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[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1528 Engrossed Amendment Senate (EAS)]

  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  

                  In the Senate of the United States,

                                                          May 19, 2004.
    Resolved, That the bill from the House of Representatives (H.R. 
1528) entitled ``An Act to amend the Internal Revenue Code of 1986 to 
protect taxpayers and ensure accountability of the Internal Revenue 
Service.'', do pass with the following

                               AMENDMENT:

            Strike out all after the enacting clause and insert:

SECTION 1. SHORT TITLE; ETC.

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

Sec. 1. Short title; etc.

  TITLE I--IMPROVEMENTS IN TAX ADMINISTRATION AND TAXPAYER SAFEGUARDS

   Subtitle A--Improvements in Efficiency and Safeguards in Internal 
                       Revenue Service Collection

Sec. 101. Waiver of user fee for installment agreements using automated 
                            withdrawals.
Sec. 102. Authorization for IRS to enter into installment agreements 
                            that provide for partial payment.
Sec. 103. Termination of installment agreements.
Sec. 104. Office of Chief Counsel review of offers-in-compromise.
Sec. 105. Authorization for IRS to require increased electronic filing 
                            of returns prepared by paid return 
                            preparers.
Sec. 106. Threshold on tolling of statute of limitations during review 
                            by Taxpayer Advocate Service.
Sec. 107. Increase in penalty for bad checks and money orders.
Sec. 108. Extension of time limit for contesting IRS levy.
Sec. 109. Individuals held harmless on improper levy on individual 
                            retirement plan.
Sec. 110. Authorization for Financial Management Service retention of 
                            transaction fees from levied amounts.
Sec. 111. Elimination of restriction on offsetting refunds from former 
                            residents.

                  Subtitle B--Processing and Personnel

Sec. 121. Information regarding statute of limitations.
Sec. 122. Annual report on IRS performance measures.
Sec. 123. Disclosure of tax information to facilitate combined 
                            employment tax reporting.
Sec. 124. Extension of declaratory judgment procedures to non-501(c)(3) 
                            tax-exempt organizations.
Sec. 125. Amendment to Treasury auction reforms.
Sec. 126. Revisions relating to termination of employment of IRS 
                            employees for misconduct.
Sec. 127. Expansion of IRS Oversight Board Authority.
Sec. 128. IRS Oversight Board approval of use of critical pay 
                            authority.
Sec. 129. Low-income taxpayer clinics.
Sec. 130. Taxpayer access to financial institutions.
Sec. 131. Enrolled agents.
Sec. 132. Establishment of disaster response team.
Sec. 133. Study of accelerated tax refunds.
Sec. 134. Study on clarifying recordkeeping responsibilities.
Sec. 135. Streamline reporting process for National Taxpayer Advocate.
Sec. 136. IRS Free File program.
Sec. 137. Modification of TIGTA reporting requirements.
Sec. 138. Study of IRS accounts receivable.
Sec. 139. Electronic Commerce Advisory Group.
Sec. 140. Study on modifications to schedules L and M-1.
Sec. 141. Regulation of Federal income tax return preparers and refund 
                            anticipation loan providers.
Sec. 142. Joint task force on offers-in-compromise.

                      Subtitle C--Other Provisions

Sec. 151. Penalty for failure to report interests in foreign financial 
                            accounts.
Sec. 152. Repeal of application of below-market loan rules to amounts 
                            paid to certain continuing care facilities.
Sec. 153. Public support by Indian tribal governments.
Sec. 154. Payroll agents subject to penalty for failure to collect and 
                            pay over tax, or attempt to evade or defeat 
                            tax.

                TITLE II--REFORM OF PENALTY AND INTEREST

Sec. 201. Individual estimated tax.
Sec. 202. Corporate estimated tax.
Sec. 203. Increase in large corporation threshold for estimated tax 
                            payments.
Sec. 204. Abatement of interest.
Sec. 205. Deposits made to suspend running of interest on potential 
                            underpayments.
Sec. 206. Freeze of provisions regarding suspension of interest where 
                            Secretary fails to contact taxpayer.
Sec. 207. Clarification of application of Federal tax deposit penalty.
Sec. 208. Frivolous tax returns and submissions.
Sec. 209. Extension of notice requirements with respect to interest and 
                            penalty calculations.
Sec. 210. Expansion of interest netting.

            TITLE III--UNITED STATES TAX COURT MODERNIZATION

                    Subtitle A--Tax Court Procedure

Sec. 301. Jurisdiction of Tax Court over collection due process cases.
Sec. 302. Authority for special trial judges to hear and decide certain 
                            employment status cases.
Sec. 303. Confirmation of authority of Tax Court to apply doctrine of 
                            equitable recoupment.
Sec. 304. Tax Court filing fee in all cases commenced by filing 
                            petition.
Sec. 305. Amendments to appoint employees.
Sec. 306. Expanded use of Tax Court practice fee for pro se taxpayers.

             Subtitle B--Tax Court Pension and Compensation

Sec. 311. Annuities for survivors of Tax Court judges who are 
                            assassinated.
Sec. 312. Cost-of-living adjustments for Tax Court judicial survivor 
                            annuities.
Sec. 313. Life insurance coverage for Tax Court judges.
Sec. 314. Cost of life insurance coverage for Tax Court judges age 65 
                            or over.
Sec. 315. Modification of timing of lump-sum payment of judges' accrued 
                            annual leave.
Sec. 316. Participation of Tax Court judges in the Thrift Savings Plan.
Sec. 317. Exemption of teaching compensation of retired judges from 
                            limitation on outside earned income.
Sec. 318. General provisions relating to magistrate judges of the Tax 
                            Court.
Sec. 319. Annuities to surviving spouses and dependent children of 
                            magistrate judges of the Tax Court.
Sec. 320. Retirement and annuity program.
Sec. 321. Incumbent magistrate judges of the Tax Court.
Sec. 322. Provisions for recall.
Sec. 323. Effective date.

                TITLE IV--CONFIDENTIALITY AND DISCLOSURE

Sec. 401. Clarification of definition of church tax inquiry.
Sec. 402. Collection activities with respect to joint return 
                            disclosable to either spouse based on oral 
                            request.
Sec. 403. Taxpayer representatives not subject to examination on sole 
                            basis of representation of taxpayers.
Sec. 404. Prohibition of disclosure of taxpayer identification 
                            information with respect to disclosure of 
                            accepted offers-in-compromise.
Sec. 405. Compliance by contractors with confidentiality safeguards.
Sec. 406. Higher standards for requests for and consents to disclosure.
Sec. 407. Civil damages for unauthorized disclosure or inspection.
Sec. 408. Expansion of disclosure in emergency circumstances.
Sec. 409. Disclosure of taxpayer identity for tax refund purposes.
Sec. 410. Disclosure to State officials of proposed actions related to 
                            section 501(c) organizations.
Sec. 411. Treatment of public records.
Sec. 412. Employee identity disclosures.
Sec. 413. Taxpayer identification number matching.
Sec. 414. Form 8300 disclosures.
Sec. 415. Disclosure to law enforcement agencies regarding terrorist 
                            activities.

                        TITLE V--SIMPLIFICATION

                Subtitle A--Uniform Definition of Child

Sec. 501. Uniform definition of child, etc.
Sec. 502. Modifications of definition of head of household.
Sec. 503. Modifications of dependent care credit.
Sec. 504. Modifications of child tax credit.
Sec. 505. Modifications of earned income credit.
Sec. 506. Modifications of deduction for personal exemption for 
                            dependents.
Sec. 507. Technical and conforming amendments.
Sec. 508. Effective date.

     Subtitle B--Simplification Through Elimination of Inoperative 
                               Provisions

Sec. 511. Simplification through elimination of inoperative provisions.

                      TITLE VI--REVENUE PROVISIONS

        Subtitle A--Provisions Designed to Curtail Tax Shelters

Sec. 601. Penalty for failing to disclose reportable transaction.
Sec. 602. Accuracy-related penalty for listed transactions and other 
                            reportable transactions having a 
                            significant tax avoidance purpose.
Sec. 603. Modifications of substantial understatement penalty for 
                            nonreportable transactions.
Sec. 604. Tax shelter exception to confidentiality privileges relating 
                            to taxpayer communications.
Sec. 605. Disclosure of reportable transactions.
Sec. 606. Modifications to penalty for failure to register tax 
                            shelters.
Sec. 607. Modification of penalty for failure to maintain lists of 
                            investors.
Sec. 608. Modification of actions to enjoin certain conduct related to 
                            tax shelters and reportable transactions.
Sec. 609. Understatement of taxpayer's liability by income tax return 
                            preparer.
Sec. 610. Regulation of individuals practicing before the Department of 
                            Treasury.
Sec. 611. Penalty on promoters of tax shelters.
Sec. 612. Statute of limitations for taxable years for which required 
                            listed transactions not reported.
Sec. 613. Denial of deduction for interest on underpayments 
                            attributable to tax-motivated transactions.
Sec. 614. Authorization of appropriations for tax law enforcement.

             Part II--Other Corporate Governance Provisions

Sec. 621. Affirmation of consolidated return regulation authority.
Sec. 622. Declaration by chief executive officer relating to Federal 
                            annual income tax return of a corporation.
Sec. 623. Denial of deduction for certain fines, penalties, and other 
                            amounts.
Sec. 624. Disallowance of deduction for punitive damages.
Sec. 625. Increase in criminal monetary penalty for individuals to the 
                            amount of the tax at issue.
Sec. 626. Doubling of certain penalties, fines, and interest on 
                            underpayments related to certain offshore 
                            financial arrangements.

                  Part III--Extension of IRS User Fees

Sec. 631. Extension of IRS user fees.

                   PART IV--OTHER REVENUE PROVISIONS

Sec. 641. Reporting of taxable mergers and acquisitions.
Sec. 642. Modification of definition of controlled group of 
                            corporations.

  TITLE I--IMPROVEMENTS IN TAX ADMINISTRATION AND TAXPAYER SAFEGUARDS

   Subtitle A--Improvements in Efficiency and Safeguards in Internal 
                       Revenue Service Collection

SEC. 101. WAIVER OF USER FEE FOR INSTALLMENT AGREEMENTS USING AUTOMATED 
              WITHDRAWALS.

    (a) In General.--Section 6159 (relating to agreements for payment 
of tax liability in installments) is amended by redesignating 
subsection (e) as subsection (f) and by inserting after subsection (d) 
the following:
    ``(e) Waiver of User Fees for Installment Agreements Using 
Automated Withdrawals.--In the case of a taxpayer who enters into an 
installment agreement in which automated installment payments are 
agreed to, the Secretary shall waive the fee (if any) for entering into 
the installment agreement.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to agreements entered into on or after the date which is 180 days 
after the date of the enactment of this Act.

SEC. 102. AUTHORIZATION FOR IRS TO ENTER INTO INSTALLMENT AGREEMENTS 
              THAT PROVIDE FOR PARTIAL PAYMENT.

    (a) In General.--
            (1) Section 6159(a) (relating to authorization of 
        agreements) is amended--
                    (A) by striking ``satisfy liability for payment 
                of'' and inserting ``make payment on'', and
                    (B) by inserting ``full or partial'' after 
                ``facilitate''.
            (2) Section 6159(c) (relating to Secretary required to 
        enter into installment agreements in certain cases) is amended 
        in the matter preceding paragraph (1) by inserting ``full'' 
        before ``payment''.
    (b) Requirement To Review Partial Payment Agreements Every Two 
Years.--Section 6159, as amended by this Act, is amended by 
redesignating subsections (d), (e), and (f) as subsections (e), (f), 
and (g), respectively, and inserting after subsection (c) the following 
new subsection:
    ``(d) Secretary Required To Review Installment Agreements for 
Partial Collection Every Two Years.--In the case of an agreement 
entered into by the Secretary under subsection (a) for partial 
collection of a tax liability, the Secretary shall review the agreement 
at least once every 2 years with the primary purpose of determining 
whether the financial condition of the taxpayer has significantly 
changed so as to warrant an increase in the value of the payments being 
made.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to agreements entered into on or after the date of the enactment 
of this Act.

SEC. 103. TERMINATION OF INSTALLMENT AGREEMENTS.

    (a) In General.--Section 6159(b)(4) (relating to failure to pay an 
installment or any other tax liability when due or to provide requested 
financial information) is amended by striking ``or'' at the end of 
subparagraph (B), by redesignating subparagraph (C) as subparagraph 
(E), and by inserting after subparagraph (B) the following:
                    ``(C) to make a Federal tax deposit under section 
                6302 at the time such deposit is required to be made,
                    ``(D) to file a return of tax imposed under this 
                title by its due date (including extensions), or''.
    (b) Conforming Amendment.--Section 6159(b)(4) is amended by 
striking ``Failure to pay an installment or any other tax liability 
when due or to provide requested financial information'' and inserting 
``Failure to make payments or deposits or file returns when due or to 
provide requested financial information''.
    (c) Effective Date.--The amendments made by this section shall 
apply to failures occurring on or after the date of the enactment of 
this Act.

SEC. 104. OFFICE OF CHIEF COUNSEL REVIEW OF OFFERS-IN-COMPROMISE.

    (a) In General.--Section 7122(b) (relating to record) is amended by 
striking ``Whenever a compromise'' and all that follows through ``his 
delegate'' and inserting ``If the Secretary determines that an opinion 
of the General Counsel for the Department of the Treasury, or the 
Counsel's delegate, is required with respect to a compromise, there 
shall be placed on file in the office of the Secretary such opinion''.
    (b) Conforming Amendments.--Section 7122(b) is amended by striking 
the second and third sentences.
    (c) Effective Date.--The amendments made by this section shall 
apply to offers-in-compromise submitted or pending on or after the date 
of the enactment of this Act.

SEC. 105. AUTHORIZATION FOR IRS TO REQUIRE INCREASED ELECTRONIC FILING 
              OF RETURNS PREPARED BY PAID RETURN PREPARERS.

    (a) In General.--Section 6011(e) (relating to regulations requiring 
returns on magnetic media, etc.) is amended--
            (1) by striking the second sentence in paragraph (1), and
            (2) by striking ``250'' in paragraph (2)(A) and inserting 
        ``5''.
    (b) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 106. THRESHOLD ON TOLLING OF STATUTE OF LIMITATIONS DURING REVIEW 
              BY TAXPAYER ADVOCATE SERVICE.

    (a) In General.--Section 7811(d)(1) (relating to suspension of 
running of period of limitation) is amended by inserting after ``such 
application,'' the following: ``but only if the date of such decision 
is at least 7 days after the date of the taxpayer's application''.
    (b) Effective Date.--The amendment made by this section shall apply 
to applications filed after the date of the enactment of this Act.

SEC. 107. INCREASE IN PENALTY FOR BAD CHECKS AND MONEY ORDERS.

    (a) In General.--Section 6657 (relating to bad checks) is amended--
            (1) by striking ``$750'' and inserting ``$1,250'', and
            (2) by striking ``$15'' and inserting ``$25''.
    (b) Effective Date.--The amendments made by this section apply to 
checks or money orders received after the date of the enactment of this 
Act.

SEC. 108. EXTENSION OF TIME LIMIT FOR CONTESTING IRS LEVY.

    (a) Extension of Time for Return of Property Subject to Levy.--
Subsection (b) of section 6343 (relating to return of property) is 
amended by striking ``9 months'' and inserting ``2 years''.
    (b) Period of Limitation on Suits.--Subsection (c) of section 6532 
(relating to suits by persons other than taxpayers) is amended--
            (1) in paragraph (1) by striking ``9 months'' and inserting 
        ``2 years'', and
            (2) in paragraph (2) by striking ``9-month'' and inserting 
        ``2-year''.
    (c) Effective Date.--The amendments made by this section shall 
apply to--
            (1) levies made after the date of the enactment of this 
        Act, and
            (2) levies made on or before such date if the 9-month 
        period has not expired under section 6343(b) of the Internal 
        Revenue Code of 1986 (without regard to this section) as of 
        such date.

SEC. 109. INDIVIDUALS HELD HARMLESS ON IMPROPER LEVY ON INDIVIDUAL 
              RETIREMENT PLAN.

    (a) In General.--Section 6343 (relating to authority to release 
levy and return property) is amended by adding at the end the following 
new subsection:
    ``(f) Individuals Held Harmless on Wrongful Levy, etc. on 
Individual Retirement Plan.--
            ``(1) In general.--If the Secretary determines that an 
        individual retirement plan has been levied upon in a case to 
        which subsection (b) or (d)(2)(A) applies and an amount is 
        returned to the individual who is the beneficiary of such plan, 
        the individual may deposit an amount equal to the sum of--
                    ``(A) the amount of money returned by the Secretary 
                on account of such levy, and
                    ``(B) interest paid under subsection (c) on such 
                amount of money,
        into an individual retirement plan (other than an endowment 
        contract) to which a rollover from the plan levied upon is 
        permitted.
            ``(2) Treatment as rollover.--The distribution on account 
        of the levy and any deposit under paragraph (1) with respect to 
        such distribution shall be treated for purposes of this title 
        as if such distribution and deposit were part of a rollover 
        described in section 408(d)(3)(A)(i); except that--
                    ``(A) interest paid under subsection (c) shall be 
                treated as part of such distribution and as not 
                includible in gross income,
                    ``(B) the 60-day requirement in such section shall 
                be treated as met if the deposit is made not later than 
                the 60th day after the day on which the individual 
                receives an amount under paragraph (1) from the 
                Secretary, and
                    ``(C) such deposit shall not be taken into account 
                under section 408(d)(3)(B).
            ``(3) Refund, etc., of income tax on levy.--If any amount 
        is includible in gross income for a taxable year by reason of a 
        levy referred to in paragraph (1) and any portion of such 
        amount is treated as a rollover under paragraph (2), any tax 
        imposed by chapter 1 on such portion shall not be assessed, and 
        if assessed shall be abated, and if collected shall be credited 
        or refunded as an overpayment made on the due date for filing 
        the return of tax for such taxable year.
            ``(4) Interest.--Notwithstanding subsection (d), interest 
        shall be allowed under subsection (c) in a case in which the 
        Secretary makes a determination described in subsection 
        (d)(2)(A) with respect to a levy upon an individual retirement 
        plan.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to amounts paid under subsections (b), (c), and (d)(2)(A) of section 
6343 of the Internal Revenue Code of 1986 after December 31, 2004.

SEC. 110. AUTHORIZATION FOR FINANCIAL MANAGEMENT SERVICE RETENTION OF 
              TRANSACTION FEES FROM LEVIED AMOUNTS.

    (a) In General.--Notwithstanding any other provision of law, the 
Financial Management Service may charge the Internal Revenue Service, 
and the Internal Revenue Service may pay the Financial Management 
Service, a fee sufficient to cover the full cost of implementing a 
continuous levy program under subsection (h) of section 6331 of the 
Internal Revenue Code of 1986. Any such fee shall be based on actual 
levies made and shall be collected by the Financial Management Service 
by the retention of a portion of amounts collected by levy pursuant to 
that subsection. Amounts received by the Financial Management Service 
as fees under that subsection shall be deposited into the account of 
the Department of the Treasury under section 3711(g)(7) of title 31, 
United States Code, and shall be collected and accounted for in 
accordance with the provisions of that section. The amount credited 
against the taxpayer's liability on account of the continuous levy 
shall be the amount levied, without reduction for the amount paid to 
the Financial Management Service as a fee.
    (b) Effective Date.--The provisions of this section shall take 
effect on the date of the enactment of this Act.

SEC. 111. ELIMINATION OF RESTRICTION ON OFFSETTING REFUNDS FROM FORMER 
              RESIDENTS.

    (a) In General.--Section 6402(e) (relating to collection of past-
due, legally enforceable State income tax obligations) is amended by 
striking paragraph (2) and by redesignating paragraphs (3), (4), (5), 
(6), and (7) as paragraphs (2), (3), (4), (5), and (6), respectively.
    (b) Clarification of Disclosure Authority.--Section 6103(l)(10) 
(relating to disclosure of certain information to agencies requesting a 
reduction under subsection (c), (d), or (e) or section 6402) is 
amended--
            (1) by striking ``, (d), or (e)'' each place it appears and 
        inserting ``or (d)'', and
            (2) by striking ``, (d), or (e)'' in the heading and 
        inserting ``or (d)''.
    (c) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

                  Subtitle B--Processing and Personnel

SEC. 121. INFORMATION REGARDING STATUTE OF LIMITATIONS.

    The Secretary of the Treasury or the Secretary's delegate shall--
            (1) as soon as practicable but not later than 180 days 
        after the date of the enactment of this Act, revise the 
        statement required by section 6227 of the Omnibus Taxpayer Bill 
        of Rights (Internal Revenue Service Publication No. 1), and
            (2) for taxable years beginning after December 31, 2004, 
        revise any instructions booklet accompanying a general income 
        tax return form (including forms 1040, 1040A, 1040EZ, and any 
        similar or successor forms relating thereto),
to provide for an explanation of the limitations imposed by section 
6511 of the Internal Revenue Code of 1986 on credits and refunds, and 
the consequences under such section 6511 of the failure to file a 
return of tax.

SEC. 122. ANNUAL REPORT ON IRS PERFORMANCE MEASURES.

    (a) In General.--Section 7803(a) (relating to Commissioner of 
Internal Revenue) is amended by adding at the end the following new 
paragraph:
            ``(4) Annual report on irs performance measures.--Not later 
        than December 31 of each calendar year, the Commissioner shall 
        report to Congress and the Oversight Board on performance goals 
        and projections for the 5-fiscal-year period beginning with the 
        fiscal year ending in such calendar year against which to 
        measure the performance of the Internal Revenue Service in the 
        areas of the public rating of the Internal Revenue Service, 
        customer service, compliance, and management initiatives. The 
        report shall include the long-term performance goal for each 
        measurement and a brief narrative explaining how the 
        Commissioner plans to meet each goal. For each performance 
        goal, the report shall include comparisons between the 
        projected performance level and actual performance level. For 
        each performance measurement, the report shall include a volume 
        projection for such period. If the Internal Revenue Service 
        fails to achieve one of its goals, the report shall explain 
        why. The report shall also include data and a narrative 
        regarding the actual and projected level of the workload and 
        resources of the Internal Revenue Service for such 5-year 
        period.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to reports for fiscal year 2004 and thereafter.

SEC. 123. DISCLOSURE OF TAX INFORMATION TO FACILITATE COMBINED 
              EMPLOYMENT TAX REPORTING.

    (a) In General.--Paragraph (5) of section 6103(d) (relating to 
disclosure to State tax officials and State and local law enforcement 
agencies) is amended to read as follows:
            ``(5) Disclosure for combined employment tax reporting.--
        The Secretary shall disclose taxpayer identity information and 
        signatures to any agency, body, or commission of any State for 
        the purpose of carrying out with such agency, body, or 
        commission a combined Federal and State employment tax 
        reporting program approved by the Secretary. Subsections (a)(2) 
        and (p)(4) and sections 7213 and 7213A shall not apply with 
        respect to disclosures or inspections made pursuant to this 
        paragraph.''.
            (b) Effective Date.--The amendment made by this section 
        shall take effect on the date of the enactment of this Act.

SEC. 124. EXTENSION OF DECLARATORY JUDGMENT PROCEDURES TO NON-501(C)(3) 
              TAX-EXEMPT ORGANIZATIONS.

    (a) In General.--Paragraph (1) of section 7428(a) (relating to 
creation of remedy) is amended--
            (1) in subparagraph (B) by inserting after ``509(a))'' the 
        following: ``or as a private operating foundation (as defined 
        in section 4942(j)(3))''; and
            (2) by amending subparagraph (C) to read as follows:
                    ``(C) with respect to the initial qualification or 
                continuing qualification of an organization as an 
                organization described in section 501(c) (other than 
                paragraph (3)) or 501(d) which is exempt from tax under 
                section 501(a), or''.
    (b) Court Jurisdiction.--Subsection (a) of section 7428 is amended 
in the material following paragraph (2) by striking ``United States Tax 
Court, the United States Claims Court, or the district court of the 
United States for the District of Columbia'' and inserting the 
following: ``United States Tax Court (in the case of any such 
determination or failure) or the United States Claims Court or the 
district court of the United States for the District of Columbia (in 
the case of a determination or failure with respect to an issue 
referred to in subparagraph (A) or (B) of paragraph (1)),''.
    (c) Effective Date.--The amendments made by this section shall 
apply to pleadings filed with respect to determinations (or requests 
for determinations) made after December 31, 2004.

SEC. 125. AMENDMENT TO TREASURY AUCTION REFORMS.

    (a) In General.--Clause (i) of section 202(c)(4)(B) of the 
Government Securities Act Amendments of 1993 (31 U.S.C. 3121 note) is 
amended by inserting before the semicolon ``(or, if earlier, at the 
time the Secretary releases the minutes of the meeting in accordance 
with paragraph (2))''.
    (b) Effective Date.--The amendment made by this section shall apply 
to meetings held after the date of the enactment of this Act.

SEC. 126. REVISIONS RELATING TO TERMINATION OF EMPLOYMENT OF IRS 
              EMPLOYEES FOR MISCONDUCT.

    (a) In General.--Subchapter A of chapter 80 (relating to 
application of internal revenue laws) is amended by inserting after 
section 7804 the following new section:

``SEC. 7804A. TERMINATION OF EMPLOYMENT FOR MISCONDUCT.

    ``(a) In General.--Subject to subsection (c), the Commissioner 
shall terminate the employment of any employee of the Internal Revenue 
Service if there is a final administrative or judicial determination 
that such employee committed any act or omission described under 
subsection (b) in the performance of the employee's official duties. 
Such termination shall be a removal for cause on charges of misconduct.
    ``(b) Acts or Omissions.--The acts or omissions described under 
this subsection are--
            ``(1) willful failure to obtain the required approval 
        signatures on documents authorizing the seizure of a taxpayer's 
        home, personal belongings, or business assets,
            ``(2) providing a false statement under oath with respect 
        to a material matter involving a taxpayer or taxpayer 
        representative,
            ``(3) with respect to a taxpayer or taxpayer 
        representative, the violation of--
                    ``(A) any right under the Constitution of the 
                United States, or
                    ``(B) any civil right established under--
                            ``(i) title VI or VII of the Civil Rights 
                        Act of 1964,
                            ``(ii) title IX of the Education Amendments 
                        of 1972,
                            ``(iii) the Age Discrimination in 
                        Employment Act of 1967,
                            ``(iv) the Age Discrimination Act of 1975,
                            ``(v) section 501 or 504 of the 
                        Rehabilitation Act of 1973, or
                            ``(vi) title I of the Americans with 
                        Disabilities Act of 1990,
            ``(4) falsifying or destroying documents to conceal 
        mistakes made by any employee with respect to a matter 
        involving a taxpayer or taxpayer representative,
            ``(5) assault or battery on a taxpayer or taxpayer 
        representative, but only if there is a criminal conviction, or 
        a final judgment by a court in a civil case, with respect to 
        the assault or battery,
            ``(6) violations of this title, Department of the Treasury 
        regulations, or policies of the Internal Revenue Service 
        (including the Internal Revenue Manual) for the purpose of 
        retaliating against, or harassing, a taxpayer or taxpayer 
        representative,
            ``(7) willful misuse of the provisions of section 6103 for 
        the purpose of concealing information from a congressional 
        inquiry,
            ``(8) willful failure to file any return of tax required 
        under this title on or before the date prescribed therefor 
        (including any extensions) when a tax is due and owing, unless 
        such failure is due to reasonable cause and not due to willful 
        neglect,
            ``(9) willful understatement of Federal tax liability, 
        unless such understatement is due to reasonable cause and not 
        due to willful neglect, and
            ``(10) threatening to audit a taxpayer for the purpose of 
        extracting personal gain or benefit.
    ``(c) Determinations of Commissioner.--
            ``(1) In general.--The Commissioner may take a personnel 
        action other than termination for an act or omission described 
        under subsection (b).
            ``(2) Discretion.--The exercise of authority under 
        paragraph (1) shall be at the sole discretion of the 
        Commissioner and may not be delegated to any other officer. The 
        Commissioner, in the Commissioner's sole discretion, may 
        establish a procedure which will be used to determine whether 
        an individual should be referred to the Commissioner for a 
        determination by the Commissioner under paragraph (1).
            ``(3) No appeal.--Any determination of the Commissioner 
        under this subsection may not be appealed in any administrative 
        or judicial proceeding.
    ``(d) Definition.--For the purposes of the provisions described in 
clauses (i), (ii), and (iv) of subsection (b)(3)(B), references to a 
program or activity regarding Federal financial assistance or an 
education program or activity receiving Federal financial assistance 
shall include any program or activity conducted by the Internal Revenue 
Service for a taxpayer.''.
    (b) Clerical Amendment.--The table of sections for chapter 80 is 
amended by inserting after the item relating to section 7804 the 
following new item:

                              ``Sec. 7804A. Termination of employment 
                                        for misconduct.''.
    (c) Repeal of Superseded Section.--Section 1203 of the Internal 
Revenue Service Restructuring and Reform Act of 1998 (Public Law 105-
206; 112 Stat. 720) is repealed.
    (d) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 127. EXPANSION OF IRS OVERSIGHT BOARD AUTHORITY.

    (a) Approval With Respect to Senior Executives.--Section 
7802(d)(3)(B) (relating to management) is amended by inserting ``and 
approve'' after ``review''.
    (b) Reports.--
            (1) Budget request.--Section 7802(d) (relating to specific 
        responsibilities) is amended--
                    (A) by inserting ``with detailed analysis'' after 
                ``budget request'' in paragraph (4)(B), and
                    (B) by inserting ``without any additional review or 
                comment from the Commissioner, the Secretary, any other 
                officer or employee of the Department of the Treasury, 
                or the Office of Management and Budget'' before ``to 
                the President'' in the last sentence thereof.
            (2) Date of submission of annual report.--Section 
        7802(f)(3)(A) (relating to annual reports) is amended by 
        striking ``The Oversight Board shall each year report'' and 
        insert ``Not later than March 1 of each calendar year, the 
        Oversight Board shall report''.
    (c) Continuity in Office.--Section 7802(b)(2) (relating to 
qualifications and terms) is amended by adding at the end the following 
new subparagraph:
                    ``(E) Continuation in office.--Any member whose 
                term expires shall serve until the earlier of the date 
                on which the member's successor takes office or the 
                date which is 1 year after the date of the expiration 
                of the member's term.
    (d) Access to Health Benefits.--Section 7802(e) (relating to Board 
personnel matters) is amended by adding at the end the following new 
paragraph:
            ``(5) Members access to fehbp.--Each member of the 
        Oversight Board who--
                    ``(A) is described in subsection (b)(1)(A), or
                    ``(B) is described in subsection (b)(1)(D) and is 
                not otherwise a Federal officer or employee,
        shall be considered an employee solely for purposes of chapter 
        89 of title 5, United States Code.''.
    (e) Director of Internal Revenue Service Oversight Board.--
Subsection (e) of section 7802, as amended by subsection (d), is 
amended by redesignating paragraphs (3), (4), and (5) as paragraphs 
(4), (5), and (6), respectively, and by inserting after paragraph (2) 
the following new paragraph:
            ``(3) Director.--The Chairperson of the Oversight Board 
        shall, without regard to the provisions of title 5, United 
        Stated Code, governing appointments in the competitive service, 
        appoint a Director for the Oversight Board. The Director shall 
        be paid at the same rate as the highest-rate of basic pay 
        established for the Senior Executive Service under section 5382 
        of title 5, United States Code.''.
    (f) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 128. IRS OVERSIGHT BOARD APPROVAL OF USE OF CRITICAL PAY 
              AUTHORITY.

    (a) In General.--Section 7802(d)(3) (relating to management) is 
amended by striking ``and'' at the end of subparagraph (B), by striking 
the period at the end of subparagraph (C) and inserting ``; and'', and 
by adding at the end the following new subparagraph:
                    ``(D) review and approve the Commissioner's use of 
                critical pay authority under section 9502 of title 5, 
                United States Code, and streamlined critical pay 
                authority under section 9503 of such title.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to personnel hired after the date of the enactment of this Act.

SEC. 129. LOW-INCOME TAXPAYER CLINICS.

    (a) Grants for Return Preparation Clinics.--
            (1) In general.--Chapter 77 (relating to miscellaneous 
        provisions) is amended by inserting after section 7526 the 
        following new section:

``SEC. 7526A. RETURN PREPARATION CLINICS FOR LOW-INCOME TAXPAYERS.

