[House Report 107-394]
[From the U.S. Government Publishing Office]



107th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     107-394

======================================================================



 
         TAXPAYER PROTECTION AND IRS ACCOUNTABILITY ACT OF 2002

                                _______
                                

 April 9, 2002.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

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

                              R E P O R T

                        [To accompany H.R. 3991]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 3991) the Taxpayer Protection and IRS Accountability 
Act of 2002, to amend the Internal Revenue Code of 1986 to 
provide for increased fairness to taxpayers, having considered 
the same, report favorably thereon with an amendment and 
recommend that the bill as amended do pass.

                                CONTENTS

                                                                   Page
    I. Summary and Background........................................23
        A. Purpose and Summary...................................    23
    Title I--Penalties and Interest..................................23
        A. Convert Penalty for Failure To Pay Estimated Tax Into 
            an Interest Provision, Increase and Modify Threshold, 
            and Simplify Estimated Tax Calculation for 
            Individuals, Estates, and Trusts.....................    23
        B. Exclude Interest on Individual Federal Income Tax 
            Overpayments.........................................    23
        C. Abatement of Interest.................................    23
        D. Deposits To Suspend Interest..........................    23
        E. Modification of Interest Netting Rules for Individuals    24
        F. Waiver of Certain Penalties for First-Time 
            Unintentional Minor Errors...........................    24
        G. Frivolous Tax Returns and Submissions.................    24
        F. Clarification of Application of Federal Tax Deposit 
            Penalty..............................................    24
    Title II--Fairness of Collection Procedures......................24
        A. Permit Installment Agreements That Provide for Partial 
            Payment..............................................    24
        B. Extend Time Limit for Contesting IRS Levy.............    24
        C. Restore Retirement Savings After Improper Levy........    24
        D. Tolling of Statute of Limitations During Review by 
            Taxpayer Advocate Service............................    25
        E. Study of Liens and Levies.............................    25
                                                                       
    Title III--Efficiency of Tax Administration......................25
        A. Termination of Employment of IRS Employees for 
            Misconduct...........................................    25
        B. Tax Court Authority To Apply Equitable Recoupment.....    25
        C. Review of Collection Due Process Cases in Tax Court...    25
        D. Chief Counsel Review of Offers-in-Compromise..........    25
        E. Due Date for Electronically Filed Tax Returns.........    26
                                                                       
    Title IV--Confidentiality and Disclosure.........................26
        A. Disclosure Upon Oral Request of Collection Activities 
            With Respect to a Joint Return.......................    26
        B. Taxpayer Representatives Not Subject to Inspection 
            Without Supervisor Approval..........................    26
        C. Restrictions on Disclosure in Judicial or 
            Administrative Tax Proceedings of Return and Return 
            Information of Persons Who Are Not Party to Such 
            Proceedings..........................................    26
        D. Prohibition of Disclosure of Taxpayer Identification 
            Information With Respect to Disclosure of Accepted 
            Offers-in-Compromise.................................    26
        E. Compliance by Contractors With Confidentiality 
            Safeguards...........................................    26
        F. Requests and Consents to Disclosure Must Contain 
            Recipient and Be Dated When Executed.................    27
        G. Notice to Taxpayer Concerning Administrative 
            Determination of Browsing; Annual Report.............    27
        H. Disclosure in Emergency Circumstances.................    27
        I. Disclosure of Taxpayer Identity for Tax Refund 
            Purposes.............................................    27
        J. Disclosure to State Officials Relating to Section 
            501(c)(3) Organizations..............................    27
                                                                       
    Title V--Miscellaneous...........................................28
        A. Clarification of Definition of Church Tax Inquiry.....    28
        B. Extension of Declaratory Judgment Procedures to Non-
            501(c)(3) Tax-exempt Organizations and Failure of IRS 
            To Act on Determinations Treated as Exhaustion of 
            Remedies.............................................    28
        C. Treasury Inspector General for Tax Administration 
            Semi-Annual Report on Employee Misconduct............    28
        D. Annual Report on Awards of Costs and Fees.............    28
        E. Annual Report on Abatement of Penalties...............    28
        F. Better Means of Communicating With Taxpayers..........    28
        G. Information Regarding Statute of Limitations..........    29
        H. Amendment to Treasury Auction Reforms.................    29
        I. Enrolled Agents.......................................    29
        J. Financial Management Service Fees.....................    29
        K. Capital Gain Treatment of Timber......................    29
    Title VI--Low-Income Taxpayer Clinics............................29
    Title VII--Revisions to Section 527 Organization Disclosure 
    Provisions.......................................................29
        B. Background and Need for Legislation...................    30
        C. Legislative History...................................    30
II. Explanation of the Bill..........................................32
                                                                       
    Title I--Reforming Penalty and Interest Provisions...............32
        A. Failure To Pay Estimated Tax (sec. 101 of the bill and 
            new sec. 6641 of the Code)...........................    32
            1. Convert estimated tax penalty into an interest 
                provision for individuals, estates, and trusts...    32
            2. Increase and revise estimated tax threshold.......    32
            3. Apply one interest rate per estimate tax 
                underpayment period for individuals, estates, and 
                trusts...........................................    33
            4. Provide that underpayment balances are cumulative.    34
            5. Require 365-day year for all estimated tax 
                interest calculations for individuals, estates 
                and trusts.......................................    35
        B. Exclusion From Gross Income for Interest on 
            Overpayments of Income Tax by Individuals (sec. 102 
            of the bill and new sec. 139A of the Code)...........    35
        C. Abatement of Interest (sec. 103 of the bill and sec. 
            6404 of the Code)....................................    37
        D. Deposits Made To Suspend the Running of Interest on 
            Potential Underpayments (sec. 104 of the bill and new 
            sec. 6603 of the Code)...............................    39
        E. Expansion of Interest Netting for Individuals (sec. 
            105 of the bill and sec. 6621 of the Code)...........    43
        F. Waiver of Certain Penalties for First-Time 
            Unintentional Minor Errors (sec. 106 of the bill and 
            sec. 6651 of the Code)...............................    44
        G. Frivolous Tax Returns and Submissions (sec. 107 of the 
            bill and sec. 6702 of the Code)......................    45
        H. Clarification of Application of Federal Tax Deposit 
            Penalty (sec. 108 of the bill).......................    45
    Title II--Improving the Fairness of IRS Collection Procedures....46
        A. Authorize IRS To Enter Into Installment Agreements 
            That Provide for Partial Payment (sec. 201 of the 
            bill and sec. 6159 of the Code)......................    46
        B. Extend Time Limit for Contesting IRS Levy (sec. 202 of 
            the bill and sec. 6343 of the Code)..................    47
        C. Restoration of Retirement Savings After Improper Levy 
            (sec. 203 of the bill and sec. 6343 of the Code).....    48
        D. Place Threshold on Tolling of Statute of Limitations 
            During Review by Taxpayer Advocate Service (sec. 204 
            of the bill and sec. 7811 of the Code)...............    49
        E. Study of Liens and Levies (sec. 205 of the bill)......    50
    Title III--Improving the Efficiency of Tax Administration........50
        A. Revisions Relating to Termination of Employment of IRS 
            Employees for Misconduct (sec. 301 of the bill and 
            new sec. 7804A of the Code)..........................    50
        B. Confirmation of Tax Court Authority To Apply Equitable 
            Recoupment (sec. 302 of the bill and sec. 6214 of the 
            Code)................................................    51
        C. Consolidate Review of Collection Due Process Cases in 
            Tax Court (sec. 303 of the bill and sec. 6330 of the 
            Code)................................................    52
        D. Office of Chief Counsel Review of Offers-in-Compromise 
            (sec. 304 of the bill and sec. 7122 of the Code).....    53
        E. Extend the Due Date for Electronically Filed Tax 
            Returns by 15 Days (sec. 305 of the bill and sec. 
            6072 of the Code)....................................    53
    Title IV--Taxpayer Information Confidentiality...................54
        A. Collection Activities With Respect to a Joint Return 
            Disclosable Based on Oral Request (sec. 401 of the 
            bill and sec. 6103(e) of the Code)...................    54
        B. Taxpayer Representatives Not Subject to Examination 
            Without Supervisor Approval (sec. 402 of the bill and 
            sec. 6103(h) of the Code)............................    55
        C. Disclosure in Judicial or Administrative Tax 
            Proceedings of Return and Return Information of 
            Persons Who Are Not Party to Such Proceedings (sec. 
            403 of the bill and sec. 6103(h) of the Code)........    56
        D. Prohibition of Disclosure of Taxpayer Identification 
            Information With Respect to Disclosure of Accepted 
            Offers-in-Compromise (sec. 404 of the bill and sec. 
            6103(k) of the Code).................................    57
        E. Compliance by Contractors With Confidentiality 
            Safeguards (sec. 405 of the bill and sec. 6103(p) of 
            the Code)............................................    58
        F. Higher Standards for Requests for and Consents to 
            Disclosure (sec. 406 of the bill and sec. 6103 of the 
            Code)................................................    60
        G. Notice to Taxpayer Concerning Administrative 
            Determination of Browsing; Annual Report (sec. 407 of 
            the bill and secs. 6103(p) and 7431 of the Code).....    62
        H. Expanded Disclosure in Emergency Circumstances (sec. 
            408 of the bill and sec. 6103(i) of the Code)........    64
        I. Disclosure of Taxpayer Identity for Tax Refund 
            Purposes (sec. 409 of the bill and sec. 6103(m) of 
            the Code)............................................    64
        J. Disclosure to State Officials of Proposed Actions 
            Related to Section 501(c)(3) Organizations (sec. 410 
            of the bill and secs. 6103 and 6104(c) of the Code)..    65
    Title V--Miscellaneous Provisions................................67
        A. Clarification of Definition of Church Tax Inquiry 
            (sec. 501 of the bill and sec. 7611 of the Code).....    67
        B. Extension of Declaratory Judgment Procedures to Non-
            501(c)(3) Tax-Exempt Organizations (sec. 502 of the 
            bill and sec. 7428 of the Code)......................    68
        C. Employee Misconduct Report To Include Summary of 
            Complaints by Category (sec. 503 of the bill and sec. 
            7803 of the Code)....................................    70
        D. Annual Report on Awards of Costs and Fees in 
            Administrative and Court Proceedings (sec. 504 of the 
            bill)................................................    71
        E. Annual Report on Abatement of Penalties (sec. 505 of 
            the bill)............................................    71
        F. Better Means of Communicating With Taxpayers (sec. 506 
            of the bill).........................................    73
        G. Information Regarding Statute of Limitations (sec. 507 
            of the bill).........................................    73
        H. Amendment to Treasury Auction Reforms (sec. 508 of the 
            bill and sec. 202 of the Government Securities Act 
            Amendments of 1993) Present Law......................    74
        I. Enrolled Agents (sec. 509 of the bill and new sec. 
            7527 of the Code)....................................    75
        J. Allow the Financial Management Service To Retain 
            Transaction Fees From Levied Amounts (sec. 510 of the 
            bill)................................................    75
        K. Capital Gains Treatment To Apply to Outright Sales of 
            Timber by Landowner (sec. 511 of the bill and sec. 
            631(b) of the Code)..................................    76
    Title VI--Low-Income Taxpayer Clinics (sec. 601 of the bill and 
    sec. 7526 of the Code)...........................................77
    Title VII--Reporting Requirements of State and Local Political 
    Organizations (secs. 701-703 of the bill and secs. 527, 6012, 6033, 
    and 7207 of the Code)............................................78
III.Votes of the Committee...........................................82

IV. Budget Effects of the Bill.......................................84
        A. Committee Estimate of Budgetary Effects...............    84
        B. Statement Regarding New Budget Authority and Tax 
            Expenditures.........................................    88
        C. Cost Estimate Prepared by the Congressional Budget 
            Office...............................................    88
 V. Other Matters To Be Discussed Under the Rules of the House.......90
        A. Committee Oversight Findings and Recommendations......    90
        B. Statement of General Performance Goals and Objectives.    91
        C. Constitutional Authority Statement....................    91
        D. Information Relating to Unfunded Mandates.............    91
        E. Applicability of House Rule XXI5(b)...................    91
        F. Tax Complexity Analysis...............................    91

  The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE; ETC.

  (a) Short Title.--This Act may be cited as the ``Taxpayer Protection 
and IRS Accountability Act of 2002''.
  (b) Amendment of 1986 Code.--Except as otherwise expressly provided, 
whenever in this Act an amendment or repeal is expressed in terms of an 
amendment to, or repeal of, a section or other provision, the reference 
shall be considered to be made to a section or other provision of the 
Internal Revenue Code of 1986.
  (c) Table of Contents.--

Sec. 1. Short title; etc.

                    TITLE I--PENALTIES AND INTEREST

Sec. 101. Failure to pay estimated tax penalty converted to interest 
charge on accumulated unpaid balance.
Sec. 102. Exclusion from gross income for interest on overpayments of 
income tax by individuals.
Sec. 103. Abatement of interest.
Sec. 104. Deposits made to suspend running of interest on potential 
underpayments.
Sec. 105. Expansion of interest netting for individuals.
Sec. 106. Waiver of certain penalties for first-time unintentional 
minor errors.
Sec. 107. Frivolous tax submissions.
Sec. 108. Clarification of application of tax deposit penalty.

              TITLE II--FAIRNESS OF COLLECTION PROCEDURES

Sec. 201. Partial payment of tax liability in installment agreements.
Sec. 202. Extension of time for return of property.
Sec. 203. Individuals held harmless on wrongful levy, etc. on 
individual retirement plan.
Sec. 204. Seven-day threshold on tolling of statute of limitations 
during tax review.
Sec. 205. Study of liens and levies.

              TITLE III--EFFICIENCY OF TAX ADMINISTRATION

Sec. 301. Revisions relating to termination of employment of Internal 
Revenue Service employees for misconduct.
Sec. 302. Confirmation of authority of Tax Court to apply doctrine of 
equitable recoupment.
Sec. 303. Jurisdiction of Tax Court over collection due process cases.
Sec. 304. Office of Chief Counsel review of offers in compromise.
Sec. 305. 15-day delay in due date for electronically filed individual 
income tax returns.

                TITLE IV--CONFIDENTIALITY AND DISCLOSURE

Sec. 401. Collection activities with respect to joint return 
disclosable to either spouse based on oral request.
Sec. 402. Taxpayer representatives not subject to examination on sole 
basis of representation of taxpayers.
Sec. 403. Disclosure in judicial or administrative tax proceedings of 
return and return information of persons who are not party to such 
proceedings.
Sec. 404. Prohibition of disclosure of taxpayer identification 
information with respect to disclosure of accepted offers-in-
compromise.
Sec. 405. Compliance by contractors with confidentiality safeguards.
Sec. 406. Higher standards for requests for and consents to disclosure.
Sec. 407. Notice to taxpayer concerning administrative determination of 
browsing; annual report.
Sec. 408. Expanded disclosure in emergency circumstances.
Sec. 409. Disclosure of taxpayer identity for tax refund purposes.
Sec. 410. Disclosure to State officials of proposed actions related to 
section 501(c)(3) organizations.

                         TITLE V--MISCELLANEOUS

Sec. 501. Clarification of definition of church tax inquiry.
Sec. 502. Expansion of declaratory judgment remedy to tax-exempt 
organizations.
Sec. 503. Employee misconduct report to include summary of complaints 
by category.
Sec. 504. Annual report on awards of costs and certain fees in 
administrative and court proceedings.
Sec. 505. Annual report on abatement of penalties.
Sec. 506. Better means of communicating with taxpayers.
Sec. 507. Explanation of statute of limitations and consequences of 
failure to file.
Sec. 508. Amendment to Treasury auction reforms.
Sec. 509. Enrolled agents.
Sec. 510. Financial Management Service fees.
Sec. 511. Capital gain treatment under section 631(b) to apply to 
outright sales by land owner.

                 TITLE VI--LOW-INCOME TAXPAYER CLINICS

Sec. 601. Low-income taxpayer clinics.

 TITLE VII--REVISIONS TO SECTION 527 ORGANIZATION DISCLOSURE PROVISIONS

Sec. 701. Modifications of reporting requirements for certain State and 
local political organizations.
Sec. 702. Notification of interaction of reporting requirements.
Sec. 703. Technical corrections to section 527 organization disclosure 
provisions.

                    TITLE I--PENALTIES AND INTEREST

SEC. 101. FAILURE TO PAY ESTIMATED TAX PENALTY CONVERTED TO INTEREST 
                    CHARGE ON ACCUMULATED UNPAID BALANCE.

  (a) Penalty Moved to Interest Chapter of Code.--The Internal Revenue 
Code of 1986 is amended by redesignating section 6654 as section 6641 
and by moving section 6641 (as so redesignated) from part I of 
subchapter A of chapter 68 to the end of subchapter E of chapter 67 (as 
added by subsection (e)(1) of this section).
  (b) Penalty Converted to Interest Charge.--The heading and 
subsections (a) and (b) of section 6641 (as so redesignated) are 
amended to read as follows:

``SEC. 6641. INTEREST ON FAILURE BY INDIVIDUAL TO PAY ESTIMATED INCOME 
                    TAX.

  ``(a) In General.--Interest shall be paid on any underpayment of 
estimated tax by an individual for a taxable year for each day of such 
underpayment. The amount of such interest for any day shall be the 
product of the underpayment rate established under subsection (b)(2) 
multiplied by the amount of the underpayment.
  ``(b) Amount of Underpayment; Interest Rate.--For purposes of 
subsection (a)--
          ``(1) Amount.--The amount of the underpayment on any day 
        shall be the excess of--
                  ``(A) the sum of the required installments for the 
                taxable year the due dates for which are on or before 
                such day, over
                  ``(B) the sum of the amounts (if any) of estimated 
                tax payments made on or before such day on such 
                required installments.
          ``(2) Determination of interest rate.--
                  ``(A) In general.--The underpayment rate with respect 
                to any day in an installment underpayment period shall 
                be the underpayment rate established under section 6621 
                for the first day of the calendar quarter in which such 
                installment underpayment period begins.
                  ``(B) Installment underpayment period.--For purposes 
                of subparagraph (A), the term `installment underpayment 
                period' means the period beginning on the day after the 
                due date for a required installment and ending on the 
                due date for the subsequent required installment (or in 
                the case of the 4th required installment, the 15th day 
                of the 4th month following the close of a taxable 
                year).
                  ``(C) Daily rate.--The rate determined under 
                subparagraph (A) shall be applied on a daily basis and 
                shall be based on the assumption of 365 days in a 
                calendar year.
          ``(3) Termination of estimated tax interest.--No day after 
        the end of the installment underpayment period for the 4th 
        required installment specified in paragraph (2)(B) for a 
        taxable year shall be treated as a day of underpayment with 
        respect to such taxable year.''.
  (c) Increase in Safe Harbor Where Tax is Small.--
          (1) In general.--Clause (i) of section 6641(d)(1)(B) (as so 
        redesignated) is amended to read as follows:
                          ``(i) the lesser of--
                                  ``(I) 90 percent of the tax shown on 
                                the return for the taxable year (or, if 
                                no return is filed, 90 percent of the 
                                tax for such year), or
                                  ``(II) the tax shown on the return 
                                for the taxable year (or, if no return 
                                is filed, the tax for such year) 
                                reduced (but not below zero) by $2,000, 
                                or''.
          (2) Conforming amendment.--Subsection (e) of section 6641 (as 
        so redesignated) is amended by striking paragraph (1) and 
        redesignating paragraphs (2) and (3) as paragraphs (1) and (2), 
        respectively.
  (d) Conforming Amendments.--
          (1) Paragraphs (1) and (2) of subsection (e) (as redesignated 
        by subsection (c)(2)) and subsection (h) of section 6641 (as so 
        designated) are each amended by striking ``addition to tax'' 
        each place it occurs and inserting ``interest''.
          (2) Section 167(g)(5)(D) is amended by striking ``6654'' and 
        inserting ``6641''.
          (3) Section 460(b)(1) is amended by striking ``6654'' and 
        inserting ``6641''.
          (4) Section 3510(b) is amended--
                  (A) by striking ``section 6654'' in paragraph (1) and 
                inserting ``section 6641'';
                  (B) by amending paragraph (2)(B) to read as follows:
                  ``(B) no interest would be required to be paid (but 
                for this section) under 6641 for such taxable year by 
                reason of the $2,000 amount specified in section 
                6641(d)(1)(B)(i)(II).'';
                  (C) by striking ``section 6654(d)(2)'' in paragraph 
                (3) and inserting ``section 6641(d)(2)''; and
                  (D) by striking paragraph (4).
          (5) Section 6201(b)(1) is amended by striking ``6654'' and 
        inserting ``6641''.
          (6) Section 6601(h) is amended by striking ``6654'' and 
        inserting ``6641''.
          (7) Section 6621(b)(2)(B) is amended by striking ``addition 
        to tax under section 6654'' and inserting ``interest required 
        to be paid under section 6641''.
          (8) Section 6622(b) is amended--
                  (A) by striking ``Penalty for'' in the heading; and
                  (B) by striking ``addition to tax under section 6654 
                or 6655'' and inserting ``interest required to be paid 
                under section 6641 or addition to tax under section 
                6655''.
          (9) Section 6658(a) is amended--
                  (A) by striking ``6654, or 6655'' and inserting ``or 
                6655, and no interest shall be required to be paid 
                under section 6641,''; and
                  (B) by inserting ``or paying interest'' after ``the 
                tax'' in paragraph (2)(B)(ii).
          (10) Section 6665(b) is amended--
                  (A) in the matter preceding paragraph (1) by striking 
                ``, 6654,''; and
                  (B) in paragraph (2) by striking ``6654 or''.
          (11) Section 7203 is amended by striking ``section 6654 or 
        6655'' and inserting ``section 6655 or interest required to be 
        paid under section 6641''.
  (e) Clerical Amendments.--
          (1) Chapter 67 is amended by inserting after subchapter D the 
        following:

  ``Subchapter E--Interest on Failure by Individual to Pay Estimated 
                               Income Tax

                              ``Sec. 6641. Interest on failure by 
                                        individual to pay estimated 
                                        income tax.''.

          (2) The table of subchapters for chapter 67 is amended by 
        adding at the end the following new item:

                              ``Subchapter E. Interest on failure by 
                                        individual to pay estimated 
                                        income tax.''.

          (3) The table of sections for part I of subchapter A of 
        chapter 68 is amended by striking the item relating to section 
        6654.
  (f) Effective Date.--The amendments made by this section shall apply 
to installment payments for taxable years beginning after December 31, 
2002.

SEC. 102. EXCLUSION FROM GROSS INCOME FOR INTEREST ON OVERPAYMENTS OF 
                    INCOME TAX BY INDIVIDUALS.

  (a) In General.--Part III of subchapter B of chapter 1 (relating to 
items specifically excluded from gross income) is amended by inserting 
after section 139 the following new section:

``SEC. 139A. EXCLUSION FROM GROSS INCOME FOR INTEREST ON OVERPAYMENTS 
                    OF INCOME TAX BY INDIVIDUALS.

  ``(a) In General.--In the case of an individual, gross income shall 
not include interest paid under section 6611 on any overpayment of tax 
imposed by this subtitle.
  ``(b) Exception.--Subsection (a) shall not apply in the case of a 
failure to claim items resulting in the overpayment on the original 
return if the Secretary determines that the principal purpose of such 
failure is to take advantage of subsection (a).
  ``(c) Special Rule for Determining Modified Adjusted Gross Income.--
For purposes of this title, interest not included in gross income under 
subsection (a) shall not be treated as interest which is exempt from 
tax for purposes of sections 32(i)(2)(B) and 6012(d) or any computation 
in which interest exempt from tax under this title is added to adjusted 
gross income.''.
  (b) Clerical Amendment.--The table of sections for part III of 
subchapter B of chapter 1 is amended by inserting after the item 
relating to section 139 the following new item:

                              ``Sec. 139A. Exclusion from gross income 
                                        for interest on overpayments of 
                                        income tax by individuals.''.

  (c) Effective Date.--The amendments made by this section shall apply 
to interest received in calendar years beginning after the date of the 
enactment of this Act.

SEC. 103. ABATEMENT OF INTEREST.

  (a) Abatement of Interest With Respect to Erroneous Refund Check 
Without Regard to Size of Refund.--Paragraph (2) of section 6404(e) is 
amended by striking ``unless--'' and all that follows and inserting 
``unless the taxpayer (or a related party) has in any way caused such 
erroneous refund.''.
  (b) Abatement of Interest to Extent Interest is Attributable to 
Taxpayer Reliance on Written Statements of the IRS.--Subsection (f) of 
section 6404 is amended--
          (1) in the subsection heading, by striking ``Penalty or 
        Addition'' and inserting ``Interest, Penalty, or Addition''; 
        and
          (2) in paragraph (1) and in subparagraph (B) of paragraph 
        (2), by striking ``penalty or addition'' and inserting 
        ``interest, penalty, or addition''.
  (c) Effective Date.--The amendments made by this section shall apply 
with respect to interest accruing on or after the date of the enactment 
of this Act.

SEC. 104. DEPOSITS MADE TO SUSPEND RUNNING OF INTEREST ON POTENTIAL 
                    UNDERPAYMENTS.

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

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

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

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

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

SEC. 105. EXPANSION OF INTEREST NETTING FOR INDIVIDUALS.

  (a) In General.--Subsection (d) of section 6621 (relating to 
elimination of interest on overlapping periods of tax overpayments and 
underpayments) is amended by adding at the end the following: ``Solely 
for purposes of the preceding sentence, section 6611(e) shall not apply 
in the case of an individual.''.
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
to interest accrued after December 31, 2002.

SEC. 106. WAIVER OF CERTAIN PENALTIES FOR FIRST-TIME UNINTENTIONAL 
                    MINOR ERRORS.

  (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:
  ``(i) Treatment of First-Time Unintentional Minor Errors.--In the 
case of a return of tax imposed by subtitle A filed by an individual, 
the Secretary may waive an addition to tax under subsection (a) if--
          ``(1) the individual has a history of compliance with the 
        requirements of this title,
          ``(2) it is shown that the failure is due to an unintentional 
        minor error,
          ``(3) the penalty would be grossly disproportionate to the 
        action or expense that would have been needed to avoid the 
        error, and
          ``(4) waiving the penalty would promote compliance with the 
        requirements of this title and effective tax administration.
The preceding sentence shall not apply if the Secretary has waived any 
addition to tax under this subsection with respect to any prior failure 
by such individual.''.
  (b) Effective Date.--The amendment made by this section shall take 
effect on January 1, 2003.

SEC. 107. FRIVOLOUS TAX SUBMISSIONS.

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

``SEC. 6702. FRIVOLOUS TAX SUBMISSIONS.

  ``(a) Civil Penalty for Frivolous Tax Returns.--A person shall pay a 
penalty of $5,000 if--
          ``(1) such person files what purports to be a return of a tax 
        imposed by this title but which--
                  ``(A) does not contain information on which the 
                substantial correctness of the self-assessment may be 
                judged, or
                  ``(B) contains information that on its face indicates 
                that the self-assessment is substantially incorrect; 
                and
          ``(2) the conduct referred to in paragraph (1)--
                  ``(A) is based on a position which the Secretary has 
                identified as frivolous under subsection (c), or
                  ``(B) reflects a desire to delay or impede the 
                administration of Federal tax laws.
  ``(b) Civil Penalty for Specified Frivolous Submissions.--
          ``(1) Imposition of Penalty.--Except as provided in paragraph 
        (3), any person who submits a specified frivolous submission 
        shall pay a penalty of $5,000.
          ``(2) Specified frivolous submission.--For purposes of this 
        section--
                  ``(A) Specified frivolous submission.--The term 
                `specified frivolous submission' means a specified 
                submission if any portion of such submission--
                          ``(i) is based on a position which the 
                        Secretary has identified as frivolous under 
                        subsection (c), or
                          ``(ii) reflects a desire to delay or impede 
                        the administration of Federal tax laws.
                  ``(B) Specified submission.--The term `specified 
                submission' means--
                          ``(i) a request for a hearing under--
                                  ``(I) section 6320 (relating to 
                                notice and opportunity for hearing upon 
                                filing of notice of lien), or
                                  ``(II) section 6330 (relating to 
                                notice and opportunity for hearing 
                                before levy), and
                          ``(ii) an application under--
                                  ``(I) section 7811 (relating to 
                                taxpayer assistance orders),
                                  ``(II) section 6159 (relating to 
                                agreements for payment of tax liability 
                                in installments), or
                                  ``(III) section 7122 (relating to 
                                compromises).
          ``(3) Opportunity to withdraw submission.--If the Secretary 
        provides a person with notice that a submission is a specified 
        frivolous submission and such person withdraws such submission 
        promptly after such notice, the penalty imposed under paragraph 
        (1) shall not apply with respect to such submission.
  ``(c) Listing of Frivolous Positions.--The Secretary shall prescribe 
(and periodically revise) a list of positions which the Secretary has 
identified as being frivolous for purposes of this subsection. The 
Secretary shall not include in such list any position that the 
Secretary determines meets the requirement of section 
6662(d)(2)(B)(ii)(II).
  ``(d) Reduction of Penalty.--The Secretary may reduce the amount of 
any penalty imposed under this section if the Secretary determines that 
such reduction would promote compliance with and administration of the 
Federal tax laws.
  ``(e) Penalties in Addition to Other Penalties.--The penalties 
imposed by this section shall be in addition to any other penalty 
provided by law.''.
  (b) Treatment of Frivolous Requests for Hearings Before Levy.--
          (1) Frivolous requests disregarded.--Section 6330 (relating 
        to notice and opportunity for hearing before levy) is amended 
        by adding at the end the following new subsection:
  ``(g) Frivolous Requests for Hearing, Etc.--Notwithstanding any other 
provision of this section, if the Secretary determines that any portion 
of a request for a hearing under this section or section 6320 meets the 
requirement of clause (i) or (ii) of section 6702(b)(2)(A), then the 
Secretary may treat such portion as if it were never submitted and such 
portion shall not be subject to any further administrative or judicial 
review.''.
          (2) Preclusion from raising frivolous issues at hearing.--
        Section 6330(c)(4) is amended--
                  (A) by striking ``(A)'' and inserting ``(A)(i)'';
                  (B) by striking ``(B)'' and inserting ``(ii)'';
                  (C) by striking the period at the end of the first 
                sentence and inserting ``; or''; and
                  (D) by inserting after subparagraph (A)(ii) (as so 
                redesignated) the following:
                  ``(B) the issue meets the requirement of clause (i) 
                or (ii) of section 6702(b)(2)(A).''.
          (3) Statement of grounds.--Section 6330(b)(1) is amended by 
        striking ``under subsection (a)(3)(B)'' and inserting ``in 
        writing under subsection (a)(3)(B) and states the grounds for 
        the requested hearing''.
  (c) Treatment of Frivolous Requests for Hearings Upon Filing of 
Notice of Lien.--Section 6320 is amended--
          (1) in subsection (b)(1), by striking ``under subsection 
        (a)(3)(B)'' and inserting ``in writing under subsection 
        (a)(3)(B) and states the grounds for the requested hearing'', 
        and
          (2) in subsection (c), by striking ``and (e)'' and inserting 
        ``(e), and (g)''.
  (d) Treatment of Frivolous Applications for Offers-in-Compromise and 
Installment Agreements.--Section 7122 is amended by adding at the end 
the following new subsection:
  ``(e) Frivolous Submissions, Etc.--Notwithstanding any other 
provision of this section, if the Secretary determines that any portion 
of an application for an offer-in-compromise or installment agreement 
submitted under this section or section 6159 meets the requirement of 
clause (i) or (ii) of section 6702(b)(2)(A), then the Secretary may 
treat such portion as if it were never submitted and such portion shall 
not be subject to any further administrative or judicial review.''.
  (e) Clerical Amendment.--The table of sections for part I of 
subchapter B of chapter 68 is amended by striking the item relating to 
section 6702 and inserting the following new item:

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

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

SEC. 108. CLARIFICATION OF APPLICATION OF FEDERAL TAX DEPOSIT PENALTY.

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

              TITLE II--FAIRNESS OF COLLECTION PROCEDURES

SEC. 201. PARTIAL PAYMENT OF TAX LIABILITY IN INSTALLMENT AGREEMENTS.

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

SEC. 202. EXTENSION OF TIME FOR RETURN OF PROPERTY.

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

SEC. 203. INDIVIDUALS HELD HARMLESS ON WRONGFUL LEVY, ETC. ON 
                    INDIVIDUAL RETIREMENT PLAN.

  (a) In General.--Section 6343 (relating to authority to release levy 
and return property) is amended by adding at the end the following new 
subsection:
  ``(f) Individuals Held Harmless on Wrongful Levy, Etc. on Individual 
Retirement Plan.--
          ``(1) In general.--If the Secretary determines that an 
        individual retirement plan has been levied upon in a case to 
        which subsection (b) or (d)(2)(A) applies, an amount equal to 
        the sum of--
                  ``(A) the amount of money returned by the Secretary 
                on account of such levy, and
                  ``(B) interest paid under subsection (c) on such 
                amount of money,
        may be deposited into an individual retirement plan (other than 
        an endowment contract) to which a rollover from the plan levied 
        upon is permitted.
          ``(2) Treatment as rollover.--The distribution on account of 
        the levy and any deposit under paragraph (1) with respect to 
        such distribution shall be treated for purposes of this title 
        as if such distribution and deposit were part of a rollover 
        described in section 408(d)(3)(A)(i); except that--
                  ``(A) interest paid under subsection (c) shall be 
                treated as part of such distribution and as not 
                includible in gross income,
                  ``(B) the 60-day requirement in such section shall be 
                treated as met if the deposit is made not later than 
                the 60th day after the day on which the individual 
                receives an amount under paragraph (1) from the 
                Secretary, and
                  ``(C) such deposit shall not be taken into account 
                under section 408(d)(3)(B).
          ``(3) Refund, etc., of income tax on levy.--If any amount is 
        includible in gross income for a taxable year by reason of a 
        levy referred to in paragraph (1) and any portion of such 
        amount is treated as a rollover under paragraph (2), any tax 
        imposed by chapter 1 on such portion shall not be assessed, and 
        if assessed shall be abated, and if collected shall be credited 
        or refunded as an overpayment made on the due date for filing 
        the return of tax for such taxable year.
          ``(4) Interest.--Notwithstanding subsection (d), interest 
        shall be allowed under subsection (c) in a case in which the 
        Secretary makes a determination described in subsection 
        (d)(2)(A) with respect to a levy upon an individual retirement 
        plan.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to amounts paid under subsections (b), (c), and (d)(2)(A) of section 
6343 of the Internal Revenue Code of 1986 after December 31, 2002.

SEC. 204. SEVEN-DAY THRESHOLD ON TOLLING OF STATUTE OF LIMITATIONS 
                    DURING TAX REVIEW.

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

SEC. 205. STUDY OF LIENS AND LEVIES.

  The Secretary of the Treasury, or the Secretary's delegate, shall 
conduct a study of the practices of the Internal Revenue Service 
concerning liens and levies. The study shall examine--
          (1) the declining use of liens and levies by the Internal 
        Revenue Service, and
          (2) the practicality of recording liens and levying against 
        property in cases in which the cost of such actions exceeds the 
        amount to be realized from such property.
Not later than 1 year after the date of the enactment of this Act, the 
Secretary shall submit such study to the Committee on Ways and Means of 
the House of Representatives and the Committee on Finance of the 
Senate.

              TITLE III--EFFICIENCY OF TAX ADMINISTRATION

SEC. 301. REVISIONS RELATING TO TERMINATION OF EMPLOYMENT OF INTERNAL 
                    REVENUE SERVICE EMPLOYEES FOR MISCONDUCT.

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

``SEC. 7804A. DISCIPLINARY ACTIONS FOR MISCONDUCT.

  ``(a) Disciplinary Actions.--
          ``(1) In general.--Subject to subsection (c), the 
        Commissioner shall take an action in accordance with the 
        guidelines established under paragraph (2) against 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 or where a 
        nexus to the employee's position exists.
          ``(2) Guidelines.--The Commissioner shall issue guidelines 
        for determining the appropriate level of discipline, up to and 
        including termination of employment, for committing any act or 
        omission described under subsection (b).
  ``(b) Acts or Omissions.--The acts or omissions described under this 
subsection are--
          ``(1) willful failure to obtain the required approval 
        signatures on documents authorizing the seizure of a taxpayer's 
        home, personal belongings, or business assets;
          ``(2) willfully providing a false statement under oath with 
        respect to a material matter involving a taxpayer or taxpayer 
        representative;
          ``(3) with respect to a taxpayer or taxpayer representative, 
        the willful violation of--
                  ``(A) any right under the Constitution of the United 
                States;
                  ``(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; or
                  ``(C) the Internal Revenue Service policy on 
                unauthorized inspection of returns or return 
                information;
          ``(4) willfully falsifying or destroying documents to conceal 
        mistakes made by any employee with respect to a matter 
        involving a taxpayer or taxpayer representative;
          ``(5) assault or battery on a taxpayer or taxpayer 
        representative, but only if there is a criminal conviction, or 
        a final adverse judgment by a court in a civil case, with 
        respect to the assault or battery;
          ``(6) willful violations of this title, Department of the 
        Treasury regulations, or policies of the Internal Revenue 
        Service (including the Internal Revenue Manual) for the purpose 
        of retaliating against, or harassing, a taxpayer or taxpayer 
        representative;
          ``(7) willful misuse of the provisions of section 6103 for 
        the purpose of concealing information from a congressional 
        inquiry;
          ``(8) willful failure to file any return of tax required 
        under this title on or before the date prescribed therefor 
        (including any extensions) when a tax is due and owing, unless 
        such failure is due to reasonable cause and not due to willful 
        neglect;
          ``(9) willful understatement of Federal tax liability, unless 
        such understatement is due to reasonable cause and not due to 
        willful neglect; and
          ``(10) threatening to audit a taxpayer, or to take other 
        action under this title, for the purpose of extracting personal 
        gain or benefit.
  ``(c) Determinations of Commissioner.--
          ``(1) In general.--The Commissioner may take a personnel 
        action other than a disciplinary action provided for in the 
        guidelines under subsection (a)(2) for an act or omission 
        described under subsection (b).
          ``(2) Discretion.--The exercise of authority under paragraph 
        (1) shall be at the sole discretion of the Commissioner and may 
        not be delegated to any other officer. The Commissioner, in his 
        sole discretion, may establish a procedure to determine if an 
        individual should be referred to the Commissioner for a 
        determination by the Commissioner under paragraph (1).
          ``(3) No appeal.--Notwithstanding any other provision of law, 
        any determination of the Commissioner under this subsection may 
        not be reviewed in any administrative or judicial proceeding. A 
        finding that an act or omission described under subsection (b) 
        occurred may be reviewed.
  ``(d) Definition.--For the purposes of the provisions described in 
clauses (i), (ii), and (iv) of subsection (b)(3)(B), references to a 
program or activity regarding Federal financial assistance or an 
education program or activity receiving Federal financial assistance 
shall include any program or activity conducted by the Internal Revenue 
Service for a taxpayer.
  ``(e) Annual Report.--The Commissioner shall submit to Congress 
annually a report on disciplinary actions under this section.''.
  (b) Clerical Amendment.--The table of sections for chapter 80 is 
amended by inserting after the item relating to section 7804 the 
following new item:

                              ``Sec. 7804A. Disciplinary actions for 
                                        misconduct.''.

