[House Report 114-67]
[From the U.S. Government Publishing Office]


114th Congress      }                               {    Report
                        HOUSE OF REPRESENTATIVES
 1st Session        }                               {    114-67
===================================================================
 
       ENSURING TAX EXEMPT ORGANIZATIONS THE RIGHT TO APPEAL ACT

                                _______
                                

 April 13, 2015.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

Mr. Ryan of Wisconsin, from the Committee on Ways and Means, submitted 
                             the following

                              R E P O R T

                        [To accompany H.R. 1314]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 1314) to amend the Internal Revenue Code of 1986 to 
provide for a right to an administrative appeal relating to 
adverse determinations of tax-exempt status of certain 
organizations, 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............................................2
        A. Purpose and Summary...................................     2
        B. Background and Need for Legislation...................     2
        C. Legislative History...................................     3
II. EXPLANATION OF THE BILL...........................................3
        A. Require the Secretary of the Treasury to Describe 
            Administrative Appeals Procedures Relating to Adverse 
            Determinations of Tax-Exempt Status of Certain 
            Organizations (sec. 2 of the bill and sec. 7123 of 
            the Code)............................................     3
III.VOTES OF THE COMMITTEE............................................8

IV. BUDGET EFFECTS OF THE BILL........................................8
        A. Committee Estimate of Budgetary Effects...............     8
        B. Statement Regarding New Budget Authority and Tax 
            Expenditures Budget Authority........................     9
        C. Cost Estimate Prepared by the Congressional Budget 
            Office...............................................     9
 V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE.......10
        A. Committee Oversight Findings and Recommendations......    10
        B. Statement of General Performance Goals and Objectives.    10
        C. Information Relating to Unfunded Mandates.............    10
        D. Applicability of House Rule XXI 5(b)..................    10
        E. Tax Complexity Analysis...............................    10
        F. Congressional Earmarks, Limited Tax Benefits, and 
            Limited Tariff Benefits..............................    11
        G. Duplication of Federal Programs.......................    11
        H. Disclosure of Directed Rule Makings...................    11
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED............11
        A. Text of Existing Law Amended or Repealed by the Bill, 
            as Reported..........................................    11
        B. Changes in Existing Law Proposed by the Bill, as 
            Reported.............................................    12

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

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Ensuring Tax Exempt Organizations the 
Right to Appeal Act''.

SEC. 2. ADMINISTRATIVE APPEAL RELATING TO ADVERSE DETERMINATIONS OF 
                    TAX-EXEMPT STATUS OF CERTAIN ORGANIZATIONS.

  (a) In General.--Section 7123 of the Internal Revenue Code of 1986 is 
amended by adding at the end of the following:
  ``(c) Administrative Appeal Relating to Adverse Determination of Tax-
Exempt Status of Certain Organizations.--
          ``(1) In general.--The Secretary shall prescribe procedures 
        under which an organization which claims to be described in 
        section 501(c) may request an administrative appeal (including 
        a conference relating to such appeal if requested by the 
        organization) to the Internal Revenue Service Office of Appeals 
        of an adverse determination described in paragraph (2).
          ``(2) Adverse determinations.--For purposes of paragraph (1), 
        an adverse determination is described in this paragraph if such 
        determination is adverse to an organization with respect to--
                  ``(A) the initial qualification or continuing 
                qualification of the organization as exempt from tax 
                under section 501(a) or as an organization described in 
                section 170(c)(2),
                  ``(B) the initial classification or continuing 
                classification of the organization as a private 
                foundation under section 509(a), or
                  ``(C) the initial classification or continuing 
                classification of the organization as a private 
                operating foundation under section 4942(j)(3).''.
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
to determinations made on or after May 19, 2014.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary

    H.R. 1314, reported by the Committee on Ways and Means, 
requires the Treasury Secretary to establish procedures under 
which an organization claiming exemption from tax under section 
501(c), or certain other provisions, of the Internal Revenue 
Code (the ``Code'') but receiving an adverse determination as 
to either initial classification or a continuing classification 
may request an administrative appeal to the Internal Revenue 
Service (``IRS'') Office of Appeals. The bill would be 
effective for appeals of determinations made after May 19, 
2014.

