Taxpayer Protection Act of 2016

Summary: Taxpayer Protection Act of 2016  This bill amends the Internal Revenue Code to establish additional requirements and procedures for collecting taxes, regulating tax preparers, responding to identity theft, and assisting low-income taxpayers.  The bill repeals the authority of the Internal Revenue Service (IRS) to contract with private companies to collect federal tax debts. It also excludes from the gross income of an individual up to $10,000 of income from the discharge of a debt over the individual's lifetime.  The bill requires the statute of limitations for a taxpayer's case to continue to run during a pending application for assistance from the National Taxpayer Advocate. The bill also:  establishes limitations on IRS levies of retirement accounts,  suspends the time limit for returning wrongfully levied property if a taxpayer is financially disabled, increases the grace period for withdrawing a frivolous return, and repeals the requirement to submit a partial payment with an offer-in-compromise to settle a tax liability.  The IRS must notify victims of identity theft regarding an unauthorized use of the taxpayer's identity or the filing of criminal charges regarding the use of the identity.  The IRS must also: (1) permit its employees to refer taxpayers to low-income taxpayer clinics, and (2) notify taxpayers who are eligible for the Earned Income Tax Credit.  The IRS may regulate paid tax return preparers and disclose returns or return information necessary to publish decisions related to tax return preparer misconduct.  The bill provides additional funding to the IRS for Taxpayer Services and increases the funding that the IRS may allocate to low-income taxpayer clinics. 

SECTION 1. SHORT TITLE; ETC.

    (a) Short Title.--This Act may be cited as the ``Taxpayer 
Protection Act of 2016''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986, as amended.
    (c) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; etc.
 TITLE I--PROTECTION OF TAXPAYERS FROM ABUSIVE TAX COLLECTION PRACTICES

Sec. 101. Repeal of rules relating to tax collection contracts.
                     TITLE II--RELIEF FOR TAXPAYERS

Sec. 201. De minimis exclusion from gross income for discharge of 
                            indebtedness of individuals.
Sec. 202. Repeal suspension of statute of limitations during pending 
                            application for Taxpayer Assistance order.
Sec. 203. Limitation on levy on retirement savings.
Sec. 204. Tolling of limitation on levy recovery for disabled taxpayer.
Sec. 205. Extension of period to withdraw frivolous submission.
Sec. 206. Repeal of partial payment requirement on submissions of 
                            offers-in-compromise.
    TITLE III--ASSISTANCE FOR IDENTITY THEFT VICTIMS AND LOW-INCOME 
                               TAXPAYERS

Sec. 301. Taxpayer notification of suspected identity theft.
Sec. 302. Single point of contact for identity theft victims.
Sec. 303. Referrals to low-income taxpayer clinics permitted.
Sec. 304. EITC outreach.
   TITLE IV--ENSURE TAXPAYER ACCESS TO COMPETENT TAX RETURN PREPARERS

Sec. 401. Regulation of tax return preparers.
Sec. 402. Tax information disclosure relating to tax return preparer 
                            misconduct.
          TITLE V--INCREASE FUNDING FOR SERVICES TO TAXPAYERS

Sec. 501. Low-income taxpayer clinics.
Sec. 502. Internal Revenue Service taxpayer services appropriations.

 TITLE I--PROTECTION OF TAXPAYERS FROM ABUSIVE TAX COLLECTION PRACTICES

SEC. 101. REPEAL OF RULES RELATING TO TAX COLLECTION CONTRACTS.

    (a) In General.--Sections 6306 and 6307 are hereby repealed, and 
the table of sections for subchapter A of chapter 64 is amended by 
striking the items relating to sections 6306 and 6307.
    (b) Conforming Amendments.--
            (1) Section 6103(k) is amended by striking paragraph (12).
            (2) Section 7433A(a) is amended by inserting ``, as in 
        effect on the day before the date of the enactment of the 
        Taxpayer Protection Act of 2016'' after ``as defined in section 
        6306(b)''.
            (3) Section 7809(a) is amended by striking ``6306,''.
            (4) Section 7811 is amended by striking subsection (g).

                     TITLE II--RELIEF FOR TAXPAYERS

SEC. 201. DE MINIMIS EXCLUSION FROM GROSS INCOME FOR DISCHARGE OF 
              INDEBTEDNESS OF INDIVIDUALS.