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

SEC. 302. CONFIRMATION OF AUTHORITY OF TAX COURT TO APPLY DOCTRINE OF 
                    EQUITABLE RECOUPMENT.

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

SEC. 303. JURISDICTION OF TAX COURT OVER COLLECTION DUE PROCESS CASES.

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

SEC. 304. OFFICE OF CHIEF COUNSEL REVIEW OF OFFERS IN COMPROMISE.

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

SEC. 305. 15-DAY DELAY IN DUE DATE FOR ELECTRONICALLY FILED INDIVIDUAL 
                    INCOME TAX RETURNS.

  (a) In General.--Section 6072 (relating to time for filing income tax 
returns) is amended by adding at the end the following new subsection:
  ``(f) Electronically Filed Returns of Individuals.--
          ``(1) In general.--Returns of an individual under section 
        6012 or 6013 (other than an individual to whom subsection (c) 
        applies) which are filed electronically--
                  ``(A) in the case of returns filed on the basis of a 
                calendar year, shall be filed on or before the 30th day 
                of April following the close of the calendar year, and
                  ``(B) in the case of returns filed on the basis of a 
                fiscal year, shall be filed on or before the last day 
                of the 4th month following the close of the fiscal 
                year.
          ``(2) Electronic filing.--Paragraph (1) shall not apply to 
        any return unless--
                  ``(A) such return is accepted by the Secretary, and
                  ``(B) the balance due (if any) shown on such return 
                is paid electronically in a manner prescribed by the 
                Secretary.
          ``(3) Special rules.--
                  ``(A) Estimated tax.--If--
                          ``(i) paragraph (1) applies to an individual 
                        for any taxable year, and
                          ``(ii) there is an overpayment of tax shown 
                        on the return for such year which the 
                        individual allows against the individual's 
                        obligation under section 6641,
                then, with respect to the amount so allowed, any 
                reference in section 6641 to the April 15 following 
                such taxable year shall be treated as a reference to 
                April 30.
                  ``(B) References to due date.--Paragraph (1) shall 
                apply solely for purposes of determining the due date 
                for the individual's obligation to file and pay tax 
                and, except as otherwise provided by the Secretary, 
                shall be treated as an extension of the due date for 
                any other purpose under this title.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2001.

                TITLE IV--CONFIDENTIALITY AND DISCLOSURE

SEC. 401. COLLECTION ACTIVITIES WITH RESPECT TO JOINT RETURN 
                    DISCLOSABLE TO EITHER SPOUSE BASED ON ORAL REQUEST.

  (a) In General.--Paragraph (8) of section 6103(e) (relating to 
disclosure of collection activities with respect to joint return) is 
amended by striking ``in writing'' the first place it appears.
  (b) Effective Date.--The amendment made by this section shall apply 
to requests made after the date of the enactment of this Act.

SEC. 402. TAXPAYER REPRESENTATIVES NOT SUBJECT TO EXAMINATION ON SOLE 
                    BASIS OF REPRESENTATION OF TAXPAYERS.

  (a) In General.--Subsection (h) of section 6103 (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:
          ``(7) Taxpayer representatives.--Notwithstanding paragraph 
        (1), the return of the representative of a taxpayer whose 
        return is being examined by an officer or employee of the 
        Department of the Treasury shall not be open to inspection by 
        such officer or employee on the sole basis of the 
        representative's relationship to the taxpayer unless a 
        supervisor of such officer or employee has approved the 
        inspection of the return of such representative on a basis 
        other than by reason of such relationship.''.
  (b) Effective Date.--The amendment made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 403. DISCLOSURE IN JUDICIAL OR ADMINISTRATIVE TAX PROCEEDINGS OF 
                    RETURN AND RETURN INFORMATION OF PERSONS WHO ARE 
                    NOT PARTY TO SUCH PROCEEDINGS.

  (a) In General.--Paragraph (4) of 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 subparagraph:
                  ``(B) Disclosure in judicial or administrative tax 
                proceedings of return and return information of persons 
                not party to such proceedings.--
                          ``(i) Notice.--Return or return information 
                        of any person who is not a party to a judicial 
                        or administrative proceeding described in this 
                        paragraph shall not be disclosed under clause 
                        (ii) or (iii) of subparagraph (A) until after 
                        the Secretary makes a reasonable effort to give 
                        notice to such person and an opportunity for 
                        such person to request the deletion of matter 
                        from such return or return information, 
                        including any of the items referred to in 
                        paragraphs (1) through (7) of section 6110(c). 
                        Such notice shall include a statement of the 
                        issue or issues the resolution of which is the 
                        reason such return or return information is 
                        sought. In the case of S corporations, 
                        partnerships, estates, and trusts, such notice 
                        shall be made at the entity level.
                          ``(ii) Disclosure limited to pertinent 
                        portion.--The only portion of a return or 
                        return information described in clause (i) 
                        which may be disclosed under subparagraph (A) 
                        is that portion of such return or return 
                        information that directly relates to the 
                        resolution of an issue in such proceeding.
                          ``(iii) Exceptions.--Clause (i) shall not 
                        apply--
                                  ``(I) to any civil action under 
                                section 7407, 7408, or 7409,
                                  ``(II) to any ex parte proceeding for 
                                obtaining a search warrant, order for 
                                entry on premises or safe deposit 
                                boxes, or similar ex parte proceeding,
                                  ``(III) to disclosure of third party 
                                return information by indictment or 
                                criminal information, or
                                  ``(IV) if the Attorney General or the 
                                Attorney General's delegate determines 
                                that the application of such clause 
                                would seriously impair a criminal tax 
                                investigation or proceeding.''.
  (b) Conforming Amendments.--Paragraph (4) of section 6103(h) is 
amended by--
          (1) by striking ``proceedings.--A return'' and inserting 
        ``proceedings.--
                  ``(A) In general.--Except as provided in subparagraph 
                (B), a return'';
          (2) by redesignating subparagraphs (A), (B), (C), and (D) as 
        clauses (i), (ii), (iii), and (iv), respectively; and
          (3) in the matter following clause (iv) (as so redesignated), 
        by striking ``subparagraph (A), (B), or (C)'' and inserting 
        ``clause (i), (ii), or (iii)'' and by moving such matter 2 ems 
        to the right.
  (c) Effective Date.--The amendments made by this section shall apply 
to proceedings commenced after the date of the enactment of this Act.

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

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

SEC. 405. COMPLIANCE BY CONTRACTORS WITH CONFIDENTIALITY SAFEGUARDS.

  (a) In General.--Section 6103(p) (relating to State law requirements) 
is amended by adding at the end the following new paragraph:
          ``(9) Disclosure to contractors.--Notwithstanding any other 
        provision of this section, no return or return information 
        shall be disclosed by any officer or employee of any Federal 
        agency or State to any contractor of such agency or State 
        unless such agency or State--
                  ``(A) has requirements in effect which require each 
                contractor of such agency or State which would have 
                access to returns or return information to provide 
                safeguards (within the meaning of paragraph (4)) to 
                protect the confidentiality of such returns or return 
                information,
                  ``(B) agrees to conduct an annual, on-site review 
                (mid-point review in the case of contracts of less than 
                1 year in duration) of each contractor to determine 
                compliance with such requirements,
                  ``(C) submits the findings of the most recent review 
                conducted under subparagraph (B) to the Secretary as 
                part of the report required by paragraph (4)(E), and
                  ``(D) certifies to the Secretary for the most recent 
                annual period that all contractors are in compliance 
                with all such requirements.
        The certification required by subparagraph (D) shall include 
        the name and address of each contractor, a description of the 
        contract of the contractor with the Federal agency or State, 
        and the duration of such contract.''.
  (b) Conforming Amendment.--Subparagraph (B) of section 6103(p)(8) is 
amended by inserting ``or paragraph (9)'' after ``subparagraph (A)''.
  (c) Effective Date.--
          (1) In general.--The amendments made by this section shall 
        apply to disclosures made after December 31, 2002.
          (2) Certifications.--The first certification under section 
        6103(p)(9)(D) of the Internal Revenue Code of 1986, as added by 
        subsection (a), shall be made with respect to calendar year 
        2003.

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

  (a) In General.--Subsection (c) of section 6103 (relating to 
disclosure of returns and return information to designee of taxpayer) 
is amended by adding at the end the following new paragraphs:
          ``(2) Requirements for valid requests and consents.--A 
        request for or consent to disclosure under paragraph (1) shall 
        only be valid for purposes of this section or sections 7213, 
        7213A, or 7431 if--
                  ``(A) at the time of execution, such request or 
                consent designates a recipient of such disclosure and 
                is dated, and
                  ``(B) at the time such request or consent is 
                submitted to the Secretary, the submitter of such 
                request or consent certifies, under penalty of perjury, 
                that such request or consent complied with subparagraph 
                (A).
          ``(3) Restrictions on persons obtaining information.--Any 
        person shall, as a condition for receiving return or return 
        information under paragraph (1)--
                  ``(A) ensure that such return and return information 
                is kept confidential,
                  ``(B) use such return and return information only for 
                the purpose for which it was requested, and
                  ``(C) not disclose such return and return information 
                except to accomplish the purpose for which it was 
                requested, unless a separate consent from the taxpayer 
                is obtained.
          ``(4) Requirements for form prescribed by secretary.--For 
        purposes of this subsection, the Secretary shall prescribe a 
        form for requests and consents which shall--
                  ``(A) contain a warning, prominently displayed, 
                informing the taxpayer that the form should not be 
                signed unless it is completed,
                  ``(B) state that if the taxpayer believes there is an 
                attempt to coerce him to sign an incomplete or blank 
                form, the taxpayer should report the matter to the 
                Treasury Inspector General for Tax Administration, and
                  ``(C) contain the address and telephone number of the 
                Treasury Inspector General for Tax Administration.''.
  (b) Report.--Not later than 18 months after the date of the enactment 
of this Act, the Treasury Inspector General for Tax Administration 
shall submit a report to the Congress on compliance with the 
designation and certification requirements applicable to requests for 
or consent to disclosure of returns and return information under 
section 6103(c) of the Internal Revenue Code of 1986, as amended by 
subsection (a). Such report shall--
          (1) evaluate (on the basis of random sampling) whether--
                  (A) the amendment made by subsection (a) is achieving 
                the purposes of this section;
                  (B) requesters and submitters for such disclosure are 
                continuing to evade the purposes of this section and, 
                if so, how; and
                  (C) the sanctions for violations of such requirements 
                are adequate; and
          (2) include such recommendations that the Treasury Inspector 
        General for Tax Administration considers necessary or 
        appropriate to better achieve the purposes of this section.
  (c) Conforming Amendment.--Section 6103(c) is amended by striking 
``Taxpayer.--The Secretary'' and inserting ``Taxpayer.--
          ``(1) In General.--The Secretary''.
  (d) Effective Date.--The amendments made by this section shall apply 
to requests and consents made after 3 months after the date of the 
enactment of this Act.

SEC. 407. NOTICE TO TAXPAYER CONCERNING ADMINISTRATIVE DETERMINATION OF 
                    BROWSING; ANNUAL REPORT.

  (a) Notice to Taxpayer.--Subsection (e) of section 7431 (relating to 
notification of unlawful inspection and disclosure) is amended by 
adding at the end the following: ``The Secretary shall also notify such 
taxpayer if the Treasury Inspector General for Tax Administration 
determines that such taxpayer's return or return information was 
inspected or disclosed in violation of any of the provisions specified 
in paragraph (1), (2), or (3).''.
  (b) Reports.--Subsection (p) of section 6103 (relating to procedure 
and recordkeeping), as amended by section 405, is further amended by 
adding at the end the following new paragraph:
          ``(10) Report on unauthorized disclosure and inspection.--As 
        part of the report required by paragraph (3)(C) for each 
        calendar year, the Secretary shall furnish information 
        regarding the unauthorized disclosure and inspection of returns 
        and return information, including the number, status, and 
        results of--
                  ``(A) administrative investigations,
                  ``(B) civil lawsuits brought under section 7431 
                (including the amounts for which such lawsuits were 
                settled and the amounts of damages awarded), and
                  ``(C) criminal prosecutions.''.
  (c) Effective Date.--
          (1) Notice.--The amendment made by subsection (a) shall apply 
        to determinations made after the date of the enactment of this 
        Act.
          (2) Reports.--The amendment made by subsection (b) shall 
        apply to calendar years ending after the date of the enactment 
        of this Act.

SEC. 408. EXPANDED DISCLOSURE IN EMERGENCY CIRCUMSTANCES.

  (a) In General.--Section 6103(i)(3)(B) (relating to danger of death 
or physical injury) is amended by striking ``or State'' and inserting 
``, State, or local''.
  (b) Effective Date.--The amendment made by this section shall take 
effect on the date of the enactment of this Act.

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

  (a) In General.--Paragraph (1) of section 6103(m) (relating to 
disclosure of taxpayer identity information) is amended by striking 
``and other media'' and by inserting ``, other media, and through any 
other means of mass communication,''.
  (b) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 410. DISCLOSURE TO STATE OFFICIALS OF PROPOSED ACTIONS RELATED TO 
                    SECTION 501(C)(3) ORGANIZATIONS.

  (a) In General.--Subsection (c) of section 6104 is amended by 
striking paragraph (2) and inserting the following new paragraphs:
          ``(2) Disclosure of proposed actions.--
                  ``(A) Specific notifications.--In the case of an 
                organization to which paragraph (1) applies, the 
                Secretary may disclose to the appropriate State 
                officer--
                          ``(i) a notice of proposed refusal to 
                        recognize such organization as an organization 
                        described in section 501(c)(3) or a notice of 
                        proposed revocation of such organization's 
                        recognition as an organization exempt from 
                        taxation,
                          ``(ii) the issuance of a letter of proposed 
                        deficiency of tax imposed under section 507 or 
                        chapter 41 or 42, and
                          ``(iii) the names and taxpayer identification 
                        numbers of organizations that have applied for 
                        recognition as organizations described in 
                        section 501(c)(3).
                  ``(B) Additional disclosures.--Returns and return 
                information of organizations with respect to which 
                information is disclosed under subparagraph (A) may be 
                made available for inspection by or disclosed to an 
                appropriate State officer.
                  ``(C) Procedures for disclosure.--Information may be 
                inspected or disclosed under subparagraph (A) or (B) 
                only--
                          ``(i) upon written request by an appropriate 
                        State officer, and
                          ``(ii) for the purpose of, and only to the 
                        extent necessary in, the administration of 
                        State laws regulating such organizations.
                Such information may only be inspected by or disclosed 
                to representatives of the appropriate State officer 
                designated as the individuals who are to inspect or to 
                receive the returns or return information under this 
                paragraph on behalf of such officer.
                  ``(D) Disclosures other than by request.--The 
                Secretary may make available for inspection or disclose 
                returns and return information of an organization to 
                which paragraph (1) applies to an appropriate State 
                officer of any State if the Secretary determines that 
                such inspection or disclosure may facilitate the 
                resolution of State and Federal issues relating to such 
                organization.
          ``(3) Use in judicial and administrative proceedings.--
        Returns and return information disclosed pursuant to this 
        subsection may be disclosed in civil administrative and 
        judicial proceedings pertaining to the enforcement of State 
        laws regulating such organizations in a manner prescribed by 
        the Secretary similar to that for tax administration 
        proceedings under section 6103(h)(4).
                  ``(4) No disclosure if impairment.--Returns and 
                return information shall not be disclosed under this 
                subsection, or in any proceeding described in paragraph 
                (3), to the extent that the Secretary determines that 
                such disclosure would seriously impair Federal tax 
                administration.
          ``(5) Definitions.--For purposes of this subsection--
                  ``(A) Return and return information.--The terms 
                `return' and `return information' have the respective 
                meanings given to such terms by section 6103(b).
          ``(B) Appropriate state officer.--The term `appropriate State 
        officer' means--
                          ``(i) the State attorney general, or
                          ``(ii) the head of any State agency, body, or 
                        commission which is charged under the laws of 
                        such State with responsibility for overseeing 
                        organizations of the type described in section 
                        501(c)(3).''.
  (b) Conforming Amendments.--
          (1) Subsection (a) of section 6103 is amended--
                  (A) by inserting ``or section 6104(c)'' after ``this 
                section'' in paragraph (2), and
                  (B) by striking ``or subsection (n)'' in paragraph 
                (3) and inserting ``subsection (n), or section 
                6104(c)''.
          (2) Subparagraph (A) of section 6103(p)(3) is amended by 
        inserting ``and section 6104(c)'' after ``section'' in the 
        first sentence.
          (3) Paragraph (4) of section 6103(p) is amended--
                  (A) in the matter preceding subparagraph (A), by 
                striking ``(16) or any other person described in 
                subsection (l)(16)'' and inserting ``(16), any other 
                person described in subsection (l)(16), or any 
                appropriate State officer (as defined in section 
                6104(c))'', and
                  (B) in subparagraph (F), by striking ``or any other 
                person described in subsection (l)(16)'' and inserting 
                ``any other person described in subsection (l)(16), or 
                any appropriate State officer (as defined in section 
                6104(c))''.
          (4) Paragraph (2) of section 7213(a) is amended by inserting 
        ``or under section 6104(c)'' after ``6103''.
          (5) Paragraph (2) of section 7213A(a) is amended by inserting 
        ``or 6104(c)'' after ``6103''.
          (6) Paragraph (2) of section 7431(a) is amended by inserting 
        ``(including any disclosure in violation of section 6104(c))'' 
        after ``6103''.
  (b) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act but shall not apply to 
requests made before such date.

                         TITLE V--MISCELLANEOUS

SEC. 501. CLARIFICATION OF DEFINITION OF CHURCH TAX INQUIRY.

  Subsection (i) of section 7611 (relating to section not to apply to 
criminal investigations, etc.) is amended by striking ``or'' at the end 
of paragraph (4), by striking the period at the end of paragraph (5) 
and inserting ``, or'', and by inserting after paragraph (5) the 
following:
          ``(6) information provided by the Secretary related to the 
        standards for exemption from tax under this title and the 
        requirements under this title relating to unrelated business 
        taxable income.''.

SEC. 502. EXPANSION OF DECLARATORY JUDGMENT REMEDY TO TAX-EXEMPT 
                    ORGANIZATIONS.

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

SEC. 503. EMPLOYEE MISCONDUCT REPORT TO INCLUDE SUMMARY OF COMPLAINTS 
                    BY CATEGORY.

  (a) In General.--Clause (ii) of section 7803(d)(2)(A) is amended by 
inserting before the semicolon at the end the following: ``, including 
a summary (by category) of the 10 most common complaints made and the 
number of such common complaints''.
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
with respect to reporting periods ending after the date of the 
enactment of this Act.

SEC. 504. ANNUAL REPORT ON AWARDS OF COSTS AND CERTAIN FEES IN 
                    ADMINISTRATIVE AND COURT PROCEEDINGS.

  Not later than 3 months after the close of each Federal fiscal year 
after fiscal year 2001, the Treasury Inspector General for Tax 
Administration shall submit a report to Congress which specifies for 
such year--
          (1) the number of payments made by the United States pursuant 
        to section 7430 of the Internal Revenue Code of 1986 (relating 
        to awarding of costs and certain fees);
          (2) the amount of each such payment;
          (3) an analysis of any administrative issue giving rise to 
        such payments; and
          (4) changes (if any) which will be implemented as a result of 
        such analysis and other changes (if any) recommended by the 
        Treasury Inspector General for Tax Administration as a result 
        of such analysis.

SEC. 505. ANNUAL REPORT ON ABATEMENT OF PENALTIES.

  Not later than 6 months after the close of each Federal fiscal year 
after fiscal year 2001, the Treasury Inspector General for Tax 
Administration shall submit a report to Congress on abatements of 
penalties under the Internal Revenue Code of 1986 during such year, 
including information on the reasons and criteria for such abatements.

SEC. 506. BETTER MEANS OF COMMUNICATING WITH TAXPAYERS.

  Not later than 18 months after the date of the enactment of this Act, 
the Treasury Inspector General for Tax Administration shall submit a 
report to Congress evaluating whether technological advances, such as 
e-mail and facsimile transmission, permit the use of alternative means 
for the Internal Revenue Service to communicate with taxpayers.

SEC. 507. EXPLANATION OF STATUTE OF LIMITATIONS AND CONSEQUENCES OF 
                    FAILURE TO FILE.

  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), and any instructions booklet accompanying a general 
income tax return form for taxable years beginning after 2001 
(including forms 1040, 1040A, 1040EZ, and any similar or successor 
forms relating thereto), to provide for an explanation of--
          (1) the limitations imposed by section 6511 of the Internal 
        Revenue Code of 1986 on credits and refunds; and
          (2) the consequences under such section 6511 of the failure 
        to file a return of tax.

SEC. 508. AMENDMENT TO TREASURY AUCTION REFORMS.

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

SEC. 509. ENROLLED AGENTS.

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

``SEC. 7527. ENROLLED AGENTS.

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

                              ``Sec. 7527. Enrolled agents.''.

  (c) Prior Regulations.--Nothing in the amendments made by this 
section shall be construed to have any effect on part 10 of title 31, 
Code of Federal Regulations, or any other Federal rule or regulation 
issued before the date of the enactment of this Act.

SEC. 510. FINANCIAL MANAGEMENT SERVICE FEES.

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

SEC. 511. CAPITAL GAIN TREATMENT UNDER SECTION 631(B) TO APPLY TO 
                    OUTRIGHT SALES BY LAND OWNER.

  (a) In General.--The first sentence of section 631(b) of the Internal 
Revenue Code of 1986 (relating to disposal of timber with a retained 
economic interest) is amended by striking ``retains an economic 
interest in such timber'' and inserting ``either retains an economic 
interest in such timber or makes an outright sale of such timber''.
  (b) Conforming Amendment.--The third sentence of section 631(b) of 
such Code is amended by striking ``The date of disposal'' and inserting 
``In the case of disposal of timber with a retained economic interest, 
the date of disposal''.
  (c) Effective Date.--The amendments made by this section shall apply 
to sales after the date of the enactment of this Act.

                 TITLE VI--LOW-INCOME TAXPAYER CLINICS

SEC. 601. LOW-INCOME TAXPAYER CLINICS.

  (a) Limitation on Amount of Grants.--Paragraph (1) of section 7526(c) 
(relating to special rules and limitations) is amended by striking 
``$6,000,000 per year'' and inserting ``$9,000,000 for 2002, 
$12,000,000 for 2003, and $15,000,000 for each year thereafter''.
  (b) Limitation on Use of Clinics for Tax Return Preparation.--
Subparagraph (A) of section 7526(b)(1) is amended by adding at the end 
the following flush language:
                ``The term does not include a clinic that provides 
                routine tax return preparation. The preceding sentence 
                shall not apply to return preparation in connection 
                with a controversy with the Internal Revenue 
                Service.''.
  (c) Promotion of Clinics.--Section 7526(c) is amended by adding at 
the end the following new paragraph:
          ``(7) Promotion of clinics.--The Secretary is authorized to 
        promote the benefits of and encourage the use of low-income 
        taxpayer clinics through the use of mass communications, 
        referrals, and other means.''.

 TITLE VII--REVISIONS TO SECTION 527 ORGANIZATION DISCLOSURE PROVISIONS

SEC. 701. MODIFICATIONS OF REPORTING REQUIREMENTS FOR CERTAIN STATE AND 
                    LOCAL POLITICAL ORGANIZATIONS.

  (a) Notification.--
          (1) Paragraph (5) of section 527(i) (relating to 
        organizations must notify Secretary that they are section 527 
        organizations) is amended by striking ``or'' at the end of 
        subparagraph (A), by striking the period at the end of 
        subparagraph (B) and inserting ``, or'', and by adding at the 
        end the following:
                  ``(C) which is--
                          ``(i) a political committee of a State or 
                        local candidate, or
                          ``(ii) a local committee of an entity which 
                        is a political party under State law.''.
          (2) Subparagraph (B) of section 527(j)(5) (relating to 
        coordination with other requirements) is amended to read as 
        follows:
                  ``(B) to any organization which is--
                          ``(i) a political committee of a State or 
                        local candidate, or
                          ``(ii) a State or local committee of an 
                        entity which is a political party under State 
                        law,''.
  (b) Exemption for Certain State and Local Political Committees From 
Reporting Requirements.--
          (1) In general.--Paragraph (5) of section 527(j) (relating to 
        required disclosures of expenditures and contributions) is 
        amended by redesignating subparagraphs (C), (D), and (E) as 
        subparagraphs (D), (E), and (F), respectively, and by inserting 
        after subparagraph (B) the following new subparagraph:
                  ``(C) to any organization which is an exempt State or 
                local political organization,''.
          (2) Exempt state or local political organization.--Subsection 
        (e) of section 527 (relating to other definitions) is amended 
        by adding at the end the following new paragraph:
          ``(5) Exempt state or local political organization.--
                  ``(A) In general.--The term `exempt State or local 
                political organization' means a political 
                organization--
                          ``(i) which does not engage in any exempt 
                        function other than to influence or to attempt 
                        to influence the selection, nomination, 
                        election, or appointment of any individual to 
                        any State or local public office or office in a 
                        State or local political organization,
                          ``(ii) which is subject to State or local 
                        requirements to submit reports containing 
                        information--
                                  ``(I) regarding individual 
                                expenditures from and contributions to 
                                such organization, and
                                  ``(II) regarding the person who makes 
                                such contributions or receives such 
                                expenditures,
                        which is substantially similar to the 
                        information which would otherwise be required 
                        to be reported under this section, and
                          ``(iii) with respect to which the reports 
                        referred to in clause (ii) are made public by 
                        the agency with which such reports are filed 
                        and are publicly available for inspection in a 
                        manner similar to that required by section 
                        6104(d)(1).
                  ``(B) Participation of federal candidate or office 
                holder.--The term `exempt State or local political 
                organization' shall not include any organization 
                otherwise described in subparagraph (A) if a candidate 
                for nomination or election to Federal elective office 
                or an individual who holds such office--
                          ``(i) controls or materially participates in 
                        the direction of the organization, or
                          ``(ii) directs, in whole or in part, 
                        expenditures or fundraising activities of the 
                        organization.''.
  (c) Annual Return Requirements.--
          (1) Income tax returns required only where political 
        organization taxable income.--Paragraph (6) of section 6012(a) 
        (relating to general rule of persons required to make returns 
        of income) is amended by striking ``or which has gross receipts 
        of $25,000 or more for the taxable year (other than an 
        organization to which section 527 applies solely by reason of 
        subsection (f)(1) of such section)''.
          (2) Information returns.--Subsection (g) of section 6033 
        (relating to returns required by political organizations) is 
        amended to read as follows:
  ``(g) Returns Required by Political Organizations.--
          ``(1) In general.--Every political organization (within the 
        meaning of section 527(e)(1)), and every fund treated under 
        section 527(g) as if it constituted a political organization, 
        which has gross receipts of $25,000 or more for the taxable 
        year shall file a return--
                  ``(A) containing the information required, and 
                complying with the other requirements, under subsection 
                (a)(1) for organizations exempt from taxation under 
                section 501(a), and
                  ``(B) containing such other information as the 
                Secretary deems necessary to carry out the provisions 
                of this subsection.
          ``(2) Exceptions from filing.--
                  ``(A) Mandatory exceptions.--Paragraph (1) shall not 
                apply to an organization--
                          ``(i) which is an exempt State or local 
                        political organization (as defined in section 
                        527(e)(5)),
                          ``(ii) which is a State or local committee of 
                        a political party, or political committee of a 
                        State or local candidate, as defined by State 
                        law,
                          ``(iii) which is a caucus or association of 
                        State or local elected officials,
                          ``(iv) which is a national association of 
                        State or local officials,
                          ``(v) which is an authorized committee (as 
                        defined in section 301(6) of the Federal 
                        Election Campaign Act of 1971) of a candidate 
                        for Federal office,
                          ``(vi) which is a national committee (as 
                        defined in section 301(14) of the Federal 
                        Election Campaign Act of 1971) of a political 
                        party, or
                          ``(vii) to which section 527 applies for the 
                        taxable year solely by reason of subsection 
                        (f)(1) of such section.
                  ``(B) Discretionary exception.--The Secretary may 
                relieve any organization required under paragraph (1) 
                to file an information return from filing such a return 
                where he determines that such filing is not necessary 
                to the efficient administration of the internal revenue 
                laws.''.
  (d) Waiver of penalties.--Section 527 is amended by adding at the end 
the following:
  ``(k) Authority To Waive.--The Secretary may waive all or any portion 
of the--
          ``(1) tax assessed on an organization by reason of the 
        failure of the organization to give notice under subsection 
        (i), or
          ``(2) penalty imposed under subsection (j) for a failure to 
        file a report,
on a showing that such failure was due to reasonable cause and not due 
to willful neglect.''.
  (e) Effective Date.--The amendments made by this section shall take 
effect as if included in the amendments made by Public Law 106-230.

SEC. 702. NOTIFICATION OF INTERACTION OF REPORTING REQUIREMENTS.

  (a) In General.--The Secretary of the Treasury, in consultation with 
the Federal Election Commission, shall publicize information on--
          (1) the effect of the amendments made by this Act, and
          (2) the interaction of requirements to file a notification or 
        report under section 527 of the Internal Revenue Code of 1986 
        and reports under the Federal Election Campaign Act of 1971.
  (b) Information.--Information provided under subsection (a) shall be 
included in any appropriate form, instruction, notice, or other 
guidance issued to the public by the Secretary of the Treasury or the 
Federal Election Commission regarding reporting requirements of 
political organizations (as defined in section 527 of the Internal 
Revenue Code of 1986) or reporting requirements under the Federal 
Election Campaign Act of 1971.

SEC. 703. TECHNICAL CORRECTIONS TO SECTION 527 ORGANIZATION DISCLOSURE 
                    PROVISIONS.

  (a) Unsegregated Funds Not To Avoid Tax.--Paragraph (4) of section 
527(i) (relating to failure to notify) is amended by adding at the end 
the following new sentence: ``For purposes of the preceding sentence, 
the term `exempt function income' means any amount described in a 
subparagraph of subsection (c)(3), whether or not segregated for use 
for an exempt function.''.
  (b) Procedures for Assessment and Collection of Penalty.--Paragraph 
(1) of section 527(j) (relating to required disclosure of expenditures 
and contributions) is amended by adding at the end the following new 
sentence: ``For purposes of subtitle F, the penalty imposed by this 
paragraph shall be assessed and collected in the same manner as 
penalties imposed by section 6652(c).''.
  (c) Application of Fraud Penalty.--Section 7207 (relating to 
fraudulent returns, statements, and other documents) is amended by 
striking ``pursuant to subsection (b) of section 6047 or pursuant to 
subsection (d) of section 6104'' and inserting ``pursuant to section 
6047(b), section 6104(d), or subsection (i) or (j) of section 527''.
  (d) Duplicate Electronic and Written Filings Not Required.--
Subparagraph (A) of section 527(i)(1) is amended by striking ``, 
electronically and in writing,''.
  (e) Effective Dates.--
          (1) Subsections (a) and (b).--The amendments made by 
        subsections (a) and (b) shall apply to failures occurring on or 
        after the date of the enactment of this Act.
          (2) Subsections (c) and (d).--The amendments made by 
        subsections (c) and (d) shall take effect as if included in the 
        amendments made by Public Law 106-230.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary



                                PURPOSE


    The bill, H.R. 3991, as amended, (the ``Taxpayer Protection 
and Accountability Act of 2002'') provides increased fairness 
to taxpayers and enhances the confidentiality of returns and 
return information.


                                SUMMARY


                    TITLE I--PENALTIES AND INTEREST


 A. Convert Penalty for Failure To Pay Estimated Tax Into an Interest 
 Provision, Increase and Modify Threshold, and Simplify Estimated Tax 
            Calculation for Individuals, Estates, and Trusts

    The provision converts the present-law penalty for failure 
to pay estimated tax into an interest provision for 
individuals, estates, and trusts; increases the threshold for 
underpayment of estimated tax from $1,000 to $2,000; and allows 
both tax withheld and estimated tax paid equally throughout the 
year to be considered in determining whether the threshold has 
been met. The provision provides one interest rate per 
underpayment period for individuals, estates, and trusts. The 
provision also simplifies the calculation of estimated tax by 
eliminating the requirement to track each underpayment 
separately and providing that underpayment balances are 
cumulative. In addition, under the provision, a 365-day year is 
used for all estimated tax underpayment calculations regardless 
of whether the taxable year is a leap year.

   B. Exclude Interest on Individual Federal Income Tax Overpayments

    The bill excludes from gross income interest that is paid 
by the IRS to individual taxpayers on overpayments of Federal 
income tax. However, the exclusion will not apply if the 
taxpayer's principal purpose for overpaying tax is to take 
advantage of the exclusion.

                        C. Abatement of Interest

    The bill expands the circumstances in which interest on an 
underpayment of tax may be abated. Interest is required to be 
abated on any erroneous refund that was not caused by the 
taxpayer and on underpayments that are attributable to 
erroneous written advice furnished by the IRS.

                    D. Deposits To Suspend Interest

    The bill allows taxpayers to limit their exposure to 
underpayment interest by making a deposit to suspend the 
running of interest. Amounts deposited can be used to pay an 
underpayment of tax or can be withdrawn (with interest if made 
with respect to a disputable tax). The use of a deposit will 
not affect the ability of the taxpayer to be heard by the Tax 
Court.

       E. Modification of Interest Netting Rules for Individuals

    For individual taxpayers, the bill would applies the 
interest netting rules without regard to the 45-day period in 
which the Secretary may refund an overpayment of tax without 
the payment of interest under section 6611(e). Solely for the 
purpose of applying the interest netting rules, individual 
taxpayers may treat such period as a period for which interest 
is allowable on an overpayment at a zero percent rate.

   F. Waiver of Certain Penalties for First-Time Unintentional Minor 
                                 Errors

    The bill explicitly permits the IRS to waive, once per 
taxpayer, the penalties for failure to file tax returns or pay 
taxes for an unintentional minor error that is committed by an 
individual taxpayer with a history of tax compliance and the 
penalty for which would be grossly disproportionate to the 
action or expense that would have been needed to avoid the 
error.

                G. Frivolous Tax Returns and Submissions

    The bill modifies the penalty for filing a frivolous tax 
return by increasing the penalty to up to $5,000 and by 
applying it to all taxpayers and to all types of Federal taxes. 
The bill permits the IRS to dismiss and to impose a penalty on 
certain submissions that raise frivolous arguments or that are 
intended to delay or impede tax administration.

     H. Clarification of Application of Federal Tax Deposit Penalty

    The application of the Federal tax deposit penalty is 
clarified so that the 10 percent penalty rate only applies in 
cases where the failure to deposit extends for more than 15 
days.

              TITLE II--FAIRNESS OF COLLECTION PROCEDURES


   A. Permit Installment Agreements That Provide for Partial Payment

    The provision clarifies that the IRS is authorized to enter 
into installment agreements with taxpayers that do not provide 
for full payment of the taxpayer's liability over the life of 
the agreement. The provision also requires the IRS to review 
partial payment installment agreements at least every two 
years.

              B. Extend Time Limit for Contesting IRS Levy

    The bill extends the 9-month period for contesting an IRS 
levy to 2 years.

           C. Restore Retirement Savings After Improper Levy

    The provision permits a taxpayer to recontribute to an IRA 
amounts withdrawn pursuant to an IRS levy and returned by the 
IRS (and interest thereon) if the levy was wrongful or is 
determined to be premature or otherwise not in accordance with 
administrative procedures. The IRS is required to pay interest 
at the overpayment rate on IRA amounts returned to the 
taxpayer. Interest on amounts recontributed is not includible 
in gross income. Any tax attributable to recontributed amounts 
is abated.

D. Tolling of Statute of Limitations During Review by Taxpayer Advocate 
                                Service

    The bill modifies the suspension of statute of limitations 
during consideration by the Taxpayer Advocate of significant 
hardship applications by applying it only if the date of the 
decision by the National Taxpayer Advocate is at least 7 days 
after the date of the taxpayer's application.

                      E. Study of Liens and Levies

    The bill requires the Treasury to conduct a study of the 
practices of the IRS concerning liens and levies. The study 
will examine the declining use of liens and levies by the IRS 
and the practicality of recording liens and levies against 
property in cases where the cost of such actions exceeds the 
amount to be realized from the property.

              TITLE III--EFFICIENCY OF TAX ADMINISTRATION


      A. Termination of Employment of IRS Employees for Misconduct

    The bill requires that the Commissioner issue guidelines 
for determining the appropriate level of discipline, up to and 
including termination of employment, for the commission or 
omission of a specified act. The bill also removes from the 
list of violations (1) the late filing of refund returns and 
(2) employee versus employees acts. The bill adds to the list 
of violations (1) willful unauthorized inspection of returns 
and return information and (2) the requirement that other 
violations in general be willful. The bill also provides that, 
notwithstanding any other provision of law, any determination 
by the Commissioner may not be reviewed.

          B. Tax Court Authority To Apply Equitable Recoupment

    The provision confirms that the Tax Court may apply the 
principle of equitable recoupment to the same extent that it 
may be applied in Federal civil tax cases by the U.S. District 
Courts or the U.S. Court of Federal Claims.

         C. Review of Collection Due Process Cases in Tax Court

    The provision consolidates all judicial review of 
collection due process determinations regarding levies and 
liens in the United States Tax Court.

            D. Chief Counsel Review of Offers-in-Compromise

    The provision repeals the requirement that an offer-in-
compromise of $50,000 or more must be supported by a written 
opinion from the Office of Chief Counsel. Written opinions must 
only be provided if the Secretary determines that an opinion is 
required with respect to a compromise.

            E. Due Date for Electronically Filed Tax Returns

    The bill extends the due date for filing and paying 
individual income taxes to April 30 provided that the taxpayer 
files the return electronically and pays the entire balance due 
electronically by that date. The due date for filing by any 
other method or for filing electronically but paying the 
balance due by non-electronic means is not changed.

