[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.
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\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).
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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.
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\4\ Sec. 6330(a).
\5\ Sec. 6320.
\6\ Sec. 6330(d).
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The United States Tax Court is established under Article I
of the United States Constitution \7\ and is a court of limited
jurisdiction.\8\
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\7\ Sec. 7441.
\8\ Sec. 7442.
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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\
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\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).
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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).
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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.
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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.
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\14\ Part I of subchapter B, or subchapter D, of chapter 2 of title
II of the Trade Act of 1974.
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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.
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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\
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\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.
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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.
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\19\ Creditable coverage is determined under the Health Care
Portability and Accountability Act (Code sec. 9801(c)).
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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.
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\28\ Sec. 6103(k)(l).
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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.
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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.
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\43\ See sec. 6103(p)(3)(C).
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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\
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\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.
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\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.
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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).
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\52\ Such information also may be open to inspection by an
appropriate State officer.
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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).
* * * * * * *