[House Report 108-61]
[From the U.S. Government Publishing Office]



108th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     108-61

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



 
         TAXPAYER PROTECTION AND IRS ACCOUNTABILITY ACT OF 2003

                                _______
                                

 April 8, 2003.--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. 1528]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Ways and Means, to whom was referred the 
bill (H.R. 1528) to amend the Internal Revenue Code of 1986 to 
protect taxpayers and ensure accountability of the Internal 
Revenue Service, 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
        B. Background and Need for Legislation...................    23
        C. Legislative History...................................    23
    Title I--Penalty and Interest Reforms............................24
        A. Failure To Pay Estimated Tax (sec. 101 of the bill and 
            new sec. 6641 of the Code)...........................    24
            1. Convert estimated tax penalty into an interest 
                provision for individuals, estates, and trusts...    24
            2. Increase and revise estimated tax threshold.......    24
            3. Apply one interest rate per estimated tax 
                underpayment period for individuals, estates, and 
                trusts...........................................    25
            4. Provide that underpayment balances are cumulative.    26
        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)...........    27
        C. Abatement of Interest (sec. 103 of the bill and sec. 
            6404 of the Code)....................................    28
        D. Deposits Made To Suspend the Running of Interest on 
            Potential Underpayments (sec. 104 of the bill and new 
            sec. 6603 of the Code)...............................    30
        E. Expansion of Interest Netting for Individuals (sec. 
            105 of the bill and sec. 6621 of the Code)...........    33
        F. Waiver of Certain Penalties for First-Time 
            Unintentional Minor Errors (sec. 106 of the bill and 
            sec. 6651 of the Code)...............................    35
        G. Frivolous Tax Returns and Submissions (sec. 107 of the 
            bill and sec. 6702 of the Code)......................    35
        H. Clarification of Application of Federal Tax Deposit 
            Penalty (sec. 108 of the bill).......................    36
    Title II--Fairness of Collection Procedures......................37
        A. Authorize IRS To Enter Into Installment Agreements 
            That Provide for Partial Payment (sec. 201 of the 
            bill and sec. 6159 of the Code)......................    37
        B. Extend Time Limit for Contesting IRS Levy (sec. 202 of 
            the bill and sec. 6343 of the Code)..................    38
        C. Individuals Held Harmless on Improper Levy on 
            Individual Retirement Plan (sec. 203 of the bill and 
            sec. 6343 of the Code)...............................    38
        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)...............    40
        E. Study of Liens and Levies (sec. 205 of the bill)......    40
    Title III--Tax Administration Reforms............................41
        A. Revisions Relating to Termination of Employment of IRS 
            Employees for Misconduct (sec. 301 of the bill and 
            new sec. 7804A of the Code)..........................    41
        B. Confirmation of Authority of Tax Court To Apply 
            Doctrine of Equitable Recoupment (sec. 302 of the 
            bill and sec. 6214 of the Code)......................    42
        C. Jurisdiction of Tax Court Over Collection Due Process 
            Cases (sec. 303 of the bill and sec. 6330 of the 
            Code)................................................    43
        D. Office of Chief Counsel Review of Offers-in-Compromise 
            (sec. 304 of the bill and sec. 7122 of the Code).....    44
        E. Extend the Due Date for Electronically Filed Tax 
            Returns by 15 Days (sec. 305 of the bill and sec. 
            6072 of the Code)....................................    44
        F. Access of National Taxpayer Advocate to Independent 
            Legal Counsel (sec. 306 of the bill and sec. 7803 of 
            the Code)............................................    45
        G. Payment of Motor Fuel Excise Tax Refunds by Direct 
            Deposit (sec. 307 of the bill and new sec. 3337 of 
            Title 31, United States Code)........................    46
        H. Family Business Tax Simplification (sec. 308 of the 
            bill and sec. 761 of the Code).......................    47
        I. Consumer Options Under the Refundable Credit for 
            Health Insurance Costs of Eligible Individuals (sec. 
            309 of the bill and sec. 35 of the Code).............    49
        J. Suspension of Tax-Exempt Status of Terrorist 
            Organizations (sec. 310 of the bill and sec. 501 of 
            the Code)............................................    53
    Title IV--Confidentiality and Disclosure.........................55
        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)...................    55
        B. Taxpayer Representatives Not Subject to Examination on 
            Sole Basis of Representation of Taxpayers (sec. 402 
            of the bill and sec. 6103(h) of the Code)............    56
        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)........    57
        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).................................    58
        E. Compliance by Contractors with Confidentiality 
            Safeguards (sec. 405 of the bill and sec. 6103(p) of 
            the Code)............................................    59
        F. Higher Standards for Requests for and Consents to 
            Disclosure (sec. 406 of the bill and sec. 6103(c) 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).....    63
        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)............................................    65
        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
        K. Enhanced Confidentiality of Taxpayer Communications 
            with the Office of the Taxpayer Advocate (sec. 411 of 
            the bill and sec. 7803 of the Code)..................    68
    Title V--Miscellaneous...........................................68
        A. Clarification of Definition of Church Tax Inquiry 
            (sec. 501 of the bill and sec. 7611 of the Code).....    68
        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)......................    69
        C. Employee Misconduct Report To Include Summary of 
            Complaints by Category (sec. 503 of the bill and sec. 
            7803 of the Code)....................................    71
        D. Annual Report on Awards of Costs and Certain Fees in 
            Administrative and Court Proceedings (sec. 504 of the 
            bill)................................................    72
        E. Annual Report on Abatements of Penalties (sec. 505 of 
            the bill)............................................    72
        F. Better Means of Communicating with Taxpayers (sec. 506 
            of the bill).........................................    73
        G. Information Regarding Statute of Limitations (sec. 507 
            of the bill).........................................    74
        H. Amendment to Treasury Auction Reforms (sec. 508 of the 
            bill and sec. 202 of the Government Securities Act 
            Amendments of 1993)..................................    75
        I. Enrolled Agents (sec. 509 of the bill and new sec. 
            7528 of the Code)....................................    76
        J. Allow the Financial Management Service To Retain 
            Transaction Fees from Levied Amounts (sec. 510 of the 
            bill)................................................    76
        K. Extension of IRS User Fees (sec. 511 of the bill and 
            new sec. 7529 of the Code)...........................    77
    Title VI--Low-Income Taxpayer Clinics............................77
        A. Low-Income Taxpayer Clinics (sec. 601 of the bill and 
            sec. 7526 of the Code)...............................    77
    Title VII--Unemployment Assistance...............................78
        A. Unemployment Assistance (sec. 701 of the bill)........    78
II. Votes of the Committee...........................................79
III.Budget Effects of the Bill.......................................80

        A. Committee Estimate of Budgetary Effects...............    80
        B. Statement Regarding New Budget Authority and Tax 
            Expenditures Budget Authority........................    84
        C. Cost Estimate Prepared by the Congressional Budget 
            Office...............................................    84
        D. Macroeconomic Impact Analysis.........................    87
IV. Other Matters To Be Discussed Under the Rules of the House.......87
        A. Committee Oversight Findings and Recommendations......    87
        B. Statement of General Performance Goals and Objectives.    87
        C. Constitutional Authority Statement....................    87
        D. Information Relating to Unfunded Mandates.............    87
        E. Applicability of House Rule XXI 5(b)..................    88
        F. Tax Complexity Analysis...............................    88
 V. Changes in Existing Law Made by the Bill, as Reported............88
  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 2003''.
  (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--PENALTY AND INTEREST REFORMS

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 Federal 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--TAX ADMINISTRATION REFORMS

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.
Sec. 306. Access of National Taxpayer Advocate to independent legal 
counsel.
Sec. 307. Payment of motor fuel excise tax refunds by direct deposit.
Sec. 308. Family business tax simplification.
Sec. 309. Health insurance costs of eligible individuals.
Sec. 310. Suspension of tax-exempt status of terrorist organizations.

                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.
Sec. 411. Confidentiality of taxpayer communications with the Office of 
the Taxpayer Advocate.

                         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. Extension of Internal Revenue Service user fees.

                 TITLE VI--LOW-INCOME TAXPAYER CLINICS

Sec. 601. Low-income taxpayer clinics.

      TITLE VII--FEDERAL-STATE UNEMPLOYMENT ASSISTANCE AGREEMENTS.

Sec. 701. Applicability of certain Federal-State agreements relating to 
unemployment assistance.

                 TITLE I--PENALTY AND INTEREST REFORMS

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 $1,600, 
                                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 $1,600 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 items:

                              ``Subchapter D. Notice requirements.
                              ``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, 
2003.

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.
          ``(2) Returns of deposits.--Deposits shall be treated as 
        returned to the taxpayer on a last-in, first-out basis.''.
  (b) Clerical Amendment.--The table of sections for subchapter A of 
chapter 67 is amended by adding at the end the following new item:

                              ``Sec. 6603. Deposits made to suspend 
                                        running of interest on 
                                        potential underpayments, 
                                        etc.''.
  (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, 2003.

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.--
          ``(1) In general.--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--
                  ``(A) the individual has a history of compliance with 
                the requirements of this title,
                  ``(B) it is shown that the failure is due to an 
                unintentional minor error,
                  ``(C) the penalty would be grossly disproportionate 
                to the action or expense that would have been needed to 
                avoid the error, and imposing the penalty would be 
                against equity and good conscience,
                  ``(D) waiving the penalty would promote compliance 
                with the requirements of this title and effective tax 
                administration, and
                  ``(E) the taxpayer took all reasonable steps to 
                remedy the error promptly after discovering it.
          ``(2) Exceptions.--Paragraph (1) shall not apply if--
                  ``(A) the Secretary has waived any addition to tax 
                under this subsection with respect to any prior failure 
                by such individual,
                  ``(B) the failure is a mathematical or clerical error 
                (as defined in section 6213(g)(2)), or
                  ``(C) the failure is the lack of a required 
                signature.''.
  (b) Effective Date.--The amendment made by this section shall take 
effect on January 1, 2004.

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 is based 
                on a position which the Secretary has identified as 
                frivolous under subsection (c).
                  ``(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 
        within 30 days after such notice, the penalty imposed under 
        paragraph (1) shall not apply with respect to such submission.
  ``(c) Listing of Frivolous Positions.--The Secretary shall prescribe 
(and periodically revise) a list of positions which the Secretary has 
identified as being frivolous for purposes of this subsection. The 
Secretary shall not include in such list any position that the 
Secretary determines meets the requirement of section 
6662(d)(2)(B)(ii)(II).
  ``(d) Reduction of Penalty.--The Secretary may reduce the amount of 
any penalty imposed under this section if the Secretary determines that 
such reduction would promote compliance with and administration of the 
Federal tax laws.
  ``(e) Penalties in Addition to Other Penalties.--The penalties 
imposed by this section shall be in addition to any other penalty 
provided by law.''.
  (b) 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.''.
  (c) 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, 2003.

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--TAX ADMINISTRATION REFORMS

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.
          ``(4) Termination.--This subsection shall not apply to any 
        return filed with respect to a taxable year which begins after 
        December 31, 2007.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to returns filed with respect to taxable years beginning after December 
31, 2002.

SEC. 306. ACCESS OF NATIONAL TAXPAYER ADVOCATE TO INDEPENDENT LEGAL 
                    COUNSEL.

  Clause (i) of section 7803(c)(2)(D) (relating to personnel actions) 
is amended by striking ``and'' at the end of subclause (I), by striking 
the period at the end of subclause (II) and inserting ``, and'', and by 
adding at the end the following new subclause:
                                  ``(III) appoint a counsel in the 
                                Office of the Taxpayer Advocate to 
                                report solely to the National Taxpayer 
                                Advocate.''.

SEC. 307. PAYMENT OF MOTOR FUEL EXCISE TAX REFUNDS BY DIRECT DEPOSIT.

  (a) In General.--Subchapter II of chapter 33 of title 31, United 
States Code, is amended by adding at the end the following new section:

``Sec. 3337. Payment of motor fuel excise tax refunds by direct deposit

  ``The Secretary of the Treasury shall make payments under sections 
6420, 6421, and 6427 of the Internal Revenue Code of 1986 by electronic 
funds transfer (as defined in section 3332(j)(1)) if the person who is 
entitled to the payment--
          ``(1) elects to receive the payment by electronic funds 
        transfer; and
          ``(2) satisfies the requirements of section 3332(g) with 
        respect to such payment at such time and in such manner as the 
        Secretary may require.''.
  (b) Clerical Amendment.--The table of sections for subchapter II of 
chapter 33 of title 31, United States Code, is amended by adding at the 
end the following new item:

``3337. Payment of motor fuel excise tax refunds by direct deposit.''.

SEC. 308. FAMILY BUSINESS TAX SIMPLIFICATION.

  (a) In General.--Section 761 (defining terms for purposes of 
partnerships) is amended by redesignating subsection (f) as subsection 
(g) and by inserting after subsection (e) the following new subsection:
  ``(f) Qualified Joint Venture.--
          ``(1) In general.--In the case of a qualified joint venture 
        conducted by a husband and wife who file a joint return for the 
        taxable year, for purposes of this title--
                  ``(A) such joint venture shall not be treated as a 
                partnership,
                  ``(B) all items of income, gain, loss, deduction, and 
                credit shall be divided between the spouses in 
                accordance with their respective interests in the 
                venture, and
                  ``(C) each spouse shall take into account such 
                spouse's respective share of such items as if they were 
                attributable to a trade or business conducted by such 
                spouse as a sole proprietor.
          ``(2) Qualified joint venture.--For purposes of paragraph 
        (1), the term `qualified joint venture' means any joint venture 
        involving the conduct of a trade or business if--
                  ``(A) the only members of such joint venture are a 
                husband and wife,
                  ``(B) both spouses materially participate (within the 
                meaning of section 469(h) without regard to paragraph 
                (5) thereof) in such trade or business, and
                  ``(C) both spouses elect the application of this 
                subsection.''.
  (b) Net Earnings From Self-Employment.--
          (1) Subsection (a) of section 1402 (defining net earnings 
        from self-employment) is amended by striking ``and'' at the end 
        of paragraph (14), by striking the period at the end of 
        paragraph (15) and inserting ``; and'', and by inserting after 
        paragraph (15) the following new paragraph:
          ``(16) notwithstanding the preceding provisions of this 
        subsection, each spouse's share of income or loss from a 
        qualified joint venture shall be taken into account as provided 
        in section 761(f) in determining net earnings from self-
        employment of such spouse.''.
          (2) Subsection (a) of section 211 of the Social Security Act 
        (defining net earnings from self-employment) is amended by 
        striking ``and'' at the end of paragraph (14), by striking the 
        period at the end of paragraph (15) and inserting ``; and'', 
        and by inserting after paragraph (15) the following new 
        paragraph:
          ``(16) Notwithstanding the preceding provisions of this 
        subsection, each spouse's share of income or loss from a 
        qualified joint venture shall be taken into account as provided 
        in section 761(f) of the Internal Revenue Code of 1986 in 
        determining net earnings from self-employment of such 
        spouse.''.
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2002.

SEC. 309. HEALTH INSURANCE COSTS OF ELIGIBLE INDIVIDUALS.

  (a) Consumer Options.--Paragraph (2) of section 35(e) is amended by 
inserting at the end the following new subparagraph:
                  ``(C) Waiver by eligible individuals.--With respect 
                to any month which ends before January 1, 2006, 
                subparagraphs (A) and (B) shall not apply with respect 
                to any eligible individual and such individual's 
                qualifying family members if such eligible individual 
                elects to waive the application of such subparagraphs 
                with respect to such month.''.
  (b) No Impact on State Consumer Protections.--Nothing in the 
amendment made by subsection (a) supercedes or otherwise affects the 
application of State law relating to consumer insurance protections 
(including State law implementing the requirements of part B of title 
XXVII of the Public Health Service Act).
  (c) Effective Date.--The amendment made by subsection (a) shall apply 
to months beginning after the date of the enactment of this Act.

SEC. 310. SUSPENSION OF TAX-EXEMPT STATUS OF TERRORIST ORGANIZATIONS.