                TITLE IV--CONFIDENTIALITY AND DISCLOSURE


 A. Disclosure Upon Oral Request of Collection Activities With Respect 
                           to a Joint Return

    The bill eliminates the requirement for former spouses to 
make a written request for disclosure of collection activities 
with respect to a joint return.

     B. Taxpayer Representatives Not Subject to Inspection Without 
                          Supervisor Approval

    The provision clarifies that an IRS employee conducting an 
examination of a taxpayer is not authorized to inspect a 
taxpayer representative's return or return information solely 
on the basis of the representative relationship to the 
taxpayer. Under the provision, the supervisor of the IRS 
employee would have to approve such inspection after making a 
determination that other grounds justified such an inspection.

    C. Restrictions on Disclosure in Judicial or Administrative Tax 
  Proceedings of Return and Return Information of Persons Who Are Not 
                       Party to Such Proceedings

    The provision requires that only the portions of a nonparty 
return or return information that directly relate to the 
resolution of an issue in the proceeding are to be disclosed in 
such proceeding. The nonparty is to be given reasonable notice 
prior to the disclosure and the opportunity to request that 
certain material be deleted from the information to be 
disclosed.

  D. Prohibition of Disclosure of Taxpayer Identification Information 
      With Respect to Disclosure of Accepted Offers-in-Compromise

    The bill prohibits the disclosure of the taxpayer's address 
and taxpayer identification number as part of the publicly 
available summaries of accepted offers-in-compromise.

      E. Compliance by Contractors With Confidentiality Safeguards

    The provision requires that a State or Federal agency 
conduct annual on-site reviews of all contractors receiving 
Federal returns and return information as agents of the agency. 
The reviews are to assess the contractors' efforts to safeguard 
Federal returns and return information. The State or Federal 
agency is required to submit a report of its findings to the 
IRS and certify annually that all contractors are in compliance 
with the requirements to safeguard the confidentiality of 
Federal returns and return information.

 F. Requests and Consents to Disclosure Must Contain Recipient and Be 
                          Dated When Executed

    The provision renders invalid a consent that does not 
designate a recipient or is not dated at the time of execution. 
The person submitting the consent to the IRS is required to 
verify under penalties of perjury that the form was complete 
and dated at the time it was signed by the taxpayer. The 
provision requires the consent form to contain a warning, 
prominently displayed, informing the taxpayer that he or she 
should not sign the form unless it is complete. All third 
parties receiving returns and return information by consent are 
required to: (1) ensure that the information received will be 
kept confidential; (2) use the information only for the purpose 
for which it was requested; and (3) not further disclose the 
information except to accomplish that purpose, unless a 
separate consent from the taxpayer is obtained.

   G. Notice to Taxpayer Concerning Administrative Determination of 
                        Browsing; Annual Report

    The IRS is required to notify a taxpayer after the Treasury 
Inspector General for Tax Administration determines that a 
taxpayer's return or return information has been disclosed or 
inspected without authorization. The IRS is required to provide 
information on unauthorized disclosures or inspections of 
return and return information in its public annual report to 
the Joint Committee on Taxation.

                H. Disclosure in Emergency Circumstances

    The bill expands present law to permit disclosure to local 
law enforcement authorities.

       I. Disclosure of Taxpayer Identity for Tax Refund Purposes

    The provision allows the IRS to use any means of ``mass 
communication,'' including the Internet, to notify the taxpayer 
of an undelivered refund.

    J. Disclosure to State Officials Relating to Section 501(c)(3) 
                             Organizations

    The provision permits the Secretary to disclose to the 
appropriate State officer: (1) a notice of proposed refusal to 
recognize an organization as a section 501(c)(3) organization, 
(2) a notice of proposed revocation of tax-exemption of a 
section 501(c)(3) organization, (3) the issuance of a proposed 
deficiency of tax imposed under section 507, chapter 41, or 
chapter 42, (4) the names and taxpayer identification numbers 
of organizations that have applied for recognition as section 
501(c)(3) organizations, and (5) return and return information 
of organizations with respect to which information has been 
disclosed under (1) through (4) above. In addition, the 
Secretary may disclose or open to inspection the return and 
return information of an organization that is recognized as 
tax-exempt under section 501(c)(3), or that has applied for 
such recognition, to an appropriate State officer if the 
Secretary determines that disclosure may facilitate the 
resolution of Federal and State issues relating to the 
organization. The provision makes disclosures of returns and 
return information of section 501(c)(3) organizations subject 
to many of the disclosure provisions for the return and return 
information of other organizations.

                         TITLE V--MISCELLANEOUS


          A. Clarification of Definition of Church Tax Inquiry

    The provision clarifies that the church tax inquiry 
procedures do not apply to contacts made by the IRS for the 
purpose of educating churches with respect to the law governing 
tax-exempt organizations. For example, the provision clarifies 
that the IRS would not violate the church tax inquiry 
procedures when written materials are provided to a church for 
the purpose of educating the church with respect to the types 
of activities that are not permissible under section 501(c)(3).

 B. Extension of Declaratory Judgment Procedures to Non-501(c)(3) Tax-
   exempt Organizations and Failure of IRS To Act on Determinations 
                   Treated as Exhaustion of Remedies

    The provision extends declaratory judgment procedures 
similar to those currently available only to charities under 
section 7428 to other section 501(c) determinations. The bill 
limits jurisdiction over controversies involving such 
determinations to the United States Tax Court.

C. Treasury Inspector General for Tax Administration Semi-Annual Report 
                         on Employee Misconduct

    The provision modifies the semi-annual reporting 
requirement for the Treasury Inspector General for Tax 
Administration to require that the reporting with respect to 
allegations of serious IRS employee misconduct include a 
summary (by category) of the 10 most common complaints made and 
the number of such common complaints (by category).

              D. Annual Report on Awards of Costs and Fees

    The provision requires the Treasury Inspector General for 
Tax Administration to publish (1) annually statistics on the 
number of payments made pursuant to section 7430 and the amount 
of each such payment and (2) an analysis of the administrative 
issues that gave rise to the necessity of making these payments 
and the changes (if any) that will be implemented by the IRS as 
a result of such analysis.

               E. Annual Report on Abatement of Penalties

    The bill requires the Treasury Inspector General for Tax 
Administration to report to Congress annually a report on 
abatements of penalties under the Internal Revenue Code.

            F. Better Means of Communicating With Taxpayers

    The bill requires the Treasury Inspector General for Tax 
Administration to issue a report to the Congress evaluating 
whether technological advances, such as e-mail and the fax, 
permit the utilization of alternate means of communicating with 
taxpayers to eliminate some of the difficulties with the 
present system.

            G. Information Regarding Statute of Limitations

    The provision requires the IRS to revise Publication 1 
(``Your Rights as a Taxpayer'') and the instructions for Form 
1040 packages to add a description of the statute of 
limitations and an explanation of the consequences of failing 
to file within the prescribed time period.

                H. Amendment to Treasury Auction Reforms

    The bill permits earlier disclosure by members of the 
Treasury Borrowing Advisory Committee of anything relating to 
the securities to be auctioned in a midquarter refunding.

                           I. Enrolled Agents

    The bill adds a new section to the Code permitting the 
Secretary to prescribe regulations to regulate the conduct of 
enrolled agents in regard to their practice before the IRS and 
to permit enrolled agents meeting the Secretary's 
qualifications to use the credentials or designation ``enrolled 
agent'', ``EA'', or ``E.A.''.

                  J. Financial Management Service Fees

    The bill allows the Financial Management Service (FMS) to 
retain a portion of levied funds as payment by the IRS of FMS 
fees. The amount credited to the taxpayer's account would not, 
however, be reduced by this fee.

                  K. Capital Gain Treatment of Timber

    The bill provides that an outright sale of timber by the 
owner of the land from which the timber is cut will be entitled 
to capital gain treatment.

                 TITLE VI--LOW-INCOME TAXPAYER CLINICS

    The provision increases the authorization for grants to 
low-income taxpayer clinics to $9 million for 2002, to $12 
million for 2003, and to $15 million for 2004 and thereafter. 
The provision amends the definition of low-income taxpayer 
clinics by excluding from eligibility for grants clinics that 
provide routine tax return preparation services (unless the 
return preparation is in connection with a controversy with the 
IRS). The provision also authorizes the IRS to promote the 
benefits and encourage the use of low-income taxpayer clinics.

 TITLE VII--REVISIONS TO SECTION 527 ORGANIZATION DISCLOSURE PROVISIONS

    The provision provides that a political organization that 
is a political committee of a State or local candidate, or a 
local committee of a political party, as defined by State law, 
is exempt from the requirement to provide notice to the 
Secretary of its formation and purpose. The provision exempts 
certain State or local political organizations from the 
requirement provided by section 527(j)(2) to file regular 
reports with the Secretary detailing contribution and 
expenditure information. Under the provision, a political 
organization is required to file an income tax return (Form 
1120-POL) only if such organization has political organization 
taxable income for the taxable year. In addition, information 
returns are required to be filed by political organizations 
that have gross receipts of $25,000 or more for the taxable 
year with a number of exceptions. The provision gives the 
Secretary the authority to waive all or any portion of the 
taxes imposed on an organization for failure to notify the 
Secretary of the organization's establishment or the penalties 
imposed for failure to file a report.

                 B. Background and Need for Legislation

    The provisions approved by the Committee reflect the need 
for providing increased fairness to taxpayers and enhancing the 
confidentiality of returns and return information.

                         C. Legislative History



                            COMMITTEE ACTION


    The Committee on Ways and Means marked up the provisions of 
the bill on March 20, 2002, and approved the provisions, as 
amended, by a roll call vote of 34-6 with a quorum present.


                           COMMITTEE HEARINGS


    The following Oversight Subcommittee hearings related to 
provisions in the bill were held during the 106th Congress:
    Annual Report of the Internal Revenue Service National 
Taxpayer Advocate (February 10, 1999).
    1999 Tax Return Filing Season and the IRS Budget for Fiscal 
Year 2000 (April 13, 1999).
    Impact of Complexity in the Tax Code on Individual 
Taxpayers and Small Businesses (May 25, 1999).
    Implementation of the Internal Revenue Service 
Restructuring and Reform Act of 1998 (July 22, 1999).
    Penalty and Interest Provisions in the Internal Revenue 
Code (January 27, 2000).
    2000 Tax Return Filing Season and the IRS Budget for Fiscal 
Year 2001 (March 28, 2000).
    Disclosure of Political Activities of Tax-Exempt 
Organizations (June 20, 2000).
    The following Oversight Subcommittee hearings related to 
provisions in the bill were held during the 107th Congress:
    Report of the National Taxpayer Advocate for Fiscal Year 
2000 and Low-Income Taxpayer Clinics Hearing (July 12, 2001).
    Tax Code Simplification (July 17, 2001).
    Response by Charitable Organizations to the Recent 
Terrorist Attacks (November 08, 2001).
    Annual Reports of the National Taxpayer Advocate for Fiscal 
Year 2001 and IRS Oversight Board (February 28, 2002).


                          REPORTS AND STUDIES


    The following reports and studies assisted the Committee in 
developing the Taxpayer Protection and IRS Accountability Act 
of 2002:
    National Taxpayer Advocate's Annual Report to Congress for 
Fiscal Year 1998 (January 8, 1999).
    Joint Committee on Taxation, Study of Present-Law Penalty 
and Interest Provisions as Required by Section 3801 of the 
Internal Revenue Service Restructuring and Reform Act of 1998 
(July 22, 1999).
    Department of the Treasury, Report to the Congress on 
Penalty and Interest Provisions of the Internal Revenue Code 
(October 25, 1999).
    National Taxpayer Advocate's Annual Report to Congress for 
Fiscal Year 1999 (January 4, 2000).
    Joint Committee on Taxation, Study of Present-Law Taxpayer 
Confidentiality and Disclosure Provisions as Required by 
Section 3802 of the Internal Revenue Service Restructuring and 
Reform Act of 1998 (January 28, 2000).
    Joint Committee on Taxation, Report of Investigation of 
Allegations Relating to Internal Revenue Service Handling of 
Tax-Exempt Organization Matters (March 16, 2000).
    Report on the Internal Revenue Service National Taxpayer 
Advocate's Fiscal Year 2001 Objectives (June 30, 2000).
    Department of the Treasury, Report to the Congress on Scope 
and Use of Taxpayer Confidentiality and Disclosure Provisions 
(October 2000).
    National Taxpayer Advocate's Annual Report to Congress for 
Fiscal Year 2000 (December 2000).
    Joint Committee on Taxation, Study of the Overall State of 
the Federal Tax System and Recommendations for Simplification, 
Pursuant to Section 8022(3)(B) of the Internal Revenue Code of 
1986 (JCS-3-01), April 2001.
    Report on the Internal Revenue Service National Taxpayer 
Advocate's Fiscal Year 2002 Objectives (June 30, 2001).
    National Taxpayer Advocate's Annual Report to Congress for 
Fiscal Year 2001 (December 31, 2001).


                         REQUESTS FOR COMMENTS


    The Committee on Ways and Means solicited written comments 
as follows:
    Request for Written Comments on Recent Recommendations on 
Tax Penalty and Interest Provisions (November 15, 1999).
    Request for Written Comments on Joint Committee on Taxation 
Disclosure Study (February 3, 2000).
    Request for Written Comments on Taxpayer Rights (March 19, 
2001).

                      II. EXPLANATION OF THE BILL


           TITLE I--REFORMING PENALTY AND INTEREST PROVISIONS


                    A. Failure To Pay Estimated Tax


(Sec. 101 of the bill and new sec. 6641 of the Code)

1. Convert estimated tax penalty into an interest provision for 
        individuals, estates, and trusts


                              PRESENT LAW


    The Federal income tax system is designed to ensure that 
taxpayers pay taxes throughout the year based on their income 
earned and expenses. To the extent that tax is not collected 
through withholding, taxpayers are required to make quarterly 
estimated payments of tax. If an individual fails to make the 
required estimated tax payments under the rules, a penalty is 
imposed under section 6654. The amount of the penalty is 
determined by applying the underpayment interest rate to the 
amount of the underpayment for the period of the underpayment. 
The amount of the underpayment is the excess of the required 
payment over the amount (if any) of the installment paid on or 
before the due date of the installment. The period of the 
underpayment runs from the due date of the installment to the 
earlier of (1) the 15th day of the fourth month following the 
close of the taxable year or (2) the date on which each portion 
of the underpayment is made. The penalty for failure to pay 
estimated tax is the equivalent of interest, which is based on 
the time value of money.


                           REASONS FOR CHANGE


    The present-law penalties for failure to pay estimated tax 
are essentially a time value of money calculation which is not 
punitive in nature, but rather compensatory. Because the 
penalties for failure to pay estimated tax are calculated as 
interest charges, the Committee believes that conforming their 
title to the substance of the provision will improve taxpayers' 
perceptions of the fairness of the estimated tax payment 
system. Therefore, the Committee finds that the effect of the 
estimated tax penalties for individuals, estates, and trusts is 
more appropriately described as interest.


                        EXPLANATION OF PROVISION


    The penalty for failure to pay estimated tax is converted 
into an interest provision for individuals, estates, and 
trusts.


                             EFFECTIVE DATE


    The provision is effective for estimated tax payments made 
for taxable years beginning after December 31, 2002.

2. Increase and revise estimated tax threshold


                              PRESENT LAW


    Taxpayers are not liable for a penalty for the failure to 
pay estimated tax when the tax shown on the return for the 
taxable year (or, if no return is filed, the tax), reduced by 
withholding, is less than $1,000. This safe harbor does not 
apply, however, when a taxpayer has paid tax throughout the 
year solely through estimated tax payments. For such taxpayers, 
any tax shown on the return for the taxable year, net of 
estimated tax paid, could subject the taxpayer to the penalty 
for failure to pay estimated tax (unless another safe harbor 
applies).


                           REASONS FOR CHANGE


    The Committee believes that by increasing the estimated tax 
payment threshold, fewer taxpayers will be required to make 
estimated tax payments. In addition, by including equally-paid 
estimated tax in the threshold calculation, the de minimis safe 
harbor will be available to more taxpayers, such as those who 
pay throughout the year exclusively through estimated tax.


                        EXPLANATION OF PROVISION


    Under the bill, no interest will be charged for 
underpayments of estimated tax if the tax shown on the return 
for the taxable year (or, if no return is filed, the tax), 
reduced by both withholding and/or equally-paid estimated tax 
is less than $2,000.


                             EFFECTIVE DATE


    The provision is effective for estimated tax payments made 
for taxable years beginning after December 31, 2002.

3. Apply one interest rate per estimated tax underpayment period for 
        individuals, estates, and trusts


                              PRESENT LAW


    The present-law penalty for failure to pay estimated tax is 
equal to the underpayment interest rate multiplied by the 
number of days the underpayment is outstanding, which is the 
number of days between when the taxpayer should have made the 
estimated payment and the earlier of (1) the 15th day of the 
fourth month following the close of the taxable year or (2) the 
date on which each portion of the underpayment is made. The 
interest rate, which equals the Federal short-term rate plus 
three percentage points, is subject to change on the first day 
of each quarter, which is January 1, April 1, July 1, and 
October 1.
    If interest rates change while an underpayment of estimated 
tax is outstanding, then taxpayers are required to make 
separate calculations for the periods before and after the 
interest rate change. Such calculations generally are needed to 
cover 15-day periods. For example, the July 1 interest rate 
occurs 15 days after the June 15 payment date (for calendar-
year taxpayers). A change in interest rates, which occurs on 
the first day of each calendar quarter, would require the use 
of different interest rates during one estimated tax 
underpayment period and would increase the number of 
calculations that a taxpayer must make in calculating a penalty 
for failure to pay estimated tax.


                           REASONS FOR CHANGE


    When interest rates change during an underpayment period, 
taxpayers must perform multiple calculations to account for the 
change in interest rate. Thus, the Committee finds that, if 
only one interest rate applied per underpayment period, 
complexity would be reduced because there generally would be 
only one interest calculation required per underpayment period.


                        EXPLANATION OF PROVISION


    The interest rates are aligned so that, for any given 
estimated tax underpayment period, only one interest rate will 
apply. The underpayment interest rate in effect on the first 
day of the quarter in which the pertinent estimated payment due 
date arises is the interest rate that will apply during an 
entire underpayment period.


                             EFFECTIVE DATE


    The provision is effective for estimated tax payments made 
for taxable years beginning after December 31, 2002.

4. Provide that underpayment balances are cumulative


                              PRESENT LAW


    Section 6654(b)(1) defines ``underpayment'' as the amount 
of an installment due over the amount of any installment paid 
(including withholding) on or before the due date of the 
installment. In determining an underpayment penalty for a 
calendar year taxpayer, the period of underpayment runs for 
each underpayment from the payment's due date through the 
earlier of the date on which any portion of the payment is made 
or the 15th day of the fourth month following the close of the 
taxable year. Underpayment balances are not cumulative and must 
be tracked separately for each estimated tax underpayment 
period.


                           REASONS FOR CHANGE


    Tracking underpayments separately results in additional 
complexity in calculating interest on underpayments of 
estimated tax. The Committee thus finds that the calculation of 
interest on underpayments of estimated tax would be simplified 
by providing that underpayment balances would roll into the 
next estimated tax period so that interest would be calculated 
once per cumulative underpayment, per period.


                        EXPLANATION OF PROVISION


    The definition of ``underpayment'' is changed to allow 
existing underpayment balances to be used in underpayment 
calculations for succeeding estimated payment periods. 
Taxpayers will now calculate a cumulative underpayment at the 
end of each underpayment period.


                             EFFECTIVE DATE


    The provision is effective for estimated tax payments made 
for taxable years beginning after December 31, 2002.

5. Require 365-day year for all estimated tax interest calculations for 
        individuals, estates, and trusts


                              PRESENT LAW


    Under current IRS procedures, taxpayers with outstanding 
underpayment balances that extend from a leap year through a 
non-leap year are required to make separate calculations solely 
to account for the different number of days in the two 
different years. For example, if a taxpayer has an underpayment 
outstanding from September 15, 2004, through January 15, 2005, 
then the taxpayer must account for the period from September 
15, 2004, through December 31, 2004, by using a 366-day 
formula.\1\ The taxpayer then must account for the period from 
January 1, 2005, through January 15, 2005, under a 365-day 
formula. This calculation is required regardless of whether the 
interest rate changes on January 1, 2005.
---------------------------------------------------------------------------
    \1\ The year 2004 is a leap year, the year 2005 is not.
---------------------------------------------------------------------------


                           REASONS FOR CHANGE


    The Committee finds that complexity in calculating interest 
on underpayments of estimated tax would be reduced by 
eliminating the extra calculation that is required for 
underpayment balances that extend from a leap year to a non-
leap year or from a non-leap year to a leap year.


                        EXPLANATION OF PROVISION


    A 365-day year is used for all individual, estate, and 
trust estimated tax interest calculations.


                             EFFECTIVE DATE


    The provision is effective for estimated tax payments made 
for taxable years beginning after December 31, 2002.

 B. Exclusion From Gross Income for Interest on Overpayments of Income 
                           Tax by Individuals


(Sec. 102 of the bill and new sec. 139A of the Code)


                              PRESENT LAW


Overpayment interest

    Interest is included in the list of items that are required 
to be included in gross income (sec. 61(a)(4)). Interest on 
overpayments of Federal income tax is required to be included 
in taxable income in the same manner as any other interest that 
is received by the taxpayer.\2\
---------------------------------------------------------------------------
    \2\ Treas. Reg. sec. 1.61-7.
---------------------------------------------------------------------------
    Cash basis taxpayers are required to report overpayment 
interest as income in the period the interest is received. 
Accrual basis taxpayers are required to report overpayment 
interest as income when all events fixing the right to the 
receipt of the overpayment interest have occurred and the 
amount can be estimated with reasonable accuracy.\3\ Generally, 
this occurs on the date the appropriate IRS official signs the 
pertinent schedule of overassessments.\4\
---------------------------------------------------------------------------
    \3\ Treas. Reg. sec. 1.451-1(a).
    \4\ Rev. Rul. 62-160, 1962-2 C.B. 451.
---------------------------------------------------------------------------

Underpayment interest

    A corporate taxpayer is allowed to currently take into 
account interest paid on underpayments of Federal income tax as 
an ordinary and necessary business expense. Typically, this 
results in a current deduction. However, the deduction may be 
deferred if the interest is required to be capitalized \5\ or 
may be disallowed if and to the extent it is determined to be a 
cost of earning tax exempt income under section 265.
---------------------------------------------------------------------------
    \5\ Interest may be required to be capitalized under section 263A 
and similar sections.
---------------------------------------------------------------------------
    Section 163(h) of the Code prohibits the deduction of 
personal interest by taxpayers other than corporations. 
Noncorporate taxpayers, including individuals, generally are 
not allowed to deduct interest on the underpayment of Federal 
income taxes.
    Temporary regulations \6\ provide that personal interest 
includes interest paid on underpayments of individual Federal, 
State or local income taxes, regardless of the source of the 
income generating the tax liability. This is consistent with 
the statement in the General Explanation of the Tax Reform Act 
of 1986 that ``(p)ersonal interest also includes interest on 
underpayments of individual Federal, State, or local income 
taxes notwithstanding that all or a portion of the income may 
have arisen in a trade or business, because such taxes are not 
considered derived from conduct of a trade or business.'' \7\ 
The validity of the temporary regulation has been upheld in 
those Circuits that have considered the issue, including the 
Fourth,\8\ Sixth,\9\ Eighth,\10\ and Ninth Circuits.\11\
---------------------------------------------------------------------------
    \6\ Treas. Reg. sec. 1.163-9T.
    \7\ Joint Committee on Taxation, General Explanation of the Tax 
Reform Act of 1986 (JCS-10-87), p. 266.
    \8\ Allen v. U.S., 173 F. 3d 533 (1999).
    \9\ McDonnell v. U.S., 1999 U.S. app. LEXIS 10842 (1999).
    \10\ Miller v. U.S., 65 F. 3d 687 (1995).
    \11\ Redlark v. U.S., 141 F. 3d 936 (1998).
---------------------------------------------------------------------------
    Personal interest also includes interest that is paid by a 
trust, S corporation, or other pass-through entity on 
underpayments of State or local income taxes. Personal interest 
does not include interest that is paid with respect to sales, 
excise or similar taxes that are incurred in connection with a 
trade or business or an investment activity.\12\
---------------------------------------------------------------------------
    \12\ Treas. Reg. sec. 1.163-9T(b)(2)(iii)(A).
---------------------------------------------------------------------------


                           REASONS FOR CHANGE


    The Committee believes that there should be consistency in 
the treatment of interest paid by the Federal government to an 
individual taxpayer and interest paid by an individual taxpayer 
to the Federal government. Allowing individual taxpayers to 
exclude interest on overpayments will treat all individual 
taxpayers consistently, whether or not they itemize deductions.


                        EXPLANATION OF PROVISION


    The bill excludes overpayment interest that is paid to 
individual taxpayers on overpayments of Federal income tax from 
gross income. Interest excluded under the provision is not 
considered disqualified income that could limit the earned 
income credit. Interest excluded under the provision also is 
not considered in determining what portion of a taxpayer's 
social security or tier 1 railroad retirement benefits are 
subject to tax (sec. 86), whether a taxpayer has sufficient 
taxable income to be required to file a return (sec. 6012(d)), 
or for any other computation in which interest exempt from tax 
is otherwise required to be added to adjusted gross income.
    The exclusion from income of overpayment interest does not 
apply if the Secretary determines that the taxpayer's principal 
purpose for overpaying his or her tax is to take advantage of 
the exclusion.
    For example, a taxpayer prepares his return without taking 
into account significant itemized deductions of which he is, or 
should be, aware. Before the expiration of the statute of 
limitations, the taxpayer files an amended return claiming 
these itemized deductions and requesting a refund with 
interest. Unless the taxpayer can establish a principal purpose 
for originally overpaying the tax other than collecting 
excludible interest, the Secretary may determine that the 
principal purpose of waiting to claim the deductions on an 
amended return was to earn interest that would be excluded from 
income. In that case, the interest on the overpayment could not 
be excluded from income.
    It is expected that the Secretary will indicate whether the 
interest is eligible to be excluded from income on the Form 
1099 it provides that taxpayer for taxable year in which the 
underpayment interest is paid.


                             EFFECTIVE DATE


    The provision is effective for interest received in 
calendar years beginning after the date of enactment.

                        C. Abatement of Interest


(Sec. 103 of the bill and sec. 6404 of the Code)


                              PRESENT LAW


In general

    The Secretary of the Treasury can abate or suspend the 
accrual of interest in a number of situations. In general, the 
Secretary is authorized to abate interest that is not owed by 
the taxpayer, either because the interest was erroneously or 
illegally assessed, or because the interest was assessed after 
the expiration of the period of limitations. The Secretary also 
may abate interest that is attributable to certain unreasonable 
errors and delays by the Internal Revenue Service. The 
Secretary may abate interest where, in his judgment, the 
administration and collection costs involved do not warrant the 
collection of the amount due.
    The Secretary is required to abate interest in the case of 
a declared disaster \13\ or certain erroneous refunds 
attributable solely to errors made by the IRS. The Secretary is 
required to suspend the accrual of interest if the IRS fails to 
contact the taxpayer in a timely manner and in the case of 
taxpayers serving in a combat zone.\14\
---------------------------------------------------------------------------
    \13\ Sec. 7508A.
    \14\ Sec. 7508.
---------------------------------------------------------------------------
    Interest that is abated is not owed by the taxpayer and 
does not accrue additional interest through compounding or 
result in any additional penalties. If the accrual of interest 
is suspended for a period, then that period is not taken into 
account in determining the interest owed on an underpayment.

Abatement of interest that is erroneously or illegally assessed

    Most abatements of interest are a result of adjustments to 
the underlying tax liability. Underpayment interest is assessed 
any time an underpayment is assessed. If the underlying tax 
liability is later adjusted, resulting in a reduction in the 
amount of the underpayment, the portion of the interest 
attributable to such adjustment must be abated.

Abatement of interest on erroneous refunds

    The Secretary is required to abate interest on an erroneous 
refund for the period from the issuance of the refund until its 
return is demanded.\15\ Since the taxpayer has 21 days from the 
date of demand to pay without interest,\16\ no interest must be 
paid as the result of an erroneous refund if the taxpayer 
repays the refund within 21 days of the IRS asking for its 
return. If the taxpayer does not repay the refund within the 21 
day grace period, interest must be paid from the date the 
return of the refund is demanded. The rule abating interest in 
the case of erroneous refunds does not apply if the taxpayer 
(or a related party) has in any way caused the erroneous refund 
or if the amount of the erroneous refund exceeds $50,000.
---------------------------------------------------------------------------
    \15\ Sec. 6404(e)(2).
    \16\ Sec. 6601(e)(3). The period for paying without interest is 10 
days from the date of demand if the underpayment exceeds $100,000.
---------------------------------------------------------------------------

Abatement of penalties and additions to tax attributable to erroneous 
        written advice given by the IRS

    The Secretary is required to abate any portion of any 
penalty or addition to tax attributable to erroneous advice 
furnished to the taxpayer in writing by an officer or employee 
of the IRS acting in his or her official capacity. The 
abatement applies only if (1) the advice is given in response 
to a specific written request made by the taxpayer, (2) the 
taxpayer reasonably relied on the advice, and (3) the taxpayer 
provided adequate and accurate information.\17\
---------------------------------------------------------------------------
    \17\ Sec. 6404(f).
---------------------------------------------------------------------------
    Only penalties and additions to tax that are attributable 
to erroneous written advice given by the IRS are abated under 
this rule. Interest is abated only to the extent that it is 
attributable to abated penalties and additions to tax. Interest 
attributable to an underpayment of tax, where such underpayment 
is the result of the taxpayer's proper reliance on written 
advice of the IRS, is not eligible for abatement.

Procedures for the abatement of interest

    Taxpayers may apply for the abatement of interest by filing 
a claim on Form 843 with the Internal Revenue Service Center 
that has assessed the interest the taxpayer seeks to have 
abated.\18\
---------------------------------------------------------------------------
    \18\ Rev. Proc. 87-43, 1987-2 C.B. 590.
---------------------------------------------------------------------------
    Typically, interest is abated when the amount of tax 
assessed is reduced. Thus, any procedure that may result in the 
reduction of assessed tax may also result in an abatement of 
interest.


                           REASONS FOR CHANGE


    The Committee believes that there are additional situations 
in which it is not appropriate for the Secretary to collect 
interest on an underpayment of tax.


                        EXPLANATION OF PROVISION


Allow for the abatement of interest in situations where the taxpayer is 
        repaying an excessive refund based on IRS calculations without 
        regard to the size of the refund

    The provision eliminates the $50,000 threshold for 
abatement of interest on erroneous refunds. Under the bill, the 
Secretary is required to abate interest on any erroneous 
refund, provided the taxpayer has not in any way caused the 
erroneous refund to occur.

Allow the abatement of interest to the extent the interest is 
        attributable to taxpayer reliance on written statements of the 
        IRS

    The bill requires the Secretary to abate interest on an 
underpayment where the underpayment is attributable to 
erroneous advice furnished to the taxpayer in writing by an 
officer or employee of the IRS acting in his or her official 
capacity. It is anticipated that the abatement would apply to 
interest attributable to the period of time from the issuance 
of the erroneous advice through the day that is 21 days (10 
days in the case of an underpayment in excess of $100,000) 
after the day the IRS gives written notice that its advice was 
erroneous. The bill does not eliminate the taxpayer's 
obligation to satisfy any underpayment of tax attributable to 
such erroneous advice.


                             EFFECTIVE DATE


    The changes made by these provisions are effective with 
respect to interest accruing on or after the date of enactment.

   D. Deposits Made To Suspend the Running of Interest on Potential 
                             Underpayments


(Sec. 104 of the bill and new sec. 6603 of the Code)


                              PRESENT LAW


    Generally, interest on underpayments and overpayments 
continues to accrue during the period that a taxpayer and the 
IRS dispute a liability. The accrual of interest on an 
underpayment is suspended if the IRS fails to notify an 
individual taxpayer in a timely manner,\19\ but interest will 
begin to accrue once the taxpayer is properly notified. No 
similar suspension is available for other taxpayers.
---------------------------------------------------------------------------
    \19\ Sec. 6404(g).
---------------------------------------------------------------------------
    A taxpayer that wants to limit its exposure to underpayment 
interest has a limited number of options. The taxpayer can 
continue to dispute the amount owed and risk paying a 
significant amount of interest. If the taxpayer continues to 
dispute the amount and ultimately loses, the taxpayer will be 
required to pay interest on the underpayment from the original 
due date of the return until the date of payment.
    In order to avoid the accrual of underpayment interest, the 
taxpayer may choose to pay the disputed amount and immediately 
file a claim for refund. Payment of the disputed amount will 
prevent further interest from accruing if the taxpayer loses 
(since there is no longer any underpayment) and the taxpayer 
will earn interest on the resultant overpayment if the taxpayer 
wins. However, the taxpayer will generally lose access to the 
Tax Court if it follows this alternative.\20\ Amounts paid 
generally cannot be recovered by the taxpayer on demand, but 
must await final determination of the taxpayer's liability. 
Even if an overpayment is ultimately determined, overpaid 
amounts may not be refunded if they are eligible to be offset 
against other liabilities of the taxpayer.\21\
---------------------------------------------------------------------------
    \20\ The taxpayer may, however, sue the IRS for the refund in 
either the U.S. District Court or the U.S. Court of Federal Claims.
    \21\ The amount of any overpayment, including interest thereon, may 
be credited against any other internal revenue tax liability of the 
taxpayer (sec. 6402(a)). In addition, the overpayment and any 
overpayment interest may be used to offset past due support payments 
(sec. 6402(c)), debts owed to other Federal agencies (sec. 6402(d)), 
and past due, legally enforceable State income tax obligations of 
residents of the same State (sec. 6402(e)).
---------------------------------------------------------------------------
    The taxpayer may also make a deposit in the nature of a 
cash bond. The procedures for making a deposit in the nature of 
a cash bond are provided in Rev. Proc. 84-58.\22\
---------------------------------------------------------------------------
    \22\ 1984-2 C.B. 501.
---------------------------------------------------------------------------
    A deposit in the nature of a cash bond will stop the 
running of interest on an amount of underpayment equal to the 
deposit, but the deposit does not itself earn interest. A 
deposit in the nature of a cash bond is not a payment of tax 
and is not subject to a claim for credit or refund. A deposit 
in the nature of a cash bond may be made for all or part of the 
disputed liability and generally may be recovered by the 
taxpayer prior to a final determination. However, a deposit in 
the nature of a cash bond need not be refunded to the extent 
the Secretary determines that the assessment or collection of 
the tax determined would be in jeopardy, or that the deposit 
should be applied against another liability of the taxpayer in 
the same manner as an overpayment of tax.\23\ If the taxpayer 
recovers the deposit prior to final determination and a 
deficiency is later determined, the taxpayer will not receive 
credit for the period in which the funds were held as a 
deposit. The taxable year to which the deposit in the nature of 
a cash bond relates must be designated, but the taxpayer may 
request that the deposit be applied to a different year under 
certain circumstances.\24\
---------------------------------------------------------------------------
    \23\ Rev. Proc. 84-58, sec. 4.02(1).
    \24\ Id. sec. 4.02(4).
---------------------------------------------------------------------------


                           REASONS FOR CHANGE


    The Committee believes that an improved deposit system that 
allows for the payment of interest on amounts that are not 
ultimately needed to offset tax liability when the taxpayer's 
position is upheld, as well as allowing for the offset of tax 
liability when the taxpayer's position fails, will provide an 
effective way for taxpayers to manage their exposure to 
underpayment interest. However, the Committee believes that 
such an improved deposit system should be reserved for the 
issues that are known to both parties, either through IRS 
examination or voluntary taxpayer disclosure.


                        EXPLANATION OF PROVISION


In general

    The bill allows a taxpayer to deposit cash with the IRS 
that may subsequently be used to pay an underpayment of income, 
gift, estate, generation-skipping, or certain excise taxes. 
Interest will not be charged on the portion of the underpayment 
that is paid by the deposited amount for the period the amount 
is on deposit. Generally, deposited amounts that have not been 
used to pay a tax may be withdrawn at any time if the taxpayer 
so requests in writing. The withdrawn amounts will earn 
interest at the applicable Federal rate to the extent they are 
attributable to a disputable tax.
    The Secretary may issue rules relating to the making, use, 
and return of the deposits.

Use of a deposit to offset underpayments of tax

    Any amount on deposit may be used to pay an underpayment of 
tax that is ultimately assessed. If an underpayment is paid in 
this manner, the taxpayer will not be charged underpayment 
interest on the portion of the underpayment that is so paid for 
the period the funds were on deposit.
    For example, assume a calendar year individual taxpayer 
deposits $20,000 on May 15, 2003, with respect to a disputable 
item on its 2002 income tax return. On April 15, 2005, an 
examination of the taxpayer's year 2002 income tax return is 
completed, and the taxpayer and the IRS agree that the taxable 
year 2002 taxes were underpaid by $25,000. The $20,000 on 
deposit is used to pay $20,000 of the underpayment, and the 
taxpayer also pays the remaining $5,000. In this case, the 
taxpayer will owe underpayment interest from April 15, 2003 
(the original due date of the return) to the date of payment 
(April 15, 2005) only with respect to the $5,000 of the 
underpayment that is not paid by the deposit. The taxpayer will 
owe underpayment interest on the remaining $20,000 of the 
underpayment only from April 15, 2003, to May 15, 2003, the 
date the $20,000 was deposited.

Withdrawal of amounts

    A taxpayer may request the withdrawal of any amount of 
deposit at any time. The Secretary must comply with the 
withdrawal request unless the amount has already been used to 
pay tax or the Secretary properly determines that collection of 
tax is in jeopardy. Interest will be paid on deposited amounts 
that are withdrawn at a rate equal to the short-term applicable 
Federal rate for the period from the date of deposit to a date 
not more than 30 days preceding the date of the check paying 
the withdrawal.\25\ Interest is not payable to the extent the 
deposit was not attributable to a disputable tax.
---------------------------------------------------------------------------
    \25\ This 30-day period is consistent with other determinations of 
interest owed to a taxpayer.
---------------------------------------------------------------------------
    For example, assume a calendar year individual taxpayer 
receives a 30-day letter showing a deficiency of $20,000 for 
taxable year 2002 and deposits $20,000 on May 15, 2004. On 
April 15, 2005, an administrative appeal is completed, and the 
taxpayer and the IRS agree that the 2002 taxes were underpaid 
by $15,000. $15,000 of the deposit is used to pay the 
underpayment. In this case, the taxpayer will owe underpayment 
interest from April 15, 2003 (the original due date of the 
return) to May 15, 2004, the date the $20,000 was deposited. 
Simultaneously with the use of the $15,000 to offset the 
underpayment, the taxpayer requests the return of the remaining 
amount of the deposit (after reduction for the underpayment 
interest owed by the taxpayer from April 15, 2001, to May 15, 
2002). This amount must be returned to the taxpayer with 
interest determined at the short-term applicable Federal rate 
from May 15, 2004, to a date not more than 30 days preceding 
the date of the check repaying the deposit to the taxpayer.