    ``(a) In General.--The Secretary may, subject to the availability 
of appropriated funds, make grants to provide matching funds for the 
development, expansion, or continuation of qualified return preparation 
clinics.
    ``(b) Definitions.--For purposes of this section--
            ``(1) Qualified return preparation clinic.--
                    ``(A) In general.--The term `qualified return 
                preparation clinic' means a clinic which--
                            ``(i) does not charge more than a nominal 
                        fee for its services (except for reimbursement 
                        of actual costs incurred), and
                            ``(ii) operates programs which assist low-
                        income taxpayers in preparing and filing their 
                        Federal income tax returns, including schedules 
                        reporting sole proprietorship or farm income.
                    ``(B) Assistance to low-income taxpayers.--A clinic 
                is treated as assisting low-income taxpayers under 
                subparagraph (A)(ii) if at least 90 percent of the 
                taxpayers assisted by the clinic have incomes which do 
                not exceed 250 percent of the poverty level, as 
                determined in accordance with criteria established by 
                the Director of the Office of Management and Budget.
            ``(2) Clinic.--The term `clinic' includes--
                    ``(A) a clinical program at an eligible educational 
                institution (as defined in section 529(e)(5)) which 
                satisfies the requirements of paragraph (1) through 
                student assistance of taxpayers in return preparation 
                and filing, and
                    ``(B) an organization described in section 501(c) 
                and exempt from tax under section 501(a) which 
                satisfies the requirements of paragraph (1).
    ``(c) Special Rules and Limitations.--
            ``(1) Aggregate limitation.--Unless otherwise provided by 
        specific appropriation, the Secretary shall not allocate more 
        than $10,000,000 per year (exclusive of costs of administering 
        the program) to grants under this section.
            ``(2) Other applicable rules.--Rules similar to the rules 
        under paragraphs (2) through (7) of section 7526(c) shall apply 
        with respect to the awarding of grants to qualified return 
        preparation clinics.''.
            (2) Clerical amendment.--The table of sections for chapter 
        77 is amended by inserting after the item relating to section 
        7526 the following new item:

                              ``Sec. 7526A. Return preparation clinics 
                                        for low-income taxpayers.''.
    (b) Grants for Taxpayer Representation and Assistance Clinics.--
            (1) Increase in authorized grants.--Section 7526(c)(1) 
        (relating to aggregate limitation) is amended by striking 
        ``$6,000,000'' and inserting ``$10,000,000''.
            (2) Use of grants for overhead expenses prohibited.--
                    (A) In general.--Section 7526(c) (relating to 
                special rules and limitations) is amended by adding at 
                the end the following new paragraph:
            ``(6) Use of grants for overhead expenses prohibited.--No 
        grant made under this section may be used for the overhead 
        expenses of any clinic or of any institution sponsoring such 
        clinic.''.
                    (B) Conforming amendments.--Section 7526(c)(5) is 
                amended--
                            (i) by inserting ``qualified'' before 
                        ``low-income'', and
                            (ii) by striking the last sentence.
            (3) Promotion of Clinics.--Section 7526(c), as amended by 
        paragraph (2), is amended by adding at the end the following 
        new paragraph:
            ``(7) Promotion of clinics.--The Secretary is authorized to 
        promote the benefits of and encourage the use of low-income 
        taxpayer clinics through the use of mass communications, 
        referrals, and other means.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to grants made after the date of the enactment of this Act.

SEC. 130. TAXPAYER ACCESS TO FINANCIAL INSTITUTIONS.

    (a) Establishment of Program.--The Secretary is authorized to award 
demonstration project grants (including multi-year grants) to eligible 
entities to provide tax preparation services and assistance in 
connection with establishing an account in a federally insured 
depository institution for individuals that currently do not have such 
an account.
    (b) Eligible Entities.--
            (1) In general.--An entity is eligible to receive a grant 
        under this section if such an entity is--
                    (A) an organization described in section 501(c)(3) 
                of the Internal Revenue Code of 1986 and exempt from 
                tax under section 501(a) of such Code,
                    (B) a federally insured depository institution,
                    (C) an agency of a State or local government,
                    (D) a community development financial institution,
                    (E) an Indian tribal organization,
                    (F) an Alaska Native Corporation,
                    (G) a Native Hawaiian organization,
                    (H) a labor organization, or
                    (I) a partnership comprised of 1 or more of the 
                entities described in the preceding subparagraphs.
            (2) Definitions.--For purposes of this section--
                    (A) Federally insured depository institution.--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)).
                    (B) Community development financial institution.--
                The term ``community development financial 
                institution'' means any organization that has been 
                certified as such pursuant to section 1805.201 of title 
                12, Code of Federal Regulations.
                    (C) Alaska native corporation.--The term ``Alaska 
                Native Corporation'' has the same meaning as the term 
                ``Native Corporation'' under section 3(m) of the Alaska 
                Native Claims Settlement Act (43 U.S.C. 1602(m)).
                    (D) Native hawaiian organization.--The term 
                ``Native Hawaiian organization'' means any organization 
                that--
                            (i) serves and represents the interests of 
                        Native Hawaiians, and
                            (ii) has as a primary and stated purpose 
                        the provision of services to Native Hawaiians.
                    (E) Labor organization.--The term ``labor 
                organization'' means an organization--
                            (i) in which employees participate,
                            (ii) which exists for the purpose, in whole 
                        or in part, of dealing with employers 
                        concerning grievances, labor disputes, wages, 
                        rates of pay, hours of employment, or 
                        conditions of work, and
                            (iii) which is described in section 
                        501(c)(5).
    (c) Application.--An eligible entity desiring a grant under this 
section shall submit an application to the Secretary in such form and 
containing such information as the Secretary may require.
    (d) Limitation on Administrative Costs.--A recipient of a grant 
under this section may not use more than 6 percent of the total amount 
of such grant in any fiscal year for the administrative costs of 
carrying out the programs funded by such grant in such fiscal year.
    (e) Evaluation and Report.--For each fiscal year in which a grant 
is awarded under this section, the Secretary shall submit a report to 
Congress containing a description of the activities funded, amounts 
distributed, and measurable results, as appropriate and available.
    (f) Authorization of Appropriations.--There is authorized to be 
appropriated to the Secretary, for the grant program described in this 
section, $10,000,000, or such additional amounts as deemed necessary, 
to remain available until expended.
    (g) Regulations.--The Secretary is authorized to promulgate 
regulations to implement and administer the grant program under this 
section.

SEC. 131. ENROLLED AGENTS.

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

``SEC. 7529. ENROLLED AGENTS.

    ``(a) In General.--The Secretary may prescribe such regulations as 
may be necessary to regulate the conduct of enrolled agents in regards 
to their practice before the Internal Revenue Service.
    ``(b) Use of Credentials.--Any enrolled agents properly licensed to 
practice as required under rules promulgated under section (a) herein 
shall be allowed to use the credentials or designation as `enrolled 
agent', `EA', or `E.A.'.''.
    (b) Clerical Amendment.--The table of sections for chapter 77 is 
amended by adding at the end the following new item:

                              ``Sec. 7529. Enrolled agents.''.
    (c) Prior Regulations.--The authorization to prescribe regulations 
under the amendments made by this section may not be construed to have 
any effect on part 10 of title 31, Code of Federal Regulations, or any 
other related Federal rule or regulation issued before the date of the 
enactment of this Act.
    (d) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 132. ESTABLISHMENT OF DISASTER RESPONSE TEAM.

    (a) In General.--Section 7803 (relating to Commissioner of Internal 
Revenue; other officials) is amended by adding at the end the following 
new subsection:
    ``(e) Disaster Response Team.--
            ``(1) Response to disasters.--The Secretary shall--
                    ``(A) establish as a permanent office in the 
                national office of the Internal Revenue Service a 
                disaster response team composed of members, who in 
                addition to their regular responsibilities, shall 
                assist taxpayers in clarifying and resolving Federal 
                tax matters associated with or resulting from any 
                Presidentially declared disaster (as defined in section 
                1033(h)(3)), and
                    ``(B) respond to requests by such taxpayers for 
                filing extensions and technical guidance expeditiously.
            ``(2) Personnel of disaster response team.--The disaster 
        response team shall be composed of--
                    ``(A) personnel from the Office of the Taxpayer 
                Advocate, and
                    ``(B) personnel from the national office of the 
                Internal Revenue Service with expertise in individual, 
                corporate, and small business tax matters.
            ``(3) Coordination with fema.--The disaster response team 
        shall operate in coordination with the Director of the Federal 
        Emergency Management Agency.
            ``(4) Toll-free telephone number.--The Commissioner of 
        Internal Revenue shall establish and maintain a toll-free 
        telephone number for taxpayers to use to receive assistance 
        from the disaster response team.
            ``(5) Internet webpage site.--The Commissioner of Internal 
        Revenue shall establish and maintain a site on the Internet 
        webpage of the Internal Revenue Service for information for 
        taxpayers described in paragraph (1)(A).''.
    (b) FEMA.--The Director of the Federal Emergency Management Agency 
shall work in coordination with the disaster response team established 
under section 7803(e) of the Internal Revenue Code of 1986 to provide 
timely assistance to disaster victims described in such section, 
including--
            (1) informing the disaster response team regarding any tax-
        related problems or issues arising in connection with the 
        disaster,
            (2) providing the toll-free telephone number established 
        and maintained by the Internal Revenue Service for the disaster 
        victims in all materials provided to such victims, and
            (3) providing the information described in section 
        7803(e)(5) of such Code on the Internet webpage of the Federal 
        Emergency Management Agency or through a link on such webpage 
        to the Internet webpage site of the Internal Revenue Service 
        described in such section.
    (c) Effective Date.--The amendment made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 133. STUDY OF ACCELERATED TAX REFUNDS.

    (a) Study.--The Secretary of the Treasury shall study the 
implementation of an accelerated refund program for taxpayers who--
            (1) maintain the same filing characteristics from year to 
        year, and
            (2) elect the direct deposit option for any refund under 
        the program.
    (b) Report.--Not later than the date which is 1 year after the date 
of the enactment of this Act, the Secretary of the Treasury shall 
transmit a report of the study described in subsection (a), including 
recommendations, to the Committee on Finance of the Senate and the 
Committee on Ways and Means of the House of Representatives.

SEC. 134. STUDY ON CLARIFYING RECORDKEEPING RESPONSIBILITIES.

    (a) Study.--The Secretary of the Treasury shall study--
            (1) the scope of the records required to be maintained by 
        taxpayers under section 6001 of the Internal Revenue Code of 
        1986,
            (2) the utility of requiring taxpayers to maintain all 
        records indefinitely,
            (3) such requirement given the necessity to upgrade 
        technological storage for outdated records,
            (4) the number of negotiated records retention agreements 
        requested by taxpayers and the number entered into by the 
        Internal Revenue Service, and
            (5) proposals regarding taxpayer record-keeping.
    (b) Report.--Not later than the date which is 1 year after the date 
of the enactment of this Act, the Secretary of the Treasury shall 
transmit a report of the study described in subsection (a), including 
recommendations, to the Committee on Finance of the Senate and the 
Committee on Ways and Means of the House of Representatives.

SEC. 135. STREAMLINE REPORTING PROCESS FOR NATIONAL TAXPAYER ADVOCATE.

    (a) One Annual Report.--Subparagraph (B) of section 7803(c)(2) 
(relating to functions of Office) is amended--
            (1) by striking all matter preceding subclause (I) of 
        clause (ii) and inserting the following:
                    ``(B) Annual report.--
                            ``(i) In general.--Not later than December 
                        31 of each calendar year, the National Taxpayer 
                        Advocate shall report to the Committee of Ways 
                        and Means of the House of Representatives and 
                        the Committee on Finance of the Senate on the 
                        objectives of the Office of the Taxpayer of 
                        Advocate for the fiscal year beginning in such 
                        calendar year and the activities of such Office 
                        during the fiscal year ending during such 
                        calendar year. Any such report shall contain 
                        full and substantive analysis, in addition to 
                        statistical information, and shall--'',
            (2) by striking ``clause (ii)'' in clause (iv) and 
        inserting ``clause (i)'', and
            (3) by redesignating clauses (iii) and (iv) as clauses (ii) 
        and (iii), respectively.
    (b) Additional Reports.--Section 7803(c)(2)(C) (relating to other 
responsibilities) is amended by striking ``and'' at the end of clause 
(iii), by striking the period at the end of clause (iv) and inserting 
``; and'', and by adding at the end the following new clause:
                            ``(v) at the discretion of the National 
                        Taxpayer Advocate, report at any time to the 
                        Committee of Ways and Means of the House of 
                        Representatives and the Committee on Finance of 
                        the Senate on significant issues affecting 
                        taxpayer rights.''.
    (c) Effective Dates.--
            (1) Annual reports.--The amendments made by subsection (a) 
        shall apply to reports in calendar year 2005 and thereafter.
            (2) Additional reports.--The amendments made by subsection 
        (b) shall take effect on the date of the enactment of this Act.

SEC. 136. IRS FREE FILE PROGRAM.

    (a) In General.--The Commissioner of Internal Revenue shall require 
that a taxpayer must provide an affirmative consent before such 
taxpayer may be solicited with respect to any product or service by an 
entity participating in the Internal Revenue Service Free File program. 
Any request for such consent must be prominently displayed and clearly 
written, in large print, on any material relating to such program.
    (b) Effective Date.--This section shall take effect with respect to 
returns filed after December 31, 2004.

SEC. 137. MODIFICATION OF TIGTA REPORTING REQUIREMENTS.

    (a) In General.--Paragraph (1) of section 7803(d) (relating to 
additional duties of the Treasury Inspector General for Tax 
Administration) is amended--
            (1) by striking ``Annual'' in the heading and inserting 
        ``Biennial'',
            (2) by inserting ``every 2 years (beginning in 2004)'' 
        after ``one of the semiannual reports'' in the matter preceding 
        subparagraph (A),
            (3) by striking clause (ii) of subparagraph (A),
            (4) by redesignating clauses (iii), (iv), and (v) of 
        subparagraph (A) as clauses (ii), (iii), and (iv) of 
        subparagraph (A), respectively,
            (5) by striking subparagraph (B),
            (6) by striking ``and'' at the end of subparagraph (F),
            (7) by redesignating subparagraphs (C), (D), (E), and (F) 
        as subparagraphs (B), (C), (D), and (E), respectively, and
            (8) by striking subparagraph (G) and inserting the 
        following new subparagraphs:
                    ``(F) the number of employee misconduct and 
                taxpayer abuse allegations received by the Internal 
                Revenue Service or the Inspector General during the 
                period from taxpayers, Internal Revenue Service 
                employees, and other sources; and
                    ``(G) with respect to allegations of serious 
                employee misconduct--
                            ``(i) a summary of the status of such 
                        allegations; and
                            ``(ii) a summary of the disposition of such 
                        allegations, including the outcome of any 
                        Department of Justice action and any monies 
                        paid as a settlement of such allegations.''.
    (b) Conforming Amendments.--Section 7803(d) is amended by striking 
paragraph (2) and by redesignating paragraph (3) as paragraph (2).
    (c) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 138. STUDY OF IRS ACCOUNTS RECEIVABLE.

    (a) Study.--The Secretary of the Treasury shall conduct a study of 
the provisions of the Internal Revenue Code of 1986, and the 
application of such provisions, regarding collection procedures to 
determine if impediments exist to the efficient and timely collection 
of tax debts. Such study shall include an examination of the accounts 
receivable inventory of the Internal Revenue Service.
    (b) Report.--Not later than 1 year after the date of the enactment 
of this Act, the Secretary of the Treasury shall submit a report to the 
Committee on Ways and Means of the House of Representatives and the 
Committee on Finance of the Senate, including the findings of the study 
described in subsection (a) and such legislative or administrative 
recommendations as the Secretary deems appropriate to increase the 
efficient and timely collection of tax debts.

SEC. 139. ELECTRONIC COMMERCE ADVISORY GROUP.

    (a) In General.--Section 2001(b)(2) of the Internal Revenue Service 
Restructuring and Reform Act of 1998 is amended by inserting ``, and at 
least 2 representatives from the consumer advocate community'' after 
``industry''.
    (b) Application of Amendment.--The initial appointments in 
accordance with the amendment made by this section shall be made not 
later than the date which is 180 days after the date of the enactment 
of this Act.

SEC. 140. STUDY ON MODIFICATIONS TO SCHEDULES L AND M-1.

    (a) In General.--Not later than 6 months after the date of the 
enactment of this Act, 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 proposals to modify tax 
schedules L and M-1 of Form 1120 to require the disclosure of 
additional information, such as the items described in subsection (b).
    (b) Items of Disclosure.--The items described in this subsection is 
as follows:
            (1) The parent company names and identification numbers for 
        both tax and book purposes.
            (2) An asset reconciliation of consolidated book assets on 
        the public financial disclosures with the consolidated tax 
        return.
            (3) Worldwide net income from public financial disclosures.
            (4) The components of tax expense presently recorded in 
        financial statement tax footnotes.
            (5) The reconciliation of the book income of entities 
        included in the consolidated financial statement with book 
        income included in the consolidated tax return.
            (6) The adjustment for book income from domestic and 
        foreign entities excluded from financial reporting but included 
        for tax reconciliation.
            (7) The book income of United States entities included in 
        the United States consolidated return.
            (8) Taxable income due to actual or deemed dividends from 
        foreign subsidiaries.
            (9) A reconciliation which should reflect pretax book 
        income of United States consolidated tax group plus taxable 
        deemed or actual foreign repatriations.
            (10) The differences in the reporting of income and expense 
        between book and tax reporting, including specific reporting on 
        pension expense, stock options, and the amortization of 
        goodwill.
            (11) Other reconciliation items in a consistent manner 
        among all entities.
    (c) Public Availability of Specified Information.--Not later than 1 
year after the date of the enactment of this Act, the Securities and 
Exchange Commission and the Commissioner of Internal Revenue shall each 
report to the Committee on Finance of the Senate and the Committee on 
Ways and Means of the House of Representatives on proposals to expand 
the public availability and clarity of information relating to book and 
tax differences and Federal tax liability with respect to corporations.

SEC. 141. REGULATION OF FEDERAL INCOME TAX RETURN PREPARERS, REFUND 
              ANTICIPATION LOAN PROVIDERS, AND PAYROLL AGENTS.

    (a) In General.--Chapter 77 (relating to miscellaneous provisions), 
as amended by this Act, is amended by adding at the end the following 
new section:

``SEC. 7530. FEDERAL INCOME TAX RETURN PREPARERS, REFUND ANTICIPATION 
              LOAN PROVIDERS, AND PAYROLL AGENTS.

    ``(a) Registration.--
            ``(1) In general.--The Secretary shall prescribe such 
        regulations as may be necessary--
                    ``(A) to require the registration of Federal income 
                tax return preparers, refund anticipation loan 
                providers, and payroll agents with the Secretary or the 
                designee of the Secretary,
                    ``(B) to prohibit the payment of a refund of tax to 
                a Federal income tax return preparer or refund 
                anticipation loan provider that is the result of a tax 
                return which is prepared by such preparer or provider 
                which does not include the preparer's or provider's 
                registration number, and
                    ``(C) to require the posting of a resonable bond by 
                each registered payroll agent.
            ``(2) No disciplinary action.--The regulations under 
        paragraph (1) shall require that an applicant for registration 
        must not have demonstrated any conduct that would warrant 
        disciplinary action under part 10 of title 31, Code of Federal 
        Regulations.
            ``(3) Burden of registration.--In promulgating the 
        regulations under paragraph (1), the Secretary shall minimize 
        the burden and cost on the registrant.
    ``(b) Examination.--In promulgating the regulations under 
subsection (a)--
            ``(1) In general.--The Secretary shall develop a series of 
        examinations designed to test the technical knowledge and 
        competency of each applicant for registration to prepare 
        Federal tax returns, including an examination testing knowledge 
        of individual income tax return preparation, including the 
        earned income tax credit under section 32.
            ``(2) Initial examination.--The Secretary shall require 
        that each applicant for registration pass an initial 
        examination testing the applicant's technical knowledge and 
        competency to prepare individual and business Federal income 
        tax returns.
    ``(c) Rules of Conduct.--All registrants shall be subject to rules 
of conduct that are consistent with the rules that govern any federally 
authorized tax practitioner within the meaning of section 
7525(a)(3)(A).
    ``(d) Disclosure of Information.--The Secretary shall provide 
guidance on the manner and timing of disclosure to taxpayers of 
information relating to fees and interest rates imposed in connection 
with loans made to taxpayers by refund anticipation loan providers.
    ``(e) Annual Renewal of Registration.--
            ``(1) In general.--The regulations under subsection (a) 
        shall require an annual renewal of registration and shall set 
        forth the manner in which a registered Federal income tax 
        return preparer, refund anticipation loan provider, or payroll 
        agent must renew such registration.
            ``(2) Annual examinations.--As part of the annual 
        registration, such regulations shall require that each 
        registrant pass an annual refresher examination (including tax 
        law updates).
    ``(f) Fees.--
            ``(1) In general.--The Secretary may require the payment of 
        reasonable fees for registration and for renewal of 
        registration under the regulations promulgated under subsection 
        (a).
            ``(2) Purpose of fees.--Any fees described in paragraph (1) 
        shall be available without fiscal year limitation to the 
        Secretary for the purpose of reimbursement of the costs of 
        administering the requirements of the regulations.
    ``(g) Federal Income Tax Return Preparer.--For purposes of this 
section--
            ``(1) In general.--The term `Federal income tax return 
        preparer' means any individual who is an income tax return 
        preparer (within the meaning of section 7701(a)(36)) who 
        prepares not less than 5 returns of tax imposed by subtitle A 
        or claims for refunds of tax imposed by subtitle A per taxable 
        year.
            ``(2) Exception.--Such term shall not include a federally 
        authorized tax practitioner (as defined in section 
        7525(a)(3)(A).
    ``(h) Refund Anticipation Loan Provider.--For purposes of this 
section, the term `refund anticipation loan provider' means a person 
who makes a loan of money or of any other thing of value to a taxpayer 
in connection with the taxpayer's anticipated receipt of a Federal tax 
refund.''.
    (b) Prohibition.--
            (1) In general.--Section 6695 (relating to other assessable 
        penalties with respect to the preparation of income tax returns 
        for other persons) is amended by adding at the end the 
        following new subsection:
    ``(h) Actions on a Taxpayer's Behalf by a Non-Registered Person.--
Any person not registered pursuant to the regulations promulgated by 
the Secretary under section 7530 who--
            ``(1) prepares a tax return for another taxpayer, or
            ``(2) provides a loan of money or of any other thing of 
        value to a taxpayer in connection with the taxpayer's 
        anticipated receipt of a Federal tax refund,
shall be subject to a $500 penalty for each incident of 
noncompliance.''.
            (2) Use of penalties.--There is authorized to be 
        appropriated and is appropriated to the Secretary of the 
        Treasury for each fiscal year for the administration of the 
        requirements of the regulations promulgated under section 7530 
        of the Internal Revenue Code of 1986 an amount equal to the 
        penalties imposed under section 6695(h) of such Code for the 
        preceding fiscal year.
    (c) Coordination With Section 6060(a).--The Secretary of the 
Treasury shall coordinate the registration required under the 
regulations promulgated under section 7530 of the Internal Revenue Code 
of 1986 with the return requirements of section 6060 of such Code.
    (d) Public Awareness Campaign.--
            (1) In general.--The Secretary of the Treasury shall 
        conduct a public information and consumer education campaign, 
        utilizing paid advertising, to inform the public of the 
        requirements that Federal income tax return preparers (as 
        defined in section 7530(g) of the Internal Revenue Code of 
        1986) must sign the return prepared for a fee and display 
        notice of their registration under the regulations promulgated 
        under section 7530 of such Code.
            (2) Public list.--The Secretary of the Treasury shall 
        maintain a public list (in print and electronic media, 
        including Internet-based) of Federal income tax return 
        preparers (as so defined) who are so registered and whose 
        registration has been revoked.
            (3) Notification.--The Secretary of the Treasury shall 
        notify any taxpayer if such taxpayer's return was prepared by 
        such an unregistered Federal income tax return preparer .
    (e) Additional Funds Available for Compliance Activities.--The 
Secretary of the Treasury may use any specifically appropriated funds 
for earned income tax credit compliance to improve and expand 
enforcement of Federal income tax preparers under the regulations 
promulgated under section 7530 of the Internal Revenue Code of 1986.
    (f) Clerical Amendment.--The table of sections for chapter 77, as 
amended by this Act, is amended by adding at the end the following new 
item:

                              ``Sec. 7530. Federal income tax return 
                                        preparers and refund 
                                        anticipation loan providers.''.
    (g) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 142. JOINT TASK FORCE ON OFFERS-IN-COMPROMISE.

    (a) In General.--The Secretary of the Treasury shall establish a 
joint task force--
            (1) to review the Internal Revenue Service's determinations 
        with respect to offers which raise equitable, public policy, or 
        economic hardship grounds for compromise of a tax liability 
        under section 7122 of the Internal Revenue Code of 1986,
            (2) to review the extent to which the Internal Revenue 
        Service has used its authority to resolve longstanding cases by 
        forgoing penalties and interest which have accumulated as a 
        result of delay in determining the taxpayer's liability,
            (3) to provide recommendations as to whether the Internal 
        Revenue Service's evaluation of offers-in-compromise should 
        include--
                    (A) the taxpayer's compliance history,
                    (B) errors by the Internal Revenue Service with 
                respect to the underlying tax,
                    (C) wrongful acts by a third party which gave rise 
                to the liability, and
                    (D) whether the taxpayer has made payments on the 
                liability, and
            (4) to annually report to the Committee on Finance of the 
        Senate and the Committee on Ways and Means of the House of 
        Representatives (beginning in 2005) regarding such review and 
        recommendations.
    (b) Members of Joint Task Force.--The membership of the joint task 
force under subsection (a) shall consist of 1 representative each from 
the Department of the Treasury, the Internal Revenue Service Oversight 
Board, the Office of the Chief Counsel for the Internal Revenue 
Service, the Office of the Taxpayer Advocate, the Office of Appeals, 
and the division of the Internal Revenue Service charged with operating 
the offer-in-compromise program.
    (c) Report of National Taxpayer Advocate.--
            (1) In general.--Clause (i) of section 7803(c)(2)(B) 
        (relating to annual reports), as amended by this Act, is 
        amended by striking ``and'' at the end of subclause (X), by 
        redesignating subclause (XI) as subclause (XII), and by 
        inserting after subclause (X) the following new subclause:
                                    ``(XI) include a list of the 
                                factors taxpayers have raised to 
                                support their claims for offers-in-
                                compromise relief, the number of such 
                                offers submitted, accepted, and 
                                rejected, the number of such offers 
                                appealed, the period during which 
                                review of such offers have remained 
                                pending, and the efforts the Internal 
                                Revenue Service has made to correctly 
                                identify such offers, including the 
                                training of employees in identifying 
                                and evaluating such offers.''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to reports in calendar year 2005 and thereafter.

                      Subtitle C--Other Provisions

SEC. 151. PENALTY FOR FAILURE TO REPORT INTERESTS IN FOREIGN FINANCIAL 
              ACCOUNTS.

    (a) In General.--Section 5321(a)(5) of title 31, United States 
Code, is amended to read as follows:
            ``(5) Foreign financial agency transaction violation.--
                    ``(A) Penalty authorized.--The Secretary of the 
                Treasury may impose a civil money penalty on any person 
                who violates, or causes any violation of, any provision 
                of section 5314.
                    ``(B) Amount of penalty.--
                            ``(i) In general.--Except as provided in 
                        subparagraph (C), the amount of any civil 
                        penalty imposed under subparagraph (A) shall 
                        not exceed $5,000.
                            ``(ii) Reasonable cause exception.--No 
                        penalty shall be imposed under subparagraph (A) 
                        with respect to any violation if--
                                    ``(I) such violation was due to 
                                reasonable cause, and
                                    ``(II) the amount of the 
                                transaction or the balance in the 
                                account at the time of the transaction 
                                was properly reported.
                    ``(C) Willful violations.--In the case of any 
                person willfully violating, or willfully causing any 
                violation of, any provision of section 5314--
                            ``(i) the maximum penalty under 
                        subparagraph (B)(i) shall be increased to the 
                        greater of--
                                    ``(I) $25,000, or
                                    ``(II) the amount (not exceeding 
                                $100,000) determined under subparagraph 
                                (D), and
                            ``(ii) subparagraph (B)(ii) shall not 
                        apply.
                    ``(D) Amount.--The amount determined under this 
                subparagraph is--
                            ``(i) in the case of a violation involving 
                        a transaction, the amount of the transaction, 
                        or
                            ``(ii) in the case of a violation involving 
                        a failure to report the existence of an account 
                        or any identifying information required to be 
                        provided with respect to an account, the 
                        balance in the account at the time of the 
                        violation.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to violations occurring after the date of the enactment of this Act.

SEC. 152. REPEAL OF APPLICATION OF BELOW-MARKET LOAN RULES TO AMOUNTS 
              PAID TO CERTAIN CONTINUING CARE FACILITIES.

    (a) In General.--Section 7872(c)(1) (relating to below-market loans 
to which section applies) is amended--
            (1) by striking subparagraph (F), and
            (2) by striking ``(C), or (F)'' in subparagraph (E) and 
        inserting ``or (C)''.
    (b) Full Exception.--Section 7872(g) (relating to exception for 
certain loans to qualified continuing care facilities) is amended--
            (1) by striking ``made by a lender to a qualified 
        continuing care facility pursuant to a continuing care 
        contract'' in paragraph (1) and inserting ``owed by a facility 
        which on the last day of such year is a qualified continuing 
        care facility, if such loan was made pursuant to a continuing 
        care contract and'',
            (2) by striking ``increased personal care services or'' in 
        paragraph (3)(C),
            (3) by adding at the end of paragraph (3) the following new 
        flush sentence:
        ``The Secretary shall issue guidance which limits such term to 
        contracts which provide to an individual or individual's spouse 
        only facilities, care, and services described in this paragraph 
        which are customarily offered by continuing care facilities.'',
            (4) by inserting ``independent living unit'' after ``all of 
        the'' in paragraph (4)(A)(ii),
            (5) by striking paragraphs (2) and (5),
            (6) by redesignating paragraphs (3) and (4) as paragraphs 
        (2) and (3), respectively, and
            (7) by striking ``Certain'' in the heading thereof.
    (c) Effective Date.--The amendments made by this section shall 
apply to calendar years beginning after 2004.

SEC. 153. PUBLIC SUPPORT BY INDIAN TRIBAL GOVERNMENTS.

    (a) In General.--Section 7871(a) (relating to Indian tribal 
governments treated as States for certain purposes) is amended by 
striking ``and'' at the end of subparagraph (C) of paragraph (6), by 
striking the period at the end of subparagraph (B) of paragraph (7) and 
inserting ``; and'', and by adding at the end the following new 
paragraph:
            ``(8) for purposes of--
                    ``(A) determining support of an organization 
                described in section 170(b)(1)(A)(vi), and
                    ``(B) determining whether an organization is 
                described in paragraph (1) or (2) of section 509(a) for 
                purposes of section 509(a)(3).''.
    (b) Effective Date.--The amendments made by this section shall 
apply with respect to--
            (1) support received before, on, or after the date of the 
        enactment of this Act, and
            (2) the determination of the status of any organization 
        with respect to any taxable year beginning after such date of 
        enactment.

SEC. 154. PAYROLL AGENTS SUBJECT TO PENALTY FOR FAILURE TO COLLECT AND 
              PAY OVER TAX, OR ATTEMPT TO EVADE OR DEFEAT TAX.

    (a) In General.--Section 6672(a) is amended by inserting ``, 
including any payroll agent,'' after ``Any person''.
    (b) Penalty Not Subject To Discharge in Bankruptcy.--Section 
6672(a) is amended by adding at the end the following new sentence: 
``Notwithstanding any other provision of law, no penalty imposed under 
this section may be discharged in bankruptcy.''.
    (c) Construction.--The amendment made by subsection (a) shall not 
be construed to create any inference with respect to the interpretation 
of section 6672 of the Internal Revenue Code of 1986 as such section 
was in effect on the day before the date of the enactment of this Act.
    (d) Effective Date.--The amendments made by this section shall 
apply to failures occurring after the date of the enactment of this 
Act.

                TITLE II--REFORM OF PENALTY AND INTEREST

SEC. 201. INDIVIDUAL ESTIMATED TAX.

