[Senate Report 114-298]
[From the U.S. Government Publishing Office]


                                                      Calendar No. 554
114th Congress     }                                    {       Report
                                 SENATE
 2d Session        }                                    {      114-298

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



 
                    TAXPAYER PROTECTION ACT OF 2016

                                _______
                                

                 July 12, 2016.--Ordered to be printed

                                _______
                                

               Mr. Hatch, from the Committee on Finance, 
                        submitted the following

                              R E P O R T

                         [To accompany S. 3156]

    The Committee on Finance, having considered an original 
bill, S. 3156, to provide enhanced protections for taxpayers 
from fraud and other illegal activities, and for other 
purposes, reports favorably thereon without amendment and 
recommends that the bill do pass.









                                CONTENTS

                                                                   Page
 I. LEGISLATIVE BACKGROUND............................................2
II. EXPLANATION OF THE BILL...........................................3
TITLE I--PROTECTION OF TAXPAYER RIGHTS...........................     3
        A. Reform of Assessment and Collection Procedures........     3
            1. Report on IRS authority to compromise tax matters 
                (sec. 101 of the bill and sec. 7122 of the Code).     3
            2. Report on opportunity for hearing by the IRS 
                Office of Appeals (sec. 102 of the bill).........     5
            3. Extending time limit for contesting IRS levy (sec. 
                103 of the bill and secs. 6343 and 6532 of the 
                Code)............................................     7
            4. Individuals held harmless on improper levy on 
                retirement plans (sec. 104 of the bill and sec. 
                6343 of the Code)................................     8
            5. Report on IRS audit criteria (sec. 105 of the 
                bill)............................................    11
        B. Assistance to Individual Taxpayers in Filing Returns..    11
            1. Return preparation programs for low-income 
                taxpayers (sec. 111 of the bill and new sec. 
                7526A of the Code)...............................    11
            2. Limiting redisclosures and uses of consent-based 
                disclosures of tax return information (sec. 112 
                of the bill and sec. 6103 of the Code)...........    14
            3. Clarification of equitable relief from joint 
                liability (sec. 113 of the bill and sec. 6015 of 
                the Code)........................................    15
            4. Modification of user fee requirements for 
                installment agreements (sec. 114 of the bill and 
                sec. 6159 of the Code)...........................    17
            5. Reports on Future State and similar online 
                initiatives (sec. 115 of the bill)...............    19
            6. Notice from IRS regarding closure of Taxpayer 
                Assistance Centers (sec. 116 of the bill)........    19
            7. Recovery of certain improperly withheld severance 
                payments (sec. 117 of the bill and secs. 
                104(a)(4) and 6511 of the Code)..................    20
        C. Whistleblower Protections.............................    21
            1. Reports concerning whistleblower awards (sec. 121 
                of the bill).....................................    21
            2. Whistleblower reforms (sec. 122 of the bill and 
                secs. 6103, 7213, and 7623 of the Code)..........    25
        D. Reform of Laws Governing Internal Revenue Service 
            Employees............................................    27
            1. Electronic record retention (sec. 131 of the bill)    27
            2. Sense of the Senate on revision of the Hatch Act 
                (sec. 132 of the bill)...........................    29
            3. Prohibition on rehiring former IRS employees who 
                were involuntarily separated for misconduct (sec. 
                133 of the bill and sec. 7804 of the Code).......    29
            4. Authority to remove or transfer senior executives 
                who fail in their performance or engage in 
                serious misconduct (sec. 134 of the bill and sec. 
                7804 of the Code)................................    31
            5. Limit participation of third-party contractors for 
                sworn testimony taken pursuant to a summons from 
                the IRS (sec. 135 of the bill and secs. 6103 and 
                7602 of the Code)................................    34
            6. Notification of unauthorized inspection or 
                disclosure of returns and return information 
                (sec. 136 of the bill and sec. 7431 of the Code).    35
        E. Exempt Organizations..................................    36
            1. Mandatory e-filing by exempt organizations (sec. 
                141 of the bill and secs. 511, 527, 6033, and 
                6104 of the Code)................................    36
            2. Repeal of substantiation exception for certain 
                charitable contributions reported by the donee 
                organization (sec. 142 of the bill and sec. 
                170(f)(8) of the Code)...........................    38
            3. Prohibit the use of IRS funds for political 
                targeting (sec. 143 of the bill).................    40
            4. Notification to exempt organizations prior to 
                revoking exempt status for failing to file 
                information returns (sec. 144 of the bill and 
                sec. 6033 of the Code)...........................    40
TITLE II--PROTECTION OF TAXPAYERS FROM IDENTIFY THEFT AND TAX 
  FRAUD..........................................................    44
            1. Single point of contact for identity theft victims 
                (sec. 201 of the bill)...........................    44
            2. Protecting taxpayers from telephone scams (sec. 
                202 of the bill).................................    46
            3. Information on identity theft and tax scams (sec. 
                203 of the bill).................................    46
            4. Report on Federal employee wage and tax 
                withholding reporting to State tax agencies (sec. 
                204 of the bill).................................    47
            5. Notification of suspected identity theft (sec. 205 
                of the bill and new sec. 7529 of the Code).......    48
III.BUDGET EFFECTS OF THE BILL.......................................51

IV. VOTES OF THE COMMITTEE...........................................55
 V. REGULATORY IMPACT AND OTHER MATTERS..............................55
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED............56

                       I. LEGISLATIVE BACKGROUND

    The Committee on Finance, having considered S. 3156, the 
``Taxpayer Protection Act of 2016,'' to provide enhanced 
protections for taxpayers from fraud and other illegal 
activities, and for other purposes, reports favorably thereon 
without amendment and recommends that the bill do pass.

               BACKGROUND AND NEED FOR LEGISLATIVE ACTION

    Background.--Based on a proposal recommended by Chairman 
Hatch, the Committee on Finance marked up original legislation 
(the ``Taxpayer Protection Act of 2016'') on April 20, 2016, 
and, with a majority present, ordered the bill favorably 
reported.
    Need for legislative action.--The Chairman, Ranking Member, 
and members of the Committee believe legislation is necessary 
to provide additional protections for taxpayers in their 
interactions with the Internal Revenue Service. Previously, 
Senators Grassley and Thune introduced taxpayer protection 
legislation (S. 1578, the Taxpayer Bill of Rights Enhancement 
Act of 2015, 114th Congress, 1st Session), as did Senator 
Cardin (S. 2333, the Taxpayer Rights Act of 2015, 114th 
Congress, 1st Session) and Senator Cornyn (S. 949, the Small 
Business Taxpayer Bill of Rights Act of 2015, 114th Congress, 
1st Session). In addition, during this Congress the Committee 
has held hearings on ``Cybersecurity and Protecting Taxpayer 
Information'' (April 12, 2016) and ``Protecting Taxpayers from 
Schemes and Scams During the 2015 Tax Filing Season'' (March 
12, 2015). These legislative proposals and hearings informed 
the content of this bill.

                      II. EXPLANATION OF THE BILL

    The bill comprises two titles. Title I is ``Protection of 
Taxpayer Rights,'' which includes five subtitles: Reform of 
Assessment and Collection Procedures (sections 101 through 
105); Assistance to Individual Taxpayers in Filing Returns 
(sections 111 through 117); Whistleblower Protections (sections 
121 through 122); Reform of Laws Governing Internal Revenue 
Service Employees (sections 131 through 136); and Exempt 
Organizations (sections 141 through 144). Title II is 
``Protection of Taxpayers from Identity Theft and Tax Fraud'' 
and includes sections 201 through 205. The specific provisions 
of the bill are explained below.

                 TITLE I--PROTECTION OF TAXPAYER RIGHTS


           A. Reform of Assessment and Collection Procedures


 1. Report on IRS authority to compromise tax matters (sec. 101 of the 
                    bill and sec. 7122 of the Code)


                              PRESENT LAW

    Unless a tax matter has been referred to the Department of 
Justice for prosecution or defense, the Internal Revenue 
Service (``IRS'') has the authority to compromise tax debts.\1\ 
Treasury regulations provide that such offers to compromise tax 
matters can be accepted: (1) if there is doubt as to the 
validity of the actual tax liability, (2) if it is doubtful 
that the tax, interest, and penalties can be collected, or (3) 
to promote effective tax administration in a case where 
collection in full would cause the taxpayer economic 
hardship.\2\
---------------------------------------------------------------------------
    \1\Sec. 7122.
    \2\Treas. Reg. sec. 1.7122-1(b). For this purpose, economic 
hardship is defined under Treas. Reg. sec. 301.6343-1.
---------------------------------------------------------------------------
    A taxpayer making an offer to compromise a tax case must 
make certain nonrefundable payments at the time he or she 
submits the initial offer-in-compromise of a tax case. 
Taxpayers making a lump sum offer-in-compromise must include a 
nonrefundable payment of 20 percent of the lump-sum with the 
initial offer.\3\ In the case of an offer-in-compromise 
involving periodic payments, the initial offer must be 
accompanied by a nonrefundable payment of the first installment 
that would be due if the offer were accepted.\4\ Taxpayers may 
instruct the IRS in application of the payment to tax, interest 
or penalties that are the subject of the offer. In certain 
cases, the IRS may waive the requirement.
---------------------------------------------------------------------------
    \3\Sec. 7122(c)(1)(A).
    \4\Sec. 7122(c)(1)(B).
---------------------------------------------------------------------------
    The Internal Revenue Code of 1986, as amended (the 
``Code'')\5\ requires that the IRS prescribe guidelines for 
employees to follow in evaluating the adequacy of offers, 
including guidelines for determining whether an offer is 
complete and can be processed, estimating basic living 
expenses, as well as special rules for handling offers from 
low-income taxpayers or those that are based solely on doubt as 
to liability. With the exception of cases in which the proposed 
offer is based on a frivolous submission,\6\ taxpayers whose 
offers are rejected may appeal the rejection to the IRS Office 
of Appeals. Non-frivolous offers are deemed accepted if not 
rejected or returned to the taxpayer within 24 months of 
submission of the offer.
---------------------------------------------------------------------------
    \5\Unless otherwise stated, all section references are to the 
Internal Revenue Code of 1986, as amended.
    \6\Frivolous submissions may be treated as if never submitted, and 
are not subject to further administrative or judicial review. Secs. 
6702(b)(2) and 7122(g).
---------------------------------------------------------------------------
    Compromises with respect to unpaid tax liabilities of 
$50,000 or more can be accepted only if a public report is 
filed detailing the terms of the offer (tax in dispute and 
amount of offer) and the reasons for acceptance, and 
accompanied by a written opinion from the IRS Chief Counsel.\7\ 
The $50,000 threshold was raised from $500 in 1996.\8\
---------------------------------------------------------------------------
    \7\Treas. Reg. sec. 1.7122-1(e)(6).
    \8\Sec. 503 of the Taxpayer Bill of Rights 2, Pub. L. No. 104-168.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    Many offers-in-compromise cases do not present any 
significant legal issues, and the required legal review for 
cases meeting the statutory threshold can delay the acceptance 
process under current administrative procedures. The Committee 
believes that eliminating this threshold may permit the IRS to 
focus its review resources on the most important cases, 
regardless of dollar value.
    Before eliminating this threshold, the Committee believes a 
study is needed to evaluate how the IRS currently exercises its 
authority to compromise tax matters, including the role of the 
IRS Office of the Chief Counsel.

                        EXPLANATION OF PROVISION

    The Government Accountability Office (``GAO'') is required 
to evaluate how the IRS presently exercises its authority to 
compromise tax matters under section 7122, including any 
recommendations for appropriate legislative and administrative 
actions. The GAO is also required to evaluate the role of the 
IRS Office of the Chief Counsel in consideration of offers, 
including whether the current requirement of a written opinion 
for accepted offers that compromise tax in excess of $50,000 
remains appropriate, in whole or in part, and what changes, if 
any, may be desirable. The GAO is required to submit a report 
with its findings to the Senate Committee on Finance and House 
Committee on Ways and Means within 12 months of the date of 
enactment.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

2. Report on opportunity for hearing by the IRS Office of Appeals (sec. 
                            102 of the bill)


                              PRESENT LAW

    The IRS Office of Appeals (``Appeals''') is the settlement 
arm of the IRS. It operates through regional Appeals offices 
organized by the IRS but operating independently of the local 
offices of the operating divisions of the IRS responsible for 
examining returns and collecting taxes. Its operating rules 
generally are not codified, but rather are found in procedural 
regulations promulgated by Treasury and in revenue 
procedures.\9\ In general, Appeals has jurisdiction over both 
pre-assessment and post-assessment cases. The taxpayer 
generally has an opportunity to seek Appeals jurisdiction after 
failing to reach agreement with the Examination function and 
before filing a petition in Tax Court, after filing a petition 
in Tax Court (but before litigation), after assessment of 
certain penalties, after a claim for refund has been rejected 
by an operating division, and after a proposed rejection of an 
offer-in-compromise in a collection case.
---------------------------------------------------------------------------
    \9\Treas. Reg. sec. 601.106; Rev. Proc. 2016-22, 2016-15 IRB 1, 
March 23, 2016.
---------------------------------------------------------------------------
    In 1998, the Internal Revenue Service Restructuring and 
Reform Act of 1998 (the ``Restructuring Act'') directed that 
the IRS reorganize in a manner to address the needs of 
taxpayers and to ensure that the reorganization included an 
independent Appeals function,\10\ and mandated that 
administrative appeals is an independent appeals function.\11\ 
It also codified certain requirements for Appeals, including 
procedures by which any taxpayer may request early referral to 
Appeals of unresolved issues from the examination or collection 
division\12\ and use of alternative dispute resolution 
procedures of mediation or binding arbitration.\13\ In 
addition, the IRS is required to make Appeals officers 
available on a regular basis in each State and to consider 
videoconferencing of Appeals conferences for taxpayers seeking 
appeals in rural or remote areas.\14\
---------------------------------------------------------------------------
    \10\Pub. L. No. 105-206, sec. 1001, July 22, 1998. A report by the 
Treasury Inspector General for Tax Administration (``TIGTA'') found 
that Appeals' level of independence is consistent with what was 
intended in the Act. The Overall Independence of the Office of Appeals 
Appears to Be Sufficient (TIGTA 2005-10-141), September 9, 2005, 
available at https://www.treasury.gov/tigta/auditreports/2005reports/
200510141fr.pdf.
    \11\The operating divisions that resulted from the restructuring 
are Large Business & International (LB&I), Small Business and Self-
Employed (SB/SE), Wage and Investment (W&I) and Tax-Exempt and 
Governmental Entities (TE/GE).
    \12\Sec. 7123(a); Pub. L. No. 105-206, sec. 3465(a)(1), July 22, 
1998.
    \13\Sec. 7123(b); Pub. L. No. 105-206, sec. 3465(a)(1), July 22, 
1998.
    \14\Pub. L. No. 105-206, sec. 3465(b), (c), July 22, 1998.
---------------------------------------------------------------------------
    The Restructuring Act further required that the Secretary 
or the Secretary's delegate include with any first letter of 
proposed deficiency, which allows the taxpayer an opportunity 
for administrative review in Appeals, an explanation of the 
entire process from examination through collection with respect 
to such proposed deficiency, including the assistance available 
to the taxpayer from the National Taxpayer Advocate at various 
points in the process.\15\
---------------------------------------------------------------------------
    \15\Pub. L. No. 105-206, sec. 3504, July 22, 1998.
---------------------------------------------------------------------------
    There is no section of the Code that specifically provides 
rules requiring Appeals consideration of cases. The rules for 
Appeals consideration of cases are contained primarily in the 
Statement of Procedural Rules, which informs the public of the 
procedures to be followed by the IRS and the public.\16\ The 
regulations provide in part, ``[a] taxpayer may request an 
appeal in any case in which a District Director . . . has 
issued a letter proposing adjustments (commonly referred to as 
the 30-day letter) concerning an item described in paragraph 
(a)(3) of this section. The taxpayer will be informed of the 
right to an administrative appeal in this letter.''\17\ Case 
law holds that these regulations are ``directory and not 
mandatory in legal effect.''\18\
---------------------------------------------------------------------------
    \16\Treas. Reg. sec. 601.106.
    \17\Treas. Reg. sec. 601.106(b).
    \18\Luhring v. Glotzbach, 304 F.2d 560, 565 (4th Cir. 1962); see 
also Rosenberg v. Comm'r, 450 F.2d 529, 533 (10th Cir. 1971).
---------------------------------------------------------------------------
    However, the IRS is required to follow certain due process 
procedures, including the right to allow the taxpayer to 
request an Appeals hearing, when the IRS seeks to levy against 
the property of a taxpayer in collection of a Federal tax 
liability or when the IRS files a notice of lien.\19\ The 
taxpayer also has the right to obtain judicial review of the 
Appeals officer's determination.\20\
---------------------------------------------------------------------------
    \19\Sec. 6320(b)(1) (right to appeals hearing included in due 
process notice to a taxpayer whenever the IRS files a notice of lien); 
sec. 6330(b)(1) (right to appeals hearing before levy).
    \20\Sec. 6330(d).
---------------------------------------------------------------------------
    In certain cases affecting large numbers of taxpayers, the 
IRS may designate a case or an issue for litigation, which 
means it will not be referred to Appeals.\21\ If a case or an 
issue in a case is designated, the taxpayer generally will not 
receive a 30-day letter and will be issued a statutory notice 
of deficiency.
---------------------------------------------------------------------------
    \21\Rev. Proc. 2016-22, 2016-15 IRB 1, March 23, 2016 (provides 
administrative appeals process for cases filed with the Tax Court); 
Internal Revenue Manual sec. 33.3.6.2, available at https://
www.irs.gov/irm/part33/irm--33-003-006.html (procedures for designating 
a case for litigation).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee is aware that the right to appeal an IRS 
decision in an independent forum is one of the fundamental 
rights the taxpayer has when dealing with the IRS. Under this 
right, taxpayers are entitled to a fair and impartial 
administrative appeal of most IRS decisions, including many 
penalties, and have the right to receive a written response 
regarding Appeals' decision. In addition, taxpayers generally 
have the right to take their cases to court.
    Accordingly, the Committee seeks to understand the 
circumstances under which taxpayers are not provided an 
opportunity to exercise this appeal right administratively in 
Appeals and confirm that the IRS is treating all taxpayers 
fairly in deciding whether to allow access to Appeals.