Limitation on amounts for which interest may be allowed

    Interest on a deposit that is returned to a taxpayer shall 
be allowed for any period only to the extent attributable to a 
disputable item for that period. A disputable item is any item 
for which the taxpayer (1) has a reasonable basis for the 
treatment used on its return and (2) reasonably believes that 
the Secretary also has a reasonable basis for disallowing the 
taxpayer's treatment of such item.
    All items included in a 30-day letter to a taxpayer are 
deemed disputable for this purpose. Thus, once a 30-day letter 
has been issued, the disputable amount cannot be less than the 
amount of the deficiency shown in the 30-day letter. A 30-day 
letter is the first letter of proposed deficiency that allows 
the taxpayer an opportunity for administrative review in the 
Internal Revenue Service Office of Appeals.

Deposits are not payments of tax

    A deposit is not a payment of tax prior to the time the 
deposited amount is used to pay a tax. Thus, the interest 
received on withdrawn deposits will not be eligible for the 
proposed exclusion from income of an individual. Similarly, 
withdrawal of a deposit will not establish a period for which 
interest was allowable at the short-term applicable Federal 
rate for the purpose of establishing a net zero interest rate 
on a similar amount of underpayment for the same period.


                             EFFECTIVE DATE


    The provision applies to deposits made after the date of 
enactment. Amounts already on deposit as of the date of 
enactment are treated as deposited (for purposes of applying 
this provision) on the date the taxpayer identifies the amount 
as a deposit made pursuant to this provision.

            E. Expansion of Interest Netting for Individuals


(Sec. 105 of the bill and sec. 6621 of the Code)


                              PRESENT LAW


    A special net interest rate of zero applies 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.\26\ If both the 
underpayment and overpayment are unsatisfied, the interest rate 
applied to both will be zero. If either the underpayment or 
overpayment has previously been satisfied, the interest rate 
applicable to the unsatisfied amount will be equal to the 
interest rate applicable to the satisfied amount to the extent 
that interest was allowable or payable on both the underpayment 
and the overpayment for the same period.
---------------------------------------------------------------------------
    \26\ This provision was enacted in section 3301 of the IRS Reform 
Act.
---------------------------------------------------------------------------
    Interest must be both payable and allowable for interest 
netting to apply. If interest is not payable by the taxpayer 
with respect to an underpayment of tax, or interest is not 
allowable to the taxpayer on an overpayment of tax, the 
interest netting rules will not apply.
    For example, on July 1, 2003, a deficiency of $1,500 is 
determined with respect to an individual taxpayer's 2000 
Federal income tax return, which the taxpayer pays within 21 
days. In the meantime, the taxpayer has filed returns for 2001 
and 2002, showing a refund due to overwithholding each year of 
$1,000. The IRS issues the appropriate refund checks on May 15 
of each year, within 45 days of the due date of the return. 
Thus, interest is not allowable to the taxpayer with respect to 
either 2001 or 2002.\27\ In this case, the taxpayer owes 
interest on the $1500 year 2000 underpayment from the original 
due date of the return (April 15, 2001) until the underpayment 
is satisfied.\28\ Although, there are offsetting periods of 
overpayment (April 15, 2002 to May 15, 2002 and April 15, 2003 
to May 15, 2003), there is no offsetting period for which 
interest is allowable on an overpayment.
---------------------------------------------------------------------------
    \27\ Sec. 6611(e)(1) provides that no interest will be allowable if 
any overpayment of tax is refunded within 45 days after the return is 
filed.
    \28\ If the underpayment is satisfied within 21 days of the 
determination on July 1, 2003, the taxpayer does not owe interest for 
any portion of time after that date (sec. 6601(e)(3)).
---------------------------------------------------------------------------


                           REASONS FOR CHANGE


    The Committee believes that individual taxpayers should be 
allowed to consider the period of time the Secretary is allowed 
to process a refund in determining a net interest rate.


                        EXPLANATION OF PROVISION


    In the case of an individual taxpayer, the interest netting 
rules are applied without regard to the 45-day period in which 
the Secretary may refund an overpayment of tax without the 
payment of interest under section 6611(e). Solely for the 
purpose of the interest netting computation, the portion of the 
45-day period before repayment of the overpayment is considered 
as a period for which overpayment interest was allowable at a 
zero rate. The provision does not modify the period for which 
interest is payable or allowable for any other purpose.
    In the example discussed as part of present law, above, a 
net interest rate of zero would be applied to $1,000 of the 
taxpayer's year 2000 underpayment for the periods between the 
due date of the 2002 and 2003 returns and the dates on which 
the refunds are made. The taxpayer in the example would owe 
interest at the underpayment rate for the periods from April 
16, 2001 to April 16, 2002; May 16, 2002 to April 16, 2003; and 
from May 16, 2003 to July 1, 2003. For the periods April 16 to 
May 15, 2002 and April 16, 2003 to May 15, 2003, a zero net 
interest rate will apply.


                             EFFECTIVE DATE


    The provision is effective for interest accrued after 
December 31, 2002.

   F. Waiver of Certain Penalties for First-Time Unintentional Minor 
                                 Errors


(Sec. 106 of the bill and sec. 6651 of the Code)


                              PRESENT LAW


    Taxpayers who fail to file tax returns or pay taxes as 
required by the Code are subject to penalty (sec. 6651). The 
Code authorizes the IRS to waive these penalties for reasonable 
cause. There is no explicit statutory provision providing a 
waiver for first-time unintentional minor errors.


                           REASONS FOR CHANGE


    The Committee recognizes that the Secretary has broad 
authority to abate penalties \29\ generally, as well as 
specific authority to waive these penalties for reasonable 
cause.\30\ The Committee believes that the Secretary has not 
always exercised this authority with respect to unintentional, 
minor errors that are committed by individual taxpayers.\31\ 
The Committee believes that it will promote effective tax 
administration to add to the Secretary's authority an explicit 
waiver for certain first-time unintentional minor errors. The 
Committee intends that this addition to the Secretary's 
authority not be considered to diminish or constrain in any 
respect the Secretary's authority to abate or waive these 
penalties under present law.
---------------------------------------------------------------------------
    \29\ Sec. 6404.
    \30\ Sec. 6651(a)(1), (2), and (3),
    \31\ See National Taxpayer Advocate FY 2001 Annual Report to 
Congress (NTA 2001 Report) (December 31, 2001), p. 188.
---------------------------------------------------------------------------


                        EXPLANATION OF PROVISION


    The bill explicitly permits the IRS to waive these 
penalties for unintentional minor errors that are committed by 
an individual taxpayer with a good history of tax compliance 
and the penalty for which would be grossly disproportionate to 
the action or expense that would have been needed to avoid the 
error. Waiving these penalties under these circumstances must 
also promote tax compliance and effective tax administration. 
This waiver is applicable once to a taxpayer.


                             EFFECTIVE DATE


    The provision is effective after December 31, 2002.

                G. Frivolous Tax Returns and Submissions


(Sec. 107 of the bill and sec. 6702 of the Code)


                              PRESENT LAW


    The Code provides that an individual who files a frivolous 
income tax return is subject to a penalty of $500 imposed by 
the IRS (sec. 6702). The Code also permits the Tax Court \32\ 
to impose a penalty of up to $25,000 if a taxpayer has 
instituted or maintained proceedings primarily for delay or if 
the taxpayer's position in the proceeding is frivolous or 
groundless (sec. 6673(a)).
---------------------------------------------------------------------------
    \32\ Because in general the Tax Court is the only pre-payment forum 
available to taxpayers, it deals with most of the frivolous, 
groundless, or dilatory arguments raised in tax cases.
---------------------------------------------------------------------------


                           REASONS FOR CHANGE


    The Committee believes that adopting this provision from 
the President's budget proposal will improve effective tax 
administration.


                        EXPLANATION OF PROVISION


    The bill modifies this IRS-imposed penalty by increasing 
the amount of the penalty to up to $5,000 and by applying it to 
all taxpayers and to all types of Federal taxes.
    The provision also modifies present law with respect to 
certain submissions that raise frivolous arguments or that are 
intended to delay or impede tax administration. The submissions 
to which this provision applies are requests for a collection 
due process hearing, installment agreements, offers-in-
compromise, and taxpayer assistance orders. First, the 
provision permits the IRS to dismiss such requests. Second, the 
provision permits the IRS to impose a penalty of up to $5,000 
for such requests, unless the taxpayer withdraws the request 
after being given an opportunity to do so.
    The provision requires the IRS to publish a list of 
positions, arguments, requests, and proposals determined to be 
frivolous for purposes of these provisions.


                             EFFECTIVE DATE


    The provision is effective for submissions made and issues 
raised after the date on which the Secretary first prescribes 
the required list.

     H. Clarification of Application of Federal Tax Deposit Penalty


(Sec. 108 of the bill)


                              PRESENT LAW


    In many instances, taxpayers are required to make deposits 
of Federal taxes (sec. 6302). Failure to do so is subject to a 
penalty (sec. 6656). The amount of that penalty depends on the 
length of time that the deposit was not made. The penalty is 2 
percent of the underpayment if the failure to deposit is for 
not more than 5 days, 5 percent for 6 through 15 days, and 10 
percent for more than 15 days. The IRS has stated its position 
that the 10 percent penalty rate automatically applies if a 
deposit is not made in the manner required.\33\
---------------------------------------------------------------------------
    \33\ Rev. Rul. 95-68, 1995-2 C.B. 272, 273; Rev. Proc. 90-58, 1990-
2 C.B. 642.
---------------------------------------------------------------------------


                           REASONS FOR CHANGE


    The Committee believes that the position of the IRS does 
not reflect the intent of the Congress in enacting this 
penalty, that the rate of the penalty vary depending on the 
time of the failure, whether the failure being penalized is a 
failure to make a deposit in the manner required or a failure 
to make a deposit at all. The Committee considers it anomalous 
that the IRS would interpret this penalty so that individuals 
who make the correct deposit but not in the manner required are 
penalized at a higher rate than those that do not make a 
deposit at all until several days after the due date. The 
Committee believes it is more appropriate to penalize taxpayers 
in similar situations similarly.


                        EXPLANATION OF PROVISION


    The application of the Federal tax deposit penalty is 
clarified so that the 10 percent penalty rate only applies in 
cases where the failure to deposit extends for more than 15 
days. Thus, a taxpayer who makes a deposit on time but not in 
the manner required will be subject to a penalty of 2 percent.


                             EFFECTIVE DATE


    The provision is effective on the date of enactment.

     TITLE II--IMPROVING THE FAIRNESS OF IRS COLLECTION PROCEDURES


A. Authorize IRS To Enter Into Installment Agreements That Provide for 
                            Partial Payment


(Sec. 201 of the bill and sec. 6159 of the Code)


                              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 (sec. 6159). An 
installment agreement does not reduce the amount of taxes, 
interest, or penalties owed. Generally, during the period 
installment payments are being made, other IRS enforcement 
actions (such as levies or seizures) with respect to the taxes 
included in that agreement are held in abeyance.\34\
---------------------------------------------------------------------------
    \34\ Sec. 6331(k).
---------------------------------------------------------------------------
    Prior to 1998, the IRS administratively entered into 
installment agreements that provided for partial payment 
(rather than full payment) of the total amount owed over the 
period of the agreement. In that year, the IRS Chief Counsel 
issued a memorandum concluding that partial payment installment 
agreements were not permitted.


                           REASONS FOR CHANGE


    The Committee believes that clarifying that the IRS is 
authorized to enter into installment agreements with taxpayers 
which do not provide for full payment of the taxpayer's 
liability over the life of the agreement will improve effective 
tax administration.
    The Committee recognizes that some taxpayers are unable or 
unwilling to enter into a realistic offer in compromise.\35\ 
The Committee believes that these taxpayers should be 
encouraged to make partial payments toward resolving their tax 
liability, and that providing for partial payment installment 
agreements will help facilitate this. The Committee also 
believes, however, that the offer in compromise program should 
remain the sole avenue via which taxpayers fully resolve their 
tax liabilities and attain a fresh start.
---------------------------------------------------------------------------
    \35\ Sec. 7122.
---------------------------------------------------------------------------


                        EXPLANATION OF PROVISION


    The provision clarifies that the IRS is authorized to enter 
into installment agreements with taxpayers which do not provide 
for full payment of the taxpayer's liability over the life of 
the agreement. The provision also requires the IRS to review 
partial payment installment agreements at least every two 
years. The primary purpose of this review is to determine 
whether the financial condition of the taxpayer has 
significantly changed so as to warrant an increase in the value 
of the payments being made.


                             EFFECTIVE DATE


    The provision is effective for installment agreements 
entered into on or after the date of enactment.

              B. Extend Time Limit for Contesting IRS Levy


(Sec. 202 of the bill and sec. 6343 of the Code)


                              PRESENT LAW


    The IRS is authorized to return property that has been 
wrongfully or mistakenly levied upon (sec. 6343). In general, 
monetary proceeds may be returned within 9 months of the date 
of the levy.


                           REASONS FOR CHANGE


    The Committee understands that in many cases this 9-month 
period may be insufficient for taxpayers or third parties to 
discover a wrongful or mistaken levy and seek to remedy it.\36\ 
Accordingly, the Committee believes it is appropriate to 
provide for a longer period of time within which a person may 
contest a wrongful IRS levy.
---------------------------------------------------------------------------
    \36\ NTA 2001 Report, p. 205.
---------------------------------------------------------------------------


                        EXPLANATION OF PROVISION


    The bill extends this 9-month period to 2 years.


                             EFFECTIVE DATE


    The provision is effective on the date of enactment.

        C. Restoration of Retirement Savings After Improper Levy


(Sec. 203 of the bill and sec. 6343 of the Code)


                              PRESENT LAW


    Distributions from an individual retirement arrangement 
(``IRA'') made on account of an IRS levy are includible in the 
gross income of the individual under the rules applicable to 
the IRA subject to the levy. Thus, in the case of a traditional 
IRA, the amount withdrawn as a result of a levy is includible 
in gross income except to the extent such amount represents a 
return of nondeductible contributions (i.e., basis). In the 
case of a Roth IRA, earnings on a distribution are excludable 
from gross income if the distribution is made (1) after the 
five-taxable year period beginning with the first taxable year 
for which the individual made a contribution to a Roth IRA and 
(2) after attainment of age 59\1/2\ or on account of certain 
other circumstances. Amounts withdrawn from an IRA due to a 
levy are not subject to the 10-percent early withdrawal tax, 
regardless of whether the amount is includible in income.
    Present law provides rules under which the IRS returns 
amounts subject to a levy. For example, amounts withdrawn from 
an IRA pursuant to a levy are returned to the individual owning 
the IRA in the case of a wrongful levy or if the levy was not 
in accordance with IRS administrative procedures. In the case 
of a wrongful levy, the IRS is required to pay interest on the 
amount returned to the individual at the overpayment rate.
    Present law does not provide special rules to allow an 
individual to recontribute to an IRA amounts withdrawn from an 
IRA pursuant to a levy and later returned to the individual by 
the IRS (or interest thereon). Thus, if an individual wishes to 
contribute such returned amounts to an IRA, the contribution 
would be subject to the normally applicable rules for IRA 
contributions.


                           REASONS FOR CHANGE


    IRA assets provide an important source of retirement income 
for many Americans. Under present law, if the IRS levies on an 
IRA, the individual owning the IRA may not be made whole, even 
if the IRS returns the amount levied, with interest, because 
the individual may lose the opportunity to have those funds 
accumulate on a tax-favored basis until retirement. The 
Committee believes that levies should not reduce retirement 
income security for IRA owners. Thus, the Committee bill 
provides that IRA funds that are withdrawn pursuant to an IRS 
levy and returned by the IRS may be recontributed to the IRA.


                        EXPLANATION OF PROVISION


    Under the provision, an individual is able to recontribute 
to an IRA amounts withdrawn pursuant to a levy and returned by 
the IRS (and any interest thereon) within 60 days of receipt by 
the individual, without regard to the normally applicable 
limits on IRA contributions and rollovers. The provision 
applies to levied amounts returned to the individual because 
the levy (1) was wrongful or (2) is determined to be premature 
or otherwise not in accordance with administrative procedures. 
The contribution has to be made to the same type of IRA from 
which the amounts were withdrawn.
    Under the provision, the IRS is required to pay interest on 
amounts returned to the individual at the overpayment rate in 
the case of a levy that is determined to be premature or 
otherwise not in accordance with administrative procedures (as 
well as in the case of a wrongful levy under present law). 
Interest paid by the IRS on the amount returned to the 
individual and contributed to the IRA is treated as part of the 
distribution made from the IRA on account of the levy and is 
not includible in gross income. In addition, any tax 
attributable to an amount distributed from an IRA by reason of 
a levy is abated if the amount is recontributed to an IRA 
pursuant to the provision.


                             EFFECTIVE DATE


    The provision is effective for levied amounts (and interest 
thereon) returned to individuals after December 31, 2002.

 D. Place Threshold on Tolling of Statute of Limitations During Review 
                      by Taxpayer Advocate Service


(Sec. 204 of the bill and sec. 7811 of the Code)


                              PRESENT LAW


    Taxpayers suffering significant hardship may request that 
the Office of the Taxpayer Advocate issue a Taxpayer Assistance 
Order, which requires the IRS to take (or refrain from taking) 
specified actions (sec. 7811). The statute of limitations is 
suspended for the period beginning on the date of the 
taxpayer's application and ending on the date of the decision 
by the National Taxpayer Advocate.


                           REASONS FOR CHANGE


    The Committee believes that the administration of this 
suspension of the statute of limitations would be improved by 
disregarding relatively short periods of review by the Taxpayer 
Advocate.


                        EXPLANATION OF PROVISION


    The bill modifies this suspension of statute of limitations 
by applying it only if the date of the decision by the National 
Taxpayer Advocate is at least 7 days after the date of the 
taxpayer's application.


                             EFFECTIVE DATE


    The provision is effective on the date of enactment.

                      E. Study of Liens and Levies


(Sec. 205 of the bill)


                              PRESENT LAW


    To aid in the collection of tax liabilities, the IRS may 
impose liens and levies against property of the taxpayer.


                           REASONS FOR CHANGE


    The Committee is aware of situations in which the IRS 
appears to be misusing its resources by imposing liens on 
taxpayers' assets for tax debts that are significantly less 
than the cost of executing and recording a lien. The Committee 
is also concerned about the significant recent decline in the 
use by the IRS of certain enforcement actions, including liens 
and levies. The Committee believes that both of these 
situations may be related, at least in part, to improper 
personnel training or supervision.\37\ Accordingly, the 
Committee believes that a study of these provisions and their 
administration could provide the Committee with valuable 
information.
---------------------------------------------------------------------------
    \37\ See IRS Oversight Board FY 2001 Annual Report to Congress 
(January 2002), Table 2.
---------------------------------------------------------------------------


                        EXPLANATION OF PROVISION


    The bill requires the Treasury to conduct a study of the 
practices of the IRS concerning liens and levies. The study 
will examine the declining use of liens and levies by the IRS 
and the practicality of recording liens and levies against 
property in cases where the cost of such actions exceeds the 
amount to be realized from the property.


                             EFFECTIVE DATE


    The study is required to be submitted to the Congress not 
later than one year after the date of enactment.

       TITLE III--IMPROVING THE EFFICIENCY OF TAX ADMINISTRATION


A. Revisions Relating to Termination of Employment of IRS Employees for 
                               Misconduct


(Sec. 301 of the bill and new sec. 7804A of the Code)


                              PRESENT LAW


    Section 1203 of the IRS Restructuring and Reform Act of 
1998 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) 
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 material to a matter involving a taxpayer; 
(3) 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; (4) 
falsifying or destroying documents to conceal mistakes made by 
any employee with respect to a matter involving a taxpayer or a 
taxpayer representative; (5) 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; (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.
    Section 1203 also 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 Commissioner, in his sole 
discretion, may establish a procedure to determine whether an 
individual should be referred for such a determination by the 
Commissioner.


                           REASONS FOR CHANGE


    The Committee believes that clarifying the scope of these 
provisions and expanding the scope of the disciplinary actions 
the Commissioner may undertake, as was recommended in the 
President's budget proposal, will improve these provisions.


                        EXPLANATION OF PROVISION


    The bill requires that the Commissioner issue guidelines 
for determining the appropriate level of discipline, up to and 
including termination of employment, for the commission or 
omission of a specified act. The bill also removes from the 
list of violations (1) the late filing of refund returns and 
(2) employee versus employees acts. The bill adds to the list 
of violations (1) willful unauthorized inspection of returns 
and return information and (2) the requirement that other 
violations in general be willful. The bill also provides that, 
notwithstanding any other provision of law, any determination 
by the Commissioner may not be reviewed. Finally, the bill 
places the entire provision in the Internal Revenue Code.


                             EFFECTIVE DATE


    The provision is effective on the date of enactment.

  B. Confirmation of Tax Court Authority To Apply Equitable Recoupment


(Sec. 302 of the bill and sec. 6214 of the Code)


                              PRESENT LAW


    Equitable recoupment is a common-law equitable principle 
that permits the defensive use of an otherwise time-barred 
claim to reduce or defeat an opponent's claim if both claims 
arise from the same transaction. U.S. District Courts and the 
U.S. Court of Federal Claims, the two Federal tax refund 
forums, may apply equitable recoupment in deciding tax refund 
cases.\38\ In Estate of Mueller v. Commissioner,\39\ the Court 
of Appeals for the Sixth Circuit held that the Tax Court may 
not apply the doctrine of equitable recoupment. More recently, 
the Court of Appeals for the Ninth Circuit, in Branson v. 
Commissioner,\40\ held that the Tax Court may apply the 
doctrine of equitable recoupment.
---------------------------------------------------------------------------
    \38\ See Stone v. White, 301 U.S. 532 (1937); Bull v. United 
States, 295 U.S. 247 (1935).
    \39\ 153 F.3d 302 (6th Cir.), cert. den., 525 U.S. 1140 (1999).
    \40\ 264 F.3d 904 (9th Cir.), cert. den., 2002 U.S. LEXIS 1545 
(U.S. Mar. 18, 2002).
---------------------------------------------------------------------------


                           REASONS FOR CHANGE


    The Committee believes that it is important to resolve this 
conflict among the circuit courts.


                        EXPLANATION OF PROVISION


    The provision amends section 6214(b) to confirm that the 
Tax Court may apply the principle of equitable recoupment to 
the same extent that it may be applied in Federal civil tax 
cases by the U.S. District Courts or the U.S. Court of Claims. 
No implication is intended as to whether the Tax Court has the 
authority to continue to apply other equitable principles in 
deciding matters over which it has jurisdiction.


                             EFFECTIVE DATE


    The provision is effective for any action or proceeding in 
the Tax Court with respect to which a decision has not become 
final as of the date of enactment.

 C. Consolidate Review of Collection Due Process Cases in the Tax Court


(Sec. 303 of the bill and sec. 6330 of the Code)


                              PRESENT LAW


    In general, the IRS is required to notify taxpayers that 
they have a right to a fair and impartial hearing before levy 
may be made on any property or right to property (sec. 
6330(a)). Similar rules apply with respect to liens (sec. 
6320). The hearing is held by an impartial officer from the IRS 
Office of Appeals, who is required to issue a determination 
with respect to the issues raised by the taxpayer at the 
hearing. The taxpayer is entitled to appeal that determination 
to a court. That appeal must be brought to the United States 
Tax Court, unless the Tax Court does not have jurisdiction over 
the underlying tax liability. If that is the case, then the 
appeal must be brought in the district court of the United 
States (sec. 6330(d)). Special rules apply if the taxpayer 
files the appeal in the incorrect court.
    The United States Tax Court is established under Article I 
of the United States Constitution \41\ and is a court of 
limited jurisdiction.\42\
---------------------------------------------------------------------------
    \41\ Sec. 7441.
    \42\ Sec. 7442.
---------------------------------------------------------------------------


                           REASONS FOR CHANGE


    The Committee believes that clarifying this judicial review 
provision, as was recommended in the President's budget 
proposal, will improve its functioning.


                        EXPLANATION OF PROVISION


    The provision consolidates all judicial review of these 
collection due process determinations in the United States Tax 
Court.


                             EFFECTIVE DATE


    The provision applies to judicial appeals filed after the 
date of enactment.

       D. Office of Chief Counsel Review of Offers-in-Compromise


(Sec. 304 of the bill and sec. 7122 of the Code)


                              PRESENT LAW


    The IRS has the authority to settle a tax debt pursuant to 
an offer-in-compromise. IRS regulations provide that such 
offers can be accepted if the taxpayer is unable to pay the 
full amount of the tax liability and it is doubtful that the 
tax, interest, and penalties can be collected or there is doubt 
as to the validity of the actual tax liability. Amounts of 
$50,000 or more can only be accepted if the reasons for the 
acceptance are documented in detail and supported by a written 
opinion from the IRS Chief Counsel (sec. 7122).


                           REASONS FOR CHANGE


    The Committee believes that eliminating this threshold 
requiring review, as was recommended in the President's budget 
proposal, will permit the IRS to focus its review resources on 
the most important cases, regardless of dollar value.


                        EXPLANATION OF PROVISION


    The provision repeals the requirement that an offer-in-
compromise of $50,000 or more must be supported by a written 
opinion from the Office of Chief Counsel. Written opinions must 
only be provided if the Secretary determines that an opinion is 
required with respect to a compromise.


                             EFFECTIVE DATE


    The provision applies to offers-in-compromise submitted or 
pending on or after the date of enactment.

 E. Extend the Due Date for Electronically Filed Tax Returns by 15 Days


(Sec. 305 of the bill and sec. 6072 of the Code)


                              PRESENT LAW


    In general, individuals must file their income tax returns 
and pay the full amount owed by April 15 (sec. 6072(a)). This 
deadline applies regardless of the method the taxpayer may 
choose to submit the tax return to the IRS. The Secretary may 
grant reasonable extensions of time for filing returns, but in 
general the time for paying tax cannot be extended (sec. 
6081(a)). Failure to file or pay on a timely basis may subject 
the taxpayer to interest and penalties.


                           REASONS FOR CHANGE


    The Committee believes that extending the due date for 
filing and paying individual income taxes to April 30 provided 
that the taxpayer files the return electronically and pays the 
entire balance due electronically by that date, which was 
recommended in the President's budget proposal, will 
significantly increase the number of tax returns filed 
electronically. This should reduce the cost of processing tax 
returns and facilitate meeting the statutory goal of having 80 
percent of Federal tax and information returns filed 
electronically by the year 2007.\43\
---------------------------------------------------------------------------
    \43\ Sec. 2001(a) of the Internal Revenue Service Restructuring and 
Reform Act of 1998, Pub. L. 105-206, July 22, 1998.
---------------------------------------------------------------------------


                        EXPLANATION OF PROVISION


    The bill extends the due date for filing and paying 
individual income taxes to April 30 provided that the taxpayer 
files the return electronically and pays the entire balance due 
electronically by that date. The due date for filing by any 
other method or for filing electronically but paying the 
balance due by non-electronic means is not changed.


                             EFFECTIVE DATE


    The provision is effective for returns filed after December 
31, 2002.

             TITLE IV--TAXPAYER INFORMATION CONFIDENTIALITY


  A. Collection Activities With Respect to a Joint Return Disclosable 
                         Based on Oral Request


(Sec. 401 of the bill and sec. 6103(e) of the Code)


                              PRESENT LAW


    Section 6103(e) concerns disclosures to persons with a 
material interest. Section 6103(e)(7) permits the IRS to 
disclose return information to the same persons who may have 
access to a return under the other provisions of section 
6103(e). Pursuant to this section 6103(e)(7) and section 
6103(e)(1)(B), either spouse may obtain return information 
regarding a joint return. This includes collection information. 
Requests for information pursuant to this section do not have 
to be in writing.
    In response to concerns that former spouses were not able 
to obtain information regarding collection activities relating 
to a joint return, the Taxpayer Bill of Rights 2 added section 
6103(e)(8).\44\ When a deficiency is assessed with respect to a 
joint return, upon written request, section 6103(e)(8) permits 
the IRS to disclose: (1) whether the IRS has attempted to 
collect such deficiency from the other individual; (2) the 
general nature of such collection activities; and (3) the 
amount collected.\45\ This provision applies if individuals who 
filed the joint return are no longer married or no longer 
reside in the same household. Requests under this section must 
be in writing.
---------------------------------------------------------------------------
    \44\ ``The IRS does not routinely disclose collection information 
to a former spouse that relates to tax liabilities attributable to a 
joint return that was filed when married.'' Joint Committee on 
Taxation, General Explanation of Taxation Legislation Enacted in the 
104th Congress (JCS-12-96), December 18, 1996 at 29.
    \45\ Sec. 6103(e)(8).
---------------------------------------------------------------------------


                           REASONS FOR CHANGE


    The Committee believes that former spouses should be able 
to receive collection information with respect to a joint 
return in the same manner as if they were current spouses. 
Thus, a former spouse should not be required to make a written 
request because if the spouses were still married, a written 
request would not be required.


                        EXPLANATION OF PROVISION


    The bill eliminates the requirement for former spouses to 
make a written request for disclosure of collection activities 
with respect to a joint return.


                             EFFECTIVE DATE


    The provision applies to requests made after the date of 
enactment.

    B. Taxpayer Representatives Not Subject to Examination Without 
                          Supervisor Approval


(Sec. 402 of the bill and sec. 6103(h) of the Code)


                              PRESENT LAW


    Under section 6103(h)(1), returns and return information 
are, without written request, open to inspection by or 
disclosure to officers and employees of the Department of the 
Treasury, including IRS employees, whose official duties 
require such inspection or disclosure for tax administration 
purposes. The Office of Chief Counsel issued an opinion stating 
that it was appropriate for a local IRS employee to examine tax 
records to determine whether taxpayer representatives who 
submit Form 2848 (Power of Attorney) are current in their tax 
obligations.\46\ The opinion concluded that section 6103(h)(1) 
permits local IRS employees to access the Integrated Data 
Retrieval System \47\ to determine whether a taxpayer's 
representative is current in his or her tax obligations.
---------------------------------------------------------------------------
    \46\ Internal Revenue Service, IRS Legal Memorandum ILM 199
    \47\ The Integrated Data Retrieval System (commonly referred to as 
``IDRS'') is the IRS' primary computer database for return information.
---------------------------------------------------------------------------


                           REASONS FOR CHANGE


    The Committee believes that the official duties of the IRS 
employee examining a taxpayer concern the tax affairs of the 
taxpayer, not the taxpayer's representative. The taxpayer is 
under audit, not the taxpayer's representative. Whether the 
representative has filed his or her returns ordinarily has no 
bearing on the IRS's determination of the liability of the 
taxpayer. An IRS employee should make a referral to the 
Director of Practice, if the employee has reason to believe the 
taxpayer's representative has engaged in inappropriate 
behavior.


                        EXPLANATION OF PROVISION


    The provision clarifies that an IRS employee conducting an 
examination of a taxpayer is not authorized to inspect a 
taxpayer representative's return or return information solely 
on the basis of the representative's relationship to the 
taxpayer. Under the provision, the supervisor of the IRS 
employee is required to approve such inspection after making a 
determination that other grounds justified such an inspection. 
The provision does not affect the ability of employees of the 
IRS Director of Practice, or other employees whose assigned 
duties concern the regulation of practice before the IRS, to 
access returns and return information of a representative.


                             EFFECTIVE DATE


    The provision is effective on the date of enactment.

 C. Disclosure in Judicial or Administrative Tax Proceedings of Return 
and Return Information of Persons Who Are Not Party to Such Proceedings


(Sec. 403 of the bill and sec. 6103(h) of the Code)


                              PRESENT LAW


    Under section 6103(h)(4), a return or return information 
may be disclosed in a Federal or State judicial or 
administrative proceeding pertaining to tax administration 
under certain circumstances. Under section 6103(h)(4)(A), such 
information may be disclosed if the taxpayer is a party to the 
proceeding or if the proceeding arose out of, or in connection 
with, determining the taxpayer's liability with respect to any 
tax. Under section 6103(h)(4)(B), such information may be 
disclosed if the treatment of an item reflected on a return is 
directly related to the resolution of an issue in the 
proceeding. Under section 6103(h)(4)(C), such information may 
be disclosed if the return or return information directly 
relates to a transactional relationship between a person who is 
a party to the proceeding and the taxpayer which directly 
affects the resolution of an issue in the proceeding. Thus, the 
returns and return information of a nonparty taxpayer may be 
disclosed if one of these requirements are met. The statute 
does not require that the nonparty taxpayer be given notice or 
be consulted prior to disclosure.


                           REASONS FOR CHANGE


    The Committee believes that nonparty taxpayers should be 
afforded notice of when their returns or return information is 
disclosed in a judicial or administrative proceeding pertaining 
to tax administration. The Committee also believes that such 
nonparty taxpayers should be consulted regarding the disclosure 
of sensitive information in such a proceeding. The purpose of 
the provision is to give notice to a nonparty prior to the 
disclosure of a return or return information. The nonparty 
notification requirements are not intended to adversely affect 
the parties to the litigation.


                        EXPLANATION OF PROVISION


    The provision requires that only the portions of a nonparty 
return or return information that directly relate to the 
resolution of an issue in the proceeding are to be disclosed in 
such proceeding. When nonparty returns and return information 
are to be disclosed under section 6103(h)(4)(B) and (C),\48\ 
the provision requires that an effort be made to give notice to 
the taxpayer prior to the disclosure. The notice must include a 
statement of the issue or issues for which such return or 
return information affects resolution. Finally, the nonparty 
taxpayer must be given an opportunity to request the deletion 
of certain matters from the return or return information that 
would be disclosed. For purposes of S corporations, 
partnerships, estates, and trusts, the notice is to be made at 
the entity level.
---------------------------------------------------------------------------
    \48\ Under the proposal these provisions would be redesignated as 
clauses ii, and iii of section 6103(h)(4)(A).
---------------------------------------------------------------------------
    The provision does not afford a right to intervene or for 
judicial review of the requested redactions. The notification 
requirements are not intended to apply to ex parte proceedings 
for securing a search warrant, orders for entry on premises or 
safe deposit boxes, or similar ex parte proceedings. The 
notification requirements do not apply to the disclosure of 
third party return information by indictment or criminal 
information. The notice provision also does not apply if it 
would seriously impair a criminal tax investigation or 
proceeding. The bill exempts from this provision actions to 
enjoin income tax return preparers,\49\ to enjoin promoters of 
abusive tax shelters,\50\ and to enjoin flagrant political 
expenditures of section 501(c)(3) organizations.\51\
---------------------------------------------------------------------------
    \49\ Sec. 7407.
    \50\ Sec. 7408.
    \51\ Sec. 7409.
---------------------------------------------------------------------------


                             EFFECTIVE DATE


    The provision applies to proceedings commenced after the 
date of enactment.

  D. Prohibition of Disclosure of Taxpayer Identification Information 
      With Respect to Disclosure of Accepted Offers-in-Compromise


(Sec. 404 of the bill and sec. 6103(k) of the Code)


                              PRESENT LAW


    Section 6103 permits the IRS to disclose return information 
to members of the general public to permit inspection of 
accepted offers in compromise.\52\ The IRS makes summaries of 
the accepted offers in compromise, Form 7249--Offer Acceptance 
Report, available for public inspection in the IRS district 
offices. Currently, this form contains the taxpayer 
identification number of the taxpayer, e.g., the social 
security number in the case of an individual taxpayer, along 
with the taxpayer's name and full address.
---------------------------------------------------------------------------
    \52\ Sec. 6103(k)(l).
---------------------------------------------------------------------------


                           REASONS FOR CHANGE


    Summaries of accepted offers in compromise, Form 7249--
Offer Acceptance Report, are available for public inspection in 
the IRS district offices. Currently, this form contains the 
taxpayer identification number of the taxpayer, e.g., the 
social security number in the case of an individual taxpayer, 
along with the taxpayer's name and full address. The Committee 
believes that the disclosure of a taxpayer's taxpayer 
identification number and address is unnecessary and an 
unwarranted invasion of privacy. In addition, the Committee 
believes such disclosure provides an opportunity for identity 
fraud and abuse.


                        EXPLANATION OF PROVISION


    The bill prohibits the disclosure of the taxpayer's address 
and taxpayer identification number as part of the publicly 
available summaries of accepted offers in compromise.


                             EFFECTIVE DATE


    The provision applies to disclosures made after the date of 
enactment.

