To provide additional protections for recipients of the earned income tax credit and the child tax credit.

Summary: Taxpayer Abuse Prevention Act - Amends the Internal Revenue Code to provide that advance payments of the earned income tax credit and the child tax credit are not transferable or assignable or subject to the claims of any creditors, except outstanding claims of the federal government.

Prohibits: (1) the collection of a debt from a debtor's federal tax refund by means of a refund anticipation loan; and (2) mandatory arbitration as a condition of providing a refund anticipation loan.

Terminates the Department of the Treasury Debt Indicator Program.

Allows earned income tax credit benefits to be paid through electronic transfer accounts.

Directs the Secretary of the Treasury to: (1) develop and implement a program to encourage the greater use of the advance earned income tax credit; and (2) enter into cooperative agreements with federally insured depository institutions to provide low- and moderate-income taxpayers with the option of establishing low-cost direct deposit accounts using appropriate tax forms.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Taxpayer Abuse Prevention Act''.

SEC. 2. PREVENTION OF DIVERSION OF EARNED INCOME TAX CREDIT AND CHILD 
              TAX CREDIT BENEFITS.

    (a) Earned Income.--Section 32 of the Internal Revenue Code of 1986 
is amended by adding at the end the following new subsection:
    ``(n) Prevention of Diversion of Credit Benefits.--The right of any 
individual to any future payment of the credit under this section shall 
not be transferable or assignable, at law or in equity, and such right 
or any moneys paid or payable under this section shall not be subject 
to any execution, levy, attachment, garnishment, offset, or other legal 
process except for any outstanding Federal obligation. Any waiver of 
the protections of this subsection shall be deemed null, void, and of 
no effect.''.
    (b) Child Tax Credit.--Section 24 of such Code is amended by adding 
at the end the following new subsection:
    ``(g) Prevention of Diversion of Credit Benefits.--The right of any 
individual to any future payment of the credit under this section shall 
not be transferable or assignable, at law or in equity, and such right 
or any moneys paid or payable under this section shall not be subject 
to any execution, levy, attachment, garnishment, offset, or other legal 
process except for any outstanding Federal obligation. Any waiver of 
the protections of this subsection shall be deemed null, void, and of 
no effect.''.
    (c) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 3. PROHIBITION ON DEBT COLLECTION OFFSET.

    (a) In General.--No person shall, directly or indirectly, 
individually or in conjunction or in cooperation with another person, 
engage in the collection of an outstanding or delinquent debt for any 
creditor or assignee by means of soliciting the execution of, 
processing, receiving, or accepting an application or agreement for a 
refund anticipation loan or refund anticipation check that contains a 
provision permitting the creditor to repay, by offset or other means, 
an outstanding or delinquent debt for that creditor from the proceeds 
of the debtor's Federal tax refund.
    (b) Refund Anticipation Loan.--For purposes of subsection (a), the 
term ``refund anticipation loan'' means a loan of money or of any other 
thing of value to a taxpayer because of the taxpayer's anticipated 
receipt of a Federal tax refund.
    (c) Effective Date.--This section shall take effect on the date of 
the enactment of this Act.

SEC. 4. PROHIBITION OF MANDATORY ARBITRATION.

    (a) In General.--Any person that provides a loan to a taxpayer that 
is linked to or in anticipation of a Federal tax refund for the 
taxpayer may not include mandatory arbitration of disputes as a 
condition for providing such a loan.
    (b) Effective Date.--This section shall apply to loans made after 
the date of the enactment of this Act.

SEC. 5. TERMINATION OF DEBT INDICATOR PROGRAM.

    The Secretary of the Treasury shall terminate the Debt Indicator 
program announced in Internal Revenue Service Notice 99-58.

SEC. 6. EXPANSION OF ELIGIBILITY FOR ELECTRONIC TRANSFER ACCOUNTS.

    (a) In General.--The last sentence of section 3332(j) of title 31, 
United States Code, is amended by inserting ``other than any payment 
under section 32 of such Code'' after ``1986''.
    (b) Effective Date.--The amendment made by this section shall apply 
to payments made after the date of the enactment of this Act.

SEC. 7. PROGRAM TO ENCOURAGE THE USE OF THE ADVANCE EARNED INCOME TAX 
              CREDIT.

    (a) In General.--Not later than 6 months after the date of the 
enactment of this Act, the Secretary of the Treasury shall, after 
consultation with such private, nonprofit, and governmental entities as 
the Secretary determines appropriate, develop and implement a program 
to encourage the greater utilization of the advance earned income tax 
credit.
    (b) Reports.--Not later than the date of the implementation of the 
program described in subsection (a), and annually thereafter, the 
Secretary of the Treasury shall report to the Committee on Finance of 
the Senate and the Committee on Ways and Means of the House of 
Representatives on the elements of such program and progress achieved 
under such program.
    (c) Authorization of Appropriations.--There is authorized to be 
appropriated such sums as are necessary to carry out the program 
described in this section. Any sums so appropriated shall remain 
available until expended.

SEC. 8. PROGRAM TO LINK TAXPAYERS WITH DIRECT DEPOSIT ACCOUNTS AT 
              FEDERALLY INSURED DEPOSITORY INSTITUTIONS.

    (a) Establishment of Program.--Not later than 1 year after the date 
of the enactment of this Act, the Secretary of the Treasury shall enter 
into cooperative agreements with federally insured depository 
institutions to provide low- and moderate-income taxpayers with the 
option of establishing low-cost direct deposit accounts through the use 
of appropriate tax forms.
    (b) Federally Insured Depository Institution.--For purposes of this 
section, the term ``federally insured depository institution'' means 
any insured depository institution (as defined in section 3 of the 
Federal Deposit Insurance Act (12 U.S.C. 1813)) and any insured credit 
union (as defined in section 101 of the Federal Credit Union Act (12 
U.S.C. 1752)).
    (c) Operation of Program.--In providing for the operation of the 
program described in subsection (a), the Secretary of the Treasury is 
authorized--
            (1) to consult with such private and nonprofit 
        organizations and Federal, State, and local agencies as 
        determined appropriate by the Secretary, and
            (2) to promulgate such regulations as necessary to 
        administer such program.
    (d) Authorization of Appropriations.--There is authorized to be 
appropriated such sums as are necessary to carry out the program 
described in this section. Any sums so appropriated shall remain 
available until expended.