. 3463 of the Senate amendment)......   289
            d. Refund or credit of overpayments before final 
                determination (sec. 348 of the House bill and 
                sec. 3464 of the Senate amendment)...............   290
            e. IRS procedures relating to appeal of examinations 
                and collections (sec. 3465 of the Senate 
                amendment).......................................   290
            f. Application of certain fair debt collection 
                practices (sec. 3466 of the Senate amendment)....   291
            g. Guaranteed availability of installment agreements 
                (sec. 3467 of the Senate amendment)..............   292
            h. Prohibition on requests to taxpayers to waive 
                rights to bring actions (sec. 3468 of the Senate 
                amendment).......................................   293
    F. Disclosures to Taxpayers..................................   293
        1. Explanation of joint and several liability (sec. 351 
            of the House bill and sec. 3501 of the Senate 
            amendment)...........................................   293
        2. Explanation of taxpayers' rights in interviews with 
            the IRS (sec. 352 of the House bill and sec. 3502 of 
            the Senate amendment)................................   294
        3. Disclosure of criteria for examination selection (sec. 
            353 of the House bill and sec. 3503 of the Senate 
            amendment)...........................................   295
        4. Explanation of the appeals and collection process 
            (sec. 354 of the House bill and sec. 3504 of the 
            Senate amendment)....................................   295
        5. Explanation of reason for refund disallowance (sec. 
            3505 of the Senate amendment)........................   296
        6. Statements to taxpayers with installment agreements 
            (sec. 3506 of the Senate amendment)..................   296
        7. Notification of change in tax matters partner (sec. 
            3507 of the Senate amendment)........................   297
        8. Conditions under which taxpayers' returns may be 
            disclosed (sec. 3508 of the Senate amendment)........   297
        9. Disclosure of Chief Counsel advice....................   298
    G. Low-Income Taxpayer Clinics (sec. 361 of the House bill 
        and sec. 3601 of the Senate amendment)...................   303
    H. Other Provisions..........................................   303
         1. Cataloging complaints (sec. 372 of the House bill and 
            sec. 3701 of the Senate amendment)...................   303
         2. Archive of records of Internal Revenue Service (sec. 
            373 of the House bill and sec. 3702 of the Senate 
            amendment)...........................................   304
         3. Payment of taxes (sec. 374 of the House bill and sec. 
            3703 of the Senate amendment)........................   305
         4. Clarification of authority of Secretary relating to 
            the making of elections (sec. 375 of the House bill 
            and sec. 3704 of the Senate amendment)...............   305
         5. IRS employee contacts (sec. 3705 of the Senate 
            amendment)...........................................   306
         6. Use of pseudonyms by IRS employees (sec. 3706 of the 
            Senate amendment)....................................   306
         7. Conferences of right in the National Office of IRS 
            (sec. 3707 of the Senate amendment)..................   307
         8. Illegal tax protestor designations (sec. 3708 of the 
            Senate amendment)....................................   307
         9. Provision of confidential information to Congress by 
            whistleblowers (sec. 3709 of the Senate amendment)...   308
        10. Listing of local IRS telephone numbers and addresses 
            (sec. 3710 of the Senate amendment)..................   309
        11. Identification of return preparers (sec. 3711 of the 
            Senate amendment)....................................   309
        12. Offset of past-due, legally enforceable State income 
            tax obligations against overpayments (sec. 3712 of 
            the Senate amendment)................................   310
        13. Moratorium regarding regulations under Notice 98-11 
            (sec. 3713(a)(1) of the Senate amendment)............   311
        14. Sense of the Senate regarding Notices 98-5 and 98-11 
            (secs. 3713 (a)(2) and (b) of the Senate amendment)..   314
        15. Combined employment tax reporting demonstration 
            project (sec. 3715 of the Senate amendment)..........   319
        16. Reporting requirements relating to education tax 
            credits (sec. 3716 of the Senate amendment)..........   319
    I. Studies...................................................   322
        1. Administration of penalties and interest (sec. 381 of 
            the House bill and sec. 3801 of the Senate amendment)   322
        2. Confidentiality of tax return information (sec. 382 of 
            the House bill and sec. 3802 of the Senate amendment)   323
        3. Study of transfer pricing enforcement (sec. 3803 of 
            the Senate amendment)................................   324
        4. Noncompliance with revenue laws by taxpayers (sec. 
            3804 of the Senate amendment)........................   325
        5. Payments for informants (sec. 3714 of the Senate 
            amendment)...........................................   325
Title IV. Congressional Accountability for the IRS...............   326
    A. Review of Requests for GAO Investigations of the IRS (sec. 
        401 of the House bill)...................................   326
    B. Joint Congressional Hearings and Coordinated Oversight 
        Reports (secs. 401 and 402 of the House bill)............   327
    C. Budget Matters............................................   328
        1. Funding for century date change (sec. 411 of the House 
            bill and sec. 4001 of the Senate amendment)..........   328
        2. Financial management advisory group (sec. 412 of the 
            House bill)..........................................   329
    D. Tax Law Complexity Analysis (secs. 421 and 422 of the 
        House bill and sec. 4002 of the Senate amendment)........   329
Title V. Additional Provisions...................................   332
    A. Elimination of 18-Month Holding Period for Capital Gains..   332
    B. Deductibility of Meals Provided for the Convenience of the 
        Employer.................................................   333
    C. Normal Trade Relations....................................   333
Title VI. Tax Technical Corrections..............................   335
Title VII. Revenue Offsets.......................................   342
    A. Employer Deductions for Vacation and Severance Pay (sec. 
        501 of the House bill and sec. 5001 of the Senate 
        amendment)...............................................   342
    B. Modify Foreign Tax Credit Carryover Rules (sec. 5002 of 
        the Senate amendment)....................................   345
    C. Clarify and Expand Mathematical Error Procedures (sec. 
        5003 of the Senate amendment)............................   346
    D. Freeze Grandfather Status of Stapled REITs (sec. 5004 of 
        the Senate amendment)....................................   347
    E. Make Certain Trade Receivables Ineligible for Mark-to-
        Market Treatment (sec. 5005 of the Senate amendment).....   352
    F. Add Vaccines Against Rotavirus Gastroenteritis to the List 
        of Taxable Vaccines (sec. 5006 of the Senate amendment)..   354
    G. Restrict Special Net Operating Loss Carryback Rules for 
        Specified Liability Losses (sec. 5007 of the Senate 
        amendment)...............................................   354
    H. Exclusion of Minimum Required Distributions from AGI for 
        Roth IRA Conversions (sec. 5008 of the Senate amendment).   355
    I. Extension of IRS User Fees (sec. 5009 of the Senate 
        amendment)...............................................   356
    J. Clarify Definition of ``Subject to'' Liabilities Under 
        Section 357(c) (sec. 3301A of the Senate amendment)......   357
Title VIII. Limited Tax Benefits Under the Line Item Veto Act....   358
Title IX. Corrections to the Transportation Equity Act for the 
  21st Century...................................................   358
Estimated Budget Effects of Titles I Through VII of the 
  Conference Agreement Relating to H.R. 2676, the ``Internal 
  Revenue Service Restructuring and Reform Act of 1998''.........   359


105th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 2d Session                                                     105-599
_______________________________________________________________________


     INTERNAL REVENUE SERVICE RESTRUCTURING AND REFORM ACT OF 1998

                                _______
                                

                 June 24, 1998.--Ordered to be printed

_______________________________________________________________________


 Mr. Archer, from the committee of conference, submitted the following

                           CONFERENCE REPORT

                        [To accompany H.R. 2676]

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

SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; WAIVER OF ESTIMATED TAX 
                    PENALTIES; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Internal 
Revenue Service Restructuring and Reform Act of 1998''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is 
expressed in terms of an amendment to, or repeal of, a section 
or other provision, the reference shall be considered to be 
made to a section or other provision of the Internal Revenue 
Code of 1986.
    (c) Waiver of Estimated Tax Penalties.--No addition to tax 
shall be made under section 6654 or 6655 of the Internal 
Revenue Code of 1986 with respect to any underpayment of an 
installment required to be paid on or before the 30th day after 
the date of the enactment of this Act to the extent such 
underpayment was created or increased by any provision of this 
Act.
    (d) Table of Contents.--The table of contents for this Act 
is as follows:

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

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

       Subtitle A--Reorganization of the Internal Revenue Service

Sec. 1001. Reorganization of the internal revenue service.
Sec. 1002. IRS mission to focus on taxpayers' needs.

      Subtitle B--Executive Branch Governance and Senior Management

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

                   Subtitle C--Personnel Flexibilities

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

                       TITLE II--ELECTRONIC FILING

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

                TITLE III--TAXPAYER PROTECTION AND RIGHTS

Sec. 3000. Short title.

                       Subtitle A--Burden of Proof

Sec. 3001. Burden of proof.

                  Subtitle B--Proceedings by Taxpayers

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

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

Sec. 3201. Relief from joint and several liability on joint return.
Sec. 3202. Suspension of statute of limitations on filing refund claims 
          during periods of disability.

        Subtitle D--Provisions Relating to Interest and Penalties

Sec. 3301. Elimination of interest rate differential on overlapping 
          periods of interest on tax overpayments and underpayments.
Sec. 3302. Increase in overpayment rate payable to taxpayers other than 
          corporations.
Sec. 3303. Mitigation of penalty on individual's failure to pay for 
          months during period of installment agreement.
Sec. 3304. Mitigation of failure to deposit penalty.
Sec. 3305. Suspension of interest and certain penalties where Secretary 
          fails to contact individual taxpayer.
Sec. 3306. Procedural requirements for imposition of penalties and 
          additions to tax.
Sec. 3307. Personal delivery of notice of penalty under section 6672.
Sec. 3308. Notice of interest charges.
Sec. 3309. Abatement of interest on underpayments by taxpayers in 
          Presidentially declared disaster areas.

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

                           Part I--Due Process

Sec. 3401. Due process in IRS collection actions.

                     Part II--Examination Activities

Sec. 3411. Confidentiality privileges relating to taxpayer 
          communications.
Sec. 3412. Limitation on financial status audit techniques.
Sec. 3413. Software trade secrets protection.
Sec. 3414. Threat of audit prohibited to coerce tip reporting 
          alternative commitment agreements.
Sec. 3415. Taxpayers allowed motion to quash all third-party summonses.
Sec. 3416. Service of summonses to third-party recordkeepers permitted 
          by mail.
Sec. 3417. Notice of IRS contact of third parties.

                     Part III--Collection Activities

                        SUBPART A--APPROVAL PROCESS

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

                        SUBPART B--LIENS AND LEVIES

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

                            SUBPART C--SEIZURES

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

  Part IV--Provisions Relating to Examination and Collection Activities

Sec. 3461. Procedures relating to extensions of statute of limitations 
          by agreement.
Sec. 3462. Offers-in-compromise.
Sec. 3463. Notice of deficiency to specify deadlines for filing Tax 
          Court petition.
Sec. 3464. Refund or credit of overpayments before final determination.
Sec. 3465. IRS procedures relating to appeals of examinations and 
          collections.
Sec. 3466. Application of certain fair debt collection procedures.
Sec. 3467. Guaranteed availability of installment agreements.
Sec. 3468. Prohibition on requests to taxpayers to give up rights to 
          bring actions.

                  Subtitle F--Disclosures to Taxpayers

Sec. 3501. Explanation of joint and several liability.
Sec. 3502. Explanation of taxpayers' rights in interviews with the 
          Internal Revenue Service.
Sec. 3503. Disclosure of criteria for examination selection.
Sec. 3504. Explanations of appeals and collection process.
Sec. 3505. Explanation of reason for refund disallowance.
Sec. 3506. Statements regarding installment agreements.
Sec. 3507. Notification of change in tax matters partner.
Sec. 3508. Disclosure to taxpayers.
Sec. 3509. Disclosure of Chief Counsel advice.

                 Subtitle G--Low Income Taxpayer Clinics

Sec. 3601. Low income taxpayer clinics.

                        Subtitle H--Other Matters

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

                           Subtitle I--Studies

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

 TITLE IV--CONGRESSIONAL ACCOUNTABILITY FOR THE INTERNAL REVENUE SERVICE

                          Subtitle A--Oversight

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

                     Subtitle B--Century Date Change

Sec. 4011. Century date change.

                     Subtitle C--Tax Law Complexity

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

                     TITLE V--ADDITIONAL PROVISIONS

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

                     TITLE VI--TECHNICAL CORRECTIONS

Sec. 6001. Short title; coordination with other titles.
Sec. 6002. Definitions.
Sec. 6003. Amendments related to title I of 1997 Act.
Sec. 6004. Amendments related to title II of 1997 Act.
Sec. 6005. Amendments related to title III of 1997 Act.
Sec. 6006. Amendment related to title IV of 1997 Act.
Sec. 6007. Amendments related to title V of 1997 Act.
Sec. 6008. Amendments related to title VII of 1997 Act.
Sec. 6009. Amendments related to title IX of 1997 Act.
Sec. 6010. Amendments related to title X of 1997 Act.
Sec. 6011. Amendments related to title XI of 1997 Act.
Sec. 6012. Amendments related to title XII of 1997 Act.
Sec. 6013. Amendments related to title XIII of 1997 Act.
Sec. 6014. Amendments related to title XIV of 1997 Act.
Sec. 6015. Amendments related to title XV of 1997 Act.
Sec. 6016. Amendments related to title XVI of 1997 Act.
Sec. 6017. Amendment related to Transportation Equity Act for the 21st 
          Century.
Sec. 6018. Amendments related to Small Business Job Protection Act of 
          1996.
Sec. 6019. Amendments related to Taxpayer Bill of Rights 2.
Sec. 6020. Amendment related to Omnibus Budget Reconciliation Act of 
          1993.
Sec. 6021. Amendment related to Revenue Reconciliation Act of 1990.
Sec. 6022. Amendment related to Tax Reform Act of 1986.
Sec. 6023. Miscellaneous clerical and deadwood changes.
Sec. 6024. Effective date.

                      TITLE VII--REVENUE PROVISIONS

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

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

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

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

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

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

       Subtitle A--Reorganization of the Internal Revenue Service

SEC. 1001. REORGANIZATION OF THE INTERNAL REVENUE SERVICE.

    (a) In General.--The Commissioner of Internal Revenue shall 
develop and implement a plan to reorganize the Internal Revenue 
Service. The plan shall--
            (1) supersede any organization or reorganization of 
        the Internal Revenue Service based on any statute or 
        reorganization plan applicable on the effective date of 
        this section;
            (2) eliminate or substantially modify the existing 
        organization of the Internal Revenue Service which is 
        based on a national, regional, and district structure;
            (3) establish organizational units serving 
        particular groups of taxpayers with similar needs; and
            (4) ensure an independent appeals function within 
        the Internal Revenue Service, including the prohibition 
        in the plan of ex parte communications between appeals 
        officers and other Internal Revenue Service employees 
        to the extent that such communications appear to 
        compromise the independence of the appeals officers.
    (b) Savings Provisions.--
            (1) Preservation of specific tax rights and 
        remedies.--Nothing in the plan developed and 
        implemented under subsection (a) shall be considered to 
        impair any right or remedy, including trial by jury, to 
        recover any internal revenue tax alleged to have been 
        erroneously or illegally assessed or collected, or any 
        penalty claimed to have been collected without 
        authority, or any sum alleged to have been excessive or 
        in any manner wrongfully collected under the internal 
        revenue laws. For the purpose of any action to recover 
        any such tax, penalty, or sum, all statutes, rules, and 
        regulations referring to the collector of internal 
        revenue, the principal officer for the internal revenue 
        district, or the Secretary, shall be deemed to refer to 
        the officer whose act or acts referred to in the 
        preceding sentence gave rise to such action. The venue 
        of any such action shall be the same as under existing 
        law.
            (2) Continuing effect of legal documents.--All 
        orders, determinations, rules, regulations, permits, 
        agreements, grants, contracts, certificates, licenses, 
        registrations, privileges, and other administrative 
        actions--
                    (A) which have been issued, made, granted, 
                or allowed to become effective by the 
                President, any Federal agency or official 
                thereof, or by a court of competent 
                jurisdiction, in the performance of any 
                function transferred or affected by the 
                reorganization of the Internal Revenue Service 
                or any other administrative unit of the 
                Department of the Treasury under this section, 
                and
                    (B) which are in effect at the time this 
                section takes effect, or were final before the 
                effective date of this section and are to 
                become effective on or after the effective date 
                of this section,
        shall continue in effect according to their terms until 
        modified, terminated, superseded, set aside, or revoked 
        in accordance with law by the President, the Secretary 
        of the Treasury, the Commissioner of Internal Revenue, 
        or other authorized official, a court of competent 
        jurisdiction, or by operation of law.
            (3) Proceedings not affected.--The provisions of 
        this section shall not affect any proceedings, 
        including notices of proposed rulemaking, or any 
        application for any license, permit, certificate, or 
        financial assistance pending before the Department of 
        the Treasury (or any administrative unit of the 
        Department, including the Internal Revenue Service) at 
        the time this section takes effect, with respect to 
        functions transferred or affected by the reorganization 
        under this section but such proceedings and 
        applications shall continue. Orders shall be issued in 
        such proceedings, appeals shall be taken therefrom, and 
        payments shall be made pursuant to such orders, as if 
        this section had not been enacted, and orders issued in 
        any such proceedings shall continue in effect until 
        modified, terminated, superseded, or revoked by a duly 
        authorized official, by a court of competent 
        jurisdiction, or by operation of law. Nothing in this 
        paragraph shall be deemed to prohibit the 
        discontinuance or modification of any such proceeding 
        under the same terms and conditions and to the same 
        extent that such proceeding could have been 
        discontinued or modified if this section had not been 
        enacted.
            (4) Suits not affected.--The provisions of this 
        section shall not affect suits commenced before the 
        effective date of this section, and in all such suits, 
        proceedings shall be had, appeals taken, and judgments 
        rendered in the same manner and with the same effect as 
        if this section had not been enacted.
            (5) Nonabatement of actions.--No suit, action, or 
        other proceeding commenced by or against the Department 
        of the Treasury (or any administrative unit of the 
        Department, including the Internal Revenue Service), or 
        by or against any individual in the official capacity 
        of such individual as an officer of the Department of 
        the Treasury, shall abate by reason of the enactment of 
        this section.
            (6) Administrative actions relating to promulgation 
        of regulations.--Any administrative action relating to 
        the preparation or promulgation of a regulation by the 
        Department of the Treasury (or any administrative unit 
        of the Department, including the Internal Revenue 
        Service) relating to a function transferred or affected 
        by the reorganization under this section may be 
        continued by the Department of the Treasury through any 
        appropriate administrative unit of the Department, 
        including theInternal Revenue Service with the same 
effect as if this section had not been enacted.
    (c) Effective Date.--This section shall take effect on the 
date of the enactment of this Act.

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

    The Internal Revenue Service shall review and restate its 
mission to place a greater emphasis on serving the public and 
meeting taxpayers' needs.

     Subtitle B--Executive Branch Governance and Senior Management

SEC. 1101. INTERNAL REVENUE SERVICE OVERSIGHT BOARD.

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

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

    ``(a) Establishment.--There is established within the 
Department of the Treasury the Internal Revenue Service 
Oversight Board (hereafter in this subchapter referred to as 
the `Oversight Board').
    ``(b) Membership.--
            ``(1) Composition.--The Oversight Board shall be 
        composed of 9 members, as follows:
                    ``(A) 6 members shall be individuals who 
                are not otherwise Federal officers or employees 
                and who are appointed by the President, by and 
                with the advice and consent of the Senate.
                    ``(B) 1 member shall be the Secretary of 
                the Treasury or, if the Secretary so 
                designates, the Deputy Secretary of the 
                Treasury.
                    ``(C) 1 member shall be the Commissioner of 
                Internal Revenue.
                    ``(D) 1 member shall be an individual who 
                is a full-time Federal employee or a 
                representative of employees and who is 
                appointed by the President, by and with the 
                advice and consent of the Senate.
            ``(2) Qualifications and terms.--
                    ``(A) Qualifications.--Members of the 
                Oversight Board described in paragraph (1)(A) 
                shall be appointed without regard to political 
                affiliation and solely on the basis of their 
                professional experience and expertise in 1 or 
                more of the following areas:
                            ``(i) Management of large service 
                        organizations.
                            ``(ii) Customer service.
                            ``(iii) Federal tax laws, including 
                        tax administration and compliance.
                            ``(iv) Information technology.
                            ``(v) Organization development.
                            ``(vi) The needs and concerns of 
                        taxpayers.
                            ``(vii) The needs and concerns of 
                        small businesses.
                In the aggregate, the members of the Oversight 
                Board described in paragraph (1)(A) should 
                collectively bring to bear expertise in all of 
                the areas described in the preceding sentence.
                    ``(B) Terms.--Each member who is described 
                in subparagraph (A) or (D) of paragraph (1) 
                shall be appointed for a term of 5 years, 
                except that of the members first appointed 
                under paragraph (1)(A)--
                            ``(i) 2 members shall be appointed 
                        for a term of 3 years,
                            ``(ii) 2 members shall be appointed 
                        for a term of 4 years, and
                            ``(iii) 2 members shall be 
                        appointed for a term of 5 years.
                    ``(C) Reappointment.--An individual who is 
                described in subparagraph (A) or (D) of 
                paragraph (1) may be appointed to no more than 
                two 5-year terms on the Oversight Board.
                    ``(D) Vacancy.--Any vacancy on the 
                Oversight Board shall be filled in the same 
                manner as the original appointment. Any member 
                appointed to fill a vacancy occurring before 
                the expiration of the term for which the 
                member's predecessor was appointed shall be 
                appointed for the remainder of that term.
            ``(3) Ethical considerations.--
                    ``(A) Financial disclosure.--During the 
                entire period that an individual appointed 
                under subparagraph (A) or (D) of paragraph (1) 
                is a member of the Oversight Board, such 
                individual shall be treated as serving as an 
                officer or employee referred to in section 
                101(f) of the Ethics in Government Act of 1978 
                for purposes of title I of such Act, except 
                that section 101(d) of such Act shall apply 
                without regard to the number of days of service 
                in the position.
                    ``(B) Restrictions on post-employment.--For 
                purposes of section 207(c) of title 18, United 
                States Code, an individual appointed under 
                subparagraph (A) or (D) of paragraph (1) shall 
                be treated as an employee referred to in 
                section 207(c)(2)(A)(i) of such title during 
                the entire period the individual is a member of 
                the Board, except that subsections (c)(2)(B) 
                and (f) of section 207 of such title shall not 
                apply.
                    ``(C) Members who are special government 
                employees.--If an individual appointed under 
                subparagraph (A) or (D) of paragraph (1) is a 
                special Government employee, the following 
                additional rules apply for purposes of chapter 
                11 of title 18, United States Code:
                            ``(i) Restriction on 
                        representation.--In addition to any 
                        restriction under section 205(c) of 
                        title 18, United States Code, except as 
                        provided in subsections (d) through (i) 
                        of section 205 of such title, such 
                        individual (except in the proper 
                        discharge of official duties) shall 
                        not, with or without compensation, 
                        represent anyone to or before any 
                        officer or employee of--
                                    ``(I) the Oversight Board 
                                or the Internal Revenue Service 
                                on any matter,
                                    ``(II) the Department of 
                                the Treasury on any matter 
                                involving theinternal revenue 
laws or involving the management or operations of the Internal Revenue 
Service, or
                                    ``(III) the Department of 
                                Justice with respect to 
                                litigation involving a matter 
                                described in subclause (I) or 
                                (II).
                            ``(ii) Compensation for services 
                        provided by another.--For purposes of 
                        section 203 of such title--
                                    ``(I) such individual shall 
                                not be subject to the 
                                restrictions of subsection 
                                (a)(1) thereof for sharing in 
                                compensation earned by another 
                                for representations on matters 
                                covered by such section, and
                                    ``(II) a person shall not 
                                be subject to the restrictions 
                                of subsection (a)(2) thereof 
                                for sharing such compensation 
                                with such individual.
                    ``(D) Waiver.--The President may, only at 
                the time the President nominates the member of 
                the Oversight Board described in paragraph 
                (1)(D), waive for the term of the member any 
                appropriate provision of chapter 11 of title 
                18, United States Code, to the extent such 
                waiver is necessary to allow such member to 
                participate in the decisions of the Board while 
                continuing to serve as a full-time Federal 
                employee or a representative of employees. Any 
                such waiver shall not be effective unless a 
                written intent of waiver to exempt such member 
                (and actual waiver language) is submitted to 
                the Senate with the nomination of such member.
            ``(4) Quorum.--5 members of the Oversight Board 
        shall constitute a quorum. A majority of members 
        present and voting shall be required for the Oversight 
        Board to take action.
            ``(5) Removal.--
                    ``(A) In general.--Any member of the 
                Oversight Board appointed under subparagraph 
                (A) or (D) of paragraph (1) may be removed at 
                the will of the President.
                    ``(B) Secretary and commissioner.--An 
                individual described in subparagraph (B) or (C) 
                of paragraph (1) shall be removed upon 
                termination of service in the office described 
                in such subparagraph.
            ``(6) Claims.--
                    ``(A) In general.--Members of the Oversight 
                Board who are described in subparagraph (A) or 
                (D) of paragraph (1) shall have no personal 
                liability under Federal law with respect to any 
                claim arising out of or resulting from an act 
                or omission by such member within the scope of 
                service as a member.
                    ``(B) Effect on other law.--This paragraph 
                shall not be construed--
                            ``(i) to affect any other 
                        immunities and protections that may be 
                        available to such member under 
                        applicable law with respect to such 
                        transactions,
                            ``(ii) to affect any other right or 
                        remedy against the United States under 
                        applicable law, or
                            ``(iii) to limit or alter in any 
                        way the immunities that are available 
                        under applicable law for Federal 
                        officers and employees.
    ``(c) General Responsibilities.--
            ``(1) Oversight.--
                    ``(A) In general.--The Oversight Board 
                shall oversee the Internal Revenue Service in 
                its administration, management, conduct, 
                direction, and supervision of the execution and 
                application of the internal revenue laws or 
                related statutes and tax conventions to which 
                the United States is a party.
                    ``(B) Mission of irs.--As part of its 
                oversight functions described in subparagraph 
                (A), the Oversight Board shall ensure that the 
                organization and operation of the Internal 
                Revenue Service allows it to carry out its 
                mission.
                    ``(C) Confidentiality.--The Oversight Board 
                shall ensure that appropriate confidentiality 
                is maintained in the exercise of its duties.
            ``(2) Exceptions.--The Oversight Board shall have 
        no responsibilities or authority with respect to--
                    ``(A) the development and formulation of 
                Federal tax policy relating to existing or 
                proposed internal revenue laws, related 
                statutes, and tax conventions,
                    ``(B) specific law enforcement activities 
                of the Internal Revenue Service, including 
                specific compliance activities such as 
                examinations, collection activities, and 
                criminal investigations,
                    ``(C) specific procurement activities of 
                the Internal Revenue Service, or
                    ``(D) except as provided in subsection 
                (d)(3), specific personnel actions.
    ``(d) Specific Responsibilities.--The Oversight Board shall 
have the following specific responsibilities:
            ``(1) Strategic plans.--To review and approve 
        strategic plans of the Internal Revenue Service, 
        including the establishment of--
                    ``(A) mission and objectives, and standards 
                of performance relative to either, and
                    ``(B) annual and long-range strategic 
                plans.
            ``(2) Operational plans.--To review the operational 
        functions of the Internal Revenue Service, including--
                    ``(A) plans for modernization of the tax 
                system,
                    ``(B) plans for outsourcing or managed 
                competition, and
                    ``(C) plans for training and education.
            ``(3) Management.--To--
                    ``(A) recommend to the President candidates 
                for appointment as the Commissioner ofInternal 
Revenue and recommend to the President the removal of the Commissioner,
                    ``(B) review the Commissioner's selection, 
                evaluation, and compensation of Internal 
                Revenue Service senior executives who have 
                program management responsibility over 
                significant functions of the Internal Revenue 
                Service, and
                    ``(C) review and approve the Commissioner's 
                plans for any major reorganization of the 
                Internal Revenue Service.
            ``(4) Budget.--To--
                    ``(A) review and approve the budget request 
                of the Internal Revenue Service prepared by the 
                Commissioner,
                    ``(B) submit such budget request to the 
                Secretary of the Treasury, and
                    ``(C) ensure that the budget request 
                supports the annual and long-range strategic 
                plans.
            ``(5) Taxpayer protection.--To ensure the proper 
        treatment of taxpayers by the employees of the Internal 
        Revenue Service.
The Secretary shall submit the budget request referred to in 
paragraph (4)(B) for any fiscal year to the President who shall 
submit such request, without revision, to Congress together 
with the President's annual budget request for the Internal 
Revenue Service for such fiscal year.
    ``(e) Board Personnel Matters.--
            ``(1) Compensation of members.--
                    ``(A) In general.--Each member of the 
                Oversight Board who--
                            ``(i) is described in subsection 
                        (b)(1)(A), or
                            ``(ii) is described in subsection 
                        (b)(1)(D) and is not otherwise a 
                        Federal officer or employee,
                shall be compensated at a rate of $30,000 per 
                year. All other members shall serve without 
                compensation for such service.
                    ``(B) Chairperson.--In lieu of the amount 
                specified in subparagraph (A), the Chairperson 
                of the Oversight Board shall be compensated at 
                a rate of $50,000 per year.
            ``(2) Travel expenses.--
                    ``(A) In general.--The members of the 
                Oversight Board shall be allowed travel 
                expenses, including per diem in lieu of 
                subsistence, at rates authorized for employees 
                of agencies under subchapter I of chapter 57 of 
                title 5, United States Code, to attend meetings 
                of the Oversight Board and, with the advance 
                approval of the Chairperson of the Oversight 
                Board, while otherwise away from their homes or 
                regular places of business for purposes of 
                duties as a member of the Oversight Board.
                    ``(B) Report.--The Oversight Board shall 
                include in its annual report under subsection 
                (f)(3)(A) information with respect to the 
                travel expenses allowed for members of the 
                Oversight Board under this paragraph.
            ``(3) Staff.--
                    ``(A) In general.--The Chairperson of the 
                Oversight Board may appoint and terminate any 
                personnel that may be necessary to enable the 
                Board to perform its duties.
                    ``(B) Detail of government employees.--Upon 
                request of the Chairperson of the Oversight 
                Board, a Federal agency shall detail a Federal 
                Government employee to the Oversight Board 
                without reimbursement. Such detail shall be 
                without interruption or loss of civil service 
                status or privilege.
            ``(4) Procurement of temporary and intermittent 
        services.--The Chairperson of the Oversight Board may 
        procure temporary and intermittent services under 
        section 3109(b) of title 5, United States Code.
    ``(f) Administrative Matters.--
            ``(1) Chair.--
                    ``(A) Term.--The members of the Oversight 
                Board shall elect for a 2-year term a 
                chairperson from among the members appointed 
                under subsection (b)(1)(A).
                    ``(B) Powers.--Except as otherwise provided 
                by a majority vote of the Oversight Board, the 
                powers of the Chairperson shall include--
                            ``(i) establishing committees,
                            ``(ii) setting meeting places and 
                        times,
                            ``(iii) establishing meeting 
                        agendas, and
                            ``(iv) developing rules for the 
                        conduct of business.
            ``(2) Meetings.--The Oversight Board shall meet at 
        least quarterly and at such other times as the 
        Chairperson determines appropriate.
            ``(3) Reports.--
                    ``(A) Annual.--The Oversight Board shall 
                each year report with respect to the conduct of 
                its responsibilities under this title to the 
                President, the Committees on Ways and Means, 
                Government Reform and Oversight, and 
                Appropriations of the House of Representatives 
                and the Committees on Finance, Governmental 
                Affairs, and Appropriations of the Senate.
                    ``(B) Additional report.--Upon a 
                determination by the Oversight Board under 
                subsection (c)(1)(B) that the organization and 
                operation of the Internal Revenue Service are 
                not allowing it to carry out its mission, the 
                Oversight Board shall report such determination 
                to the Committee on Ways and Means of the House 
                of Representatives and the Committee on Finance 
                of the Senate.''.
    (b) Restriction on Disclosure of Return Information to 
Oversight Board Members.--Section 6103(h) (relating to 
disclosure to certain Federal officers and employees for 
purposes of tax administration, etc.) is amended by adding at 
the end the following new paragraph:
            ``(5) Internal revenue service oversight board.--
                    ``(A) In general.--Notwithstanding 
                paragraph (1), and except as provided in 
                subparagraph (B), no return or return 
                information maybe disclosed to any member of 
the Oversight Board described in subparagraph (A) or (D) of section 
7802(b)(1) or to any employee or detailee of such Board by reason of 
their service with the Board. Any request for information not permitted 
to be disclosed under the preceding sentence, and any contact relating 
to a specific taxpayer, made by any such individual to an officer or 
employee of the Internal Revenue Service shall be reported by such 
officer or employee to the Secretary, the Treasury Inspector General 
for Tax Administration, and the Joint Committee on Taxation.
                    ``(B) Exception for reports to the board.--
                If--
                            ``(i) the Commissioner or the 
                        Treasury Inspector General for Tax 
                        Administration prepares any report or 
                        other matter for the Oversight Board in 
                        order to assist the Board in carrying 
                        out its duties, and
                            ``(ii) the Commissioner or such 
                        Inspector General determines it is 
                        necessary to include any return or 
                        return information in such report or 
                        other matter to enable the Board to 
                        carry out such duties,
                such return or return information (other than 
                information regarding taxpayer identity) may be 
                disclosed to members, employees, or detailees 
                of the Board solely for the purpose of carrying 
                out such duties.''.
    (c) Conforming Amendments.--
            (1) Section 4946(c) (relating to definitions and 
        special rules for chapter 42) is amended by striking 
        ``or'' at the end of paragraph (5), by striking the 
        period at the end of paragraph (6) and inserting ``, 
        or'', and by adding at the end the following new 
        paragraph:
            ``(7) a member of the Internal Revenue Service 
        Oversight Board.''.
            (2) The table of sections for subchapter A of 
        chapter 80 is amended by striking the item relating to 
        section 7802 and inserting the following new item:

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

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

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

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

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

    ``(a) Commissioner of Internal Revenue.--
            ``(1) Appointment.--
                    ``(A) In general.--There shall be in the 
                Department of the Treasury a Commissioner of 
                Internal Revenue who shall be appointed by the 
                President, by and with the advice and consent 
                of the Senate, to a 5-year term. Such 
                appointment shall be made from individuals who, 
                among other qualifications, have a demonstrated 
                ability in management.
                    ``(B) Vacancy.--Any individual appointed to 
                fill a vacancy in the position of Commissioner 
                occurring before the expiration of the term for 
                which such individual's predecessor was 
                appointed shall be appointed only for the 
                remainder of that term.
                    ``(C) Removal.--The Commissioner may be 
                removed at the will of the President.
                    ``(D) Reappointment.--The Commissioner may 
                be appointed to more than one 5-year term.
            ``(2) Duties.--The Commissioner shall have such 
        duties and powers as the Secretary may prescribe, 
        including the power to--
                    ``(A) administer, manage, conduct, direct, 
                and supervise the execution and application of 
                the internal revenue laws or related statutes 
                and tax conventions to which the United States 
                is a party, and
                    ``(B) recommend to the President a 
                candidate for appointment as Chief Counsel for 
                the Internal Revenue Service when a vacancy 
                occurs, and recommend to the President the 
                removal of such Chief Counsel.
        If the Secretary determines not to delegate a power 
        specified in subparagraph (A) or (B), such 
        determination may not take effect until 30 days after 
        the Secretary notifies the Committees on Ways and 
        Means, Government Reform and Oversight, and 
        Appropriations of the House of Representatives and the 
        Committees on Finance, Governmental Affairs, and 
        Appropriations of the Senate.
            ``(3) Consultation with board.--The Commissioner 
        shall consult with the Oversight Board on all matters 
        set forth in paragraphs (2) and (3) (other than 
        paragraph (3)(A)) of section 7802(d).
    ``(b) Chief Counsel for the Internal Revenue Service.--
            ``(1) Appointment.--There shall be in the 
        Department of the Treasury a Chief Counsel for the 
        Internal Revenue Service who shall be appointed by the 
        President, by and with the consent of the Senate.
            ``(2) Duties.--The Chief Counsel shall be the chief 
        law officer for the Internal Revenue Service and shall 
        perform such duties as may be prescribed by the 
        Secretary, including the duty--
                    ``(A) to be legal advisor to the 
                Commissioner and the Commissioner's officers 
                and employees,
                    ``(B) to furnish legal opinions for the 
                preparation and review of rulings and memoranda 
                of technical advice,
                    ``(C) to prepare, review, and assist in the 
                preparation of proposed legislation, treaties, 
                regulations, and Executive orders relating to 
                laws which affect the Internal Revenue Service,
                    ``(D) to represent the Commissioner in 
                cases before the Tax Court, and
                    ``(E) to determine which civil actions 
                should be litigated under the laws relating to 
                the Internal Revenue Service and prepare 
                recommendations for the Department of Justice 
                regarding the commencement of such actions.
        If the Secretary determines not to delegate a power 
        specified in subparagraph (A), (B), (C), (D), or (E), 
        such determination may not take effect until 30 days 
        after the Secretary notifies the Committees on Ways and 
        Means, Government Reform and Oversight, and 
        Appropriations of the House of Representatives and the 
        Committees on Finance, Governmental Affairs, and 
        Appropriations of the Senate.
            ``(3) Persons to whom chief counsel reports.--The 
        Chief Counsel shall report directly to the Commissioner 
        of Internal Revenue, except that--
                    ``(A) the Chief Counsel shall report to 
                both the Commissioner and the General Counsel 
                for the Department of the Treasury with respect 
                to--
                            ``(i) legal advice or 
                        interpretation of the tax law not 
                        relating solely to tax policy, and
                            ``(ii) tax litigation, and
                    ``(B) the Chief Counsel shall report to the 
                General Counsel with respect to legal advice or 
                interpretation of the tax law relating solely 
                to tax policy.
        If there is any disagreement between the Commissioner 
        and the General Counsel with respect to any matter 
        jointly referred to them under subparagraph (A), such 
        matter shall be submitted to the Secretary or Deputy 
        Secretary for resolution.
            ``(4) Chief counsel personnel.--All personnel in 
        the Office of Chief Counsel shall report to the Chief 
        Counsel.
    ``(c) Office of the Taxpayer Advocate.--
            ``(1) Establishment.--
                    ``(A) In general.--There is established in 
                the Internal Revenue Service an office to be 
                known as the `Office of the Taxpayer Advocate'.
                    ``(B) National taxpayer advocate.--
                            ``(i) In general.--The Office of 
                        the Taxpayer Advocate shall be under 
                        the supervision and direction of an 
                        official to be known as the `National 
                        Taxpayer Advocate'. The National 
                        Taxpayer Advocate shall report directly 
                        to the Commissioner of Internal Revenue 
                        and shall be entitled to compensation 
                        at the same rate as the highest rate of 
                        basic pay established for the Senior 
                        Executive Service under section 5382 of 
                        title 5, United States Code, or, if the 
                        Secretary of the Treasury so 
                        determines, at a rate fixed under 
                        section 9503 of such title.
                            ``(ii) Appointment.--The National 
                        Taxpayer Ad- vocate shall be appointed 
                        by the Secretary of the Treasury after 
                        consultation with the Commissioner of 
                        Internal Revenue and the Oversight 
                        Board and with- out regard to the 
                        provisions of title 5, United States 
                        Code, relating to appointments in the 
                        competitive service or the Senior 
                        Executive Service.
                            ``(iii) Qualifications.--An 
                        individual appointed under clause (ii) 
                        shall have--
                                    ``(I) a background in 
                                customer service as well as tax 
                                law, and
                                    ``(II) experience in 
                                representing individual 
                                taxpayers.
                            ``(iv) Restriction on employment.--
                        An individual may be appointed as the 
                        National Taxpayer Ad- vocate only if 
                        such individual was not an officer or 
                        employee of the Internal Revenue 
                        Service during the 2-year period ending 
                        with such appointment and such 
                        individual agrees not to accept any 
                        employment with the Internal Revenue 
                        Service for at least 5 years after 
                        ceasing to be the National Taxpayer 
                        Advocate. Service as an officer or 
                        employee of the Office of the Taxpayer 
                        Advocate shall not be taken into 
                        account in applying this clause.
            ``(2) Functions of office.--
                    ``(A) In general.--It shall be the function 
                of the Office of the Taxpayer Advocate to--
                            ``(i) assist taxpayers in resolving 
                        problems with the Internal Revenue 
                        Service,
                            ``(ii) identify areas in which 
                        taxpayers have problems in dealings 
                        with the Internal Revenue Service,
                            ``(iii) to the extent possible, 
                        propose changes in the administrative 
                        practices of the Internal Revenue 
                        Service to mitigate problems identified 
                        under clause (ii), and
                            ``(iv) identify potential 
                        legislative changes which may be 
                        appropriate to mitigate such problems.
                    ``(B) Annual reports.--
                            ``(i) Objectives.--Not later than 
                        June 30 of each calendar year, the 
                        National Taxpayer Advocate shall report 
                        to the Committee on Ways and Means of 
                        the House of Representatives and the 
                        Committee on Finance of the Senate on 
                        the objectives of the Office of the 
                        Taxpayer Advocate for the fiscal year 
                        beginning in such calendar year. Any 
                        such report shall contain full and 
                        substantive analysis, in addition to 
                        statistical information.
                            ``(ii) Activities.--Not later than 
                        December 31 of each calendar year, the 
                        National Taxpayer Advocate shall report 
                        to the Committee on Ways and Means of 
                        the House of Representatives and the 
                        Committee on Finance of the Senate on 
                        the activities of the Office of the 
                        Taxpayer Advocate during the fiscal 
                        year ending during such calendar year. 
                        Any such report shall contain full and 
                        substantive analysis, in addition to 
                        statistical information, and shall--
                                    ``(I) identify the 
                                initiatives the Office of the 
                                Taxpayer Advocate has taken on 
                                improving taxpayer services and 
                                Internal Revenue Service 
                                responsiveness,
                                    ``(II) contain 
                                recommendations received from 
                                individuals with the authority 
                                to issue Taxpayer Assistance 
                                Orders under section 7811,
                                    ``(III) contain a summary 
                                of at least 20 of the most 
                                serious problems encountered by 
                                taxpayers, including 
adescription of the nature of such problems,
                                    ``(IV) contain an inventory 
                                of the items described in 
                                subclauses (I), (II), and (III) 
                                for which action has been taken 
                                and the result of such action,
                                    ``(V) contain an inventory 
                                of the items described in 
                                subclauses (I), (II), and (III) 
                                for which action remains to be 
                                completed and the period during 
                                which each item has remained on 
                                such inventory,
                                    ``(VI) contain an inventory 
                                of the items described in 
                                subclauses (I), (II), and (III) 
                                for which no action has been 
                                taken, the period during which 
                                each item has remained on such 
                                inventory, the reasons for the 
                                inaction, and identify any 
                                Internal Revenue Service 
                                official who is responsible for 
                                such inaction,
                                    ``(VII) identify any 
                                Taxpayer Assistance Order which 
                                was not honored by the Internal 
                                Revenue Service in a timely 
                                manner, as specified under 
                                section 7811(b),
                                    ``(VIII) contain 
                                recommendations for such 
                                administrative and legislative 
                                action as may be appropriate to 
                                resolve problems encountered by 
                                taxpayers,
                                    ``(IX) identify areas of 
                                the tax law that impose 
                                significant compliance burdens 
                                on taxpayers or the Internal 
                                Revenue Service, including 
                                specific recommendations for 
                                remedying these problems,
                                    ``(X) identify the 10 most 
                                litigated issues for each 
                                category of taxpayers, 
                                including recommendations for 
                                mitigating such disputes, and
                                    ``(XI) include such other 
                                information as the National 
                                Taxpayer Advocate may deem 
                                advisable.
                            ``(iii) Report to be submitted 
                        directly.--Each report required under 
                        this subparagraph shall be provided 
                        directly to the committees described in 
                        clause (i) without any prior review or 
                        comment from the Commissioner, the 
                        Secretary of the Treasury, the 
                        Oversight Board, any other officer or 
                        employee of the Department of the 
                        Treasury, or the Office of Management 
                        and Budget.
                            ``(iv) Coordination with report of 
                        treasury inspector general for tax 
                        administration.--To the extent that 
                        information required to be reported 
                        under clause (ii) is also required to 
                        be reported under paragraph (1) or (2) 
                        of subsection (d) by the Treasury 
                        Inspector General for Tax 
                        Administration, the National Taxpayer 
                        Advocate shall not contain such 
                        information in the report submitted 
                        under such clause.
                    ``(C) Other responsibilities.--The National 
                Taxpayer Advocate shall--
                            ``(i) monitor the coverage and 
                        geographic allocation of local offices 
                        of taxpayer advocates,
                            ``(ii) develop guidance to be 
                        distributed to all Internal Revenue 
                        Service officers and employees 
                        outlining the criteria for referral of 
                        taxpayer inquiries to local offices of 
                        taxpayer advocates,
                            ``(iii) ensure that the local 
                        telephone number for each local office 
                        of the taxpayer advocate is published 
                        and available to taxpayers served by 
                        the office, and
                            ``(iv) in conjunction with the 
                        Commissioner, develop career paths for 
                        local taxpayer advocates choosing to 
                        make a career in the Office of the 
                        Taxpayer Advocate.
                    ``(D) Personnel actions.--
                            ``(i) In general.--The National 
                        Taxpayer Advocate shall have the 
                        responsibility and authority to--
                                    ``(I) appoint local 
                                taxpayer advocates and make 
                                available at least 1 such 
                                advocate for each State, and
                                    ``(II) evaluate and take 
                                personnel actions (including 
                                dismissal) with respect to any 
                                employee of any local office of 
                                a taxpayer advocate described 
                                in subclause (I).
                            ``(ii) Consultation.--The National 
                        Taxpayer Advocate may consult with the 
                        appropriate supervisory personnel of 
                        the Internal Revenue Service in 
                        carrying out the National Taxpayer 
                        Advocate's responsibilities under this 
                        subparagraph.
            ``(3) Responsibilities of commissioner.--The 
        Commissioner shall establish procedures requiring a 
        formal response to all recommendations submitted to the 
        Commissioner by the National Taxpayer Advocate within 3 
        months after submission to the Commissioner.
            ``(4) Operation of local offices.--
                    ``(A) In general.--Each local taxpayer 
                advocate--
                            ``(i) shall report to the National 
                        Taxpayer Advocate or delegate thereof,
                            ``(ii) may consult with the 
                        appropriate supervisory personnel of 
                        the Internal Revenue Service regarding 
                        the daily operation of the local office 
                        of the taxpayer advocate,
                            ``(iii) shall, at the initial 
                        meeting with any taxpayer seeking the 
                        assistance of a local office of the 
                        taxpayer advocate, notify such taxpayer 
                        that the taxpayer advocate offices 
                        operate independently of any other 
                        Internal Revenue Service office and 
                        reportdirectly to Congress through the 
National Taxpayer Advocate, and
                            ``(iv) may, at the taxpayer 
                        advocate's discretion, not disclose to 
                        the Internal Revenue Service contact 
                        with, or information provided by, such 
                        taxpayer.
                    ``(B) Maintenance of independent 
                communications.--Each local office of the 
                taxpayer advocate shall maintain a separate 
                phone, facsimile, and other electronic 
                communication access, and a separate post 
                office address.
    ``(d) Additional Duties of the Treasury Inspector General 
for Tax Administration.--
            ``(1) Annual reporting.--The Treasury Inspector 
        General for Tax Administration shall include in one of 
        the semiannual reports under section 5 of the Inspector 
        General Act of 1978--
                    ``(A) an evaluation of the compliance of 
                the Internal Revenue Service with--
                            ``(i) restrictions under section 
                        1204 of the Internal Revenue Service 
                        Restructuring and Reform Act of 1998 on 
                        the use of enforcement statistics to 
                        evaluate Internal Revenue Service 
                        employees,
                            ``(ii) restrictions under section 
                        7521 on directly contacting taxpayers 
                        who have indicated that they prefer 
                        their representatives be contacted,
                            ``(iii) required procedures under 
                        section 6320 upon the filing of a 
                        notice of a lien,
                            ``(iv) required procedures under 
                        subchapter D of chapter 64 for seizure 
                        of property for collection of taxes, 
                        including required procedures under 
                        section 6330 regarding levies, and
                            ``(v) restrictions under section 
                        3707 of the Internal Revenue Service 
                        Restructuring and Reform Act of 1998 on 
                        designation of taxpayers,
                    ``(B) a review and a certification of 
                whether or not the Secretary is complying with 
                the requirements of section 6103(e)(8) to 
                disclose information to an individual filing a 
                joint return on collection activity involving 
                the other individual filing the return,
                    ``(C) information regarding extensions of 
                the statute of limitations for assessment and 
                collection of tax under section 6501 and the 
                provision of notice to taxpayers regarding 
                requests for such extension,
                    ``(D) an evaluation of the adequacy and 
                security of the technology of the Internal 
                Revenue Service,
                    ``(E) any termination or mitigation under 
                section 1203 of the Internal Revenue Service 
                Restructuring and Reform Act of 1998,
                    ``(F) information regarding improper denial 
                of requests for information from the Internal 
                Revenue Service identified under paragraph 
                (3)(A), and
                    ``(G) information regarding any 
                administrative or civil actions with respect to 
                violations of the fair debt collection 
                provisions of section 6304, including--
                            ``(i) a summary of such actions 
                        initiated since the date of the last 
                        report, and
                            ``(ii) a summary of any judgments 
                        or awards granted as a result of such 
                        actions.
            ``(2) Semiannual reports.--
                    ``(A) In general.--The Treasury Inspector 
                General for Tax Administration shall include in 
                each semiannual report under section 5 of the 
                Inspector General Act of 1978--
                            ``(i) the number of taxpayer 
                        complaints during the reporting period;
                            ``(ii) the number of employee 
                        misconduct and taxpayer abuse 
                        allegations received by the Internal 
                        Revenue Service or the Inspector 
                        General during the period from 
                        taxpayers, Internal Revenue Service 
                        employees, and other sources;
                            ``(iii) a summary of the status of 
                        such complaints and allegations; and
                            ``(iv) a summary of the disposition 
                        of such complaints and allegations, 
                        including the outcome of any Department 
                        of Justice action and any monies paid 
                        as a settlement of such complaints and 
                        allegations.
                    ``(B) Clauses (iii) and (iv) of 
                subparagraph (A) shall only apply to complaints 
                and allegations of serious employee misconduct.
            ``(3) Other responsibilities.--The Treasury 
        Inspector General for Tax Administration shall--
                    ``(A) conduct periodic audits of a 
                statistically valid sample of the total number 
                of determinations made by the Internal Revenue 
                Service to deny written requests to disclose 
                information to taxpayers on the basis of 
                section 6103 of this title or section 552(b)(7) 
                of title 5, United States Code, and
                    ``(B) establish and maintain a toll-free 
                telephone number for taxpayers to use to 
                confidentially register complaints of 
                misconduct by Internal Revenue Service 
                employees and incorporate the telephone number 
                in the statement required by section 6227 of 
                the Omnibus Taxpayer Bill of Rights (Internal 
                Revenue Service Publication No. 1).''.
    (b) Notice of Right To Contact Office Included in Notice of 
Deficiency.--Section 6212(a) (relating to notice of deficiency) 
is amended by adding at the end the following new sentence: 
``Such notice shall include a notice to the taxpayer of the 
taxpayer's right to contact a local office of the taxpayer 
advocate and the location and phone number of the appropriate 
office.''.
    (c) Expansion of Authority To Issue Taxpayer Assistance 
Orders.--Section 7811(a) (relating to taxpayer assistance 
orders) is amended to read as follows:
    ``(a) Authority To Issue.--
            ``(1) In general.--Upon application filed by a 
        taxpayer with the Office of the Taxpayer Advocate (in 
        such form, manner, and at such time as the Secretary 
        shall by regulations prescribe), the NationalTaxpayer 
Advocate may issue a Taxpayer Assistance Order if--
                    ``(A) the National Taxpayer Advocate 
                determines the taxpayer is suffering or about 
                to suffer a significant hardship as a result of 
                the manner in which the internal revenue laws 
                are being administered by the Secretary, or
                    ``(B) the taxpayer meets such other 
                requirements as are set forth in regulations 
                prescribed by the Secretary.
            ``(2) Determination of hardship.--For purposes of 
        paragraph (1), a significant hardship shall include--
                    ``(A) an immediate threat of adverse 
                action,
                    ``(B) a delay of more than 30 days in 
                resolving taxpayer account problems,
                    ``(C) the incurring by the taxpayer of 
                significant costs (including fees for 
                professional representation) if relief is not 
                granted, or
                    ``(D) irreparable injury to, or a long-term 
                adverse impact on, the taxpayer if relief is 
                not granted.
            ``(3) Standard where administrative guidance not 
        followed.--In cases where any Internal Revenue Service 
        employee is not following applicable published 
        administrative guidance (including the Internal Revenue 
        Manual), the National Taxpayer Advocate shall construe 
        the factors taken into account in determining whether 
        to issue a taxpayer assistance order in the manner most 
        favorable to the taxpayer.''.
    (d) Conforming Amendments Relating to National Taxpayer 
Advocate.--
            (1) The following provisions are each amended by 
        striking ``Taxpayer Advocate'' each place it appears 
        and inserting ``National Taxpayer Advocate'':
                    (A) Section 6323(j)(1)(D) (relating to 
                withdrawal of notice in certain circumstances).
                    (B) Section 6343(d)(2)(D) (relating to 
                return of property in certain cases).
                    (C) Section 7811(b)(2)(D) (relating to 
                terms of a Taxpayer Assistance Order).
                    (D) Section 7811(c) (relating to authority 
                to modify or rescind).
                    (E) Section 7811(d)(2) (relating to 
                suspension of running of period of limitation).
                    (F) Section 7811(e) (relating to 
                independent action of Taxpayer Advocate).
                    (G) Section 7811(f) (relating to Taxpayer 
                Advocate).
            (2) Section 7811(d)(1) (relating to suspension of 
        running of period of limitation) is amended by striking 
        ``Taxpayer Advocate's'' and inserting ``National 
        Taxpayer Advocate's''.
            (3) The headings of subsections (e) and (f) of 
        section 7811 are each amended by striking ``Taxpayer 
        Advocate'' and inserting ``National Taxpayer 
        Advocate''.
    (e) Additional Conforming Amendments.--
            (1) The table of sections for subchapter A of 
        chapter 80 is amended by striking the item relating to 
        section 7803 and inserting the following new item:

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

            (2) Section 5109 of title 5, United States Code, is 
        amended by striking subsection (b) and redesignating 
        subsection (c) as subsection (b).
            (3) Section 7611(f)(1) (relating to restrictions on 
        church tax inquiries and examinations) is amended by 
        striking ``Assistant Commissioner for Employee Plans 
        and Exempt Organizations of the Internal Revenue 
        Service'' and inserting ``Secretary''.
    (f) Effective Date.--
            (1) In general.--Except as provided in paragraph 
        (2), the amendments made by this section shall take 
        effect on the date of the enactment of this Act.
            (2) Chief counsel.--Section 7803(b)(3) of the 
        Internal Revenue Code of 1986, as added by this 
        section, shall take effect on the date that is 90 days 
        after the date of the enactment of this Act.
            (3) National taxpayer advocate.--Notwithstanding 
        section 7803(c)(1)(B)(iv) of such Code, as added by 
        this section, in appointing the first National Taxpayer 
        Advocate after the date of the enactment of this Act, 
        the Secretary of the Treasury--
                    (A) shall not appoint any individual who 
                was an officer or employee of the Internal 
                Revenue Service at any time during the 2-year 
                period ending on the date of appointment, and
                    (B) need not consult with the Internal 
                Revenue Service Oversight Board if the 
                Oversight Board has not been appointed.
            (4) Current officers.--
                    (A) In the case of an individual serving as 
                Commissioner of Internal Revenue on the date of 
                the enactment of this Act who was appointed to 
                such position before such date, the 5-year term 
                required by section 7803(a)(1) of such Code, as 
                added by this section, shall begin as of the 
                date of such appointment.
                    (B) Clauses (ii), (iii), and (iv) of 
                section 7803(c)(1)(B) of such Code, as added by 
                this section, shall not apply to the individual 
                serving as Taxpayer Advocate on the date of the 
                enactment of this Act.

SEC. 1103. TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION.

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

SEC. 1104. OTHER PERSONNEL.

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

``SEC. 7804. OTHER PERSONNEL.

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

        ``Sec. 7804. Other personnel.''.

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

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

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

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

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

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

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

                  Subtitle C--Personnel Flexibilities

SEC. 1201. IMPROVEMENTS IN PERSONNEL FLEXIBILITIES.

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

                       ``Subpart I--Miscellaneous

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

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

``Sec. 9501. Internal Revenue Service personnel flexibilities

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

``Sec. 9502. Pay authority for critical positions

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

``Sec. 9503. Streamlined critical pay authority

    ``(a) Notwithstanding section 9502, and without regard to 
the provisions of this title governing appointments in the 
competitive service or the Senior Executive Service and 
chapters 51 and 53 (relating to classification and pay rates), 
the Secretary of the Treasury may, for a period of 10 years 
after the date of enactment of this section, establish, fix the 
compensation of, and appoint individuals to, designated 
critical administrative, technical, and professional positions 
needed to carry out the functions of the Internal Revenue 
Service, if--
            ``(1) the positions--
                    ``(A) require expertise of an extremely 
                high level in an administrative, technical, or 
                professional field; and
                    ``(B) are critical to the Internal Revenue 
                Service's successful accomplishment of an 
                important mission;
            ``(2) exercise of the authority is necessary to 
        recruit or retain an individual exceptionally well 
        qualified for the position;
            ``(3) the number of such positions does not exceed 
        40 at any one time;
            ``(4) designation of such positions are approved by 
        the Secretary of the Treasury;
            ``(5) the terms of such appointments are limited to 
        no more than 4 years;
            ``(6) appointees to such positions were not 
        Internal Revenue Service employees prior to June 1, 
        1998;
            ``(7) total annual compensation for any appointee 
        to such positions does not exceed the highest total 
        annual compensation payable at the rate determined 
        under section 104 of title 3; and
            ``(8) all such positions are excluded from the 
        collective bargaining unit.
    ``(b) Individuals appointed under this section shall not be 
considered to be employees for purposes of subchapter II of 
chapter 75.

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

    ``(a) For a period of 10 years after the date of enactment 
of this section and subject to approval by the Office of 
Personnel Management, the Secretary of the Treasury may provide 
for variations from sections 5753 and 5754 governing payment of 
recruitment, relocation, and retention incentives.
    ``(b) For a period of 10 years after the date of enactment 
of this section, the Secretary of the Treasury may pay from 
appropriations made to the Internal Revenue Service allowable 
relocation expenses under section 5724a for employees 
transferred or reemployed and allowable travel and 
transportation expenses under section 5723 for new appointees, 
for any new appointee appointed to a position for which pay is 
fixed under section 9502 or 9503 after June 1, 1998.

``Sec. 9505. Performance awards for senior executives

    ``(a) For a period of 10 years after the date of enactment 
of this section, Internal Revenue Service senior executives who 
have program management responsibility over significant 
functions of the Internal Revenue Service may be paid a 
performance bonus without regard to the limitation in section 
5384(b)(2) if the Secretary of the Treasury finds such award 
warranted based on the executive's performance.
    ``(b) In evaluating an executive's performance for purposes 
of an award under this section, the Secretary of the Treasury 
shall take into account the executive's contributions toward 
the successful accomplishment of goals and objectives 
established under the Government Performance and Results Act of 
1993, division E of the Clinger-Cohen Act of 1996 (Public Law 
104-106; 110 Stat. 679), Revenue Procedure 64-22 (as in effect 
on July 30, 1997), taxpayer service surveys, and other 
performance metrics or plans established in consultation with 
the Internal Revenue Service Oversight Board.
    ``(c) Any award in excess of 20 percent of an executive's 
rate of basic pay shall be approved by the Secretary of the 
Treasury.
    ``(d) Notwithstanding section 5384(b)(3), the Secretary of 
the Treasury shall determine the aggregate amount of 
performance awards available to be paid during any fiscal year 
under this section and section 5384 to career senior executives 
in the Internal Revenue Service. Such amount may not exceed an 
amount equal to 5 percent of the aggregate amount of basic pay 
paid to career senior executives in the Internal Revenue 
Service during the preceding fiscal year. The Internal Revenue 
Service shall not be included in the determination under 
section 5384(b)(3) of the aggregate amount of performance 
awards payable to career senior executives in the Department of 
the Treasury other than the Internal Revenue Service.
    ``(e) Notwithstanding section 5307, a performance bonus 
award may not be paid to an executive in a calendar year if, or 
to the extent that, the executive's total annual compensation 
will exceed the maximum amount of total annual compensation 
payable at the rate determined under section 104 of title 3.

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

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

``Sec. 9507. Streamlined demonstration project authority

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

``Sec. 9508. General workforce performance management system

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

``Sec. 9509. General workforce classification and pay

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

``Sec. 9510. General workforce staffing

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

                       ``Subpart I--Miscellaneous

``95. Personnel flexibilities relating to the Internal Revenue 
              Service............................................9501''.

SEC. 1202. VOLUNTARY SEPARATION INCENTIVE PAYMENTS.

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

SEC. 1203. TERMINATION OF EMPLOYMENT FOR MISCONDUCT.

    (a) In General.--Subject to subsection (c), the 
Commissioner of Internal Revenue shall terminate the employment 
of any employee of the Internal Revenue Service if there is a 
final administrative or judicial determination that such 
employee committed any act or omission described under 
subsection (b) in the performance of the employee's official 
duties. Such termination shall be a removal for cause on 
charges of misconduct.
    (b) Acts or Omissions.--The acts or omissions referred to 
under subsection (a) are--
            (1) willful failure to obtain the required approval 
        signatures on documents authorizing the seizure of a 
        taxpayer's home, personal belongings, or business 
        assets;
            (2) providing a false statement under oath with 
        respect to a material matter involving a taxpayer or 
        taxpayer representative;
            (3) with respect to a taxpayer, taxpayer 
        representative, or other employee of the Internal 
        Revenue Service, the violation of--
                    (A) any right under the Constitution of the 
                United States; or
                    (B) any civil right established under--
                            (i) title VI or VII of the Civil 
                        Rights Act of 1964;
                            (ii) title IX of the Education 
                        Amendments of 1972;
                            (iii) the Age Discrimination in 
                        Employment Act of 1967;
                            (iv) the Age Discrimination Act of 
                        1975;
                            (v) section 501 or 504 of the 
                        Rehabilitation Act of 1973; or
                            (vi) title I of the Americans with 
                        Disabilities Act of 1990;
            (4) falsifying or destroying documents to conceal 
        mistakes made by any employee with respect toa matter 
involving a taxpayer or taxpayer representative;
            (5) assault or battery on a taxpayer, taxpayer 
        representative, or other employee of the Internal 
        Revenue Service, but only if there is a criminal 
        conviction, or a final judgment by a court in a civil 
        case, with respect to the assault or battery;
            (6) violations of the Internal Revenue Code of 
        1986, Department of Treasury regulations, or policies 
        of the Internal Revenue Service (including the Internal 
        Revenue Manual) for the purpose of retaliating against, 
        or harassing, a taxpayer, taxpayer representative, or 
        other employee of the Internal Revenue Service;
            (7) willful misuse of the provisions of section 
        6103 of the Internal Revenue Code of 1986 for the 
        purpose of concealing information from a congressional 
        inquiry,
            (8) willful failure to file any return of tax 
        required under the Internal Revenue Code of 1986 on or 
        before the date prescribed therefor (including any 
        extensions), unless such failure is due to reasonable 
        cause and not to willful neglect,
            (9) willful understatement of Federal tax 
        liability, unless such understatement is due to 
        reasonable cause and not to willful neglect, and
            (10) threatening to audit a taxpayer for the 
        purpose of extracting personal gain or benefit.
    (c) Determination of Commissioner.--
            (1) In general.--The Commissioner of Internal 
        Revenue may take a personnel action other than 
        termination for an act or omission under subsection 
        (a).
            (2) Discretion.--The exercise of authority under 
        paragraph (1) shall be at the sole discretion of the 
        Commissioner of Internal Revenue and may not be 
        delegated to any other officer. The Commissioner of 
        Internal Revenue, in his sole discretion, may establish 
        a procedure which will be used to determine whether an 
        individual should be referred to the Commissioner of 
        Internal Revenue for a determination by the 
        Commissioner under paragraph (1).
            (3) No appeal.--Any determination of the 
        Commissioner of Internal Revenue under this subsection 
        may not be appealed in any administrative or judicial 
        proceeding.
    (d) Definition.--For purposes of the provisions described 
in clauses (i), (ii), and (iv) of subsection (b)(3)(B), 
references to a program or activity receiving Federal financial 
assistance or an education program or activity receiving 
Federal financial assistance shall include any program or 
activity conducted by the Internal Revenue Service for a 
taxpayer.

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

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

SEC. 1205. EMPLOYEE TRAINING PROGRAM.

    (a) In General.--Not later than 180 days after the date of 
the enactment of this Act, the Commissioner of Internal Revenue 
shall implement an employee training program and shall submit 
an employee training plan to the Committee on Finance of the 
Senate and the Committee on Ways and Means of the House of 
Representatives.
    (b) Contents.--The plan submitted under subsection (a) 
shall--
            (1) detail a comprehensive employee training 
        program to ensure adequate customer service training;
            (2) detail a schedule for training and the fiscal 
        years during which the training will occur;
            (3) detail the funding of the program and relevant 
        information to demonstrate the priority and commitment 
        of resources to the plan;
            (4) review the organizational design of customer 
        service;
            (5) provide for the implementation of a performance 
        development system; and
            (6) provide for at least 16 hours of conflict 
        management training during fiscal year 1999 for 
        employees conducting collection activities.

                      TITLE II--ELECTRONIC FILING

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

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

SEC. 2002. DUE DATE FOR CERTAIN INFORMATION RETURNS.

    (a) Information Returns Filed Electronically.--Section 6071 
(relating to time for filing returns and other documents) is 
amended by redesignating subsection (b) as subsection (c) and 
by inserting after subsection (a) the following new subsection:
    ``(b) Electronically Filed Information Returns.--Returns 
made under subparts B and C of part III of this subchapter 
which are filed electronically shall be filed on or before 
March 31 of the year following the calendar year to which such 
returns relate.''.
    (b) Study Relating to Time For Providing Notice to 
Recipients.--
            (1) In general.--The Secretary of the Treasury 
        shall conduct a study evaluating the effect of 
        extending the deadline for providing statements to 
        persons with respect to whom information is required to 
        be furnished under subparts B and C of part III of 
        subchapter A of chapter 61 of the Internal Revenue Code 
        of 1986 (other than section 6051 of such Code) from 
        January 31 to February 15 of the year in which the 
        return to which the statement relates is required to be 
        filed.
            (2) Report.--Not later than June 30, 1999, the 
        Secretary of the Treasury shall submit a report on the 
        study under paragraph (1) to the Committee on Ways and 
        Means of the House of Representatives and the Committee 
        on Finance of the Senate.
    (c) Effective Date.--The amendment made by subsection (a) 
shall apply to returns required to be filed after December 31, 
1999.