                        EXPLANATION OF PROVISION

    The provision requires the GAO to identify and report on 
all of the IRS's reasons for not allowing taxpayers an 
opportunity for administrative review in Appeals. The provision 
further requires an examination of taxpayers' access to 
Appeals, in particular the effect on taxpayers in those States 
without a permanent Appeals Officer or a permanent Settlement 
Officer. GAO is to provide a comparison between taxpayer access 
to Appeals in these States and States with a permanent Appeals 
or Settlement Officer. GAO is also to evaluate wait times, 
geographic and technological constraints, the time necessary to 
resolve Appeals cases, taxpayer satisfaction with the IRS, and 
other factors that GAO may deem relevant.
    The provision also requires the GAO to study the IRS's 
process for designating a case for litigation, including 
understanding how the IRS makes its determination concerning 
what constitutes sound tax administration and whether there is 
a critical need for enforcement activity with respect to 
certain issues presented. The GAO is to review the outcomes 
with respect to cases designated for litigation in the past ten 
years, including whether some of the cases were ultimately 
settled with the taxpayer and the IRS Office of Chief Counsel.
    The report and recommendations with regard to any issues 
identified is to be submitted to the Senate Committee on 
Finance and the House Committee on Ways and Means within 12 
months of the date of enactment.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

 3. Extending time limit for contesting IRS levy (sec. 103 of the bill 
                  and secs. 6343 and 6532 of the Code)


                              PRESENT LAW

    The IRS is authorized to return property that has been 
wrongfully levied upon.\22\ In general, monetary proceeds from 
the sale of levied property may be returned within nine months 
of the date of the levy.
---------------------------------------------------------------------------
    \22\Sec. 6343.
---------------------------------------------------------------------------
    Generally, any person (other than the person against whom 
is assessed the tax out of which such levy arose) who claims an 
interest in levied property and that such property was 
wrongfully levied upon may bring a civil action for wrongful 
levy in a district court of the United States.\23\ Generally, 
an action for wrongful levy must be brought within nine months 
from the date of levy.\24\
---------------------------------------------------------------------------
    \23\Sec. 7426.
    \24\Sec. 6532.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee understands that in many cases the time 
period for bringing an action 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 provision extends from nine months to two years the 
period for returning the monetary proceeds from the sale of 
property that has been wrongfully levied upon.
    The provision also extends from nine months to two years 
the period for bringing a civil action for wrongful levy.

                             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 nine-month periods have 
not expired as of the date of enactment.

4. Individuals held harmless on improper levy on retirement plans (sec. 
               104 of the bill and sec. 6343 of the Code)


                              PRESENT LAW

Tax-favored retirement savings

    Under the Code, tax-favored treatment applies to 
traditional and Roth individual retirement arrangements 
(``IRAs''') and certain employer-sponsored retirement plans 
(``employer-sponsored plans'').\25\ The rules for tax-favored 
treatment include annual limits on the amount that may be 
contributed to an IRA or employer-sponsored plan.
---------------------------------------------------------------------------
    \25\Secs. 219, 408, and 408A provide rules for IRAs. Tax-favored 
employer-sponsored retirement plans consist of qualified retirement 
plans and annuities under sections 401(a) and 403(a), tax-deferred 
annuity plans under section 403(b), and State and local government 
eligible deferred compensation plans under section 457(b). Under 
section 7701(j), the Thrift Savings Fund is treated as a qualified 
retirement plan.
---------------------------------------------------------------------------
    In general, a distribution from a traditional IRA or 
employer-sponsored plan (other than from a designated Roth 
account under an employer-sponsored plan) is includible in 
income, except to the extent attributable to any contributions 
that were made to the IRA or plan on an after-tax basis.\26\ 
Contributions made to a Roth IRA or a designated Roth account 
are made on an after-tax basis.\27\ Certain distributions from 
a Roth IRA or a designated Roth account are excluded from 
income; otherwise, a distribution is includible in income, 
except to the extent attributable to contributions.\28\ Amounts 
that are withdrawn from an IRA or employer-sponsored plan 
before age 59\1/2\ and are includible in income are subject to 
a 10-percent early withdrawal tax unless an exception 
applies.\29\
---------------------------------------------------------------------------
    \26\Secs. 408(d) and 402.
    \27\Secs. 408A(c) and 402A(a)(2).
    \28\Secs. 408A(d) and 402A(d).
    \29\Sec. 72(t).
---------------------------------------------------------------------------
    A distribution from a traditional IRA or employer-sponsored 
plan (other than from a designated Roth account) generally may 
be rolled over to another traditional IRA or employer-sponsored 
plan (other than to a designated Roth account).\30\ The 
rollover generally can be achieved by a direct payment from the 
distributing IRA or plan to the recipient IRA or plan (``direct 
rollover'') or by contributing the distribution to the 
recipient IRA or plan within 60 days of receiving the 
distribution (``60-day rollover''). Amounts that are rolled 
over generally are not includible in gross income. A 
distribution from a Roth IRA generally may be rolled over to 
another Roth IRA by direct rollover or a 60-day rollover, and a 
distribution from a designated Roth account generally may be 
rolled over to a Roth IRA or another designated Roth account by 
direct rollover or a 60-day rollover. In general, an individual 
is permitted to make only one 60-day rollover from an IRA to 
another IRA within a one-year period.
---------------------------------------------------------------------------
    \30\A rollover is not permitted with respect to an IRA that an 
individual has inherited from another individual (``inherited IRA''). 
In addition, the beneficiary of a deceased employee under an employer-
sponsored plan, other than a surviving spouse, may roll a distribution 
from the plan only to an IRA that is designated as an inherited IRA.
---------------------------------------------------------------------------
    In addition to these rollovers, an individual generally may 
convert an amount in a traditional IRA or a non-Roth account 
under an employer-sponsored defined contribution plan into a 
Roth IRA or a designated Roth account, referred to as a ``Roth 
conversion.'' The amount converted is generally includible in 
the individual's income to the same extent as if a distribution 
had been made. The conversion may be accomplished by a direct 
transfer of the amount from the traditional IRA or non-Roth 
account to the Roth IRA or designated Roth account or by a 
distribution from the traditional IRA or non-Roth account and 
contribution to the Roth IRA or designated Roth account within 
60 days.
    An amount withdrawn from an IRA or employer-sponsored plan 
made on account of an IRS levy is includible in income in the 
same manner as other distributions. However, the 10-percent 
early withdrawal tax does not apply.\31\
---------------------------------------------------------------------------
    \31\Sec. 72(t)(2)(vii).
---------------------------------------------------------------------------

Incorrect levies on IRAs and employer-sponsored plans

    Present law provides rules under which the IRS returns 
amounts subject to an incorrect levy.\32\ 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.\33\ 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.\34\ The IRS is not required 
to pay interest if the levy was not in accordance with IRS 
administrative procedures.\35\
---------------------------------------------------------------------------
    \32\Sec. 6343(b)-(d).
    \33\Secs. 6343(b)(2), 6343(d)(2)(A).
    \34\Sec. 6343(c)(1).
    \35\Sec. 6343(d)(2).
---------------------------------------------------------------------------
    Present law does not provide special rules to allow an 
individual to recontribute to an IRA or employer-sponsored plan 
an amount withdrawn 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 
or employer-sponsored plan, the contribution is subject to the 
normally applicable rules, including limits on contributions 
and the time for making a rollover.

                           REASONS FOR CHANGE

    IRAs and employer-sponsored retirement plans provide an 
important source of retirement income for many Americans. Under 
present law, if the IRS improperly levies on an individual's 
IRA or benefits under an employer-sponsored plan, the 
individual 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 improper 
levies should not reduce retirement income security. Thus, the 
Committee bill provides that retirement funds that are 
withdrawn from an IRA or employer-sponsored retirement plan 
pursuant to an improper IRS levy and returned by the IRS may be 
recontributed to the IRA or plan or to a different IRA.

                        EXPLANATION OF PROVISION

    Under the provision, if an amount withdrawn from an IRA 
(``original IRA'') or employer-sponsored plan pursuant to a 
levy is returned to an individual by the IRS, the individual 
may contribute the amount returned, and any interest thereon, 
either to the original IRA or to the employer-sponsored plan, 
if permissible,\36\ or to a different IRA to which a rollover 
from the original IRA or employer-sponsored plan would be 
permitted.\37\ The contribution is allowed without regard to 
the normally applicable limits on IRA contributions and 
rollovers. The provision applies to a levied amount that is 
returned to the individual because the levy on the original IRA 
or employer-sponsored plan (1) was wrongful, or (2) is 
determined to be premature or otherwise not in accordance with 
administrative procedures.
---------------------------------------------------------------------------
    \36\The terms of an employer-sponsored plan might not permit the 
amount returned by the IRS to be contributed to the plan. In addition, 
in the case of an amount withdrawn from a designated Roth account 
pursuant to the levy, the returned amount could be contributed only to 
the original designated Roth account (or to a Roth IRA).
    \37\The provision allows a rollover with respect to an inherited 
IRA to an inherited IRA of the same type (traditional or Roth) as the 
original IRA.
---------------------------------------------------------------------------
    A contribution under the provision must be made by the due 
date (not including extensions) for the individual's income tax 
return for the year in which the IRS returns the amount 
previously levied on. A contribution under the provision is 
treated as a rollover (``rollover contribution'') made for the 
taxable year in which the distribution on account of the levy 
occurred, but is not taken into account for purposes of the 
limit on one IRA rollover within a one-year period. In 
addition, except in the case of a rollover contribution that is 
treated as a Roth conversion, any tax attributable to the 
amount distributed from the original IRA or employer-sponsored 
plan by reason of a levy (1) is not to be assessed, (2) if 
assessed, is to be abated, and (3) if collected, is to be 
credited or refunded as an overpayment made on the due date for 
the return for the taxable year in which the amount was levied 
on.
    Under the provision, the IRS is required to pay interest on 
an amount 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 an IRA or employer-sponsored plan 
is treated as earnings within the IRA or employer-sponsored 
plan after the rollover contribution was made and is not 
includible in gross income when received from the IRS.
    When the IRS returns to an individual an amount that was 
levied on, the IRS must notify the individual that a 
contribution to the original IRA, the employer-sponsored plan, 
or a new IRA may be made of the amount returned, and the 
interest paid, by the due date (not including extensions) for 
the individual's income tax return for the year in which the 
amount is returned.

                             EFFECTIVE DATE

    The provision is effective for levied amounts, and interest 
thereon, returned to individuals after December 31, 2016.

         5. Report on IRS audit criteria (sec. 105 of the bill)


                              PRESENT LAW

    The Treasury Inspector General for Tax Administration 
(``TIGTA'') is not currently required to consult with the IRS 
on the criteria it uses to select tax returns for audits, 
assessments, criminal investigations, or report any instances 
where the IRS's criteria discriminate on the basis of race, 
religion, or political ideology.

                           REASONS FOR CHANGE

    The Committee wants to ensure that taxpayers are not 
targeted by the IRS or discriminated against because of their 
race, religion, or political ideology.

                        EXPLANATION OF PROVISION

    In an effort to ascertain whether taxpayers may be targeted 
for audits, assessments, criminal investigations, or any 
heightened scrutiny or review by the IRS because of their 
political ideology, race, religion, or any other impermissible 
factor, TIGTA is required to perform an audit of the criteria 
the IRS uses to select tax returns for audit, assessments, 
criminal investigation, or heightened scrutiny or review.
    TIGTA shall provide a report of its findings within two 
years of the date of enactment.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

        B. Assistance to Individual Taxpayers in Filing Returns


 1. Return preparation programs for low-income taxpayers (sec. 111 of 
                the bill and new sec. 7526A of the Code)


                              PRESENT LAW

    The Code provides that the Secretary may allocate up to $6 
million per year for matching grants to certain qualified low-
income taxpayer clinics.\38\ Eligible clinics are those that 
charge no more than a nominal fee to either represent low-
income taxpayers in controversies with the IRS or provide tax 
information to individuals for whom English is a second 
language. No single clinic can receive more than $100,000 per 
year.
---------------------------------------------------------------------------
    \38\Sec. 7526.
---------------------------------------------------------------------------
    A qualified low-income taxpayer clinic includes (1) a 
clinical program at an accredited law, business, or accounting 
school, in which students represent low-income taxpayers, or 
(2) an organization exempt from tax under section 501(c) which 
either represents low-income taxpayers or provides referral to 
qualified representatives. A clinic is treated as representing 
low-income taxpayers if (i) at least 90 percent of the 
taxpayers represented by the clinic have income which does not 
exceed 250 percent of the Federal poverty level, and (ii) the 
amount in controversy for any taxable year is generally $50,000 
or less.\39\
---------------------------------------------------------------------------
    \39\Sec. 7463.
---------------------------------------------------------------------------
    There is no provision in the Code allowing for the 
allocation of funds for matching grants for return preparation 
for low-income taxpayers.
    In the Consolidated Appropriations Act, 2016,\40\ Congress 
appropriated approximately $2.157 billion to the IRS for 
taxpayer services, of which not less than $15 million is to be 
made available for a Community Volunteer Income Tax Assistance 
(``VITA'') matching grants program for tax return preparation 
assistance. VITA is a program created by the IRS in 1969 which 
utilizes volunteers to provide tax return preparation and 
filing service assistance to certain low-income taxpayers and 
members of underserved populations.
---------------------------------------------------------------------------
    \40\Pub. L. No. 114-113.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that it is important for the IRS to 
continue to provide matching grants for authorized programs 
that assist low-income taxpayers and members of underserved 
populations in preparing their Federal income tax return at no 
cost. The Committee also believes that these programs, which 
rely on the participation of trained volunteers, provide 
qualifying taxpayers with reliable and competent assistance 
which helps to ensure the accuracy and timeliness of the tax 
returns filed.