    (a) In General.--Section 108(a)(1) is amended by striking ``or'' at 
the end of subparagraph (D), by striking the period at the end of 
subparagraph (E) and inserting ``, or'', and by adding at the end the 
following new subparagraph:
                    ``(F) the indebtedness discharged is qualified 
                individual indebtedness.''.
    (b) Qualified Individual Indebtedness.--Section 108 is amended by 
adding at the end the following new subsection:
    ``(j) Special Rules Relating to Qualified Individual 
Indebtedness.--
            ``(1) Qualified individual indebtedness defined.--For 
        purposes of this section, the term `qualified individual 
        indebtedness' means any indebtedness of an individual other 
        than indebtedness which is--
                    ``(A) discharged on account of services performed 
                for the lender, or
                    ``(B) held at any time by a person related to such 
                individual.
        For purposes of subparagraph (B), a person shall be treated as 
        related to another person if the relationship between such 
        persons would result in a disallowance of losses under section 
        267 or 707(b).
            ``(2) Dollar limitation.--The amount of qualified 
        individual indebtedness excluded from gross income under 
        subsection (a)(1)(F) with respect to any individual for any 
        taxable year shall not exceed the excess of--
                    ``(A) $10,000, over
                    ``(B) the aggregate amount excluded from the gross 
                income of such individual under subsection (a)(1) for 
                such taxable year and all prior taxable years 
                (determined without regard to any amount excludable 
                from gross income under subsection (a)(1)(F) for such 
                taxable year).
            ``(3) Joint returns.--In the case of a joint return--
                    ``(A) the dollar limitation under paragraph (2) 
                shall be applied separately to each spouse, and
                    ``(B) the taxpayer may elect to treat any 
                indebtedness of either spouse as indebtedness of the 
                other spouse.''.
    (c) Coordination.--
            (1) In general.--Section 108(a)(2) is amended by adding at 
        the end the following new subparagraph:
                    ``(D) Precedence of individual indebtedness 
                exclusion.--
                            ``(i) Individual indebtedness exclusion 
                        takes precedence over insolvency exclusion 
                        unless elected otherwise.--Paragraph (1)(B) 
                        shall not apply to a discharge to which 
                        paragraph (1)(F) applies unless the taxpayer 
                        elects to apply paragraph (1)(B) in lieu of 
                        paragraph (1)(F).
                            ``(ii) Other exclusions take precedence.--
                        Subparagraph (F) shall not apply to a discharge 
                        to which subparagraph (C), (D), or (E) 
                        applies.''.
            (2) Title 11 exclusion takes precedence.--Section 
        108(a)(2)(A) is amended by striking ``and (E)'' and inserting 
        ``(E), and (F)''.
    (d) Effective Date.--The amendments made by this section shall 
apply to discharges of indebtedness after the date of the enactment of 
this Act.

SEC. 202. REPEAL SUSPENSION OF STATUTE OF LIMITATIONS DURING PENDING 
              APPLICATION FOR TAXPAYER ASSISTANCE ORDER.

    (a) In General.--Section 7811 is amended by striking subsection (d) 
and redesignating subsections (e), (f), and (g) as subsections (d), 
(e), and (f), respectively.
    (b) Conforming Amendment.--Section 6306(k)(2) is amended by 
striking ``section 7811(g)'' and inserting ``section 7811(f)''.
    (c) Effective Date.--The amendment made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 203. LIMITATION ON LEVY ON RETIREMENT SAVINGS.

    (a) In General.--Section 6334(a) is amended by adding at the end 
the following new paragraph:
            ``(14) Retirement savings.--
                    ``(A) In general.--Any individual's interest in a 
                qualified retirement plan--
                            ``(i) before such individual has attained 
                        normal retirement age (or 65 in the case of an 
                        individual retirement account or a plan which 
                        does not specify a normal retirement age), or
                            ``(ii) after the attainment of such age if 
                        the levy would create an economic hardship due 
                        to the financial condition of the taxpayer 
                        (within the meaning of 6343(a)(1)(D)).
                    ``(B) Qualified retirement plan.--For purposes of 
                this paragraph, the term `qualified retirement plan' 
                means--
                            ``(i) an individual retirement account, or
                            ``(ii) a defined contribution plan which--
                                    ``(I) is described in section 
                                401(a) and which includes a trust 
                                exempt from tax under section 501(a),
                                    ``(II) is described in subsection 
                                (a) or (b) of section 403, or
                                    ``(III) is an eligible deferred 
                                compensation plan (as defined in 
                                section 457(b)) of an eligible employer 
                                described in section 457(e)(1)(A).
                    ``(C) Exception for flagrant acts.--Subparagraph 
                (A) shall not apply if the Secretary determines that--
                            ``(i) the taxpayer filed a fraudulent 
                        return, or
                            ``(ii) the taxpayer acted with the intent 
                        to evade or defeat any tax imposed by this 
                        title or the collection or payment thereof.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to levies issued after December 31, 2016.

