IB 

Union Calendar No. 39

108TH CONGRESS 

1ST SESSION H. R. 1528

[Report No. 108–61] 

To amend the Internal Revenue Code of 1986 to protect taxpayers and 

ensure accountability of the Internal Revenue Service. 

IN THE HOUSE OF REPRESENTATIVES 

APRIL 1, 2003

Mr. PORTMAN introduced the following bill; which was referred to the 

Committee on Ways and Means 

APRIL 8, 2003

Reported with an amendment, committed to the Committee of the Whole 

House on the State of the Union, and ordered to be printed 

[Strike out all after the enacting clause and insert the part printed in italic] 

[For text of introduced bill, see copy of bill as introduced on April 1, 2003] 

A BILL

To amend the Internal Revenue Code of 1986 to protect 

taxpayers and ensure accountability of the Internal Revenue Service.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,
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1 SECTION 1. SHORT TITLE; ETC. 

2 (a) SHORT TITLE.—This Act may be cited as the 

3 ‘‘Taxpayer Protection and IRS Accountability Act of 

4 2003’’. 

5 (b) AMENDMENT OF 1986 CODE.—Except as otherwise 

6 expressly provided, whenever in this Act an amendment or 

7 repeal is expressed in terms of an amendment to, or repeal 

8 of, a section or other provision, the reference shall be consid9 ered to be made to a section or other provision of the Inter10 nal Revenue Code of 1986. 

11 (c) TABLE OF CONTENTS.—

Sec. 1. Short title; etc. 

TITLE I—PENALTY AND INTEREST REFORMS 

Sec. 101. Failure to pay estimated tax penalty converted to interest charge on accumulated unpaid balance. 

Sec. 102. Exclusion from gross income for interest on overpayments of income tax 

by individuals. 

Sec. 103. Abatement of interest. 

Sec. 104. Deposits made to suspend running of interest on potential underpayments. 

Sec. 105. Expansion of interest netting for individuals. 

Sec. 106. Waiver of certain penalties for first-time unintentional minor errors. 

Sec. 107. Frivolous tax submissions. 

Sec. 108. Clarification of application of Federal tax deposit penalty. 

TITLE II—FAIRNESS OF COLLECTION PROCEDURES 

Sec. 201. Partial payment of tax liability in installment agreements. 

Sec. 202. Extension of time for return of property. 

Sec. 203. Individuals held harmless on wrongful levy, etc., on individual retirement plan. 

Sec. 204. Seven-day threshold on tolling of statute of limitations during tax review. 

Sec. 205. Study of liens and levies. 

TITLE III—TAX ADMINISTRATION REFORMS 

Sec. 301. Revisions relating to termination of employment of Internal Revenue 

Service employees for misconduct. 

Sec. 302. Confirmation of authority of tax court to apply doctrine of equitable 

recoupment. 

Sec. 303. Jurisdiction of tax court over collection due process cases. 
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Sec. 304. Office of Chief Counsel review of offers in compromise. 

Sec. 305. 15-day delay in due date for electronically filed individual income tax 

returns. 

Sec. 306. Access of National Taxpayer Advocate to independent legal counsel. 

Sec. 307. Payment of motor fuel excise tax refunds by direct deposit. 

Sec. 308. Family business tax simplification. 

Sec. 309. Health insurance costs of eligible individuals. 

Sec. 310. Suspension of tax-exempt status of terrorist organizations. 

TITLE IV—CONFIDENTIALITY AND DISCLOSURE 

Sec. 401. Collection activities with respect to joint return disclosable to either 

spouse based on oral request. 

Sec. 402. Taxpayer representatives not subject to examination on sole basis of 

representation of taxpayers. 

Sec. 403. Disclosure in judicial or administrative tax proceedings of return and 

return information of persons who are not party to such proceedings. 

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. Notice to taxpayer concerning administrative determination of browsing; annual report. 

Sec. 408. Expanded 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)(3) organizations. 

Sec. 411. Confidentiality of taxpayer communications with the Office of the Taxpayer Advocate. 

TITLE V—MISCELLANEOUS 

Sec. 501. Clarification of definition of church tax inquiry. 

Sec. 502. Expansion of declaratory judgment remedy to tax-exempt organizations. 

Sec. 503. Employee misconduct report to include summary of complaints by category. 

Sec. 504. Annual report on awards of costs and certain fees in administrative 

and court proceedings. 

Sec. 505. Annual report on abatement of penalties. 

Sec. 506. Better means of communicating with taxpayers. 

Sec. 507. Explanation of statute of limitations and consequences of failure to file. 

Sec. 508. Amendment to treasury auction reforms. 

Sec. 509. Enrolled agents. 

Sec. 510. Financial management service fees. 

Sec. 511. Extension of Internal Revenue Service user fees. 

TITLE VI—LOW-INCOME TAXPAYER CLINICS 

Sec. 601. Low-income taxpayer clinics. 

TITLE VII—FEDERAL-STATE UNEMPLOYMENT ASSISTANCE 

AGREEMENTS. 

Sec. 701. Applicability of certain Federal-State agreements relating to unemployment assistance.
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1 TITLE I—PENALTY AND 

2 INTEREST REFORMS 

3 SEC. 101. FAILURE TO PAY ESTIMATED TAX PENALTY CON4 VERTED TO INTEREST CHARGE ON ACCUMU5 LATED UNPAID BALANCE. 

6 (a) PENALTY MOVED TO INTEREST CHAPTER OF

7 CODE.—The Internal Revenue Code of 1986 is amended by 

8 redesignating section 6654 as section 6641 and by moving 

9 section 6641 (as so redesignated) from part I of subchapter 

10 A of chapter 68 to the end of subchapter E of chapter 67 

11 (as added by subsection (e)(1) of this section). 

12 (b) PENALTY CONVERTED TO INTEREST CHARGE.—

13 The heading and subsections (a) and (b) of section 6641 

14 (as so redesignated) are amended to read as follows: 

15 ‘‘SEC. 6641. INTEREST ON FAILURE BY INDIVIDUAL TO PAY 

16 ESTIMATED INCOME TAX. 

17 ‘‘(a) IN GENERAL.—Interest shall be paid on any un18 derpayment of estimated tax by an individual for a taxable 

19 year for each day of such underpayment. The amount of 

20 such interest for any day shall be the product of the under21 payment rate established under subsection (b)(2) multiplied 

22 by the amount of the underpayment. 

23 ‘‘(b) AMOUNT OF UNDERPAYMENT; INTEREST RATE.—

24 For purposes of subsection (a)—
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1 ‘‘(1) AMOUNT.—The amount of the under2 payment on any day shall be the excess of—

3 ‘‘(A) the sum of the required installments 

4 for the taxable year the due dates for which are 

5 on or before such day, over 

6 ‘‘(B) the sum of the amounts (if any) of es7 timated tax payments made on or before such 

8 day on such required installments. 

9 ‘‘(2) DETERMINATION OF INTEREST RATE.—

10 ‘‘(A) IN GENERAL.—The underpayment rate 

11 with respect to any day in an installment under12 payment period shall be the underpayment rate 

13 established under section 6621 for the first day 

14 of the calendar quarter in which such install15 ment underpayment period begins. 

16 ‘‘(B) INSTALLMENT UNDERPAYMENT PE17 RIOD.—For purposes of subparagraph (A), the 

18 term ‘installment underpayment period’ means 

19 the period beginning on the day after the due 

20 date for a required installment and ending on 

21 the due date for the subsequent required install22 ment (or in the case of the 4th required install23 ment, the 15th day of the 4th month following 

24 the close of a taxable year).
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1 ‘‘(C) DAILY RATE.—The rate determined 

2 under subparagraph (A) shall be applied on a 

3 daily basis and shall be based on the assumption 

4 of 365 days in a calendar year. 

5 ‘‘(3) TERMINATION OF ESTIMATED TAX INTER6 EST.—No day after the end of the installment under7 payment period for the 4th required installment spec8 ified in paragraph (2)(B) for a taxable year shall be 

9 treated as a day of underpayment with respect to 

10 such taxable year.’’. 

11 (c) INCREASE IN SAFE HARBOR WHERE TAX IS

12 SMALL.—

13 (1) IN GENERAL.—Clause (i) of section 

14 6641(d)(1)(B) (as so redesignated) is amended to read 

15 as follows: 

16 ‘‘(i) the lesser of—

17 ‘‘(I) 90 percent of the tax shown 

18 on the return for the taxable year (or, 

19 if no return is filed, 90 percent of the 

20 tax for such year), or 

21 ‘‘(II) the tax shown on the return 

22 for the taxable year (or, if no return is 

23 filed, the tax for such year) reduced 

24 (but not below zero) by $1,600, or’’. 
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1 (2) CONFORMING AMENDMENT.—Subsection (e) 

2 of section 6641 (as so redesignated) is amended by 

3 striking paragraph (1) and redesignating paragraphs 

4 (2) and (3) as paragraphs (1) and (2), respectively. 

5 (d) CONFORMING AMENDMENTS.—

6 (1) Paragraphs (1) and (2) of subsection (e) (as 

7 redesignated by subsection (c)(2)) and subsection (h) 

8 of section 6641 (as so designated) are each amended 

9 by striking ‘‘addition to tax’’ each place it occurs and 

10 inserting ‘‘interest’’. 

11 (2) Section 167(g)(5)(D) is amended by striking 

12 ‘‘6654’’ and inserting ‘‘6641’’. 