                 B. Background and Need for Legislation

    Through its investigation of IRS targeting of certain tax-
exempt organizations, the Committee learned that section 501(c) 
organizations selected for review and later denied by the IRS 
Exempt Organizations Technical office in Washington, D.C., 
rather than the field office in Cincinnati, were being denied 
their right to an independent appeal as required by the 
Internal Revenue Service Restructuring and Reform Act of 1998 
(Pub. L. 105-206).
    When this abuse was disclosed, the IRS issued interim 
guidance on May 19, 2014, to provide that all groups subject to 
an adverse determination would be granted a right to appeal. 
H.R. 1314 codifies that guidance.

                         C. Legislative History


Background

    H.R. 1314 was introduced on March 3, 2015, and was referred 
to the Committee on Ways and Means. The same legislation, H.R. 
5419, passed the House of Representatives in the 113th Congress 
under suspension of the rules by voice vote on September 16, 
2014.

Committee action

    The Committee on Ways and Means marked up H.R. 1314, the 
``Ensuring Tax Exempt Organizations the Right to Appeal Act,'' 
on March 25, 2015, and ordered the bill, as amended, favorably 
reported (with a quorum being present).

Committee hearings

    The need for reform regarding the determination of the tax-
exempt status of certain organizations was discussed during 
multiple Committee hearings during the 113th Congress:
     Oversight Subcommittee Hearing on the IRS 
Operations and the 2014 Tax Return Filing Season (May 7, 2014).
     Full Committee Hearing with IRS Commissioner 
Koskinen (June 20, 2014).

                      II. EXPLANATION OF THE BILL


  A. Require the Secretary of the Treasury To Describe Administrative 
  Appeals Procedures Relating to Adverse Determinations of Tax-Exempt 
 Status of Certain Organizations (sec. 2 of the bill and sec. 7123 of 
                               the Code)


                              PRESENT LAW

Section 501(c) organizations

    Section 501(c) describes certain organizations that are 
exempt from Federal income tax under section 501(a). Section 
501(c) organizations include, among others, charitable 
organizations (501(c)(3)), social welfare organizations 
(501(c)(4)),\1\ labor organizations (501(c)(5)), and trade 
associations and business leagues (501(c)(6)). In addition to 
being exempt from Federal income tax, section 501(c)(3) 
organizations generally are eligible to receive tax deductible 
contributions. Section 501(c)(3) organizations are subject to 
operational rules and restrictions that do not apply to many 
other types of tax-exempt organizations.
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    \1\Section 501(c)(4) provides tax exemption for civic leagues or 
organizations not organized for profit but operated exclusively for the 
promotion of social welfare, and no part of the net earnings of which 
inures to the benefit of any private shareholder or individual. An 
organization is operated exclusively for the promotion of social 
welfare if it is engaged primarily in promoting in some way the common 
good and general welfare of the people of a community. Treas. Reg. sec. 
1.501(c)(4)-1(a)(2). The promotion of social welfare does not include 
direct or indirect participation or intervention in political campaigns 
on behalf of or in opposition to any candidate for public office; 
however, social welfare organizations are permitted to engage in 
political activity so long as the organization remains engaged 
primarily in activities that promote social welfare. The lobbying 
activities of a social welfare organization generally are not limited. 
An organization is not operated primarily for the promotion of social 
welfare if its primary activity is operating a social club for the 
benefit, pleasure, or recreation of its members, or is carrying on a 
business with the general public in a manner similar to organizations 
that are operated for profit.
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Application for tax exemption