                        EXPLANATION OF PROVISION

    The provision codifies the VITA program and provides that 
the Secretary, unless otherwise provided by specific 
appropriation, may allocate from otherwise appropriated funds 
up to $30 million per year in matching grants to qualified 
entities for the development, expansion, or continuation of 
qualified tax return preparation programs assisting low-income 
taxpayers and members of underserved populations. The Secretary 
is authorized to award a multi-year grant not to exceed three 
years.
    The grant funds may be used for ordinary and necessary 
operation costs (including for wages or salaries of persons 
coordinating the activities of the program, to develop training 
materials, conduct training, and perform quality reviews of the 
returns for which assistance has been provided under the 
program, and for equipment purchases and vehicle-related 
expenses associates with remote or rural tax preparation 
services), outreach and educational activities relating to the 
eligibility and availability of income supports available 
through the Code, and services related to financial education 
and capability, asset development, and the establishment of 
savings accounts in connection with tax return preparation, but 
not for overhead expenses that are not directly related to any 
qualified return preparation program. In awarding grants, 
priority is given to applications that (i) demonstrate 
assistance to certain low-income taxpayers with an emphasis on 
outreach; (ii) demonstrate taxpayer outreach and education 
around available income supports available through the Code; 
and (iii) demonstrate specific outreach and focus on one or 
more underserved populations. The provision allows the IRS to 
use mass communications, referrals, and other means to promote 
the benefits and encourage the use of the program. The 
Secretary can refer taxpayers to qualified return preparation 
programs receiving grants and those programs are encouraged to 
refer eligible individuals to local or regional low income 
taxpayer clinics.
    Qualified return preparation program means any program 
which provides assistance to individuals, at least 90 percent 
of whom are low-income taxpayers, in preparing and filing 
Federal income tax returns, which is administered by a 
qualified entity, in which all volunteers who assist in the 
preparation of Federal income tax returns meet the training 
requirements prescribed by the Secretary, and which uses a 
quality review process which reviews 100 percent of all 
returns. Qualified entity means any entity which is an eligible 
organization (as defined), is in compliance with Federal tax 
filing and payment requirements, is not debarred or suspended 
from Federal contracts, grants, or cooperative agreements, and 
agrees to provide documentation to substantiate any matching 
funds provided under the VITA grant program. Eligible 
organization means an institution of higher education described 
in section 102 (other than subsection (a)(1)(C) thereof) of the 
Higher Education Act of 1965, as in effect on the date of 
enactment, and which has not been disqualified from 
participating in a program under Title IV of such Act, an 
exempt organization described in Code section 501(c), a local 
government agency, including a county or municipal government 
agency, and an Indian tribe, as defined in section 4(13) of the 
Native American Housing Assistance and Self-Determination Act 
of 1996 (``Act''), including any tribally designated housing 
entity (as defined in such Act), tribal subsidiary, 
subdivision, or other wholly owned tribal entity, or a local, 
State, regional, or national coalition (with one lead 
organization which meets the eligibility requirements described 
above acting as the applicant organization). If no eligible 
organization is available to assist the targeted population or 
community, an eligible organization includes a State government 
agency, and a Cooperative Extension Service office. Low-income 
taxpayer means a taxpayer who has income for the taxable year 
which does not exceed an amount equal to the completed phaseout 
amount under section 32(b) for a married couple filing a joint 
return with three or more qualifying children, as determined in 
a revenue procedure or other published guidance. Underserved 
population includes populations of persons with disabilities, 
persons with limited English proficiency, Native Americans, 
individuals living in rural areas, members of the Armed Forces 
and their spouses, and the elderly.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

2. Limiting redisclosures and uses of consent-based disclosures of tax 
  return information (sec. 112 of the bill and sec. 6103 of the Code)


                              PRESENT LAW

In general

    As a general rule, returns and return information are 
confidential and cannot be disclosed unless authorized by Title 
26.\41\ 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.\42\ 
The request or consent may be in written or non-written form. 
The Treasury regulations require that the taxpayer sign and 
date a written consent. At the time the consent is signed and 
dated by the taxpayer, the written document must indicate (1) 
the taxpayer's 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 
120 days of the date signed and dated by the taxpayer. 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.
---------------------------------------------------------------------------
    \41\Sec. 6103(a).
    \42\Treas. Reg. sec. 301.6103(c)-1.
---------------------------------------------------------------------------

Criminal penalties

    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.\43\ Upon conviction, such person 
may be fined up to $100,000 ($500,000 in the case of a 
corporation) or imprisoned up to three years, or both, together 
with the costs of prosecution.
---------------------------------------------------------------------------
    \43\Sec. 7206(1).
---------------------------------------------------------------------------
    Under section 7213, criminal penalties apply to: (1) 
willful unauthorized disclosures of returns and return 
information by Federal and State employees and other persons; 
(2) the offering of any item of material value in exchange for 
a return or return information and the receipt of such 
information pursuant to such an offer; and (3) the unauthorized 
disclosure of return information received by certain 
shareholders under the material interest provision of section 
6103. Under section 7213, a court can impose a fine up to 
$5,000, up to five years imprisonment, or both, together with 
the costs of prosecution. If the offense is committed by a 
Federal employee or officer, the employee or officer will be 
discharged from office upon conviction.
    The willful and unauthorized inspection of returns and 
return information can subject Federal and State employees and 
others to a maximum fine of $1,000, up to a year in prison, or 
both, in addition to the costs of prosecution. If the offense 
is committed by a Federal employee or officer, the employee or 
officer will be discharged from office upon conviction.

Civil damage remedies for unauthorized disclosure or inspection

    If a Federal employee makes an unauthorized disclosure or 
inspection, a taxpayer can bring suit against the United States 
in Federal district court. If a person other than a Federal 
employee makes an unauthorized disclosure or inspection, suit 
may be brought directly against such person. No liability 
results from a disclosure based on a good faith, but erroneous, 
interpretation of section 6103. A disclosure or inspection made 
at the request of the taxpayer will also relieve liability.
    Upon a finding of liability, a taxpayer can recover the 
greater of $1,000 per act of unauthorized disclosure (or 
inspection), or the sum of actual damages plus, in the case of 
an inspection or disclosure that was willful or the result of 
gross negligence, punitive damages. The taxpayer may also 
recover the costs of the action and, if found to be a 
prevailing party, reasonable attorney fees.
    The taxpayer has two years from the date of the discovery 
of the unauthorized inspection or disclosure to bring suit. The 
IRS is required to notify a taxpayer of an unauthorized 
inspection or disclosure as soon as practicable after any 
person is criminally charged by indictment or information for 
unlawful inspection or disclosure.

                           REASONS FOR CHANGE

    The Committee is concerned that return information obtained 
by a recipient by consent is not subject to the same protection 
and limits on use as other taxpayer information.

                        EXPLANATION OF PROVISION

    Under the provision, persons designated by the taxpayer to 
receive return information shall not use the information for 
any purpose other than the express purpose for which consent 
was granted and shall not disclose return information to any 
other person without the express permission of, or request by, 
the taxpayer.

                             EFFECTIVE DATE

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

3. Clarification of equitable relief from joint liability (sec. 113 of 
                  the bill and sec. 6015 of the Code)


                              PRESENT LAW

    If a married couple elects to file a tax return on which 
they report their income jointly, they are generally liable 
jointly and severally for the entire tax liability that should 
have been reported on the joint return.\44\ A spouse may be 
entitled to relief from joint liability, in whole or in part, 
under the innocent spouse relief provisions of the Code.
---------------------------------------------------------------------------
    \44\Sec. 6103(d).
---------------------------------------------------------------------------

Grounds for relief from joint liability

    There are three types of relief: general innocent spouse 
relief, relief for spouses no longer married or legally 
separated (separation of liabilities), and equitable relief. 
The grounds for relief and its scope differ among these three 
types of relief. In addition, the first two types of relief 
must be sought no later than two years after the date the IRS 
began collection activities against the electing spouse. For 
equitable relief, there is no limitations period in the 
statute.
    General relief from joint liability with respect to an 
understatement of tax is available to all joint filers who make 
a timely election for such relief and are able to establish the 
following.\45\ First, the electing spouse must establish that 
the underpayment is attributable to the erroneous items of the 
other spouse. Second, the electing spouse must show that at the 
time of signing the return, he or she did not know or have 
reason to know there was an understatement of tax. Finally, 
relief is granted only if it is inequitable to hold the 
electing spouse liable for the deficiency in tax, based on all 
facts and circumstances.
---------------------------------------------------------------------------
    \45\Sec. 6015(b).
---------------------------------------------------------------------------
    Separation of liabilities relief from joint liability with 
respect to a deficiency is available to persons who are no 
longer married, are legally separated, or were no longer living 
together in the 12 months ending with the date innocent spouse 
relief is elected.\46\ The individual electing relief on this 
basis must establish the portion of any deficiency that is 
appropriately allocable to him or her. Special rules are 
provided in the Code for determining allocation of items that 
benefit one spouse more than the other, property transfers, and 
children's liability. Relief otherwise available is not 
permitted with respect to items of which a spouse was aware at 
the time the return was signed and which contributed to a 
deficiency.
---------------------------------------------------------------------------
    \46\Sec. 6015(c).
---------------------------------------------------------------------------
    Equitable relief from joint liability may be available to 
those spouses who are ineligible under the provisions for 
general relief or separation of liabilities relief.\47\ Such 
relief is granted only if, taking into account all facts and 
circumstances, it is inequitable to hold the individual liable 
for the unpaid portion of tax or for a deficiency with respect 
to the joint return.
---------------------------------------------------------------------------
    \47\Sec. 6015(f).
---------------------------------------------------------------------------

Availability and scope of judicial review

    If an individual elects to have the general relief 
provisions or the separation of liabilities relief provisions 
apply with respect to a deficiency, the individual may petition 
the Tax Court to review unfavorable determinations by the IRS 
with respect to the claimed relief. The Tax Court has held that 
its authority to review such IRS determinations is under a de 
novo standard.\48\
---------------------------------------------------------------------------
    \48\Sec. 6015(e)(1).
---------------------------------------------------------------------------
    The claim for relief from joint liability must be filed no 
later than 90 days after the notice of final determination on 
relief from joint liability and no earlier than the earlier of 
the mailing of such notice of final determination or the date 
which is six months after electing such relief. During the 
pendency of the Tax Court proceeding, or during the period in 
which a petition may be filed, collection action is restricted.
    In contrast to the above, the extent to which a denial of a 
claim for equitable relief from joint liability is also subject 
to judicial review by the Tax Court, the scope of that review, 
and the standard for any review have been the subject of 
conflicting appellate decisions. An abuse of discretion 
standard based on court review of the administrative record was 
held to be the correct standard in some instances,\49\ but 
other courts have permitted review of information beyond the 
administrative record while applying an abuse of discretion 
standard.\50\ Still others have applied a de novo standard to 
both the scope of the review and the standard of review.\51\
---------------------------------------------------------------------------
    \49\Jonson v. Commissioner, 118 T.C. 106, 125 (2002), aff'd on 
other grounds, 353 F.3d 1181 (10th Cir. 2003); Mitchell v. 
Commissioner, 292 F.3d 800, 807 (D.C. Cir. 2002); Cheshire v. 
Commissioner, 282 F.3d 326, 337-38 (5th Cir. 2002).
    \50\Commissioner v. Neal, 557 F.3d 1262 (11th Cir. 2009).
    \51\Wilson v. Commissioner, 705 F.3d 980 (9th Cir. 2013); Porter v. 
Commissioner, 132 T.C. 203, 132 T.C. No. 11 (2009).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee is aware that the extent to which a denial of 
a claim for equitable relief from joint liability is subject to 
judicial review by the Tax Court, as well as the scope of any 
such review, have been the subject of conflicting appellate 
decisions. As a result, persons resident in different states 
but whose circumstances are otherwise similar may be accorded 
different rights to judicial review under the Code. The 
Committee believes that such disparity of treatment can be 
avoided if the statute is clarified to confer a right to 
judicial review in all cases, and to specify the scope of such 
review.

                        EXPLANATION OF PROVISION

    Under the provision, Tax Court review of innocent spouse 
equitable relief cases is not limited to the administrative 
record, but it may consider evidence that is newly discovered 
or was previously unavailable. The provision also clarifies 
that the Tax Court has jurisdiction to redetermine equitable 
claims for relief from joint liability, and is not limited to a 
review for abuse of discretion by the IRS.
    The provision allows taxpayers to request equitable relief 
with respect to any unpaid liability before the expiration of 
the collection period or, if paid, before the expiration of the 
time for claiming a refund or credit.

                             EFFECTIVE DATE

    The provision applies to petitions or requests filed or 
pending on or after the date of enactment.

  4. Modification of user fee requirements for installment agreements 
            (sec. 114 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 agrees to 
pay taxes owed, as well as interest and penalties, in 
installments over an agreed schedule, if the IRS determines 
that doing so will facilitate collection of the amounts owed. 
This agreement provides for a period during which payments may 
be made and while other IRS enforcement actions are held in 
abeyance.\52\ An installment agreement generally does not 
reduce the amount of taxes, interest, or penalties owed. 
However, 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 
IRS is required to review such partial payment installment 
agreements at least every two years 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.
---------------------------------------------------------------------------
    \52\Sec. 6331(k).
---------------------------------------------------------------------------
    Taxpayers can request an installment agreement by filing 
Form 9465, Installment Agreement Request.\53\ If the request 
for an installment agreement is approved by the IRS, the IRS 
charges a user fee.\54\ Under sections 300.1 and 300.2 of the 
Treasury Regulations, the IRS currently charges $120 for 
entering into an installment agreement. If the application is 
for a direct debit installment agreement, whereby the taxpayer 
authorizes the IRS to request the monthly electronic transfer 
of funds from the taxpayer's bank account to the IRS, the fee 
is reduced to $52. In addition, regardless of the method of 
payment, the fee is $43 for low-income taxpayers. For this 
purpose, low-income is defined as a person who falls below 250 
percent of the Federal poverty guidelines published annually. 
Finally, there is no user fee if the agreement qualifies for a 
short-term agreement (120 days or less).
---------------------------------------------------------------------------
    \53\The IRS accepts applications for installment agreements online, 
from individuals and businesses, if the total tax, penalties and 
interest is below $50,000 for the former, and $25,000 for the latter.
    \54\31 U.S.C. sec. 9701; Treas. reg. sec. 300.1. The Independent 
Offices Appropriations Act of 1952 (IOAA), 65 Stat. B70, (June 27, 
1951). A discussion of the IRS practice regarding user fees and a list 
of actions for which fees are charged is included in the Internal 
Revenue Manual. See ``User Fees,'' paragraph 1.32.19 IRM, available at 
https://www.irs.gov/irm/part1/irm--01-032-019.html.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes user fees are a barrier to 
compliance in collection and discourage low-income taxpayers 
from voluntary tax compliance, as many of them do not have the 
means to pay the user fee, even at the reduced rate. Further, 
when negotiating installment agreements, many low-income 
taxpayers are charged the full user fee, despite qualifying for 
the reduced amount.\55\
---------------------------------------------------------------------------
    \55\See American Bar Association letter to Mr. Daniel Werfel, 
Acting Commissioner, IRS, ``Comments Concerning User Fees for 
Processing Installment Agreements and Offers in Compromise,'' October 
1, 2013, page 2, available at http://www.americanbar.org/content/dam/
aba/administrative/taxation/policy/100113comments.authcheckdam.pdf.
---------------------------------------------------------------------------

                        EXPLANATION OF PROVISION

    The provision generally prohibits increases in the amount 
of user fees charged by the IRS for installment agreements. For 
low-income taxpayers (those whose adjusted gross income, as 
determined for the most recent year for which such information 
is available, does not exceed 250 percent of the applicable 
poverty level as determined by the Secretary), it alleviates 
the user fee requirement in two ways. First, it waives the user 
fee if the low-income taxpayer enters into an installment 
agreement under which the taxpayer agrees to make automated 
installment payments through a debit account. Second, it 
provides that low-income taxpayers who are unable to make 
payments electronically remain subject to the required user 
fee, but the fee is reimbursed upon completion of the 
installment agreement.

                             EFFECTIVE DATE

    The provision applies to agreements entered into on or 
after the date that is 60 days after the date of enactment.

5. Reports on Future State and similar online initiatives (sec. 115 of 
                               the bill)


                              PRESENT LAW

    No provision.

                           REASONS FOR CHANGE

    The Committee believes it is necessary to hold the IRS 
accountable for its decisions and protect taxpayers who do not 
have sufficient access to the Internet.

                        EXPLANATION OF PROVISION

    The provision requires the IRS to submit annual progress 
reports on the status of the efforts by the IRS to expand 
online taxpayer services (its so-called ``Future State 
Initiative''), including a thorough assessment of any service 
which is proposed to be shifted to a self-service option.
    The provision also requires the GAO to identify and report 
on the extent of phone and in-person services currently being 
provided to taxpayers residing in rural cities, towns, or 
unincorporated areas which has a population of 50,000 or less. 
In addition, the GAO must provide recommendations on steps the 
IRS can include in the development of its expanded online 
taxpayer services to protect the interests of rural taxpayers.

                             EFFECTIVE DATE

    The first IRS report is required to be submitted to the 
Senate Committee on Finance and House Committee on Ways and 
Means within 12 months of the date of enactment, with 
subsequent reports to follow at annual intervals. The GAO 
report is required to be submitted to the Senate Committee on 
Finance and House Committee on Ways and Means within 12 months 
of the date of enactment.

  6. Notice from IRS regarding closure of Taxpayer Assistance Centers 
                         (sec. 116 of the bill)


                              PRESENT LAW

    The IRS is not currently required to give notice to 
Congress before closing a Taxpayer Assistance Center (``TAC'').

                           REASONS FOR CHANGE

    The Committee is concerned about taxpayers who do not have 
access to the Internet, and seeks to ensure that taxpayers who 
require and desire in-person access to IRS facilities continue 
to have such access.

                        EXPLANATION OF PROVISION

    The provision requires IRS to report to the Senate 
Committee on Finance and the House Committee on Ways and Means 
90 days in advance, the reasons for a proposed closure of a TAC 
and an explanation of the taxpayer assistance services which 
will be provided to certain taxpayers by the IRS after the 
proposed closure takes effect. The taxpayers are those located 
in any rural city, town, or unincorporated area which has a 
population of not more than 50,000 who would be affected by the 
proposed closure. Any closure of a TAC is treated as a major 
rule for purposes of applying the Congressional Review Act.\56\
---------------------------------------------------------------------------
    \56\5 U.S.C. sec. 801 et seq.
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

7. Recovery of certain improperly withheld severance payments (sec. 117 
         of the bill and secs. 104(a)(4) and 6511 of the Code)


                              PRESENT LAW

    Under present law, certain payments made as compensation 
for injuries or sickness are excluded from a taxpayer's gross 
income.\57\ Such payments include amounts received as a 
pension, annuity or similar allowance for personal injuries or 
sickness resulting from active service in the armed forces of 
any country.\58\
---------------------------------------------------------------------------
    \57\Sec. 104.
    \58\Sec. 104(a)(4).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes it is necessary to help impacted 
veterans who are either unaware that their disability severance 
benefits were reduced by tax withholding or veterans who became 
aware of such withholding who have been unable to recoup their 
losses because of the expiration of the three-year statute of 
limitations for amending a tax return.