  (a) In General.--Section 501 (relating to exemption from tax on 
corporations, certain trusts, etc.) is amended by redesignating 
subsection (p) as subsection (q) and by inserting after subsection (o) 
the following new subsection:
  ``(p) Suspension of Tax-Exempt Status of Terrorist Organizations.--
          ``(1) In general.--The exemption from tax under subsection 
        (a) with respect to any organization described in paragraph 
        (2), and the eligibility of any organization described in 
        paragraph (2) to apply for recognition of exemption under 
        subsection (a), shall be suspended during the period described 
        in paragraph (3).
          ``(2) Terrorist organizations.--An organization is described 
        in this paragraph if such organization is designated or 
        otherwise individually identified--
                  ``(A) under section 212(a)(3)(B)(vi)(II) or 219 of 
                the Immigration and Nationality Act as a terrorist 
                organization or foreign terrorist organization,
                  ``(B) in or pursuant to an Executive order which is 
                related to terrorism and issued under the authority of 
                the International Emergency Economic Powers Act or 
                section 5 of the United Nations Participation Act of 
                1945 for the purpose of imposing on such organization 
                an economic or other sanction, or
                  ``(C) in or pursuant to an Executive order issued 
                under the authority of any Federal law if--
                          ``(i) the organization is designated or 
                        otherwise individually identified in or 
                        pursuant to such Executive order as supporting 
                        or engaging in terrorist activity (as defined 
                        in section 212(a)(3)(B) of the Immigration and 
                        Nationality Act) or supporting terrorism (as 
                        defined in section 140(d)(2) of the Foreign 
                        Relations Authorization Act, Fiscal Years 1988 
                        and 1989); and
                          ``(ii) such Executive order refers to this 
                        subsection.
          ``(3) Period of suspension.--With respect to any organization 
        described in paragraph (2), the period of suspension--
                  ``(A) begins on the later of--
                          ``(i) the date of the first publication of a 
                        designation or identification described in 
                        paragraph (2) with respect to such 
                        organization, or
                          ``(ii) the date of the enactment of this 
                        subsection, and
                  ``(B) ends on the first date that all designations 
                and identifications described in paragraph (2) with 
                respect to such organization are rescinded pursuant to 
                the law or Executive order under which such designation 
                or identification was made.
          ``(4) Denial of deduction.--No deduction shall be allowed 
        under section 170, 545(b)(2), 556(b)(2), 642(c), 2055, 
        2106(a)(2), or 2522 for any contribution to an organization 
        described in paragraph (2) during the period described in 
        paragraph (3).
          ``(5) Denial of administrative or judicial challenge of 
        suspension or denial of deduction.--Notwithstanding section 
        7428 or any other provision of law, no organization or other 
        person may challenge a suspension under paragraph (1), a 
        designation or identification described in paragraph (2), the 
        period of suspension described in paragraph (3), or a denial of 
        a deduction under paragraph (4) in any administrative or 
        judicial proceeding relating to the Federal tax liability of 
        such organization or other person.
          ``(6) Erroneous designation.--
                  ``(A) In general.--If--
                          ``(i) the tax exemption of any organization 
                        described in paragraph (2) is suspended under 
                        paragraph (1),
                          ``(ii) each designation and identification 
                        described in paragraph (2) which has been made 
                        with respect to such organization is determined 
                        to be erroneous pursuant to the law or 
                        Executive order under which such designation or 
                        identification was made, and
                          ``(iii) the erroneous designations and 
                        identifications result in an overpayment of 
                        income tax for any taxable year by such 
                        organization,
                credit or refund (with interest) with respect to such 
                overpayment shall be made.
                  ``(B) Waiver of limitations.--If the credit or refund 
                of any overpayment of tax described in subparagraph 
                (A)(iii) is prevented at any time by the operation of 
                any law or rule of law (including res judicata), such 
                credit or refund may nevertheless be allowed or made if 
                the claim therefor is filed before the close of the 1-
                year period beginning on the date of the last 
                determination described in subparagraph (A)(ii).
          ``(7) Notice of suspensions.--If the tax exemption of any 
        organization is suspended under this subsection, the Internal 
        Revenue Service shall update the listings of tax-exempt 
        organizations and shall publish appropriate notice to taxpayers 
        of such suspension and of the fact that contributions to such 
        organization are not deductible during the period of such 
        suspension.''.
  (b) Effective Date.--The amendments made by this section shall apply 
to designations made before, on, or after the date of the enactment of 
this Act.

                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.--Paragraph (1) of section 6103(h) (relating to 
disclosure to certain Federal officers and employees for purposes of 
tax administration, etc.) is amended--
          (1) by striking ``Returns'' and inserting the following:
                  ``(A) In general.--Returns'', and
          (2) by adding at the end the following new subparagraph:
                  ``(B) Taxpayer representatives.--Notwithstanding 
                subparagraph (A), 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 which is 180 days after 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 by moving 
        such clauses 2 ems to the right; 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)  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 and other agents.--
        Notwithstanding any other provision of this section, no return 
        or return information shall be disclosed to any contractor or 
        other agent of a Federal, State, or local agency unless such 
        agency, to the satisfaction of the Secretary--
                  ``(A) has requirements in effect which require each 
                such contractor or other agent which would have access 
                to returns or return information to provide safeguards 
                (within the meaning of paragraph (4)) to protect the 
                confidentiality of such returns or return information,
                  ``(B) agrees to conduct an annual, on-site review 
                (mid-point review in the case of contracts of less than 
                1 year in duration) of each such contractor or other 
                agent 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 each such contractor or other agent 
                is in compliance with all such requirements.
        The certification required by subparagraph (D) shall include 
        the name and address of each contractor and other agent, a 
        description of the contract of the contractor or other agent 
        with the agency, 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, 2003.
          (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 
        2004.

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, sections 7213, 
        7213A, and 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 Amendments.--
          (1) Section 6103(c) is amended by striking ``Taxpayer.--The 
        Secretary'' and inserting ``Taxpayer.--
          ``(1) In general.--The Secretary''.
          (2) Section 7213(a)(1) is amended by striking ``section 
        6103(n)'' and inserting ``subsections (c) and (n) of section 
        6103''.
          (3) Section 7213A(a)(1)(B) is amended by striking 
        ``subsection (l)(18) or (n) of section 6103'' and inserting 
        ``subsection (c), (l)(18), or (n) of section 6103''.
  (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 
substantiates 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, addresses, 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 a person other than the appropriate State officer if 
                such person is an officer or employee of the State and 
                is designated by the appropriate State officer to 
                receive the returns or return information under this 
                paragraph on behalf of the appropriate State 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 or Federal issues relating to the 
                tax-exempt status of such organization.
          ``(3) Use in administrative and judicial civil proceedings.--
        Returns and return information disclosed pursuant to this 
        subsection may be disclosed in administrative and judicial 
        civil 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) any other State official charged with 
                        overseeing organizations of the type described 
                        in section 501(c)(3).''.
  (b) Conforming Amendments.--
          (1) Subparagraph (A) of section 6103(p)(3) is amended by 
        inserting ``and section 6104(c)'' after ``section'' in the 
        first sentence.
          (2) Paragraph (4) of section 6103(p) is amended--
                  (A) in the matter preceding subparagraph (A), by 
                inserting ``, or any appropriate State officer (as 
                defined in section 6104(c)),'' before ``or any other 
                person'',
                  (B) in subparagraph (F)(i), by inserting ``or any 
                appropriate State officer (as defined in section 
                6104(c)),'' before ``or any other person'', and
                  (C) in the matter following subparagraph (F), by 
                inserting ``, an appropriate State officer (as defined 
                in section 6104(c)),'' after ``including an agency'' 
                each place it appears.
          (3) Paragraph (2) of section 7213(a) is amended by striking 
        ``6103.'' and inserting ``6103 or under section 6104(c).''.
          (4) Paragraph (2) of section 7213A(a) is amended by inserting 
        ``or 6104(c)'' after ``6103''.
          (5) Paragraph (2) of section 7431(a) is amended by inserting 
        ``(including any disclosure in violation of section 6104(c))'' 
        after ``6103''.
  (c) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act but shall not apply to 
requests made before such date.

SEC. 411. CONFIDENTIALITY OF TAXPAYER COMMUNICATIONS WITH THE OFFICE OF 
                    THE TAXPAYER ADVOCATE.

  (a) In General.--Subsection (c) of section 7803 is amended by adding 
at the end the following new paragraph:
          ``(5) Confidentiality of taxpayer information.--
                  ``(A) In general.--To the extent authorized by the 
                National Taxpayer Advocate or pursuant to guidance 
                issued under subparagraph (B), any officer or employee 
                of the Office of the Taxpayer Advocate may withhold 
                from the Internal Revenue Service and the Department of 
                Justice any information provided by, or regarding 
                contact with, any taxpayer.
                  ``(B) Issuance of guidance.--In consultation with the 
                Chief Counsel for the Internal Revenue Service and 
                subject to the approval of the Commissioner of Internal 
                Revenue, the National Taxpayer Advocate may issue 
                guidance regarding the circumstances (including with 
                respect to litigation) under which, and the persons to 
                whom, employees of the Office of the Taxpayer Advocate 
                shall not disclose information obtained from a 
                taxpayer. To the extent to which any provision of the 
                Internal Revenue Manual would require greater 
                disclosure by employees of the Office of the Taxpayer 
                Advocate than the disclosure required under such 
                guidance, such provision shall not apply.
                  ``(C) Employee protection.--Section 7214(a)(8) shall 
                not apply to any failure to report knowledge or 
                information if--
                          ``(i) such failure to report is authorized 
                        under subparagraph (A), and
                          ``(ii) such knowledge or information is not 
                        of fraud committed by a person against the 
                        United States under any revenue law.''.
  (b) Conforming Amendment.--Subparagraph (A) of section 7803(c)(4) is 
amended by inserting ``and'' at the end of clause (ii), by striking ``; 
and'' at the end of clause (iii) and inserting a period, and by 
striking clause (iv).

                         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 subsection (c) (other than 
                paragraph (3)) or (d) of section 501 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 2003, 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 2003, 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 2002 
(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. 7528. 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. 7528. 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. EXTENSION OF INTERNAL REVENUE SERVICE USER FEES.

  (a) In General.--Chapter 77 (relating to miscellaneous provisions), 
as amended by section 509, is further amended by adding at the end the 
following new section:

``SEC. 7529. INTERNAL REVENUE SERVICE USER FEES.

  ``(a) General Rule.--The Secretary shall establish a program 
requiring the payment of user fees for--
          ``(1) requests to the Internal Revenue Service for ruling 
        letters, opinion letters, and determination letters, and
          ``(2) other similar requests.
  ``(b) Program Criteria.--
          ``(1) In general.--The fees charged under the program 
        required by subsection (a)--
                  ``(A) shall vary according to categories (or 
                subcategories) established by the Secretary,
                  ``(B) shall be determined after taking into account 
                the average time for (and difficulty of) complying with 
                requests in each category (and subcategory), and
                  ``(C) shall be payable in advance.
          ``(2) Exemptions, etc.--
                  ``(A) In general.--The Secretary shall provide for 
                such exemptions (and reduced fees) under such program 
                as the Secretary determines to be appropriate.
                  ``(B) Exemption for certain requests regarding 
                pension plans.--The Secretary shall not require payment 
                of user fees under such program for requests for 
                determination letters with respect to the qualified 
                status of a pension benefit plan maintained solely by 1 
                or more eligible employers or any trust which is part 
                of the plan. The preceding sentence shall not apply to 
                any request--
                          ``(i) made after the later of--
                                  ``(I) the fifth plan year the pension 
                                benefit plan is in existence, or
                                  ``(II) the end of any remedial 
                                amendment period with respect to the 
                                plan beginning within the first 5 plan 
                                years, or
                          ``(ii) made by the sponsor of any prototype 
                        or similar plan which the sponsor intends to 
                        market to participating employers.
                  ``(C) Definitions and special rules.--For purposes of 
                subparagraph (B)--
                          ``(i) Pension benefit plan.--The term 
                        `pension benefit plan' means a pension, profit-
                        sharing, stock bonus, annuity, or employee 
                        stock ownership plan.
                          ``(ii) Eligible employer.--The term `eligible 
                        employer' means an eligible employer (as 
                        defined in section 408(p)(2)(C)(i)(I)) which 
                        has at least 1 employee who is not a highly 
                        compensated employee (as defined in section 
                        414(q)) and is participating in the plan. The 
                        determination of whether an employer is an 
                        eligible employer under subparagraph (B) shall 
                        be made as of the date of the request described 
                        in such subparagraph.
                          ``(iii) Determination of average fees 
                        charged.--For purposes of any determination of 
                        average fees charged, any request to which 
                        subparagraph (B) applies shall not be taken 
                        into account.
          ``(3) Average fee requirement.--The average fee charged under 
        the program required by subsection (a) shall not be less than 
        the amount determined under the following table:

                                                                Average
``Category                                                          Fee
    Employee plan ruling and opinion..............                $250 
    Exempt organization ruling....................                $350 
    Employee plan determination...................                $300 
    Exempt organization determination.............                $275 
    Chief counsel ruling..........................                $200.
  ``(c) Termination.--No fee shall be imposed under this section with 
respect to requests made after September 30, 2013.''.
  (b) Conforming Amendments.--
          (1) The table of sections for chapter 77 is amended by adding 
        at the end the following new item:

                              ``Sec. 7529. Internal Revenue Service 
                                        user fees.''.
          (2) Section 10511 of the Revenue Act of 1987 is repealed.
          (3) Section 620 of the Economic Growth and Tax Relief 
        Reconciliation Act of 2001 is repealed.
  (c) Limitations.--Notwithstanding any other provision of law, any 
fees collected pursuant to section 7527 of the Internal Revenue Code of 
1986, as added by subsection (a), shall not be expended by the Internal 
Revenue Service unless provided by an appropriations Act.
  (d) Effective Date.--The amendments made by this section shall apply 
to requests made 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 2004, 
$12,000,000 for 2005, and $15,000,000 for each year thereafter''.
  (b) Promotion of Clinics.--Section 7526(c) is amended by adding at 
the end the following new paragraph:
          ``(6) Promotion of clinics.--The Secretary is authorized to 
        promote the benefits of and encourage the use of low-income 
        taxpayer clinics through the use of mass communications, 
        referrals, and other means.''.
  (c) Use of Grants for Overhead Expenses Prohibited.--Section 7526(c), 
as amended by subsection (b), is further amended by adding at the end 
the following new paragraph:
          ``(7) Use of grants for overhead expenses prohibited.--No 
        grant made under this section may be used for the general 
        overhead expenses of any institution sponsoring a qualified 
        low-income taxpayer clinic.''.
  (d) Eligible Clinics.--
          (1) In general.--Paragraph (2) of section 7526(b) is amended 
        to read as follows:
          ``(2) Eligible clinic.--The term `eligible clinic' means--
                  ``(A) any clinical program at an accredited law, 
                business, or accounting school in which students 
                represent low-income taxpayers in controversies arising 
                under this title; and
                  ``(B) any organization described in section 501(c) 
                and exempt from tax under section 501(a) which 
                satisfies the requirements of paragraph (1) through 
                representation of taxpayers or referral of taxpayers to 
                qualified representatives.''.
          (2) Conforming amendment.--Subparagraph (A) of section 
        7526(b)(1) is amended by striking ``means a clinic'' and 
        inserting ``means an eligible clinic''.

      TITLE VII--FEDERAL-STATE UNEMPLOYMENT ASSISTANCE AGREEMENTS

SEC. 701. APPLICABILITY OF CERTAIN FEDERAL-STATE AGREEMENTS RELATING TO 
                    UNEMPLOYMENT ASSISTANCE.

  Effective as of May 25, 2003, section 208 of Public Law 107-147 is 
amended--
          (1) in subsection (a)(2), by inserting ``on or'' after 
        ``ending''; and
          (2) in subsection (b), by striking ``May 31'' each place it 
        appears and inserting ``June 1''.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary

    The bill, H.R. 1528, as amended, improves taxpayer 
protections and IRS accountability and makes other necessary 
changes to the tax laws.