    (a) Increase in Exception for Individuals Owing Small Amount of 
Tax.--Section 6654(e)(1) (relating to exception where tax is small 
amount) is amended by striking ``$1,000'' and inserting ``$2,000''.
    (b) Computation of Addition to Tax.--Subsections (a) and (b) of 
section 6654 (relating to failure by individual to pay estimated taxes) 
are amended to read as follows:
    ``(a) Addition to the Tax.--
            ``(1) In general.--Except as otherwise provided in this 
        section, in the case of any underpayment of estimated tax by an 
        individual for a taxable year, there shall be added to the tax 
        under chapters 1 and 2 for the taxable year the amount 
        determined under paragraph (2) for each day of underpayment.
            ``(2) Amount.--The amount of the addition to tax for any 
        day shall be the product of the underpayment rate established 
        under subsection (b)(2) multiplied by the amount of the 
        underpayment.
    ``(b) Amount of Underpayment; Underpayment Rate.--For purposes of 
subsection (a)--
            ``(1) Amount.--The amount of the underpayment on any day 
        shall be the excess of--
                    ``(A) the sum of the required installments for the 
                taxable year the due dates for which are on or before 
                such day, over
                    ``(B) the sum of the amounts (if any) of estimated 
                tax payments made on or before such day on such 
                required installments.
            ``(2) Determination of underpayment rate.--
                    ``(A) In general.--The underpayment rate with 
                respect to any day in an installment underpayment 
                period shall be the underpayment rate established under 
                section 6621 for the first day of the calendar quarter 
                in which such installment underpayment period begins.
                    ``(B) Installment underpayment period.--For 
                purposes of subparagraph (A), the term `installment 
                underpayment period' means the period beginning on the 
                day after the due date for a required installment and 
                ending on the due date for the subsequent required 
                installment (or in the case of the 4th required 
                installment, the 15th day of the 4th month following 
                the close of a taxable year).
                    ``(C) Daily rate.--The rate determined under 
                subparagraph (A) shall be applied on a daily basis and 
                shall be based on the assumption of 365 days in a 
                calendar year.
            ``(3) Termination of estimated tax underpayment.--No day 
        after the end of the installment underpayment period for the 
        4th required installment specified in paragraph (2)(B) for a 
        taxable year shall be treated as a day of underpayment with 
        respect to such taxable year.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to estimated tax payments made for taxable years beginning after 
December 31, 2004.

SEC. 202. CORPORATE ESTIMATED TAX.

    (a) Increase in Small Tax Amount Exception.--Section 6655(f) 
(relating to exception where tax is small amount) is amended by 
striking ``$500'' and inserting ``$1,000''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2004.

SEC. 203. INCREASE IN LARGE CORPORATION THRESHOLD FOR ESTIMATED TAX 
              PAYMENTS.

    (a) In General.--Section 6655(g)(2) (defining large corporation) is 
amended--
            (1) by striking ``$1,000,000'' in subparagraph (A) and 
        inserting ``the applicable amount'',
            (2) by striking ``the $1,000,000 amount specified in 
        subparagraph (A)'' in subparagraph (B)(ii) and inserting ``the 
        applicable amount'',
            (3) by redesignating subparagraph (B) as subparagraph (C), 
        and
            (4) by inserting after subparagraph (A) the following new 
        subparagraph:
                    ``(B) Applicable amount.--For purposes of this 
                paragraph, the applicable amount is $1,000,000 
                increased (but not above $1,500,000) by $50,000 for 
                each taxable year beginning after 2004.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2004.

SEC. 204. ABATEMENT OF INTEREST.

    (a) Abatement of Interest for Periods Attributable to Any 
Unreasonable IRS Error or Delay.--Section 6404(e)(1) is amended--
            (1) by striking ``in performing a ministerial or managerial 
        act'' in subparagraphs (A) and (B),
            (2) by striking ``deficiency'' in subparagraph (A) and 
        inserting ``underpayment of any tax, addition to tax, or 
        penalty imposed by this title'', and
            (3) by striking ``tax described in section 6212(a)'' in 
        subparagraph (B) and inserting ``tax, addition to tax, or 
        penalty imposed by this title''.
    (b) Abatement of Interest to Extent Interest Is Attributable to 
Taxpayer Reliance on Written Statements of the IRS.--Subsection (f) of 
section 6404 is amended--
            (1) in the subsection heading, by striking ``Penalty or 
        Addition'' and inserting ``Interest, Penalty, or Addition''; 
        and
            (2) in paragraph (1) and in subparagraph (B) of paragraph 
        (2), by striking ``penalty or addition'' and inserting 
        ``interest, penalty, or addition''.
    (c) Effective Date.--The amendments made by this section shall 
apply with respect to interest accruing on or after the date of the 
enactment of this Act.

SEC. 205. DEPOSITS MADE TO SUSPEND RUNNING OF INTEREST ON POTENTIAL 
              UNDERPAYMENTS.

    (a) In General.--Subchapter A of chapter 67 (relating to interest 
on underpayments) is amended by adding at the end the following new 
section:

``SEC. 6603. DEPOSITS MADE TO SUSPEND RUNNING OF INTEREST ON POTENTIAL 
              UNDERPAYMENTS, ETC.

    ``(a) Authority To Make Deposits Other Than as Payment of Tax.--A 
taxpayer may make a cash deposit with the Secretary which may be used 
by the Secretary to pay any tax imposed under subtitle A or B or 
chapter 41, 42, 43, or 44 which has not been assessed at the time of 
the deposit. Such a deposit shall be made in such manner as the 
Secretary shall prescribe.
    ``(b) No Interest Imposed.--To the extent that such deposit is used 
by the Secretary to pay tax, for purposes of section 6601 (relating to 
interest on underpayments), the tax shall be treated as paid when the 
deposit is made.
    ``(c) Return of Deposit.--Except in a case where the Secretary 
determines that collection of tax is in jeopardy, the Secretary shall 
return to the taxpayer any amount of the deposit (to the extent not 
used for a payment of tax) which the taxpayer requests in writing.
    ``(d) Payment of Interest.--
            ``(1) In general.--For purposes of section 6611 (relating 
        to interest on overpayments), a deposit which is returned to a 
        taxpayer shall be treated as a payment of tax for any period to 
        the extent (and only to the extent) attributable to a 
        disputable tax for such period. Under regulations prescribed by 
        the Secretary, rules similar to the rules of section 6611(b)(2) 
        shall apply.
            ``(2) Disputable tax.--
                    ``(A) In general.--For purposes of this section, 
                the term `disputable tax' means the amount of tax 
                specified at the time of the deposit as the taxpayer's 
                reasonable estimate of the maximum amount of any tax 
                attributable to disputable items.
                    ``(B) Safe harbor based on 30-day letter.--In the 
                case of a taxpayer who has been issued a 30-day letter, 
                the maximum amount of tax under subparagraph (A) shall 
                not be less than the amount of the proposed deficiency 
                specified in such letter.
            ``(3) Other definitions.--For purposes of paragraph (2)--
                    ``(A) Disputable item.--The term `disputable item' 
                means any item of income, gain, loss, deduction, or 
                credit if the taxpayer--
                            ``(i) has a reasonable basis for its 
                        treatment of such item, and
                            ``(ii) reasonably believes that the 
                        Secretary also has a reasonable basis for 
                        disallowing the taxpayer's treatment of such 
                        item.
                    ``(B) 30-day letter.--The term `30-day letter' 
                means the first letter of proposed deficiency which 
                allows the taxpayer an opportunity for administrative 
                review in the Internal Revenue Service Office of 
                Appeals.
            ``(4) Rate of interest.--The rate of interest allowable 
        under this subsection shall be the Federal short-term rate 
        determined under section 6621(b), compounded daily.
    ``(e) Use of Deposits.--
            ``(1) Payment of tax.--Except as otherwise provided by the 
        taxpayer, deposits shall be treated as used for the payment of 
        tax in the order deposited.
            ``(2) Returns of deposits.--Deposits shall be treated as 
        returned to the taxpayer on a last-in, first-out basis.''.
    (b) Clerical Amendment.--The table of sections for subchapter A of 
chapter 67 is amended by adding at the end the following new item:

                              ``Sec. 6603. Deposits made to suspend 
                                        running of interest on 
                                        potential underpayments, 
                                        etc.''.
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to deposits made after the date which is 1 year after the 
        date of the enactment of this Act.
            (2) Coordination with deposits made under revenue procedure 
        84-58.--In the case of an amount held by the Secretary of the 
        Treasury or the Secretary's delegate on the date which is 1 
        year after the date of the enactment of this Act as a deposit 
        in the nature of a cash bond deposit pursuant to Revenue 
        Procedure 84-58, the date that the taxpayer identifies such 
        amount as a deposit made pursuant to section 6603 of the 
        Internal Revenue Code (as added by this Act) shall be treated 
        as the date such amount is deposited for purposes of such 
        section 6603.

SEC. 206. FREEZE OF PROVISIONS REGARDING SUSPENSION OF INTEREST WHERE 
              SECRETARY FAILS TO CONTACT TAXPAYER.

    (a) In General.--Section 6404(g) (relating to suspension of 
interest and certain penalties where Secretary fails to contact 
taxpayer) is amended by striking ``1-year period (18-month period in 
the case of taxable years beginning before January 1, 2004)'' both 
places it appears and inserting ``18-month period''.
    (b) Exception for Gross Misstatement.--Section 6404(g)(2) (relating 
to exceptions) is amended by striking ``or'' at the end of subparagraph 
(C), by redesignating subparagraph (D) as subparagraph (E), and by 
inserting after subparagraph (C) the following new subparagraph:
                    ``(D) any interest, penalty, addition to tax, or 
                additional amount with respect to any gross 
                misstatement; or''.
    (c) Exception for Reportable and Listed Transactions.--Section 
6404(g)(2) (relating to exceptions), as amended by subsection (b), is 
amended by striking ``or'' at the end of subparagraph (D), by 
redesignating subparagraph (E) as subparagraph (F), and by inserting 
after subparagraph (D) the following new subparagraph:
                    ``(E) any interest, penalty, addition to tax, or 
                additional amount with respect to any reportable 
                transaction or listed transaction (as defined in 
                6707A(c)); or''.
    (d) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to taxable years 
        beginning after December 31, 2003.
            (2) Exception for reportable or listed transactions.--The 
        amendments made by subsection (c) shall apply with respect to 
        interest accruing after May 5, 2004.

SEC. 207. CLARIFICATION OF APPLICATION OF FEDERAL TAX DEPOSIT PENALTY.

    Nothing in section 6656 of the Internal Revenue Code of 1986 shall 
be construed to permit the percentage specified in subsection 
(b)(1)(A)(iii) thereof to apply other than in a case where the failure 
is for more than 15 days.

SEC. 208. FRIVOLOUS TAX RETURNS AND SUBMISSIONS.

    (a) Civil Penalties.--Section 6702 is amended to read as follows:

``SEC. 6702. FRIVOLOUS TAX SUBMISSIONS.

    ``(a) Civil Penalty for Frivolous Tax Returns.--A person shall pay 
a penalty of $5,000 if--
            ``(1) such person files what purports to be a return of a 
        tax imposed by this title but which--
                    ``(A) does not contain information on which the 
                substantial correctness of the self-assessment may be 
                judged, or
                    ``(B) contains information that on its face 
                indicates that the self-assessment is substantially 
                incorrect; and
            ``(2) the conduct referred to in paragraph (1)--
                    ``(A) is based on a position which the Secretary 
                has identified as frivolous under subsection (c), or
                    ``(B) reflects a desire to delay or impede the 
                administration of Federal tax laws.
    ``(b) Civil Penalty for Specified Frivolous Submissions.--
            ``(1) Imposition of penalty.--Except as provided in 
        paragraph (3), any person who submits a specified frivolous 
        submission shall pay a penalty of $5,000.
            ``(2) Specified frivolous submission.--For purposes of this 
        section--
                    ``(A) Specified frivolous submission.--The term 
                `specified frivolous submission' means a specified 
                submission if any portion of such submission--
                            ``(i) is based on a position which the 
                        Secretary has identified as frivolous under 
                        subsection (c), or
                            ``(ii) reflects a desire to delay or impede 
                        the administration of Federal tax laws.
                    ``(B) Specified submission.--The term `specified 
                submission' means--
                            ``(i) a request for a hearing under--
                                    ``(I) section 6320 (relating to 
                                notice and opportunity for hearing upon 
                                filing of notice of lien), or
                                    ``(II) section 6330 (relating to 
                                notice and opportunity for hearing 
                                before levy), and
                            ``(ii) an application under--
                                    ``(I) section 6159 (relating to 
                                agreements for payment of tax liability 
                                in installments),
                                    ``(II) section 7122 (relating to 
                                compromises), or
                                    ``(III) section 7811 (relating to 
                                taxpayer assistance orders).
            ``(3) Opportunity to withdraw submission.--If the Secretary 
        provides a person with notice that a submission is a specified 
        frivolous submission and such person withdraws such submission 
        within 30 days after such notice, the penalty imposed under 
        paragraph (1) shall not apply with respect to such submission.
    ``(c) Listing of Frivolous Positions.--The Secretary shall 
prescribe (and periodically revise) a list of positions which the 
Secretary has identified as being frivolous for purposes of this 
subsection. The Secretary shall not include in such list any position 
that the Secretary determines meets the requirement of section 
6662(d)(2)(B)(ii)(II).
    ``(d) Reduction of Penalty.--The Secretary may reduce the amount of 
any penalty imposed under this section if the Secretary determines that 
such reduction would promote compliance with and administration of the 
Federal tax laws.
    ``(e) Penalties in Addition to Other Penalties.--The penalties 
imposed by this section shall be in addition to any other penalty 
provided by law.''.
    (b) Treatment of Frivolous Requests for Hearings Before Levy.--
            (1) Frivolous requests disregarded.--Section 6330 (relating 
        to notice and opportunity for hearing before levy) is amended 
        by adding at the end the following new subsection:
    ``(g) Frivolous Requests for Hearing, etc.--Notwithstanding any 
other provision of this section, if the Secretary determines that any 
portion of a request for a hearing under this section or section 6320 
meets the requirement of clause (i) or (ii) of section 6702(b)(2)(A), 
then the Secretary may treat such portion as if it were never submitted 
and such portion shall not be subject to any further administrative or 
judicial review.''.
            (2) Preclusion from raising frivolous issues at hearing.--
        Section 6330(c)(4) is amended--
                    (A) by striking ``(A)'' and inserting ``(A)(i)'';
                    (B) by striking ``(B)'' and inserting ``(ii)'';
                    (C) by striking the period at the end of the first 
                sentence and inserting ``; or''; and
                    (D) by inserting after subparagraph (A)(ii) (as so 
                redesignated) the following:
                    ``(B) the issue meets the requirement of clause (i) 
                or (ii) of section 6702(b)(2)(A).''.
            (3) Statement of grounds.--Section 6330(b)(1) is amended by 
        striking ``under subsection (a)(3)(B)'' and inserting ``in 
        writing under subsection (a)(3)(B) and states the grounds for 
        the requested hearing''.
    (c) Treatment of Frivolous Requests for Hearings Upon Filing of 
Notice of Lien.--Section 6320 is amended--
            (1) in subsection (b)(1), by striking ``under subsection 
        (a)(3)(B)'' and inserting ``in writing under subsection 
        (a)(3)(B) and states the grounds for the requested hearing'', 
        and
            (2) in subsection (c), by striking ``and (e)'' and 
        inserting ``(e), and (g)''.
    (d) Treatment of Frivolous Applications for Offers-in-Compromise 
and Installment Agreements.--Section 7122 is amended by adding at the 
end the following new subsection:
    ``(e) Frivolous Submissions, etc.--Notwithstanding any other 
provision of this section, if the Secretary determines that any portion 
of an application for an offer-in-compromise or installment agreement 
submitted under this section or section 6159 meets the requirement of 
clause (i) or (ii) of section 6702(b)(2)(A), then the Secretary may 
treat such portion as if it were never submitted and such portion shall 
not be subject to any further administrative or judicial review.''.
    (e) Clerical Amendment.--The table of sections for part I of 
subchapter B of chapter 68 is amended by striking the item relating to 
section 6702 and inserting the following new item:

                              ``Sec. 6702. Frivolous tax 
                                        submissions.''.
    (f) Effective Date.--The amendments made by this section shall 
apply to submissions made and issues raised after the date on which the 
Secretary first prescribes a list under section 6702(c) of the Internal 
Revenue Code of 1986, as amended by subsection (a).

SEC. 209. EXTENSION OF NOTICE REQUIREMENTS WITH RESPECT TO INTEREST AND 
              PENALTY CALCULATIONS.

    Sections 3306(c) and 3308(c) of the Internal Revenue Service 
Restructuring and Reform Act of 1998 are each amended by inserting 
``and during the period beginning on the date of the enactment of the 
Tax Administration Good Government Act, and ending before July 1, 
2006,'' after ``July 1, 2003,''.

SEC. 210. EXPANSION OF INTEREST NETTING.

    (a) In General.--Subsection (d) of section 6621 (relating to 
elimination of interest on overlapping periods of tax overpayments and 
underpayments) is amended by adding at the end the following: ``Solely 
for purposes of the preceding sentence, section 6611(e) shall not 
apply.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to interest accrued after December 31, 2010.

            TITLE III--UNITED STATES TAX COURT MODERNIZATION

                    Subtitle A--Tax Court Procedure

SEC. 301. JURISDICTION OF TAX COURT OVER COLLECTION DUE PROCESS CASES.

    (a) In General.--Paragraph (1) of section 6330(d) (relating to 
proceeding after hearing) is amended to read as follows:
            ``(1) Judicial review of determination.--The person may, 
        within 30 days of a determination under this section, appeal 
        such determination to the Tax Court (and the Tax Court shall 
        have jurisdiction with respect to such matter).''.
    (b) Effective Date.--The amendment made by this section shall apply 
to determinations made after the date which is 60 days after the date 
of the enactment of this Act.

SEC. 302. AUTHORITY FOR SPECIAL TRIAL JUDGES TO HEAR AND DECIDE CERTAIN 
              EMPLOYMENT STATUS CASES.

    (a) In General.--Section 7443A(b) (relating to proceedings which 
may be assigned to special trial judges) is amended by striking ``and'' 
at the end of paragraph (4), by redesignating paragraph (5) as 
paragraph (6), and by inserting after paragraph (4) the following new 
paragraph:
            ``(5) any proceeding under section 7436(c), and''.
    (b) Conforming Amendment.--Section 7443A(c) is amended by striking 
``or (4)'' and inserting ``(4), or (5)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to any proceeding under section 7436(c) of the Internal Revenue 
Code of 1986 with respect to which a decision has not become final (as 
determined under section 7481 of such Code) before the date of the 
enactment of this Act.

SEC. 303. CONFIRMATION OF AUTHORITY OF TAX COURT TO APPLY DOCTRINE OF 
              EQUITABLE RECOUPMENT.

    (a) Confirmation of Authority of Tax Court To Apply Doctrine of 
Equitable Recoupment.--Section 6214(b) (relating to jurisdiction over 
other years and quarters) is amended by adding at the end the following 
new sentence: ``Notwithstanding the preceding sentence, the Tax Court 
may apply the doctrine of equitable recoupment to the same extent that 
it is available in civil tax cases before the district courts of the 
United States and the United States Court of Federal Claims.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to any action or proceeding in the United States Tax Court with respect 
to which a decision has not become final (as determined under section 
7481 of the Internal Revenue Code of 1986) as of the date of the 
enactment of this Act.

SEC. 304. TAX COURT FILING FEE IN ALL CASES COMMENCED BY FILING 
              PETITION.

    (a) In General.--Section 7451 (relating to fee for filing a Tax 
Court petition) is amended by striking all that follows ``petition'' 
and inserting a period.
    (b) Effective Date.--The amendment made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 305. AMENDMENTS TO APPOINT EMPLOYEES.

    (a) In General.--Subsection (a) of section 7471 (relating to Tax 
Court employees) is amended to read as follows:
    ``(a) Appointment and Compensation.--
            ``(1) Clerk.--The Tax Court may appoint a clerk without 
        regard to the provisions of title 5, United States Code, 
        governing appointments in the competitive service. The clerk 
        shall serve at the pleasure of the Tax Court.
            ``(2) Law clerks and secretaries.--
                    ``(A) In general.--The judges and special trial 
                judges of the Tax Court may appoint law clerks and 
                secretaries, in such numbers as the Tax Court may 
                approve, without regard to the provisions of title 5, 
                United States Code, governing appointments in the 
                competitive service. Any such law clerk or secretary 
                shall serve at the pleasure of the appointing judge.
                    ``(B) Exemption from federal leave provisions.--A 
                law clerk appointed under this subsection shall be 
                exempt from the provisions of subchapter I of chapter 
                63 of title 5, United States Code. Any unused sick 
                leave or annual leave standing to the employee's credit 
                as of the effective date of this subsection shall 
                remain credited to the employee and shall be available 
                to the employee upon separation from the Federal 
                Government.
            ``(3) Other employees.--The Tax Court may appoint necessary 
        employees without regard to the provisions of title 5, United 
        States Code, governing appointments in the competitive service. 
        Such employees shall be subject to removal by the Tax Court.
            ``(4) Pay.--The Tax Court may fix and adjust the 
        compensation for the clerk and other employees of the Tax Court 
        without regard to the provisions of chapter 51, subchapter III 
        of chapter 53, or section 5373 of title 5, United States Code. 
        To the maximum extent feasible, the Tax Court shall compensate 
        employees at rates consistent with those for employees holding 
        comparable positions in the judicial branch.
            ``(5) Programs.--The Tax Court may establish programs for 
        employee evaluations, incentive awards, flexible work 
        schedules, premium pay, and resolution of employee grievances.
            ``(6) Discrimination prohibited.--The Tax Court shall--
                    ``(A) prohibit discrimination on the basis of race, 
                color, religion, age, sex, national origin, political 
                affiliation, marital status, or handicapping condition; 
                and
                    ``(B) promulgate procedures for resolving 
                complaints of discrimination by employees and 
                applicants for employment.
            ``(7) Experts and consultants.--The Tax Court may procure 
        the services of experts and consultants under section 3109 of 
        title 5, United States Code.
            ``(8) Rights to certain appeals reserved.--Notwithstanding 
        any other provision of law, an individual who is an employee of 
        the Tax Court on the day before the effective date of this 
        subsection and who, as of that day, was entitled to--
                    ``(A) appeal a reduction in grade or removal to the 
                Merit Systems Protection Board under chapter 43 of 
                title 5, United States Code,
                    ``(B) appeal an adverse action to the Merit Systems 
                Protection Board under chapter 75 of title 5, United 
                States Code,
                    ``(C) appeal a prohibited personnel practice 
                described under section 2302(b) of title 5, United 
                States Code, to the Merit Systems Protection Board 
                under chapter 77 of that title,
                    ``(D) make an allegation of a prohibited personnel 
                practice described under section 2302(b) of title 5, 
                United States Code, with the Office of Special Counsel 
                under chapter 12 of that title for action in accordance 
                with that chapter, or
                    ``(E) file an appeal with the Equal Employment 
                Opportunity Commission under part 1614 of title 29 of 
                the Code of Federal Regulations,
        shall be entitled to file such appeal or make such an 
        allegation so long as the individual remains an employee of the 
        Tax Court.
            ``(9) Competitive status.--Notwithstanding any other 
        provision of law, any employee of the Tax Court who has 
        completed at least 1 year of continuous service under a non-
        temporary appointment with the Tax Court acquires a competitive 
        status for appointment to any position in the competitive 
        service for which the employee possesses the required 
        qualifications.
            ``(10) Merit system principles; prohibited personnel 
        practices; and preference eligibles.--Any personnel management 
        system of the Tax Court shall--
                    ``(A) include the principles set forth in section 
                2301(b) of title 5, United States Code;
                    ``(B) prohibit personnel practices prohibited under 
                section 2302(b) of title 5, United States Code; and
                    ``(C) in the case of any individual who would be a 
                preference eligible in the executive branch, the Tax 
                Court will provide preference for that individual in a 
                manner and to an extent consistent with preference 
                accorded to preference eligibles in the executive 
                branch.''.
    (b) Effective Date.--The amendments made by this section shall take 
effect on the date the United States Tax Court adopts a personnel 
management system after the date of the enactment of this Act.

SEC. 306. EXPANDED USE OF TAX COURT PRACTICE FEE FOR PRO SE TAXPAYERS.

    (a) In General.--Section 7475(b) (relating to use of fees) is 
amended by inserting before the period at the end ``and to provide 
services to pro se taxpayers''.
    (b) Effective Date.--The amendment made by this section shall take 
effect on the date of the enactment of this Act.

             Subtitle B--Tax Court Pension and Compensation

SEC. 311. ANNUITIES FOR SURVIVORS OF TAX COURT JUDGES WHO ARE 
              ASSASSINATED.

    (a) Eligibility in Case of Death by Assassination.--Subsection (h) 
of section 7448 (relating to annuities to surviving spouses and 
dependent children of judges) is amended to read as follows:
    ``(h) Entitlement to Annuity.--
            ``(1) In general.--
                    ``(A) Annuity to surviving spouse.--If a judge 
                described in paragraph (2) is survived by a surviving 
                spouse but not by a dependent child, there shall be 
                paid to such surviving spouse an annuity beginning with 
                the day of the death of the judge or following the 
                surviving spouse's attainment of the age of 50 years, 
                whichever is the later, in an amount computed as 
                provided in subsection (m).
                    ``(B) Annuity to child.--If such a judge is 
                survived by a surviving spouse and a dependent child or 
                children, there shall be paid to such surviving spouse 
                an immediate annuity in an amount computed as provided 
                in subsection (m), and there shall also be paid to or 
                on behalf of each such child an immediate annuity equal 
                to the lesser of--
                            ``(i) 10 percent of the average annual 
                        salary of such judge (determined in accordance 
                        with subsection (m)), or
                            ``(ii) 20 percent of such average annual 
                        salary, divided by the number of such children.
                    ``(C) Annuity to surviving dependent children.--If 
                such a judge leaves no surviving spouse but leaves a 
                surviving dependent child or children, there shall be 
                paid to or on behalf of each such child an immediate 
                annuity equal to the lesser of--
                            ``(i) 20 percent of the average annual 
                        salary of such judge (determined in accordance 
                        with subsection (m)), or
                            ``(ii) 40 percent of such average annual 
                        salary, divided by the number of such children.
            ``(2) Covered judges.--Paragraph (1) applies to any judge 
        electing under subsection (b)--
                    ``(A) who dies while a judge after having rendered 
                at least 5 years of civilian service computed as 
                prescribed in subsection (n), for the last 5 years of 
                which the salary deductions provided for by subsection 
                (c)(1) or the deposits required by subsection (d) have 
                actually been made or the salary deductions required by 
                the civil service retirement laws have actually been 
                made, or
                    ``(B) who dies by assassination after having 
                rendered less than 5 years of civilian service computed 
                as prescribed in subsection (n) if, for the period of 
                such service, the salary deductions provided for by 
                subsection (c)(1) or the deposits required by 
                subsection (d) have actually been made.
            ``(3) Termination of annuity.--
                    ``(A) In the case of a surviving spouse.--The 
                annuity payable to a surviving spouse under this 
                subsection shall be terminable upon such surviving 
                spouse's death or such surviving spouse's remarriage 
                before attaining age 55.
                    ``(B) In the case of a child.--The annuity payable 
                to a child under this subsection shall be terminable 
                upon (i) the child attaining the age of 18 years, (ii) 
                the child's marriage, or (iii) the child's death, 
                whichever first occurs, except that if such child is 
                incapable of self-support by reason of mental or 
                physical disability the child's annuity shall be 
                terminable only upon death, marriage, or recovery from 
                such disability.
                    ``(C) In the case of a dependent child after death 
                of surviving spouse.--In case of the death of a 
                surviving spouse of a judge leaving a dependent child 
                or children of the judge surviving such spouse, the 
                annuity of such child or children shall be recomputed 
                and paid as provided in paragraph (1)(C).
                    ``(D) Recomputation.--In any case in which the 
                annuity of a dependent child is terminated under this 
                subsection, the annuities of any remaining dependent 
                child or children, based upon the service of the same 
                judge, shall be recomputed and paid as though the child 
                whose annuity was so terminated had not survived such 
                judge.
            ``(4) Special rule for assassinated judges.--In the case of 
        a survivor or survivors of a judge described in paragraph 
        (2)(B), there shall be deducted from the annuities otherwise 
        payable under this section an amount equal to--
                    ``(A) the amount of salary deductions provided for 
                by subsection (c)(1) that would have been made if such 
                deductions had been made for 5 years of civilian 
                service computed as prescribed in subsection (n) before 
                the judge's death, reduced by
                    ``(B) the amount of such salary deductions that 
                were actually made before the date of the judge's 
                death.''.
    (b) Definition of Assassination.--Section 7448(a) (relating to 
definitions) is amended by adding at the end the following new 
paragraph:
            ``(8) The terms `assassinated' and `assassination' mean the 
        killing of a judge that is motivated by the performance by that 
        judge of his or her official duties.''.
    (c) Determination of Assassination.--Subsection (i) of section 7448 
is amended--
            (1) by striking the subsection heading and inserting the 
        following:
    ``(i) Determinations by Chief Judge.--
            ``(1) Dependency and disability.--'',
            (2) by moving the text 2 ems to the right, and
            (3) by adding at the end the following new paragraph:
            ``(2) Assassination.--The chief judge shall determine 
        whether the killing of a judge was an assassination, subject to 
        review only by the Tax Court. The head of any Federal agency 
        that investigates the killing of a judge shall provide 
        information to the chief judge that would assist the chief 
        judge in making such a determination.''.
    (d) Computation of Annuities.--Subsection (m) of section 7448 is 
amended--
            (1) by striking the subsection heading and inserting the 
        following:
    ``(m) Computation of Annuities.--
            ``(1) In general.--'',
            (2) by moving the text 2 ems to the right, and
            (3) by adding at the end the following new paragraph:
            ``(2) Assassinated judges.--In the case of a judge who is 
        assassinated and who has served less than 3 years, the annuity 
        of the surviving spouse of such judge shall be based upon the 
        average annual salary received by such judge for judicial 
        service.''.
    (e) Other Benefits.--Section 7448 is amended by adding at the end 
the following:
    ``(u) Other Benefits.--In the case of a judge who is assassinated, 
an annuity shall be paid under this section notwithstanding a 
survivor's eligibility for or receipt of benefits under chapter 81 of 
title 5, United States Code, except that the annuity for which a 
surviving spouse is eligible under this section shall be reduced to the 
extent that the total benefits paid under this section and chapter 81 
of that title for any year would exceed the current salary for that 
year of the office of the judge.''.

SEC. 312. COST-OF-LIVING ADJUSTMENTS FOR TAX COURT JUDICIAL SURVIVOR 
              ANNUITIES.

    (a) In General.--Subsection (s) of section 7448 (relating to 
annuities to surviving spouses and dependent children of judges) is 
amended to read as follows:
    ``(s) Increases in Survivor Annuities.--Each time that an increase 
is made under section 8340(b) of title 5, United States Code, in 
annuities payable under subchapter III of chapter 83 of that title, 
each annuity payable from the survivors annuity fund under this section 
shall be increased at the same time by the same percentage by which 
annuities are increased under such section 8340(b).''.
    (b) Effective Date.--The amendments made by this section shall 
apply with respect to increases made under section 8340(b) of title 5, 
United States Code, in annuities payable under subchapter III of 
chapter 83 of that title, taking effect after the date of the enactment 
of this Act.

SEC. 313. LIFE INSURANCE COVERAGE FOR TAX COURT JUDGES.

    (a) In General.--Section 7447 (relating to retirement of judges) is 
amended by adding at the end the following new subsection:
            ``(j) Life Insurance Coverage.--For purposes of chapter 87 
        of title 5, United States Code (relating to life insurance), 
        any individual who is serving as a judge of the Tax Court or 
        who is retired under this section is deemed to be an employee 
        who is continuing in active employment.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to any individual serving as a judge of the United States Tax Court or 
to any retired judge of the United States Tax Court on the date of the 
enactment of this Act.

SEC. 314. COST OF LIFE INSURANCE COVERAGE FOR TAX COURT JUDGES AGE 65 
              OR OVER.