                        EXPLANATION OF PROVISION

    The provision requires that, not later than one year after 
the date of enactment, the Secretary of Defense identify 
certain disability severance payments made to veterans from 
which income taxes were withheld. Each individual so identified 
shall receive a notice of the amount of severance payments 
which were improperly withheld upon, and other information 
determined to be necessary by the Secretary of Treasury to 
carry out the purposes of the provision. Each individual will 
receive instructions for filing an amended return to recover 
the improperly withheld amounts.
    The provision extends the statute of limitations on claims 
for refund, such that individuals who receive notice of 
improper withholding will have one year from the date of notice 
in which to file a refund claim.
    The provision provides that the Secretary of Defense shall 
take such actions as may be necessary to ensure that amounts 
are not withheld for tax purposes from severance payments made 
by the Secretary of Defense to individuals when such payments 
are not considered gross income pursuant to section 104(a)(4). 
The provision requires the Secretary of Defense to submit a 
report within 15 months of the date of enactment to the Senate 
Committee on Armed Services, the Senate Committee on Veterans' 
Affairs, the Senate Committee on Finance, the House Committee 
on Armed Services, the House Committee on Veterans' Affairs, 
and the House Committee on Ways and Means, specifying the 
number of individuals identified as having been withheld upon, 
the aggregate amount withheld, and a description of the actions 
to be taken by the Secretary of Defense to ensure that future 
payments are not withheld.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

                      C. Whistleblower Protections


   1. Reports concerning whistleblower awards (sec. 121 of the bill)


                              PRESENT LAW

Awards to whistleblowers

    The Code authorizes the IRS to pay such sums as deemed 
necessary for: ``(1) detecting underpayments of tax; or (2) 
detecting and bringing to trial and punishment persons guilty 
of violating the internal revenue laws or conniving at the 
same.''\59\ Generally, amounts are paid based on a percentage 
of proceeds collected based on the information provided.
---------------------------------------------------------------------------
    \59\Sec. 7623.
---------------------------------------------------------------------------
    The Tax Relief and Health Care Act of 2006 (the 
``Act'')\60\ established an enhanced reward program for actions 
in which the tax, penalties, interest, additions to tax, and 
additional amounts in dispute exceed $2,000,000 and, if the 
taxpayer is an individual, the individual's gross income 
exceeds $200,000 for any taxable year in issue. In such cases, 
the award is calculated to be at least 15 percent but not more 
than 30 percent of collected proceeds (including penalties, 
interest, additions to tax, and additional amounts).
---------------------------------------------------------------------------
    \60\Pub. L. No. 109-432.
---------------------------------------------------------------------------
    Under the Act, the Secretary is required to issue guidance 
within one year of the date of enactment of the Act for the 
establishment of the Whistleblower Office within the IRS to 
administer the reward program. The Whistleblower Office may 
seek assistance from the individual providing information or 
from his or her legal representative, and may reimburse the 
costs incurred by any legal representative out of the amount of 
the reward. To the extent the disclosure of returns or return 
information is required to render such assistance, the 
disclosure must be pursuant to an IRS tax administration 
contract.
    The Act permits an individual to appeal the amount or a 
denial of an award determination to the United States Tax Court 
(the ``Tax Court'') within 30 days of such determination. Tax 
Court review of an award determination may be assigned to a 
special trial judge.
    The Act also requires the Secretary to conduct a study and 
report to Congress on the effectiveness of the whistleblower 
reward program and any legislative or administrative 
recommendations regarding the administration of the program.

Rules relating to taxpayers with foreign assets

    U.S. persons who transfer assets to, and hold interests in, 
foreign bank accounts or foreign entities may be subject to 
self-reporting requirements under both the Foreign Account Tax 
Compliance Act (``FATCA'') provisions in the Code and the 
provisions in the Bank Secrecy Act and its underlying 
regulations (which provide for FinCEN Form 114, Report of 
Foreign Bank and Financial Accounts, the ``FBAR''), as 
discussed below. Amounts recovered for violations of FATCA 
provisions in the Code may be considered for purposes of 
computing a whistleblower award under the Code. However, the 
IRS has found that amounts recovered for violations of non-tax 
laws, including the provisions of the Bank Secrecy Act (and 
FBAR) for which the IRS has delegated authority, may not be 
considered for purposes of computing an award under the 
Code.\61\
---------------------------------------------------------------------------
    \61\Chief Counsel Memorandum, ``Scope of Awards Payable Under 
I.R.C. section 7623,'' April 23, 2012, available at http://www.tax-
whistleblower.com/resources/PMTA-92012-10.pdf. Under Title 31, ``[t]he 
Secretary may pay a reward to an individual who provides original 
information which leads to a recovery of a criminal fine, civil 
penalty, or forfeiture, which exceeds $50,000, for a violation of 
[chapter 53 of Title 31]. The Secretary shall determine the amount of a 
reward. . .[and]. . . may not award more than 25 per centum of the net 
amount of the fine, penalty, or forfeiture collected or $150,000, 
whichever is less.'' 31 U.S.C. Sec. 5323.
---------------------------------------------------------------------------
            FATCA
    The Code imposes a withholding and reporting regime for 
U.S. persons engaged in foreign activities, directly or 
indirectly, through a foreign business entity.\62\ This regime 
for outbound payments,\63\ commonly referred to as the Foreign 
Account Tax Compliance Act (``FATCA''),\64\ imposes a 
withholding tax of 30 percent of the gross amount of certain 
payments to foreign financial institutions (``FFIs''') unless 
the FFI establishes that it is compliant with the information 
reporting requirements of FATCA which include identifying 
certain U.S. accounts held in the FFI. An FFI must report with 
respect to a U.S. account (1) the name, address, and taxpayer 
identification number of each U.S. person holding an account or 
a foreign entity with one or more substantial U.S. owners 
holding an account; (2) the account number; (3) the account 
balance or value; and (4) except as provided by the Secretary, 
the gross receipts, including from dividends and interest, and 
gross withdrawals or payments from the account.\65\
---------------------------------------------------------------------------
    \62\See, e.g., secs. 6038, 6038B, and 6046.
    \63\Hiring Incentives to Restore Employment Act of 2010, Pub. L. 
No. 111-147.
    \64\Foreign Account Tax Compliance Act of 2009 is the name of the 
House and Senate bills in which the provisions first appeared. See H.R. 
3933 and S. 1934 (October 27, 2009).
    \65\Sec. 1471(c).
---------------------------------------------------------------------------
    Individuals are required to disclose with their annual 
Federal income tax return any interest in foreign accounts and 
certain foreign securities if the aggregate value of such 
assets is in excess of the greater of $50,000 or an amount 
determined by the Secretary in regulations. Failure to do so is 
punishable by a penalty of $10,000, which may increase for each 
30-day period during which the failure continues after 
notification by the IRS, up to a maximum penalty of 
$50,000.\66\
---------------------------------------------------------------------------
    \66\Sec. 6038D. Guidance on the scope of reporting required, the 
threshold values triggering reporting requirements for various fact 
patterns and how the value of assets is to be determined is found in 
Treas. Reg. secs. 1.6038D-1 to 1.6038D-8.
---------------------------------------------------------------------------
            FBAR
    In addition to the reporting requirements under the Code, 
U.S. persons who transfer assets to, and hold interests in, 
foreign bank accounts or foreign entities may be subject to 
self-reporting requirements under the Bank Secrecy Act.\67\
---------------------------------------------------------------------------
    \67\Bank Secrecy Act, 31 U.S.C. secs. 5311-5332.
---------------------------------------------------------------------------
    The Bank Secrecy Act imposes reporting obligations on both 
financial institutions and account holders. With respect to 
account holders, a U.S. citizen, resident, or person doing 
business in the United States is required to keep records and 
file reports, as specified by the Secretary, when that person 
enters into a transaction or maintains an account with a 
foreign financial agency.\68\ Regulations promulgated pursuant 
to broad regulatory authority granted to the Secretary in the 
Bank Secrecy Act\69\ provide additional guidance regarding the 
disclosure obligation with respect to foreign accounts.
---------------------------------------------------------------------------
    \68\31 U.S.C. sec. 5314. The term ``agency'' in the Bank Secrecy 
Act includes financial institutions.
    \69\31 U.S.C. sec. 5314(a) provides: ``Considering the need to 
avoid impeding or controlling the export or import of monetary 
instruments and the need to avoid burdening unreasonably a person 
making a transaction with a foreign financial agency, the Secretary of 
the Treasury shall require a resident or citizen of the United States 
or a person in, and doing business in, the United States, to keep 
records, file reports, or keep records and file reports, when the 
resident, citizen, or person makes a transaction or maintains a 
relation for any person with a foreign financial agency.''
---------------------------------------------------------------------------
    The FBAR must be filed by June 30\70\ of the year following 
the year in which the $10,000 filing threshold is met.\71\ The 
FBAR is required to be filed electronically with the Treasury 
Department through the FinCEN BSA E-filing System.\72\ Failure 
to file the FBAR is subject to both criminal\73\ and civil 
penalties.\74\ Willful failure to file an FBAR may be subject 
to penalties in amounts not to exceed the greater of $100,000 
or 50 percent of the amount in the account at the time of the 
violation.\75\ A non-willful, but negligent, failure to file is 
subject to a penalty of $10,000 for each negligent 
violation.\76\ The penalty may be waived if (1) there is 
reasonable cause for the failure to report and (2) the amount 
of the transaction or balance in the account was properly 
reported. In addition, serious violations are subject to 
criminal prosecution, potentially resulting in both monetary 
penalties and imprisonment. Civil and criminal sanctions are 
not mutually exclusive.
---------------------------------------------------------------------------
    \70\The Surface Transportation and Veterans Health Care Choice 
Improvement Act of 2015, Pub. L. No. 114-41, changed the filing date 
for FinCEN Form 114 from June 30 to April 15 (with a maximum extension 
for a 6-month period ending on October 15 and with provision for an 
extension under rules similar to the rules in Treas. Reg. section 
1.6081--5) for tax returns for taxable years beginning after December 
31, 2015.
    \71\31 C.F.R. sec. 103.27(c). The $10,000 threshold is the 
aggregate value of all foreign financial accounts in which a U.S. 
person has a financial interest or over which the U.S. person has 
signature or other authority.
    \72\See http://bsaefiling.fincen.treas.gov/main.html. The 
predecessor form, Treasury Form TD F 90-22.1, was filed with the IRS 
Detroit Computing Center.
    \73\31 U.S.C. sec. 5322 (failure to file is punishable by a fine up 
to $250,000 and imprisonment for five years, which may double if the 
violation occurs in conjunction with certain other violations).
    \74\31 U.S.C. sec. 5321(a)(5).
    \75\31 U.S.C. sec. 5321(a)(5)(C).
    \76\31 U.S.C. sec. 5321(a)(5)(B)(i), (ii).
---------------------------------------------------------------------------
            FBAR enforcement responsibility
    Until 2003, the Financial Crimes Enforcement Network 
(``FinCEN''), an agency of the Department of the Treasury, had 
exclusive responsibility for civil penalty enforcement of FBAR, 
although administration of the FBAR reporting regime was 
delegated to the IRS.\77\ As a result, persons who were more 
than 180 days delinquent in paying any FBAR penalties were 
referred for collection action to the Financial Management 
Service of the Treasury Department, which is responsible for 
such non-tax collections.\78\ Continued nonpayment resulted in 
a referral to the Department of Justice for institution of 
court proceedings against the delinquent person. In 2003, the 
Secretary delegated FBAR civil enforcement authority to the 
IRS.\79\ The authority delegated to the IRS in 2003 included 
the authority to determine and enforce civil penalties,\80\ as 
well as to revise the form and instructions. However, the Bank 
Secrecy Act does not include collection powers similar to those 
available for enforcement of the tax laws under the Code. As a 
consequence, FBAR civil penalties remain collectible only in 
accord with the procedures for non-tax collection described 
above.
---------------------------------------------------------------------------
    \77\Treas. Directive 15-14 (December 1, 1992), in which the 
Secretary delegated to the IRS authority to investigate violations of 
the Bank Secrecy Act. If the IRS Criminal Investigation Division 
declines to pursue a possible criminal case, it is to refer the matter 
to FinCEN for civil enforcement.
    \78\31 U.S.C. sec. 3711(g).
    \79\31 C.F.R. sec. 103.56(g). Memorandum of Agreement and 
Delegation of Authority for Enforcement of FBAR Requirements (April 2, 
2003); News Release, Internal Revenue Service, IR-2003-48 (April 10, 
2003). Secretary of the Treasury, ``A Report to Congress in Accordance 
with sec. 361(b) of the Uniting and Strengthening America by Providing 
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 
2001 (USA Patriot Act)'' (April 24, 2003).
    \80\A penalty may be assessed before the end of the six-year period 
beginning on the date of the transaction with respect to which the 
penalty is assessed. 31 U.S.C. sec. 5321(b)(1). A civil action for 
collection may be commenced within two years of the later of the date 
of assessment and the date a judgment becomes final in any related 
criminal action. 31 U.S.C. sec. 5321(b)(2).
---------------------------------------------------------------------------
    The FBAR is not filed as part of the income tax return nor 
filed in the same office as that return and, as a result, is 
not considered ``return information'' for purposes of the Code 
and its distribution to other law enforcement agencies is not 
limited by the nondisclosure rules of the Code.\81\ In 
contrast, the nondisclosure constraints on IRS personnel who 
examine income tax liability (i.e., Form 1040 reporting) 
generally preclude the sharing of tax return information with 
any other IRS personnel or Treasury officials, absent a tax 
administration purpose.\82\ Tax administration is defined as 
``the administration, management, conduct, direction, and 
supervision of the execution and application of the internal 
revenue laws or related statutes'' and does not necessarily 
include administration of Title 31.\83\ Because Title 31 
includes enforcement of non-tax provisions of the Bank Secrecy 
Act, Title 31 is not, per se, a ``related statute,'' for 
purposes of finding that a disclosure of such information would 
be for tax administration purposes. As a result, IRS personnel 
charged with investigating and enforcing the civil penalties 
under Title 31 are permitted access to Form 1040 information 
that would support or shed light on the existence of an FBAR 
violation only if there is a determination, in writing, that 
the FBAR violation was in furtherance of a Code violation and 
the statutes are ``related statutes''' for purposes of 
authorizing the disclosure.\84\
---------------------------------------------------------------------------
    \81\Section 6103 bars disclosure of return information, unless 
permitted by an exception.
    \82\Sec. 6103(h)(1). In essence, section 6103(h)(1) authorizes 
officers and employees of both the Treasury Department and IRS to have 
access to return information on the basis of a ``need to know'' in 
order to perform a tax administration function.
    \83\Sec. 6103(b)(4).
    \84\Internal Revenue Manual, secs. 4.26.14.2 and 4.26.14.2.1.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee understands that there may be an 
inconsistency with which amounts collected by the IRS on the 
basis of whistleblower information are included in a 
whistleblower award. Accordingly, the Committee believes that 
it is necessary to determine whether the current regime 
discourages whistleblowers from reporting foreign bank accounts 
to the IRS.

                        EXPLANATION OF PROVISION

    The provision requires the GAO to report on whether and to 
what extent the Secretary of the Treasury has paid 
whistleblower awards for information relating to violations of 
internal revenue laws under the Code and for FBAR violations 
under the Bank Secrecy Act.
    The provision further requires TIGTA to investigate whether 
and to what extent the IRS is asserting FBAR penalties in lieu 
of Title 26 penalties.
    The GAO study and the TIGTA report are to be submitted to 
the Senate Committee on Finance and the House Committee on Ways 
and Means within 12 months of the date of enactment.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

 2. Whistleblower reforms (sec. 122 of the bill and secs. 6103, 7213, 
                         and 7623 of the Code)


                              PRESENT LAW

In general

    Under section 7623, individuals who submit information 
leading to detection of underpayment of tax or to detection, 
trial, and punishment of persons guilty of violating internal 
revenue laws, may file a claim for an award of 15 to 30 percent 
of recovered funds resulting from such action.