      E. Compliance by Contractors With Confidentiality Safeguards


(Sec. 405 of the bill and sec. 6103(p) of the Code)


                              PRESENT LAW


    Section 6103 permits the disclosure of returns and return 
information to State agencies, as well as to other Federal 
agencies for specified purposes. Section 6103(p)(4) requires, 
as conditions of receiving returns and return information, that 
State agencies (and others) provide safeguards as prescribed by 
the Secretary of the Treasury by regulation to be necessary or 
appropriate to protect the confidentiality of returns or return 
information.\53\ It also requires that a report be furnished to 
the Secretary at such time and containing such information as 
prescribed by the Secretary regarding the procedures 
established and utilized for ensuring the confidentiality of 
returns and return information.\54\ After an administrative 
review, the Secretary may take such actions as are necessary to 
ensure these requirements are met, including the refusal to 
disclose returns and return information.\55\
---------------------------------------------------------------------------
    \53\ Sec. 6103(p)(4)(D).
    \54\ Sec. 6103(p)(4)(E).
    \55\ Sec. 6103(p)(4) (flush language) and (7); Treas. Reg. sec. 
301.6103(p)(7)-1.
---------------------------------------------------------------------------
    Under present law, employees of a State tax agency may 
disclose returns and return information to contractors for tax 
administration purposes.\56\ These disclosures can be made only 
to the extent necessary to procure contractually equipment, 
other property, or the providing of services, related to tax 
administration.\57\
---------------------------------------------------------------------------
    \56\ Sec. 6103(n) and Treas. Reg. sec. 301.6103(n)-1(a). ``Tax 
administration'' includes ``the administration, management, conduct, 
direction, and supervision of the execution and application of internal 
revenue laws or related statutes (or equivalent laws and statutes of a 
State)* * *'' Sec. 6103(b)(4).
    \57\ Treas. Reg. sec. 301.6013(n)-1(a). Such services include the 
processing, storage, transmission or reproduction of such returns or 
return information, the programming, maintenance, repair, or testing of 
equipment or other property, or the providing of other services for 
purposes of tax administration.
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    The contractors can make redisclosures of returns and 
return information to their employees as necessary to 
accomplish the tax administration purposes of the contract, but 
only to contractor personnel whose duties require 
disclosure.\58\ Treasury regulations prohibit redisclosure to 
anyone other than contractor personnel without the written 
approval of the IRS.\59\
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    \58\ Treas. Reg. sec. 301.6103(n)-1(a) and (b). A disclosure is 
necessary if such procurement or the performance of such services 
cannot otherwise be reasonably, properly, or economically accomplished 
without such disclosure. Treas. Reg. sec. 301.6103(n)-1(b). The 
regulations limit the quantity of information to that needed to perform 
the contract.
    \59\ Treas. Reg. sec. 301.6103(n)-1(a).
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    By regulation, all contracts must provide that the 
contractor will comply with all applicable restrictions and 
conditions for protecting confidentiality prescribed by 
regulation, published rules or procedures, or written 
communication to the contractor.\60\ Failure to comply with 
such restrictions or conditions may cause the IRS to terminate 
or suspend the duties under the contract or the disclosures of 
returns and return information to the contractor.\61\ In 
addition, the IRS can suspend disclosures to the State tax 
agency until the IRS determines that the conditions are or will 
be satisfied.\62\ The IRS may take such other actions as deemed 
necessary to ensure that such conditions or requirements are or 
will be satisfied.\63\
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    \60\ Treas. Reg. sec. 301.6103(n)-1(d).
    \61\ Treas. Reg. sec. 301.6103(n)-1(d)(1).
    \62\ Treas. Reg. sec. 301.6103(n)-1(d)(2).
    \63\ Treas. Reg. sec. 301.6103(n)-1(d).
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                           REASONS FOR CHANGE


    The Committee notes the increasing use of contractors by 
government agencies to perform the work of the government. 
Prior to the organizational restructuring of the IRS, twenty-
nine IRS district offices have responsibilities for overseeing 
safeguard reviews at State and local agencies.\64\ In the 
Committee's view, the IRS has insufficient resources to monitor 
the compliance of every contractor in addition to its other 
duties. Further, the Committee finds that it is appropriate to 
require that Federal and State recipients of tax information 
monitor and certify that their contractors have in place 
adequate safeguards to protect this information.
---------------------------------------------------------------------------
    \64\ General Accounting Office, Taxpayer Confidentiality: Federal, 
State, and Local Agencies Receiving Taxpayer Information (GAO-GGD-99-
164, August 1999) at 13.
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                        EXPLANATION OF PROVISION


    The provision requires that a State or Federal agency 
conduct annual on-site reviews of all of its contractors 
receiving Federal returns and return information. If the 
duration of the contract is less than one year, a review is 
required at the mid-point of the contract. The purpose of the 
review is to assess the contractor's efforts to safeguard 
Federal returns and return information. This review is intended 
to cover secure storage, restricting access, computer security, 
and other safeguards deemed appropriate by the Secretary. Under 
the provision, the State or Federal agency is required to 
submit a report of its findings to the IRS and certify annually 
that all contractors are in compliance with the requirements to 
safeguard the confidentiality of Federal returns and return 
information. The certification is required to include the name 
and address of each contractor, the duration of the contract, 
and a description of its contract with the State or Federal 
agency.
    This provision does not alter or affect in any way the 
right of the IRS to conduct safeguard reviews of State or 
Federal agency contractors. It also does not affect the right 
of the IRS to initially approve the safeguard language in the 
contract and the safeguards in place prior to any disclosures 
made in connection with such contracts.


                             EFFECTIVE DATE


    The provision is effective for disclosures made after 
December 31, 2002. The first certification is required to be 
made with respect to calendar year 2003.

    F. Higher Standards for Requests for and Consents to Disclosure


(Sec. 406 of the bill and sec. 6103 of the Code)


                              PRESENT LAW


    Under section 6103(c), a taxpayer may designate in a 
request or consent to the disclosure by the IRS of his or her 
return or return information to a third party. Treasury 
regulations set forth the requirements for such consent.\65\ 
The Treasury regulations require that the taxpayer sign and 
date the consent. The taxpayer must also indicate in the 
written document (1) the taxpayer's taxpayer identity 
information; (2) the identity of the person to whom disclosure 
is to be made; (3) the type of return (or specified portion of 
the return) or return information (and the particular data) 
that is to be disclosed; and (4) the taxable year covered by 
the return or return information. The regulations also require 
that the consent be submitted within 60 days of the date signed 
and dated, however, at the time of submission, the IRS 
generally is unaware of whether a consent form was completed or 
dated after the taxpayer signs it. Present law does not require 
that a recipient receiving returns or return information by 
consent maintain the confidentiality of the information 
received. Under present law, the recipient is also free to use 
the information for purposes other than for which the 
information was solicited from the taxpayer.
---------------------------------------------------------------------------
    \65\ Treas. Reg. sec. 301.6103(c)-1.
---------------------------------------------------------------------------
    Section 6103(c) consents are often used in connection with 
mortgage loan applications. Mortgage originators qualify loan 
applicants as meeting or not meeting the requirements for loan 
approval. This process involves the verification and 
investigation of information and conditions. If the loan is 
granted, the mortgage originator may use its own money to fund 
the loan. Alternatively, another entity, an ``investor,'' may 
buy the loan and provide the money. Investors typically perform 
a re-investigation of loans received for funding. Such re-
investigations may include verification through the IRS of the 
tax return provided by the taxpayer to the mortgage originator.
    Usually the mortgage originator does not know which 
investor will ultimately fund the loan. Thus, at the time of 
application, the originator asks the borrower/taxpayer to sign 
a consent (Form 4506) designating the originator as the third 
party to receive the taxpayer's returns. Subsequently, at 
closing, the investor may request that the originator obtain 
another Form 4506 naming the investor as the third party to 
receive the taxpayer's return.
    Ostensibly to avoid confusion over why the taxpayer would 
be authorizing a party other than the originator to receive his 
tax return, the taxpayer may be asked to sign a blank Form 4506 
at closing. In some cases, mortgage originators ask taxpayers 
not to date the Form 4506. This allows the form to be submitted 
to the IRS at a later date, often months or years later, for 
purposes of mortgage resale.
    Under section 7206, it is a felony to willfully make and 
subscribe any document that contains or is verified by a 
written declaration that it is made under penalties of perjury 
and which such person does not believe to be true and correct 
as to every material matter.\66\ Upon conviction, such person 
may be fined up to $100,000 ($500,000 in the case of a 
corporation) or imprisoned up to 3 years, or both, together 
with the costs of prosecution.
---------------------------------------------------------------------------
    \66\ Sec. 7206(1).
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                           REASONS FOR CHANGE


    The Committee does not believe that the practice of asking 
taxpayers to sign blank or undated consent forms is 
appropriate. While recognizing that investors may want to 
minimize their risks in buying a loan, the Committee finds that 
these practices can abuse the taxpayer consent process. It is 
doubtful that a taxpayer is aware that by not dating the form, 
it could be used months or years after the date it is executed. 
Taxpayers may be unaware that a blank consent form which does 
not designate a recipient can be used for purposes other than 
those related to the transaction under which the request for 
consent arose.
    In addition, the IRS does not have the resources to verify 
that the return information was used solely for the stated 
purpose. The IRS estimates that it receives annually more than 
800,000 requests from taxpayers directing that their returns or 
return information be sent to a third party. Examples of third 
party entities to which the IRS provides information include 
financial institutions (including the mortgage banking 
industry), colleges and universities, and Federal, State, and 
local governmental entities.
    The Committee believes that to preserve the integrity of 
the consent process, a penalty must be placed on the third 
party soliciting a taxpayer to sign an undated or otherwise 
incomplete consent. Consistent with a taxpayer's reasonable 
expectation of privacy, the Committee believes that limitations 
should be placed on the use of returns and return information 
obtained by consent.


                        EXPLANATION OF PROVISION


    The provision renders invalid a consent that does not 
designate a recipient or is not dated at the time of execution. 
The person submitting the consent to the IRS is required to 
verify under penalties of perjury that the form was complete 
and dated at the time it was signed by the taxpayer. Inspection 
or disclosure of a return or return information pursuant to an 
invalid consent is unauthorized under section 6103. Thus, a 
person making such unauthorized disclosure or inspection could 
be liable for civil damages under section 7431, and criminal 
penalties under section 7213 or 7213A for willful unauthorized 
disclosure or inspection. It is not intended to validate 
consents that do not otherwise comply with the Treasury 
regulations. For example, a consent that does not contain tax 
years or type of tax at the time of execution is not valid, and 
this provision does not authorize disclosures pursuant to such 
consents.
    The provision requires the consent form prescribed by the 
IRS to contain a warning, prominently displayed, informing the 
taxpayer that he or she should not sign the form unless it is 
complete. The provision requires the consent form to state that 
if the taxpayer believes there is an attempt to coerce him to 
sign an incomplete or blank form, the taxpayer should report 
the matter to the Treasury Inspector General for Tax 
Administration. The telephone number and address for the 
Treasury Inspector General for Tax Administration must be 
included on the form. Under the provision, all third parties 
receiving returns and return information by consent are 
required to: (1) ensure that the information received will be 
kept confidential; (2) use the information only for the purpose 
for which it was requested; and (3) not further disclose the 
information except to accomplish that purpose, unless a 
separate consent from the taxpayer is obtained.
    The Treasury Inspector General for Tax Administration is 
required to submit a report to Congress on compliance with the 
designation and certification requirements no later than 18 
months after the date of enactment. Such report must evaluate 
(on the basis of random sampling) whether the provision is 
achieving its purpose, whether requesters and submitters are 
continuing to evade the purpose of the provision, whether the 
sanctions are adequate, and such recommendations as considered 
necessary or appropriate to better achieve the purposes of the 
provision.


                             EFFECTIVE DATE


    The provision applies to requests and consents made after 3 
months after the date of enactment.

   G. Notice to Taxpayer Concerning Administrative Determination of 
                        Browsing; Annual Report


(Sec. 407 of the bill and secs. 6103(p) and 7431 of the Code)


                              PRESENT LAW


    Present law requires the IRS to notify a taxpayer that an 
unlawful disclosure or inspection of the taxpayer's return or 
return information has occurred when the offender has been 
charged by criminal indictment or information.\67\ If the 
offender is not so charged, present law does not require the 
IRS to give notice to the taxpayer, even though the Treasury 
Inspector General for Tax Administration has concluded that an 
inspection or disclosure in violation of section 6103 has 
occurred.
---------------------------------------------------------------------------
    \67\ Sec. 7431(e).
---------------------------------------------------------------------------
    The IRS is required under present law to provide, for 
disclosure to the public, an annual report to the Joint 
Committee on Taxation regarding authorized disclosures of 
returns and return information.\68\ The IRS is not required to 
submit a report to Congress on unauthorized disclosures or 
inspections of returns and return information.
---------------------------------------------------------------------------
    \68\ See sec. 6103(p)(3)(C).
---------------------------------------------------------------------------


                           REASONS FOR CHANGE


    Currently, the IRS is not required to notify a taxpayer 
that an unlawful disclosure or inspection of the taxpayer's 
return or return information has occurred until the offender 
has been charged by criminal indictment or information.\69\ The 
Treasury Inspector General for Tax Administration investigates 
and substantiates more unlawful access (browsing) and 
disclosure cases than are accepted for prosecution by U.S. 
Attorneys.\70\ The staff of the Joint Committee on Taxation has 
reported that the U.S. Attorneys declined to prosecute more 
than 80 percent of the cases referred.\71\
---------------------------------------------------------------------------
    \69\ Sec. 7431(e).
    \70\ See Joint Committee on Taxation, Study of Present-Law Taxpayer 
Confidentiality and Disclosure Provisions as Required by Section 3802 
of the Internal Revenue Service Restructuring and Reform Act of 1998, 
Volume 1: Study of General Disclosure Provisions (JCS-1-00) January 28, 
2000 at 175-176.
    \71\ Id.
---------------------------------------------------------------------------
    Notwithstanding the lack of a criminal prosecution, the 
Committee believes that the IRS should make taxpayers aware 
that their returns or return information has been unlawfully 
accessed or disclosed. Thus, the IRS should notify the taxpayer 
at the time Treasury Inspector General for Tax Administration 
administratively determines that returns and return information 
have been unlawfully accessed or disclosed.
    The Committee also believes that the IRS should provide as 
part of its public annual report to the Joint Committee on 
Taxation information on unauthorized disclosures or inspections 
of return and return information. The Committee believes such 
information will allow review of the enforcement efforts in 
this area and the extent to which taxpayer privacy is being 
protected.


                        EXPLANATION OF PROVISION


    Under the bill, the IRS is required to notify a taxpayer at 
the point the Treasury Inspector General for Tax Administration 
determines that a taxpayer's return or return information has 
been disclosed or inspected without authorization. The bill 
further requires the IRS to provide information on unauthorized 
disclosures or inspections of return and return information in 
its public annual report to the Joint Committee on Taxation.


                             EFFECTIVE DATE


    The provision is effective upon date of enactment as it 
relates to notifying the taxpayer of determinations of an 
unlawful disclosure or inspection. As to the annual report 
requirement, the provision would be effective for calendar 
years ending after the date of enactment.

           H. Expanded Disclosure in Emergency Circumstances


(Sec. 408 of the bill and sec. 6103(i) of the Code)


                              PRESENT LAW


    The Code permits the IRS to disclose return information to 
the extent necessary to apprise Federal or State law 
enforcement officials of circumstances involving an imminent 
danger of death or physical injury.


                           REASONS FOR CHANGE


    The Committee believes that expanding this provision to 
permit disclosure to local law enforcement authorities will 
permit more rapid response to these situations.


                        EXPLANATION OF PROVISION


    The bill expands this present law to permit disclosure to 
local law enforcement authorities.


                             EFFECTIVE DATE


    The provision is effective on the date of enactment.

       I. Disclosure of Taxpayer Identity for Tax Refund Purposes


(Sec. 409 of the bill and sec. 6103(m) of the Code)


                              PRESENT LAW


    When the IRS is unable to find a taxpayer due a refund, 
present law provides that the IRS may use ``the press or other 
media'' to notify the taxpayer of the refund.\72\ Section 
6103(m) allows the IRS to give the press taxpayer identity 
information for this purpose.\73\
---------------------------------------------------------------------------
    \72\ Sec. 6103(m)(1). This section provides: ``The Secretary may 
disclose taxpayer identity information to the press or other media for 
purposes of notifying persons entitled to tax refunds when the 
Secretary, after reasonable effort and lapse of time, has been unable 
to locate such persons.''
    \73\ Sec. 6103(m)(1), and (b)(6) (definition of ``taxpayer 
identity'').
---------------------------------------------------------------------------
    The IRS believes that the current statutory framework of 
``press and other media'' does not permit disclosures via the 
Internet. The legislative history of the present-law provision 
does not address the meaning of ``press and other media.'' At 
the time of the statute's enactment in 1976, the press 
(newspapers and periodicals) and other traditional media were 
the only means available for the IRS to distribute undelivered 
refund information to the public. Thus, the IRS interprets the 
term ``other media'' to exclude the Internet.


                           REASONS FOR CHANGE


    The National Taxpayer Advocate noted that ``[e]very year 
many taxpayers move, do not give the IRS their new address, and 
thousands of refund checks are returned by the post office 
because they are undeliverable.'' \74\ In November 1999, the 
IRS announced that the U.S. Postal Service returned 102,840 
more refund checks as undeliverable.\75\ These checks totaled 
$72 million, averaging almost $700 per check.\76\
---------------------------------------------------------------------------
    \74\ Internal Revenue Service, Publication 2104, FY 1999: National 
Taxpayer Advocate's Annual Report to Congress, at IV-30 (December 
1999).
    \75\ Internal Revenue Service, Information Release IR-999-91 
(November 9, 1999).
    \76\ Id.
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    Based on the National Taxpayer Advocate's report, it is the 
understanding of the Committee that the current method of 
notification, by newspaper, is ineffective.\77\ The Committee 
believes that the IRS should be able to use any method of mass 
communication, including the Internet, to reach a taxpayer who 
is due a refund.
---------------------------------------------------------------------------
    \77\ Internal Revenue Service, Publication 2104, FY 1999: National 
Taxpayer Advocate's Annual Report to Congress, at IV-31 (December 
1999).
---------------------------------------------------------------------------


                        EXPLANATION OF PROVISION


    The provision allows the IRS to use any means of ``mass 
communication,'' including the Internet, to notify the taxpayer 
of an undelivered refund.


                             EFFECTIVE DATE


    The provision is effective upon date of enactment.

J. Disclosure to State Officials of Proposed Actions Related to Section 
                        501(c)(3) Organizations


(Sec. 410 of the bill and secs. 6103 and 6104(c) of the Code)


                              PRESENT LAW


    In the case of organizations that are described in section 
501(c)(3) and exempt from tax under section 501(a) or that have 
applied for exemption as an organization so described, present 
law (sec. 6104(c)) requires the Secretary to notify the 
appropriate State officer of (1) a refusal to recognize such 
organization as an organization described in section 501(c)(3), 
(2) a revocation of a section 501(c)(3) organization's tax-
exempt status, and (3) the mailing of a notice of deficiency 
for any tax imposed under section 507, chapter 41, or chapter 
42.\78\ In addition, at the request of such appropriate State 
officer, the Secretary is required to make available for 
inspection and copying, such returns, filed statements, 
records, reports, and other information relating to the above-
described disclosures, as are relevant to any State law 
determination. An appropriate State officer is the State 
attorney general, State tax officer, or any State official 
charged with overseeing organizations of the type described in 
section 501(c)(3).
---------------------------------------------------------------------------
    \78\ The applicable taxes include the termination tax on private 
foundations; taxes on public charities for certain excess lobbying 
expenses; taxes on a private foundation's net investment income, self-
dealing activities, undistributed income, excess business holdings, 
investments that jeopardize charitable purposes, and taxable 
expenditures (some of these taxes also apply to certain non-exempt 
trusts); taxes on the political expenditures and excess benefit 
transactions of section 501(c)(3) organizations; and certain taxes on 
black lung benefit trusts and foreign organizations.
---------------------------------------------------------------------------
    In general, return and return information (as such terms 
are defined in section 6103(b)) is confidential (sec. 6103(a)) 
and may not be disclosed or inspected unless expressly provided 
by law. Present law requires the Secretary to keep records of 
disclosures and requests for inspection (sec. 6103(p)(3)) and 
requires that persons authorized to receive return and return 
information maintain various safeguards to protect such 
information against unauthorized disclosure (sec. 6103(p)(4)). 
Willful unauthorized disclosure or inspection of return or 
return information is subject to a fine and/or imprisonment 
(secs. 7213 and 7213A). The knowing or negligent unauthorized 
inspection or disclosure of returns or return information gives 
the taxpayer a right to bring a civil suit (sec. 7431). Such 
present-law protections against unauthorized disclosure or 
inspection of return and return information do not apply to the 
disclosures or inspections, described above, that are 
authorized by section 6104(c).


                           REASONS FOR CHANGE


    The Committee believes that State officials that are 
charged with oversight of organizations described in section 
501(c)(3) have an important and legitimate interest in 
receiving certain information about such organizations before 
the IRS has made a final determination with respect to an 
organization's tax-exempt status or liability for tax. By 
providing State officials with earlier access to information 
about the activities of section 501(c)(3) organizations, State 
officials will be able to monitor such organizations more 
effectively and better protect the public's interest in 
assuring that charitable assets are used for charitable 
purposes. In addition, the Committee believes that permitting 
the IRS to share information about section 501(c)(3) 
organizations with State officials, when doing so will 
facilitate the resolution of Federal and State issues, will 
significantly improve oversight of charitable organizations. 
The Committee stresses the importance of maintaining the 
confidentially of taxpayer return and return information and 
believes it is important to extend existing protections against 
unauthorized disclosure or inspection of return and return 
information to disclosures made or inspections allowed by the 
Secretary of return and return information regarding section 
501(c)(3) organizations.


                        EXPLANATION OF PROVISION


    The provision provides that upon written request by an 
appropriate State officer, the Secretary may disclose: (1) a 
notice of proposed refusal to recognize an organization as a 
section 501(c)(3) organization, (2) a notice of proposed 
revocation of tax-exemption of a section 501(c)(3) 
organization, (3) the issuance of a proposed deficiency of tax 
imposed under section 507, chapter 41, or chapter 42, (4) the 
names and taxpayer identification numbers of organizations that 
have applied for recognition as section 501(c)(3) 
organizations, and (5) return and return information of 
organizations \79\ with respect to which information has been 
disclosed under (1) through (4) above. Disclosure or inspection 
is permitted for the purpose of, and only to the extent 
necessary in, the administration of State laws regulating 
section 501(c)(3) organizations, such as laws regulating tax-
exempt status, charitable trusts, charitable solicitation, and 
fraud. Disclosure or inspection may be made only to or by 
designated representatives of the appropriate State officer, 
which includes officers, employees, agents, and contractors of 
the appropriate State officer. The Secretary also may disclose 
or open to inspection the return and return information of an 
organization that is recognized as tax-exempt under section 
501(c)(3), or that has applied for such recognition, to an 
appropriate State officer if the Secretary determines that 
disclosure or inspection may facilitate the resolution of 
Federal and State issues relating to the organization. 
Appropriate State officer means the State attorney general or 
the head of any State agency, body, or commission that is 
charged under the laws of such State with responsibility for 
overseeing organizations of the type described in section 
501(c)(3).
---------------------------------------------------------------------------
    \79\ Such information also may be open to inspection by an 
appropriate State officer.
---------------------------------------------------------------------------
    In addition, the provision provides that return and return 
information disclosed under section 6104(c) may be disclosed in 
civil administrative and judicial proceedings pertaining to the 
enforcement of State laws regulating section 501(c)(3) 
organizations in a manner prescribed by the Secretary. Returns 
and return information shall not be disclosed under section 
6104(c), or in such an administrative or judicial proceeding, 
to the extent that the Secretary determines that such 
disclosure would seriously impair Federal tax administration. 
The provision makes disclosures of returns and return 
information under section 6104(c) subject to many of the 
provisions of section 6103, including that such information 
remain confidential (sec. 6103(a)(2)), that the Secretary 
maintain a permanent system of records of requests for 
disclosure (sec. 6103(p)(3)), and that the appropriate State 
officer maintain various safeguards that protect against 
unauthorized disclosure (sec. 6103(p)(4)). The provision 
provides that the willful unauthorized disclosure of return or 
return information described in section 6104(c) is a felony 
subject to a fine of up to $5,000 and/or imprisonment of up to 
five years (sec. 7213(a)(2)), the willful unauthorized 
inspection of return or return information described in section 
6104(c) is subject to a fine of up to $1,000 and/or 
imprisonment of up to one year (sec. 7213A), and provides the 
taxpayer the right to bring a civil action for damages in the 
case of knowing or negligent unauthorized disclosure or 
inspection of such information (sec. 7431(a)(2)).


                             EFFECTIVE DATE


    The provision is effective for requests or disclosures made 
after the date of enactment.

                   TITLE V--MISCELLANEOUS PROVISIONS


          A. Clarification of Definition of Church Tax Inquiry


(Sec. 501 of the bill and sec. 7611 of the Code)


                              PRESENT LAW


    Under present law, the IRS may begin a church tax inquiry 
only if an appropriate high-level Treasury official reasonably 
believes, on the basis of the facts and circumstances recorded 
in writing, that an organization (1) may not qualify for tax 
exemption as a church, (2) may be carrying on an unrelated 
trade or business, or (3) otherwise may be engaged in taxable 
activities.\80\ A church tax inquiry is defined as any inquiry 
to a church (other than an examination) that serves as a basis 
for determining whether the organization qualified for tax 
exemption as a church or whether it is carrying on an unrelated 
trade or business or otherwise is engaged in taxable 
activities. An inquiry is considered to commence when the IRS 
requests information or materials from a church or a type 
contained in church records, other than routine requests for 
information or inquiries regarding matters that do not 
primarily concern the tax status or liability of the church 
itself.
---------------------------------------------------------------------------
    \80\ Sec. 7611. Prior to the year 2000 IRS restructuring, the 
lowest level official who could initiate a church tax inquiry was an 
IRS Regional Commissioner.
---------------------------------------------------------------------------


                           REASONS FOR CHANGE


    The Committee believes that the present-law church tax 
inquiry procedures provide important safeguards against the IRS 
engaging in unnecessary and intrusive examinations of churches. 
However, the church tax inquiry procedures also have the effect 
of hampering IRS efforts to educate churches with respect to 
actions that are not permissible under section 501(c)(3). The 
Committee believes that a clarification of the scope of the 
church tax inquiry procedures to make it clear that the IRS may 
undertake educational outreach efforts with respect to specific 
churches (e.g., initiating meetings with representatives of a 
particular church to discuss the rules that apply to such 
church) will improve compliance with the law by churches.


                        EXPLANATION OF PROVISION


    The provision clarifies that the present-law church tax 
inquiry procedures do not apply to contacts made by the IRS for 
the purpose of educating churches with respect to the law 
governing tax-exempt organizations. For example, the provision 
clarifies that the IRS does not violate the church tax inquiry 
procedures when written materials are provided to a church or 
churches for the purpose of educating such church or churches 
with respect to the types of activities that are not 
permissible under section 501(c)(3).


                             EFFECTIVE DATE


    The provision is effective on the date of enactment.

 B. Extension of Declaratory Judgment Procedures to Non-501(c)(3) Tax-
                          Exempt Organizations


(Sec. 502 of the bill and sec. 7428 of the Code)


                              PRESENT LAW


    In order for an organization to be granted tax exemption as 
a charitable entity described in section 501(c)(3), it 
generally must file an application for recognition of exemption 
with the IRS and receive a favorable determination of its 
status. Similarly, for most organizations, a charitable 
organization's eligibility to receive tax-deductible 
contributions is dependent upon its receipt of a favorable 
determination from the IRS. In general, a section 501(c)(3) 
organization can rely on a determination letter or ruling from 
the IRS regarding its tax-exempt status, unless there is a 
material change in its character, purposes, or methods of 
operation. In cases in which an organization violates one or 
more of the requirements for tax exemption under section 
501(c)(3), the IRS is authorized to revoke an organization's 
tax exemption, notwithstanding an earlier favorable 
determination.
    In situations in which the IRS denies an organization's 
application for recognition of exemption under section 
501(c)(3) or fails to act on such application, or in which the 
IRS informs a section 501(c)(3) organization that it is 
considering revoking or adversely modifying its tax-exempt 
status, present law authorizes the organization to seek a 
declaratory judgment regarding its tax status (sec. 7428). 
Section 7428 provides a remedy in the case of a dispute 
involving a determination by the IRS with respect to: (1) the 
initial qualification or continuing qualification of an 
organization as a charitable organization for tax exemption 
purposes or for charitable contribution deduction purposes; (2) 
the initial classification or continuing classification of an 
organization as a private foundation; (3) the initial 
classification or continuing classification of an organization 
as a private operating foundation; or (4) the failure of the 
IRS to make a determination with respect to (1), (2), or (3). A 
``determination'' in this context generally means a final 
decision by the IRS affecting the tax qualification of a 
charitable organization, although it also can include a 
proposed revocation of an organization's tax-exempt status or 
public charity classification. Section 7428 vests jurisdiction 
over controversies involving such a determination in the U.S. 
District Court for the District of Columbia, the U.S. Court of 
Federal Claims, and the U.S. Tax Court.
    Prior to utilizing the declaratory judgment procedure, an 
organization must have exhausted all administrative remedies 
available to it within the IRS. An organization is deemed to 
have exhausted its administrative remedies at the expiration of 
270 days after the date on which the request for a 
determination was made if the organization has taken, in a 
timely manner, all reasonable steps to secure such 
determination.
    If an organization (other than a section 501(c)(3) 
organization) files an application for recognition of exemption 
and receives a favorable determination from the IRS, the 
determination of tax-exempt status is usually effective as of 
the date of formation of the organization if its purposes and 
activities during the period prior to the date of the 
determination letter were consistent with the requirements for 
exemption. However, if the organization files an application 
for recognition of exemption and later receives an adverse 
determination from the IRS, the IRS may assert that the 
organization is subject to tax on some or all of its income for 
open taxable years. In addition, as with charitable 
organizations, the IRS may revoke or modify an earlier 
favorable determination regarding an organization's tax-exempt 
status.
    Under present law, a non-charity (i.e., an organization not 
described in section 501(c)(3)) may not seek a declaratory 
judgment with respect to an IRS determination regarding its 
tax-exempt status. The only remedies available to such an 
organization are to petition the U.S. Tax Court for relief 
following the issuance of a notice of deficiency or to pay any 
tax owed and sue for refund in federal district court or the 
U.S. Court of Federal Claims.


                           REASONS FOR CHANGE


    The Committee believes that it is important to provide 
certainty for organizations that have sought a determination of 
their tax-exempt status. Thus, the Committee finds it 
appropriate to extend the present-law declaratory judgment 
procedures to all organizations that apply for tax-exempt 
status as organizations described in section 501(c).


                        EXPLANATION OF PROVISION


    The bill extends declaratory judgment procedures similar to 
those currently available only to charities under section 7428 
to other section 501(c) determinations. The bill limits 
jurisdiction over controversies involving such determinations 
to the United States Tax Court.\81\
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    \81\ This limitation currently applies to declaratory judgments 
relating to tax qualification for certain employee retirement plans 
(sec. 7476).
---------------------------------------------------------------------------


                             EFFECTIVE DATE


    The extension of the declaratory judgment procedures to 
organizations other than section 501(c)(3) organizations is 
effective for pleadings with respect to determinations made 
after the date of enactment.

   C. Employee Misconduct Report To Include Summary of Complaints by 
                                Category


(Sec. 503 of the bill and sec. 7803 of the Code)


                              PRESENT LAW


    The Treasury Inspector General for Tax Administration is 
subject to the semi-annual reporting requirements set forth in 
section 5 of the Inspector General Act of 1978. Under present 
law, reports are made to the Committees on Government Reform 
and Oversight and Ways and Means in the House of 
Representatives and the Committees on Governmental Affairs and 
Finance in the Senate. Each semi-annual report is required to 
include information regarding the source, nature and status of 
taxpayer complaints and allegations of serious misconduct by 
IRS employees received by the IRS or by the Treasury Inspector 
General for Tax Administration.


                           REASONS FOR CHANGE


    The Committee believes that the information available to 
the Congress and the public under present law would be enhanced 
by additional reporting of the types of allegations made with 
respect to IRS employee misconduct and the number of complaints 
made with respect to the most common types of allegations.


                        EXPLANATION OF PROVISION


    The provision modifies the semi-annual reporting 
requirement for the Treasury Inspector General for Tax 
Administration to require that the reporting with respect to 
allegations of serious IRS employee misconduct include a 
summary (by category) of the 10 most common complaints made and 
the number of such common complaints (by category).


                             EFFECTIVE DATE


    The provision is effective for reporting periods ending 
after the date of enactment.

D. Annual Report on Awards of Costs and Certain Fees in Administrative 
                         and Court Proceedings


(Sec. 504 of the bill)


                              PRESENT LAW


    The Code requires that the IRS pay a taxpayer's reasonable 
administrative and litigation expenses under specified 
circumstances.\82\ Among other requirements, the IRS is not 
required to pay these amounts if the IRS can demonstrate that 
its position was substantially justified.
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    \82\ Sec. 7430.
---------------------------------------------------------------------------


                           REASONS FOR CHANGE


    The fact that the IRS paid these expenses may be an 
indication that its position was not substantially justified, 
as well as an indication that the IRS may be inappropriately 
pursuing an issue. The lack of published statistics and 
analytical information hinders the Congress and taxpayers from 
assessing the extent to which the IRS may be inappropriately 
pursuing an issue and from pursuing potential remedies to 
alleviate this problem.


                        EXPLANATION OF PROVISION


    The provision requires TIGTA to publish annually statistics 
on the number of payments (whether as a result of a settlement 
or judicial decision) made pursuant to section 7430 and the 
amount of each such payment. TIGTA also is required to publish 
an analysis of the administrative issues that gave rise to the 
necessity of making these payments and the changes (if any) 
that will be implemented by the IRS as a result of TIGTA's 
analysis, as well as any other changes that TIGTA recommends on 
the basis of its analysis. This would permit the Congress to 
assess the extent to which the IRS may be inappropriately 
pursuing an issue and to pursue potential remedies to alleviate 
this problem.


                             EFFECTIVE DATE


    The first annual report is required for fiscal year 2002. 
The reports must be published no later than three months 
following the close of the fiscal year.

              E. Annual Report on Abatements of Penalties


(Sec. 505 of the bill)


                              PRESENT LAW


    Some penalties in the Code are imposed automatically (such 
as for failure to file or failure to pay), while others are 
imposed in response to the specific factual situation presented 
on a tax return (such as negligence). In addition, some 
penalties can be abated automatically, while others are abated 
in response to a specific factual presentation made by the 
taxpayer. In general, most penalties can be abated for 
reasonable cause, but the details of what constitutes 
reasonable cause can vary somewhat from penalty to penalty as a 
reflection of the differences in the types of behaviors that 
the different penalties are designed to deter.


                           REASONS FOR CHANGE


    Both the manner in which penalties are imposed and the 
manner in which they are abated can present issues for 
consideration with respect to the uniformity of penalty 
administration. The system of penalty administration has a 
number of goals and it is not always possible to reconcile them 
completely. One goal is uniformity of application of penalties 
(both in their original imposition and in their abatement) for 
similarly situated taxpayers. Another goal is to reflect the 
individual circumstances surrounding the failure for which the 
taxpayer is being penalized. Another goal is to provide rapid 
resolution for taxpayers of disputes with the IRS, including 
disputes over penalties. Accomplishing this goal entails giving 
``front line'' IRS employees the authority to resolve disputes 
(within certain parameters) on their own authority.
    One challenge in providing proper tax administration is 
balancing all of these goals so that one does not predominate 
at the expense of the others. For example, one theoretical way 
to maximize uniformity might be to centralize the 
administration of penalties in one office. This would, however, 
make it more difficult for taxpayers to reach a rapid 
resolution of their disputes with the IRS, because it could be 
more difficult for taxpayers to deal with a centralized penalty 
administration structure than with the current locally-based 
structure. It could also present administrative difficulties, 
such as divorcing decisions concerning penalties from decisions 
concerning the underlying liability, when in reality the two 
may be inextricably interconnected. On the other hand, the 
maximization of the goal of reflecting individual circumstances 
could adversely affect both uniformity and the rapid resolution 
of disputes. Similarly, maximizing the rapid resolution of 
disputes could adversely affect both uniformity and 
individualization.
    Balancing these goals necessarily means that any one of 
them will not be maximized. Accordingly, a balanced approach 
means that some compromises will have to be made to permit the 
most appropriate balancing of these goals.


                        EXPLANATION OF PROVISION


    The bill requires TIGTA to report to the Congress annually 
on penalty abatements and the reasons and criteria for 
abatements. Better statistical information will enable more 
rigorous analysis of the systems to occur, which will provide 
the opportunity for problems to surface and be dealt with in a 
systematic manner.


                             EFFECTIVE DATE


    The first annual report is required for fiscal year 2002. 
The reports must be provided to the Congress no later than six 
months following the close of the fiscal year.

            F. Better Means of Communicating With Taxpayers


(Sec. 506 of the bill)


                              PRESENT LAW


    The IRS generally communicates with taxpayers (or their 
designated representatives) in one of three methods: by mail, 
by telephone, or in person. Many telephone or in person 
contacts are initiated by the taxpayer, whereas many mail 
contacts are initiated by the IRS.


                           REASONS FOR CHANGE


    Many of the difficulties taxpayers encounter in the course 
of communicating with the IRS are inherent to mail 
communications: documents missing in the mail, difficulties in 
forwarding documents, maintaining updated address records, etc. 
The Committee believes that it will be beneficial to receive an 
evaluation of whether technological advances, such as e-mail 
and the fax, could permit the utilization of alternate means of 
communicating with taxpayers, which in turn could eliminate 
some of the difficulties with the present system.


                        EXPLANATION OF PROVISION


    The bill requires TIGTA to issue a report to the Congress 
evaluating whether technological advances, such as e-mail and 
the fax, permit the utilization of alternate means of 
communicating with taxpayers to eliminate some of the 
difficulties with the present system.


                             EFFECTIVE DATE


    The report must be issued no later than 18 months after the 
date of enactment.

            G. Information Regarding Statute of Limitations


(Sec. 507 of the bill)


                              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).\83\ A refund 
claim that is not filed within these time periods is rejected 
as untimely.
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    \83\ Sec. 6511(a).
---------------------------------------------------------------------------
    A special rule applies during periods of disability. 
Equitable tolling of the statute of limitations for refund 
claims of an individual taxpayer applies during any period in 
which an individual 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. 
Equitable 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.
    There is no requirement that IRS publications contain 
information that both describes this statute of limitations 
provision and explains the consequences of failing to file 
within the time period prescribed by the statute of 
limitations.


                           REASONS FOR CHANGE


    Some taxpayers who are due refunds fail to file tax returns 
by the due date. Several years later they realize that they owe 
additional taxes to the IRS for that later year and attempt to 
offset the amount that they owe against the refund that they 
were due for the earlier year. They are unable to do so, 
however, if their claim for the refund is filed beyond the 
statutorily specified deadline. The Committee recognizes that 
in general statutes of limitations promote important policy 
goals of repose and certainty. The Committee also believes that 
it is important that taxpayers be adequately informed of the 
operation of these provisions so that they are not 
inadvertently disadvantaged by consequences that they did not 
foresee.


                        EXPLANATION OF PROVISION


    The provision requires the IRS to revise Publication 1 
(``Your Rights as a Taxpayer'') by adding an explanation of the 
consequences of failing to file within the time period 
prescribed by the statute of limitations to the section on 
refunds that describes the statute of limitations. The 
provision also requires the IRS to revise the instructions that 
accompany all of the Form 1040 packages (including 1040A and 
1040EZ) in a similar manner to add a description of this 
statute of limitations and an explanation of the consequences 
of failing to file within the time period prescribed by the 
statute of limitations.


                             EFFECTIVE DATE


    The revisions to Publication 1 are required to be made as 
soon as practicable, but not later than 180 days after the date 
of enactment. The revisions to the Form 1040 instructional 
packages are required to be made for instructions for taxable 
years beginning after December 31, 2001.