    Section 7472 (relating to expenditures) is amended by inserting 
after the first sentence the following new sentence: ``Notwithstanding 
any other provision of law, the Tax Court is authorized to pay on 
behalf of its judges, age 65 or over, any increase in the cost of 
Federal Employees' Group Life Insurance imposed after April 24, 1999, 
including any expenses generated by such payments, as authorized by the 
chief judge in a manner consistent with such payments authorized by the 
Judicial Conference of the United States pursuant to section 604(a)(5) 
of title 28, United States Code.''.

SEC. 315. MODIFICATION OF TIMING OF LUMP-SUM PAYMENT OF JUDGES' ACCRUED 
              ANNUAL LEAVE.

    (a) In General.--Section 7443 (relating to membership of the Tax 
Court) is amended by adding at the end the following new subsection:
    ``(h) Lump-Sum Payment of Judges' Accrued Annual Leave.--
Notwithstanding the provisions of sections 5551 and 6301 of title 5, 
United States Code, when an individual subject to the leave system 
provided in chapter 63 of that title is appointed by the President to 
be a judge of the Tax Court, the individual shall be entitled to 
receive, upon appointment to the Tax Court, a lump-sum payment from the 
Tax Court of the accumulated and accrued current annual leave standing 
to the individual's credit as certified by the agency from which the 
individual resigned.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to any judge of the United States Tax Court who has an outstanding 
leave balance on the date of the enactment of this Act and to any 
individual appointed by the President to serve as a judge of the United 
States Tax Court after such date.

SEC. 316. PARTICIPATION OF TAX COURT JUDGES IN THE THRIFT SAVINGS PLAN.

    (a) In General.--Section 7447 (relating to retirement of judges), 
as amended by this Act, is amended by adding at the end the following 
new subsection:
    ``(k) Thrift Savings Plan.--
            ``(1) Election to contribute.--
                    ``(A) In general.--A judge of the Tax Court may 
                elect to contribute to the Thrift Savings Fund 
                established by section 8437 of title 5, United States 
                Code.
                    ``(B) Period of election.--An election may be made 
                under this paragraph only during a period provided 
                under section 8432(b) of title 5, United States Code, 
                for individuals subject to chapter 84 of such title.
            ``(2) Applicability of title 5 provisions.--Except as 
        otherwise provided in this subsection, the provisions of 
        subchapters III and VII of chapter 84 of title 5, United States 
        Code, shall apply with respect to a judge who makes an election 
        under paragraph (1).
            ``(3) Special rules.--
                    ``(A) Amount contributed.--The amount contributed 
                by a judge to the Thrift Savings Fund in any pay period 
                shall not exceed the maximum percentage of such judge's 
                basic pay for such period as allowable under section 
                8440f of title 5, United States Code. Basic pay does 
                not include any retired pay paid pursuant to this 
                section.
                    ``(B) Contributions for benefit of judge.--No 
                contributions may be made for the benefit of a judge 
                under section 8432(c) of title 5, United States Code.
                    ``(C) Applicability of section 8433(b) of title 5 
                whether or not judge retires.--Section 8433(b) of title 
                5, United States Code, applies with respect to a judge 
                who makes an election under paragraph (1) and who 
                either--
                            ``(i) retires under subsection (b), or
                            ``(ii) ceases to serve as a judge of the 
                        Tax Court but does not retire under subsection 
                        (b).
                Retirement under subsection (b) is a separation from 
                service for purposes of subchapters III and VII of 
                chapter 84 of that title.
                    ``(D) Applicability of section 8351(b)(5) of title 
                5.--The provisions of section 8351(b)(5) of title 5, 
                United States Code, shall apply with respect to a judge 
                who makes an election under paragraph (1).
                    ``(E) Exception.--Notwithstanding subparagraph (C), 
                if any judge retires under this section, or resigns 
                without having met the age and service requirements set 
                forth under subsection (b)(2), and such judge's 
                nonforfeitable account balance is less than an amount 
                that the Executive Director of the Office of Personnel 
                Management prescribes by regulation, the Executive 
                Director shall pay the nonforfeitable account balance 
                to the participant in a single payment.''.
    (b) Effective Date.--The amendment made by this section shall take 
effect on the date of the enactment of this Act, except that United 
States Tax Court judges may only begin to participate in the Thrift 
Savings Plan at the next open season beginning after such date.

SEC. 317. EXEMPTION OF TEACHING COMPENSATION OF RETIRED JUDGES FROM 
              LIMITATION ON OUTSIDE EARNED INCOME.

    (a) In General.--Section 7447 (relating to retirement of judges), 
as amended by this Act, is amended by adding at the end the following 
new subsection:
    ``(l) Teaching Compensation of Retired Judges.--For purposes of the 
limitation under section 501(a) of the Ethics in Government Act of 1978 
(5 U.S.C. App.), any compensation for teaching approved under section 
502(a)(5) of such Act shall not be treated as outside earned income 
when received by a judge of the Tax Court who has retired under 
subsection (b) for teaching performed during any calendar year for 
which such a judge has met the requirements of subsection (c), as 
certified by the chief judge of the Tax Court.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to any individual serving as a retired judge of the United States Tax 
Court on or after the date of the enactment of this Act.

SEC. 318. GENERAL PROVISIONS RELATING TO MAGISTRATE JUDGES OF THE TAX 
              COURT.

    (a) Title of Special Trial Judge Changed to Magistrate Judge of the 
Tax Court.--The heading of section 7443A is amended to read as follows:

``SEC. 7443A. MAGISTRATE JUDGES OF THE TAX COURT.''.

    (b) Appointment, Tenure, and Removal.--Subsection (a) of section 
7443A is amended to read as follows:
    ``(a) Appointment, Tenure, and Removal.--
            ``(1) Appointment.--The chief judge may, from time to time, 
        appoint and reappoint magistrate judges of the Tax Court for a 
        term of 8 years. The magistrate judges of the Tax Court shall 
        proceed under such rules as may be promulgated by the Tax 
        Court.
            ``(2) Removal.--Removal of a magistrate judge of the Tax 
        Court during the term for which he or she is appointed shall be 
        only for incompetency, misconduct, neglect of duty, or physical 
        or mental disability, but the office of a magistrate judge of 
        the Tax Court shall be terminated if the judges of the Tax 
        Court determine that the services performed by the magistrate 
        judge of the Tax Court are no longer needed. Removal shall not 
        occur unless a majority of all the judges of the Tax Court 
        concur in the order of removal. Before any order of removal 
        shall be entered, a full specification of the charges shall be 
        furnished to the magistrate judge of the Tax Court, and he or 
        she shall be accorded by the judges of the Tax Court an 
        opportunity to be heard on the charges.''.
    (c) Salary.--Section 7443A(d) (relating to salary) is amended by 
striking ``90'' and inserting ``92''.
    (d) Exemption From Federal Leave Provisions.--Section 7443A is 
amended by adding at the end the following new subsection:
    ``(f) Exemption From Federal Leave Provisions.--
            ``(1) In general.--A magistrate judge of the Tax Court 
        appointed under this section shall be exempt from the 
        provisions of subchapter I of chapter 63 of title 5, United 
        States Code.
            ``(2) Treatment of unused leave.--
                    ``(A) After service as magistrate judge.--If an 
                individual who is exempted under paragraph (1) from the 
                subchapter referred to in such paragraph was previously 
                subject to such subchapter and, without a break in 
                service, again becomes subject to such subchapter on 
                completion of the individual's service as a magistrate 
                judge, the unused annual leave and sick leave standing 
                to the individual's credit when such individual was 
                exempted from this subchapter is deemed to have 
                remained to the individual's credit.
                    ``(B) Computation of annuity.--In computing an 
                annuity under section 8339 of title 5, United States 
                Code, the total service of an individual specified in 
                subparagraph (A) who retires on an immediate annuity or 
                dies leaving a survivor or survivors entitled to an 
                annuity includes, without regard to the limitations 
                imposed by subsection (f) of such section 8339, the 
                days of unused sick leave standing to the individual's 
                credit when such individual was exempted from 
                subchapter I of chapter 63 of title 5, United States 
                Code, except that these days will not be counted in 
                determining average pay or annuity eligibility.
                    ``(C) Lump sum payment.--Any accumulated and 
                current accrued annual leave or vacation balances 
                credited to a magistrate judge as of the date of the 
                enactment of this subsection shall be paid in a lump 
                sum at the time of separation from service pursuant to 
                the provisions and restrictions set forth in section 
                5551 of title 5, United States Code, and related 
                provisions referred to in such section.''.
    (e) Conforming Amendments.--
            (1) The heading of subsection (b) of section 7443A is 
        amended by striking ``Special Trial Judges'' and inserting 
        ``Magistrate Judges of the Tax Court''.
            (2) Section 7443A(b) is amended by striking ``special trial 
        judges of the court'' and inserting ``magistrate judges of the 
        Tax Court''.
            (3) Subsections (c) and (d) of section 7443A are amended by 
        striking ``special trial judge'' and inserting ``magistrate 
        judge of the Tax Court'' each place it appears.
            (4) Section 7443A(e) is amended by striking ``special trial 
        judges'' and inserting ``magistrate judges of the Tax Court''.
            (5) Section 7456(a) is amended by striking ``special trial 
        judge'' each place it appears and inserting ``magistrate 
        judge''.
            (6) Subsection (c) of section 7471 is amended--
                    (A) by striking the subsection heading and 
                inserting ``Magistrate Judges of the Tax Court.--'', 
                and
                    (B) by striking ``special trial judges'' and 
                inserting ``magistrate judges''.

SEC. 319. ANNUITIES TO SURVIVING SPOUSES AND DEPENDENT CHILDREN OF 
              MAGISTRATE JUDGES OF THE TAX COURT.

    (a) Definitions.--Section 7448(a) (relating to definitions), as 
amended by this Act, is amended by redesignating paragraphs (5), (6), 
(7), and (8) as paragraphs (7), (8), (9), and (10), respectively, and 
by inserting after paragraph (4) the following new paragraphs:
            ``(5) The term `magistrate judge' means a judicial officer 
        appointed pursuant to section 7443A, including any individual 
        receiving an annuity under section 7443B, or chapters 83 or 84, 
        as the case may be, of title 5, United States Code, whether or 
        not performing judicial duties under section 7443C.
            ``(6) The term `magistrate judge's salary' means the salary 
        of a magistrate judge received under section 7443A(d), any 
        amount received as an annuity under section 7443B, or chapters 
        83 or 84, as the case may be, of title 5, United States Code, 
        and compensation received under section 7443C.''.
    (b) Election.--Subsection (b) of section 7448 (relating to 
annuities to surviving spouses and dependent children of judges) is 
amended--
            (1) by striking the subsection heading and inserting the 
        following:
    ``(b) Election.--
            ``(1) Judges.--'',
            (2) by moving the text 2 ems to the right, and
            (3) by adding at the end the following new paragraph:
            ``(2) Magistrate judges.--Any magistrate judge may by 
        written election filed with the chief judge bring himself or 
        herself within the purview of this section. Such election shall 
        be filed not later than the later of 6 months after--
                    ``(A) 6 months after the date of the enactment of 
                this paragraph,
                    ``(B) the date the judge takes office, or
                    ``(C) the date the judge marries.''.
    (c) Conforming Amendments.--
            (1) The heading of section 7448 is amended by inserting 
        ``and magistrate judges'' after ``judges''.
            (2) The item relating to section 7448 in the table of 
        sections for part I of subchapter C of chapter 76 is amended by 
        inserting ``and magistrate judges'' after ``judges''.
            (3) Subsections (c)(1), (d), (f), (g), (h), (j), (m), (n), 
        and (u) of section 7448, as amended by this Act, are each 
        amended--
                    (A) by inserting ``or magistrate judge'' after 
                ``judge'' each place it appears other than in the 
                phrase ``chief judge'', and
                    (B) by inserting ``or magistrate judge's'' after 
                ``judge's'' each place it appears.
            (4) Section 7448(c) is amended--
                    (A) in paragraph (1), by striking ``Tax Court 
                judges'' and inserting ``Tax Court judicial officers'',
                    (B) in paragraph (2)--
                            (i) in subparagraph (A), by inserting ``and 
                        section 7443A(d)'' after ``(a)(4)'', and
                            (ii) in subparagraph (B), by striking 
                        ``subsection (a)(4)'' and inserting 
                        ``subsections (a)(4) and (a)(6)''.
            (5) Section 7448(g) is amended by inserting ``or section 
        7443B'' after ``section 7447'' each place it appears, and by 
        inserting ``or an annuity'' after ``retired pay''.
            (6) Section 7448(j)(1) is amended--
                    (A) in subparagraph (A), by striking ``service or 
                retired'' and inserting ``service, retired'', and by 
                inserting ``, or receiving any annuity under section 
                7443B or chapters 83 or 84 of title 5, United States 
                Code,'' after ``section 7447'', and
                    (B) in the last sentence, by striking ``subsections 
                (a)(6) and (7)'' and inserting ``paragraphs (8) and (9) 
                of subsection (a)''.
            (7) Section 7448(m)(1), as amended by this Act, is 
        amended--
                    (A) by inserting ``or any annuity under section 
                7443B or chapters 83 or 84 of title 5, United States 
                Code'' after ``7447(d)'', and
                    (B) by inserting ``or 7443B(m)(1)(B) after 
                ``7447(f)(4)''.
            (8) Section 7448(n) is amended by inserting ``his years of 
        service pursuant to any appointment under section 7443A,'' 
        after ``of the Tax Court,''.
            (9) Section 3121(b)(5)(E) is amended by inserting ``or 
        magistrate judge'' before ``of the United States Tax Court''.
            (10) Section 210(a)(5)(E) of the Social Security Act is 
        amended by inserting ``or magistrate judge'' before ``of the 
        United States Tax Court''.

SEC. 320. RETIREMENT AND ANNUITY PROGRAM.

    (a) Retirement and Annuity Program.--Part I of subchapter C of 
chapter 76 is amended by inserting after section 7443A the following 
new section:

``SEC. 7443B. RETIREMENT FOR MAGISTRATE JUDGES OF THE TAX COURT.

    ``(a) Retirement Based on Years of Service.--A magistrate judge of 
the Tax Court to whom this section applies and who retires from office 
after attaining the age of 65 years and serving at least 14 years, 
whether continuously or otherwise, as such magistrate judge shall, 
subject to subsection (f), be entitled to receive, during the remainder 
of the magistrate judge's lifetime, an annuity equal to the salary 
being received at the time the magistrate judge leaves office.
    ``(b) Retirement Upon Failure of Reappointment.--A magistrate judge 
of the Tax Court to whom this section applies who is not reappointed 
following the expiration of the term of office of such magistrate 
judge, and who retires upon the completion of the term shall, subject 
to subsection (f), be entitled to receive, upon attaining the age of 65 
years and during the remainder of such magistrate judge's lifetime, an 
annuity equal to that portion of the salary being received at the time 
the magistrate judge leaves office which the aggregate number of years 
of service, not to exceed 14, bears to 14, if--
            ``(1) such magistrate judge has served at least 1 full term 
        as a magistrate judge, and
            ``(2) not earlier than 9 months before the date on which 
        the term of office of such magistrate judge expires, and not 
        later than 6 months before such date, such magistrate judge 
        notified the chief judge of the Tax Court in writing that such 
        magistrate judge was willing to accept reappointment to the 
        position in which such magistrate judge was serving.
    ``(c) Service of at Least 8 Years.--A magistrate judge of the Tax 
Court to whom this section applies and who retires after serving at 
least 8 years, whether continuously or otherwise, as such a magistrate 
judge shall, subject to subsection (f), be entitled to receive, upon 
attaining the age of 65 years and during the remainder of the 
magistrate judge's lifetime, an annuity equal to that portion of the 
salary being received at the time the magistrate judge leaves office 
which the aggregate number of years of service, not to exceed 14, bears 
to 14. Such annuity shall be reduced by \1/6\ of 1 percent for each 
full month such magistrate judge was under the age of 65 at the time 
the magistrate judge left office, except that such reduction shall not 
exceed 20 percent.
    ``(d) Retirement for Disability.--A magistrate judge of the Tax 
Court to whom this section applies, who has served at least 5 years, 
whether continuously or otherwise, as such a magistrate judge, and who 
retires or is removed from office upon the sole ground of mental or 
physical disability shall, subject to subsection (f), be entitled to 
receive, during the remainder of the magistrate judge's lifetime, an 
annuity equal to 40 percent of the salary being received at the time of 
retirement or removal or, in the case of a magistrate judge who has 
served for at least 10 years, an amount equal to that proportion of the 
salary being received at the time of retirement or removal which the 
aggregate number of years of service, not to exceed 14, bears to 14.
    ``(e) Cost-of-Living Adjustments.--A magistrate judge of the Tax 
Court who is entitled to an annuity under this section is also entitled 
to a cost-of-living adjustment in such annuity, calculated and payable 
in the same manner as adjustments under section 8340(b) of title 5, 
United States Code, except that any such annuity, as increased under 
this subsection, may not exceed the salary then payable for the 
position from which the magistrate judge retired or was removed.
    ``(f) Election; Annuity in Lieu of Other Annuities.--
            ``(1) In general.--A magistrate judge of the Tax Court 
        shall be entitled to an annuity under this section if the 
        magistrate judge elects an annuity under this section by 
        notifying the chief judge of the Tax Court not later than the 
        later of--
                    ``(A) 5 years after the magistrate judge of the Tax 
                Court begins judicial service, or
                    ``(B) 5 years after the date of the enactment of 
                this subsection.
        Such notice shall be given in accordance with procedures 
        prescribed by the Tax Court.
            ``(2) Annuity in lieu of other annuity.--A magistrate judge 
        who elects to receive an annuity under this section shall not 
        be entitled to receive--
                    ``(A) any annuity to which such magistrate judge 
                would otherwise have been entitled under subchapter III 
                of chapter 83, or under chapter 84 (except for 
                subchapters III and VII), of title 5, United States 
                Code, for service performed as a magistrate or 
                otherwise,
                    ``(B) an annuity or salary in senior status or 
                retirement under section 371 or 372 of title 28, United 
                States Code,
                    ``(C) retired pay under section 7447, or
                    ``(D) retired pay under section 7296 of title 38, 
                United States Code.
            ``(3) Coordination with title 5.--A magistrate judge of the 
        Tax Court who elects to receive an annuity under this section--
                    ``(A) shall not be subject to deductions and 
                contributions otherwise required by section 8334(a) of 
                title 5, United States Code,
                    ``(B) shall be excluded from the operation of 
                chapter 84 (other than subchapters III and VII) of such 
                title 5, and
                    ``(C) is entitled to a lump-sum credit under 
                section 8342(a) or 8424 of such title 5, as the case 
                may be.
    ``(g) Calculation of Service.--For purposes of calculating an 
annuity under this section--
            ``(1) service as a magistrate judge of the Tax Court to 
        whom this section applies may be credited, and
            ``(2) each month of service shall be credited as \1/12\ of 
        a year, and the fractional part of any month shall not be 
        credited.
    ``(h) Covered Positions and Service.--This section applies to any 
magistrate judge of the Tax Court or special trial judge of the Tax 
Court appointed under this subchapter, but only with respect to service 
as such a magistrate judge or special trial judge after a date not 
earlier than 9\1/2\ years before the date of the enactment of this 
subsection.
    ``(i) Payments Pursuant to Court Order.--
            ``(1) In general.--Payments under this section which would 
        otherwise be made to a magistrate judge of the Tax Court based 
        upon his or her service shall be paid (in whole or in part) by 
        the chief judge of the Tax Court to another person if and to 
        the extent expressly provided for in the terms of any court 
        decree of divorce, annulment, or legal separation, or the terms 
        of any court order or court-approved property settlement 
        agreement incident to any court decree of divorce, annulment, 
        or legal separation. Any payment under this paragraph to a 
        person bars recovery by any other person.
            ``(2) Requirements for payment.--Paragraph (1) shall apply 
        only to payments made by the chief judge of the Tax Court after 
        the date of receipt by the chief judge of written notice of 
        such decree, order, or agreement, and such additional 
        information as the chief judge may prescribe.
            ``(3) Court defined.--For purposes of this subsection, the 
        term `court' means any court of any State, the District of 
        Columbia, the Commonwealth of Puerto Rico, Guam, the Northern 
        Mariana Islands, or the Virgin Islands, and any Indian tribal 
        court or courts of Indian offense.
    ``(j) Deductions, Contributions, and Deposits.--
            ``(1) Deductions.--Beginning with the next pay period after 
        the chief judge of the Tax Court receives a notice under 
        subsection (f) that a magistrate judge of the Tax Court has 
        elected an annuity under this section, the chief judge shall 
        deduct and withhold 1 percent of the salary of such magistrate 
        judge. Amounts shall be so deducted and withheld in a manner 
        determined by the chief judge. Amounts deducted and withheld 
        under this subsection shall be deposited in the Treasury of the 
        United States to the credit of the Tax Court Judicial Officers' 
        Retirement Fund. Deductions under this subsection from the 
        salary of a magistrate judge shall terminate upon the 
        retirement of the magistrate judge or upon completion of 14 
        years of service for which contributions under this section 
        have been made, whether continuously or otherwise, as 
        calculated under subsection (g), whichever occurs first.
            ``(2) Consent to deductions; discharge of claims.--Each 
        magistrate judge of the Tax Court who makes an election under 
        subsection (f) shall be deemed to consent and agree to the 
        deductions from salary which are made under paragraph (1). 
        Payment of such salary less such deductions (and any deductions 
        made under section 7448) is a full and complete discharge and 
        acquittance of all claims and demands for all services rendered 
        by such magistrate judge during the period covered by such 
        payment, except the right to those benefits to which the 
        magistrate judge is entitled under this section (and section 
        7448).
    ``(k) Deposits for Prior Service.--Each magistrate judge of the Tax 
Court who makes an election under subsection (f) may deposit, for 
service performed before such election for which contributions may be 
made under this section, an amount equal to 1 percent of the salary 
received for that service. Credit for any period covered by that 
service may not be allowed for purposes of an annuity under this 
section until a deposit under this subsection has been made for that 
period.
    ``(l) Individual Retirement Records.--The amounts deducted and 
withheld under subsection (j), and the amounts deposited under 
subsection (k), shall be credited to individual accounts in the name of 
each magistrate judge of the Tax Court from whom such amounts are 
received, for credit to the Tax Court Judicial Officers' Retirement 
Fund.
    ``(m) Annuities Affected in Certain Cases.--
            ``(1) 1-year forfeiture for failure to perform judicial 
        duties.--Subject to paragraph (3), any magistrate judge of the 
        Tax Court who retires under this section and who fails to 
        perform judicial duties required of such individual by section 
        7443C shall forfeit all rights to an annuity under this section 
        for a 1-year period which begins on the 1st day on which such 
        individual fails to perform such duties.
            ``(2) Permanent forfeiture of retired pay where certain 
        non-government services performed.--Subject to paragraph (3), 
        any magistrate judge of the Tax Court who retires under this 
        section and who thereafter performs (or supervises or directs 
        the performance of) legal or accounting services in the field 
        of Federal taxation for the individual's client, the 
        individual's employer, or any of such employer's clients, shall 
        forfeit all rights to an annuity under this section for all 
        periods beginning on or after the first day on which the 
        individual performs (or supervises or directs the performance 
        of) such services. The preceding sentence shall not apply to 
        any civil office or employment under the Government of the 
        United States.
            ``(3) Forfeitures not to apply where individual elects to 
        freeze amount of annuity.--
                    ``(A) In general.--If a magistrate judge of the Tax 
                Court makes an election under this paragraph--
                            ``(i) paragraphs (1) and (2) (and section 
                        7443C) shall not apply to such magistrate judge 
                        beginning on the date such election takes 
                        effect, and
                            ``(ii) the annuity payable under this 
                        section to such magistrate judge, for periods 
                        beginning on or after the date such election 
                        takes effect, shall be equal to the annuity to 
                        which such magistrate judge is entitled on the 
                        day before such effective date.
                    ``(B) Election requirements.--An election under 
                subparagraph (A)--
                            ``(i) may be made by a magistrate judge of 
                        the Tax Court eligible for retirement under 
                        this section, and
                            ``(ii) shall be filed with the chief judge 
                        of the Tax Court.
                Such an election, once it takes effect, shall be 
                irrevocable.
                    ``(C) Effective date of election.--Any election 
                under subparagraph (A) shall take effect on the first 
                day of the first month following the month in which the 
                election is made.
            ``(4) Accepting other employment.--Any magistrate judge of 
        the Tax Court who retires under this section and thereafter 
        accepts compensation for civil office or employment under the 
        United States Government (other than for the performance of 
        functions as a magistrate judge of the Tax Court under section 
        7443C) shall forfeit all rights to an annuity under this 
        section for the period for which such compensation is received. 
        For purposes of this paragraph, the term `compensation' 
        includes retired pay or salary received in retired status.
    ``(n) Lump-Sum Payments.--
            ``(1) Eligibility.--
                    ``(A) In general.--Subject to paragraph (2), an 
                individual who serves as a magistrate judge of the Tax 
                Court and--
                            ``(i) who leaves office and is not 
                        reappointed as a magistrate judge of the Tax 
                        Court for at least 31 consecutive days,
                            ``(ii) who files an application with the 
                        chief judge of the Tax Court for payment of a 
                        lump-sum credit,
                            ``(iii) is not serving as a magistrate 
                        judge of the Tax Court at the time of filing of 
                        the application, and
                            ``(iv) will not become eligible to receive 
                        an annuity under this section within 31 days 
                        after filing the application,
                is entitled to be paid the lump-sum credit. Payment of 
                the lump-sum credit voids all rights to an annuity 
                under this section based on the service on which the 
                lump-sum credit is based, until that individual resumes 
                office as a magistrate judge of the Tax Court.
                    ``(B) Payment to survivors.--Lump-sum benefits 
                authorized by subparagraphs (C), (D), and (E) of this 
                paragraph shall be paid to the person or persons 
                surviving the magistrate judge of the Tax Court and 
                alive on the date title to the payment arises, in the 
                order of precedence set forth in subsection (o) of 
                section 376 of title 28, United States Code, and in 
                accordance with the last 2 sentences of paragraph (1) 
                of that subsection. For purposes of the preceding 
                sentence, the term `judicial official' as used in 
                subsection (o) of such section 376 shall be deemed to 
                mean `magistrate judge of the Tax Court' and the terms 
                `Administrative Office of the United States Courts' and 
                `Director of the Administrative Office of the United 
                States Courts' shall be deemed to mean `chief judge of 
                the Tax Court'.
                    ``(C) Payment upon death of judge before receipt of 
                annuity.--If a magistrate judge of the Tax Court dies 
                before receiving an annuity under this section, the 
                lump-sum credit shall be paid.
                    ``(D) Payment of annuity remainder.--If all annuity 
                rights under this section based on the service of a 
                deceased magistrate judge of the Tax Court terminate 
                before the total annuity paid equals the lump-sum 
                credit, the difference shall be paid.
                    ``(E) Payment upon death of judge during receipt of 
                annuity.--If a magistrate judge of the Tax Court who is 
                receiving an annuity under this section dies, any 
                accrued annuity benefits remaining unpaid shall be 
                paid.
                    ``(F) Payment upon termination.--Any accrued 
                annuity benefits remaining unpaid on the termination, 
                except by death, of the annuity of a magistrate judge 
                of the Tax Court shall be paid to that individual.
                    ``(G) Payment upon accepting other employment.--
                Subject to paragraph (2), a magistrate judge of the Tax 
                Court who forfeits rights to an annuity under 
                subsection (m)(4) before the total annuity paid equals 
                the lump-sum credit shall be entitled to be paid the 
                difference if the magistrate judge of the Tax Court 
                files an application with the chief judge of the Tax 
                Court for payment of that difference. A payment under 
                this subparagraph voids all rights to an annuity on 
                which the payment is based.
            ``(2) Spouses and former spouses.--
                    ``(A) In general.--Payment of the lump-sum credit 
                under paragraph (1)(A) or a payment under paragraph 
                (1)(G)--
                            ``(i) may be made only if any current 
                        spouse and any former spouse of the magistrate 
                        judge of the Tax Court are notified of the 
                        magistrate judge's application, and
                            ``(ii) shall be subject to the terms of a 
                        court decree of divorce, annulment, or legal 
                        separation, or any court or court approved 
                        property settlement agreement incident to such 
                        decree, if--
                                    ``(I) the decree, order, or 
                                agreement expressly relates to any 
                                portion of the lump-sum credit or other 
                                payment involved, and
                                    ``(II) payment of the lump-sum 
                                credit or other payment would 
                                extinguish entitlement of the 
                                magistrate judge's spouse or former 
                                spouse to any portion of an annuity 
                                under subsection (i).
                    ``(B) Notification.--Notification of a spouse or 
                former spouse under this paragraph shall be made in 
                accordance with such procedures as the chief judge of 
                the Tax Court shall prescribe. The chief judge may 
                provide under such procedures that subparagraph (A)(i) 
                may be waived with respect to a spouse or former spouse 
                if the magistrate judge establishes to the satisfaction 
                of the chief judge that the whereabouts of such spouse 
                or former spouse cannot be determined.
                    ``(C) Resolution of 2 or more orders.--The chief 
                judge shall prescribe procedures under which this 
                paragraph shall be applied in any case in which the 
                chief judge receives 2 or more orders or decrees 
                described in subparagraph (A).
            ``(3) Definition.--For purposes of this subsection, the 
        term `lump-sum credit' means the unrefunded amount consisting 
        of--
                    ``(A) retirement deductions made under this section 
                from the salary of a magistrate judge of the Tax Court,
                    ``(B) amounts deposited under subsection (k) by a 
                magistrate judge of the Tax Court covering earlier 
                service, and
                    ``(C) interest on the deductions and deposits 
                which, for any calendar year, shall be equal to the 
                overall average yield to the Tax Court Judicial 
                Officers' Retirement Fund during the preceding fiscal 
                year from all obligations purchased by the Secretary 
                during such fiscal year under subsection (o); but does 
                not include interest--
                            ``(i) if the service covered thereby 
                        aggregates 1 year or less, or
                            ``(ii) for the fractional part of a month 
                        in the total service.
    ``(o) Tax Court Judicial Officers' Retirement Fund.--
            ``(1) Establishment.--There is established in the Treasury 
        a fund which shall be known as the `Tax Court Judicial 
        Officers' Retirement Fund'. Amounts in the Fund are authorized 
        to be appropriated for the payment of annuities, refunds, and 
        other payments under this section.
            ``(2) Investment of fund.--The Secretary shall invest, in 
        interest bearing securities of the United States, such 
        currently available portions of the Tax Court Judicial 
        Officers' Retirement Fund as are not immediately required for 
        payments from the Fund. The income derived from these 
        investments constitutes a part of the Fund.
            ``(3) Unfunded liability.--
                    ``(A) In general.--There are authorized to be 
                appropriated to the Tax Court Judicial Officers' 
                Retirement Fund amounts required to reduce to zero the 
                unfunded liability of the Fund.
                    ``(B) Unfunded liability.--For purposes of 
                subparagraph (A), the term `unfunded liability' means 
                the estimated excess, determined on an annual basis in 
                accordance with the provisions of section 9503 of title 
                31, United States Code, of the present value of all 
                benefits payable from the Tax Court Judicial Officers' 
                Retirement Fund over the sum of--
                            ``(i) the present value of deductions to be 
                        withheld under this section from the future 
                        basic pay of magistrate judges of the Tax 
                        Court, plus
                            ``(ii) the balance in the Fund as of the 
                        date the unfunded liability is determined.
    ``(p) Participation in Thrift Savings Plan.--
            ``(1) Election to contribute.--
                    ``(A) In general.--A magistrate judge of the Tax 
                Court who elects to receive an annuity under this 
                section or under section 321 of the Tax Administration 
                Good Government Act may elect to contribute an amount 
                of such individual's basic pay to the Thrift Savings 
                Fund established by section 8437 of title 5, United 
                States Code.
                    ``(B) Period of election.--An election may be made 
                under this paragraph only during a period provided 
                under section 8432(b) of title 5, United States Code, 
                for individuals subject to chapter 84 of such title.
            ``(2) Applicability of title 5 provisions.--Except as 
        otherwise provided in this subsection, the provisions of 
        subchapters III and VII of chapter 84 of title 5, United States 
        Code, shall apply with respect to a magistrate judge who makes 
        an election under paragraph (1).
            ``(3) Special rules.--
                    ``(A) Amount contributed.--The amount contributed 
                by a magistrate judge to the Thrift Savings Fund in any 
                pay period shall not exceed the maximum percentage of 
                such judge's basic pay for such pay period as allowable 
                under section 8440f of title 5, United States Code.
                    ``(B) Contributions for benefit of judge.--No 
                contributions may be made for the benefit of a 
                magistrate judge under section 8432(c) of title 5, 
                United States Code.
                    ``(C) Applicability of section 8433(b) of title 
                5.--Section 8433(b) of title 5, United States Code, 
                applies with respect to a magistrate judge who makes an 
                election under paragraph (1) and--
                            ``(i) who retires entitled to an immediate 
                        annuity under this section (including a 
                        disability annuity under subsection (d) of this 
                        section) or section 321 of the Tax 
                        Administration Good Government Act,
                            ``(ii) who retires before attaining age 65 
                        but is entitled, upon attaining age 65, to an 
                        annuity under this section or section 321 of 
                        the Tax Administration Good Government Act, or
                            ``(iii) who retires before becoming 
                        entitled to an immediate annuity, or an annuity 
                        upon attaining age 65, under this section or 
                        section 321 of the Tax Administration Good 
                        Government Act.
                    ``(D) Separation from service.--With respect to a 
                magistrate judge to whom this subsection applies, 
                retirement under this section or section 321 of the Tax 
                Administration Good Government Act is a separation from 
                service for purposes of subchapters III and VII of 
                chapter 84 of title 5, United States Code.
            ``(4) Definitions.--For purposes of this subsection, the 
        terms `retirement' and `retire' include removal from office 
        under section 7443A(a)(2) on the sole ground of mental or 
        physical disability.
            ``(5) Offset.--In the case of a magistrate judge who 
        receives a distribution from the Thrift Savings Fund and who 
        later receives an annuity under this section, that annuity 
        shall be offset by an amount equal to the amount which 
        represents the Government's contribution to that person's 
        Thrift Savings Account, without regard to earnings attributable 
        to that amount. Where such an offset would exceed 50 percent of 
        the annuity to be received in the first year, the offset may be 
        divided equally over the first 2 years in which that person 
        receives the annuity.
            ``(6) Exception.--Notwithstanding clauses (i) and (ii) of 
        paragraph (3)(C), if any magistrate judge retires under 
        circumstances making such magistrate judge eligible to make an 
        election under subsection (b) of section 8433 of title 5, 
        United States Code, and such magistrate judge's nonforfeitable 
        account balance is less than an amount that the Executive 
        Director of the Office of Personnel Management prescribes by 
        regulation, the Executive Director shall pay the nonforfeitable 
        account balance to the participant in a single payment.''.
    (b) Conforming Amendment.--The table of section for part I of 
subchapter C of chapter 76 is amended by inserting after the item 
relating to section 7443A the following new item:

                              ``Sec. 7443B. Retirement for magistrate 
                                        judges of the Tax Court.''.