SEC. 204. TOLLING OF LIMITATION ON LEVY RECOVERY FOR DISABLED TAXPAYER.

    (a) In General.--Section 6343(b) is amended by inserting after the 
third sentence: ``In the case of an individual, the running of such 9-
month period shall be suspended during any period of such individual's 
life that such individual is financially disabled (as defined in 
section 6511(h)).''.
    (b) Suits by Persons Other Than Taxpayers.--Section 6532(c)(1) is 
amended by adding at the end the following: ``In the case of an 
individual, the running of such 9-month period shall be suspended 
during any period of such individual's life that such individual is 
financially disabled (as defined in section 6511(h)).''.

SEC. 205. EXTENSION OF PERIOD TO WITHDRAW FRIVOLOUS SUBMISSION.

    (a) In General.--Section 6702(b)(3) is amended by striking ``30 
days'' and inserting ``60 days''.
    (b) Effective Date.--The amendment made by this section shall apply 
to notices provided after December 31, 2016.

SEC. 206. REPEAL OF PARTIAL PAYMENT REQUIREMENT ON SUBMISSIONS OF 
              OFFERS-IN-COMPROMISE.

    (a) In General.--Section 7122 is amended by striking subsection (c) 
and by redesignating subsections (d), (e), (f), and (g) as subsection 
(c), (d), (e), and (f), respectively.
    (b) Conforming Amendments.--
            (1) Section 7122(d)(3) is amended by inserting ``and'' at 
        the end of the subparagraph (A), by striking ``, and'' at the 
        end of subparagraph (B) and inserting a period, and by striking 
        subparagraph (C).
            (2) Section 7122, as amended by this section, is amended by 
        adding at the end the following new subsection:
    ``(g) Application of User Fee.--In the case of any assessed tax or 
other amounts imposed under this title with respect to such tax which 
is the subject of an offer-in-compromise, such tax or other amounts 
shall be reduced by any user fee imposed under this title with respect 
to such offer-in-compromise.''.
            (3) Section 6159(f) is amended by striking ``section 
        7122(e)'' and inserting ``section 7122(d)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to offers submitted after the date of the enactment of this Act.

    TITLE III--ASSISTANCE FOR IDENTITY THEFT VICTIMS AND LOW-INCOME 
                               TAXPAYERS

SEC. 301. TAXPAYER NOTIFICATION OF SUSPECTED IDENTITY THEFT.

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

``SEC. 7529. NOTIFICATION OF SUSPECTED IDENTITY THEFT.

    ``If the Secretary determines that there was an unauthorized use of 
the identity of any taxpayer, the Secretary shall--
            ``(1) as soon as practicable and without jeopardizing an 
        investigation relating to tax administration, notify the 
        taxpayer, and
            ``(2) if any person is criminally charged by indictment or 
        information relating to such unauthorized use, notify such 
        taxpayer as soon as practicable of such charge.''.
    (b) Clerical Amendment.--The table of sections for chapter 77 is 
amended by adding at the end the following new item:

``Sec. 7529. Notification of suspected identity theft.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to determinations made after the date of the enactment of this 
Act.

SEC. 302. SINGLE POINT OF CONTACT FOR IDENTITY THEFT VICTIMS.

    Not later than 180 days after the date of the enactment of this 
Act, the Secretary of the Treasury, or the Secretary's delegate, shall 
establish new procedures to ensure that any taxpayer whose return has 
been delayed or otherwise adversely affected due to identity theft has 
a single point of contact at the Internal Revenue Service throughout 
the processing of his or her case. The single point of contact shall 
track the case of the taxpayer from start to finish and coordinate with 
other specialized units to resolve case issues as quickly as possible.

SEC. 303. REFERRALS TO LOW-INCOME TAXPAYER CLINICS PERMITTED.

    (a) In General.--Section 7526(c) is amended by adding at the end 
the following new paragraph:
            ``(6) Treasury employees permitted to refer taxpayers to 
        qualified low-income taxpayer clinics.--Notwithstanding any 
        other provision of law, officers and employees of the 
        Department of the Treasury may refer taxpayers for advice and 
        assistance to qualified low-income taxpayer clinics receiving 
        funding under this section.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to referrals made after the date of the enactment of this Act.

SEC. 304. EITC OUTREACH.