13 (3) Section 460(b)(1) is amended by striking 

14 ‘‘6654’’ and inserting ‘‘6641’’. 

15 (4) Section 3510(b) is amended—

16 (A) by striking ‘‘section 6654’’ in para17 graph (1) and inserting ‘‘section 6641’’; 

18 (B) by amending paragraph (2)(B) to read 

19 as follows: 

20 ‘‘(B) no interest would be required to be 

21 paid (but for this section) under 6641 for such 

22 taxable year by reason of the $1,600 amount 

23 specified in section 6641(d)(1)(B)(i)(II).’’; 
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1 (C) by striking ‘‘section 6654(d)(2)’’ in 

2 paragraph (3) and inserting ‘‘section 

3 6641(d)(2)’’; and 

4 (D) by striking paragraph (4). 

5 (5) Section 6201(b)(1) is amended by striking 

6 ‘‘6654’’ and inserting ‘‘6641’’. 

7 (6) Section 6601(h) is amended by striking 

8 ‘‘6654’’ and inserting ‘‘6641’’. 

9 (7) Section 6621(b)(2)(B) is amended by striking 

10 ‘‘addition to tax under section 6654’’ and inserting 

11 ‘‘interest required to be paid under section 6641’’. 

12 (8) Section 6622(b) is amended—

13 (A) by striking ‘‘PENALTY FOR’’ in the 

14 heading; and 

15 (B) by striking ‘‘addition to tax under sec16 tion 6654 or 6655’’ and inserting ‘‘interest re17 quired to be paid under section 6641 or addition 

18 to tax under section 6655’’. 

19 (9) Section 6658(a) is amended—

20 (A) by striking ‘‘6654, or 6655’’ and insert21 ing ‘‘or 6655, and no interest shall be required 

22 to be paid under section 6641,’’; and 

23 (B) by inserting ‘‘or paying interest’’ after 

24 ‘‘the tax’’ in paragraph (2)(B)(ii). 

25 (10) Section 6665(b) is amended—
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1 (A) in the matter preceding paragraph (1) 

2 by striking ‘‘, 6654,’’; and 

3 (B) in paragraph (2) by striking ‘‘6654 or’’. 

4 (11) Section 7203 is amended by striking ‘‘sec5 tion 6654 or 6655’’ and inserting ‘‘section 6655 or in6 terest required to be paid under section 6641’’. 

7 (e) CLERICAL AMENDMENTS.—

8 (1) Chapter 67 is amended by inserting after 

9 subchapter D the following: 

10 ‘‘Subchapter E—Interest on Failure by Individual to 

11 Pay Estimated Income Tax

‘‘Sec. 6641. Interest on failure by individual to pay estimated income tax.’’.

12 (2) The table of subchapters for chapter 67 is 

13 amended by adding at the end the following new 

14 items:

‘‘Subchapter D. Notice requirements. 

‘‘Subchapter E. Interest on failure by individual to pay estimated 

income tax.’’.

15 (3) The table of sections for part I of subchapter 

16 A of chapter 68 is amended by striking the item relat17 ing to section 6654. 

18 (f) EFFECTIVE DATE.—The amendments made by this 

19 section shall apply to installment payments for taxable 

20 years beginning after December 31, 2003. 
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1 SEC. 102. EXCLUSION FROM GROSS INCOME FOR INTEREST 

2 ON OVERPAYMENTS OF INCOME TAX BY INDI3 VIDUALS. 

4 (a) IN GENERAL.—Part III of subchapter B of chapter 

5 1 (relating to items specifically excluded from gross income) 

6 is amended by inserting after section 139 the following new 

7 section: 

8 ‘‘SEC. 139A. EXCLUSION FROM GROSS INCOME FOR INTER9 EST ON OVERPAYMENTS OF INCOME TAX BY 

10 INDIVIDUALS. 

11 ‘‘(a) IN GENERAL.—In the case of an individual, gross 

12 income shall not include interest paid under section 6611 

13 on any overpayment of tax imposed by this subtitle. 

14 ‘‘(b) EXCEPTION.—Subsection (a) shall not apply in 

15 the case of a failure to claim items resulting in the overpay16 ment on the original return if the Secretary determines that 

17 the principal purpose of such failure is to take advantage 

18 of subsection (a). 

19 ‘‘(c) SPECIAL RULE FOR DETERMINING MODIFIED AD20 JUSTED GROSS INCOME.—For purposes of this title, interest 

21 not included in gross income under subsection (a) shall not 

22 be treated as interest which is exempt from tax for purposes 

23 of sections 32(i)(2)(B) and 6012(d) or any computation in 

24 which interest exempt from tax under this title is added 

25 to adjusted gross income.’’.
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1 (b) CLERICAL AMENDMENT.—The table of sections for 

2 part III of subchapter B of chapter 1 is amended by insert3 ing after the item relating to section 139 the following new 

4 item:

‘‘Sec. 139A. Exclusion from gross income for interest on overpayments of income tax by individuals.’’.

5 (c) EFFECTIVE DATE.—The amendments made by this 

6 section shall apply to interest received in calendar years 

7 beginning after the date of the enactment of this Act. 

8 SEC. 103. ABATEMENT OF INTEREST. 

9 (a) ABATEMENT OF INTEREST WITH RESPECT TO ER10 RONEOUS REFUND CHECK WITHOUT REGARD TO SIZE OF

11 REFUND.—Paragraph (2) of section 6404(e) is amended by 

12 striking ‘‘unless—’’ and all that follows and inserting ‘‘un13 less the taxpayer (or a related party) has in any way 

14 caused such erroneous refund.’’. 

15 (b) ABATEMENT OF INTEREST TO EXTENT INTEREST

16 IS ATTRIBUTABLE TO TAXPAYER RELIANCE ON WRITTEN

17 STATEMENTS OF THE IRS.—Subsection (f) of section 6404 

18 is amended—

19 (1) in the subsection heading, by striking ‘‘PEN20 ALTY OR ADDITION’’ and inserting ‘‘INTEREST, PEN21 ALTY, OR ADDITION’’; and 

22 (2) in paragraph (1) and in subparagraph (B) 

23 of paragraph (2), by striking ‘‘penalty or addition’’ 

24 and inserting ‘‘interest, penalty, or addition’’. 
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1 (c) EFFECTIVE DATE.—The amendments made by this 

2 section shall apply with respect to interest accruing on or 

3 after the date of the enactment of this Act.

4 SEC. 104. DEPOSITS MADE TO SUSPEND RUNNING OF IN5 TEREST ON POTENTIAL UNDERPAYMENTS. 

6 (a) IN GENERAL.—Subchapter A of chapter 67 (relat7 ing to interest on underpayments) is amended by adding 

8 at the end the following new section: 

9 ‘‘SEC. 6603. DEPOSITS MADE TO SUSPEND RUNNING OF IN10 TEREST ON POTENTIAL UNDERPAYMENTS, 

11 ETC. 

12 ‘‘(a) AUTHORITY TO MAKE DEPOSITS OTHER THAN

13 AS PAYMENT OF TAX.—A taxpayer may make a cash de14 posit with the Secretary which may be used by the Sec15 retary to pay any tax imposed under subtitle A or B or 

16 chapter 41, 42, 43, or 44 which has not been assessed at 

17 the time of the deposit. Such a deposit shall be made in 

18 such manner as the Secretary shall prescribe. 

19 ‘‘(b) NO INTEREST IMPOSED.—To the extent that such 

20 deposit is used by the Secretary to pay tax, for purposes 

21 of section 6601 (relating to interest on underpayments), the 

22 tax shall be treated as paid when the deposit is made. 

23 ‘‘(c) RETURN OF DEPOSIT.—Except in a case where 

24 the Secretary determines that collection of tax is in jeop25 ardy, the Secretary shall return to the taxpayer any 
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1 amount of the deposit (to the extent not used for a payment 

2 of tax) which the taxpayer requests in writing. 

3 ‘‘(d) PAYMENT OF INTEREST.—

4 ‘‘(1) IN GENERAL.—For purposes of section 6611 

5 (relating to interest on overpayments), a deposit 

6 which is returned to a taxpayer shall be treated as a 

7 payment of tax for any period to the extent (and only 

8 to the extent) attributable to a disputable tax for such 

9 period. Under regulations prescribed by the Secretary, 

10 rules similar to the rules of section 6611(b)(2) shall 

11 apply. 

12 ‘‘(2) DISPUTABLE TAX.—

13 ‘‘(A) IN GENERAL.—For purposes of this 

14 section, the term ‘disputable tax’ means the 

15 amount of tax specified at the time of the deposit 

16 as the taxpayer’s reasonable estimate of the max17 imum amount of any tax attributable to disput18 able items. 

19 ‘‘(B) SAFE HARBOR BASED ON 30-DAY LET20 TER.—In the case of a taxpayer who has been 

21 issued a 30-day letter, the maximum amount of 

22 tax under subparagraph (A) shall not be less 

23 than the amount of the proposed deficiency speci24 fied in such letter. 
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1 ‘‘(3) OTHER DEFINITIONS.—For purposes of 

2 paragraph (2)—

3 ‘‘(A) DISPUTABLE ITEM.—The term ‘disput4 able item’ means any item of income, gain, loss, 

5 deduction, or credit if the taxpayer—

6 ‘‘(i) has a reasonable basis for its 

7 treatment of such item, and 

8 ‘‘(ii) reasonably believes that the Sec9 retary also has a reasonable basis for dis10 allowing the taxpayer’s treatment of such 

11 item. 