            Section 501(c)(3) organizations
    Section 501(c)(3) organizations (with certain exceptions) 
are required to seek formal recognition of tax-exempt status by 
filing an application with the IRS(Form 1023).\2\ In response 
to the application, the IRS issues a determination letter or 
ruling either recognizing the applicant as tax-exempt or not. 
Certain organizations are not required to apply for recognition 
of tax-exempt status in order to qualify as tax-exempt under 
section 501(c)(3) but may do so. These organizations include 
churches, certain church-related organizations, organizations 
(other than private foundations) the gross receipts of which in 
each taxable year are normally not more than $5,000, and 
organizations (other than private foundations) subordinate to 
another tax-exempt organization that are covered by a group 
exemption letter.
---------------------------------------------------------------------------
    \2\See sec. 508(a).
---------------------------------------------------------------------------
    A favorable determination by the IRS on an application for 
recognition of tax-exempt status will be retroactive to the 
date that the section 501(c)(3) organization was created if it 
files a completed Form 1023 within 15 months of the end of the 
month in which it was formed.\3\ If the organization does not 
file Form 1023 or files a late application, it will not be 
treated as tax-exempt under section 501(c)(3) for any period 
prior to the filing of an application for recognition of tax 
exemption.\4\ Contributions to section 501(c)(3) organizations 
that are subject to the requirement that the organization apply 
for recognition of tax-exempt status generally are not 
deductible from income, gift, or estate tax until the 
organization receives a determination letter from the IRS.\5\
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    \3\Pursuant to Treas. Reg. sec. 301.9100-2(a)(2)(iv), organizations 
are allowed an automatic 12-month extension as long as the application 
for recognition of tax exemption is filed within the extended, i.e., 
27-month, period. The IRS also may grant an extension beyond the 27-
month period if the organization is able to establish that it acted 
reasonably and in good faith and that granting relief will not 
prejudice the interests of the government. Treas. Reg. secs. 301.9100-1 
and 301.9100-3.
    \4\Treas. Reg. sec. 1.508-1(a)(1).
    \5\Sec. 508(d)(2)(B). Contributions made prior to receipt of a 
favorable determination letter may be deductible prior to the 
organization's receipt of such favorable determination letter if the 
organization has timely filed its application to be recognized as tax-
exempt. Treas. Reg. secs. 1.508-1(a) and 1.508-2(b)(1)(i)(b).
---------------------------------------------------------------------------
    Information required on Form 1023 includes, but is not 
limited to: (1) a detailed statement of actual and proposed 
activities; (2) compensation and financial information 
regarding officers, directors, trustees, employees, and 
independent contractors; (3) a statement of revenues and 
expenses for the current year and the three preceding years (or 
for the years of the organization's existence, if less than 
four years); (4) a balance sheet for the current year; (5) a 
description of anticipated receipts and contemplated 
expenditures; (6) a copy of the articles of incorporation, 
trust document, or other organizational or enabling document; 
(7) organization bylaws (if any); and (8) information about 
previously filed Federal income tax and exempt organization 
returns, if applicable.
    A favorable determination letter issued by the IRS will 
state that the application for recognition of tax exemption and 
supporting documents establish that the organization submitting 
the application meets the requirements of section 501(c)(3) and 
will classify (as either an adverse or definitive ruling) the 
organization as either a public charity or a private 
foundation.
    Organizations that are classified as public charities (or 
as private operating foundations) and not as private 
nonoperating foundations may cease to satisfy the conditions 
that entitled the organization to such status. The IRS makes an 
initial determination of public charity or private foundation 
status (either a definitive ruling, or an advance ruling 
generally effective for five years and then reviewed again by 
the IRS) that is subsequently monitored by the IRS through 
annual return filings. The IRS periodically announces in the 
Internal Revenue Bulletin a list of organizations that have 
failed to establish, or have been unable to maintain, their 
status as public charities or as private operating foundations, 
and that become private nonoperating foundations.
    If the IRS denies an organization's application for 
recognition of exemption under section 501(c)(3), the 
organization may seek a declaratory judgment regarding its tax 
status.\6\ Prior to utilizing the declaratory judgment 
procedure, the organization must have exhausted all 
administrative remedies available to it within the IRS.
---------------------------------------------------------------------------
    \6\Sec. 7428.
---------------------------------------------------------------------------
            Other section 501(c) organizations
    Most section 501(c) organizations--including organizations 
described within sections 501(c)(4) (social welfare 
organizations, etc.), 501(c)(5) (labor organizations, etc.), or 
501(c)(6) (business leagues, etc.)--are not required to provide 
notice to the Secretary that they are requesting recognition of 
exempt status. Rather, organizations are exempt under these 
provisions if they satisfy the requirements applicable to such 
organizations. However, in order to obtain certain benefits 
such as public recognition of tax-exempt status, exemption from 
certain State taxes, and nonprofit mailing privileges, such 
organizations voluntarily may request a formal recognition of 
exempt status by filing a Form 1024.
    If such an organization voluntarily requests a 
determination letter by filing Form 1024 within 27 months of 
the end of the month in which it was formed, its determination 
of exempt status, once provided, generally will be effective as 
of the organization's date of formation.\7\ If, however, the 
organization files Form 1024 after the 27-month deadline has 
passed, its exempt status will be formally recognized only as 
of the date the organization filed Form 1024.
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    \7\Rev. Proc. 2015-9, sec. 11, 2015-2 I.R.B. 249.
---------------------------------------------------------------------------
    The declaratory judgment process available to organizations 
seeking exemption under section 501(c)(3) is not available to 
organizations seeking exemption under other subsections of the 
Code, including sections 501(c)(4), 501(c)(5), and 501(c)(6).