                 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.
    The bill also contains various other provisions to reduce 
complexity and eliminate inequitable effects in the tax law.

                         C. Legislative History

    The House Committee on Ways and Means marked up the 
Taxpayer Protection and IRS Accountability Act of 2003 on April 
2, 2003, and ordered the bill, as amended, favorably reported 
by voice vote.

                 TITLE I--PENALTY AND INTEREST REFORMS


                    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, 2003.

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 $1,600.

                             EFFECTIVE DATE

    The provision is effective for estimated tax payments made 
for taxable years beginning after December 31, 2003.

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 wouldincrease 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, 2003.

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, 2003.

 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.
    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. Generally, 
this occurs on the date the appropriate IRS official signs the 
pertinent schedule of overassessments.

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 or may 
be disallowed if and to the extent it is determined to be a 
cost of earning tax exempt income under section 265.
    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 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.'' The 
validity of the temporary regulation has been upheld in those 
Circuits that have considered the issue, including the Fourth, 
Sixth, Eighth, and Ninth Circuits.
    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.

                           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 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.
    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. Since the taxpayer has 21 days from the 
date of demand to pay without interest, 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.

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.
    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.
    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 
provision, 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 provision 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 provision 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, but interest will begin 
to accrue once the taxpayer is properly notified. No similar 
suspension is available for other taxpayers.
    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. 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.
    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.
    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. 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.

                           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, 2005, with respect to a disputable 
item on its 2004 income tax return. On April 15, 2007, an 
examination of the taxpayer's year 2004 income tax return is 
completed, and the taxpayer and the IRS agree that the taxable 
year 2004 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, 2005 
(the original due date of the return) to the date of payment 
(April 15, 2007) 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, 2005, to May 15, 2005, 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. Interest is not payable to the extent the 
deposit was not attributable to a disputable tax.
    For example, assume a calendar year individual taxpayer 
receives a 30-day letter showing a deficiency of $20,000 for 
taxable year 2004 and deposits $20,000 on May 15, 2006. On 
April 15, 2007, an administrative appeal is completed, and the 
taxpayer and the IRS agree that the 2004 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, 2005 (the original due date of the 
return) to May 15, 2006, 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, 2005, to May 15, 
2006). This amount must be returned to the taxpayer with 
interest determined at the short-term applicable Federal rate 
from May 15, 2006, 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. 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.
    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, 2007, a deficiency of $1,500 is 
determined with respect to an individual taxpayer's 2004 
Federal income tax return, which the taxpayer pays within 21 
days. In the meantime, the taxpayer has filed returns for 2005 
and 2006, 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 2005 or 2006. In this case, the taxpayer owes interest 
on the $1500 year 2004 underpayment from the original due date 
of the return (April 15, 2005) until the underpayment is 
satisfied. Although, there are offsetting periods of 
overpayment (April 15, 2006 to May 15, 2006 and April 15, 2007 
to May 15, 2007), there is no offsetting period for which 
interest is allowable on an overpayment.

                           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 2004 underpayment for the periods between the 
due date of the 2005 and 2006 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, 2005, to April 16, 2006; May 16, 2006 to April 16, 2007; 
and from May 16, 2007 to July 1, 2007. For the periods April 
16, 2006, to May 15, 2006 and April 16, 2007 to May 15, 2007, a 
zero net interest rate will apply.

                             EFFECTIVE DATE

    The provision is effective for interest accrued after 
December 31, 2003.

   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 generally, as well as specific 
authority to waive these penalties for reasonable cause. The 
Committee believes that the Secretary has not always exercised 
this authority with respect to unintentional, minor errors that 
are committed by individual taxpayers. 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.

                        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, 2003.

                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 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)).

                           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. The 
submissions to which this provision applies are requests for a 
collection due process hearing, installment agreements, offers-
in-compromise, and taxpayer assistance orders. The provision 
permits the IRS to impose a penalty of up to $5,000 for such 
requests, unless the taxpayer withdraws the request within 30 
days 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.

                           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--FAIRNESS OF 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.
    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. 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.

                        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. 
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.

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

    The provision is effective with respect to: (1) levies made 
after the date of enactment; and (2) levies made on or before 
the date of enactment provided that the 9-month period has not 
expired as of the date of enactment.

C. Individuals Held Harmless on Improper Levy on Individual Retirement 
                                  Plan


(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, 2003.

 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. Accordingly, the Committee 
believes that a study of these provisions and their 
administration could provide the Committee with valuable 
information.

                        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--TAX ADMINISTRATION REFORMS


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 Authority of Tax Court To Apply Doctrine of 
                          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.\1\ In Estate of Mueller v. Commissioner,\2\ 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,\3\ held that the Tax Court may apply the doctrine 
of equitable recoupment.
---------------------------------------------------------------------------
    \1\ See Stone v. White, 301 U.S. 532 (1937); Bull v. United States, 
295 U.S. 247 (1935).
    \2\ 153 F.3d 302 (6th Cir.), cert. den., 525 U.S. 1140 (1999).
    \3\ 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, which will eliminate any 
uncertainty or confusion caused by differing results in 
differing circuits. The Committee also believes that this 
provision will provide simplification and uniformity in 
treatment for all taxpayers in obtaining appropriate relief.

                        EXPLANATION OF PROVISION

    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 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. Jurisdiction of Tax Court Over Collection Due Process Cases


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

                              PRESENT LAW

    In general, the Internal Revenue Service (``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.\4\ Similar rules apply with respect to 
liens.\5\ 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. The 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.\6\ 
Special rules apply if the taxpayer files the appeal in the 
incorrect court.
---------------------------------------------------------------------------
    \4\ Sec. 6330(a).
    \5\ Sec. 6320.
    \6\ Sec. 6330(d).
---------------------------------------------------------------------------
    The United States Tax Court is established under Article I 
of the United States Constitution \7\ and is a court of limited 
jurisdiction.\8\
---------------------------------------------------------------------------
    \7\ Sec. 7441.
    \8\ Sec. 7442.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that clarifying this judicial review 
provision will improve its functioning by providing 
simplification for taxpayers, reducing the confusion associated 
with filing in the correct court, and reducing the processing 
time of certain collection due process cases.

                        EXPLANATION OF PROVISION

    The provision provides that all appeals of collection due 
process determinations are to be made to the United States Tax 
Court.

                             EFFECTIVE DATE

    The provision applies to determinations made 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.

                        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 taxable years beginning 
after December 31, 2002; the provision sunsets in five years.

  F. Access of National Taxpayer Advocate to Independent Legal Counsel


(Sec. 306 of the bill and sec. 7803 of the Code)

                              PRESENT LAW

    The National Taxpayer Advocate receives legal advice from 
the Special Counsel to the National Taxpayer Advocate. This 
Special Counsel reports directly to, and is evaluated by, the 
Chief Counsel of the IRS.

                           REASONS FOR CHANGE

    The Committee believes that the functioning of the Office 
of the National Taxpayer Advocate would be improved by having a 
counsel in the Office of the Taxpayer Advocate who reports 
solely to the National Taxpayer Advocate.

                        EXPLANATION OF PROVISION

    The provision permits the National Taxpayer Advocate to 
appoint a counsel in the Office of the Taxpayer Advocate to 
report solely to the National Taxpayer Advocate. The Committee 
intends that this counsel participate in preliminary and pre-
decisional discussions with the Office of Chief Counsel about 
rules, regulations, and other significant Chief Counsel work 
product to the same extent as the Special Counsel does under 
present law. Thus, this new counsel must be consulted on and 
review legal opinions and other guidance as may be required in 
the preparation and review of rulings and memoranda of 
technical advice, proposed legislation, regulations, Executive 
Orders, and similar materials.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

     G. Payment of Motor Fuel Excise Tax Refunds by Direct Deposit


(Sec. 307 of the bill and new sec. 3337 of Title 31, United States 
        Code)

                              PRESENT LAW

    Refunds or income tax credits may be claimed (generally by 
consumers) for fuels on which tax is paid and which ultimately 
are used for a non-taxable purpose. The rules governing how and 
by whom a refund is claimed differ by type of fuel, by end use, 
and by dollar amount of the claim. Except in the case of 
``gasohol'' (gasoline blended with ethanol) and kerosene sold 
from certain ``blocked pumps'' for which weekly claims are 
allowed, no more than one claim per quarter may be filed. 
Refund claims may be filed only if prescribed dollar thresholds 
are satisfied. If the dollar amounts are not satisfied in a 
calendar year, refunds must be claimed as credits on income tax 
returns. Unlike income tax refunds, excise tax refunds 
generally do not bear interest if they are not paid within set 
periods. However, interest does accrue on gasohol and kerosene 
``blocked pump'' refunds if not paid within 20 days.
    Finally, as stated above, most refunds must be claimed by 
consumers (who are deemed to bear the burden of the tax). 
Exceptions are provided for fuels sold to States and local 
governments and farmers, and for kerosene sold from blocked 
pumps for heating purposes. Those refunds must be claimed by 
actual taxpayers, wholesale distributors, or ultimate vendors.
    There is no requirement that the Secretary make payment of 
these refunds available by electronic funds transfer (``direct 
deposit'').\9\
---------------------------------------------------------------------------
    \9\ Notwithstanding any other provision of law, all Federal wage, 
salary, and retirement payments are required to be paid to recipients 
of such payments by electronic funds transfer, unless another method 
has been determined by the Secretary of the Treasury to be appropriate. 
31 U.S.C. sec. 3332(a).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that permitting these refunds to be 
directly deposited will improve the efficiency of the process. 
The payment is more secure (in that there is no check to be 
lost, misplaced, or stolen) and direct deposit is a faster 
method of making payments.

                        EXPLANATION OF PROVISION

    The provision requires the Secretary to make payments of 
fuel tax refunds pursuant to sections 6420 (relating to 
gasoline used on farms), 6421 (relating to gasoline used for 
certain nonhighway purposes, used by local transit systems or 
sold for certain exempt purposes) and 6427 (relating to fuels 
used for nontaxable purposes) by electronic funds transfer if 
the person who is entitled to the payment elects to receive the 
payment by electronic funds transfer and satisfies certain 
other requirements. Specifically, the person entitled to the 
payment must, at such time and manner as the Secretary may 
require: (1) designate 1 or more financial institutions or 
other authorized agents to which such payment is to be made and 
(2) provide information necessary for the person entitled to 
payment to receive electronic funds transfer payments through 
each institution or agent designated in (1).
    An electronic funds transfer is defined as any transfer of 
funds, other than a transaction originated by cash, check, or 
similar paper instrument, that is initiated through an 
electronic terminal, telephone, computer, or magnetic tape, for 
the purpose of ordering, instructing, or authorizing a 
financial institution to debit or credit an account. The term 
includes Automated Clearing House transfers, Fed Wire 
transfers, transfers made at automatic teller machines, and 
point-of-sale terminals.\10\
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    \10\ See 31 U.S.C. sec. 3332(j)(1).
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision is effective upon date of enactment.

                 H. Family Business Tax Simplification


(Sec. 308 of the bill and sec. 761 of the Code)

                              PRESENT LAW

    Under present law, a partnership is defined to include a 
syndicate, group, pool, joint venture, or other unincorporated 
organization through or by means of which any business, 
financial operation or ventured is carried on, and which is not 
a trust or estate or a corporation (sec. 7701(a)(2)). A 
partnership is treated as a pass-through entity, and income 
earned by the partnership, whether distributed or not, is taxed 
to the partners. The income of a partnership and its partners 
is determined under subchapter K of the Code. An election not 
to be subject to the rules of subchapter K is provided for 
certain partnerships that meet specified criteria (i.e., the 
partnership is for investment purposes only, is for the joint 
production, extraction or use of property but not for selling 
services or property produced or extracted, or is used by 
securities dealers for short periods to underwrite, sell or 
distribute securities). Otherwise, the rules of subchapter K 
apply to a venture that is treated as a partnership for Federal 
tax purposes.
    In the case of an individual with self-employment income, 
the income subject to self-employment tax is the net earnings 
from self-employment (sec. 1402(a)). Net earnings from self-
employment is the gross income derived by an individual from 
any trade or business carried on by the individual, less the 
deductions attributable to the trade or business that are 
allowed under the self-employment tax rules. If the individual 
is a partner in a partnership, the net earnings from self-
employment generally include his or her distributive share 
(whether or not distributed) of income or loss from any trade 
or business carried on by the partnership.

                           REASONS FOR CHANGE

    The Committee is concerned that certain business ventures 
whose sole members are a husband and wife filing a joint return 
may be subject to unnecessary complexity under present law.\11\ 
In the situation in which the spouses share all items of 
income, gain, loss, deduction and credit from the venture, the 
venture should not be required to file a partnership return if 
each of the two spouses' income can be accurately recorded on 
Schedule C (or F, in the case of a farm) filed with the joint 
return. The reported income would be the same on the joint 
return, whether or not a partnership return is filed. Further, 
the Committee is concerned that if only one spouse is treated 
as having net earnings from self-employment from the venture, 
when in fact both spouses materially participate in it, then 
both spouses (not just one) should be treated as having net 
earnings from self-employment from the venture in accordance 
with their respective interests. In this situation, both 
spouses, not just one, should receive credit for the 
appropriate net earnings from self-employment for purposes of 
Social Security benefits.
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    \11\ See National Taxpayer Advocate FY 2002 Annual Report to 
Congress, ``Married Couples as Business Co-owners,'' at 172, 
recommending a similar change for this reason as well as other reasons.
---------------------------------------------------------------------------

                        EXPLANATION OF PROVISION

    The provision generally permits a joint venture whose only 
members are a husband and wife filing a joint return to elect 
not to be treated as a partnership. A joint venture qualifying 
for this treatment is one involving the conduct of a trade or 
business, if (1) the only members of the joint venture are a 
husband and wife, (2) both spouses materially participate in 
the trade or business, and (3) both spouses elect under the 
provision.
    Under the provision, a qualified joint venture conducted by 
a husband and wife who file a joint return is not treated as a 
partnership for Federal income tax purposes. All items of 
income, gain, loss, deduction and credit are divided between 
the spouses in accordance with their respective interests in 
the venture. Each spouse takes into account his or her 
respective share of these items as a sole proprietor. Thus, it 
is anticipated that each spouse would account for his or her 
respective share on the appropriate form, such as Schedule C. 
The provision is not intended to change the determination under 
present law of whether an entity is a partnership for Federal 
income tax purposes (without regard to the election provided by 
the provision).
    For purposes of determining net earnings from self-
employment, each spouse's share of income or loss from a 
qualified joint venture is taken into account just as it is for 
Federal income tax purposes (i.e., in accordance with their 
respective interests in the venture). A corresponding change is 
made to the definition of net earnings from self-employment 
under the Social Security Act. The provision is not intended to 
prevent allocations or reallocations, to the extent permitted 
under present law, by courts or by the Social Security 
Administration of net earnings from self-employment for 
purposes of determining Social Security benefits of an 
individual.

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2002.