12 ‘‘(B) 30-DAY LETTER.—The term ‘30-day 

13 letter’ means the first letter of proposed defi14 ciency which allows the taxpayer an opportunity 

15 for administrative review in the Internal Rev16 enue Service Office of Appeals. 

17 ‘‘(4) RATE OF INTEREST.—The rate of interest 

18 allowable under this subsection shall be the Federal 

19 short-term rate determined under section 6621(b), 

20 compounded daily. 

21 ‘‘(e) USE OF DEPOSITS.—

22 ‘‘(1) PAYMENT OF TAX.—Except as otherwise 

23 provided by the taxpayer, deposits shall be treated as 

24 used for the payment of tax in the order deposited. 
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1 ‘‘(2) RETURNS OF DEPOSITS.—Deposits shall be 

2 treated as returned to the taxpayer on a last-in, first3 out basis.’’. 

4 (b) CLERICAL AMENDMENT.—The table of sections for 

5 subchapter A of chapter 67 is amended by adding at the 

6 end the following new item:

‘‘Sec. 6603. Deposits made to suspend running of interest on potential underpayments, etc.’’.

7 (c) EFFECTIVE DATE.—

8 (1) IN GENERAL.—The amendments made by 

9 this section shall apply to deposits made after the 

10 date of the enactment of this Act. 

11 (2) COORDINATION WITH DEPOSITS MADE UNDER

12 REVENUE PROCEDURE 84–58.—In the case of an 

13 amount held by the Secretary of the Treasury or his 

14 delegate on the date of the enactment of this Act as 

15 a deposit in the nature of a cash bond deposit pursu16 ant to Revenue Procedure 84–58, the date that the 

17 taxpayer identifies such amount as a deposit made 

18 pursuant to section 6603 of the Internal Revenue 

19 Code (as added by this Act) shall be treated as the 

20 date such amount is deposited for purposes of such 

21 section 6603.
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1 SEC. 105. EXPANSION OF INTEREST NETTING FOR INDIVID2 UALS. 

3 (a) IN GENERAL.—Subsection (d) of section 6621 (re4 lating to elimination of interest on overlapping periods of 

5 tax overpayments and underpayments) is amended by add6 ing at the end the following: ‘‘Solely for purposes of the pre7 ceding sentence, section 6611(e) shall not apply in the case 

8 of an individual.’’. 

9 (b) EFFECTIVE DATE.—The amendment made by sub10 section (a) shall apply to interest accrued after December 

11 31, 2003. 

12 SEC. 106. WAIVER OF CERTAIN PENALTIES FOR FIRST-TIME 

13 UNINTENTIONAL MINOR ERRORS. 

14 (a) IN GENERAL.—Section 6651 (relating to failure to 

15 file tax return or to pay tax) is amended by adding at the 

16 end the following new subsection: 

17 ‘‘(i) TREATMENT OF FIRST-TIME UNINTENTIONAL

18 MINOR ERRORS.—

19 ‘‘(1) IN GENERAL.—In the case of a return of tax 

20 imposed by subtitle A filed by an individual, the Sec21 retary may waive an addition to tax under subsection 

22 (a) if—

23 ‘‘(A) the individual has a history of compli24 ance with the requirements of this title, 

25 ‘‘(B) it is shown that the failure is due to 

26 an unintentional minor error, 
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1 ‘‘(C) the penalty would be grossly dis2 proportionate to the action or expense that would 

3 have been needed to avoid the error, and impos4 ing the penalty would be against equity and 

5 good conscience, 

6 ‘‘(D) waiving the penalty would promote 

7 compliance with the requirements of this title 

8 and effective tax administration, and 

9 ‘‘(E) the taxpayer took all reasonable steps 

10 to remedy the error promptly after discovering 

11 it. 

12 ‘‘(2) EXCEPTIONS.—Paragraph (1) shall not 

13 apply if—

14 ‘‘(A) the Secretary has waived any addition 

15 to tax under this subsection with respect to any 

16 prior failure by such individual, 

17 ‘‘(B) the failure is a mathematical or cler18 ical error (as defined in section 6213(g)(2)), or 

19 ‘‘(C) the failure is the lack of a required sig20 nature.’’. 

21 (b) EFFECTIVE DATE.—The amendment made by this 

22 section shall take effect on January 1, 2004.

23 SEC. 107. FRIVOLOUS TAX SUBMISSIONS. 

24 (a) CIVIL PENALTIES.—Section 6702 is amended to 

25 read as follows: 
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1 ‘‘SEC. 6702. FRIVOLOUS TAX SUBMISSIONS. 

2 ‘‘(a) CIVIL PENALTY FOR FRIVOLOUS TAX RE3 TURNS.—A person shall pay a penalty of $5,000 if—

4 ‘‘(1) such person files what purports to be a re5 turn of a tax imposed by this title but which—

6 ‘‘(A) does not contain information on which 

7 the substantial correctness of the self-assessment 

8 may be judged, or 

9 ‘‘(B) contains information that on its face 

10 indicates that the self-assessment is substantially 

11 incorrect; and 

12 ‘‘(2) the conduct referred to in paragraph (1)— 

13 ‘‘(A) is based on a position which the Sec14 retary has identified as frivolous under sub15 section (c), or 

16 ‘‘(B) reflects a desire to delay or impede the 

17 administration of Federal tax laws. 

18 ‘‘(b) CIVIL PENALTY FOR SPECIFIED FRIVOLOUS SUB19 MISSIONS.—

20 ‘‘(1) IMPOSITION OF PENALTY.—Except as pro21 vided in paragraph (3), any person who submits a 

22 specified frivolous submission shall pay a penalty of 

23 $5,000. 

24 ‘‘(2) SPECIFIED FRIVOLOUS SUBMISSION.—For 

25 purposes of this section—
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1 ‘‘(A) SPECIFIED FRIVOLOUS SUBMISSION.—

2 The term ‘specified frivolous submission’ means 

3 a specified submission if any portion of such 

4 submission is based on a position which the Sec5 retary has identified as frivolous under sub6 section (c). 

7 ‘‘(B) SPECIFIED SUBMISSION.—The term 

8 ‘specified submission’ means—

9 ‘‘(i) a request for a hearing under—

10 ‘‘(I) section 6320 (relating to no11 tice and opportunity for hearing upon 

12 filing of notice of lien), or 

13 ‘‘(II) section 6330 (relating to no14 tice and opportunity for hearing before 

15 levy), and 

16 ‘‘(ii) an application under—

17 ‘‘(I) section 7811 (relating to tax18 payer assistance orders), 

19 ‘‘(II) section 6159 (relating to 

20 agreements for payment of tax liability 

21 in installments), or 

22 ‘‘(III) section 7122 (relating to 

23 compromises). 

24 ‘‘(3) OPPORTUNITY TO WITHDRAW SUBMIS25 SION.—If the Secretary provides a person with notice 
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1 that a submission is a specified frivolous submission 

2 and such person withdraws such submission within 

3 30 days after such notice, the penalty imposed under 

4 paragraph (1) shall not apply with respect to such 

5 submission. 

6 ‘‘(c) LISTING OF FRIVOLOUS POSITIONS.—The Sec7 retary shall prescribe (and periodically revise) a list of posi8 tions which the Secretary has identified as being frivolous 

9 for purposes of this subsection. The Secretary shall not in10 clude in such list any position that the Secretary deter11 mines meets the requirement of section 

12 6662(d)(2)(B)(ii)(II). 

13 ‘‘(d) REDUCTION OF PENALTY.—The Secretary may 

14 reduce the amount of any penalty imposed under this sec15 tion if the Secretary determines that such reduction would 

16 promote compliance with and administration of the Federal 

17 tax laws. 

18 ‘‘(e) PENALTIES IN ADDITION TO OTHER PEN19 ALTIES.—The penalties imposed by this section shall be in 

20 addition to any other penalty provided by law.’’. 

21 (b) CLERICAL AMENDMENT.—The table of sections for 

22 part I of subchapter B of chapter 68 is amended by striking 

23 the item relating to section 6702 and inserting the following 

24 new item:

‘‘Sec. 6702. Frivolous tax submissions.’’.
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1 (c) EFFECTIVE DATE.—The amendments made by this 

2 section shall apply to submissions made and issues raised 

3 after the date on which the Secretary first prescribes a list 

4 under section 6702(c) of the Internal Revenue Code of 1986, 

5 as amended by subsection (a). 

6 SEC. 108. CLARIFICATION OF APPLICATION OF FEDERAL 

7 TAX DEPOSIT PENALTY. 

8 Nothing in section 6656 of the Internal Revenue Code 

9 of 1986 shall be construed to permit the percentage specified 

10 in subsection (b)(1)(A)(iii) thereof to apply other than in 

11 a case where the failure is for more than 15 days. 

12 TITLE II—FAIRNESS OF 

13 COLLECTION PROCEDURES 

14 SEC. 201. PARTIAL PAYMENT OF TAX LIABILITY IN INSTALL15 MENT AGREEMENTS. 

16 (a) IN GENERAL.—

17 (1) Section 6159(a) (relating to authorization of 

18 agreements) is amended—

19 (A) by striking ‘‘satisfy liability for pay20 ment of’’ and inserting ‘‘make payment on’’, and 

21 (B) by inserting ‘‘full or partial’’ after ‘‘fa22 cilitate’’. 