SEC. 2003. PAPERLESS ELECTRONIC FILING.

    (a) In General.--Section 6061 (relating to signing of 
returns and other documents) is amended--
            (1) by striking ``Except as otherwise provided by'' 
        and inserting the following:
    ``(a) General Rule.--Except as otherwise provided by 
subsection (b) and'', and
            (2) by adding at the end the following new 
        subsection:
    ``(b) Electronic Signatures.--
            ``(1) In general.--The Secretary shall develop 
        procedures for the acceptance of signatures in digital 
        or other electronic form. Until such time as such 
        procedures are in place, the Secretary may--
                    ``(A) waive the requirement of a signature 
                for, or
                    ``(B) provide for alternative methods of 
                signing or subscribing,
        a particular type or class of return, declaration, 
        statement, or other document required or permitted to 
        be made or written under internal revenue laws and 
        regulations.
            ``(2) Treatment of alternative methods.--
        Notwithstanding any other provision of law, any return, 
        declaration, statement, or other document filed and 
        verified, signed, or subscribed under any method 
        adopted under paragraph (1)(B) shall be treated for all 
        purposes (both civil and criminal, including penalties 
        for perjury) in the same manner as though signed or 
        subscribed.
            ``(3) Published guidance.--The Secretary shall 
        publish guidance as appropriate to define and implement 
        any waiver of the signature requirements or any method 
        adopted under paragraph (1).''.
    (b) Acknowledgment of Electronic Filing.--Section 7502(c) 
is amended to read as follows:
    ``(c) Registered and Certified Mailing; Electronic 
Filing.--
            ``(1) Registered mail.--For purposes of this 
        section, if any return, claim, statement, or other 
        document, or payment, is sent by United States 
        registered mail--
                    ``(A) such registration shall be prima 
                facie evidence that the return, claim, 
                statement, or other document was delivered to 
                the agency, officer, or office to which 
                addressed, and
                    ``(B) the date of registration shall be 
                deemed the postmark date.
            ``(2) Certified mail; electronic filing.--The 
        Secretary is authorized to provide by regulations the 
        extent to which the provisions of paragraph (1) with 
        respect to prima facie evidence of delivery and the 
        postmark date shall apply to certified mail and 
        electronic filing.''.
    (c) Establishment of Procedures for Other Information.--In 
the case of taxable periods beginning after December 31, 1999, 
the Secretary of the Treasury or the Secretary's delegate 
shall, to the extent practicable, establish procedures to 
accept, in electronic form, any other information, statements, 
elections, or schedules, from taxpayers filing returns 
electronically, so that such taxpayers will not be required to 
file any paper.
    (d) Internet Availability.--In the case of taxable periods 
beginning after December 31, 1998, the Secretary of the 
Treasury or the Secretary's delegate shall establish procedures 
for all tax forms, instructions, and publications created in 
the most recent 5-year period to be made available 
electronically on the Internet in a searchable database at 
approximately the same time such records are available to the 
public in paper form. In addition, in the case of taxable 
periods beginning after December 31, 1998, the Secretary of the 
Treasury or the Secretary's delegate shall, to the extent 
practicable, establish procedures for other taxpayer guidance 
to be made available electronically on the Internet in a 
searchable database at approximately the same time such 
guidance is available to the public in paper form.
    (e) Procedures for Authorizing Disclosure Electronically.--
The Secretary shall establish procedures for any taxpayer to 
authorize, on an electronically filed return, the Secretary to 
disclose information under section 6103(c) of the Internal 
Revenue Code of 1986 to the preparer of the return.
    (f) Effective Date.--The amendments made by this section 
shall take effect on the date of the enactment of this Act.

SEC. 2004. RETURN-FREE TAX SYSTEM.

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

SEC. 2005. ACCESS TO ACCOUNT INFORMATION.

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

               TITLE III--TAXPAYER PROTECTION AND RIGHTS

SEC. 3000. SHORT TITLE.

    This title may be cited as the ``Taxpayer Bill of Rights 
3''.

                      Subtitle A--Burden of Proof

SEC. 3001. BURDEN OF PROOF.

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

                    ``Subchapter E--Burden of Proof

        ``Sec. 7491. Burden of proof.

``SEC. 7491. BURDEN OF PROOF.

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

        ``Subchapter E. Burden of proof.''.

    (c) Effective Date.--
            (1) In general.--The amendments made by this 
        section shall apply to court proceedings arising in 
        connection with examinations commencing after the date 
        of the enactment of this Act.
            (2) Taxable periods or events after date of 
        enactment.--In any case in which there is no 
        examination, such amendments shall apply to court 
        proceedings arising in connection with taxable periods 
        or events beginning or occurring after such date of 
        enactment.

                  Subtitle B--Proceedings by Taxpayers

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

    (a) Increase in Attorney's Fees.--
            (1) Increase in hourly amount.--Clause (iii) of 
        section 7430(c)(1)(B) (relating to reasonable 
        litigation costs) is amended by striking ``$110'' and 
        inserting ``$125''.
            (2) Award of higher attorney's fees based on 
        complexity of issues.--Clause (iii) of section 
        7430(c)(1)(B) (relating to the award of costs and 
        certain fees) is amended by inserting ``the difficulty 
        of the issues presented in the case, or the local 
        availability of tax expertise,'' before ``justifies a 
        higher rate''.
    (b) Award of Administrative Costs Incurred After 30-Day 
Letter.--Paragraph (2) of section 7430(c) is amended by 
striking the last sentence and inserting the following new 
flush sentence:
        ``Such term shall only include costs incurred on or 
        after whichever of the following is the earliest: (i) 
        the date of the receipt by the taxpayer of the notice 
        of the decision of the Internal Revenue Service Office 
        of Appeals, (ii) the date of the notice of deficiency, 
        or (iii) the date on which the 1st letter of proposed 
        deficiency which allows the taxpayer an opportunity for 
        administrative review in the Internal Revenue Service 
        Office of Appeals is sent.''.
    (c) Award of Fees for Certain Additional Services.--
Paragraph (3) of section 7430(c) is amended to read as follows:
            ``(3) Attorneys fees.--
                    ``(A) In general.--For purposes of 
                paragraphs (1) and (2), fees for the services 
                of an individual (whether or not an attorney) 
                who is authorized to practice before the Tax 
                Court or before the Internal Revenue Service 
                shall be treated as fees for the services of an 
                attorney.
                    ``(B) Pro bono services.--The court may 
                award reasonable attorneys fees under 
                subsection (a) in excess of the attorneys fees 
                paid or incurred if such fees are less than the 
                reasonable attorneys fees because an individual 
                is representing the prevailing party for no fee 
                or for a fee which (taking into account all the 
                facts and circumstances) is no more than a 
                nominal fee. This subparagraph shall apply only 
                if such award is paid to such individual or 
                such individual's employer.''.
    (d) Determination of Whether Position of United States is 
Substantially Justified.--Subparagraph (B) of section 
7430(c)(4) is amended by redesignating clause (iii) as clause 
(iv) and by inserting after clause (ii) the following new 
clause:
                            ``(iii) Effect of losing on 
                        substantially similar issues.--In 
                        determining for purposes of clause (i) 
                        whether the position of the United 
                        States was substantially justified, the 
                        court shall take into account whether 
                        the United States has lost in courts of 
                        appeal for other circuits on 
                        substantially similar issues.''.
    (e) Taxpayer Treated as Prevailing if Judgment Is Less Than 
Taxpayer's Offer.--
            (1) In general.--Section 7430(c)(4) (defining 
        prevailing party) is amended by adding at the end the 
        following new subparagraph:
                    ``(E) Special rules where judgment less 
                than taxpayer's offer.--
                            ``(i) In general.--A party to a 
                        court proceeding meeting the 
                        requirements of subparagraph (A)(ii) 
                        shall be treated as the prevailing 
                        party if the liability of the taxpayer 
                        pursuant to the judgment in the 
                        proceeding (determined without regard 
                        to interest) is equal to or less than 
                        the liability of the taxpayer which 
                        would have been so determined if the 
                        United States had accepted a qualified 
                        offer of the party under subsection 
                        (g).
                            ``(ii) Exceptions.--This 
                        subparagraph shall not apply to--
                                    ``(I) any judgment issued 
                                pursuant to a settlement, or
                                    ``(II) any proceeding in 
                                which the amount of tax 
                                liability is not in issue, 
                                including any declaratory 
                                judgment proceeding, any 
                                proceeding to enforce or quash 
                                any summons issued pursuant to 
                                this title, and any action to 
                                restrain disclosure under 
                                section 6110(f).
                            ``(iii) Special rules.--If this 
                        subparagraph applies to any court 
                        proceeding--
                                    ``(I) the determination 
                                under clause (i) shall be made 
                                by reference to the last 
                                qualified offer made with 
                                respect to the tax liability at 
                                issue in the proceeding, and
                                    ``(II) reasonable 
                                administrative and litigation 
                                costs shall only include costs 
                                incurred on and after the date 
                                of such offer.
                            ``(iv) Coordination.--This 
                        subparagraph shall not apply to a party 
                        which is a prevailing party under any 
                        other provision of this paragraph.''.
            (2) Qualified offer.--Section 7430 is amended by 
        adding at the end the following new subsection:
    ``(g) Qualified Offer.--For purposes of subsection (c)(4)--
            ``(1) In general.--The term `qualified offer' means 
        a written offer which--
                    ``(A) is made by the taxpayer to the United 
                States during the qualified offer period,
                    ``(B) specifies the offered amount of the 
                taxpayer's liability (determined without regard 
                to interest),
                    ``(C) is designated at the time it is made 
                as a qualified offer for purposes of this 
                section, and
                    ``(D) remains open during the period 
                beginning on the date it is made and ending on 
                the earliest of the date the offer is rejected, 
                the date the trial begins, or the 90th day 
                after the date the offer is made.
            ``(2) Qualified offer period.--For purposes of this 
        subsection, the term `qualified offer period' means the 
        period--
                    ``(A) beginning on the date on which the 
                1st letter of proposed deficiency which allows 
                the taxpayer an opportunity for administrative 
                review in the Internal Revenue Service Office 
                of Appeals is sent, and
                    ``(B) ending on the date which is 30 days 
                before the date the case is first set for 
                trial.''.
    (f) Award of Attorneys Fees in Unauthorized Inspection and 
Disclosure Cases.--Section 7431(c) (relating to damages) is 
amended by striking the period at the end of paragraph (2) and 
inserting ``, plus'', and by adding at the end the following 
new paragraph:
            ``(3) in the case of a plaintiff which is described 
        in section 7430(c)(4)(A)(ii), reasonable attorneys 
        fees, except that if the defendant is the United 
        States, reasonable attorneys fees may be awarded only 
        if the plaintiff is the prevailing party (as determined 
        under section 7430(c)(4)).''.
    (g) Effective Date.--The amendments made by this section 
shall apply to costs incurred (and, in the case of the 
amendment made by subsection (c), services performed) more than 
180 days after the date of the enactment of this Act.

SEC. 3102. CIVIL DAMAGES FOR COLLECTION ACTIONS.

    (a) Extension to Negligence Actions.--
            (1) In general.--Section 7433 (relating to civil 
        damages for certain unauthorized collection actions) is 
        amended--
                    (A) in subsection (a), by inserting ``, or 
                by reason of negligence,'' after ``recklessly 
                or intentionally'', and
                    (B) in subsection (b)--
                            (i) in the matter preceding 
                        paragraph (1), by inserting 
                        ``($100,000, in the case of 
                        negligence)'' after ``$1,000,000'', and
                            (ii) in paragraph (1), by inserting 
                        ``or negligent'' after ``reckless or 
                        intentional''.
            (2) Requirement that administrative remedies be 
        exhausted.--Paragraph (1) of section 7433(d) is amended 
        to read as follows:
            ``(1) Requirement that administrative remedies be 
        exhausted.--A judgment for damages shall not be awarded 
        under subsection (b) unless the court determines that 
        the plaintiff has exhausted the administrative remedies 
        available to such plaintiff within the Internal Revenue 
        Service.''.
    (b) Damages Allowed in Civil Actions by Persons Other Than 
Taxpayers.--Section 7426 is amended by redesignating subsection 
(h) as subsection (i) and by adding after subsection (g) the 
following new subsection:
    ``(h) Recovery of Damages Permitted in Certain Cases.--
            ``(1) In general.--Notwithstanding subsection (b), 
        if, in any action brought under this section, there is 
        a finding that any officer or employee of the Internal 
        Revenue Service recklessly or intentionally, or by 
        reason of negligence, disregarded any provision of this 
        title the defendant shall be liable to the plaintiff in 
        an amount equal to the lesser of $1,000,000 ($100,000 
        in the case of negligence) or the sum of--
                    ``(A) actual, direct economic damages 
                sustained by the plaintiff as a proximate 
                result of the reckless or intentional or 
                negligent disregard of any provision of this 
                title by the officer or employee (reduced by 
                any amount of such damages awarded under 
                subsection (b)), and
                    ``(B) the costs of the action.
            ``(2) Requirement that administrative remedies be 
        exhausted; mitigation; period.--The rules of section 
        7433(d) shall apply for purposes of this subsection.
            ``(3) Payment authority.--Claims pursuant to this 
        section shall be payable out of funds appropriated 
        under section 1304 of title 31, United States Code.''.
    (c) Civil Damages for IRS Violations of Bankruptcy 
Procedures.--
            (1) In general.--Section 7433 (relating to civil 
        damages for certain unauthorized collection actions) is 
        amended by adding at the end the following new 
        subsection:
    ``(e) Actions for Violations of Certain Bankruptcy 
Procedures.--
            ``(1) In general.--If, in connection with any 
        collection of Federal tax with respect to a taxpayer, 
        any officer or employee of the Internal Revenue Service 
        willfully violates any provision of section 362 
        (relating to automatic stay) or 524 (relating to effect 
        of discharge) of title 11, United States Code (or any 
        successor provision), or any regulation promulgated 
        under such provision, such taxpayer may petition the 
        bankruptcy court to recover damages against the United 
        States.
            ``(2) Remedy to be exclusive.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), notwithstanding section 105 
                of such title 11, such petition shall be the 
                exclusive remedy for recovering damages 
                resulting from such actions.
                    ``(B) Certain other actions permitted.--
                Subparagraph (A) shall not apply to an action 
                under section 362(h) of such title 11 for a 
                violation of a stay provided by section 362 of 
                such title; except that--
                            ``(i) administrative and litigation 
                        costs in connection with such an action 
                        may only be awarded under section 7430, 
                        and
                            ``(ii) administrative costs may be 
                        awarded only if incurred on or after 
                        the date that the bankruptcy petition 
                        is filed.''.
            (2) Conforming amendment.--Subsection (b) of 
        section 7433 is amended by inserting ``or petition 
        filed under subsection (e)'' after ``subsection (a)''.
    (d) Effective Date.--The amendments made by this section 
shall apply to actions of officers or employees of the Internal 
Revenue Service after the date of the enactment of this Act.

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

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

SEC. 3104. ACTIONS FOR REFUND WITH RESPECT TO CERTAIN ESTATES WHICH 
                    HAVE ELECTED THE INSTALLMENT METHOD OF PAYMENT.

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

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

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

SEC. 3106. CIVIL ACTION FOR RELEASE OF ERRONEOUS LIEN.

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

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

SEC. 3201. RELIEF FROM JOINT AND SEVERAL LIABILITY ON JOINT RETURN.

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

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

    ``(a) In General.--Notwithstanding section 6013(d)(3)--
            ``(1) an individual who has made a joint return may 
        elect to seek relief under the procedures prescribed 
        under subsection (b), and
            ``(2) if such individual is eligible to elect the 
        application of subsection (c), such individual may, in 
        addition to any election under paragraph (1), electto 
limit such individual's liability for any deficiency with respect to 
such joint return in the manner prescribed under subsection (c).
Any determination under this section shall be made without 
regard to community property laws.
    ``(b) Procedures For Relief From Liability Applicable to 
All Joint Filers.--
            ``(1) In general.--Under procedures prescribed by 
        the Secretary, if--
                    ``(A) a joint return has been made for a 
                taxable year,
                    ``(B) on such return there is an 
                understatement of tax attributable to erroneous 
                items of 1 individual filing the joint return,
                    ``(C) the other individual filing the joint 
                return establishes that in signing the return 
                he or she did not know, and had no reason to 
                know, that there was such understatement,
                    ``(D) taking into account all the facts and 
                circumstances, it is inequitable to hold the 
                other individual liable for the deficiency in 
                tax for such taxable year attributable to such 
                understatement, and
                    ``(E) the other individual elects (in such 
                form as the Secretary may prescribe) the 
                benefits of this subsection not later than the 
                date which is 2 years after the date the 
                Secretary has begun collection activities with 
                respect to the individual making the election,
        then the other individual shall be relieved of 
        liability for tax (including interest, penalties, and 
        other amounts) for such taxable year to the extent such 
        liability is attributable to such understatement.
            ``(2) Apportionment of relief.--If an individual 
        who, but for paragraph (1)(C), would be relieved of 
        liability under paragraph (1), establishes that in 
        signing the return such individual did not know, and 
        had no reason to know, the extent of such 
        understatement, then such individual shall be relieved 
        of liability for tax (including interest, penalties, 
        and other amounts) for such taxable year to the extent 
        that such liability is attributable to the portion of 
        such understatement of which such individual did not 
        know and had no reason to know.
            ``(3) Understatement.--For purposes of this 
        subsection, the term `understatement' has the meaning 
        given to such term by section 6662(d)(2)(A).
    ``(c) Procedures To Limit Liability for Taxpayers No Longer 
Married or Taxpayers Legally Separated or Not Living 
Together.--
            ``(1) In general.--Except as provided in this 
        subsection, if an individual who has made a joint 
        return for any taxable year elects the application of 
        this subsection, the individual's liability for any 
        deficiency which is assessed with respect to the return 
        shall not exceed the portion of such deficiency 
        properly allocable to the individual under subsection 
        (d).
            ``(2) Burden of proof.--Except as provided in 
        subparagraph (A)(ii) or (C) of paragraph (3), each 
        individual who elects the application of this 
        subsection shall have the burden of proof with respect 
        to establishing the portion of any deficiency allocable 
        to such individual.
            ``(3) Election.--
                    ``(A) Individuals eligible to make 
                election.--
                            ``(i) In general.--An individual 
                        shall only be eligible to elect the 
                        application of this subsection if--
                                    ``(I) at the time such 
                                election is filed, such 
                                individual is no longer married 
                                to, or is legally separated 
                                from, the individual with whom 
                                such individual filed the joint 
                                return to which the election 
                                relates, or
                                    ``(II) such individual was 
                                not a member of the same 
                                household as the individual 
                                with whom such joint return was 
                                filed at any time during the 
                                12-month period ending on the 
                                date such election is filed.
                            ``(ii) Certain taxpayers ineligible 
                        to elect.--If the Secretary 
                        demonstrates that assets were 
                        transferred between individuals filing 
                        a joint return as part of a fraudulent 
                        scheme by such individuals, an election 
                        under this subsection by either 
                        individual shall be invalid (and 
                        section 6013(d)(3) shall apply to the 
                        joint return).
                    ``(B) Time for election.--An election under 
                this subsection for any taxable year shall be 
                made not later than 2 years after the date on 
                which the Secretary has begun collection 
                activities with respect to the individual 
                making the election.
                    ``(C) Election not valid with respect to 
                certain deficiencies.--If the Secretary 
                demonstrates that an individual making an 
                election under this subsection had actual 
                knowledge, at the time such individual signed 
                the return, of any item giving rise to a 
                deficiency (or portion thereof) which is not 
                allocable to such individual under subsection 
                (d), such election shall not apply to such 
                deficiency (or portion). This subparagraph 
                shall not apply where the individual with 
                actual knowledge establishes that such 
                individual signed the return under duress.
            ``(4) Liability increased by reason of transfers of 
        property to avoid tax.--
                    ``(A) In general.--Notwithstanding any 
                other provision of this subsection, the portion 
                of the deficiency for which the individual 
                electing the application of this subsection is 
                liable (without regard to this paragraph) shall 
                be increased by the value of any disqualified 
                asset transferred to the individual.
                    ``(B) Disqualified asset.--For purposes of 
                this paragraph--
                            ``(i) In general.--The term 
                        `disqualified asset' means any property 
                        or right to property transferred to an 
                        individual making the election under 
                        this subsection with respect to a joint 
                        return by the other individual filing 
                        such joint return if the principal 
                        purpose of the transfer was the 
                        avoidance of tax or payment of tax.
                            ``(ii) Presumption.--
                                    ``(I) In general.--For 
                                purposes of clause (i), except 
                                as provided in subclause (II), 
                                any transfer which is made 
                                after the date which is 1 year 
                                before the date on which the 
                                1st letter of proposed 
                                deficiency which allows the 
                                taxpayer an opportunity for 
                                administrative review in the 
                                Internal Revenue Service Office 
                                of Appeals is sent shall be 
                                presumed to have as its 
                                principal purpose the avoidance 
                                of tax or payment of tax.
                                    ``(II) Exceptions.--
                                Subclause (I) shall not apply 
                                to any transfer pursuant to a 
                                decree of divorce or separate 
                                maintenance or a written 
                                instrument incident to such a 
                                decree or to any transfer which 
                                an individual establishes did 
                                not have as its principal 
                                purpose the avoidance of tax or 
                                payment of tax.
    ``(d) Allocation of Deficiency.--For purposes of subsection 
(c)--
            ``(1) In general.--The portion of any deficiency on 
        a joint return allocated to an individual shall be the 
        amount which bears the same ratio to such deficiency as 
        the net amount of items taken into account in computing 
        the deficiency and allocable to the individual under 
        paragraph (3) bears to the net amount of all items 
        taken into account in computing the deficiency.
            ``(2) Separate treatment of certain items.--If a 
        deficiency (or portion thereof) is attributable to--
                    ``(A) the disallowance of a credit, or
                    ``(B) any tax (other than tax imposed by 
                section 1 or 55) required to be included with 
                the joint return,
        and such item is allocated to 1 individual under 
        paragraph (3), such deficiency (or portion) shall be 
        allocated to such individual. Any such item shall not 
        be taken into account under paragraph (1).
            ``(3) Allocation of items giving rise to the 
        deficiency.--For purposes of this subsection--
                    ``(A) In general.--Except as provided in 
                paragraphs (4) and (5), any item giving rise to 
                a deficiency on a joint return shall be 
                allocated to individuals filing the return in 
                the same manner as it would have been allocated 
                if the individuals had filed separate returns 
                for the taxable year.
                    ``(B) Exception where other spouse 
                benefits.--Under rules prescribed by the 
                Secretary, an item otherwise allocable to an 
                individual under subparagraph (A) shall be 
                allocated to the other individual filing the 
                joint return to the extent the item gave rise 
                to a tax benefit on the joint return to the 
                other individual.
                    ``(C) Exception for fraud.--The Secretary 
                may provide for an allocation of any item in a 
                manner not prescribed by subparagraph (A) if 
                the Secretary establishes that such allocation 
                is appropriate due to fraud of 1 or both 
                individuals.
            ``(4) Limitations on separate returns 
        disregarded.--If an item of deduction or credit is 
        disallowed in its entirety solely because a separate 
        return is filed, such disallowance shall be disregarded 
        and the item shall be computed as if a joint return had 
        been filed and then allocated between the spouses 
        appropriately. A similar rule shall apply for purposes 
        of section 86.
            ``(5) Child's liability.--If the liability of a 
        child of a taxpayer is included on a joint return, such 
        liability shall be disregarded in computing the 
        separate liability of either spouse and such liability 
        shall be allocated appropriately between the spouses.
    ``(e) Petition for Review by Tax Court.--
            ``(1) In general.--In the case of an individual who 
        elects to have subsection (b) or (c) apply--
                    ``(A) In general.--The individual may 
                petition the Tax Court (and the Tax Court shall 
                have jurisdiction) to determine the appropriate 
                relief available to the individual under this 
                section if such petition is filed during the 
                90-day period beginning on the date on which 
                the Secretary mails by certified or registered 
                mail a notice to such individual of the 
                Secretary's determination of relief available 
                to the individual. Notwithstanding the 
                preceding sentence, an individual may file such 
                petition at any time after the date which is 6 
                months after the date such election is filed 
                with the Secretary and before the close of such 
                90-day period.
                    ``(B) Restrictions applicable to collection 
                of assessment.--
                            ``(i) In general.--Except as 
                        otherwise provided in section 6851 or 
                        6861, no levy or proceeding in court 
                        shall be made, begun, or prosecuted 
                        against the individual making an 
                        election under subsection (b) or (c) 
                        for collection of any assessment to 
                        which such election relates until the 
                        expiration of the 90-day period 
                        described in subparagraph (A), or, if a 
                        petition has been filed with the Tax 
                        Court, until the decision of the Tax 
                        Court has become final. Rules similar 
                        to the rules of section 7485 shall 
                        apply with respect to the collection of 
                        such assessment.
                            ``(ii) Authority to enjoin 
                        collection actions.--Notwithstanding 
                        the provisions of section 7421(a), the 
                        beginning of such levy or proceeding 
                        during the time the prohibition under 
                        clause (i) is in force may be enjoined 
                        by a proceeding in the proper court, 
                        including the Tax Court. The Tax Court 
                        shall have no jurisdiction under this 
                        subparagraph to enjoin any action or 
                        proceeding unless a timely petition has 
                        been filed under subparagraph (A) and 
                        then only in respect of the amount of 
                        the assessment to which the election 
                        under subsection (b) or (c) relates.
            ``(2) Suspension of running of period of 
        limitations.--The running of the period of limitations 
        in section 6502 on the collection of the assessment to 
        which the petition under paragraph (1)(A) relates shall 
        be suspended for the period during which the Secretary 
        is prohibited by paragraph (1)(B) from collecting by 
        levy or a proceeding in court and for 60 days 
        thereafter.
            ``(3) Applicable rules.--
                    ``(A) Allowance of credit or refund.--
                Except as provided in subparagraph (B), 
                notwithstanding any other law or rule of law 
                (other than section 6512(b), 7121, or 7122), 
                credit or refund shall be allowed or made to 
                the extent attributable to the application of 
                this section.
                    ``(B) Res judicata.--In the case of any 
                election under subsection (b) or (c), if a 
                decision of the Tax Court in any prior 
                proceeding for the same taxable year has become 
                final, such decision shall be conclusive except 
                with respect to the qualification of the 
                individual for relief which was not an issue in 
                such proceeding. The exception contained in the 
                preceding sentence shall not apply if the Tax 
                Court determines that the individual 
                participated meaningfully in such prior 
                proceeding.
                    ``(C) Limitation on tax court 
                jurisdiction.--If a suit for refund is begun by 
                either individual filing the joint return 
                pursuant to section 6532--
                            ``(i) the Tax Court shall lose 
                        jurisdiction of the individual's action 
                        under this section to whatever extent 
                        jurisdiction is acquired by the 
                        district court or the United States 
                        Court of Federal Claims over the 
                        taxable years that are the subject of 
                        the suit for refund, and
                            ``(ii) the court acquiring 
                        jurisdiction shall have jurisdiction 
                        over the petition filed under this 
                        subsection.
            ``(4) Notice to other spouse.--The Tax Court shall 
        establish rules which provide the individual filing a 
        joint return but not making the election under 
        subsection (b) or (c) with adequate notice and an 
        opportunity to become a party to a proceeding under 
        either such subsection.
    ``(f) Equitable Relief.--Under procedures prescribed by the 
Secretary, if--
            ``(1) taking into account all the facts and 
        circumstances, it is inequitable to hold the individual 
        liable for any unpaid tax or any deficiency (or any 
        portion of either), and
            ``(2) relief is not available to such individual 
        under subsection (b) or (c),
the Secretary may relieve such individual of such liability.
    ``(g) Regulations.--The Secretary shall prescribe such 
regulations as are necessary to carry out the provisions of 
this section, including--
            ``(1) regulations providing methods for allocation 
        of items other than the methods under subsection 
        (d)(3), and
            ``(2) regulations providing the opportunity for an 
        individual to have notice of, and an opportunity to 
        participate in, any administrative proceeding with 
        respect to an election made under subsection (b) or (c) 
        by the other individual filing the joint return.''.
    (b) Equitable Relief for Individuals Not Filing Joint 
Return.--Section 66(c) (relating to spouse relieved of 
liability in certain other cases) is amended by adding at the 
end the following new sentence: ``Under procedures prescribed 
by the Secretary, if, taking into account all the facts and 
circumstances, it is inequitable to hold the individual liable 
for any unpaid tax or any deficiency (or any portion of either) 
attributable to any item for which relief is not available 
under the preceding sentence, the Secretary may relieve such 
individual of such liability.''.
    (c) Separate Form for Applying for Spousal Relief.--Not 
later than 180 days after the date of the enactment of this 
Act, the Secretary of the Treasury shall develop a separate 
form with instructions for use by taxpayers in applying for 
relief under section 6015(a) of the Internal Revenue Code of 
1986, as added by this section.
    (d) Separate Notice to Each Filer.--The Secretary of the 
Treasury shall, wherever practicable, send any notice relating 
to a joint return under section 6013 of the Internal Revenue 
Code of 1986 separately to each individual filing the joint 
return.
    (e) Conforming Amendments.--
            (1) Section 6013 is amended by striking subsection 
        (e).
            (2) Subparagraph (A) of section 6230(c)(5) is 
        amended by striking ``section 6013(e)'' and inserting 
        ``section 6015''.
            (3) Section 7421(a) is amended by inserting 
        ``6015(d),'' after ``sections''.
    (f) Clerical Amendment.--The table of sections for subpart 
B of part II of subchapter A of chapter 61 is amended by 
inserting after the item relating to section 6014 the following 
new item:

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

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

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

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

       Subtitle D--Provisions Relating to Interest and Penalties

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

    (a) In General.--Section 6621 (relating to determination of 
rate of interest) is amended by adding at the end the following 
new subsection:
    ``(d) Elimination of Interest on Overlapping Periods of Tax 
Overpayments and Underpayments.--To the extent that, for any 
period, interest is payable under subchapter A and allowable 
under subchapter B on equivalent underpayments and overpayments 
by the same taxpayer of tax imposed by this title, the net rate 
of interest under this section on such amounts shall be zero 
for such period.''.
    (b) Conforming Amendment.--Subsection (f) of section 6601 
(relating to satisfaction by credits) is amended by adding at 
the end the following new sentence: ``The preceding sentence 
shall not apply to the extent that section 6621(d) applies.''.
    (c) Effective Dates.--
            (1) In general.--Except as provided under paragraph 
        (2), the amendments made by this section shall apply to 
        interest for periods beginning after the date of the 
        enactment of this Act.
            (2) Special rule.--The amendments made by this 
        section shall apply to interest for periods beginning 
        before the date of the enactment of this Act if the 
        taxpayer--
                    (A) reasonably identifies and establishes 
                periods of such tax overpayments and 
                underpayments for which the zero rate applies, 
                and
                    (B) not later than December 31, 1999, 
                requests the Secretary of the Treasury to apply 
                section 6621(d) of the Internal Revenue Code of 
                1986, as added by subsection (a), to such 
                periods.

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

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

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

    (a) In General.--Section 6651 (relating to failure to file 
tax return or to pay tax) is amended by adding at the end the 
following new subsection:
    ``(h) Limitation on Penalty on Individual's Failure To Pay 
for Months During Period of Installment Agreement.--In the case 
of an individual who files a return of tax on or before the due 
date for the return (including extensions), paragraphs (2) and 
(3) of subsection (a) shall each be applied by substituting 
`0.25' for `0.5' each place it appears for purposes of 
determining the addition to tax for any month during which an 
installment agreement under section 6159 is in effect for the 
payment of such tax.''.
    (b) Effective Date.--The amendment made by this section 
shall apply for purposes of determining additions to the tax 
for months beginning after December 31, 1999.

SEC. 3304. MITIGATION OF FAILURE TO DEPOSIT PENALTY.

    (a) Taxpayer May Designate Periods to Which Deposits 
Apply.--Section 6656 (relating to underpayment of deposits) is 
amended by adding at the end the following new subsection:
    ``(e) Designation of Periods to Which Deposits Apply.--
            ``(1) In general.--A person may, with respect to 
        any deposit of tax to be reported on such person's 
        return for a specified tax period, designate the period 
        or periods within such specified tax period to which 
        the deposit is to be applied for purposes of this 
        section.
            ``(2) Time for making designation.--A person may 
        make a designation under paragraph (1) only during the 
        90-day period beginning on the date of a notice that a 
        penalty under subsection (a) has been imposed for the 
        specified tax period to which the deposit relates.''.
    (b) Expansion of Exemption for First-Time Deposits.--
            (1) In general.--Paragraph (2) of section 6656(c) 
        (relating to exemption for first-time depositors of 
        employment taxes) is amended to read as follows:
            ``(2) such failure--
                    ``(A) occurs during the 1st quarter that 
                such person was required to deposit any 
                employment tax, or
                    ``(B) if such person is required to change 
                the frequency of deposits of any employment 
                tax, relates to the first deposit to which such 
                change applies, and''.
    (c) Periods Apply to Current Liabilities Unless Designated 
Otherwise.--Paragraph (1) of section 6656(e) (as added by 
subsection (a) of this section) is amended to read as follows:
    ``(e) Designation of Periods to Which Deposits Apply.--
            ``(1) In general.--A deposit made under this 
        section shall be applied to the most recent period or 
        periods within the specified tax period to which the 
        deposit relates, unless the person making such deposit 
        designates a different period or periods to which such 
        deposit is to be applied.''.
    (d) Effective Date.--
            (1) In general.--The amendments made by this 
        section shall apply to deposits required to be made 
        after the 180th day after the date of the enactment of 
        this Act.
            (2) Application to current liabilities.--The 
        amendment made by subsection (c) shall apply to 
        deposits required to be made after December 31, 2001.

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

    (a) In General.--Section 6404 (relating to abatements) is 
amended by redesignating subsection (g) as subsection (h) and 
by inserting after subsection (f) the following new subsection:
    ``(g) Suspension of Interest and Certain Penalties Where 
Secretary Fails To Contact Taxpayer.--
            ``(1) Suspension.--
                    ``(A) In general.--In the case of an 
                individual who files a return of tax imposed by 
                subtitle A for a taxable year on or before the 
                due date for the return (including extensions), 
                if the Secretary does not provide a notice to 
                the taxpayer specifically stating the 
                taxpayer's liability and the basis for the 
                liability before the close of the 1-year period 
                (18-month period in the case of taxable years 
                beginning before January 1, 2004) beginning on 
                the later of--
                            ``(i) the date on which the return 
                        is filed, or
                            ``(ii) the due date of the return 
                        without regard to extensions,
                the Secretary shall suspend the imposition of 
                any interest, penalty, addition to tax, or 
                additional amount with respect to any failure 
                relating to the return which is computed by 
                reference to the period of time the failure 
                continues to exist and which is properly 
                allocable to the suspension period.
                    ``(B) Separate application.--This paragraph 
                shall be applied separately with respect to 
                each item or adjustment.
            ``(2) Exceptions.--Paragraph (1) shall not apply 
        to--
                    ``(A) any penalty imposed by section 6651,
                    ``(B) any interest, penalty, addition to 
                tax, or additional amount in a case involving 
                fraud,
                    ``(C) any interest, penalty, addition to 
                tax, or additional amount with respect to any 
                tax liability shown on the return, or
                    ``(D) any criminal penalty.
            ``(3) Suspension period.--For purposes of this 
        subsection, the term `suspension period' means the 
        period--
                    ``(A) beginning on the day after the close 
                of the 1-year period (18-month period in the 
                case of taxable years beginning before January 
                1, 2004) under paragraph (1), and
                    ``(B) ending on the date which is 21 days 
                after the date on which notice described in 
                paragraph (1)(A) is provided by the 
                Secretary.''.
    (b) Effective Date.--The amendments made by this section 
shall apply to taxable years ending after the date of the 
enactment of this Act.

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

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

                ``Subchapter C--Procedural Requirements

        ``Sec. 6751. Procedural requirements.

``SEC. 6751. PROCEDURAL REQUIREMENTS.

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

        ``Subchapter C. Procedural requirements.''.

    (c) Effective Date.--The amendments made by this section 
shall apply to notices issued, and penalties assessed, after 
December 31, 2000.

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

    (a) In General.--Paragraph (1) of section 6672(b) (relating 
to failure to collect and pay over tax, or attempt to evade or 
defeat tax) is amended by inserting ``or in person'' after 
``section 6212(b)''.
    (b) Conforming Amendments.--
            (1) Paragraph (2) of section 6672(b) is amended by 
        inserting ``(or, in the case of such a notice delivered 
        in person, such delivery)'' after ``paragraph (1)''.
            (2) Paragraph (3) of section 6672(b) is amended by 
        inserting ``or delivered in person'' after ``mailed'' 
        each place it appears.
    (c) Effective Date.--The amendments made by this section 
shall take effect on the date of the enactment of this Act.

SEC. 3308. NOTICE OF INTEREST CHARGES.

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

                  ``Subchapter D--Notice Requirements

        ``Sec. 6631. Notice requirements.

``SEC. 6631. NOTICE REQUIREMENTS.

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

        ``Subchapter D. Notice requirements.''.

    (c) Effective Date.--The amendments made by this section 
shall apply to notices issued after December 31, 2000.

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

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

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

                          PART I--DUE PROCESS

SEC. 3401. DUE PROCESS IN IRS COLLECTION ACTIONS.

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

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

                    ``PART I--DUE PROCESS FOR LIENS

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

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

    ``(a) Requirement of Notice.--
            ``(1) In general.--The Secretary shall notify in 
        writing the person described in section 6321 of the 
        filing of a notice of lien under section 6323.
            ``(2) Time and method for notice.--The notice 
        required under paragraph (1) shall be--
                    ``(A) given in person,
                    ``(B) left at the dwelling or usual place 
                of business of such person, or
                    ``(C) sent by certified or registered mail 
                to such person's last known address,
        not more than 5 business days after the day of the 
        filing of the notice of lien.
            ``(3) Information included with notice.--The notice 
        required under paragraph (1) shall include in simple 
        and nontechnical terms--
                    ``(A) the amount of unpaid tax,
                    ``(B) the right of the person to request a 
                hearing during the 30-day period beginning on 
                the day after the 5-day period described in 
                paragraph (2),
                    ``(C) the administrative appeals available 
                to the taxpayer with respect to such lien and 
                the procedures relating to such appeals, and
                    ``(D) the provisions of this title and 
                procedures relating to the release of liens on 
                property.
    ``(b) Right to Fair Hearing.--
            ``(1) In general.--If the person requests a hearing 
        under subsection (a)(3)(B), such hearing shall be held 
        by the Internal Revenue Service Office of Appeals.
            ``(2) One hearing per period.--A person shall be 
        entitled to only one hearing under this section with 
        respect to the taxable period to which the unpaid tax 
        specified in subsection (a)(3)(A) relates.
            ``(3) Impartial officer.--The hearing under this 
        subsection shall be conducted by an officer or employee 
        who has had no prior involvement with respect to the 
        unpaid tax specified in subsection (a)(3)(A) before the 
        first hearing under this section or section 6330. A 
        taxpayer may waive the requirement of this paragraph.
            ``(4) Coordination with section 6330.--To the 
        extent practicable, a hearing under this section shall 
        be held in conjunction with a hearing under section 
        6330.
    ``(c) Conduct of Hearing; Review; Suspensions.--For 
purposes of this section, subsections (c), (d) (other than 
paragraph (2)(B) thereof), and (e) of section 6330 shall apply.

                          ``PART II--LIENS''.

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

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

                 ``PART I--DUE PROCESS FOR COLLECTIONS

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

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

    ``(a) Requirement of Notice Before Levy.--
            ``(1) In general.--No levy may be made on any 
        property or right to property of any person unless the 
        Secretary has notified such person in writing of their 
        right to a hearing under this section before such levy 
        is made. Such notice shall be required only once for 
        the taxable period to which the unpaid tax specified in 
        paragraph (3)(A) relates.
            ``(2) Time and method for notice.--The notice 
        required under paragraph (1) shall be--
                    ``(A) given in person,
                    ``(B) left at the dwelling or usual place 
                of business of such person, or
                    ``(C) sent by certified or registered mail, 
                return receipt requested, to such person's last 
                known address,
        not less than 30 days before the day of the first levy 
        with respect to the amount of the unpaid tax for the 
        taxable period.
            ``(3) Information included with notice.--The notice 
        required under paragraph (1) shall include in simple 
        and nontechnical terms--
                    ``(A) the amount of unpaid tax,
                    ``(B) the right of the person to request a 
                hearing during the 30-day period under 
                paragraph (2), and
                    ``(C) the proposed action by the Secretary 
                and the rights of the person with respect to 
                such action, including a brief statement which 
                sets forth--
                            ``(i) the provisions of this title 
                        relating to levy and sale of property,
                            ``(ii) the procedures applicable to 
                        the levy and sale of property under 
                        this title,
                            ``(iii) the administrative appeals 
                        available to the taxpayer with respect 
                        to such levy and sale and the 
                        procedures relating to such appeals,
                            ``(iv) the alternatives available 
                        to taxpayers which could prevent levy 
                        on property (including installment 
                        agreements under section 6159), and
                            ``(v) the provisions of this title 
                        and procedures relating to redemption 
                        of property and release of liens on 
                        property.
    ``(b) Right to Fair Hearing.--
            ``(1) In general.--If the person requests a hearing 
        under subsection (a)(3)(B), such hearing shall be held 
        by the Internal Revenue Service Office of Appeals.
            ``(2) One hearing per period.--A person shall be 
        entitled to only one hearing under this section with 
        respect to the taxable period to which the unpaid tax 
        specified in subsection (a)(3)(A) relates.
            ``(3) Impartial officer.--The hearing under this 
        subsection shall be conducted by an officer or employee 
        who has had no prior involvement with respect to the 
        unpaid tax specified in subsection (a)(3)(A) before the 
        first hearing under this section or section 6320. A 
        taxpayer may waive the requirement of this paragraph.
    ``(c) Matters Considered at Hearing.--In the case of any 
hearing conducted under this section--
            ``(1) Requirement of investigation.--The appeals 
        officer shall at the hearing obtain verification from 
        the Secretary that the requirements of any applicable 
        law or administrative procedure have been met.
            ``(2) Issues at hearing.--
                    ``(A) In general.--The person may raise at 
                the hearing any relevant issue relating to the 
                unpaid tax or the proposed levy, including--
                            ``(i) appropriate spousal defenses,
                            ``(ii) challenges to the 
                        appropriateness of collection actions, 
                        and
                            ``(iii) offers of collection 
                        alternatives, which may include the 
                        posting of a bond, the substitution of 
                        other assets, an installment agreement, 
                        or an offer-in-compromise.
                    ``(B) Underlying liability.--The person may 
                also raise at the hearing challenges to the 
                existence or amount of the underlying tax 
                liability for any tax period if the person did 
                not receive any statutory notice of deficiency 
                for such tax liability or did not otherwise 
                have an opportunity to dispute such tax 
                liability.
            ``(3) Basis for the determination.--The 
        determination by an appeals officer under this 
        subsection shall take into consideration--
                    ``(A) the verification presented under 
                paragraph (1),
                    ``(B) the issues raised under paragraph 
                (2), and
                    ``(C) whether any proposed collection 
                action balances the need for the efficient 
                collection of taxes with the legitimate concern 
                of the person that any collection action be no 
                more intrusive than necessary.
            ``(4) Certain issues precluded.--An issue may not 
        be raised at the hearing if--
                    ``(A) the issue was raised and considered 
                at a previous hearing under section 6320 or 
inany other previous administrative or judicial proceeding, and
                    ``(B) the person seeking to raise the issue 
                participated meaningfully in such hearing or 
                proceeding.
        This paragraph shall not apply to any issue with 
        respect to which subsection (d)(2)(B) applies.
    ``(d) Proceeding After Hearing.--
            ``(1) Judicial review of determination.--The person 
        may, within 30 days of a determination under this 
        section, appeal such determination--
                    ``(A) to the Tax Court (and the Tax Court 
                shall have jurisdiction to hear such matter), 
                or
                    ``(B) if the Tax Court does not have 
                jurisdiction of the underlying tax liability, 
                to a district court of the United States.
        If a court determines that the appeal was to an 
        incorrect court, a person shall have 30 days after the 
        court determination to file such appeal with the 
        correct court.
            ``(2) Jurisdiction retained at irs office of 
        appeals.--The Internal Revenue Service Office of 
        Appeals shall retain jurisdiction with respect to any 
        determination made under this section, including 
        subsequent hearings requested by the person who 
        requested the original hearing on issues regarding--
                    ``(A) collection actions taken or proposed 
                with respect to such determination, and
                    ``(B) after the person has exhausted all 
                administrative remedies, a change in 
                circumstances with respect to such person which 
                affects such determination.
    ``(e) Suspension of Collections and Statute of 
Limitations.--
            ``(1) In general.--Except as provided in paragraph 
        (2), if a hearing is requested under subsection 
        (a)(3)(B), the levy actions which are the subject of 
        the requested hearing and the running of any period of 
        limitations under section 6502 (relating to collection 
        after assessment), section 6531 (relating to criminal 
        prosecutions), or section 6532 (relating to other 
        suits) shall be suspended for the period during which 
        such hearing, and appeals therein, are pending. In no 
        event shall any such period expire before the 90th day 
        after the day on which there is a final determination 
        in such hearing.
            ``(2) Levy upon appeal.--Paragraph (1) shall not 
        apply to a levy action while an appeal is pending if 
        the underlying tax liability is not at issue in the 
        appeal and the court determines that the Secretary has 
        shown good cause not to suspend the levy.
    ``(f) Jeopardy and State Refund Collection.--If--
            ``(1) the Secretary has made a finding under the 
        last sentence of section 6331(a) that the collection of 
        tax is in jeopardy, or
            ``(2) the Secretary has served a levy on a State to 
        collect a Federal tax liability from a State tax 
        refund,
this section shall not apply, except that the taxpayer shall be 
given the opportunity for the hearing described in this section 
within a reasonable period of time after the levy.

                           ``PART II--LEVY''.

    (c) Review by Special Trial Judges Allowed.--
            (1) In general.--Section 7443(b) (relating to 
        proceedings which may be assigned to special trial 
        judges) is amended by striking ``and'' at the end of 
        paragraph (3), by redesignating paragraph (4) as 
        paragraph (5), and by inserting after paragraph (3) the 
        following new paragraph:
            ``(4) any proceeding under section 6320 or 6330, 
        and''.
            (2) Authority to make decisions.--Section 7443(c) 
        (relating to authority to make court decisions) is 
        amended by striking ``or (3)'' and inserting ``(3), or 
        (4)''.
    (d) Effective Date.--The amendments made by this section 
shall apply to collection actions initiated after the date 
which is 180 days after the date of the enactment of this Act.

                    PART II--EXAMINATION ACTIVITIES

SEC. 3411. CONFIDENTIALITY PRIVILEGES RELATING TO TAXPAYER 
                    COMMUNICATIONS.

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

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

    ``(a) Uniform Application to Taxpayer Communications With 
Federally Authorized Practitioners.--
            ``(1) General rule.--With respect to tax advice, 
        the same common law protections of confidentiality 
        which apply to a communication between a taxpayer and 
        an attorney shall also apply to a communication between 
        a taxpayer and any federally authorized tax 
        practitioner to the extent the communication would be 
        considered a privileged communication if it were 
        between a taxpayer and an attorney.
            ``(2) Limitations.--Paragraph (1) may only be 
        asserted in--
                    ``(A) any noncriminal tax matter before the 
                Internal Revenue Service, and
                    ``(B) any noncriminal tax proceeding in 
                Federal court brought by or against the United 
                States.
            ``(3) Definitions.--For purposes of this 
        subsection--
                    ``(A) Federally authorized tax 
                practitioner.--The term `federally authorized 
                tax practitioner' means any individual who is 
                authorized under Federal law to practice before 
                the Internal Revenue Service if such practice 
                is subject to Federal regulation under section 
                330 of title 31, United States Code.
                    ``(B) Tax advice.--The term `tax advice' 
                means advice given by an individual with 
                respect to a matter which is within the scope 
                of the individual's authority to practice 
                described in subparagraph (A).
    ``(b) Section Not To Apply to Communications Regarding 
Corporate Tax Shelters.--The privilege under subsection (a) 
shall not apply to any written communication between a 
federally authorized tax practitioner and a director, 
shareholder, officer, or employee, agent, or representative of 
a corporation in connection with the promotion of the direct or 
indirect participation of such corporation in any tax shelter 
(as defined in section 6662(d)(2)(C)(iii)).''.
    (b) Conforming Amendment.--The table of sections for such 
chapter 77 is amended by adding at the end the following new 
item:

        ``Sec. 7525. Confidentiality privileges relating to taxpayer 
                  communications.''

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

SEC. 3412. LIMITATION ON FINANCIAL STATUS AUDIT TECHNIQUES.

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

SEC. 3413. SOFTWARE TRADE SECRETS PROTECTION.

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

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

    ``(a) General Rule.--For purposes of this title--
            ``(1) except as provided in subsection (b), no 
        summons may be issued under this title, and the 
        Secretary may not begin any action under section 7604 
        to enforce any summons to produce or analyze any tax-
        related computer software source code, and
            ``(2) any software and related materials which are 
        provided to the Secretary under this title shall be 
        subject to the safeguards under subsection (c).
    ``(b) Circumstances Under Which Computer Software Source 
Code May Be Provided.--
            ``(1) In general.--Subsection (a)(1) shall not 
        apply to any portion, item, or component of tax-related 
        computer software source code if--
                    ``(A) the Secretary is unable to otherwise 
                reasonably ascertain the correctness of any 
                item on a return from--
                            ``(i) the taxpayer's books, papers, 
                        records, or other data, or
                            ``(ii) the computer software 
                        executable code (and any modifications 
                        thereof) to which such source code 
                        relates and any associated data which, 
                        when executed, produces the output to 
                        ascertain the correctness of the item,
                    ``(B) the Secretary identifies with 
                reasonable specificity the portion, item, or 
                component of such source code needed to verify 
                the correctness of such item on the return, and
                    ``(C) the Secretary determines that the 
                need for the portion, item, or component of 
                such source code with respect to such item 
                outweighs the risks of unauthorized disclosure 
                of trade secrets.
            ``(2) Exceptions.--Subsection (a)(1) shall not 
        apply to--
                    ``(A) any inquiry into any offense 
                connected with the administration or 
                enforcement of the internal revenue laws,
                    ``(B) any tax-related computer software 
                source code acquired or developed by the 
                taxpayer or a related person primarily for 
                internal use by the taxpayer or such person 
                rather than for commercial distribution,
                    ``(C) any communications between the owner 
                of the tax-related computer software source 
                code and the taxpayer or related persons, or
                    ``(D) any tax-related computer software 
                source code which is required to be provided or 
                made available pursuant to any other provision 
                of this title.
            ``(3) Cooperation required.--For purposes of 
        paragraph (1), the Secretary shall be treated as 
        meeting the requirements of subparagraphs (A) and (B) 
        of such paragraph if--
                    ``(A) the Secretary determines that it is 
                not feasible to determine the correctness of an 
                item without access to the computer software 
                executable code and associated data described 
                in paragraph (1)(A)(ii),
                    ``(B) the Secretary makes a formal request 
                to the taxpayer for such code and data and to 
                the owner of the computer software source code 
                for such executable code, and
                    ``(C) such code and data is not provided 
                within 180 days of such request.
            ``(4) Right to contest summons.--In any proceeding 
        brought under section 7604 to enforce a summons issued 
        under the authority of this subsection, the court 
        shall, at the request of any party, hold a hearing to 
        determine whether the applicable requirements of this 
        subsection have been met.
    ``(c) Safeguards To Ensure Protection of Trade Secrets and 
Other Confidential Information.--
            ``(1) Entry of protective order.--In any court 
        proceeding to enforce a summons for any portion of 
        software, the court may receive evidence and issue any 
        order necessary to prevent the disclosure of trade 
        secrets or other confidential information with respect 
        to such software, including requiring that any 
        information be placed under seal to be opened only as 
        directed by the court.
            ``(2) Protection of software.--Notwithstanding any 
        other provision of this section, and in addition to any 
        protections ordered pursuant to paragraph (1), in the 
        case of software that comes into the possession or 
        control of the Secretary in the course of any 
        examination with respect to any taxpayer--
                    ``(A) the software may be used only in 
                connection with the examination of such 
                taxpayer's return, any appeal by the taxpayer 
                to the Internal Revenue Service Office of 
                Appeals, any judicial proceeding (and any 
                appeals therefrom), and any inquiry into any 
                offense connected with the administration or 
                enforcement of the internal revenue laws,
                    ``(B) the Secretary shall provide, in 
                advance, to the taxpayer and the owner of the 
                software a written list of the names of all 
                individuals who will analyze or otherwise have 
                access to the software,
                    ``(C) the software shall be maintained in a 
                secure area or place, and, in the case of 
                computer software source code, shall not be 
                removed from the owner's place of business 
                unless the owner permits, or a court orders, 
                such removal,
                    ``(D) the software may not be copied except 
                as necessary to perform such analysis, and the 
                Secretary shall number all copies made 
andcertify in writing that no other copies have been (or will be) made,
                    ``(E) at the end of the period during which 
                the software may be used under subparagraph 
                (A)--
                            ``(i) the software and all copies 
                        thereof shall be returned to the person 
                        from whom they were obtained and any 
                        copies thereof made under subparagraph 
                        (D) on the hard drive of a machine or 
                        other mass storage device shall be 
                        permanently deleted, and
                            ``(ii) the Secretary shall obtain 
                        from any person who analyzes or 
                        otherwise had access to such software a 
                        written certification under penalty of 
                        perjury that all copies and related 
                        materials have been returned and that 
                        no copies were made of them,
                    ``(F) the software may not be decompiled or 
                disassembled,
                    ``(G) the Secretary shall provide to the 
                taxpayer and the owner of any interest in such 
                software, as the case may be, a written 
                agreement, between the Secretary and any person 
                who is not an officer or employee of the United 
                States and who will analyze or otherwise have 
                access to such software, which provides that 
                such person agrees not to--
                            ``(i) disclose such software to any 
                        person other than persons to whom such 
                        information could be disclosed for tax 
                        administration purposes under section 
                        6103, or
                            ``(ii) participate for 2 years in 
                        the development of software which is 
                        intended for a similar purpose as the 
                        software examined, and
                    ``(H) the software shall be treated as 
                return information for purposes of section 
                6103.
        For purposes of subparagraph (C), the owner shall make 
        available any necessary equipment or materials for 
        analysis of computer software source code required to 
        be conducted on the owner's premises. The owner of any 
        interest in the software shall be considered a party to 
        any agreement described in subparagraph (G).
    ``(d) Definitions.--For purposes of this section--
            ``(1) Software.--The term `software' includes 
        computer software source code and computer software 
        executable code.
            ``(2) Computer software source code.--The term 
        `computer software source code' means--
                    ``(A) the code written by a programmer 
                using a programming language which is 
                comprehensible to appropriately trained persons 
                and is not capable of directly being used to 
                give instructions to a computer,
                    ``(B) related programmers' notes, design 
                documents, memoranda, and similar 
                documentation, and
                    ``(C) related customer communications.
            ``(3) Computer software executable code.--The term 
        `computer software executable code' means--
                    ``(A) any object code, machine code, or 
                other code readable by a computer when loaded 
                into its memory and used directly by such 
                computer to execute instructions, and
                    ``(B) any related user manuals.
            ``(4) Owner.--The term `owner' shall, with respect 
        to any software, include the developer of the software.
            ``(5) Related person.--A person shall be treated as 
        related to another person if such persons are related 
        persons under section 267 or 707(b).
            ``(6) Tax-related computer software source code.--
        The term `tax-related computer software source code' 
        means the computer source code for any computer 
        software program intended for accounting, tax return 
        preparation or compliance, or tax planning.''.
    (b) Unauthorized Disclosure of Software.--Section 7213 
(relating to unauthorized disclosure of information) is amended 
by redesignating subsection (d) as subsection (e) and by 
inserting after subsection (c) the following new subsection:
    ``(d) Disclosure of Software.--Any person who willfully 
divulges or makes known software (as defined in section 
7612(d)(1)) to any person in violation of section 7612 shall be 
guilty of a felony and, upon conviction thereof, shall be fined 
not more than $5,000, or imprisoned not more than 5 years, or 
both, together with the costs of prosecution.''.
    (c) Application of Special Procedures for Third-Party 
Summonses.--Paragraph (2) of section 7603(b), as amended by 
section 3416(a), is amended by striking ``and'' at the end of 
subparagraph (H), by striking a period at the end of 
subparagraph (I) and inserting ``, and'', and by adding at the 
end the following new subparagraph:
                    ``(J) any owner or developer of a computer 
                software source code (as defined in section 
                7612(d)(2)).
        Subparagraph (J) shall apply only with respect to a 
        summons requiring the production of the source code 
        referred to in subparagraph (J) or the program and data 
        described in section 7612(b)(1)(A)(ii) to which such 
        source code relates.''.
    (d) Conforming Amendment.--The table of sections for 
subchapter A of chapter 78 is amended by striking the item 
relating to section 7612 and by inserting the following new 
item:

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

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

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

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

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

    (a) In General.--Paragraph (1) of section 7609(a) (relating 
to summonses to which section applies) is amended by striking 
so much of such paragraph as precedes ``notice of the summons'' 
and inserting the following:
            ``(1) In general.--If any summons to which this 
        section applies requires the giving of testimony on or 
        relating to, the production of any portion of records 
        made or kept on or relating to, or the production of 
        any computer software source code (as defined in 
        7612(d)(2)) with respect to, any person (other than the 
        person summoned) who is identified in the summons, 
        then''.
    (b) Coordination With Other Authority.--Section 7609 
(relating to special procedures for third-party summonses) is 
amended by adding at the end the following new subsection:
    ``(j) Use of Summons Not Required.--Nothing in this section 
shall be construed to limit the Secretary's ability to obtain 
information, other than by summons, through formal or informal 
procedures authorized by sections 7601 and 7602.''.
    (c) Conforming Amendments.--
            (1) Subsection (a) of section 7609 is amended by 
        striking paragraphs (3) and (4), by redesignating 
        paragraph (5) as paragraph (3), and by striking in 
        paragraph (3) (as so redesignated) ``subsection 
        (c)(2)(B)'' and inserting ``subsection (c)(2)(D)''.
            (2) Subsection (c) of section 7609 is amended to 
        read as follows:
    ``(c) Summons to Which Section Applies.--
            ``(1) In general.--Except as provided in paragraph 
        (2), this section shall apply to any summons issued 
        under paragraph (2) of section 7602(a) or under section 
        6420(e)(2), 6421(g)(2), 6427(j)(2), or 7612.
            ``(2) Exceptions.--This section shall not apply to 
        any summons--
                    ``(A) served on the person with respect to 
                whose liability the summons is issued, or any 
                officer or employee of such person,
                    ``(B) issued to determine whether or not 
                records of the business transactions or affairs 
                of an identified person have been made or kept,
                    ``(C) issued solely to determine the 
                identity of any person having a numbered 
                account (or similar arrangement) with a bank or 
                other institution described in section 
                7603(b)(2)(A),
                    ``(D) issued in aid of the collection of--
                            ``(i) an assessment made or 
                        judgment rendered against the person 
                        with respect to whose liability the 
                        summons is issued, or
                            ``(ii) the liability at law or in 
                        equity of any transferee or fiduciary 
                        of any person referred to in clause 
                        (i),
                    ``(E)(i) issued by a criminal investigator 
                of the Internal Revenue Service in connection 
                with the investigation of an offense connected 
                with the administration or enforcement of the 
                internal revenue laws, and
                    ``(ii) served on any person who is not a 
                third-party recordkeeper (as defined in section 
                7603(b)), or
                    ``(F) described in subsection (f) or (g).
            ``(3) Records.--For purposes of this section, the 
        term `records' includes books, papers, and other 
        data.''.
            (3) Paragraph (2) of section 7609(e) is amended by 
        striking ``third-party recordkeeper's'' and all that 
        follows through ``subsection (f)'' and inserting 
        ``summoned party's response to the summons''.
            (4) Subsection (f) of section 7609 is amended--
                    (A) by striking ``described in subsection 
                (c)'' and inserting ``described in subsection 
                (c)(1)'', and
                    (B) by inserting ``or testimony'' after 
                ``records'' in paragraph (3).
            (5) Subsection (g) of section 7609 is amended by 
        striking ``In the case of any summons described in 
        subsection (c), the provisions of subsections (a)(1) 
        and (b) shall not apply if'' and inserting ``A summons 
        is described in this subsection if''.
            (6)(A) Subsection (i) of section 7609 is amended by 
        striking ``Third-Party Recordkeeper and'' in the 
        subsection heading.
            (B) Paragraph (1) of section 7609(i) is amended by 
        striking ``described in subsection (c), the third-party 
        recordkeeper'' and inserting ``to which this section 
        applies for the production of records, the summoned 
        party''.
            (C) Paragraph (2) of section 7609(i) is amended--
                    (i) by striking ``recordkeeper'' in the 
                heading and inserting ``summoned party'', and
                    (ii) by striking ``the third-party 
                recordkeeper'' and inserting ``the summoned 
                party''.
            (D) Paragraph (3) of section 7609(i) is amended to 
        read as follows:
            ``(3) Protection for summoned party who 
        discloses.--Any summoned party, or agent or employee 
        thereof, making a disclosure of records or testimony 
        pursuant to this section in good faith reliance on the 
        certificate of the Secretary or an order of a court 
        requiring production of records or the giving of such 
        testimony shall not be liable to any customer or other 
        person for such disclosure.''.
    (d) Effective Date.--The amendments made by this section 
shall apply to summonses served after the date of the enactment 
of this Act.

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

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

SEC. 3417. NOTICE OF IRS CONTACT OF THIRD PARTIES.

    (a) In General.--Section 7602 (relating to examination of 
books and witnesses), as amended by section 3412, is amended by 
redesignating subsections (c) and (d) as subsections (d) and 
(e), respectively, and by inserting after subsection (b) the 
following new subsection:
    ``(c) Notice of Contact of Third Parties.--
            ``(1) General notice.--An officer or employee of 
        the Internal Revenue Service may not contact any person 
        other than the taxpayer with respect to the 
        determination or collection of the tax liability of 
        such taxpayer without providing reasonable notice in 
        advance to the taxpayer that contacts with persons 
        other than the taxpayer may be made.
            ``(2) Notice of specific contacts.--The Secretary 
        shall periodically provide to a taxpayer a record of 
        persons contacted during such period by the Secretary 
        with respect to the determination or collection of the 
        tax liability of such taxpayer. Such record shall also 
        be provided upon request of the taxpayer.
            ``(3) Exceptions.--This subsection shall not 
        apply--
                    ``(A) to any contact which the taxpayer has 
                authorized,
                    ``(B) if the Secretary determines for good 
                cause shown that such notice would jeopardize 
                collection of any tax or such notice may 
                involve reprisal against any person, or
                    ``(C) with respect to any pending criminal 
                investigation.''.
    (b) Effective Date.--The amendments made by subsection (a) 
shall apply to contacts made after the 180th day after the date 
of the enactment of this Act.

                    PART III--COLLECTION ACTIVITIES

                      Subpart A--Approval Process

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

    (a) In General.--The Commissioner of Internal Revenue shall 
develop and implement procedures under which--
            (1) a determination by an employee to file a notice 
        of lien or levy with respect to, or to levy or seize, 
        any property or right to property would, where 
        appropriate, be required to be reviewed by a supervisor 
        of the employee before the action was taken, and
            (2) appropriate disciplinary action would be taken 
        against the employee or supervisor where the procedures 
        under paragraph (1) were not followed.
    (b) Review Process.--The review process under subsection 
(a)(1) may include a certification that the employee has--
            (1) reviewed the taxpayer's information,
            (2) verified that a balance is due, and
            (3) affirmed that the action proposed to be taken 
        is appropriate given the taxpayer's circumstances, 
        considering the amount due and the value of the 
        property or right to property.
    (c) Effective Dates.--
            (1) In general.--Except as provided in paragraph 
        (2), this section shall take effect on the date of the 
        enactment of this Act.
            (2) Automated collection system actions.--In the 
        case of any action under an automated collection 
        system, this section shall apply to actions initiated 
        after December 31, 2000.

                      Subpart B--Liens and Levies

SEC. 3431. MODIFICATIONS TO CERTAIN LEVY EXEMPTION AMOUNTS.

    (a) Fuel, Etc.--Section 6334(a)(2) (relating to fuel, 
provisions, furniture, and personal effects) is amended by 
striking ``$2,500'' and inserting ``$6,250''.
    (b) Books, Etc.--Section 6334(a)(3) (relating to books and 
tools of a trade, business, or profession) is amended by 
striking ``$1,250'' and inserting ``$3,125''.
    (c) Conforming Amendment.--Section 6334(g)(1) (relating to 
inflation adjustment) is amended--
            (1) by striking ``1997'' and inserting ``1999'', 
        and
            (2) by striking ``1996'' in subparagraph (B) and 
        inserting ``1998''.
    (d) Effective Date.--The amendments made by this section 
shall take effect with respect to levies issued after the date 
of the enactment of this Act.

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

    (a) In General.--Section 6343 (relating to authority to 
release levy and return property) is amended by adding at the 
end the following new subsection:
    ``(e) Release of Levy Upon Agreement That Amount is not 
Collectible.--In the case of a levy on the salary or wages 
payable to or received by the taxpayer, upon agreement with the 
taxpayer that the tax is not collectible, the Secretary shall 
release such levy as soon as practicable.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to levies imposed after December 31, 1999.

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

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

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

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

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

    (a) Certain Property.--
            (1) In general.--Subsection (b) of section 6323 
        (relating to validity and priority against certain 
        persons) is amended--
                    (A) by striking ``$250'' in paragraph (4) 
                (relating to personal property purchased in 
                casual sale) and inserting ``$1,000'', and
                    (B) by striking ``$1,000'' in paragraph (7) 
                (relating to residential property subject to a 
                mechanic's lien for certain repairs and 
                improvements) and inserting ``$5,000''.
            (2) Inflation adjustment.--Subsection (i) of 
        section 6323 (relating to special rules) is amended by 
        adding at the end the following new paragraph:
            ``(4) Cost-of-living adjustment.--In the case of 
        notices of liens imposed by section 6321 which are 
        filed in any calendar year after 1998, each of the 
        dollar amounts under paragraph (4) or (7) of subsection 
        (b) shall be increased by an amount equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) the cost-of-living adjustment 
                determined under section 1(f)(3) for the 
                calendar year, determined by substituting 
                `calendar year 1996' for `calendar year 1992' 
                in subparagraph (B) thereof.
        If any amount as adjusted under the preceding sentence 
        is not a multiple of $10, such amount shall be rounded 
        to the nearest multiple of $10.''.
    (b) Expansion of Treatment of Passbook Loans.--Paragraph 
(10) of section 6323(b) is amended--
            (1) by striking ``Passbook loans'' in the heading 
        and inserting ``Deposit-secured loans'',
            (2) by striking ``, evidenced by a passbook,'', and
            (3) by striking all that follows ``secured by such 
        account'' and inserting a period.
    (c) Effective Date.--The amendments made by this section 
shall take effect on the date of the enactment of this Act.