 I. Consumer Options Under the Refundable Credit for Health Insurance 
                     Costs of Eligible Individuals


(Sec. 309 of the bill and sec. 35 of the Code)

                              PRESENT LAW

Refundable health insurance credit: in general

    In the case of taxpayers who are eligible individuals, a 
refundable tax credit is provided for 65 percent of the 
taxpayer's expenses for qualified health insurance of the 
taxpayer and qualifying family members for each eligible 
coverage month beginning in the taxable year. The credit is 
available only with respect to amounts paid by the taxpayer. 
The credit is available in taxable years beginning after 
December 31, 2002.
    Qualifying family members are the taxpayer's spouse and any 
dependent of the taxpayer with respect to whom the taxpayer is 
entitled to claim a dependency exemption.\12\ Any individual 
who has other specified coverage is not a qualifying family 
member.
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    \12\ Present and prior law allows the custodial parent to release 
the right to claim the dependency exemption for a child to the 
noncustodial parent. In addition, if certain requirements are met, the 
parents may decide by agreement that the noncustodial parent is 
entitled to the dependency exemption with respect to a child. In such 
cases, the provision treats the child as the dependent of the custodial 
parent for purposes of the credit.
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Persons eligible for the credit

    Eligibility for the credit is determined on a monthly 
basis. In general, an eligible coverage month is any month if, 
as of the first day of the month, the taxpayer (1) is an 
eligible individual, (2) is covered by qualified health 
insurance, (3) does not have other specified coverage, and (4) 
is not imprisoned under Federal, State, or local authority. In 
the case of a joint return, the eligibility requirements are 
met if at least one spouse satisfies the requirements. An 
eligible month must begin more than 90 days after the date of 
enactment of the Trade Act of 2002.\13\
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    \13\ The date of enactment is August 6, 2002.
---------------------------------------------------------------------------
    An eligible individual is (1) an eligible TAA recipient, 
(2) an eligible alternative TAA recipient, and (3) an eligible 
PBGC pension recipient.
    An individual is an eligible TAA recipient during any month 
if the individual (1) is receiving for any day of such month a 
trade adjustment allowance \14\ or who would be eligible to 
receive such an allowance but for the requirement that the 
individual exhaust unemployment benefits before being eligible 
to receive an allowance and (2) with respect to such allowance, 
is covered under a certification issued under subchapter A or D 
of chapter 2 of title II of the Trade Act of 1974. An 
individual is treated as an eligible TAA recipient during the 
first month that such individual would otherwise cease to be an 
eligible TAA recipient.
---------------------------------------------------------------------------
    \14\ Part I of subchapter B, or subchapter D, of chapter 2 of title 
II of the Trade Act of 1974.
---------------------------------------------------------------------------
    An individual is an eligible alternative TAA recipient 
during any month if the individual (1) is a worker described in 
section 246(a)(3)(B) of the Trade Act of 1974 who is 
participating in the program established under section 
246(a)(1) of such Act, and (2) is receiving a benefit for such 
month under section 246(a)(2) of such Act. An individual is 
treated as an eligible alternative TAA recipient during the 
first month that such individual would otherwise cease to be an 
eligible TAA recipient.
    An individual is a PBGC pension recipient for any month if 
he or she (1) is age 55 or over as of the first day of the 
month, and (2) is receiving a benefit any portion of which is 
paid by the Pension Benefit Guaranty Corporation (the 
``PBGC'').
    An otherwise eligible taxpayer is not eligible for the 
credit for a month if, as of the first day of the month the 
individual has other specified coverage. Other specified 
coverage is (1) coverage under any insurance which constitutes 
medical care (except for insurance substantially all of the 
coverage of which is for excepted benefits) \15\ if at least 50 
percent of the cost of the coverage is paid by an employer \16\ 
(or former employer) of the individual or his or her spouse or 
(2) coverage under certain governmental health programs.\17\ A 
rule aggregating plans of the same employer applies in 
determining whether the employer pays at least 50 percent of 
the cost of coverage. A person is not an eligible individual if 
he or she may be claimed as a dependent on another person's tax 
return. A special rule applies with respect to alternative TAA 
recipients.
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    \15\ Excepted benefits are: (1) coverage only for accident or 
disability income or any combination thereof; (2) coverage issued as a 
supplement to liability insurance; (3) liability insurance, including 
general liability insurance and automobile liability insurance; (4) 
worker's compensation or similar insurance; (5) automobile medical 
payment insurance; (6) credit-only insurance; (7) coverage for on-site 
medical clinics; (8) other insurance coverage similar to the coverages 
in (1)-(7) specified in regulations under which benefits for medical 
care are secondary or incidental to other insurance benefits; (9) 
limited scope dental or vision benefits; (10) benefits for long-term 
care, nursing home care, home health care, community-based care, or any 
combination thereof; and (11) other benefits similar to those in (9) 
and (10) as specified in regulations; (12) coverage only for a 
specified disease or illness; (13) hospital indemnity or other fixed 
indemnity insurance; and (14) Medicare supplemental insurance.
    \16\ An amount is considered paid by the employer if it is 
excludable from income. Thus, for example, amounts paid for health 
coverage on a salary reduction basis under an employer plan are 
considered paid by the employer.
    \17\ Specifically, an individual is not eligible for the credit if, 
as of the first day of the month, the individual is (1) entitled to 
benefits under Medicare Part A, enrolled in Medicare Part B, or 
enrolled in Medicaid or SCHIP, (2) enrolled in a health benefits plan 
under the Federal Employees Health Benefit Plan, or (3) entitled to 
receive benefits under chapter 55 of title 10 of the United States Code 
(relating to military personnel). An individual is not considered to be 
enrolled in Medicaid solely by reason of receiving immunizations.
---------------------------------------------------------------------------

Qualified health insurance

    Qualified health insurance eligible for the credit is: (1) 
COBRA continuation coverage; (2) State based continuation 
coverage provided by the State under a State law that requires 
such coverage; (3) coverage offered through a qualified State 
high risk pool; (4) coverage under a health insurance program 
offered to State employees or a comparable program; (5) 
coverage through an arrangement entered into by a State and a 
group health plan, an issuer of health insurance coverage, an 
administrator, or an employer; (6) coverage offered through a 
State arrangement with a private sector health care coverage 
purchasing pool; (7) coverage under a State-operated health 
plan that does not receive any Federal financial participation; 
(8) coverage under a group health plan that is available 
through the employment of the eligible individual's spouse; and 
(9) coverage under individual health insurance if the eligible 
individual was covered under individual health insurance during 
the entire 30-day period that ends on the date the individual 
became separated from the employment which qualified the 
individual for the TAA allowance, the benefit for an eligible 
alternative TAA recipient, or a pension benefit from the PBGC, 
whichever applies.\18\
---------------------------------------------------------------------------
    \18\ For this purpose, ``individual health insurance'' means any 
insurance which constitutes medical care offered to individuals other 
than in connection with a group health plan. Such term does not include 
Federal- or State-based health insurance coverage.
---------------------------------------------------------------------------
    Qualified health insurance does not include any State-based 
coverage (i.e., coverage described in (2)-(8) in the preceding 
paragraph), unless the State has elected to have such coverage 
treated as qualified health insurance and such coverage meets 
certain requirements. Such State coverage must provide that 
each qualifying individual is guaranteed enrollment if the 
individual pays the premium for enrollment or provides a 
qualified health insurance costs eligibility certificate and 
pays the remainder of the premium. In addition, the State-based 
coverage cannot impose any pre-existing condition limitation 
with respect to qualifying individuals. State-based coverage 
cannot require a qualifying individual to pay a premium or 
contribution that is greater than the premium or contribution 
for a similarly situated individual who is not a qualified 
individual. Finally, benefits under the State-based coverage 
must be substantially similar to benefits provided to similarly 
situated individuals who are not qualifying individuals. A 
qualifying individual is an eligible individual who seeks to 
enroll in the State-based coverage and who has aggregate 
periods of creditable coverage \19\ of three months or longer, 
does not have other specified coverage, and who is not 
imprisoned. A qualifying individual also includes qualified 
family members of such an eligible individual.
---------------------------------------------------------------------------
    \19\ Creditable coverage is determined under the Health Care 
Portability and Accountability Act (Code sec. 9801(c)).
---------------------------------------------------------------------------
    Qualified health insurance does not include coverage under 
a flexible spending or similar arrangement or any insurance if 
substantially all of the coverage is of excepted benefits.

Other rules

    Amounts taken into account in determining the credit may 
not be taken into account in determining the amount allowable 
under the itemized deduction for medical expenses or the 
deduction for health insurance expenses of self-employed 
individuals. Amounts distributed from a medical savings account 
are not eligible for the credit. The amount of the credit 
available through filing a tax return is reduced by any credit 
received on an advance basis. Married taxpayers filing separate 
returns are eligible for the credit; however, if both spouses 
are eligible individuals and the spouses file a separate 
return, then the spouse of the taxpayer is not a qualifying 
family member.
    The Secretary of the Treasury is authorized to prescribe 
such regulations and other guidance as may be necessary or 
appropriate to carry out the provision.

Advance payment of refundable health insurance credit; reporting 
        requirements

    The credit is to be payable on an advance basis (i.e., 
prior to the filing of the taxpayer's return) pursuant to a 
program to be established by the Secretary of the Treasury no 
later than August 1, 2003. The disclosure of return information 
of certified individuals to providers of health insurance 
information is permitted to the extent necessary to carry out 
the advance payment mechanism. Any person who receives payments 
during a calendar year for qualified health insurance and 
claims a reimbursement for an advance credit amount is required 
to file an information return with respect to each individual 
from whom such payments were received or for whom such a 
reimbursement is claimed.

                           REASONS FOR CHANGE

    The present-law requirements relating to State-based 
coverage were intended to ensure that the insurance that 
qualifies for the credit satisfies certain standards. It was 
expected that any State-based programs that did not meet these 
requirements would be modified to comply. Since the enactment 
of the credit, the Committee has come to understand that most 
State-based programs do not qualify for the credit. The 
Treasury Department has reported to the Committee that it has 
been working with States to assist them in establishing 
qualifying programs, and that it expects that some States will 
have qualifying programs by August 1, 2003, but that many 
States will not be able to have qualifying programs for some 
time.
    In States that do not have, or will not soon have, 
qualifying programs, eligible individuals will be denied the 
opportunity to qualify for the credit until the State makes 
necessary changes. In the meantime, many otherwise eligible 
individuals will not be able to access the health credit, and 
will forgo substantial assistance in paying for their health 
care.
    The Committee believes that allowing a temporary waiver of 
the applicable requirements for State-based coverage will 
enable individuals to receive the health insurance they need 
until States have sufficient time to change their laws. Such a 
waiver will further the original intent of the health credit to 
expand health care coverage.

                        EXPLANATION OF PROVISION

    The provision allows State-based coverage to meet the 
definition of qualified health insurance eligible for the 
refundable health insurance tax credit if the eligible 
individual elects to waive the requirements for State-based 
coverage, including the requirements that the State-based 
coverage would otherwise have to meet with respect to 
guaranteed issue, preexisting conditions, premiums, and similar 
benefits. Nothing in the provision supersedes or otherwise 
affects the application of State law relating to consumer 
insurance protections (including State law implementing the 
applicable requirements of the Health Insurance Portability and 
Accountability Act under part B of title XXVII of the Public 
Health Service Act).

                             EFFECTIVE DATE

    The provision is effective for eligible coverage months 
beginning after the date of enactment and before January 1, 
2006.

     J. Suspension of Tax-Exempt Status of Terrorist Organizations


(Sec. 310 of the bill and sec. 501 of the Code)

                              PRESENT LAW

    Under present law, the Internal Revenue Service generally 
issues a letter revoking recognition of an organization's tax-
exempt status only after (1) conducting an examination of the 
organization, (2) issuing a letter to the organization 
proposing revocation, and (3) allowing the organization to 
exhaust the administrative appeal rights that follow the 
issuance of the proposed revocation letter. In the case of an 
organization described in section 501(c)(3), the revocation 
letter immediately is subject to judicial review under the 
declaratory judgment procedures of section 7428. To sustain a 
revocation of tax-exempt status under section 7428, the IRS 
must demonstrate that the organization is no longer entitled to 
exemption. There is no procedure under present law for the IRS 
to suspend the tax-exempt status of an organization.
    To combat terrorism, the Federal government has designated 
a number of organizations as terrorist organizations or 
supporters of terrorism under the Immigration and Nationality 
Act, the International Emergency Economic Powers Act, and the 
United Nations Participation Act of 1945.

                           REASONS FOR CHANGE

    An organization that has been designated or otherwise 
identified by the Federal government as a terrorist 
organization pursuant to certain authority should not be exempt 
from federal income tax and contributions to such organizations 
should not be deductible for Federal income tax purposes. The 
Committee believes that the Federal government's designation or 
identification of an organization as a terrorist organization 
is ground for suspension of tax-exempt status, and that in such 
cases a separate investigation of the organization by the 
Internal Revenue Service is not necessary. Further, because a 
terrorist organization may challenge the Federal government's 
designation or identification of the organization under the law 
authorizing the designation or identification, recourse to the 
declaratory judgment procedures of the Internal Revenue Code to 
challenge the suspension of tax-exemption is not appropriate.

                        EXPLANATION OF PROVISION

    The bill suspends the tax-exempt status of an organization 
that is exempt from tax under section 501(a) for any period 
during which the organization is designated or identified by 
U.S. Federal authorities as a terrorist organization or 
supporter of terrorism. The bill also makes such an 
organization ineligible to apply for tax exemption under 
section 501(a). The period of suspension runs from the date the 
organization is first designated or identified (or from the 
date of enactment of the bill, whichever is later) to the date 
when all designations or identifications with respect to the 
organization have been rescinded pursuant to the law or 
Executive order under which the designation or identification 
was made.
    The bill describes a terrorist organization as an 
organization that has been designated or otherwise individually 
identified (1) as a terrorist organization or foreign terrorist 
organization under the authority of section 
212(a)(3)(B)(vi)(II) or section 219 of the Immigration 
andNationality Act; (2) in or pursuant to an Executive order that is 
related to terrorism and issued under the authority of the 
International Emergency Economic Powers Act or section 5 of the United 
Nations Participation Act for the purpose of imposing on such 
organization an economic or other sanction; or (3) in or pursuant to an 
Executive order that refers to the bill and is issued under the 
authority of any Federal law if the organization is designated or 
otherwise individually identified in or pursuant to such Executive 
order as supporting or engaging in terrorist activity (as defined in 
section 212(a)(3)(B) of the Immigration and Nationality Act) or 
supporting terrorism (as defined in section 140(d)(2) of the Foreign 
Relations Authorization Act, Fiscal Years 1988 and 1989). During the 
period of suspension, no deduction is allowed under the bill for any 
contribution to a terrorist organization under section 170, 545(b)(2), 
556(b)(2), 642(c), 2055, 2106(a)(2), or 2522.
    No organization or other person may challenge, under 
section 7428 or any other provision of law, in any 
administrative or judicial proceeding relating to the Federal 
tax liability of such organization or other person, the 
suspension of tax-exemption, the ineligibility to apply for 
tax-exemption, a designation or identification described above, 
the timing of the period of suspension, or a denial of 
deduction described above. The suspended organization may 
maintain other suits or administrative actions against the 
agency or agencies that designated or identified the 
organization, for the purpose of challenging such designation 
or identification (but not the suspension of tax-exempt status 
under this provision).
    If the tax-exemption of an organization is suspended and 
each designation and identification that has been made with 
respect to the organization is determined to be erroneous 
pursuant to the law or Executive order making the designation 
or identification, and such erroneous designation results in an 
overpayment of income tax for any taxable year with respect to 
such organization, a credit or refund (with interest) with 
respect to such overpayment shall be made. If the operation of 
any law or rule of law (including res judicata) prevents the 
credit or refund at any time, the credit or refund may 
nevertheless be allowed or made if the claim for such credit or 
refund is filed before the close of the one-year period 
beginning on the date that the last remaining designation or 
identification with respect to the organization is determined 
to be erroneous.
    The bill directs the IRS to update the listings of tax-
exempt organizations to take account of organizations that have 
had their exemption suspended and to publish notice to 
taxpayers of the suspension of an organization's tax-exemption 
and the fact that contributions to such organization are not 
deductible during the period of suspension.

                             EFFECTIVE DATE

    The bill is effective for designations made before, on, or 
after the date of enactment.

                TITLE IV--CONFIDENTIALITY AND DISCLOSURE


  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)(1)(B) permits, upon written 
request, the inspection or disclosure of a joint return to 
either of the individuals with respect to whom the return is 
filed. 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). Requests for 
information pursuant to section 6103(e)(7) do not have to be in 
writing. Pursuant to section 6103(e)(7) and section 
6103(e)(1)(B), either spouse may obtain return information 
regarding a joint return, including collection information.
    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).\20\ When a deficiency is assessed with respect to a 
joint return and the individuals are no longer married or no 
longer reside in the same household, upon request in writing by 
either of such individuals, the IRS is permitted 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.\21\
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    \20\ ``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.
    \21\ Sec. 6103(e)(8).
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                           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 is effective for requests made after the date 
of enactment.