SEC. 321. INCUMBENT MAGISTRATE JUDGES OF THE TAX COURT.

    (a) Retirement Annuity Under Title 5 and Section 7443B of the 
Internal Revenue Code of 1986.--A magistrate judge of the United States 
Tax Court in active service on the date of the enactment of this Act 
shall, subject to subsection (b), be entitled, in lieu of the annuity 
otherwise provided under the amendments made by this title, to--
            (1) an annuity under subchapter III of chapter 83, or under 
        chapter 84 (except for subchapters III and VII), of title 5, 
        United States Code, as the case may be, for creditable service 
        before the date on which service would begin to be credited for 
        purposes of paragraph (2), and
            (2) an annuity calculated under subsection (b) or (c) and 
        subsection (g) of section 7443B of the Internal Revenue Code of 
        1986, as added by this Act, for any service as a magistrate 
        judge of the United States Tax Court or special trial judge of 
        the United States Tax Court but only with respect to service as 
        such a magistrate judge or special trial judge after a date not 
        earlier than 9\1/2\ years prior to the date of the enactment of 
        this Act (as specified in the election pursuant to subsection 
        (b)) for which deductions and deposits are made under 
        subsections (j) and (k) of such section 7443B, as applicable, 
        without regard to the minimum number of years of service as 
        such a magistrate judge of the United States Tax Court, except 
        that--
                    (A) in the case of a magistrate judge who retired 
                with less than 8 years of service, the annuity under 
                subsection (c) of such section 7443B shall be equal to 
                that proportion of the salary being received at the 
                time the magistrate judge leaves office which the years 
                of service bears to 14, subject to a reduction in 
                accordance with subsection (c) of such section 7443B if 
                the magistrate judge is under age 65 at the time he or 
                she leaves office, and
                    (B) the aggregate amount of the annuity initially 
                payable on retirement under this subsection may not 
                exceed the rate of pay for the magistrate judge which 
                is in effect on the day before the retirement becomes 
                effective.
    (b) Filing of Notice of Election.--A magistrate judge of the United 
States Tax Court shall be entitled to an annuity under this section 
only if the magistrate judge files a notice of that election with the 
chief judge of the United States Tax Court specifying the date on which 
service would begin to be credited under section 7443B of the Internal 
Revenue Code of 1986, as added by this Act, in lieu of chapter 83 or 
chapter 84 of title 5, United States Code. Such notice shall be filed 
in accordance with such procedures as the chief judge of the United 
States Tax Court shall prescribe.
    (c) Lump-Sum Credit Under Title 5.--A magistrate judge of the 
United States Tax Court who makes an election under subsection (b) 
shall be entitled to a lump-sum credit under section 8342 or 8424 of 
title 5, United States Code, as the case may be, for any service which 
is covered under section 7443B of the Internal Revenue Code of 1986, as 
added by this Act, pursuant to that election, and with respect to which 
any contributions were made by the magistrate judge under the 
applicable provisions of title 5, United States Code.
    (d) Recall.--With respect to any magistrate judge of the United 
States Tax Court receiving an annuity under this section who is 
recalled to serve under section 7443C of the Internal Revenue Code of 
1986, as added by this Act--
            (1) the amount of compensation which such recalled 
        magistrate judge receives under such section 7443C shall be 
        calculated on the basis of the annuity received under this 
        section, and
            (2) such recalled magistrate judge of the United States Tax 
        Court may serve as a reemployed annuitant to the extent 
        otherwise permitted under title 5, United States Code.
Section 7443B(m)(4) of the Internal Revenue Code of 1986, as added by 
this Act, shall not apply with respect to service as a reemployed 
annuitant described in paragraph (2).

SEC. 322. PROVISIONS FOR RECALL.

    (a) In General.--Part I of subchapter C of chapter 76, as amended 
by this Act, is amended by inserting after section 7443B the following 
new section:

``SEC. 7443C. RECALL OF MAGISTRATE JUDGES OF THE TAX COURT.

    ``(a) Recalling of Retired Magistrate Judges.--Any individual who 
has retired pursuant to section 7443B or the applicable provisions of 
title 5, United States Code, upon reaching the age and service 
requirements established therein, may at or after retirement be called 
upon by the chief judge of the Tax Court to perform such judicial 
duties with the Tax Court as may be requested of such individual for 
any period or periods specified by the chief judge; except that in the 
case of any such individual--
            ``(1) the aggregate of such periods in any 1 calendar year 
        shall not (without such individual's consent) exceed 90 
        calendar days, and
            ``(2) such individual shall be relieved of performing such 
        duties during any period in which illness or disability 
        precludes the performance of such duties.
Any act, or failure to act, by an individual performing judicial duties 
pursuant to this subsection shall have the same force and effect as if 
it were the act (or failure to act) of a magistrate judge of the Tax 
Court.
    ``(b) Compensation.--For the year in which a period of recall 
occurs, the magistrate judge shall receive, in addition to the annuity 
provided under the provisions of section 7443B or under the applicable 
provisions of title 5, United States Code, an amount equal to the 
difference between that annuity and the current salary of the office to 
which the magistrate judge is recalled. The annuity of the magistrate 
judge who completes that period of service, who is not recalled in a 
subsequent year, and who retired under section 7443B, shall be equal to 
the salary in effect at the end of the year in which the period of 
recall occurred for the office from which such individual retired.
    ``(c) Rulemaking Authority.--The provisions of this section may be 
implemented under such rules as may be promulgated by the Tax Court.''.
    (b) Conforming Amendment.--The table of sections for part I of 
subchapter C of chapter 76, as amended by this Act, is amended by 
inserting after the item relating to section 7443B the following new 
item:

                              ``Sec. 7443C. Recall of magistrate judges 
                                        of the Tax Court.''.

SEC. 323. EFFECTIVE DATE.

    Except as otherwise provided, the amendments made by this subtitle 
shall take effect on the date of the enactment of this Act.

                TITLE IV--CONFIDENTIALITY AND DISCLOSURE

SEC. 401. CLARIFICATION OF DEFINITION OF CHURCH TAX INQUIRY.

    (a) In General.--Subsection (i) of section 7611 (relating to 
section not to apply to criminal investigations, etc.) is amended by 
striking ``or'' at the end of paragraph (4), by striking the period at 
the end of paragraph (5) and inserting ``, or'', and by inserting after 
paragraph (5) the following:
            ``(6) information provided by the Secretary related to the 
        standards for exemption from tax under this title and the 
        requirements under this title relating to unrelated business 
        taxable income.''.
    (b) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 402. COLLECTION ACTIVITIES WITH RESPECT TO JOINT RETURN 
              DISCLOSABLE TO EITHER SPOUSE BASED ON ORAL REQUEST.

    (a) In General.--Paragraph (8) of section 6103(e) (relating to 
disclosure of collection activities with respect to joint return) is 
amended by striking ``in writing'' the first place it appears.
    (b) Elimination of Reporting Requirement.--Section 7803(d)(1) 
(relating to annual reporting), as amended by this Act, is amended by 
striking subparagraph (B) and by redesignating subparagraphs (C), (D), 
(E), (F), (G), and (H) as subparagraphs (B), (C), (D), (E), (F), and 
(G), respectively.
    (c) Effective Dates.--
            (1) Subsection (a).--The amendment made by subsection (a) 
        shall apply to requests made after the date of the enactment of 
        this Act.
            (2) Subsection (b).--The amendments made by subsection (b) 
        shall apply to reports made after the date of the enactment of 
        this Act.

SEC. 403. TAXPAYER REPRESENTATIVES NOT SUBJECT TO EXAMINATION ON SOLE 
              BASIS OF REPRESENTATION OF TAXPAYERS.

    (a) In General.--Paragraph (1) of section 6103(h) (relating to 
disclosure to certain Federal officers and employees for purposes of 
tax administration, etc.) is amended--
            (1) by striking ``treasury.--Returns and return 
        information'' and inserting ``treasury.--
                    ``(A) In general.--Returns and return 
                information'', and
            (2) by adding at the end the following new subparagraph:
                    ``(B) Taxpayer representatives.--Notwithstanding 
                subparagraph (A), the return or return information of 
                the representative of a taxpayer whose return is being 
                examined by an officer or employee of the Department of 
                the Treasury shall not be open to inspection by such 
                officer or employee on the sole basis of the 
                representative's relationship to the taxpayer unless a 
                supervisor of such officer or employee has approved the 
                inspection of the return or return information of such 
                representative on a basis other than by reason of such 
                relationship.''.
    (b) Effective Date.--The amendments made by this section shall take 
effect after the date of the enactment of this Act.

SEC. 404. PROHIBITION OF DISCLOSURE OF TAXPAYER IDENTIFICATION 
              INFORMATION WITH RESPECT TO DISCLOSURE OF ACCEPTED 
              OFFERS-IN-COMPROMISE.

    (a) In General.--Paragraph (1) of section 6103(k) (relating to 
disclosure of certain returns and return information for tax 
administrative purposes) is amended by inserting ``(other than the 
taxpayer's TIN)'' after ``Return information''.
    (b) Effective Date.--The amendment made by this section shall apply 
to disclosures made after the date of the enactment of this Act.

SEC. 405. COMPLIANCE BY CONTRACTORS WITH CONFIDENTIALITY SAFEGUARDS.

    (a) In General.--Section 6103(p) (relating to State law 
requirements) is amended by adding at the end the following new 
paragraph:
            ``(9) Disclosure to contractors and other agents.--
        Notwithstanding any other provision of this section, no return 
        or return information shall be disclosed to any contractor or 
        other agent of a Federal, State, or local agency unless such 
        agency, to the satisfaction of the Secretary--
                    ``(A) has requirements in effect which require each 
                such contractor or other agent which would have access 
                to returns or return information to provide safeguards 
                (within the meaning of paragraph (4)) to protect the 
                confidentiality of such returns or return information,
                    ``(B) agrees to conduct an on-site review every 3 
                years (mid-point review in the case of contracts or 
                agreements of less than 1 year in duration) of each 
                contractor or other agent to determine compliance with 
                such requirements,
                    ``(C) submits the findings of the most recent 
                review conducted under subparagraph (B) to the 
                Secretary as part of the report required by paragraph 
                (4)(E), and
                    ``(D) certifies to the Secretary for the most 
                recent annual period that such contractor or other 
                agent is in compliance with all such requirements.
        The certification required by subparagraph (D) shall include 
        the name and address of each contractor and other agent, a 
        description of the contract or agreement with such contractor 
        or other agent, and the duration of such contract or agreement. 
        The requirements of this paragraph shall not apply to 
        disclosures pursuant to subsection (n) for purposes of Federal 
        tax administration.''.
    (b) Conforming Amendment.--Subparagraph (B) of section 6103(p)(8) 
is amended by inserting ``or paragraph (9)'' after ``subparagraph 
(A)''.
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to disclosures made after the date of the enactment of 
        this Act.
            (2) Certifications.--The first certification under section 
        6103(p)(9)(D) of the Internal Revenue Code of 1986, as added by 
        subsection (a), shall be made with respect to the portion of 
        calendar year 2004 following the date of the enactment of this 
        Act.

SEC. 406. HIGHER STANDARDS FOR REQUESTS FOR AND CONSENTS TO DISCLOSURE.

    (a) In General.--Subsection (c) of section 6103 (relating to 
disclosure of returns and return information to designee of taxpayer) 
is amended--
            (1) by striking ``Taxpayer.--The Secretary'' and inserting 
        ``Taxpayer.--
            ``(1) In general.--The Secretary'', and
            (2) by adding at the end the following new paragraphs:
            ``(2) Restrictions on persons obtaining information.--The 
        return of any taxpayer, or return information with respect to 
        such taxpayer, disclosed to a person or persons under paragraph 
        (1) for a purpose specified in writing, electronically, or 
        orally may be disclosed or used by such person or persons only 
        for the purpose of, and to the extent necessary in, 
        accomplishing the purpose for disclosure specified and shall 
        not be disclosed or used for any other purpose.
            ``(3) Requirements for form prescribed by secretary.--For 
        purposes of this subsection, the Secretary shall prescribe a 
        form for written requests and consents which shall--
                    ``(A) contain a warning, prominently displayed, 
                informing the taxpayer that the form should not be 
                signed unless it is completed,
                    ``(B) state that if the taxpayer believes there is 
                an attempt to coerce him to sign an incomplete or blank 
                form, the taxpayer should report the matter to the 
                Treasury Inspector General for Tax Administration, and
                    ``(C) contain the address and telephone number of 
                the Treasury Inspector General for Tax Administration.
            ``(4) Cross reference.--

                                ``For provision providing for civil 
damages for violation of paragraph (2), see section 7431(i).''.
    (b) Civil Damages.--Section 7431 (relating to civil damages for 
unauthorized inspection or disclosure of returns and return 
information) is amended by adding at the end the following new 
subsection:
    ``(i) Disclosure or Use of Returns and Return Information Obtained 
Under Subsection 6103(c).--Disclosure or use of returns or return 
information obtained under section 6103(c) other than for the purpose 
of, and to the extent necessary in, accomplishing the purpose for 
disclosure specified in writing, electronically, or orally, shall be 
treated as a violation of section 6103(a).''.
    (c) Report.--Not later than 18 months after the date of the 
enactment of this Act, the Secretary of the Treasury shall submit a 
report to the Congress on compliance with the designation and 
certification requirements applicable to requests for or consent to 
disclosure of returns and return information under section 6103(c) of 
the Internal Revenue Code of 1986, as amended by subsection (a). Such 
report shall--
            (1) evaluate (on the basis of random sampling) whether--
                    (A) the amendment made by subsection (a) is 
                achieving the purposes of this section;
                    (B) requesters and submitters for such disclosure 
                are continuing to evade the purposes of this section 
                and, if so, how; and
                    (C) the sanctions for violations of such 
                requirements are adequate; and
            (2) include such recommendations that the Secretary of the 
        Treasury considers necessary or appropriate to better achieve 
        the purposes of this section.
    (d) Sunset of Existing Consents.--Notwithstanding any other 
provision of law, any request for or consent to disclose any return or 
return information under section 6103(c) of the Internal Revenue Code 
of 1986 made before the date of the enactment of this Act shall remain 
in effect until the earlier of the date such request or consent is 
otherwise terminated or the date which is 3 years after such date of 
enactment.
    (e) Effective Date.--The amendments made by this section shall 
apply to requests and consents made after the date which is 3 months 
after the date of the enactment of this Act.

SEC. 407. CIVIL DAMAGES FOR UNAUTHORIZED DISCLOSURE OR INSPECTION.

    (a) Notice to Taxpayer.--Subsection (e) of section 7431 (relating 
to notification of unlawful inspection and disclosure) is amended by 
adding at the end the following: ``The Secretary shall also notify such 
taxpayer if the Internal Revenue Service or, upon notice to the 
Secretary by a Federal or State agency, if 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 notice described in this subsection shall 
include the date of the inspection or disclosure and the rights of the 
taxpayer under such administrative determination.''.
    (b) Exhaustion of Administrative Remedies Required.--Section 7431, 
as amended by this Act, is amended by adding at the end the following 
new subsection:
    ``(j) Exhaustion of Administrative Remedies Required.--A judgment 
for damages shall not be awarded under subsection (c) unless the court 
determines that the plaintiff has exhausted the administrative remedies 
available to such plaintiff.''.
    (c) Payment Authority Clarified.--
            (1) In general.--Section 7431, as amended by subsection 
        (b), is amended by adding at the end the following new 
        subsection:
    ``(k) Payment Authority.--Claims pursuant to this section shall be 
payable out of funds appropriated under section 1304 of title 31, 
United States Code.''.
            (2) Annual reports of payments.--The Secretary of the 
        Treasury shall annually report to the Committee of Finance of 
        the Senate and the Committee on Ways and Means of the House of 
        Representatives regarding payments made from the United States 
        Judgment Fund under section 7431(k) of the Internal Revenue 
        Code of 1986.
    (d) Burden of Proof for Good Faith Exception Rests With Individual 
Making Inspection or Disclosure.--Section 7431(b) (relating to 
exceptions) is amended by adding at the end the following new flush 
sentence:
``In any proceeding involving the issue of the existence of good faith, 
the burden of proof with respect to such issue shall be on the 
individual who made the inspection or disclosure.''.
    (e) Reports.--Subsection (p) of section 6103 (relating to procedure 
and recordkeeping), as amended by this Act, is amended by adding at the 
end the following new paragraph:
            ``(10) Report on willful unauthorized disclosure and 
        inspection.--As part of the report required by paragraph (3)(C) 
        for each calendar year, the Secretary shall furnish information 
        regarding the willful unauthorized disclosure and inspection of 
        returns and return information, including the number, status, 
        and results of--
                    ``(A) administrative investigations,
                    ``(B) civil lawsuits brought under section 7431 
                (including the amounts for which such lawsuits were 
                settled and the amounts of damages awarded), and
                    ``(C) criminal prosecutions.''.
    (f) Effective Dates.--
            (1) Notice.--The amendment made by subsection (a) shall 
        apply to determinations made after the date which is 180 days 
        after the date of the enactment of this Act.
            (2) Exhaustion of remedies and burden of proof.--The 
        amendments made by subsections (b) and (d) shall apply to 
        inspections and disclosures occurring on and after the date 
        which is 180 days after the date of the enactment of this Act.
            (3) Payment authority.--The amendment made by subsection 
        (c)(1) shall take effect on the date which is 180 days after 
        the date of the enactment of this Act.
            (4) Reports.--The amendment made by subsection (e) shall 
        apply to calendar years ending after the date which is 180 days 
        after the date of the enactment of this Act.

SEC. 408. EXPANSION OF DISCLOSURE IN EMERGENCY CIRCUMSTANCES.

    (a) In General.--Section 6103(i)(3)(B)(i) (relating to danger of 
death or physical injury) is amended by striking ``or State law 
enforcement agency'' and inserting ``, State, or local law enforcement 
agency''.
    (b) Conforming Amendments.--Section 6103(p)(4) is amended--
            (1) by striking ``(i)(3)(B)(i) or (7)(A)(ii)'' and 
        inserting ``(i)(7)(A)(ii)'', and
            (2) by striking ``, (i)(3)(B)(i),''.
    (c) Effective Date.--The amendment made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 409. DISCLOSURE OF TAXPAYER IDENTITY FOR TAX REFUND PURPOSES.

    (a) In General.--Section 6103(m)(1) (relating to tax refunds) is 
amended by striking ``taxpayer identity information to the press and 
other media'' and by inserting ``a person's name and the city, State, 
and zip code of the person's mailing address to the press, other media, 
and through any other means of mass communication,''.
    (b) Effective Date.--The amendment made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 410. DISCLOSURE TO STATE OFFICIALS OF PROPOSED ACTIONS RELATED TO 
              SECTION 501(C) ORGANIZATIONS.

    (a) In General.--Subsection (c) of section 6104 is amended by 
striking paragraph (2) and inserting the following new paragraphs:
            ``(2) Disclosure of proposed actions related to charitable 
        organizations.--
                    ``(A) Specific notifications.--In the case of an 
                organization to which paragraph (1) applies, the 
                Secretary may disclose to the appropriate State 
                officer--
                            ``(i) a notice of proposed refusal to 
                        recognize such organization as an organization 
                        described in section 501(c)(3) or a notice of 
                        proposed revocation of such organization's 
                        recognition as an organization exempt from 
                        taxation,
                            ``(ii) the issuance of a letter of proposed 
                        deficiency of tax imposed under section 507 or 
                        chapter 41 or 42, and
                            ``(iii) the names, addresses, and taxpayer 
                        identification numbers of organizations which 
                        have applied for recognition as organizations 
                        described in section 501(c)(3).
                    ``(B) Additional disclosures.--Returns and return 
                information of organizations with respect to which 
                information is disclosed under subparagraph (A) may be 
                made available for inspection by or disclosed to an 
                appropriate State officer.
                    ``(C) Procedures for disclosure.--Information may 
                be inspected or disclosed under subparagraph (A) or (B) 
                only--
                            ``(i) upon written request by an 
                        appropriate State officer, and
                            ``(ii) for the purpose of, and only to the 
                        extent necessary in, the administration of 
                        State laws regulating such organizations.
                Such information may only be inspected by or disclosed 
                to representatives of the appropriate State officer 
                designated as the individuals who are to inspect or to 
                receive the returns or return information under this 
                paragraph on behalf of such officer. Such 
                representatives shall not include any contractor or 
                agent.
                    ``(D) Disclosures other than by request.--The 
                Secretary may make available for inspection or disclose 
                returns and return information of an organization to 
                which paragraph (1) applies to an appropriate State 
                officer of any State if the Secretary determines that 
                such inspection or disclosure may facilitate the 
                resolution of Federal or State issues relating to the 
                tax-exempt status of such organization.
            ``(3) Disclosure with respect to certain other exempt 
        organizations.--Upon written request by an appropriate State 
        officer, the Secretary may make available for inspection or 
        disclosure returns and return information of an organization 
        described in paragraph (2), (4), (6), (7), (8), (10), or (13) 
        of section 501(c) for the purpose of, and to the extent 
        necessary in, the administration of State laws regulating the 
        solicitation or administration of the charitable funds or 
        charitable assets of such organizations. Such information may 
        be inspected only by or disclosed only to representatives of 
        the appropriate State officer designated as the individuals who 
        are to inspect or to receive the returns or return information 
        under this paragraph on behalf of such officer. Such 
        representatives shall not include any contractor or agent.
            ``(4) Use in civil judicial and administrative 
        proceedings.--Returns and return information disclosed pursuant 
        to this subsection may be disclosed in civil administrative and 
        civil judicial proceedings pertaining to the enforcement of 
        State laws regulating such organizations in a manner prescribed 
        by the Secretary similar to that for tax administration 
        proceedings under section 6103(h)(4).
            ``(5) No disclosure if impairment.--Returns and return 
        information shall not be disclosed under this subsection, or in 
        any proceeding described in paragraph (4), to the extent that 
        the Secretary determines that such disclosure would seriously 
        impair Federal tax administration.
            ``(6) Definitions.--For purposes of this subsection--
                    ``(A) Return and return information.--The terms 
                `return' and `return information' have the respective 
                meanings given to such terms by section 6103(b).
                    ``(B) Appropriate state officer.--The term 
                `appropriate State officer' means--
                            ``(i) the State attorney general,
                            ``(ii) in the case of an organization to 
                        which paragraph (1) applies, any other State 
                        official charged with overseeing organizations 
                        of the type described in section 501(c)(3), and
                            ``(iii) in the case of an organization to 
                        which paragraph (3) applies, the head of an 
                        agency designated by the State attorney general 
                        as having primary responsibility for overseeing 
                        the solicitation of funds for charitable 
                        purposes.''.
    (b) Conforming Amendments.--
            (1) Subsection (a) of section 6103 is amended--
                    (A) by inserting ``or any appropriate State officer 
                who has or had access to returns or return information 
                under section 6104(c)'' after ``this section'' in 
                paragraph (2), and
                    (B) by striking ``or subsection (n)'' in paragraph 
                (3) and inserting ``subsection (n), or section 
                6104(c)''.
            (2) Subparagraph (A) of section 6103(p)(3) is amended by 
        inserting ``and section 6104(c)'' after ``section'' in the 
        first sentence.
            (3) Paragraph (4) of section 6103(p), as amended by section 
        202(b)(2)(B) of the Trade Act of 2002 (Public Law 107-210; 116 
        Stat. 961), is amended by striking ``or (17)'' after ``any 
        other person described in subsection (l)(16)'' each place it 
        appears and inserting ``or (18) or any appropriate State 
        officer (as defined in section 6104(c))''.
            (4) The heading for paragraph (1) of section 6104(c) is 
        amended by inserting ``for charitable organizations''.
            (5) Paragraph (2) of section 7213(a) is amended by 
        inserting ``or under section 6104(c)'' after ``6103''.
            (6) Paragraph (2) of section 7213A(a) is amended by 
        inserting ``or 6104(c)'' after ``6103''.
            (7) Paragraph (2) of section 7431(a) is amended by 
        inserting ``(including any disclosure in violation of section 
        6104(c))'' after ``6103''.
    (c) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act but shall not apply to 
requests made before such date.

SEC. 411. TREATMENT OF PUBLIC RECORDS.

    (a) In General.--Section 6103(b) (relating to definitions) is 
amended by adding at the end the following new paragraph:
            ``(12) Treatment of public records.--Returns and return 
        information shall not be subject to subsection (a) if 
        disclosed--
                    ``(A) in the course of any judicial or 
                administrative proceeding or pursuant to tax 
                administration activities, and
                    ``(B) properly made part of the public record.''.
    (b) Effective Date.--The amendment made by this section shall take 
effect before, on, and after the date of the enactment of this Act.

SEC. 412. EMPLOYEE IDENTITY DISCLOSURES.

    (a) In General.--Section 6103 (confidentiality and disclosure of 
returns and return information) is amended by redesignating subsection 
(q) as subsection (r) and by inserting after subsection (p) the 
following new subsection:
    ``(q) Employee Identity Disclosures.--Nothing in this section may 
be construed to prohibit agents of the Department of the Treasury from 
identifying themselves, their organizational affiliation, and the 
nature of an investigation when contacting third parties in writing or 
in person.''.
    (b) Construction.--The amendments made by this section shall not be 
construed to create any inference with respect to the interpretation of 
any provision of law as such provision was in effect on the day before 
the date of enactment of this Act.
    (c) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 413. TAXPAYER IDENTIFICATION NUMBER MATCHING.

    (a) In General.--Section 6103(k) (relating to disclosure of certain 
returns and return information for tax administration purposes) is 
amended by adding at the end the following new paragraph:
            ``(10) TIN matching.--The Secretary may disclose to any 
        person required to provide a TIN (as defined in section 
        7701(a)(41)) to the Secretary whether such information matches 
        records maintained by the Secretary.''.
    (b) Effective Date.--The amendment made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 414. FORM 8300 DISCLOSURES.

    (a) In General.--Section 6103(p)(4) (relating to safeguards) is 
amended by striking ``(15),'' both places it appears.
    (b) Effective Date.--The amendment made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 415. DISCLOSURE TO LAW ENFORCEMENT AGENCIES REGARDING TERRORIST 
              ACTIVITIES.

    (a) In General.--Section 6103(i)(7)(A) (relating to disclosure to 
law enforcement agencies) is amended by adding at the end the following 
new clause:
                            ``(v) Taxpayer identity.--For purposes of 
                        this subparagraph, a taxpayer's identity shall 
                        not be treated as taxpayer return 
                        information.''.
    (b) Effective Date.--The amendment made by this section shall take 
effect on the date of the enactment of this Act.

                        TITLE V--SIMPLIFICATION

                Subtitle A--Uniform Definition of Child

SEC. 501. UNIFORM DEFINITION OF CHILD, ETC.

    Section 152 is amended to read as follows:

``SEC. 152. DEPENDENT DEFINED.