    (a) In General.--Section 32 is amended by adding at the end the 
following new subsection:
    ``(n) Notification of Potential Eligibility for Credit and 
Refund.--
            ``(1) In general.--To the extent possible and on an annual 
        basis, the Secretary shall provide to each taxpayer who--
                    ``(A) did not claim the credit under subsection (a) 
                for any preceding taxable year for which credit or 
                refund is not precluded by section 6511, and
                    ``(B) may be allowed such credit for any such 
                taxable year based on return or return information (as 
                defined in section 6103(b)) available to the Secretary,
        notice that such taxpayer may be eligible to claim such credit 
        and a refund for such taxable year.
            ``(2) Notice.--Notice provided under paragraph (1) shall be 
        in writing and sent to the last known address of the 
        taxpayer.''.
    (b) Effective Date.--The amendment made by this section shall take 
effect on January 1, 2017.

   TITLE IV--ENSURE TAXPAYER ACCESS TO COMPETENT TAX RETURN PREPARERS

SEC. 401. REGULATION OF TAX RETURN PREPARERS.

    (a) In General.--Section 330(a) of title 31, United States Code, is 
amended--
            (1) by striking paragraph (1) and inserting the following:
            ``(1) regulate--
                    ``(A) the practice of representatives of persons 
                before the Department of the Treasury; and
                    ``(B) the practice of tax return preparers; and'', 
                and
            (2) in paragraph (2)--
                    (A) by inserting ``or tax return preparer'' after 
                ``representative'' each place it appears, and
                    (B) by inserting ``or in preparing their tax 
                returns, claims for refund, or documents in connection 
                with tax returns or claims for refund'' after ``cases'' 
                in subparagraph (D).
    (b) Authority To Sanction Regulated Tax Return Preparers.--Section 
330(c) of title 31, United States Code, is amended--
            (1) by inserting ``or tax return preparer'' after 
        ``representative'' each place it appears, and
            (2) in paragraph (4), by striking ``misleads or threatens'' 
        and all that follows and inserting the following: ``misleads or 
        threatens--
                    ``(A) any person being represented or any 
                prospective person being represented; or
                    ``(B) any person or prospective person whose tax 
                return, claim for refund, or document in connection 
                with a tax return or claim for refund, is being or may 
                be prepared.''.
    (c) Tax Return Preparer Defined.--Section 330 of title 31, United 
States Code, is amended by adding at the end the following new 
subsection:
    ``(f) Tax Return Preparer.--For purposes of this section--
            ``(1) In general.--The term `tax return preparer' has the 
        meaning given such term under section 7701(a)(36) of the 
        Internal Revenue Code of 1986.
            ``(2) Tax return.--The term `tax return' has the meaning 
        given to the term `return' under section 6696(e)(1) of such 
        Code.
            ``(3) Claim for refund.--The term `claim for refund' has 
        the meaning given such term under section 6696(e)(2) of such 
        Code.''.
    (d) Effective Date.--The amendments made by this section shall 
apply with respect to returns and claims for refund for taxable years 
beginning after the date of the enactment of this Act.

SEC. 402. TAX INFORMATION DISCLOSURE RELATING TO TAX RETURN PREPARER 
              MISCONDUCT.

    Section 6103(k) is amended by adding at the end the following new 
paragraph:
            ``(13) Disclosure relating to tax return preparer 
        misconduct.--Under such procedures as the Secretary may 
        prescribe, the Secretary may disclose returns or return 
        information to the extent necessary to publish final decisions 
        by the Internal Revenue Service Office of Professional 
        Responsibility relating to tax return preparer misconduct.''.

          TITLE V--INCREASE FUNDING FOR SERVICES TO TAXPAYERS

SEC. 501. LOW-INCOME TAXPAYER CLINICS.

    (a) Increase in Authorized Grants.--Section 7526(c)(1) is amended 
by striking ``$6,000,000'' and inserting ``$20,000,000''.
    (b) Clerical Amendment.--Section 7526(c)(5) is amended by inserting 
``qualified'' before ``low-income''.
    (c) Effective Date.--The amendments made by this section shall 
apply with respect to grants made after the date of the enactment of 
this Act.

SEC. 502. INTERNAL REVENUE SERVICE TAXPAYER SERVICES APPROPRIATIONS.

    There is hereby appropriated, out of any money in the Treasury not 
otherwise appropriated, for the fiscal year ending September 30, 2017, 
for necessary expenses of the Internal Revenue Service to provide 
taxpayer services, including pre-filing assistance and education, 
filing and account services, taxpayer advocacy services, and other 
services as authorized by 5 U.S.C. 3109, at such rates as may be 
determined by the Commissioner, $2,406,000,000.