23 (2) Section 6159(c) (relating to Secretary re24 quired to enter into installment agreements in certain 
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1 cases) is amended in the matter preceding paragraph 

2 (1) by inserting ‘‘full’’ before ‘‘payment’’. 

3 (b) REQUIREMENT TO REVIEW PARTIAL PAYMENT

4 AGREEMENTS EVERY TWO YEARS.—Section 6159 is 

5 amended by redesignating subsections (d) and (e) as sub6 sections (e) and (f), respectively, and inserting after sub7 section (c) the following new subsection: 

8 ‘‘(d) SECRETARY REQUIRED TO REVIEW INSTALL9 MENT AGREEMENTS FOR PARTIAL COLLECTION EVERY TWO

10 YEARS.—In the case of an agreement entered into by the 

11 Secretary under subsection (a) for partial collection of a 

12 tax liability, the Secretary shall review the agreement at 

13 least once every 2 years.’’. 

14 (c) EFFECTIVE DATE.—The amendments made by this 

15 section shall apply to agreements entered into on or after 

16 the date of the enactment of this Act. 

17 SEC. 202. EXTENSION OF TIME FOR RETURN OF PROPERTY. 

18 (a) EXTENSION OF TIME FOR RETURN OF PROPERTY

19 SUBJECT TO LEVY.—Subsection (b) of section 6343 (relat20 ing to return of property) is amended by striking ‘‘9 

21 months’’ and inserting ‘‘2 years’’. 

22 (b) PERIOD OF LIMITATION ON SUITS.—Subsection (c) 

23 of section 6532 (relating to suits by persons other than tax24 payers) is amended—
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1 (1) in paragraph (1) by striking ‘‘9 months’’ 

2 and inserting ‘‘2 years’’, and 

3 (2) in paragraph (2) by striking ‘‘9-month’’ and 

4 inserting ‘‘2-year’’. 

5 (c) EFFECTIVE DATE.—The amendments made by this 

6 section shall apply to—

7 (1) levies made after the date of the enactment 

8 of this Act, and 

9 (2) levies made on or before such date if the 9-

10 month period has not expired under section 6343(b) 

11 of the Internal Revenue Code of 1986 (without regard 

12 to this section) as of such date.

13 SEC. 203. INDIVIDUALS HELD HARMLESS ON WRONGFUL 

14 LEVY, ETC., ON INDIVIDUAL RETIREMENT 

15 PLAN. 

16 (a) IN GENERAL.—Section 6343 (relating to authority 

17 to release levy and return property) is amended by adding 

18 at the end the following new subsection: 

19 ‘‘(f) INDIVIDUALS HELD HARMLESS ON WRONGFUL

20 LEVY, ETC. ON INDIVIDUAL RETIREMENT PLAN.—

21 ‘‘(1) IN GENERAL.—If the Secretary determines 

22 that an individual retirement plan has been levied 

23 upon in a case to which subsection (b) or (d)(2)(A) 

24 applies, an amount equal to the sum of—
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1 ‘‘(A) the amount of money returned by the 

2 Secretary on account of such levy, and 

3 ‘‘(B) interest paid under subsection (c) on 

4 such amount of money, 

5 may be deposited into an individual retirement plan 

6 (other than an endowment contract) to which a roll7 over from the plan levied upon is permitted. 

8 ‘‘(2) TREATMENT AS ROLLOVER.—The distribu9 tion on account of the levy and any deposit under 

10 paragraph (1) with respect to such distribution shall 

11 be treated for purposes of this title as if such distribu12 tion and deposit were part of a rollover described in 

13 section 408(d)(3)(A)(i); except that—

14 ‘‘(A) interest paid under subsection (c) shall 

15 be treated as part of such distribution and as not 

16 includible in gross income, 

17 ‘‘(B) the 60-day requirement in such section 

18 shall be treated as met if the deposit is made not 

19 later than the 60th day after the day on which 

20 the individual receives an amount under para21 graph (1) from the Secretary, and 

22 ‘‘(C) such deposit shall not be taken into ac23 count under section 408(d)(3)(B). 

24 ‘‘(3) REFUND, ETC., OF INCOME TAX ON LEVY.—

25 If any amount is includible in gross income for a tax-
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1 able year by reason of a levy referred to in paragraph 

2 (1) and any portion of such amount is treated as a 

3 rollover under paragraph (2), any tax imposed by 

4 chapter 1 on such portion shall not be assessed, and 

5 if assessed shall be abated, and if collected shall be 

6 credited or refunded as an overpayment made on the 

7 due date for filing the return of tax for such taxable 

8 year. 

9 ‘‘(4) INTEREST.—Notwithstanding subsection 

10 (d), interest shall be allowed under subsection (c) in 

11 a case in which the Secretary makes a determination 

12 described in subsection (d)(2)(A) with respect to a 

13 levy upon an individual retirement plan.’’. 

14 (b) EFFECTIVE DATE.—The amendment made by this 

15 section shall apply to amounts paid under subsections (b), 

16 (c), and (d)(2)(A) of section 6343 of the Internal Revenue 

17 Code of 1986 after December 31, 2003. 

18 SEC. 204. SEVEN-DAY THRESHOLD ON TOLLING OF STAT19 UTE OF LIMITATIONS DURING TAX REVIEW. 

20 (a) IN GENERAL.—Section 7811(d)(1) (relating to sus21 pension of running of period of limitation) is amended by 

22 inserting after ‘‘application,’’ the following: ‘‘but only if the 

23 date of such decision is at least 7 days after the date of 

24 the taxpayer’s application,’’.
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1 (b) EFFECTIVE DATE.—The amendment made by this 

2 section shall apply to applications filed after the date of 

3 the enactment of this Act. 

4 SEC. 205. STUDY OF LIENS AND LEVIES. 

5 The Secretary of the Treasury, or the Secretary’s dele6 gate, shall conduct a study of the practices of the Internal 

7 Revenue Service concerning liens and levies. The study shall 

8 examine—

9 (1) the declining use of liens and levies by the 

10 Internal Revenue Service, and 

11 (2) the practicality of recording liens and lev12 ying against property in cases in which the cost of 

13 such actions exceeds the amount to be realized from 

14 such property. 

15 Not later than 1 year after the date of the enactment of 

16 this Act, the Secretary shall submit such study to the Com17 mittee on Ways and Means of the House of Representatives 

18 and the Committee on Finance of the Senate. 
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1 TITLE III—TAX ADMINISTRATION 

2 REFORMS 

3 SEC. 301. REVISIONS RELATING TO TERMINATION OF EM4 PLOYMENT OF INTERNAL REVENUE SERVICE 

5 EMPLOYEES FOR MISCONDUCT. 

6 (a) IN GENERAL.—Subchapter A of chapter 80 (relat7 ing to application of internal revenue laws) is amended by 

8 inserting after section 7804 the following new section: 

9 ‘‘SEC. 7804A. DISCIPLINARY ACTIONS FOR MISCONDUCT. 

10 ‘‘(a) DISCIPLINARY ACTIONS.—

11 ‘‘(1) IN GENERAL.—Subject to subsection (c), the 

12 Commissioner shall take an action in accordance with 

13 the guidelines established under paragraph (2) 

14 against any employee of the Internal Revenue Service 

15 if there is a final administrative or judicial deter16 mination that such employee committed any act or 

17 omission described under subsection (b) in the per18 formance of the employee’s official duties or where a 

19 nexus to the employee’s position exists. 

20 ‘‘(2) GUIDELINES.—The Commissioner shall 

21 issue guidelines for determining the appropriate level 

22 of discipline, up to and including termination of em23 ployment, for committing any act or omission de24 scribed under subsection (b). 
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1 ‘‘(b) ACTS OR OMISSIONS.—The acts or omissions de2 scribed under this subsection are—

3 ‘‘(1) willful failure to obtain the required ap4 proval signatures on documents authorizing the sei5 zure of a taxpayer’s home, personal belongings, or 

6 business assets; 

7 ‘‘(2) willfully providing a false statement under 

8 oath with respect to a material matter involving a 

9 taxpayer or taxpayer representative; 

10 ‘‘(3) with respect to a taxpayer or taxpayer rep11 resentative, the willful violation of—

12 ‘‘(A) any right under the Constitution of the 

13 United States; 

14 ‘‘(B) any civil right established under—

15 ‘‘(i) title VI or VII of the Civil Rights 

16 Act of 1964; 

17 ‘‘(ii) title IX of the Education Amend18 ments of 1972; 

19 ‘‘(iii) the Age Discrimination in Em20 ployment Act of 1967; 

21 ‘‘(iv) the Age Discrimination Act of 

22 1975; 

23 ‘‘(v) section 501 or 504 of the Rehabili24 tation Act of 1973; or 
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1 ‘‘(vi) title I of the Americans with Dis2 abilities Act of 1990; or 

3 ‘‘(C) the Internal Revenue Service policy on 

4 unauthorized inspection of returns or return in5 formation; 

6 ‘‘(4) willfully falsifying or destroying documents 

7 to conceal mistakes made by any employee with re8 spect to a matter involving a taxpayer or taxpayer 

9 representative; 

10 ‘‘(5) assault or battery on a taxpayer or tax11 payer representative, but only if there is a criminal 

12 conviction, or a final adverse judgment by a court in 

13 a civil case, with respect to the assault or battery; 

14 ‘‘(6) willful violations of this title, Department of 

15 the Treasury regulations, or policies of the Internal 

16 Revenue Service (including the Internal Revenue 

17 Manual) for the purpose of retaliating against, or 

18 harassing, a taxpayer or taxpayer representative; 

19 ‘‘(7) willful misuse of the provisions of section 

20 6103 for the purpose of concealing information from 

21 a congressional inquiry; 

22 ‘‘(8) willful failure to file any return of tax re23 quired under this title on or before the date prescribed 

24 therefor (including any extensions) when a tax is due 
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1 and owing, unless such failure is due to reasonable 

2 cause and not due to willful neglect; 

3 ‘‘(9) willful understatement of Federal tax liabil4 ity, unless such understatement is due to reasonable 

5 cause and not due to willful neglect; and 

6 ‘‘(10) threatening to audit a taxpayer, or to take 

7 other action under this title, for the purpose of ex8 tracting personal gain or benefit. 