Disclosure rules for whistleblowers

    Section 6103 provides a general rule of confidentiality for 
returns and return information: ``returns and return 
information shall be confidential and except as authorized by 
this Title . . . [none of the specified recipients] shall 
disclose any return or return information obtained by him . . 
.''\85\ One of the exceptions to the general rule of 
confidentiality permits the IRS to make investigative 
disclosures of return information to third parties. The 
disclosures, made in accordance with regulations, are to be 
made to the extent necessary to obtain information, which is 
not otherwise reasonably available, with respect to the correct 
determination of tax, liability for tax, the amount to be 
collected, or with respect to the enforcement of any provision 
of Title 26. The third party recipient of the return 
information furnished during an investigative disclosure is not 
subject to the general rule of confidentiality provided by 
section 6103.
---------------------------------------------------------------------------
    \85\Sec. 6103(a).
---------------------------------------------------------------------------
    There is no provision of section 6103 to provide 
whistleblowers with status updates regarding what the IRS has 
done with the information provided by the whistleblower. Such 
status information would be the return information of the 
taxpayer being audited/investigated for additional tax 
liability.
    A taxpayer can file or sue for civil damages for the 
unauthorized disclosure and/or inspection of returns and return 
information.\86\ In addition, criminal penalties apply for the 
willful unauthorized disclosure or inspection of returns and 
return information.
---------------------------------------------------------------------------
    \86\Sec. 7431.
---------------------------------------------------------------------------

Protection against retaliation

    Though other statutes such as the False Claims Act\87\ 
currently protect some individuals from employer retaliation, 
those who file claims under the Code are not explicitly 
afforded these same protections.
---------------------------------------------------------------------------
    \87\31 U.S.C. Sec. 3730(h)(2).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that modifications to the disclosure 
rules are necessary to improve communication with IRS 
whistleblowers. The Committee also believes it is important to 
ensure that any additional taxpayer information received by 
whistleblowers is fully protected.

                        EXPLANATION OF PROVISION

    This provision amends section 6103 to: (1) allow the IRS to 
exchange information with whistleblowers to the extent 
disclosure is necessary in obtaining information, which is not 
otherwise reasonably available, with respect to the correct 
determination of tax liability or the amount to be collected 
with respect to the enforcement of any other provision of the 
Code; and (2) require the Secretary to notify the whistleblower 
as to the status of their case not later than 30 days after: 
(i) the case has been referred for an audit or examination; and 
(ii) the taxpayer makes a payment to settle the tax liability 
to which the information relates. Upon written request by the 
whistleblower and so long as the disclosure would not seriously 
impair Federal tax administration, the Secretary has the 
authority to provide information on the status and stage of any 
investigation, and in the case of a determination of the amount 
of any award, the reasons for such determination. To ensure 
taxpayer information is protected, whistleblowers receiving 
information under either (1) or (2) are subject to criminal 
penalties for unauthorized disclosure of taxpayer information.
    The provision explicitly protects individuals who file 
claims under section 7623. A person who alleges discharge or 
other reprisal by any person in violation of these protections 
may file a complaint with the Secretary of Labor, not later 
than 180 days after the date on which the violation occurs. 
These protections are consistent with those currently available 
under the False Claims Act and may expose employers to 
substantial damages for punishing individuals whose conduct is 
protected, for example through reinstatement, back pay plus 
interest, and compensation for other special damages including 
litigation costs and reasonable attorneys' fees.

                             EFFECTIVE DATE

    The modifications made to the disclosure rules apply to 
disclosures made after the date of enactment. The protections 
from retaliation are effective on the date of enactment.

     D. Reform of Laws Governing Internal Revenue Service Employees


         1. Electronic record retention (sec. 131 of the bill)


                              PRESENT LAW

    Federal executive agencies are required to maintain and 
preserve Federal records,\88\ whether in paper or electronic 
form, and protect against unauthorized removal of such records. 
Policies for the retention and disposal of records must conform 
to the requirements of the record-management procedures, as 
implemented by the Archivist of the United States.\89\ Email 
accounts are specifically included within the scope of records 
subject to the record-retention policies.\90\ Each agency is 
required to provide instruction and guidance to persons 
conducting business on behalf of the agency, including 
employees, officers and contractors.\91\
---------------------------------------------------------------------------
    \88\The Federal Records Act requirements for federal agencies are 
found in 44 U.S.C. chapter 31 (Records Management by Federal Agencies). 
See 44 U.S.C. sec. 3301 for a definition of Federal records that 
generally includes all documentary materials that agencies receive or 
create in the conduct of official business and that may have 
evidentiary value with respect to official business, regardless of the 
physical form of the materials.
    \89\See generally Title 44, at chapter 21 (national archives and 
records administration), chapter 29 (records management by the 
Archivist of the United States and the General Services 
Administration), chapter 31 (records management by Federal agencies) 
and chapter 33 (disposal of records).
    \90\The regulations implementing the Federal Records Act are found 
in 36 CFR chapter XII, subchapter B--Records Management; 36 CFR sec. 
1236.22(a). These regulations implement the provisions of 44 U.S.C. 
chapters 21, 29, 31 and 33 and specify policies for federal agencies' 
records management programs relating to proper records creation and 
maintenance, adequate documentation, and records disposition.
    \91\A quarterly bulletin published by the National Archives and 
Records Administration (``NARA'') provides guidance to executive 
agencies. See generally NARA Bulletin 2013-03, available at http://
www.archives.gov/records-mgmt/bulletins/2013/2013-03.html.
---------------------------------------------------------------------------
    The government-wide record-management requirements are in 
addition to the obligations to protect the sensitive 
information for which the IRS is responsible. Tax information 
is sensitive and confidential.\92\ The Code imposes civil and 
criminal penalties to protect it from unauthorized use, 
inspection or disclosure.\93\ As a condition of receiving tax 
data, outside agencies must establish to the satisfaction of 
the IRS that they have adequate programs and security protocols 
in place to protect the data received.\94\
---------------------------------------------------------------------------
    \92\Sec. 6103(a).
    \93\See secs. 7213 (criminal unauthorized disclosure), 7213A 
(criminal unauthorized inspection) and 7431 (civil remedy for 
unauthorized inspection or disclosure).
    \94\Sec. 6103(p)(4).
---------------------------------------------------------------------------
    There are no Code provisions governing IRS record 
retention, management, or transfer of paper or electronic 
records. The Internal Revenue Manual (``IRM'') provides IRS 
employees processes, procedures, and guidelines regarding 
records and information management, including the creation, 
maintenance, retrieval, preservation, and disposition of all 
records.\95\
---------------------------------------------------------------------------
    \95\IRM sections 1.15.1-1.15.36, Records and Information 
Management, available at https://www.irs.gov/irm/part1/irm--01-015-
001.html. According to NARA, the IRM's coverage of records and 
information management policies, routines, procedures, and requirements 
indicates compliance with 36 CFR 1220.34(c) and 36 CFR 1222 through 
1238. National Archives and Records Administration, Department of the 
Treasury, Internal Revenue Service, Records Management Inspection 
Report, June 2015, available at http://www.archives.gov/records-mgmt/
pdf/irs-inspection.pdf.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that retaining certain e-mail 
records is necessary to protect the interests of taxpayers and 
hold IRS officials accountable for their actions. Pursuant to 
these goals and to increase transparency, the Committee 
believes it necessary to (i) incentivize the IRS to meet its 
December 31, 2016, deadline (as provided by a joint agency 
directive) concerning record retention by requiring the 
indefinite retention of e-mail records of all IRS personnel 
until TIGTA certifies that the IRS is in compliance with 
certain requirements to maintain and transfer e-mail records; 
and (ii) expand the e-mail record retention requirements going 
forward to cover all principal officers and specified 
employees, as defined.

                        EXPLANATION OF PROVISION

    The provision codifies the joint directive regarding the 
management of government records issued by the Office of 
Management and Budget and the National Archives and Records 
Administration.\96\ Accordingly, the provision requires that 
permanent and temporary e-mail records of the IRS be retained 
in an appropriate electronic system that supports records 
management and litigation requirements by December 31, 2016. In 
addition, the provision requires that by December 31, 2016, the 
IRS Commissioner of Internal Revenue (``Commissioner'') and the 
Chief Counsel for the IRS (``Chief Counsel'') maintain e-mail 
records of all principal officers and specified employees for 
no less than 15 years beginning on the date the record was 
generated. At the end of the 15-year period, the IRS is 
required to transfer all the email records for principal 
officers and specified employees to the National Archives for 
permanent storage.
---------------------------------------------------------------------------
    \96\Office of Management and Budget and National Archives and 
Records Administration, Memorandum for the Heads of Executive 
Departments and Agencies and Independent Agencies: Managing Government 
Records Directive (M-12-18), August 24, 2012, available at https://
www.whitehouse.gov/sites/default/files/omb/memoranda/2012/m-12-18.pdf.
---------------------------------------------------------------------------
    Principal officer means any employee whose position is 
listed under the IRS in the most recent version of the United 
States Government Manual published by the Office of the Federal 
Register, any employee who is a senior staff member reporting 
directly to the Commissioner or the Chief Counsel, and any 
associate counsel, deputy counsel or division head in the 
Office of Chief Counsel. Specified employee means any employee 
who holds a Senior Executive Service position (as defined in 
Title 5 of the United States Code) in the IRS or the Office of 
Chief Counsel, and is not a principal officer of the IRS.
    Until TIGTA certifies to the Senate Committee on Finance 
and the House Committee on Ways and Means that the IRS is in 
compliance with the requirements to maintain and transfer e-
mail records, the Commissioner and the Chief Counsel must 
retain the email records of all personnel. The provision 
requires TIGTA to prepare an interim report on the steps being 
taken to comply with the provision by September 30, 2016, and a 
final report on whether the IRS is in compliance with the 
provision by April 1, 2017, for the Senate Committee on Finance 
and the House Committee on Ways and Means.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

 2. Sense of the Senate on revision of the Hatch Act (sec. 132 of the 
                                 bill)

    The Hatch Act (``Act'') prohibits civilian executive branch 
employees of the Federal government, District of Columbia 
government, and some State and local employees who work in 
connection with federally funded programs from running for 
partisan political office and from engaging in certain other 
partisan political activities.\97\ The Act was significantly 
amended in 1993, to allow most Federal employees to engage in 
voluntary, partisan political activities as long as those 
activities take place during their own free time, away from 
their federal jobs, and off of federal premises.\98\ Employees 
covered by the Hatch Act may not use their official authority 
to influence or affect an election and may not knowingly help 
in political fundraising, run for partisan elective office, 
knowingly solicit or discourage political activity by persons 
with certain business before the agency, or engage in political 
activity on government time or using government resources. 
Employees at certain listed agencies are further restricted 
from taking any active part in political management or 
political campaigns, even while off-duty. Exceptions apply for 
the President and Vice President and for certain other top 
officials.
---------------------------------------------------------------------------
    \97\The Hatch Act is codified at 5 U.S.C. sections 1501-1508 
(applicable to State and local employees) and 5 U.S.C. sections 7321-
7326 (applicable to Federal employees).
    \98\Hatch Act Reform Amendments of 1993, sec. 2, Pub. L. No. 103-
94, October 6, 1993.
---------------------------------------------------------------------------
    It is the Sense of the Senate that the Act\99\ be revised 
to designate any employee of the Department of the Treasury who 
is primarily responsible for matters relating to exempt 
organizations (pursuant to section 501(c) or 527) as ``further 
restricted.'' By designating these employees as ``further 
restricted,'' the public can be assured that any impermissible 
political activity by these IRS employees that is detected will 
result in serious penalties, including removal from Federal 
employment.
---------------------------------------------------------------------------
    \99\5 U.S.C. sec. 7323(b)(2)(B)(i).
---------------------------------------------------------------------------

3. Prohibition on rehiring former IRS employees who were involuntarily 
  separated for misconduct (sec. 133 of the bill and sec. 7804 of the 
                                 Code)


                              PRESENT LAW

    Employees of the IRS are subject to rules governing Federal 
employment generally,\100\ as well as rules of conduct specific 
to Department of the Treasury and the IRS. Standards of Ethical 
Conduct for Employees of the Executive Branch are supplemented 
by additional rules applicable to employees of the Department 
of the Treasury.\101\
---------------------------------------------------------------------------
    \100\Part III of Title 5 of the United States Code prescribes rules 
for Federal employment, including employment, retention, and management 
and employee issues.
    \101\Standards of Ethical Conduct for Employees of the Executive 
Branch, 5 C.F.R. 735. 5 CFR 3101, Supplemental Standards of Ethical 
Conduct for Employees of the Department of the Treasury; 31 CFR Part 0, 
Department of the Treasury Employee Rules of Conduct.
---------------------------------------------------------------------------
    The Code\102\ provides that the Commissioner of the IRS has 
such duties and powers as prescribed by the Secretary. Unless 
otherwise specified by the Secretary, such duties and powers 
include the power to administer, manage, conduct, direct, and 
supervise the execution and application of the internal revenue 
laws or related statutes and tax conventions to which the 
United States is a party, and to recommend to the President a 
candidate for Chief Counsel (and recommend the removal of the 
Chief Counsel). Unless otherwise specified by the Secretary, 
the Commissioner is authorized to employ such persons as the 
Commissioner deems proper for the administration and 
enforcement of the internal revenue laws and is required to 
issue all necessary directions, instructions, orders, and rules 
applicable to such persons,\103\ including determination and 
designation of posts of duty.
---------------------------------------------------------------------------
    \102\Sec. 7803(a).
    \103\Sec. 7804.
---------------------------------------------------------------------------
    The Restructuring Act\104\ 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 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 take an official action, such as 
an audit, or delay or fail to take official action with respect 
to a taxpayer for political purposes or for the purpose of 
extracting personal gain or benefit.
---------------------------------------------------------------------------
    \104\Pub. L. No. 105-206, sec. 1203(b), July 22, 1998.
---------------------------------------------------------------------------
    The Restructuring Act 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 Act also provides that 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. TIGTA is required to track 
employee terminations and terminations that would have occurred 
had the Commissioner not determined that there were mitigation 
factors and include such information in TIGTA's annual report 
to Congress.

                           REASONS FOR CHANGE

    TIGTA reported that the IRS had rehired 141 former 
employees who had previously been dismissed involuntarily for 
cause.\105\ The types of misconduct that led to the involuntary 
dismissals included willful failure to file tax returns, 
unauthorized access to confidential tax information, 
falsification of official forms, abuse of leave, and other 
violations of IRS policies. The Committee believes that 
rehiring persons who were fired for such misconduct is improper 
and poses a serious risk to the confidentiality of the 
information entrusted to the IRS and erodes trust in the IRS. 
In order to restore trust in the integrity of IRS employees and 
hold IRS officials accountable for their hiring practices, it 
is necessary to ban rehiring persons who were dismissed for 
cause.
---------------------------------------------------------------------------
    \105\Inspector General for Tax Administration, Department of the 
Treasury, Additional Consideration of Prior Conduct and Performance 
Issues Is Needed When Hiring Former Employees (TIGTA 2015-10-006), 
December 30, 2014, available at https://www.treasury.gov/tigta/
auditreports/2015reports/201510006fr.pdf.
---------------------------------------------------------------------------

                        EXPLANATION OF PROVISION

    A former employee of the IRS who was involuntarily 
separated due to misconduct under subchapter A of Chapter 80 of 
the Code, under chapters 43 or 75 of Title 5 of the United 
States Code, or whose employment was terminated under section 
1203 of the IRS Restructuring Act of 1998, cannot be reemployed 
by the IRS.

                             EFFECTIVE DATE

    The provision is effective with respect to any employee 
removed from employment before, on, or after the date of 
enactment. However, the provision does not apply to any 
employee who is employed by the IRS as of the date of enactment 
with respect to any removal for misconduct which occurred 
before such date.