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

    (a) In General.--Section 72(t)(2)(A) (relating to 
subsection not to apply to certain distributions) is amended by 
striking ``or'' at the end of clauses (iv) and (v), by striking 
the period at the end of clause (vi) and inserting ``, or'', 
and by adding at the end the following new clause:
                            ``(vii) made on account of a levy 
                        under section 6331 on the qualified 
                        retirement plan.''
    (b) Effective Date.--The amendments made by this section 
shall apply to distributions after December 31, 1999.

                          Subpart C--Seizures

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

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

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

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

SEC. 3442. ACCOUNTING OF SALES OF SEIZED PROPERTY.

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

SEC. 3443. UNIFORM ASSET DISPOSAL MECHANISM.

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

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

    (a) In General.--Section 6331 (relating to levy and 
distraint), as amended by section 3433, is amended by 
redesignating subsection (j) as subsection (k) and by inserting 
after subsection (i) the following new subsection:
    ``(j) No Levy Before Investigation of Status of Property.--
            ``(1) In general.--For purposes of applying the 
        provisions of this subchapter, no levy may be made on 
        any property or right to property which is to be sold 
        under section 6335 until a thorough investigation of 
        the status of such property has been completed.
            ``(2) Elements in investigation.--For purposes of 
        paragraph (1), an investigation of the status of any 
        property shall include--
                    ``(A) a verification of the taxpayer's 
                liability,
                    ``(B) the completion of an analysis under 
                subsection (f),
                    ``(C) the determination that the equity in 
                such property is sufficient to yield net 
                proceeds from the sale of such property to 
                apply to such liability, and
                    ``(D) a thorough consideration of 
                alternative collection methods.''.
    (b) Effective Date.--The amendments made by this section 
shall take effect on the date of the enactment of this Act.

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

    (a) In General.--Section 6334(a)(13) (relating to property 
exempt from levy) is amended to read as follows:
            ``(13) Residences exempt in small deficiency cases 
        and principal residences and certain business assets 
        exempt in absence of certain approval or jeopardy.--
                    ``(A) Residences in small deficiency 
                cases.--If the amount of the levy does not 
                exceed $5,000--
                            ``(i) any real property used as a 
                        residence by the taxpayer, or
                            ``(ii) any real property of the 
                        taxpayer (other than real property 
                        which is rented) used by any other 
                        individual as a residence.
                    ``(B) Principal residences and certain 
                business assets.--Except to the extent provided 
                in subsection (e)--
                            ``(i) the principal residence of 
                        the taxpayer (within the meaning of 
                        section 121), and
                            ``(ii) tangible personal property 
                        or real property (other than real 
                        property which is rented) used in the 
                        trade or business of an individual 
                        taxpayer.''.
    (b) Levy Allowed in Certain Circumstances.--Section 6334(e) 
is amended to read as follows:
    ``(e) Levy Allowed on Principal Residences and Certain 
Business Assets in Certain Circumstances.--
            ``(1) Principal residences.--
                    ``(A) Approval required.--A principal 
                residence shall not be exempt from levy if a 
                judge or magistrate of a district court of the 
                United States approves (in writing) the levy of 
                such residence.
                    ``(B) Jurisdiction.--The district courts of 
                the United States shall have exclusive 
                jurisdiction to approve a levy under 
                subparagraph (A).
            ``(2) Certain business assets.--Property (other 
        than a principal residence) described in subsection 
        (a)(13)(B) shall not be exempt from levy if--
                    ``(A) a district director or assistant 
                district director of the Internal Revenue 
                Service personally approves (in writing) the 
                levy of such property, or
                    ``(B) the Secretary finds that the 
                collection of tax is in jeopardy.
        An official may not approve a levy under subparagraph 
        (A) unless the official determines that the taxpayer's 
        other assets subject to collection are insufficient to 
        pay the amount due, together with expenses of the 
        proceedings.''.
    (c) State Fish and Wildlife Permits.--
            (1) In general.--With respect to permits issued by 
        a State and required under State law for the harvest of 
        fish or wildlife in the trade or business of an 
        individual taxpayer, the term ``other assets'' as used 
        in section 6334(e)(2) of the Internal Revenue Code of 
        1986 shall include future income which may be derived 
        by such taxpayer from the commercial sale of fish or 
        wildlife under such permit.
            (2) Construction.--Paragraph (1) shall not be 
        construed to invalidate or in any way prejudice any 
        assertion that the privilege embodied in permits 
        described in paragraph (1) is not property or a right 
        to property under the Internal Revenue Code of 1986.
    (d) Effective Date.--The amendments made by this section 
shall take effect on the date of the enactment of this Act.

 PART IV--PROVISIONS RELATING TO EXAMINATION AND COLLECTION ACTIVITIES

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

    (a) Authority To Extend 10-Year Collection Period After 
Assessment.--Section 6502(a) (relating to length of period 
after collection) is amended--
            (1) by striking paragraph (2) and inserting:
            ``(2) if--
                    ``(A) there is an installment agreement 
                between the taxpayer and the Secretary, prior 
                to the date which is 90 days after the 
                expiration of any period for collection agreed 
                upon in writing by the Secretary and the 
                taxpayer at the time the installment agreement 
                was entered into, or
                    ``(B) there is a release of levy under 
                section 6343 after such 10-year period, prior 
                to the expiration of any period for collection 
                agreed upon in writing by the Secretary and the 
                taxpayer before such release.'', and
            (2) by striking the first sentence in the matter 
        following paragraph (2).
    (b) Notice to Taxpayer of Right To Refuse or Limit 
Extension.--Paragraph (4) of section 6501(c) (relating to the 
period for limitations on assessment and collection) is 
amended--
            (1) by striking ``Where'' and inserting the 
        following:
                    ``(A) In general.--Where'', and
            (2) by adding at the end the following new 
        subparagraph:
                    ``(B) Notice to taxpayer of right to refuse 
                or limit extension.--The Secretary shall notify 
                the taxpayer of the taxpayer's right to refuse 
                to extend the period of limitations, or to 
                limit such extension to particular issues or to 
                a particular period of time, on each occasion 
                when the taxpayer is requested to provide such 
                consent.''.
    (c) Effective Date.--
            (1) In general.--The amendments made by this 
        section shall apply to requests to extend the period of 
        limitations made after December 31, 1999.
            (2) Prior request.--If, in any request to extend 
        the period of limitations made on or before December 
        31, 1999, a taxpayer agreed to extend such period 
        beyond the 10-year period referred to in section 
        6502(a) of the Internal Revenue Code of 1986, such 
        extension shall expire on the latest of--
                    (A) the last day of such 10-year period,
                    (B) December 31, 2002, or
                    (C) in the case of an extension in 
                connection with an installment agreement, the 
                90th day after the end of the period of such 
                extension.

SEC. 3462. OFFERS-IN-COMPROMISE.

    (a) Standards for Evaluation of Offers-in-Compromise.--
Section 7122 (relating to offers-in-compromise) is amended by 
adding at the end the following new subsection:
    ``(c) Standards for Evaluation of Offers.--
            ``(1) In general.--The Secretary shall prescribe 
        guidelines for officers and employees of the Internal 
        Revenue Service to determine whether an offer-in-
        compromise is adequate and should be accepted to 
        resolve a dispute.
            ``(2) Allowances for basic living expenses.--
                    ``(A) In general.--In prescribing 
                guidelines under paragraph (1), the Secretary 
                shall develop and publish schedules of national 
                and local allowances designed to provide that 
                taxpayers entering into a compromise have an 
                adequate means to provide for basic living 
                expenses.
                    ``(B) Use of schedules.--The guidelines 
                shall provide that officers and employees of 
                the Internal Revenue Service shall determine, 
                on the basis of the facts and circumstances of 
                each taxpayer, whether the use of the schedules 
                published under subparagraph (A) is appropriate 
                and shall not use the schedules to the extent 
                such use would result in the taxpayer not 
                having adequate means to provide for basic 
                living expenses.
            ``(3) Special rules relating to treatment of 
        offers.--The guidelines under paragraph (1) shall 
        provide that--
                    ``(A) an officer or employee of the 
                Internal Revenue Service shall not reject an 
                offer-in-compromise from a low-income taxpayer 
                solely on the basis of the amount of the offer, 
                and
                    ``(B) in the case of an offer-in-compromise 
                which relates only to issues of liability of 
                the taxpayer--
                            ``(i) such offer shall not be 
                        rejected solely because the Secretary 
                        is unable to locate the taxpayer's 
                        return or return information for 
                        verification of such liability, and
                            ``(ii) the taxpayer shall not be 
                        required to provide a financial 
                        statement.''.
    (b) Levy Prohibited While Offer-in-Compromise Pending or 
Installment Agreement Pending or in Effect.--Section 6331 
(relating to levy and distraint), as amended by sections 3433 
and 3444, is amended by redesignating subsection (k) as 
subsection (l) and by inserting after subsection (j) the 
following new subsection:
    ``(k) No Levy While Certain Offers Pending or Installment 
Agreement Pending or in Effect.--
            ``(1) Offer-in-compromise pending.--No levy may be 
        made under subsection (a) on the property or rights to 
        property of any person with respect to any unpaid tax--
                    ``(A) during the period that an offer-in-
                compromise by such person under section 7122 of 
                such unpaid tax is pending with the Secretary, 
                and
                    ``(B) if such offer is rejected by the 
                Secretary, during the 30 days thereafter (and, 
                if an appeal of such rejection is filed within 
                such 30 days, during the period that such 
                appeal is pending).
For purposes of subparagraph (A), an offer is pending beginning 
on the date the Secretary accepts such offer for processing.
            ``(2) Installment agreements.--No levy may be made 
        under subsection (a) on the property or rights to 
        property of any person with respect to any unpaid tax--
                    ``(A) during the period that an offer by 
                such person for an installment agreement under 
                section 6159 for payment of such unpaid tax is 
                pending with the Secretary,
                    ``(B) if such offer is rejected by the 
                Secretary, during the 30 days thereafter (and, 
                if an appeal of such rejection is filed within 
                such 30 days, during the period that such 
                appeal is pending),
                    ``(C) during the period that such an 
                installment agreement for payment of such 
                unpaid tax is in effect, and
                    ``(D) if such agreement is terminated by 
                the Secretary, during the 30 days thereafter 
                (and, if an appeal of such termination is filed 
                within such 30 days, during the period that 
                such appeal is pending).
            ``(3) Certain rules to apply.--Rules similar to the 
        rules of paragraphs (3), (4), and (5) of subsection (i) 
        shall apply for purposes of this subsection.''.
    (c) Review of Rejections of Offers-in-Compromise and 
Installment Agreements.--
            (1) In general.--Section 7122 (relating to 
        compromises), as amended by subsection (a), is amended 
        by adding at the end the following new subsection:
    ``(d) Administrative Review.--The Secretary shall establish 
procedures--
            ``(1) for an independent administrative review of 
        any rejection of a proposed offer-in-compromise or 
        installment agreement made by a taxpayer under this 
        section or section 6159 before such rejection is 
        communicated to the taxpayer, and
            ``(2) which allow a taxpayer to appeal any 
        rejection of such offer or agreement to the Internal 
        Revenue Service Office of Appeals.''.
            (2) Conforming amendment.--Section 6159 (relating 
        to installment agreements) is amended by adding at the 
        end the following new subsection:
    ``(d) Cross Reference.--

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

    (d) Preparation of Statement Relating to Offers-in-
Compromise.--The Secretary of the Treasury shall prepare a 
statement which sets forth in simple, nontechnical terms the 
rights of a taxpayer and the obligations of the Internal 
Revenue Service relating to offers-in-compromise. Such 
statement shall--
            (1) advise taxpayers who have entered into a 
        compromise of the advantages of promptly notifying the 
        Internal Revenue Service of any change of address or 
        marital status,
            (2) provide notice to taxpayers that in the case of 
        a compromise terminated due to the actions of 1 spouse 
        or former spouse, the Internal Revenue Service will, 
        upon application, reinstate such compromise with the 
        spouse or former spouse who remains in compliance with 
        such compromise, and
            (3) provide notice to the taxpayer that the 
        taxpayer may appeal the rejection of an offer-in-
        compromise to the Internal Revenue Service Office of 
        Appeals.
    (e) Effective Dates.--
            (1) In general.--The amendments made by this 
        section shall apply to proposed offers-in-compromise 
        and installment agreements submitted after the date of 
        the enactment of this Act.
            (2) Suspension of collection by levy.--The 
        amendment made by subsection (b) shall apply to offers-
        in-compromise pending on or made after December 31, 
        1999.

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

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

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

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

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

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

``SEC. 7123. APPEALS DISPUTE RESOLUTION PROCEDURES.

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

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

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

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

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

``SEC. 6304. FAIR TAX COLLECTION PRACTICES.

    ``(a) Communication With the Taxpayer.--Without the prior 
consent of the taxpayer given directly to the Secretary or the 
express permission of a court of competent jurisdiction, the 
Secretary may not communicate with a taxpayer in connection 
with the collection of any unpaid tax--
            ``(1) at any unusual time or place or a time or 
        place known or which should be known to be inconvenient 
        to the taxpayer;
            ``(2) if the Secretary knows the taxpayer is 
        represented by any person authorized to practice before 
        the Internal Revenue Service with respect to such 
        unpaid tax and has knowledge of, or can readily 
        ascertain, such person's name and address, unless such 
        person fails to respond within a reasonable period of 
        time to a communication from the Secretary or unless 
        such person consents to direct communication with the 
        taxpayer; or
            ``(3) at the taxpayer's place of employment if the 
        Secretary knows or has reason to know that the 
        taxpayer's employer prohibits the taxpayer from 
        receiving such communication.
In the absence of knowledge of circumstances to the contrary, 
the Secretary shall assume that the convenient time for 
communicating with a taxpayer is after 8 a.m. and before 9 
p.m., local time at the taxpayer's location.
    ``(b) Prohibition of Harassment and Abuse.--The Secretary 
may not engage in any conduct the natural consequence of which 
is to harass, oppress, or abuse any person in connection with 
the collection of any unpaid tax. Without limiting the general 
application of the foregoing, the following conduct is a 
violation of this subsection:
            ``(1) The use or threat of use of violence or other 
        criminal means to harm the physical person, reputation, 
        or property of any person.
            ``(2) The use of obscene or profane language or 
        language the natural consequence of which is to abuse 
        the hearer or reader.
            ``(3) Causing a telephone to ring or engaging any 
        person in telephone conversation repeatedly or 
        continuously with intent to annoy, abuse, or harass any 
        person at the called number.
            ``(4) Except as provided under rules similar to the 
        rules in section 804 of the Fair Debt Collection 
        Practices Act (15 U.S.C. 1692b), the placement of 
        telephone calls without meaningful disclosure of the 
        caller's identity.
    ``(c) Civil Action for Violations of Section.--

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

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

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

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

SEC. 3467. GUARANTEED AVAILABILITY OF INSTALLMENT AGREEMENTS.

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

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

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

                  Subtitle F--Disclosures to Taxpayers

SEC. 3501. EXPLANATION OF JOINT AND SEVERAL LIABILITY.

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

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

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

SEC. 3503. DISCLOSURE OF CRITERIA FOR EXAMINATION SELECTION.

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

SEC. 3504. EXPLANATIONS OF APPEALS AND COLLECTION PROCESS.

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

SEC. 3505. EXPLANATION OF REASON FOR REFUND DISALLOWANCE.

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

SEC. 3506. STATEMENTS REGARDING INSTALLMENT AGREEMENTS.

    The Secretary of the Treasury or the Secretary's delegate 
shall, beginning not later than July 1, 2000, provide each 
taxpayer who has an installment agreement in effect under 
section 6159 of the Internal Revenue Code of 1986 an annual 
statement setting forth the initial balance at the beginning of 
the year, the payments made during the year, and the remaining 
balance as of the end of the year.

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

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

SEC. 3508. DISCLOSURE TO TAXPAYERS.

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

SEC. 3509. DISCLOSURE OF CHIEF COUNSEL ADVICE.

    (a) In General.--Section 6110(b)(1) (defining written 
determination) is amended by striking ``or technical advice 
memorandum'' and inserting ``technical advice memorandum, or 
Chief Counsel advice''.
    (b) Chief Counsel Advice.--Section 6110 (relating to public 
inspection of written determinations) is amended by 
redesignating subsections (i), (j), (k), and (l) as subsections 
(j), (k), (l), and (m), respectively, and by inserting after 
subsection (h) the following new subsection:
    ``(i) Special Rules for Disclosure of Chief Counsel 
Advice.--
            ``(1) Chief counsel advice defined.--
                    ``(A) In general.--For purposes of this 
                section, the term `Chief Counsel advice' means 
                written advice or instruction, under whatever 
                name or designation, prepared by any national 
                office component of the Office of Chief Counsel 
                which--
                            ``(i) is issued to field or service 
                        center employees of the Service or 
                        regional or district employees of the 
                        Office of Chief Counsel, and
                            ``(ii) conveys--
                                    ``(I) any legal 
                                interpretation of a revenue 
                                provision,
                                    ``(II) any Internal Revenue 
                                Service or Office of Chief 
                                Counsel position or policy 
                                concerning a revenue provision, 
                                or
                                    ``(III) any legal 
                                interpretation of State law, 
                                foreign law, or other Federal 
                                law relating to the assessment 
                                or collection of any liability 
                                under a revenue provision.
                    ``(B) Revenue provision defined.--For 
                purposes of subparagraph (A), the term `revenue 
                provision' means any existing or former 
                internal revenue law, regulation, revenue 
                ruling, revenue procedure, other published or 
                unpublished guidance, or tax treaty, either in 
                general or as applied to specific taxpayers or 
                groups of specific taxpayers.
            ``(2) Additional documents treated as chief counsel 
        advice.--The Secretary may by regulation provide that 
        this section shall apply to any advice or instruction 
        prepared and issued by the Office of Chief Counsel 
        which is not described in paragraph (1).
            ``(3) Deletions for chief counsel advice.--In the 
        case of Chief Counsel advice open to public inspection 
        pursuant to this section--
                    ``(A) paragraphs (2) through (7) of 
                subsection (c) shall not apply, but
                    ``(B) the Secretary may make deletions of 
                material in accordance with subsections (b) and 
                (c) of section 552 of title 5, United States 
                Code, except that in applying subsection (b)(3) 
                of such section, no statutory provision of this 
                title shall be taken into account.
            ``(4) Notice of intention to disclose.--
                    ``(A) Nontaxpayer-specific chief counsel 
                advice.--In the case of Chief Counsel advice 
                which is written without reference to a 
                specific taxpayer or group of specific 
                taxpayers--
                            ``(i) subsection (f)(1) shall not 
                        apply, and
                            ``(ii) the Secretary shall, within 
                        60 days after the issuance of the Chief 
                        Counsel advice, complete any deletions 
                        described in subsection (c)(1) or 
                        paragraph (3) and make the Chief 
                        Counsel advice, as so edited, open for 
                        public inspection.
                    ``(B) Taxpayer-specific chief counsel 
                advice.--In the case of Chief Counsel advice 
                which is written with respect to a specific 
                taxpayer or group of specific taxpayers, the 
                Secretary shall, within 60 days after the 
                issuance of the Chief Counsel advice, mail the 
                notice required by subsection (f)(1) to each 
                such taxpayer. The notice shall include a copy 
                of the Chief Counsel advice on which is 
                indicated the information that the Secretary 
                proposes to delete pursuant to subsection 
                (c)(1). The Secretary may also delete from the 
                copy of the text of the Chief Counsel advice 
                any of the information described in paragraph 
                (3), and shall delete the names, addresses, and 
                other identifying details of taxpayers other 
                than the person to whom the advice pertains, 
                except that the Secretary shall not delete from 
                the copy of the Chief Counsel advice that is 
                furnished to the taxpayer any information of 
                which that taxpayer was the source.''.
    (c) Conforming Amendments.--
            (1) Section 6110(f)(1) is amended by striking ``The 
        Secretary'' and inserting ``Except as otherwise 
        provided by subsection (i), the Secretary''.
            (2) Paragraphs (1)(B) and (2) of section 
        6110(j)(1), as redesignated by this section, are 
        amended by striking ``subsection (g)'' each place it 
        appears and inserting ``subsection (g) or (i)(4)(B)''.
            (3) Section 6110(k)(1)(B), as so redesignated, is 
        amended by striking ``subsection (c)'' and inserting 
        ``subsection (c)(1) or (i)(3)''.
    (d) Effective Dates.--
            (1) In general.--Except as otherwise provided in 
        this subsection, the amendments made by this section 
        shall apply to any Chief Counsel advice issued more 
        than 90 days after the date of the enactment of this 
        Act.
            (2) Transition rules.--The amendments made by this 
        section shall apply to any Chief Counsel advice issued 
        after December 31, 1985, and before the 91st day after 
        the date of the enactment of this Act by the offices of 
        the associate chief counsel for domestic, employee 
        benefits and exempt organizations, and international, 
        except that any such Chief Counsel advice shall be 
        treated as made available on a timely basis if such 
        advice is made available for public inspection not 
        later than the following dates:
                    (A) One year after the date of the 
                enactment of this Act, in the case of all 
                litigation guideline memoranda, service center 
                advice, tax litigation bulletins, criminal tax 
                bulletins, and general litigation bulletins.
                    (B) Eighteen months after such date of 
                enactment, in the case of field service advice 
                and technical assistance to the field issued on 
                or after January 1, 1994.
                    (C) Three years after such date of 
                enactment, in the case of field service advice 
                and technical assistance to the field issued on 
                or after January 1, 1992, and before January 1, 
                1994.
                    (D) Six years after such date of enactment, 
                in the case of any other Chief Counsel advice 
                issued after December 31, 1985.
            (3) Documents treated as chief counsel advice.--If 
        the Secretary of the Treasury by regulation provides 
        pursuant to section 6110(i)(2) of the Internal Revenue 
        Code of 1986, as added by this section, that any 
        additional advice or instruction issued by the Office 
        of Chief Counsel shall be treated as Chief Counsel 
        advice, such additional advice or instruction shall be 
        made available for public inspection pursuant to 
        section 6110 of such Code, as amended by this section, 
        only in accordance with the effective date set forth in 
        such regulation.
            (4) Chief counsel advice to be available 
        electronically.--The Internal Revenue Service shall 
        make any Chief Counsel advice issued more than 90 days 
        after the date of the enactment of this Act and made 
        available for public inspection pursuant to section 
        6110 of such Code, as amended by this section, also 
        available by computer telecommunications within 1 year 
        after issuance.

                Subtitle G--Low Income Taxpayer Clinics

SEC. 3601. LOW INCOME TAXPAYER CLINICS.

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

``SEC. 7526. LOW INCOME TAXPAYER CLINICS.

    ``(a) In General.--The Secretary may, subject to the 
availability of appropriated funds, make grants to provide 
matching funds for the development, expansion, or continuation 
of qualified low income taxpayer clinics.
    ``(b) Definitions.--For purposes of this section--
            ``(1) Qualified low income taxpayer clinic.--
                    ``(A) In general.--The term `qualified low 
                income taxpayer clinic' means a clinic that--
                            ``(i) does not charge more than a 
                        nominal fee for its services (except 
                        for reimbursement of actual costs 
                        incurred), and
                            ``(ii)(I) represents low income 
                        taxpayers in controversies with the 
                        Internal Revenue Service, or
                            ``(II) operates programs to inform 
                        individuals for whom English is a 
                        second language about their rights and 
                        responsibilities under this title.
                    ``(B) Representation of low income 
                taxpayers.--A clinic meets the requirements of 
                subparagraph (A)(ii)(I) if--
                            ``(i) at least 90 percent of the 
                        taxpayers represented by the clinic 
                        have incomes which do not exceed 250 
                        percent of the poverty level, as 
                        determined in accordance with criteria 
                        established by the Director of the 
                        Office of Management and Budget, and
                            ``(ii) the amount in controversy 
                        for any taxable year generally does not 
                        exceed the amount specified in section 
                        7463.
            ``(2) Clinic.--The term `clinic' includes--
                    ``(A) a clinical program at an accredited 
                law, business, or accounting school in which 
                students represent low income taxpayers in 
                controversies arising under this title, and
                    ``(B) an organization described in section 
                501(c) and exempt from tax under section 501(a) 
                which satisfies the requirements of paragraph 
                (1) through representation of taxpayers or 
                referral of taxpayers to qualified 
                representatives.
            ``(3) Qualified representative.--The term 
        `qualified representative' means any individual 
        (whether or not an attorney) who is authorized to 
        practice before the Internal Revenue Service or the 
        applicable court.
    ``(c) Special Rules and Limitations.--
            ``(1) Aggregate limitation.--Unless otherwise 
        provided by specific appropriation, the Secretary shall 
        not allocate more than $6,000,000 per year (exclusive 
        of costs of administering the program) to grants under 
        this section.
            ``(2) Limitation on annual grants to a clinic.--The 
        aggregate amount of grants which may be made under this 
        section to a clinic for a year shall not exceed 
        $100,000.
            ``(3) Multi-year grants.--Upon application of a 
        qualified low income taxpayer clinic, the Secretary is 
        authorized to award a multi-year grant not to exceed 3 
        years.
            ``(4) Criteria for awards.--In determining whether 
        to make a grant under this section, the Secretary shall 
        consider--
                    ``(A) the numbers of taxpayers who will be 
                served by the clinic, including the number of 
                taxpayers in the geographical area for whom 
                English is a second language,
                    ``(B) the existence of other low income 
                taxpayer clinics serving the same population,
                    ``(C) the quality of the program offered by 
                the low income taxpayer clinic, including the 
                qualifications of its administrators and 
                qualified representatives, and its record, if 
                any, in providing service to low income 
                taxpayers, and
                    ``(D) alternative funding sources available 
                to the clinic, including amounts received from 
                other grants and contributions, and the 
                endowment and resources of the institution 
                sponsoring the clinic.
            ``(5) Requirement of matching funds.--A low income 
        taxpayer clinic must provide matching funds on a dollar 
        for dollar basis for all grants provided under this 
        section. Matching funds may include--
                    ``(A) the salary (including fringe 
                benefits) of individuals performing services 
                for the clinic, and
                    ``(B) the cost of equipment used in the 
                clinic.
        Indirect expenses, including general overhead of the 
        institution sponsoring the clinic, shall not be counted 
        as matching funds.''.
    (b) Clerical Amendment.--The table of sections for chapter 
77, as amended by section 3411, is amended by adding at the end 
the following new item:

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

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

                       Subtitle H--Other Matters

SEC. 3701. CATALOGING COMPLAINTS.

    In collecting data for the report required under section 
1211 of Taxpayer Bill of Rights 2 (Public Law 104-168), the 
Secretary of the Treasury or the Secretary's delegate shall, 
not later than January 1, 2000, maintain records of taxpayer 
complaints of misconduct by Internal Revenue Service employees 
on an individual employee basis.

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

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

SEC. 3703. PAYMENT OF TAXES.

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

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

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

SEC. 3705. IRS EMPLOYEE CONTACTS.

    (a) Notice.--The Secretary of the Treasury or the 
Secretary's delegate shall provide that--
            (1) any manually generated correspondence received 
        by a taxpayer from the Internal Revenue Service shall 
        include in a prominent manner the name, telephone 
        number, and unique identifying number of an Internal 
        Revenue Service employee the taxpayer may contact with 
        respect to the correspondence,
            (2) any other correspondence or notice received by 
        a taxpayer from the Internal Revenue Service shall 
        include in a prominent manner a telephone number that 
        the taxpayer may contact, and
            (3) an Internal Revenue Service employee shall give 
        a taxpayer during a telephone or personal contact the 
        employee's name and unique identifying number.
    (b) Single Contact.--The Secretary of the Treasury or the 
Secretary's delegate shall develop a procedure under which, to 
the extent practicable and if advantageous to the taxpayer, one 
Internal Revenue Service employee shall be assigned to handle a 
taxpayer's matter until it is resolved.
    (c) Telephone Helpline in Spanish.--The Secretary of the 
Treasury or the Secretary's delegate shall provide, in 
appropriate circumstances, that taxpayer questions on telephone 
helplines of the Internal Revenue Service are answered in 
Spanish.
    (d) Other Telephone Helpline Options.--The Secretary of the 
Treasury or the Secretary's delegate shall provide, in 
appropriate circumstances, on telephone helplines of the 
Internal Revenue Service an option for any taxpayer to talk to 
an Internal Revenue Service employee during normal business 
hours. The person shall direct phone questions of the taxpayer 
to other Internal Revenue Service personnel who can provide 
assistance to the taxpayer.
    (e) Effective Dates.--
            (1) In general.--Except as otherwise provided in 
        this subsection, this section shall take effect 60 days 
        after the date of the enactment of this Act.
            (2) Subsection (c).--Subsection (c) shall take 
        effect on January 1, 2000.
            (3) Subsection (d).--Subsection (d) shall take 
        effect on January 1, 2000.
            (4) Unique identifying number.--Any requirement 
        under this section to provide a unique identifying 
        number shall take effect 6 months after the date of the 
        enactment of this Act.

SEC. 3706. USE OF PSEUDONYMS BY IRS EMPLOYEES.

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

SEC. 3707. ILLEGAL TAX PROTESTER DESIGNATION.

    (a) Prohibition.--The officers and employees of the 
Internal Revenue Service--
            (1) shall not designate taxpayers as illegal tax 
        protesters (or any similar designation), and
            (2) in the case of any such designation made on or 
        before the date of the enactment of this Act--
                    (A) shall remove such designation from the 
                individual master file, and
                    (B) shall disregard any such designation 
                not located in the individual master file.
    (b) Designation of Nonfilers Allowed.--An officer or 
employee of the Internal Revenue Service may designate any 
appropriate taxpayer as a nonfiler, but shall remove such 
designation once the taxpayer has filed income tax returns for 
2 consecutive taxable years and paid all taxes shown on such 
returns.
    (c) Effective Date.--The provisions of this section shall 
take effect on the date of the enactment of this Act, except 
that the removal of any designation under subsection (a)(2)(A) 
shall not be required to begin before January 1, 1999.

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

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

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

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

SEC. 3710. IDENTIFICATION OF RETURN PREPARERS.

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

SEC. 3711. OFFSET OF PAST-DUE, LEGALLY ENFORCEABLE STATE INCOME TAX 
                    OBLIGATIONS AGAINST OVERPAYMENTS.

    (a) In General.--Section 6402 (relating to authority to 
make credits or refunds), as amended by section 3505, is 
amended by redesignating subsections (e) through (j) as 
subsections (f) through (k), respectively, and by inserting 
after subsection (d) the following new subsection:
    ``(e) Collection of Past-Due, Legally Enforceable State 
Income Tax Obligations.--
            ``(1) In general.--Upon receiving notice from any 
        State that a named person owes a past-due, legally 
        enforceable State income tax obligation to such State, 
        the Secretary shall, under such conditions as may be 
        prescribed by the Secretary--
                    ``(A) reduce the amount of any overpayment 
                payable to such person by the amount of such 
                State income tax obligation;
                    ``(B) pay the amount by which such 
                overpayment is reduced under subparagraph (A) 
                to such State and notify such State of such 
                person's name, taxpayer identification number, 
                address, and the amount collected; and
                    ``(C) notify the person making such 
                overpayment that the overpayment has been 
                reduced by an amount necessary to satisfy a 
                past-due, legally enforceable State income tax 
                obligation.
        If an offset is made pursuant to a joint return, the 
        notice under subparagraph (B) shall include the names, 
        taxpayer identification numbers, and addresses of each 
        person filing such return.
            ``(2) Offset permitted only against residents of 
        state seeking offset.--Paragraph (1) shall apply to an 
        overpayment by any person for a taxable year only if 
        the address shown on the Federal return for such 
        taxable year of the overpayment is an address within 
        the State seeking the offset.
            ``(3) Priorities for offset.--Any overpayment by a 
        person shall be reduced pursuant to this subsection--
                    ``(A) after such overpayment is reduced 
                pursuant to--
                            ``(i) subsection (a) with respect 
                        to any liability for any internal 
                        revenue tax on the part of the person 
                        who made the overpayment,
                            ``(ii) subsection (c) with respect 
                        to past-due support, and
                            ``(iii) subsection (d) with respect 
                        to any past-due, legally enforceable 
                        debt owed to a Federal agency, and
                    ``(B) before such overpayment is credited 
                to the future liability for any Federal 
                internal revenue tax of such person pursuant to 
                subsection (b).
        If the Secretary receives notice from 1 or more 
        agencies of the State of more than 1 debt subject to 
        paragraph (1) that is owed by such person to such an 
        agency, any overpayment by such person shall be applied 
        against such debts in the order in which such debts 
        accrued.
            ``(4) Notice; consideration of evidence.--No State 
        may take action under this subsection until such 
        State--
                    ``(A) notifies by certified mail with 
                return receipt the person owing the past-due 
                State income tax liability that the State 
                proposes to take action pursuant to this 
                section,
                    ``(B) gives such person at least 60 days to 
                present evidence that all or part of such 
                liability is not past-due or not legally 
                enforceable,
                    ``(C) considers any evidence presented by 
                such person and determines that an amount of 
                such debt is past-due and legally enforceable, 
                and
                    ``(D) satisfies such other conditions as 
                the Secretary may prescribe to ensure that the 
                determination made under subparagraph (C) is 
                valid and that the State has made reasonable 
                efforts to obtain payment of such State income 
                tax obligation.
            ``(5) Past-due, legally enforceable state income 
        tax obligation.--For purposes of this subsection, the 
        term `past-due, legally enforceable State income tax 
        obligation' means a debt--
                    ``(A)(i) which resulted from--
                            ``(I) a judgment rendered by a 
                        court of competent jurisdiction which 
                        has determined an amount of State 
                        income tax to be due, or
                            ``(II) a determination after an 
                        administrative hearing which has 
                        determined an amount of State income 
                        tax to be due, and
                    ``(ii) which is no longer subject to 
                judicial review, or
                    ``(B) which resulted from a State income 
                tax which has been assessed but not collected, 
                the time for redetermination of which has 
                expired, and which has not been delinquent for 
                more than 10 years.
        For purposes of this paragraph, the term `State income 
        tax' includes any local income tax administered by the 
        chief tax administration agency of the State.
            ``(6) Regulations.--The Secretary shall issue 
        regulations prescribing the time and manner in which 
        States must submit notices of past-due, legally 
        enforceable State income tax obligations and the 
        necessary information that must be contained in or 
        accompany such notices. The regulations shall specify 
        the types of State income taxes and the minimum amount 
        of debt to which the reduction procedure established by 
        paragraph (1) may be applied. The regulations may 
        require States to pay a fee to reimburse the Secretary 
        for the cost of applying such procedure. Any fee paid 
        to the Secretary pursuant to the preceding sentence 
        shall be used to reimburse appropriations which bore 
        all or part of the cost of applying such procedure.
            ``(7) Erroneous payment to state.--Any State 
        receiving notice from the Secretary that an erroneous 
        payment has been made to such State under paragraph (1) 
        shall pay promptly to the Secretary, in accordance with 
        such regulations as the Secretary may prescribe, an 
        amount equal to the amount of such erroneous payment 
        (without regard to whether any other amounts payable to 
        such State under such paragraph have been paid to such 
        State).''.
    (b) Disclosure of Certain Information to States Requesting 
Refund Offsets for Past-Due, Legally Enforceable State Income 
Tax Obligations.--
            (1) Paragraph (10) of section 6103(l) is amended by 
        striking ``(c) or (d)'' each place it appears and 
        inserting ``(c), (d), or (e)''.
            (2) The paragraph heading for such paragraph (10) 
        is amended by striking ``section 6402(c) or 6402(d)'' 
        and inserting ``subsection (c), (d), or (e) of section 
        6402''.
    (c) Conforming Amendments.--
            (1) Subsection (a) of section 6402 is amended by 
        striking ``(c) and (d)'' and inserting ``(c), (d), and 
        (e)''.
            (2) Paragraph (2) of section 6402(d) is amended by 
        striking ``and before such overpayment'' and inserting 
        ``and before such overpayment is reduced pursuant to 
        subsection (e) and before such overpayment''.
            (3) Subsection (f) of section 6402, as redesignated 
        by subsection (a), is amended--
                    (A) by striking ``(c) or (d)'' and 
                inserting ``(c), (d), or (e)'', and
                    (B) by striking ``Federal agency'' and 
                inserting ``Federal agency or State''.
            (4) Subsection (h) of section 6402, as redesignated 
        by subsection (a), is amended by striking ``subsection 
        (c)'' and inserting ``subsection (c) or (e)''.
    (d) Effective Date.--The amendments made by this section 
(other than subsection (d)) shall apply to refunds payable 
under section 6402 of the Internal Revenue Code of 1986 after 
December 31, 1999.

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

    (a) Amounts To Be Reported.--Subparagraph (C) of section 
6050S(b)(2) is amended--
            (1) by redesignating clauses (ii) and (iii) as 
        clauses (iii) and (iv), respectively, and by inserting 
        after clause (i) the following new clause:
                            ``(ii) the amount of any grant 
                        received by such individual for payment 
                        of costs of attendance and processed by 
                        the person making such return during 
                        such calendar year,'',
            (2) in clause (iii) (as so redesignated), by 
        inserting ``by the person making such return'' after 
        ``year'', and
            (3) in clause (iv) (as so redesignated), by 
        inserting ``and'' at the end.
    (b) Conforming Amendments.--
            (1) Paragraph (2) of section 6050S(d) is amended by 
        striking ``aggregate''.
            (2) Subsection (e) of section 6050S is amended by 
        inserting ``(without regard to subsection (g)(2) 
        thereof)'' after ``section 25A''.
    (c) Effective Date.--The amendments made by this section 
shall apply to returns required to be filed with respect to 
taxable years beginning after December 31, 1998.

                          Subtitle I--Studies

SEC. 3801. ADMINISTRATION OF PENALTIES AND INTEREST.

    The Joint Committee on Taxation and the Secretary of the 
Treasury shall each conduct a separate study--
            (1) reviewing the administration and implementation 
        by the Internal Revenue Service of the interest and 
        penalty provisions of the Internal Revenue Code of 1986 
        (including the penalty reform provisions of the Omnibus 
        Budget Reconciliation Act of 1989), and
            (2) making any legislative and administrative 
        recommendations the Committee or the Secretary deems 
        appropriate to simplify penalty or interest 
        administration and reduce taxpayer burden.
Such studies shall be submitted to the Committee on Ways and 
Means of the House of Representatives and the Committee on 
Finance of the Senate not later than 1 year after the date of 
the enactment of this Act.

SEC. 3802. CONFIDENTIALITY OF TAX RETURN INFORMATION.

    The Joint Committee on Taxation and the Secretary of the 
Treasury shall each conduct a separate study of the scope and 
use of provisions regarding taxpayer confidentiality, and shall 
report the findings of such study, together with such 
recommendations as the Committee or the Secretary deems 
appropriate, to the Congress not later than 18 months after the 
date of the enactment of this Act. Such study shall examine--
            (1) the present protections for taxpayer privacy,
            (2) any need for third parties to use tax return 
        information,
            (3) whether greater levels of voluntary compliance 
        may be achieved by allowing the public to know who is 
        legally required to file tax returns, but does not file 
        tax returns,
            (4) the interrelationship of the taxpayer 
        confidentiality provisions in the Internal Revenue Code 
        of 1986 with such provisions in other Federal law, 
        including section 552a of title 5, United States Code 
        (commonly known as the ``Freedom of Information Act''),
            (5) the impact on taxpayer privacy of the sharing 
        of income tax return information for purposes of 
        enforcement of State and local tax laws other than 
        income tax laws, and including the impact on the 
        taxpayer privacy intended to be protected at the 
        Federal, State, and local levels under Public Law 105-
        35, the Taxpayer Browsing Protection Act of 1997, and
            (6) whether the public interest would be served by 
        greater disclosure of information relating to tax 
        exempt organizations described in section 501 of the 
        Internal Revenue Code of 1986.

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

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

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

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

TITLE IV--CONGRESSIONAL ACCOUNTABILITY FOR THE INTERNAL REVENUE SERVICE

                         Subtitle A--Oversight

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

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

SEC. 4002. COORDINATED OVERSIGHT REPORTS.

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

                    Subtitle B--Century Date Change

SEC. 4011. CENTURY DATE CHANGE.

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

                     Subtitle C--Tax Law Complexity

SEC. 4021. ROLE OF THE INTERNAL REVENUE SERVICE.

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

SEC. 4022. TAX LAW COMPLEXITY ANALYSIS.

    (a) Commissioner Study.--
            (1) In general.--The Commissioner of Internal 
        Revenue shall conduct each year after 1998 an analysis 
        of the sources of complexity in administration of the 
        Federal tax laws. Such analysis may include an analysis 
        of--
                    (A) questions frequently asked by taxpayers 
                with respect to return filing,
                    (B) common errors made by taxpayers in 
                filling out their returns,
                    (C) areas of law which frequently result in 
                disagreements between taxpayers and the 
                Internal Revenue Service,
                    (D) major areas of law in which there is no 
                (or incomplete) published guidance or in which 
                the law is uncertain,
                    (E) areas in which revenue officers make 
                frequent errors interpreting or applying the 
                law,
                    (F) the impact of recent legislation on 
                complexity, and
                    (G) forms supplied by the Internal Revenue 
                Service, including the time it takes for 
                taxpayers to complete and review forms, the 
                number of taxpayers who use each form, and how 
                recent legislation has affected the time it 
                takes to complete and review forms.
            (2) Report.--The Commissioner shall not later than 
        March 1 of each year report the results of the analysis 
        conducted under paragraph (1) for the preceding year to 
        the Committee on Ways and Means of the House of 
        Representatives and the Committee on Finance of the 
        Senate. The report shall include any recommendations--
                    (A) for reducing the complexity of the 
                administration of Federal tax laws, and
                    (B) for repeal or modification of any 
                provision the Commissioner believes adds undue 
                and unnecessary complexity to the 
                administration of the Federal tax laws.
    (b) Analysis To Accompany Certain Legislation.--
            (1) In general.--The Joint Committee on Taxation, 
        in consultation with the Internal Revenue Service and 
        the Department of the Treasury, shall include a tax 
        complexity analysis in each report for legislation, or 
        provide such analysis to members of the committee 
        reporting the legislation as soon as practicable after 
        the report is filed, if--
                    (A) such legislation is reported by the 
                Committee on Finance in the Senate, the 
                Committee on Ways and Means of the House of 
                Representatives, or any committee of 
                conference, and
                    (B) such legislation includes a provision 
                which would directly or indirectly amend the 
                Internal Revenue Code of 1986 and which has 
                widespread applicability to individuals or 
                small businesses.
            (2) Tax complexity analysis.--For purposes of this 
        subsection, the term ``tax complexity analysis'' means, 
        with respect to any legislation, a report on the 
        complexity and administrative difficulties of each 
        provision described in paragraph (1)(B) which--
                    (A) includes--
                            (i) an estimate of the number of 
                        taxpayers affected by the provision, 
                        and
                            (ii) if applicable, the income 
                        level of taxpayers affected by the 
                        provision, and
                    (B) should include (if determinable)--
                            (i) the extent to which tax forms 
                        supplied by the Internal Revenue 
                        Service would require revision and 
                        whether any new forms would be 
                        required,
                            (ii) the extent to which taxpayers 
                        would be required to keep additional 
                        records,
                            (iii) the estimated cost to 
                        taxpayers to comply with the provision,
                            (iv) the extent to which enactment 
                        of the provision would require the 
                        Internal Revenue Service to develop or 
                        modify regulatory guidance,
                            (v) the extent to which the 
                        provision may result in disagreements 
                        between taxpayers and the Internal 
                        Revenue Service, and
                            (vi) any expected impact on the 
                        Internal Revenue Service from the 
                        provision (including the impact on 
                        internal training, revision of the 
                        Internal Revenue Manual, reprogramming 
                        of computers, and the extent to which 
                        the Internal Revenue Service would be 
                        required to divert or redirect 
                        resources in response to the 
                        provision).
            (3) Legislation subject to point of order in house 
        of representatives.--
                    (A) Legislation reported by committee on 
                ways and means.--Clause 2(l) of rule XI of the 
                Rules of the House of Representatives is 
                amended by adding at the end the following new 
                subparagraph:
    ``(8) The report of the Committee on Ways and Means on any 
bill or joint resolution containing any provision amending the 
Internal Revenue Code of 1986 shall include a Tax Complexity 
Analysis prepared by the Joint Committee on Taxation in 
accordance with section 4022(b) of the Internal Revenue Service 
Restructuring and Reform Act of 1998 unless the Committee on 
Ways and Means causes to have such Analysis printed in the 
Congressional Record prior to the consideration of the bill or 
joint resolution.''.
                    (B) Conference reports.--Rule XXVIII of the 
                Rules of the House of Representatives is 
                amended by adding at the end the following new 
                clause:
    ``7. It shall not be in order to consider the report of a 
committee of conference which contains any provision amending 
the Internal Revenue Code of 1986 unless--
            ``(a) the accompanying joint explanatory statement 
        contains a Tax Complexity Analysis prepared by the 
        Joint Committee on Taxation in accordance with section 
        4022(b) of the Internal Revenue Service Restructuring 
        and Reform Act of 1998, or
            ``(b) such Analysis is printed in the Congressional 
        Record prior to the consideration of the report.''.
                    (C) Rules of house of representatives.--
                This paragraph is enacted by the House of 
                Representatives--
                            (i) as an exercise of the 
                        rulemaking power of the House of 
                        Representatives, and as such it is 
                        deemed a part of the Rules of the 
                        House, and it supersedes other rules 
                        only to the extent that it is 
                        inconsistent therewith; and
                            (ii) with full recognition of the 
                        constitutional right of the House to 
                        change its rules at any time, in the 
                        same manner and to the same extent as 
                        in the case of any other rule of the 
                        House.
            (4) Effective date.--This subsection shall apply to 
        legislation considered on and after January 1, 1999.

                     TITLE V--ADDITIONAL PROVISIONS

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

    (a) General Rule.--
            (1) Paragraph (5) of section 1(h) is amended to 
        read as follows:
            ``(5) 28-percent rate gain.--For purposes of this 
        subsection, the term `28-percent rate gain' means the 
        excess (if any) of--
                    ``(A) the sum of--
                            ``(i) collectibles gain, and
                            ``(ii) section 1202 gain, over
                    ``(B) the sum of--
                            ``(i) collectibles loss,
                            ``(ii) the net short-term capital 
                        loss, and
                            ``(iii) the amount of long-term 
                        capital loss carried under section 
                        1212(b)(1)(B) to the taxable year.''.
            (2) Subparagraph (A) of section 1(h)(6) is amended 
        by striking ``18 months'' and inserting ``1 year''.
            (3) Clauses (i) and (ii) of section 1(h)(7)(A) are 
        amended to read as follows:
                            ``(i) the amount of long-term 
                        capital gain (not otherwise treated as 
                        ordinary income) which would be treated 
                        as ordinary income if section 
                        1250(b)(1) included all depreciation 
                        and the applicable percentage under 
                        section 1250(a) were 100 percent, over
                            ``(ii) the excess (if any) of--
                                    ``(I) the amount described 
                                in paragraph (5)(B), over
                                    ``(II) the amount described 
                                in paragraph (5)(A).''.
            (4) So much of paragraph (13) of section 1(h) as 
        precedes subparagraph (C) is amended to read as 
        follows:
            ``(13) Special rules.--
                    ``(A) Determination of 28-percent rate 
                gain.--In applying paragraph (5)--
                            ``(i) the amount determined under 
                        subparagraph (A) of paragraph (5) shall 
                        include long-term capital gain (not 
                        otherwise described in such 
                        subparagraph)--
                                    ``(I) which is properly 
                                taken into account for the 
                                portion of the taxable year 
                                before May 7, 1997, or
                                    ``(II) from property held 
                                not more than 18 months which 
                                is properly taken into account 
                                for the portion of the taxable 
                                year after July 28, 1997, and 
                                before January 1, 1998,
                            ``(ii) the amount determined under 
                        subparagraph (B) of paragraph (5) shall 
                        include long-term capital loss (not 
                        otherwise described in such 
                        subparagraph)--
                                    ``(I) which is properly 
                                taken into account for the 
                                portion of the taxable year 
                                before May 7, 1997, or
                                    ``(II) from property held 
                                not more than 18 months which 
                                is properly taken into account 
                                for the portion of the taxable 
                                year after July 28, 1997, and 
                                before January 1, 1998, and
                            ``(iii) subparagraph (B) of 
                        paragraph (5) (as in effect immediately 
                        before the enactment of this clause) 
                        shall apply to amounts properly taken 
                        into account before January 1, 1998.
                    ``(B) Determination of unrecaptured section 
                1250 gain.--The amount determined under 
                paragraph (7)(A) shall not include gain--
                            ``(i) which is properly taken into 
                        account for the portion of the taxable 
                        year before May 7, 1997, or
                            ``(ii) from property held not more 
                        than 18 months which is properly taken 
                        into account for the portion of the 
                        taxable year after July 28, 1997, and 
                        before January 1, 1998.''.
            (5) Paragraphs (11) and (12) of section 1223, and 
        section 1235(a), are each amended by striking ``18 
        months'' each place it appears and inserting ``1 
        year''.
    (b) Effective Dates.--
            (1) In general.--Except as provided in paragraph 
        (2), the amendments made by this section shall apply to 
        taxable years ending after December 31, 1997.
            (2) Subsection (a)(5).--The amendments made by 
        subsection (a)(5) shall take effect on January 1, 1998.

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

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

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

    (a) Findings and Policy.--
            (1) Findings.--The Congress makes the following 
        findings:
                    (A) Since the 18th century, the principle 
                of nondiscrimination among countries with which 
                the United States has trade relations, commonly 
                referred to as ``most-favored-nation'' 
                treatment, has been a cornerstone of United 
                States trade policy.
                    (B) Although the principle remains firmly 
                in place as a fundamental concept in United 
                States trade relations, the term ``most-
                favored-nation'' is a misnomer which has led to 
                public misunderstanding.
                    (C) It is neither the purpose nor the 
                effect of the most-favored-nation principle to 
                treat any country as ``most favored''. To the 
                contrary, the principle reflects the intention 
                to confer on a country the same trade benefits 
                that are conferred on any other country, that 
                is, the intention not to discriminate among 
                trading partners.
                    (D) The term ``normal trade relations'' is 
                a more accurate description of the principle of 
                nondiscrimination as it applies to the tariffs 
                applicable generally to imports from United 
                States trading partners, that is, the general 
                rates of duty set forth in column 1 of the 
                Harmonized Tariff Schedule of the United 
                States.
            (2) Policy.--It is the sense of the Congress that--
                    (A) the language used in United States 
                laws, treaties, agreements, executive orders, 
                directives, and regulations should more clearly 
                and accurately reflect the underlying 
                principles of United States trade policy; and
                    (B) accordingly, the term ``normal trade 
                relations'' should, where appropriate, be 
                substituted for the term ``most-favored-
                nation''.
    (b) Change in Terminology.--
            (1) Trade expansion act of 1962.--The heading for 
        section 251 of the Trade Expansion Act of 1962 (19 
        U.S.C. 1881) is amended to read as follows: ``NORMAL 
        TRADE RELATIONS''.
            (2) Trade act of 1974.--(A) Section 402 of the 
        Trade Act of 1974 (19 U.S.C. 2432) is amended by 
        striking ``(most-favored-nation treatment)'' each place 
        it appears and inserting ``(normal trade relations)''.
            (B) Section 601(9) of the Trade Act of 1974 (19 
        U.S.C. 2481(9)) is amended by striking ``most-favored-
        nation treatment'' and inserting ``trade treatment 
        based on normal trade relations (known under 
        international law as most-favored-nation treatment)''.
            (3) CFTA.--Section 302(a)(3)(C) of the United 
        States Canada Free-Trade Agreement Implementation Act 
        of 1988 (19 U.S.C. 2112 note) is amended by striking 
        ``the most-favored-nation rate of duty'' each place it 
        appears and inserting ``the general subcolumn of the 
        column 1 rate of duty set forth in the Harmonized 
        Tariff Schedule of the United States''.
            (4) NAFTA.--Section 202(n) of the North American 
        Free Trade Agreement Implementation Act (19 U.S.C. 
        3332(n)) is amended by striking ``most-favored-
        nation''.
            (5) Uruguay round agreements act.--Section 
        135(a)(2) of the Uruguay Round Agreements Act (19 
        U.S.C. 3555(a)(2)) is amended by striking ``most-
        favored-nation'' and inserting ``normal trade 
        relations''.
            (6) SEED act.--Section 2(c)(11) of the Support for 
        East European Democracy (SEED) Act of 1989 (22 U.S.C. 
        5401(c)(11)) is amended--
                    (A) by striking ``(commonly referred to as 
                `most favored nation status')'', and
                    (B) by striking ``Most favored nation trade 
                status'' in the heading and inserting ``Normal 
                trade relations''.
            (7) United states-hong kong policy act of 1992.--
        Section 103(4) of the United States-Hong Kong Policy 
        Act of 1992 (22 U.S.C. 5713(4)) is amended by striking 
        ``(commonly referred to as `most-favored-nation 
        status')''.
    (c) Savings Provisions.--Nothing in this section shall 
affect the meaning of any provision of law, Executive order, 
Presidential proclamation, rule, regulation, delegation of 
authority, other document, or treaty or other international 
agreement of the United States relating to the principle of 
``most-favored-nation'' (or ``most favored nation'') treatment. 
Any Executive order, Presidential proclamation, rule, 
regulation, delegation of authority, other document, or treaty 
or other international agreement of the United States that has 
been issued, made, granted, or allowed to become effective and 
that is in effect on the effective date of this Act, or was to 
become effective on or after the effective date of this Act, 
shall continue in effect according to its terms until modified, 
terminated, superseded, set aside, or revoked in accordance 
with law.

                    TITLE VI--TECHNICAL CORRECTIONS

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

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

SEC. 6002. DEFINITIONS.

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

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

    (a) Amendments Related to Section 101(a) of 1997 Act.--
            (1) Subsection (d) of section 24 of the 1986 Code 
        is amended--
                    (A) by striking paragraphs (3) and (4),
                    (B) by redesignating paragraph (5) as 
                paragraph (3), and
                    (C) by striking paragraphs (1) and (2) and 
                inserting the following new paragraphs:
            ``(1) In general.--In the case of a taxpayer with 3 
        or more qualifying children for any taxable year, the 
        aggregate credits allowed under subpart C shall be 
        increased by the lesser of--
                    ``(A) the credit which would be allowed 
                under this section without regard to this 
                subsection and the limitation under section 
                26(a), or
                    ``(B) the amount by which the aggregate 
                amount of credits allowed by this subpart 
                (without regard to this subsection) would 
                increase if the limitation imposed by section 
                26(a) were increased by the excess (if any) 
                of--
                            ``(i) the taxpayer's social 
                        security taxes for the taxable year, 
                        over
                            ``(ii) the credit allowed under 
                        section 32 (determined without regard 
                        to subsection (n)) for the taxable 
                        year.
        The amount of the credit allowed under this subsection 
        shall not be treated as a credit allowed under this 
        subpart and shall reduce the amount of credit otherwise 
        allowable under subsection (a) without regard to 
        section 26(a).
            ``(2) Reduction of credit to taxpayer subject to 
        alternative minimum tax.--The credit determined under 
        this subsection for the taxable year shall be reduced 
        by the excess (if any) of--
                    ``(A) the amount of tax imposed by section 
                55 (relating to alternative minimum tax) with 
                respect to such taxpayer for such taxable year, 
                over
                    ``(B) the amount of the reduction under 
                section 32(h) with respect to such taxpayer for 
                such taxable year.''.
            (2) Paragraph (3) of section 24(d) of the 1986 Code 
        (as redesignated by paragraph (1)) is amended by 
        striking ``paragraph (3)'' and inserting ``paragraph 
        (1)''.
    (b) Amendments Related to Section 101(b) of 1997 Act.--
            (1) The subsection (m) of section 32 of the 1986 
        Code added by section 101(b) of the 1997 Act is amended 
        to read as follows:
    ``(n) Supplemental Child Credit.--
            ``(1) In general.--In the case of a taxpayer with 
        respect to whom a credit is allowed under section 24(a) 
        for the taxable year, the credit otherwise allowable 
        under this section shall be increased by the lesser 
        of--
                    ``(A) the excess of--
                            ``(i) the credits allowed under 
                        subpart A (determined after the 
                        application of section 26 and without 
                        regard to this subsection), over
                            ``(ii) the credits which would be 
                        allowed under subpart A after the 
                        application of section 26, determined 
                        without regard to section 24 and this 
                        subsection, or
                    ``(B) the excess of--
                            ``(i) the sum of the credits 
                        allowed under this part (determined 
                        without regard to sections 31, 33, and 
                        34 and this subsection), over
                            ``(ii) the sum of the regular tax 
                        and the social security taxes (as 
                        defined in section 24(d)).
        The credit determined under this subsection shall be 
        allowed without regard to any other provision of this 
        section, including subsection (d).
            ``(2) Coordination with other credits.--The amount 
        of the credit under this subsection shall reduce the 
        amount of the credits otherwise allowable under subpart 
        A for the taxable year (determined after the 
        application of section 26), but the amount of the 
        credit under this subsection (and such reduction) shall 
        not be taken into account in determining the amount of 
        any other credit allowable under this part.''.

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

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

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

            (2) Subsection (a) of section 6050S of the 1986 
        Code is amended to read as follows:
    ``(a) In General.--Any person--
            ``(1) which is an eligible educational 
        institution--
                    ``(A) which receives payments for qualified 
                tuition and related expenses with respect to 
                any individual for any calendar year, or
                    ``(B) which makes reimbursements or refunds 
                (or similar amounts) to any individual of 
                qualified tuition and related expenses,
            ``(2) which is engaged in a trade or business of 
        making payments to any individual under an insurance 
        arrangement as reimbursements or refunds (or similar 
        amounts) of qualified tuition and related expenses, or
            ``(3) except as provided in regulations, which is 
        engaged in a trade or business and, in the course of 
        which, receives from any individual interest 
        aggregating $600 or more for any calendar year on 1 or 
        more qualified education loans,
shall make the return described in subsection (b) with respect 
to the individual at such time as the Secretary may by 
regulations prescribe.''.
            (3) Subparagraph (A) of section 201(c)(2) of the 
        1997 Act is amended to read as follows:
                    ``(A) Subparagraph (B) of section 
                6724(d)(1) (relating to definitions) is amended 
                by redesignating clauses (x) through (xv) as 
                clauses (xi) through (xvi), respectively, and 
                by inserting after clause (ix) the following 
                new clause:
                            `` `(x) section 6050S (relating to 
                        returns relating to payments for 
                        qualified tuition and related 
                        expenses),' ''.
    (b) Amendments Related to Section 202 of 1997 Act.--
            (1) Paragraph (1) of section 221(e) of the 1986 
        Code is amended by inserting ``by the taxpayer solely'' 
        after ``incurred'' the first place it appears.
            (2) Subsection (d) of section 221 of the 1986 Code 
        is amended by adding at the end the following new 
        sentence: ``Such 60 months shall be determined in the 
        manner prescribed by the Secretary in the case of 
        multiple loans which are refinanced by, or serviced as, 
        a single loan and in the case of loans incurred before 
        the date of the enactment of this section.''.
    (c) Amendments Related to Section 211 of 1997 Act.--
            (1) Paragraph (3) of section 135(c) of the 1986 
        Code is amended to read as follows:
            ``(3) Eligible educational institution.--The term 
        `eligible educational institution' has the meaning 
        given such term by section 529(e)(5).''.
            (2) Subparagraph (A) of section 529(c)(3) of the 
        1986 Code is amended by striking ``section 72(b)'' and 
        inserting ``section 72''.
            (3) Paragraph (2) of section 529(e) of the 1986 
        Code is amended to read as follows:
            ``(2) Member of family.--The term `member of the 
        family' means, with respect to any designated 
        beneficiary--
                    ``(A) the spouse of such beneficiary,
                    ``(B) an individual who bears a 
                relationship to such beneficiary which is 
                described in paragraphs (1) through (8) of 
                section 152(a), and
                    ``(C) the spouse of any individual 
                described in subparagraph (B).''.
    (d) Amendments Related to Section 213 of 1997 Act.--
            (1) Section 530(b)(1) of the 1986 Code (defining 
        education individual retirement account) is amended by 
        inserting ``an individual who is'' before ``the 
        designated beneficiary'' in the material preceding 
        subparagraph (A).
            (2)(A) Section 530(b)(1)(E) of the 1986 Code 
        (defining education individual retirement account) is 
        amended to read as follows:
                    ``(E) Except as provided in subsection 
                (d)(7), any balance to the credit of the 
                designated beneficiary on the date on which the 
                beneficiary attains age 30 shall be distributed 
                within 30 days after such date to the 
                beneficiary or, if the beneficiary dies before 
                attaining age 30, shall be distributed within 
                30 days after the date of death of such 
                beneficiary.''.
            (B) Paragraph (7) of section 530(d) of the 1986 
        Code is amended by inserting at the end the following 
        new sentence: ``In applying the preceding sentence, 
        members of the family (as so defined) of the designated 
        beneficiary shall be treated in the same manner as the 
        spouse under such paragraph (8).''.
            (C) Subsection (d) of section 530 of the 1986 Code 
        is amended by adding at the end the following new 
        paragraph:
            ``(8) Deemed distribution on required distribution 
        date.--In any case in which a distribution is required 
        under subsection (b)(1)(E), any balance to the credit 
        of a designated beneficiary as of the close of the 30-
        day period referred to in such subsection for making 
        such distribution shall be deemed distributed at the 
        close of such period.''.
            (3)(A) Paragraph (1) of section 530(d) of the 1986 
        Code is amended by striking ``section 72(b)'' and 
        inserting ``section 72''.
            (B) Subsection (e) of section 72 of the 1986 Code 
        is amended by inserting after paragraph (8) the 
        following new paragraph:
            ``(9) Extension of paragraph (2)(b) to qualified 
        state tuition programs and educational individual 
        retirement accounts.--Notwithstanding any other 
        provision of this subsection, paragraph (2)(B) shall 
        apply to amounts received under a qualified State 
        tuition program (as defined in section 529(b)) or under 
        an education individual retirement account (as defined 
        in section 530(b)). The rule of paragraph (8)(B) shall 
        apply for purposes of this paragraph.''.
            (4) Paragraph (2) of section 135(d) of the 1986 
        Code is amended to read as follows:
            ``(2) Coordination with other higher education 
        benefits.--The amount of the qualified higher education 
        expenses otherwise taken into account under subsection 
        (a) with respect to the education of an individual 
        shall be reduced (before the application of subsection 
        (b)) by--
                    ``(A) the amount of such expenses which are 
                taken into account in determining the credit 
                allowable to the taxpayer or any other person 
                under section 25A with respect to such 
                expenses, and
                    ``(B) the amount of such expenses which are 
                taken into account in determining the exclusion 
                under section 530(d)(2).''.
            (5) Section 530(d)(2) of the 1986 Code (relating to 
        distributions for qualified higher education expenses) 
        is amended by adding at the end the following new 
        subparagraph:
                    ``(D) Disallowance of excluded amounts as 
                credit or deduction.--No deduction or credit 
                shall be allowed to the taxpayer under any 
                other section of this chapter for any qualified 
                education expenses to the extent taken into 
                account in determining the amount of the 
                exclusion under this paragraph.''.
            (6) Section 530(d)(4)(B) of the 1986 Code (relating 
        to exceptions) is amended by striking ``or'' at the end 
        of clause (ii), by striking the period at the end of 
        clause (iii) and inserting ``, or'', and by adding at 
        the end the following new clause:
                            ``(iv) an amount which is 
                        includible in gross income solely 
                        because the taxpayer elected under 
                        paragraph (2)(C) to waive the 
                        application of paragraph (2) for the 
                        taxable year.''.
            (7) So much of section 530(d)(4)(C) of the 1986 
        Code as precedes clause (ii) thereof is amended to read 
        as follows:
                    ``(C) Contributions returned before due 
                date of return.--Subparagraph (A) shall not 
                apply to the distribution of any contribution 
                made during a taxable year on behalf of the 
                designated beneficiary if--
                            ``(i) such distribution is made on 
                        or before the day prescribed by law 
                        (including extensions of time) for 
                        filing the beneficiary's return of tax 
                        for the taxable year or, if the 
                        beneficiary is not required to file 
                        such a return, the 15th day of the 4th 
                        month of the taxable year following the 
                        taxable year, and''.
            (8)(A) Paragraph (5) of section 530(d) of the 1986 
        Code is amended by striking the first sentence and 
        inserting the following new sentence: ``Paragraph (1) 
        shall not apply to any amount paid or distributed from 
        an education individual retirement account to the 
        extent that the amount received is paid, not later than 
        the 60th day after the date of such payment or 
        distribution, into another education individual 
        retirement account for the benefit of the same 
        beneficiary or a member of the family (within the 
        meaning of section 529(e)(2)) of such beneficiary who 
        has not attained age 30 as of such date.''.
            (B) Paragraph (6) of section 530(d) of the 1986 
        Code is amended by inserting before the period ``and 
        has not attained age 30 as of the date of such 
        change''.
            (9) Subparagraph (C) of section 135(c)(2) of the 
        1986 Code is amended--
                    (A) by inserting ``and education individual 
                retirement accounts'' in the heading after 
                ``program'', and
                    (B) by striking ``section 529(c)(3)(A)'' 
                and inserting ``section 72''.
            (10)(A) Paragraph (1) of section 4973(e) of the 
        1986 Code is amended to read as follows:
            ``(1) In general.--In the case of education 
        individual retirement accounts maintained for the 
        benefit of any 1 beneficiary, the term `excess 
        contributions' means the sum of--
                    ``(A) the amount by which the amount 
                contributed for the taxable year to such 
                accounts exceeds $500 (or, if less, the sum of 
                the maximum amounts permitted to be contributed 
                under section 530(c) by the contributors to 
                such accounts for such year),
                    ``(B) if any amount is contributed (other 
                than a contribution described in section 
                530(b)(2)(B)) during such year to a qualified 
                State tuition program for the benefit of such 
                beneficiary, any amount contributed to such 
                accounts for such taxable year, and
                    ``(C) the amount determined under this 
                subsection for the preceding taxable year, 
                reduced by the sum of--
                            ``(i) the distributions out of the 
                        accounts for the taxable year (other 
                        than rollover distributions), and
                            ``(ii) the excess (if any) of the 
                        maximum amount which may be contributed 
                        to the accounts for the taxable year 
                        over the amount contributed to the 
                        accounts for the taxable year.''.
            (B) Paragraph (2) of section 4973(e) of the 1986 
        Code is amended by striking subparagraph (B) and by 
        redesignating subparagraph (C) as subparagraph (B).
    (e) Amendments Related to Section 224 of 1997 Act.--
            (1) Clauses (vi) and (vii) of section 170(e)(6)(B) 
        of the 1986 Code are each amended by striking 
        ``entity's'' and inserting ``donee's''.
            (2) Clause (iv) of section 170(e)(6)(B) of the 1986 
        Code is amended by striking ``organization or entity'' 
        and inserting ``donee''.
            (3) Subclause (I) of section 170(e)(6)(C)(ii) of 
        the 1986 Code is amended by striking ``an entity'' and 
        inserting ``a donee''.
            (4) Section 170(e)(6)(F) of the 1986 Code (relating 
        to termination) is amended by striking ``1999'' and 
        inserting ``2000''.
    (f) Amendments Related to Section 225 of 1997 Act.--
            (1) The last sentence of section 108(f)(2) of the 
        1986 Code is amended to read as follows:

        ``The term `student loan' includes any loan made by an 
        educational organization described in section 
        170(b)(1)(A)(ii) or by an organization exempt from tax 
        under section 501(a) to refinance a loan to an 
        individual to assist the individual in attending any 
        such educational organization but only if the 
        refinancing loan is pursuant to a program of the 
        refinancing organization which is designed as described 
        in subparagraph (D)(ii).''.
            (2) Section 108(f)(3) of the 1986 Code is amended 
        by striking ``(or by an organization described in 
        paragraph (2)(E) from funds provided by an organization 
        described in paragraph (2)(D))''.
    (g) Amendments Related to Section 226 of 1997 Act.--
            (1) Section 226(a) of the 1997 Act is amended by 
        striking ``section 1397E'' and inserting ``section 
        1397D''.
            (2) Section 1397E(d)(4)(B) of the 1986 Code is 
        amended by striking ``local education agency as 
        defined'' and inserting ``local educational agency as 
        defined''.
            (3) Section 1397E is amended by adding at the end 
        the following new subsection:
    ``(h) Credit Treated as Allowed Under Part IV of Subchapter 
A.--For purposes of subtitle F, the credit allowed by this 
section shall be treated as a credit allowable under part IV of 
subchapter A of this chapter.''.
            (4) Subsection (g) of section 1397E of the 1986 
        Code is amended by inserting ``(determined without 
        regard to subsection (c))'' after ``section''.
            (5) Subparagraph (D) of section 42(j)(4) of the 
        1986 Code is amended by striking ``subpart A, B, D, or 
        G of this part'' and inserting ``this chapter''.
            (6) Paragraph (4) of section 49(b) of the 1986 Code 
        is amended by striking ``subpart A, B, D, or G'' and 
        inserting ``this chapter''.
            (7) Subparagraph (C) of section 50(a)(5) of the 
        1986 Code is amended by striking ``subpart A, B, D, or 
        G'' and inserting ``this chapter''.