Revocation (and suspension) of exempt status

    An organization that has received a favorable tax-exemption 
determination from the IRS generally may continue to rely on 
the determination as long as there is not a ``material change, 
inconsistent with exemption, in the character, the purpose, or 
the method of operation of the organization, or a change in the 
applicable law.''\8\ A ruling or determination letter 
concluding that an organization is exempt from tax may, 
however, be revoked or modified: (1) by notice from the IRS to 
the organization to which the ruling or determination letter 
was originally issued; (2) by enactment of legislation or 
ratification of a tax treaty; (3) by a decision of the United 
States Supreme Court; (4) by issuance of temporary or final 
Regulations by the Treasury Department; (5) by issuance of a 
revenue ruling, a revenue procedure, or other statement in the 
Internal Revenue Bulletin; or (6) automatically, in the event 
the organization fails to file a required annual return or 
notice for three consecutive years.\9\ A revocation or 
modification of a determination letter or ruling may be 
retroactive if, for example, there has been a change in the 
applicable law, the organization omitted or misstated a 
material fact, or the organization has operated in a manner 
materially different from that originally represented.\10\
---------------------------------------------------------------------------
    \8\Ibid.
    \9\Ibid., sec. 12.
    \10\Ibid.
---------------------------------------------------------------------------
    The IRS 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 a section 501(c)(3) organization, 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 no longer is entitled to exemption.
    Upon revocation of tax-exemption or change in the 
classification of an organization (e.g., from public charity to 
private foundation status), the IRS publishes an announcement 
of such revocation or change in the Internal Revenue Bulletin. 
Contributions made to organizations by donors who are unaware 
of the revocation or change in status ordinarily will be 
deductible if made on or before the date of publication of the 
announcement.
    The IRS may suspend the tax-exempt status of an 
organization for any period during which an organization is 
designated or identified by U.S. authorities as a terrorist 
organization or supporter of terrorism.\11\ Such an 
organization also is ineligible to apply for tax exemption. The 
period of suspension runs from the date the organization is 
first designated or identified 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. During the period of suspension, no deduction is 
allowed for any contribution to a terrorist organization.
---------------------------------------------------------------------------
    \11\Sec. 501(p) (enacted by Pub. L. No. 108-121, sec. 108(a), 
effective for designations made before, on, or after November 11, 
2003).
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Appeals of adverse determinations or revocations of exempt status