                H. Amendment to Treasury Auction Reforms


(Sec. 508 of the bill and sec. 202 of the Government Securities Act 
        Amendments of 1993)


                              PRESENT LAW


    Member of the Treasury Borrowing Advisory Committee are 
prohibited from disclosing anything relating to the securities 
to be auctioned in a midquarter refunding by the Secretary 
until the Secretary makes a public announcement of the 
refunding.\84\
---------------------------------------------------------------------------
    \84\ Sec. 202(c)(4)(B) of the Government Securities Act Amendments 
of 1993.
---------------------------------------------------------------------------


                           REASONS FOR CHANGE


    The Committee believes that permitting disclosure upon the 
release by the Secretary of the minutes of the meeting 
accomplishes the goals of the present-law restrictions without 
needlessly hindering the members of the advisory committee.


                        EXPLANATION OF PROVISION


    The bill permits earlier disclosure upon the release by the 
Secretary of the minutes of the meeting.


                             EFFECTIVE DATE


    The provision applies to meetings held after the date of 
enactment.

                           I. Enrolled Agents


(Sec. 509 of the bill and new sec. 7527 of the Code)


                              PRESENT LAW


    Treasury Department Circular No. 230 provides rules 
relating to practice before the IRS by attorneys, certified 
public accountants, enrolled agents, enrolled actuaries, and 
others.


                           REASONS FOR CHANGE


    The Committee believes that individuals who meet the 
regulatory requirements established by the Secretary should be 
able to use the specified credentials or designation in any 
State or Federal jurisdiction.


                        EXPLANATION OF PROVISION


    The bill adds a new section to the Code permitting the 
Secretary to prescribe regulations to regulate the conduct of 
enrolled agents in regard to their practice before the IRS and 
to permit enrolled agents meeting the Secretary's 
qualifications to use the credentials or designation ``enrolled 
agent'', ``EA'', or ``E.A.''.


                             EFFECTIVE DATE


    The provision is effective on the date of enactment.

 J. Allow the Financial Management Service To Retain Transaction Fees 
                          From Levied Amounts


(Sec. 510 of the bill)


                              PRESENT LAW


    To facilitate the collection of tax, the IRS can generally 
levy upon all property and rights to property of a taxpayer 
(sec. 6331). With respect to specified types of recurring 
payments,\85\ the IRS may impose a continuous levy of up to 15 
percent of each payment, which generally continues in effect 
until the liability is paid (sec. 6331(h)). Continuous levies 
imposed by the IRS on specified Federal payments are 
administered by the Financial Management Service (FMS) of the 
Department of the Treasury. FMS is generally responsible for 
making most non-defense related Federal payments. FMS is 
required to charge the IRS for the costs of developing and 
operating this continuous levy program. The IRS pays these FMS 
charges out of its appropriations.
---------------------------------------------------------------------------
    \85\ The payments to which this provision applies are (1) Federal 
payments (except payments for which eligibility is based on the income 
or assets of the taxpayer), (2) unemployment benefits, (3) workmen's 
compensation, (4) wages, (5) certain public assistance payments, and 
(6) annuities or pensions under Railroad Retirement or Railroad 
Unemployment.
---------------------------------------------------------------------------


                           REASONS FOR CHANGE


    The Committee believes that altering the bookkeeping 
structure of these costs, as was recommended in the President's 
budget proposal, will provide for cost savings to the 
government.


                        EXPLANATION OF PROVISION


    The bill allows FMS to retain a portion of the levied funds 
as payment of these FMS fees. The amount credited to the 
taxpayer's account would not, however, be reduced by this fee.


                             EFFECTIVE DATE


    The provision is effective on the date of enactment.

  K. Capital Gains Treatment To Apply to Outright Sales of Timber by 
                               Landowner


(Sec. 511 of the bill and sec. 631(b) of the Code)


                              PRESENT LAW


    Under present law, a taxpayer disposing of timber held for 
more than one year is eligible for capital gains treatment in 
three situations. First, if the taxpayer sells or exchanges 
timber that is a capital asset (sec. 1221) or property used in 
the trade or business (sec. 1231), the gain generally is long-
term capital gain; however, if the timber is held for sale to 
customers in the taxpayer's business, the gain will be ordinary 
income. Second, if the taxpayer disposes of the timber with a 
retained economic interest, the gain is eligible for capital 
gain treatment (sec. 631(b)). Third, if the taxpayer cuts 
standing timber, the taxpayer may elect to treat the cutting as 
a sale or exchange eligible for capital gains treatment (sec. 
631(a)).


                           REASONS FOR CHANGE


    The Committee believes that the requirement that the owner 
of timber retain an economic interest in the timber in order to 
obtain capital gain treatment under section 631(b) results in 
poor timber management because the buyer, when cutting and 
removing timber, has no incentive to protect young or other 
uncut trees because the buyer only pays for the timber that is 
cut and removed. The Committee also believes that present law 
results in unnecessary disputes between taxpayers and the IRS 
regarding whether a taxpayer is a dealer in timber. Therefore, 
the Committee bill eliminates this requirement and provides for 
capital gain treatment under section 631(b) in the case of 
outright sales of timber.


                        EXPLANATION OF PROVISION


    Under the provision, in the case of a sale of timber by the 
owner of the land from which the timber is cut, the requirement 
that a taxpayer retain an economic interest in the timber in 
order to treat gains as capital gain under section 631(b) does 
not apply. Outright sales of timber by the landowner will 
qualify for capital gains treatment in the same manner as sales 
with a retained economic interest qualify under present law, 
except that usual tax rules relating to the timing of the 
income from the sale of the timber will apply (rather than the 
special rule of section 631(b) treating the disposal as 
occurring on the date the timber is cut).


                             EFFECTIVE DATE


    The provision is effective for sales of timber after the 
date of enactment.

                 TITLE VI--LOW-INCOME TAXPAYER CLINICS


(Sec. 601 of the bill and sec. 7526 of the Code)


                              PRESENT LAW


    The Code provides that the Secretary is authorized to 
provide up to $6 million per year in matching grants to certain 
low-income taxpayer clinics.


                           REASONS FOR CHANGE


    The Committee believes that low-income taxpayer clinics 
provide important services to taxpayers and that, accordingly, 
the amount authorized to be appropriated for matching grants to 
them should be increased.
    The Committee believes that the Secretary should be 
authorized to use mass communications, referrals, and other 
means to promote the benefits and encourage the use of low-
income taxpayer clinics. The Committee believes that low-income 
taxpayer clinics contribute to compliance with the Code by 
providing representation to taxpayers who might otherwise be 
uncertain about their rights and obligations under the Code. 
The Committee also believes that the primary mission of low-
income taxpayer clinics funded by these matching grants should 
not be to provide routine tax return preparation (except that 
done in connection with a controversy with the IRS).


                        EXPLANATION OF PROVISION


    The provision increases this authorization to $9 million 
for 2002, to $12 million for 2003, and to $15 million for 2004 
and thereafter. The provision amends the definition of low-
income taxpayer clinics by excluding from eligibility for 
grants clinics that provide routine tax return preparation; 
this exclusion does not apply to return preparation done in 
connection with a controversy with the IRS. The provision also 
authorizes the IRS to promote the benefits and encourage the 
use of low-income taxpayer clinics.


                             EFFECTIVE DATE


    The provision is effective on the date of enactment.

    TITLE VII--REPORTING REQUIREMENTS OF STATE AND LOCAL POLITICAL 
                             ORGANIZATIONS


(Secs. 701-703 of the bill and secs. 527, 6012, 6033, and 7207 of the 
        Code)


                              PRESENT LAW


In general

    Under present law, section 527 provides a limited tax-
exempt status to ``political organizations,'' meaning a party, 
committee, association, fund, account, or other organization 
(whether or not incorporated) organized and operated primarily 
for the purpose of directly or indirectly accepting 
contributions or making expenditures (or both) for an ``exempt 
function.'' These organizations generally are exempt from 
Federal income tax on contributions they receive, but are 
subject to tax on their net investment income and certain other 
income at the highest corporate income tax rate (``political 
organization taxable income''). Donors are exempt from gift tax 
on their contributions to such organizations. For purposes of 
section 527, the term ``exempt function'' means: the function 
of influencing or attempting to influence the selection, 
nomination, election, or appointment of any individual to any 
Federal, State, or local public office or office in a political 
organization, or the election of Presidential or Vice-
Presidential electors, whether or not such individual or 
electors are selected, nominated, elected, or appointed.

Notice of section 527 organization

    An organization is not treated as a section 527 
organization unless it has given notice to the Secretary of the 
Treasury, electronically and in writing, that it is a section 
527 organization. The notice is not required (1) of any person 
required to report as a political committee under the Federal 
Election Campaign Act of 1971, (2) by organizations that 
reasonably anticipate that their annual gross receipts will 
always be less than $25,000, and (3) organizations described in 
section 501(c). All other organizations, including State and 
local candidate committees, are required to file the notice.
    The notice is required to be transmitted no later than 24 
hours after the date on which the organization is organized. 
The notice is required to include the following information: 
(1) the name and address of the organization and its electronic 
mailing address, (2) the purpose of the organization, (3) the 
names and addresses of the organization's officers, highly 
compensated employees, contact person, custodian of records, 
and members of the organization's Board of Directors, (4) the 
name and address of, and relationship to, any related entities, 
and (5) such other information as the Secretary may require.
    The notice of status as a section 527 organization is 
required to be disclosed to the public by the IRS and by the 
organization. In addition, the Secretary of the Treasury is 
required to make publicly available on the Internet and at the 
offices of the IRS a list of all political organizations that 
file a notice with the Secretary under section 527 and the 
name, address, electronic mailing address, custodian of 
records, and contact person for such organization. The IRS is 
required to make this information available within five 
business days after the Secretary of the Treasury receives a 
notice from a section 527 organization.
    An organization that fails to file the notice is not 
treated as a section 527 organization and its exempt function 
income is taken into account in determining taxable income.

Disclosure by political organizations of expenditures and contributors

    A political organization that accepts a contribution or 
makes an expenditure for an exempt function during any calendar 
year is required to file with the Secretary of the Treasury 
certain reports. The following reports are required: either (1) 
in the case of a calendar year in which a regularly scheduled 
election is held, quarterly reports, a pre-election report, and 
a post-general election report and, in the case of any other 
calendar year, a report covering January 1 to June 30 and July 
1 to December 31, or (2) monthly reports for the calendar year, 
except that, in lieu of the reports due for November and 
December of any year in which a regularly scheduled general 
election is held, a pre-general election report, a post-general 
election report, and a year end report are to be filed.
    The reports are required to include the following 
information: (1) the amount of each expenditure made to a 
person if the aggregate amount of expenditures to such person 
during the calendar year equals or exceeds $500 and the name 
and address of the person (in the case of an individual, 
including the occupation and name of the employer of the 
individual); and (2) the name and address (in the case of an 
individual, including the occupation and name of employer of 
such individual) of all contributors that contributed an 
aggregate amount of $200 or more to the organization during the 
calendar year and the amount of the contribution.
    The disclosure requirements do not apply (1) to any person 
required to report as a political committee under the Federal 
Election Campaign Act of 1971, (2) to any State or local 
committee of a political party or political committee of a 
State or local candidate, (3) to any organization that 
reasonably anticipates that it will not have gross receipts of 
$25,000 or more for any taxable year, (4) to any organization 
described in section 501(c), or (5) with respect to any 
expenditure that is an independent expenditure (as defined in 
section 301 of the Federal Election Campaign Act of 1971).
    For purposes of the disclosure requirements, the term 
``election'' means (1) a general, special, primary, or runoff 
election for a Federal office, (2) a convention or caucus of a 
political party that has authority to nominate a candidate for 
Federal office, (3) a primary election held for the selection 
of delegates to a national nominating convention of a political 
party, or (4) a primary election held for the expression of a 
preference for the nomination of individuals for election to 
the office of President.
    The IRS is required to make available to the public any 
report filed by a political organization. In addition, the 
organization is required to make any such report available to 
the public. A penalty is imposed for failure to file a report 
or provide required information in the report.

Return requirements for section 527 organizations

    Under present law, a section 527 organization that has 
political organization taxable income is required annually to 
file Form 1120-POL (Return of Organization Exempt from Income 
Tax). Section 527 organizations that do not have political 
organization taxable income but have gross receipts of $25,000 
or more during the taxable year also are required to file an 
income tax return. The gross receipts requirement does not 
apply to political organizations that are subject to section 
527 solely by reason of section 527(f)(1) (which provides for a 
tax on organizations exempt from tax under section 501(c) if 
such an organization makes an exempt function expenditure). The 
annual return must be made available to the public by the 
organization and by the IRS. In addition, section 527 
organizations that are required to file Form 1120-POL also are 
required to file an annual information return, Form 990 (Return 
of Organization Exempt from Income Tax).


                           REASONS FOR CHANGE


    The Committee believes that compliance with the political 
organization notification, reporting, and return requirements 
is in some cases needlessly burdensome, duplicative, or 
unnecessary. The Committee further believes that the Secretary 
should have the authority to waive certain taxes and penalties 
upon a showing of reasonable cause and not willful neglect.


                        EXPLANATION OF PROVISION


    The provision provides that a political organization that 
is a political committee of a State or local candidate, or a 
local committee of a political party, as political party is 
defined by State law, is exempt from the requirement (sec. 
527(i)) to provide notice to the Secretary of its formation and 
purpose. Such organizations already are exempt from the 
separate reporting requirement provided by section 527(j) to 
file regular reports with the Secretary detailing contribution 
and expenditure information.
    The Committee intends that a political committee of a State 
or local candidate, or a local committee of a political party 
shall have the same meaning for purposes of both the notice 
(sec. 527(i)) and reporting (sec. 527(j)) requirements. A 
political committee of a State or local candidate means the 
principal committee a candidate establishes to conduct the 
candidate's campaign activities. A candidate or officeholder 
may establish or be associated with other political committees, 
but such committees would not necessarily be exempt from the 
notification (sec. 527(i)) or reporting (sec. 527(j)) 
requirements. For example, if a State candidate who already has 
established a principal committee, established a political 
organization to advocate on behalf of a ballot initiative, or 
for or against another candidate, such a committee would be 
required to submit an initial notification of its status as a 
political organization and to file regular reports. The 
Committee intends that a local committee of a political party 
is any local committee of a political party if such party is 
established or recognized under State or local law. Such 
committees may operate separately from a party organization, 
for example, for the benefit of candidates in a particular 
region, but to be exempt from the notification or reporting 
requirements the committee must be established by the party, 
not by the candidates.
    In addition, the provision exempts certain State or local 
political organizations from the requirement (sec. 527(j)) to 
file regular reports with the Secretary detailing contribution 
and expenditure information. To be exempt from such reporting 
requirements under the provision: (1) the organization must not 
engage in any exempt function activities other than to 
influence or attempt to influence the selection, nomination, 
election, or appointment of any individual to any State or 
local public office or office in a State or local political 
organization; (2) during the calendar year, the organization 
must be required to report under State or local law information 
regarding individual expenditures from and contributions to 
such organization (including information regarding the person 
who makes such contribution or receives such expenditure) that 
is substantially similar to the information that otherwise 
would be required to be reported; (3) the agency with which 
such information is filed must make the filed information 
public; (4) the organization filing the information must make 
the information available for public inspection in a manner 
similar to that required of reports filed with the IRS; and (5) 
no candidate for nomination or election to Federal elective 
office or individual holding such a Federal office can control 
or materially participate in the direction of the organization, 
or direct, in whole or in part, expenditures or fundraising 
activities of the organization. The Committee intends that 
State or local reporting requirements will be substantially 
similar to Federal reporting requirements if the State or local 
law requires regular reporting of itemized expenditures of $250 
or more and itemized contributions of $500 or more. State or 
local law also must require information regarding the identity 
of contributors and identity of persons receiving expenditures 
that is substantially similar to Federal law. In addition, 
State or local law must penalize the failure to file the 
reporting information. In general, the Committee believes that 
most State reporting requirements presently are substantially 
similar to Federal reporting requirements. The Committee does 
not intend by this provision to encourage States to lessen the 
reporting requirements of political organizations.
    Under the provision, a political organization is required 
to file an income tax return (Form 1120-POL) only if such 
organization has political organization taxable income for the 
taxable year. Thus, political organizations without political 
organization taxable income and with gross receipts of at least 
$25,000 for the taxable year would no longer be required to 
file an income tax return. The provision changes the present-
law rule that an information return (Form 990) is required to 
be filed by organizations that are required to file an income 
tax return. Instead, under the provision, information returns 
are required to be filed by political organizations that have 
gross receipts of $25,000 or more for the taxable year with the 
following exceptions: (1) State or local political 
organizations that are exempt from the 527(j) reporting 
requirement, (2) State or local committees of a political 
party, or political committees of a State or local candidate, 
as defined by State law, (3) a caucus or association of State 
or local elected officials, (4) a national association of State 
or local officials, (5) a committee of a candidate for Federal 
office authorized by section 301(6) of the Federal Election 
campaign Act, and (6) a national committee of a political party 
(as defined in section 301(14) of the Federal Election Campaign 
Act).\86\ In addition, under the provision, political 
organizations with political organization taxable income and 
gross receipts for the taxable year of less than $25,000 are no 
longer required to file an information return. Also, as under 
present law, the Secretary would have the discretion to waive 
the information return filing requirement.
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    \86\ As under present law, the bill provides that organizations 
that are political organizations for a taxable year solely because of 
section 527(f)(1) (which provides for a tax on organizations exempt 
from tax under section 501(c) if such an organization makes an exempt 
function expenditure) are not required to file an information return.
---------------------------------------------------------------------------
    The provision gives the Secretary the authority to waive 
all or any portion of the taxes imposed on an organization for 
failure to notify the Secretary of the organization's 
establishment or the penalties imposed for failure to file a 
report. Such waiver is subject to a showing by the organization 
that the failure was due to reasonable cause and not to willful 
neglect.
    The provision further provides that the Secretary in 
consultation with the Federal Election Commission must 
publicize the effects of these changes and the interaction of 
the requirements to file a notification or report under section 
527 and reports under the Federal Election Campaign Act of 
1971.
    Finally, the provision makes the following technical 
corrections. The provision clarifies that in computing taxable 
income for organizations that fail to notify the Secretary of 
their status as a political organization, all exempt function 
income, whether or not segregated for use for an exempt 
function, is taken into account. The provision also clarifies 
that penalties imposed for failure to report under section 
527(j) will be assessed and collected in the same manner as 
penalties imposed on exempt organizations for failure to file 
returns (sec. 6652(c)). The provision applies the penalty for 
fraudulent returns, statements, or other documents (sec. 7207) 
to the notification (527(i)) and reporting (527(j)) 
requirements of political organizations. In addition, the 
provision eliminates the requirement that political 
organizations provide notice of their existence both in writing 
and electronically.


                             EFFECTIVE DATE


    The technical corrections clarifying the treatment of 
unsegregated exempt function income and the treatment of 
penalties imposed under section 527(j) are effective for 
failures to notify or report on or after the date of enactment. 
The requirement that the Secretary publicize the effects of the 
provision is effective on the date of enactment. All other 
provisions are effective as of July 1, 2000.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statements are made 
concerning the votes of the Committee on Ways and Means in its 
consideration of the bill, H.R. 3991.


                       MOTION TO REPORT THE BILL


    The bill, H.R. 3991, as amended, was ordered favorably 
reported by a rollcall vote of 34 yeas to 6 nays (with a quorum 
being present). The vote was as follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................        X   ........  .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................        X   ........  .........  Mr. Stark........  ........        X   .........
Mr. Shaw.......................        X   ........  .........  Mr. Matsui.......  ........        X   .........
Mrs. Johnson...................        X   ........  .........  Mr. Coyne........        X   ........  .........
Mr. Houghton...................        X   ........  .........  Mr. Levin........        X   ........  .........
Mr. Herger.....................        X   ........  .........  Mr. Cardin.......        X   ........  .........
Mr. McCrery....................        X   ........  .........  Mr. McDermott....  ........        X   .........
Mr. Camp.......................        X   ........  .........  Mr. Kleczka......        X   ........  .........
Mr. Ramstad....................        X   ........  .........  Mr. Lewis (GA)...  ........        X   .........
Mr. Nussle.....................        X   ........  .........  Mr. Neal.........        X   ........  .........
Mr. Johnson....................        X   ........  .........  Mr. McNulty......        X   ........  .........
Ms. Dunn.......................        X   ........  .........  Mr. Jefferson....  ........  ........  .........
Mr. Collins....................        X   ........  .........  Mr. Tanner.......        X   ........  .........
Mr. Portman....................        X   ........  .........  Mr. Becerra......  ........        X   .........
Mr. English....................        X   ........  .........  Mrs. Thurman.....        X   ........  .........
Mr. Watkins....................        X   ........  .........  Mr. Doggett......  ........        X   .........
Mr. Hayworth...................        X   ........  .........  Mr. Pomeroy......        X   ........  .........
Mr. Weller.....................        X   ........  .........  .................  ........  ........  .........
Mr. Hulshof....................        X   ........  .........  .................  ........  ........  .........
Mr. McInnis....................        X   ........  .........  .................  ........  ........  .........
Mr. Lewis (KY).................        X   ........  .........  .................  ........  ........  .........
Mr. Foley......................        X   ........  .........  .................  ........  ........  .........
Mr. Brady......................        X   ........  .........  .................  ........  ........  .........
Mr. Ryan.......................        X   ........  .........  .................  ........  ........  .........
----------------------------------------------------------------------------------------------------------------


                          VOTES ON AMENDMENTS


    A rollcall vote was conducted on the following amendment to 
the Chairman's amendment in the nature of a substitute.
    An amendment by Mr. Doggett, which would strike Title VII 
of the bill and insert a new title relating to revisions to the 
Section 527 organization disclosure provisions, including 
modifications to reporting requirements for certain state and 
local political organizations, was defeated by a rollcall vote 
of 16 yeas to 22 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mrs. Johnson...................        X   ........  .........  Mr. Coyne........        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Nussle.....................  ........  ........  .........  Mr. Neal.........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. McNulty......        X   ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Jefferson....  ........  ........  .........
Mr. Collins....................  ........        X   .........  Mr. Tanner.......  ........  ........  .........
Mr. Portman....................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. English....................  ........        X   .........  Mrs. Thurman.....        X   ........  .........
Mr. Watkins....................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. Hayworth...................  ........        X   .........  Mr. Pomeroy......        X   ........  .........
Mr. Weller.....................  ........        X   .........  .................  ........  ........  .........
Mr. Hulshof....................  ........        X   .........  .................  ........  ........  .........
Mr. McInnis....................  ........        X   .........  .................  ........  ........  .........
Mr. Lewis (KY).................  ........        X   .........  .................  ........  ........  .........
Mr. Foley......................  ........        X   .........  .................  ........  ........  .........
Mr. Brady......................  ........        X   .........  .................  ........  ........  .........
Mr. Ryan.......................  ........        X   .........  .................  ........  ........  .........
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Doggett, which would add a new section 
relating to the disclosure of lobbying activities by certain 
organizations, was defeated by a rollcall vote of 16 yeas to 23 
nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. McNulty......        X   ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Jefferson....  ........  ........  .........
Mr. Collins....................  ........        X   .........  Mr. Tanner.......        X   ........  .........
Mr. Portman....................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. English....................  ........        X   .........  Mrs. Thurman.....        X   ........  .........
Mr. Watkins....................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. Hayworth...................  ........        X   .........  Mr. Pomeroy......        X   ........  .........
Mr. Weller.....................  ........        X   .........  .................  ........  ........  .........
Mr. Hulshof....................  ........        X   .........  .................  ........  ........  .........
Mr. McInnis....................  ........        X   .........  .................  ........  ........  .........
Mr. Lewis (KY).................  ........        X   .........  .................  ........  ........  .........
Mr. Foley......................  ........  ........  .........  .................  ........  ........  .........
Mr. Brady......................  ........        X   .........  .................  ........  ........  .........
Mr. Ryan.......................  ........        X   .........  .................  ........  ........  .........
----------------------------------------------------------------------------------------------------------------

                     IV. BUDGET EFFECTS OF THE BILL


               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d)(2) of rule XIII of the Rules 
of the House of Representatives, the following statement is 
made concerning the effects on the budget of the revenue 
provisions of the bill, H. R. 3991, as reported.
    The bill is estimated to have the following effects on 
budget receipts for fiscal years 2002-2007:

 ESTIMATED REVENUE EFFECTS OF H.R. 3991, THE ``TAXPAYER PROTECTION AND IRS ACCOUNTABILITY ACT OF 2002,'' AS REPORTED BY THE COMMITTEE ON WAYS AND MEANS
                                                    [Fiscal years 2002-2007, in millions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                Provision                             Effective                2002       2003       2004       2005       2006       2007      2002-7
--------------------------------------------------------------------------------------------------------------------------------------------------------
Reforming Penalty and Interest
 Provisions:
    1. Clarification of application of    DOE.............................      (\1\)         -5         -5         -5         -5         -5         -27
     Federal tax deposit penalty.
    2. Failure to pay estimated tax.....  etpm tyba 12/31/02..............  .........  .........        -72        -74        -76        -78        -300
    3. Exclusion from gross income for    iri cyba DOE....................  .........        963        -96        -99       -103       -106         559
     interest on overpayments of income
     tax by individuals.
    4. Abatement of interest............  iao/a DOE.......................  .........      (\1\)         -1         -1         -1         -2          -5
    5. Deposits to stop the running of    dma DOE.........................         19         76         47         -4         -4         -4         130
     interests on potential
     underpayments.
    6. Expansion of interest netting for  iaa 12/31/02....................  .........      (\1\)         -1         -1         -1         -2          -5
     individuals.
    7. Waiver of certain penalties for    after 12/31/02..................  .........        -15        -15        -16        -16        -16         -78
     first-time unintentional minor
     errors.
    8. Frivolous tax returns and          (\2\)...........................                            Negligible Revenue Effect
     submissions.
                                                                           -----------------------------------------------------------------------------
      Total of Reforming Penalty and      ................................         19      1,019       -143       -200       -206       -213         274
       Interest Provisions.
                                                                           =============================================================================
Provisions to Improve the Fairness of
 IRS Collection Procedures:
    1. Authorize IRS to enter into        iaeio/a DOE.....................         11         30         14          5     (\13\)     (\13\)          61
     installment agreements that provide
     for partial payment.
    2. Extend time limit for contesting   DOE.............................  .........         -1         -2         -2         -3         -3         -11
     IRS levy.
    3. Place threshold on tolling of      DOE.............................                            Negligible Revenue Effect
     statute of limitations during
     review by Taxpayer Advocate Service.
    4. Study of liens and levies........  1ya DOE.........................                                No Revenue Effect
                                                                           -----------------------------------------------------------------------------
      Total of Provisions to Improve the  ................................         11         29         12          3         -3         -3          50
       Fairness of IRS Collection
       Procedures.
                                                                           =============================================================================
Provisions to Improve the Efficiency of
 Tax Administration:
    1. Modify section 1203 of the IRS     DOE.............................                            Negligible Revenue Effect
     Restructing and Reform Act of 1998.
    2. Confirmation of tax court          (\4\)...........................                                No Revenue Effect
     authority to apply equitable
     recoupment.
    3. Consolidate review of collection   afa DOE.........................                                No Revenue Effect
     due process cases in the Tax Court.
    4. Office of Chief Counsel Review of  oicsopo/a DOE...................                                No Revenue Effect
     offers-in-compromise.
                                                                           -----------------------------------------------------------------------------
      Total of Provisions to Improve the  ................................      (\5\)      (\5\)      (\5\)      (\5\)      (\5\)      (\5\)       (\5\)
       Efficiency of Tax Administration.
                                                                           =============================================================================
Taxpayer Information Confidentiality
 Provisions:
    1. Collection activities with         rma DOE.........................                                No Revenue Effect
     respect to a joint return
     disclosable based on oral request.
    2. Taxpayer representatives not       DOE.............................                                No Revenue Effect
     subject to examination without
     supervisor approval.
    3. Disclosure in judicial or          pca DOE.........................                                No Revenue Effect
     administrative tax proceedings of
     return and return information of
     persons who are not party to such
     proceedings.
    4. Prohibitation of disclosure of     Dma DOE.........................                                No Revenue Effect
     taxpayer identification information
     with respect to disclosure of
     accepted offers-in-compromise.
    5. Compliance by contractors with     Dma 12/31/02....................                                No Revenue Effect
     confidentially safeguards.
    6. Higher standards for requests for  racma 3ma DOE...................                                No Revenue Effect
     the consents to disclosure.
    7. Notice to taxpayer concerning      DOE & cyea DOE..................                                No Revenue Effect
     administrative determination of
     browsing; annual report.
    8. Disclosure regarding suicide       DOE.............................                                No Revenue Effect
     threats.
    9. Disclosure of taxpayer identity    DOE.............................                                No Revenue Effect
     for tax refund purposes.
    10. Disclosure to state officials     DOE.............................                                No Revenue Effect
     relating to section 501(c)(3)
     organizations.
                                                                           -----------------------------------------------------------------------------
      Total of Taxpayer Information       ................................  .........  .........  .........  .........  .........  .........  ..........
       Confidentiality Provisions.
                                                                           =============================================================================
Miscellaneous Provisions:
    1. Clarification of definition of     DOE.............................                                No Revenue Effect
     church tax inquiry.
    2. Expansion of declaratory judgment  (\6\)...........................                                No Revenue Effect
     procedures to non-501(c)(3) tax-
     exempt organizations.
    3. Employee misconduct report to      repea DOE.......................                                No Revenue Effect
     include summary of complaints by
     category.
    4. Annual report on awards of costs   (\7\)...........................                                No Revenue Effect
     and certain fees in administrative
     and court proceedings.
    5. Annual report on abatement of      (\8\)...........................                                No Revenue Effect
     penalties.
    6. Better means of communicating      (\9\)...........................                                No Revenue Effect
     with taxpayers.
    7. Information regarding statute of   (\10\)..........................                                No Revenue Effect
     limitations.
    8. Amendment to treasury auction      mha DOE.........................                                No Revenue Effect
     reforms (\11\).
    9. Enrolled agents..................  DOE.............................                                No Revenue Effect
                                                                           -----------------------------------------------------------------------------
      Total of Miscellaneous Provisions.  ................................      (\5\)      (\5\)      (\5\)      (\5\)      (\5\)      (\5\)       (\5\)
                                                                           =============================================================================
Authorization for Appropriation--Low-     DOE.............................                                No Revenue Effect
 income Taxpayer Clinics (\11\).
Additional Provisions:
    1. Reporting requirements of State    DOE & 7/1/00....................         -3         -5         -1         -1      (\1\)      (\1\)         -10
     and local political organizations.
    2. Extend the due date for            rfa 12/31/02....................                                No Revenue Effect
     electronically filed returns.
    3. Restoration of retirement saving   arttta 12/31/02.................                                No Revenue Effect
     after improper levy.
    4. Allow the Financial Management     DOE.............................                                No Revenue Effect
     Service to retain transaction fees
     from levied amounts \11\.
    5. Capital gains treatment to apply   sota DOE........................                                No Revenue Effect
     to outright sales of timber by
     landowners.
                                                                           -----------------------------------------------------------------------------
      Total of Additional Provisions....  ................................         -3         -5         -1         -1      (\1\)      (\1\)         -10
                                                                           =============================================================================
      Net Total.........................  ................................         27      1,043       -132       -198       -209       -216        -314
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Loss of less than $500,000.
\2\ Provision effective of submissions made and issues raised after the date on which the Secretary first prescribes the required lists.
\3\ Gain of less than $500,000.
\4\ The proposed would be effective for any action or proceeding in the Tax court with respect to which a decision has not become final as of the date
  of enactment.
\5\ Negligible revenue effect.
\6\ The extension of the declaratory judgment procedures to organizations other than section 501(c)(3) organizations would be effective for pleadings
  with respect to determinations made and the date of enactment.
\7\ The first annual report would be required for fiscal year 2002. The reports must be published no later than three months following the close of the
  fiscal year.
\8\ The first annual report would be required for fiscal year 2002. The reports must be provided to the Congress no later than six months following the
  close of the fiscal year.
\9\ The report must be issued no later than 18 months after the date of enactment.
\10\ The revisions to Publication 1 would be required to be made as soon as practicable, but no later than 180 days after the date of enactment. The
  revisions to the Form 1040 instructional packages would be required to be made for instructions for taxable years beginning after December 31, 2001.
\11\ Estimate provided by Congressional Budget Office.

 Legend for ``Effective'' column: afa = appeals filed after; arttta = amounts returned to the taxpayer after; cyba = calendar years beginning after;
  cyea = calendar years ending after; DOE = date of enactment; dma = distributions made after; Dma = disclosures made after; etpm = estimated tax
  payments made; iaa - interest accrued after; iaeio/a = installment agreements entered into on or after; iao/a = interest accruing on or after; iri =
  interest received in; mba = meeting held after; pca = proceedings commenced after; racma = requests and consents made after; rfa = returns filed
  after; rma = requests made after; rpea = reporting periods ending after; sota = sales of timber after; typa = taxable years beginning after; 3ma =
  three months after; and 1ya = one year after.

 Note.--Details may not add to totals due to rounding.
 Source: Joint Committee on Taxation.


    B. Statement Regarding New Budget Authority and Tax Expenditures


Budget authority

    In compliance with clause 3(c)(2) of Rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
bill involves no new or increased budget authority.

Tax expenditures

    In compliance with clause 2(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
revenue-reducing income tax provisions involve increased tax 
expenditures. (See amounts in table in Part IV.A., above.)

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, requiring a cost estimate 
prepared by the Congressional Budget Office (``CBO''), the 
following statement by CBO is provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, April 9, 2002.
Hon. William ``Bill'' M. Thomas,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 3991, the 
``Taxpayer Protections and IRS Accountability Act of 2002.''
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Erin 
Whitaker (for revenues), Matthew Pickford (for federal costs), 
and Susan Sieg Tompkins (for the state and local impact).
            Sincerely,
                                          Barry B. Anderson
                                    (For Dan L. Crippen, Director).
    Enclosure.

H.R. 3991--Taxpayer Protection and IRS Accountability Act of 2002

    Summary: H.R. 3991 would make several changes to laws 
currently affecting tax administration. The bill would waive or 
eliminate certain penalties for taxpayers who make certain 
errors on their tax returns, and would exclude from gross 
income the interest earned on overpayments of income by 
individual taxpayers.
    The Joint Committee on Taxation (JCT) estimates that 
enacting H.R. 3991 would increase revenues by $27 million in 
2002 and by $157 million over the 2002-2007 period, but would 
decrease revenue by $1.2 billion over the 2002-2012 period. CBO 
estimates that the bill would increase direct spending by $28 
million over the 2002-2007 period, and by $58 million over the 
2002-2012 period. Since the bill would affect direct spending 
and receipts, pay-as-you-go procedures would apply.
    CBO has determined that certain provisions of titles V and 
VII which would require the Treasury Department to prepare a 
number of reports and authorize the Financial Management 
Service to retain certain collections contain no 
intergovernmental mandates as defined in the Unfunded Mandates 
Reform Act (UMRA) and would not affect the budgets of state, 
local, and tribal governments. JCT has determined that the 
remaining provisions of the bill contain no intergovernmental 
mandates as defined in UMRA.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 3991 is shown in the following table. 
The cost of this legislation would fall within budget function 
800 (general government).

----------------------------------------------------------------------------------------------------------------
                                                                  By fiscal year, in millions of dollars--
                                                           -----------------------------------------------------
                                                              2002     2003     2004     2005     2006     2007
----------------------------------------------------------------------------------------------------------------
                                             CHANGES IN REVENUES \1\

Failure to pay estimated tax..............................        0        0      -72      -74      -76      -78
Exclusion from income for interest on overpayments........        0      963      -96      -99     -103     -106
Waiver of certain penalties...............................        0      -44      -46      -47      -49      -50
Other Provisions..........................................       27       95       51       -9      -14      -16
                                                           -----------------------------------------------------
      Total change in revenues............................       27    1,014     -163     -229     -242     -250

                                           CHANGES IN DIRECT SPENDING

Financial Management Service Estimated Outlays............        2        5        5        5        5        6

                                        SPENDING SUBJECT TO APPROPRIATION

Spending Under Current Law for Low-Income Taxpayer
 Clinics:
    Authorization Level \2\...............................        7        6        6        6        6        6
    Estimated Outlays.....................................        7        6        6        6        6        6
Proposed Changes:
    Authorization Level...................................        2        6        9        9        9        9
    Estimated Outlays.....................................        1        6        9        9        9        9
Low-Income Taxpayer Clinics Under H.R. 3991:
    Authorization Level...................................        9       12       15       15       15       15
    Estimated Outlays.....................................        8       12       15       15       15       15
----------------------------------------------------------------------------------------------------------------
\1\ Estimates provided by Joint Committee on Taxation.
\2\ The 2002 level is the amount appropriated that year for low-income taxpayer clinics.

Basis of the estimate

            Revenues
    The estimates of the revenue provisions of the bill were 
provided by JCT. Three provisions would compose the majority of 
the effects on revenues. The provisions that would alter 
penalties for taxpayers who fail to pay estimated tax 
liability, exclude gross income interest that is paid to 
taxpayers who make payments above their tax liability, and 
permit the IRS to waive penalties for taxpayers who make 
unintentional minor errors while filing tax returns or paying 
taxes would increase revenues by $157 million over the 2002-
2007 period, and reduce revenues by $1.2 billion over the 2002-
2012 period.
            Direct spending
    Title V of H.R. 3991 would allow the Financial Management 
Service (FMS) to retain a portion of amounts levied under the 
Federal Payment Levy Program that FMS administers for the 
Internal Revenue Service (IRS). The levy program allows the IRS 
to collect a portion of certain payments disbursed by FMS to 
delinquent taxpayers. Under current law, IRS pays FMS' 
administrative costs for this program from its annual 
appropriation. H.R. 3991 would allow FMS to retain a portion of 
the funds it collects to cover its costs. CBO estimates that 
this provision would increase direct spending by $28 million 
over the 2002-2007 period.
            Spending subject to appropriation
    Under current law, the Secretary of the Treasury is 
authorized to provide up to $6 million per year in grants to 
low income taxpayer clinics. H.R. 3991 would increase this 
authorization to $9 million in 2003, $12 million in 2004, and 
$15 million for each year thereafter. CBO estimates that 
implementing these provisions would cost $43 million over the 
2002-2007 period.
    Pay-as-you-go considerations: The Balanced Budget and 
Emergency Deficit Control Act sets up pay-as-you-go procedures 
for legislation affecting direct spending or receipts. The net 
changes to government receipts that are subject to pay-as-you-
go procedures are shown on the following table. For purposes of 
enforcing pay-as-you-go procedures, only the effects through 
2006 are counted.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                     By fiscal year, in millions of dollars--
                                                        ------------------------------------------------------------------------------------------------
                                                          2002    2003     2004     2005     2006     2007     2008     2009     2010     2011     2012
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in receipts....................................     27    1,014     -163     -229     -242     -250     -257     -266     -278     -283     -295
Changes in outlays.....................................      2        5        5        5        5        6        6        6        6        6        6
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Intergovernmental and private sector impact: CBO has 
determined that certain provisions of titles V and VII which 
would require the Treasury Department to prepare a number of 
reports and authorize the Financial Management Service to 
retain certain collections contain no intergovernmental 
mandates as defined in UMRA and would not affect the budgets of 
state, local, and tribal governments. JCT has determiend that 
the remaining provisions of the bill contain no 
intergovernmental mandates as defined in UMRA.
    Estimate prepared by: Revenues: Erin Whitaker; Federal 
Costs: Matthew Pickford; Impact on State, Local, and Tribal 
Governments: Susan Sieg Thompkins; and Private-Sector Impact: 
Paige Piper/Bach.
    Estimate approved by: Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis and G. Thomas Woodward, Assistant 
Director for Tax Analysis.