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

    (a) Amendments Related to Section 301 of 1997 Act.--
            (1) Section 219(g) of the 1986 Code is amended--
                    (A) by inserting ``or the individual's 
                spouse'' after ``individual'' in paragraph (1), 
                and
                    (B) by striking paragraph (7) and 
                inserting:
            ``(7) Special rule for spouses who are not active 
        participants.--If this subsection applies to an 
        individual for any taxable year solely because their 
        spouse is an active participant, then, in applying this 
        subsection to the individual (but not their spouse)--
                    ``(A) the applicable dollar amount under 
                paragraph (3)(B)(i) shall be $150,000, and
                    ``(B) the amount applicable under paragraph 
                (2)(A)(ii) shall be $10,000.''.
            (2) Paragraph (2) of section 301(a) of the 1997 Act 
        is amended by inserting ``after `$10,000' '' before the 
        period.
    (b) Amendments Related to Section 302 of 1997 Act.--
            (1) Section 408A(c)(3)(A) of the 1986 Code is 
        amended by striking ``shall be reduced'' and inserting 
        ``shall not exceed an amount equal to the amount 
        determined under paragraph (2)(A) for such taxable 
        year, reduced''.
            (2) Section 408A(c)(3) of the 1986 Code (relating 
        to limits based on modified adjusted gross income) is 
        amended--
                    (A) by inserting ``or a married individual 
                filing a separate return'' after ``joint 
                return'' in subparagraph (A)(ii),
                    (B) in subparagraph (B)--
                            (i) by inserting ``, for the 
                        taxable year of the distribution to 
                        which such contribution relates'' after 
                        ``if'', and
                            (ii) by striking ``for such taxable 
                        year'' in clause (i), and
                    (C) by striking ``and the deduction under 
                section 219 shall be taken into account'' in 
                subparagraph (C)(i).
            (3)(A) Section 408A(d)(2) of the 1986 Code 
        (defining qualified distribution) is amended by 
        striking subparagraph (B) and inserting the following 
        new subparagraph:
                    ``(B) Distributions within nonexclusion 
                period.--A payment or distribution from a Roth 
                IRA shall not be treated as a qualified 
                distribution under subparagraph (A) if such 
                payment or distribution is made within the 5-
                taxable year period beginning with the 1st 
                taxable year for which the individual made a 
                contribution to a Roth IRA (or such 
                individual's spouse made a contribution to a 
                Roth IRA) established for such individual.''.
            (B) Section 408A(d)(2) of the 1986 Code is amended 
        by adding at the end the following new subparagraph:
                    ``(C) Distributions of excess contributions 
                and earnings.--The term `qualified 
                distribution' shall not include any 
                distribution of any contribution described in 
                section 408(d)(4) and any net income allocable 
                to the contribution.''.
            (4) Section 408A(d)(3) of the 1986 Code (relating 
        to rollovers from IRAs other than Roth IRAs) is 
        amended--
                    (A) by striking clause (iii) of 
                subparagraph (A) and inserting:
                            ``(iii) unless the taxpayer elects 
                        not to have this clause apply for any 
                        taxable year, any amount required to be 
                        included in gross income for such 
                        taxable year by reason of this 
                        paragraph for any distribution before 
                        January 1, 1999, shall be so included 
                        ratably over the 4-taxable year period 
                        beginning with such taxable year.
                Any election under clause (iii) for any 
                distributions during a taxable year may not be 
                changed after the due date for such taxable 
                year.''; and
                    (B) by adding at the end the following new 
                subparagraph:
                    ``(F) Special rules for contributions to 
                which 4-year averaging applies.--In the case of 
                a qualified rollover contribution to a Roth IRA 
                of a distribution to which subparagraph 
                (A)(iii) applied, the following rules shall 
                apply:
                            ``(i) Acceleration of inclusion.--
                                    ``(I) In general.--The 
                                amount required to be included 
                                in gross income for each of the 
                                first 3 taxable years in the 4-
                                year period under subparagraph 
                                (A)(iii) shall be increased by 
                                the aggregate distributions 
                                from Roth IRAs for such taxable 
                                year which are allocable under 
                                paragraph (4) to the portion of 
                                such qualified rollover 
                                contribution required to be 
                                included in gross income under 
                                subparagraph (A)(i).
                                    ``(II) Limitation on 
                                aggregate amount included.--The 
                                amount required to be included 
                                in gross income for any taxable 
                                year under subparagraph 
                                (A)(iii) shall not exceed the 
                                aggregate amount required to be 
                                included in gross income under 
                                subparagraph (A)(iii) for all 
                                taxable years in the 4-year 
                                period (without regard to 
                                subclause (I)) reduced by 
                                amounts included for all 
                                preceding taxable years.
                            ``(ii) Death of distributee.--
                                    ``(I) In general.--If the 
                                individual required to include 
                                amounts in gross income under 
                                such subparagraph dies before 
                                all of such amounts are 
                                included, all remaining amounts 
                                shall be included in gross 
                                income for the taxable year 
                                which includes the date of 
                                death.
                                    ``(II) Special rule for 
                                surviving spouse.--If the 
                                spouse of the individual 
                                described in subclause (I) 
                                acquires the individual's 
                                entire interest in any Roth IRA 
                                to which such qualified 
                                rollover contribution is 
                                properly allocable, the spouse 
                                may elect to treat the 
                                remaining amounts described in 
                                subclause (I) as includible in 
                                the spouse's gross income in 
                                the taxable years of the spouse 
                                ending with or within the 
                                taxable years of such 
                                individual in which such 
                                amounts would otherwise have 
                                been includible. Any such 
                                election may not be made or 
                                changed after the due date for 
                                the spouse's taxable year which 
                                includes the date of death.
                    ``(G) Special rule for applying section 
                72.--
                            ``(i) In general.--If--
                                    ``(I) any portion of a 
                                distribution from a Roth IRA is 
                                properly allocable to a 
                                qualified rollover contribution 
                                described in this paragraph, 
                                and
                                    ``(II) such distribution is 
                                made within the 5-taxable year 
                                period beginning with the 
                                taxable year in which such 
                                contribution was made,
                        then section 72(t) shall be applied as 
                        if such portion were includible in 
                        gross income.
                            ``(ii) Limitation.--Clause (i) 
                        shall apply only to the extent of the 
                        amount of the qualified rollover 
                        contribution includible in gross income 
                        under subparagraph (A)(i).''
            (5)(A) Section 408A(d)(4) of the 1986 Code is 
        amended to read as follows:
            ``(4) Aggregation and ordering rules.--
                    ``(A) Aggregation rules.--Section 408(d)(2) 
                shall be applied separately with respect to 
                Roth IRAs and other individual retirement 
                plans.
                    ``(B) Ordering rules.--For purposes of 
                applying this section and section 72 to any 
                distribution from a Roth IRA, such distribution 
                shall be treated as made--
                            ``(i) from contributions to the 
                        extent that the amount of such 
                        distribution, when added to all 
                        previous distributions from the Roth 
                        IRA, does not exceed the aggregate 
                        contributions to the Roth IRA, and
                            ``(ii) from such contributions in 
                        the following order:
                                    ``(I) Contributions other 
                                than qualified rollover 
                                contributions to which 
                                paragraph (3) applies.
                                    ``(II) Qualified rollover 
                                contributions to which 
                                paragraph (3) applies on a 
                                first-in, first-out basis.
                Any distribution allocated to a qualified 
                rollover contribution under clause (ii)(II) 
                shall be allocated first to the portion of such 
                contribution required to be included in gross 
                income.''.
            (B) Section 408A(d)(1) of the 1986 Code is amended 
        to read as follows:
            ``(1) Exclusion.--Any qualified distribution from a 
        Roth IRA shall not be includible in gross income.''.
            (6)(A) Section 408A(d) of the 1986 Code (relating 
        to distribution rules) is amended by adding at the end 
        the following new paragraph:
            ``(6) Taxpayer may make adjustments before due 
        date.--
                    ``(A) In general.--Except as provided by 
                the Secretary, if, on or before the due date 
                for any taxable year, a taxpayer transfers in a 
                trustee-to-trustee transfer any contribution to 
                an individual retirement plan made during such 
                taxable year from such plan to any other 
                individual retirement plan, then, for purposes 
                of this chapter, such contribution shall be 
                treated as having been made to the transferee 
                plan (and not the transferor plan).
                    ``(B) Special rules.--
                            ``(i) Transfer of earnings.--
                        Subparagraph (A) shall not apply to the 
                        transfer of any contribution unless 
                        such transfer is accompanied by any net 
                        income allocable to such contribution.
                            ``(ii) No deduction.--Subparagraph 
                        (A) shall apply to the transfer of any 
                        contribution only to the extent no 
                        deduction was allowed with respect to 
                        the contribution to the transferor 
                        plan.''.
            (B) Section 408A(d)(3) of the 1986 Code, as amended 
        by this subsection, is amended by striking subparagraph 
        (D) and by redesignating subparagraphs (E), (F), and 
        (G) as subparagraphs (D), (E), and (F), respectively.
            (7) Section 408A(d) of the 1986 Code, as amended by 
        paragraph (6), is amended by adding at the end the 
        following new paragraph:
            ``(7) Due date.--For purposes of this subsection, 
        the due date for any taxable year is the date 
        prescribed by law (including extensions of time) for 
        filing the taxpayer's return for such taxable year.''.
            (8)(A) Section 4973(f) of the 1986 Code is 
        amended--
                    (i) by striking ``such accounts'' in 
                paragraph (1)(A) and inserting ``Roth IRAs'', 
                and
                    (ii) by striking ``to the accounts'' in 
                paragraph (2)(B) and inserting ``by the 
                individual to all individual retirement 
                plans''.
            (B) Section 4973(b) of the 1986 Code is amended--
                    (i) by inserting ``a contribution to a Roth 
                IRA or'' after ``other than'' in paragraph 
                (1)(A), and
                    (ii) by inserting ``(including the amount 
                contributed to a Roth IRA)'' after 
                ``annuities'' in paragraph (2)(C).
            (C) Section 302(b) of the 1997 Act is amended by 
        striking ``Section 4973(b)'' and inserting ``Section 
        4973''.
            (9) Section 408A of the 1986 Code is amended by 
        adding at the end the following new subsection:
    ``(f) Individual Retirement Plan.--For purposes of this 
section--
            ``(1) a simplified employee pension or a simple 
        retirement account may not be designated as a Roth IRA, 
        and
            ``(2) contributions to any such pension or account 
        shall not be taken into account for purposes of 
        subsection (c)(2)(B).''.
    (c) Amendments Related to Section 303 of 1997 Act.--
            (1) Section 72(t)(8)(E) of the 1986 Code is 
        amended--
                    (A) by striking ``120 days'' and inserting 
                ``120th day'', and
                    (B) by striking ``60 days'' and inserting 
                ``60th day''.
            (2)(A) Section 402(c)(4) of the 1986 Code is 
        amended by striking ``and'' at the end of subparagraph 
        (A), by striking the period at the end of subparagraph 
        (B) and inserting ``, and'', by inserting at the end 
        the following new subparagraph:
                    ``(C) any hardship distribution described 
                in section 401(k)(2)(B)(i)(IV).''.
            (B) Section 403(b)(8)(B) of the 1986 Code is 
        amended by inserting ``(including paragraph (4)(C) 
        thereof)'' after ``section 402(c)''.
            (C) The amendments made by this paragraph shall 
        apply to distributions after December 31, 1998.
    (d) Amendments Related to Section 311 of 1997 Act.--
            (1) Subsection (h) of section 1 of the 1986 Code 
        (relating to maximum capital gains rate) is amended to 
        read as follows:
    ``(h) Maximum Capital Gains Rate.--
            ``(1) In general.--If a taxpayer has a net capital 
        gain for any taxable year, the tax imposed by this 
        section for such taxable year shall not exceed the sum 
        of--
                    ``(A) a tax computed at the rates and in 
                the same manner as if this subsection had not 
                been enacted on the greater of--
                            ``(i) taxable income reduced by the 
                        net capital gain, or
                            ``(ii) the lesser of--
                                    ``(I) the amount of taxable 
                                income taxed at a rate below 28 
                                percent, or
                                    ``(II) taxable income 
                                reduced by the adjusted net 
                                capital gain,
                    ``(B) 10 percent of so much of the adjusted 
                net capital gain (or, if less, taxable income) 
                as does not exceed the excess (if any) of--
                            ``(i) the amount of taxable income 
                        which would (without regard to this 
                        paragraph) be taxed at a rate below 28 
                        percent, over
                            ``(ii) the taxable income reduced 
                        by the adjusted net capital gain,
                    ``(C) 20 percent of the adjusted net 
                capital gain (or, if less, taxable income) in 
                excess of the amount on which a tax is 
                determined under subparagraph (B),
                    ``(D) 25 percent of the excess (if any) 
                of--
                            ``(i) the unrecaptured section 1250 
                        gain (or, if less, the net capital 
                        gain), over
                            ``(ii) the excess (if any) of--
                                    ``(I) the sum of the amount 
                                on which tax is determined 
                                under subparagraph (A) plus the 
                                net capital gain, over
                                    ``(II) taxable income, and
                    ``(E) 28 percent of the amount of taxable 
                income in excess of the sum of the amounts on 
                which tax is determined under the preceding 
                subparagraphs of this paragraph.
            ``(2) Reduced capital gain rates for qualified 5-
        year gain.--
                    ``(A) Reduction in 10-percent rate.--In the 
                case of any taxable year beginning after 
                December 31, 2000, the rate under paragraph 
                (1)(B) shall be 8 percent with respect to so 
                much of the amount to which the 10-percent rate 
                would otherwise apply as does not exceed 
                qualified 5-year gain, and 10 percent with 
                respect to the remainder of such amount.
                    ``(B) Reduction in 20-percent rate.--The 
                rate under paragraph (1)(C) shall be 18 percent 
                with respect to so much of the amount to which 
                the 20-percent rate would otherwise apply as 
                does not exceed the lesser of--
                            ``(i) the excess of qualified 5-
                        year gain over the amount of such gain 
                        taken into account under subparagraph 
                        (A) of this paragraph, or
                            ``(ii) the amount of qualified 5-
                        year gain (determined by taking into 
                        account only property the holding 
                        period for which begins after December 
                        31, 2000),
                and 20 percent with respect to the remainder of 
                such amount. For purposes of determining under 
                the preceding sentence whether the holding 
                period of property begins after December 31, 
                2000, the holding period of property acquired 
                pursuant to the exercise of an option (or other 
                right or obligation to acquire property) shall 
                include the period such option (or other right 
                or obligation) was held.
            ``(3) Net capital gain taken into account as 
        investment income.--For purposes of this subsection, 
        the net capital gain for any taxable year shall be 
        reduced (but not below zero) by the amount which the 
        taxpayer takes into account as investment income under 
        section 163(d)(4)(B)(iii).
            ``(4) Adjusted net capital gain.--For purposes of 
        this subsection, the term `adjusted net capital gain' 
        means net capital gain reduced (but not below zero) by 
        the sum of--
                    ``(A) unrecaptured section 1250 gain, and
                    ``(B) 28-percent rate gain.
            ``(5) 28-percent rate gain.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `28-percent 
                rate gain' means the excess (if any) of--
                            ``(i) the sum of--
                                    ``(I) the aggregate long-
                                term capital gain from property 
                                held for more than 1 year but 
                                not more than 18 months,
                                    ``(II) collectibles gain, 
                                and
                                    ``(III) section 1202 gain, 
                                over
                            ``(ii) the sum of--
                                    ``(I) the aggregate long-
                                term capital loss (not 
                                described in subclause (IV)) 
                                from property referred to in 
                                clause (i)(I),
                                    ``(II) collectibles loss,
                                    ``(III) the net short-term 
                                capital loss, and
                                    ``(IV) the amount of long-
                                term capital loss carried under 
                                section 1212(b)(1)(B) to the 
                                taxable year.
                    ``(B) Special rules.--
                            ``(i) Short sale gains and holding 
                        periods.--Rules similar to the rules of 
                        section 1233(b) shall apply where the 
                        substantially identical property has 
                        been held more than 1 year but not more 
                        than 18 months; except that, for 
                        purposes of such rules--
                                    ``(I) section 1233(b)(1) 
                                shall be applied by 
                                substituting `18 months' for `1 
                                year' each place it appears, 
                                and
                                    ``(II) the holding period 
                                of such property shall be 
                                treated as being 1 year on the 
                                day before the earlier of the 
                                date of the closing of the 
                                short sale or the date such 
                                property is disposed of.
                            ``(ii) Long-term losses.--Section 
                        1233(d) shall be applied separately by 
                        substituting `18 months' for `1 year' 
                        each place it appears.
                            ``(iii) Options.--A rule similar to 
                        the rule of section 1092(f) shall apply 
                        where the stock was held for more than 
                        18 months.
                            ``(iv) Section 1256 contracts.--
                        Amounts treated as long-term capital 
                        gain or loss under section 1256(a)(3) 
                        shall be treated as attributable to 
                        property held for more than 18 months.
            ``(6) Collectibles gain and loss.--For purposes of 
        this subsection--
                    ``(A) In general.--The terms `collectibles 
                gain' and `collectibles loss' mean gain or loss 
                (respectively) from the sale or exchange of a 
                collectible (as defined in section 408(m) 
                without regard to paragraph (3) thereof) which 
                is a capital asset held for more than 18 months 
                butonly to the extent such gain is taken into 
account in computing gross income and such loss is taken into account 
in computing taxable income.
                    ``(B) Partnerships, etc.--For purposes of 
                subparagraph (A), any gain from the sale of an 
                interest in a partnership, S corporation, or 
                trust which is attributable to unrealized 
                appreciation in the value of collectibles shall 
                be treated as gain from the sale or exchange of 
                a collectible. Rules similar to the rules of 
                section 751 shall apply for purposes of the 
                preceding sentence.
            ``(7) Unrecaptured section 1250 gain.--For purposes 
        of this subsection--
                    ``(A) In general.--The term `unrecaptured 
                section 1250 gain' means the excess (if any) 
                of--
                            ``(i) the amount of long-term 
                        capital gain (not otherwise treated as 
                        ordinary income) which would be treated 
                        as ordinary income if--
                                    ``(I) section 1250(b)(1) 
                                included all depreciation and 
                                the applicable percentage under 
                                section 1250(a) were 100 
                                percent, and
                                    ``(II) only gain from 
                                property held for more than 18 
                                months were taken into account, 
                                over
                            ``(ii) the excess (if any) of--
                                    ``(I) the amount described 
                                in paragraph (5)(A)(ii), over
                                    ``(II) the amount described 
                                in paragraph (5)(A)(i).
                    ``(B) Limitation with respect to section 
                1231 property.--The amount described in 
                subparagraph (A)(i) from sales, exchanges, and 
                conversions described in section 1231(a)(3)(A) 
                for any taxable year shall not exceed the net 
                section 1231 gain (as defined in section 
                1231(c)(3)) for such year.
            ``(8) Section 1202 gain.--For purposes of this 
        subsection, the term `section 1202 gain' means an 
        amount equal to the gain excluded from gross income 
        under section 1202(a).
            ``(9) Qualified 5-year gain.--For purposes of this 
        subsection, the term `qualified 5-year gain' means the 
        aggregate long-term capital gain from property held for 
        more than 5 years. The determination under the 
        preceding sentence shall be made without regard to 
        collectibles gain, gain described in paragraph 
        (7)(A)(i), and section 1202 gain.
            ``(10) Coordination with recapture of net ordinary 
        losses under section 1231.--If any amount is treated as 
        ordinary income under section 1231(c), such amount 
        shall be allocated among the separate categories of net 
        section 1231 gain (as defined in section 1231(c)(3)) in 
        such manner as the Secretary may by forms or 
        regulations prescribe.
            ``(11) Regulations.--The Secretary may prescribe 
        such regulations as are appropriate (including 
        regulations requiring reporting) to apply this 
        subsection in the case of sales and exchanges by pass-
        thru entities and of interests in such entities.
            ``(12) Pass-thru entity defined.--For purposes of 
        this subsection, the term `pass-thru entity' means--
                    ``(A) a regulated investment company,
                    ``(B) a real estate investment trust,
                    ``(C) an S corporation,
                    ``(D) a partnership,
                    ``(E) an estate or trust,
                    ``(F) a common trust fund,
                    ``(G) a foreign investment company which is 
                described in section 1246(b)(1) and for which 
                an election is in effect under section 1247, 
                and
                    ``(H) a qualified electing fund (as defined 
                in section 1295).
            ``(13) Special rules for periods during 1997.--
                    ``(A) Determination of 28-percent rate 
                gain.--In applying paragraph (5)--
                            ``(i) the amount determined under 
                        subclause (I) of paragraph (5)(A)(i) 
                        shall include long-term capital gain 
                        (not otherwise described in paragraph 
                        (5)(A)(i)) which is properly taken into 
                        account for the portion of the taxable 
                        year before May 7, 1997,
                            ``(ii) the amounts determined under 
                        subclause (I) of paragraph (5)(A)(ii) 
                        shall include long-term capital loss 
                        (not otherwise described in paragraph 
                        (5)(A)(ii)) which is properly taken 
                        into account for the portion of the 
                        taxable year before May 7, 1997, and
                            ``(iii) clauses (i)(I) and (ii)(I) 
                        of paragraph (5)(A) shall be applied by 
                        not taking into account any gain and 
                        loss on property held for more than 1 
                        year but not more than 18 months which 
                        is properly taken into account for the 
                        portion of the taxable year after May 
                        6, 1997, and before July 29, 1997.
                    ``(B) Other special rules.--
                            ``(i) Determination of unrecaptured 
                        section 1250 gain not to include pre-
                        may 7, 1997 gain.--The amount 
                        determined under paragraph (7)(A)(i) 
                        shall not include gain properly taken 
                        into account for the portion of the 
                        taxable year before May 7, 1997.
                            ``(ii) Other transitional rules for 
                        18-month holding period.--Paragraphs 
                        (6)(A) and (7)(A)(i)(II) shall be 
                        applied by substituting `1 year' for 
                        `18 months' with respect to gain 
                        properly taken into account for the 
                        portion of the taxable year after May 
                        6, 1997, and before July 29, 1997.
                    ``(C) Special rules for pass-thru 
                entities.--In applying this paragraph with 
                respect to any pass-thru entity, the 
                determination of when gains and loss are 
                properly taken into account shall be made at 
                the entity level.''.
            (2) Paragraph (3) of section 55(b) of the 1986 Code 
        is amended to read as follows:
            ``(3) Maximum rate of tax on net capital gain of 
        noncorporate taxpayers.--The amount determined under 
        the first sentence of paragraph (1)(A)(i) shall not 
        exceed the sum of--
                    ``(A) the amount determined under such 
                first sentence computed at the rates and in the 
                same manner as if this paragraph had not been 
                enacted on the taxable excess reduced by the 
                lesser of--
                            ``(i) the net capital gain, or
                            ``(ii) the sum of--
                                    ``(I) the adjusted net 
                                capital gain, plus
                                    ``(II) the unrecaptured 
                                section 1250 gain, plus
                    ``(B) 10 percent of so much of the adjusted 
                net capital gain (or, if less, taxable excess) 
                as does not exceed the amount on which a tax is 
                determined under section 1(h)(1)(B), plus
                    ``(C) 20 percent of the adjusted net 
                capital gain (or, if less, taxable excess) in 
                excess of the amount on which tax is determined 
                under subparagraph (B), plus
                    ``(D) 25 percent of the amount of taxable 
                excess in excess of the sum of the amounts on 
                which tax is determined under the preceding 
                subparagraphs of this paragraph.
        In the case of taxable years beginning after December 
        31, 2000, rules similar to the rules of section 1(h)(2) 
        shall apply for purposes of subparagraphs (B) and (C). 
        Terms used in this paragraph which are also used in 
        section 1(h) shall have the respective meanings given 
        such terms by section 1(h) but computed with the 
        adjustments under this part.''.
            (3) Section 57(a)(7) of the 1986 Code is amended by 
        adding at the end the following new sentence: ``In the 
        case of stock the holding period of which begins after 
        December 31, 2000 (determined with the application of 
        the last sentence of section 1(h)(2)(B)), the preceding 
        sentence shall be applied by substituting `28 percent' 
        for `42 percent'.''.
            (4) Paragraphs (11) and (12) of section 1223, and 
        section 1235(a), of the 1986 Code are each amended by 
        striking ``1 year'' each place it appears and inserting 
        ``18 months''.
    (e) Amendments Related to Section 312 of 1997 Act.--
            (1) Paragraph (2) of section 121(b) of the 1986 
        Code is amended to read as follows:
            ``(2) Special rules for joint returns.--In the case 
        of a husband and wife who make a joint return for the 
        taxable year of the sale or exchange of the property--
                    ``(A) $500,000 Limitation for certain joint 
                returns.--Paragraph (1) shall be applied by 
                substituting `$500,000' for `$250,000' if--
                            ``(i) either spouse meets the 
                        ownership requirements of subsection 
                        (a) with respect to such property,
                            ``(ii) both spouses meet the use 
                        requirements of subsection (a) with 
                        respect to such property, and
                            ``(iii) neither spouse is 
                        ineligible for the benefits of 
                        subsection (a) with respect to such 
                        property by reason of paragraph (3).
                    ``(B) Other joint returns.--If such spouses 
                do not meet the requirements of subparagraph 
                (A), the limitation under paragraph (1) shall 
                be the sum of the limitations under paragraph 
                (1) to which each spouse would be entitled if 
                such spouses had not been married. For purposes 
                of the preceding sentence, each spouse shall be 
                treated as owning the property during the 
                period that either spouse owned the 
                property.''.
            (2) Section 121(c)(1) of the 1986 Code is amended 
        to read as follows:
            ``(1) In general.--In the case of a sale or 
        exchange to which this subsection applies, the 
        ownership and use requirements of subsection (a), and 
        subsection (b)(3), shall not apply; but the dollar 
        limitation under paragraph (1) or (2) of subsection 
        (b), whichever is applicable, shall be equal to--
                    ``(A) the amount which bears the same ratio 
                to such limitation (determined without regard 
                to this paragraph) as
                    ``(B)(i) the shorter of--
                            ``(I) the aggregate periods, during 
                        the 5-year period ending on the date of 
                        such sale or exchange, such property 
                        has been owned and used by the taxpayer 
                        as the taxpayer's principal residence, 
                        or
                            ``(II) the period after the date of 
                        the most recent prior sale or exchange 
                        by the taxpayer to which subsection (a) 
                        applied and before the date of such 
                        sale or exchange, bears to
                    ``(ii) 2 years.''.
            (3) Section 312(d)(2) of the 1997 Act (relating to 
        sales before date of the enactment) is amended by 
        inserting ``on or'' before ``before'' each place it 
        appears in the text and heading.
    (f) Amendments Related to Section 313 of 1997 Act.--
            (1) Subsection (a) of section 1045 of such Code is 
        amended--
                    (A) by striking ``an individual'' and 
                inserting ``a taxpayer other than a 
                corporation'', and
                    (B) by striking ``such individual'' and 
                inserting ``such taxpayer''.
            (2) Subsection (b) of section 1045 of the 1986 Code 
        is amended by adding at the end the following new 
        paragraph:
            ``(5) Certain rules to apply.--Rules similar to the 
        rules of subsections (f), (g), (h), (i), (j), and (k) 
        of section 1202 shall apply.''.

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

    (a) Amendment Related to Section 401 of 1997 Act.--
Paragraph (1) of section 55(e) of the 1986 Code is amended to 
read as follows:
            ``(1) In general.--
                    ``(A) $7,500,000 gross receipts test.--The 
                tentative minimum tax of a corporation shall be 
                zero for any taxable year if the corporation's 
                average annual gross receipts for all 3-
                taxable-year periods ending before such taxable 
                year does not exceed $7,500,000. For purposes 
                of the preceding sentence, only taxable years 
                beginning after December 31, 1993, shall be 
                taken into account.
                    ``(B) $5,000,000 gross receipts test for 
                first 3-year period.--Subparagraph (A) shall be 
                applied by substituting `$5,000,000' for 
                `$7,500,000' for the first 3-taxable-year 
                period (or portion thereof) of the corporation 
                which is taken into account under subparagraph 
                (A).
                    ``(C) First taxable year corporation in 
                existence.--If such taxable year is the first 
                taxable year that such corporation is in 
                existence, the tentative minimum tax of such 
                corporation for such year shall be zero.
                    ``(D) Special rules.--For purposes of this 
                paragraph, the rules of paragraphs (2) and (3) 
                of section 448(c) shall apply.''.
    (b) Amendment Related to Section 402 of 1997 Act.--
Subsection (c) of section 168 of the 1986 Code is amended--
            (1) by striking paragraph (2), and
            (2) by striking the portion of such subsection 
        preceding the table in paragraph (1) and inserting the 
        following:
    ``(c) Applicable Recovery Period.--For purposes of this 
section, the applicable recovery period shall be determined in 
accordance with the following table:''.

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

    (a) Amendments Related to Section 501 of 1997 Act.--
            (1) Subsection (c) of section 2631 of the 1986 Code 
        is amended to read as follows:
    ``(c) Inflation Adjustment.--
            ``(1) In general.--In the case of any calendar year 
        after 1998, the $1,000,000 amount contained in 
        subsection (a) shall be increased by an amount equal 
        to--
                    ``(A) $1,000,000, multiplied by
                    ``(B) the cost-of-living adjustment 
                determined under section 1(f)(3) for such 
                calendar year by substituting `calendar year 
                1997' for `calendar year 1992' in subparagraph 
                (B) thereof.
        If any amount as adjusted under the preceding sentence 
        is not a multiple of $10,000, such amount shall be 
        rounded to the next lowest multiple of $10,000.
            ``(2) Allocation of increase.--Any increase under 
        paragraph (1) for any calendar year shall apply only to 
        generation-skipping transfers made during or after such 
        calendar year; except that no such increase for 
        calendar years after the calendar year in which the 
        transferor dies shall apply to transfers by such 
        transferor.''.
            (2) Subsection (f) of section 501 of the 1997 Act 
        is amended by inserting ``(other than the amendment 
        made by subsection (d))'' after ``this section''.
    (b) Amendments Related to Section 502 of 1997 Act.--
            (1)(A) Section 2033A of the 1986 Code is hereby 
        moved to the end of part IV of subchapter A of chapter 
        11 of the 1986 Code and redesignated as section 2057.
            (B) So much of such section 2057 (as so 
        redesignated) as precedes subsection (b) thereof is 
        amended to read as follows:

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

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

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

            (2) Section 2057(b)(3) of the 1986 Code (as so 
        redesignated) is amended to read as follows:
            ``(3) Includible gifts of interests.--The amount of 
        the gifts of qualified family-owned business interests 
        determined under this paragraph is the sum of--
                    ``(A) the amount of such gifts from the 
                decedent to members of the decedent's family 
                taken into account under section 2001(b)(1)(B), 
                plus
                    ``(B) the amount of such gifts otherwise 
                excluded under section 2503(b),
        to the extent such interests are continuously held by 
        members of such family (other than the decedent's 
        spouse) between the date of the gift and the date of 
        the decedent's death.''.
            (3)(A) Section 2057(e)(2)(C) of the 1986 Code (as 
        so redesignated) is amended by striking ``(as defined 
        in section 543(a))'' and inserting ``(as defined in 
        section 543(a) without regard to paragraph (2)(B) 
        thereof) if such trade or business were a 
        corporation''.
            (B) Clause (ii) of section 2057(e)(2)(D) of the 
        1986 Code (as so redesignated) is amended by striking 
        ``income of which is described in section 543(a) or'' 
        and inserting ``personal holding company income (as 
        defined in subparagraph (C)) or income described''.
            (C) Paragraph (2) of section 2057(e) of the 1986 
        Code (as so redesignated) is amended by adding at the 
        end the following new flush sentence:
        ``In the case of a lease of property on a net cash 
        basis by the decedent to a member of the decedent's 
        family, income from such lease shall not be treated as 
        personal holding company income for purposes of 
        subparagraph (C), and such property shall not be 
        treated as an asset described in subparagraph (D)(ii), 
        if such income and property would not be so treated if 
        the lessor had engaged directly in the activities 
        engaged in by the lessee with respect to such 
        property.''.
            (4) Paragraph (2) of section 2057(f) of the 1986 
        Code (as so redesignated) is amended--
                    (A) by striking ``(as determined under 
                rules similar to the rules of section 
                2032A(c)(2)(B))'', and
                    (B) by adding at the end the following new 
                subparagraph:
                    ``(C) Adjusted tax difference.--For 
                purposes of subparagraph (A)--
                            ``(i) In general.--The adjusted tax 
                        difference attributable to a qualified 
                        family-owned business interest is the 
                        amount which bears the same ratio to 
                        the adjusted tax difference with 
                        respect to the estate (determined under 
                        clause (ii)) as the value of such 
                        interest bears to the value of all 
                        qualified family-owned business 
                        interests described in subsection 
                        (b)(2).
                            ``(ii) Adjusted tax difference with 
                        respect to the estate.--For purposes of 
                        clause (i), the term `adjusted tax 
                        difference with respect to the estate' 
                        means the excess of what would have 
                        been the estate tax liability but for 
                        the election under this section over 
                        the estate tax liability. For purposes 
                        of this clause, the term `estate tax 
                        liability' means the tax imposed by 
                        section 2001 reduced by the credits 
                        allowable against such tax.''.
            (5)(A) Paragraph (1) of section 2057(e) of the 1986 
        Code (as so redesignated) is amended by adding at the 
        end the following new flush sentence:
        ``For purposes of the preceding sentence, a decedent 
        shall be treated as engaged in a trade or business if 
        any member of the decedent's family is engaged in such 
        trade or business.''.
            (B) Subsection (f) of section 2057 of the 1986 Code 
        (as so redesignated) is amended by adding at the end 
        the following new paragraph:
            ``(3) Use in trade or business by family members.--
        A qualified heir shall not be treated as disposing of 
        an interest described in subsection (e)(1)(A) by reason 
        of ceasing to be engaged in a trade or business so long 
        as the property to which such interest relates is used 
        in a trade or business by any member of such 
        individual's family.''.
            (6) Paragraph (1) of section 2057(g) of the 1986 
        Code (as so redesignated) is amended by striking ``or 
        (M)''.
            (7) Paragraph (3) of section 2057(i) of the 1986 
        Code (as so redesignated) is amended by redesignating 
        subparagraphs (L), (M), and (N) as subparagraphs (N), 
        (O), and (P), respectively, and by inserting after 
        subparagraph (K) the following new subparagraphs:
                    ``(L) Section 2032A(g) (relating to 
                application to interests in partnerships, 
                corporations, and trusts).
                    ``(M) Subsections (h) and (i) of section 
                2032A.''.
    (c) Amendments Related to Section 503 of the 1997 Act.--
            (1) Clause (iii) of section 6166(b)(7)(A) of the 
        1986 Code is amended to read as follows:
                            ``(iii) for purposes of applying 
                        section 6601(j), the 2-percent portion 
                        (as defined in such section) shall be 
                        treated as being zero.''.
            (2) Clause (iii) of section 6166(b)(8)(A) of the 
        1986 Code is amended to read as follows:
                            ``(iii) 2-percent interest rate not 
                        to apply.--For purposes of applying 
                        section 6601(j), the 2-percent portion 
                        (as defined in such section) shall be 
                        treated as being zero.''.
    (d) Amendment Related to Section 505 of the 1997 Act.--
Paragraphs (1) and (2) of section 7479(a) of the 1986 Code are 
each amended by striking ``an estate,'' and inserting ``an 
estate (or with respect to any property included therein),''.
    (e) Amendments Related to Section 506 of the 1997 Act.--
            (1) Paragraph (1) of section 506(e) of the 1997 Act 
        is amended by striking ``and (c)'' and inserting ``, 
        (c), and (d)''.
            (2)(A) Paragraph (9) of section 6501(c) of the 1986 
        Code is amended by striking the last sentence.
            (B) Subsection (f) of section 2001 of the 1986 Code 
        is amended to read as follows:
    ``(f) Valuation of Gifts.--
            ``(1) In general.--If the time has expired under 
        section 6501 within which a tax may be assessed under 
        chapter 12 (or under corresponding provisions of prior 
        laws) on--
                    ``(A) the transfer of property by gift made 
                during a preceding calendar period (as defined 
                in section 2502(b)), or
                    ``(B) an increase in taxable gifts required 
                under section 2701(d),
        the value thereof shall, for purposes of computing the 
        tax under this chapter, be the value as finally 
        determined for purposes of chapter 12.
            ``(2) Final determination.--For purposes of 
        paragraph (1), a value shall be treated as finally 
        determined for purposes of chapter 12 if--
                    ``(A) the value is shown on a return under 
                such chapter and such value is not contested by 
                the Secretary before the expiration of the time 
                referred to in paragraph (1) with respect to 
                such return,
                    ``(B) in a case not described in 
                subparagraph (A), the value is specified by the 
                Secretary and such value is not timely 
                contested by the taxpayer, or
                    ``(C) the value is determined by a court or 
                pursuant to a settlement agreement with the 
                Secretary.''.
            (B) Subsection (c) of section 2504 of the 1986 Code 
        is amended to read as follows:
    ``(c) Valuation of Gifts.--If the time has expired under 
section 6501 within which a tax may be assessed under this 
chapter 12 (or under corresponding provisions of prior laws) 
on--
            ``(1) the transfer of property by gift made during 
        a preceding calendar period (as defined in section 
        2502(b)), or
            ``(2) an increase in taxable gifts required under 
        section 2701(d),
the value thereof shall, for purposes of computing the tax 
under this chapter, be the value as finally determined (within 
the meaning of section 2001(f)(2)) for purposes of this 
chapter.''.
    (f) Amendments Related to Section 507 of 1997 Act.--
            (1) Paragraph (3) of section 1(g) of the 1986 Code 
        is amended by striking subparagraph (C) and by 
        redesignating subparagraph (D) as subparagraph (C).
            (2) Section 641 of the 1986 Code is amended by 
        striking subsection (c) and by redesignating subsection 
        (d) as subsection (c).
            (3) Paragraph (4) of section 1361(e) of the 1986 
        Code is amended by striking ``section 641(d)'' and 
        inserting ``section 641(c)''.
            (4) Subparagraph (A) of section 6103(e)(1) of the 
        1986 Code is amended by striking clause (ii) and by 
        redesignating clauses (iii) and (iv) as clauses (ii) 
        and (iii), respectively.
    (g) Amendments Related to Section 508 of 1997 Act.--
            (1) Subsection (c) of section 2031 of the 1986 Code 
        is amended by redesignating paragraph (9) as paragraph 
        (10) and by inserting after paragraph (8) the following 
        new paragraph:
            ``(9) Treatment of easements granted after death.--
        In any case in which the qualified conservation 
        easement is granted after the date of the decedent's 
        death and on or before the due date (including 
        extensions) for filing the return of tax imposed by 
        section 2001, the deduction under section 2055(f) with 
        respect to such easement shall be allowed to the estate 
        but only if no charitable deduction is allowed under 
        chapter 1 to any person with respect to the grant of 
        such easement.''.
            (2) The first sentence of paragraph (6) of section 
        2031(c) of the 1986 Code is amended by striking all 
        that follows ``shall be made'' and inserting ``on or 
        before the due date (including extensions) for filing 
        the return of tax imposed by section 2001 and shall be 
        made on such return.''.

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

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

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

    (a) Amendment Related to Section 908 of 1997 Act.--
Paragraph (6) of section 5041(b) of the 1986 Code is amended by 
inserting ``which is a still wine'' after ``hard cider''.
    (b) Amendment Related to Section 964 of 1997 Act.--
            (1) In general.--Subparagraph (C) of section 
        7704(g)(3) of the 1986 Code is amended by striking the 
        period at the end and inserting ``and shall be paid by 
        the partnership. Section 6655 shall be applied to such 
        partnership with respect to such tax in the same manner 
        as if the partnership were a corporation, such tax were 
        imposed by section 11, and references in such section 
        to taxable income were references to the gross income 
        referred to in subparagraph (A).''.
            (2) Effective date.--The second sentence of section 
        7704(g)(3)(C) of the 1986 Code (as added by paragraph 
        (1)) shall apply to taxable years beginning after the 
        date of the enactment of this Act.
    (c) Amendment Related to Section 971 of 1997 Act.--Clause 
(ii) of section 280F(a)(1)(C) is amended by striking 
``subparagraph (A)'' and inserting ``subparagraphs (A) and 
(B)''.
    (d) Amendment Related to Section 976 of 1997 Act.--Section 
6103(d)(5) of the 1986 Code is amended by striking ``section 
967 of the Taxpayer Relief Act of 1997.'' and inserting 
``section 976 of the Taxpayer Relief Act of 1997. Subsections 
(a)(2) and (p)(4) and sections 7213 and 7213A shall not apply 
with respect to disclosures or inspections made pursuant to 
this paragraph.''.
    (e) Amendment Related to Section 977 of 1997 Act.--
Paragraph (2) of section 977(e) of the 1997 Act is amended to 
read as follows:
            ``(2) Non-amtrak state.--The term `non-Amtrak 
        State' means any State which is not receiving intercity 
        passenger rail service from the Corporation as of the 
        date of the enactment of this Act.''.

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

    (a) Amendments Related to Section 1001 of 1997 Act.--
            (1) Paragraph (2) of section 1259(b) of the 1986 
        Code is amended--
                    (A) by striking ``debt'' each place it 
                appears in clauses (i), (ii), and (iii) of 
                subparagraph (A) and inserting ``position'',
                    (B) by striking ``and'' at the end of 
                subparagraph (A), and
                    (C) by redesignating subparagraph (B) as 
                subparagraph (C) and by inserting after 
                subparagraph (A) the following new 
                subparagraph:
                    ``(B) any hedge with respect to a position 
                described in subparagraph (A), and''.
            (2) Section 1259(d)(1) of the 1986 Code is amended 
        by inserting ``(including cash)'' after ``property''.
            (3) Subparagraph (D) of section 475(f)(1) of the 
        1986 Code is amended by adding at the end the following 
        new sentence: ``Subsection (d)(3) shall not apply under 
        the preceding sentence for purposes of applying 
        sections 1402 and 7704.''.
            (4) Subparagraph (C) of section 1001(d)(3) of the 
        1997 Act is amended by striking ``within the 30-day 
        period beginning on'' and inserting ``before the close 
        of the 30th day after''.
    (b) Amendment Related to Section 1011 of 1997 Act.--
Paragraph (1) of section 1059(g) of the 1986 Code is amended by 
striking ``and in the case of stock held by pass-thru 
entities'' and inserting ``, in the case of stock held by pass-
thru entities, and in the case of consolidated groups''.
    (c) Amendments Related to Section 1012 of 1997 Act.--
            (1) Paragraph (1) of section 1012(d) of the 1997 
        Act is amended by striking ``1997, pursuant'' and 
        inserting ``1997; except that the amendment made by 
        subsection (a) shall apply to such distributions only 
        if pursuant''.
            (2) Subparagraph (A) of section 355(e)(3) of the 
        1986 Code is amended--
                    (A) by striking ``shall not be treated as 
                described in'' and inserting ``shall not be 
                taken into account in applying'', and
                    (B) by striking clause (iv) and inserting 
                the following new clause:
                            ``(iv) The acquisition of stock in 
                        the distributing corporation or any 
                        controlled corporation to the extent 
                        that the percentage of stock owned 
                        directly or indirectly in such 
                        corporation by each person owning stock 
                        in such corporation immediately before 
                        the acquisition does not decrease.''.
            (3)(A) Subsection (c) of section 351 of the 1986 
        Code is amended to read as follows:
    ``(c) Special Rules Where Distribution to Shareholders.--
            ``(1) In general.--In determining control for 
        purposes of this section, the fact that any corporate 
        transferor distributes part or all of the stock in the 
        corporation which it receives in the exchange to its 
        shareholders shall not be taken into account.
            ``(2) Special rule for section 355.--If the 
        requirements of section 355 (or so much of section 356 
        as relates to section 355) are met with respect to a 
        distribution described in paragraph (1), then, solely 
        for purposes of determining the tax treatment of the 
        transfers of property to the controlled corporation by 
        the distributing corporation, the fact that the 
        shareholders of the distributing corporation dispose of 
        part or all of the distributed stock shall not be taken 
        into account in determining control for purposes of 
        this section.''.
            (B) Clause (ii) of section 368(a)(2)(H) of the 1986 
        Code is amended to read as follows:
                            ``(ii) in the case of a transaction 
                        with respect to which the requirements 
                        of section 355 (or so much of section 
                        356 as relates to section 355) are met, 
                        the fact that the shareholders of the 
                        distributing corporation dispose of 
                        part or all of the distributed stock 
                        shall not be taken into account.''.
    (d) Amendments Related to Section 1013 of 1997 Act.--
            (1) Paragraph (5) of section 304(b) of the 1986 
        Code is amended by striking subparagraph (B) and by 
        redesignating subparagraph (C) as subparagraph (B).
            (2) Subsection (b) of section 304 of the 1986 Code 
        is amended by adding at the end the following new 
        paragraph:
            ``(6) Avoidance of multiple inclusions, etc.--In 
        the case of any acquisition to which subsection (a) 
        applies in which the acquiring corporation or the 
        issuing corporation is a foreign corporation, the 
        Secretary shall prescribe such regulations as are 
        appropriate in order to eliminate a multiple inclusion 
        of any item in income by reason of this subpart and to 
        provide appropriate basis adjustments (including 
        modifications to the application of sections 959 and 
        961).''.
    (e) Amendments Related to Section 1014 of 1997 Act.--
            (1) Paragraph (1) of section 351(g) of the 1986 
        Code is amended by adding ``and'' at the end of 
        subparagraph (A) and by striking subparagraphs (B) and 
        (C) and inserting the following new subparagraph:
                    ``(B) if (and only if) the transferor 
                receives stock other than nonqualified 
                preferred stock--
                            ``(i) subsection (b) shall apply to 
                        such transferor, and
                            ``(ii) such nonqualified preferred 
                        stock shall be treated as other 
                        property for purposes of applying 
                        subsection (b).''.
            (2) Clause (ii) of section 354(a)(2)(C) of 1986 
        Code is amended by adding at the end the following new 
        subclause:
                                    ``(III) Extension of 
                                statute of limitations.--The 
                                statutory period for the 
                                assessment of any deficiency 
                                attributable to a corporation 
                                failing to be a family-owned 
                                corporation shall not expire 
                                before the expiration of 3 
                                years after the date the 
                                Secretary is notified by the 
                                corporation (in such manner as 
                                the Secretary may prescribe) of 
                                such failure, and such 
                                deficiency may be assessed 
                                before the expiration of such 
                                3-year period notwithstanding 
                                the provisions of any other law 
                                or rule of law which would 
                                otherwise prevent such 
                                assessment.''.
    (f) Amendment Related to Section 1024 of 1997 Act.--Section 
6331(h)(1) of the 1986 Code is amended by striking ``The effect 
of a levy'' and inserting ``If the Secretary approves a levy 
under this subsection, the effect of such levy''.
    (g) Amendments Related to Section 1031 of 1997 Act.--
            (1) Subsection (l) of section 4041 of the 1986 Code 
        is amended by striking ``subsection (e) or (f)'' and 
        inserting ``subsection (f) or (g)''.
            (2) Subsection (b) of section 9502 of the 1986 Code 
        is amended by moving the sentence added at the end of 
        paragraph (1) to the end of such subsection.
            (3) Subsection (c) of section 6421 of the 1986 Code 
        is amended--
                    (A) by striking ``(2)(A)'' and inserting 
                ``(2)'', and
                    (B) by adding at the end the following 
                sentence: ``Subsection (a) shall not apply to 
                gasoline to which this subsection applies.''.
    (h) Amendments Related to Section 1032 of 1997 Act.--
            (1) Section 1032(a) of the 1997 Act is amended by 
        striking ``Subsection (a) of section 4083'' and 
        inserting ``Paragraph (1) of section 4083(a)''.
            (2) Section 1032(e)(12)(A) of the 1997 Act shall be 
        applied as if ``gasoline, diesel fuel,'' were the 
        material proposed to be stricken.
            (3) Paragraph (1) of section 4082(d) of the 1986 
        Code is amended to read as follows:
            ``(1) Aviation-grade kerosene.--Subsection (a)(2) 
        shall not apply to aviation-grade kerosene (as 
        determined under regulations prescribed by the 
        Secretary) which the Secretary determines is destined 
        for use as a fuel in an aircraft.''.
            (4) Paragraph (3) of section 4082(d) of the 1986 
        Code is amended by striking ``a removal, entry, or sale 
        of kerosene to'' and inserting ``kerosene received 
        by''.
            (5) Paragraph (1) of section 4101(e) of the 1986 
        Code is amended by striking ``dyed diesel fuel and 
        kerosene'' and inserting ``such fuel in a dyed form''.
    (i) Amendment Related to Section 1034 of 1997 Act.--
Paragraph (3) of section 4251(d) of the 1986 Code is amended by 
striking ``other similar arrangement'' and inserting ``any 
other similar arrangement''.
    (j) Amendments Related to Section 1041 of 1997 Act.--
            (1) Subparagraph (A) of section 512(b)(13) of the 
        1986 Code is amended by inserting ``or accrues'' after 
        ``receives''.
            (2) Subclause (I) of section 512(b)(13)(B)(i) of 
        the 1986 Code is amended by striking ``(as defined in 
        section 513A(a)(5)(A))''.
            (3) Paragraph (2) of section 1041(b) of the 1997 
        Act is amended to read as follows:
            ``(2) Binding contracts.--The amendments made by 
        this section shall not apply to any amount received or 
        accrued during the first 2 taxable years beginning on 
        or after the date of the enactment of this Act if such 
        amount is received or accrued pursuant to a written 
        binding contract in effect on June 8, 1997, and at all 
        times thereafter before such amount is received or 
        accrued. The preceding sentence shall not apply to any 
        amount which would (but for the exercise of an option 
        to accelerate payment of such amount) be received or 
        accrued after such 2 taxable years.''.
    (k) Amendments Related to Section 1053 of 1997 Act.--
            (1) Section 853 of the 1986 Code is amended by 
        redesignating subsection (e) as subsection (f) and by 
        inserting after subsection (d) the following new 
        subsection:
    ``(e) Treatment of Taxes Not Allowed as a Credit Under 
Section 901(k).--This section shall not apply to any tax with 
respect to which the regulated investment company is not 
allowed a credit under section 901 by reason of section 
901(k).''.
            (2) Subsection (c) of section 853 of the 1986 Code 
        is amended by striking the last sentence.
            (3) Subparagraph (A) of section 901(k)(4) of the 
        1986 Code is amended by striking ``securities 
        business'' and inserting ``business as a securities 
        dealer''.
    (l) Amendment Related to Section 1055 of 1997 Act.--Section 
6611(g)(1) of the 1986 Code is amended by striking ``(e), and 
(h)'' and inserting ``and (e)''.
    (m) Amendment Related to Section 1061 of 1997 Act.--
Subsection (c) of section 751 of the 1986 Code is amended by 
striking ``731'' each place it appears and inserting ``731, 
732,''.
    (n) Amendment Related to Section 1083 of 1997 Act.--Section 
1083(a)(2) of the 1997 Act is amended--
            (1) by striking ``21'' and inserting ``20'', and
            (2) by striking ``22'' and inserting ``21''.
    (o) Amendments Related to Section 1084 of 1997 Act.--
            (1) Paragraph (3) of section 264(a) of the 1986 
        Code is amended by striking ``subsection (c)'' and 
        inserting ``subsection (d)''.
            (2) Paragraph (4) of section 264(a) of the 1986 
        Code is amended by striking ``subsection (d)'' and 
        inserting ``subsection (e)''.
            (3)(A) Paragraph (4) of section 264(f) of the 1986 
        Code is amended by adding at the end the following new 
        subparagraph:
                    ``(E) Master contracts.--If coverage for 
                each insured under a master contract is treated 
                as a separate contract for purposes of sections 
                817(h), 7702, and 7702A, coverage for each such 
                insured shall be treated as a separate contract 
                for purposes of subparagraph (A). For purposes 
                of the preceding sentence, the term `master 
                contract' shall not include any group life 
                insurance contract (as defined in section 
                848(e)(2)).''.
            (B) The second sentence of section 1084(d) of the 
        1997 Act is amended by striking ``but'' and all that 
        follows and inserting ``except that, in the case of a 
        master contract (within the meaning of section 
        264(f)(4)(E) of the Internal Revenue Code of 1986), the 
        addition of covered lives shall be treated as a new 
        contract only with respect to such additional covered 
        lives.''.
            (4)(A) Clause (iv) of section 264(f)(5)(A) of the 
        1986 Code is amended by striking the second sentence.
            (B) Subparagraph (B) of section 6724(d)(1) of the 
        1986 Code is amended by striking ``or'' at the end of 
        clause (xv), by striking the period at the end of 
        clause (xvi) and inserting ``, or'', and by adding at 
        the end the following new clause:
                            ``(xvii) section 264(f)(5)(A)(iv) 
                        (relating to reporting with respect to 
                        certain life insurance and annuity 
                        contracts).''.
            (C) Paragraph (2) of section 6724(d) of the 1986 
        Code is amended by striking ``or'' at the end of 
        subparagraph (Y), by striking the period at theend of 
subparagraph (Z) and inserting ``or'', and by adding at the end the 
following new subparagraph:
                    ``(AA) section 264(f)(5)(A)(iv) (relating 
                to reporting with respect to certain life 
                insurance and annuity contracts).''.
            (5) Subparagraph (A) of section 264(f)(8) of the 
        1986 Code is amended by striking ``subsection 
        (d)(5)(B)'' and inserting ``subsection (e)(5)(B)''.
    (p) Amendments Related to Section 1085 of 1997 Act.--
            (1) Paragraph (5) of section 32(c) of the 1986 Code 
        is amended--
                    (A) by inserting before the period at the 
                end of subparagraph (A) ``and increased by the 
                amounts described in subparagraph (C)'',
                    (B) by adding ``or'' at the end of clause 
                (iii) of subparagraph (B), and
                    (C) by striking all that follows subclause 
                (II) of subparagraph (B)(iv) and inserting the 
                following:
                                    ``(III) other trades or 
                                businesses.
                        For purposes of clause (iv), there 
                        shall not be taken into account items 
                        which are attributable to a trade or 
                        business which consists of the 
                        performance of services by the taxpayer 
                        as an employee.
                    ``(C) Certain amounts included.--An amount 
                is described in this subparagraph if it is--
                            ``(i) interest received or accrued 
                        during the taxable year which is exempt 
                        from tax imposed by this chapter, or
                            ``(ii) amounts received as a 
                        pension or annuity, and any 
                        distributions or payments received from 
                        an individual retirement plan, by the 
                        taxpayer during the taxable year to the 
                        extent not included in gross income.
                Clause (ii) shall not include any amount which 
                is not includible in gross income by reason of 
                a trustee-to-trustee transfer or a rollover 
                distribution.''.
            (2) Clause (v) of section 32(c)(2)(B) of the 1986 
        Code is amended by inserting ``shall be taken into 
        account'' before ``, but only''.
            (3) The text of paragraph (3) of section 1085(a) of 
        the 1997 Act is amended to read as follows: ``Paragraph 
        (2) of section 6213(g) (relating to the definition of 
        mathematical or clerical errors) is amended by striking 
        ``and'' at the end of subparagraph (I), by striking the 
        period at the end of subparagraph (J) and inserting ``, 
        and'', and by inserting after subparagraph (J) the 
        following new subparagraph:
                    ``(K) an omission of information required 
                by section 32(k)(2) (relating to taxpayers 
                making improper prior claims of earned income 
                credit).''.
    (q) Amendment Related to Section 1088 of 1997 Act.--Section 
1088(b)(2)(C) of the 1997 Act is amended by inserting ``more 
than 1 year'' before ``after''.
    (r) Amendment Related to Section 1089 of 1997 Act.--
Paragraphs (1)(C) and (2)(C) of section 664(d) of the 1986 Code 
are each amended by adding ``, and'' at the end.

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

    (a) Amendment Related to Section 1103 of 1997 Act.--The 
paragraph (3) of section 59(a) added by section 1103 of the 
1997 Act is redesignated as paragraph (4).
    (b) Amendments Related to Section 1121 of 1997 Act.--
            (1) Subsection (e) of section 1297 of the 1986 Code 
        is amended by adding at the end the following new 
        paragraph:
            ``(4) Treatment of holders of options.--Paragraph 
        (1) shall not apply to stock treated as owned by a 
        person by reason of section 1298(a)(4) (relating to the 
        treatment of a person that has an option to acquire 
        stock as owning such stock) unless such person 
        establishes that such stock is owned (within the 
        meaning of section 958(a)) by a United States 
        shareholder (as defined in section 951(b)) who is not 
        exempt from tax under this chapter.''.
            (2) Section 1298(a)(2)(B) of the 1986 Code is 
        amended by adding at the end the following new 
        sentence: ``Section 1297(e) shall not apply in 
        determining whether a corporation is a passive foreign 
        investment company for purposes of this 
        subparagraph.''.
    (c) Amendments Related to Section 1122 of 1997 Act.--
            (1) Section 672(f)(3)(B) of the 1986 Code is 
        amended by striking ``section 1296'' and inserting 
        ``section 1297''.
            (2) Paragraph (1) of section 1291(d) of the 1986 
        Code is amended by adding at the end the following new 
        sentence: ``In the case of stock which is marked to 
        market under section 475 or any other provision of this 
        chapter, this section shall not apply, except that 
        rules similar to the rules of section 1296(j) shall 
        apply.''.
            (3) Subsection (d) of section 1296 of the 1986 Code 
        is amended by adding at the end the following new 
        sentence: ``In the case of a regulated investment 
        company which elected to mark to market the stock held 
        by such company as of the last day of the taxable year 
        preceding such company's first taxable year for which 
        such company elects the application of this section, 
        the amount referred to in paragraph (1) shall include 
        amounts included in gross income under such mark to 
        market with respect to such stock for prior taxable 
        years.''.
    (d) Amendment Related to Section 1123 of 1997 Act.--The 
subsection (e) of section 1297 of the 1986 Code added by 
section 1123 of the 1997 Act is redesignated as subsection (f).
    (e) Amendments Related to Section 1131 of 1997 Act.--
            (1) Section 991 of the 1986 Code is amended by 
        striking ``except for the tax imposed by chapter 5''.
            (2) Section 6013 of the 1986 Code is amended by 
        striking ``chapters 1 and 5'' each place it appears in 
        paragraphs (1)(A) and (5) of subsection (g) and in 
        subsection (h)(1) and inserting ``chapter 1'' .
    (f) Amendment Related to Section 1142 of 1997 Act.--
            (1) Paragraph (2) of section 6038(a) of the 1986 
        Code is amended by striking ``by regulations''.
            (2) Paragraph (3) of section 6038(a) of the 1986 
        Code is amended by striking ``such information'' and 
        all that follows through the period and inserting ``the 
        Secretary has prescribed the furnishing of such 
        information on or before the first day of such annual 
        accounting period.''.
            (3) Paragraph (4) of section 6038(e) of the 1986 
        Code is amended by striking ``corporation'' and 
        inserting ``foreign business entity'' each place it 
        appears.
    (g) Amendment Related to Section 1144 of 1997 Act.--
Paragraphs (1) and (2) of section 1144(c) of the 1997 Act are 
each amended by striking ``6038B(b)'' and inserting ``6038B(c) 
(as redesignated by subsection (b))''.

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

    (a) Amendment Related to Section 1204 of 1997 Act.--The 
last sentence of section 162(a) of the 1986 Code is amended by 
striking ``investigate'' and all that follows and inserting 
``investigate or prosecute, or provide support services for the 
investigation or prosecution of, a Federal crime.''.
    (b) Amendments Related to Section 1205 of 1997 Act.--
            (1) Section 6311(e)(1) of the 1986 Code is amended 
        by striking ``section 6103(k)(8)'' and inserting 
        ``section 6103(k)(9)''.
            (2) Paragraph (8) of section 6103(k) of the 1986 
        Code (as added by section 1205(c)(1) of the 1997 Act) 
        is redesignated as paragraph (9).
            (3) The subsection (g) of section 7431 of the 1986 
        Code added by section 1205 of the 1997 Act is 
        redesignated as subsection (h) and is amended by 
        striking ``(8)'' in the heading and inserting ``(9)''.
            (4) Section 1205(c)(3) of the 1997 Act shall be 
        applied as if it read as follows:
            ``(3) Section 6103(p)(3)(A), as amended by section 
        1026(b)(1)(A) of the 1997 Act, is amended by striking 
        `or (8)' and inserting `(8), or (9)' ''.
            (5) Section 1213(b) of the 1997 Act is amended by 
        striking ``section 6724(d)(1)(A)'' and inserting 
        ``section 6724(d)(1)''.
    (c) Amendment Related to Section 1221 of 1997 Act.--
Paragraph (2) of section 774(d) of the 1986 Code is amended by 
inserting before the period ``or 857(b)(3)(D)''.
    (d) Amendment Related to Section 1223 of 1997 Act.--
Subsection (c) of section 6724 of the 1986 Code is amended by 
inserting before the period ``(more than 100 information 
returns in the case of a partnership having more than 100 
partners)''.
    (e) Amendment Related to Section 1226 of 1997 Act.--Section 
1226 of the 1997 Act is amended by striking ``ending on or'' 
and inserting ``beginning''.
    (f) Amendment Related to Section 1231 of 1997 Act.--
Subsection (c) of section 6211 of the 1986 Code is amended--
            (1) by striking ``Subchapter C'' in the heading and 
        inserting ``Subchapters C and D'', and
            (2) by striking ``subchapter C'' in the text and 
        inserting ``subchapters C and D''.
    (g) Amendment Related to Section 1256 of 1997 Act.--
Subparagraph (A) of section 857(d)(3) of the 1986 Code is 
amended by striking ``earliest accumulated earnings and profits 
(other than earnings and profits to which subsection (a)(2)(A) 
applies)'' and inserting ``earliest earnings and profits 
accumulated in any taxable year to which the provisions of this 
part did not apply''.
    (h) Amendment Related to Section 1285 of 1997 Act.--Section 
7430(b) of the 1986 Code is amended by redesignating paragraph 
(5) as paragraph (4).

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

    (a) Amendments Related to Section 1305 of 1997 Act.--
            (1) Section 646 of the 1986 Code is redesignated as 
        section 645.
            (2) The item relating to section 646 in the table 
        of sections for subpart A of part I of subchapter J of 
        chapter 1 of the 1986 Code is amended by striking 
        ``Sec. 646'' and inserting ``Sec. 645''.
            (3) Paragraph (1) of section 2652(b) of the 1986 
        Code is amended by striking ``section 646'' and 
        inserting ``section 645''.
            (4)(A) Paragraph (1) of section 2652(b) of the 1986 
        Code is amended by striking the second sentence.
            (B) Subsection (b) of section 2654 of the 1986 Code 
        is amended by adding at the end the following new 
        sentence: ``For purposes of this subsection, a trust 
        shall be treated as part of an estate during any period 
        that the trust is so treated under section 645.''.
    (b) Amendments Related to Section 1309 of 1997 Act.--
            (1) Subsection (b) of section 685 of the 1986 Code 
        is amended by adding at the end the following new flush 
        sentence:
``A trust shall not fail to be treated as meeting the 
requirement of paragraph (6) by reason of the death of an 
individual but only during the 60-day period beginning on the 
date of such death.''.
            (2) Subsection (f) of section 685 of the 1986 Code 
        is amended by inserting before the period at the end 
        ``and of trusts terminated during the year''.