            Adverse determination
    If the IRS reaches the conclusion that an organization does 
not qualify for exempt status, the exempt organizations Rulings 
and Agreements unit (``EO Rulings and Agreements'') or the 
exempt organizations technical unit located in Washington, D.C. 
(``EO Technical'') will issue a proposed adverse determination 
letter or ruling. In either case, the proposed adverse 
determination will advise the taxpayer of its opportunity to 
appeal the determination by requesting Appeals Office 
consideration.\12\
---------------------------------------------------------------------------
    \12\Rev. Proc. 2015-9, 2015-2 I.R.B. 249, secs. 5 and 7.
---------------------------------------------------------------------------
    If an organization protests an adverse determination, EO 
Rulings and Agreements (if it maintains its adverse position) 
will forward the protest and the application case file to the 
Appeals Office, which will consider the organization's appeal. 
If the Appeals Office agrees with EO Rulings and Agreements, it 
will issue a final adverse determination letter or, if a 
conference was requested, schedule a conference with the 
organization. At the end of the conference process, the Appeals 
Office will issue a final adverse determination letter or a 
favorable determination letter.\13\
---------------------------------------------------------------------------
    \13\Ibid., sec. 7.
---------------------------------------------------------------------------
    Under interim guidance issued on May 19, 2014, by the 
Acting Director, Rulings and Agreements (Exempt Organizations), 
an organization that receives a proposed adverse determination 
with regard to an application that has been transferred to EO 
Technical (or its successor) may request a conference with EO 
Technical in addition to requesting Appeals Office 
Consideration.\14\ Prior to that time, however, a determination 
letter issued on the basis of technical advice from EO 
Technical could not be appealed to the Appeals Office on issues 
that were the subject of the technical advice.\15\ The 
procedure described in the interim guidance has since been 
added to the IRS Revenue Procedure relating to exempt status 
determinations.\16\
---------------------------------------------------------------------------
    \14\IRS Memorandum, ``Appeals Office Consideration of All Proposed 
Adverse Rulings Relating to Tax-Exempt Status from EO Technical by 
Request,'' May 19, 2014.
    \15\Rev. Proc. 2014-9, 2014-2 I.R.B. 281, sec. 7.
    \16\Rev. Proc. 2015-9, 2015-2 I.R.B. 249, secs. 5 and 7.
---------------------------------------------------------------------------
            Revocation or modification of a determination
    As stated above, a determination letter or ruling 
recognizing exemption may be revoked or modified. In the case 
of a revocation or modification of a determination letter or 
ruling, the appeal and conference procedures are essentially 
the same as described above in connection with initial 
determinations of exempt status.\17\
---------------------------------------------------------------------------
    \17\Ibid., sec. 12.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee found that IRS procedures allowed an 
organization that received an adverse determination regarding 
its tax-exempt status to file an appeal with the IRS Office of 
Appeals only if the determination was provided by the EO 
Determinations unit. An organization that received an adverse 
determination from the EO Technical unit in Washington, D.C. 
could not file an appeal with the Office of Appeals. As a 
result, some organizations were not afforded the same 
administrative protections as others. The Committee believes 
that all organizations seeking tax-exempt status should be 
entitled to the same impartial application review process, 
including the right to appeal an adverse determination to the 
IRS Office of Appeals, and that this right should be 
safeguarded by law.

                        EXPLANATION OF PROVISION

    The provision effectively codifies the May 19, 2014, 
interim guidance by requiring the Secretary to describe 
procedures under which a section 501(c) organization may 
request an administrative appeal (including a conference 
relating to such an appeal, if requested) to the Internal 
Office of Appeals of an adverse determination. For this 
purpose, an adverse determination includes a determination 
adverse to the organization relating to:
    1. the initial qualification or continuing classification 
of the organization as exempt from tax under section 501(a);
    2. the initial qualification or continuing classification 
of the organization as an organization described in section 
170(c)(2) (generally describing certain corporations, trusts, 
community chests, funds, and foundations that are eligible 
recipients of tax deductible contributions);
    3. the initial or continuing classification of the 
organization as a private foundation under section 509(a); or
    4. the initial or continuing classification of the 
organization as a private operating foundation under section 
4942(j)(3).

                             EFFECTIVE DATE

    The provision is effective for determinations made after 
May 19, 2014.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the vote of the Committee on Ways and Means in its 
consideration of H.R. 1314, the ``Ensuring Tax Exempt 
Organizations the Right to Appeal Act,'' on March 25, 2015.
    The Chairman's amendment in the nature of a substitute was 
adopted by a voice vote (with a quorum being present).
    The bill, H.R. 1314, as amended, was ordered favorably 
reported to the House of Representatives by a voice vote (with 
a quorum being present).

                     IV. BUDGET EFFECTS OF THE BILL


               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the effects on the budget of the bill, H.R. 1314, as 
reported.
    The bill, as reported, is estimated to have a negligible 
effect on Federal budget receipts for fiscal years 2015-2025.
    Pursuant to clause 8 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 gross 
budgetary effect (before incorporating macroeconomic effects) 
in any fiscal year is less than 0.25 percent of the current 
projected gross domestic product of the United States for that 
fiscal year; therefore, the bill is not ``major legislation'' 
for purposes of requiring that the estimate include the 
budgetary effects of changes in economic output, employment, 
capital stock and other macroeconomic variables.

B. Statement Regarding New Budget Authority and Tax Expenditures Budget 
                               Authority

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
bill involves no new or increased budget authority. The 
Committee further states that there are no new or increased tax 
expenditures.