B. Taxpayer Representatives Not Subject to Examination on Sole Basis of 
                      Representation of Taxpayers


(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.\22\ The opinion concluded that section 6103(h)(1) 
permits local IRS employees to access the Integrated Data 
Retrieval System \23\ to determine whether a taxpayer's 
representative is current in his or her tax obligations.
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    \22\ Internal Revenue Service, IRS Legal Memorandum ILM 199941038 
(August 19, 1999).
    \23\ The Integrated Data Retrieval System (commonly referred to as 
``IDRS'') is the IRS's primary computer database for return 
information.
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                           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 an 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 180 days after 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),\24\ 
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.
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    \24\ Under the proposal these provisions would be redesignated as 
clauses ii and iii of section 6103(h)(4)(A).
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    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,\25\ to enjoin promoters of 
abusive tax shelters,\26\ and to enjoin flagrant political 
expenditures of section 501(c)(3) organizations.\27\
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    \25\ Sec. 7407.
    \26\ Sec. 7408.
    \27\ Sec. 7409.
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                             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.\28\ 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.
---------------------------------------------------------------------------
    \28\ 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.\29\ 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.\30\ 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.\31\
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    \29\ Sec. 6103(p)(4)(D).
    \30\ Sec. 6103(p)(4)(E).
    \31\ Sec. 6103(p)(4) (flush language) and (7); Treas. Reg. sec. 
301.6103(p)(7)-1.
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    Under present law, employees of a State tax agency may 
disclose returns and return information to contractors for tax 
administration purposes.\32\ 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.\33\
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    \32\ 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).
    \33\ 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 tocontractor personnel whose duties require 
disclosure.\34\ Treasury regulations prohibit redisclosure to anyone 
other than contractor personnel without the written approval of the 
IRS.\35\
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    \34\ 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.
    \35\ 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.\36\ 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.\37\ In 
addition, the IRS can suspend disclosures to the State tax 
agency until the IRS determines that the conditions are or will 
be satisfied.\38\ The IRS may take such other actions as deemed 
necessary to ensure that such conditions or requirements are or 
will be satisfied.\39\
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    \36\ Treas. Reg. sec. 301.6103(n)-1(d).
    \37\ Treas. Reg. sec. 301.6103(n)-1(d)(1).
    \38\ Treas. Reg. sec. 301.6103(n)-1(d)(2).
    \39\ 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. 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, State and local recipients 
of tax information monitor and certify that their contractors 
and other agents have in place adequate safeguards to protect 
this information.

                        EXPLANATION OF PROVISION

    The provision requires that a State, local, or Federal 
agency conduct annual on-site reviews of all of its contractors 
or other agents receiving Federal returns and return 
information. If the duration of the contract or agreement 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, local or Federal agency is required to submit a report 
of its findings to the IRS and certify annually that such 
contractors and other agents 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 or other 
agent with the agency, the duration of the contract, and a 
description of the contract or agreement with the State, local, 
or Federal agency.
    This provision does not alter or affect in any way the 
right of the IRS to conduct safeguard reviews of State, local, 
or Federal agency contractors or other agents. It also does not 
affect the right of the IRS to initially approve the safeguard 
language in the contract or agreement and the safeguards in 
place prior to any disclosures made in connection with such 
contracts or agreements.

                             EFFECTIVE DATE

    The provision is effective for disclosures made after 
December 31, 2003. The first certification is required to be 
made with respect to calendar year 2004.

    F. Higher Standards for Requests for and Consents to Disclosure


(Sec. 406 of the bill and sec. 6103(c) 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.\40\ 
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.
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    \40\ 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.\41\ 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.
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    \41\ 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 provides that a request or consent shall be 
valid only if certain requirements are fulfilled. 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, as well as criminal penalties for willful unauthorized 
disclosure or inspection. The provision 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 provision 
does not preclude the use of a clear and unambiguous electronic 
format for consents which comports with all of the foregoing 
requirements.
    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 
three 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.\42\ 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.
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    \42\ Sec. 7431(e).
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    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.\43\ The IRS is not required to 
submit a report to Congress on unauthorized disclosures or 
inspections of returns and return information.
---------------------------------------------------------------------------
    \43\ 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.\44\ 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.\45\ 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.\46\
---------------------------------------------------------------------------
    \44\ Sec. 7431(e).
    \45\ 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, 
Volume1: Study of General Disclosure Provisions (JCS-1-00) January 28, 
2000 at 175-176.
    \46\ Id.
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    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 
substantiates that returns or 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 provision, the IRS is required to notify a 
taxpayer at the point the Treasury Inspector General for Tax 
Administration substantiates that a taxpayer's return or return 
information has been willfully disclosed or inspected without 
authorization. Thus, if the facts verified by the investigation 
establish the elements of the offense, the taxpayer is to be 
notified. The provision further requires the IRS to provide 
certain information relating to 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 a finding of an unlawful 
disclosure or inspection. As to the annual report requirement, 
the provision is 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

    Section 6103(i)(3)(B) 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 to an individual.

                           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 present law to permit disclosure of return 
information 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.\47\ Section 
6103(m) allows the IRS to give the press taxpayer identity 
information for this purpose.\48\
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    \47\ 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.
    \48\ Sec. 6103(m)(1), and (b)(6) (definition of ``taxpayer 
identity'').
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    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

    In November 2002, the IRS announced that the U.S. Postal 
Service returned more than 96,792 refund checks as 
undeliverable.\49\ These checks totaled over $80 million.\50\ 
It is the understanding of the Committee that the current 
method of notification, by newspaper, is ineffective. 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.
---------------------------------------------------------------------------
    \49\ Internal Revenue Service, Information Release IR-2002-121 
(November 13, 2002).
    \50\ Id.
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                        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.\51\ 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).
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    \51\ 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, addresses, and taxpayer identification numbers of 
organizations that have applied for recognition as section 
501(c)(3) organizations, and (5) return and return information 
\52\ of organizations 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. Such disclosure or inspection may be 
made only to or by an appropriate State officer or to an 
officer or employee of the State who is designated by the 
appropriate State officer, and may not be made by or to a 
contractor or agent. 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 or State 
issues relating to the organization. Appropriate State officer 
means the State attorney general or any other State official 
that is charged with overseeing organizations of the type 
described in section 501(c)(3).
---------------------------------------------------------------------------
    \52\ 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 civil 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 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.

K. Enhanced Confidentiality of Taxpayer Communications With the Office 
                        of the Taxpayer Advocate


(Sec. 411 of the bill and sec. 7803 of the Code)

                              PRESENT LAW

    The Taxpayer Advocate is permitted not to disclose to the 
IRS any contact with, or information provided by, a 
taxpayer.\53\ It may be unclear how this provision interacts 
with the provision of the Code requiring disclosure to the IRS 
when an employee of the IRS has knowledge or information 
regarding a violation of any provision of the Code.\54\
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    \53\ Sec. 7803(c)(4)(A).
    \54\ Sec. 7214(a)(8).
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                           REASONS FOR CHANGE

    The Committee believes that it will enhance the interaction 
of taxpayers with the office of the Taxpayer Advocate by 
strengthening the confidentiality of those communications.

                        EXPLANATION OF PROVISION

    The provision enhances the confidentiality of taxpayer 
communications with the office of the Taxpayer Advocate by: (1) 
permitting the National Taxpayer Advocate to authorize her 
employees to withhold from the IRS or Department of Justice any 
information provided by, or regarding contact with, any 
taxpayer; and (2) permitting the National Taxpayer Advocate to 
issue guidance (under specified circumstances) superceding 
provisions of the Internal Revenue Manual relating to the 
disclosure of information obtained from a taxpayer.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

                         TITLE V--MISCELLANEOUS


          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. 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.

                           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) and (d).

                        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) and (d) determinations. The bill limits 
jurisdiction over controversies involving such determinations 
to the United States Tax Court.

                             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. Among other requirements, the IRS is not 
required to pay these amounts if the IRS can demonstrate that 
its position was substantially justified.

                           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 2004. 
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 2004. 
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). A refund claim 
that is not filed within these time periods is rejected as 
untimely.
    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, 2002.

                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.

                           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. 7528 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, 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.

                           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. Extension of IRS User Fees


(Sec. 511 of the bill and new sec. 7529 of the Code)

                              PRESENT LAW

    The IRS provides written responses to questions of 
individuals, corporations, and organizations relating to their 
tax status or the effects of particular transactions for tax 
purposes. The IRS generally charges a fee for requests for a 
letter ruling, determination letter, opinion letter, or other 
similar ruling or determination. Public Law 104-117 \55\ 
extended the statutory authorization for these user fees \56\ 
through September 30, 2003.
---------------------------------------------------------------------------
    \55\ An Act to provide that members of the Armed Forces performing 
services for the peacekeeping efforts in Bosnia and Herzegovina, 
Croatia, and Macedonia shall be entitled to tax benefits in the same 
manner as if such services were performed in a combat zone, and for 
other purposes (March 20, 1996).
    \56\ These user fees were originally enacted in section 10511 of 
the Revenue Act of 1987 (Pub. Law No. 100-203, December 22, 1987).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that it is appropriate to provide a 
further extension of these user fees.

                        EXPLANATION OF PROVISION

    The bill extends the statutory authorization for these user 
fees through September 30, 2013. The bill also moves the 
statutory authorization for these fees into the Code.\57\
---------------------------------------------------------------------------
    \57\ The proposal also moves into the Code the user fee provision 
relating to pension plans that was enacted in section 620 of the 
Economic Growth and Tax Relief Reconciliation Act of 2001 (Pub. L. 107-
16, June 7, 2001).
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision, including moving the statutory authorization 
for these fees into the Code and repealing the off-Code 
statutory authorization for these fees, is effective for 
requests made after the date of enactment.

                 TITLE VI--LOW-INCOME TAXPAYER CLINICS


                     A. 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.

                        EXPLANATION OF PROVISION

    The provision increases this authorization to $9 million 
for 2004, to $12 million for 2005, and to $15 million for 2006 
and thereafter. The provision also authorizes the IRS to 
promote the benefits and encourage the use of low-income 
taxpayer clinics and clarifies the definition of a clinic. The 
provision prohibits the use of grants for overhead expenses of 
any institution sponsoring a clinic.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

                   TITLE VII--UNEMPLOYMENT ASSISTANCE


                       A. Unemployment Assistance


(Sec. 701 of the bill)

                              PRESENT LAW

    States set unemployment benefit rules within a broad 
federal framework. The maximum length of benefits is 26 weeks 
in all but two states. Under the regular Federal-State Extended 
Benefits Program, up to an additional 13 weeks of 50 percent 
federally funded benefits are available in states suffering 
severe economic distress. As of March 23, 2003 unemployed 
workers in three states were eligible for benefits under the 
regular extended benefits program.
    Under P.L. 107-147 and P.L. 108-1, up to 13 weeks of 100 
percent federally funded temporary extended unemployment 
benefits are available nationwide for eligible displaced 
workers. In states continuing to experience a high rate of 
unemployment (including those with an insured unemployment rate 
of at least 4 percent, among other criteria) displaced workers 
who exhaust their up to 13 weeks of temporary extended 
unemployment benefits as described above are eligible for up to 
an additional 13 weeks of 100 percent federally funded 
temporary extended unemployment benefits. As of March 23, 2003 
unemployed workers in five states were receiving benefits under 
this program.
    The 100 percent federally funded temporary extended 
unemployment benefits program applies to weeks of unemployment 
ending before June 1, 2003 and does not allow benefit payments 
after August 30, 2003. Transition periods are provided for 
weeks beginning after May 31, 2003.

                           REASONS FOR CHANGE

    Currently, New York State uses a different definition of 
``week'' than other states for purposes of the provision of 
unemployment benefits. In all other states, ``weeks'' are 
defined as ending on Saturday; in New York State, ``weeks'' end 
on Sunday. The Committee believes that workers in New York 
State should be treated the same as workers in all other 
states.

                        EXPLANATION OF PROVISION

    The provision makes a technical change to ensure unemployed 
workers in New York State are eligible for Federal temporary 
extended unemployment benefits on an equal basis with 
unemployed workers in other states. Thus the provision provides 
that present law is to apply to weeks of unemployment ending on 
Sunday, June 1, 2003, rather than before that date, providing 
for the same eligibility period in all states, including New 
York.

                             EFFECTIVE DATE

    The provision is effective upon enactment.

                       II. 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. 1528.

                       MOTION TO REPORT THE BILL

    The bill, H.R. 1528, as amended, was ordered favorably 
reported by a voice vote (with a quorum being present).

                          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. Neal, which would prohibit the Internal 
Revenue Service from entering into contracts with corporate 
expatriates, was defeated by a rollcall vote of 14 yeas to 21 
nays. The vote was as follows:

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

                     III. BUDGET EFECTS OF THE BILL


               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d)(2) of the 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. 1528 as reported.
    The bill is estimated to have the following effects on 
budget receipts for fiscal years 2003-2008:

 ESTIMATED REVENUE EFFECTS OF H.R. 1528, THE ``TAXPAYER PROTECTION AND IRS ACCOUNTABILITY ACT OF 2003'' AS PASSED BY THE COMMITTEE ON WAYS AND MEANS ON
                                                                      APRIL 3, 2003
                                                    [Fiscal years 2003-2007, in millions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                   Provision                                      Effective                     2003      2004      2005      2006      2007     2003-07
--------------------------------------------------------------------------------------------------------------------------------------------------------
I. Penalty and Interest Reform Provisions:
    1. Failure to pay estimated tax; increase    etpm tyba 12/31/03.........................  ........  ........       -64       -66       -68      -198
     safe harbor to $1,600.
    2. Exclusion from gross income for interest  iri cyba DOE...............................  ........  ........     1,034      -103      -106       825
     on overpayments of income tax by
     individuals.
    3. Abatement of interest...................  iao/a DOE..................................  ........        -1        -1        -1        -2        -5
    4. Deposits to stop the running of interest  dma DOE....................................        13       144        -5        -6        -6       140
     on potential underpayments.
    5. Expansion of interest netting for         iaa 12/31/03...............................  ........     (\1\)        -1        -1        -2        -4
     individuals.
    6. Waiver of certain penalties for first-    after 12/31/03.............................  ........       -11       -16       -16       -16       -59
     time unintentional minor errors.
    7. Frivolous tax returns and submissions...  (\2\)......................................         1         3         3         3         3        13
    8. Clarification of application of Federal   DOE........................................     (\1\)        -5        -5        -5        -5       -27
     tax deposit penalty.
                                                                                             -----------------------------------------------------------
      Total of Penalty and Interest Reform       ...........................................        14       130       945      -195      -202       685
       Provisions.
                                                                                             -----------------------------------------------------------
II. Fairness of Collection Procedure
 Provisions:
    1. Authorize IRS to enter into installment   iaeio/a DOE................................         8        40        14         5     (\3\)        61
     agreements that provide for partial
     payment.
    2. Extend time limit for contesting IRS      DOE........................................  ........        -1        -2        -3        -3        -9
     levy.
    3. Individuals held harmless on Improper     arttta 12/31/03............................                   Negligible Revenue Effect
     Levy on individual retirement plan.
    4. Place threshold on tolling of statute of  DOE........................................                   Negligible Revenue Effect
     limitations during review by Taxpayer
     Advocate Service.
    5. Study of liens and levies...............  1ya DOE....................................                       No Revenue Effect
                                                                                             -----------------------------------------------------------
      Total of Fairness of Collection Procedure  ...........................................         8        39        12         2        -3        52
       Provisions.
                                                                                             ===========================================================
III. Tax Administration Reform Provisions:
    1. Revisions relating to termination of      DOE........................................                   Negligible Revenue Effect
     employment of IRS employees for misconduct.
    2. Confirmation of tax court authority to    (\4\)......................................                       No Revenue Effect
     apply equitable recoupment.
    3. Jurisdiction of Tax Court over            afa DOE....................................                   Negligible Revenue Effect
     collection due process cases.
    4. Office of Chief Counsel Review of offers- oicsopo/a DOE..............................                       No Revenue Effect
     in-compromise.
    5. Extend the due date for electronically    tyba 12/31/02..............................                       No Revenue Effect
     filed returns by 15 days (sunset 12/31/07).
    6. Access of National Taxpayer Advocate to   DOE........................................                       No Revenue Effect
     independent legal counsel.
    7. Payment of motor fuel excise tax refunds  DOE........................................                   Negligible Revenue Effect
     by direct deposit.
    8. Family business tax simplification......  tyba 12/31/02..............................                   Negligible Revenue Effect
    9. Consumer options under the refundable     mba DOE & before 1/1/06....................        -4       -40       -45       -11  ........      -100
     credit health insurance costs of TAA and
     PBGC recipients \5\.
    10. Suspension of tax-exempt status of       [6]........................................                   Negligible Revenue Effect
     terrorist organizations.
                                                                                             -----------------------------------------------------------
      Total of Tax Administration Reform         ...........................................        -4       -40       -45       -11     (\7\)      -100
       Provisions.
                                                                                             ===========================================================
IV. Confidentiality and Disclosure Provisions:
    1. Collection activities with respect to a   rma DOE....................................                       No Revenue Effect
     joint return disclosable based on oral
     request.
    2. Taxpayer representatives not subject to   180da DOE..................................                       No Revenue Effect
     examination on sole basis of
     representation of taxpayers.
    3. Disclosure in judicial or administrative  pca DOE....................................                       No Revenue Effect
     tax proceedings of return and return
     information of persons who are not party
     to such proceedings.
    4. Prohibition of disclosure of taxpayer     Dma DOE....................................                       No Revenue Effect
     identification information with respect to
     disclosure of accepted offers-in-
     compromise.
    5. Compliance by contractors with            Dma 12/31/03...............................                       No Revenue Effect
     confidentiality safeguards.
    6. Higher standards for requests for and     racma 3ma DOE..............................                       No Revenue Effect
     consents to disclosure.
    7. Notice to taxpayer concerning             DOE & cyea DOE.............................                       No Revenue Effect
     administrative determination of browsing;
     annual report.
    8. Expanded disclosure in emergency          DOE........................................                       No Revenue Effect
     circumstances.
    9. Disclosure of taxpayer identity for tax   DOE........................................                       No Revenue Effect
     refund purposes.
    10. Disclosure to State officials relating   DOE........................................                       No Revenue Effect
     to section 501(c)(3) organizations.
    11. Enhanced confidentiality of taxpayer     DOE........................................                   Negligible Revenue Effect
     communications with the Office of the
     Taxpayer Advocate.
                                                                                             -----------------------------------------------------------
      Total of Confidentiality and Disclosure    ...........................................     (\7\)     (\7\)     (\7\)     (\7\)     (\7\)     (\7\)
       Provisions.
                                                                                             ===========================================================
V. Miscellaneous Provisions:
    1. Clarification of definition of church     DOE........................................                       No Revenue Effect
     tax inquiry.
    2. Expansion of declaratory judgment         (\8\)......................................                   Negligible Revenue Effect
     procedures to non-501(c)(3) tax-exempt
     organizations.
    3. Employee misconduct report to include     rpea DOE...................................                       No Revenue Effect
     summary of complaints by category.
    4. Annual report on awards of costs and      (\9\)......................................                       No Revenue Effect
     certain fees in administrative and court
     proceedings.
    5. Annual report on abatement of penalties.  (\10\).....................................                       No Revenue Effect
    6. Better means of communicating with        (\11\).....................................                       No Revenue Effect
     taxpayers.
    7. Information regarding statute of          (\12\).....................................                       No Revenue Effect
     limitations.
    8. Amendment to treasury auction reforms     mha DOE....................................                       No Revenue Effect
     \13\.
    9. Enrolled agents.........................  DOE........................................                       No Revenue Effect
    10. Allow the Financial Management Service   DOE........................................                       No Revenue Effect
     to retain transaction fees from levied
     amounts \13\.
    11. Extension of IRS user fees (through 9/   DOE........................................  ........        33        34        35        36       138
     30/13) \13\.
                                                                                             -----------------------------------------------------------
      Total of Miscellaneous Provisions........  ...........................................     (\7\)        33        34        35        36       138
                                                                                             ===========================================================
VI. Low-Income Taxpayer Clinics \13\...........  DOE........................................                       No Revenue Effect
VII. Federal-State Unemployment Assistance       5/25/03....................................                       No Revenue Effect
 Agreements \13\  \14\.
                                                                                             -----------------------------------------------------------
      Net Total................................  ...........................................        18       162       946      -169      -169       775
                                                   .........................................
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Loss of less than $500,000.
\2\ Provision effective for 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 proposal 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\ Estimate includes total outlays of $43 million in fiscal years 2003 through 2013.
\6\ Effective for organizations that are designated or identified as a terrorist organization before, on, or after the date of enactment.
\7\ Negligible revenue effect.
\8\ 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 after the date of enactment.
\9\ The first annual report would be required for fiscal year 2004. The reports must be published no later than three months following the close of the
  fiscal year.
\10\ The first annual report would be required for fiscal year 2004. The reports must be provided to the Congress no later than six months following the
  close of the fiscal year.
\11\ The report must be issued no later than 18 months after the date of enactment.
\12\ The revisions to Publication 1 would be 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 would be required to be made for instructions for taxable years beginning after December 31, 2002.
\13\ Estimate provided by Congressional Budget Office.
\14\ Although Congressional Budget Office estimates that this provision would result in increased outlays for TEUC of $20 million in 2003, these costs
  were already reflected in Congressional Budget Office's original scoring of P.L. 108-1, and are in the March 2003 Congressional Budget Office
  baseline. Congressional Budget Office estimates that there would be no cost relative to those already reflected in baseline.

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=months beginning after; mha=meetings held after; and pca=proceedings commenced 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 provides an increase in budget authority for Low-Income 
Taxpayer Clinics. The Committee further 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 CBO, the following statement by CBO is 
provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, April 8, 2003.
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. 1528, the Taxpayer 
Protection and IRS Accountability Act of 2003.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Annie 
Bartsch (for federal revenues), and Matthew Pickford (for 
federal spending).
            Sincerely,
                                          Barry B. Anderson
                               (For Douglas Holtz-Eakin, Director).
    Enclosure.

H.R. 1528--Taxpayer Protection and IRS Accountability Act of 2003

    Summary: H.R. 1528 would amend existing tax law and 
establish new laws relating to taxpayer protection and Internal 
Revenue Service (IRS) accountability. The bill also would alter 
the tax penalty and interest sections of the Internal Revenue 
Code. In addition, the bill would institute new safeguards 
against unfair IRS collections procedures.
    The Congressional Budget Office (CBO) and the Joint 
Committee on Taxation (JCT) estimate that H.R. 1528 would 
increase governmental receipts by $21 million in 2003, and by 
$651 million over the 2003-2008 period, and would decrease 
governmental receipts by $308 million over the 2003-2013 
period. CBO estimates that the bill would increase direct 
spending by $171 million over the 2004-2013 period.
    CBO and JCT have determined that H.R. 1528 contains no 
private-sector or intergovernmental mandates as defined by the 
Unfunded Mandates Reform Act (UMRA) and would impose no costs 
on state, local, or tribal governments.
    Estimated cost to the Federal Government: The following 
table summarizes the estimate budgetary impact of H.R. 1528.

----------------------------------------------------------------------------------------------------------------
                                                                  By fiscal year, in millions of dollars--
                                                           -----------------------------------------------------
                                                              2003     2004     2005     2006     2007     2008
----------------------------------------------------------------------------------------------------------------
                                               CHANGES IN REVENUES

Adjustment to estimated tax penalties.....................        0        0      -64      -66      -68      -70
Exclusion from gross income for interest on overpayments          0        0    1,034     -103     -106     -109
 of income tax............................................
Other penalty and interest reform provisions..............       14      130      -25      -26      -28      -29
Collection procedure reform provisions....................        8       39       12        2       -3       -3
Alteration of refundable credit for health insurance costs       -1      -27      -23       -5        0        0
 of TAA and PBGC..........................................
Extension of IRS user fees................................        0       33       34       35       36       38
                                                           -----------------------------------------------------
      Total Changes in Revenues...........................       21      175      968     -163     -169     -173
                                                           =====================================================
                                      CHANGES IN DIRECT SPENDING (OUTLAYS)

Alteration of fees for Financial Management Service.......        0        8        8        8        9        9
Extension of IRS user fees................................        0        3        3        4        4        4
Alteration of refundable credit for health insurance costs        3       13       22        6        0        0
 of TAA and PBGC..........................................
                                                           -----------------------------------------------------
      Total Changes in Outlays............................        3       24       33       18       13       13
----------------------------------------------------------------------------------------------------------------
Notes.--Details do not add to totals because of rounding. TAA--Trade Adjustment Assistance. PBGC--Pension
  Benefit Guarantee Corporation.

 Sources: CBO and the Joint Committee on Taxation.

Basis of estimate

            Revenues
    All revenue estimates, with the exception of that for the 
provision extending IRS user fees, were provided by JCT.
    H.R. 1528 would alter existing tax laws relating to 
penalties and interest, collection procedures, tax 
administration, and confidentiality and disclosure. In 
addition, the bill would extend IRS user fees, increase the 
authorization for matching grants to certain low-income 
taxpayer clinics, and make a technical alteration to the 
Federal-State Extended Benefits Program for unemployed workers. 
JCT and CBO estimate that, together, the provisions contained 
in H.R. 1528 would increase federal revenues by $21 million in 
2003, increase them by $651 million over the 2003-2008 period, 
and decrease them by $308 million over the 2003-2013 period.
    The most significant effect on federal revenues would 
result from the provision that converts the penalty for failure 
to pay estimated tax into an interest provision for 
individuals, estates, and trusts. The provision also increases 
the safe harbor for such penalties to $1,600. JCT estimates 
enacting this provision would decrease federal revenues by $268 
million over the 2005-2008 period and by $651 million over the 
2005-2013 period. The bill also would allow individuals to 
exclude from gross income interest on overpayments of income 
tax, unless it were determined that the taxpayer intentionally 
took advantage of the exclusion. JCT estimates this provision 
would increase governmental receipts by about $1 billion in 
2005, and decrease receipts in each year thereafter, for a 
total increase of $115 million over the 2005-2013 period. JCT 
estimates that the additional provisions contained in H.R. 1528 
that would alter penalty and interest tax laws would increase 
federal revenues by $14 million in 2003 and by $36 million over 
the 2003-2008 period, and decrease them by $135 million over 
the 2003-2013 period.
    H.R. 1528 also would change existing collection procedures. 
JCT estimates that those changes would increase federal 
revenues by $8 million in 2003, by $49 million over the 2003-
2008 period, and by $32 million over the 2003-2013 period. H.R. 
1528 also would allow certain state-based coverage to meet the 
definition of qualified health insurance eligible for the 
refundable health insurance tax credit. JCT estimates that this 
provision would decrease federal revenues by $1 million in 2003 
and by $56 million over the 2003-2006 period. It would have no 
effect on revenues thereafter.
    Lastly, H.R. 1528 would extend the period during which IRS 
may charge fees on businesses for providing ruling, opinion, 
and determination letters. Under current law, IRS's authority 
to charge such fees will expire at the end of fiscal year 2003. 
The bill would extend the authority to charge such fees until 
September 30, 2013. Based on the amount of fees collected in 
recent years and on information from IRS, CBO estimates that 
extending the fees would increase governmental receipts by $176 
million over the 2004-2008 period and $386 million over the 
2004-2013 period.
            Direct spending
    Financial Management Service Fees. Section 510 of H.R. 1528 
would allow the Financial Management Service (FMS) to retain a 
portion of the amounts levied under the FederalPayment 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. 1528 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 $42 million over the 2004-2008 period 
and by $88 million over the 2004-2013 period.
    IRS User Fees. As noted above, H.R. 1528 would adjust and 
extend the authority of the IRS to charge taxpayers fees for 
certain rulings, opinion letters, and determinations through 
September 30, 2013. The IRS has the authority to retain and 
spend a small portion of these fees without further 
appropriation. CBO estimates that continuing the fees would 
increase direct spending by a total of $18 million over the 
2004-2008 period and by $39 million over the 2004-2013 period.
    Refundable Credit for Health Insurance Costs. As noted 
above, H.R. 1528 would allow certain state-based health 
insurance coverage to qualify for the refundable health 
insurance credit. JCT estimates that the provision would 
increase outlays, from the refundability of the credit, by $3 
million in 2003, and by a total of $44 million over the 2003-
2006 period. It would have no effect on outlays thereafter.
    Summary of the effect on revenues and direct spending: The 
overall effect of H.R. 1528 on revenues and direct spending is 
shown in the following table:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                       By fiscal year, in millions of dollars--
                                                            --------------------------------------------------------------------------------------------
                                                              2003   2004   2005    2006     2007     2008     2009     2010     2011     2012     2013
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in receipts........................................     21    175    968     -163     -169     -173     -178     -187     -194     -199     -206
Changes in outlays.........................................      3     24     33       18       13       13       13       13       13       13       15
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sources: CBO and the Joint Committee on Taxation.

    Intergovernmental and private-sector impact: CBO and JCT 
have determined that H.R. 1528 contains no private-sector or 
intergovernmental mandates as defined in UMRA and would impost 
no costs on state, local, or tribal governments.
    Estimate prepared by: Federal Revenues: Annie Bartsch; 
Federal Spending: Matthew Pickford; State, Local, and Tribal 
Impact: Greg Waring; and Private-sector Impact: Paige Piper/
Bach.
    Estimate approved by: G. Thomas Woodward, Assistant 
Director for Tax Analysis. Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis.

                    D. Macroeconomic Impact Analysis

    In compliance with clause 3(h)(2) of rule XIII of the Rules 
of the House of Representatives, the following statement is 
made by the Joint Committee on Taxation with respect to the 
provisions of the bill amending the Internal Revenue Code of 
1986: the effects of the bill on economic activity are so small 
as to be incalculable within the context of a model of the 
aggregate economy.

     IV. 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 payment of the correct 
amount of Federal taxes.

                 C. Constitutional Authority Statement

    With respect to clause 3(d)(1) of the 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, or 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 increases 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 
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.

        V. 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 A--Determination of Tax Liability

           *       *       *       *       *       *       *


PART IV--CREDITS AGAINST TAX

           *       *       *       *       *       *       *



Subpart C--Refundable Credits

           *       *       *       *       *       *       *



SEC. 35. HEALTH INSURANCE COSTS OF ELIGIBLE INDIVIDUALS.

  (a) * * *

           *       *       *       *       *       *       *

  (e) Qualified Health Insurance.--For purposes of this 
section--
          (1) * * *
          (2) Requirements for state-based coverage.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) Waiver by eligible individuals.--With 
                respect to any month which ends before January 
                1, 2006, subparagraphs (A) and (B) shall not 
                apply with respect to any eligible individual 
                and such individual's qualifying family members 
                if such eligible individual elects to waive the 
                application of such subparagraphs with respect 
                to such month.