9 ‘‘(c) DETERMINATIONS OF COMMISSIONER.—

10 ‘‘(1) IN GENERAL.—The Commissioner may take 

11 a personnel action other than a disciplinary action 

12 provided for in the guidelines under subsection (a)(2) 

13 for an act or omission described under subsection (b). 

14 ‘‘(2) DISCRETION.—The exercise of authority 

15 under paragraph (1) shall be at the sole discretion of 

16 the Commissioner and may not be delegated to any 

17 other officer. The Commissioner, in his sole discretion, 

18 may establish a procedure to determine if an indi19 vidual should be referred to the Commissioner for a 

20 determination by the Commissioner under paragraph 

21 (1). 

22 ‘‘(3) NO APPEAL.—Notwithstanding any other 

23 provision of law, any determination of the Commis24 sioner under this subsection may not be reviewed in 

25 any administrative or judicial proceeding. A finding
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1 that an act or omission described under subsection (b) 

2 occurred may be reviewed. 

3 ‘‘(d) DEFINITION.—For the purposes of the provisions 

4 described in clauses (i), (ii), and (iv) of subsection 

5 (b)(3)(B), references to a program or activity regarding 

6 Federal financial assistance or an education program or 

7 activity receiving Federal financial assistance shall include 

8 any program or activity conducted by the Internal Revenue 

9 Service for a taxpayer. 

10 ‘‘(e) ANNUAL REPORT.—The Commissioner shall sub11 mit to Congress annually a report on disciplinary actions 

12 under this section.’’. 

13 (b) CLERICAL AMENDMENT.—The table of sections for 

14 chapter 80 is amended by inserting after the item relating 

15 to section 7804 the following new item:

‘‘Sec. 7804A. Disciplinary actions for misconduct.’’.

16 (c) REPEAL OF SUPERSEDED SECTION.—Section 1203 

17 of the Internal Revenue Service Restructuring and Reform 

18 Act of 1998 (Public Law 105–206; 112 Stat. 720) is re19 pealed. 

20 (d) EFFECTIVE DATE.—The amendments made by this 

21 section shall take effect on the date of the enactment of this 

22 Act. 
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1 SEC. 302. CONFIRMATION OF AUTHORITY OF TAX COURT TO 

2 APPLY DOCTRINE OF EQUITABLE 

3 RECOUPMENT. 

4 (a) CONFIRMATION OF AUTHORITY OF TAX COURT TO

5 APPLY DOCTRINE OF EQUITABLE RECOUPMENT.—Sub6 section (b) of section 6214 (relating to jurisdiction over 

7 other years and quarters) is amended by adding at the end 

8 the following new sentence: ‘‘Notwithstanding the preceding 

9 sentence, the Tax Court may apply the doctrine of equitable 

10 recoupment to the same extent that it is available in civil 

11 tax cases before the district courts of the United States and 

12 the United States Court of Federal Claims.’’. 

13 (b) EFFECTIVE DATE.—The amendments made by this 

14 section shall apply to any action or proceeding in the Tax 

15 Court with respect to which a decision has not become final 

16 (as determined under section 7481 of the Internal Revenue 

17 Code of 1986) as of the date of the enactment of this Act. 

18 SEC. 303. JURISDICTION OF TAX COURT OVER COLLECTION 

19 DUE PROCESS CASES. 

20 (a) IN GENERAL.—Section 6330(d)(1) (relating to ju21 dicial review of determination) is amended to read as fol22 lows: 

23 ‘‘(1) JUDICIAL REVIEW OF DETERMINATION.—

24 The person may, within 30 days of a determination 

25 under this section, appeal such determination to the 
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1 Tax Court (and the Tax Court shall have jurisdiction 

2 with respect to such matter).’’. 

3 (b) EFFECTIVE DATE.—The amendment made by sub4 section (a) shall apply to judicial appeals filed after the 

5 date of the enactment of this Act. 

6 SEC. 304. OFFICE OF CHIEF COUNSEL REVIEW OF OFFERS 

7 IN COMPROMISE. 

8 (a) IN GENERAL.—Section 7122(b) (relating to record) 

9 is amended by striking ‘‘Whenever a compromise’’ and all 

10 that follows through ‘‘his delegate’’ and inserting ‘‘If the 

11 Secretary determines that an opinion of the General Coun12 sel for the Department of the Treasury, or the Counsel’s del13 egate, is required with respect to a compromise, there shall 

14 be placed on file in the office of the Secretary such opinion’’. 

15 (b) CONFORMING AMENDMENTS.—Section 7122(b) is 

16 amended by striking the second and third sentences. 

17 (c) EFFECTIVE DATE.—The amendments made by this 

18 section shall apply to offers-in-compromise submitted or 

19 pending on or after the date of the enactment of this Act. 

20 SEC. 305. 15-DAY DELAY IN DUE DATE FOR ELECTRONI21 CALLY FILED INDIVIDUAL INCOME TAX RE22 TURNS. 

23 (a) IN GENERAL.—Section 6072 (relating to time for 

24 filing income tax returns) is amended by adding at the end 

25 the following new subsection: 
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1 ‘‘(f) ELECTRONICALLY FILED RETURNS OF INDIVID2 UALS.—

3 ‘‘(1) IN GENERAL.—Returns of an individual 

4 under section 6012 or 6013 (other than an individual 

5 to whom subsection (c) applies) which are filed elec6 tronically—

7 ‘‘(A) in the case of returns filed on the basis 

8 of a calendar year, shall be filed on or before the 

9 30th day of April following the close of the cal10 endar year, and 

11 ‘‘(B) in the case of returns filed on the basis 

12 of a fiscal year, shall be filed on or before the last 

13 day of the 4th month following the close of the 

14 fiscal year. 

15 ‘‘(2) ELECTRONIC FILING.—Paragraph (1) shall 

16 not apply to any return unless—

17 ‘‘(A) such return is accepted by the Sec18 retary, and 

19 ‘‘(B) the balance due (if any) shown on 

20 such return is paid electronically in a manner 

21 prescribed by the Secretary. 

22 ‘‘(3) SPECIAL RULES.—

23 ‘‘(A) ESTIMATED TAX.—If—

24 ‘‘(i) paragraph (1) applies to an indi25 vidual for any taxable year, and 
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1 ‘‘(ii) there is an overpayment of tax 

2 shown on the return for such year which the 

3 individual allows against the individual’s 

4 obligation under section 6641, 

5 then, with respect to the amount so allowed, any 

6 reference in section 6641 to the April 15 fol7 lowing such taxable year shall be treated as a 

8 reference to April 30. 

9 ‘‘(B) REFERENCES TO DUE DATE.—Para10 graph (1) shall apply solely for purposes of de11 termining the due date for the individual’s obli12 gation to file and pay tax and, except as other13 wise provided by the Secretary, shall be treated 

14 as an extension of the due date for any other 

15 purpose under this title. 

16 ‘‘(4) TERMINATION.—This subsection shall not 

17 apply to any return filed with respect to a taxable 

18 year which begins after December 31, 2007.’’. 

19 (b) EFFECTIVE DATE.—The amendment made by this 

20 section shall apply to returns filed with respect to taxable 

21 years beginning after December 31, 2002. 

22 SEC. 306. ACCESS OF NATIONAL TAXPAYER ADVOCATE TO 

23 INDEPENDENT LEGAL COUNSEL. 

24 Clause (i) of section 7803(c)(2)(D) (relating to per25 sonnel actions) is amended by striking ‘‘and’’ at the end
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1 of subclause (I), by striking the period at the end of sub2 clause (II) and inserting ‘‘, and’’, and by adding at the 

3 end the following new subclause: 

4 ‘‘(III) appoint a counsel in the 

5 Office of the Taxpayer Advocate to re6 port solely to the National Taxpayer 

7 Advocate.’’. 

8 SEC. 307. PAYMENT OF MOTOR FUEL EXCISE TAX REFUNDS 

9 BY DIRECT DEPOSIT. 

10 (a) IN GENERAL.—Subchapter II of chapter 33 of title 

11 31, United States Code, is amended by adding at the end 

12 the following new section: 

13 ‘‘§ 3337. Payment of motor fuel excise tax refunds by 

14 direct deposit 

15 ‘‘The Secretary of the Treasury shall make payments 

16 under sections 6420, 6421, and 6427 of the Internal Rev17 enue Code of 1986 by electronic funds transfer (as defined 

18 in section 3332(j)(1)) if the person who is entitled to the 

19 payment—

20 ‘‘(1) elects to receive the payment by electronic 

21 funds transfer; and 

22 ‘‘(2) satisfies the requirements of section 3332(g) 

23 with respect to such payment at such time and in 

24 such manner as the Secretary may require.’’. 
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1 (b) CLERICAL AMENDMENT.—The table of sections for 

2 subchapter II of chapter 33 of title 31, United States Code, 

3 is amended by adding at the end the following new item:

‘‘3337. Payment of motor fuel excise tax refunds by direct deposit.’’.