4. Authority to remove or transfer senior executives who fail in their 
 performance or engage in serious misconduct (sec. 134 of the bill and 
                         sec. 7804 of the Code)


                              PRESENT LAW

    Employees of the IRS are subject to rules governing Federal 
employment generally,\106\ as well as rules of conduct specific 
to Department of the Treasury and IRS. Standards of Ethical 
Conduct for Employees of the Executive Branch are supplemented 
by additional rules applicable to employees of the Department 
of the Treasury.\107\
---------------------------------------------------------------------------
    \106\Part III of Title 5 of the United States Code prescribes rules 
for Federal employment, including employment, retention, and management 
and employee issues.
    \107\Standards of Ethical Conduct for Employees of the Executive 
Branch, 5 C.F.R. 735. 5 CFR 3101, Supplemental Standards of Ethical 
Conduct for Employees of the Department of the Treasury; 31 CFR Part 0, 
Department of the Treasury Employee Rules of Conduct.
---------------------------------------------------------------------------
    The Code\108\ provides that the Commissioner of the IRS has 
such duties and powers as prescribed by the Secretary. Unless 
otherwise specified by the Secretary, such duties and powers 
include the power to administer, manage, conduct, direct, and 
supervise the execution and application of the internal revenue 
laws or related statutes and tax conventions to which the 
United States is a party, and to recommend to the President a 
candidate for Chief Counsel (and recommend the removal of the 
Chief Counsel). Unless otherwise specified by the Secretary, 
the Commissioner is authorized to employ such persons as the 
Commissioner deems proper for the administration and 
enforcement of the internal revenue laws and is required to 
issue all necessary directions, instructions, orders, and rules 
applicable to such persons,\109\ including determination and 
designation of posts of duty.
---------------------------------------------------------------------------
    \108\Sec. 7803(a).
    \109\Sec. 7804.
---------------------------------------------------------------------------
    The Restructuring Act\110\ 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 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 take an official action, such as 
an audit, or delay or fail to take official action with respect 
to a taxpayer for political purposes or for the purpose of 
extracting personal gain or benefit.
---------------------------------------------------------------------------
    \110\Pub. L. No. 105-206, sec. 1203(b), July 22, 1998.
---------------------------------------------------------------------------
    The Restructuring Act 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 Act also provides that 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. The IG is required to 
track employee terminations and terminations that would have 
occurred had the Commissioner not determined that there were 
mitigation factors and include such information in the IG's 
annual report to Congress.
    Adverse personnel actions may be reviewed by the Merit 
Systems Protection Board, (``the Board'') under its appellate 
jurisdiction.\111\ Members of the Senior Executive Service 
(``SES'') have additional rights to seek informal hearings of 
the Board after notice of proposed adverse action by the 
IRS.\112\
---------------------------------------------------------------------------
    \111\Title 5 C.F.R, Part 1201-Practices and Procedures.
    \112\5 U.S.C. sec. 3592 and related regulations.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that providing additional authority 
to remove or demote senior executive employees for poor 
performance or misconduct is necessary to help restore public 
confidence and trust in the IRS and to increase accountability.

                        EXPLANATION OF PROVISION

    Under the provision, the Commissioner may remove or demote 
any individual employed in a senior executive position at the 
IRS if the Commissioner determines the performance or 
misconduct of the individual warrants such removal. The 
Commissioner has this authority to immediately remove senior 
executives notwithstanding the 120-day moratorium provided 
under current law. Within 30 days of removing or demoting a 
senior executive, the Commissioner is required to notify the 
Senate Committee on Finance, the Senate Committee on Homeland 
Security and Governmental Affairs, the House Committee on Ways 
and Means, and the House Committee on Oversight and Government 
Reform (herein the ``Committees'''). Individual means a career 
appointee (as defined in section 3132(a)(4) of Title 5). 
Misconduct includes neglect of duty, malfeasance, or failure to 
accept a directed reassignment or to accompany a position in a 
transfer of function. Senior executive position means an SES 
position (as defined in section 3132(a)(2) of Title 5).
    Appeal rights of the employee are provided that are similar 
in scope to those applicable to removal of executives at the 
Department of Veterans Affairs.\113\ The senior executive is 
allowed an opportunity for an expedited review by the Board. 
The expedited review by the Board is to be conducted by an 
administrative law judge at the Board, and if the judge does 
not conclude their review within 21 days then the removal or 
demotion is final. There is no further appeal permitted beyond 
the administrative law judge.
---------------------------------------------------------------------------
    \113\Section 707 of ``Veterans Access, Choice and Accountability 
Act of 2014,'' Pub. L. No. 113-146, (August 7, 2014).
---------------------------------------------------------------------------
    If the senior executive is removed, and then appeals the 
IRS's decision, the senior executive is not entitled to any 
type of pay, bonus, or benefit while appealing the decision of 
removal. If a senior executive is demoted, and then appeals the 
IRS's decision, the employee may only receive any type of pay, 
bonus, or benefit at the rate appropriate for the position they 
were demoted to, and only if the individual reports for duty, 
while appealing the decision of demotion. The Board is required 
to submit to the Committees a plan within 30 days of enactment 
of how the expedited review would be implemented and to 
implement such plan within 60 days of enactment.
    The provision does not apply to an appeal of a removal, 
transfer, or other personnel action that was pending before the 
date of enactment.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

 5. Limit participation of third-party contractors for sworn testimony 
  taken pursuant to a summons from the IRS (sec. 135 of the bill and 
                    secs. 6103 and 7602 of the Code)


                              PRESENT LAW

    The Secretary has primary authority to administer and 
enforce the Code.\114\ The Code also creates the appointment of 
the Commissioner and Chief Counsel of the IRS and enumerates 
the powers of the Secretary that the Secretary is expected to 
delegate to those officers.
---------------------------------------------------------------------------
    \114\Secs. 7801 and 7805.
---------------------------------------------------------------------------
    The duties of the Commissioner are the application and 
execution of the tax laws, including tax treaties to which the 
United States is a party, to the extent delegated by the 
Secretary.\115\ The Commissioner is authorized to employ other 
persons to carry out his work, unless prohibited by the 
Secretary.\116\ The Chief Counsel is the chief law officer for 
the IRS, and serves as the legal adviser to the Commissioner 
and his officers and employees. The enumerated duties of the 
Chief Counsel and his or her employees includes the 
representation of the Commissioner in cases before the Tax 
Court and the determination of which civil actions should be 
litigated or recommended to the Department of Justice for 
action.\117\ Persons employed by the Chief Counsel report to 
the Chief Counsel, who reports directly to the Commissioner 
except that for matters of tax policy, Chief Counsel reports 
directly to the General Counsel, and for matters involving tax 
law or litigation not solely related to tax policy, reports to 
both the Commissioner and the General Counsel for the 
Secretary.
---------------------------------------------------------------------------
    \115\Sec. 7803(a).
    \116\Sec. 7804.
    \117\Sec. 7803(b).
---------------------------------------------------------------------------
    Employees of either the Commissioner or the Chief Counsel 
are employees of an executive agency,\118\ subject to the 
criminal and civil conflict of interest statutes, the Standards 
of Ethical Conduct for Employees of the Executive Branch. Such 
provisions are also applicable to ``special government 
employees,'' persons who are hired for a limited period.\119\ 
In contrast, outside contractors are generally not subject to 
the same ethics standards and regulations as government 
employees, and do not perform the same duties as an employee.
---------------------------------------------------------------------------
    \118\Title 5 of the U.S. Code provides general rules for government 
organizations and employees, including section 105 (defines ``executive 
agency'' as any Executive department, government corporation, or 
independent establishment agency); sec. 2105 (defines employee) and 
sections 9501 through 9510 (permitting flexibility in workforce 
staffing, compensation and staffing).
    \119\18 U.S.C. sec. 202.
---------------------------------------------------------------------------
    In the IRS, such contractors have generally been limited to 
persons needed to perform technical support functions, or to 
provide expert advice on nontax aspects in factual development 
of tax controversies.\120\ In order to provide such assistance, 
the persons under contract may be authorized to receive return 
information,\121\ and, pursuant to a temporary regulation 
published in 2014, may participate fully in the conduct of an 
examination, including questioning of witnesses responding to 
an administrative summons. In the preamble to the temporary 
regulations, the Secretary stated that ``The assistance of 
persons from outside the IRS or Chief Counsel promotes 
efficient administration and enforcement of laws administered 
by the IRS, by providing specialized knowledge, skills, or 
abilities that the IRS officers or employees assigned to the 
case may not possess[,]'' but goes on to say that the 
contractors' role is ``limited to functions that are not 
inherently governmental, such as taking testimony by asking 
questions, reviewing books or papers, or analyzing other 
data.''\122\
---------------------------------------------------------------------------
    \120\See Internal Revenue Manual paragraph 35.4.8.5 (08-11-2004) 
``Expert Witnesses.''
    \121\Sec. 6103(n); Treas. Reg. sec. 301.6103(n)-1(a).
    \122\See Treasury Decision 9669, ``Summons Interview Regulations 
under section 7602,'' Internal Revenue Bulletin, 2014-298 (July 7, 
2014); Treas. Reg. Sec. 301.7602-1T ``Examination of books and 
witnesses (temporary).''
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    Temporary regulations allow non-IRS attorneys to receive, 
review, and use summoned books, papers, records, or other data 
of taxpayers, and to be present during taxpayer interviews. The 
Committee believes enacting a proposal that effectively 
rescinds these temporary regulations is necessary to help 
ensure that taxpayer information is not misused or unlawfully 
disclosed by outside counsel.

                        EXPLANATION OF PROVISION

    The provision bars the IRS from delegating to third-party 
contractors the authority under section 7602 to examine books 
and records, summons persons, or take sworn testimony related 
to a tax matter.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment for 
contracts in effect on or after that date.

6. Notification of unauthorized inspection or disclosure of returns and 
  return information (sec. 136 of the bill and sec. 7431 of the Code)


                              PRESENT LAW

    If a Federal employee makes an unauthorized disclosure or 
inspection, a taxpayer can bring suit against the United States 
in Federal district court. If a person other than a Federal 
employee makes an unauthorized disclosure or inspection, suit 
may be brought directly against such person. No liability 
results from a disclosure based on a good faith, but erroneous, 
interpretation of section 6103. A disclosure or inspection made 
at the request of the taxpayer will also relieve liability.
    Upon a finding of liability, a taxpayer can recover the 
greater of $1,000 per act of unauthorized disclosure (or 
inspection), or the sum of actual damages plus, in the case of 
an inspection or disclosure that was willful or the result of 
gross negligence, punitive damages. The taxpayer may also 
recover the costs of the action and, if found to be a 
prevailing party, reasonable attorney fees.
    The taxpayer has two years from the date of the discovery 
of the unauthorized inspection or disclosure to bring suit. The 
IRS is required to notify a taxpayer of an unauthorized 
inspection or disclosure as soon as practicable after any 
person is criminally charged by indictment or information for 
unlawful inspection or disclosure.

                           REASONS FOR CHANGE

    The Committee believes that current law requiring the 
Secretary to notify a taxpayer about unauthorized inspection or 
disclosure only if the offending party is criminally charged is 
insufficient. The Committee believes that additional 
notification is necessary to enhance the ability of a taxpayer 
to exercise his or her rights under the Code to bring a civil 
action for unauthorized inspection or disclosure.

                        EXPLANATION OF PROVISION

    The provision requires the Secretary to notify a taxpayer 
if the IRS or a Federal or State agency (upon notice to the 
Secretary by such Federal or State agency) proposes an 
administrative determination as to disciplinary or adverse 
action against an employee arising from the employee's 
unauthorized inspection or disclosure of the taxpayer's return 
or return information. The provision requires the notice to 
include the date of the unauthorized inspection or disclosure 
and the rights of the taxpayer as a result of such 
administrative determination.

                             EFFECTIVE DATE

    The provision is effective for determinations proposed 
after 180 days after the date of enactment.

                        E. Exempt Organizations


1. Mandatory e-filing by exempt organizations (sec. 141 of the bill and 
              secs. 511, 527, 6033, and 6104 of the Code)


                              PRESENT LAW

In general

    The Restructuring Act\123\ states a Congressional policy to 
promote the paperless filing of Federal tax returns. Section 
2001(a) of the Restructuring Act set a goal for the IRS to have 
at least 80 percent of all Federal tax and information returns 
filed electronically by 2007.\124\ Section 2001(b) of 
Restructuring Act requires the IRS to establish a 10-year 
strategic plan to eliminate barriers to electronic filing.
---------------------------------------------------------------------------
    \123\Pub. L. No. 105-206.
    \124\The Electronic Tax Administration Advisory Committee, the body 
charged with oversight of IRS progress in reaching that goal reported 
that e-filing by individuals exceeded 80 percent in the 2013 filing 
season, but projected an overall rate of 72.8 percent based on all 
Federal returns. See Electronic Tax Administration Advisory Committee, 
Annual Report to Congress, June 2013, IRS Pub. 3415, page 6.
---------------------------------------------------------------------------
    Present law requires the Secretary to issue regulations 
regarding electronic filing and specifies certain limitations 
on the rules that may be included in such regulations.\125\ The 
statute requires that Federal income tax returns prepared by 
specified tax return preparers be filed electronically,\126\ 
and that all partnerships with more than 100 partners be 
required to file electronically. For taxpayers other than 
partnerships, the statute prohibits any requirement that 
persons who file fewer than 250 returns during a calendar year 
file electronically. With respect to individuals, estates, and 
trusts, the Secretary may permit, but generally cannot require, 
electronic filing of income tax returns. In crafting any of 
these required regulations, the Secretary must take into 
account the ability of taxpayers to comply at reasonable cost.
---------------------------------------------------------------------------
    \125\Sec. 6011(e).
    \126\Section 6011(e)(3)(B) defines a ``specified tax return 
preparer'' as any return preparer who reasonably expects to file more 
than 10 individual income tax returns during a calendar year.
---------------------------------------------------------------------------
    The regulations require corporations that have assets of 
$10 million or more and file at least 250 returns during a 
calendar year to file electronically their Form 1120/1120S 
corporation/S corporation income tax returns and Form 990 
information returns for tax years ending on or after December 
31, 2006. In determining whether the 250 return threshold is 
met, income tax, information, excise tax, and employment tax 
returns filed within one calendar year are counted.

Tax-exempt organizations

    Most tax-exempt organizations are required to file annual 
information returns in the Form 990 series. Since 2007, the 
smallest organizations--generally, those with gross receipts of 
$50,000 or less--may provide an abbreviated notice on Form 990-
N, sometimes referred to as an ``e-Postcard.'' Which form to 
file depends on the annual receipts, value of assets, and types 
of activities of the exempt entity. The Forms 990, 990-EZ 
(short form), and 990-PF (private foundation) are released to 
the public on DVDs.
    In general, only the largest and smallest tax-exempt 
organizations are required to electronically file their annual 
information returns. First, as indicated above, tax-exempt 
corporations that have assets of $10 million or more and that 
file at least 250 returns during a calendar year must 
electronically file their Form 990 information returns. Private 
foundations and charitable trusts, regardless of asset size, 
that file at least 250 returns during a calendar year are 
required to file electronically their Form 990-PF information 
returns.\127\ Finally, organizations that file Form 990-N (the 
e-Postcard) also must electronically file.\128\
---------------------------------------------------------------------------
    \127\Taxpayers can request waivers of the electronic filing 
requirement if they cannot meet that requirement due to technological 
constraints, or if compliance with the requirement would result in 
undue financial burden on the taxpayer.
    \128\See Form 990-N, ``Electronic Notice for Tax-exempt 
Organizations Not Required to File a Form 990 or 990-EZ.''
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes it is important to increase the 
transparency of, and enhance public access to information 
about, public charities.

                        EXPLANATION OF PROVISION

    The provision extends the requirement to e-file to all tax-
exempt organizations required to file statements or returns in 
the Form 990 series or Form 8872 (``Political Organization 
Report of Contributions and Expenditures''). The provision also 
requires that the IRS make the information provided on the 
forms available to the public (consistent with the disclosure 
rules of section 6104) in a machine-readable format as soon as 
practicable. It is intended that the information be provided to 
the public in a format that permits one to extract and perform 
computations on the data but not alter or manipulate the 
statements or returns from which the data is to be extracted.

                             EFFECTIVE DATE

    The provision generally is effective for taxable years 
beginning after the date of enactment. Transition relief is 
provided for certain organizations. First, for certain small 
organizations or other organizations for which the Secretary 
determines that application of the e-filing requirement would 
constitute an undue hardship in the absence of additional 
transitional time, the requirement to file electronically must 
be implemented not later than either or both of the 
organization's first two taxable years beginning after the date 
of enactment. For this purpose, small organization means any 
organization: (1) the gross receipts of which for the taxable 
year are less than $200,000; and (2) the aggregate gross assets 
of which at the end of the taxable year are less than $500,000. 
Second, the provision grants IRS the discretion to delay the 
effective date to either or both of the organization's first 
two taxable years beginning after the date of enactment for the 
filing of Form 990-T (reports of unrelated business taxable 
income or the payment of proxy tax under section 6033(e)).