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE


          A. Committee Oversight Findings and Recommendations

    With respect to clause 3(c)(1) of rule XIII of the Rules of 
the House of Representatives (relating to oversight findings), 
the Committee advises that it was a result of the Committee's 
oversight review concerning fairness to individual taxpayers 
that the Committee concluded that it is appropriate and timely 
to enact the revenue provisions included in the bill as 
reported.

        B. Statement of General Performance Goals and Objectives

    With respect to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the performance goals and 
objectives of the tax provision in this legislation that 
authorizes funding of low-income taxpayer clinics are to assist 
in the development, expansion, and continuation of these 
clinics through matching grants. In addition, the Secretary may 
promote the benefits and encourage the use of these clinics. 
Low-income taxpayer clinics contribute to taxpayer compliance 
with the Internal Revenue Code and the recovery of tax 
revenues.

                 C. Constitutional Authority Statement

    With respect to clause 3(d)(1) of rule XIII of the Rules of 
the House of Representatives (relating to Constitutional 
Authority), the Committee states that the Committee's action in 
reporting this bill is derived from Article I of the 
Constitution, Section 8 (``The Congress shall have Power To lay 
and collect Taxes, Duties, Imposts and Excises * * *''), and 
from the 16th Amendment to the Constitution.

              D. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Act of 1995 (P.L. 104-4).
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The provision that 
ensures compliance by State contractors with confidentiality 
safeguards (sec. 405) imposes Federal intergovernmental 
mandates on State, local and tribal governments. The staff of 
the Joint Committee on Taxation estimates that the direct costs 
of complying with these Federal intergovernmental mandates will 
not exceed $50,000,000 (adjusted for inflation) in either the 
first fiscal year or in any of the 4 fiscal years following the 
first fiscal year.

                E. Applicability of House Rule XXI 5(b)

    Rule XXI 5(b) of the Rules of the House of Representatives 
provides, in part, that ``A bill or joint resolution, 
amendment, or conference report carrying a Federal income tax 
rate increase may not be considered as passed or agreed to 
unless so determined by a vote of not less than three-fifths of 
the Members voting, a quorum being present.'' The Committee has 
carefully reviewed the provisions of the bill, and states that 
the provisions of the bill do not involve any Federal income 
tax rate increase within the meaning of the rule.

                       F. Tax Complexity Analysis

    Section 4022(b) of the Internal Revenue Service Reform and 
Restructuring Act of 1998 (the ``IRS Reform Act'') requires the 
staff of the Joint Committee on Taxation (in consultation with 
the Internal Revenue Service and the Department of the 
Treasury) to provide a tax complexity analysis. The complexity 
analysis is required for all legislation reported by the House 
Committee on Ways and Means, the Senate Committee on Finance, 
or any committee of conference if the legislation includes a 
provision that directly or indirectly amends the Internal 
Revenue Code and has widespread applicability to individuals or 
small businesses.
    The staff of the Joint Committee on Taxation has determined 
that a complexity analysis is not required under section 
4022(b) of the IRS Reform Act because the bill contains no 
provisions that amend the Internal Revenue Code and that have 
``widespread applicability'' to individuals or small 
businesses.

         CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

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

                     INTERNAL REVENUE CODE OF 1986

           *       *       *       *       *       *       *



                       Subtitle A--Income Taxes

           *       *       *       *       *       *       *


                 CHAPTER 1--NORMAL TAXES AND SURTAXES

           *       *       *       *       *       *       *


              Subchapter B--Computation of Taxable Income

           *       *       *       *       *       *       *


        PART III--ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

        Sec. 101. Certain death benefits.
     * * * * * * *
        Sec. 139A. Exclusion from gross income for interest on 
                  overpayments of income tax by individuals.
     * * * * * * *

SEC. 139A. EXCLUSION FROM GROSS INCOME FOR INTEREST ON OVERPAYMENTS OF 
                    INCOME TAX BY INDIVIDUALS.

  (a) In General.--In the case of an individual, gross income 
shall not include interest paid under section 6611 on any 
overpayment of tax imposed by this subtitle.
  (b) Exception.--Subsection (a) shall not apply in the case of 
a failure to claim items resulting in the overpayment on the 
original return if the Secretary determines that the principal 
purpose of such failure is to take advantage of subsection (a).
  (c) Special Rule for Determining Modified Adjusted Gross 
Income.--For purposes of this title, interest not included in 
gross income under subsection (a) shall not be treated as 
interest which is exempt from tax for purposes of sections 
32(i)(2)(B) and 6012(d) or any computation in which interest 
exempt from tax under this title is added to adjusted gross 
income.

           *       *       *       *       *       *       *


    PART VI--ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS

           *       *       *       *       *       *       *


SEC. 167. DEPRECIATION.

  (a) * * *

           *       *       *       *       *       *       *

  (g) Depreciation Under Income Forecast Method.--
          (1) * * *

           *       *       *       *       *       *       *

          (5) Special rules.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (D) Collection of interest.--For purposes of 
                subtitle F (other than sections [6654] 6641 and 
                6655), any interest required to be paid by the 
                taxpayer under paragraph (1) for any 
                recomputation year shall be treated as an 
                increase in the tax imposed by this chapter for 
                such year.

           *       *       *       *       *       *       *


       Subchapter E--Accounting Periods and Methods of Accounting

           *       *       *       *       *       *       *


                     PART II--METHODS OF ACCOUNTING

           *       *       *       *       *       *       *


 Subpart B--Taxable Year for Which Items of Gross Income Included

           *       *       *       *       *       *       *


SEC. 460. SPECIAL RULES FOR LONG-TERM CONTRACTS.

  (a) Requirement That Percentage of Completion Method Be 
Used.--In the case of any long-term contract, the taxable 
income from such contract shall be determined under the 
percentage of completion method (as modified by subsection 
(b)).
  (b) Percentage of Completion Method.--
          (1) * * *
        In the case of any long-term contract with respect to 
        which the percentage of completion method is used, 
        except for purposes of applying the look-back method of 
        paragraph (3) [(2)], any income under the contract (to 
        the extent not previously includible in gross income) 
        shall be included in gross income for the taxable year 
        following the taxable year in which the contract was 
        completed.
For purposes of subtitle F (other than sections [6654] 6641 and 
6655) any interest required to be paid by the taxpayer under 
subparagraph (B) shall be treated as an increase in the tax 
imposed by this chapter for the taxable year in which the 
contract is completed (or, in the case of interest payable with 
respect to any amount properly taken into account after 
completion of the contract, for the taxable year in which the 
amount is so properly taken into account).

           *       *       *       *       *       *       *


                  Subchapter F--Exempt Organizations

           *       *       *       *       *       *       *


                   PART VI--POLITICAL ORGANIZATIONS

           *       *       *       *       *       *       *


SEC. 527. POLITICAL ORGANIZATIONS.

  (a) * * *

           *       *       *       *       *       *       *

  (e) Other Definitions.--For purposes of this section--
          (1) * * *

           *       *       *       *       *       *       *

          (5) Exempt state or local political organization.--
                  (A) In general.--The term ``exempt State or 
                local political organization'' means a 
                political organization--
                          (i) which does not engage in any 
                        exempt function other than to influence 
                        or to attempt to influence the 
                        selection, nomination, election, or 
                        appointment of any individual to any 
                        State or local public office or office 
                        in a State or local political 
                        organization,
                          (ii) which is subject to State or 
                        local requirements to submit reports 
                        containing information--
                                  (I) regarding individual 
                                expenditures from and 
                                contributions to such 
                                organization, and
                                  (II) regarding the person who 
                                makes such contributions or 
                                receives such expenditures,
                        which is substantially similar to the 
                        information which would otherwise be 
                        required to be reported under this 
                        section, and
                          (iii) with respect to which the 
                        reports referred to in clause (ii) are 
                        made public by the agency with which 
                        such reports are filed and are publicly 
                        available for inspection in a manner 
                        similar to that required by section 
                        6104(d)(1).
                  (B) Participation of federal candidate or 
                office holder.--The term ``exempt State or 
                local political organization'' shall not 
                include any organization otherwise described in 
                subparagraph (A) if a candidate for nomination 
                or election to Federal elective office or an 
                individual who holds such office--
                          (i) controls or materially 
                        participates in the direction of the 
                        organization, or
                          (ii) directs, in whole or in part, 
                        expenditures or fundraising activities 
                        of the organization.

           *       *       *       *       *       *       *

  (i) Organizations Must Notify Secretary That They Are Section 
527 Organizations.--
          (1) In general.--Except as provided in paragraph (5), 
        an organization shall not be treated as an organization 
        described in this section--
                  (A) unless it has given notice to the 
                Secretary[, electronically and in writing,] 
                that it is to be so treated, or
                  (B) if the notice is given after the time 
                required under paragraph (2), the organization 
                shall not be so treated for any period before 
                such notice is given.

           *       *       *       *       *       *       *

          (4) Effect of failure.--In the case of an 
        organization failing to meet the requirements of 
        paragraph (1) for any period, the taxable income of 
        such organization shall be computed by taking into 
        account any exempt function income (and any deductions 
        directly connected with the production of such income). 
        For purposes of the preceding sentence, the term 
        ``exempt function income'' means any amount described 
        in a subparagraph of subsection (c)(3), whether or not 
        segregated for use for an exempt function.
          (5) Exceptions.--This subsection shall not apply to 
        any organization--
                  (A) to which this section applies solely by 
                reason of subsection (f)(1), [or]
                  (B) which reasonably anticipates that it will 
                not have gross receipts of $25,000 or more for 
                any taxable year[.], or
                  (C) which is--
                          (i) a political committee of a State 
                        or local candidate, or
                          (ii) a local committee of an entity 
                        which is a political party under State 
                        law.

           *       *       *       *       *       *       *

  (j) Required Disclosure of Expenditures and Contributions.--
          (1) Penalty for failure.--In the case of--
                  (A) a failure to make the required 
                disclosures under paragraph (2) at the time and 
                in the manner prescribed therefor, or
                  (B) a failure to include any of the 
                information required to be shown by such 
                disclosures or to show the correct 
                information,there shall be paid by the 
                organization an amount equal to the rate of tax 
                specified in subsection (b)(1) multiplied by 
                the amount to which the failure relates.
        For purposes of subtitle F, the penalty imposed by this 
        paragraph shall be assessed and collected in the same 
        manner as penalties imposed by section 6652(c).

           *       *       *       *       *       *       *

          (5) Coordination with other requirements.--This 
        subsection shall not apply--
                  (A) to any person required (without regard to 
                this subsection) to report under the Federal 
                Election Campaign Act of 1971 (2 U.S.C. 431 et 
                seq.) as a political committee,
                  [(B) to any State or local committee of a 
                political party or political committee of a 
                State or local candidate,]
                  (B) to any organization which is--
                          (i) a political committee of a State 
                        or local candidate, or
                          (ii) a State or local committee of an 
                        entity which is a political party under 
                        State law,
                  (C) to any organization which is an exempt 
                State or local political organization,
                  [(C)] (D) to any organization which 
                reasonably anticipates that it will not have 
                gross receipts of $25,000 or more for any 
                taxable year,
                  [(D)] (E) to any organization to which this 
                section applies solely by reason of subsection 
                (f)(1), or
                  [(E)] (F) with respect to any expenditure 
                which is an independent expenditure (as defined 
                in section 301 of such Act).
  (k) Authority To Waive.--The Secretary may waive all or any 
portion of the--
          (1) tax assessed on an organization by reason of the 
        failure of the organization to give notice under 
        subsection (i), or
          (2) penalty imposed under subsection (j) for a 
        failure to file a report,
on a showing that such failure was due to reasonable cause and 
not due to willful neglect.

           *       *       *       *       *       *       *


                    Subchapter I--Natural Resources

           *       *       *       *       *       *       *


                     PART III--SALES AND EXCHANGES

           *       *       *       *       *       *       *


SEC. 631. GAIN OR LOSS IN THE CASE OF TIMBER, COAL, OR DOMESTIC IRON 
                    ORE.

  (a) * * *
  (b) Disposal of Timber With a Retained Economic Interest.--In 
the case of the disposal of timber held for more than 1 year 
before such disposal, by the owner thereof under any form or 
type of contract by virtue of which such owner [retains an 
economic interest in such timber] either retains an economic 
interest in such timber or makes an outright sale of such 
timber, the difference between the amount realized from the 
disposal of such timber and the adjusted depletion basis 
thereof, shall be considered as though it were a gain or loss, 
as the case may be, on the sale of such timber. In determining 
the gross income, the adjusted gross income, or the taxable 
income of the lessee, the deductions allowable with respect to 
rents and royalties shall be determined without regard to the 
provisions of this subsection. [The date of disposal] In the 
case of disposal of timber with a retained economic interest, 
the date of disposal of such timber shall be deemed to be the 
date such timber is cut, but if payment is made to the owner 
under the contract before such timber is cut the owner may 
elect to treat the date of such payment as the date of disposal 
of such timber. For purposes of this subsection, the term 
`owner` means any person who owns an interest in such timber, 
including a sublessor and a holder of a contract to cut timber.

           *       *       *       *       *       *       *


                     Subtitle C--Employment Taxes

           *       *       *       *       *       *       *


      CHAPTER 25--GENERAL PROVISIONS RELATING TO EMPLOYMENT TAXES

           *       *       *       *       *       *       *


SEC. 3510. COORDINATION OF COLLECTION OF DOMESTIC SERVICE EMPLOYMENT 
                    TAXES WITH COLLECTION OF INCOME TAXES.

  (a) * * *
  (b) Domestic Service Employment Taxes Subject to Estimated 
Tax Provisions.--
          (1) In general.--Solely for purposes of [section 
        6654] section 6641, domestic service employment taxes 
        imposed with respect to any calendar year shall be 
        treated as a tax imposed by chapter 2 for the taxable 
        year of the employer which begins in such calendar 
        year.
          (2) Employers not otherwise required to make 
        estimated payments.--Paragraph (1) shall not apply to 
        any employer for any calendar year if--
                  (A) * * *
                  [(B) no addition to tax would (but for this 
                section) be imposed under section 6654 for such 
                taxable year by reason of section 6654(e).]
                  (B) no interest would be required to be paid 
                (but for this section) under 6641 for such 
                taxable year by reason of the $2,000 amount 
                specified in section 6641(d)(1)(B)(i)(II).
          (3) Annualization.--Under regulations prescribed by 
        the Secretary, appropriate adjustments shall be made in 
        the application of [section 6654(d)(2)] section 
        6641(d)(2) in respect of the amount treated as tax 
        under paragraph (1).
          [(4) Transitional rule.--In the case of any taxable 
        year beginning before January 1, 1998, no addition to 
        tax shall be made under section 6654 with respect to 
        any underpayment to the extent such underpayment was 
        created or increased by this section.]

           *       *       *       *       *       *       *


                Subtitle F--Procedure and Administration

           *       *       *       *       *       *       *


                  CHAPTER 61--INFORMATION AND RETURNS

           *       *       *       *       *       *       *


                   PART II--TAX RETURNS OR STATEMENTS

           *       *       *       *       *       *       *


                     Subpart B--Income Tax Returns

           *       *       *       *       *       *       *


SEC. 6012. PERSONS REQUIRED TO MAKE RETURNS OF INCOME.

  (a) General Rule.--Returns with respect to income taxes under 
subtitle A shall be made by the following:
          (1) * * *

           *       *       *       *       *       *       *

          (6) Every political organization (within the meaning 
        of section 527(e)(1), and every fund treated under 
        section 527(g) as if it constituted a political 
        organization, which has political organization taxable 
        income (within the meaning of section 527(c)(1) for the 
        taxable year [or which has gross receipts of $25,000 or 
        more for the taxable year (other than an organization 
        to which section 527 applies solely by reason of 
        subsection (f)(1) of such section)];

           *       *       *       *       *       *       *


                     PART III--INFORMATION RETURNS

           *       *       *       *       *       *       *


Subpart A--Information Concerning Persons Subject to Special Provisions

           *       *       *       *       *       *       *


SEC. 6033. RETURNS BY EXEMPT ORGANIZATIONS.

  (a) * * *

           *       *       *       *       *       *       *

  [(g) Returns Required by Political Organizations.--In the 
case of a political organization required to file a return 
under section 6012(a)(6)--
          [(1) such organization shall file a return--
                  [(A) containing the information required, and 
                complying with the other requirements, under 
                subsection (a)(1) for organizations exempt from 
                taxation under section 501(a), and
                  [(B) containing such other information as the 
                Secretary deems necessary to carry out the 
                provisions of this subsection, and
          [(2) subsection (a)(2)(B) (relating to discretionary 
        exceptions) shall apply with respect to such return.]
  (g) Returns Required by Political Organizations.--
          (1) In general.--Every political organization (within 
        the meaning of section 527(e)(1)), and every fund 
        treated under section 527(g) as if it constituted a 
        political organization, which has gross receipts of 
        $25,000 or more for the taxable year shall file a 
        return--
                  (A) containing the information required, and 
                complying with the other requirements, under 
                subsection (a)(1) for organizations exempt from 
                taxation under section 501(a), and
                  (B) containing such other information as the 
                Secretary deems necessary to carry out the 
                provisions of this subsection.
          (2) Exceptions from filing.--
                  (A) Mandatory exceptions.--Paragraph (1) 
                shall not apply to an organization--
                          (i) which is an exempt State or local 
                        political organization (as defined in 
                        section 527(e)(5)),
                          (ii) which is a State or local 
                        committee of a political party, or 
                        political committee of a State or local 
                        candidate, as defined by State law,
                          (iii) which is a caucus or 
                        association of State or local elected 
                        officials,
                          (iv) which is a national association 
                        of State or local officials,
                          (v) which is an authorized committee 
                        (as defined in section 301(6) of the 
                        Federal Election Campaign Act of 1971) 
                        of a candidate for Federal office,
                          (vi) which is a national committee 
                        (as defined in section 301(14) of the 
                        Federal Election Campaign Act of 1971) 
                        of a political party, or
                          (vii) to which section 527 applies 
                        for the taxable year solely by reason 
                        of subsection (f)(1) of such section.
                  (B) Discretionary exception.--The Secretary 
                may relieve any organization required under 
                paragraph (1) to file an information return 
                from filing such a return where he determines 
                that such filing is not necessary to the 
                efficient administration of the internal 
                revenue laws.

           *       *       *       *       *       *       *


          PART V--TIME FOR FILING RETURNS AND OTHER DOCUMENTS

           *       *       *       *       *       *       *


SEC. 6072. TIME FOR FILING INCOME TAX RETURNS.

  (a) * * *

           *       *       *       *       *       *       *

  (f) Electronically Filed Returns of Individuals.--
          (1) In general.--Returns of an individual under 
        section 6012 or 6013 (other than an individual to whom 
        subsection (c) applies) which are filed 
        electronically--
                  (A) in the case of returns filed on the basis 
                of a calendar year, shall be filed on or before 
                the 30th day of April following the close of 
                the calendar year, and
                  (B) in the case of returns filed on the basis 
                of a fiscal year, shall be filed on or before 
                the last day of the 4th month following the 
                close of the fiscal year.
          (2) Electronic filing.--Paragraph (1) shall not apply 
        to any return unless--
                  (A) such return is accepted by the Secretary, 
                and
                  (B) the balance due (if any) shown on such 
                return is paid electronically in a manner 
                prescribed by the Secretary.
          (3) Special rules.--
                  (A) Estimated tax.--If--
                          (i) paragraph (1) applies to an 
                        individual for any taxable year, and
                          (ii) there is an overpayment of tax 
                        shown on the return for such year which 
                        the individual allows against the 
                        individual's obligation under section 
                        6641,
                then, with respect to the amount so allowed, 
                any reference in section 6641 to the April 15 
                following such taxable year shall be treated as 
                a reference to April 30.
                  (B) References to due date.--Paragraph (1) 
                shall apply solely for purposes of determining 
                the due date for the individual's obligation to 
                file and pay tax and, except as otherwise 
                provided by the Secretary, shall be treated as 
                an extension of the due date for any other 
                purpose under this title.

           *       *       *       *       *       *       *


                Subchapter B--Miscellaneous Provisions

           *       *       *       *       *       *       *


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

  (a) General Rule.--Returns and return information shall be 
confidential, and except as authorized by this title--
          (1) * * *
          (2) no officer or employee of any State, any local 
        child support enforcement agency, or any local agency 
        administering a program listed in subsection (l)(7)(D) 
        who has or had access to returns or return information 
        under this section or section 6104(c), and
          (3) no other person (or officer or employee thereof) 
        who has or had access to returns or return information 
        under subsection (e)(1)(D)(iii), paragraph (6), (12), 
        or (16) of subsection (l), paragraph (2) or (4)(B) of 
        subsection (m), [or subsection (n)] subsection (n), or 
        section 6104(c), shall disclose any return or return 
        information obtained by him in any manner in connection 
        with his service as such an officer or an employee or 
        otherwise or under the provisions of this section. For 
        purposes of this subsection, the term ``officer or 
        employee'' includes a former officer or employee.

           *       *       *       *       *       *       *

  (c) Disclosure of Returns and Return Information to Designee 
of [Taxpayer.--The Secretary] Taxpayer.--
          (1) In General.--The Secretary may, subject to such 
        requirements and conditions as he may prescribe by 
        regulations, disclose the return of any taxpayer, or 
        return information with respect to such taxpayer, to 
        such person or persons as the taxpayer may designate in 
        a request for or consent to such disclosure, or to any 
        other person at the taxpayer's request to the extent 
        necessary to comply with a request for information or 
        assistance made by the taxpayer to such other person. 
        However, return information shall not be disclosed to 
        such person or persons if the Secretary determines that 
        such disclosure would seriously impair Federal tax 
        administration.
          (2) Requirements for valid requests and consents.--A 
        request for or consent to disclosure under paragraph 
        (1) shall only be valid for purposes of this section or 
        sections 7213, 7213A, or 7431 if--
                  (A) at the time of execution, such request or 
                consent designates a recipient of such 
                disclosure and is dated, and
                  (B) at the time such request or consent is 
                submitted to the Secretary, the submitter of 
                such request or consent certifies, under 
                penalty of perjury, that such request or 
                consent complied with subparagraph (A).
          (3) Restrictions on persons obtaining information.--
        Any person shall, as a condition for receiving return 
        or return information under paragraph (1)--
                  (A) ensure that such return and return 
                information is kept confidential,
                  (B) use such return and return information 
                only for the purpose for which it was 
                requested, and
                  (C) not disclose such return and return 
                information except to accomplish the purpose 
                for which it was requested, unless a separate 
                consent from the taxpayer is obtained.
          (4) Requirements for form prescribed by secretary.--
        For purposes of this subsection, the Secretary shall 
        prescribe a form for requests and consents which 
        shall--
                  (A) contain a warning, prominently displayed, 
                informing the taxpayer that the form should not 
                be signed unless it is completed,
                  (B) state that if the taxpayer believes there 
                is an attempt to coerce him to sign an 
                incomplete or blank form, the taxpayer should 
                report the matter to the Treasury Inspector 
                General for Tax Administration, and
                  (C) contain the address and telephone number 
                of the Treasury Inspector General for Tax 
                Administration.

           *       *       *       *       *       *       *

  (e) Disclosure to Persons Having Material Interest.--
          (1) * * *

           *       *       *       *       *       *       *

          (8) Disclosure of collection activities with respect 
        to joint return.--If any deficiency of tax with respect 
        to a joint return is assessed and the individuals 
        filing such return are no longer married or no longer 
        reside in the same household, upon request [in writing] 
        by either of such individuals, the Secretary shall 
        disclose in writing to the individual making the 
        request whether the Secretary has attempted to collect 
        such deficiency from such other individual, the general 
        nature of such collection activities, and the amount 
        collected. The preceding sentence shall not apply to 
        any deficiency which may not be collected by reason of 
        section 6502.

           *       *       *       *       *       *       *

  (h) Disclosure to Certain Federal Officers and Employees for 
Purposes of Tax Administration, Etc.--
          (1) * * *

           *       *       *       *       *       *       *

          (4) Disclosure in judicial and administrative tax 
        [proceedings.--A return] proceedings.--
                  (A) In general.--Except as provided in 
                subparagraph (B), a return or return 
                information may be disclosed in a Federal or 
                State judicial or administrative proceeding 
                pertaining to tax administration, but only--
                  [(A)] (i) if the taxpayer is a party to the 
                proceeding, or the proceeding arose out of, or 
                in connection with, determining the taxpayer's 
                civil or criminal liability, or the collection 
                of such civil liability, in respect of any tax 
                imposed under this title;
                  [(B)] (ii) if the treatment of an item 
                reflected on such return is directly related to 
                the resolution of an issue in the proceeding;
                  [(C)] (iii) if such return or return 
                information directly relates to a transactional 
                relationship between a person who is a party to 
                the proceeding and the taxpayer which directly 
                affects the resolution of an issue in the 
                proceeding; or
                  [(D)] (iv) to the extent required by order of 
                a court pursuant to section 3500 of title 18, 
                United States Code, or rule 16 of the Federal 
                Rules of Criminal Procedure, such court being 
                authorized in the issuance of such order to 
                give due consideration to congressional policy 
                favoring the confidentiality of returns and 
                return information as set forth in this title.
        However, such return or return information shall not be 
        disclosed as provided in [subparagraph (A), (B), or 
        (C)] clause (i), (ii), or (iii) if the Secretary 
        determines that such disclosure would identify a 
        confidential informant or seriously impair a civil or 
        criminal tax investigation.
                  (B) Disclosure in judicial or administrative 
                tax proceedings of return and return 
                information of persons not party to such 
                proceedings.--
                          (i) Notice.--Return or return 
                        information of any person who is not a 
                        party to a judicial or administrative 
                        proceeding described in this paragraph 
                        shall not be disclosed under clause 
                        (ii) or (iii) of subparagraph (A) until 
                        after the Secretary makes a reasonable 
                        effort to give notice to such person 
                        and an opportunity for such person to 
                        request the deletion of matter from 
                        such return or return information, 
                        including any of the items referred to 
                        in paragraphs (1) through (7) of 
                        section 6110(c). Such notice shall 
                        include a statement of the issue or 
                        issues the resolution of which is the 
                        reason such return or return 
                        information is sought. In the case of S 
                        corporations, partnerships, estates, 
                        and trusts, such notice shall be made 
                        at the entity level.
                          (ii) Disclosure limited to pertinent 
                        portion.--The only portion of a return 
                        or return information described in 
                        clause (i) which may be disclosed under 
                        subparagraph (A) is that portion of 
                        such return or return information that 
                        directly relates to the resolution of 
                        an issue in such proceeding.
                          (iii) Exceptions.--Clause (i) shall 
                        not apply--
                                  (I) to any civil action under 
                                section 7407, 7408, or 7409,
                                  (II) to any ex parte 
                                proceeding for obtaining a 
                                search warrant, order for entry 
                                on premises or safe deposit 
                                boxes, or similar ex parte 
                                proceeding,
                                  (III) to disclosure of third 
                                party return information by 
                                indictment or criminal 
                                information, or
                                  (IV) if the Attorney General 
                                or the Attorney General's 
                                delegate determines that the 
                                application of such clause 
                                would seriously impair a 
                                criminal tax investigation or 
                                proceeding.

           *       *       *       *       *       *       *

          (7) Taxpayer representatives.--Notwithstanding 
        paragraph (1), the return of the representative of a 
        taxpayer whose return is being examined by an officer 
        or employee of the Department of the Treasury shall not 
        be open to inspection by such officer or employee on 
        the sole basis of the representative's relationship to 
        the taxpayer unless a supervisor of such officer or 
        employee has approved the inspection of the return of 
        such representative on a basis other than by reason of 
        such relationship.

           *       *       *       *       *       *       *

  (i) Disclosure to Federal Officers or Employees for 
Administration of Federal Laws not Relating to Tax 
Administration.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Disclosure of return information to apprise 
        appropriate officials of criminal or terrorist 
        activities or emergency circumstances.--
                  (A) * * *
                  (B) Emergency circumstances.--
                          (i) Danger of death or physical 
                        injury.--Under circumstances involving 
                        an imminent danger of death or physical 
                        injury to any individual, the Secretary 
                        may disclose return information to the 
                        extent necessary to apprise appropriate 
                        officers or employees of any Federal 
                        [or State], State, or local law 
                        enforcement agency of such 
                        circumstances.
                          (ii) Flight from Federal prosecution
                Under circumstances involving the imminent 
                flight of any individual from Federal 
                prosecution, the Secretary may disclose return 
                information to the extent necessary to apprise 
                appropriate officers or employees of any 
                Federal law enforcement agency of such 
                circumstances.

           *       *       *       *       *       *       *

  (k) Disclosure of Certain Returns and Return Information for 
Tax Administration Purposes.--
          (1) Disclosure of accepted offers-in-compromise.--
        Return information (other than the taxpayer's address 
        and TIN) shall be disclosed to members of the general 
        public to the extent necessary to permit inspection of 
        any accepted offer-in-compromise under section 7122 
        relating to the liability for a tax imposed by this 
        title.

           *       *       *       *       *       *       *

  (m) Disclosure of Taxpayer Identity Information.--
          (1) Tax refunds.--The Secretary may disclose taxpayer 
        identity information to the press [and other media], 
        other media, and through any other means of mass 
        communication, for purposes of notifying persons 
        entitled to tax refunds when the Secretary, after 
        reasonable effort and lapse of time, has been unable to 
        locate such persons.

           *       *       *       *       *       *       *

  (p) Procedure and Recordkeeping.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Records of inspection and disclosure.--
                  (A) System of recordkeeping.--Except as 
                otherwise provided by this paragraph, the 
                Secretary shall maintain a permanent system of 
                standardized records or accountings of all 
                requests for inspection or disclosure of 
                returns and return information (including the 
                reasons for and dates of such requests) and of 
                returns and return information inspected or 
                disclosed under this section and section 
                6104(c). Notwithstanding the provisions of 
                section 552a(c) of title 5, United States Code, 
                the Secretary shall not be required to maintain 
                a record or accounting of requests for 
                inspection or disclosure of returns and return 
                information, or of returns and return 
                information inspected or disclosed, under the 
                authority of subsections (c), (e), (f)(5), 
                (h)(1), (3)(A), or (4), (i)(4), or (7)(A)(ii), 
                (k)(1), (2), (6), (8), or (9) (l)(1), (4)(B), 
                (5), (7), (8), (9), (10), (11), (12), (13), 
                (14), (15), (16), or (17) (m) or (n). The 
                records or accountings required to be 
                maintained under this paragraph shall be 
                available for examination by the Joint 
                Committee on Taxation or the Chief of Staff of 
                such joint committee. Such record or accounting 
                shall also be available for examination by such 
                person or persons as may be, but only to the 
                extent, authorized to make such examination 
                under section 552a(c)(3) of title 5, United 
                States Code.
          (4) Safeguards.--Any Federal agency described in 
        subsection (h)(2), (h)(5), (i)(1), (2), (3), or (5), 
        (j)(1), (2) or (5), (k)(8), (l)(1), (2), (3), (5), 
        (11), (13), (14), or (17) or (o)(1), the General 
        Accounting Office, the Congressional Budget Office, or 
        any agency, body, or commission described in subsection 
        (d), (i)(3)(B)(i) or (l)(6), (7), (8), (9), (12), (15), 
        or [(16) or any other person described in subsection 
        (l)(16)] (16), any other person described in subsection 
        (l)(16), or any appropriate State officer (as defined 
        in section 6104(c)) shall, as a condition for receiving 
        returns or return information--
                  (A) * * *

           *       *       *       *       *       *       *

                  (F) upon completion of use of such returns or 
                return information--
                          (i) in the case of an agency, body, 
                        or commission described in subsection 
                        (d), (i)(3)(B)(i), or (l)(6), (7), (8), 
                        (9), or (16), [or any other person 
                        described in subsection (l)(16)] any 
                        other person described in subsection 
                        (l)(16), or any appropriate State 
                        officer (as defined in section 6104(c)) 
                        return to the Secretary such returns or 
                        return information (along with any 
                        copies made therefrom) or make such 
                        returns or return information 
                        undisclosable in any manner and furnish 
                        a written report to the Secretary 
                        describing such manner,

           *       *       *       *       *       *       *

          (8) State law requirements.--
                  (A) * * *
                  (B) Disclosure of returns or return 
                information in State returns.--Nothing in 
                subparagraph (A) or paragraph (9) shall be 
                construed to prohibit the disclosure by an 
                officer or employee of any State of any copy of 
                any portion of a Federal return or any 
                information on a Federal return which is 
                required to be attached or included in a State 
                return to another officer or employee of such 
                State (or political subdivision of such State) 
                if such disclosure is specifically authorized 
                by State law.
          (9) Disclosure to contractors.--Notwithstanding any 
        other provision of this section, no return or return 
        information shall be disclosed by any officer or 
        employee of any Federal agency or State to any 
        contractor of such agency or State unless such agency 
        or State--
                  (A) has requirements in effect which require 
                each contractor of such agency or State which 
                would have access to returns or return 
                information to provide safeguards (within the 
                meaning of paragraph (4)) to protect the 
                confidentiality of such returns or return 
                information,
                  (B) agrees to conduct an annual, on-site 
                review (mid-point review in the case of 
                contracts of less than 1 year in duration) of 
                each contractor to determine compliance with 
                such requirements,
                  (C) submits the findings of the most recent 
                review conducted under subparagraph (B) to the 
                Secretary as part of the report required by 
                paragraph (4)(E), and
                  (D) certifies to the Secretary for the most 
                recent annual period that all contractors are 
                in compliance with all such requirements.
        The certification required by subparagraph (D) shall 
        include the name and address of each contractor, a 
        description of the contract of the contractor with the 
        Federal agency or State, and the duration of such 
        contract.
          (10) Report on unauthorized disclosure and 
        inspection.--As part of the report required by 
        paragraph (3)(C) for each calendar year, the Secretary 
        shall furnish information regarding the unauthorized 
        disclosure and inspection of returns and return 
        information, including the number, status, and results 
        of--
                  (A) administrative investigations,
                  (B) civil lawsuits brought under section 7431 
                (including the amounts for which such lawsuits 
                were settled and the amounts of damages 
                awarded), and
                  (C) criminal prosecutions.

           *       *       *       *       *       *       *


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

  (a) * * *

           *       *       *       *       *       *       *

  (c) Publication to State Officials.--
          (1) * * *
          [(2) Appropriate State officer.--For purposes of this 
        subsection, the term ``appropriate State officer'' 
        means the State attorney general, State tax officer, or 
        any State official charged with overseeing 
        organizations of the type described in section 
        501(c)(3).]
          (2) Disclosure of proposed actions.--
                  (A) Specific notifications.--In the case of 
                an organization to which paragraph (1) applies, 
                the Secretary may disclose to the appropriate 
                State officer--
                          (i) a notice of proposed refusal to 
                        recognize such organization as an 
                        organization described in section 
                        501(c)(3) or a notice of proposed 
                        revocation of such organization's 
                        recognition as an organization exempt 
                        from taxation,
                          (ii) the issuance of a letter of 
                        proposed deficiency of tax imposed 
                        under section 507 or chapter 41 or 42, 
                        and
                          (iii) the names and taxpayer 
                        identification numbers of organizations 
                        that have applied for recognition as 
                        organizations described in section 
                        501(c)(3).
                  (B) Additional disclosures.--Returns and 
                return information of organizations with 
                respect to which information is disclosed under 
                subparagraph (A) may be made available for 
                inspection by or disclosed to an appropriate 
                State officer.
                  (C) Procedures for disclosure.--Information 
                may be inspected or disclosed under 
                subparagraph (A) or (B) only--
                          (i) upon written request by an 
                        appropriate State officer, and
                          (ii) for the purpose of, and only to 
                        the extent necessary in, the 
                        administration of State laws regulating 
                        such organizations.
                Such information may only be inspected by or 
                disclosed to representatives of the appropriate 
                State officer designated as the individuals who 
                are to inspect or to receive the returns or 
                return information under this paragraph on 
                behalf of such officer.
                  (D) Disclosures other than by request.--The 
                Secretary may make available for inspection or 
                disclose returns and return information of an 
                organization to which paragraph (1) applies to 
                an appropriate State officer of any State if 
                the Secretary determines that such inspection 
                or disclosure may facilitate the resolution of 
                State and Federal issues relating to such 
                organization.
          (3) Use in judicial and administrative proceedings.--
        Returns and return information disclosed pursuant to 
        this subsection may be disclosed in civil 
        administrative and judicial proceedings pertaining to 
        the enforcement of State laws regulating such 
        organizations in a manner prescribed by the Secretary 
        similar to that for tax administration proceedings 
        under section 6103(h)(4).
                  (4) No disclosure if impairment.--Returns and 
                return information shall not be disclosed under 
                this subsection, or in any proceeding described 
                in paragraph (3), to the extent that the 
                Secretary determines that such disclosure would 
                seriously impair Federal tax administration.
          (5) Definitions.--For purposes of this subsection--
                  (A) Return and return information.--The terms 
                ``return'' and ``return information'' have the 
                respective meanings given to such terms by 
                section 6103(b).
          (B) Appropriate state officer.--The term 
        ``appropriate State officer'' means--
                          (i) the State attorney general, or
                          (ii) the head of any State agency, 
                        body, or commission which is charged 
                        under the laws of such State with 
                        responsibility for overseeing 
                        organizations of the type described in 
                        section 501(c)(3).

           *       *       *       *       *       *       *


               CHAPTER 62--TIME AND PLACE FOR PAYING TAX

           *       *       *       *       *       *       *


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

           *       *       *       *       *       *       *


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

  (a) Authorization of Agreements.--The Secretary is authorized 
to enter into written agreements with any taxpayer under which 
such taxpayer is allowed to [satisfy liability for payment of] 
make payment on any tax in installment payments if the 
Secretary determines that such agreement will facilitate full 
or partial collection of such liability.