4 SEC. 308. FAMILY BUSINESS TAX SIMPLIFICATION. 

5 (a) IN GENERAL.—Section 761 (defining terms for 

6 purposes of partnerships) is amended by redesignating sub7 section (f) as subsection (g) and by inserting after sub8 section (e) the following new subsection: 

9 ‘‘(f) QUALIFIED JOINT VENTURE.—

10 ‘‘(1) IN GENERAL.—In the case of a qualified 

11 joint venture conducted by a husband and wife who 

12 file a joint return for the taxable year, for purposes 

13 of this title—

14 ‘‘(A) such joint venture shall not be treated 

15 as a partnership, 

16 ‘‘(B) all items of income, gain, loss, deduc17 tion, and credit shall be divided between the 

18 spouses in accordance with their respective inter19 ests in the venture, and 

20 ‘‘(C) each spouse shall take into account 

21 such spouse’s respective share of such items as if 

22 they were attributable to a trade or business con23 ducted by such spouse as a sole proprietor. 

24 ‘‘(2) QUALIFIED JOINT VENTURE.—For purposes 

25 of paragraph (1), the term ‘qualified joint venture’ 
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1 means any joint venture involving the conduct of a 

2 trade or business if—

3 ‘‘(A) the only members of such joint venture 

4 are a husband and wife, 

5 ‘‘(B) both spouses materially participate 

6 (within the meaning of section 469(h) without 

7 regard to paragraph (5) thereof) in such trade or 

8 business, and 

9 ‘‘(C) both spouses elect the application of 

10 this subsection.’’. 

11 (b) NET EARNINGS FROM SELF-EMPLOYMENT.—

12 (1) Subsection (a) of section 1402 (defining net 

13 earnings from self-employment) is amended by strik14 ing ‘‘and’’ at the end of paragraph (14), by striking 

15 the period at the end of paragraph (15) and inserting 

16 ‘‘; and’’, and by inserting after paragraph (15) the 

17 following new paragraph: 

18 ‘‘(16) notwithstanding the preceding provisions 

19 of this subsection, each spouse’s share of income or 

20 loss from a qualified joint venture shall be taken into 

21 account as provided in section 761(f) in determining 

22 net earnings from self-employment of such spouse.’’. 

23 (2) Subsection (a) of section 211 of the Social 

24 Security Act (defining net earnings from self-employ25 ment) is amended by striking ‘‘and’’ at the end of 
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1 paragraph (14), by striking the period at the end of 

2 paragraph (15) and inserting ‘‘; and’’, and by insert3 ing after paragraph (15) the following new para4 graph: 

5 ‘‘(16) Notwithstanding the preceding provisions 

6 of this subsection, each spouse’s share of income or 

7 loss from a qualified joint venture shall be taken into 

8 account as provided in section 761(f) of the Internal 

9 Revenue Code of 1986 in determining net earnings 

10 from self-employment of such spouse.’’. 

11 (c) EFFECTIVE DATE.—The amendments made by this 

12 section shall apply to taxable years beginning after Decem13 ber 31, 2002. 

14 SEC. 309. HEALTH INSURANCE COSTS OF ELIGIBLE INDI15 VIDUALS. 

16 (a) CONSUMER OPTIONS.—Paragraph (2) of section 

17 35(e) is amended by inserting at the end the following new 

18 subparagraph: 

19 ‘‘(C) WAIVER BY ELIGIBLE INDIVIDUALS.—

20 With respect to any month which ends before 

21 January 1, 2006, subparagraphs (A) and (B) 

22 shall not apply with respect to any eligible indi23 vidual and such individual’s qualifying family 

24 members if such eligible individual elects to 
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1 waive the application of such subparagraphs 

2 with respect to such month.’’. 

3 (b) NO IMPACT ON STATE CONSUMER PROTECTIONS.—

4 Nothing in the amendment made by subsection (a) 

5 supercedes or otherwise affects the application of State law 

6 relating to consumer insurance protections (including State 

7 law implementing the requirements of part B of title XXVII 

8 of the Public Health Service Act). 

9 (c) EFFECTIVE DATE.—The amendment made by sub10 section (a) shall apply to months beginning after the date 

11 of the enactment of this Act. 

12 SEC. 310. SUSPENSION OF TAX-EXEMPT STATUS OF TER13 RORIST ORGANIZATIONS. 

14 (a) IN GENERAL.—Section 501 (relating to exemption 

15 from tax on corporations, certain trusts, etc.) is amended 

16 by redesignating subsection (p) as subsection (q) and by in17 serting after subsection (o) the following new subsection: 

18 ‘‘(p) SUSPENSION OF TAX-EXEMPT STATUS OF TER19 RORIST ORGANIZATIONS.—

20 ‘‘(1) IN GENERAL.—The exemption from tax 

21 under subsection (a) with respect to any organization 

22 described in paragraph (2), and the eligibility of any 

23 organization described in paragraph (2) to apply for 

24 recognition of exemption under subsection (a), shall
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1 be suspended during the period described in para2 graph (3). 

3 ‘‘(2) TERRORIST ORGANIZATIONS.—An organiza4 tion is described in this paragraph if such organiza5 tion is designated or otherwise individually identi6 fied— 

7 ‘‘(A) under section 212(a)(3)(B)(vi)(II) or 

8 219 of the Immigration and Nationality Act as 

9 a terrorist organization or foreign terrorist orga10 nization, 

11 ‘‘(B) in or pursuant to an Executive order 

12 which is related to terrorism and issued under 

13 the authority of the International Emergency 

14 Economic Powers Act or section 5 of the United 

15 Nations Participation Act of 1945 for the pur16 pose of imposing on such organization an eco17 nomic or other sanction, or 

18 ‘‘(C) in or pursuant to an Executive order 

19 issued under the authority of any Federal law 

20 if—

21 ‘‘(i) the organization is designated or 

22 otherwise individually identified in or pur23 suant to such Executive order as supporting 

24 or engaging in terrorist activity (as defined 

25 in section 212(a)(3)(B) of the Immigration 
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1 and Nationality Act) or supporting ter2 rorism (as defined in section 140(d)(2) of 

3 the Foreign Relations Authorization Act, 

4 Fiscal Years 1988 and 1989); and 

5 ‘‘(ii) such Executive order refers to this 

6 subsection. 

7 ‘‘(3) PERIOD OF SUSPENSION.—With respect to 

8 any organization described in paragraph (2), the pe9 riod of suspension—

10 ‘‘(A) begins on the later of—

11 ‘‘(i) the date of the first publication of 

12 a designation or identification described in 

13 paragraph (2) with respect to such organi14 zation, or 

15 ‘‘(ii) the date of the enactment of this 

16 subsection, and 

17 ‘‘(B) ends on the first date that all designa18 tions and identifications described in paragraph 

19 (2) with respect to such organization are re20 scinded pursuant to the law or Executive order 

21 under which such designation or identification 

22 was made. 

23 ‘‘(4) DENIAL OF DEDUCTION.—No deduction 

24 shall be allowed under section 170, 545(b)(2), 

25 556(b)(2), 642(c), 2055, 2106(a)(2), or 2522 for any 
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1 contribution to an organization described in para2 graph (2) during the period described in paragraph 

3 (3). 

4 ‘‘(5) DENIAL OF ADMINISTRATIVE OR JUDICIAL

5 CHALLENGE OF SUSPENSION OR DENIAL OF DEDUC6 TION.—Notwithstanding section 7428 or any other 

7 provision of law, no organization or other person may 

8 challenge a suspension under paragraph (1), a des9 ignation or identification described in paragraph (2), 

10 the period of suspension described in paragraph (3), 

11 or a denial of a deduction under paragraph (4) in 

12 any administrative or judicial proceeding relating to 

13 the Federal tax liability of such organization or other 

14 person. 

15 ‘‘(6) ERRONEOUS DESIGNATION.—

16 ‘‘(A) IN GENERAL.—If—

17 ‘‘(i) the tax exemption of any organi18 zation described in paragraph (2) is sus19 pended under paragraph (1), 

20 ‘‘(ii) each designation and identifica21 tion described in paragraph (2) which has 

22 been made with respect to such organization 

23 is determined to be erroneous pursuant to 

24 the law or Executive order under which 
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1 such designation or identification was 

2 made, and 

3 ‘‘(iii) the erroneous designations and 

4 identifications result in an overpayment of 

5 income tax for any taxable year by such or6 ganization, 

7 credit or refund (with interest) with respect to 

8 such overpayment shall be made. 

9 ‘‘(B) WAIVER OF LIMITATIONS.—If the cred10 it or refund of any overpayment of tax described 

11 in subparagraph (A)(iii) is prevented at any 

12 time by the operation of any law or rule of law 

13 (including res judicata), such credit or refund 

14 may nevertheless be allowed or made if the claim 

15 therefor is filed before the close of the 1-year pe16 riod beginning on the date of the last determina17 tion described in subparagraph (A)(ii). 

18 ‘‘(7) NOTICE OF SUSPENSIONS.—If the tax ex19 emption of any organization is suspended under this 

20 subsection, the Internal Revenue Service shall update 

21 the listings of tax-exempt organizations and shall 

22 publish appropriate notice to taxpayers of such sus23 pension and of the fact that contributions to such or24 ganization are not deductible during the period of 

25 such suspension.’’. 
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1 (b) EFFECTIVE DATE.—The amendments made by this 

2 section shall apply to designations made before, on, or after 

3 the date of the enactment of this Act. 