     2. Repeal of substantiation exception for certain charitable 
contributions reported by the donee organization (sec. 142 of the bill 
                    and sec. 170(f)(8) of the Code)


                              PRESENT LAW

Substantiation and other formal requirements, in general

    A donor who claims a deduction for a charitable 
contribution must maintain reliable written records regarding 
the contribution, regardless of the value or amount of such 
contribution.\129\ In the case of a charitable contribution of 
money, regardless of the amount, applicable recordkeeping 
requirements are satisfied only if the donor maintains as a 
record of the contribution a bank record or a written 
communication from the donee showing the name of the donee 
organization, the date of the contribution, and the amount of 
the contribution. In such cases, the recordkeeping requirements 
may not be satisfied by maintaining other written records.
---------------------------------------------------------------------------
    \129\Sec. 170(f)(17).
---------------------------------------------------------------------------
    No charitable contribution deduction is allowed for a 
separate contribution of $250 or more unless the donor obtains 
a contemporaneous written acknowledgement of the contribution 
from the charity indicating whether the charity provided any 
good or service (and an estimate of the value of any such good 
or service) to the taxpayer in consideration for the 
contribution.\130\
---------------------------------------------------------------------------
    \130\Such acknowledgement must include the amount of cash and a 
description (but not value) of any property other than cash 
contributed, whether the donee provided any goods or services in 
consideration for the contribution, and a good faith estimate of the 
value of any such goods or services. Sec. 170(f)(8).
---------------------------------------------------------------------------
    In addition, any charity receiving a contribution exceeding 
$75 made partly as a gift and partly as consideration for goods 
or services furnished by the charity (a ``quid pro quo'' 
contribution) is required to inform the contributor in writing 
of an estimate of the value of the goods or services furnished 
by the charity and that only the portion exceeding the value of 
the goods or services is deductible as a charitable 
contribution.\131\
---------------------------------------------------------------------------
    \131\Sec. 6115.
---------------------------------------------------------------------------
    If the total charitable deduction claimed for noncash 
property is more than $500, the taxpayer must attach a 
completed Form 8283 (Noncash Charitable Contributions) to the 
taxpayer's return or the deduction is not allowed.\132\ In 
general, taxpayers are required to obtain a qualified appraisal 
for donated property with a value of more than $5,000, and to 
attach an appraisal summary to the tax return.
---------------------------------------------------------------------------
    \132\Sec. 170(f)(11).
---------------------------------------------------------------------------

Exception for certain contributions reported by the donee organization

    Subsection 170(f)(8)(D) provides an exception to the 
contemporaneous written acknowledgment requirement described 
above. Under the exception, a contemporaneous written 
acknowledgment is not required if the donee organization files 
a return, on such form and in accordance with such regulations 
as the Secretary may prescribe, that includes the same content. 
``[T]he section 170(f)(8)(D) exception is not available unless 
and until the Treasury Department and the IRS issue final 
regulations prescribing the method by which donee reporting may 
be accomplished.''\133\ No such final regulations have been 
issued.
---------------------------------------------------------------------------
    \133\See IRS, Notice of Proposed Rulemaking, Substantiation 
Requirement for Certain Contributions, REG-138344-13 (October 13, 
2015), I.R.B. 2015-41 (preamble).
---------------------------------------------------------------------------
    In October 2015, the IRS issued proposed regulations that, 
if finalized, would have implemented the section 170(f)(8)(D) 
exception to the contemporaneous written acknowledgment 
requirement.\134\ The proposed regulations provided that a 
return filed by a donee organization under section 170(f)(8)(D) 
must include, in addition to the information generally required 
on a contemporaneous written acknowledgment: (1) the name and 
address of the donee organization; (2) the name and address of 
the donor; and (3) the taxpayer identification number of the 
donor. In addition, the return must be filed with the IRS (with 
a copy provided to the donor) on or before February 28 of the 
year following the calendar year in which the contribution was 
made. Under the proposed regulations, donee reporting would 
have been optional and would have been available solely at the 
discretion of the donee organization. The proposed regulations 
were withdrawn in January 2016.
---------------------------------------------------------------------------
    \134\134 See Prop. Treas. Reg. sec 1.170A0913(f)(18).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    Protecting sensitive taxpayer information, including Social 
Security numbers, against identity theft or inadvertent 
disclosure is a priority of the Committee. As indicated above, 
recently issued proposed regulations would establish a process 
under which certain charities would collect and be responsible 
for maintaining the security of such information about its 
donors. This places the donors at an increased risk of identity 
theft and potentially would have a chilling effect on 
donations. Although the Secretary recently withdrew the 
proposed regulations, the Committee remains concerned about the 
existence of statutory authority that might allow the Secretary 
to establish such a process in the future. The Committee 
therefore believes that the authority provided to the Secretary 
under section 170(f)(8)(D) should be repealed.

                        EXPLANATION OF PROVISION

    The provision repeals the section 170(f)(8)(D) exception to 
the contemporaneous written acknowledgment requirement.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

 3. Prohibit the use of IRS funds for political targeting (sec. 143 of 
                               the bill)


                              PRESENT LAW

    No provision.

                           REASONS FOR CHANGE

    The Committee seeks to ensure that no appropriated funds 
are used to punish taxpayers for exercising their First 
Amendment rights.

                        EXPLANATION OF PROVISION

    The provision would prohibit the use of any funds by the 
IRS to target citizens of the United States for exercising any 
right guaranteed under the First Amendment to the U.S. 
Constitution.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

4. Notification to exempt organizations prior to revoking exempt status 
for failing to file information returns (sec. 144 of the bill and sec. 
                           6033 of the Code)


                              PRESENT LAW

Applications 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 (Application for 
Recognition of Exemption under Section 501(c)(3) of the Code)) 
or Form 1023-EZ (Streamlined Application for Recognition of 
Exemption under Section 501(c)(3) of the Code)).\135\ 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.
---------------------------------------------------------------------------
    \135\See sec. 508(a).
---------------------------------------------------------------------------
    A favorable determination by the IRS on an application for 
recognition of tax-exempt status generally 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.\136\ 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.\137\ 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.\138\
---------------------------------------------------------------------------
    \136\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.
    \137\Treas. Reg. sec. 1.508-1(a)(1).
    \138\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).
---------------------------------------------------------------------------
            Other section 501(c) organizations
    Most other types of 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 seek formal recognition of tax-exempt status from the IRS. 
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 (Application for Recognition of Exemption 
under Section 501(a)).
    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.\139\ 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.
---------------------------------------------------------------------------
    \139\Rev. Proc. 2016-5, sec. 11, 2016-01 I.R.B. 188.
---------------------------------------------------------------------------
    Notwithstanding the foregoing, a section 501(c)(4) 
organization must provide to the Secretary notice of its 
formation and intent to operate as such an organization. \140\ 
The notice generally must be provided no later than 60 days 
following the organization's establishment. Within 60 days of 
receipt of a notice of an organization's formation and intent 
to operate as an organization described in section 501(c)(4), 
the Secretary must issue to the organization an acknowledgment 
of the notice. The notice requirement is generally effective 
for organizations organized after December 18, 2015.
---------------------------------------------------------------------------
    \140\See sec. 506.
---------------------------------------------------------------------------

Annual information returns

    Exempt organizations are required to file an annual 
information return, Form 990 (Return of Organization Exempt 
From Income Tax), stating specifically the items of gross 
income, receipts, disbursements, and such other information as 
the Secretary may prescribe.\141\ Exempt from the requirement 
are churches, their integrated auxiliaries, and conventions or 
associations of churches; the exclusively religious activities 
of any religious order; certain State institutions whose income 
is excluded from gross income under section 115; an interchurch 
organization of local units of a church; certain mission 
societies; certain church-affiliated elementary and high 
schools; and certain other organizations, including some that 
the IRS has relieved from the filing requirement pursuant to 
its statutory discretionary authority.\142\
---------------------------------------------------------------------------
    \141\Sec. 6033(a). An organization that has not received a 
determination of its tax-exempt status, but that claims tax-exempt 
status under section 501(a), is subject to the same annual reporting 
requirements and exceptions as organizations that have received a tax-
exemption determination.
    \142\Sec. 6033(a)(3); Treas. Reg. secs. 1.6033-2(a)(2)(i) and 
(g)(1).
---------------------------------------------------------------------------
    An organization that is required to file an information 
return, but that has gross receipts of less than $200,000 
during its taxable year, and total assets of less than $500,000 
at the end of its taxable year, may file Form 990-EZ. If an 
organization normally has gross receipts of $50,000 or less, it 
must file Form 990-N (``e-Postcard''), if it chooses not to 
file Form 990 or Form 990-EZ. Private foundations are required 
to file Form 990-PF rather than Form 990.

Revocation of exempt status

            In general
    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 are no substantial changes 
in the organization's character, purposes, or methods of 
operation.''\143\ 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 (discussed in greater detail 
below).\144\ 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.\145\
---------------------------------------------------------------------------
    \143\Treas. Reg. sec. 1.501(a)-1(a)(2).
    \144\Rev. Proc. 2016-5, sec. 12, 2016-01 I.R.B. 188.
    \145\Ibid.
---------------------------------------------------------------------------
    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.
            Automatic revocation for failure to file information 
                    returns
    If an organization fails to file a required Form 990-series 
return or notice for three consecutive years, the 
organization's tax-exempt status is automatically revoked.\146\ 
A revocation for failure to file is effective from the date 
that the Secretary determines was the last day the organization 
could have timely filed the third required information return 
or notice. To again be recognized as tax-exempt, the 
organization must apply to the Secretary for recognition of 
tax-exemption, irrespective of whether the organization was 
required to make an application for recognition of tax-
exemption in order to gain tax-exemption originally.
---------------------------------------------------------------------------
    \146\Sec. 6033(j).
---------------------------------------------------------------------------
    If, upon application for tax-exempt status after an 
automatic revocation for failure to file information returns, 
the organization shows to the satisfaction of the Secretary 
reasonable cause for failing to file the required annual 
notices or returns, the organization's tax-exempt status may, 
in the discretion of the Secretary, be reinstated retroactive 
to the date of revocation. An organization may not challenge 
under the Code's declaratory judgment procedures (section 7428) 
a revocation of tax-exemption made for failure to file annual 
information returns.
    The Secretary is authorized to publish a list of 
organizations whose exempt status is automatically revoked.

                           REASONS FOR CHANGE

    Under present law, the IRS does not have the discretion to 
reinstate an organization's exempt status without requiring a 
formal reapplication for exempt status (Form 1023 or Form 1024) 
if the organization has had its exempt status automatically 
revoked for failing to file information returns. This 
reapplication requirement has increased the IRS's backlog of 
unprocessed applications. Furthermore, present law does not 
require the IRS to notify an organization that has already 
failed to file a return for two consecutive years that it is at 
risk of revocation if it fails to file for a third consecutive 
year. Many of the affected organizations are small and poorly 
funded, yet face increased demand for their services from the 
communities in which they operate. As a result, requiring 
reapplication can pose a significant financial burden on these 
organizations and their communities. The Committee therefore 
believes it is appropriate to require the IRS to notify 
organizations that are at risk of losing exempt status for 
failure to file and to permit the IRS to reinstate an 
organization's exempt status without requiring reapplication in 
certain situations.

                        EXPLANATION OF PROVISION

    The provision requires that the IRS provide notice to an 
organization that fails to file a Form 990-series return or 
notice for two consecutive years not later than 270 days after 
the date of the second failure. The notice must state that the 
IRS has no record of having received such a return or notice 
from the organization for two consecutive years and inform the 
organization about the consequences of failing to file such a 
return or notice by the date of the next filing deadline. The 
notice must also contain information about how to comply with 
the annual information return and notice requirements under 
sections 6033(a)(1) and 6033(i).
    The provision also provides that the Secretary may 
reinstate the exempt status of an organization that had its 
exempt status automatically revoked for failing to file an 
information return or notice for three consecutive years if (1) 
the organization demonstrates to the satisfaction of the 
Secretary that it did not receive the above-described notice 
from the IRS, and (2) files an annual return or notice for the 
current year. Under such circumstances, the exempt status is 
reinstated as of the date of revocation.

                             EFFECTIVE DATE

    The provision is effective for notices and returns required 
to be filed after December 31, 2015.

  TITLE II--PROTECTION OF TAXPAYERS FROM IDENTIFY THEFT AND TAX FRAUD


  1. Single point of contact for identity theft victims (sec. 201 of 
                               the bill)


                              PRESENT LAW

    Disparate elements in the tax laws and administration are 
implicated in identity theft. Tax-related identity theft can 
generally occur in one of two ways. In refund fraud, a 
perpetrator may obtain a taxpayer's identifying information, 
submit an individual income tax return using a falsified Form W 
2, Wage and Tax Statement, and fraudulently claim a refund. In 
other cases, the stolen identifying information is used in 
order to obtain employment; the returns then filed by the 
persons employed using the stolen identity may be based on the 
actual wages and withholdings. Victims of the fraud include the 
individuals whose identifying information was stolen as well as 
the businesses whose systems may have been breached to obtain 
that personal information.
    The IRS describes its procedures for addressing both types 
of fraud in the Internal Revenue Manual. The IRS initially 
established the Identity Protection Specialized Unit (``IPSU'') 
to assist victims of identity theft, but taxpayers were also 
referred to other operating units of the IRS to deal with 
various aspects of their case.\147\ Subsequently reorganized 
and renamed the Identity Theft Victim Assistance (``IDTVA'') 
organization, it is staffed with specially trained employees 
who are able to assess each case, identify issues, and assist 
the taxpayer in getting the correct return filed, refund(s) 
issued, etc.\148\ The IDTVA organization's work is coordinated 
by the IRS' Identity Protection Program through the auspices of 
an oversight office within the Wage and Investment Operating 
Division.\149\
---------------------------------------------------------------------------
    \147\TIGTA, Ref. No. 2012-40-050, Most Taxpayers Whose Identities 
Have Been Stolen to Commit Refund Fraud Do Not Receive Quality Customer 
Service (May 2012).
    \148\A description of the services provided by the IDTVA 
organization is available at https://www.irs.gov/uac/Newsroom/IRS-
Identity-Theft-Victim-Assistance-How-It-Works.
    \149\Internal Revenue Service, Identity Protection and Victim 
Assistance, Internal Revenue Manual Chapter 23, paragraph 25.23.1 et 
seq. (September 2, 2015).
---------------------------------------------------------------------------
    If a victim thinks he or she is not being properly served 
by the IRS or the IDTVA organization, the taxpayer may be 
eligible for assistance from the Taxpayer Advocate Service 
(``TAS'') as in the case of economic hardship caused by the 
theft. In such instances, the TAS will assign a case advocate 
to the taxpayer's account.

                           REASONS FOR CHANGE

    The Committee is concerned that taxpayers who are 
victimized by identity thieves experience delays in obtaining 
their tax refunds, and find it difficult to work with multiple 
offices within the IRS. Requiring a centralized point of 
contact at the IRS to provide the necessary level of personal 
assistance to these victims is a commonsense measure that will 
simplify the resolution of cases for taxpayers. According to 
testimony provided by GAO recently, the IRS has improved its 
customer service to victims of identity theft, despite declines 
in customer service elsewhere.\150\ Although the IRS has shown 
flexibility in adapting new procedures for handling of identity 
theft cases, the Committee believes providing a centralized 
point of contact for a victim should not be left to the 
discretion of the IRS.
---------------------------------------------------------------------------
    \150\Government Accountability Office, Tax Filing: IRS Needs a 
Comprehensive Customer Service Strategy and Needs to Better Combat 
Identity Theft Refund Fraud and Protect Taxpayer Data (GAO-16-578T), 
April 19, 2016, available at http://www.gao.gov/products/GAO-16-578T.
---------------------------------------------------------------------------

                        EXPLANATION OF PROVISION

    The provision requires the Secretary of the Treasury (or 
his or her delegate) to establish and implement procedures to 
provide a single point of contact at the IRS throughout the 
processing of the taxpayer's case for taxpayers adversely 
affected by identity theft. The single point of contact is 
required to track the taxpayer's case to completion and 
coordinate with other specialized units to resolve case issues 
as quickly as possible.
    The single point of contact may be a team or subset of 
specially trained employees who can work across functions to 
resolve problems for the victim and who is accountable for 
handling the case to completion. The makeup of the team may 
change as required to meet IRS needs, but the procedures must 
ensure continuity of records and case history and may require 
notice to the taxpayer in appropriate instances.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

  2. Protecting taxpayers from telephone scams (sec. 202 of the bill)


                              PRESENT LAW

    TIGTA is not currently required to report on potential 
technological solutions to help protect consumers from so-
called IRS phone scams.

                           REASONS FOR CHANGE

    The Committee has observed the steep growth in the number 
of telephone scams involving impersonation of IRS agents or 
other Federal officials in recent years. The large volume of 
complaints about such telephone calls, the amount of money lost 
by the victims and the ability of the perpetrators to shift 
their activities and thwart law enforcement efforts is of great 
concern to the Committee. Accordingly, the Committee believes 
that a thorough analysis of the problem is needed to develop 
more effective strategies to prevent such scams.

                        EXPLANATION OF PROVISION

    The provision requires TIGTA to issue a report, in 
consultation with the Federal Communications Commission and the 
Federal Trade Commission, identifying potential technological 
solutions to help protect consumers from telephone calls from 
individuals who are falsely claiming to be calling from or on 
behalf of the IRS. The report would also identify telephone 
companies that offer services designed to help taxpayers 
protect themselves from such scams. The report is required 
within 12 months after the date of enactment.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

 3. Information on identity theft and tax scams (sec. 203 of the bill)


                              PRESENT LAW

    No provision.

                           REASONS FOR CHANGE

    The Committee believes that providing information to 
taxpayers regarding tax scams will help protect taxpayers from 
potential perpetrators.