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

    (a) Amendments Related to Section 1421 of 1997 Act.--
            (1) Paragraph (1) of section 5054(a) of the 1986 
        Code is amended--
                    (A) by inserting ``, or imported into the 
                United States and transferred to a brewery free 
                of tax under section 5418,'' after ``produced 
                in the United States'' in the text, and
                    (B) by inserting ``; certain imported 
                beer'' after ``produced in the united states'' 
                in the heading.
            (2) Paragraph (2) of section 5054(a) of the 1986 
        Code is amended by inserting ``and not transferred to a 
        brewery free of tax under section 5418'' after ``United 
        States''.
            (3) Section 5056 of the 1986 Code is amended by 
        striking ``produced in the United States'' each place 
        it appears and inserting ``removed for consumption or 
        sale''.
    (b) Amendments Related to Section 1422 of 1997 Act.--
            (1) Paragraph (2) of section 5043(a) of the 1986 
        Code is amended by inserting ``which are not 
        transferred to a bonded wine cellar free of tax under 
        section 5364'' after ``foreign wines''.
            (2) Subsection (a) of section 5044 of the 1986 Code 
        is amended by striking ``produced in the United 
        States'' and inserting ``removed from a bonded wine 
        cellar''.
            (3) Section 5364 of the 1986 Code is amended by 
        striking ``Wine imported or brought into'' and 
        inserting ``Natural wine (as defined in section 5381) 
        imported or brought into''.
    (c) Amendment Related to Section 1434 of 1997 Act.--
Paragraph (2) of section 4052(f) of the 1986 Code is amended by 
striking ``this section'' and inserting ``such section''.
    (d) Amendment Related to Section 1436 of 1997 Act.--
Paragraph (2) of section 4091(a) of the 1986 Code is amended by 
inserting ``or on which tax has been credited or refunded'' 
after ``such paragraph''.
    (e) Amendment Related to Section 1453 of 1997 Act.--
Subparagraph (D) of section 7430(c)(4) of the 1986 Code is 
amended by striking ``subparagraph (A)(iii)'' and inserting 
``subparagraph (A)(ii)''.

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

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

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

    (a) Amendments Related to Section 1601(d) of 1997 Act.--
            (1) Amendments related to section 1601(d)(1)--
                    (A) Section 408(p)(2)(D)(i) of the 1986 
                Code is amended by striking ``or (B)'' in the 
                last sentence.
                    (B) Section 408(p) of the 1986 Code is 
                amended by adding at the end the following new 
                paragraph:
            ``(10) Special rules for acquisitions, 
        dispositions, and similar transactions.--
                    ``(A) In general.--An employer which fails 
                to meet any applicable requirement by reason of 
                an acquisition, disposition, or similar 
                transaction shall not be treated as failing to 
                meet such requirement during the transition 
                period if--
                            ``(i) the employer satisfies 
                        requirements similar to the 
                        requirements of section 
                        410(b)(6)(C)(i)(II), and
                            ``(ii) the qualified salary 
                        reduction arrangement maintained by the 
                        employer would satisfy the requirements 
                        of this subsection after the 
                        transaction if the employer which 
                        maintained the arrangement before the 
                        transaction had remained a separate 
                        employer.
                    ``(B) Applicable requirement.--For purposes 
                of this paragraph, the term `applicable 
                requirement' means--
                            ``(i) the requirement under 
                        paragraph (2)(A)(i) that an employer be 
                        an eligible employer,
                            ``(ii) the requirement under 
                        paragraph (2)(D) that an arrangement be 
                        the only plan of an employer, and
                            ``(iii) the participation 
                        requirements under paragraph (4).
                    ``(C) Transition period.--For purposes of 
                this paragraph, the term `transition period' 
                means the period beginning on the date of any 
                transaction described in subparagraph (A) and 
                ending on the last day of the second calendar 
                year following the calendar year in which such 
                transaction occurs.''.
                    (C) Section 408(p)(2) of the 1986 Code is 
                amended--
                            (i) by striking ``the preceding 
                        sentence shall apply only in accordance 
                        with rules similar to the rules of 
                        section 410(b)(6)(C)(i)'' in the last 
                        sentence of subparagraph (C)(i)(II) and 
                        inserting ``the preceding sentence 
                        shall not apply'', and
                            (ii) by striking clause (iii) of 
                        subparagraph (D).
            (2) Amendment to section 1601(d)(4).--Section 
        1601(d)(4)(A) of the 1997 Act is amended--
                    (A) by striking ``Section 403(b)(11)'' and 
                inserting ``Paragraphs (7)(A)(ii) and (11) of 
                section 403(b)'', and
                    (B) by striking ``403(b)(1)'' in clause 
                (ii) and inserting ``403(b)(10)''.
    (b) Amendment Related to Section 1601(f)(4) of 1997 Act.--
Subsection (d) of section 6427 of the 1986 Code is amended--
            (1) by striking ``Helicopters'' in the heading and 
        inserting ``Other Aircraft Uses'', and
            (2) by inserting ``or a fixed-wing aircraft'' after 
        ``helicopter''.

SEC. 6017. AMENDMENT RELATED TO TRANSPORTATION EQUITY ACT FOR THE 21ST 
                    CENTURY.

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

SEC. 6018. AMENDMENTS RELATED TO SMALL BUSINESS JOB PROTECTION ACT OF 
                    1996.

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

SEC. 6019. AMENDMENTS RELATED TO TAXPAYER BILL OF RIGHTS 2.

    (a) In General.--Subsection (b) of section 6104 of the 1986 
Code is amended by adding at the end the following new 
sentence: ``In the case of an organization described in section 
501(d), this subsection shall not apply to copies referred to 
in section 6031(b) with respect to such organization.''.
    (b) Public Inspection.--Subparagraph (C) of section 
6104(e)(1) of the 1986 Code is amended by adding at the end the 
following new sentence: ``In the case of an organization 
described in section 501(d), subparagraph (A) shall not require 
the disclosure of the copies referred to in section 6031(b) 
with respect to such organization.''.
    (c) Disclosure to Authorized Representatives of the 
Taxpayer.--Paragraph (6) of section 6103(e) of the 1986 Code is 
amended by striking ``or (5)'' and inserting ``(5), (8), or 
(9)''.
    (d) Effective Date.--The amendments made by this section 
shall take effect on the date of the enactment of this Act.

SEC. 6020. AMENDMENT RELATED TO OMNIBUS BUDGET RECONCILIATION ACT OF 
                    1993.

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

SEC. 6021. AMENDMENT RELATED TO REVENUE RECONCILIATION ACT OF 1990.

    (a) Identification Requirement for Individuals Eligible for 
Earned Income Credit.--Subparagraph (F) of section 32(c)(1) of 
the 1986 Code is amended by striking ``The term `eligible 
individual' does not include any individual who does not 
include on the return of tax for the taxable year--'' and 
inserting ``No credit shall be allowed under this section to an 
eligible individual who does not include on the return of tax 
for the taxable year--''.
    (b) Identification Requirement for Qualifying Children 
Under Earned Income Credit.--
            (1) In general.--Clause (i) of section 32(c)(3)(D) 
        of the 1986 Code is amended to read as follows:
                            ``(i) In general.--A qualifying 
                        child shall not be taken into account 
                        under subsection (b) unless the 
                        taxpayer includes the name, age, and 
                        TIN of the qualifying child on the 
                        return of tax for the taxable year.''.
            (2) Individuals who do not include tin, etc., of 
        any qualifying child.--Paragraph (1) of section 32(c) 
        of the 1986 Code is amended by adding at the end the 
        following new subparagraph:
                    ``(G) Individuals who do not include tin, 
                etc., of any qualifying child.--No credit shall 
                be allowed under this section to any eligible 
                individual who has 1 or more qualifying 
                children if no qualifying child of such 
                individual is taken into account under 
                subsection (b) by reason of paragraph 
                (3)(D).''.
            (3) Conforming amendment.--Subparagraph (A) of 
        section 32(c)(3) is amended by inserting ``and'' at the 
        end of clause (ii), by striking ``, and'' at the end of 
        clause (iii) and inserting a period, and by striking 
        clause (iv).
    (c) Effective Dates.--
            (1) Eligible individuals.--The amendment made by 
        subsection (a) shall take effect as if included in the 
        amendments made by section 451 of the Personal 
        Responsibility and Work Opportunity Reconciliation Act 
        of 1996.
            (2) Qualifying children.--The amendments made by 
        subsection (b) shall take effect as if included in the 
        amendments made by section 11111 of Revenue 
        Reconciliation Act of 1990.

SEC. 6022. AMENDMENT RELATED TO TAX REFORM ACT OF 1986.

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

SEC. 6023. MISCELLANEOUS CLERICAL AND DEADWOOD CHANGES.

            (1) The heading for subparagraph (B) of section 
        45A(b)(1) of the 1986 Code is amended by striking 
        ``targeted jobs credit'' and inserting ``work 
        opportunity credit''.
            (2) The subsection heading for section 59(b) of the 
        1986 Code is amended by striking ``Section 936 Credit'' 
        and inserting ``Credits Under Section 30A or 936''.
            (3) Subsection (n) of section 72 of the 1986 Code 
        is amended by inserting ``(as in effect on the day 
        before the date of the enactment of the Small Business 
        Job Protection Act of 1996)'' after ``section 
        101(b)(2)(D)''.
            (4) Subparagraph (A) of section 72(t)(3) of the 
        1986 Code is amended by striking ``(A)(v),'' and 
        inserting ``(A)(v)''.
            (5) Clause (ii) of section 142(f)(3)(A) of the 1986 
        Code is amended by striking ``1997, ('' and inserting 
        ``1997 (''.
            (6) The last sentence of paragraph (3) of section 
        501(n) of the 1986 Code is amended by striking 
        ``subparagraph (C)(ii)'' and inserting ``subparagraph 
        (E)(ii)''.
            (7) Subsection (o) of section 501 of the 1986 Code 
        is amended by striking ``section 1853(e)'' and 
        inserting ``section 1855(d)''.
            (8) The heading for subclause (II) of section 
        512(b)(17)(B)(ii) of the 1986 Code is amended by 
        striking ``Rule'' and inserting ``rule''.
            (9) Clause (ii) of section 543(d)(5)(A) of the 1986 
        Code is amended by striking ``section 563(c)'' and 
        inserting ``section 563(d)''.
            (10) Subparagraph (B) of section 871(f)(2) of the 
        1986 Code is amended by striking ``(19 U.S.C. 2462)'' 
        and inserting ``19 U.S.C. 2461 et seq.)''.
            (11) Paragraph (2) of section 1017(a) of the 1986 
        Code is amended by striking ``(b)(2)(D)'' and inserting 
        ``(b)(2)(E)''.
            (12) Subparagraph (D) of section 1250(d)(4) of the 
        1986 Code is amended by striking ``the last sentence of 
        section 1033(b)'' and inserting ``section 1033(b)(2)''.
            (13) Paragraph (5) of section 3121(a) of the 1986 
        Code is amended--
                    (A) by striking the semicolon at the end of 
                subparagraph (F) and inserting a comma,
                    (B) by striking ``or'' at the end of 
                subparagraph (G), and
                    (C) by striking the period at the end of 
                subparagraph (I) and inserting a semicolon.
            (14) Paragraph (19) of section 3401(a) of the 1986 
        Code is amended by inserting ``for'' before ``any 
        benefit provided to''.
            (15) Paragraph (21) of section 3401(a) of the 1986 
        Code is amended by inserting ``for'' before ``any 
        payment made''.
            (16) Sections 4092(b) and 6427(q)(2) of the 1986 
        Code are each amended by striking ``section 
        4041(c)(4)'' and inserting ``section 4041(c)(2)''.
            (17) Sections 4221(c) and 4222(d) of the 1986 Code 
        are each amended by striking ``4053(a)(6)'' and 
        inserting ``4053(6)''.
            (18)(A) The heading of section 4973 of the 1986 
        Code is amended to read as follows:

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

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

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

            (19) Section 4975 of the 1986 Code is amended--
                    (A) in subsection (c)(3) by striking 
                ``exempt for the tax'' and inserting ``exempt 
                from the tax'', and
                    (B) in subsection (i) by striking 
                ``Secretary of Treasury'' and inserting 
                ``Secretary of the Treasury''.
            (20) Paragraph (1) of section 6039(a) of the 1986 
        Code is amended by inserting ``to any person'' after 
        ``transfers''.
            (21) Subparagraph (A) of section 6050R(b)(2) of the 
        1986 Code is amended by striking the semicolon at the 
        end thereof and inserting a comma.
            (22) Subparagraph (A) of section 6103(h)(4) of the 
        1986 Code is amended by inserting ``if'' before ``the 
        taxpayer is a party to''.
            (23) Paragraph (5) of section 6416(b) of the 1986 
        Code is amended by striking ``section 4216(e)(1)'' each 
        place it appears and inserting ``section 4216(d)(1)''.
            (24)(A) Section 6421 of the 1986 Code is amended by 
        redesignating subsections (j) and (k) as subsections 
        (i) and (j), respectively.
            (B) Subsection (b) of section 34 of the 1986 Code 
        is amended by striking ``section 6421(j)'' and 
        inserting ``section 6421(i)''.
            (C) Subsections (a) and (b) of section 6421 of the 
        1986 Code are each amended by striking ``subsection 
        (j)'' and inserting ``subsection (i)''.
            (25) Paragraph (3) of section 6427(f) of the 1986 
        Code is amended by striking ``, (e),''.
            (26)(A) Section 6427 of the 1986 Code, as amended 
        by paragraph (16), is amended by redesignating 
        subsections (n), (p), (q), and (r) as subsections (m), 
        (n), (o), and (p), respectively.
            (B) Paragraphs (1) and (2)(A) of section 6427(i) of 
        the 1986 Code are each amended by striking ``(q)'' and 
        inserting ``(o)''.
            (27) Subsection (m) of section 6501 of the 1986 
        Code is amended by striking ``election under'' and all 
        that follows through ``(or any'' and inserting 
        ``election under section 30(d)(4), 40(f), 43, 45B, 
        45C(d)(4), or 51(j) (or any''.
            (28) The paragraph heading of paragraph (2) of 
        section 7702B(e) of the 1986 Code is amended by 
        inserting ``section'' after ``Application of''.
            (29) Paragraph (3) of section 7434(b) of the 1986 
        Code is amended by striking ``attorneys fees'' and 
        inserting ``attorneys' fees''.
            (30) Subparagraph (B) of section 7872(f)(2) of the 
        1986 Code is amended by striking ``foregone'' and 
        inserting ``forgone''.
            (31) Subsection (e) of section 9502 of the 1986 
        Code is amended to read as follows:
    ``(e) Certain Taxes on Alcohol Mixtures To Remain in 
General Fund.--For purposes of this section, the amounts which 
would (but for this subsection) be required to be appropriated 
under subparagraphs (A), (C), and (D) of subsection (b)(1) 
shall be reduced by--
            ``(1) 0.6 cent per gallon in the case of taxes 
        imposed on any mixture at least 10 percent of which is 
        alcohol (as defined in section 4081(c)(3)) if any 
        portion of such alcohol is ethanol, and
            ``(2) 0.67 cent per gallon in the case of fuel used 
        in producing a mixture described in paragraph (1).''.
            (32) The amendments made by this section shall take 
        effect on the date of the enactment of this Act.

SEC. 6024. EFFECTIVE DATE.

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

                     TITLE VII--REVENUE PROVISIONS

SEC. 7001. CLARIFICATION OF DEDUCTION FOR DEFERRED COMPENSATION.

    (a) In General.--Section 404(a) (relating to deduction for 
contributions of an employer to an employee's trust or annuity 
plan and compensation under a deferred-payment plan) is amended 
by adding at the end the following new paragraph:
            ``(11) Determinations relating to deferred 
        compensation.--For purposes of determining under this 
        section--
                    ``(A) whether compensation of an employee 
                is deferred compensation, and
                    ``(B) when deferred compensation is paid,
        no amount shall be treated as received by the employee, 
        or paid, until it is actually received by the 
        employee.''.
    (b) Effective Date.--
            (1) In general.--The amendment made by subsection 
        (a) shall apply to taxable years ending after the date 
        of the enactment of this Act.
            (2) Change in method of accounting.--In the case of 
        any taxpayer required by the amendment made by 
        subsection (a) to change its method of accounting for 
        its first taxable year ending after the date of the 
        enactment of this Act--
                    (A) such change shall be treated as 
                initiated by the taxpayer,
                    (B) such change shall be treated as made 
                with the consent of the Secretary of the 
                Treasury, and
                    (C) the net amount of the adjustments 
                required to be taken into account by the 
                taxpayer under section 481 of the Internal 
                Revenue Code of 1986 shall be taken into 
                account ratably over the 3-taxable year period 
                beginning with such first taxable year.

SEC. 7002. TERMINATION OF EXCEPTION FOR CERTAIN REAL ESTATE INVESTMENT 
                    TRUSTS FROM THE TREATMENT OF STAPLED ENTITIES.

    (a) In General.--Notwithstanding paragraph (3) of section 
136(c) of the Tax Reform Act of 1984 (relating to stapled 
stock; stapled entities), the REIT gross income provisions 
shall be applied by treating the activities and gross income of 
members of the stapled REIT group properly allocable to any 
nonqualified real property interest held by the exempt REIT or 
any stapled entity which is a member of such group (or treated 
under subsection (c) as held by such REIT or stapled entity) as 
the activities and gross income of the exempt REIT in the same 
manner as if the exempt REIT and such group were 1 entity.
    (b) Nonqualified Real Property Interest.--For purposes of 
this section--
            (1) In general.--The term ``nonqualified real 
        property interest'' means, with respect to any exempt 
        REIT, any interest in real property acquired after 
        March 26, 1998, by the exempt REIT or any stapled 
        entity.
            (2) Exception for binding contracts, etc.--Such 
        term shall not include any interest in real property 
        acquired after March 26, 1998, by the exempt REIT or 
        any stapled entity if--
                    (A) the acquisition is pursuant to a 
                written agreement (including a put option, buy-
                sell agreement, and an agreement relating to a 
                third party default) which was binding on such 
                date and at all times thereafter on such REIT 
                or stapled entity, or
                    (B) the acquisition is described on or 
                before such date in a public announcement or in 
                a filing with the Securities and Exchange 
                Commission.
            (3) Improvements and leases.--
                    (A) In general.--Except as otherwise 
                provided in this paragraph, the term 
                ``nonqualified real property interest'' shall 
                not include--
                            (i) any improvement to land owned 
                        or leased by the exempt REIT or any 
                        member of the stapled REIT group, and
                            (ii) any repair to, or improvement 
                        of, any improvement owned or leased by 
                        the exempt REIT or any member of the 
                        stapled REIT group,
                if such ownership or leasehold interest is a 
                qualified real property interest.
                    (B) Leases.--The term ``nonqualified real 
                property interest'' shall not include--
                            (i) any lease of a qualified real 
                        property interest if such lease is not 
                        otherwise such an interest, or
                            (ii) any renewal of a lease which 
                        is a qualified real property interest,
                but only if the rent on any lease referred to 
                in clause (i) or any renewal referred to in 
                clause (ii) does not exceed an arm's length 
                rate.
                    (C) Termination where change in use.--
                            (i) In general.--Subparagraph (A) 
                        shall not apply to any improvement 
                        placed in service after December 31, 
                        1999, which is part of a change in the 
                        use of the property to which such 
                        improvement relates unless the cost of 
                        such improvement does not exceed 200 
                        percent of--
                                    (I) the cost of such 
                                property, or
                                    (II) if such property is 
                                substituted basis property (as 
                                defined in section 7701(a)(42) 
                                of the Internal Revenue Code of 
                                1986), the fair market value of 
                                the property at the time of 
                                acquisition.
                            (ii) Binding contracts.--For 
                        purposes of clause (i), an improvement 
                        shall be treated as placed in service 
                        before January 1, 2000, if such 
                        improvement is placed in service before 
                        January 1, 2004, pursuant to a binding 
                        contract in effect on December 31, 
                        1999, and at all times thereafter.
            (4) Exception for permitted transfers, etc.--The 
        term ``nonqualified real property interest'' shall not 
        include any interest in real property acquired solely 
        as a result of a direct or indirect contribution, 
        distribution, or other transfer of such interest from 
        the exempt REIT or any member of the stapled REIT group 
        to such REIT or any such member, but only to the extent 
        the aggregate of the interests of the exempt REIT and 
        all stapled entities in such interest in real property 
        (determined in accordance with subsection (c)(1)) is 
        not increased by reason of the transfer.
            (5) Treatment of entities which are not stapled, 
        etc. on march 26, 1998.--Notwithstanding any other 
        provision of this section, all interests in real 
        property held by an exempt REIT or any stapled entity 
        with respect to such REIT (or treated under subsection 
        (c) as held by such REIT or stapled entity) shall be 
        treated as nonqualified real property interests 
        unless--
                    (A) such stapled entity was a stapled 
                entity with respect to such REIT as of March 
                26, 1998, and at all times thereafter, and
                    (B) as of March 26, 1998, and at all times 
                thereafter, such REIT was a real estate 
                investment trust.
            (6) Qualified real property interest.--The term 
        ``qualified real property interest'' means any interest 
        in real property other than a nonqualified real 
        property interest.
    (c) Treatment of Property Held by 10-Percent 
Subsidiaries.--For purposes of this section--
            (1) In general.--Any exempt REIT and any stapled 
        entity shall be treated as holding their proportionate 
        shares of each interest in real property held by any 
        10-percent subsidiary entity of the exempt REIT or 
        stapled entity, as the case may be.
            (2) Property held by 10-percent subsidiaries 
        treated as nonqualified.--
                    (A) In general.--Except as provided in 
                subparagraph (B), any interest in real property 
                held by a 10-percent subsidiary entity of an 
                exempt REIT or stapled entity shall be treated 
                as a nonqualified real property interest.
                    (B) Exception for interests in real 
                property held on march 26, 1998, etc.--In the 
                case of an entity which was a 10-percent 
                subsidiary entity of an exempt REIT or stapled 
                entity on March 26, 1998, and at all times 
                thereafter, an interest in real property held 
                by such subsidiary entity shall be treated as a 
                qualified real property interest if such 
                interest would be so treated if held or 
                acquired directly by the exempt REIT or the 
                stapled entity.
            (3) Reduction in qualified real property interests 
        if increase in ownership of subsidiary.--If, after 
        March 26, 1998, an exempt REIT or stapled entity 
        increases its ownership interest in a subsidiary entity 
        to which paragraph (2)(B) applies above its ownership 
        interest in such subsidiary entity as of such date, the 
        additional portion of each interest in real property 
        which is treated as held by the exempt REIT or stapled 
        entity by reason of such increased ownership shall be 
        treated as a nonqualified real property interest.
            (4) Special rules for determining ownership.--For 
        purposes of this subsection--
                    (A) percentage ownership of an entity shall 
                be determined in accordance with subsection 
                (e)(4),
                    (B) interests in the entity which are 
                acquired by an exempt REIT or a member of the 
                stapled REIT group in any acquisition described 
                in an agreement, announcement, or filing 
                described in subsection (b)(2) shall be treated 
                as acquired on March 26, 1998, and
                    (C) except as provided in guidance 
                prescribed by the Secretary, any change in 
                proportionate ownership which is attributable 
                solely to fluctuations in the relative fair 
                market values of different classes of stock 
                shall not be taken into account.
            (5) Treatment of 60-percent partnerships.--
                    (A) In general.--If, as of March 26, 1998--
                            (i) an exempt REIT or stapled 
                        entity held directly or indirectly at 
                        least 60 percent of the capital or 
                        profits interest in a partnership, and
                            (ii) 90 percent or more of the 
                        capital interests and 90 percent or 
                        more of the profits interests in such 
                        partnership (other than interests held 
                        directly or indirectly by the exempt 
                        REIT or stapled entity) are, or will 
                        be, redeemable or exchangeable for 
                        consideration the amount of which is 
                        determined by reference to the value of 
                        shares of stock in the exempt REIT or 
                        stapled entity (or both),
                paragraph (3) shall not apply to such 
                partnership, and such REIT or entity shall be 
                treated for all purposes of this section as 
                holding all of the capital and profits 
                interests in such partnership.
                    (B) Limitation to 1 partnership.--If, as of 
                January 1, 1999, more than 1 partnership owned 
                by any exempt REIT or stapled entity meets the 
                requirements of subparagraph (A), only the 
                largest such partnership on such date 
                (determined by aggregate asset bases) shall be 
                treated as meeting such requirements.
                    (C) Mirror entity.--For purposes of 
                subparagraph (A), an interest in a partnership 
                formed after March 26, 1998, shall be treated 
                as held by an exempt REIT or stapled entity on 
                March 26, 1998, if such partnership is formed 
                to mirror the stapling of an exempt REIT and a 
                stapled entity in connection with an 
                acquisition agreed to or announced on or before 
                March 26, 1998.
    (d) Treatment of Property Secured by Mortgage Held by 
Exempt REIT or Member of Stapled REIT Group.--
            (1) In general.--In the case of any nonqualified 
        obligation held by an exempt REIT or any member of the 
        stapled REIT group, the REIT gross income provisions 
        shall be applied by treating the exempt REIT as having 
        impermissible tenant service income equal to--
                    (A) the interest income from such 
                obligation which is properly allocable to the 
                property described in paragraph (2), and
                    (B) the income of any member of the stapled 
                REIT group from services described in paragraph 
                (2) with respect to such property.
        If the income referred to in subparagraph (A) or (B) is 
        of a 10-percent subsidiary entity, only the portion of 
        such income which is properly allocable to the exempt 
        REIT's or the stapled entity's interest in the 
        subsidiary entity shall be taken into account.
            (2) Nonqualified obligation.--Except as otherwise 
        provided in this subsection, the term ``nonqualified 
        obligation'' means any obligation secured by a mortgage 
        on an interest in real property if the income of any 
        member of the stapled REIT group for services furnished 
        with respect to such property would be impermissible 
        tenant service income were such property held by the 
        exempt REIT and such services furnished by the exempt 
        REIT.
            (3) Exception for certain market rate 
        obligations.--Such term shall not include any 
        obligation--
                    (A) payments under which would be treated 
                as interest if received by a REIT, and
                    (B) the rate of interest on which does not 
                exceed an arm's length rate.
            (4) Exception for existing obligations.--Such term 
        shall not include any obligation--
                    (A) which is secured on March 26, 1998, by 
                an interest in real property, and
                    (B) which is held on such date by the 
                exempt REIT or any entity which is a member of 
                the stapled REIT group on such date and at all 
                times thereafter,
        but only so long as such obligation is secured by such 
        interest, and the interest payable on such obligation 
        is not changed to a rate which exceeds an arm's length 
        rate unless such change is pursuant to the terms of the 
        obligation in effect on March 26, 1998. The preceding 
        sentence shall not cease to apply by reason of the 
        refinancing of the obligation if (immediately after the 
        refinancing) the principal amount of the obligation 
        resulting from the refinancing does not exceed the 
        principal amount of the refinanced obligation 
        (immediately before the refinancing) and the interest 
        payable on such refinanced obligation does not exceed 
        an arm's length rate.
            (5) Treatment of entities which are not stapled, 
        etc. on march 26, 1998.--A rule similar to the rule of 
        subsection (b)(5) shall apply for purposes of this 
        subsection.
            (6) Increase in amount of nonqualified obligations 
        if increase in ownership of subsidiary.--A rule similar 
        to the rule of subsection (c)(3) shall apply for 
        purposes of this subsection.
            (7) Coordination with subsection (a).--This 
        subsection shall not apply to the portion of any 
        interest in real property that the exempt REIT or 
        stapled entity holds or is treated as holding under 
        this section without regard to this subsection.
    (e) Definitions.--For purposes of this section--
            (1) REIT gross income provisions.--The term ``REIT 
        gross income provisions'' means--
                    (A) paragraphs (2), (3), and (6) of section 
                856(c) of the Internal Revenue Code of 1986, 
                and
                    (B) section 857(b)(5) of such Code.
            (2) Exempt reit.--The term ``exempt REIT'' means a 
        real estate investment trust to which section 269B of 
        the Internal Revenue Code of 1986 does not apply by 
        reason of paragraph (3) of section 136(c) of the Tax 
        Reform Act of 1984.
            (3) Stapled reit group.--The term ``stapled REIT 
        group'' means, with respect to an exempt REIT, the 
        group consisting of--
                    (A) all entities which are stapled entities 
                with respect to the exempt REIT, and
                    (B) all entities which are 10-percent 
                subsidiary entities of the exempt REIT or any 
                such stapled entity.
            (4) 10-percent subsidiary entity.--
                    (A) In general.--The term ``10-percent 
                subsidiary entity'' means, with respect to any 
                exempt REIT or stapled entity, any entity in 
                which the exempt REIT or stapled entity (as the 
                case may be) directly or indirectly holds at 
                least a 10-percent interest.
                    (B) Exception for certain c corporation 
                subsidiaries of reits.--A corporation which 
                would, but for this subparagraph, be treated as 
                a 10-percent subsidiary of an exempt REIT shall 
                not be so treated if such corporation is 
                taxable under section 11 of the Internal 
                Revenue Code of 1986.
                    (C) 10-percent interest.--The term ``10-
                percent interest'' means--
                            (i) in the case of an interest in a 
                        corporation, ownership of 10 percent 
                        (by vote or value) of the stock in such 
                        corporation,
                            (ii) in the case of an interest in 
                        a partnership, ownership of 10 percent 
                        of the capital or profits interest in 
                        the partnership, and
                            (iii) in any other case, ownership 
                        of 10 percent of the beneficial 
                        interests in the entity.
            (5) Other definitions.--Terms used in this section 
        which are used in section 269B or section 856 of such 
        Code shall have the respective meanings given such 
        terms by such section.
    (f) Guidance.--The Secretary may prescribe such guidance as 
may be necessary or appropriate to carry out the purposes of 
this section, including guidance to prevent the avoidance of 
such purposes and to prevent the double counting of income.
    (g) Effective Date.--This section shall apply to taxable 
years ending after March 26, 1998.

SEC. 7003. CERTAIN CUSTOMER RECEIVABLES INELIGIBLE FOR MARK-TO-MARKET 
                    TREATMENT.

    (a) Certain Receivables Not Eligible for Mark to Market.--
Section 475(c) (relating to definitions) is amended by adding 
at the end the following new paragraph:
            ``(4) Special rules for certain receivables.--
                    ``(A) In general.--Paragraph (2)(C) shall 
                not include any nonfinancial customer paper.
                    ``(B) Nonfinancial customer paper.--For 
                purposes of subparagraph (A), the term 
                `nonfinancial customer paper' means any 
                receivable which--
                            ``(i) is a note, bond, debenture, 
                        or other evidence of indebtedness,
                            ``(ii) arises out of the sale of 
                        nonfinancial goods or services by a 
                        person the principal activity of which 
                        is the selling or providing of 
                        nonfinancial goods or services, and
                            ``(iii) is held by such person (or 
                        a person who bears a relationship to 
                        such person described in section 267(b) 
                        or 707(b)) at all times since issue.''
    (b) Regulations.--Section 475(g) is amended by striking 
``and'' at the end of paragraph (1), by striking the period at 
the end of paragraph (2) and inserting ``, and'', and by adding 
at the end the following new paragraph:
            ``(3) to prevent the use by taxpayers of subsection 
        (c)(4) to avoid the application of this section to a 
        receivable that is inventory in the hands of the 
        taxpayer (or a person who bears a relationship to the 
        taxpayer described in sections 267(b) of 707(b)).''.
    (c) Effective Date.--
            (1) In general.--The amendments made by this 
        section shall apply to taxable years ending after the 
        date of the enactment of this Act.
            (2) Change in method of accounting.--In the case of 
        any taxpayer required by the amendments made by this 
        section to change its method of accounting for its 
        first taxable year ending after the date of the 
        enactment of this Act--
                    (A) such change shall be treated as 
                initiated by the taxpayer,
                    (B) such change shall be treated as made 
                with the consent of the Secretary of the 
                Treasury, and
                    (C) the net amount of the adjustments 
                required to be taken into account by the 
                taxpayer under section 481 of the Internal 
                Revenue Code of 1986 shall be taken into 
                account ratably over the 4-taxable year period 
                beginning with such first taxable year.

SEC. 7004. MODIFICATION OF AGI LIMIT FOR CONVERSIONS TO ROTH IRAS.

    (a) In General.--Section 408A(c)(3)(C)(i) (relating to 
limits based on modified adjusted gross income) is amended to 
read as follows:
                            ``(i) adjusted gross income shall 
                        be determined in the same manner as 
                        under section 219(g)(3), except that--
                                    ``(I) any amount included 
                                in gross income under 
                                subsection (d)(3) shall not be 
                                taken into account, and
                                    ``(II) any amount included 
                                in gross income by reason of a 
                                required distribution under a 
                                provision described in 
                                paragraph (5) shall not be 
                                taken into account for purposes 
                                of subparagraph (B)(i).''.
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years beginning after December 31, 2004.

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

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

    Section 1021(a)(3) of the Congressional Budget and 
Impoundment Control Act of 1974 shall only apply to--
            (1) section 3105 (relating to administrative appeal 
        of adverse IRS determination of tax-exempt status of 
        bond issue), and
            (2) section 3445(c) (relating to State fish and 
        wildlife permits).

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

SEC. 9001. SHORT TITLE.

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

SEC. 9002. AUTHORIZATION AND PROGRAM SUBTITLE.

    (a) Authorization of Appropriations.--Section 1101(a) of 
the Transportation Equity Act for the 21st Century is amended--
            (1) in paragraph (13)--
                    (A) by striking ``$1,025,695,000'' and 
                inserting ``$1,029,583,500'';
                    (B) by striking ``$1,398,675,000'' and 
                inserting ``$1,403,977,500'';
                    (C) by striking ``$1,678,410,000'' the 
                first place it appears and inserting 
                ``$1,684,773,000'';
                    (D) by striking ``$1,678,410,000'' the 
                second place it appears and inserting 
                ``$1,684,773,000'';
                    (E) by striking ``$1,771,655,000'' the 
                first place it appears and inserting 
                ``$1,778,371,500''; and
                    (F) by striking ``$1,771,655,000'' the 
                second place it appears and inserting 
                ``$1,778,371,500''; and
            (2) in paragraph (14)--
                    (A) by striking ``1998'' and inserting 
                ``1999''; and
                    (B) by inserting before ``$5,000,000'' the 
                following: ``$10,000,000 for fiscal year 
                1998''.
    (b) Obligation Limitations.--
            (1) General limitation.--Section 1102(a) of such 
        Act is amended--
                    (A) in paragraph (2) by striking 
                ``$25,431,000,000'' and inserting 
                ``$25,511,000,000'';
                    (B) in paragraph (3) by striking 
                ``$26,155,000,000'' and inserting 
                ``$26,245,000,000'';
                    (C) in paragraph (4) by striking 
                ``$26,651,000,000'' and inserting 
                ``$26,761,000,000'';
                    (D) in paragraph (5) by striking 
                ``$27,235,000,000'' and inserting 
                ``$27,355,000,000''; and
                    (E) in paragraph (6) by striking 
                ``$27,681,000,000'' and inserting 
                ``$27,811,000,000''.
            (2) Transportation research programs.--Section 
        1102(e) of such Act is amended--
                    (A) by striking ``3'' and inserting ``5'';
                    (B) by striking ``VI'' and inserting ``V''; 
                and
                    (C) by inserting before the period at the 
                end the following: ``; except that obligation 
                authority made available for such programs 
                under such limitations shall remain available 
                for a period of 3 fiscal years''.
            (3) Redistribution of certain authorized funds.--
        Section 1102(f) of such Act is amended by striking 
        ``(other than the program under section 160 of title 
        23, United States Code)''.
    (c) Apportionments.--Section 1103 of such Act is amended--
            (1) in subsection (l) by adding at the end the 
        following:
            ``(5) Section 150 of such title, and the item 
        relating to such section in the analysis for chapter 1 
        of such title, are repealed.'';
            (2) in subsection (n) by inserting ``of title 23, 
        United States Code'' after ``206''; and
            (3) by adding at the end the following:
    ``(o) Technical Adjustments.--Section 104 of title 23, 
United States Code, is amended--
            ``(1) in subsection (a)(1) (as amended by 
        subsection (a) of this section) by striking `under 
        section 103';
            ``(2) in subsection (b) (as amended by subsection 
        (b) of this section)--
                    ``(A) in paragraph (1)(A) by striking `1999 
                through 2003' and inserting `1998 through 
                2002'; and
                    ``(B) in paragraph (4)(B)(i) by striking 
                `on lanes on Interstate System' and all that 
                follows through `in each State' and inserting 
                `on Interstate System routes open to traffic in 
                each State'; and
            ``(3) in subsection (e)(2) (as added by subsection 
        (d)(6) of this section) by striking `104, 144, or 157' 
        and inserting `104, 105, or 144'.''.
    (d) Minimum Guarantee.--Section 1104 of such Act is amended 
by adding at the end the following:
    ``(c) Technical Adjustments.--Section 105 of title 23, 
United States Code (as amended by subsection (a) of this 
section), is amended--
            ``(1) in subsection (a) by adding at the end the 
        following: `The minimum amount allocated to a State 
        under this section for a fiscal year shall be 
        $1,000,000.';
            ``(2) in subsection (c)(1) by striking `50 percent 
        of ';
            ``(3) in subsection (c)(1)(A) by inserting `(other 
        than metropolitan planning, minimum guarantee, high 
        priority projects, Appalachian development highway 
        system, and recreational trails programs)' after 
        `subsection (a)';
            ``(4) in subsection (c)(1)(B) by striking `all 
        States' and inserting `each State';
            ``(5) in subsection (c)(2)--
                    ``(A) by striking `apportion' and inserting 
                `administer'; and
                    ``(B) by striking `apportioned' and 
                inserting `administered'; and
            ``(6) in subsection (f)--
                    ``(A) by inserting `percentage' before 
                `return' each place it appears;
                    ``(B) in paragraph (2) by striking `for the 
                preceding fiscal year was equal to or less 
                than' and inserting `in the table in subsection 
                (b) was equal to'; and
                    ``(C) in paragraph (3)--
                            ``(i) by inserting 
                        `proportionately' before `adjust';
                            ``(ii) by striking `set forth'; and
                            ``(iii) by striking `do not exceed' 
                        and inserting `is equal to'.''.
    (e) Revenue Aligned Budget Authority.--Section 1105 of such 
Act is amended by adding at the end the following:
    ``(c) Technical Corrections.--Section 110 of such title (as 
amended by subsection (a)) is amended--
            ``(1) by striking subsection (a) and inserting the 
        following:
    `(a) In General.--
            `(1) Allocation.--On October 15 of fiscal year 2000 
        and each fiscal year thereafter, the Secretary shall 
        allocate for such fiscal year an amount of funds equal 
        to the amount determined pursuant to section 
        251(b)(1)(B)(ii)(I)(cc) of the Balanced Budget and 
        Emergency Deficit Control Act of 1985 (2 U.S.C 
        901(b)(2)(B)(ii)(I)(cc)) if the amount determined 
        pursuant to such section for such fiscal year is 
        greater than zero.
            `(2) Reduction.--If the amount determined pursuant 
        to section 251(b)(1)(B)(ii)(I)(cc) of the Balanced 
        Budget and Emergency Deficit Control Act of 1985 (2 
        U.S.C 901(b)(2)(B)(ii)(I)(cc)) for fiscal year 2000 or 
        any fiscal year thereafter is less than zero, the 
        Secretary on October 1 of the succeeding fiscal year 
        shall reduce proportionately the amount of sums 
        authorized to be appropriated from the Highway Trust 
        Fund (other than the Mass Transit Account) to carry out 
        each of the Federal-aid highway and highway safety 
        construction programs (other than emergency relief) by 
        an aggregate amount equal to the amount determined 
        pursuant to such section.';
            ``(2) in subsections (b)(2) and (b)(4) by striking 
        `subsection (a)' and inserting `subsection (a)(1)'; and
            ``(3) in subsection (c) by striking `Maintenance 
        program, the' and inserting `and'.''.
    (f) Interstate Maintenance Program.--Section 1107 of such 
Act is amended by adding at the end the following:
    ``(d) Technical Amendments.--Section 119 of such title (as 
amended by subsection (a)) is amended--
            ``(1) in subsection (b)--
                    ``(A) by striking `104(b)(5)(B)' and 
                inserting `104(b)(4)'; and
                    ``(B) by striking `104(b)(5)(A)' each place 
                it appears and inserting `104(b)(5)(A) (as in 
                effect on the date before the date of enactment 
                of the Transportation Equity Act for the 21st 
                Century)'; and
            ``(2) in subsection (c) by striking `104(b)(5)(B)' 
        each place it appears and inserting `104(b)(4)'.''.
    (g) Congestion Mitigation and Air Quality Improvement 
Program.--Section 1110(d)(2) of such Act is amended--
            (1) by striking ``149(c)'' and inserting 
        ``149(e)''; and
            (2) by striking ``that reduce'' and inserting 
        ``reduce''.
    (h) Highway Use Tax Evasion Projects.--Section 1114 of such 
Act is amended by adding at the end the following:
    ``(c) Technical Adjustments.--Section 143 of title 23, 
United States Code (as amended by subsection (a) of this 
section), is amended--
            ``(1) in subsection (c)(1) by striking `April 1' 
        and inserting `August 1';
            ``(2) in subsection (c)(3) by inserting `priority' 
        after `Funding'; and
            ``(3) in subsection (c)(3) by inserting `and prior 
        to funding any other activity under this section,' 
        after `2003,'.''.
    (i) Federal Lands Highways Program.--Section 1115 of the 
Transportation Equity Act for the 21st Century is amended by 
adding at the end the following:
    ``(f) Conforming Amendments.--
            ``(1) Federal share.--Subsections (j) and (k) of 
        section 120 of title 23, United States Code (as added 
        by subsection (a) of this section), are redesignated as 
        subsections (k) and (l), respectively.
            ``(2) Reservation of funds.--Section 202(d)(4)(B) 
        of such title (as added by subsection (b)(4) of this 
        section) is amended by striking `to, apply sodium 
        acetate/formate de-icer to,' and inserting `, sodium 
        acetate/formate, or other environmentally acceptable, 
        minimally corrosive anti-icing and de-icing 
        compositions'.
            ``(3) Elimination of duplicative provision.--
        Section 144(g) of such title is amended by striking 
        paragraph (4).''.
    (j) Woodrow Wilson Memorial Bridge Correction.--Section 
1116 of such Act is amended by adding at the end the following:
    ``(e) Technical Correction.--Sections 404(5) and 
407(c)(2)(C)(iii) of such Act (as amended by subsections (a)(2) 
and (b)(2), respectively) are amended by striking `the record 
of decision' each place it appears and inserting `a record of 
decision'.''.
    (k) Technical Correction.--Section 1117 of such Act is 
amended in subsections (a) and (b) by striking ``section 102'' 
each place it appears and inserting ``section 1101(a)(6)''.

SEC. 9003. RESTORATIONS TO GENERAL PROVISIONS SUBTITLE.

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

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

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

``SEC. 1225. SUBSTITUTE PROJECT.

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

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

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

``Sec. 1223. Transportation assistance for Olympic cities.
``Sec. 1224. National historic covered bridge preservation.
``Sec. 1225. Substitute project.
``Sec. 1226. Fiscal, administrative, and other amendments.''.

    (c) Metropolitan Planning Technical Adjustment.--Section 
1203 of such Act is amended by adding at the end the following:
    ``(o) Technical Adjustment.--Section 134(h)(5)(A) of title 
23, United States Code (as amended by subsection (h) of this 
section), is amended by striking `for implementation'.''.
    (d) Amendments to Prior Surface Transportation Laws.--
Section 1211 of such Act is amended--
            (1) in subsection (i)(3)(E) by striking 
        ``subparagraph (D)'' and inserting ``subparagraph 
        (C)'';
            (2) in subsection (i) by adding at the end the 
        following:
            ``(4) Technical amendments.--Section 
        1105(e)(5)(B)(i) of such Act (as amended by paragraph 
        (3) of this subsection) is amended--
                    ``(A) by striking `subsection 
                (c)(18)(B)(i)' and inserting `subsection 
                (c)(18)(D)(i)';
                    ``(B) by striking `subsection 
                (c)(18)(B)(ii)' and inserting `subsection 
                (c)(18)(D)(ii)'; and
                    ``(C) by adding at the end the following: 
                `The portion of the route referred to in 
                subsection (c)(36) is designated as Interstate 
                Route I-86.'.'';
            (3) by striking subsection (j);
            (4) in subsection (k)--
                    (A) by striking ``along'' in paragraph (1) 
                and inserting ``from''; and
                    (B) by adding at the end the following:
            ``(4) Texas state highway 99.--Texas State Highway 
        99 (also known as `Grand Parkway') shall be considered 
        as 1 option in the I-69 route studies performed by the 
        Texas Department of Transportation for the designation 
        of I-69 Bypass in Houston, Texas.''; and
            (5) by redesignating subsections (g) through (i) 
        and (k) through (n) as subsections (f) through (h) and 
        (i) through (l), respectively.
    (e) Miscellaneous.--Section 1212 of such Act is amended--
            (1) in the second sentence of subsection (q)(1) by 
        striking ``advance curriculum'' and inserting 
        ``advanced curriculum'';
            (2) in subsection (r)--
                    (A) by redesignating paragraph (2) as 
                paragraph (3); and
                    (B) by inserting after paragraph (1) the 
                following:
            ``(2) Authorization of appropriations.--There are 
        authorized to be appropriated from the Highway Trust 
        Fund (other than the Mass Transit Account) to carry out 
        paragraph (1) $2,000,000 for fiscal year 1999 and 
        $2,500,000 for fiscal year 2000.'';
            (3) in subsection (s)--
                    (A) by redesignating paragraph (2) as 
                paragraph (3); and
                    (B) by inserting after paragraph (1) the 
                following:
            ``(2) Authorization of appropriations.--There is 
        authorized to be appropriated from the Highway Trust 
        Fund (other than the Mass Transit Account) to carry out 
        paragraph (1) $23,000,000 for fiscal year 1999.'';
            (4) in subsection (u)--
                    (A) by inserting ``the Secretary shall 
                approve, and'' before ``the Commonwealth'';
                    (B) by inserting a comma after ``with''; 
                and
                    (C) by inserting ``(as redefined by this 
                Act)'' after ``80''; and
            (5) by redesignating subsections (k) through (z) as 
        subsections (e) through (t), respectively.
    (f) Puerto Rico Highway Program.--Section 1214(r) of the 
Transportation Equity Act for the 21st Century is amended by 
adding at the end the following:
            ``(3) Treatment of funds.--Amounts made available 
        to carry out this subsection for a fiscal year shall be 
        administered as follows:
                    ``(A) For purposes of this subsection, such 
                amounts shall be treated as being apportioned 
                to Puerto Rico under sections 104(b), 144, and 
                206 of title 23, United States Code, for each 
                program funded under such sections in an amount 
                determined by multiplying--
                            ``(i) the aggregate of such amounts 
                        for the fiscal year; by
                            ``(ii) the ratio that--
                                    ``(I) the amount of funds 
                                apportioned to Puerto Rico for 
                                each such program for fiscal 
                                year 1997; bears to
                                    ``(II) the total amount of 
                                funds apportioned to Puerto 
                                Rico for all such programs for 
                                fiscal year 1997.
                    ``(B) The amounts treated as being 
                apportioned to Puerto Rico under each section 
                referred to in subparagraph (A) shall be deemed 
                to be required to be apportioned to Puerto Rico 
                under such section for purposes of the 
                imposition of any penalty provisions in titles 
                23 and 49, United States Code.
                    ``(C) Subject to subparagraph (B), nothing 
                in this subsection shall be construed as 
                affecting any allocation under section 105 of 
                title 23, United States Code, and any 
                apportionment under sections 104 and 144 of 
                such title.''.
    (g) Designated Transportation Enhancement Activities.--
Section 1215 of such Act--
            (1) is amended in each of subsections (d), (e), 
        (f), and (g)--
                    (A) by redesignating paragraph (2) as 
                paragraph (3); and
                    (B) by inserting after paragraph (1) the 
                following:
            ``(2) Authorization of appropriations.--There are 
        authorized to be appropriated from the Highway Trust 
        Fund (other than the Mass Transit Account) to carry out 
        paragraph (1) the amounts specified in such paragraph 
        for the fiscal years specified in such paragraph.''; 
        and
            (2) in subsection (d)(1) by inserting ``on Route 
        50'' after ``measures''.
    (h) Eligibility.--Section 1217 of such Act is amended--
            (1) in subsection (d) by striking ``104(b)(4)'' and 
        inserting ``104(b)(5)(A)'';
            (2) in subsection (i) by striking ``120(l)(1)'' and 
        inserting ``120(j)(1)''; and
            (3) in subsection (j) by adding at the end the 
        following: ``$3,000,000 of the amounts made available 
        for item 164 of the table contained in section 1602 
        shall be made available on October 1, 1998, to the 
        Pennsylvania Turnpike Commission to carry out this 
        subsection.''.
    (i) Magnetic Levitation Transportation Technology 
Deployment Program.--Section 1218 of such Act is amended by 
adding at the end the following:
    ``(c) Technical Amendments.--Section 322 of title 23, 
United States Code (as added by subsection (a) of this 
section), is amended--
            ``(1) in subsection (a)(3) by striking `or under 50 
        miles per hour';
            ``(2) in subsection (d)--
                    ``(A) in paragraph (1) by striking `or low-
                speed'; and
                    ``(B) in paragraph (2)--
                            ``(i) in subparagraph (A) by 
                        striking `(h)(1)(A)' and inserting 
                        `(h)(1)'; and
                            ``(ii) in subparagraph (B) by 
                        striking `(h)(4)' and inserting 
                        `(h)(3)';
            ``(3) in subsection (h)(1)(B)(i) by inserting 
        `(other than subsection (i))' after `this section'; and
            ``(4) by adding at the end the following:
    `(i) Low-Speed Project.--
            `(1) In general.--Notwithstanding any other 
        provision of this section, of the funds made available 
        by subsection (h)(1)(A) to carry out this section, 
        $5,000,000 shall be made available to the Secretary to 
        make grants for the research and development of low-
        speed superconductivity magnetic levitation technology 
        for public transportation purposes in urban areas to 
        demonstrate energy efficiency, congestion mitigation, 
        and safety benefits.
            `(2) Noncontract authority authorization of 
        appropriations.--
                    `(A) In general.--There are authorized to 
                be appropriated from the Highway Trust Fund 
                (other than the Mass Transit Account) to carry 
                out this subsection such sums as are necessary 
                for each of fiscal years 2000 through 2003.
                    `(B) Availability.--Notwithstanding section 
                118(a), funds made available under subparagraph 
                (A)--
                            `(i) shall not be available in 
                        advance of an annual appropriation; and
                            `(ii) shall remain available until 
                        expended.'.''.
    (j) Transportation Assistance for Olympic Cities.--Section 
1223(f) of such Act is amended by inserting before the period 
at the end the following: ``or Special Olympics 
International''.

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

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

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

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

``Sec. 1309. Major investment study integration.''

            and inserting the following:

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

``Sec. 1311. Discretionary grant selection criteria and process.''.

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

SEC. 9005. RESTORATIONS TO SAFETY SUBTITLE.

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

``SEC. 1405. OPEN CONTAINER LAWS.

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

`Sec. 154. Open container requirements

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

        the State shall be deemed to have in effect a law 
        described in this subsection with respect to such a 
        motor vehicle for each fiscal year during which the law 
        is in effect.
    `(c) Transfer of Funds.--
            `(1) Fiscal years 2001 and 2002.--On October 1, 
        2000, and October 1, 2001, if a State has not enacted 
        or is not enforcing an open container law described in 
        subsection (b), the Secretary shall transfer an amount 
        equal to 1\1/2\ percent of the funds apportioned to the 
        State on that date under each of paragraphs (1), (3), 
        and (4) of section 104(b) to the apportionment of the 
        State under section 402--
                    `(A) to be used for alcohol-impaired 
                driving countermeasures; or
                    `(B) to be directed to State and local law 
                enforcement agencies for enforcement of laws 
                prohibiting driving while intoxicated or 
                driving under the influence and other related 
                laws (including regulations), including the 
                purchase of equipment, the training of 
                officers, and the use of additional personnel 
                for specific alcohol-impaired driving 
                countermeasures, dedicated to enforcement of 
                the laws (including regulations).
            `(2) Fiscal year 2003 and fiscal years 
        thereafter.--On October 1, 2002, and each October 1 
        thereafter, if a State has not enacted or is not 
        enforcing an open container law described in subsection 
        (b), the Secretary shall transfer an amount equal to 3 
        percent of the funds apportioned to the State on that 
        date under each of paragraphs (1), (3), and (4) of 
        section 104(b) to the apportionment of the State under 
        section 402 to be used or directed as described in 
        subparagraph (A) or (B) of paragraph (1).
            `(3) Use for hazard elimination program.--A State 
        may elect to use all or a portion of the funds 
        transferred under paragraph (1) or (2) for activities 
        eligible under section 152.
            `(4) Federal share.--The Federal share of the cost 
        of a project carried out with funds transferred under 
        paragraph (1) or (2), or used under paragraph (3), 
        shall be 100 percent.
            `(5) Derivation of amount to be transferred.--The 
        amount to be transferred under paragraph (1) or (2) may 
        be derived from 1 or more of the following:
                    `(A) The apportionment of the State under 
                section 104(b)(1).
                    `(B) The apportionment of the State under 
                section 104(b)(3).
                    `(C) The apportionment of the State under 
                section 104(b)(4).
            `(6) Transfer of obligation authority.--
                    `(A) In general.--If the Secretary 
                transfers under this subsection any funds to 
                the apportionment of a State under section 402 
                for a fiscal year, the Secretary shall transfer 
                an amount, determined under subparagraph (B), 
                of obligation authority distributed for the 
                fiscal year to the State for Federal-aid 
                highways and highway safety construction 
                programs for carrying out projects under 
                section 402.
                    `(B) Amount.--The amount of obligation 
                authority referred to in subparagraph (A) shall 
                be determined by multiplying--
                            `(i) the amount of funds 
                        transferred under subparagraph (A) to 
                        the apportionment of the State under 
                        section 402 for the fiscal year; by
                            `(ii) the ratio that--
                                    `(I) the amount of 
                                obligation authority 
                                distributed for the fiscal year 
                                to the State for Federal-aid 
                                highways and highway safety 
                                construction programs; bears to
                                    `(II) the total of the sums 
                                apportioned to the State for 
                                Federal-aid highways and 
                                highway safety construction 
                                programs (excluding sums not 
                                subject to any obligation 
                                limitation) for the fiscal 
                                year.
            `(7) Limitation on applicability of obligation 
        limitation.--Notwithstanding any other provision of 
        law, no limitation on the total of obligations for 
        highway safety programs under section 402 shall apply 
        to funds transferred under this subsection to the 
        apportionment of a State under such section.'.
    ``(b) Conforming Amendment.--The analysis for chapter 1 of 
such title is amended by inserting after the item relating to 
section 153 the following:

`154. Open container requirements.'.

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

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

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

    `(a) Definitions.--In this section, the following 
definitions apply:
            `(1) Alcohol concentration.--The term ``alcohol 
        concentration'' means grams of alcohol per 100 
        milliliters of blood or grams of alcohol per 210 liters 
        of breath.
            `(2) Driving while intoxicated; driving under the 
        influence.--The terms ``driving while intoxicated'' and 
        ``driving under the influence'' mean driving or being 
        in actual physical control of a motor vehicle while 
        having an alcohol concentration above the permitted 
        limit as established by each State.
            `(3) License suspension.--The term ``license 
        suspension'' means the suspension of all driving 
        privileges.
            `(4) Motor vehicle.--The term ``motor vehicle'' 
        means a vehicle driven or drawn by mechanical power and 
        manufactured primarily for use on public highways, but 
        does not include a vehicle operated solely on a rail 
        line or a commercial vehicle.
            `(5) Repeat intoxicated driver law.--The term 
        ``repeat intoxicated driver law'' means a State law 
        that provides, as a minimum penalty, that an individual 
        convicted of a second or subsequent offense for driving 
        while intoxicated or driving under the influence after 
        a previous conviction for that offense shall--
                    `(A) receive a driver's license suspension 
                for not less than 1 year;
                    `(B) be subject to the impoundment or 
                immobilization of each of the individual's 
                motor vehicles or the installation of an 
                ignition interlock system on each of the motor 
                vehicles;
                    `(C) receive an assessment of the 
                individual's degree of abuse of alcohol and 
                treatment as appropriate; and
                    `(D) receive--
                            `(i) in the case of the second 
                        offense--
                                    `(I) an assignment of not 
                                less than 30 days of community 
                                service; or
                                    `(II) not less than 5 days 
                                of imprisonment; and
                            `(ii) in the case of the third or 
                        subsequent offense--
                                    `(I) an assignment of not 
                                less than 60 days of community 
                                service; or
                                    `(II) not less than 10 days 
                                of imprisonment.
    `(b) Transfer of Funds.--
            `(1) Fiscal years 2001 and 2002.--On October 1, 
        2000, and October 1, 2001, if a State has not enacted 
        or is not enforcing a repeat intoxicated driver law, 
        the Secretary shall transfer an amount equal to 1\1/2\ 
        percent of the funds apportioned to the State on that 
        date under each of paragraphs (1), (3), and (4) of 
        section 104(b) to the apportionment of the State under 
        section 402--
                    `(A) to be used for alcohol-impaired 
                driving countermeasures; or
                    `(B) to be directed to State and local law 
                enforcement agencies for enforcement of laws 
                prohibiting driving while intoxicated or 
                driving under the influence and other related 
                laws (including regulations), including the 
                purchase of equipment, the training of 
                officers, and the use of additional personnel 
                for specific alcohol-impaired driving 
                countermeasures, dedicated to enforcement of 
                the laws (including regulations).
            `(2) Fiscal year 2003 and fiscal years 
        thereafter.--On October 1, 2002, and each October 1 
        thereafter, if a State has not enacted or is not 
        enforcing a repeat intoxicated driver law, the 
        Secretary shall transfer an amount equal to 3 percent 
        of the funds apportioned to the State on that date 
        under each of paragraphs (1), (3), and (4) of section 
        104(b) to the apportionment of the State under section 
        402 to be used or directed as described in subparagraph 
        (A) or (B) of paragraph (1).
            `(3) Use for hazard elimination program.--A State 
        may elect to use all or a portion of the funds 
        transferred under paragraph (1) or (2) for activities 
        eligible under section 152.
            `(4) Federal share.--The Federal share of the cost 
        of a project carried out with funds transferred under 
        paragraph (1) or (2), or used under paragraph (3), 
        shall be 100 percent.
            `(5) Derivation of amount to be transferred.--The 
        amount to be transferred under paragraph (1) or (2) may 
        be derived from 1 or more of the following:
                    `(A) The apportionment of the State under 
                section 104(b)(1).
                    `(B) The apportionment of the State under 
                section 104(b)(3).
                    `(C) The apportionment of the State under 
                section 104(b)(4).
            `(6) Transfer of obligation authority.--
                    `(A) In general.--If the Secretary 
                transfers under this subsection any funds to 
                the apportionment of a State under section 402 
                for a fiscal year, the Secretary shall transfer 
                an amount, determined under subparagraph (B), 
                of obligation authority distributed for the 
                fiscal year to the State for Federal-aid 
                highways and highway safety construction 
                programs for carrying out projects under 
                section 402.
                    `(B) Amount.--The amount of obligation 
                authority referred to in subparagraph (A) shall 
                be determined by multiplying--
                            `(i) the amount of funds 
                        transferred under subparagraph (A) to 
                        the apportionment of the State under 
                        section 402 for the fiscal year; by
                            `(ii) the ratio that--
                                    `(I) the amount of 
                                obligation authority 
                                distributed for the fiscal year 
                                to the State for Federal-aid 
                                highways and highway safety 
                                construction programs; bears to
                                    `(II) the total of the sums 
                                apportioned to the State for 
                                Federal-aid highways and 
                                highway safety construction 
                                programs (excluding sums not 
                                subject to any obligation 
                                limitation) for the fiscal 
                                year.
            `(7) Limitation on applicability of obligation 
        limitation.--Notwithstanding any other provision of 
        law, no limitation on the total of obligations for 
        highway safety programs under section 402 shall apply 
        to funds transferred under this subsection to the 
        apportionment of a State under such section.'.
    ``(b) Conforming Amendment.--The analysis for chapter 1 of 
such title is amended by adding at the end the following:

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

    (b) Conforming Amendment.--The table of contents contained 
in section 1(b) of such Act is amended by inserting after the 
item relating to section 1403 the following:

``Sec. 1404. Safety incentives to prevent operation of motor vehicles by 
          intoxicated persons.
``Sec. 1405. Open container laws.
``Sec. 1406. Minimum penalties for repeat offenders for driving while 
          intoxicated or driving under the influence.''.

    (c) Roadside Safety Technologies.--Section 1402(a)(2) of 
such Act is amended by striking ``directive'' and inserting 
``redirective''.

SEC. 9006. ELIMINATION OF DUPLICATE PROVISIONS.

    (a) San Mateo County, California.--Section 1113 of the 
Transportation Equity Act for the 21st Century is amended--
            (1) by striking subsection (c); and
            (2) by redesignating subsection (c) as subsection 
        (d).
    (b) Value Pricing Pilot Program.--Section 1216(a) of such 
Act is amended by adding at the end the following:
            ``(8) Conforming amendments.--
                    ``(A) Section 1012(b)(6) of such Act (as 
                amended by paragraph (5) of this subsection) is 
                amended by striking `146(c)' and inserting 
                `102(a)'.
                    ``(B) Section 1012(b)(8) of such Act (as 
                added by paragraph (7) of this subsection) is 
                amended--
                            ``(i) in subparagraph (C) by 
                        striking `under this subsection' and 
                        inserting `to carry out this 
                        subsection';
                            ``(ii) in subparagraph (D)--
                                    ``(I) by striking `under 
                                this paragraph' and inserting 
                                `to carry out this subsection'; 
                                and
                                    ``(II) by striking `by this 
                                paragraph' and inserting `to 
                                carry out this subsection';
                            ``(iii) by striking subparagraph 
                        (A); and
                            ``(iv) by redesignating 
                        subparagraphs (B), (C), and (D) as 
                        subparagraphs (A), (B), and (C), 
                        respectively.''.
    (c) National Defense Highways Outside the United States.--
Section 1214(e) of such Act is amended to read as follows:
    ``(e) Minnesota Transportation History Network.--
            ``(1) In general.--The Secretary shall award a 
        grant to the Minnesota Historical Society for the 
        establishment of the Minnesota Transportation History 
        Network to include major exhibits, interpretive 
        programs at national historic landmark sites, and 
        outreach programs with county and local historical 
        organizations.
            ``(2) Coordination.--In carrying out subsection 
        (a), the Secretary shall coordinate with officials of 
        the Minnesota Historical Society.
            ``(3) Authorization of appropriations.--There is 
        authorized to be appropriated out of the Highway Trust 
        Fund (other than the Mass Transit Account) $1,000,000 
        for each of fiscal years 1998 through 2003 to carry out 
        this subsection.
            ``(4) Applicability of title 23.--Funds authorized 
        by this subsection shall be available for obligation in 
        the same manner as if such funds were apportioned under 
        chapter 1 of title 23, United States Code; except that 
        such funds shall remain available until expended.''.
    (d) Entrance Paving at Ninigret National Wildlife Refuge.--
Section 1214(i) of such Act is amended by striking ``$750,000'' 
each place it appears and inserting ``$75,000''.

SEC. 9007. HIGHWAY FINANCE.

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

                                                          Maximum amount
`Fiscal year:                                               of credit:  
  1999.................................................. $1,600,000,000 
  2000.................................................. $1,800,000,000 
  2001.................................................. $2,200,000,000 
  2002.................................................. $2,400,000,000 
  2003..............................................$2,600,000,000.'.''.

    (b) Conforming Amendments.--The table of contents contained 
in section 1(b) of the Transportation Equity Act for the 21st 
Century is amended--
            (1) in the item relating to section 1119 by 
        striking ``and safety''; and
            (2) by striking the items relating to subtitle E of 
        title I and inserting the following:

                          ``Subtitle E--Finance

    ``Chapter 1--Transportation Infrastructure Finance and Innovation

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

          ``Chapter 2--State Infrastructure Bank Pilot Program

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

SEC. 9008. HIGH PRIORITY PROJECTS TECHNICAL CORRECTIONS.

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

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

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

  ``24Minnesota                    Construct Third Street               
                                    North, CSAH 81, Waite               
                                    Park and St. Cloud...      1.0'';   
------------------------------------------------------------------------

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

  ``25Indiana                      Reconstruct Old                      
                                    Merridan Corridor                   
                                    from Pennsylvania                   
                                    Avenue to Gilford                   
                                    Road.................     1.35'';   
------------------------------------------------------------------------

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

  ``52Alaska                       Construct Bradfield                  
                                    Canal Road...........        1'';   
------------------------------------------------------------------------

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

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

            (40) in item 1192 by striking ``24.97725'' and 
        inserting ``24.55725'';
            (41) in item 1200 by striking ``Upgrade (all 
        weather) on U.S. 2, U.S. 41, and M 35'' and inserting 
        ``Upgrade (all weather) on Delta County's reroute of 
        U.S. 2, U.S. 41, and M 35'';
            (42) in item 1245 by striking ``3'' and inserting 
        ``3.5'';
            (43) in item 1271 by striking ``Spur'' and all that 
        follows through ``U.S. 59'' and inserting ``rail-grade 
        separations (Rosenberg Bypass) at U.S. 59(S)'';
            (44) in item 1278 by striking ``28.18'' and 
        inserting ``22.0'';
            (45) in item 1288 by inserting ``30'' after 
        ``U.S.'';
            (46) in item 1338 by striking ``5.5'' and inserting 
        ``3.5'';
            (47) in item 1383 by striking ``0.525'' and 
        inserting ``0.35'';
            (48) in item 1395 by striking ``Construct'' and all 
        that follows through ``Road'' and inserting ``Upgrade 
        Route 219 between Meyersdale and Somerset'';
            (49) in item 1468 by striking ``Reconstruct'' and 
        all that follows through ``U.S. 23'' and inserting 
        ``Conduct engineering and design and improve I-94 in 
        Calhoun and Jackson Counties'';
            (50) in item 1474--
                    (A) by striking ``in Euclid'' and inserting 
                ``and London Road in Cleveland''; and
                    (B) by striking ``3.75'' and inserting 
                ``8.0'';
            (51) in item 1535 by striking ``Stanford'' and 
        inserting ``Stamford'';
            (52) in item 1538 by striking ``and Winchester'' 
        and inserting ``, Winchester, and Torrington'';
            (53) by striking item 1546 and inserting the 
        following:
      

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

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

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

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

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

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

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

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

SEC. 9009. FEDERAL TRANSIT ADMINISTRATION PROGRAMS.