4 TITLE IV—CONFIDENTIALITY 

5 AND DISCLOSURE 

6 SEC. 401. COLLECTION ACTIVITIES WITH RESPECT TO 

7 JOINT RETURN DISCLOSABLE TO EITHER 

8 SPOUSE BASED ON ORAL REQUEST. 

9 (a) IN GENERAL.—Paragraph (8) of section 6103(e) 

10 (relating to disclosure of collection activities with respect 

11 to joint return) is amended by striking ‘‘in writing’’ the 

12 first place it appears. 

13 (b) EFFECTIVE DATE.—The amendment made by this 

14 section shall apply to requests made after the date of the 

15 enactment of this Act. 

16 SEC. 402. TAXPAYER REPRESENTATIVES NOT SUBJECT TO 

17 EXAMINATION ON SOLE BASIS OF REPRESEN18 TATION OF TAXPAYERS. 

19 (a) IN GENERAL.—Paragraph (1) of section 6103(h) 

20 (relating to disclosure to certain Federal officers and em21 ployees for purposes of tax administration, etc.) is amend22 ed—

23 (1) by striking ‘‘Returns’’ and inserting the fol24 lowing: 

25 ‘‘(A) IN GENERAL.—Returns’’, and
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1 (2) by adding at the end the following new sub2 paragraph: 

3 ‘‘(B) TAXPAYER REPRESENTATIVES.—Not4 withstanding subparagraph (A), the return of the 

5 representative of a taxpayer whose return is 

6 being examined by an officer or employee of the 

7 Department of the Treasury shall not be open to 

8 inspection by such officer or employee on the sole 

9 basis of the representative’s relationship to the 

10 taxpayer unless a supervisor of such officer or 

11 employee has approved the inspection of the re12 turn of such representative on a basis other than 

13 by reason of such relationship.’’. 

14 (b) EFFECTIVE DATE.—The amendment made by this 

15 section shall take effect on the date which is 180 days after 

16 the date of the enactment of this Act. 

17 SEC. 403. DISCLOSURE IN JUDICIAL OR ADMINISTRATIVE 

18 TAX PROCEEDINGS OF RETURN AND RETURN 

19 INFORMATION OF PERSONS WHO ARE NOT 

20 PARTY TO SUCH PROCEEDINGS. 

21 (a) IN GENERAL.—Paragraph (4) of section 6103(h) 

22 (relating to disclosure to certain Federal officers and em23 ployees for purposes of tax administration, etc.) is amended 

24 by adding at the end the following new subparagraph: 
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1 ‘‘(B) DISCLOSURE IN JUDICIAL OR ADMINIS2 TRATIVE TAX PROCEEDINGS OF RETURN AND RE3 TURN INFORMATION OF PERSONS NOT PARTY TO

4 SUCH PROCEEDINGS.—

5 ‘‘(i) NOTICE.—Return or return infor6 mation of any person who is not a party to 

7 a judicial or administrative proceeding de8 scribed in this paragraph shall not be dis9 closed under clause (ii) or (iii) of subpara10 graph (A) until after the Secretary makes a 

11 reasonable effort to give notice to such per12 son and an opportunity for such person to 

13 request the deletion of matter from such re14 turn or return information, including any 

15 of the items referred to in paragraphs (1) 

16 through (7) of section 6110(c). Such notice 

17 shall include a statement of the issue or 

18 issues the resolution of which is the reason 

19 such return or return information is sought. 

20 In the case of S corporations, partnerships, 

21 estates, and trusts, such notice shall be 

22 made at the entity level. 

23 ‘‘(ii) DISCLOSURE LIMITED TO PERTI24 NENT PORTION.—The only portion of a re25 turn or return information described in 
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1 clause (i) which may be disclosed under 

2 subparagraph (A) is that portion of such re3 turn or return information that directly re4 lates to the resolution of an issue in such 

5 proceeding. 

6 ‘‘(iii) EXCEPTIONS.—Clause (i) shall 

7 not apply—

8 ‘‘(I) to any civil action under sec9 tion 7407, 7408, or 7409, 

10 ‘‘(II) to any ex parte proceeding 

11 for obtaining a search warrant, order 

12 for entry on premises or safe deposit 

13 boxes, or similar ex parte proceeding, 

14 ‘‘(III) to disclosure of third party 

15 return information by indictment or 

16 criminal information, or 

17 ‘‘(IV) if the Attorney General or 

18 the Attorney General’s delegate deter19 mines that the application of such 

20 clause would seriously impair a crimi21 nal tax investigation or proceeding.’’. 

22 (b) CONFORMING AMENDMENTS.—Paragraph (4) of 

23 section 6103(h) is amended by—

24 (1) by striking ‘‘PROCEEDINGS.—A return’’ and 

25 inserting ‘‘PROCEEDINGS.—
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1 ‘‘(A) IN GENERAL.—Except as provided in 

2 subparagraph (B), a return’’; 

3 (2) by redesignating subparagraphs (A), (B), 

4 (C), and (D) as clauses (i), (ii), (iii), and (iv), re5 spectively, and by moving such clauses 2 ems to the 

6 right; and 

7 (3) in the matter following clause (iv) (as so re8 designated), by striking ‘‘subparagraph (A), (B), or 

9 (C)’’ and inserting ‘‘clause (i), (ii), or (iii)’’ and by 

10 moving such matter 2 ems to the right. 

11 (c) EFFECTIVE DATE.—The amendments made by this 

12 section shall apply to proceedings commenced after the date 

13 of the enactment of this Act. 

14 SEC. 404. PROHIBITION OF DISCLOSURE OF TAXPAYER 

15 IDENTIFICATION INFORMATION WITH RE16 SPECT TO DISCLOSURE OF ACCEPTED OF17 FERS-IN-COMPROMISE. 

18 (a) GENERAL.—Paragraph (1) of section 6103(k) (re19 lating to disclosure of certain returns and return informa20 tion for tax administrative purposes) is amended by insert21 ing ‘‘(other than the taxpayer’s address and TIN)’’ after 

22 ‘‘Return information’’. 

23 (b) EFFECTIVE DATE.—The amendment made by this 

24 section shall apply to disclosures made after the date of the 

25 enactment of this Act. 
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1 SEC. 405. COMPLIANCE BY CONTRACTORS WITH CONFIDEN2 TIALITY SAFEGUARDS. 

3 (a) IN GENERAL.—Section 6103(p) (relating to State 

4 law requirements) is amended by adding at the end the fol5 lowing new paragraph: 

6 ‘‘(9) DISCLOSURE TO CONTRACTORS AND OTHER

7 AGENTS.—Notwithstanding any other provision of 

8 this section, no return or return information shall be 

9 disclosed to any contractor or other agent of a Fed10 eral, State, or local agency unless such agency, to the 

11 satisfaction of the Secretary—

12 ‘‘(A) has requirements in effect which re13 quire each such contractor or other agent which 

14 would have access to returns or return informa15 tion to provide safeguards (within the meaning 

16 of paragraph (4)) to protect the confidentiality 

17 of such returns or return information, 

18 ‘‘(B) agrees to conduct an annual, on-site 

19 review (mid-point review in the case of contracts 

20 of less than 1 year in duration) of each such con21 tractor or other agent to determine compliance 

22 with such requirements, 

23 ‘‘(C) submits the findings of the most recent 

24 review conducted under subparagraph (B) to the 

25 Secretary as part of the report required by para26 graph (4)(E), and
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1 ‘‘(D) certifies to the Secretary for the most 

2 recent annual period that each such contractor 

3 or other agent is in compliance with all such re4 quirements. 

5 The certification required by subparagraph (D) shall 

6 include the name and address of each contractor and 

7 other agent, a description of the contract of the con8 tractor or other agent with the agency, and the dura9 tion of such contract.’’. 

10 (b) CONFORMING AMENDMENT.—Subparagraph (B) of 

11 section 6103(p)(8) is amended by inserting ‘‘or paragraph 

12 (9)’’ after ‘‘subparagraph (A)’’. 

13 (c) EFFECTIVE DATE.—

14 (1) IN GENERAL.—The amendments made by 

15 this section shall apply to disclosures made after De16 cember 31, 2003. 

17 (2) CERTIFICATIONS.—The first certification 

18 under section 6103(p)(9)(D) of the Internal Revenue 

19 Code of 1986, as added by subsection (a), shall be 

20 made with respect to calendar year 2004. 

21 SEC. 406. HIGHER STANDARDS FOR REQUESTS FOR AND 

22 CONSENTS TO DISCLOSURE. 

23 (a) IN GENERAL.—Subsection (c) of section 6103 (re24 lating to disclosure of returns and return information to 
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1 designee of taxpayer) is amended by adding at the end the 

2 following new paragraphs: 

3 ‘‘(2) REQUIREMENTS FOR VALID REQUESTS AND

4 CONSENTS.—A request for or consent to disclosure 

5 under paragraph (1) shall only be valid for purposes 

6 of this section, sections 7213, 7213A, and 7431 if—

7 ‘‘(A) at the time of execution, such request 

8 or consent designates a recipient of such disclo9 sure and is dated, and 

10 ‘‘(B) at the time such request or consent is 

11 submitted to the Secretary, the submitter of such 

12 request or consent certifies, under penalty of per13 jury, that such request or consent complied with 

14 subparagraph (A). 