                        EXPLANATION OF PROVISION

    The provision requires the IRS to provide the following 
information over the telephone, while taxpayers are on hold 
with the IRS call center: information about common tax scams, 
direction to the taxpayer on where and how to report such 
activity, and tips on how to protect against identity theft and 
tax scams.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

  4. Report on Federal employee wage and tax withholding reporting to 
               State tax agencies (sec. 204 of the bill)


                              PRESENT LAW

Information returns concerning certain payments

    Present law requires persons to file an information return 
concerning certain transactions with other persons.\151\ These 
returns are intended to assist taxpayers in preparing their 
income tax returns and to help the IRS determine whether such 
income tax returns are correct and complete.
---------------------------------------------------------------------------
    \151\Secs. 6041-6050W. If the payment is by the U.S. or a State, or 
political subdivision, or any agency or instrumentality of any of 
these, the information reporting requirements for Forms 1096 and 1099 
apply to officers or employees appropriately designated to make such 
returns. Treas. sec. 1.6041-1(i).
---------------------------------------------------------------------------
    One of the primary provisions requires every person engaged 
in a trade or business who makes payments aggregating $600 or 
more in any taxable year to a single payee in the course of the 
payor's trade or business to file a return reporting these 
payments.\152\ Payments subject to this reporting requirement 
include fixed or determinable income or compensation, but do 
not include payments for goods or certain enumerated types of 
payments that are subject to other specific reporting 
requirements. Other reporting requirements are provided for 
various types of investment income, including interest, 
dividends, and gross proceeds from brokered transactions (such 
as a sale of stock) paid to U.S. persons.\153\
---------------------------------------------------------------------------
    \152\Sec. 6041(a). The information return generally is submitted 
electronically as a Form 1099 (e.g., Form 1099-MISC, Miscellaneous 
Income) or Form 1096, Annual Summary and Transmittal of U.S. 
Information Returns, although certain payments to beneficiaries or 
employees may require use of Forms W-3 or W-2, respectively. Treas. 
Reg. sec. 1.6041-1(a)(2).
    \153\Secs. 6042 (dividends), 6045 (broker reporting) and 6049 
(interest) and the Treasury regulations thereunder.
---------------------------------------------------------------------------
    The person filing an information return with respect to 
payments described above is required to provide the recipient 
of the payment with a written payee statement showing the 
aggregate payments made and contact information for the 
payor.\154\ The statement must be supplied to payees by the 
payors by January 31 of the following calendar year.\155\ 
Payors generally must file the information return with the IRS 
on or before the last day of February of the year following the 
calendar year for which the return must be filed.\156\
---------------------------------------------------------------------------
    \154\Sec. 6041(d).
    \155\Sec. 6041(d).
    \156\Treas. Reg. sec. 31.6071(a)-1(a)(3)(i).
---------------------------------------------------------------------------

Information returns regarding wages paid employees

    Payors must report wage amounts paid to employees on 
information returns and provide the employee with an annual 
statement showing the aggregate payments made and contact 
information for the payor by January 31 of the following 
calendar year.\157\ For wages paid to, and taxes withheld from, 
employees, the payors must file an information return with the 
Social Security Administration (``SSA'') by January 31 of the 
year following the calendar year for which the return must be 
filed.\158\
---------------------------------------------------------------------------
    \157\Sec. 6051(a). If the payment is by the United States or a 
State, or political subdivision, or any agency or instrumentality of 
any of these, the information reporting requirements for Forms W-3 and 
W-2 apply to officers or employees appropriately designated to make 
such returns. Treas. sec. 1.6041-1(i).
    \158\Pub. L. No. 114-114, PATH Act, Div. Q, sec. 201. For returns 
and statements relating to calendar years after 2015, the information 
returns containing wages reportable on Form W-2 and nonemployee 
compensation are due on the same date as the due date for employee and 
payee statements, and such returns are no longer eligible for the 
extended filing date for electronically filed returns under section 
6071(b). For this purpose, Nonemployee compensation generally includes 
fees for professional services, commissions, awards, travel expense 
reimbursements, or other forms of payments for services performed for 
the payor's trade or business by someone other than in the capacity of 
an employee.
---------------------------------------------------------------------------
    Under the combined annual wage reporting (``CAWR'') system, 
the SSA and the IRS have an agreement, in the form of a 
Memorandum of Understanding, to share wage data and to resolve, 
or reconcile, the differences in the wages reported to them. 
Employers submit Forms W-2, Wage and Tax Statement (listing 
Social Security wages earned by individual employees), and W-3, 
Transmittal of Wage and Tax Statements (providing an aggregate 
summary of wages paid and taxes withheld) directly to SSA.\159\ 
After it records the Forms W-2 and W-3 wage information in its 
individual Social Security wage account records, SSA forwards 
the Forms W-2 and W-3 information to IRS.\160\
---------------------------------------------------------------------------
    \159\Pub. L. No. 94-202, sec. 232, 89 Stat. 1135 (1976) (effective 
with respect to statements reporting income received after 1977).
    \160\Employers submit quarterly reports to IRS on Form 941, 
Employer's Quarterly Federal Tax Return, regarding aggregate quarterly 
totals of wages paid and taxes due. IRS then compares the W-3 wage 
totals to the Form 941 wage totals.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that it may be possible to improve 
the process by which certain Federal agencies provide Federal 
employee wage and tax withholding information to State tax 
agencies. The Committee has reason to believe that the current 
process may result in State tax agencies issuing invalid 
refunds to fraudsters or delaying refunds while requiring 
taxpayers to produce additional documentation to support the 
information claimed on their returns.

                        EXPLANATION OF PROVISION

    The provision requires the GAO within 12 months after the 
date of enactment to review and prepare a report to the Senate 
Committee on Finance and the House Committee on Ways and Means 
on the process and timeline by which the following entities 
provide Federal employee wage and tax withholding information 
to State tax agencies, and provide recommendations for 
improvements where appropriate: (1) The National Finance Center 
of the Department of Agriculture; (2) The Defense Finance and 
Accounting Service of the Department of Defense; (3) The 
National Business Center of the Department of the Interior; and 
(4) the National Payroll Branch of the General Services 
Administration.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

 5. Notification of suspected identity theft (sec. 205 of the bill and 
                       new sec. 7529 of the Code)


                              PRESENT LAW

    Section 6103 provides that returns and return information 
are confidential and may not be disclosed by the IRS, other 
Federal employees, State employees, and certain others having 
access to the information except as provided in the Code.\161\ 
The definition of ``return information'' is very broad and 
includes any information gathered by the IRS with respect to a 
person's liability or possible liability under the Code for any 
tax, penalty, interest, fine, forfeiture, or other imposition 
or offense.\162\ Thus, information gathered by the IRS in 
connection with an investigation of a person for a Title 26 
offense, such as fraud, is the return information of the person 
being investigated and is subject to the confidentiality 
restrictions of section 6103.
---------------------------------------------------------------------------
    \161\Sec. 6103(a).
    \162\Sec. 6103(b)(2). Return information is:
     a taxpayer's identity, the nature, source, or amount of 
his income, payments, receipts, deductions, exemptions, credits, 
assets, liabilities, net worth, tax liability, tax withheld, 
deficiencies, overassessments, or tax payments, whether the taxpayer's 
return was, is being, or will be examined or subject to other 
investigation or processing, or any other data, received by, recorded 
by, prepared by, furnished to, or collected by the Secretary with 
respect to a return or with respect to the determination of the 
existence, or possible existence, of liability (or the amount thereof) 
of any person under this Title for any tax, penalty, interest, fine, 
forfeiture, or other imposition, or offense,
     any part of any written determination or any background 
file document relating to such written determination (as such terms are 
defined in section 6110(b)) which is not open to public inspection 
under section 6110,
     any advance pricing agreement entered into by a taxpayer 
and the Secretary and any background information related to such 
agreement or any application for an advance pricing agreement, and
     any closing agreement under section 7121, and any similar 
agreement, and any background information related to such an agreement 
or request for such an agreement.
    Return information does not include data in a form which cannot be 
associated with, or otherwise identify, directly or indirectly, a 
particular taxpayer.
---------------------------------------------------------------------------
    As an exception to section 6103's general rule of 
confidentiality, the Code permits a taxpayer to receive his or 
her own tax return, and also can receive his or her return 
information if the Secretary determines that such disclosure 
would not seriously impair Federal tax administration.\163\ 
With respect to fraudulent tax returns, if the victim's name 
and Social Security number (``SSN'') are listed as either the 
primary or secondary taxpayer on a fraudulent return, a victim 
of identity theft, or a person authorized to obtain the 
identity theft victim's tax information, may request a redacted 
copy (one with some information blacked-out) of a fraudulent 
return that was filed and accepted by the IRS using the 
identity theft victim's name and SSN.\164\
---------------------------------------------------------------------------
    \163\Sec. 6103(e)(1) and (7). The Code also permits the disclosure 
of returns and return information to such persons or persons the 
taxpayer may designate, if the request meets the requirements of the 
Treasury regulations and if it is determined that such disclosure would 
not seriously impair Federal tax administration. Sec. 6103(c).
    \164\See, Internal Revenue Service, Instructions for Requesting 
Copy of Fraudulent Returns (March 28, 2016), available at https://
www.irs.gov/Individuals/Instructions-for-Requesting-Copy-of-Fraudulent-
Returns.
---------------------------------------------------------------------------
    Under a Privacy Act notice, with respect to investigations 
other than those involving violations of Title 26, TIGTA may 
disclose the following information to complainants:
    In cases not involving violations of Title 26, under a 
Privacy Act Notice, TIGTA is allowed to disclose information to 
complainants, victims, or their representatives (defined to be 
a complainant's or victim's legal counsel or a Senator or 
Representative whose assistance the complainant or victim has 
solicited) concerning the status and/or results of an 
investigation or case arising from the matters of which they 
complained and/or of which they were a victim, including, once 
the investigative subject has exhausted all reasonable appeals, 
any action taken. Information concerning the status of the 
investigation or case is limited strictly to whether the 
investigation or case is open or closed. Information concerning 
the results of the investigation or case is limited strictly to 
whether the allegations made in the complaint were 
substantiated or were not substantiated and, if the subject has 
exhausted all reasonable appeals, any action taken.\165\
---------------------------------------------------------------------------
    \165\ See 75 Fed. Reg. 20715 (April 20, 2010) (relating to TIGTA 
Office of Investigation files).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee is aware that victims of identity theft are 
often unaware that their identity has been stolen or 
compromised. As a result, they are unable to take timely 
measures to limit damage from the theft and to secure their 
identity against further compromise. The Committee is also 
aware that successful prosecution of identity thieves requires 
that the investigators exercise discretion in disclosing 
information to victims about an ongoing investigation. However, 
the Committee believes that victims must be provided an 
opportunity to safeguard their financial information and assets 
as soon as practicable.
    The Committee also is aware that the unauthorized use of 
the identity of an individual to obtain employment causes 
severe hardship for the victims of this theft, including 
accusations of underreporting income and the loss of income-
related benefits. Accordingly, to help protect these victims, 
in making a determination as to whether there has been or may 
have been an unauthorized use of an identity for purposes of 
notifying the victim, the IRS should be required to review 
information obtained from both its own internal processes on 
data mismatches as well as the information provided to the IRS 
by the Social Security Administration.

                        EXPLANATION OF PROVISION

    If the Secretary determines that there has been or may have 
been an unauthorized use of a taxpayer's identity or that of 
the taxpayer's dependents, the provision requires the Secretary 
to, without jeopardizing an investigation relating to tax 
administration, as soon as practicable, notify the taxpayer of 
such determination, and provide: (1) instructions to the 
taxpayer about filing a report with law enforcement; (2) the 
forms the taxpayer must submit to allow investigating law 
enforcement officials to access the taxpayer's personal 
information; (3) steps that victims can take to protect 
themselves from harm caused by the unauthorized use; and (4) an 
offer of IRS victim protection measures such as an IP PIN that 
allows returns to be filed securely.
    At the time this information is provided (or, if not 
available at such time, as soon as practicable thereafter), the 
Secretary shall issue additional notifications to such 
individual (or such individual's designee) regarding: (1) 
whether an investigation has been initiated in regards to such 
unauthorized use; (2) whether the investigation substantiated 
an unauthorized use of the taxpayer's identity; and (3) whether 
any action has been taken with respect to the individual who 
committed the substantiated violation, including whether any 
referral has been made for criminal prosecution of such 
individual, and, to the extent such information is available, 
whether such person has been criminally charged by indictment 
or information.
    For purposes of this provision, the unauthorized use of the 
identity of an individual includes the unauthorized use of the 
identity of the individual to obtain employment (herein 
``employment-related identity theft''). In making a 
determination as to whether there has been or may have been an 
unauthorized use of the identity of an individual to obtain 
employment, the Secretary shall review any information obtained 
from a statement described in section 6051 or an information 
return relating to compensation for services rendered other 
than as an employee, or provided to the IRS by the SSA 
regarding any statement described in section 6051 which 
indicates that the Social Security account number provided on 
such statement or information return does not correspond with 
the name provided on such statement or information return or 
the name on the tax return reporting the income which is 
included on such statement or information return. This 
provision requires the Secretary to examine the statements, 
information returns, and tax returns described in the provision 
for any evidence of employment-related identity theft, 
regardless of whether such statements or returns are submitted 
electronically or on paper. The provision amends the Social 
Security Act to require the Commissioner of SSA to request 
information described in the provision not less than annually. 
The provision also requires that the IRS establish procedures 
to ensure that identity theft victims are not penalized for 
underreporting of income as a result of the unauthorized use of 
their identity.

                             EFFECTIVE DATE

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

                    III. BUDGET EFFECTS OF THE BILL


                         A. Committee Estimates

    In compliance with paragraph 11(a) of rule XXVI of the 
Standing Rules of the Senate, the following statement is made 
concerning the estimated budget effects of the revenue 
provisions of the ``Taxpayer Protection Act of 2016'' as 
reported.
    The bill is estimated to have the following effects on 
Federal budget receipts for fiscal years 2016 through 2026:


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                B. Budget Authority and Tax Expenditures


Budget authority

    In compliance with section 308(a)(1) of the Congressional 
Budget and Impoundment Control Act of 1974 (``Budget 
Act''),\166\ the Committee states that no provisions of the 
bill as reported involve new or increased budget authority.
---------------------------------------------------------------------------
    \166\Pub. L. No. 93-344.
---------------------------------------------------------------------------

Tax expenditures

    In compliance with section 308(a)(1) of the Budget Act, the 
Committee states that the revenue-reducing provisions of the 
bill have a negligible effect on tax expenditures (see revenue 
table in part A., above).

            C. Consultation With Congressional Budget Office

    In accordance with section 403 of the Budget Act, the 
Committee advises that the Congressional Budget Office has not 
submitted a statement on the bill. The letter from the 
Congressional Budget Office will be provided separately.

                       IV. VOTES OF THE COMMITTEE


Motion to report the bill

    In compliance with paragraph 7(b) of rule XXVI of the 
standing rules of the Senate, the Committee states that, with a 
majority and quorum present, the ``Taxpayer Protection Act of 
2016,'' as modified by the Chairman's modifications to the mark 
and amended by the Committee, was ordered favorably reported by 
voice vote on April 20, 2016.

Votes on amendments

    The Committee approved by voice vote the following three 
amendments en bloc:
          1. An amendment by Senators Grassley and Thune to 
        require the Secretary to notify a taxpayer if the IRS 
        or a Federal or State agency proposes an administrative 
        determination as to disciplinary or adverse action 
        against an employee arising from the employee's 
        unauthorized inspection or disclosure of the taxpayer's 
        return or return information;
          2. An amendment by Senators Brown, Cardin, Stabenow, 
        Bennet, Schumer, and Menendez to raise the cap for the 
        IRS VITA matching grant program allocation to $30 
        million, subject to appropriation override; and
          3. An amendment by Senator Coats to require that the 
        IRS provide notice to victims of employment-related 
        identity theft.

                 V. REGULATORY IMPACT AND OTHER MATTERS


                          A. Regulatory Impact

    Pursuant to paragraph 11(b) of rule XXVI of the Standing 
Rules of the Senate, the Committee makes the following 
statement concerning the regulatory impact that might be 
incurred in carrying out the provisions of the bill as amended.

Impact on individuals and businesses, personal privacy and paperwork

    The provisions of the bill are not expected to impose 
additional administrative requirements or regulatory burdens on 
individuals or businesses.
    The provisions of the bill do not impact personal privacy.

                     B. Unfunded Mandates Statement

    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 tax provisions of the 
reported bill do not contain Federal private sector mandates or 
Federal intergovernmental mandates on State, local, or tribal 
governments within the meaning of Public Law 104-4, the 
Unfunded Mandates Reform Act of 1995.

                       C. Tax Complexity Analysis

    Section 4022(b) of the Internal Revenue Service Reform and 
Restructuring 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. 
The staff of the Joint Committee on Taxation has determined 
that there are no provisions that are of widespread 
applicability to individuals or small businesses.

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

    In the opinion of the Committee, it is necessary in order 
to expedite the business of the Senate, to dispense with the 
requirements of paragraph 12 of rule XXVI of the Standing Rules 
of the Senate (relating to the showing of changes in existing 
law made by the bill as reported by the Committee).

                                  [all]