    (a) Definitions.--Section 3003 of the Federal Transit Act 
of 1998 is amended--
            (1) by inserting ``(a) In General.--'' before 
        ``Section 5302''; and
            (2) by adding at the end the following:
    ``(b) Conforming Amendments.--Section 5302 (as amended by 
subsection (a) of this section) is amended in subsection 
(a)(1)(G)(i) by striking `daycare and' and inserting `daycare 
or'.''.
    (b) Metropolitan Planning.--Section 3004 of the Federal 
Transit Act of 1998 is amended--
            (1) in subsection (b)--
                    (A) in paragraph (1) by striking 
                subparagraph (A) and inserting the following:
                    ``(A) by striking `general local government 
                representing' and inserting `general purpose 
                local government that together represent'; 
                and'';
                    (B) in paragraph (3) by striking ``and'' at 
                the end;
                    (C) in paragraph (4) by striking 
                subparagraph (A) and inserting the following:
                    ``(A) by striking `general local government 
                representing' and inserting `general purpose 
                local government that together represent'; 
                and'';
                    (D) by redesignating paragraph (4) as 
                paragraph (5); and
                    (E) by inserting after paragraph (3) the 
                following:
            ``(4) in paragraph (4)(A) by striking `(3)' and 
        inserting `(5)'; and'';
            (2) in subsection (d) by striking the closing 
        quotation marks and the final period at the end and 
        inserting the following:
            `(5) Coordination.--If a project is located within 
        the boundaries of more than 1 metropolitan planning 
        organization, the metropolitan planning organizations 
        shall coordinate plans regarding the project.
            `(6) Lake tahoe region.--
                    `(A) Definition.--In this paragraph, the 
                term ``Lake Tahoe region'' has the meaning 
                given the term ``region'' in subdivision (a) of 
                article II of the Tahoe Regional Planning 
                Compact, as set forth in the first section of 
                Public Law 96-551 (94 Stat. 3234).
                    `(B) Transportation planning process.--The 
                Secretary shall--
                            `(i) establish with the Federal 
                        land management agencies that have 
                        jurisdiction over land in the Lake 
                        Tahoe region a transportation planning 
                        process for the region; and
                            `(ii) coordinate the transportation 
                        planning process with the planning 
                        process required of State and local 
                        governments under this chapter and 
                        sections 134 and 135 of title 23.
                    `(C) Interstate compact.--
                            `(i) In general.--Subject to clause 
                        (ii) and notwithstanding subsection 
                        (b), to carry out the transportation 
                        planning process required by this 
                        section, the consent of Congress is 
                        granted to the States of California and 
                        Nevada to designate a metropolitan 
                        planning organization for the Lake 
                        Tahoe region, by agreement between the 
                        Governors of the States of California 
                        and Nevada and units of general purpose 
                        local government that together 
                        represent at least 75 percent of the 
                        affected population (including the 
                        central city or cities (as defined by 
                        the Bureau of the Census)), or in 
                        accordance with procedures established 
                        by applicable State or local law.
                            `(ii) Involvement of federal land 
                        management agencies.--
                                    `(I) Representation.--The 
                                policy board of a metropolitan 
                                planning organization 
                                designated under clause (i) 
                                shall include a representative 
                                of each Federal land management 
                                agency that has jurisdiction 
                                over land in the Lake Tahoe 
                                region.
                                    `(II) Funding.--In addition 
                                to funds made available to the 
                                metropolitan planning 
                                organization under other 
                                provisions of this chapter and 
                                under title 23, not more than 1 
                                percent of the funds allocated 
                                under section 202 of title 23 
                                may be used to carry out the 
                                transportation planning process 
                                for the Lake Tahoe region under 
                                this subparagraph.
                    `(D) Activities.--Highway projects included 
                in transportation plans developed under this 
                paragraph--
                            `(i) shall be selected for funding 
                        in a manner that facilitates the 
                        participation of the Federal land 
                        management agencies that have 
                        jurisdiction over land in the Lake 
                        Tahoe region; and
                            `(ii) may, in accordance with 
                        chapter 2 of title 23, be funded using 
                        funds allocated under section 202 of 
                        title 23.'.''; and
            (3) by adding at the end the following:
    ``(f) Technical Adjustments.--Section 5303(f) is amended--
            ``(1) in paragraph (1) (as amended by subsection 
        (e)(1) of this subsection)--
                    ``(A) in subparagraph (C) by striking `and' 
                at the end;
                    ``(B) in subparagraph (D) by striking the 
                period at the end and inserting `; and';
                    ``(C) by adding at the end the following:
            `(E) the financial plan may include, for 
        illustrative purposes, additional projects that would 
        be included in the adopted long-range plan if 
        reasonable additional resources beyond those identified 
        in the financial plan were available, except that, for 
        the purpose of developing the long-range plan, the 
        metropolitan planning organization and the State shall 
        cooperatively develop estimates of funds that will be 
        available to support plan implementation.'; and
            ``(2) by adding at the end the following:
    `(6) Selection of projects from illustrative list.--
Notwithstanding paragraph (1)(E), a State or metropolitan 
planning organization shall not be required to select any 
project from the illustrative list of additional projects 
included in the financial plan under paragraph (1)(B).'.''.
    (c) Metropolitan Transportation Improvement Program.--
Section 3005 of the Federal Transit Act of 1998 is amended--
            (1) in the section heading by inserting 
        ``metropolitan'' before ``transportation''; and
            (2) by adding at the end the following:
    ``(d) Technical Adjustments.--Section 5304 is amended--
            ``(1) in subsection (a) (as amended by subsection 
        (a) of this section)--
                    ``(A) by striking `In cooperation with' and 
                inserting the following:
            `(1) In general.--In cooperation with'; and
                    ``(B) by adding at the end the following:
            `(2) Funding estimate.--For the purpose of 
        developing the transportation improvement program, the 
        metropolitan planning organization, public transit 
        agency, and the State shall cooperatively develop 
        estimates of funds that are reasonably expected to be 
        available to support program implementation.';
            ``(2) in subsection (b)(2)--
                    ``(A) in subparagraph (B) by striking `and' 
                at the end; and
                    ``(B) in subparagraph (C) (as added by 
                subsection (b) of this section) by striking 
                `strategies which may include' and inserting 
                the following: `strategies; and
                    `(D) may include'; and
            ``(3) in subsection (c) by striking paragraph (4) 
        (as amended by subsection (c) of this section) and 
        inserting the following:
            `(4) Selection of projects from illustrative 
        list.--
                    `(A) In general.--Notwithstanding 
                subsection (b)(2)(D), a State or metropolitan 
                planning organization shall not be required to 
                select any project from the illustrative list 
                of additional projects included in the 
                financial plan under subsection (b)(2)(D).
                    `(B) Action by secretary.--Action by the 
                Secretary shall be required for a State or 
                metropolitan planning organization to select 
                any project from the illustrative list of 
                additional projects included in the plan under 
                subsection (b)(2) for inclusion in an approved 
                transportation improvement plan.'.''.
    (d) Transportation Management Areas.--Section 3006(d) of 
the Federal Transit Act of 1998 is amended to read as follows:
    ``(d) Project Selection.--Section 5305(d)(1) is amended to 
read as follows: `(1)(A) All federally funded projects carried 
out within the boundaries of a transportation management area 
under title 23 (excluding projects carried out on the National 
Highway System and projects carried out under the bridge and 
interstate maintenance program) or under this chapter shall be 
selected from the approved transportation improvement program 
by the metropolitan planning organization designated for the 
area in consultation with the State and any affected public 
transit operator.
    `(B) Projects carried out within the boundaries of a 
transportation management area on the National Highway System 
and projects carried out within such boundaries under the 
bridge program or the interstate maintenance program shall be 
selected from the approved transportation improvement program 
by the State in cooperation with the metropolitan planning 
organization designated for the area.'.''.
    (e) Urbanized Area Formula Grants.--Section 3007 of the 
Federal Transit Act of 1998 is amended by adding at the end the 
following:
    ``(h) Technical Adjustments.--
            ``(1) General authority.--Section 5307(b) (as 
        amended by subsection (c)(1)(B) of this section) is 
        amended by adding at the end the following: `The 
        Secretary may make grants under this section from funds 
        made available for fiscal year 1998 to finance the 
        operating costs of equipment and facilities for use in 
        mass transportation in an urbanized area with a 
        population of at least 200,000.'.
            ``(2) Report.--Section 5307(k)(3) (as amended by 
        subsection (f) of this section) is amended by inserting 
        `preceding' before `fiscal year'.''.
    (f) Clean Fuels Formula Grant Program.--Section 3008 of the 
Federal Transit Act of 1998 is amended by adding at the end the 
following:
    ``(c) Technical Adjustments.--Section 5308(e)(2) (as added 
by subsection (a) of this section) is amended by striking 
`$50,000,000' and inserting `35 percent'.''.
    (g) Capital Investment Grants and Loans.--Section 3009 of 
the Federal Transit Act of 1998 is amended by adding at the end 
the following:
    ``(k) Technical Adjustments.--
            ``(1) Criteria.--Section 5309(e) (as amended by 
        subsection (e) of this section) is amended--
                    ``(A) in paragraph (3)(C) by striking 
                `urban' and inserting `suburban';
                    ``(B) in the second sentence of paragraph 
                (6) by striking `or not' and all that follows 
                through `, based' and inserting `or ``not 
                recommended'', based'; and
                    ``(C) in the last sentence of paragraph (6) 
                by inserting `of the' before `criteria 
                established'.
            ``(2) Letters of intent and full funding grant 
        agreements.--Section 5309(g) (as amended by subsection 
        (f) of this section) is amended in paragraph (4) by 
        striking `5338(a)' and all that follows through `2003' 
        and inserting `5338(b) of this title for new fixed 
        guideway systems and extensions to existing fixed 
        guideway systems and the amount appropriated under 
        section 5338(h)(5) or an amount equivalent to the last 
        2 fiscal years of funding authorized under section 
        5338(b) for new fixed guideway systems and extensions 
        to existing fixed guideway systems'.
            ``(3) Allocating amounts.--Section 5309(m) (as 
        amended by subsection (g) of this section) is amended--
                    ``(A) in paragraph (1) by inserting `(b)' 
                after `5338';
                    ``(B) by striking paragraph (2) and 
                inserting the following:
            `(2) New fixed guideway grants.--
                    `(A) Limitation on amounts available for 
                activities other than final design and 
                construction.--Not more than 8 percent of the 
                amounts made available in each fiscal year by 
                paragraph (1)(B) shall be available for 
                activities other than final design and 
                construction.
                    `(B) Funding for ferry boat systems.--
                            `(i) Amounts under (1)(b).--Of the 
                        amounts made available under paragraph 
                        (1)(B), $10,400,000 shall be available 
                        in each of fiscal years 1999 through 
                        2003 for capital projects in Alaska or 
                        Hawaii, for new fixed guideway systems 
                        and extensions to existing fixed 
                        guideway systems that are ferry boats 
                        or ferry terminal facilities, or that 
                        are approaches to ferry terminal 
                        facilities.
                            `(ii) Amounts under 5338(h)(5).--Of 
                        the amounts appropriated under section 
                        5338(h)(5), $3,600,000 shall be 
                        available in each of fiscal years 1999 
                        through 2003 for capital projects in 
                        Alaska or Hawaii, for new fixed 
                        guideway systems and extensions to 
                        existing fixed guideway systems that 
                        are ferry boats or ferry terminal 
                        facilities, or that are approaches to 
                        ferry terminal facilities.';
                    ``(C) by redesignating paragraph (4) as 
                paragraph (3)(C);
                    ``(D) in paragraph (3) by adding at the end 
                the following:
                    `(D) Other than urbanized areas.--Of 
                amounts made available by paragraph (1)(C), not 
                less than 5.5 percent shall be available in 
                each fiscal year for other than urbanized 
                areas.';
                    ``(E) by striking paragraph (5); and
                    ``(F) by inserting after paragraph (3) the 
                following:
            `(4) Eligibility for assistance for multiple 
        projects.--A person applying for or receiving 
        assistance for a project described in subparagraph (A), 
        (B), or (C) of paragraph (1) may receive assistance for 
        a project described in any other of such 
        subparagraphs.'.''.
    (h) References to Full Funding Grant Agreements.--Section 
3009(h)(3) of the Federal Transit Act of 1998 is amended--
            (1) by striking ``and'' at the end of subparagraph 
        (A)(ii);
            (2) by striking the period at the end of 
        subparagraph (B) and inserting a semicolon; and
            (3) by adding at the end the following:
                    ``(C) in section 5328(a)(4) by striking 
                `section 5309(m)(2) of this title' and 
                inserting `5309(o)(1)'; and
                    ``(D) in section 5309(n)(2) by striking `in 
                a way' and inserting `in a manner'.''.
    (i) Dollar Value of Mobility Improvements.--Section 
3010(b)(2) of the Federal Transit Act of 1998 is amended by 
striking ``Secretary'' and inserting ``Comptroller General''.
    (j) Intelligent Transportation System Applications.--
Section 3012 of the Federal Transit Act of 1998 is amended by 
moving paragraph (3) of subsection (a) to the end of subsection 
(b) and by redesignating such paragraph (3) as paragraph (4).
    (k) Advanced Technology Pilot Project.--Section 3015 of the 
Federal Transit Act of 1998 is amended--
            (1) in subsection (c)(2) by adding at the end the 
        following: ``Financial assistance made available under 
        this subsection and projects assisted with the 
        assistance shall be subject to section 5333(a) of title 
        49, United States Code.''; and
            (2) by adding at the end the following:
    ``(d) Training and Curriculum Development.--
            ``(1) In general.--Any funds made available by 
        section 5338(e)(2)(C)(iii) of title 49, United States 
        Code, shall be available in equal amounts for 
        transportation research, training, and curriculum 
        development at institutions identified in subparagraphs 
        (E) and (F) of section 5505(j)(3) of such title.
            ``(2) Special rule.--If the institutions identified 
        in paragraph (1) are selected pursuant to 5505(i)(3)(B) 
        of such title in fiscal year 2002 or 2003, the funds 
        made available to carry out this subsection shall be 
        available to those institutions to carry out the 
        activities required pursuant to section 5505(i)(3)(B) 
        of such title for that fiscal year.''.
    (l) National Transit Institute.--Section 3017(a) of the 
Federal Transit Act of 1998 is amended to read as follows:
    ``(a) In General.--Section 5315 is amended--
            ``(1) in the section heading by striking `mass 
        transportation' and inserting `transit';
            ``(2) in subsection (a)--
                    ``(A) by striking `mass transportation' in 
                the first sentence and inserting `transit';
                    ``(B) in paragraph (5) by inserting `and 
                architectural design' before the semicolon at 
                the end;
                    ``(C) in paragraph (7) by striking 
                `carrying out' and inserting `delivering';
                    ``(D) in paragraph (11) by inserting `, 
                construction management, insurance, and risk 
                management' before the semicolon at the end;
                    ``(E) in paragraph (13) by striking `and' 
                at the end;
                    ``(F) in paragraph (14) by striking the 
                period at the end and inserting a semicolon; 
                and
                    ``(G) by adding at the end the following:
            `(15) innovative finance; and
            `(16) workplace safety.'.''.
    (m) Pilot Program.--Section 3021(a) of the Federal Transit 
Act of 1998 is amended by inserting ``single-State'' before 
``pilot program''.
    (n) Architectural, Engineering, and Design Contracts.--
Section 3022 of the Federal Transit Act of 1998 is amended by 
adding at the end the following:
    ``(b) Conforming Amendment.--Section 5325(b) (as 
redesignated by subsection (a)(2) of this section) is amended--
            ``(1) by inserting `or requirement' after `A 
        contract'; and
            ``(2) by inserting before the last sentence the 
        following: `When awarding such contracts, recipients of 
        assistance under this chapter shall maximize 
        efficiencies of administration by accepting nondisputed 
        audits conducted by other governmental agencies, as 
        provided in subparagraphs (C) through (F) of section 
        112(b)(2) of title 23.'.''.
    (o) Conforming Amendment.--Section 3027 of the Federal 
Transit Act of 1998 is amended--
            (1) in subsection (c) by striking ``600,000'' each 
        place it appears and inserting ``900,000''; and
            (2) by adding at the end the following:
    ``(d) Conforming Amendment.--The item relating to section 
5336 in the table of sections for chapter 53 is amended by 
striking `block grants' and inserting `formula grants'.''.
    (p) Apportionment for Fixed Guideway Modernization.--
Section 3028 of the Federal Transit Act of 1998 is amended by 
adding at the end the following:
    ``(c) Conforming Amendments.--Section 5337(a) (as amended 
by subsection (a) of this section) is amended--
            ``(1) in paragraph (2)(B) by striking `(e)' and 
        inserting `(e)(1)';
            ``(2) in paragraph (3)(D)--
                    ``(A) by striking `(ii)'; and
                    ``(B) by striking `(e)' and inserting 
                `(e)(1)';
            ``(3) in paragraph (4) by striking `(e)' and 
        inserting `(e)(1)';
            ``(4) in paragraph (5)(A) by striking `(e)' and 
        inserting `(e)(2)';
            ``(5) in paragraph (5)(B) by striking `(e)' and 
        inserting `(e)(2)';
            ``(6) in paragraph (6) by striking `(e)' each place 
        it appears and inserting `(e)(2)'; and
            ``(7) in paragraph (7) by striking `(e)' each place 
        it appears and inserting `(e)(2)'.''.
    (q) Authorizations.--Section 3029 of the Federal Transit 
Act of 1998 is amended by adding at the end the following:
    ``(c) Technical Adjustments.--Section 5338 (as amended by 
subsection (a) of this section) is amended--
            ``(1) in subsection (c)(2)(A)(i) by striking 
        `$43,200,000' and inserting `$42,200,000';
            ``(2) in subsection (c)(2)(A)(ii) by striking 
        `$46,400,000' and inserting `$48,400,000';
            ``(3) in subsection (c)(2)(A)(iii) by striking 
        `$51,200,000' and inserting `$50,200,000';
            ``(4) in subsection (c)(2)(A)(iv) by striking 
        `$52,800,000' and inserting `$53,800,000';
            ``(5) in subsection (c)(2)(A)(v) by striking 
        `$57,600,000' and inserting `$58,600,000';
            ``(6) in subsection (d)(2)(C)(iii) by inserting 
        before the semicolon `, including not more than 
        $1,000,000 shall be available to carry out section 
        5315(a)(16)';
            ``(7) in subsection (e)--
                    ``(A) by striking `5317(b)' each place it 
                appears and inserting `5505';
                    ``(B) in paragraph (1) by striking `There 
                are' and inserting `Subject to paragraph 
                (2)(C), there are';
                    ``(C) in paragraph (2)--
                            ``(i) in subparagraph (A) by 
                        striking `There shall' and inserting 
                        `Subject to subparagraph (C), there 
                        shall';
                            ``(ii) in subparagraph (B) by 
                        striking `In addition' and inserting 
                        `Subject to subparagraph (C), in 
                        addition'; and
                            ``(iii) by adding at the end the 
                        following:
                    `(C) Funding of centers.--
                            `(i) Of the amounts made available 
                        under subparagraph (A) and paragraph 
                        (1) for each fiscal year--
                                    `(I) $2,000,000 shall be 
                                available for the center 
                                identified in section 
                                5505(j)(4)(A); and
                                    `(II) $2,000,000 shall be 
                                available for the center 
                                identified in section 
                                5505(j)(4)(F).
                            `(ii) For each of fiscal years 1998 
                        through 2001, of the amounts made 
                        available under this paragraph and 
                        paragraph (1)--
                                    `(I) $400,000 shall be 
                                available from amounts made 
                                available under subparagraph 
                                (A) of this paragraph and under 
                                paragraph (1) for each of the 
                                centers identified in 
                                subparagraphs (E) and (F) of 
                                section 5505(j)(3); and
                                    `(II) $350,000 shall be 
                                available from amounts made 
                                available under subparagraph 
                                (B) of this paragraph and under 
                                paragraph (1) for each of the 
                                centers identified in 
                                subparagraphs (E) and (F) of 
                                section 5505(j)(3).
                            `(iii) Any amounts made available 
                        under this paragraph or paragraph (1) 
                        for any fiscal year that remain after 
                        distribution under clauses (i) and 
                        (ii), shall be available for the 
                        purposes identified in section 3015(d) 
                        of the Federal Transit Act of 1998.'; 
                        and
                    ``(D) by adding at the end the following:
            `(3) Special rule.--Nothing in this subsection 
        shall be construed to limit the transportation research 
        conducted by the centers funded by this section.';
            ``(8) in subsection (g)(2) by striking `(c)(2)(B),' 
        and all that follows through `(f)(2)(B),' and inserting 
        `(c)(1), (c)(2)(B), (d)(1), (d)(2)(B), (e)(1), 
        (e)(2)(B), (f)(1), (f)(2)(B),';
            ``(9) in subsection (h) by inserting `under the 
        Transportation Discretionary Spending Guarantee for the 
        Mass Transit Category' after `through (f)'; and
            ``(10) in subsection (h)(5) by striking 
        subparagraphs (A) through (E) and inserting the 
        following:
                    `(A) for fiscal year 1999 $400,000,000;
                    `(B) for fiscal year 2000 $410,000,000;
                    `(C) for fiscal year 2001 $420,000,000;
                    `(D) for fiscal year 2002 $430,000,000; and
                    `(E) for fiscal year 2003 
                $430,000,000;'.''.
    (r) Projects for Fixed Guideway Systems.--Section 3030 of 
the Federal Transit Act of 1998 is amended--
            (1) in subsection (a)--
                    (A) in paragraph (8) by inserting ``North-
                '' before ``South'';
                    (B) in paragraph (42) by striking 
                ``Maryland'' and inserting ``Baltimore'';
                    (C) in paragraph (103) by striking 
                ``busway'' and inserting ``Boulevard 
                transitway'';
                    (D) in paragraph (106) by inserting ``CTA'' 
                before ``Douglas'';
                    (E) by striking paragraph (108) and 
                inserting the following:
            ``(108) Greater Albuquerque Mass Transit 
        Project.''; and
                    (F) by adding at the end the following:
            ``(109) Hartford City Light Rail Connection to 
        Central Business District.
            ``(110) Providence-Boston Commuter Rail.
            ``(111) New York-St. George's Ferry Intermodal 
        Terminal.
            ``(112) New York-Midtown West Ferry Terminal.
            ``(113) Pinellas County-Mobility Initiative 
        Project.
            ``(114) Atlanta-MARTA Extension (S. De Kalb-
        Lindbergh).'';
            (2) in subsection (b)--
                    (A) by striking paragraph (2) and inserting 
                the following:
            ``(2) Sioux City-Light Rail.'';
                    (B) by striking paragraph (40) and 
                inserting the following:
            ``(40) Santa Fe-El Dorado Rail Link.'';
                    (C) by striking paragraph (44) and 
                inserting the following:
            ``(44) Albuquerque-High Capacity Corridor.'';
                    (D) by striking paragraph (53) and 
                inserting the following:
            ``(53) San Jacinto-Branch Line (Riverside 
        County).''; and
                    (E) by adding at the end the following:
            ``(69) Chicago-Northwest Rail Transit Corridor.
            ``(70) Vermont-Burlington-Essex Commuter Rail.''; 
        and
            (3) in subsection (c)--
                    (A) in paragraph (1)(A)--
                            (i) in the matter preceding clause 
                        (i) by inserting ``(even if the project 
                        is not listed in subsection (a) or 
                        (b))'' before the colon;
                            (ii) by striking clause (ii) and 
                        inserting the following:
                            ``(ii) San Diego Mission Valley and 
                        Mid-Coast Corridor, $325,000,000.'';
                            (iii) by striking clause (v) and 
                        inserting the following:
                            ``(v) Hartford City Light Rail 
                        Connection to Central Business 
                        District, $33,000,000.'';
                            (iv) by striking clause (xxiii) and 
                        inserting the following:
                            ``(xxiii) Kansas City-I-35 Commuter 
                        Rail, $30,000,000.'';
                            (v) in clause (xxxii) by striking 
                        ``Whitehall Ferry Terminal'' and 
                        inserting ``Staten Island Ferry-
                        Whitehall Intermodal Terminal'';
                            (vi) by striking clause (xxxv) and 
                        inserting the following:
                            ``(xxxv) New York-Midtown West 
                        Ferry Terminal, $16,300,000.'';
                            (vii) in clause (xxxix) by striking 
                        ``Allegheny County'' and inserting 
                        ``Pittsburgh'';
                            (viii) by striking clause (xvi) and 
                        inserting the following:
                            ``(xvi) Northeast Indianapolis 
                        Corridor, $10,000,000.'';
                            (ix) by striking clause (xxix) and 
                        inserting the following:
                            ``(xxix) Greater Albuquerque Mass 
                        Transit Project, $90,000,000.'';
                            (x) by striking clause (xliii) and 
                        inserting the following:
                            ``(xliii) Providence-Boston 
                        Commuter Rail, $10,000,000.''; and
                            (xi) by striking clause (li) and 
                        inserting the following:
                            ``(li) Dallas-Ft. Worth RAILTRAN 
                        (Phase-II), $12,000,000.'';
                    (B) by striking the heading for subsection 
                (c)(2) and inserting ``Additional amounts''; 
                and
                    (C) in paragraph (3) by inserting after the 
                first sentence the following: ``The project 
                shall also be exempted from all requirements 
                relating to criteria for grants and loans for 
                fixed guideway systems under section 5309(e) of 
                such title and from regulations required under 
                that section.''.
    (s) New Jersey Urban Core Project.--Section 3030(e) of the 
Federal Transit Act of 1998 is amended by adding at the end the 
following:
            ``(4) Technical adjustment.--Section 3031(d) of the 
        Intermodal Surface Transportation Efficiency Act of 
        1991 (as amended by paragraph (3)(B) of this 
        subsection) is amended--
                    ``(A) by striking `of the West Shore Line' 
                and inserting `or the West Shore Line'; and
                    ``(B) by striking `directly connected to' 
                and all that follows through `Newark 
                International Airport' the first place it 
                appears.''.
    (t) Baltimore-Washington Transportation Improvements.--
Section 3030 of the Federal Transit Act of 1998 is amended by 
adding at the end the following:
    ``(h) Technical Adjustment.--Section 3035(nn) of the 
Intermodal Surface Transportation Efficiency Act of 1991 (105 
Stat. 2134) (as amended by subsection (g)(1)(C) of this 
section) is amended by inserting after `expenditure of' the 
following: `section 5309 funds to the aggregate expenditure 
of'.''.
    (u) Bus Projects.--Section 3031 of the Federal Transit Act 
of 1998 is amended--
            (1) in the table contained in subsection (a)--
                    (A) by striking item 64;
                    (B) in item 69 by striking ``Rensslear'' 
                each place it appears and inserting 
                ``Rensselaer'';
                    (C) in item 103 by striking ``facilities 
                and''; and
                    (D) by striking item 150;
            (2) by striking the heading for subsection (b) and 
        inserting ``Additional Amounts'';
            (3) in subsection (b) by inserting after ``2000'' 
        the first place it appears ``with funds made available 
        under section 5338(h)(6) of such title''; and
            (4) in item 2 of the table contained in subsection 
        (b) by striking ``Rensslear'' each place it appears and 
        inserting ``Rensselaer''.
    (v) Contracting Out Study.--Section 3032 of the Federal 
Transit Act of 1998 is amended--
            (1) in subsection (a) by striking ``3'' and 
        inserting ``6'';
            (2) in subsection (d) by striking ``the Mass 
        Transit Account of the Highway Trust Fund'' and 
        inserting ``funds made available under section 
        5338(f)(2) of title 49, United States Code,'';
            (3) in subsection (d) by striking ``1998'' and 
        inserting ``1999''; and
            (4) in subsection (e) by striking ``subsection 
        (c)'' and inserting ``subsection (d)''.
    (w) Job Access and Reverse Commute Grants.--Section 3037 of 
the Federal Transit Act of 1998 is amended--
            (1) in subsection (b)(4)(A)--
                    (A) by inserting ``designated recipients 
                under section 5307(a)(2) of title 49, United 
                States Code,'' after ``from among''; and
                    (B) by inserting a comma after ``and 
                agencies'';
            (2) in subsection (b)(4)(B)--
                    (A) by striking ``at least'' and inserting 
                ``less than'';
                    (B) by inserting ``designated recipients 
                under section 5307(a)(2) of title 49, United 
                States Code,'' after ``from among''; and
                    (C) by inserting ``and agencies,'' after 
                ``authorities'';
            (3) in subsection (f)(2)--
                    (A) by striking ``(including bicycling)''; 
                and
                    (B) by inserting ``(including bicycling)'' 
                after ``additional services'';
            (4) in subsection (h)(2)(B) by striking 
        ``403(a)(5)(C)(ii)'' and inserting 
        ``403(a)(5)(C)(vi)'';
            (5) in the heading for subsection (l)(1)(C) by 
        striking ``from the general fund'';
            (6) in subsection (l)(1)(C) by inserting ``under 
        the Transportation Discretionary Spending Guarantee for 
        the Mass Transit Category'' after ``(B)''; and
            (7) in subsection (l)(3)(B) by striking ``at 
        least'' and inserting ``less than''.
    (x) Rural Transportation Accessibility Incentive Program.--
Section 3038 of the Federal Transit Act of 1998 is amended--
            (1) in subsection (a)(1)(A) by inserting before the 
        semicolon ``or connecting 1 or more rural communities 
        with an urban area not in close proximity'';
            (2) in subsection (g)(1)--
                    (A) by inserting ``over-the-road buses used 
                substantially or exclusively in'' after 
                ``operators of''; and
                    (B) by inserting at the end the following:
        ``Such sums shall remain available until expended.''; 
        and
            (3) in subsection (g)(2)--
                    (A) by striking ``each of''; and
                    (B) by adding at the end the following: 
                ``Such sums shall remain available until 
                expended.''.
    (y) Study of Transit Needs in National Parks and Related 
Public Lands.--Section 3039(b) of the Federal Transit Act of 
1998 is amended--
            (1) in paragraph (1) by striking ``in order to 
        carry'' and inserting ``assist in carrying''; and
            (2) by adding at the end the following:
            ``(3) Definition.--For purposes of this subsection, 
        the term `Federal land management agencies' means the 
        National Park Service, the United States Fish and 
        Wildlife Service, and the Bureau of Land Management.''.
    (z) Obligation Ceiling.--Section 3040 of the Federal 
Transit Act of 1998 is amended--
            (1) by striking paragraph (2) and inserting the 
        following:
            ``(2) $5,797,000,000 in fiscal year 2000;''; and
            (2) in paragraph (4) by striking ``$6,746,000,000'' 
        and inserting ``$6,747,000,000''.

SEC. 9010. MOTOR CARRIER SAFETY TECHNICAL CORRECTION.

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

SEC. 9011. RESTORATIONS TO RESEARCH TITLE.

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

SEC. 9012. AUTOMOBILE SAFETY AND INFORMATION.

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

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

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

SEC. 9014. CORRECTIONS TO VETERANS SUBTITLE.

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

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

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

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

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

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

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

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

    ``(a) Survivors and Dependents Educational Assistance.--
Section 3532 of title 38, United States Code, is amended--
            ``(1) in subsection (a)(1)--
                    ``(A) by striking out `$404' and inserting 
                in lieu thereof `$485';
                    ``(B) by striking out `$304' and inserting 
                in lieu thereof `$365'; and
                    ``(C) by striking out `$202' and inserting 
                in lieu thereof `$242';
            ``(2) in subsection (a)(2), by striking out `$404' 
        and inserting in lieu thereof `$485';
            ``(3) in subsection (b), by striking out `$404' and 
        inserting in lieu thereof `$485'; and
            ``(4) in subsection (c)(2)--
                    ``(A) by striking out `$327' and inserting 
                in lieu thereof `$392';
                    ``(B) by striking out `$245' and inserting 
                in lieu thereof `$294'; and
                    ``(C) by striking out `$163' and inserting 
                in lieu thereof `$196'.
    ``(b) Correspondence Course.--Section 3534(b) of such title 
is amended by striking out `$404' and inserting in lieu thereof 
`$485'.
    ``(c) Special Restorative Training.--Section 3542(a) of 
such title is amended--
            ``(1) by striking out `$404' and inserting in lieu 
        thereof `$485';
            ``(2) by striking out `$127' each place it appears 
        and inserting in lieu thereof `$152'; and
            ``(3) by striking out `$13.46' and inserting in 
        lieu thereof `$16.16'.
    ``(d) Apprenticeship Training.--Section 3687(b)(2) of such 
title is amended--
            ``(1) by striking out `$294' and inserting in lieu 
        thereof `$353';
            ``(2) by striking out `$220' and inserting in lieu 
        thereof `$264';
            ``(3) by striking out `$146' and inserting in lieu 
        thereof `$175'; and
            ``(4) by striking out `$73' and inserting in lieu 
        thereof `$88'.
    ``(e) Effective Date.--The amendments made by this section 
shall take effect on October 1, 1998, and shall apply with 
respect to educational assistance allowances paid for months 
after September 1998.''.

SEC. 9015. TECHNICAL CORRECTIONS REGARDING TITLE IX.

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

SEC. 9016. EFFECTIVE DATE.

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

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

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

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

     TITLE I. REORGANIZATION OF STRUCTURE AND MANAGEMENT OF THE IRS

        A. IRS Restructuring and Creation of IRS Oversight Board

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

      Under present law, the administration and enforcement of 
the internal revenue laws are performed by or under the 
supervision of the Secretary of the Treasury.\1\ The Secretary 
has delegated the responsibility to administer and enforce the 
Internal Revenue laws to the Commissioner of Internal Revenue 
(``Commissioner''). The Commissioner has the final authority of 
the IRS concerning the substantive interpretation of the tax 
laws as reflected in legislative and regulatory proposals, 
revenue rulings, letter rulings, and technical advice 
memoranda. The duties of the Chief Counsel of the IRS are 
prescribed by the Secretary. The Secretary has delegated 
authority over the Chief Counsel to the General Counsel of the 
Treasury. The General Counsel has delegated authority to serve 
as the legal adviser to the Commissioner to the Chief Counsel.
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    \1\ Code sec. 7801(a).
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      Federal employees are subject to rules designed to 
prevent conflicts of interest or the appearance of conflicts of 
interest. The rules applicable to any particular employee 
depend in part on whether the employee is a regular, full-time 
Federal Government employee or a special government employee, 
the length of service of the employee, and the pay grade of the 
employee. A ``special government employee'' is, in general, an 
officer or employee of the executive or legislative branch of 
the U.S. government who is appointed or employed to perform 
(with or without compensation), for a period not to exceed 130 
days during any period of 365 consecutive days, temporary 
duties either on a full-time or intermittent basis. Violations 
of the ethical conduct rules are generally punishable by 
imprisonment for up to 1 year (5 years in the case of willful 
misconduct), a civil fine, or both. The amount of the civil 
fine with respect to each violation cannot exceed the greater 
of $50,000 or the compensation received by the employee in 
connection with the prohibited conduct.
       Under the ethical conduct rules, all Federal Government 
employees (including special government employees) are 
precluded from participating in a matter in which the employee 
(or a related party) has a financial interest. In addition, 
special government employees cannot represent a party (whether 
or not for compensation) or receive compensation for 
representation of a party \2\ in relation to a particular 
matter involving specific parties (1) in which the employee has 
at any time participated personally and substantially, or (2) 
which is pending in the department or agency of the Government 
in which the special government employee is serving. In the 
case of a special government employee who has served in a 
department no more than 60 days during the immediately 
preceding 365 days, item (2) does not apply. Thus, for example, 
such an individual can receive compensation for 
representational services with respect to matters pending in 
the department in which the employee serves, as long as it is 
not a matter involving parties in which the employee personally 
and substantially participated.\3\
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    \2\ The prohibition on receipt of compensation applies regardless 
of whether the services are performed by the Federal employee or 
someone else. For example, it would preclude a Federal employee from 
sharing in the compensation received by a partner of the Federal 
employee for representations on covered matters.
    \3\ More stringent rules apply to regular Federal Government 
employees. Such employees cannot receive compensation for 
representational services (whether rendered by the individual or 
another) in matters in which the United States is a party or has a 
direct and substantial interest before any department, agency or court. 
In addition, a Federal Government employee cannot act as agent or 
attorney (whether or not for compensation) for prosecuting any claim 
against the United States or act as agent or attorney for anyone before 
any department, agency, or court in which the United States is a party 
or has a direct and substantial interest.
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      The conflict of interest rules also impose restrictions 
on what a Federal Government employee can do after leaving the 
Government. In general, senior level officers and employees 
(including special government employees) who served at least 60 
days during the immediately preceding 1-year period cannot 
represent anyone other than the United States before the 
individual's former department or agency for 1 year after 
terminating employment. Whether an employee is a senior level 
officer or employee is determined by pay grade. The one-year 
post employment restriction does not apply to special 
government employees who serve less than 60 days during the 
immediately preceding 1-year period before termination of 
employment.\4\
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    \4\ All Executive branch employees are permanently prohibited from 
representing a party other than the government in connection with a 
particular matter (1) in which the government is a party or has an 
interest, (2) in which the individual participated personally and 
substantially, and (3) which involved a specific party or parties at 
the time of their participation. In addition, Federal employees cannot, 
within 2 years after terminating employment, represent any person other 
than the United States in connection with any matter (1) in which the 
government is a party or has a direct and substantial interest, (2) 
which the person knows or reasonably should know was actually pending 
under his or her official responsibility within one year before 
termination of employment, and (3) which involved a specific party or 
parties at the time it was pending.
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      Federal employees with pay grades (or pay rates) above 
certain levels (and who have at least 60 days of service) are 
required to file annually public financial disclosures.

                               House Bill

Duties, responsibilities, and powers of the IRS Oversight Board
            General responsibilities of the Board
      The House bill provides for the establishment within the 
Treasury Department of the Internal Revenue Service Oversight 
Board (the ``Board''). The general responsibilities of the 
Board are to oversee the Internal Revenue Service (the ``IRS'') 
in its administration, management, conduct, direction, and 
supervision of the execution and application of the internal 
revenue laws. The Board has no responsibilities or authority 
with respect to: (1) the development and formulation of Federal 
tax policy relating to existing or proposed internal revenue 
laws; (2) law enforcement activities of the IRS, including 
compliance activities such as criminal investigations, 
examinations, and collection activities;\5\ and (3) specific 
procurement activities of the IRS (e.g., selecting vendors or 
awarding contracts). The Board also has the authority to 
recommend candidates for IRS Commissioner to the President, and 
to recommend removal of the Commissioner.
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    \5\ This provision is not intended to limit the Board's authority 
with respect to the review and approval of strategic plans and the 
budget of the Commissioner or to preclude the Board from review of IRS 
operations generally.
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            Specific responsibilities of the Board
      The Board has the following specific responsibilities: 
(1) to review and approve strategic plans of the IRS, including 
the establishment of mission and objectives (and standards of 
performance) and annual and long-range strategic plans; (2) to 
review the operational functions of the IRS, including plans 
for modernization of the tax system, outsourcing or managed 
competition, and training and education; (3) to provide for the 
review of the Commissioner's selection, evaluation and 
compensation of senior managers; and (4) to review and approve 
the Commissioner's plans for major reorganization of the IRS. 
It is intended that major reorganizations subject to the 
Board's review and approval are limited to major changes in 
organizational structure, such as the 1995 IRS reorganization 
that combined 7 regions into 4 and 63 districts into 33. In 
addition, the Board will review and approve the budget request 
of the IRS prepared by the Commissioner, submit such budget 
request to the Secretary, and ensure that the budget request 
supports the annual and long-range strategic plans of the IRS. 
The Secretary is required to submit the budget request approved 
by the Board to the President, who is required to submit such 
request, without revision, to the Congress together with the 
President's annual budget request for the IRS. The House bill 
does not affect the ability of the President to include, in 
addition, his own budget request relating to the IRS.
      It is intended that the Board will reach a formal 
decision on all matters subject to its review. With respect to 
those matters over which the Board has approval authority, the 
Board's decisions are determinative. It is fully expected that, 
with respect to those matters over which the Board has approval 
authority (other than as relates to the development of the 
budget), the Secretary will exert his or her oversight 
responsibility over the IRS by working through and with the 
Board.\6\
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    \6\ The budget is excepted from this expectation because the bill 
provides a separate mechanism through which the Secretary may act. The 
procedures relating to the Board permit the President to submit his own 
budget in addition to that approved by the Board.
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      The Board is required to report each year to the 
President and the Congress regarding the conduct of its 
responsibilities.
      It is expected that the Treasury Department will no 
longer utilize the IRS Management Board once the new Board 
created by the bill is in place, as the functions of the IRS 
Management Board would be taken over by the new Board.
Composition of the Board
      The Board is composed of 11 members. Eight of the members 
are so-called ``private-life'' members who are not Federal 
officers or employees. These private-life members will be 
appointed by the President, with the advice and consent of the 
Senate. The remaining members are (1) the Secretary of the 
Treasury (or, if the Secretary so designates, the Deputy 
Secretary of the Treasury), (2) a representative from an 
organization representing a substantial number of IRS 
employees, who will be appointed by the President with the 
advice and consent of the Senate, and \7\ (3) the Commissioner 
of the IRS.
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    \7\ In appointing the employee organization representative, the 
President is not constrained to choose an individual recommended by an 
organization covering IRS employees, but may choose whoever the 
President determines to be an appropriate representative of the 
organization.
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Qualifications of Board members
      The private-life members of the Board are to be appointed 
based on their expertise in the following areas: management of 
large service organizations; customer service; the Federal tax 
laws, including administration and compliance; information 
technology; organization development; and the needs and 
concerns of taxpayers. In the aggregate, the members of the 
Board should collectively bring to bear expertise in all these 
enumerated areas.
Ethical standards for private-life members
            Representational activities and compensation matters
      The private-life members are considered special 
government employees during the entire period of their 
appointment. That is, they will be considered to be performing 
services as a special government employee on each day during 
their appointment, not just on those days on which they 
actually perform services. Thus, they will be subject to the 
ethical conduct rules applicable to special government 
employees who serve more than 60 days during any 365-day 
period. Thus, for example, private-life Board members would not 
be able to represent clients before the IRS on matters 
involving specific parties during their terms as Board members.
            Post-employment restrictions
      Private-life Board members are to be subject to the one-
year post-employment restriction applicable to senior-level 
employees.
            Financial disclosure reports
      Private-life members are to be subject to the public 
financial disclosure rules generally applicable to special 
government employees above certain pay grades.
Administrative matters
            Term of appointments
      The 8 private-life Board members and the employee 
organization representative generally will be appointed for 5-
year terms. The private-life members may serve no more than two 
5-year terms. Each 5-year term begins upon appointment. Board 
member terms are staggered, as a result of a special rule 
providing that some private-life members first appointed to the 
Board will serve initial terms of less than 5 years. The 
members of the Board are to elect a chairperson from among the 
private-life Board members for a 2-year term. Any member of the 
Board can be removed at the will of the President. In addition, 
the Secretary of the Treasury (or, if so delegated, the Deputy 
Secretary) and the IRS Commissioner are removed from the Board 
upon termination of employment in such positions and the 
representative of IRS employees is removed from the Board upon 
termination of their employment, membership, or other 
affiliation with the organization representing IRS employees.
            Meetings and quorum
      The Board is required to meet at least once a month, and 
can meet at such other times as the Board determines 
appropriate. A quorum of 6 members is required in order for the 
Board to conduct business. Actions of the Board are taken by a 
majority vote of those members present and voting.
            Staffing
      The Board will not have its own permanent staff, but will 
have such staff as detailed by the Commissioner at the request 
of the Chair of the Board. The Chair can procure temporary and 
intermittent services under section 3109(b) of title 5 of the 
U.S. Code.
            Compensation and travel expenses
      The private-life members of the Board will be compensated 
at a rate not to exceed $30,000 per year, except that the Chair 
will be compensated at a rate not to exceed $50,000 a year. 
Other members of the Board will receive no compensation for 
their services as Board members. The members of the Board will 
be entitled to travel expenses for purposes of attending 
meetings of the Board.
            Reports
      The Board is required to report each year regarding the 
conduct of its responsibilities. The annual report shall be 
provided to the President and Congress.
Effective date
      The House bill provisions are effective on the date of 
enactment. The President is directed to submit nominations for 
Board members to the Senate within 6 months of the date of 
enactment.

                            Senate Amendment

Duties, responsibilities, and powers of the IRS Oversight Board
            General responsibilities of the Board
      The Senate amendment generally follows the House bill, 
except that under the Senate amendment, the Board has no 
authority (1) to intervene in specific taxpayer cases, 
including compliance activities involving specific taxpayers 
such as criminal investigations, examinations, and collection 
activities, and (2) to intervene in specific individual 
personnel matters. The Board does have authority with respect 
to general law enforcement matters, and it has the 
responsibility to ensure that the organization and operation of 
the IRS allows it to carry out its mission.
            Specific responsibilities of the Board
      Under the Senate amendment, the Board's specific 
responsibilities and budget responsibilities are the same as in 
the House bill, except that: (1) the Board's review and 
approval authority for the Commissioner's plans for major 
reorganization does not apply to the reorganization provided in 
the Senate amendment; (2) the Board, after taking into account 
the recommendations, if any, of the Commissioner, shall 
recommend to the Secretary 3 candidates for appointment as the 
National Taxpayer Advocate from individuals who have a 
background in customer service and tax law, and experience 
representing individual taxpayers (and to recommend the removal 
of the National Taxpayer Advocate); (3) the Board shall review 
procedures of the IRS relating to financial audits; (4) the 
Board is to review operations of the IRS in order to ensure the 
proper treatment of taxpayers; and (5) in exercising its 
duties, the members of the Board shall maintain appropriate 
confidentiality (e.g., regarding enforcement matters).
Composition of the Board
      Under the Senate amendment, the Board is composed of 9 
members. Six of the members are so-called ``private-life'' 
members who are not otherwise Federal officers or employees. 
These private-life members are appointed by the President, with 
the advice and consent of the Senate. The other members are: 
(1) the Secretary (or, if the Secretary so designates, the 
Deputy Secretary); (2) the Commissioner; and (3) a 
representative from an employee organization that represents a 
substantial number of IRS employees and who is appointed by the 
President, with the advice and consent of the Senate. In 
appointing the representative of an employee organization, the 
President is not required to choose an individual recommended 
by the employee organization, but may choose whoever the 
President determines to be an appropriate representative of the 
employee organization.
Section 6103 authority
      Under the Senate amendment, Board members would have 
limited access to confidential tax return and return 
information under section 6103. This limited access would 
permit the Board to receive such information (i.e., information 
that has not been redacted to remove confidential tax return 
and return information) from the Treasury IG for Tax 
Administration or the Commissioner in connection with reports 
to the Board. This access to section 6103 information does not 
include the taxpayer's name, address, or taxpayer or employer 
identification number. The Board members are subject to the 
anti-browsing rules applicable to IRS employees under present 
law.\8\
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    \8\ The provision does not affect the Secretary's (or Deputy 
Secretary's) or the Commissioner's access to section 6103 information 
or the application of the anti-browsing rules to the Secretary (or 
Deputy Secretary) or the Commissioner.
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Qualifications of Board members
      Under the Senate amendment, the private-life members of 
the Board will be appointed without regard to political 
affiliation, and based solely on their expertise in the same 
areas as the House bill, except that the Senate amendment adds 
the further qualification that a private-life member have 
experience and expertise in the needs and concerns of small 
business.
Ethical standards for private-life members
            Representational activities and compensation matters
      Under the Senate amendment, the ethical conduct rules 
applicable to private-life Board members depend on whether or 
not such members are determined to be ``special government 
employees'' under current law. It is expected that they 
generally will be.\9\ In that case, they will be subject, at a 
minimum, to the ethical conduct rules applicable to special 
government employees. In addition, during their term as a Board 
member, a private-life Board member cannot represent any party 
(whether or not for compensation) with respect to (1) any 
matter before the Board or the IRS, (2) any tax-related matter 
before the Treasury Department, or (3) any court proceeding 
with respect to a matter described in (1) or (2). Thus, for 
example, the day after appointment to the Board, a private-life 
Board member could not meet with representatives of the IRS or 
Treasury on behalf of a client or the Board member's corporate 
employer with respect to proposed tax regulations. On the other 
hand, the Board member could, for example, represent clients 
before the U.S. Customs Service. The special rules applicable 
to private-life Board members generally do not preclude the 
Board member from sharing in compensation from representation 
of clients by another person (e.g., a partner of the Board 
member) before the IRS or Treasury.\10\
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    \9\ If the Board members are determined not to be special 
government employees under the present-law rules, then they will be 
subject to the ethical conduct rules relating to regular Federal 
Government employees.
    \10\ Certain limitations to this exception to the otherwise 
applicable ethical rules would apply. For example, this exception would 
not apply if the matter was one in which the Board member personally 
and substantially participated. Similarly, the Board member could not 
act with respect to a matter in which he or she has a personal 
financial interest, including the potential to receive a share in 
compensation as a result of another's representation.
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            Post-employment restrictions
      Under the Senate amendment, private-life Board members 
are subject to the 1-year post employment restriction 
applicable to individuals above certain pay grades and who have 
served at least 60 days (whether or not the members are special 
government employees under the present-law rules).
            Financial disclosure reports
      Under the Senate amendment, the private-life Board 
members are subject to the public financial disclosure rules 
applicable to Federal Government employees above certain pay 
grades and who have at least 60 days of service. Thus, the 
private-life Board members are required to file a public 
financial disclosure report for purposes of confirmation, 
annually during their tenure on the Board, and upon termination 
of appointment.
Ethical standards for IRS employee organization representative
            Waiver of conflict-of-interest laws
      The Senate amendment provides that the IRS employee 
organization representative is subject to the same ethical 
conduct rules as the private-life Board members. However, the 
Senate amendment modifies the otherwise applicable ethical 
conduct rules so that they do not preclude the employee 
representative from carrying out his or her duties as a Board 
member and his or her duties with respect to the employee 
organization. In particular, the employee representative is not 
prohibited from (1) representing the interests of the employee 
organization before the Federal Government on any matter, or 
(2) acting on a Board matter because the employee organization 
has a financial interest in the matter. In addition, the 
employee representative can continue to receive his or her 
compensation from the employee organization.\11\
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    \11\ Certain limitations on this exception would apply. For 
example, the rules relating to bribery would continue to apply. In 
addition, the employee representative would be precluded from acting on 
a matter in which he or she has a financial interest.
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            Post-employment restrictions
      The employee representative is subject to the same 1-year 
post employment restriction applicable to the private-life 
Board members, except to the extent the representative is 
acting in his capacity as a representative of the employee 
organization.
            Financial disclosure reports
      The employee representative is subject to the same public 
financial disclosure rules as the private-life Board members. 
In addition, the employee organization is required to provide 
an annual financial report with the House Ways and Means 
Committee and the Senate Finance Committee. Such report is 
required to include the compensation paid to the individual 
serving on the Board, the compensation of individuals employed 
by the employee organization, and membership dues collected by 
the organization.
Administrative matters
            Term of appointments
      The 6 private-life Board members will be appointed for 5-
year terms. The private-life members may serve no more than two 
5-year terms. Board member terms will be staggered, as a result 
of a special rule providing that some private-life members 
first appointed to the Board would serve terms of less than 5 
years. Under this rule, 2 members first appointed will have a 
term of 2 years, 2 for a term of 4 years, and 2 for a term of 5 
years. The terms of the initial Board members will run from the 
date of appointment. Subsequent terms will run from expiration 
of the previous term. A Board member appointed to fill a 
vacancy before the expiration of a term will be appointed to 
the remainder of the term. Such a member could be appointed to 
a subsequent 5-year term.
      A private-life Board member and the IRS employee 
representative Board member may be removed at the will of the 
President. In addition, the Secretary (or Deputy Secretary) and 
the IRS Commissioner are automatically removed from the Board 
upon his or her termination of employment as such.
            Chair of the Board
      The members of the Board are to elect a Chair from the 
private-life members for a 2-year term. Except as otherwise 
provided by a majority of the Board, the authority of the Chair 
includes the authority to hire appropriate staff, call 
meetings, establish committees, establish the agenda for 
meetings, and develop rules for the conduct of business.
            Meetings and quorum
      Under the Senate amendment, the Board is required to meet 
on a regular basis (as determined necessary by the Chair), but 
no less frequently than quarterly. The Board can meet 
privately, and is not subject to public disclosure laws. A 
quorum of 5 members is required in order for the Board to 
conduct business. Actions of the Board can be taken by a 
majority vote of those members present and voting.
            Staffing
      Under the Senate amendment, the Chair is authorized to 
hire (and terminate) such personnel as the Chair finds 
necessary to enable the Board to carry out its duties. In 
addition, the Board will have such staff as detailed by the 
Commissioner or from another Federal agency at the request of 
the Chair of the Board. The Chair can procure temporary and 
intermittent services under section 3109(b) of title 5 of the 
U.S. Code.
            Compensation and travel expenses
      Under the Senate amendment, the private-life members of 
the Board will be compensated at a rate of $30,000 per year, 
except that the Chair will be compensated at a rate of $50,000 
a year. The other Board members will receive no compensation 
for their services as a Boardmember. In addition, members of 
the Board are entitled to travel expenses for purposes of attending 
Board meetings or other duties as a member of the Board.
            Reports
      Under the Senate amendment, the Board is required to 
report each year regarding the conduct of its responsibilities. 
The annual report shall be provided to the President and the 
House Committees on Ways and Means, Government Reform and 
Oversight, and Appropriations and the Senate Committees on 
Finance, Governmental Affairs, and Appropriations. In addition, 
the Board is required to report to the Ways and Means and 
Finance Committees if the IRS does not address problems 
identified by the Board.
Effective date
      The provision is effective on the date of enactment. The 
President is directed to submit nominations for Board members 
to the Senate within 6 months of the date of enactment. The 
legality of the actions of the IRS are not affected pending 
appointment of the Board. Under the Senate amendment, the Board 
will sunset September 30, 2008.

                          Conference Agreement

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

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

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

                              Present Law

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

                               House Bill

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

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

      As under present law, the Senate amendment provides that 
the Chief Counsel is appointed by the President, with the 
advice and consent of the Senate. Under the Senate amendment, 
the Chief Counsel is not an Assistant General Counsel of the 
Treasury and reports directly to the Commissioner.
      The Chief Counsel has such duties and powers as 
prescribed by the Secretary. Unless otherwise specified by the 
Secretary, these duties include the duties currently delegated 
to the Chief Counsel as described above. If the Secretary 
determined not to delegate such specified duties to the Chief 
Counsel, such determination is subject to the same notice 
requirement applicable to changes in the delegation of 
authority with respect to the Commissioner.
      Effective date.--The provision is generally effective on 
the date of enactment. The provision providing that the Chief 
Counsel reports directly to the Commissioner is effective 90 
days after the date of enactment.

                          Conference Agreement

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

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

                              Present Law

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

                               House Bill

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

                            Senate Amendment

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

                          Conference Agreement

      The conference agreement follows the Senate amendment.

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

                              Present Law

Taxpayer Advocate
      In 1996, the Taxpayer Bill of Rights 2 (``TBOR 2'') 
established the position of Taxpayer Advocate, which replaced 
the position of Taxpayer Ombudsman, created in 1979 by the IRS. 
The Taxpayer Advocate is appointed by and reports directly to 
the IRS Commissioner.
      TBOR 2 also created the Office of the Taxpayer Advocate. 
The functions of the office are (1) to assist taxpayers in 
resolving problems with the IRS, (2) to identify areas in which 
taxpayers have problems in dealings with the IRS, (3) to 
propose changes (to the extent possible) in the administrative 
practices of the IRS that will mitigate those problems, and (4) 
to identify potential legislative changes that may mitigate 
those problems.
Taxpayer assistance orders
      Taxpayers can request that the Taxpayer Advocate issue a 
taxpayer assistance order (``TAO'') if the taxpayer is 
suffering or about to suffer a significant hardship as a result 
of the manner in which the internal revenue laws are being 
administered. A TAO may require the IRS to release property of 
the taxpayer that has been levied upon, or to cease any action, 
take any action as permitted by law, or refrain from taking any 
action with respect to the taxpayer.
      Under present law, the direct point of contact for 
taxpayers seeking taxpayer assistance orders is a problem 
resolution officer appointed by a District Director or a 
Regional Director of Appeals. The Taxpayer Advocate has 
designated the authority to issue taxpayer assistance orders to 
the local and regional problem resolution officers.
Reports of the Taxpayer Advocate
      The Taxpayer Advocate is required to report annually to 
the House Committee on Ways and Means and the Senate Finance 
Committee on the objectives of the Taxpayer Advocate for the 
up-coming fiscal year. This report is required to be provided 
no later than June 30 of each calendar year and is to contain 
full and substantive analysis, in addition to statistical 
information.
      The Taxpayer Advocate is also required to report annually 
to the House Committee on Ways and Means and the Senate Finance 
Committee on the activities of the Taxpayer Advocate during the 
most recently ended fiscal year. This report is required to be 
provided no later than December 31 of each calendar year, and 
is to contain full and substantive analysis, in addition to 
statistical information. This report is also required to: (1) 
identify the initiatives the Taxpayer Advocate has taken on 
improving taxpayer services and IRS responsiveness; (2) contain 
recommendations received from individuals with the authority to 
issue TAOs; (3) contain asummary of at least 20 of the most 
serious problems encountered by taxpayers, including a description of 
the nature of such problems; (4) contain an inventory of the items 
described in (1), (2), and (3) for which action has been taken and the 
result of such action; (5) contain an inventory of the items described 
in (1), (2), and (3) for which action remains to be completed and the 
period during which each item has remained on such inventory; (6) 
contain an inventory of the items described in (1), (2) and (3) for 
which no action has been taken, the period during which the item has 
remained on the inventory, the reasons for the inaction, and identify 
any IRS official who is responsible for the inaction; (7) identify any 
TAO that was not honored by the IRS in a timely manner; (8) contain 
recommendations for such administrative and legislative action as may 
be appropriate to resolve problems encountered by taxpayers; (9) 
describe the extent to which regional problem resolution officers 
participate in the selection and evaluation of local problem resolution 
officers, and (10) include such other information as the Taxpayer 
Advocate deems advisable.
      The reports of the Taxpayer Advocate are to be submitted 
directly to the Congressional Committees without prior review 
or comment from the Commissioner, Secretary, any other officer 
or employee of the Treasury, or the Office of Management and 
Budget.

                               House Bill

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

                            Senate Amendment

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

                          Conference Agreement

National Taxpayer Advocate
      The conference agreement follows the Senate amendment, 
with modifications. The conference agreement does not include 
the Senate amendment provision that the IRS Oversight Board is 
to recommend to the Secretary 3 candidates for National 
Taxpayer Advocate; instead, the conference agreement provides 
that the National Taxpayer Advocate is appointed by the 
Secretary after consultation with the Commissioner and the 
Board (without regard to the provisions of Title 5 of the U.S. 
Code, relating to appointments in the competitive service or 
the Senior Executive Service). The conference agreement 
modifies the Senate amendment provision that an individual may 
be appointed as the National Taxpayer Advocate only if the 
individual was not an officer or employee of the IRS during the 
2-year period ending with such appointment and the individual 
agrees not to accept employment with the IRS for at least 5 
years after ceasing to be the National Taxpayer Advocate. The 
conference agreement provides that service as an officer or 
employee of the Office of the Taxpayer Advocate is not taken 
into account, for purposes of these 2-year and 5-year rules. 
The conference agreement also clarifies that the National 
Taxpayer Advocate's compensation is to be at the highest rate 
of basic pay established for the Senior Executive Service, or, 
if the Treasury Secretary so determines, at a rate fixed under 
5 U.S. Code section 9503.
      The conferees intend that the National Taxpayer 
Advocate's responsibility to appoint local taxpayer advocates 
and make available at least one local taxpayer advocate for 
each Statemeans that a local taxpayer advocate will be 
available to taxpayers in each State.
      The conference agreement does not include the Senate 
amendment provision that the National Taxpayer Advocate has the 
responsibility and authority to appoint a counsel in the Office 
of the Taxpayer Advocate to report directly to the National 
Taxpayer Advocate. The conferees intend that the National 
Taxpayer Advocate be able to hire and consult counsel as 
appropriate.
      The conference agreement provides that each local 
taxpayer advocate reports to the National Taxpayer Advocate or 
his delegate. The committees intend that a delegate mean the 
taxpayer advocate for the appropriate organizational unit. It 
is not intended that a local taxpayer advocate report to a 
District Director of the IRS, for example. Providing reporting 
to a delegate of the National Taxpayer Advocate under the 
conference agreement is intended to provide reporting 
flexibility sufficient to take into account the necessities of 
any reorganization of the IRS.
Taxpayer assistance orders
      The conference agreement follows the Senate amendment, 
except that the conference agreement does not include the 
Senate amendment provision that the Taxpayer Advocate is 
authorized to issue a TAO in any circumstances that the 
Taxpayer Advocate considers appropriate for the issuance of a 
TAO. Instead, the conference agreement provides that the 
National Taxpayer Advocate may issue a TAO if the taxpayer 
meets requirements set forth in regulations. It is intended 
that the circumstances set forth in regulations be based on 
considerations of equity.
Effective date
      The conference agreement follows the Senate amendment, 
with modifications. Under the conference agreement, the 
provisions are effective on date of enactment, except that in 
appointing the first National Taxpayer Advocate after date of 
enactment, the Treasury Secretary may not appoint anyone who 
was an officer or employee of the IRS at any time during the 2-
year period ending on the date of appointment, and the Treasury 
Secretary need not consult with the Board if the Board has not 
been appointed.

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

                              Present Law

Treasury Inspector General
      The Treasury Office of Inspector General (``Treasury 
IG'') was established in 1988 and charged with conducting 
independent audits, investigations and review to help the 
Department of Treasury accomplish its mission, improve its 
programs and operations, promote economy, efficiency and 
effectiveness, and prevent and detect fraud and abuse. The 
Treasury IG derives its statutory authority under the Inspector 
General Act of 1978, as amended (``IG Act of 1978'').
            Appointment and qualifications
      The IG Act of 1978 provides that the Treasury IG is 
selected by the President, with the advice and consent of the 
Senate, without regard to political affiliation and solely on 
the basis of integrity and demonstrated ability in accounting, 
auditing, financial analysis, law, management analysis, public 
administration, or investigations. The Treasury IG can be 
removed from office by the President. The President must 
communicate the reasons for such removal to both Houses of 
Congress.
            Duties and responsibilities
      The Treasury IG generally is authorized to conduct, 
supervise and coordinate internal audits and investigations 
relating to the programs and operations of the Treasury, 
including all of its bureaus and offices.\20\ Special rules 
apply, however, with respect to the Treasury IG's jurisdiction 
over ATF, Customs, the Secret Service and the IRS--the four so-
called ``law enforcement bureaus.'' Upon its establishment, the 
Treasury IG assumed the internal audit functions previously 
performed by the offices of internal affairs of ATF, Customs 
and the Secret Service. Although the Treasury IG was granted 
oversight responsibility for the internal investigations 
performed by the Office of Internal Affairs of ATF, the Office 
of Internal Affairs of Customs, and the Office of Inspections 
of the Secret Service, the internal investigation or inspection 
functions of these offices remained with the respective 
bureaus. The Treasury IG did not assume responsibility for 
either the internal audit or inspection functions of the IRS 
Office of the Chief Inspector. However, it was directed to 
oversee the internal audits and internal investigations 
performed by the IRS Office of the Chief Inspector.
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    \20\ The Treasury Department organization includes the Departmental 
offices as well as the Bureau of Alcohol, Tobacco and Firearms 
(``ATF''), the Office of the Comptroller of the Currency (``OCC''), the 
U.S. Customs Service (``Customs''), the Bureau of Engraving and 
Printing, the Federal Law Enforcement Training Center, the Financial 
Management Service, the U.S. Mint, the Bureau of the Public Debt, the 
U.S. Secret Service (``Secret Service''), the Office of Thrift 
Supervision, and the IRS.
---------------------------------------------------------------------------
      The Commissioner and the Treasury IG have entered into 
two Memorandums of Understanding (``MOUs'')\21\ to clarify the 
respective roles of the IRS Office of the Chief Inspector and 
the Treasury IG in two primary areas: (1) the investigation of 
allegations of wrongdoing by IRS executives and employees in 
situations where the independence of the Office of the Chief 
Inspector could be questioned, and (2) oversight by the 
Treasury IG of the IRS Office of the Chief Inspector.\22\ 
Pursuant to the 1990 MOU, the Commissioner agreed to transfer 
21 FTEs and $1.9 million from the IRS appropriation to the 
Treasury IG appropriation to be used for the following 
purposes: (1) oversight of the operations of the Office of the 
Chief Inspector; (2) conduct of special reviews of IRS 
operations; (3) investigation of allegations of misconduct 
concerning the Commissioner, the Senior Deputy Commissioner, 
and employees of the IRS Office of the Chief Inspector; and (4) 
investigation of allegations of misconduct where the 
independence of the IRS Office of the Chief Inspector might be 
questioned. With respect to item (4), the Commissioner and 
Treasury IG agreed that all allegations of misconduct involving 
IRS executives and managers (Grade 15 and above), as well as 
any other allegation involving ``significant or notorious'' 
matters were to be referred to the Treasury IG, and that 
investigations arising out of such referrals generally would be 
conducted by the Treasury IG.
---------------------------------------------------------------------------
    \21\ The first MOU was entered into in 1990 and the second in 1994.
    \22\ Treasury Directive 40-01 (September 21, 1992) reiterates that 
the Treasury IG is responsible for investigating alleged misconduct on 
the part of IRS employees at the grade 15 level and above, all 
employees of the Office of the Chief Inspector. In addition, Treasury 
Directive 40-01 states that the Treasury IG is responsible for 
investigating alleged misconduct on the part of Office of Chief Counsel 
employees (excluding employees of the National Director, Office of 
Appeals).
---------------------------------------------------------------------------
      In general, under the IG Act of 1978, Inspectors General 
are instructed to report expeditiously to the Attorney General 
whenever the Inspector General has reasonable grounds to 
believe there has been a violation of Federal criminal law. 
However, in matters involving criminal violations of the 
Internal Revenue Code, the Treasury IG may report to the 
Attorney General only those offenses under section 7214 of the 
Code (unlawful acts of revenue officers or agents, including 
extortion, bribery and fraud) without the consent of the 
Commissioner.
            Authority
      The Treasury IG reports to and is under the general 
supervision of the Secretary of Treasury, acting through the 
Deputy Secretary. In general, the Secretary cannot prevent or 
prohibit the Treasury IG from initiating, carrying out, or 
completing any audit or investigation or from issuing any 
subpoena during the course of any audit or investigation.
      However, section 8D of the IG Act of 1978 grants the 
Secretary authority to prohibitaudits or investigations by the 
Treasury IG under certain circumstances. In particular, the Treasury IG 
is under the authority, direction, and control of the Secretary with 
respect to audits or investigations, or the issuance of subpoenas, 
which require access to sensitive information concerning: (1) ongoing 
criminal investigations or proceedings; (2) undercover operations; (3) 
the identity of confidential sources, including protected witnesses; 
(4) deliberations and decisions on policy matters, including documented 
information used as a basis for making policy decisions, the disclosure 
of which could reasonably be expected to have a significant influence 
on the economy or market behavior; (5) intelligence or 
counterintelligence matters; (6) other matters the disclosure of which 
would constitute a serious threat to national security or to the 
protection of certain persons. With respect to audits, investigations 
or subpoenas that require access to the above-listed information, the 
Secretary may prohibit the Treasury IG from carrying out such audit, 
investigation or subpoena if the Secretary determines that such 
prohibition is necessary to prevent the disclosure of such information 
or to prevent significant impairment to the national interests of the 
United States. The Secretary must provide written notice of such a 
prohibition to the Treasury IG, who must, in turn, transmit a copy of 
such notice to the Committees on Government Reform and Oversight and 
Ways and Means of the House and the Committees on Governmental Affairs 
and Finance of the Senate.
            Access to taxpayer returns and return information
      The Treasury IG has access to taxpayer returns and return 
information under section 6103(h)(1) of the Code. However, such 
access is subject to certain special requirements, including 
the requirement that the Treasury IG notify the IRS Office of 
the Chief Inspector (or the Deputy Commissioner in certain 
circumstances) of its intent to access returns and return 
information.
            Reporting requirements
      Under the IG Act of 1978, the Treasury IG reports to the 
Congress semiannually on its activities. Reports from the 
Treasury IG are transmitted to the Committees on Government 
Reform and Oversight and Ways and Means of the House and the 
Committees on Governmental Affairs and Finance of the Senate.
            Resources
      For fiscal year 1997, the Treasury IG had 296 FTEs and 
total funding of $29.7 million. 174 FTEs were assigned to the 
Treasury IG's audit function and 61 were assigned to the 
investigative function. The remaining FTEs were divided among 
the following functions: evaluations, legal, program, 
technology and administrative support. Of the total Treasury IG 
FTEs, approximately 23 were used for IRS oversight activities 
in fiscal year 1997.
IRS Office of Chief Inspector
      The IRS Office of the Chief Inspector (also known as the 
``Inspection Service'') was established on October 1, 1951, in 
response to publicity revealing widespread corruption in the 
IRS. At the time of its creation, President Harry S. Truman 
stated, ``A strong, vigorous inspection service will be 
established and will be made completely independent of the rest 
of the Internal Revenue Service.''
            Appointment of the Chief Inspector
      In 1952, the Office of the Assistant Commissioner 
(Inspection) was established. The office was redesignated as 
the Office of the Chief Inspector on March 25, 1990. The Chief 
Inspector is appointed by the Commissioner. In this regard, 
pursuant to Treasury Director 40-01, the Commissioner must 
consult with the Treasury IG before selecting candidates for 
the position of Chief Inspector (and all other senior executive 
service (``SES'') positions in the Office of the Chief 
Inspector). The Commissioner must also consult with the 
Treasury IG regarding annual performance appraisals for the 
Chief Inspector and other SES officials.
      The Office of the Chief Inspector consists of a National 
Office and the offices of the Regional Inspectors. The offices 
of the Regional Inspectors are located in the same cities and 
have the same geographic boundaries as the offices of the four 
IRS Regional Commissioners. The Regional Inspectors report 
directly to the Chief Inspector.
            Duties and responsibilities
      The Office of the Chief Inspector generally is 
responsible for carrying out internal audits and investigations 
that: (1) promote the economic, efficient, and effective 
administration of the nation's tax laws; (2) detect and deter 
fraud and abuse in IRS programs and operations; and (3) protect 
the IRS against external attempts to corrupt or threaten its 
employees. The Chief Inspector reports directly to the 
Commissioner and Deputy Commissioner of the IRS.
      The IRS Inspection Service is divided into three 
functions: Internal Security, Internal Audit, and Integrity 
Investigations and Activities. Internal Security's 
responsibilities include criminal investigations (employee 
conduct, bribery, assault and threat and investigations of non-
IRS employees for acts such as impersonation, theft, enrolled 
agent misconduct, disclosure, and anti-domestic terrorism) 
investigative support activities (including forensic lab, 
computer investigative support, and maintenance of law 
enforcement equipment), protection, and background 
investigations.
      Internal Audit is responsible for providing IRS 
management with independent reviews and appraisals of all IRS 
activities and operations. In addition, Internal Audit makes 
recommendations to improve the efficiency and effectiveness of 
programs and to assist IRS officials in carrying out their 
program and operational responsibilities. In this regard, 
Internal Audit generally conducts performance reviews (program 
audits, system development audits, internal control audits) and 
financial reviews (financial statement audits and financial 
related reviews).
      Integrity Investigations and Activities are joint 
internal audit and internal security operations undertaken as a 
proactive effort to detect and deter fraud and abuse within the 
IRS. Integrity Investigations and Activities also includes the 
UNAX Central Case Development Center. The Center was developed 
in October, 1997, in response to the Taxpayer Browsing 
Protection Act of 1997. Its purpose is to detect unauthorized 
accesses to IRS computer systems by IRS employees and to refer 
such instances to Internal Security investigators for further 
investigation.
            Authority
      The Chief Inspector derives specific and general 
authority from delegation by the Commissioner and Deputy 
Commissioner. In addition, under section 7608(b) of the Code, 
the Chief Inspector is authorized to perform certain functions 
in connection with the duty of enforcing any of the criminal 
provisions of the Code, including executing and serving search 
and arrest warrants, serving subpoenas and summonses, making 
arrests without warrant, carrying firearms, and seizing 
property subject to forfeiture under the Code.
            Access to taxpayer returns and return information
      The Office of the Chief Inspector has full access to 
taxpayer returns and return information.
            Reporting requirements
      The Office of the Chief Inspector reports facts developed 
through its internal audit and internal security activities to 
IRS management officials, who are charged with the 
responsibility of reviewing IRS activities. The results of the 
Chief Inspector's internal audit and internal security 
activities also are reported to the Treasury IG and are 
included in the Treasury IG's semiannual reports to Congress.
      Internal audit reports prepared by the Office of the 
Chief Inspector are provided monthly to the Government 
Accounting Office, as well as to the House and Senate 
Appropriations Committees. In addition, a monthly list of 
Internal Audit reports is provided to Treasury and the Office 
of Management and Budget. Reports of Investigation regarding 
criminal conduct are referred to the Department of Justice for 
prosecution.
            Resources
      The IRS Office of the Chief Inspector had 1,202 FTEs for 
1997 and total funding of $100.1 million. Of these FTEs, 
approximately 442 performed Internal Audit functions, 511 
performed Internal Security functions, and 94 performed 
Integrity Investigations and Activities. Of the remaining FTEs, 
approximately 95 were dedicated to information technology 
functions and 60 staffed the offices of the Chief Inspector and 
the Regional Inspectors.