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) * * *
  (b) Percentage of Completion Method.--
          (1) Requirements of percentage of completion 
        method.--Except as provided in paragraph (2), in the 
        case of any long-term contract with respect to which 
        the percentage of completion method is used--
                  (A) * * *

           *       *       *       *       *       *       *

        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 I--GENERAL RULE

           *       *       *       *       *       *       *


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

  (a) * * *

           *       *       *       *       *       *       *

  (p) Suspension of Tax-Exempt Status of Terrorist 
Organizations.--
          (1) In general.--The exemption from tax under 
        subsection (a) with respect to any organization 
        described in paragraph (2), and the eligibility of any 
        organization described in paragraph (2) to apply for 
        recognition of exemption under subsection (a), shall be 
        suspended during the period described in paragraph (3).
          (2) Terrorist organizations.--An organization is 
        described in this paragraph if such organization is 
        designated or otherwise individually identified--
                  (A) under section 212(a)(3)(B)(vi)(II) or 219 
                of the Immigration and Nationality Act as a 
                terrorist organization or foreign terrorist 
                organization,
                  (B) in or pursuant to an Executive order 
                which is related to terrorism and issued under 
                the authority of the International Emergency 
                Economic Powers Act or section 5 of the United 
                Nations Participation Act of 1945 for the 
                purpose of imposing on such organization an 
                economic or other sanction, or
                  (C) in or pursuant to an Executive order 
                issued under the authority of any Federal law 
                if--
                          (i) the organization is designated or 
                        otherwise individually identified in or 
                        pursuant to such Executive order as 
                        supporting or engaging in terrorist 
                        activity (as defined in section 
                        212(a)(3)(B) of the Immigration and 
                        Nationality Act) or supporting 
                        terrorism (as defined in section 
                        140(d)(2) of the Foreign Relations 
                        Authorization Act, Fiscal Years 1988 
                        and 1989); and
                          (ii) such Executive order refers to 
                        this subsection.
          (3) Period of suspension.--With respect to any 
        organization described in paragraph (2), the period of 
        suspension--
                  (A) begins on the later of--
                          (i) the date of the first publication 
                        of a designation or identification 
                        described in paragraph (2) with respect 
                        to such organization, or
                          (ii) the date of the enactment of 
                        this subsection, and
                  (B) ends on the first date that all 
                designations and identifications described in 
                paragraph (2) with respect to such organization 
                are rescinded pursuant to the law or Executive 
                order under which such designation or 
                identification was made.
          (4) Denial of deduction.--No deduction shall be 
        allowed under section 170, 545(b)(2), 556(b)(2), 
        642(c), 2055, 2106(a)(2), or 2522 for any contribution 
        to an organization described in paragraph (2) during 
        the period described in paragraph (3).
          (5) Denial of administrative or judicial challenge of 
        suspension or denial of deduction.--Notwithstanding 
        section 7428 or any other provision of law, no 
        organization or other person may challenge a suspension 
        under paragraph (1), a designation or identification 
        described in paragraph (2), the period of suspension 
        described in paragraph (3), or a denial of a deduction 
        under paragraph (4) in any administrative or judicial 
        proceeding relating to the Federal tax liability of 
        such organization or other person.
          (6) Erroneous designation.--
                  (A) In general.--If--
                          (i) the tax exemption of any 
                        organization described in paragraph (2) 
                        is suspended under paragraph (1),
                          (ii) each designation and 
                        identification described in paragraph 
                        (2) which has been made with respect to 
                        such organization is determined to be 
                        erroneous pursuant to the law or 
                        Executive order under which such 
                        designation or identification was made, 
                        and
                          (iii) the erroneous designations and 
                        identifications result in an 
                        overpayment of income tax for any 
                        taxable year by such organization,
                credit or refund (with interest) with respect 
                to such overpayment shall be made.
                  (B) Waiver of limitations.--If the credit or 
                refund of any overpayment of tax described in 
                subparagraph (A)(iii) is prevented at any time 
                by the operation of any law or rule of law 
                (including res judicata), such credit or refund 
                may nevertheless be allowed or made if the 
                claim therefor is filed before the close of the 
                1-year period beginning on the date of the last 
                determination described in subparagraph 
                (A)(ii).
          (7) Notice of suspensions.--If the tax exemption of 
        any organization is suspended under this subsection, 
        the Internal Revenue Service shall update the listings 
        of tax-exempt organizations and shall publish 
        appropriate notice to taxpayers of such suspension and 
        of the fact that contributions to such organization are 
        not deductible during the period of such suspension.
  [(p)] (q) Cross Reference.--
          For nonexemption of Communist-controlled organizations, see 
        section 11(b) of the Internal Security Act of 1950 (64 Stat. 
        997; 50 U.S.C. 790(b)).

           *       *       *       *       *       *       *


Subchapter K--Partners and Partnerships

           *       *       *       *       *       *       *


PART III--DEFINITIONS

           *       *       *       *       *       *       *


SEC. 761. TERMS DEFINED.

  (a) * * *

           *       *       *       *       *       *       *

  (f) Qualified Joint Venture.--
          (1) In general.--In the case of a qualified joint 
        venture conducted by a husband and wife who file a 
        joint return for the taxable year, for purposes of this 
        title--
                  (A) such joint venture shall not be treated 
                as a partnership,
                  (B) all items of income, gain, loss, 
                deduction, and credit shall be divided between 
                the spouses in accordance with their respective 
                interests in the venture, and
                  (C) each spouse shall take into account such 
                spouse's respective share of such items as if 
                they were attributable to a trade or business 
                conducted by such spouse as a sole proprietor.
          (2) Qualified joint venture.--For purposes of 
        paragraph (1), the term ``qualified joint venture'' 
        means any joint venture involving the conduct of a 
        trade or business if--
                  (A) the only members of such joint venture 
                are a husband and wife,
                  (B) both spouses materially participate 
                (within the meaning of section 469(h) without 
                regard to paragraph (5) thereof) in such trade 
                or business, and
                  (C) both spouses elect the application of 
                this subsection.
  [(f)] (g) Cross Reference.--
          For rules in the case of the sale, exchange, liquidation, or 
        reduction of a partner's interest, see sections 704(b) and 
        706(c)(2).

           *       *       *       *       *       *       *


CHAPTER 2--TAX ON SELF-EMPLOYMENT INCOME

           *       *       *       *       *       *       *


SEC. 1402. DEFINITIONS.

  (a) Net Earnings From Self-Employment.--The term ``net 
earnings from self-employment'' means the gross income derived 
by an individual from any trade or business carried on by such 
individual, less the deductions allowed by this subtitle which 
are attributable to such trade or business, plus his 
distributive share (whether or not distributed) of income or 
loss described in section 702(a)(8) from any trade or business 
carried on by a partnership of which he is a member; except 
that in computing such gross income and deductions and such 
distributive share of partnership ordinary income or loss--
          (1) * * *

           *       *       *       *       *       *       *

          (14) in the case of church employee income, the 
        special rules of subsection (j)(1) shall apply; [and]
          (15) in the case of a member of an Indian tribe, the 
        special rules of section 7873 (relating to income 
        derived by Indians from exercise of fishing rights) 
        shall apply[.]; and
          (16) notwithstanding the preceding provisions of this 
        subsection, each spouse's share of income or loss from 
        a qualified joint venture shall be taken into account 
        as provided in section 761(f) in determining net 
        earnings from self-employment of such spouse.

           *       *       *       *       *       *       *


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] 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 $1,600 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)] 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

           *       *       *       *       *       *       *


Subchapter A--Returns and Records

           *       *       *       *       *       *       *


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.
          (4) Termination.--This subsection shall not apply to 
        any return filed with respect to a taxable year which 
        begins after December 31, 2007.

           *       *       *       *       *       *       *


Subchapter B--Miscellaneous Provisions

           *       *       *       *       *       *       *


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

  (a) * * *

           *       *       *       *       *       *       *

  (c) Disclosure of Returns and Return Information to Designee 
of Taxpayer.--[The Secretary]
          (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, 
        sections 7213, 7213A, and 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) Department of the treasury.--[Returns]
                  (A) In general.--Returns and return 
                information shall, without written request, be 
                open to inspection by or disclosure to officers 
                and employees of the Department of the Treasury 
                whose official duties require such inspection 
                or disclosure for tax administration purposes.
                  (B) Taxpayer representatives.--
                Notwithstanding subparagraph (A), 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.

           *       *       *       *       *       *       *

          (4) Disclosure in judicial and administrative tax 
        proceedings.--[A return]
                  (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.

           *       *       *       *       *       *       *

  (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.

           *       *       *       *       *       *       *

  (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 (8)(A)(ii), 
                (k)(1), (2), (6), (8), or (9) (l)(1), (4)(B), 
                (5), (7), (8), (9), (10), (11), (12), (13), 
                (14), (15), (16), (17), or (18), (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), (5), or 
        (7), (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 7(A)(ii), or (l)(6), (7), (8), 
        (9), (12), (15), or (16), or any appropriate State 
        officer (as defined in section 6104(c)), or any other 
        person described in subsection (l)(16) or (17) 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 appropriate State 
                        officer (as defined in section 
                        6104(c)), or any other person described 
                        in subsection (l)(16) 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, 
                        except that the conditions of 
                        subparagraphs (A), (B), (C), (D), and 
                        (E) shall cease to apply with respect 
                        to any return or return information if, 
                        and to the extent that, such return or 
                        return information is disclosed in the 
                        course of any judicial or 
                        administrative proceeding and made a 
                        part of the public record thereof. If 
                        the Secretary determines that any such 
                        agency, body, or commission, including 
                        an agency, an appropriate State officer 
                        (as defined in section 6104(c)), or any 
                        other person described in subsection 
                        (l)(16), or the General Accounting 
                        Office or the Congressional Budget 
                        Office has failed to, or does not, meet 
                        the requirements of this paragraph, he 
                        may, after any proceedings for review 
                        established under paragraph (7), take 
                        such actions as are necessary to ensure 
                        such requirements are met, including 
                        refusing to disclose returns or return 
                        information to such agency, body, or 
                        commission, including an agency, an 
                        appropriate State officer (as defined 
                        in section 6104(c)), or any other 
                        person described in subsection (l)(16), 
                        or the General Accounting Office or the 
                        Congressional Budget Office until he 
                        determines that such requirements have 
                        been or will be met. In the case of any 
                        agency which receives any mailing 
                        address under paragraph (2), (4), (6) 
                        or (7) of subsection (m) and which 
                        discloses any such mailing address to 
                        any agent or which receives any 
                        information under paragraph (6)(A), 
                        (12)(B), or (16) of subsection (l) and 
                        which discloses any such information to 
                        any agent, or any person including an 
                        agent described in subsection (l)(16) 
                        this paragraph shall apply to such 
                        agency and each such agent or other 
                        person (except that, in the case of an 
                        agent, or any person including an agent 
                        described in subsection (l)(16) any 
                        report to the Secretary or other action 
                        with respect to the Secretary shall be 
                        made or taken through such agency). For 
                        purposes of applying this paragraph in 
                        any case to which subsection (m)(6) 
                        applies, the term ``return 
                        information'' includes related blood 
                        donor records (as defined in section 
                        1141(h)(2) of the Social Security Act).

           *       *       *       *       *       *       *

          (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 and other agents.--
        Notwithstanding any other provision of this section, no 
        return or return information shall be disclosed to any 
        contractor or other agent of a Federal, State, or local 
        agency unless such agency, to the satisfaction of the 
        Secretary--
                  (A) has requirements in effect which require 
                each such contractor or other agent which would 
                have access to returns or return information to 
                provide safeguards (within the meaning of 
                paragraph (4)) to protect the confidentiality 
                of such returns or return information,
                  (B) agrees to conduct an annual, on-site 
                review (mid-point review in the case of 
                contracts of less than 1 year in duration) of 
                each such contractor or other agent 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 each such contractor 
                or other agent is in compliance with all such 
                requirements.
        The certification required by subparagraph (D) shall 
        include the name and address of each contractor and 
        other agent, a description of the contract of the 
        contractor or other agent with the agency, 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.

  (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, addresses, 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 a person other than the 
                appropriate State officer if such person is an 
                officer or employee of the State and is 
                designated by the appropriate State officer to 
                receive the returns or return information under 
                this paragraph on behalf of the appropriate 
                State 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 or Federal issues relating to the tax-
                exempt status of such organization.
          (3) Use in administrative and judicial civil 
        proceedings.--Returns and return information disclosed 
        pursuant to this subsection may be disclosed in 
        administrative and judicial civil 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) any other State official charged 
                        with 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.

           *       *       *       *       *       *       *


CHAPTER 64--COLLECTION

           *       *       *       *       *       *       *


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) * * *

           *       *       *       *       *       *       *

  (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).

           *       *       *       *       *       *       *


PART II--LEVY

           *       *       *       *       *       *       *


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 D. Notice requirements.
        Subchapter E. Interest on failure by individual to pay estimated 
                  income tax.

           *       *       *       *       *       *       *


                Subchapter A--Interest on Underpayments

        Sec. 6601. Interest on underpayment, nonpayment, or extensions 
                  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.
          (2) 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) * * *
                  (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 $1,600, 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) * * *

           *       *       *       *       *       *       *

          [(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) * * *

           *       *       *       *       *       *       *

  (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.--
          (1) In general.--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--
                  (A) the individual has a history of 
                compliance with the requirements of this title,
                  (B) it is shown that the failure is due to an 
                unintentional minor error,
                  (C) the penalty would be grossly 
                disproportionate to the action or expense that 
                would have been needed to avoid the error, and 
                imposing the penalty would be against equity 
                and good conscience,
                  (D) waiving the penalty would promote 
                compliance with the requirements of this title 
                and effective tax administration, and
                  (E) the taxpayer took all reasonable steps to 
                remedy the error promptly after discovering it.
          (2) Exceptions.--Paragraph (1) shall not apply if--
                  (A) the Secretary has waived any addition to 
                tax under this subsection with respect to any 
                prior failure by such individual,
                  (B) the failure is a mathematical or clerical 
                error (as defined in section 6213(g)(2)), or
                  (C) the failure is the lack of a required 
                signature.

           *       *       *       *       *       *       *


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, 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) * * *
          (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 is based on a position which the 
                Secretary has identified as frivolous under 
                subsection (c).
                  (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 within 30 days after 
        such notice, the penalty imposed under paragraph (1) 
        shall not apply with respect to such submission.
  (c) Listing of Frivolous Positions.--The Secretary shall 
prescribe (and periodically revise) a list of positions which 
the Secretary has identified as being frivolous for purposes of 
this subsection. The Secretary shall not include in such list 
any position that the Secretary determines meets the 
requirement of section 6662(d)(2)(B)(ii)(II).
  (d) Reduction of Penalty.--The Secretary may reduce the 
amount of any penalty imposed under this section if the 
Secretary determines that such reduction would promote 
compliance with and administration of the Federal tax laws.
  (e) Penalties in Addition to Other Penalties.--The penalties 
imposed by this section shall be in addition to any other 
penalty provided by law.

           *       *       *       *       *       *       *


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) * * *

           *       *       *       *       *       *       *

[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.]

           *       *       *       *       *       *       *


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. 7213. UNAUTHORIZED DISCLOSURE OF INFORMATION.

  (a) Returns and Return Information.--
          (1) Federal employees and other persons.--It shall be 
        unlawful for any officer or employee of the United 
        States or any person described in [section 6103(n)] 
        subsections (c) and (n) of section 6103 (or an officer 
        or employee of any such person), or any former officer 
        or employee, willfully to disclose to any person, 
        except as authorized in this title, any return or 
        return information (as defined in section 6103(b)). Any 
        violation of this paragraph shall be a felony 
        punishable upon conviction by a fine in any amount not 
        exceeding $5,000, or imprisonment of not more than 5 
        years, or both, together with the costs of prosecution, 
        and if such offense is committed by any officer or 
        employee of the United States, he shall, in addition to 
        any other punishment, be dismissed from office or 
        discharged from employment upon conviction for such 
        offense.
          (2) State and other employees.--It shall be unlawful 
        for any person (not described in paragraph (1)) 
        willfully to disclose to any person, except as 
        authorized in this title, any return or return 
        information (as defined in section 6103(b)) acquired by 
        him or another person under subsection (d), 
        (i)(3)(B)(i) or (7)(A)(ii), (l)(6), (7), (8), (9), 
        (10), or (12), (15), or (16) or (m)(2), (4), (5), (6), 
        or (7) of section [6103.] 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) Federal employees and other persons.--It shall be 
        unlawful for--
                  (A) any officer or employee of the United 
                States, or
                  (B) any person described in [subsection 
                (l)(18) or (n) of section 6103] subsection (c), 
                (l)(18), or (n) of section 6103 or an officer 
                or employee of any such person, willfully to 
                inspect, except as authorized in this title, 
                any return or return information.
          (2) State and other employees.--It shall be unlawful 
        for any person (not described in paragraph (1)) 
        willfully to inspect, except as authorized in this 
        title, any return or return information acquired by 
        such person or another person under a provision of 
        section 6103 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 subsection (c) 
                (other than paragraph (3)) or (d) of section 
                501 which is exempt from tax under section 
                501(a), or
          (2) a failure by the Secretary to make a 
        determination with respect to an issue referred to in 
        paragraph (1),
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 INFORMATIONS.