    ``(a) In General.--For purposes of this subtitle, the term 
`dependent' means--
            ``(1) a qualifying child, or
            ``(2) a qualifying relative.
    ``(b) Exceptions.--For purposes of this section--
            ``(1) Dependents ineligible.--If an individual is a 
        dependent of a taxpayer for any taxable year of such taxpayer 
        beginning in a calendar year, such individual shall be treated 
        as having no dependents for any taxable year of such individual 
        beginning in such calendar year.
            ``(2) Married dependents.--An individual shall not be 
        treated as a dependent of a taxpayer under subsection (a) if 
        such individual has made a joint return with the individual's 
        spouse under section 6013 for the taxable year beginning in the 
        calendar year in which the taxable year of the taxpayer begins.
            ``(3) Citizens or nationals of other countries.--
                    ``(A) In general.--The term `dependent' does not 
                include an individual who is not a citizen or national 
                of the United States unless such individual is a 
                resident of the United States or a country contiguous 
                to the United States.
                    ``(B) Exception for adopted child.--Subparagraph 
                (A) shall not exclude any child of a taxpayer (within 
                the meaning of subsection (f)(1)(B)) from the 
                definition of `dependent' if--
                            ``(i) for the taxable year of the taxpayer, 
                        the child has the same principal place of abode 
                        as the taxpayer and is a member of the 
                        taxpayer's household, and
                            ``(ii) the taxpayer is a citizen or 
                        national of the United States.
    ``(c) Qualifying Child.--For purposes of this section--
            ``(1) In general.--The term `qualifying child' means, with 
        respect to any taxpayer for any taxable year, an individual--
                    ``(A) who bears a relationship to the taxpayer 
                described in paragraph (2),
                    ``(B) who has the same principal place of abode as 
                the taxpayer for more than one-half of such taxable 
                year,
                    ``(C) who meets the age requirements of paragraph 
                (3), and
                    ``(D) who has not provided over one-half of such 
                individual's own support for the calendar year in which 
                the taxable year of the taxpayer begins.
            ``(2) Relationship.--For purposes of paragraph (1)(A), an 
        individual bears a relationship to the taxpayer described in 
        this paragraph if such individual is--
                    ``(A) a child of the taxpayer or a descendant of 
                such a child, or
                    ``(B) a brother, sister, stepbrother, or stepsister 
                of the taxpayer or a descendant of any such relative.
            ``(3) Age requirements.--
                    ``(A) In general.--For purposes of paragraph 
                (1)(C), an individual meets the requirements of this 
                paragraph if such individual--
                            ``(i) has not attained the age of 19 as of 
                        the close of the calendar year in which the 
                        taxable year of the taxpayer begins, or
                            ``(ii) is a student who has not attained 
                        the age of 24 as of the close of such calendar 
                        year.
                    ``(B) Special rule for disabled.--In the case of an 
                individual who is permanently and totally disabled (as 
                defined in section 22(e)(3)) at any time during such 
                calendar year, the requirements of subparagraph (A) 
                shall be treated as met with respect to such 
                individual.
            ``(4) Special rule relating to 2 or more claiming 
        qualifying child.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B) and subsection (e), if (but for this 
                paragraph) an individual may be and is claimed as a 
                qualifying child by 2 or more taxpayers for a taxable 
                year beginning in the same calendar year, such 
                individual shall be treated as the qualifying child of 
                the taxpayer who is--
                            ``(i) a parent of the individual, or
                            ``(ii) if clause (i) does not apply, the 
                        taxpayer with the highest adjusted gross income 
                        for such taxable year.
                    ``(B) More than 1 parent claiming qualifying 
                child.--If the parents claiming any qualifying child do 
                not file a joint return together, such child shall be 
                treated as the qualifying child of--
                            ``(i) the parent with whom the child 
                        resided for the longest period of time during 
                        the taxable year, or
                            ``(ii) if the child resides with both 
                        parents for the same amount of time during such 
                        taxable year, the parent with the highest 
                        adjusted gross income.
    ``(d) Qualifying Relative.--For purposes of this section--
            ``(1) In general.--The term `qualifying relative' means, 
        with respect to any taxpayer for any taxable year, an 
        individual--
                    ``(A) who bears a relationship to the taxpayer 
                described in paragraph (2),
                    ``(B) whose gross income for the calendar year in 
                which such taxable year begins is less than the 
                exemption amount (as defined in section 151(d)),
                    ``(C) with respect to whom the taxpayer provides 
                over one-half of the individual's support for the 
                calendar year in which such taxable year begins, and
                    ``(D) who is not a qualifying child of such 
                taxpayer or of any other taxpayer for any taxable year 
                beginning in the calendar year in which such taxable 
                year begins.
            ``(2) Relationship.--For purposes of paragraph (1)(A), an 
        individual bears a relationship to the taxpayer described in 
        this paragraph if the individual is any of the following with 
        respect to the taxpayer:
                    ``(A) A child or a descendant of a child.
                    ``(B) A brother, sister, stepbrother, or 
                stepsister.
                    ``(C) The father or mother, or an ancestor of 
                either.
                    ``(D) A stepfather or stepmother.
                    ``(E) A son or daughter of a brother or sister of 
                the taxpayer.
                    ``(F) A brother or sister of the father or mother 
                of the taxpayer.
                    ``(G) A son-in-law, daughter-in-law, father-in-law, 
                mother-in-law, brother-in-law, or sister-in-law.
                    ``(H) An individual (other than an individual who 
                at any time during the taxable year was the spouse, 
                determined without regard to section 7703, of the 
                taxpayer) who, for the taxable year of the taxpayer, 
                has the same principal place of abode as the taxpayer 
                and is a member of the taxpayer's household.
            ``(3) Special rule relating to multiple support 
        agreements.--For purposes of paragraph (1)(C), over one-half of 
        the support of an individual for a calendar year shall be 
        treated as received from the taxpayer if--
                    ``(A) no one person contributed over one-half of 
                such support,
                    ``(B) over one-half of such support was received 
                from 2 or more persons each of whom, but for the fact 
                that any such person alone did not contribute over one-
                half of such support, would have been entitled to claim 
                such individual as a dependent for a taxable year 
                beginning in such calendar year,
                    ``(C) the taxpayer contributed over 10 percent of 
                such support, and
                    ``(D) each person described in subparagraph (B) 
                (other than the taxpayer) who contributed over 10 
                percent of such support files a written declaration (in 
                such manner and form as the Secretary may by 
                regulations prescribe) that such person will not claim 
                such individual as a dependent for any taxable year 
                beginning in such calendar year.
            ``(4) Special rule relating to income of handicapped 
        dependents.--
                    ``(A) In general.--For purposes of paragraph 
                (1)(B), the gross income of an individual who is 
                permanently and totally disabled (as defined in section 
                22(e)(3)) at any time during the taxable year shall not 
                include income attributable to services performed by 
                the individual at a sheltered workshop if--
                            ``(i) the availability of medical care at 
                        such workshop is the principal reason for the 
                        individual's presence there, and
                            ``(ii) the income arises solely from 
                        activities at such workshop which are incident 
                        to such medical care.
                    ``(B) Sheltered workshop defined.--For purposes of 
                subparagraph (A), the term `sheltered workshop' means a 
                school--
                            ``(i) which provides special instruction or 
                        training designed to alleviate the disability 
                        of the individual, and
                            ``(ii) which is operated by an organization 
                        described in section 501(c)(3) and exempt from 
                        tax under section 501(a), or by a State, a 
                        possession of the United States, any political 
                        subdivision of any of the foregoing, the United 
                        States, or the District of Columbia.
            ``(5) Special rules for support.--For purposes of this 
        subsection--
                    ``(A) payments to a spouse which are includible in 
                the gross income of such spouse under section 71 or 682 
                shall not be treated as a payment by the payor spouse 
                for the support of any dependent, and
                    ``(B) in the case of the remarriage of a parent, 
                support of a child received from the parent's spouse 
                shall be treated as received from the parent.
    ``(e) Special Rule for Divorced Parents.--
            ``(1) In general.--Notwithstanding subsection (c)(4) or 
        (d)(1)(C), if--
                    ``(A) a child receives over one-half of the child's 
                support during the calendar year from the child's 
                parents--
                            ``(i) who are divorced or legally separated 
                        under a decree of divorce or separate 
                        maintenance,
                            ``(ii) who are separated under a written 
                        separation agreement, or
                            ``(iii) who live apart at all times during 
                        the last 6 months of the calendar year, and
                    ``(B) such child is in the custody of 1 or both of 
                the child's parents for more than one-half of the 
                calendar year,
        such child shall be treated as being the qualifying child or 
        qualifying relative of the noncustodial parent for a calendar 
        year if the requirements described in paragraph (2) are met.
            ``(2) Requirements.--For purposes of paragraph (1), the 
        requirements described in this paragraph are met if--
                    ``(A) a decree of divorce or separate maintenance 
                or written separation agreement between the parents 
                applicable to the taxable year beginning in such 
                calendar year provides that--
                            ``(i) the noncustodial parent shall be 
                        entitled to any deduction allowable under 
                        section 151 for such child, or
                            ``(ii) the custodial parent will sign a 
                        written declaration (in such manner and form as 
                        the Secretary may prescribe) that such parent 
                        will not claim such child as a dependent for 
                        such taxable year, or
                    ``(B) in the case of such an agreement executed 
                before January 1, 1985, the noncustodial parent 
                provides at least $600 for the support of such child 
                during such calendar year.
        For purposes of subparagraph (B), amounts expended for the 
        support of a child or children shall be treated as received 
        from the noncustodial parent to the extent that such parent 
        provided amounts for such support.
            ``(3) Custodial parent and noncustodial parent.--For 
        purposes of this subsection--
                    ``(A) Custodial parent.--The term `custodial 
                parent' means the parent with whom a child shared the 
                same principal place of abode for the greater portion 
                of the calendar year.
                    ``(B) Noncustodial parent.--The term `noncustodial 
                parent' means the parent who is not the custodial 
                parent.
            ``(4) Exception for multiple-support agreements.--This 
        subsection shall not apply in any case where over one-half of 
        the support of the child is treated as having been received 
        from a taxpayer under the provision of subsection (d)(3).
    ``(f) Other Definitions and Rules.--For purposes of this section--
            ``(1) Child defined.--
                    ``(A) In general.--The term `child' means an 
                individual who is--
                            ``(i) a son, daughter, stepson, or 
                        stepdaughter of the taxpayer, or
                            ``(ii) an eligible foster child of the 
                        taxpayer.
                    ``(B) Adopted child.--In determining whether any of 
                the relationships specified in subparagraph (A)(i) or 
                paragraph (4) exists, a legally adopted individual of 
                the taxpayer, or an individual who is lawfully placed 
                with the taxpayer for legal adoption by the taxpayer, 
                shall be treated as a child of such individual by 
                blood.
                    ``(C) Eligible foster child.--For purposes of 
                subparagraph (A)(ii), the term `eligible foster child' 
                means an individual who is placed with the taxpayer by 
                an authorized placement agency or by judgment, decree, 
                or other order of any court of competent jurisdiction.
            ``(2) Student defined.--The term `student' means an 
        individual who during each of 5 calendar months during the 
        calendar year in which the taxable year of the taxpayer 
        begins--
                    ``(A) is a full-time student at an educational 
                organization described in section 170(b)(1)(A)(ii), or
                    ``(B) is pursuing a full-time course of 
                institutional on-farm training under the supervision of 
                an accredited agent of an educational organization 
                described in section 170(b)(1)(A)(ii) or of a State or 
                political subdivision of a State.
            ``(3) Determination of household status.--An individual 
        shall not be treated as a member of the taxpayer's household if 
        at any time during the taxable year of the taxpayer the 
        relationship between such individual and the taxpayer is in 
        violation of local law.
            ``(4) Brother and sister.--The terms `brother' and `sister' 
        include a brother or sister by the half blood.
            ``(5) Special support test in case of students.--For 
        purposes of subsections (c)(1)(D) and (d)(1)(C), in the case of 
        an individual who is--
                    ``(A) a child of the taxpayer, and
                    ``(B) a student,
        amounts received as scholarships for study at an educational 
        organization described in section 170(b)(1)(A)(ii) shall not be 
        taken into account.
            ``(6) Treatment of missing children.--
                    ``(A) In general.--Solely for the purposes referred 
                to in subparagraph (B), a child of the taxpayer--
                            ``(i) who is presumed by law enforcement 
                        authorities to have been kidnapped by someone 
                        who is not a member of the family of such child 
                        or the taxpayer, and
                            ``(ii) who had, for the taxable year in 
                        which the kidnapping occurred, the same 
                        principal place of abode as the taxpayer for 
                        more than one-half of the portion of such year 
                        before the date of the kidnapping,
                shall be treated as meeting the requirement of 
                subsection (c)(1)(B) with respect to a taxpayer for all 
                taxable years ending during the period that the child 
                is kidnapped.
                    ``(B) Purposes.--Subparagraph (A) shall apply 
                solely for purposes of determining--
                            ``(i) the deduction under section 151(c),
                            ``(ii) the credit under section 24 
                        (relating to child tax credit),
                            ``(iii) whether an individual is a 
                        surviving spouse or a head of a household (as 
                        such terms are defined in section 2), and
                            ``(iv) the earned income credit under 
                        section 32.
                    ``(C) Comparable treatment of certain qualifying 
                relatives.--For purposes of this section, a child of 
                the taxpayer--
                            ``(i) who is presumed by law enforcement 
                        authorities to have been kidnapped by someone 
                        who is not a member of the family of such child 
                        or the taxpayer, and
                            ``(ii) who was (without regard to this 
                        paragraph) a qualifying relative of the 
                        taxpayer for the portion of the taxable year 
                        before the date of the kidnapping,
                shall be treated as a qualifying relative of the 
                taxpayer for all taxable years ending during the period 
                that the child is kidnapped.
                    ``(D) Termination of treatment.--Subparagraphs (A) 
                and (C) shall cease to apply as of the first taxable 
                year of the taxpayer beginning after the calendar year 
                in which there is a determination that the child is 
                dead (or, if earlier, in which the child would have 
                attained age 18).
            ``(7) Cross references.--

                              ``For provision treating child as 
dependent of both parents for purposes of certain provisions, see 
sections 105(b), 132(h)(2)(B), and 213(d)(5).''.

SEC. 502. MODIFICATIONS OF DEFINITION OF HEAD OF HOUSEHOLD.

    (a) Head of Household.--Clause (i) of section 2(b)(1)(A) is amended 
to read as follows:
                            ``(i) a qualifying child of the individual 
                        (as defined in section 152(c), determined 
                        without regard to section 152(e)), but not if 
                        such child--
                                    ``(I) is married at the close of 
                                the taxpayer's taxable year, and
                                    ``(II) is not a dependent of such 
                                individual by reason of section 
                                152(b)(2) or 152(b)(3), or both, or''.
    (b) Conforming Amendments.--
            (1) Section 2(b)(2) is amended by striking subparagraph (A) 
        and by redesignating subparagraphs (B), (C), and (D) as 
        subparagraphs (A), (B), and (C), respectively.
            (2) Clauses (i) and (ii) of section 2(b)(3)(B) are amended 
        to read as follows:
                            ``(i) subparagraph (H) of section 
                        152(d)(2), or
                            ``(ii) paragraph (3) of section 152(d).''.

SEC. 503. MODIFICATIONS OF DEPENDENT CARE CREDIT.

    (a) In General.--Section 21(a)(1) is amended by striking ``In the 
case of an individual who maintains a household which includes as a 
member one or more qualifying individuals (as defined in subsection 
(b)(1))'' and inserting ``In the case of an individual for which there 
are 1 or more qualifying individuals (as defined in subsection (b)(1)) 
with respect to such individual''.
    (b) Qualifying Individual.--Paragraph (1) of section 21(b) is 
amended to read as follows:
            ``(1) Qualifying individual.--The term `qualifying 
        individual' means--
                    ``(A) a dependent of the taxpayer (as defined in 
                section 152(a)(1)) who has not attained age 13,
                    ``(B) a dependent of the taxpayer who is physically 
                or mentally incapable of caring for himself or herself 
                and who has the same principal place of abode as the 
                taxpayer for more than one-half of such taxable year, 
                or
                    ``(C) the spouse of the taxpayer, if the spouse is 
                physically or mentally incapable of caring for himself 
                or herself and who has the same principal place of 
                abode as the taxpayer for more than one-half of such 
                taxable year.''.
    (c) Conforming Amendment.--Paragraph (1) of section 21(e) is 
amended to read as follows:
            ``(1) Place of abode.--An individual shall not be treated 
        as having the same principal place of abode of the taxpayer if 
        at any time during the taxable year of the taxpayer the 
        relationship between the individual and the taxpayer is in 
        violation of local law.''.

SEC. 504. MODIFICATIONS OF CHILD TAX CREDIT.

    (a) In General.--Paragraph (1) of section 24(c) is amended to read 
as follows:
            ``(1) In general.--The term `qualifying child' means a 
        qualifying child of the taxpayer (as defined in section 152(c)) 
        who has not attained age 17.''.
    (b) Conforming Amendment.--Section 24(c)(2) is amended by striking 
``the first sentence of section 152(b)(3)'' and inserting 
``subparagraph (A) of section 152(b)(3)''.

SEC. 505. MODIFICATIONS OF EARNED INCOME CREDIT.

    (a) Qualifying Child.--Paragraph (3) of section 32(c) is amended to 
read as follows:
            ``(3) Qualifying child.--
                    ``(A) In general.--The term `qualifying child' 
                means a qualifying child of the taxpayer (as defined in 
                section 152(c), determined without regard to paragraph 
                (1)(D) thereof and section 152(e)).
                    ``(B) Married individual.--The term `qualifying 
                child' shall not include an individual who is married 
                as of the close of the taxpayer's taxable year unless 
                the taxpayer is entitled to a deduction under section 
                151 for such taxable year with respect to such 
                individual (or would be so entitled but for section 
                152(e)).
                    ``(C) Place of abode.--For purposes of subparagraph 
                (A), the requirements of section 152(c)(1)(B) shall be 
                met only if the principal place of abode is in the 
                United States.
                    ``(D) Identification requirements.--
                            ``(i) In general.--A qualifying child shall 
                        not be taken into account under subsection (b) 
                        unless the taxpayer includes the name, age, and 
                        TIN of the qualifying child on the return of 
                        tax for the taxable year.
                            ``(ii) Other methods.--The Secretary may 
                        prescribe other methods for providing the 
                        information described in clause (i).''.
    (b) Conforming Amendments.--
            (1) Section 32(c)(1) is amended by striking subparagraph 
        (C) and by redesignating subparagraphs (D), (E), (F), and (G) 
        as subparagraphs (C), (D), (E), and (F), respectively.
            (2) Section 32(c)(4) is amended by striking ``(3)(E)'' and 
        inserting ``(3)(C)''.
            (3) Section 32(m) is amended by striking ``subsections 
        (c)(1)(F)'' and inserting ``subsections (c)(1)(E)''.

SEC. 506. MODIFICATIONS OF DEDUCTION FOR PERSONAL EXEMPTION FOR 
              DEPENDENTS.

    Subsection (c) of section 151 is amended to read as follows:
    ``(c) Additional Exemption for Dependents.--An exemption of the 
exemption amount for each individual who is a dependent (as defined in 
section 152) of the taxpayer for the taxable year.''.

SEC. 507. TECHNICAL AND CONFORMING AMENDMENTS.

            (1) Section 2(a)(1)(B)(i) is amended by inserting ``, 
        determined without regard to subsections (b)(1), (b)(2), and 
        (d)(1)(B) thereof'' after ``section 152''.
            (2) Section 21(e)(5) is amended--
                    (A) by striking ``paragraph (2) or (4) of'' in 
                subparagraph (A), and
                    (B) by striking ``within the meaning of section 
                152(e)(1)'' and inserting ``as defined in section 
                152(e)(3)(A)''.
            (3) Section 21(e)(6)(B) is amended by striking ``section 
        151(c)(3)'' and inserting ``section 152(f)(1)''.
            (4) Section 25B(c)(2)(B) is amended by striking 
        ``151(c)(4)'' and inserting ``152(f)(2)''.
            (5)(A) Subparagraphs (A) and (B) of section 51(i)(1) are 
        each amended by striking ``paragraphs (1) through (8) of 
        section 152(a)'' both places it appears and inserting 
        ``subparagraphs (A) through (G) of section 152(d)(2)''.
            (B) Section 51(i)(1)(C) is amended by striking 
        ``152(a)(9)'' and inserting ``152(d)(2)(H)''.
            (6) Section 72(t)(2)(D)(i)(III) is amended by inserting ``, 
        determined without regard to subsections (b)(1), (b)(2), and 
        (d)(1)(B) thereof'' after ``section 152''.
            (7) Section 72(t)(7)(A)(iii) is amended by striking 
        ``151(c)(3)'' and inserting ``152(f)(1)''.
            (8) Section 42(i)(3)(D)(ii)(I) is amended by inserting ``, 
        determined without regard to subsections (b)(1), (b)(2), and 
        (d)(1)(B) thereof'' after ``section 152''.
            (9) Subsections (b) and (c)(1) of section 105 are amended 
        by inserting ``, determined without regard to subsections 
        (b)(1), (b)(2), and (d)(1)(B) thereof'' after ``section 152''.
            (10) Section 120(d)(4) is amended by inserting 
        ``(determined without regard to subsections (b)(1), (b)(2), and 
        (d)(1)(B) thereof)'' after ``section 152''.
            (11) Section 125(e)(1)(D) is amended by inserting ``, 
        determined without regard to subsections (b)(1), (b)(2), and 
        (d)(1)(B) thereof'' after ``section 152''.
            (12) Section 129(c)(2) is amended by striking ``151(c)(3)'' 
        and inserting ``152(f)(1)''.
            (13) The first sentence of section 132(h)(2)(B) is amended 
        by striking ``151(c)(3)'' and inserting ``152(f)(1)''.
            (14) Section 153 is amended by striking paragraph (1) and 
        by redesignating paragraphs (2), (3), and (4) as paragraphs 
        (1), (2), and (3), respectively.
            (15) Section 170(g)(1) is amended by inserting 
        ``(determined without regard to subsections (b)(1), (b)(2), and 
        (d)(1)(B) thereof)'' after ``section 152''.
            (16) Section 170(g)(3) is amended by striking ``paragraphs 
        (1) through (8) of section 152(a)'' and inserting 
        ``subparagraphs (A) through (G) of section 152(d)(2)''.
            (17) Section 213(a) is amended by inserting ``, determined 
        without regard to subsections (b)(1), (b)(2), and (d)(1)(B) 
        thereof'' after ``section 152''.
            (18) The second sentence of section 213(d)(11) is amended 
        by striking ``paragraphs (1) through (8) of section 152(a)'' 
        and inserting ``subparagraphs (A) through (G) of section 
        152(d)(2)''.
            (19) Section 220(d)(2)(A) is amended by inserting ``, 
        determined without regard to subsections (b)(1), (b)(2), and 
        (d)(1)(B) thereof'' after ``section 152''.
            (20) Section 221(d)(4) is amended by inserting 
        ``(determined without regard to subsections (b)(1), (b)(2), and 
        (d)(1)(B) thereof)'' after ``section 152''.
            (21) Section 529(e)(2)(B) is amended by striking 
        ``paragraphs (1) through (8) of section 152(a)'' and inserting 
        ``subparagraphs (A) through (G) of section 152(d)(2)''.
            (22) Section 2032A(c)(7)(D) is amended by striking 
        ``section 151(c)(4)'' and inserting ``section 152(f)(2)''.
            (23) Section 2057(d)(2)(B) is amended by inserting ``, 
        determined without regard to subsections (b)(1), (b)(2), and 
        (d)(1)(B) thereof'' after ``section 152''.
            (24) Section 7701(a)(17) is amended by striking 
        ``152(b)(4), 682,'' and inserting ``682''.
            (25) Section 7702B(f)(2)(C)(iii) is amended by striking 
        ``paragraphs (1) through (8) of section 152(a)'' and inserting 
        ``subparagraphs (A) through (G) of section 152(d)(2)''.
            (26) Section 7703(b)(1) is amended--
                    (A) by striking ``151(c)(3)'' and inserting 
                ``152(f)(1)'', and
                    (B) by striking ``paragraph (2) or (4) of''.

SEC. 508. EFFECTIVE DATE.

    The amendments made by this subtitle shall apply to taxable years 
beginning after December 31, 2004.

     Subtitle B--Simplification Through Elimination of Inoperative 
                               Provisions

SEC. 511. SIMPLIFICATION THROUGH ELIMINATION OF INOPERATIVE PROVISIONS.

    (a) In General.--
            (1) Adjustments in tax tables so that inflation will not 
        result in tax increases.--Paragraph (7) of section 1(f) is 
        amended to read as follows:
            ``(7) Special rule for certain brackets.--In prescribing 
        tables under paragraph (1) which apply to taxable years 
        beginning in a calendar year after 1994, the cost-of-living 
        adjustment used in making adjustments to the dollar amounts at 
        which the 36 percent rate bracket begins or at which the 39.6 
        percent rate bracket begins shall be determined under paragraph 
        (3) by substituting `1993' for `1992'.''.
            (2) Credit for producing fuel from nonconventional 
        source.--Section 29 is amended by striking subsection (e) and 
        by redesignating subsections (f) and (g) as subsections (e) and 
        (f), respectively.
            (3) Earned income credit.--Paragraph (1) of section 32(b) 
        is amended--
                    (A) by striking subparagraphs (B) and (C), and
                    (B) in subparagraph (A) by striking ``(A) In 
                general.--In the case of taxable years beginning after 
                1995'' and moving the table 2 ems to the left.
            (4) General business credits.--Subsection (d) of section 38 
        is amended by striking paragraph (3).
            (5) Carryback and carryforward of unused credits.--
        Subsection (d) of section 39 is amended by striking paragraphs 
        (1) through (8) and by redesignating paragraphs (9) and (10) as 
        paragraphs (1) and (2), respectively.
            (6) Adjustments based on adjusted current earnings.--Clause 
        (ii) of section 56(g)(4)(F) is amended by striking ``In the 
        case of any taxable year beginning after December 31, 1992, 
        clause'' and inserting ``Clause''.
            (7) Items of tax preference; depletion.--Paragraph (1) of 
        section 57(a) is amended by striking ``Effective with respect 
        to taxable years beginning after December 31, 1992, this'' and 
        inserting ``This''.
            (8) Intangible drilling costs.--
                    (A) Clause (i) of section 57(a)(2)(E) is amended by 
                striking ``In the case of any taxable year beginning 
                after December 31, 1992, this'' and inserting ``This''.
                    (B) Clause (ii) of section 57(a)(2)(E) is amended 
                by striking ``(30 percent in the case of taxable years 
                beginning in 1993)''.
            (9) Annuities; certain proceeds of endowment and life 
        insurance contracts.--Section 72 is amended--
                    (A) in subsection (c)(4) by striking ``; except 
                that if such date was before January 1, 1954, then the 
                annuity starting date is January 1, 1954'', and
                    (B) in subsection (g)(3) by striking ``January 1, 
                1954, or'' and ``, whichever is later''.
            (10) Accident and health plans.--Section 105(f) is amended 
        by striking ``or (d)''.
            (11) Flexible spending arrangements.--Section 106(c)(1) is 
        amended by striking ``Effective on and after January 1, 1997, 
        gross'' and inserting ``Gross''.
            (12) Certain combat zone compensation of members of the 
        armed forces.--Subsection (c) of section 112 is amended--
                    (A) by striking ``(after June 24, 1950)'' in 
                paragraph (2), and
                    (B) striking ``such zone;'' and all that follows in 
                paragraph (3) and inserting ``such zone.''.
            (13) Principal residence.--Section 121(b)(3) is amended--
                    (A) by striking subparagraph (B); and
                    (B) in subparagraph (A) by striking ``(A) In 
                general.--'' and moving the text 2 ems to the left.
            (14) Certain reduced uniformed services retirement pay.--
        Section 122(b)(1) is amended by striking ``after December 31, 
        1965,''.
            (15) Great plains conservation program.--Section 126(a) is 
        amended by striking paragraph (6) and by redesignating 
        paragraphs (7), (8), (9), and (10) as paragraphs (6), (7), (8), 
        and (9), respectively.
            (16) Mortgage revenue bonds for residences in federal 
        disaster areas.--Section 143(k) is amended by striking 
        paragraph (11).
            (17) Treble damage payments under the antitrust law.--
        Section 162(g) is amended by striking the last sentence.
            (18) State legislators' travel expenses away from home.--
        Paragraph (4) of section 162(h) is amended by striking ``For 
        taxable years beginning after December 31, 1980, this'' and 
        inserting ``This''.
            (19) Health insurance costs of self-employed individuals.--
        Paragraph (1) of section 162(l) is amended to read as follows:
            ``(1) Allowance of deduction.--In the case of an individual 
        who is an employee within the meaning of section 401(c)(1), 
        there shall be allowed as a deduction under this section an 
        amount equal to 100 percent of the amount paid during the 
        taxable year for insurance which constitutes medical care for 
        the taxpayer and the taxpayer's spouse and dependents.''.
            (20) Interest.--
                    (A) Section 163 is amended by striking paragraph 
                (6) of subsection (d) and paragraph (5) (relating to 
                phase-in of limitation) of subsection (h).
                    (B) Section 56(b)(1)(C) is amended by striking 
                clause (ii) and by redesignating clauses (iii), (iv), 
                and (v) as clauses (ii), (iii), and (iv), respectively.
            (21) Charitable, etc., contributions and gifts.--Section 
        170 is amended by striking subsection (k).
            (22) Amortizable bond premium.--Subparagraph (B) of section 
        171(b)(1) is amended to read as follows:
                    ``(B)(i) in the case of a bond described in 
                subsection (a)(2), with reference to the amount payable 
                on maturity or earlier call date, and
                    ``(ii) in the case of a bond described in 
                subsection (a)(1), with reference to the amount payable 
                on maturity (or if it results in a smaller amortizable 
                bond premium attributable to the period of earlier call 
                date, with reference to the amount payable on earlier 
                call date), and''.
            (23) Net operating loss carrybacks and carryovers.--
                    (A) Section 172 is amended--
                            (i) by striking subparagraph (D) of 
                        subsection (b)(1) and by redesignating 
                        subparagraphs (E), (F), (G), and (H) as 
                        subparagraphs (D), (E), (F), and (G), 
                        respectively,
                            (ii) by striking ``ending after August 2, 
                        1989'' in subsection (b)(1)(D)(i)(II) (as 
                        redesignated by clause (i)),
                            (iii) by striking ``subparagraph (F)'' in 
                        subsection (b)(1)(G) (as redesignated by clause 
                        (i)) and inserting ``subparagraph (E)'',
                            (iv) by striking subsection (g), and
                            (v) by striking subparagraph (F) of 
                        subsection (h)(2).
                    (B) Section 172(h)(4) is amended by striking 
                ``subsection (b)(1)(E)'' each place it appears and 
                inserting ``subsection (b)(1)(D)''.
                    (C) Section 172(i)(3) is amended by striking 
                ``subsection (b)(1)(G)'' each place it appears and 
                inserting ``subsection (b)(1)(F)''.
                    (D) Section 172(j) is amended by striking 
                ``subsection (b)(1)(H)'' each place it appears and 
                inserting ``subsection (b)(1)(G)''.
                    (E) Section 172, as amended by subparagraphs (A) 
                through (D) of this paragraph, is amended--
                            (i) by redesignating subsections (h), (i), 
                        and (j) as subsections (g), (h), and (i), 
                        respectively,
                            (ii) by striking ``subsection (h)'' each 
                        place it appears and inserting ``subsection 
                        (g)'', and
                            (iii) by striking ``subsection (i)'' each 
                        place it appears and inserting ``subsection 
                        (h)''.
            (24) Research and experimental expenditures.--Subparagraph 
        (A) of section 174(a)(2) is amended to read as follows:
                    ``(A) Without consent.--A taxpayer may, without the 
                consent of the Secretary, adopt the method provided in 
                this subsection for his first taxable year for which 
                expenditures described in paragraph (1) are paid or 
                incurred.''.
            (25) Amortization of certain research and experimental 
        expenditures.--Paragraph (2) of section 174(b)(2) is amended by 
        striking ``beginning after December 31, 1953''.
            (26) Soil and water conservation expenditures.--Paragraph 
        (1) of section 175(d) is amended to read as follows:
            ``(1) Without consent.--A taxpayer may, without the consent 
        of the Secretary, adopt the method provided in this section for 
        his first taxable year for which expenditures described in 
        subsection (a) are paid or incurred.''.
            (27) Activities not engaged in for profit.--Section 
        183(e)(1) is amended by striking the last sentence.
            (28) Dividends received on certain preferred stock; and 
        dividends paid on certain preferred stock of public 
        utilities.--
                    (A) Sections 244 and 247 are hereby repealed and 
                the table of sections for part VIII of subchapter B of 
                chapter 1 is amended by striking the items relating to 
                sections 244 and 247.
                    (B) Paragraph (5) of section 172(d) is amended to 
                read as follows:
            ``(5) Computation of deduction for dividends received.--The 
        deductions allowed by section 243 (relating to dividends 
        received by corporations) and 245 (relating to dividends 
        received from certain foreign corporations) shall be computed 
        without regard to section 246(b) (relating to limitation on 
        aggregate amount of deductions).''.
                    (C) Paragraph (1) of section 243(c) is amended to 
                read as follows:
            ``(1) In general.--In the case of any dividend received 
        from a 20-percent owned corporation, subsection (a)(1) shall be 
        applied by substituting `80 percent' for `70 percent'.''.
                    (D) Section 243(d) is amended by striking paragraph 
                (4).
                    (E) Section 246 is amended--
                            (i) by striking ``, 244,'' in subsection 
                        (a)(1),
                            (ii) in subsection (b)(1)--
                                    (I) by striking ``sections 
                                243(a)(1), and 244(a),'' the first 
                                place it appears and inserting 
                                ``section 243(a)(1),'',
                                    (II) by striking ``244(a),'' the 
                                second place it appears therein, and
                                    (III) by striking ``subsection (a) 
                                or (b) of section 245, and 247,'' and 
                                inserting ``and subsection (a) or (b) 
                                of section 245,'', and
                            (iii) by striking ``, 244,'' in subsection 
                        (c)(1).
                    (F) Section 246A is amended by striking ``, 244,'' 
                both places it appears in subsections (a) and (e).
                    (G) Sections 263(g)(2)(B)(iii), 277(a), 301(e)(2), 
                469(e)(4), 512(a)(3)(A), subparagraphs (A), (C), and 
                (D) of section 805(a)(4), 805(b)(5), 812(e)(2)(A), 
                815(c)(2)(A)(iii), 832(b)(5), 833(b)(3)(E), 
                1059(b)(2)(B), and 1244(c)(2)(C) are each amended by 
                striking ``, 244,'' each place it appears.
                    (H) Section 805(a)(4)(B) is amended by striking ``, 
                244(a),'' each place it appears.
                    (I) Section 810(c)(2)(B) is amended by striking 
                ``244 (relating to dividends on certain preferred stock 
                of public utilities),''.
            (29) Organization expenses.--Section 248(c) is amended by 
        striking ``beginning after December 31, 1953,'' and by striking 
        the last sentence.
            (30) Bond repurchase premium.--Section 249(b)(1) is amended 
        by striking ``, in the case of bonds or other evidences of 
        indebtedness issued after February 28, 1913,''.
            (31) Amount of gain where loss previously disallowed.--
        Section 267(d) is amended by striking ``(or by reason of 
        section 24(b) of the Internal Revenue Code of 1939)'' in 
        paragraph (1), by striking ``after December 31, 1953,'' in 
        paragraph (2), by striking the second sentence, and by striking 
        ``or by reason of section 118 of the Internal Revenue Code of 
        1939'' in the last sentence.
            (32) Acquisitions made to evade or avoid income tax.--
        Paragraphs (1) and (2) of section 269(a) are each amended by 
        striking ``or acquired on or after October 8, 1940,''.
            (33) Interest on indebtedness incurred by corporations to 
        acquire stock or assets of another corporation.--Section 279 is 
        amended--
                    (A) by striking ``after December 31, 1967,'' in 
                subsection (a)(2),
                    (B) by striking ``after October 9, 1969,'' in 
                subsection (b),
                    (C) by striking ``after October 9, 1969, and'' in 
                subsection (d)(5), and
                    (D) by striking subsection (i) and by redesignating 
                subsection (j) as subsection (i).
            (34) Special rules relating to corporate preference 
        items.--Paragraph (4) of section 291(a) is amended by striking 
        ``In the case of taxable years beginning after December 31, 
        1984, section'' and inserting ``Section''.
            (35) Qualifications for tax credit employee stock ownership 
        plan.--Section 409 is amended by striking subsections (a), (g), 
        and (q).
            (36) Funding standards.--Section 412(m)(4) is amended--
                    (A) by striking ``the applicable percentage'' in 
                subparagraph (A) and inserting ``25 percent'', and
                    (B) by striking subparagraph (C) and by 
                redesignating subparagraph (D) as subparagraph (C).
            (37) Retiree health accounts.--Section 420 is amended--
                    (A) by striking paragraph (4) in subsection (b) and 
                by redesignating paragraph (5) as paragraph (4), and
                    (B) by amending paragraph (2) of subsection (c) to 
                read as follows:
            ``(2) Requirements relating to pension benefits accruing 
        before transfer.--The requirements of this paragraph are met if 
        the plan provides that the accrued pension benefits of any 
        participant or beneficiary under the plan become nonforfeitable 
        in the same manner which would be required if the plan had 
        terminated immediately before the qualified transfer (or in the 
        case of a participant who separated during the 1-year period 
        ending on the date of the transfer, immediately before such 
        separation).''.
            (38) Employee stock purchase plans.--Section 423(a) is 
        amended by striking ``after December 31, 1963,''.
            (39) Limitation on deductions for certain farming.--Section 
        464 is amended--
                    (A) by striking ``any farming syndicate (as defined 
                in subsection (c))'' both places it appears in 
                subsections (a) and (b) and inserting ``any taxpayer to 
                whom subsection (f) applies'', and
                    (B) by striking subsection (g).
            (40) Deductions limited to amount at risk.--
                    (A) Paragraph (3) of section 465(c) is amended by 
                striking ``In the case of taxable years beginning after 
                December 31, 1978, this'' and inserting ``This''.
                    (B) Paragraph (2) of section 465(e)(2)(A) is 
                amended by striking ``beginning after December 31, 
                1978''.
            (41) Nuclear decommissioning costs.--Section 468A(e)(2) is 
        amended--
                    (A) by striking ``at the rate set forth in 
                subparagraph (B)'' in subparagraph (A) and inserting 
                ``at a rate of 20 percent'', and
                    (B) by striking subparagraph (B) and by 
                redesignating subparagraphs (C) and (D) as 
                subparagraphs (B) and (C), respectively.
            (42) Passive activity losses and credits limited.--
                    (A) Section 469 is amended by striking subsection 
                (m).
                    (B) Subsection (b) of section 58 is amended by 
                adding ``and'' at the end of paragraph (1), by striking 
                paragraph (2), and by redesignating paragraph (3) as 
                paragraph (2).
            (43) Adjustments required by changes in method of 
        accounting.--Section 481(b)(3) is amended by striking 
        subparagraph (C).
            (44) Exemption from tax on corporations, certain trusts, 
        etc.--Section 501 is amended by striking subsection (q).
            (45) Requirements for exemption.--
                    (A) Section 503(a)(1) is amended to read as 
                follows:
            ``(1) General rule.--An organization described in paragraph 
        (17) or (18) of section 501(c) or described in section 401(a) 
        and referred to in section 4975(g)(2) or (3) shall not be 
        exempt from taxation under section 501(a) if it has engaged in 
        a prohibited transaction.''.
                    (B) Paragraph (2) of section 503(a) is amended by 
                striking ``described in section 501(c)(17) or (18) or 
                paragraph (a)(1)(B)'' and inserting ``described in 
                paragraph (1)''.
                    (C) Subsection (c) of section 503 is amended by 
                striking ``described in section 501(c)(17) or (18) or 
                subsection (a)(1)(B)'' and inserting ``described in 
                subsection (a)(1)''.
            (46) Amounts received by surviving annuitant under joint 
        and survivor annuity contract.--Subparagraph (A) of section 
        691(d)(1) is amended by striking ``after December 31, 1953, 
        and''.
            (47) Income taxes of members of armed forces on death.--
        Section 692(a)(1) is amended by striking ``after June 24, 
        1950''.
            (48) Insurance company taxable income.--
                    (A) Section 832(e) is amended by striking ``of 
                taxable years beginning after December 31, 1966,''.
                    (B) Section 832(e)(6) is amended by striking ``In 
                the case of any taxable year beginning after December 
                31, 1970, the'' and by inserting ``The''.
            (49) Tax on nonresident alien individuals.--Subparagraph 
        (B) of section 871(a)(1) is amended to read as follows:
                    ``(B) gains described in subsection (b) or (c) of 
                section 631,''.
            (50) Property on which lessee has made improvements.--
        Section 1019 is amended by striking the last sentence.
            (51) Involuntary conversion.--Section 1033 is amended by 
        striking subsection (j) and by redesignating subsection (k) as 
        subsection (j).
            (52) Property acquired during affiliation.--Section 1051 is 
        repealed and the table of sections for part IV of subchapter O 
        of chapter 1 is amended by striking the item relating to 
        section 1051.
            (53) Holding period of property.--
                    (A) Paragraph (5) of section 1223 is amended by 
                striking ``(or under so much of section 1052(c) as 
                refers to section 113(a)(23) of the Internal Revenue 
                Code of 1939)''.
                    (B) Paragraph (7) of section 1223 is amended by 
                striking the last sentence.
                    (C) Paragraph (9) of section 1223 is repealed.
            (54) Property used in the trade or business and involuntary 
        conversions.--Subparagraph (A) of section 1231(c)(2) is amended 
        by striking ``beginning after December 31, 1981''.
            (55) Sale or exchange of patents.--Section 1235 is 
        amended--
                    (A) by striking subsection (c) and by redesignating 
                subsections (d) and (e) as (c) and (d), respectively, 
                and
                    (B) by striking ``(d)'' in subsection (b) and 
                inserting ``(c)''.
            (56) Dealers in securities.--Subsection (b) of section 1236 
        is amended by striking ``after November 19, 1951,''.
            (57) Sale of patents.--Subsection (a) of section 1249 is 
        amended by striking ``after December 31, 1962,''.
            (58) Gain from disposition of farm land.--Paragraph (1) of 
        section 1252(a) is amended by striking ``after December 31, 
        1969,'' both places it appears.
            (59) Treatment of amounts received on retirement or sale or 
        exchange of debt instruments.--Subsection (c) of section 1271 
        is amended to read as follows:
    ``(c) Special Rule for Certain Obligations With Respect to Which 
Original Issue Discount Not Currently Includible.--
            ``(1) In general.--On the sale or exchange of debt 
        instruments issued by a government or political subdivision 
        thereof after December 31, 1954, and before July 2, 1982, or by 
        a corporation after December 31, 1954, and on or before May 27, 
        1969, any gain realized which does not exceed--
                    ``(A) an amount equal to the original issue 
                discount, or
                    ``(B) if at the time of original issue there was no 
                intention to call the debt instrument before maturity, 
                an amount which bears the same ratio to the original 
                issue discount as the number of complete months that 
                the debt instrument was held by the taxpayer bears to 
                the number of complete months from the date of original 
                issue to the date of maturity,
        shall be considered as ordinary income.
            ``(2) Subsection (a)(2)(A) not to apply.--Subsection 
        (a)(2)(A) shall not apply to any debt instrument referred to in 
        subparagraph (A) of this paragraph.
            ``(3) Cross reference.--