                               House Bill

      No provision.

                            Senate Amendment

In general
      The Senate amendment establishes a new, independent, 
Treasury Inspector General for Tax Administration (``Treasury 
IG for Tax Administration'') within the Department of Treasury. 
The IRS Office of the Chief Inspector is eliminated, and all of 
its powers and responsibilities are transferred to the Treasury 
IG for Tax Administration. The Treasury IG for Tax 
Administration has the powers and responsibilities generally 
granted to Inspectors General under the IG Act of 1978, without 
the limitations that currently apply to the Treasury IG under 
section D of the Act. The role of the existing Treasury IG is 
redefined to exclude responsibility for the IRS. The Treasury 
IG for Tax Administration is under the supervision of the 
Secretary of Treasury, with certain additional reporting to the 
Board and the Congress.
Appointment and qualifications of Treasury IG for Tax Administration
      The Treasury IG for Tax Administration is selected by the 
President, with the advice and consent of the Senate. The 
Treasury IG for Tax Administration can be removed from office 
by the President. The President must communicate the reasons 
for such removal to both Houses of Congress.
      The Treasury IG for Tax Administration must be selected 
without regard to political affiliation and solely on the basis 
of integrity and demonstrated ability in accounting, auditing, 
financial analysis, law, management analysis, public 
administration, or investigations. In addition, however, the 
Treasury IG for Tax Administration should have experience in 
tax administration and demonstrated ability to lead a large and 
complex organization. The Treasury IG for Tax Administration 
may not be employed by the IRS within the two years preceding 
and the five years following his or her appointment.
      The Treasury IG for Tax Administration is required to 
appoint an Assistant Inspector General for Auditing and an 
Assistant Inspector for Inspections. Under the Senate 
amendment, such appointees, as well as any Deputy Inspector 
General(s) appointed by the Treasury IG for Tax Administration, 
may not be employed by the IRS within the two years preceding 
and the five years following their appointments.
Duties and responsibilities of Treasury IG for Tax Administration
      The Treasury IG for Tax Administration has the present-
law duties and responsibilities currently delegated to the 
Treasury IG with respect to the IRS. In addition, the Treasury 
IG for Tax Administration assumes all of the duties and 
responsibilities currently delegated to the IRS Office of the 
Chief Inspector. The Treasury IG for Tax Administration has 
jurisdiction over IRSmatters, as well as matters involving the 
Board.
      Accordingly, the Treasury IG for Tax Administration is 
charged with conducting audits, investigations, and evaluations 
of IRS programs and operations (including the Board) to promote 
the economic, efficient and effective administration of the 
nation's tax laws and to detect and deter fraud and abuse in 
IRS programs and operations. In this regard, the Treasury IG 
for Tax Administration specifically is directed to evaluate the 
adequacy and security of IRS technology on an ongoing basis. In 
addition, the Treasury IG for Tax Administration is responsible 
for protecting the IRS against external attempts to corrupt or 
threaten its employees. The Treasury IG for Tax Administration 
is charged with investigating allegations of criminal 
misconduct (e.g., Code sections 7212, 7213, 7214, 7216 and new 
section 7217), as well as administrative misconduct (e.g., 
violations of the Taxpayer Bill of Rights and the Taxpayer Bill 
of Rights 2, the Office of Government Ethics Standards of 
Ethical Conduct and the IRS Supplemental Standards of Ethical 
Conduct).
      In addition, the Senate amendment directs the Treasury IG 
for Tax Administration to implement a program periodically to 
audit at least one percent of all determinations (identified 
through a random selection process) where the IRS has asserted 
either section 6103 (directly or in connection with the Freedom 
of Information Act or the Privacy Act) or law enforcement 
considerations (i.e., executive privilege) as a rationale for 
refusing to disclose requested information. The program must be 
implemented within 6 months after establishment of the Treasury 
IG for Tax Administration. The Treasury IG for Tax 
Administration is directed to report any findings of improper 
assertion of section 6103 or law enforcement considerations to 
the Board.
      Further, the Treasury IG for Tax Administration is 
directed to establish a toll-free confidential telephone number 
for taxpayers to register complaints of misconduct by IRS 
employees and to publish the telephone number in IRS 
Publication 1.
      There are no restrictions on the Treasury IG for Tax 
Administration's ability to refer matters to the Department of 
Justice. Thus, the Treasury IG for Tax Administration is 
required to report to the Attorney General whenever the 
Treasury IG for Tax Administration has reasonable grounds to 
believe that there has been a violation of Federal criminal 
law.
Authority of Treasury IG for Tax Administration
      The Treasury IG for Tax Administration reports to and is 
under the general supervision of the Secretary of Treasury. 
Under the Senate amendment, the Secretary cannot prevent or 
prohibit the Treasury IG for Tax Administration from 
initiating, carrying out, or completing any audit or 
investigation or from issuing any subpoena during the course of 
any audit or investigation.
      Under the Senate amendment, the Treasury IG for Tax 
Administration must provide to the Board all reports regarding 
IRS matters on a timely basis and conduct audits or 
investigations requested by the Board. The Treasury IG for Tax 
Administration also must, in a timely manner, conduct such 
audits or investigations and provide such reports as may be 
requested by the Commissioner.
      In carrying out the duties and responsibilities described 
above, the Treasury IG for Tax Administration has the present-
law authority generally granted to Inspectors General under the 
IG Act of 1978. The limitations on the authority of the 
Treasury IG under such Act do not apply to the Treasury IG for 
Tax Administration. In addition, the Treasury IG for Tax 
Administration has the authority granted to the IRS Office of 
the Chief Inspector under present-law Code section 7608, 
including the right to execute and serve search and arrest 
warrants, to serve subpoenas and summonses, to make arrests 
without warrant, to carry firearms, and to seize property 
subject to forfeiture under the Code.
Resources
      To ensure that the Treasury IG for Tax Administration has 
sufficient resources to carry out his or her duties and 
responsibilities under the Senate amendment, all but 300 FTEs 
from the IRS Office of the Chief Inspector are transferred to 
the Treasury IG for Tax Administration. Such FTEs include all 
of the FTEs performing investigative functions in the Office of 
the Chief Inspector Internal Security and Integrity 
Investigations and Activities. In addition, the 21 FTEs 
previously transferred from Inspection to Treasury IG pursuant 
to the 1990 MOU to perform oversight of the IRS are transferred 
to the Treasury IG for Tax Administration.
      The Commissioner will retain approximately 300 FTEs from 
the IRS Office of the Chief Inspector to staff an audit 
function (including support staff) for internal IRS management 
purposes. Like other IRS functions, however, this audit 
function is subject to oversight and review by the Treasury IG 
for Tax Administration.
Access to taxpayer returns and return information
      Taxpayer returns and return information are available for 
inspection by the Treasury IG for Tax Administration pursuant 
to section 6103(h)(1). Thus, the Treasury IG for Tax 
Administration has the same access to taxpayer returns and 
return information as does the Chief Inspector under present 
law.
Reporting requirements
      The Treasury IG for Tax Administration is subject to the 
semiannual reporting requirements set forth in section 5 of the 
IG Act of 1978. As under present law, reports are made to the 
Committees on Government Reform and Oversight and Ways and 
Means of the House and the Committees on Governmental Affairs 
and Finance of the Senate. The reports must contain the 
information that is required to be reported by the Treasury IG 
with respect to the IRS under present law, as well as 
information regarding the source, nature and status of taxpayer 
complaints and allegations of serious misconduct by IRS 
employees received by the IRS or by the TreasuryIG for Tax 
Administration. In addition, the Treasury IG for Tax Administration is 
required to report annually on certain additional information (e.g., 
regarding the use of enforcement statistics in evaluating IRS 
employees, the implementation of various taxpayer rights protections, 
and IRS employee terminations and mitigations) required by the Senate 
amendment.
Treasury IG
      The Treasury IG generally continues to have its present-
law responsibilities and authority with respect to all Treasury 
functions other than the IRS and the Board. However, the 
Treasury IG generally does not have access to taxpayer returns 
and return information under section 6103 (unless the Secretary 
specifically authorizes such access).
      The Treasury IG for Tax Administration operates 
independently of the Treasury IG. The Secretary of Treasury is 
directed to establish procedures pursuant to which the Treasury 
IG for Tax Administration and the Treasury IG shall coordinate 
audits and investigations in cases involving overlapping 
jurisdiction.
      The Treasury IG continues to have responsibility for 
providing an opinion on the Department of Treasury's 
consolidated financial statement as required under the Chief 
Financial Officer Act. The Treasury IG for Tax Administration 
is responsible for rendering an opinion on the IRS custodial 
and administrative accounts (to the extent the Government 
Accounting Office does not exercise its option to preempt under 
the CFO Act).
      Effective date.--The provision is effective 180 days 
after the date of enactment.

                          Conference Agreement

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

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

                              Present Law

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

                               House Bill

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

                            Senate Amendment

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

                          Conference Agreement

      The conference agreement follows the Senate amendment.

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

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

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

                              Present Law

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

                               House Bill

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

                            Senate Amendment

In general
      The Senate amendment is the same as the House bill except 
that negotiation impasses between the IRS and the employees' 
union may be appealed to the Federal Services Impasse Panel.
Senior management and technical positions
            Streamlined critical pay authority
      The Senate amendment provides a streamlined process for 
the Secretary of the Treasury, or his delegate, to fix the 
compensation of, and appoint up to 40 individuals to, 
designated critical technical and professional positions, 
provided that: (1) the positions require expertise of an 
extremely high level in a technical, administrative or 
professional field and are critical to the IRS; (2) exercise of 
the authority is necessary to recruit or retain an individual 
exceptionally well qualified for the position; (3) designation 
of such positions is approved by the Secretary; (4) the terms 
of such appointments are limited to no more than four years; 
(5) appointees to such positions are not IRS employees 
immediately prior to such appointment; and (6) the total annual 
compensation for any position (including performance bonuses) 
does not exceed the rate of pay of the Vice President 
(currently, $175,400).
      These appointments are not subject to the otherwise 
applicable requirements under title 5. All such appointments 
will be excluded from the collective bargaining unit and the 
appointments will not be subject to approval of the Office of 
Management and Budget (``OMB'') or the Office of Personnel 
Management (``OPM'').
      The streamlined authority will be limited to a period of 
10 years.
            Critical pay authority
      The Senate amendment provides OMB with authority to set 
the pay for certain critical pay positions requested by the 
Secretary under section 5377 of title 5 of the United States 
Code at levels higher than authorized under current law. These 
critical pay positions would be critical technical, 
administrative and professional positions other than those 
designated under the streamlined authority. The Senate 
amendment authorizes OMB to approve requests for critical 
position pay up to the rate of pay of the Vice President 
(currently, $175,400).
            Recruitment, retention and relocation incentives
      The Senate amendment authorizes the Secretary to vary 
from the existing provisions governing recruitment, retention 
and relocation incentives. The authority will be for a period 
of 10 years and will be subject to OPM approval.
            Career-reserve Senior Executive Service (``SES'') positions
      The Senate amendment broadens the definition of a 
``career reserved position'' in the SES to include a limited 
emergency appointee or a limited term appointee who, 
immediately upon entering the career-reserved position, was 
serving under a career or a career-conditional appointment 
outside the SES or whose limited emergency or limited term 
appointment is approved in advance by OPM. The number of 
appointments to these SES positions will be limited to up to 10 
percent of the total number of SES positions available to the 
IRS. These positions will be limited to a 3-year term, with the 
option of extending the term for 2 more 3-year terms.
Performance management system
      The Senate amendment is the same as the House bill except 
that (1) the Senate amendment does not require that the IRS 
establish the performance management system within one year 
from the date of enactment, and (2) the Senate amendment does 
not provide for the establishment of at least 2 standards of 
performance. The Senate amendment permits the IRS to establish 
one or more retention standards for each employee related to 
the work of the employee and expressed in terms of performance.
Awards
      The Senate amendment is the same as the House bill except 
that the Senate amendment (1) provides that awards for superior 
accomplishments between $10,000 and $25,000 would not be 
subject to OPM approval, and (2) provides the Secretary with 
the authority to provide performance bonus awards to IRS senior 
executives of up to one-third of the individual's annual 
compensation. The bonus award would be based on meeting preset 
performance goals established by the IRS. An individual's total 
annual compensation, including the bonus, cannot exceed the 
rate of pay of the Vice President. The authority will not be 
subject to OPM approval. It is anticipated that the bonuses 
will not be available to more than 25 IRS senior executives 
annually.
Staffing flexibilities
      The Senate amendment is the same as the House bill, 
except that the Senate amendment (1) does not include the 
requirement that the IRS fill vacancies with qualified 
veterans, and (2) does not authorize the Commissioner to 
reassign or remove career appointees in the Senior Executive 
Service immediately upon taking office. The current law rule 
which provides that career appointees may not be involuntarily 
removed within 120 days after the appointment of the head of 
the agency continues to apply.
      The Senate amendment authorizes the Secretary to 
establish one or more broad band pay systems covering all or 
any portion of the IRS workforce, subject to OPM criteria.
      The Senate amendment authorizes the IRS to use Voluntary 
Separation Incentive Pay (``buyouts'') through December 31, 
2002. The use of voluntary separation incentive is not intended 
to reduce the total number of Full-Time Equivalent (``FTE'') 
positions in the IRS.
Demonstration projects
      The Senate amendment is the same as the House bill except 
that the Senate amendment (1) does not include the prohibitions 
on demonstration projects, and (2) provides authority to the 
Secretary and OPM to waive the termination of a demonstration 
project, thereby making it permanent. At least 90 days prior to 
waiving the termination date OPM will be required to publish a 
notice of such intent in the Federal Register and inform the 
appropriate Committees (including the House Ways and Means 
Committee, the House Government Reform and Oversight Committee, 
the Senate Finance Committee and the Senate Governmental 
Affairs Committee) of both Houses of Congress in writing.
Mandatory employee terminations
      The Senate amendment requires the IRS to terminate an 
employee for certain proven violations committed by the 
employee in connection with the performance of official duties. 
The violations include: (1) failure to obtain the required 
approval signatures on documents authorizing the seizure of a 
taxpayer's home, personal belongings, or business assets; (2) 
providing a false statement under oath material to a matter 
involving a taxpayer; (3) falsifying or destroying documents to 
avoid uncovering mistakes made by the employee with respect to 
a matter involving a taxpayer; (4) assault or battery on a 
taxpayer or other IRS employee; (5) violation of the civil 
rights of a taxpayer or other IRS employee; (6) violations of 
the Internal Revenue Code, Treasury Regulations, or policies of 
the IRS (including the Internal Revenue Manual) for the purpose 
of retaliating or harassing a taxpayer or other IRS employee; 
(7) willful misuse of section 6103 for the purpose of 
concealing data from a Congressional inquiry; (8) willful 
failure to file any tax return required under the Code on or 
before the due date (including extensions) unless failure is 
due to reasonable cause; (9) willful understatement of Federal 
tax liability, unless such understatement is due to reasonable 
cause; and (10) threatening to audit a taxpayer for the purpose 
of extracting personal gain or benefit.
      The Senate amendment provides non-delegable authority to 
the Commissioner to determine that mitigating factors exist, 
that, in the Commissioner's sole discretion, mitigate against 
terminating the employee. The Senate amendment also provides 
that the Commissioner, in his sole discretion, may establish a 
procedure which will be used to determine whether an individual 
should be referred for such a determination by the 
Commissioner. The Treasury IG is required to track employee 
terminations and terminations that would have occurred had the 
Commissioner not determined that there were mitigation factors 
and include such information in the IG's annual report.
IRS employee training program
      The Senate amendment requires the IRS to place a high 
priority on employee training and to adequately fund employee 
training programs. The bill also requires the IRS to provide to 
the Congressional tax writing committees a comprehensive multi-
year plan to: (1) ensure adequate customer service training; 
(2) review the organizational design of customer service; (3) 
implement a performance development system; and (4) provide for 
at least sixteen hours of conflict management training during 
1999 for collection employees.
Effective date
      The provision is effective on the date of enactment 
except that the IRS employee training program would be 
effective 90 days after the date of enactment.

                          Conference Agreement

      The conference agreement follows the Senate amendment, 
with modifications. The conference agreement includes the House 
bill provision requiring the IRS to establish a new performance 
management system within one year from the date of enactment.
      The conferees intend to give the IRS flexibility to 
establish a new performance management system. The conferees 
expect that this will refocus the IRS' personnel system on the 
overall mission of the IRS and how each employee's performance 
relates to that mission. Although the new performance standards 
are premised on the notion of retention, such standards should 
go beyond simply establishing a retention/non-retention or 
pass-fail performance system. At a minimum, the conferees 
believe that there should be at least one standard above the 
retention standard. This will enable managers to make 
meaningful distinctions among employees based on performance, 
to encourage employees to perform at a higher level and to 
reward superior performance.
      The conference agreement permits the Secretary to appoint 
an individual, who was appointed an IRS employee on or after 
June 1, 1998, to a critical pay position under the streamlined 
critical pay authority.
      The conference agreement also authorizes the IRS to pay 
certain relocation expenses for individuals appointed to 
critical pay positions after June 1, 1998. This authority is 
for a period of 10 years after the date of enactment.
      The provision (in particular the written agreement 
requirement) is not intended to expand the jurisdiction of the 
Federal Service Impasses Panel.
      With respect to mandatory terminations of employees for 
certain proven violations committed by the employee in 
connection with the performance of official duties, the 
conference agreement modifies the definitions of some of the 
violations. The definitions of the other violations are the 
same as the Senate amendment. The modified definitions are: (1) 
willful failure to obtain the required approval signatures on 
documents authorizing the seizure of a taxpayer's home, 
personal belongings, or business assets; (2) assault or battery 
on a taxpayer or other IRS employee, but only if there is a 
criminal conviction or a final judgment by a court in a civil 
case, with respect to the assault or battery; (3) falsifying or 
destroying documents to conceal mistakes made by any employee 
with respect to a matter involving a taxpayer or taxpayer 
representative; and (4) with respect to a taxpayer, taxpayer 
representative, or other IRS employee, the violation of any 
right under the U.S. Constitution, or any civil right 
established under titles VI or VII of the Civil Rights Act of 
1964, title IX of the Educational Amendments of 1972, the Age 
Discrimination in Employment Act of 1967, the Age 
Discrimination Act of 1975, sections 501 or 504 of the 
Rehabilitation Act of 1973 and title I of the Americans with 
Disabilities Act of 1990.
      The conference agreement also provides that the 
Commissioner is to implement an employee training program no 
later than 180 days after enactment.

                      TITLE II. ELECTRONIC FILING

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

                              Present Law

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

                               House Bill

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

                            Senate Amendment

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

                          Conference Agreement

      The conference agreement generally follows the Senate 
amendment, except that the provision in the Senate amendment 
that states that it is the policy of Congress that electronic 
filing should be a voluntary option for taxpayers is 
deleted.\1\ The provision on private sector cooperation is 
clarified to provide that the IRS should cooperate with and 
encourage the private sector by encouraging competition to 
increase electronic filing of returns. The intent of the 
conferees with respect to this provision is for the IRS and 
Treasury to press for robust private sector competition. When 
disputes arise between the IRS and the private sector on the 
question of whether services offered by the IRS inhibit 
competition or are appropriate services not reasonably 
available to taxpayers or tax preparers, the Electronic 
Commerce Advisory Group shall recommend to the IRS Commissioner 
an appropriate course of action. Those recommendations shall 
also be made available to the Congress. Notwithstanding the 
previous sentence, the conferees also intend that the IRS 
should continue to offer and improve its Telefile program and 
make available a comparable program on the Internet.
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    \1\ No inference is intended by this deletion. Present law (section 
6011(e)(1) of the Code) already states that returns of any tax imposed 
by subtitle A (income taxes and self-employment taxes) on individuals, 
estates and trusts may not be required to be filed in any format (such 
as by electronic means) other than on paper forms supplied by the IRS.
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B. Due Date for Certain Information Returns (sec. 202 of the House bill 
                 and sec. 2002 of the Senate amendment)

                              Present Law

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

                               House Bill

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

                            Senate Amendment

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

                          Conference Agreement

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

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

                              Present Law

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

                               House Bill

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

                            Senate Amendment

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

                          Conference Agreement

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

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

                              Present Law

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

                               House Bill

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

                            Senate Amendment

      Same as the House bill.

                          Conference Agreement

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

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

                              Present Law

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

                               House Bill

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

                            Senate Amendment

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

                          Conference Agreement

      The conference agreement follows the Senate amendment.

               TITLE III. TAXPAYER PROTECTION AND RIGHTS

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

                              Present Law

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

                               House Bill

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

                            Senate Amendment

      The Senate amendment provides that the Secretary shall 
have the burden of proof in any court proceeding with respect 
to a factual issue if the taxpayer introduces credible evidence 
with respect to the factual issue relevant to ascertaining the 
taxpayer's income tax liability. Four conditions apply. First, 
the taxpayer must comply with the requirements of the Internal 
Revenue Code and the regulations issued thereunder to 
substantiate any item (as under present law). Second, the 
taxpayer must maintain records required by the Code and 
regulations (as under present law). Third, the taxpayer must 
cooperate with reasonable requests by the Secretary for 
meetings, interviews, witnesses, information, and documents 
(including providing, within a reasonable period of time, 
access to and inspection of witnesses, information, and 
documents within the control of the taxpayer, as reasonably 
requested by the Secretary). Cooperation also includes 
providing reasonable assistance to the Secretary in obtaining 
access to and inspection of witnesses, information, or 
documents not within the control of the taxpayer (including any 
witnesses, information, or documents located in foreign 
countries).\9\ A necessary element of cooperating with the 
Secretary is that the taxpayer must exhaust his or her 
administrative remedies (including any appeal rights provided 
by the IRS). The taxpayer is not required to agree to extend 
the statute of limitations to be considered to have cooperated 
with the Secretary. Cooperating also means that the taxpayer 
must establish the applicability of any privilege. Fourth, 
taxpayers other than individuals must meet the net worth 
limitations that apply for awarding attorney's fees 
(accordingly, no net worth limitation would be applicable to 
individuals). Corporations, trusts, and partnerships whose net 
worth exceeds $7 million are not eligible for the benefits of 
the provision. The taxpayer has the burden of proving that it 
meets each of these conditions, because they are necessary 
prerequisites to establishing that the burden of proof is on 
the Secretary.
---------------------------------------------------------------------------
    \9\ Cooperation also includes providing English translations, as 
reasonably requested by the Secretary.
---------------------------------------------------------------------------
      In the case of court proceedings arising in connection 
with examinations commencing six months after the date of 
enactment and before June 1, 2001, the provision applies to any 
tax liability of the taxpayer.
      The burden will shift to the Secretary under this 
provision only if the taxpayer first introduces credible 
evidence with respect to a factual issue relevant to 
ascertaining the taxpayer's income tax liability. Credible 
evidence is the quality of evidence which, after critical 
analysis, the court would find sufficient upon which to base a 
decision on the issue if no contrary evidence were submitted 
(without regard to the judicial presumption of IRS 
correctness). A taxpayer has not produced credible evidence for 
these purposes if the taxpayer merely makes implausible factual 
assertions, frivolous claims, or tax protestor-type arguments. 
The introduction of evidence will not meet this standard if the 
court is not convinced that it is worthy of belief. If after 
evidence from both sides, the court believes that the evidence 
is equally balanced, the court shall find that the Secretary 
has not sustained his burden of proof.
      Nothing in the provision shall be construed to override 
any requirement under the Code or regulations to substantiate 
any item. Accordingly, taxpayers must meet applicable 
substantiation requirements, whether generally imposed \10\ or 
imposed with respect to specific items, such as charitable 
contributions \11\ or meals, entertainment, travel, and certain 
other expenses.\12\ Substantiation requirements include any 
requirement of the Code or regulations that the taxpayer 
establish an item to the satisfaction of the Secretary.\13\ 
Taxpayers who fail to substantiate any item in accordance with 
the legal requirement of substantiation will not have satisfied 
the legal conditions that are prerequisite to claiming the item 
on the taxpayer's tax return and will accordingly be unable to 
avail themselves of this provision regarding the burden of 
proof. Thus, if a taxpayer required to substantiate an item 
fails to do so in the manner required (or destroys the 
substantiation), this burden of proof provision is 
inapplicable.\14\
---------------------------------------------------------------------------
    \10\ See e.g., Sec. 6001 and Treas. Reg. sec. 1.6001-1 requiring 
every person liable for any tax imposed by this Title to keep such 
records as the Secretary may from time to time prescribe, and secs. 
6038 and 6038A requiring United States persons to furnish certain 
information the Secretary may prescribe with respect to foreign 
businesses controlled by the U.S. person.
    \11\ Sec. 170(a)(1) and (f)(8) and Treas. Reg. sec. 1.170A-13.
    \12\ See e.g. Sec. 274(d) and Treas. Reg. sec. 1.274(d)-1, 1.274-
5T, and 1.274-5A.
    \13\ For example, sec. 905(b) of the Code provides that foreign tax 
credits shall be allowed only if the taxpayer establishes to the 
satisfaction of the Secretary all information necessary for the 
verification and computation of the credit. Instructions for meeting 
that requirement are set forth in Treas. Reg. sec. 1.905-2.
    \14\ If, however, the taxpayer can demonstrate that he had 
maintained the required substantiation but that it was destroyed or 
lost through no fault of the taxpayer, such as by fire or flood, 
existing tax rules regarding reconstruction of those records would 
continue to apply.
---------------------------------------------------------------------------
      In the case of an individual taxpayer, the Secretary 
shall have the burden of proof in any court proceeding with 
respect to any item of income which was reconstructed by the 
Secretary solely through the use of statistical information on 
unrelated taxpayers.
      Further, the provision provides that, in any court 
proceeding, the Secretary must initially come forward with 
evidence that it is appropriate to apply a particular penalty 
to the taxpayer before the court can impose the penalty. This 
provision is not intended to require the Secretary to introduce 
evidence of elements such as reasonable cause or substantial 
authority. Rather, the Secretary must come forward initially 
with evidence regarding the appropriateness of applying a 
particular penalty to the taxpayer; if the taxpayer believes 
that, because of reasonable cause, substantial authority, or a 
similar provision, it is inappropriate to impose the penalty, 
it is the taxpayer's responsibility (and not the Secretary's 
obligation) to raise those issues.
      Effective date.--The provision applies to court 
proceedings arising in connection with examinations commencing 
after the date of enactment.

                          Conference Agreement

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

                      B. Proceedings by Taxpayers

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

                              Present Law

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

                               House Bill

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

                            Senate Amendment

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

                          Conference Agreement

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

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

                              Present Law

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

                               House Bill

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

                            Senate Amendment

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

                          Conference Agreement

      The conference agreement follows the Senate amendment.

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

                              Present Law

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

                               House Bill

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

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

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

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

      In lieu of the Senate amendment provision, the conference 
agreement directs the Internal Revenue Service to modify its 
administrative procedures to allow tax-exempt bond issuers 
examined by the IRS to appeal adverse examination 
determinations to the Appeals Division of the IRS as a matter 
of right. Because of the complexity of the issues involved, the 
IRS is directed to provide that these appeals will be heard by 
senior appeals officers having experience in resolving complex 
cases.
      The conferees further express their intent that Congress 
will evaluate judicial remedies in future legislation once the 
IRS's tax-exempt bond examination program has developed more 
fully and the Congress is better able to ensure that any such 
future measure protects all parties in interest to these 
determinations (i.e., issuers, bondholders, conduit borrowers, 
and the Federal Government).
      Effective date.--The direction to the IRS is effective on 
the date of enactment.
7. Civil action for release of erroneous lien (sec. 3107 of the Senate 
        amendment)

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

      The conference agreement follows the Senate amendment.

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

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

                              Present Law

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

                               House Bill

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

                            Senate Amendment

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

                          Conference Agreement

In general
      The conference agreement follows the Senate amendment 
with respect to deficiencies of a taxpayer who is no longer 
married to, is legally separated from, or has been living apart 
for at least 12 months from the person with whom the taxpayer 
originally filed the joint return. The conference agreement 
also includes the provision in the House bill expanding the 
circumstances in which innocent spouse relief is available. 
Taxpayers, whether or not eligible to make the separate 
liability election, may be granted innocent spouse relief where 
appropriate. In addition, the conference agreement authorizes 
the Secretary to provide equitable relief in appropriate 
situations. The conference agreement follows the House bill and 
the Senate amendment in establishing jurisdiction in the Tax 
Court over disputes arising in this area.
Deficiencies of certain taxpayers
      The conference agreement follows the Senate amendment 
with respect to deficiencies of a taxpayer who, at the time of 
election, is no longer married \16\ to, is legally separated 
from, or has been living apart for at least 12 months from the 
person with whom the taxpayer originally filed the joint 
return. Such taxpayers may elect to limit their liability for 
any deficiency limited to the portion of the deficiency that is 
attributable to items allocable to the taxpayer.
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    \16\ For the purpose of this rule, a taxpayer is no longer married 
if he or she is widowed.
---------------------------------------------------------------------------
      For example, a deficiency is assessed after IRS audit of 
a joint return. The deficiency relates to income earned by the 
husband that was not reported on the return. If the spouses who 
joined in the return are no longer married, are legally 
separated, or have lived apart for at least 12 months, either 
may elect limited liability under this provision. If the wife 
elects, she would owe none of the deficiency. The deficiency 
would be the sole responsibility of the husband whose income 
gave rise to the deficiency.
      If the deficiency relates to the items of both spouses, 
the separate liability for the deficiency is allocated between 
the spouses in the same proportion as the net items taken into 
account in determining the deficiency. For example, a 
deficiency is assessed that is attributable to $70,000 of 
unreported income allocable to the husband and the disallowance 
of a $30,000 miscellaneous itemized deduction allocable to the 
wife. If the spouses who joined in the return are no longer 
married, are legally separated, or have lived apart for at 
least 12 months, either may elect limited liability under this 
provision. If either the husband and wife elect, the husband's 
liability would be limited to 70 percent of the deficiency (if 
he elects) and the wife's liability limited to 30 percent (if 
she elects). This would be the case even if a portion of the 
miscellaneous itemized deductions had been disallowed under 
section 67(a). The election is required in order to limit 
liability. If either spouse fails to elect, that spouse would 
be liable for the full amount of the deficiency, unless reduced 
by innocent spouse relief or pursuant to the grant of authority 
to the Secretary to provide equitable relief.
      If the deficiency arises as a result of the denial of an 
item of deduction or credit, the amount of the deficiency 
allocated to the spouse to whom the item of deduction or credit 
is allocated is limited to the amount of income or tax 
allocated to such spouse that was offset by the deduction or 
credit. The remainder of the liability is allocated to the 
other spouse to reflect the fact that income or tax allocated 
to that spouse was originally offset by a portion of the 
disallowed deduction or credit.
      For example, a married couple files a joint return with 
wage income of $100,000 allocable to the wife and $30,000 of 
self employment income allocable to the husband. On 
examination, a $20,000 deduction allocated to the husband is 
disallowed, resulting in a deficiency of $5,600. Under the 
provision, the liability is allocated in proportion to the 
items giving rise to the deficiency. Since the only item giving 
rise to the deficiency is allocable to the husband, and because 
he reported sufficient income to offset the item of deduction, 
the entire deficiency is allocated to the husband and the wife 
has no liability with regard to the deficiency, regardless of 
the ability of the IRS to collect the deficiency from the 
husband.
      If the joint return had shown only $15,000 (instead of 
$30,000) of self employment income for the husband, the income 
offset limitation rule discussed above would apply. In this 
case, the disallowed $20,000 deduction entirely offsets the 
$15,000 of income of the husband, and $5,000 remains. This 
remaining $5,000 of the disallowed deduction offsets income of 
the wife. The liability for the deficiency is therefore divided 
in proportion to the amount of income offset for each spouse. 
In this example, the husband is liable for \3/4\ of the 
deficiency ($4,200), and the wife is liable for the remaining 
\1/4\ ($1,400).
      Where a deficiency is attributable to the disallowance of 
a credit, or to any tax other than regular or alternative 
minimum income tax, the portion of the deficiency attributable 
to such credit or other tax is considered first. For example, 
on examination a deficiency of $10,000 ($2,800 of self-
employment tax and $7,200 of income tax) is determined to be 
attributable to $20,000 of unreported self-employment income of 
the husband and a disallowed itemized deduction of $5,000 
allocable to the wife. The $2,800 of deficient self-employment 
taxes is first allocated to the husband, and the remaining 
$7,200 of income tax deficiency is allocated 80 percent to the 
husband and 20 percent to the wife.
      The special rules included in the Senate bill to prevent 
the inappropriate use of the election are included in the 
conference agreement.
      First, if the IRS demonstrates that assets were 
transferred between the spouses in a fraudulent scheme joined 
in by both spouses, neither spouse is eligible to make the 
election under the provision (and consequently joint and 
several liability applies to both spouses).
      Second, if the IRS proves that the electing spouse had 
actual knowledge that an item on a return is incorrect, the 
election will not apply to the extent any deficiency is 
attributable to such item. Such actual knowledge must be 
established by the evidence and shall not be inferred based on 
indications that the electing spouse had a reason to know.
      The rule that the election will not apply to the extent 
any deficiency is attributable to an item the electing spouse 
had actual knowledge of is expected to be applied by treating 
the item as fully allocable to both spouses. For example a 
married couple files a joint return with wage income of 
$150,000 allocable to the wife and $30,000 of self employment 
income allocable to the husband. On examination, an additional 
$20,000 of the husband's self-employment income is discovered, 
resulting in a deficiency of $9,000. The IRS proves that the 
wife had actual knowledge that $5,000 of this additional self-
employment income, but had no knowledge of the remaining 
$15,000. In this case, the husband would be liable for the full 
amount of the deficiency, since the item giving rise to the 
deficiency is fully allocable to him. In addition, the wife 
would be liable for the amount that would have been calculated 
as the deficiency based on the $5,000 of unreported income of 
which she had actual knowledge. The IRS would be allowed to 
collect that amount from either spouse, while the remainder of 
the deficiency could be collected from only the husband.
      Third, the portion of the deficiency for which the 
electing spouse is liable is increased by the value of any 
disqualified assets received from the other spouse. 
Disqualified assets include any property or right to property 
that was transferred to an electing spouse if the principle 
purpose of the transfer is the avoidance of tax (including the 
avoidance of payment of tax). A rebuttable presumption exists 
that a transfer is made for tax avoidance purposes if the 
transfer was made less than one year before the earlier of the 
payment due date or the date of the notice of proposed 
deficiency. The rebuttable presumption does not apply to 
transfers pursuant to a decree of divorce or separate 
maintenance. The presumption may be rebutted by a showing that 
the principal purpose of the transfer was not the avoidance of 
tax or the payment of tax.
Other deficiencies
      The conference agreement also includes the provision in 
the House bill modifying innocent spouse relief. Taxpayers who 
do not make the separate liability election may be eligible for 
innocent spouse relief. For example, a taxpayer may be 
ineligible to make the separate liability election for a 
deficiency because he or she is not widowed, divorced, legally 
separated, or living apart (for at least 12 months) from the 
person with whom the taxpayer originally joined in filing the 
joint return. Such a taxpayer may apply for relief of any 
deficiency that is attributable to an erroneous item of the 
other spouse, provided he or she did not know or have reason to 
know of the understatement of tax and it would be inequitable 
to hold the taxpayer responsible for the deficiency. The 
election is required to be made no later than the date that is 
two years after the Secretary has begun collection actions with 
respect to the individual. The rule in the House bill allowing 
innocent spouse relief to be provided on an apportioned basis 
is included in the conference agreement.
Other circumstances, including tax shown on a return but not paid
      The conference agreement does not include the portion of 
the Senate amendment that could provide relief in situations 
where tax was shown on a joint return, but not paid with the 
return. The conferees intend that the Secretary will consider 
using the grant of authority to provide equitable relief in 
appropriate situations to avoid the inequitable treatment of 
spouses in such situations. For example, the conferees intend 
that equitable relief be available to a spousethat does not 
know, and had no reason to know, that funds intended for the payment of 
tax were instead taken by the other spouse for such other spouse's 
benefit.
      The conferees do not intend to limit the use of the 
Secretary's authority to provide equitable relief to situations 
where tax is shown on a return but not paid. The conferees 
intend that such authority be used where, taking into account 
all the facts and circumstances, it is inequitable to hold an 
individual liable for all or part of any unpaid tax or 
deficiency arising from a joint return. The conferees intend 
that relief be available where there is both an understatement 
and an underpayment of tax.
Procedural rules
      The conference agreement follows the House bill and the 
Senate amendment with respect to procedural rules, including 
the jurisdiction of the Tax Court to review matters relating to 
this provision. The conference agreement also follows the 
Senate amendment in requiring the IRS to notify taxpayers of 
their rights under this provision, and, whenever practicable, 
to send notifications separately to each spouse.
Effective date
      The conference agreement follows the Senate amendment. 
The separate liability election, expanded innocent spouse 
relief and authority to provide equitable relief all apply to 
liabilities for tax arising after the date of enactment, as 
well as any liability for tax arising on or before the date of 
enactment that remains unpaid on the date of enactment. The 
applicable 2-year election periods do not expire before the 
date that is two years after the first collection activity 
taken by the IRS after the date of enactment. The Secretary is 
required to develop a separate form for electing innocent 
spouse relief within 180 days after the date of enactment.
2. Suspension of statute of limitations on filing refund claims during 
        periods of disability (sec. 322 of the House bill and sec. 3202 
        of the Senate amendment)

                              Present Law

      In general, a taxpayer must file a refund claim within 
three years of the filing of the return or within two years of 
the payment of the tax, whichever period expires later (if no 
return is filed, the two-year limit applies) (sec. 6511(a)). A 
refund claim that is not filed within these time periods is 
rejected as untimely.
      There is no explicit statutory rule providing for 
equitable tolling of the statute of limitations. The U.S. 
Supreme Court has held that Congress did not intend the 
equitable tolling doctrine to apply to the statutory 
limitations of section 6511 on the filing of tax refund claims.

                               House Bill

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

                            Senate Amendment

      Same as the House bill.

                          Conference Agreement

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

            D. Provisions Relating to Interest and Penalties

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

                              Present Law

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

                               House Bill

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

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

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

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

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

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment allows the taxpayer to designate the 
period to which each deposit is applied. The designation must 
be made no later than 90 days after the related IRS penalty 
notice. The provision also extends the authorization to waive 
the failure to deposit penalty to the first deposit a taxpayer 
is required to make after the taxpayer is required to change 
the frequency of the taxpayer's deposits.
      Effective date.--Deposits made more than 180 days after 
the date of enactment.

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

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

 E. Protections for Taxpayers Subject to Audit or Collection Activities

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

Liens
      The conference agreement generally follows the Senate 
amendment, except that taxpayers would have a right to a 
hearing after the Notice of Lien is filed. The IRS would be 
required to notify the taxpayer that a Notice of Lien had been 
filed within 5 days after filing. During the 30-day period 
beginning with the mailing or delivery of such notification, 
the taxpayer may demand a hearing before an appeals officer who 
has had no prior involvement with the taxpayer's case. In 
general, any issue relevant to the appropriateness of the 
proposed collection against the taxpayer can be raised at this 
hearing. For example, the taxpayer can request innocent spouse 
status, make an offer-in-compromise, request an installment 
agreement or suggest which assets should be used to satisfy the 
tax liability. However, the validity of the tax liability can 
bechallenged only if the taxpayer did not actually receive the 
statutory notice of deficiency or has not otherwise had an opportunity 
to dispute the liability. This hearing right applies only after the 
first Notice of Lien with regard to each tax liability is filed.
Levies
      The conference agreement includes a modified form of the 
Senate amendment. The IRS would be required to provide the 
taxpayer with a ``Notice of Intent to Levy,'' formally stating 
its intention to collect a tax liability by levy against the 
taxpayer's property or rights to property. The conferees intend 
that the Secretary have the discretion to provide the Notice of 
Intent to Levy in combination with the notice required by 
present law under section 6331(d). Service by registered or 
certified mail, return receipt requested would be required. The 
Notice of Intent to Levy would not be required to itemize the 
property the Secretary seeks to levy on.
      Subject to the exceptions noted below, no levy could 
occur within the 30-day period beginning with the mailing of 
the ``Notice of Intent to Levy.'' During that 30-day period, 
the taxpayer may demand a hearing before an appeals officer who 
has had no prior involvement with the taxpayer's case, other 
than in connection with a hearing after the filing of a notice 
of tax lien. If a hearing is requested within the 30-day 
period, no levy could occur until a determination by the 
appeals officer is rendered. In general, any issue that is 
relevant to the appropriateness of the proposed collection 
against the taxpayer can be raised at the pre-levy hearing. For 
example, the taxpayer can request innocent spouse status, make 
an offer-in-compromise, request an installment agreement or 
suggest which assets should be used to satisfy the tax 
liability. However, the validity of the tax liability can be 
challenged only if the taxpayer did not actually receive the 
statutory notice of deficiency or has not otherwise had an 
opportunity to dispute the liability.
      If a return receipt is not returned, the Secretary may 
proceed to levy on the taxpayer's property or rights to 
property 30 days after the Notice of Intent to Levy was mailed. 
The Secretary must provide a hearing equivalent to the pre-levy 
hearing if later requested by the taxpayer. However, the 
Secretary is not required to suspend the levy process pending 
the completion of a hearing that is not requested within 30 
days of the mailing of the Notice. If the taxpayer did not 
receive the required notice and requests a hearing after 
collection activity has begun, then collection shall be 
suspended and a hearing provided to the taxpayer.
      The conferees anticipate that the IRS will combine Notice 
of Intent to Levy and Notice of Lien hearings whenever 
possible. If multiple hearings are held, it is expected that, 
to the extent practicable, the same appellate officer will hear 
the taxpayer with regard to both lien and levy issues. If the 
taxpayer requests a hearing following receipt of a Notice of 
Lien or Notice of Intent to Levy and, prior to the date of the 
hearing, receives the other notice, the scheduled hearing will 
serve for both purposes and the taxpayer is obligated to raise 
all relevant issues at such hearing.
Judicial review
      The conferees expect the appeals officer will prepare a 
written determination addressing the issues presented by the 
taxpayer and considered at the hearing. The determination of 
the appeals officer may be appealed to Tax Court or, where 
appropriate, the Federal district court. Where the validity of 
the tax liability was properly at issue in the hearing, and 
where the determination with regard to the tax liability is a 
part of the appeal, no levy may take place during the pendency 
of the appeal. The amount of the tax liability will in such 
cases be reviewed by the appropriate court on a de novo basis. 
Where the validity of the tax liability is not properly part of 
the appeal, the taxpayer may challenge the determination of the 
appeals officer for abuse of discretion. In such cases, the 
appeals officer's determination as to the appropriateness of 
collection activity will be reviewed using an abuse of 
discretion standard of review. Levies will not be suspended 
during the appeal if the Secretary shows good cause why the 
levy should be allowed to proceed.
      No further hearings are provided under this provision as 
a matter of right. It is the responsibility of the taxpayer to 
raise all relevant issues at the time of the pre-levy hearing. 
A taxpayer could apply for consideration of new information, 
make an offer-in-compromise, request an installment agreement, 
or raise other considerations at any time before, during, or 
after the Notice of Intent to Levy hearing. However, after the 
30 day period had expired, the IRS is not required to provide a 
hearing or delay any levy or sale of levied property. Nothing 
in this provision is intended to limit any remedy that is 
otherwise available under present law.
      An exception to the general rule prohibiting levies 
during the 30-day period would apply in the case of state tax 
offset procedures, and in the case of jeopardy or termination 
assessments.
Prior judicial approval required for seizures of principal residences
      No seizure of a dwelling that is the principal residence 
of the taxpayer or the taxpayer's spouse, former spouse, or 
minor child would be allowed without prior judicial approval. 
Notice of the judicial hearing must be provided to the taxpayer 
and family members residing in the property. At the judicial 
hearing, the Secretary would be required to demonstrate (1) 
that the requirements of any applicable law or administrative 
procedure relevant to the levy have been met, (2) that the 
liability is owed, and (3) that no reasonable alternative for 
the collection of the taxpayer's debt exists.
Effective date
      The provision is effective for collection actions 
initiated more than 180 days after the date of enactment.
2. Examination activities
            a. Uniform application of confidentiality privilege to 
                    taxpayer communications with federally authorized 
                    practitioners (sec. 341 of the House bill and sec. 
                    3411 of the Senate amendment)

                              Present Law

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

                               House Bill

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

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

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

                            Senate Amendment

      Same as the House bill.

                          Conference Agreement

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

                              Present Law

      The Secretary of the Treasury is authorized to examine 
any books, papers, records, or other data that may be relevant 
or material to an inquiry into the correctness of any Federal 
tax return. The Secretary may issue and serve summonses 
necessary to obtain such data, including summonses on certain 
third-party recordkeepers.
      The Secretary is considered to have made a prima facie 
case for the enforcement of a summons if the so-called ``Powell 
standards'' are met.\17\ The Powell standards require: (1) that 
the examination to which the summons relates is being conducted 
pursuant to a legitimate purpose; (2) that the summons seek 
information that may be relevant to such examination; (3) that 
the IRS not already be in possession of the information; and 
(4) that the administrative steps required by the Code have 
been followed. However, a summons will not be enforced if the 
burden it places on the summonsed party is out of proportion to 
the end sought.\18\ Where the summons is issued against a 
third-party, particularly one that is a stranger to the 
taxpayer's affairs, the IRS has been required to show that the 
circumstances of the investigation indicate a realistic 
expectation, and not merely an idle hope, that something 
relevant to the investigation may be discovered in order to 
have the summons enforced.\19\
---------------------------------------------------------------------------
    \17\ See Powell v. U.S., 379 U.S. 48 (1964).
    \18\ Harrington v. U.S., 388 F. 2d 520 (2nd Cir, 1968).
    \19\ Harrington, supra.
---------------------------------------------------------------------------
      There are no specific statutory restrictions on the 
ability of the Secretary to demand the production of computer 
records, programs, source code or similar materials; whether 
held by the taxpayer or by a third-party.

                               House Bill

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

                            Senate Amendment

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

                          Conference Agreement

      The conference agreement generally follows the Senate 
amendment with regard to the safeguards for protection of 
computer software and source code that is obtained by the IRS 
in the course of the examination of a taxpayer's return. The 
conference agreement specifically provides that computer 
software or source code that is obtained by the IRS in the 
course of the examination of a taxpayer's return will be 
treated as return information for the purposes of section 6103. 
The conference agreement follows the Senate amendment with 
regard to the standards the Secretary must meet in order to 
summons certain types of computer source code. The conference 
agreement follows the House bill in limiting the higher 
standards for a summons to third-party tax-related computer 
source code.
      Under the conference agreement, no summons may be issued 
for tax-related computer software source code unless (1) the 
Secretary is unable otherwise to ascertain the correctness of 
any item on a return from the taxpayer's books and records or 
the computer software program and associated data, (2) the 
Secretary identifies with reasonable specificity the portion of 
the computer source code needed to verify the correctness of 
the item and (3) the Secretary determines that the need for the 
source code outweighs the risk of unauthorized disclosure of 
trade secrets. The Secretary is considered to have satisfied 
the first two of these requirements if the Secretary makes a 
formal request for such materials to both the taxpayer and the 
owner of the software that is not satisfied within 180 days.
      This limitation on the summons of tax-related computer 
software source code does not apply if the summons is issued in 
connection with an inquiry into any offense connected with the 
administration or enforcement of the internal revenue laws. The 
limitation also does not apply to a summons of computer 
software source code that was acquired or developed by the 
taxpayer or a related person primarily for internal use by the 
taxpayer or such person rather than for commercial 
distribution. A finding that computer software source code was 
developed for internal use, and thus not eligible for the 
limitation in summons authority in this provision, is not 
intended to be dispositive of whether such software was 
intended for internal use for any other purpose of this title.
      Communications between the owner of the tax-related 
computer software source code and the taxpayer are not 
protected from summons by this provision. Communications 
between the owner of the tax-related source code and persons 
not related to the taxpayer that are related to the functioning 
and operation of the software may be treated as a part of the 
computer software source code.
      The provision does not change or eliminate any other 
requirement of the Code. A summons for third-party tax-related 
computer source code that meets the standards established by 
the provision will not be enforced if it would not be enforced 
under present law. For example, if the Secretary's purpose in 
issuing the summons is shown to be improper, the summons would 
not be enforced, even if the Secretary otherwise met the 
standards for the summons of computer source code established 
by the provision. The limitations on the summons of tax-related 
computer software source code apply only with respect to 
computer software that is used for accounting tax return 
preparation, tax compliance or tax planning purposes. No 
inference is intended with respect to computer software used 
for all other purposes. In such cases, current law will 
continue to apply, subject to the protections against the 
disclosure and improper use of trade secrets and other 
confidential information added by this provision.
      Software or source code that is required to be provided 
under present law must be provided without regard to this 
provision. For example, computer software or source code that 
is required to be provided in connection with the registration 
of a confidential corporate tax shelter arrangements under 
section 6111 would continue to be required to be provided 
without regard to this provision. Thus, the registration 
requirement of section 6111 cannot be avoided where the tax 
benefits of the shelter are discernible only from the operation 
of a computer program.
      The conference agreement includes the protections against 
the disclosure and improper use of trade secrets and 
confidential information contained in the Senate amendment. The 
requirement that software or source code obtained by the 
Secretary in the course of an examination be used only in 
connection with that examination is intended to prevent the 
Secretary from using the software for the purpose of examining 
other, unrelated taxpayers. The requirement is not intended to 
prevent the Secretary from using knowledge it obtains in the 
course of the examination, so long as such use does not result 
in the disclosure of tax return information (including the 
software or source code) or the violation of any statutory 
protection or judicial order.
      Effective date.--The conference agreement follows the 
Senate effective date.
            d. Threat of audit prohibited to coerce tip reporting 
                    alternative commitment agreements (sec. 349 of the 
                    House bill and sec. 3414 of the Senate amendment)

                              Present Law

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

                               House Bill

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

                            Senate Amendment

      Same as the House bill.

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment requires the IRS to implement an 
approval process under which any lien, levy or seizure would, 
where appropriate, be approved by a supervisor, who would 
review the taxpayer's information, verify that a balance is 
due, and affirm that a lien, levy or seizure is appropriate 
under the circumstances. Circumstances to be considered include 
the amount due and the value of the asset.
      Effective date.--Collection actions commenced after date 
of enactment, except for automated collection system actions 
initiated before January 1, 2000.

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

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

                            Senate Amendment

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

                          Conference Agreement

      The conference agreement follows the Senate amendment, 
except that extensions of the statute of limitations on 
collection may be made in connection with an installment 
agreement; the extension is only for the period for which the 
waiver of the statute of limitations entered in connection with 
the original written terms of the installment agreement extends 
beyond the end of the otherwise applicable 10-year period, plus 
90 days.
      Effective date. Requests to extend the statute of 
limitations made after December 31, 1999. If, in any request to 
extend the period of limitations made on or before December 31, 
1999, a taxpayer agreed to extend that period beyond the 10-
year statute of limitations on collection, that extension shall 
expire on the latest of: the last day of such 10-year period, 
December 31, 2002, or, in the case of an extension in 
connection with an installment agreement, the 90th day after 
the end of the period of such extension.
            b. Offers-in-compromise (sec. 346 of the House bill and 
                    sec. 3462 of the Senate amendment)

                              Present Law

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

                               House Bill

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

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

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

                            Senate Amendment

      Same as the House bill.

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      The provision provides that a proper court (including the 
Tax Court) may order a refund of any amount that was collected 
within the period during which the Secretary is prohibited from 
collecting the deficiency by levy or other proceeding.
      The provision also allows the refund of that portion of 
any overpayment determined by the Tax Court to the extent the 
overpayment is not contested on appeal.
      Effective date.--Date of enactment.

                            Senate Amendment

      Same as the House bill.

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

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

                      F. Disclosures to Taxpayers

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

                              Present Law

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

                               House Bill

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

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      The House bill requires that the IRS rewrite Publication 
1 (``Your Rights as a Taxpayer'') to inform taxpayers more 
clearly of their rights (1) to be represented by a 
representative and (2) ifthe taxpayer is so represented, that 
the interview may not proceed without the presence of the 
representative unless the taxpayer consents.
      Effective date.--The addition to Publication 1 must be 
made not later than 180 days after the date of enactment.

                            Senate Amendment

      Same as the House bill.

                          Conference Agreement

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

                              Present Law

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

                               House Bill

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

                            Senate Amendment

      Same as the House bill.

                          Conference Agreement

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

                              Present Law

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

                               House Bill

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

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

    No provision.

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

      Section 6110 of the Code provides for the public 
inspection of written determinations, i.e., rulings, 
determination letters, and technical advice memoranda. The IRS 
issues annual revenue procedures setting forth the procedures 
for requests for these various forms of written determinations 
and participation in the formulation of such 
determinations.21 Under section 6110 and the 
regulations promulgated thereunder, the taxpayer who is the 
subject of a written determination can participate in the 
redaction of the documents to ensure that the taxpayer's 
privacy is protected and that sensitive private information is 
removed before the determination is publicly disclosed. In the 
event there is disagreement as to the information to be 
deleted, the section provides for litigation in the courts to 
resolve such disagreements.
---------------------------------------------------------------------------
    \21\ See e.g., Rev. Procs. 98-1 and 98-2.
---------------------------------------------------------------------------
      One of the Office of Chief Counsel's major roles is to 
advise Internal Revenue Service personnel on legal matters at 
all stages of case development. The Office of Chief Counsel 
thus issues various forms of written legal advice to field 
agents of the IRS and to its own field attorneys that do not 
fall within the current definition of ``written determination'' 
under section 6110. Traditionally, field Counsel offices 
provided most of the assistance to the IRS, usually at IRS 
field offices, but since 1988, the National Office of Chief 
Counsel has been rendering more assistance to field Counsel and 
IRS offices. National Office of Chief Counsel assistance in 
taxpayer-specific cases is generally called ``field service 
advice.'' The taxpayers who are the subject of field service 
advice generally do not participate in the process, leading 
some tax commentators to express concern that the field service 
advice process was displacing the technical advice process.
      There has been controversy as to whether the Office of 
Chief Counsel must release forms of advice other than written 
determinations pursuant to the Freedom of Information Act 
(FOIA). In Tax Analysts v. IRS,22 the D.C. Circuit 
held that the legal analysis portions of field service advice 
created in the context of specific taxpayers' cases are not 
``return information,'' as defined by section 6103(b)(2), and 
must be released under FOIA. The court also found that portions 
of field service advice issued in docketed cases may be 
withheld as privileged attorney work product. However, some 
issues remain outstanding. Although the extent to which such 
materials must be released is still in dispute, it is clear 
that they are not expressly covered by section 6110. As a 
consequence, there exists no mechanism by which taxpayers may 
participate in the administrative process of redacting their 
private information from such documents or to resolve 
disagreements in court.
---------------------------------------------------------------------------
    \22\ 117 F.3d 607 (D.C. Cir. 1997).
---------------------------------------------------------------------------

                               House Bill

      No provision.

                            Senate Amendment

      No provision.

                          Conference Agreement

In general
      The conferees believe that written documents issued by 
the National Office of Chief Counsel to its field components 
and field agents of the IRS should be subject to public release 
in a manner similar to technical advice memoranda or other 
written determinations. In this way, all taxpayers can be 
assured of access to the ``considered view of the Chief 
Counsel's national office on significant tax issues.'' 
23 Creating a structured mechanism by which these 
types of legal memoranda are open to public inspection will 
increase the public's confidence that the tax system operates 
fairly and in an even-handed manner with respect to all 
taxpayers.
---------------------------------------------------------------------------
    \23\ 117 F.3d at 617.
---------------------------------------------------------------------------
      As part of making these documents public, however, the 
privacy of the taxpayer who is the subject of the advice must 
be protected. Any procedure for making such advice public must 
therefore include adequate safeguards for taxpayers whose 
privacy interests are implicated. There should be a mechanism 
for taxpayer participation in the deletion of any private 
information. There should also be a process whereby appropriate 
governmental privileges may be asserted by the IRS and 
contested by the public or the taxpayer.
      The provision amends section 6110 of the Code, 
establishing a structured process by which the IRS will make 
certain work products, designated as ``Chief Counsel Advice,'' 
open to public inspection on an ongoing basis. It is designed 
to protect taxpayer privacy while allowing the public 
inspection of these documents in a manner generally consistent 
with the mechanism of section 6110 for the public inspection of 
written determinations. In general, the provision operates by 
establishing that Chief Counsel Advice are written 
determinations subject to the public inspection provisions of 
section 6110.
Definition of Chief Counsel Advice
      For purposes of this provision, Chief Counsel Advice is 
written advice or instruction prepared and issued by any 
national office component of the Office of Chief Counsel to 
field employees of the Service or the Office of Chief Counsel 
that convey certain legal interpretations or positions of the 
IRS or the Office of Chief Counsel concerning existing or 
former revenue provisions. For these purposes, the term 
``revenue provisions'' includes, without limitation: the 
Internal Revenue Code itself; regulations, revenue rulings, 
revenue procedures, or other administrative interpretations or 
guidance, whether published or unpublished (including, for 
example, other Chief Counsel Advice); tax treaties; and court 
decisions and opinions. Chief Counsel Advice also includes 
legal interpretations of State law, foreign law, or other 
federal law relating to the assessment or collection of 
liabilities under revenue provisions.
      Chief Counsel Advice may interpret or set forth policies 
concerning the internal revenue laws either in general or as 
applied to specific taxpayers or groups of specific taxpayers. 
The definition is, however, not meant to include advice written 
with respect to nontax matters, including but not limited to 
employment law, conflicts of interest, or procurement matters.
      The new statutory category of written determination 
encompasses certain existing categories of advisory memoranda 
or instructions written by the National Office of Chief Counsel 
to field personnel of either the IRS or the Office of Chief 
Counsel. Specifically, Chief Counsel Advice includes field 
service advice, technical assistance to the field, service 
center advice, litigation guideline memoranda, tax litigation 
bulletins, general litigation bulletins, and criminal tax 
bulletins. The definition applies not only to the case-specific 
field service advice issued from the offices of the Associate 
Chief Counsel (International), Associate Chief Counsel 
(Employee Benefits and Exempt Organizations), and the Assistant 
Chief Counsel (Field Service), which were at issue in the Tax 
Analysts decision, but any case-specific or noncase-specific 
written advice or instructions issued by the National Office of 
Chief Counsel to field personnel of either the IRS or the 
Office of Chief Counsel.
      Moreover, Chief Counsel Advice includes any documents 
created subsequent to the enactment of this provision that 
satisfy the general statutory definition, regardless of their 
name or designation. Chief Counsel Advice also includes any 
such advice or instruction even if the organizations currently 
issuing them are reorganized or reconstituted as part of any 
IRS restructuring.
      The new subsection covers written advice ``issued'' to 
field personnel of either the IRS or the Office of Chief 
Counsel in its final form. With respect to Chief Counsel 
Advice, issuance occurs when the Chief Counsel Advice has been 
approved within the national office component of the office of 
Chief Counsel in which the Chief Counsel Advice was proposed, 
signed by the person authorized to do so (usually the Assistant 
Chief Counsel or a Branch Chief), and sent to the field. Chief 
Counsel Advice does not include written recordations of 
informal telephonic advice by the National Office of Chief 
Counsel to field personnel of either the IRS or the Office of 
Chief Counsel. Drafts of Chief Counsel Advice sent to the field 
for review, criticism, or comment prior to approval within the 
National Office also need not be made public. However, Chief 
Counsel Advice may be treated as issued even if supplemental 
advice is contemplated. The Secretary is expected to issue 
regulations to clarify the distinction between issuance as it 
applies to Chief Counsel Advice and as it applies to other 
documents disclosed under section 6110.
      The provision also allows the Secretary to promulgate 
regulations providing that additional types of advice or 
instruction issued by the Office of Chief Counsel (or 
components of the Office of Chief Counsel, such as regional or 
local Counsel offices) will be treated as Chief Counsel Advice 
and subject to public inspection pursuant to this provision. No 
inference shall be drawn from the failure of the Secretary to 
treat additional types of advice or instruction as Chief 
Counsel Advice in determining whether such advice or 
instruction is to be disclosed under FOIA.
      As with other written determinations, Chief Counsel 
Advice may not be used or cited as precedent, except as the 
Secretary otherwise establishes by regulation.
Redaction process
      Under this provision, Chief Counsel Advice will be 
redacted prior to their public release in a manner similar to 
that provided for private letter rulings, technical advice 
memoranda, and determination letters. Specific taxpayers or 
groups of specific taxpayers who are the subject of Chief 
Counsel Advice will be afforded the opportunity to participate 
in the process of redacting the Chief Counsel Advice prior to 
their public release.
      In addition, the new provision affords additional 
protection for certain governmental interests implicated by 
Chief Counsel Advice. Information may be redacted from Chief 
Counsel Advice under subsections (b) and (c) of the Freedom of 
Information Act, 5 U.S.C. sec. 552 (except, with respect to 5 
U.S.C. sec. 552(b)(3), only material required to be withheld 
under a Federal statute, other than title 26, may be redacted), 
as those provisions have been, or shall be, interpreted by the 
courts of the United States. For those deletions that are 
discretionary, such as those under FOIA section 552(b)(5), it 
is expected that the Office of Chief Counsel and the IRS will 
apply any discretionary standards applicable to federal 
agencies in general or the Chief Counsel or the IRS in 
particular.\24\
---------------------------------------------------------------------------
    \24\ The current standards for the exercise of such discretion are 
set forth in the Internal Revenue Manual (part 1230, section 293(2)) 
and the Attorney General's October 4, 1993, Memorandum for Heads of 
Departments and Agencies.
---------------------------------------------------------------------------
      Under new section 6110(i), as with current section 
6110(c)(1), identifying details consisting of names, addresses, 
and any other information that the Secretary determines could 
identify any person, including the taxpayer's representative, 
will be redacted, after the participation of the taxpayer in 
the redaction process. In some situations, information included 
in a Chief Counsel Advice (other than a name or address) may 
not identify a person as of the time the advice is made open to 
public inspection, but that information, together with 
information that is expected to be disclosed by another source 
at a later date, will serve to identify a person. Consequently, 
in deciding whether a Chief Counsel Advice contains identifying 
information, the Secretary is to take into account information 
that is available to the public at the time that the advice is 
made open to public inspection as well as information that is 
expected to be publicly available from other sources within a 
reasonable time after the Chief Counsel Advice is made open to 
public inspection. Generally, it is intended that the standard 
the IRS is to use in determining whether information will 
identify a person is a standard of a reasonable person 
generally knowledgeable with respect to the appropriate 
community. The standard is not, however, to be one of a person 
with inside knowledge of the particular taxpayer.
      As under current section 6110, taxpayers who are the 
subject of Chief Counsel Advice, as well as members of the 
public, will be afforded the opportunity to challenge 
judicially the redaction determinations by the Secretary.
Relation to present law
      The public inspection of Chief Counsel Advice is to be 
accomplished only pursuant to the rules and procedures set 
forth in section 6110, as amended, and not under those of any 
other provision of law, such as FOIA. This provision is not 
intended to affect the disclosure under FOIA, or under any 
other provision of law, of any documents not included within 
the definition of Chief Counsel Advice in new sections 
6110(i)(1) and (i)(2). The only FOIA exemption affected by this 
provision is 5 U.S.C. section 552(b)(3), to the extent that it 
incorporates section 6103 of the Code. The timetable and the 
manner in which existing Chief Counsel Advice may ultimately be 
open to public inspection shall be governed by this provision, 
except that the provision is inapplicable to Chief Counsel 
Advice that any federal district court has, prior to the date 
of enactment, ordered be disclosed. Disclosure of any documents 
that are subject to such a court order is to proceed pursuant 
to the order rather than this provision. Finally, no inference 
is intended with respect to the disclosure, under FOIA or any 
other provision of law, of any other documents produced by the 
Office of Chief Counsel that are not included in the definition 
of Chief Counsel Advice.
Effective date
      The provision applies to Chief Counsel Advice issued more 
than ninety days after enactment. In addition, the provision 
contains certain rules governing disclosure of any document 
fitting the definition of Chief Counsel Advice issued after 
1985 and before 90 days after the date of enactment by the 
offices of the associate chief counsel for domestic, employee 
benefits and exempt organizations, and international. It sets 
forth a schedule for the IRS to release such Chief Counsel 
Advice over a six year period after the date of enactment. 
Finally, additional advice or instruction that the Secretary 
determines by regulations to treat as Chief Counsel Advice 
shall be made public pursuant to this provision in accordance 
with the effective dates set forth in such regulations.