      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 10, 2015.
Hon. Paul Ryan,
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. 1314, the Ensuring 
Tax Exempt Organizations the Right to Appeal Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Matthew 
Pickford.
            Sincerely,
                                                Keith Hall,
                                                          Director.
    Enclosure.

H.R. 1314--Ensuring Tax Exempt Organizations the Right to Appeal Act

    H.R. 1314 would amend the Internal Revenue Code of 1986 to 
provide a procedure for organizations requesting 501(c) (tax 
exempt non-profit status) recognition to appeal decisions made 
by the Internal Revenue Service (IRS). CBO estimates that 
implementing the legislation would have no significant cost 
over the next five years. CBO and the staff of the Joint 
Committee on Taxation (JCT) estimate that enacting the bill 
would not affect direct spending or revenues; therefore, pay-
as-you-go procedures do not apply.
    The bill would enact provisions similar to the interim 
guidance proposed by the IRS on May 19, 2014, under which an 
entity that fails to receive tax exempt status may request an 
administrative appeal. Because the legislation would codify the 
agency's current practices CBO estimates that implementing this 
bill would not significantly increase administrative costs.
    CBO and JCT have determined that H.R. 1314 contains no 
intergovernmental or private-sector mandates as defined in the 
Unfunded Mandates Reform Act and would not affect the budgets 
of state, local, or tribal governments.
    The CBO staff contact for this estimate is Matthew 
Pickford. The estimate was approved by Theresa Gullo, Assistant 
Director for Budget Analysis.

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


          A. Committee Oversight Findings and Recommendations

    With respect to 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 as a result of the 
Committee's review of the provisions of H.R. 1314 that the 
Committee concluded that it is appropriate to report the bill, 
as amended, favorably to the House of Representatives with the 
recommendation that the bill do pass.

        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 Committee advises that the 
bill contains no measure that authorizes funding, so no 
statement of general performance goals and objectives for which 
any measure authorizes funding is required.

              C. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4). The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The Committee has 
determined that the bill does not impose a Federal 
intergovernmental mandate on State, local, or tribal 
governments.

                D. 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 bill, and states that the bill does not 
involve any Federal income tax rate increases within the 
meaning of the rule.

                       E. Tax Complexity Analysis

    The following statement is made pursuant to clause 3(h)(1) 
of rule XIII of the Rules of the House of Representatives. 
Section 4022(b) of the Internal Revenue Service Restructuring 
and Reform Act of 1998 requires the staff of the Joint 
Committee on Taxation (in consultation with the Internal 
Revenue Service and the Treasury Department) to provide a tax 
complexity analysis. The complexity analysis is required for 
all legislation reported by the Senate Committee on Finance, 
the House Committee on Ways and Means, 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.
    Pursuant to clause 3(h)(1) of rule XIII of the Rules of the 
House of Representatives, 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, within the meaning of the rule.

  F. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff 
                                Benefits

    With respect to clause 9 of rule XXI of the Rules of the 
House of Representatives, the Committee has carefully reviewed 
the provisions of the bill, and states that the provisions of 
the bill do not contain any congressional earmarks, limited tax 
benefits, or limited tariff benefits within the meaning of the 
rule.

                   G. Duplication of Federal Programs

    In compliance with Sec. 3(g)(2) of H. Res. 5 (114th 
Congress), the Committee states that no provision of the bill 
establishes or reauthorizes: (1) a program of the Federal 
Government known to be duplicative of another Federal program, 
(2) a program included in any report from the Government 
Accountability Office to Congress pursuant to section 21 of 
Public Law 111-139, or (3) a program related to a program 
identified in the most recent Catalog of Federal Domestic 
Assistance, published pursuant to the Federal Program 
Information Act (Public Law 95-220, as amended by Public Law 
98-169).