           *       *       *       *       *       *       *

  (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 full payment of such tax in 
installments if, as of the date the individual offers to enter 
into the agreement--
          (1) * * *

           *       *       *       *       *       *       *

  (d) Secretary Required To Review Installment Agreements for 
Partial Collection Every Two Years.--In the case of an 
agreement entered into by the Secretary under subsection (a) 
for partial collection of a tax liability, the Secretary shall 
review the agreement at least once every 2 years.
  [(d)] (e) Administrative Review.--The Secretary shall 
establish procedures for an independent administrative review 
of terminations of installment agreements under this section 
for taxpayers who request such a review.
  [(e)] (f) Cross Reference.--

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

           *       *       *       *       *       *       *


                        CHAPTER 63--ASSESSMENT

           *       *       *       *       *       *       *


                        Subchapter A--In General

           *       *       *       *       *       *       *


SEC. 6201. ASSESSMENT AUTHORITY.

  (a) * * *
  (b) Amount Not To Be Assessed.--
          (1) Estimated income tax.--No unpaid amount of 
        estimated income tax required to be paid under section 
        [6654] 6641 or 6655 shall be assessed.

           *       *       *       *       *       *       *


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

           *       *       *       *       *       *       *


SEC. 6214. DETERMINATIONS BY TAX COURT.

  (a) * * *
  (b) Jurisdiction Over Other Years and Quarters.--The Tax 
Court in redetermining a deficiency of income tax for any 
taxable year or of gift tax for any calendar year or calendar 
quarter shall consider such facts with relation to the taxes 
for other years or calendar quarters as may be necessary 
correctly to redetermine the amount of such deficiency, but in 
so doing shall have no jurisdiction to determine whether or not 
the tax for any other year or calendar quarter has been 
overpaid or underpaid. Notwithstanding the preceding sentence, 
the Tax Court may apply the doctrine of equitable recoupment to 
the same extent that it is available in civil tax cases before 
the district courts of the United States and the United States 
Court of Federal Claims.

           *       *       *       *       *       *       *


                      Subchapter C--Lien for Taxes

           *       *       *       *       *       *       *


                     PART I--DUE PROCESS FOR LIENS

           *       *       *       *       *       *       *


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

  (a) * * *
  (b) Right to Fair Hearing.--
          (1) In general.--If the person requests a hearing 
        [under subsection (a)(3)(B)] in writing under 
        subsection (a)(3)(B) and states the grounds for the 
        requested hearing, such hearing shall be held by the 
        Internal Revenue Service Office of Appeals.

           *       *       *       *       *       *       *

  (c) Conduct of Hearing, Review, Suspensions.--For purposes of 
this section, subsections (c), (d) (other than paragraph (2)(B) 
thereof), [and (e)] (e), and (g) of section 6330 shall apply.

           *       *       *       *       *       *       *


      Subchapter D--Seizure of Property for Collection of Taxes

           *       *       *       *       *       *       *


                  PART I--DUE PROCESS FOR COLLECTIONS

           *       *       *       *       *       *       *


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

  (a) * * *
  (b) Right to Fair Hearing.--
          (1) In general.--If the person requests a hearing 
        [under subsection (a)(3)(B)] in writing under 
        subsection (a)(3)(B) and states the grounds for the 
        requested hearing, such hearing shall be held by the 
        Internal Revenue Service Office of Appeals.

           *       *       *       *       *       *       *

  (c) Matters Considered at Hearing.--In the case of any 
hearing conducted under this section--
          (1) * * *

           *       *       *       *       *       *       *

          (4) Certain issues precluded.--An issue may not be 
        raised at the hearing if--
                  [(A)] (A)(i) the issue was raised and 
                considered at a previous hearing under section 
                6320 or in any other previous administrative or 
                judicial proceeding; and
                  [(B)] (ii) the person seeking to raise the 
                issue participated meaningfully in such hearing 
                or proceeding[.]; or
                  (B) the issue meets the requirement of clause 
                (i) or (ii) of section 6702(b)(2)(A).
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 with respect to 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.]
          (1) Judicial review of determination.--The person 
        may, within 30 days of a determination under this 
        section, appeal such determination to the Tax Court 
        (and the Tax Court shall have jurisdiction with respect 
        to such matter).

           *       *       *       *       *       *       *

  (g) Frivolous Requests for Hearing, Etc.--Notwithstanding any 
other provision of this section, if the Secretary determines 
that any portion of a request for a hearing under this section 
or section 6320 meets the requirement of clause (i) or (ii) of 
section 6702(b)(2)(A), then the Secretary may treat such 
portion as if it were never submitted and such portion shall 
not be subject to any further administrative or judicial 
review.

           *       *       *       *       *       *       *


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

  (a) * * *
  (b) Return of Property.--If the Secretary determines that 
property has been wrongfully levied upon, it shall be lawful 
for the Secretary to return--
          (1) * * *

           *       *       *       *       *       *       *

Property may be returned at any time. An amount equal to the 
amount of money levied upon or received from such sale may be 
returned at any time before the expiration of [9 months] 2 
years from the date of such levy. For purposes of paragraph 
(3), if property is declared purchased by the United States at 
a sale pursuant to section 6335(e) (relating to manner and 
conditions of sale), the United States shall be treated as 
having received an amount of money equal to the minimum price 
determined pursuant to such section or (if larger) the amount 
received by the United States from the resale of such property.

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


              CHAPTER 65--ABATEMENTS, CREDITS, AND REFUNDS

           *       *       *       *       *       *       *


                   Subchapter A--Procedure in General

           *       *       *       *       *       *       *


SEC. 6404. ABATEMENTS.

  (a) * * *

           *       *       *       *       *       *       *

  (e) Abatement of Interest Attributable to Unreasonable Errors 
and Delays by Internal Revenue Service.--
          (1) * * *
          (2) Interest abated with respect to erroneous refund 
        check.--The Secretary shall abate the assessment of all 
        interest on any erroneous refund under section 6602 
        until the date demand for repayment is made, [unless--
                  [(A) the taxpayer (or a related party) has in 
                any way caused such erroneous refund, or
                  [(B) such erroneous refund exceeds $50,000.] 
                unless the taxpayer (or a related party) has in 
                any way caused such erroneous refund.
  (f) Abatement of Any [Penalty or Addition] Interest, Penalty, 
or Addition to Tax Attributable to Erroneous Written Advice by 
the Internal Revenue Service.--
          (1) In general.--The Secretary shall abate any 
        portion of any [penalty or addition] interest, penalty, 
        or addition to tax attributable to erroneous advice 
        furnished to the taxpayer in writing by an officer or 
        employee of the Internal Revenue Service, acting in 
        such officer's or employee's official capacity.
          (2) Limitations.--Paragraph (1) shall apply only if--
                  (A) * * *
                  (B) the portion of the [penalty or addition] 
                interest, penalty, or addition to tax did not 
                result from a failure by the taxpayer to 
                provide adequate or accurate information.

           *       *       *       *       *       *       *


                       CHAPTER 66--LIMITATIONS

           *       *       *       *       *       *       *


      Subchapter D--Periods of Limitation in Judicial Proceedings

           *       *       *       *       *       *       *


SEC. 6532. PERIODS OF LIMITATION ON SUITS.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Suits by Persons Other Than Taxpayers.--
          (1) General rule.--Except as provided by paragraph 
        (2), no suit or proceeding under section 7426 shall be 
        begun after the expiration of [9 months] 2 years from 
        the date of the levy or agreement giving rise to such 
        action.
          (2) Period when claim is filed.--If a request is made 
        for the return of property described in section 
        6343(b), the [9-month] 2-year period prescribed in 
        paragraph (1) shall be extended for a period of 12 
        months from the date of filing of such request or for a 
        period of 6 months from the date of mailing by 
        registered or certified mail by the Secretary to the 
        person making such request of a notice of disallowance 
        of the part of the request to which the action relates, 
        whichever is shorter.

           *       *       *       *       *       *       *


                          CHAPTER 67--INTEREST

          Subchapter A--Interest on Underpayments
     * * * * * * *
          Subchapter E. Interest on failure by individual to pay 
                  estimated income tax.

                Subchapter A--Interest on Underpayments

          Sec. 6601. Interest on underpayment, nonpayment, or extension 
                  of time for payment, of tax.
     * * * * * * *
          Sec. 6603. Deposits made to suspend running of interest on 
                  potential underpayments, etc.

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

  (a) * * *

           *       *       *       *       *       *       *

  (h) Exception as to Estimated Tax.--This section shall not 
apply to any failure to pay any estimated tax required to be 
paid by section [6654] 6641 or 6655.

           *       *       *       *       *       *       *


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

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

           *       *       *       *       *       *       *


Subchapter C--Determination of Interest Rate; Compounding of Interest

           *       *       *       *       *       *       *


SEC. 6621. DETERMINATION OF RATE OF INTEREST.

  (a) * * *
  (b) Federal Short-Term Rate.--For purposes of this section--
          (1) * * *
          (2) Period during which rate applies.--
                  (A) * * *
                  (B) Special rule for individual estimated 
                tax.--In determining the [addition to tax under 
                section 6654] interest required to be paid 
                under section 6641 for failure to pay estimated 
                tax for any taxable year, the Federal short-
                term rate which applies during the 3rd month 
                following such taxable year shall also apply 
                during the first 15 days of the 4th month 
                following such taxable year.

           *       *       *       *       *       *       *

  (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. Solely for purposes of the preceding sentence, 
section 6611(e) shall not apply in the case of an individual.

           *       *       *       *       *       *       *


SEC. 6622. INTEREST COMPOUNDED DAILY.

  (a) * * *
  (b) Exception for [Penalty for] Failure to File Estimated 
Tax.--Subsection (a) shall not apply for purposes of computing 
the amount of any [addition to tax under section 6654 or 6655] 
interest required to be paid under section 6641 or addition to 
tax under section 6655.

           *       *       *       *       *       *       *


Subchapter E--Interest on Failure by Individual To Pay Estimated Income 
                                  Tax

          Sec. 6641. Interest on failure by individual to pay estimated 
                  income tax.

[SEC. 6654. FAILURE BY INDIVIDUAL TO PAY ESTIMATED INCOME TAX.

  [(a) Addition to the Tax.--Except as otherwise provided in 
this section, in the case of any underpayment of estimated tax 
by an individual, there shall be added to the tax under chapter 
1 and the tax under chapter 2 for the taxable year an amount 
determined by applying--
          [(1) the underpayment rate established under section 
        6621,
          [(2) to the amount of the underpayment,
          [(3) for the period of the underpayment.
  [(b) Amount of Underpayment; Period of Underpayment.--For 
purposes of subsection (a)--
          [(1) Amount.--The amount of the underpayment shall be 
        the excess of--
                  [(A) the required installment, over
                  [(B) the amount (if any) of the installment 
                paid on or before the due date for the 
                installment.
          [(2) Period of underpayment.--The period of the 
        underpayment shall run from the due date for the 
        installment to whichever of the following dates is the 
        earlier--
                  [(A) the 15th day of the 4th month following 
                the close of the taxable year, or
                  [(B) with respect to any portion of the 
                underpayment, the date on which such portion is 
                paid.
          [(3) Order of crediting payments.--For purposes of 
        paragraph (2)(B), a payment of estimated tax shall be 
        credited against unpaid required installments in the 
        order in which such installments are required to be 
        paid.]

SEC. 6641. INTEREST ON FAILURE BY INDIVIDUAL TO PAY ESTIMATED INCOME 
                    TAX.

  (a) In General.--Interest shall be paid on any underpayment 
of estimated tax by an individual for a taxable year for each 
day of such underpayment. The amount of such interest for any 
day shall be the product of the underpayment rate established 
under subsection (b)(2) multiplied by the amount of the 
underpayment.
  (b) Amount of Underpayment; Interest Rate.--For purposes of 
subsection (a)--
          (1) Amount.--The amount of the underpayment on any 
        day shall be the excess of--
                  (A) the sum of the required installments for 
                the taxable year the due dates for which are on 
                or before such day, over
                  (B) the sum of the amounts (if any) of 
                estimated tax payments made on or before such 
                day on such required installments.
          (2) Determination of interest rate.--
                  (A) In general.--The underpayment rate with 
                respect to any day in an installment 
                underpayment period shall be the underpayment 
                rate established under section 6621 for the 
                first day of the calendar quarter in which such 
                installment underpayment period begins.
                  (B) Installment underpayment period.--For 
                purposes of subparagraph (A), the term 
                ``installment underpayment period'' means the 
                period beginning on the day after the due date 
                for a required installment and ending on the 
                due date for the subsequent required 
                installment (or in the case of the 4th required 
                installment, the 15th day of the 4th month 
                following the close of a taxable year).
                  (C) Daily rate.--The rate determined under 
                subparagraph (A) shall be applied on a daily 
                basis and shall be based on the assumption of 
                365 days in a calendar year.
          (3) Termination of estimated tax interest.--No day 
        after the end of the installment underpayment period 
        for the 4th required installment specified in paragraph 
        (2)(B) for a taxable year shall be treated as a day of 
        underpayment with respect to such taxable year.

           *       *       *       *       *       *       *

  (d) Amount of Required Installments.--For purposes of this 
section--
          (1) Amount.--
                  (A) In general.--Except as provided in 
                paragraph (2), the amount of any required 
                installment shall be 25 percent of the required 
                annual payment.
                  (B) Required annual payment.--For purposes of 
                subparagraph (A), the term ``required annual 
                payment'' means the lesser of--
                          [(i) 90 percent of the tax shown on 
                        the return for the taxable year (or, if 
                        no return is filed, 90 percent of the 
                        tax for such year), or]
                          (i) the lesser of--
                                  (I) 90 percent of the tax 
                                shown on the return for the 
                                taxable year (or, if no return 
                                is filed, 90 percent of the tax 
                                for such year), or
                                  (II) the tax shown on the 
                                return for the taxable year 
                                (or, if no return is filed, the 
                                tax for such year) reduced (but 
                                not below zero) by $2,000, or

           *       *       *       *       *       *       *

  (e) Exceptions.--
          [(1) Where tax is small amount.--No addition to tax 
        shall be imposed under subsection (a) for any taxable 
        year if the tax shown on the return for such taxable 
        year (or, if no return is filed, the tax), reduced by 
        the credit allowable under section 31, is less than 
        $1,000.]
          [(2)] (1) Where no tax liability for preceding 
        taxable year.--No [addition to tax] interest shall be 
        imposed under subsection (a) for any taxable year if--
                  (A) the preceding taxable year was a taxable 
                year of 12 months,
                  (B) the individual did not have any liability 
                for tax for the preceding taxable year, and
                  (C) the individual was a citizen or resident 
                of the United States throughout the preceding 
                taxable year.
          [(3)] (2) Waiver in certain cases.--
                  (A) In general.--No [addition to tax] 
                interest shall be imposed under subsection (a) 
                with respect to any underpayment to the extent 
                the Secretary determines that by reason of 
                casualty, disaster, or other unusual 
                circumstances the imposition of such [addition 
                to tax] interest would be against equity and 
                good conscience.
                  (B) Newly retired or disabled individuals.--
                No [addition to tax] interest shall be imposed 
                under subsection (a) with respect to any 
                underpayment if the Secretary determines that--
                          (i) the taxpayer--
                                  (I) retired after having 
                                attained age 62, or
                                  (II) became disabled,in the 
                                taxable year for which 
                                estimated payments were 
                                required to be made or in the 
                                taxable year preceding such 
                                taxable year, and
                          (ii) such underpayment was due to 
                        reasonable cause and not to willful 
                        neglect.

           *       *       *       *       *       *       *

  (h) Special Rule Where Return Filed on or Before January 
31.--If, on or before January 31 of the following taxable year, 
the taxpayer files a return for the taxable year and pays in 
full the amount computed on the return as payable, then no 
[addition to tax] interest shall be imposed under subsection 
(a) with respect to any underpayment of the 4th required 
installment for the taxable year.

           *       *       *       *       *       *       *


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

           *       *       *       *       *       *       *


        Subchapter A--Additions to the Tax, Additional Amounts

           *       *       *       *       *       *       *


                       PART I--GENERAL PROVISIONS

          Sec. 6651. Failure to file tax return or to pay tax.
     * * * * * * *
          [Sec. 6654. Failure by individual to pay estimated income 
                  tax.]

           *       *       *       *       *       *       *


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

  (a) * * *

           *       *       *       *       *       *       *

  (i) Treatment of First-Time Unintentional Minor Errors.--In 
the case of a return of tax imposed by subtitle A filed by an 
individual, the Secretary may waive an addition to tax under 
subsection (a) if--
          (1) the individual has a history of compliance with 
        the requirements of this title,
          (2) it is shown that the failure is due to an 
        unintentional minor error,
          (3) the penalty would be grossly disproportionate to 
        the action or expense that would have been needed to 
        avoid the error, and
          (4) waiving the penalty would promote compliance with 
        the requirements of this title and effective tax 
        administration.
The preceding sentence shall not apply if the Secretary has 
waived any addition to tax under this subsection with respect 
to any prior failure by such individual.

           *       *       *       *       *       *       *


SEC. 6658. COORDINATION WITH TITLE 11.

  (a) Certain Failures to Pay Tax.--No addition to the tax 
shall be made under section 6651, [6654, or 6655] or 6655, and 
no interest shall be required to be paid under section 6641, 
for failure to make timely payment of tax with respect to a 
period during which a case is pending under title 11 of the 
United States Code--
          (1) if such tax was incurred by the estate and the 
        failure occurred pursuant to an order of the court 
        finding probable insufficiency of funds of the estate 
        to pay administrative expenses, or
          (2) if--
                  (A) * * *
                  (B)(i) * * *
                  (ii) the date for making the addition to the 
                tax or paying interest occurs on or after the 
                day on which the petition was filed.

           *       *       *       *       *       *       *


                       PART III--APPLICABLE RULES

           *       *       *       *       *       *       *


SEC. 6665. APPLICABLE RULES.

  (a) * * *
  (b) Procedure for assessing certain additions to tax.--For 
purposes of subchapter B of chapter 63 (relating to deficiency 
procedures for income, estate, gift, and certain excise taxes), 
subsection (a) shall not apply to any addition to tax under 
section 6651[, 6654,] or 6655; except that it shall apply --
          (1) * * *
          (2) to an addition described in section [6654 or] 
        6655, if no return is filed for the taxable year.

           *       *       *       *       *       *       *


                  Subchapter B--Assessable Penalties

           *       *       *       *       *       *       *


                       PART I--GENERAL PROVISIONS

          Sec. 6671. Rules for application of assessable penalties.
     * * * * * * *
          [Sec. 6702. Frivolous income tax return.]
          Sec. 6702. Frivolous tax submissions.
     * * * * * * *

[SEC. 6702. FRIVOLOUS INCOME TAX RETURN.

  [(a) Civil Penalty.--If--
          [(1) any individual files what purports to be a 
        return of the tax imposed by subtitle A but which--
                  [(A) does not contain information on which 
                the substantial correctness of the self-
                assessment may be judged, or
                  [(B) contains information that on its face 
                indicates that the self-assessment is 
                substantially incorrect; and
          [(2) the conduct referred to in paragraph (1) is due 
        to--
                  [(A) a position which is frivolous, or
                  [(B) a desire (which appears on the purported 
                return) to delay or impede the administration 
                of Federal income tax laws,then such individual 
                shall pay a penalty of $500.
  [(b) Penalty in Addition to Other Penalties.--The penalty 
imposed by subsection (a) shall be in addition to any other 
penalty provided by law.]

SEC. 6702. FRIVOLOUS TAX SUBMISSIONS.

  (a) Civil Penalty for Frivolous Tax Returns.--A person shall 
pay a penalty of $5,000 if--
          (1) such person files what purports to be a return of 
        a tax imposed by this title but which--
                  (A) does not contain information on which the 
                substantial correctness of the self-assessment 
                may be judged, or
                  (B) contains information that on its face 
                indicates that the self-assessment is 
                substantially incorrect; and
          (2) the conduct referred to in paragraph (1)--
                  (A) is based on a position which the 
                Secretary has identified as frivolous under 
                subsection (c), or
                  (B) reflects a desire to delay or impede the 
                administration of Federal tax laws.
  (b) Civil Penalty for Specified Frivolous Submissions.--
          (1) Imposition of Penalty.--Except as provided in 
        paragraph (3), any person who submits a specified 
        frivolous submission shall pay a penalty of $5,000.
          (2) Specified frivolous submission.--For purposes of 
        this section--
                  (A) Specified frivolous submission.--The term 
                ``specified frivolous submission'' means a 
                specified submission if any portion of such 
                submission--
                          (i) is based on a position which the 
                        Secretary has identified as frivolous 
                        under subsection (c), or
                          (ii) reflects a desire to delay or 
                        impede the administration of Federal 
                        tax laws.
                  (B) Specified submission.--The term 
                ``specified submission'' means--
                          (i) a request for a hearing under--
                                  (I) section 6320 (relating to 
                                notice and opportunity for 
                                hearing upon filing of notice 
                                of lien), or
                                  (II) section 6330 (relating 
                                to notice and opportunity for 
                                hearing before levy), and
                          (ii) an application under--
                                  (I) section 7811 (relating to 
                                taxpayer assistance orders),
                                  (II) section 6159 (relating 
                                to agreements for payment of 
                                tax liability in installments), 
                                or
                                  (III) section 7122 (relating 
                                to compromises).
          (3) Opportunity to withdraw submission.--If the 
        Secretary provides a person with notice that a 
        submission is a specified frivolous submission and such 
        person withdraws such submission promptly after such 
        notice, the penalty imposed under paragraph (1) shall 
        not apply with respect to such submission.
  (c) Listing of Frivolous Positions.--The Secretary shall 
prescribe (and periodically revise) a list of positions which 
the Secretary has identified as being frivolous for purposes of 
this subsection. The Secretary shall not include in such list 
any position that the Secretary determines meets the 
requirement of section 6662(d)(2)(B)(ii)(II).
  (d) Reduction of Penalty.--The Secretary may reduce the 
amount of any penalty imposed under this section if the 
Secretary determines that such reduction would promote 
compliance with and administration of the Federal tax laws.
  (e) Penalties in Addition to Other Penalties.--The penalties 
imposed by this section shall be in addition to any other 
penalty provided by law.

           *       *       *       *       *       *       *


            CHAPTER 74--CLOSING AGREEMENTS AND COMPROMISES

           *       *       *       *       *       *       *


SEC. 7122. COMPROMISES.

  (a) * * *
  (b) Record.--[Whenever a compromise is made by the Secretary 
in any case, there shall be placed on file in the office of the 
Secretary the opinion of the General Counsel for the Department 
of the Treasury or his delegate] If the Secretary determines 
that an opinion of the General Counsel for the Department of 
the Treasury, or the Counsel's delegate, is required with 
respect to a compromise, there shall be placed on file in the 
office of the Secretary such opinion, with his reasons 
therefor, with a statement of--
          (1) The amount of tax assessed,
          (2) The amount of interest, additional amount, 
        addition to the tax, or assessable penalty, imposed by 
        law on the person against whom the tax is assessed, and
          (3) The amount actually paid in accordance with the 
        terms of the compromise.
[Notwithstanding the foregoing provisions of this subsection, 
no such opinion shall be required with respect to the 
compromise of any civil case in which the unpaid amount of tax 
assessed (including any interest, additional amount, addition 
to the tax, or assessable penalty) is less than $50,000. 
However, such compromise shall be subject to continuing quality 
review by the Secretary.]

           *       *       *       *       *       *       *

  (e) Frivolous Submissions, Etc.--Notwithstanding any other 
provision of this section, if the Secretary determines that any 
portion of an application for an offer-in-compromise or 
installment agreement submitted under this section or section 
6159 meets the requirement of clause (i) or (ii) of section 
6702(b)(2)(A), then the Secretary may treat such portion as if 
it were never submitted and such portion shall not be subject 
to any further administrative or judicial review.

           *       *       *       *       *       *       *


          CHAPTER 75--CRIMES, OTHER OFFENSES, AND FORFEITURES

           *       *       *       *       *       *       *


                         Subchapter A--Crimes

           *       *       *       *       *       *       *


                      PART I--GENERAL PROVISIONS

           *       *       *       *       *       *       *


SEC. 7203. WILLFUL FAILURE TO FILE RETURN, SUPPLY INFORMATION, OR PAY 
                    TAX.

  Any person required under this title to pay any estimated tax 
or tax, or required by this title or by regulations made under 
authority thereof to make a return, keep any records, or supply 
any information, who willfully fails to pay such estimated tax 
or tax, make such return, keep such records, or supply such 
information, at the time or times required by law or 
regulations, shall, in addition to other penalties provided by 
law, be guilty of a misdemeanor and, upon conviction thereof, 
shall be fined not more than $25,000 ($100,000 in the case of a 
corporation), or imprisoned not more than 1 year, or both, 
together with the costs of prosecution. In the case of any 
person with respect to whom there is a failure to pay any 
estimated tax, this section shall not apply to such person with 
respect to such failure if there is no addition to tax under 
[section 6654 or 6655] section 6655 or interest required to be 
paid under section 6641 with respect to such failure. In the 
case of a willful violation of any provision of section 6050I, 
the first sentence of this section shall be applied by 
substituting ``felony'' for ``misdemeanor'' and ``5 years'' for 
``1 year''.

           *       *       *       *       *       *       *


SEC. 7207. FRAUDULENT RETURNS, STATEMENTS, OR OTHER DOCUMENTS.

  Any person who willfully delivers or discloses to the 
Secretary any list, return, account, statement, or other 
document, known by him to be fraudulent or to be false as to 
any material matter, shall be fined not more than $10,000 
($50,000 in the case of a corporation), or imprisoned not more 
than 1 year, or both. Any person required [pursuant to 
subsection (b) of section 6047 or pursuant to subsection (d) of 
section 6104] pursuant to section 6047(b), section 6104(d), or 
subsection (i) or (j) of section 527 to furnish any information 
to the Secretary or any other person who willfully furnishes to 
the Secretary or such other person any information known by him 
to be fraudulent or to be false as to any material matter shall 
be fined not more than $10,000 ($50,000 in the case of a 
corporation), or imprisoned not more than 1 year, or both.

           *       *       *       *       *       *       *


SEC. 7213. UNAUTHORIZED DISCLOSURE OF INFORMATION.

  (a) Returns and Return Information.--
          (1) * * *
          (2) State and other employees.--It shall be unlawful 
        for any person (not described in paragraph (1)) 
        willfully to disclose to any person, except as 
        authorized in this title, any return or return 
        information (as defined in section 6103(b)) acquired by 
        him or another person under subsection (d), 
        (i)(3)(B)(i), (l)(6), (7), (8), (9), (10), or (12), 
        (15), or (16) or (m)(2), (4), (5), (6), or (7) of 
        section 6103 or under section 6104(c). Any violation of 
        this paragraph shall be a felony punishable by a fine 
        in any amount not exceeding $5,000, or imprisonment of 
        not more than 5 years, or both, together with the costs 
        of prosecution.

           *       *       *       *       *       *       *


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

  (a) Prohibitions.--
          (1) * * *
          (2) State and other employees.--It shall be unlawful 
        for any person (not described in paragraph (1)) 
        willfully to inspect, except as authorized in this 
        title, any return or return information acquired by 
        such person or another person under a provision of 
        section 6103 or 6104(c) referred to in section 
        7213(a)(2).

           *       *       *       *       *       *       *


                   CHAPTER 76--JUDICIAL PROCEEDINGS

           *       *       *       *       *       *       *


       Subchapter B--Proceedings by Taxpayers and Third Parties

           *       *       *       *       *       *       *


SEC. 7428. DECLARATORY JUDGMENTS RELATING TO STATUS AND CLASSIFICATION 
                    OF ORGANIZATIONS UNDER SECTION 501(C)(3), ETC.

  (a) Creation of Remedy.--In a case of actual controversy 
involving--
          (1) a determination by the Secretary--
                  (A) with respect to the initial qualification 
                or continuing qualification of an organization 
                as an organization described in section 
                501(c)(3) which is exempt from tax under 
                section 501(a) or as an organization described 
                in section 170(c)(2),
                  (B) with respect to the initial 
                classification or continuing classification of 
                an organization as a private foundation (as 
                defined in section 509(a)) or as a private 
                operating foundation (as defined in section 
                4942(j)(3)), or
                  [(C) with respect to the initial 
                classification or continuing classification of 
                an organization as a private operating 
                foundation (as defined in section 4942(j)(3)), 
                or]
                  (C) with respect to the initial qualification 
                or continuing qualification of an organization 
                as an organization described in section 501(c) 
                (other than paragraph (3)) which is exempt from 
                tax under section 501(a), or

           *       *       *       *       *       *       *

upon the filing of an appropriate pleading, the [United States 
Tax Court, the United States Claims Court, or the district 
court of the United States for the District of Columbia] United 
States Tax Court (in the case of any such determination or 
failure) or the United States Claims Court or the district 
court of the United States for the District of Columbia (in the 
case of a determination or failure with respect to an issue 
referred to in subparagraph (A) or (B) of paragraph (1)), may 
make a declaration with respect to such initial qualification 
or continuing qualification or with respect to such initial 
classification or continuing classification. Any such 
declaration shall have the force and effect of a decision of 
the Tax Court or a final judgment or decree of the district 
court or the Claims Court, as the case may be, and shall be 
reviewable as such. For purposes of this section, a 
determination with respect to a continuing qualification or 
continuing classification includes any revocation of or other 
change in a qualification or classification.

           *       *       *       *       *       *       *


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

  (a) In General.--
          (1) * * *
          (2) Inspection or disclosure by a person who is not 
        an employee of the united states.--If any person who is 
        not an officer or employee of the United States 
        knowingly, or by reason of negligence, inspects or 
        discloses any return or return information with respect 
        to a taxpayer in violation of any provision of section 
        6103 (including any disclosure in violation of section 
        6104(c)), such taxpayer may bring a civil action for 
        damages against such person in a district court of the 
        United States.

           *       *       *       *       *       *       *

  (e) Notification of Unlawful Inspection and Disclosure.--If 
any person is criminally charged by indictment or information 
with inspection or disclosure of a taxpayer's return or return 
information in violation of--
          (1) paragraph (1) or (2) of section 7213(a),
          (2) section 7213A(a), or
          (3) subparagraph (B) of section 1030(a)(2) of title 
        18, United States Code, the Secretary shall notify such 
        taxpayer as soon as practicable of such inspection or 
        disclosure.
The Secretary shall also notify such taxpayer if the Treasury 
Inspector General for Tax Administration determines that such 
taxpayer's return or return information was inspected or 
disclosed in violation of any of the provisions specified in 
paragraph (1), (2), or (3).

           *       *       *       *       *       *       *


                  CHAPTER 77--MISCELLANEOUS PROVISIONS

          Sec. 7501. Liability for taxes withheld or collected.
     * * * * * * *
          Sec. 7527. Enrolled agents.
     * * * * * * *

SEC. 7526. LOW-INCOME TAXPAYER CLINICS.

  (a) * * *
  (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) * * *

           *       *       *       *       *       *       *

                The term does not include a clinic that 
                provides routine tax return preparation. The 
                preceding sentence shall not apply to return 
                preparation in connection with a controversy 
                with the Internal Revenue Service.

           *       *       *       *       *       *       *

  (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] $9,000,000 for 
        2002, $12,000,000 for 2003, and $15,000,000 for each 
        year thereafter (exclusive of costs of administering 
        the program) to grants under this section.

           *       *       *       *       *       *       *

          (7) Promotion of clinics.--The Secretary is 
        authorized to promote the benefits of and encourage the 
        use of low-income taxpayer clinics through the use of 
        mass communications, referrals, and other means.

           *       *       *       *       *       *       *


SEC. 7527. ENROLLED AGENTS.

  (a) In General.--The Secretary may prescribe such regulations 
as may be necessary to regulate the conduct of enrolled agents 
in regards to their practice before the Internal Revenue 
Service.
  (b) Use of Credentials.--Any enrolled agents properly 
licensed to practice as required under rules promulgated under 
section (a) herein shall be allowed to use the credentials or 
designation as ``enrolled agent'', ``EA'', or ``E.A.''.

           *       *       *       *       *       *       *


    CHAPTER 78--DISCOVERY OF LIABILITY AND ENFORCEMENT OF TITLE

           *       *       *       *       *       *       *


                Subchapter A--Examination and Inspection

           *       *       *       *       *       *       *


SEC. 7611. RESTRICTIONS ON CHURCH TAX INQUIRIES AND EXAMINATIONS.

  (a) * * *

           *       *       *       *       *       *       *

  (i) Section Not to Apply to Criminal Investigations, Etc.--
This section shall not apply to--
          (1) * * *

           *       *       *       *       *       *       *

          (4) any willful attempt to defeat or evade any tax 
        imposed by this title, [or]
          (5) any knowing failure to file a return of tax 
        imposed by this title[.], or
          (6) information provided by the Secretary related to 
        the standards for exemption from tax under this title 
        and the requirements under this title relating to 
        unrelated business taxable income.

           *       *       *       *       *       *       *


                       CHAPTER 80--GENERAL RULES

           *       *       *       *       *       *       *


           Subchapter A--Application of Internal Revenue Laws

          Sec. 7801. Authority of the Department of the Treasury.
     * * * * * * *
          Sec. 7804A. Disciplinary actions for misconduct.
     * * * * * * *

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

  (a) * * *

           *       *       *       *       *       *       *

  (d) Additional Duties of the Treasury Inspector General for 
Tax Administration.--
          (1) * * *
          (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, including 
                        a summary (by category) of the 10 most 
                        common complaints made and the number 
                        of such common complaints;

           *       *       *       *       *       *       *


SEC. 7804A. DISCIPLINARY ACTIONS FOR MISCONDUCT.

  (a) Disciplinary Actions.--
          (1) In general.--Subject to subsection (c), the 
        Commissioner shall take an action in accordance with 
        the guidelines established under paragraph (2) against 
        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 or where a nexus to the 
        employee's position exists.
          (2) Guidelines.--The Commissioner shall issue 
        guidelines for determining the appropriate level of 
        discipline, up to and including termination of 
        employment, for committing any act or omission 
        described under subsection (b).
  (b) Acts or Omissions.--The acts or omissions described under 
this subsection are--
          (1) willful failure to obtain the required approval 
        signatures on documents authorizing the seizure of a 
        taxpayer's home, personal belongings, or business 
        assets;
          (2) willfully providing a false statement under oath 
        with respect to a material matter involving a taxpayer 
        or taxpayer representative;
          (3) with respect to a taxpayer or taxpayer 
        representative, the willful violation of--
                  (A) any right under the Constitution of the 
                United States;
                  (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; or
                  (C) the Internal Revenue Service policy on 
                unauthorized inspection of returns or return 
                information;
          (4) willfully falsifying or destroying documents to 
        conceal mistakes made by any employee with respect to a 
        matter involving a taxpayer or taxpayer representative;
          (5) assault or battery on a taxpayer or taxpayer 
        representative, but only if there is a criminal 
        conviction, or a final adverse judgment by a court in a 
        civil case, with respect to the assault or battery;
          (6) willful violations of this title, Department of 
        the Treasury regulations, or policies of the Internal 
        Revenue Service (including the Internal Revenue Manual) 
        for the purpose of retaliating against, or harassing, a 
        taxpayer or taxpayer representative;
          (7) willful misuse of the provisions of section 6103 
        for the purpose of concealing information from a 
        congressional inquiry;
          (8) willful failure to file any return of tax 
        required under this title on or before the date 
        prescribed therefor (including any extensions) when a 
        tax is due and owing, unless such failure is due to 
        reasonable cause and not due to willful neglect;
          (9) willful understatement of Federal tax liability, 
        unless such understatement is due to reasonable cause 
        and not due to willful neglect; and
          (10) threatening to audit a taxpayer, or to take 
        other action under this title, for the purpose of 
        extracting personal gain or benefit.
  (c) Determinations of Commissioner.--
          (1) In general.--The Commissioner may take a 
        personnel action other than a disciplinary action 
        provided for in the guidelines under subsection (a)(2) 
        for an act or omission described under subsection (b).
          (2) Discretion.--The exercise of authority under 
        paragraph (1) shall be at the sole discretion of the 
        Commissioner and may not be delegated to any other 
        officer. The Commissioner, in his sole discretion, may 
        establish a procedure to determine if an individual 
        should be referred to the Commissioner for a 
        determination by the Commissioner under paragraph (1).
          (3) No appeal.--Notwithstanding any other provision 
        of law, any determination of the Commissioner under 
        this subsection may not be reviewed in any 
        administrative or judicial proceeding. A finding that 
        an act or omission described under subsection (b) 
        occurred may be reviewed.
  (d) Definition.--For the purposes of the provisions described 
in clauses (i), (ii), and (iv) of subsection (b)(3)(B), 
references to a program or activity regarding Federal financial 
assistance or an education program or activity receiving 
Federal financial assistance shall include any program or 
activity conducted by the Internal Revenue Service for a 
taxpayer.
  (e) Annual Report.--The Commissioner shall submit to Congress 
annually a report on disciplinary actions under this section.

           *       *       *       *       *       *       *


SEC. 7811. TAXPAYER ASSISTANCE ORDERS.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Suspension of Running of Period of Limitation.--The 
running of any period of limitation with respect to any action 
described in subsection (b) shall be suspended for--
          (1) the period beginning on the date of the 
        taxpayer's application under subsection (a) and ending 
        on the date of the National Taxpayer Advocate's 
        decision with respect to such application, but only if 
        the date of such decision is at least 7 days after the 
        date of the taxpayer's application; and

           *       *       *       *       *       *       *

                              ----------                              


    SECTION 202 OF THE GOVERNMENT SECURITIES ACT AMENDMENTS OF 1993

SEC. 202. TREASURY AUCTION REFORMS.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Meetings of Treasury Borrowing Advisory Committee.--
          (1) * * *

           *       *       *       *       *       *       *

          (4) Prohibition on outside discussions.--
                  (A) * * *
                  (B) Applicable period of prohibition.--The 
                prohibition contained in subparagraph (A) on 
                discussions and disclosures of any discussion, 
                debate, or recommendation at a meeting of the 
                advisory committee shall cease to apply--
                          (i) with respect to any discussion, 
                        debate, or recommendation which relates 
                        to the securities to be auctioned in a 
                        midquarter refunding by the Secretary 
                        of the Treasury, at the time the 
                        Secretary makes a public announcement 
                        of the refunding (or, if earlier, at 
                        the time the Secretary releases the 
                        minutes of the meeting in accordance 
                        with paragraph (2)); and

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