  (a) In General.--
          (1) * * *
          (2) Inspection or disclosure by a person who is not 
        an employee of united states.--If any person who is not 
        an officer or employee of the United States knowingly, 
        or by reason of negligence, inspects or discloses any 
        return or return information with respect to a taxpayer 
        in violation of any provision of section 6103 
        (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 substantiates 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. 7528. Enrolled agents.
        Sec. 7529. Internal Revenue Service user fees.

           *       *       *       *       *       *       *


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] means 
                an eligible clinic that--
                          (i) * * *

           *       *       *       *       *       *       *

          [(2) Clinic.--The term ``clinic'' includes--
                  [(A) a clinical program at an accredited law, 
                business, or accounting school in which 
                students represent low-income taxpayers in 
                controversies arising under this title; and
                  [(B) an organization described in section 
                501(c) and exempt from tax under section 501(a) 
                which satisfies the requirements of paragraph 
                (1) through representation of taxpayers or 
                referral of taxpayers to qualified 
                representatives.]
          (2) Eligible clinic.--The term ``eligible clinic'' 
        means--
                  (A) any clinical program at an accredited 
                law, business, or accounting school in which 
                students represent low-income taxpayers in 
                controversies arising under this title; and
                  (B) any organization described in section 
                501(c) and exempt from tax under section 501(a) 
                which satisfies the requirements of paragraph 
                (1) through representation of taxpayers or 
                referral of taxpayers to qualified 
                representatives.
  (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 
        2004, $12,000,000 for 2005, and $15,000,000 for each 
        year thereafter (exclusive of costs of administering 
        the program) to grants under this section.

           *       *       *       *       *       *       *

          (6) 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.
          (7) Use of grants for overhead expenses prohibited.--
        No grant made under this section may be used for the 
        general overhead expenses of any institution sponsoring 
        a qualified low-income taxpayer clinic.

           *       *       *       *       *       *       *


SEC. 7528. 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.''.

SEC. 7529. INTERNAL REVENUE SERVICE USER FEES.

  (a) General Rule.--The Secretary shall establish a program 
requiring the payment of user fees for--
          (1) requests to the Internal Revenue Service for 
        ruling letters, opinion letters, and determination 
        letters, and
          (2) other similar requests.
  (b) Program Criteria.--
          (1) In general.--The fees charged under the program 
        required by subsection (a)--
                  (A) shall vary according to categories (or 
                subcategories) established by the Secretary,
                  (B) shall be determined after taking into 
                account the average time for (and difficulty 
                of) complying with requests in each category 
                (and subcategory), and
                  (C) shall be payable in advance.
          (2) Exemptions, etc.--
                  (A) In general.--The Secretary shall provide 
                for such exemptions (and reduced fees) under 
                such program as the Secretary determines to be 
                appropriate.
                  (B) Exemption for certain requests regarding 
                pension plans.--The Secretary shall not require 
                payment of user fees under such program for 
                requests for determination letters with respect 
                to the qualified status of a pension benefit 
                plan maintained solely by 1 or more eligible 
                employers or any trust which is part of the 
                plan. The preceding sentence shall not apply to 
                any request--
                          (i) made after the later of--
                                  (I) the fifth plan year the 
                                pension benefit plan is in 
                                existence, or
                                  (II) the end of any remedial 
                                amendment period with respect 
                                to the plan beginning within 
                                the first 5 plan years, or
                          (ii) made by the sponsor of any 
                        prototype or similar plan which the 
                        sponsor intends to market to 
                        participating employers.
                  (C) Definitions and special rules.--For 
                purposes of subparagraph (B)--
                          (i) Pension benefit plan.--The term 
                        ``pension benefit plan'' means a 
                        pension, profit-sharing, stock bonus, 
                        annuity, or employee stock ownership 
                        plan.
                          (ii) Eligible employer.--The term 
                        ``eligible employer'' means an eligible 
                        employer (as defined in section 
                        408(p)(2)(C)(i)(I)) which has at least 
                        1 employee who is not a highly 
                        compensated employee (as defined in 
                        section 414(q)) and is participating in 
                        the plan. The determination of whether 
                        an employer is an eligible employer 
                        under subparagraph (B) shall be made as 
                        of the date of the request described in 
                        such subparagraph.
                          (iii) Determination of average fees 
                        charged.--For purposes of any 
                        determination of average fees charged, 
                        any request to which subparagraph (B) 
                        applies shall not be taken into 
                        account.
          (3) Average fee requirement.--The average fee charged 
        under the program required by subsection (a) shall not 
        be less than the amount determined under the following 
        table:

                                                                 Average
Category                                                             Fee
    Employee plan ruling and opinion..........................     $250 
    Exempt organization ruling................................     $350 
    Employee plan determination...............................     $300 
    Exempt organization determination.........................     $275 
    Chief counsel ruling......................................     $200.

  (c) Termination.--No fee shall be imposed under this section 
with respect to requests made after September 30, 2013.

           *       *       *       *       *       *       *


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) * * *

           *       *       *       *       *       *       *

  (c) Office of the Taxpayer Adovocate.--
          (1) * * *
          (2) Functions of office.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (D) Personnel actions.--
                          (i) In general.--The National 
                        Taxpayer Advocate shall have the 
                        responsibility and authority to--
                                  (I) appoint local taxpayer 
                                advocates and make available at 
                                least 1 such advocate for each 
                                State; [and]
                                  (II) evaluate and take 
                                personnel actions (including 
                                dismissal) with respect to any 
                                employee of any local office of 
                                a taxpayer advocate described 
                                in subclause (I)[.], and
                                  (III) appoint a counsel in 
                                the Office of the Taxpayer 
                                Advocate to report solely to 
                                the National Taxpayer Advocate.

           *       *       *       *       *       *       *

          (4) Operation of local offices.--
                  (A) In general.--Each local taxpayer 
                advocate--
                          (i) shall report to the National 
                        Taxpayer Advocate or delegate thereof;
                          (ii) may consult with the appropriate 
                        supervisory personnel of the Internal 
                        Revenue Service regarding the daily 
                        operation of the local office of the 
                        taxpayer advocate; and
                          (iii) shall, at the initial meeting 
                        with any taxpayer seeking the 
                        assistance of a local office of the 
                        taxpayer advocate, notify such taxpayer 
                        that the taxpayer advocate offices 
                        operate independently of any other 
                        Internal Revenue Service office and 
                        report directly to Congress through the 
                        National Taxpayer Advocate[; and].
                          [(iv) may, at the taxpayer advocate's 
                        discretion, not disclose to the 
                        Internal Revenue Service contact with, 
                        or information provided by, such 
                        taxpayer.]

           *       *       *       *       *       *       *

          (5) Confidentiality of taxpayer information.--
                  (A) In general.--To the extent authorized by 
                the National Taxpayer Advocate or pursuant to 
                guidance issued under subparagraph (B), any 
                officer or employee of the Office of the 
                Taxpayer Advocate may withhold from the 
                Internal Revenue Service and the Department of 
                Justice any information provided by, or 
                regarding contact with, any taxpayer.
                  (B) Issuance of guidance.--In consultation 
                with the Chief Counsel for the Internal Revenue 
                Service and subject to the approval of the 
                Commissioner of Internal Revenue, the National 
                Taxpayer Advocate may issue guidance regarding 
                the circumstances (including with respect to 
                litigation) under which, and the persons to 
                whom, employees of the Office of the Taxpayer 
                Advocate shall not disclose information 
                obtained from a taxpayer. To the extent to 
                which any provision of the Internal Revenue 
                Manual would require greater disclosure by 
                employees of the Office of the Taxpayer 
                Advocate than the disclosure required under 
                such guidance, such provision shall not apply.
                  (C) Employee protection.--Section 7214(a)(8) 
                shall not apply to any failure to report 
                knowledge or information if--
                          (i) such failure to report is 
                        authorized under subparagraph (A), and
                          (ii) such knowledge or information is 
                        not of fraud committed by a person 
                        against the United States under any 
                        revenue law.
  (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

           *       *       *       *       *       *       *

                              ----------                              


               CHAPTER 33 OF TITLE 31, UNITED STATES CODE

           CHAPTER 33--DEPOSITING, KEEPING, AND PAYING MONEY

                 SUBCHAPTER I--DEPOSITS AND DEPOSITARIES

Sec.
3301.  General duties of the Secretary of the Treasury.
     * * * * * * *

                         SUBCHAPTER II--PAYMENTS

3321.  Disbursing authority in the executive branch.
     * * * * * * *
3337. Payment of motor fuel excise tax refunds by direct deposit.

           *       *       *       *       *       *       *


SUBCHAPTER II--PAYMENTS

           *       *       *       *       *       *       *


Sec. 3337. Payment of motor fuel excise tax refunds by direct deposit

  The Secretary of the Treasury shall make payments under 
sections 6420, 6421, and 6427 of the Internal Revenue Code of 
1986 by electronic funds transfer (as defined in section 
3332(j)(1)) if the person who is entitled to the payment--
          (1) elects to receive the payment by electronic funds 
        transfer; and
          (2) satisfies the requirements of section 3332(g) 
        with respect to such payment at such time and in such 
        manner as the Secretary may require.

           *       *       *       *       *       *       *

                              ----------                              


                 SECTION 211 OF THE SOCIAL SECURITY ACT

                            SELF-EMPLOYMENT

Sec. 211. For the purposes of this title--

                   Net Earnings From Self-Employment

  (a) The term ``net earnings from self-employment'' means the 
gross income, as computed under subtitle A of the Internal 
Revenue Code of 1986, derived by an individual from any trade 
or business carried on by such individual, less the deductions 
allowed under such subtitle which are attributable to such 
trade or business, plus his distributive share (whether or not 
distributed) of the ordinary net income or loss, as computed 
under section 702(a)(8) of such Code, from any trade or 
business carried on by a partnership of which he is a member; 
except that in computing such gross income and deductions and 
such distributive share of partnership ordinary net income or 
loss--
          (1) * * *

           *       *       *       *       *       *       *

          (14) There shall be excluded income excluded from 
        taxation under section 7873 of the Internal Revenue 
        Code of 1986 (relating to income derived by Indians 
        from exercise of fishing rights); [and]
          (15) The deduction under section 162(m) (relating to 
        health insurance costs of self-employed individuals) 
        shall not be allowed[.]; and
          (16) Notwithstanding the preceding provisions of this 
        subsection, each spouse's share of income or loss from 
        a qualified joint venture shall be taken into account 
        as provided in section 761(f) of the Internal Revenue 
        Code of 1986 in determining net earnings from self-
        employment of such spouse.

           *       *       *       *       *       *       *

                              ----------                              


    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

           *       *       *       *       *       *       *

                              ----------                              


                SECTION 10511 OF THE REVENUE ACT OF 1987

[SEC. 10511. FEES FOR REQUESTS FOR RULING, 
            DETERMINATION, AND SIMILAR LETTERS.
  [(a) General Rule.--The Secretary of the Treasury or his 
delegate (hereinafter in this section referred to as the 
``Secretary'') shall establish a program requiring the payment 
of user fees for requests to the Internal Revenue Service for 
ruling letters, opinion letters, and determination letters and 
for similar requests.
  [(b) Program Criteria.--
          [(1) In general.--The fees charged under the program 
        required by subsection (a)--
                  [(A) shall vary according to categories (or 
                subcategories) established by the Secretary,
                  [(B) shall be determined after taking into 
                account the average time for (and difficulty 
                of) complying with requests in each category 
                (and subcategory), and
                  [(C) shall be payable in advance.
          [(2) Exemptions, etc.--The Secretary shall provide 
        for such exemptions (and reduced fees) under such 
        program as he determines to be appropriate.
          [(3) Average fee requirement.--The average fee 
        charged under the program required by subsection (a) 
        shall not be less than the amount determined under the 
        following table:

    [Category                                                Average Fee

        Employee plan ruling and opinion................         $250   
        Exempt organization ruling......................         $350   
        Employee plan determination.....................         $300   
        Exempt organization determination...............         $275   
        Chief counsel ruling............................         $200.  

  [(c) Application of Section.--Subsection (a) shall apply with 
respect to requests made on or after the 1st day of the second 
calendar month beginning after the date of the enactment of 
this Act and before September 30, 1990. Subsection (a) shall 
also apply with respect to requests made after September 30, 
1990, and before October 1, 2003.]

           *       *       *       *       *       *       *

                              ----------                              


SECTION 620 OF THE ECONOMIC GROWTH AND TAX RELIEF RECONCILIATION ACT OF 
                                  2001

[SEC. 620. ELIMINATION OF USER FEE FOR REQUESTS TO IRS REGARDING 
                    PENSION PLANS.

  [(a) Elimination of Certain User Fees.--The Secretary of the 
Treasury or the Secretary's delegate shall not require payment 
of user fees under the program established under section 10511 
of the Revenue Act of 1987 for requests to the Internal Revenue 
Service for determination letters with respect to the qualified 
status of a pension benefit plan maintained solely by one or 
more eligible employers or any trust which is part of the plan. 
The preceding sentence shall not apply to any request--
          [(1) made after the later of--
                  [(A) the fifth plan year the pension benefit 
                plan is in existence; or
                  [(B) the end of any remedial amendment period 
                with respect to the plan beginning within the 
                first 5 plan years; or
          [(2) made by the sponsor of any prototype or similar 
        plan which the sponsor intends to market to 
        participating employers.
  [(b) Pension Benefit Plan.--For purposes of this section, the 
term ``pension benefit plan'' means a pension, profit-sharing, 
stock bonus, annuity, or employee stock ownership plan.
  [(c) Eligible Employer.--For purposes of this section, the 
term ``eligible employer'' means an eligible employer (as 
defined in section 408(p)(2)(C)(i)(I) of the Internal Revenue 
Code of 1986) which has at least one employee who is not a 
highly compensated employee (as defined in section 414(q)) and 
is participating in the plan. The determination of whether an 
employer is an eligible employer under this section shall be 
made as of the date of the request described in subsection (a).
  [(d) Determination of Average Fees Charged.--For purposes of 
any determination of average fees charged, any request to which 
subsection (a) applies shall not be taken into account.
  [(e) Effective Date.--The provisions of this section shall 
apply with respect to requests made after December 31, 2001.]
                              ----------                              


SECTION 208 OF THE TEMPORARY EXTENDED UNEMPLOYMENT COMPENSATION ACT OF 
                                  2002

                          (Public Law 107-147)

SEC. 208. APPLICABILITY.

  (a) In General.--Except as provided in subsection (b), an 
agreement entered into under this title shall apply to weeks of 
unemployment--
          (1) * * *
          (2) ending on or before June 1, 2003.
  (b) Transition for Amount Remaining in Account.--
          (1) In general.--Subject to paragraphs (2) and (3), 
        in the case of an individual who has amounts remaining 
        in an account established under section 203 as of [May 
        31] June 1, 2003, temporary extended unemployment 
        compensation shall continue to be payable to such 
        individual from such amounts for any week beginning 
        after such date for which the individual meets the 
        eligibility requirements of this title.
          (2) No augmentation after [may 31] june 1, 2003.--If 
        the account of an individual is exhausted after [May 
        31] June 1, 2003, then section 203(c) shall not apply 
        and such account shall not be augmented under such 
        section, regardless of whether such individual's State 
        is in an extended benefit period (as determined under 
        paragraph (2) of such section).

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