                                ``For current inclusion of original 
issue discount, see section 1272.''.
            (60) Amount and method of adjustment.--Section 1314 is 
        amended by striking subsection (d) and by redesignating 
        subsection (e) as subsection (d).
            (61) Election; revocation; termination.--Clause (iii) of 
        section 1362(d)(3) is amended by striking ``unless'' and all 
        that follows and inserting ``unless the corporation was an S 
        corporation for such taxable year.''.
            (62) Old-age, survivors, and disability insurance.--
        Subsection (a) of section 1401 is amended by striking ``the 
        following percent'' and all that follows and inserting ``12.4 
        percent of the amount of the self-employment income for such 
        taxable year.''.
            (63) Hospital insurance.--Subsection (b) of section 1401 is 
        amended by striking ``the following percent'' and all that 
        follows and inserting ``2.9 percent of the amount of the self-
        employment income for such taxable year.''.
            (64) Ministers, members of religious orders, and christian 
        science practitioners.--Paragraph (3) of section 1402(e) is 
        amended by striking ``whichever of the following dates is 
        later: (A)'' and by striking ``; or (B)'' and all that follows 
        and by inserting a period.
            (65) Withholding of tax on nonresident aliens.--The first 
        sentence of subsection (b) of section 1441 and the first 
        sentence of paragraph (5) of section 1441(c) are each amended 
        by striking ``gains subject to tax'' and all that follows 
        through ``October 4, 1966'' and inserting ``and gains subject 
        to tax under section 871(a)(1)(D)''.
            (66) Affiliated group defined.--Subparagraph (A) of section 
        1504(a)(3) is amended by striking ``for a taxable year which 
        includes any period after December 31, 1984'' in clause (i) and 
        by striking ``in a taxable year beginning after December 31, 
        1984'' in clause (ii).
            (67) Disallowance of the benefits of the graduated 
        corporate rates and accumulated earnings credit.--
                    (A) Subsection (a) of section 1551 is amended by 
                striking paragraph (1) and by redesignating paragraphs 
                (2) and (3) as paragraphs (1) and (2), respectively.
                    (B) Section 1551(b) is amended--
                            (i) by striking ``or (2)'' in paragraph 
                        (1), and
                            (ii) by striking ``(a)(3)'' in paragraph 
                        (2) and inserting ``(a)(2)''.
            (68) Definition of wages.--Section 3121(b) is amended by 
        striking paragraph (17).
            (69) Credits against tax.--
                    (A) Paragraph (4) of section 3302(f) is amended by 
                striking ``subsection--'' and all that follows through 
                ``(A) In general.--'', by striking subparagraph (B), by 
                redesignating clauses (i) and (ii) as subparagraphs (A) 
                and (B), respectively, and by moving the text of such 
                subparagraphs (as so redesignated) 2 ems to the left.
                    (B) Paragraph (5) of section 3302(f) is amended by 
                striking subparagraphs (D) and by redesignating 
                subparagraph (E) as subparagraph (D).
            (70) Domestic service employment taxes.--Section 3510(b) is 
        amended by striking paragraph (4).
            (71) Tax on fuel used in commercial transportation on 
        inland waterways.--Section 4042(b)(2)(A) is amended to read as 
        follows:
                    ``(A) The Inland Waterways Trust Fund financing 
                rate is 20 cents per gallon.''.
            (72) Transportation by air.--Section 4261(e) is amended--
                    (A) in paragraph (1) by striking subparagraph (C), 
                and
                    (B) by striking paragraph (5).
            (73) Taxes on failure to distribute income.--Section 4942 
        is amended--
                    (A) by striking subsection (f)(2)(D),
                    (B) in subsection (g)(2)(A) by striking ``For all 
                taxable years beginning on or after January 1, 1975, 
                subject'' and inserting ``Subject'',
                    (C) in subsection (g) by striking paragraph (4), 
                and
                    (D) in subsection (i)(2) by striking ``beginning 
                after December 31, 1969, and''.
            (74) Taxes on taxable expenditures.--Section 4945(f) is 
        amended by striking ``(excluding therefrom any preceding 
        taxable year which begins before January 1, 1970)''.
            (75) Returns.--Subsection (a) of section 6039D is amended 
        by striking ``beginning after December 31, 1984,''.
            (76) Information returns.--Subsection (c) of section 6060 
        is amended by striking ``year'' and all that follows and 
        inserting ``year.''.
            (77) Abatements.--Section 6404(f) is amended by striking 
        paragraph (3).
            (78) Failure by corporation to pay estimated income tax.--
        Clause (i) of section 6655(g)(4)(A) is amended by striking 
        ``(or the corresponding provisions of prior law)''.
            (79) Retirement.--Section 7447(i)(3)(B)(ii) is amended by 
        striking ``at 4 percent per annum to December 31, 1947, and at 
        3 percent per annum thereafter'', and inserting ``at 3 percent 
        per annum''.
            (80) Annuities to surviving spouses and dependent children 
        of judges.--
                    (A) Paragraph (2) of section 7448(a) is amended by 
                striking ``or under section 1106 of the Internal 
                Revenue Code of 1939'' and by striking ``or pursuant to 
                section 1106(d) of the Internal Revenue Code of 1939''.
                    (B) Subsection (g) of section 7448 is amended by 
                striking ``or other than pursuant to section 1106 of 
                the Internal Revenue Code of 1939''.
                    (C) Subsections (g), (j)(1), and (j)(2) of section 
                7448 are each amended by striking ``at 4 percent per 
                annum to December 31, 1947, and at 3 percent per annum 
                thereafter'' and inserting ``at 3 percent per annum''.
            (81) Merchant marine capital construction funds.--Paragraph 
        (4) of section 7518(g) is amended by striking ``any 
        nonqualified withdrawal'' and all that follows through ``shall 
        be determined'' and inserting ``any nonqualified withdrawal 
        shall be determined''.
            (82) Valuation tables.--Paragraph (3) of section 7520(c) is 
        amended--
                    (A) by striking ``Not later than December 31, 1989, 
                the'' and inserting ``The'', and
                    (B) by striking ``thereafter'' in the last sentence 
                thereof.
            (83) Administration and collection of taxes in 
        possessions.--Section 7651 is amended by striking paragraph (4) 
        and by redesignating paragraph (5) as paragraph (4).
            (84) Definition of employee.--(A) Section 7701(a)(20) is 
        amended by striking ``chapter 21'' and all that follows and 
        inserting ``chapter 21.''.
    (b) Effective Date.--
            (1) General rule.--Except as otherwise provided in 
        paragraph (2), the amendments made by subsection (a) shall take 
        effect on the date of enactment of this Act.
            (2) Savings provision.--If--
                    (A) any provision amended or repealed by subsection 
                (a) applied to--
                            (i) any transaction occurring before the 
                        date of the enactment of this Act,
                            (ii) any property acquired before such date 
                        of enactment, or
                            (iii) any item of income, loss, deduction, 
                        or credit taken into account before such date 
                        of enactment, and
                    (B) the treatment of such transaction, property, or 
                item under such provision would (without regard to the 
                amendments made by subsection (a)) affect the liability 
                for tax for periods ending after such date of 
                enactment,
        nothing in the amendments made by subsection (a) shall be 
        construed to affect the treatment of such transaction, 
        property, or item for purposes of determining liability for tax 
        for periods ending after such date of enactment.

                      TITLE VI--REVENUE PROVISIONS

        Subtitle A--Provisions Designed To Curtail Tax Shelters

SEC. 601. PENALTY FOR FAILING TO DISCLOSE REPORTABLE TRANSACTION.

    (a) In General.--Part I of subchapter B of chapter 68 (relating to 
assessable penalties) is amended by inserting after section 6707 the 
following new section:

``SEC. 6707A. PENALTY FOR FAILURE TO INCLUDE REPORTABLE TRANSACTION 
              INFORMATION WITH RETURN OR STATEMENT.

    ``(a) Imposition of Penalty.--Any person who fails to include on 
any return or statement any information with respect to a reportable 
transaction which is required under section 6011 to be included with 
such return or statement shall pay a penalty in the amount determined 
under subsection (b).
    ``(b) Amount of Penalty.--
            ``(1) In general.--Except as provided in paragraphs (2) and 
        (3), the amount of the penalty under subsection (a) shall be 
        $50,000.
            ``(2) Listed transaction.--The amount of the penalty under 
        subsection (a) with respect to a listed transaction shall be 
        $100,000.
            ``(3) Increase in penalty for large entities and high net 
        worth individuals.--
                    ``(A) In general.--In the case of a failure under 
                subsection (a) by--
                            ``(i) a large entity, or
                            ``(ii) a high net worth individual,
                the penalty under paragraph (1) or (2) shall be twice 
                the amount determined without regard to this paragraph.
                    ``(B) Large entity.--For purposes of subparagraph 
                (A), the term `large entity' means, with respect to any 
                taxable year, a person (other than a natural person) 
                with gross receipts in excess of $10,000,000 for the 
                taxable year in which the reportable transaction occurs 
                or the preceding taxable year. Rules similar to the 
                rules of paragraph (2) and subparagraphs (B), (C), and 
                (D) of paragraph (3) of section 448(c) shall apply for 
                purposes of this subparagraph.
                    ``(C) High net worth individual.--For purposes of 
                subparagraph (A), the term `high net worth individual' 
                means, with respect to a reportable transaction, a 
                natural person whose net worth exceeds $2,000,000 
                immediately before the transaction.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Reportable transaction.--The term `reportable 
        transaction' means any transaction with respect to which 
        information is required to be included with a return or 
        statement because, as determined under regulations prescribed 
        under section 6011, such transaction is of a type which the 
        Secretary determines as having a potential for tax avoidance or 
        evasion.
            ``(2) Listed transaction.--Except as provided in 
        regulations, the term `listed transaction' means a reportable 
        transaction which is the same as, or substantially similar to, 
        a transaction specifically identified by the Secretary as a tax 
        avoidance transaction for purposes of section 6011.
    ``(d) Authority To Rescind Penalty.--
            ``(1) In general.--The Commissioner of Internal Revenue may 
        rescind all or any portion of any penalty imposed by this 
        section with respect to any violation if--
                    ``(A) the violation is with respect to a reportable 
                transaction other than a listed transaction,
                    ``(B) the person on whom the penalty is imposed has 
                a history of complying with the requirements of this 
                title,
                    ``(C) it is shown that the violation is due to an 
                unintentional mistake of fact;
                    ``(D) imposing the penalty would be against equity 
                and good conscience, and
                    ``(E) rescinding the penalty would promote 
                compliance with the requirements of this title and 
                effective tax administration.
            ``(2) Discretion.--The exercise of authority under 
        paragraph (1) shall be at the sole discretion of the 
        Commissioner and may be delegated only to the head of the 
        Office of Tax Shelter Analysis. The Commissioner, in the 
        Commissioner's sole discretion, may establish a procedure to 
        determine if a penalty should be referred to the Commissioner 
        or the head of such Office for a determination under paragraph 
        (1).
            ``(3) No appeal.--Notwithstanding any other provision of 
        law, any determination under this subsection may not be 
        reviewed in any administrative or judicial proceeding.
            ``(4) Records.--If a penalty is rescinded under paragraph 
        (1), the Commissioner shall place in the file in the Office of 
        the Commissioner the opinion of the Commissioner or the head of 
        the Office of Tax Shelter Analysis with respect to the 
        determination, including--
                    ``(A) the facts and circumstances of the 
                transaction,
                    ``(B) the reasons for the rescission, and
                    ``(C) the amount of the penalty rescinded.
            ``(5) Report.--The Commissioner shall each year report to 
        the Committee on Ways and Means of the House of Representatives 
        and the Committee on Finance of the Senate--
                    ``(A) a summary of the total number and aggregate 
                amount of penalties imposed, and rescinded, under this 
                section, and
                    ``(B) a description of each penalty rescinded under 
                this subsection and the reasons therefor.
    ``(e) Penalty Reported to SEC.--In the case of a person--
            ``(1) which is required to file periodic reports under 
        section 13 or 15(d) of the Securities Exchange Act of 1934 or 
        is required to be consolidated with another person for purposes 
        of such reports, and
            ``(2) which--
                    ``(A) is required to pay a penalty under this 
                section with respect to a listed transaction, or
                    ``(B) is required to pay a penalty under section 
                6662A with respect to any reportable transaction at a 
                rate prescribed under section 6662A(c),
the requirement to pay such penalty shall be disclosed in such reports 
filed by such person for such periods as the Secretary shall specify. 
Failure to make a disclosure in accordance with the preceding sentence 
shall be treated as a failure to which the penalty under subsection 
(b)(2) applies.
    ``(f) Coordination With Other Penalties.--The penalty imposed by 
this section is in addition to any penalty imposed under this title.''.
    (b) Conforming Amendment.--The table of sections for part I of 
subchapter B of chapter 68 is amended by inserting after the item 
relating to section 6707 the following:

                              ``Sec. 6707A. Penalty for failure to 
                                        include reportable transaction 
                                        information with return or 
                                        statement.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to returns and statements the due date for which is after the 
date of the enactment of this Act.

SEC. 602. ACCURACY-RELATED PENALTY FOR LISTED TRANSACTIONS AND OTHER 
              REPORTABLE TRANSACTIONS HAVING A SIGNIFICANT TAX 
              AVOIDANCE PURPOSE.

    (a) In General.--Subchapter A of chapter 68 is amended by inserting 
after section 6662 the following new section:

``SEC. 6662A. IMPOSITION OF ACCURACY-RELATED PENALTY ON UNDERSTATEMENTS 
              WITH RESPECT TO REPORTABLE TRANSACTIONS.

    ``(a) Imposition of Penalty.--If a taxpayer has a reportable 
transaction understatement for any taxable year, there shall be added 
to the tax an amount equal to 20 percent of the amount of such 
understatement.
    ``(b) Reportable Transaction Understatement.--For purposes of this 
section--
            ``(1) In general.--The term `reportable transaction 
        understatement' means the sum of--
                    ``(A) the product of--
                            ``(i) the amount of the increase (if any) 
                        in taxable income which results from a 
                        difference between the proper tax treatment of 
                        an item to which this section applies and the 
                        taxpayer's treatment of such item (as shown on 
                        the taxpayer's return of tax), and
                            ``(ii) the highest rate of tax imposed by 
                        section 1 (section 11 in the case of a taxpayer 
                        which is a corporation), and
                    ``(B) the amount of the decrease (if any) in the 
                aggregate amount of credits determined under subtitle A 
                which results from a difference between the taxpayer's 
                treatment of an item to which this section applies (as 
                shown on the taxpayer's return of tax) and the proper 
                tax treatment of such item.
        For purposes of subparagraph (A), any reduction of the excess 
        of deductions allowed for the taxable year over gross income 
        for such year, and any reduction in the amount of capital 
        losses which would (without regard to section 1211) be allowed 
        for such year, shall be treated as an increase in taxable 
        income.
            ``(2) Items to which section applies.--This section shall 
        apply to any item which is attributable to--
                    ``(A) any listed transaction, and
                    ``(B) any reportable transaction (other than a 
                listed transaction) if a significant purpose of such 
                transaction is the avoidance or evasion of Federal 
                income tax.
    ``(c) Higher Penalty for Nondisclosed Listed and Other Avoidance 
Transactions.--
            ``(1) In general.--Subsection (a) shall be applied by 
        substituting `30 percent' for `20 percent' with respect to the 
        portion of any reportable transaction understatement with 
        respect to which the requirement of section 6664(d)(2)(A) is 
        not met.
            ``(2) Rules applicable to assertion and compromise of 
        penalty.--
                    ``(A) In general.--Only upon the approval by the 
                Chief Counsel for the Internal Revenue Service or the 
                Chief Counsel's delegate at the national office of the 
                Internal Revenue Service may a penalty to which 
                paragraph (1) applies be included in a 1st letter of 
                proposed deficiency which allows the taxpayer an 
                opportunity for administrative review in the Internal 
                Revenue Service Office of Appeals. If such a letter is 
                provided to the taxpayer, only the Commissioner of 
                Internal Revenue may compromise all or any portion of 
                such penalty.
                    ``(B) Applicable rules.--The rules of paragraphs 
                (2), (3), (4), and (5) of section 6707A(d) shall apply 
                for purposes of subparagraph (A).
    ``(d) Definitions of Reportable and Listed Transactions.--For 
purposes of this section, the terms `reportable transaction' and 
`listed transaction' have the respective meanings given to such terms 
by section 6707A(c).
    ``(e) Special Rules.--
            ``(1) Coordination with penalties, etc., on other 
        understatements.--In the case of an understatement (as defined 
        in section 6662(d)(2))--
                    ``(A) the amount of such understatement (determined 
                without regard to this paragraph) shall be increased by 
                the aggregate amount of reportable transaction 
                understatements for purposes of determining whether 
                such understatement is a substantial understatement 
                under section 6662(d)(1), and
                    ``(B) the addition to tax under section 6662(a) 
                shall apply only to the excess of the amount of the 
                substantial understatement (if any) after the 
                application of subparagraph (A) over the aggregate 
                amount of reportable transaction understatements.
            ``(2) Coordination with other penalties.--
                    ``(A) Application of fraud penalty.--References to 
                an underpayment in section 6663 shall be treated as 
                including references to a reportable transaction 
                understatement.
                    ``(B) No double penalty.--This section shall not 
                apply to any portion of an understatement on which a 
                penalty is imposed under section 6663.
            ``(3) Special rule for amended returns.--Except as provided 
        in regulations, in no event shall any tax treatment included 
        with an amendment or supplement to a return of tax be taken 
        into account in determining the amount of any reportable 
        transaction understatement if the amendment or supplement is 
        filed after the earlier of the date the taxpayer is first 
        contacted by the Secretary regarding the examination of the 
        return or such other date as is specified by the Secretary.
                    ``(4) Cross reference.--

                                ``For reporting of section 6662A(c) 
penalty to the Securities and Exchange Commission, see section 
6707A(e).''.
    (b) Determination of Other Understatements.--Subparagraph (A) of 
section 6662(d)(2) is amended by adding at the end the following flush 
sentence:
                ``The excess under the preceding sentence shall be 
                determined without regard to items to which section 
                6662A applies.''.
    (c) Reasonable Cause Exception.--
            (1) In general.--Section 6664 is amended by adding at the 
        end the following new subsection:
    ``(d) Reasonable Cause Exception for Reportable Transaction 
Understatements.--
            ``(1) In general.--No penalty shall be imposed under 
        section 6662A with respect to any portion of a reportable 
        transaction understatement if it is shown that there was a 
        reasonable cause for such portion and that the taxpayer acted 
        in good faith with respect to such portion.
            ``(2) Special rules.--Paragraph (1) shall not apply to any 
        reportable transaction understatement unless--
                    ``(A) the relevant facts affecting the tax 
                treatment of the item are adequately disclosed in 
                accordance with the regulations prescribed under 
                section 6011,
                    ``(B) there is or was substantial authority for 
                such treatment, and
                    ``(C) the taxpayer reasonably believed that such 
                treatment was more likely than not the proper 
                treatment.
        A taxpayer failing to adequately disclose in accordance with 
        section 6011 shall be treated as meeting the requirements of 
        subparagraph (A) if the penalty for such failure was rescinded 
        under section 6707A(d).
            ``(3) Rules relating to reasonable belief.--For purposes of 
        paragraph (2)(C)--
                    ``(A) In general.--A taxpayer shall be treated as 
                having a reasonable belief with respect to the tax 
                treatment of an item only if such belief--
                            ``(i) is based on the facts and law that 
                        exist at the time the return of tax which 
                        includes such tax treatment is filed, and
                            ``(ii) relates solely to the taxpayer's 
                        chances of success on the merits of such 
                        treatment and does not take into account the 
                        possibility that a return will not be audited, 
                        such treatment will not be raised on audit, or 
                        such treatment will be resolved through 
                        settlement if it is raised.
                    ``(B) Certain opinions may not be relied upon.--
                            ``(i) In general.--An opinion of a tax 
                        advisor may not be relied upon to establish the 
                        reasonable belief of a taxpayer if--
                                    ``(I) the tax advisor is described 
                                in clause (ii), or
                                    ``(II) the opinion is described in 
                                clause (iii).
                            ``(ii) Disqualified tax advisors.--A tax 
                        advisor is described in this clause if the tax 
                        advisor--
                                    ``(I) is a material advisor (within 
                                the meaning of section 6111(b)(1)) who 
                                participates in the organization, 
                                management, promotion, or sale of the 
                                transaction or who is related (within 
                                the meaning of section 267(b) or 
                                707(b)(1)) to any person who so 
                                participates,
                                    ``(II) is compensated directly or 
                                indirectly by a material advisor with 
                                respect to the transaction,
                                    ``(III) has a fee arrangement with 
                                respect to the transaction which is 
                                contingent on all or part of the 
                                intended tax benefits from the 
                                transaction being sustained, or
                                    ``(IV) as determined under 
                                regulations prescribed by the 
                                Secretary, has a disqualifying 
                                financial interest with respect to the 
                                transaction.
                            ``(iii) Disqualified opinions.--For 
                        purposes of clause (i), an opinion is 
                        disqualified if the opinion--
                                    ``(I) is based on unreasonable 
                                factual or legal assumptions (including 
                                assumptions as to future events),
                                    ``(II) unreasonably relies on 
                                representations, statements, findings, 
                                or agreements of the taxpayer or any 
                                other person,
                                    ``(III) does not identify and 
                                consider all relevant facts, or
                                    ``(IV) fails to meet any other 
                                requirement as the Secretary may 
                                prescribe.''.
            (2) Conforming amendment.--The heading for subsection (c) 
        of section 6664 is amended by inserting ``for Underpayments'' 
        after ``Exception''.
    (d) Conforming Amendments.--
            (1) Subparagraph (C) of section 461(i)(3) is amended by 
        striking ``section 6662(d)(2)(C)(iii)'' and inserting ``section 
        1274(b)(3)(C)''.
            (2) Paragraph (3) of section 1274(b) is amended--
                    (A) by striking ``(as defined in section 
                6662(d)(2)(C)(iii))'' in subparagraph (B)(i), and
                    (B) by adding at the end the following new 
                subparagraph:
                    ``(C) Tax shelter.--For purposes of subparagraph 
                (B), the term `tax shelter' means--
                            ``(i) a partnership or other entity,
                            ``(ii) any investment plan or arrangement, 
                        or
                            ``(iii) any other plan or arrangement,
                if a significant purpose of such partnership, entity, 
                plan, or arrangement is the avoidance or evasion of 
                Federal income tax.''.
            (3) Section 6662(d)(2) is amended by striking subparagraphs 
        (C) and (D).
            (4) Section 6664(c)(1) is amended by striking ``this part'' 
        and inserting ``section 6662 or 6663''.
            (5) Subsection (b) of section 7525 is amended by striking 
        ``section 6662(d)(2)(C)(iii)'' and inserting ``section 
        1274(b)(3)(C)''.
            (6)(A) The heading for section 6662 is amended to read as 
        follows:

``SEC. 6662. IMPOSITION OF ACCURACY-RELATED PENALTY ON 
              UNDERPAYMENTS.''.

            (B) The table of sections for part II of subchapter A of 
        chapter 68 is amended by striking the item relating to section 
        6662 and inserting the following new items:

                              ``Sec. 6662. Imposition of accuracy-
                                        related penalty on 
                                        underpayments.
                              ``Sec. 6662A. Imposition of accuracy-
                                        related penalty on 
                                        understatements with respect to 
                                        reportable transactions.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after the date of the enactment of this 
Act.

SEC. 603. MODIFICATIONS OF SUBSTANTIAL UNDERSTATEMENT PENALTY FOR 
              NONREPORTABLE TRANSACTIONS.