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

                              Present Law

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

                               House Bill

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

                            Senate Amendment

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

                          Conference Agreement

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

                          H. Other Provisions

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

                              Present Law

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

                               House Bill

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

                            Senate Amendment

      Same as the House bill.

                          Conference Agreement

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

                              Present Law

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

                               House Bill

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

                            Senate Amendment

      Same as the House bill.

                          Conference Agreement

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

                              Present Law

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

                               House Bill

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

                            Senate Amendment

      Same as the House bill.

                          Conference Agreement

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

                              Present Law

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

                               House Bill

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

                            Senate Amendment

      Same as the House bill.

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

      The conference agreement generally follows the Senate 
amendment, with modifications. Any manually generated 
correspondence received by a taxpayer from the IRS must include 
in a prominent manner the name, telephone number, and unique 
identifying number of an IRS employee the taxpayer may contact 
with respect to the correspondence. Any other correspondence or 
notice received by a taxpayer from the IRS must include in a 
prominent manner a telephone number that the taxpayer may 
contact. An IRS employee must give a taxpayer during a 
telephone or personal contact the employee's name and unique 
identifying number. The requirements pertaining to a unique 
identifying number are effective six months after the date of 
enactment.
6. Use of pseudonyms by IRS employees (sec. 3706 of the Senate 
        amendment)

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment provides that it is the sense of the 
Senate that the Department of the Treasury and the Internal 
Revenue Service should withdraw Notice 98-11 and the 
regulations issued thereunder, and that the Congress, and not 
the Department of the Treasury or the Internal Revenue Service, 
should determine the international tax policy issues relating 
to the treatment of hybrid transactions under the subpart F 
provisions of the Code.
      The Senate amendment further provides that it is the 
sense of the Senate that the Department of the Treasury and the 
Internal Revenue Service should limit any regulations issued 
under Notice 98-5 to the specific transactions described 
therein. In addition, such regulations should: (a) not affect 
transactions undertaken in the ordinary course of business, (b) 
not have an effective date any earlier than the date of 
issuance of proposed regulations, and (c) be issued in 
accordance with normal regulatory procedures which include an 
opportunity for comment. Nothing in this sense of the Senate 
should be construed to limit the ability of the Department of 
the Treasury or the Internal Revenue Service to address abusive 
transactions.
      Effective date.--Date of enactment.

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

      The conference agreement follows the Senate amendment, 
but includes certain additional clarifications intended to 
minimize the reporting burdens imposed on educational 
institutions while preserving the ability of the IRS to monitor 
compliance with respect to the HOPE Scholarship and Lifetime 
Learning credits. In particular, the conference agreement 
clarifies that the definition of the term ``qualified tuition 
and related expenses'' shall be as set forth in section 25A, 
determined without regard to section 25A(g)(2) (which requires 
adjustments for certain scholarships). Eligible educational 
institutions that receive payments of qualified tuition and 
related expenses (or reimburse or refund such payments) are 
required separately to report the following items with respect 
to each student under section 6050S(b)(2)(C): (1) the aggregate 
amount of qualified tuition and related expenses (not including 
certain expenses relating to sports, games, or hobbies, or 
nonacademic fees); (2) any grant amount (whether or not 
excludable from income) received by such individual for payment 
of costs of attendance and processed through the institution 
during the applicable calendar year; and (3) the aggregate 
amount of reimbursements or refunds (or similar amounts) paid 
to such individual during the calendar year by the institution.
      The conferees understand that the Department of Treasury 
is in the process of issuing regulatory guidance with respect 
to the education credit reporting requirements. In developing 
such guidance, the conferees urge Treasury to minimize the 
reporting burdens imposed on educational institutions in 
connection with the HOPE Scholarship and Lifetime Learning 
credits. For example, section 472(1) of the Higher Education 
Act contains a definition of tuition and fees that is used in 
calculating a student's total ``cost of attendance.'' The 
conferees urge Treasury to conform the definition of 
``qualified tuition and related expenses'' for purposes of the 
HOPE Scholarship and Lifetime Learning credits to the 
definition set forth in section 472(1) to the extent possible, 
so as to minimize the additional reporting burden on 
educational institutions.
      In general, the conferees expect that the regulatory 
guidance regarding the education credit reporting requirements 
will have an effective date that will provide educational 
institutions with sufficient time, after any notice and comment 
period, to implement additional required reporting. In 
addition, although the provision generally applies to taxable 
years beginning after December 31, 1998, the conferees intend 
that no reporting beyond the reporting currently required in 
Notice 97-73 would be required of educational institutions 
until such final regulatory guidance is available.
      In furtherance of the objective of minimizing the 
reporting burden on educational institutions, the conferees 
note that, pursuant to the regulatory authority granted in 
section 25A(i), Treasury may exempt educational institutions 
from the reporting requirements with respect to certain 
categories of students, such as non-degree students enrolled in 
a course for which academic credit is not granted by the 
institution, provided that such exemptions do not undermine the 
overall compliance objectives of the provision. The conferees 
further expect that Treasury will provide clarification 
regarding the reasonable cause exception contained in section 
6724(a) as it may apply to the education information reporting 
requirements. Finally, the conferees urge that any update and 
modernization of IRS computer systems incorporate the capacity 
to match a dependent's TIN with the return filed by the person 
claiming the individual as a dependent.

                               I. Studies

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

                              Present Law

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

                               House Bill

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

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

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

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

      The conference agreement does not include the Senate 
amendment.
4. Noncompliance with internal revenue laws by taxpayers (sec. 3804 of 
        the Senate amendment)

                              Present Law

      No provision.

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

      The conference agreement follows the Senate amendment.

           TITLE IV. CONGRESSIONAL ACCOUNTABILITY FOR THE IRS

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

                              Present Law

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

                               House Bill

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

                            Senate Amendment

      No provision.

                          Conference Agreement

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

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

                              Present Law

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

                               House Bill

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

                            Senate Amendment

      No provision.

                          Conference Agreement

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

                           C. Budget Matters

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

                              Present Law

      No specific provision.

                               House Bill

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

                            Senate Amendment

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

                          Conference Agreement

      The conference agreement follows the House bill and the 
Senate amendment with respect to the Sense of the Congress with 
respect to resolving the century date change conversion 
problems. The conference agreement does not include the Senate 
amendment provision requiring the Commissioner to report to the 
Congress on the impact of the legislation on the ability of the 
IRS to resolve century date change problems.
      Effective date. Same as the House bill and Senate 
amendment.
2. Financial management advisory group (sec. 412 of the House bill)

                              Present Law

      No provision.

                               House Bill

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

                            Senate Amendment

      No provision.

                          Conference Agreement

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

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

                              Present Law

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

                               House Bill

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

                            Senate Amendment

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

                          Conference Agreement

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

                     TITLE V. ADDITIONAL PROVISIONS

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

      No provision.

                          Conference Agreement

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

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

      No provision.

                          Conference Agreement

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

                       C. Normal Trade Relations

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

      No provision.

                          Conference Agreement

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

                  TITLE VI. TAX TECHNICAL CORRECTIONS

                               House Bill

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

                            Senate Amendment

      The Senate amendment is the same as the House bill, with 
the following modifications, additions, and deletion:
1. Child Tax Credit Provisions of the 1997 Act
      Treatment of a portion of the child credit as a 
supplemental child credit.--The Senate amendment modifies the 
provision of the House bill intended to clarify the treatment 
of a portion of the child credit as a supplemental child credit 
under the earned income credit and an offsetting reduction of 
the child credit. Specifically, the Senate amendment clarifies 
the computation of the amount of the child credit that is 
treated as a supplemental child credit. Both the House bill and 
the Senate amendment clarify that such treatment does not 
affect the total tax credits allowed to the taxpayer or any 
other tax credit available to the taxpayer.
2. Education Incentives of the 1997 Act
      Education IRAs.--The Senate amendment adds provisions to: 
(1) provide that the excise tax of section 4973 applies to each 
year that an excess contribution remains in an education IRA; 
(2) clarify that a beneficiary of an education IRA must be a 
life-in-being; (3) clarify that the 10-percent excise tax 
provided under section 530(d)(4) will not be imposed in cases 
where a distribution from an education IRA is includable in 
gross income solely because the taxpayer elects the HOPE or 
Lifetime Learning credit with respect to the beneficiary; (4) 
clarify that, in the event of the death of the designated 
beneficiary, the balance remaining in an education IRA may be 
distributed to any other beneficiary or to the estate of the 
deceased designated beneficiary, and a tax-free rollover of the 
account will be allowed if any member of the family becomes the 
new beneficiary; and (5) provide that if expenses are taken 
into account in determining the amount of the exclusion under 
section 530 for a distribution from an education IRA, then no 
deduction, exclusion, or credit is allowed under the Code with 
respect to such expenses.
      Student loan interest.--The Senate amendment adds a 
provision to clarify that only a taxpayer who is required to 
make interest payments under the terms of the loan may deduct 
such payments as student loan interest.
      Enhanced deduction for corporate donations of 
computers.--The Senate amendment adds a provision to clarify 
the requirements applicable to entities and organizations to 
which computers may be donated for purposes of the enhanced 
deduction.
      Qualified State tuition programs.--The Senate amendment 
adds a provision that includes the original beneficiary's 
spouse within the definition of ``member of the family.''
      Qualified zone academy bonds.--The Senate amendment adds 
a provision that clarifies the treatment of the credit for 
purposes of the estimated tax and overpayment rules.
3. Savings Incentives of the 1997 Act
      Conversion of IRAs into Roth IRAs.--Under the Senate 
amendment, in the case of conversions of IRAs into Roth IRAs, 
the taxpayer is able to elect to have the amount converted 
includable in income in the year of the conversion (or the year 
of withdrawal if the conversion is accomplished through a 
rollover) rather than ratably over 4 years. The Senate 
amendment does not include the additional 10-percent recapture 
tax applicable to premature withdrawals of amounts to which the 
4-year spread applies. Instead, under the Senate amendment, if 
an individual elects application of the 4-year spread and 
withdraws amounts before the entire amount of the conversion 
has been included in income, the amount withdrawn is includable 
in income (in addition to any amount required to be included 
under the 4-year spread). In no case will the amount includable 
under this provision exceed the amount converted. The Senate 
amendment does not include the rules in the House bill 
regarding separate accounts for converted amounts and instead 
includes ordering rules for determining the character of 
withdrawals from Roth IRAs.
      Under the Senate amendment, a new 5-year holding period 
for determining whether distributions from a Roth IRA are 
qualified distributions does not apply to converted amounts. 
Thus, the 5-year holding period begins with the year for which 
a contribution (including a rollover contribution) was made.
      The Senate amendment also clarifies calculation of 
adjusted gross income for purposes of applying the $100,000 
adjusted gross income (``AGI'') limit on individuals eligible 
to convert IRAs to Roth IRAs. Under the Senate amendment, the 
applicable AGI is AGI for the year of the distribution to which 
the conversion relates. In addition, under the Senate 
amendment, it is intended that in determining AGI, the 
conversion amount (to the extent otherwise includable in AGI) 
is subtracted from AGI for the year of the distribution.
      Penalty-free distributions for education expenses and 
purchase of first homes.--The Senate amendment modifies the 
provision in the House bill intended to prevent avoidance of 
the 10-percent early withdrawal tax by providing that hardship 
distributions from qualified cash or deferred arrangements and 
tax-sheltered annuities are not eligible rollover distributions 
(and not subject to 20-percent withholding). The Senate 
amendment also modifies the effective date of the House bill 
provision. The Senate amendment is effective for distributions 
after December 31, 1998.
4. Capital Gains Provisions of the 1997 Act
      The Senate amendment modifies two provisions of the House 
bill to: (1) clarify the provision relating to the holding 
period of positions in certain short sales and straddles; and 
(2) provide that new section 1045 (relating to rollovers of 
small business stock) applies to stock held by certain 
partnerships with trusts as partners. The Senate amendment adds 
a provision to clarify the amount of exclusion applicable to 
the sale of a principal residence by a married couple filing a 
joint return who do not qualify for the full $500,000 
exclusion.
5. Alternative Minimum Tax Provisions of the 1997 Act
      The Senate amendment adds provisions that: (1) conform 
the regular-tax election to use AMT depreciation to the changes 
made to AMT depreciation by the 1997 Act; and (2) clarify the 
eligibility of the small corporation exemption.
6. Estate and Gift Tax Provisions of the 1997 Act
      The Senate amendment modifies the provisions of the House 
bill to: (1) clarify the effective date for the generation-
skipping exemption; (2) coordinate the unified credit and the 
qualified family-owned business exclusion; and (3) clarify the 
rules governing revaluation of gifts. The Senate amendment also 
adds provisions that: (1) clarify the phaseout range for the 5-
percent surtax to phase out the benefits of the unified credit 
and graduated rates; (2) clarify that interests eligible for 
the family-owned business exclusion must be passed to a 
qualified heir; (3) clarify the ``trade or business'' 
requirement for the family-owned business exclusion; (4) 
convert the family-owned business exclusion into a deduction; 
(5) make other technical changes to items cross-referenced in 
the family-owned business provision; and (6) clarify the 
treatment of post-mortem conservation contributions.
7. D.C. Zone Incentives of the 1997 Act
      The Senate amendment adds provisions that clarify the 
definitions of businesses and property eligible for special 
incentives available with respect to the D.C. Zone. In 
addition, the Senate amendment provides that the income phase-
out rules applicable to the D.C. first-time homebuyer credit 
apply only in the year the credit is generated and not in 
subsequent carryover years.
8. Miscellaneous Provisions of the 1997 Act
      The Senate amendment adds provisions that: (1) clarify 
the qualification of the reduced rate of tax on hard ciders; 
(2) clarify the treatment of the tax paid by electing publicly 
treated partnerships; (3) modify the depreciation limitation of 
electric vehicles; and (4) modify the definition of ``non-
Amtrak State'' for purposes of the Amtrak net operating loss 
provision.
9. Revenue-Increase Provisions of the 1997 Act
      The Senate amendment adds provisions that: (1) clarify 
that the exception to the constructive sales rules for 
positions with respect to straight debt instruments does not 
apply to positions that are convertible into stock; (2) provide 
coordination between the basis adjustment rules relating to 
extraordinary dividends and similar rules applicable to 
consolidated returns; (3) clarify the interaction of section 
355 and rules relating to certain divisive transactions 
involving asset contributions to a subsidiary; (4) clarify the 
application of section 304 to certain international 
transactions; (5) clarify the treatment of prepaid telephone 
cards for telephone excise tax purposes; (6) modify the 
unrelated business income tax rules applicable to second-tier 
subsidiaries; (7) modify the interaction between section 901(k) 
and the foreign tax credit flow- through rules for RICs; (8) 
clarify the treatment of additional covered lives under a 
master contract for purposes of the effective date of the 
provision relating to company owned life insurance; (9) make a 
clerical amendment to the definition of wages under the earned 
income credit; and (10) clarify the allocation of basis of 
properties distributed by a partnership.
10. Foreign Provisions of the 1997 Act
      The Senate amendment adds provisions that: (1) clarify 
the treatment of PFIC option holders; (2) clarify the 
application of PFIC mark-to-market rules to RICs; and (3) 
clarify the interaction between the PFIC and other mark-to-
market regimes.
11. Simplification Provisions of the 1997 Act
      The Senate amendment adds a provision that provides that 
distributions from a REIT are deemed to first come from any 
non-REIT earnings.
12. Estate, Gift, and Trust Simplification Provisions of the 1997 Act
      The Senate amendment adds provisions that: (1) clarify 
the treatment of revocable trusts for purposes of the 
generation-skipping transfer tax; and (2) provide regulatory 
authority for simplified reporting of funeral trusts terminated 
during the taxable year.
13. Excise Tax Simplification Provisions of the 1997 Act
      The Senate amendment clarifies that the 1997 Act's 
provision liberalizing rules for bulk importation of wine 
applies only to alcohol that would qualify as a natural wine if 
produced in the United States.
14. Pension and Employee Benefits Provisions of the 1997 Act
      The Senate amendment adds a clarification to the scope of 
the provision relating to the treatment of disability payments 
made to public safety employees.
15. Technical Corrections Relating to Other Legislation
      Adoption credit.--The Senate amendment adds a provision 
that provides that the phaseout rules applicable to the 
adoption credit are not applicable to credit carryovers.
      Disclosure requirements of apostolic organizations.--The 
Senate amendment adds a provision that provides that section 
501(d) apostolic organizations are not required to disclose 
Schedules K-1.
      Earned income credit qualification.--The Senate amendment 
adds provisions that clarify the application of the taxpayer 
identification number rules for purposes of determining 
eligibility for the earned income credit.
      Stapled REIT grandfather rule.--The Senate amendment does 
not include the provision of the House bill relating to the 
grandfather rule applicable to stapled REITs.

                          Conference Agreement

      The conference agreement follows the Senate amendment, 
with the following modifications, additions, and deletions.
1. Education Incentives of the 1997 Act
      Education IRAs.--The conference agreement clarifies that 
for purposes of the special rules regarding tax-free rollovers 
and changes of designated beneficiaries, the new beneficiary 
must be under the age of 30.
      Deduction for student loan interest.--The conference 
agreement clarifies that a ``qualified education loan'' means 
any indebtedness incurred solely to pay qualified higher 
education expenses. Thus, revolving lines of credit generally 
would not constitute qualified education loans unless the 
borrower agreed to use the line of credit to pay only 
qualifying education expenses. The conference agreement further 
provides Treasury with authority to issue regulations regarding 
the calculation of the 60-month period in the case of 
consolidated loans, collapsed loans, and loans made before the 
date of enactment of the Taxpayer Relief Act of 1997 (August 5, 
1997) for purposes of determining the deductibility of interest 
paid on such loans. In this regard, the conferees expect that 
such regulations would mirror the guidance contained in 
Notice98-7 issued regarding the establishment of the 60-month period 
with respect to such loans for reporting purposes. The provision is 
effective for interest payments due and paid after December 31, 1997, 
on any qualified education loan.
2. Savings and Investment Incentives of the 1997 Act
      Conversion of IRAs into Roth IRAs.--The conferees wish to 
clarify that for purposes of determining the $100,000 adjusted 
gross income (``AGI'') limit on IRA conversions to Roth IRAs, 
the conversion amount is not taken into account. Thus, for this 
purpose, AGI (and all AGI-based phaseouts) are to be determined 
without taking into account the conversion amount. For purposes 
of computing taxable income, the conversion amount (to the 
extent otherwise includible in AGI) is to be taken into account 
in computing the AGI-based phaseout amounts. The conferees wish 
to clarify that the language of the Senate Finance committee 
report (appearing in connection with section 6005(b) of the 
Senate amendment) relating to calculation of AGI limit for 
conversions is superceded.
      Small business stock rollover.--The conference agreement 
provides that rules similar to the rules contained in 
subsections (f) through (k) of section 1202 will apply for 
purposes of the rollover provision (sec. 1045). Under these 
rules, for example, the benefit of a tax-free rollover with 
respect to the sale of small business stock by a partnership 
will flow through to a partner who is not a corporation if the 
partner held its partnership interest at all times the 
partnership held the small business stock. A similar rule 
applies to S corporations. The conference agreement does not 
contain any provision limiting the types of partners or 
shareholders that a partnership or S corporation may have in 
order for the benefits of section 1045 to apply to a 
noncorporate partner or shareholder.
3. Estate and Gift Tax Provisions of the 1997 Act
      Phaseout range for the 5-percent surtax to phase out the 
benefits of the unified credit and graduated rates.--The 
conference agreement does not include the provision in the 
Senate amendment clarifying the phaseout range for the 5-
percent surtax to phase out the benefits of the unified credit 
and graduated rates.
      Qualification for an estate tax deduction for qualified 
family-owned business interest in the case of cash leases by 
decedent to family member.--The conference agreement clarifies 
that an interest in property will not be disqualified, in whole 
or in part, as an interest in a family-owned business where the 
decedent leases that interest on a net cash basis to a member 
of the decedent's family who uses the leased property in an 
active business. The rental income derived by the decedent from 
the net cash lease in those circumstances is not treated as 
personal holding company income for purposes of Code section 
2057.
4. Miscellaneous Provisions of the 1997 Act
      Fuel excise tax provisions.--The conference agreement 
does not include the provisions in the Senate amendment 
relating to fuel excise taxes that were enacted in the 
Transportation Equity Act for the 21st Century.
5. Revenue Increase Provisions of the 1997 Act
      Coordination between basis adjustment rules relating to 
extraordinary dividends and similar rules applicable to 
consolidated returns.--With respect to the Senate amendment 
regarding gain recognition for certain extraordinary dividends, 
the conference agreement clarifies that Congress intends that, 
except as provided in regulations to be issued, section 1059 
does not cause current gain recognition to the extent that the 
consolidated return regulations require the creation or 
increase of an excess loss account with respect to a 
distribution. Thus, current Treas. Reg. sec. 1.1059(e)-1(a) 
does not result in gain recognition with respect to 
distributions within a consolidated group to the extent such 
distribution results in the creation or increase of an excess 
loss account under the consolidated return regulations.
      Holding period requirement for claiming foreign tax 
credits with respect to dividends.--The 1997 Act added section 
901(k), which denies a shareholder foreign tax credits normally 
available with respect to a dividend if the shareholder has not 
held the stock for a minimum period during which it is not 
protected from risk of loss. Section 901(k)(4), ``Exception for 
certain taxes paid by securities dealers,'' provides an 
exception for foreign tax credits with respect to certain 
dividends received on stock held in the active conduct of a 
securities business in a foreign country. The Ways and Means 
and Finance committee reports provide that the exception is 
available only for dividends received on ``stock which the 
shareholder holds in its capacity as a dealer in securities.'' 
H. Rept. 105-148, 105th Cong., 1st Sess. 546 (1997); S. Rept. 
105-33, 105th Cong., 1st Sess 176 (1997). The conference 
agreement clarifies that the exception of section 901(k)(4) is 
available only for dividends received on stock that the 
shareholder holds in its capacity as a dealer in securities.
      Extension of diesel fuel excise taxes to kerosene.--The 
conference agreement includes clarifications of the rules under 
which aviation grade kerosene may be removed for use as 
aviation fuel without payment of the highway excise taxes.
6. Individual and Business Simplification Provisions of the 1997 Act
      Magnetic media returns for partnerships having more than 
100 partners.--Present law, as amended by the 1997 Act, 
provides that the Treasury Secretary is to require partnerships 
with more than 100 partners to file returns on magnetic media 
(sec. 6011(e)). Present law also imposes a penalty in the case 
of failure to meet magnetic media requirements. The conference 
agreement clarifies that the penalty under section 6724(c) for 
failure to comply with the requirement of filing returns on 
magnetic media applies to the extent such a failure occurs with 
respect to more than 100 information returns, in the case of a 
partnership with more than 100 partners.
7. Foreign Tax Provisions of the 1997 Act
      Information reporting with respect to certain foreign 
corporations and partnerships.--Present law, as amended by the 
1997 Act, provides that reporting rules apply to controlled 
foreign corporations and foreign partnerships (sec. 6038). The 
conference agreement clarifies that guidance relating to the 
furnishing of required information is to be provided by the 
Secretary of the Treasury (not specifically through 
regulations), and conforms the use of the defined term, foreign 
business entity.

8. Excise Tax and Other Simplification Provisions of the 1997 Act

      Refunds when wine returned to wineries or beer returned 
to breweries.--The 1997 Act added a provision that tax is 
refunded when tax-paid wine is returned to a winery or tax-paid 
beer is returned to a brewery (secs. 5044 and 5056). The Code 
provisions allowing these refunds speak of beverages produced 
in the United States. A separate provision of the 1997 Act 
provided that beer and wine imported ``in bulk'' would be taxed 
under the rules for domestically produced beverages. The 
conference agreement provides that the refund provisions are 
coordinated with the provision on tax treatment of bulk 
imports.
      Transfers of bulk imports of wine to wineries or beer to 
breweries.--Prior to the 1997 Act, imported beer and wine 
always were taxed upon importation (secs. 5043 and 5054). The 
1997 Act added provisions for non-tax-paid transfers of bulk 
imports to breweries and wineries (secs. 5364 and 5418). The 
conference agreement conforms the provisions imposing tax in 
all cases on importation to recognize these allowed transfers. 
Under the conference agreement, liability for tax payment 
shifts to the brewery or winery when bulk imports are 
transferred with payment of tax, just as those parties are 
liable for payment of tax on domestically produced beer and 
wine.

9. Taxpayer Bill of Rights 2 (1996)

      Disclosure of returns and return information.--The rules 
regarding disclosure of returns and return information were 
amended in 1996 to permit certain disclosures in two additional 
circumstances. Present law provides that, in the case of a 
deficiency with respect to a joint return of individuals who 
are no longer married or no longer residing in the same 
household, the Treasury Secretary is permitted to disclose to 
one such individual whether there has been an attempt to 
collect the deficiency from the other individual, the general 
nature of such collection activities, and the amount collected 
(sec. 6103(e)(8)). Present law also provides that if the 
Treasury Secretary determines that a person is liable for a 
penalty for failure to collect and pay over tax, the Secretary 
is permitted to disclose to that person the name of any other 
person liable for that penalty, and whether there has been an 
attempt to collect the deficiency from the other individual, 
the general nature of such collection activities, and the 
amount collected (sec. 6103(e)(9)). The conference agreement 
clarifies that these disclosures, like certain other 
disclosures permitted under present law, may be made under 
section 6103(e)(6) to the duly authorized attorney in fact of 
the person making the disclosure request. The provision takes 
effect on date of enactment.

10. Transportation Equity Act for the 21st Century (``TEA 21'') (1998)

      Simplified refund provisions for tax on gasoline, diesel 
fuel and kerosene.--TEA 21 included a provision combining the 
Code refund provisions for gasoline, diesel fuel, and kerosene 
and reducing the minimum claim amount. Under TEA 21, claims may 
be filed once a $750 threshold is reached for gasoline, diesel 
fuel, and kerosene combined, and overpayments attributable to 
multiple calendar quarters may be aggregated in determining 
whether this threshold is met (rather than claims being filed 
only with respect to a single calendar quarter). The conference 
agreement adds a provision conforming a current Code timing 
provision to reflect the portion of the TEA 21 provision that 
allows aggregation of multiple calendar quarters into a single 
refund claim.

                       TITLE VII. REVENUE OFFSETS

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

                              Present Law

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

                               House Bill

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

                            Senate Amendment

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

                          Conference Agreement

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

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

      The conference agreement does not include the Senate 
amendment.

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

      The conference agreement does not include the Senate 
amendment.

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

      The conference agreement generally follows the Senate 
amendment with the following technical modifications. The 
conference agreement clarifies that a real property interest 
acquired pursuant to the exercise of a put option, buy-sell 
agreement or an agreement relating to a third party default 
that was binding on March 26, 1998, and at all times 
thereafter, is generally treated as a grandfathered real 
property interest. It is the intention of the conferees that 
this rule apply only to substantive economic arrangements that 
are outside of the control of the stapled REIT group. The 
conference agreement clarifies that a renewal of a lease of 
property from a third party to a member of the stapled REIT 
group, like a lease or renewal between group members, does not 
generally terminate grandfather status, whether the renewal is 
pursuant to the terms of the lease or otherwise.\2\ However, 
renewal of a lease can cause loss of grandfather status if the 
property is improved to the extent that grandfather status 
would be lost under the improvement rules described above. 
Moreover, the conference agreement provides that, for leases 
and renewals entered into after March 26, 1998 (whether from 
members of the stapled REIT group or third parties), 
grandfather status is lost if the rent on the lease or renewal 
exceeds an arm's length rate.
---------------------------------------------------------------------------
    \2\ In the case of a lease from a third party, a renewal will not 
qualify if there is a significant time period between the two 
tenancies.
---------------------------------------------------------------------------
      The conference agreement makes certain changes to the 
rule attributing ownership of real property interests, 
mortgages and other items from a partnership or subsidiary in 
which the REIT or a stapled entity owns a 10-percent-or-greater 
interest, directly or indirectly. Under the conference 
agreement, the percentage ownership interest in a partnership 
is to be determined by the owner's share of capital or profits, 
whichever is larger. The conference agreement clarifies that an 
interest in real property acquired by a 10-percent-or-greater 
partnership or subsidiary pursuant to a binding written 
agreement, public announcement, SEC filing, put option, buy-
sell agreement or agreement relating to a third-party default 
(a ``qualified transaction'') is treated as grandfathered if 
such interest would be a grandfathered interest if acquired 
directly by the REIT or stapled entity. The conference 
agreement also provides that the exception for 10-percent-or-
greater interests in partnerships or subsidiaries acquired 
pursuant to a qualified transaction applies to interests 
acquired by any member of the stapled REIT group. The conferees 
also wish to clarify that all real property interests, 
mortgages, activities and gross income of a qualifiedREIT 
subsidiary are treated as attributes of the REIT for purposes of the 
provision.
      The conference agreement adds a rule that provides that a 
transfer, direct or indirect, of a grandfathered real property 
interest between members of a stapled REIT group does not 
result in a loss of grandfather status if the total direct and 
indirect interests of both the exempt REIT and stapled entity 
in the real property interest does not increase as a result of 
the transfer. If the total direct and indirect interest of the 
exempt REIT and stapled entity increases, the transferred real 
property interest will be deemed to lose grandfather status 
only to the extent of such increase. The provision applies to 
all types of transfers of real property interests among group 
members, such as sales, contributions and distributions, 
whether taxable or tax-free. Moreover, the provision applies 
both to direct transfers of real property interests and 
transfers of such interests indirectly through transfer of 
interests in 10-percent-or-greater owned partnerships and 
subsidiaries. The application of the new provision is 
illustrated by the following examples. First, assume that an 
exempt REIT sells a portion of a grandfathered real property 
interest to a stapled entity. The real property interest 
remains grandfathered because there is no increase in the total 
interests of the REIT and the stapled entity (100 percent both 
before and after the transfer). Second, assume that a 
grandfathered real property interest is contributed by a 
stapled entity to a partnership or subsidiary in which the 
stapled entity owns a 10-percent-or-greater interest (either 
prior to, or as a result of, the contribution). The real 
property interest remains grandfathered because the previous 
total interests of the exempt REIT and stapled entity (the 
stapled entity's 100-percent interest) are not increased by the 
transfer.\3\ Third, assume a REIT owns a 50-percent interest in 
a partnership that distributes a grandfathered real property 
interest to the REIT in complete liquidation of its interest. 
The 50-percent interest that was previously deemed owned by the 
REIT will continue to be grandfathered; the remaining 50-
percent interest will become a non-grandfathered interest 
because it represents an increase in the total direct and 
indirect interests of the REIT and stapled entity in the real 
property interest. Fourth, assume that a partnership in which 
an exempt REIT or stapled entity owns a 10-percent or greater 
interest terminates as a result of a sale of 50 percent or more 
of the total partnership interests during a 12-month period 
that does not involve the REIT or a stapled entity (sec. 
708(b)(1)(B)). Grandfather status of real property interests 
owned by the partnership is not lost in the transfer because, 
as a result of the termination, the partnership's assets are 
deemed contributed to a new partnership and interests in that 
partnership are deemed distributed to the purchasing and other 
partners in proportion to their interests (Treas. reg. sec. 
1.708-1(b)(1)(iv)). Thus, there is no change in the total 
interest of the REIT and stapled entity in the partnership's 
assets.
---------------------------------------------------------------------------
    \3\ Nevertheless, if the REIT's interest in the partnership or 
subsidirary increases as a result of the contribution, a portion of 
each of the entity's real property interests other than the interest 
contributed, reflecting the proportionate increase in the REIT's 
interest in the entity, will be treated as a non-grandfathered real 
property interest.
---------------------------------------------------------------------------
      The conference agreement adds a provision intended to 
deal with the special situation of so-called ``UPREIT'' 
partnerships (see Treas. reg. 1.701-2(d)(example 4)), which 
generally treats 100 percent of the real property interests, 
mortgages, activities and gross income of suchpartnerships as 
interests, activities and gross income of the REIT or stapled entity 
that owns a partnership interest. The provision applies where (i) an 
exempt REIT or stapled entity owned directly or indirectly) at least a 
60-percent interest in a partnership as of March 26, 1998, (ii) 90 
percent or more of the interests in the partnership (other than those 
held by the exempt REIT or stapled entity) are or will be redeemable or 
exchangeable for consideration with a value determined with reference 
to the stock of the REIT or stapled entity or both. The provision also 
applies to an interest in a partnership formed after March 26, 1998, 
which meets the provision's other requirements, where the partnership 
was formed to mirror the stapling of an exempt REIT and a stapled 
entity in connection with an acquisition agreed to or announced on or 
before March 26, 1998. If, as of January 1, 1999, more than one 
partnership owned (directly or indirectly) by either an exempt REIT or 
stapled entity meets the requirements of the provision, only the 
largest such partnership (determined by aggregate asset bases) is 
treated as meeting such requirements.
      The conference agreement provides that, for purposes of 
the exception to the mortgage rules for mortgages held on March 
26, 1998, an increase in interest payable on a mortgage (except 
pursuant to an interest arrangement, such as variable interest, 
under the mortgage's terms as of March 26, 1998), or an 
increase in interest payable as a result of a refinancing, 
causes the mortgage to cease to qualify for the exception 
unless the new interest rate meets an arm's-length standard.
      The conferees also wish to clarify that in the event that 
a stapled REIT group ceases to be stapled, the rules treating 
assets, activities and gross income of members or the stapled 
REIT group as attributes of the REIT apply only to the portion 
of the year in which the group was a stapled REIT group. 
Similarly, where a REIT's or stapled entity's interest in a 
partnership or subsidiary changes during the year, the rules 
treating a proportionate part of the assets, activities and 
gross income of the partnership or subsidiary as attributes of 
the REIT or stapled entity also apply on a partial-year basis.

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

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

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

      The Senate amendment adds any vaccine against rotavirus 
gastroenteritis to the list of taxable vaccines.
      Effective date.--The provision is effective for vaccines 
sold by a manufacturer or importer after the date of enactment.

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

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

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

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

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

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

                          Conference Agreement

      The conference agreement does not include the Senate 
amendment.

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

                              Present Law

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

                          Conference Statement

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

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

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

               ESTIMATED BUDGET EFFECTS OF TITLES I--VIII OF THE CONFERENCE AGREEMENT RELATING TO H.R. 2676, THE ``INTERNAL REVENUE SERVICE RESTRUCTURING AND REFORM ACT OF 1998''              
                                                                        [Fiscal years 1998-2007, in millions of dollars]                                                                        
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
            Provision                      Effective          1998     1999     2000     2001     2002      2003       2004       2005       2006       2007    1998-2002  2003-2007   1998-2007
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Title I. Reorganization of         ........................                                                                                                                                     
 Structure and Management of the                                                                                                                                                                
 Internal Revenue Service.                                                                                                                                                                      
(12) No Revenue Effect                                                                                                                                                                          
Title II. Electronic Filing......  ........................                                                                                                                                     
(12) No Revenue Effect                                                                                                                                                                          
  Title III. Taxpayer Protection                                                                                                                                                                
 and Rights:                                                                                                                                                                                    
    A. Burden of Proof--apply to   eca DOE                    (\1\)     -231     -256     -269     -278       -297       -311       -327       -344       -360     -1,035     -1,639      -2,674
     only income, estate and gift                                                                                                                                                               
     taxes (permanent).                                                                                                                                                                         
    B. Proceedings by Taxpayers:                                                                                                                                                                
        1. Expansion of authority  180da DOE                 ......      -11      -12      -13      -14        -16        -18        -19        -20        -22        -51        -95        -145
         to award costs and                                                                                                                                                                     
         certain fees at                                                                                                                                                                        
         prevailing rate and rule                                                                                                                                                               
         68 provision with net                                                                                                                                                                  
         worth limitation                                                                                                                                                                       
         (includes outlay                                                                                                                                                                       
         effects); with modified                                                                                                                                                                
         hourly cap.                                                                                                                                                                            
        2. Civil damages with      aoa DOE                       -2      -15      -25      -50      -30        -25        -25        -25        -25        -25       -122       -125        -247
         respect to unauthorized                                                                                                                                                                
         collection actions                                                                                                                                                                     
         (includes outlay                                                                                                                                                                       
         effects).                                                                                                                                                                              
        3. Increase size of cases  pca DOE                                                                                                                                                      
         permitted on small case                                                                                                                                                                
         calendar to $50,000.                                                                                                                                                                   
(12) No Revenue Effect                                                                                                                                                                          
        4. Actions for refund      rfa DOE                                                                                                                                                      
         with respect to certain                                                                                                                                                                
         estates which have                                                                                                                                                                     
         elected the installment                                                                                                                                                                
         method of payment.                                                                                                                                                                     
(12) Negligible Revenue Effect                                                                                                                                                                  
        5. Extend IRS              DOE                        (\1\)       -5       -2       -2       -2         -2         -2         -2         -2         -2        -11        -10         -21
         administrative appeals                                                                                                                                                                 
         right to issuers of tax-                                                                                                                                                               
         exempt bonds.                                                                                                                                                                          
        6. Civil action for        DOE                                                                                                                                                          
         release of erroneous                                                                                                                                                                   
         lien.                                                                                                                                                                                  
(12) Negligible Revenue Effect                                                                                                                                                                  
    C. Relief for Innocent                                                                                                                                                                      
     Spouses and for Taxpayers                                                                                                                                                                  
     Unable to Manage Their                                                                                                                                                                     
     Financial Affairs Due to                                                                                                                                                                   
     Disabilities:                                                                                                                                                                              
        1. Relief for innocent     laa & ulb DOE                -10     -131      -92      -74      -86       -121       -157       -204       -243       -288       -393     -1,013      -1,406
         spouses who are no                                                                                                                                                                     
         longer married, legally                                                                                                                                                                
         separated, or living                                                                                                                                                                   
         apart for 12 consecutive                                                                                                                                                               
         months; House relief for                                                                                                                                                               
         other cases; Secretary                                                                                                                                                                 
         of Treasury has                                                                                                                                                                        
         authority to reach                                                                                                                                                                     
         equitable result.                                                                                                                                                                      
        2. Suspension of statute   tyoo/a DOE                   -10      -70      -35      -15      -16        -17        -18        -19        -20        -21       -146        -95        -241
         of limitations on filing                                                                                                                                                               
         refund claims during                                                                                                                                                                   
         periods of disability.                                                                                                                                                                 
    D. Provisions Relating to                                                                                                                                                                   
     Interest and Penalties:                                                                                                                                                                    
        1. Elimination of          tyoo/a DOE                   -26      -68      -58      -61      -56        -59        -62        -65        -68        -72       -267       -326        -593
         interest rate                                                                                                                                                                          
         differential on                                                                                                                                                                        
         overlapping periods of                                                                                                                                                                 
         interest on income tax                                                                                                                                                                 
         overpayments and                                                                                                                                                                       
         underpayments.                                                                                                                                                                         
        2. Increase refund         2nd & scaqa DOE           ......      -36      -54      -56      -59        -62        -65        -69        -72        -76       -205       -344        -549
         interest rate of                                                                                                                                                                       
         Applicable Federal Rate                                                                                                                                                                
         (``AFR'') +3 for                                                                                                                                                                       
         individual's taxpayers                                                                                                                                                                 
         [2].                                                                                                                                                                                   
        3. Reduced penalty on      iapma 12/31/99            ......  .......     -108     -136     -143       -152       -159       -167       -175       -185       -387       -838      -1,225
         individual's failure to                                                                                                                                                                
         pay during installment                                                                                                                                                                 
         agreements.                                                                                                                                                                            
        4. Mitigation of failure   drma 180da DOE            ......      -47      -64      -64      -65        -66        -66        -67        -68        -68       -240       -335        -575
         to deposit penalty.                                                                                                                                                                    
        5. Suspend accrual of      tyea DOE                  ......  .......     -146     -174     -196       -209       -248       -431       -435       -439       -516     -1,762      -2,278
         interest and penalties                                                                                                                                                                 
         if IRS fails to contact                                                                                                                                                                
         taxpayer within 12                                                                                                                                                                     
         months after a timely-                                                                                                                                                                 
         filed return (except for                                                                                                                                                               
         fraud and criminal                                                                                                                                                                     
         penalties); (1) for                                                                                                                                                                    
         first 5 years, time                                                                                                                                                                    
         period is 18 months                                                                                                                                                                    
         (instead of 12 months);                                                                                                                                                                
         and (2) provide that                                                                                                                                                                   
         termination with respect                                                                                                                                                               
         to specific additional                                                                                                                                                                 
         tax liability occurs on                                                                                                                                                                
         earliest notice of such                                                                                                                                                                
         liability.                                                                                                                                                                             
        6. Procedural              nia & paa 12/31/00                                                                                                                                           
         requirements for                                                                                                                                                                       
         imposition of penalties                                                                                                                                                                
         and additions to tax.                                                                                                                                                                  
(12) Negligible Revenue Effect                                                                                                                                                                  
        7. Permit personal         DOE                                                                                                                                                          
         delivery of section 6672                                                                                                                                                               
         notices.                                                                                                                                                                               
(12)No Revenue Effect                                                                                                                                                                           
        8. Notice of interest      nia 12/31/00                                                                                                                                                 
         charges.                                                                                                                                                                               
(12)No Revenue Effect                                                                                                                                                                           
    E. Protections for Taxpayers                                                                                                                                                                
     Subject to Audit or                                                                                                                                                                        
     Collection Activities:                                                                                                                                                                     
        1. Due process for IRS     caia 180da DOE            ......      -11       -7       -7       -7         -7         -7         -8         -8         -8        -32        -38         -70
         collection actions.                                                                                                                                                                    
        2. Examination                                                                                                                                                                          
         activities:                                                                                                                                                                            
            a. Extend the          cmo/a DOE                  (\3\)    (\3\)    (\3\)    (\3\)    (\3\)      (\3\)      (\3\)      (\3\)      (\3\)      (\3\)      (\4\)      (\4\)       (\5\)
             attorney client                                                                                                                                                                    
             privilege to                                                                                                                                                                       
             accountants and                                                                                                                                                                    
             other tax                                                                                                                                                                          
             practitioners; with                                                                                                                                                                
             exception from both                                                                                                                                                                
             attorney/client                                                                                                                                                                    
             privilege and tax                                                                                                                                                                  
             practitioner/ client                                                                                                                                                               
             privilege for                                                                                                                                                                      
             communications                                                                                                                                                                     
             relating to                                                                                                                                                                        
             corporate tax                                                                                                                                                                      
             shelters.                                                                                                                                                                          
            b. Limitation on       DOE                                                                                                                                                          
             financial status                                                                                                                                                                   
             audits.                                                                                                                                                                            
(12)No Revenue Effect                                                                                                                                                                           
            c. Limitation on IRS   sia & saa DOE             ......      -13      -16      -20      -22        -26        -30        -33        -36        -37        -71       -162        -233
             authority to require                                                                                                                                                               
             production of                                                                                                                                                                      
             computer source code                                                                                                                                                               
             and protections                                                                                                                                                                    
             against improper                                                                                                                                                                   
             disclosure.                                                                                                                                                                        
            d. Prohibition on      DOE                                                                                                                                                          
             improper threat of                                                                                                                                                                 
             audit activity for                                                                                                                                                                 
             tip reporting.                                                                                                                                                                     
(12)No Revenue Effect                                                                                                                                                                           
            e. Allow taxpayers to  ssa DOE                                                                                                                                                      
             quash all third-                                                                                                                                                                   
             party summonses.                                                                                                                                                                   
(12)Negligible Revenue Effect                                                                                                                                                                   
            f. Permit service of   ssa DOE                                                                                                                                                      
             summonses by mail or                                                                                                                                                               
             in person.                                                                                                                                                                         
(12)No Revenue Effect                                                                                                                                                                           
            g. IRS must provide    180da DOE                 ......    (\3\)    (\3\)    (\3\)    (\3\)      (\3\)      (\3\)      (\3\)      (\3\)      (\3\)      (\4\)      (\4\)       (\5\)
             general notice and                                                                                                                                                                 
             periodic reports to                                                                                                                                                                
             taxpayers before                                                                                                                                                                   
             contacting third                                                                                                                                                                   
             parties regarding                                                                                                                                                                  
             IRS examination or                                                                                                                                                                 
             collection                                                                                                                                                                         
             activities with                                                                                                                                                                    
             respect to the                                                                                                                                                                     
             taxpayer.                                                                                                                                                                          
        3. Collection activities:                                                                                                                                                               
            a. Approval process--  (\6\)                                                                                                                                                        
             IRS to implement                                                                                                                                                                   
             approval process for                                                                                                                                                               
             liens, levies, or                                                                                                                                                                  
             seizures;                                                                                                                                                                          
             clarification of                                                                                                                                                                   
             ``appropriate''.                                                                                                                                                                   
(12)Negligible Revenue Effect                                                                                                                                                                   
            b. Increase the        Lia DOE                    (\1\)       -1       -1       -1       -1         -2         -2         -2         -2         -2         -6         -8         -13
             amount exempt from                                                                                                                                                                 
             levy to $6,250 for                                                                                                                                                                 
             personal property                                                                                                                                                                  
             and $3,125 for books                                                                                                                                                               
             and tools of trade,                                                                                                                                                                
             indexed for                                                                                                                                                                        
             inflation.                                                                                                                                                                         
            c. Require the IRS to  lia 12/31/99                                                                                                                                                 
             release a levy upon                                                                                                                                                                
             agreement that the                                                                                                                                                                 
             amount is not                                                                                                                                                                      
             collectible.                                                                                                                                                                       
(12)Negligible Revenue Effect                                                                                                                                                                   
            d. Suspend collection  tyba 12/31/98                                                                                                                                                
             by levy during                                                                                                                                                                     
             refund suit.                                                                                                                                                                       
(12)Negligible Revenue Effect                                                                                                                                                                   
            e. Require District    taa & lma DOE                                                                                                                                                
             Counsel review of                                                                                                                                                                  
             jeopardy and                                                                                                                                                                       
             termination                                                                                                                                                                        
             assessments and                                                                                                                                                                    
             jeopardy levies.                                                                                                                                                                   
(12)Negligible Revenue Effect                                                                                                                                                                   
            f. Increase in amount  DOE                                                                                                                                                          
             of certain property                                                                                                                                                                
             on which lien not                                                                                                                                                                  
             valid.                                                                                                                                                                             
(12)Negligible Revenue Effect                                                                                                                                                                   
            g. Waive the 10%       wa 12/31/99               ......  .......       -1       -3       -4         -4         -5         -5         -5         -5         -9        -24         -33
             early withdrawal tax                                                                                                                                                               
             when IRA or                                                                                                                                                                        
             qualified plan is                                                                                                                                                                  
             levied.                                                                                                                                                                            
            h. Prohibit the IRS    Soa DOE                                                                                                                                                      
             from selling                                                                                                                                                                       
             taxpayer's property                                                                                                                                                                
             for less than the                                                                                                                                                                  
             minimum bid.                                                                                                                                                                       
(12)No Revenue Effect                                                                                                                                                                           
            i. Require the IRS to  soa DOE                                                                                                                                                      
             provide an                                                                                                                                                                         
             accounting and                                                                                                                                                                     
             receipt to the                                                                                                                                                                     
             taxpayer (including                                                                                                                                                                
             the amount credited                                                                                                                                                                
             to the taxpayer's                                                                                                                                                                  
             account) for                                                                                                                                                                       
             property seized and                                                                                                                                                                
             sold.                                                                                                                                                                              
(12) Negligible Revenue Effect                                                                                                                                                                  
            j. Require the IRS to  DOE & 2 years                                                                                                                                                
             study and implement                                                                                                                                                                
             a uniform asset                                                                                                                                                                    
             disposal mechanism                                                                                                                                                                 
             for sales of seized                                                                                                                                                                
             property to prevent                                                                                                                                                                
             revenue officers                                                                                                                                                                   
             from conducting                                                                                                                                                                    
             sales.                                                                                                                                                                             
(12) No Revenue Effect                                                                                                                                                                          
            k. Codify IRS          DOE                                                                                                                                                          
             administrative                                                                                                                                                                     
             procedures for                                                                                                                                                                     
             seizure of                                                                                                                                                                         
             taxpayer's property.                                                                                                                                                               
(12) No Revenue Effect                                                                                                                                                                          
            l. Procedures for      DOE                        (\1\)       -3       -3       -3       -3         -3         -3         -3         -3         -3        -12        -15         -27
             seizure of                                                                                                                                                                         
             residences and                                                                                                                                                                     
             businesses.                                                                                                                                                                        
        4. Provisions relating to                                                                                                                                                               
         examination and                                                                                                                                                                        
         collection activities:                                                                                                                                                                 
            a. Prohibition on      (\7\)                     ......  .......       -9      -13      -16        -18        -19        -19        -21        -24        -38       -101        -139
             extension of statute                                                                                                                                                               
             of limitations for                                                                                                                                                                 
             collection beyond 10                                                                                                                                                               
             years with                                                                                                                                                                         
             installment payment                                                                                                                                                                
             exception.                                                                                                                                                                         
            b. Offers-in-          generally DOE                 -1  .......        9        4        4          4          4          4          4          4         17         21          38
             compromise.                                                                                                                                                                        
            c. Notice of           nma12/13/98                                                                                                                                                  
             deficiency to                                                                                                                                                                      
             specify deadlines                                                                                                                                                                  
             for filing Tax Court                                                                                                                                                               
             petition.                                                                                                                                                                          
(12) Negligile Revenue Effect                                                                                                                                                                   
            d. Refund or credit    DOE                                                                                                                                                          
             of overpayments                                                                                                                                                                    
             before final                                                                                                                                                                       
             determination.                                                                                                                                                                     
(12) Negligible Revenue Effect)                                                                                                                                                                 
            e. IRS procedures      DOE                                                                                                                                                          
             relating to appeal                                                                                                                                                                 
             of examination and                                                                                                                                                                 
             collections.                                                                                                                                                                       
(12) No Revenue Effect                                                                                                                                                                          
            f. Codify certain      DOE                                                                                                                                                          
             fair debt collection                                                                                                                                                               
             procedures.                                                                                                                                                                        
(12) No Revenue Effect                                                                                                                                                                          
            g. Ensure              DOE                                                                                                                                                          
             availability of                                                                                                                                                                    
             installment                                                                                                                                                                        
             agreements.                                                                                                                                                                        
(12) No Revenue Effect                                                                                                                                                                          
            h. Prohibit Federal    DOE                                                                                                                                                          
             Government officers                                                                                                                                                                
             and employees from                                                                                                                                                                 
             requesting taxpayers                                                                                                                                                               
             to give up their                                                                                                                                                                   
             rights to sue.                                                                                                                                                                     
(12) No Revenue Effect                                                                                                                                                                          
    F. Disclosures to Taxpayers:                                                                                                                                                                
        1. Explanation of joint    180da DOE                                                                                                                                                    
         and several liability.                                                                                                                                                                 
(12) No Revenue Effect                                                                                                                                                                          
        2. Explanation of          180da DOE                 ......      -13    (\1\)    (\1\)    (\1\)      (\1\)      (\1\)      (\1\)      (\1\)      (\1\)      (\4\)      (\3\)       (\4\)
         taxpayers' rights in                                                                                                                                                                   
         interviews with IRS.                                                                                                                                                                   
        3. Disclosure of criteria  180da DOE                                                                                                                                                    
         for examination                                                                                                                                                                        
         selection.                                                                                                                                                                             
(12) No Revenue Effect                                                                                                                                                                          
        4. Explanations of         180da DOE                                                                                                                                                    
         appeals and collection                                                                                                                                                                 
         process.                                                                                                                                                                               
(12) No Revenue Effect                                                                                                                                                                          
        5. Require IRS to explain  180da DOE                                                                                                                                                    
         reason for denial for                                                                                                                                                                  
         refund.                                                                                                                                                                                
(12) No Revenue Effect                                                                                                                                                                          
        Statement to taxpayers     7/1/00                                                                                                                                                       
         with installation                                                                                                                                                                      
         agreements.                                                                                                                                                                            
(12) No Revenue Effect                                                                                                                                                                          
        7. Require IRS to notify   sotmpa DOE                 (\8\)    (\8\)    (\8\)    (\8\)    (\8\)      (\8\)      (\8\)      (\8\)      (\8\)      (\8\)         -1         -1          -2
         all partners of any                                                                                                                                                                    
         resignation of the tax                                                                                                                                                                 
         matters partner that is                                                                                                                                                                
         required by the IRS, and                                                                                                                                                               
         of the identity of any                                                                                                                                                                 
         successor tax matters                                                                                                                                                                  
         partnership who was                                                                                                                                                                    
         appointed to fill the                                                                                                                                                                  
         vacancy created by such                                                                                                                                                                
         resignation.                                                                                                                                                                           
        8. Require information to  DOE                                                                                                                                                          
         taxpayers concerning                                                                                                                                                                   
         disclosure of their                                                                                                                                                                    
         income tax return                                                                                                                                                                      
         information to parties                                                                                                                                                                 
         outside the IRS.                                                                                                                                                                       
(12) No Revenue Effect                                                                                                                                                                          
        9. Disclosure of Chief     ai 90da DOE                                                                                                                                                  
         Counsel advice.                                                                                                                                                                        
(12) No Revenue Effect                                                                                                                                                                          
    G. Low-Income Taxpayer         DOE                                                                                                                                                          
     Clinics.                                                                                                                                                                                   
(12) No Revenue Effect                                                                                                                                                                          
    H. Other Provisions:                                                                                                                                                                        
        1. Cataloging complaints   1/1/00                                                                                                                                                       
         of IRS employee                                                                                                                                                                        
         misconduct.                                                                                                                                                                            
(12) No Revenue Effect                                                                                                                                                                          
        2. Archive of records of   DOE                                                                                                                                                          
         Internal Revenue Service.                                                                                                                                                              
(12) No Revenue Effect                                                                                                                                                                          
        3. Payment of taxes to     DOE                                                                                                                                                          
         the U.S. Treasury [2].                                                                                                                                                                 
(12) No Revenue Effect                                                                                                                                                                          
        4. Clarification of        DOE                                                                                                                                                          
         authority of Secretary                                                                                                                                                                 
         relating to the making                                                                                                                                                                 
         of elections.                                                                                                                                                                          
(12) No Revenue Effect                                                                                                                                                                          
        5. IRS employee contracts  6ma DOE                                                                                                                                                      
(12) No Revenue Effect                                                                                                                                                                          
        6. Require approval of     DOE                                                                                                                                                          
         use of pseudonyms by IRS                                                                                                                                                               
         employees.                                                                                                                                                                             
(12) No Revenue Effect                                                                                                                                                                          
        7. Require the IRS to end  DOE & rdnrb 1/1/99                                                                                                                                           
         the use of the illegal                                                                                                                                                                 
         tax protestor label.                                                                                                                                                                   
(12) No Revenue Effect                                                                                                                                                                          
        8. Modify section 6103 to  DOE                                                                                                                                                          
         allow the tax-writing                                                                                                                                                                  
         committees to obtain                                                                                                                                                                   
         data from IRS employees                                                                                                                                                                
         regarding employee and                                                                                                                                                                 
         taxpayer abuse.                                                                                                                                                                        
(12) No Revenue Effect                                                                                                                                                                          
        9. Publish telephone       DOE                                                                                                                                                          
         numbers for local IRS                                                                                                                                                                  
         offices.                                                                                                                                                                               
(12) No Revenue Effect                                                                                                                                                                          
        10. Alternative to Social  DOE                                                                                                                                                          
         Security numbers for tax                                                                                                                                                               
         return preparers.                                                                                                                                                                      
(12) No Revenue Effect                                                                                                                                                                          
        11. Authorize the Federal  rpa 12/31/99              ......  .......        2        3        3          3          3          4          4          4          8         18          26
         government to offset a                                                                                                                                                                 
         Federal income tax                                                                                                                                                                     
         refund to satisfy a past-                                                                                                                                                              
         due, legally owing State                                                                                                                                                               
         income tax debt.                                                                                                                                                                       
        12. Modify section 6050S   tyba 12/31/98                                                                                                                                                
         to require educational                                                                                                                                                                 
         institutions to report                                                                                                                                                                 
         grant amounts processed                                                                                                                                                                
         through and refunds made                                                                                                                                                               
         by the institution; with                                                                                                                                                               
         clarifications regarding                                                                                                                                                               
         the definition of                                                                                                                                                                      
         ``qualified tuition and                                                                                                                                                                
         related expenses'' and                                                                                                                                                                 
         certain other                                                                                                                                                                          
         educational institution                                                                                                                                                                
         reporting requirements.                                                                                                                                                                
(12) Negligible Revenue Effect                                                                                                                                                                  
    I. Studies:                                                                                                                                                                                 
        1. Administration of       1ya DOE                                                                                                                                                      
         penalties and interest.                                                                                                                                                                
(12) No Revenue Effect                                                                                                                                                                          
        2. Confidentiality of tax  18ma DOE                                                                                                                                                     
         return information.                                                                                                                                                                    
(12) No Revenue Effect                                                                                                                                                                          
        3. Noncompliance with      1ya DOE                                                                                                                                                      
         internal revenue laws by                                                                                                                                                               
         taxpayers.                                                                                                                                                                             
(12) No Revenue Effect                                                                                                                                                                          
        4. Payments for            1ya DOE                                                                                                                                                      
         informants.                                                                                                                                                                            
(12) No Revenue Effect                                                                                                                                                                          
                                                            ------------------------------------------------------------------------------------------------------------------------------------
          Subtotal, Taxpayer       ........................     -53     -661     -885     -961     -998     -1,085     -1,196     -1,463     -1,545     -1,635     -3,559     -6,925     -10,483
           Protections and Rights.                                                                                                                                                              
                                                            ====================================================================================================================================
Title IV. Congressional            ........................                                                                                                                                     
 Accountability for the Internal                                                                                                                                                                
 Revenue Service.                                                                                                                                                                               
(12) No Revenue Effect                                                                                                                                                                          
  Title V. Additional Provisions:                                                                                                                                                               
    A. Change the Holding Period   aptiao/a 1/1/98               35      611     -312     -335     -335       -337       -341       -347       -354       -362       -336     -1,741      -2,077
     for Long-Term Capital Gains                                                                                                                                                                
     to 12 months.                                                                                                                                                                              
    B. Deductibility of Meals      tybbo/a DOE               ......      -20      -33      -34      -35        -36        -38        -39        -40        -41       -122       -194        -316
     Provided for the Convenience                                                                                                                                                               
     of Employer on Employer's                                                                                                                                                                  
     Premises.                                                                                                                                                                                  
    C. Instead of Most Favored     ........................                                                                                                                                     
     Nation Status Use Normal                                                                                                                                                                   
     Trade Relations Terminology                                                                                                                                                                
     [2].                                                                                                                                                                                       
(12) No Revenue Effect                                                                                                                                                                          
      Subtotal, Additional         ........................      35      591     -345     -369     -370       -373       -379       -386       -394       -403       -458     -1,935      -2,393
       Provisions.                                                                                                                                                                              
Title VI. Tax Technical            ........................                                                                                                                                     
 Corrections.                                                                                                                                                                                   
(12) No Revenue Effect                                                                                                                                                                          
  Title VII. Revenue Offsets:                                                                                                                                                                   
    A. Overrule Schmidt Baking     tyea DOE                     593      839      997      456      308        156        163        172        180        189      3,193        860       4,053
     with Respect to Vacation Pay                                                                                                                                                               
     and Severance and Other                                                                                                                                                                    
     Types of Compensation With                                                                                                                                                                 
     Spread.                                                                                                                                                                                    
    B. Freeze Grandfathered        tyea 3/26/98               (\9\)        1        3        6       10         14         19         26         35         45         20        139         159
     Status of Stapled or Paired--                                                                                                                                                              
     Share REITs.                                                                                                                                                                               
    C. Make Certain Trade          tyea DOE                      33      317      500      333      117         70         73         77         81         85      1,300        386       1,686
     Receivables Ineligible for                                                                                                                                                                 
     Mark-to-Market Treatment.                                                                                                                                                                  
    D. Disregard Minimum           tyba 12/31/04             ......  .......  .......  .......  .......  .........  .........      2,362      2,854      2,812  .........      8,028       8,028
     Distributions in Determining                                                                                                                                                               
     AGI for IRA Conversions to a                                                                                                                                                               
     Roth IRA.                                                                                                                                                                                  
                                                            ------------------------------------------------------------------------------------------------------------------------------------
      Subtotal, Revenue Offsets..  ........................     626    1,157    1,500      795      435        240        255      2,637      3,150      3,131      4,513      9,413      13,926
                                                            ====================================================================================================================================
Title VIII. Limited Tax Benefits   ........................                                                                                                                                     
 Under the Line Veto Act.                                                                                                                                                                       
(12) No Revenue Effect                                                                                                                                                                          
                                                            ------------------------------------------------------------------------------------------------------------------------------------
      Net Total (Reserved for      ........................     608    1,087      270     -535     -933     -1,218     -1,320        788      1,211      1,093        496        553       1,050
       Future Tax Reduction).                                                                                                                                                                   
  Revenue Effect From Emergency                                                                                                                                                                 
 Legislation Per Section 252(e)                                                                                                                                                                 
 of the Balanced Budget and                                                                                                                                                                     
 Emergency Deficit Control Act:                                                                                                                                                                 
    1. Abate interest on           dda 12/31/97                  -8      -25      -25      -25      -25        -25        -25        -25        -25        -25       -108       -126       -234 
     underpayments by taxpayers                                                                                                                                                                 
     in Presidentially declared                                                                                                                                                                 
     disaster areas.                                                                                                                                                                            
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Loss of less than $1 million.                                                                                                                                                               
\2\ Estimate provided by the Congressional Budget Office.                                                                                                                                       
\3\ Loss of less than $5 million.                                                                                                                                                               
\4\ Loss of less than $25 million.                                                                                                                                                              
\5\ Loss of less than $50 million.                                                                                                                                                              
\6\ Generally effective for collection actions commencing after the date of enactment; collections at ACS sites effective for levies imposed after 12/31/00.                                    
\7\ Effective for requests to extend the statute of limitations made after 12/31/99 and to all extensions of the statute of limitations on collections that are open after 12/31/99.            
\8\ Loss of less than $500,000.                                                                                                                                                                 
\9\ Gain of less than $500,000.                                                                                                                                                                 
                                                                                                                                                                                                
Legend for ``Effective'' column: ai=advice issued; aoa=actions occurring after; aptiao/a=amounts properly taken into account on or after; caia=collection actions initiated after; cmo/         
  a=communications made on or after; dda=disasters declared after; DOE=date of enactment; drma=deposits required to be made after; eca=examinations commencing after; iapma=installment         
  agreement payments made after; laa=liability arising after; lia=levies imposed after; Lia=levies issued after; Ima=levies made after; nia=notices issued after; nma=notices mailed after;     
  paa=penalties assessed after; pca=proceedings commencing after; rdnrb=removal designation not required before; rfa=refunds filed after; rpa=refunds payable after; saa=software acquired      
  after; scqa=succeeding calendar quarters beginning after; sia=summonses issued after; soa=seizures occurring after; Soa=sales occurring after; sotmpa=selections of tax matters partners      
  after; ssa=summonses served after; taa=taxes assessed after; tyba=taxable years beginning after; tyea=taxable years ending after; tybbo/a=taxable years beginning before, on, or after; tyoo/ 
  a=taxable years open on or after; ulb=unpaid liability before; wa=withdrawals after; 1ya=1 year after; 6ma=6 months after; 18ma=18 months after; 60da=60 days after; 90da=90 days after; and  
  180da=180 days after.                                                                                                                                                                         
                                                                                                                                                                                                
Note.--Details may not add to totals due to rounding.                                                                                                                                           
Source: Joint Committee on Taxation.                                                                                                                                                            


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

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

                                
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