                 H. Disclosure of Directed Rule Makings

    In compliance with Sec. 3(i) of H. Res. 5 (114th Congress), 
the following statement is made concerning directed rule 
makings: The Committee estimates that the bill requires no 
directed rule makings within the meaning of such section.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED


  A. Text of Existing Law Amended or Repealed by the Bill, as Reported

    In compliance with clause 3(e)(1)(A) of rule XIII of the 
Rules of the House of Representatives, the text of each section 
proposed to be amended or repealed by the bill, as reported, is 
shown below:

   Text of Existing Law Amended or Repealed by the Bill, as Reported

  In compliance with clause 3(e)(1)(A) of rule XIII of the 
Rules of the House of Representatives, the text of each section 
proposed to be amended or repealed by the bill, as reported, is 
shown below:

           SECTION 7123 OF THE INTERNAL REVENUE CODE OF 1986


SEC. 7123. APPEALS DISPUTE RESOLUTION PROCEDURES.

  (a) Early Referral to Appeals Procedures.--The Secretary 
shall prescribe procedures by which any taxpayer may request 
early referral of 1 or more unresolved issues from the 
examination or collection division to the Internal Revenue 
Service Office of Appeals.
  (b) Alternative Dispute Resolution Procedures.--
          (1) Mediation.--The Secretary shall prescribe 
        procedures under which a taxpayer or the Internal 
        Revenue Service Office of Appeals may request non-
        binding mediation on any issue unresolved at the 
        conclusion of--
                  (A) appeals procedures; or
                  (B) unsuccessful attempts to enter into a 
                closing agreement under section 7121 or a 
                compromise under section 7122.
          (2) Arbitration.--The Secretary shall establish a 
        pilot program under which a taxpayer and the Internal 
        Revenue Service Office of Appeals may jointly request 
        binding arbitration on any issue unresolved at the 
        conclusion of--
                  (A) appeals procedures; or
                  (B) unsuccessful attempts to enter into a 
                closing agreement under section 7121 or a 
                compromise under section 7122.

      B. Changes in Existing Law Proposed by the Bill, as Reported

    In compliance with clause 3(e)(1)(B) of rule XIII of the 
Rules of the House of Representatives, changes in existing law 
proposed 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):

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e)(1)(B) of rule XIII of the 
Rules of the House of Representatives, changes in existing law 
proposed by the bill, as reported, are shown as follows (new 
matter is printed in italic and existing law in which no change 
is proposed is shown in roman):

           SECTION 7123 OF THE INTERNAL REVENUE CODE OF 1986


SEC. 7123. APPEALS DISPUTE RESOLUTION PROCEDURES.

  (a) Early Referral to Appeals Procedures.--The Secretary 
shall prescribe procedures by which any taxpayer may request 
early referral of 1 or more unresolved issues from the 
examination or collection division to the Internal Revenue 
Service Office of Appeals.
  (b) Alternative Dispute Resolution Procedures.--
          (1) Mediation.--The Secretary shall prescribe 
        procedures under which a taxpayer or the Internal 
        Revenue Service Office of Appeals may request non-
        binding mediation on any issue unresolved at the 
        conclusion of--
                  (A) appeals procedures; or
                  (B) unsuccessful attempts to enter into a 
                closing agreement under section 7121 or a 
                compromise under section 7122.
          (2) Arbitration.--The Secretary shall establish a 
        pilot program under which a taxpayer and the Internal 
        Revenue Service Office of Appeals may jointly request 
        binding arbitration on any issue unresolved at the 
        conclusion of--
                  (A) appeals procedures; or
                  (B) unsuccessful attempts to enter into a 
                closing agreement under section 7121 or a 
                compromise under section 7122.
  (c) Administrative Appeal Relating to Adverse Determination 
of Tax-Exempt Status of Certain Organizations.--
          (1) In general.--The Secretary shall prescribe 
        procedures under which an organization which claims to 
        be described in section 501(c) may request an 
        administrative appeal (including a conference relating 
        to such appeal if requested by the organization) to the 
        Internal Revenue Service Office of Appeals of an 
        adverse determination described in paragraph (2).
          (2) Adverse determinations.--For purposes of 
        paragraph (1), an adverse determination is described in 
        this paragraph if such determination is adverse to an 
        organization with respect to--
                  (A) the initial qualification or continuing 
                qualification of the organization as exempt 
                from tax under section 501(a) or as an 
                organization described in section 170(c)(2),
                  (B) the initial classification or continuing 
                classification of the organization as a private 
                foundation under section 509(a), or
                  (C) the initial classification or continuing 
                classification of the organization as a private 
                operating foundation under section 4942(j)(3).

                             [all]