    (a) Substantial Understatement of Corporations.--Section 
6662(d)(1)(B) (relating to special rule for corporations) is amended to 
read as follows:
                    ``(B) Special rule for corporations.--In the case 
                of a corporation other than an S corporation or a 
                personal holding company (as defined in section 542), 
                there is a substantial understatement of income tax for 
                any taxable year if the amount of the understatement 
                for the taxable year exceeds the lesser of--
                            ``(i) 10 percent of the tax required to be 
                        shown on the return for the taxable year (or, 
                        if greater, $10,000), or
                            ``(ii) $10,000,000.''.
    (b) Reduction for Understatement of Taxpayer Due to Position of 
Taxpayer or Disclosed Item.--
            (1) In general.--Section 6662(d)(2)(B)(i) (relating to 
        substantial authority) is amended to read as follows:
                            ``(i) the tax treatment of any item by the 
                        taxpayer if the taxpayer had reasonable belief 
                        that the tax treatment was more likely than not 
                        the proper treatment, or''.
            (2) Conforming amendment.--Section 6662(d) is amended by 
        adding at the end the following new paragraph:
            ``(3) Secretarial list.--For purposes of this subsection, 
        section 6664(d)(2), and section 6694(a)(1), the Secretary may 
        prescribe a list of positions for which the Secretary believes 
        there is not substantial authority or there is no reasonable 
        belief that the tax treatment is more likely than not the 
        proper tax treatment. Such list (and any revisions thereof) 
        shall be published in the Federal Register or the Internal 
        Revenue Bulletin.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 604. TAX SHELTER EXCEPTION TO CONFIDENTIALITY PRIVILEGES RELATING 
              TO TAXPAYER COMMUNICATIONS.

    (a) In General.--Section 7525(b) (relating to section not to apply 
to communications regarding corporate tax shelters) is amended to read 
as follows:
    ``(b) Section Not To Apply to Communications Regarding Tax 
Shelters.--The privilege under subsection (a) shall not apply to any 
written communication which is--
            ``(1) between a federally authorized tax practitioner and--
                    ``(A) any person,
                    ``(B) any director, officer, employee, agent, or 
                representative of the person, or
                    ``(C) any other person holding a capital or profits 
                interest in the person, and
            ``(2) in connection with the promotion of the direct or 
        indirect participation of the person in any tax shelter (as 
        defined in section 1274(b)(3)(C)).''.
    (b) Effective Date.--The amendment made by this section shall apply 
to communications made on or after the date of the enactment of this 
Act.

SEC. 605. DISCLOSURE OF REPORTABLE TRANSACTIONS.

    (a) In General.--Section 6111 (relating to registration of tax 
shelters) is amended to read as follows:

``SEC. 6111. DISCLOSURE OF REPORTABLE TRANSACTIONS.

    ``(a) In General.--Each material advisor with respect to any 
reportable transaction shall make a return (in such form as the 
Secretary may prescribe) setting forth--
            ``(1) information identifying and describing the 
        transaction,
            ``(2) information describing any potential tax benefits 
        expected to result from the transaction, and
            ``(3) such other information as the Secretary may 
        prescribe.
Such return shall be filed not later than the date specified by the 
Secretary.
    ``(b) Definitions.--For purposes of this section--
            ``(1) Material advisor.--
                    ``(A) In general.--The term `material advisor' 
                means any person--
                            ``(i) who provides any material aid, 
                        assistance, or advice with respect to 
                        organizing, managing, promoting, selling, 
                        implementing, or carrying out any reportable 
                        transaction, and
                            ``(ii) who directly or indirectly derives 
                        gross income in excess of the threshold amount 
                        for such aid, assistance, or advice.
                    ``(B) Threshold amount.--For purposes of 
                subparagraph (A), the threshold amount is--
                            ``(i) $50,000 in the case of a reportable 
                        transaction substantially all of the tax 
                        benefits from which are provided to natural 
                        persons, and
                            ``(ii) $250,000 in any other case.
            ``(2) Reportable transaction.--The term `reportable 
        transaction' has the meaning given to such term by section 
        6707A(c).
    ``(c) Regulations.--The Secretary may prescribe regulations which 
provide--
            ``(1) that only 1 person shall be required to meet the 
        requirements of subsection (a) in cases in which 2 or more 
        persons would otherwise be required to meet such requirements,
            ``(2) exemptions from the requirements of this section, and
            ``(3) such rules as may be necessary or appropriate to 
        carry out the purposes of this section.''.
    (b) Conforming Amendments.--
            (1) The item relating to section 6111 in the table of 
        sections for subchapter B of chapter 61 is amended to read as 
        follows:

                              ``Sec. 6111. Disclosure of reportable 
                                        transactions.''.
            (2)(A) So much of section 6112 as precedes subsection (c) 
        thereof is amended to read as follows:

``SEC. 6112. MATERIAL ADVISORS OF REPORTABLE TRANSACTIONS MUST KEEP 
              LISTS OF ADVISEES.

    ``(a) In General.--Each material advisor (as defined in section 
6111) with respect to any reportable transaction (as defined in section 
6707A(c)) shall maintain, in such manner as the Secretary may by 
regulations prescribe, a list--
            ``(1) identifying each person with respect to whom such 
        advisor acted as such a material advisor with respect to such 
        transaction, and
            ``(2) containing such other information as the Secretary 
        may by regulations require.
This section shall apply without regard to whether a material advisor 
is required to file a return under section 6111 with respect to such 
transaction.''.
            (B) Section 6112 is amended by redesignating subsection (c) 
        as subsection (b).
            (C) Section 6112(b), as redesignated by subparagraph (B), 
        is amended--
                    (i) by inserting ``written'' before ``request'' in 
                paragraph (1)(A), and
                    (ii) by striking ``shall prescribe'' in paragraph 
                (2) and inserting ``may prescribe''.
            (D) The item relating to section 6112 in the table of 
        sections for subchapter B of chapter 61 is amended to read as 
        follows:

                              ``Sec. 6112. Material advisors of 
                                        reportable transactions must 
                                        keep lists of advisees.''.
            (3)(A) The heading for section 6708 is amended to read as 
        follows:

``SEC. 6708. FAILURE TO MAINTAIN LISTS OF ADVISEES WITH RESPECT TO 
              REPORTABLE TRANSACTIONS.''.

            (B) The item relating to section 6708 in the table of 
        sections for part I of subchapter B of chapter 68 is amended to 
        read as follows:

                              ``Sec. 6708. Failure to maintain lists of 
                                        advisees with respect to 
                                        reportable transactions.''.
    (c) Required Disclosure Not Subject to Claim of Confidentiality.--
Subparagraph (A) of section 6112(b)(1), as redesignated by subsection 
(b)(2)(B), is amended by adding at the end the following new flush 
sentence:
        ``For purposes of this section, the identity of any person on 
        such list shall not be privileged.''.
    (d) Effective Date.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to transactions 
        with respect to which material aid, assistance, or advice 
        referred to in section 6111(b)(1)(A)(i) of the Internal Revenue 
        Code of 1986 (as added by this section) is provided after the 
        date of the enactment of this Act.
            (2) No claim of confidentiality against disclosure.--The 
        amendment made by subsection (c) shall take effect as if 
        included in the amendments made by section 142 of the Deficit 
        Reduction Act of 1984.

SEC. 606. MODIFICATIONS TO PENALTY FOR FAILURE TO REGISTER TAX 
              SHELTERS.

    (a) In General.--Section 6707 (relating to failure to furnish 
information regarding tax shelters) is amended to read as follows:

``SEC. 6707. FAILURE TO FURNISH INFORMATION REGARDING REPORTABLE 
              TRANSACTIONS.

    ``(a) In General.--If a person who is required to file a return 
under section 6111(a) with respect to any reportable transaction--
            ``(1) fails to file such return on or before the date 
        prescribed therefor, or
            ``(2) files false or incomplete information with the 
        Secretary with respect to such transaction,
such person shall pay a penalty with respect to such return in the 
amount determined under subsection (b).
    ``(b) Amount of Penalty.--
            ``(1) In general.--Except as provided in paragraph (2), the 
        penalty imposed under subsection (a) with respect to any 
        failure shall be $50,000.
            ``(2) Listed transactions.--The penalty imposed under 
        subsection (a) with respect to any listed transaction shall be 
        an amount equal to the greater of--
                    ``(A) $200,000, or
                    ``(B) 50 percent of the gross income derived by 
                such person with respect to aid, assistance, or advice 
                which is provided with respect to the listed 
                transaction before the date the return including the 
                transaction is filed under section 6111.
        Subparagraph (B) shall be applied by substituting `75 percent' 
        for `50 percent' in the case of an intentional failure or act 
        described in subsection (a).
    ``(c) Certain Rules To Apply.--The provisions of section 6707A(d) 
shall apply to any penalty imposed under this section.
    ``(d) Reportable and Listed Transactions.--The terms `reportable 
transaction' and `listed transaction' have the respective meanings 
given to such terms by section 6707A(c).''.
    (b) Clerical Amendment.--The item relating to section 6707 in the 
table of sections for part I of subchapter B of chapter 68 is amended 
by striking ``tax shelters'' and inserting ``reportable transactions''.
    (c) Effective Date.--The amendments made by this section shall 
apply to returns the due date for which is after the date of the 
enactment of this Act.

SEC. 607. MODIFICATION OF PENALTY FOR FAILURE TO MAINTAIN LISTS OF 
              INVESTORS.

    (a) In General.--Subsection (a) of section 6708 is amended to read 
as follows:
    ``(a) Imposition of Penalty.--
            ``(1) In general.--If any person who is required to 
        maintain a list under section 6112(a) fails to make such list 
        available upon written request to the Secretary in accordance 
        with section 6112(b)(1)(A) within 20 business days after the 
        date of the Secretary's request, such person shall pay a 
        penalty of $10,000 for each day of such failure after such 20th 
        day.
            ``(2) Reasonable cause exception.--No penalty shall be 
        imposed by paragraph (1) with respect to the failure on any day 
        if such failure is due to reasonable cause.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to requests made after the date of the enactment of this Act.

SEC. 608. MODIFICATION OF ACTIONS TO ENJOIN CERTAIN CONDUCT RELATED TO 
              TAX SHELTERS AND REPORTABLE TRANSACTIONS.

    (a) In General.--Section 7408 (relating to action to enjoin 
promoters of abusive tax shelters, etc.) is amended by redesignating 
subsection (c) as subsection (d) and by striking subsections (a) and 
(b) and inserting the following new subsections:
    ``(a) Authority To Seek Injunction.--A civil action in the name of 
the United States to enjoin any person from further engaging in 
specified conduct may be commenced at the request of the Secretary. Any 
action under this section shall be brought in the district court of the 
United States for the district in which such person resides, has his 
principal place of business, or has engaged in specified conduct. The 
court may exercise its jurisdiction over such action (as provided in 
section 7402(a)) separate and apart from any other action brought by 
the United States against such person.
    ``(b) Adjudication and Decree.--In any action under subsection (a), 
if the court finds--
            ``(1) that the person has engaged in any specified conduct, 
        and
            ``(2) that injunctive relief is appropriate to prevent 
        recurrence of such conduct,
the court may enjoin such person from engaging in such conduct or in 
any other activity subject to penalty under this title.
    ``(c) Specified Conduct.--For purposes of this section, the term 
`specified conduct' means any action, or failure to take action, 
subject to penalty under section 6700, 6701, 6707, or 6708.''.
    (b) Conforming Amendments.--
            (1) The heading for section 7408 is amended to read as 
        follows:

``SEC. 7408. ACTIONS TO ENJOIN SPECIFIED CONDUCT RELATED TO TAX 
              SHELTERS AND REPORTABLE TRANSACTIONS.''.

            (2) The table of sections for subchapter A of chapter 67 is 
        amended by striking the item relating to section 7408 and 
        inserting the following new item:

        ``Sec. 7408. Actions to enjoin specified conduct related to tax 
                            shelters and reportable transactions.''.
    (c) Effective Date.--The amendments made by this section shall take 
effect on the day after the date of the enactment of this Act.

SEC. 609. UNDERSTATEMENT OF TAXPAYER'S LIABILITY BY INCOME TAX RETURN 
              PREPARER.

    (a) Standards Conformed to Taxpayer Standards.--Section 6694(a) 
(relating to understatements due to unrealistic positions) is amended--
            (1) by striking ``realistic possibility of being sustained 
        on its merits'' in paragraph (1) and inserting ``reasonable 
        belief that the tax treatment in such position was more likely 
        than not the proper treatment'',
            (2) by striking ``or was frivolous'' in paragraph (3) and 
        inserting ``or there was no reasonable basis for the tax 
        treatment of such position'', and
            (3) by striking ``Unrealistic'' in the heading and 
        inserting ``Improper''.
    (b) Amount of Penalty.--Section 6694 is amended--
            (1) by striking ``$250'' in subsection (a) and inserting 
        ``$1,000'', and
            (2) by striking ``$1,000'' in subsection (b) and inserting 
        ``$5,000''.
    (c) Effective Date.--The amendments made by this section shall 
apply to documents prepared after the date of the enactment of this 
Act.

SEC. 610. REGULATION OF INDIVIDUALS PRACTICING BEFORE THE DEPARTMENT OF 
              TREASURY.

    (a) Censure; Imposition of Penalty.--
            (1) In general.--Section 330(b) of title 31, United States 
        Code, is amended--
                    (A) by inserting ``, or censure,'' after 
                ``Department'', and
                    (B) by adding at the end the following new flush 
                sentence:
``The Secretary may impose a monetary penalty on any representative 
described in the preceding sentence. If the representative was acting 
on behalf of an employer or any firm or other entity in connection with 
the conduct giving rise to such penalty, the Secretary may impose a 
monetary penalty on such employer, firm, or entity if it knew, or 
reasonably should have known, of such conduct. Such penalty shall not 
exceed the gross income derived (or to be derived) from the conduct 
giving rise to the penalty and may be in addition to, or in lieu of, 
any suspension, disbarment, or censure of the representative.''.
            (2) Effective date.--The amendments made by this subsection 
        shall apply to actions taken after the date of the enactment of 
        this Act.
    (b) Tax Shelter Opinions, etc.--Section 330 of such title 31 is 
amended by adding at the end the following new subsection:
    ``(d) Nothing in this section or in any other provision of law 
shall be construed to limit the authority of the Secretary of the 
Treasury to impose standards applicable to the rendering of written 
advice with respect to any entity, transaction plan or arrangement, or 
other plan or arrangement, which is of a type which the Secretary 
determines as having a potential for tax avoidance or evasion.''.

SEC. 611. PENALTY ON PROMOTERS OF TAX SHELTERS.

    (a) Penalty on Promoting Abusive Tax Shelters.--Section 6700(a) is 
amended by adding at the end the following new sentence: 
``Notwithstanding the first sentence, if an activity with respect to 
which a penalty imposed under this subsection involves a statement 
described in paragraph (2)(A), the amount of the penalty shall be equal 
to 50 percent of the gross income derived (or to be derived) from such 
activity by the person on which the penalty is imposed.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to activities after the date of the enactment of this Act.

SEC. 612. STATUTE OF LIMITATIONS FOR TAXABLE YEARS FOR WHICH REQUIRED 
              LISTED TRANSACTIONS NOT REPORTED.

    (a) In General.--Section 6501(c) (relating to exceptions) is 
amended by adding at the end the following new paragraph:
            ``(10) Listed transactions.--If a taxpayer fails to include 
        on any return or statement for any taxable year any information 
        with respect to a listed transaction (as defined in section 
        6707A(c)(2)) which is required under section 6011 to be 
        included with such return or statement, the time for assessment 
        of any tax imposed by this title with respect to such 
        transaction shall not expire before the date which is 1 year 
        after the earlier of--
                    ``(A) the date on which the Secretary is furnished 
                the information so required; or
                    ``(B) the date that a material advisor (as defined 
                in section 6111) meets the requirements of section 6112 
                with respect to a request by the Secretary under 
                section 6112(b) relating to such transaction with 
                respect to such taxpayer.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years with respect to which the period for assessing a 
deficiency did not expire before the date of the enactment of this Act.

SEC. 613. DENIAL OF DEDUCTION FOR INTEREST ON UNDERPAYMENTS 
              ATTRIBUTABLE TO TAX-MOTIVATED TRANSACTIONS.

    (a) In General.--Section 163 (relating to deduction for interest) 
is amended by redesignating subsection (m) as subsection (n) and by 
inserting after subsection (l) the following new subsection:
    ``(m) Interest on Unpaid Taxes Attributable To Nondisclosed 
Reportable Transactions.--No deduction shall be allowed under this 
chapter for any interest paid or accrued under section 6601 on any 
underpayment of tax which is attributable to the portion of any 
reportable transaction understatement (as defined in section 6662A(b)) 
with respect to which the requirement of section 6664(d)(2)(A) is not 
met.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to transactions in taxable years beginning after the date of the 
enactment of this Act.

SEC. 614. AUTHORIZATION OF APPROPRIATIONS FOR TAX LAW ENFORCEMENT.

    There is authorized to be appropriated $300,000,000 for each fiscal 
year beginning after September 30, 2003, for the purpose of carrying 
out tax law enforcement to combat tax avoidance transactions and other 
tax shelters, including the use of offshore financial accounts to 
conceal taxable income.

             PART II--OTHER CORPORATE GOVERNANCE PROVISIONS

SEC. 621. AFFIRMATION OF CONSOLIDATED RETURN REGULATION AUTHORITY.

    (a) In General.--Section 1502 (relating to consolidated return 
regulations) is amended by adding at the end the following new 
sentence: ``In prescribing such regulations, the Secretary may 
prescribe rules applicable to corporations filing consolidated returns 
under section 1501 that are different from other provisions of this 
title that would apply if such corporations filed separate returns.''.
    (b) Result Not Overturned.--Notwithstanding subsection (a), the 
Internal Revenue Code of 1986 shall be construed by treating Treasury 
regulation Sec. 1.1502-20(c)(1)(iii) (as in effect on January 1, 2001) 
as being inapplicable to the type of factual situation in 255 F.3d 1357 
(Fed. Cir. 2001).
    (c) Effective Date.--The provisions of this section shall apply to 
taxable years beginning before, on, or after the date of the enactment 
of this Act.

SEC. 622. DECLARATION BY CHIEF EXECUTIVE OFFICER RELATING TO FEDERAL 
              ANNUAL INCOME TAX RETURN OF A CORPORATION.

    (a) In General.--The Federal annual tax return of a corporation 
with respect to income shall also include a declaration signed by the 
chief executive officer of such corporation (or other such officer of 
the corporation as the Secretary of the Treasury may designate if the 
corporation does not have a chief executive officer), under penalties 
of perjury, that the corporation has in place processes and procedures 
to ensure that such return complies with the Internal Revenue Code of 
1986 and that the chief executive officer was provided reasonable 
assurance of the accuracy of all material aspects of such return. The 
preceding sentence shall not apply to any return of a regulated 
investment company (within the meaning of section 851 of such Code).
    (b) Effective Date.--This section shall apply to the Federal annual 
tax return of a corporation with respect to income for taxable years 
ending after the date of the enactment of this Act.

SEC. 623. DENIAL OF DEDUCTION FOR CERTAIN FINES, PENALTIES, AND OTHER 
              AMOUNTS.

    (a) In General.--Subsection (f) of section 162 (relating to trade 
or business expenses) is amended to read as follows:
    ``(f) Fines, Penalties, and Other Amounts.--
            ``(1) In general.--Except as provided in paragraph (2), no 
        deduction otherwise allowable shall be allowed under this 
        chapter for any amount paid or incurred (whether by suit, 
        agreement, or otherwise) to, or at the direction of, a 
        government or entity described in paragraph (4) in relation to 
        the violation of any law or the investigation or inquiry by 
        such government or entity into the potential violation of any 
        law.
            ``(2) Exception for amounts constituting restitution.--
        Paragraph (1) shall not apply to any amount which the taxpayer 
        establishes constitutes restitution (including remediation of 
        property) for damage or harm caused by or which may be caused 
        by the violation of any law or the potential violation of any 
        law. This paragraph shall not apply to any amount paid or 
        incurred as reimbursement to the government or entity for the 
        costs of any investigation or litigation.
            ``(3) Exception for amounts paid or incurred as the result 
        of certain court orders.--Paragraph (1) shall not apply to any 
        amount paid or incurred by order of a court in a suit in which 
        no government or entity described in paragraph (4) is a party.
            ``(4) Certain nongovernmental regulatory entities.--An 
        entity is described in this paragraph if it is--
                    ``(A) a nongovernmental entity which exercises 
                self-regulatory powers (including imposing sanctions) 
                in connection with a qualified board or exchange (as 
                defined in section 1256(g)(7)), or
                    ``(B) to the extent provided in regulations, a 
                nongovernmental entity which exercises self-regulatory 
                powers (including imposing sanctions) as part of 
                performing an essential governmental function.
            ``(5) Exception for taxes due.--Paragraph (1) shall not 
        apply to any amount paid or incurred as taxes due.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to amounts paid or incurred after April 27, 2003, except that such 
amendment shall not apply to amounts paid or incurred under any binding 
order or agreement entered into on or before April 27, 2003. Such 
exception shall not apply to an order or agreement requiring court 
approval unless the approval was obtained on or before April 27, 2003.

SEC. 624. DISALLOWANCE OF DEDUCTION FOR PUNITIVE DAMAGES.

    (a) Disallowance of Deduction.--
            (1) In general.--Section 162(g) (relating to treble damage 
        payments under the antitrust laws) is amended by adding at the 
        end the following new paragraph:
            ``(2) Punitive damages.--No deduction shall be allowed 
        under this chapter for any amount paid or incurred for punitive 
        damages in connection with any judgment in, or settlement of, 
        any action. This paragraph shall not apply to punitive damages 
        described in section 104(c).''.
            (2) Conforming amendments.--
                    (A) Section 162(g) is amended--
                            (i) by striking ``If'' and inserting:
            ``(1) Treble damages.--If'', and
                            (ii) by redesignating paragraphs (1) and 
                        (2) as subparagraphs (A) and (B), respectively.
                    (B) The heading for section 162(g) is amended by 
                inserting ``or Punitive Damages'' after ``Laws''.
    (b) Inclusion in Income of Punitive Damages Paid by Insurer or 
Otherwise.--
            (1) In general.--Part II of subchapter B of chapter 1 
        (relating to items specifically included in gross income) is 
        amended by adding at the end the following new section:

``SEC. 91. PUNITIVE DAMAGES COMPENSATED BY INSURANCE OR OTHERWISE.

    ``Gross income shall include any amount paid to or on behalf of a 
taxpayer as insurance or otherwise by reason of the taxpayer's 
liability (or agreement) to pay punitive damages.''.
            (2) Reporting requirements.--Section 6041 (relating to 
        information at source) is amended by adding at the end the 
        following new subsection:
    ``(f) Section To Apply to Punitive Damages Compensation.--This 
section shall apply to payments by a person to or on behalf of another 
person as insurance or otherwise by reason of the other person's 
liability (or agreement) to pay punitive damages.''.
            (3) Conforming amendment.--The table of sections for part 
        II of subchapter B of chapter 1 is amended by adding at the end 
        the following new item:

``Sec. 91. Punitive damages compensated by insurance or otherwise.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to damages paid or incurred on or after the date of the enactment 
of this Act.

SEC. 625. INCREASE IN CRIMINAL MONETARY PENALTY FOR INDIVIDUALS TO THE 
              AMOUNT OF THE TAX AT ISSUE.

    (a) In General.--Section 7206 (relating to fraud and false 
statements) is amended--
            (1) by striking ``Any person who--'' and inserting ``(a) In 
        General.--Any person who--'', and
            (2) by adding at the end the following new subsection:
    ``(b) Increase in Monetary Limitation for Underpayment or 
Overpayment of Tax Due To Fraud.--If any portion of any underpayment 
(as defined in section 6664(a)) or overpayment (as defined in section 
6203(a)) of tax required to be shown on a return is attributable to 
fraudulent action described in subsection (a), the applicable dollar 
amount under subsection (a) shall in no event be less than an amount 
equal to such portion. A rule similar to the rule under section 6663(b) 
shall apply for purposes of determining the portion so attributable.''.
    (b) Increase in Penalties.--
            (1) Attempt to evade or defeat tax.--Section 7201 is 
        amended--
                    (A) by striking ``$100,000'' and inserting 
                ``$250,000'',
                    (B) by striking ``$500,000'' and inserting 
                ``$1,000,000'', and
                    (C) by striking ``5 years'' and inserting ``10 
                years''.
            (2) Willful failure to file return, supply information, or 
        pay tax.--Section 7203 is amended--
                    (A) in the first sentence--
                            (i) by striking ``misdemeanor'' and 
                        inserting ``felony'', and
                            (ii) by striking ``1 year'' and inserting 
                        ``10 years'', and
                    (B) by striking the third sentence.
            (3) Fraud and false statements.--Section 7206(a) (as 
        redesignated by subsection (a)) is amended--
                    (A) by striking ``$100,000'' and inserting 
                ``$250,000'',
                    (B) by striking ``$500,000'' and inserting 
                ``$1,000,000'', and
                    (C) by striking ``3 years'' and inserting ``5 
                years''.
    (c) Effective Date.--The amendments made by this section shall 
apply to underpayments and overpayments attributable to actions 
occurring after the date of the enactment of this Act.

SEC. 626. DOUBLING OF CERTAIN PENALTIES, FINES, AND INTEREST ON 
              UNDERPAYMENTS RELATED TO CERTAIN OFFSHORE FINANCIAL 
              ARRANGEMENTS.

    (a) General Rule.--If--
            (1) a taxpayer eligible to participate in--
                    (A) the Department of the Treasury's Offshore 
                Voluntary Compliance Initiative, or
                    (B) the Department of the Treasury's voluntary 
                disclosure initiative which applies to the taxpayer by 
                reason of the taxpayer's underreporting of United 
                States income tax liability through financial 
                arrangements which rely on the use of offshore 
                arrangements which were the subject of the initiative 
                described in subparagraph (A), and
            (2) any interest or applicable penalty is imposed with 
        respect to any arrangement to which any initiative described in 
        paragraph (1) applied or to any underpayment of Federal income 
        tax attributable to items arising in connection with any 
        arrangement described in paragraph (1),
then, notwithstanding any other provision of law, the amount of such 
interest or penalty shall be equal to twice that determined without 
regard to this section.
    (b) Definitions and Rules.--For purposes of this section--
            (1) Applicable penalty.--The term ``applicable penalty'' 
        means any penalty, addition to tax, or fine imposed under 
        chapter 68 of the Internal Revenue Code of 1986.
            (2) Voluntary offshore compliance initiative.--The term 
        ``Voluntary Offshore Compliance Initiative'' means the program 
        established by the Department of the Treasury in January of 
        2003 under which any taxpayer was eligible to voluntarily 
        disclose previously undisclosed income on assets placed in 
        offshore accounts and accessed through credit card and other 
        financial arrangements.
            (3) Participation.--A taxpayer shall be treated as having 
        participated in the Voluntary Offshore Compliance Initiative if 
        the taxpayer submitted the request in a timely manner and all 
        information requested by the Secretary of the Treasury or his 
        delegate within a reasonable period of time following the 
        request.
    (c) Effective Date.--The provisions of this section shall apply to 
interest, penalties, additions to tax, and fines with respect to any 
taxable year if as of the date of the enactment of this Act, the 
assessment of any tax, penalty, or interest with respect to such 
taxable year is not prevented by the operation of any law or rule of 
law.

                  PART III--EXTENSION OF IRS USER FEES

SEC. 631. EXTENSION OF IRS USER FEES.

    (a) In General.--Section 7528(c) (relating to termination) is 
amended by striking ``December 31, 2004'' and inserting ``September 30, 
2013''.
    (b) Effective Date.--The amendment made by this section shall apply 
to requests after the date of the enactment of this Act.

                   PART IV--OTHER REVENUE PROVISIONS

SEC. 641. REPORTING OF TAXABLE MERGERS AND ACQUISITIONS.

    (a) In General.--Subpart B of part III of subchapter A of chapter 
61 is amended by inserting after section 6043 the following new 
section:

``SEC. 6043A. TAXABLE MERGERS AND ACQUISITIONS.

    ``(a) In General.--The acquiring corporation in any taxable 
acquisition shall make a return (according to the forms or regulations 
prescribed by the Secretary) setting forth--
            ``(1) a description of the acquisition,
            ``(2) the name and address of each shareholder of the 
        acquired corporation who is required to recognize gain (if any) 
        as a result of the acquisition,
            ``(3) the amount of money and the fair market value of 
        other property transferred to each such shareholder as part of 
        such acquisition, and
            ``(4) such other information as the Secretary may 
        prescribe.
To the extent provided by the Secretary, the requirements of this 
section applicable to the acquiring corporation shall be applicable to 
the acquired corporation and not to the acquiring corporation.
    ``(b) Nominee Reporting.--Any person who holds stock as a nominee 
for another person shall furnish in the manner prescribed by the 
Secretary to such other person the information provided by the 
corporation under subsection (d).
    ``(c) Taxable Acquisition.--For purposes of this section, the term 
`taxable acquisition' means any acquisition by a corporation of stock 
in or property of another corporation if any shareholder of the 
acquired corporation is required to recognize gain (if any) as a result 
of such acquisition.
    ``(d) Statements To Be Furnished to Shareholders.--Every person 
required to make a return under subsection (a) shall furnish to each 
shareholder whose name is required to be set forth in such return a 
written statement showing--
            ``(1) the name, address, and phone number of the 
        information contact of the person required to make such return,
            ``(2) the information required to be shown on such return 
        with respect to such shareholder, and
            ``(3) such other information as the Secretary may 
        prescribe.
The written statement required under the preceding sentence shall be 
furnished to the shareholder on or before January 31 of the year 
following the calendar year during which the taxable acquisition 
occurred.''.
    (b) Assessable Penalties.--
            (1) Subparagraph (B) of section 6724(d)(1) (defining 
        information return) is amended by redesignating clauses (ii) 
        through (xviii) as clauses (iii) through (xix), respectively, 
        and by inserting after clause (i) the following new clause:
                            ``(ii) section 6043A(a) (relating to 
                        returns relating to taxable mergers and 
                        acquisitions),''.
            (2) Paragraph (2) of section 6724(d) (relating to 
        definitions) is amended by redesignating subparagraphs (F) 
        through (BB) as subparagraphs (G) through (CC), respectively, 
        and by inserting after subparagraph (E) the following new 
        subparagraph:
                    ``(F) subsections (b) and (d) of section 6043A 
                (relating to returns relating to taxable mergers and 
                acquisitions).''.
    (c) Clerical Amendment.--The table of sections for subpart B of 
part III of subchapter A of chapter 61 is amended by inserting after 
the item relating to section 6043 the following new item:

        ``Sec. 6043A. Returns relating to taxable mergers and 
                  acquisitions.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to acquisitions after the date of the enactment of this Act.

SEC. 642. MODIFICATION OF DEFINITION OF CONTROLLED GROUP OF 
              CORPORATIONS.

    (a) In General.--Section 1563(a)(2) (relating to brother-sister 
controlled group) is amended by striking ``possessing--'' and all that 
follows through ``(B)'' and inserting ``possessing''.
    (b) Application of Existing Rules to Other Code Provisions.--
Section 1563(f) (relating to other definitions and rules) is amended by 
adding at the end the following new paragraph:
            ``(5) Brother-sister controlled group definition for 
        provisions other than this part.--
                    ``(A) In general.--Except as specifically provided 
                in an applicable provision, subsection (a)(2) shall be 
                applied to an applicable provision as if it read as 
                follows:
            ```(2) Brother-sister controlled group.--Two or more 
        corporations if 5 or fewer persons who are individuals, 
        estates, or trusts own (within the meaning of subsection (d)(2) 
        stock possessing--
                    ```(A) at least 80 percent of the total combined 
                voting power of all classes of stock entitled to vote, 
                or at least 80 percent of the total value of shares of 
                all classes of stock, of each corporation, and
                    ```(B) more than 50 percent of the total combined 
                voting power of all classes of stock entitled to vote 
                or more than 50 percent of the total value of shares of 
                all classes of stock of each corporation, taking into 
                account the stock ownership of each such person only to 
                the extent such stock ownership is identical with 
                respect to each such corporation.'
                    ``(B) Applicable provision.--For purposes of this 
                paragraph, an applicable provision is any provision of 
                law (other than this part) which incorporates the 
                definition of controlled group of corporations under 
                subsection (a).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

            Attest:

                                                             Secretary.
108th CONGRESS

  2d Session

                               H. R. 1528

_______________________________________________________________________

                               AMENDMENT
```