15 ‘‘(3) RESTRICTIONS ON PERSONS OBTAINING IN16 FORMATION.—Any person shall, as a condition for re17 ceiving return or return information under para18 graph (1)— 

19 ‘‘(A) ensure that such return and return in20 formation is kept confidential, 

21 ‘‘(B) use such return and return informa22 tion only for the purpose for which it was re23 quested, and 

24 ‘‘(C) not disclose such return and return in25 formation except to accomplish the purpose for 
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1 which it was requested, unless a separate consent 

2 from the taxpayer is obtained. 

3 ‘‘(4) REQUIREMENTS FOR FORM PRESCRIBED BY

4 SECRETARY.—For purposes of this subsection, the Sec5 retary shall prescribe a form for requests and consents 

6 which shall— 

7 ‘‘(A) contain a warning, prominently dis8 played, informing the taxpayer that the form 

9 should not be signed unless it is completed, 

10 ‘‘(B) state that if the taxpayer believes there 

11 is an attempt to coerce him to sign an incom12 plete or blank form, the taxpayer should report 

13 the matter to the Treasury Inspector General for 

14 Tax Administration, and 

15 ‘‘(C) contain the address and telephone 

16 number of the Treasury Inspector General for 

17 Tax Administration.’’. 

18 (b) REPORT.—Not later than 18 months after the date 

19 of the enactment of this Act, the Treasury Inspector General 

20 for Tax Administration shall submit a report to the Con21 gress on compliance with the designation and certification 

22 requirements applicable to requests for or consent to disclo23 sure of returns and return information under section 

24 6103(c) of the Internal Revenue Code of 1986, as amended 

25 by subsection (a). Such report shall—
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1 (1) evaluate (on the basis of random sampling) 

2 whether—

3 (A) the amendment made by subsection (a) 

4 is achieving the purposes of this section; 

5 (B) requesters and submitters for such dis6 closure are continuing to evade the purposes of 

7 this section and, if so, how; and 

8 (C) the sanctions for violations of such re9 quirements are adequate; and 

10 (2) include such recommendations that the 

11 Treasury Inspector General for Tax Administration 

12 considers necessary or appropriate to better achieve 

13 the purposes of this section. 

14 (c) CONFORMING AMENDMENTS.—

15 (1) Section 6103(c) is amended by striking 

16 ‘‘TAXPAYER.—The Secretary’’ and inserting ‘‘TAX17 PAYER.—

18 ‘‘(1) IN GENERAL.—The Secretary’’. 

19 (2) Section 7213(a)(1) is amended by striking 

20 ‘‘section 6103(n)’’ and inserting ‘‘subsections (c) and 

21 (n) of section 6103’’. 

22 (3) Section 7213A(a)(1)(B) is amended by strik23 ing ‘‘subsection (l)(18) or (n) of section 6103’’ and in24 serting ‘‘subsection (c), (l)(18), or (n) of section 

25 6103’’. 
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1 (d) EFFECTIVE DATE.—The amendments made by this 

2 section shall apply to requests and consents made after 3 

3 months after the date of the enactment of this Act. 

4 SEC. 407. NOTICE TO TAXPAYER CONCERNING ADMINISTRA5 TIVE DETERMINATION OF BROWSING; AN6 NUAL REPORT. 

7 (a) NOTICE TO TAXPAYER.—Subsection (e) of section 

8 7431 (relating to notification of unlawful inspection and 

9 disclosure) is amended by adding at the end the following: 

10 ‘‘The Secretary shall also notify such taxpayer if the Treas11 ury Inspector General for Tax Administration substantiates 

12 that such taxpayer’s return or return information was in13 spected or disclosed in violation of any of the provisions 

14 specified in paragraph (1), (2), or (3).’’. 

15 (b) REPORTS.—Subsection (p) of section 6103 (relat16 ing to procedure and recordkeeping), as amended by section 

17 405, is further amended by adding at the end the following 

18 new paragraph: 

19 ‘‘(10) REPORT ON UNAUTHORIZED DISCLOSURE

20 AND INSPECTION.—As part of the report required by 

21 paragraph (3)(C) for each calendar year, the Sec22 retary shall furnish information regarding the unau23 thorized disclosure and inspection of returns and re24 turn information, including the number, status, and 

25 results of—
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1 ‘‘(A) administrative investigations, 

2 ‘‘(B) civil lawsuits brought under section 

3 7431 (including the amounts for which such law4 suits were settled and the amounts of damages 

5 awarded), and 

6 ‘‘(C) criminal prosecutions.’’. 

7 (c) EFFECTIVE DATE.—

8 (1) NOTICE.—The amendment made by sub9 section (a) shall apply to determinations made after 

10 the date of the enactment of this Act. 

11 (2) REPORTS.—The amendment made by sub12 section (b) shall apply to calendar years ending after 

13 the date of the enactment of this Act. 

14 SEC. 408. EXPANDED DISCLOSURE IN EMERGENCY CIR15 CUMSTANCES. 

16 (a) IN GENERAL.—Section 6103(i)(3)(B) (relating to 

17 danger of death or physical injury) is amended by striking 

18 ‘‘or State’’ and inserting ‘‘, State, or local’’. 

19 (b) EFFECTIVE DATE.—The amendment made by this 

20 section shall take effect on the date of the enactment of this 

21 Act. 

22 SEC. 409. DISCLOSURE OF TAXPAYER IDENTITY FOR TAX 

23 REFUND PURPOSES. 

24 (a) IN GENERAL.—Paragraph (1) of section 6103(m) 

25 (relating to disclosure of taxpayer identity information) is 
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1 amended by striking ‘‘and other media’’ and by inserting 

2 ‘‘, other media, and through any other means of mass com3 munication,’’. 

4 (b) EFFECTIVE DATE.—The amendments made by this 

5 section shall take effect on the date of the enactment of this 

6 Act. 

7 SEC. 410. DISCLOSURE TO STATE OFFICIALS OF PROPOSED 

8 ACTIONS RELATED TO SECTION 501(c)(3) OR9 GANIZATIONS. 

10 (a) IN GENERAL.—Subsection (c) of section 6104 is 

11 amended by striking paragraph (2) and inserting the fol12 lowing new paragraphs: 

13 ‘‘(2) DISCLOSURE OF PROPOSED ACTIONS.—

14 ‘‘(A) SPECIFIC NOTIFICATIONS.—In the case 

15 of an organization to which paragraph (1) ap16 plies, the Secretary may disclose to the appro17 priate State officer—

18 ‘‘(i) a notice of proposed refusal to rec19 ognize such organization as an organization 

20 described in section 501(c)(3) or a notice of 

21 proposed revocation of such organization’s 

22 recognition as an organization exempt from 

23 taxation, 
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1 ‘‘(ii) the issuance of a letter of pro2 posed deficiency of tax imposed under sec3 tion 507 or chapter 41 or 42, and 

4 ‘‘(iii) the names, addresses, and tax5 payer identification numbers of organiza6 tions that have applied for recognition as 

7 organizations described in section 501(c)(3). 

8 ‘‘(B) ADDITIONAL DISCLOSURES.—Returns 

9 and return information of organizations with re10 spect to which information is disclosed under 

11 subparagraph (A) may be made available for in12 spection by or disclosed to an appropriate State 

13 officer. 

14 ‘‘(C) PROCEDURES FOR DISCLOSURE.—In15 formation may be inspected or disclosed under 

16 subparagraph (A) or (B) only—

17 ‘‘(i) upon written request by an appro18 priate State officer, and 

19 ‘‘(ii) for the purpose of, and only to the 

20 extent necessary in, the administration of 

21 State laws regulating such organizations. 

22 Such information may only be inspected by or 

23 disclosed to a person other than the appropriate 

24 State officer if such person is an officer or em25 ployee of the State and is designated by the ap-
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1 propriate State officer to receive the returns or 

2 return information under this paragraph on be3 half of the appropriate State officer. 

4 ‘‘(D) DISCLOSURES OTHER THAN BY RE5 QUEST.—The Secretary may make available for 

6 inspection or disclose returns and return infor7 mation of an organization to which paragraph 

8 (1) applies to an appropriate State officer of 

9 any State if the Secretary determines that such 

10 inspection or disclosure may facilitate the resolu11 tion of State or Federal issues relating to the 

12 tax-exempt status of such organization. 

13 ‘‘(3) USE IN ADMINISTRATIVE AND JUDICIAL

14 CIVIL PROCEEDINGS.—Returns and return informa15 tion disclosed pursuant to this subsection may be dis16 closed in administrative and judicial civil pro17 ceedings pertaining to the enforcement of State laws 

18 regulating such organizations in a manner prescribed 

19 by the Secretary similar to that for tax administra20 tion proceedings under section 6103(h)(4). 

21 ‘‘(4) NO DISCLOSURE IF IMPAIRMENT.—Returns 

22 and return information shall not be disclosed under 

23 this subsection, or in any proceeding described in 

24 paragraph (3), to the extent that the Secretary deter-
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1 mines that such disclosure would seriously impair 

2 Federal tax administration. 

3 ‘‘(5) DEFINITIONS.—For purposes of this sub4 section—

5 ‘‘(A) RETURN AND RETURN INFORMA6 TION.—The terms ‘return’ and ‘return informa7 tion’ have the respective meanings given to such 

8 terms by section 6103(b). 

9 ‘‘(B) APPROPRIATE STATE OFFICER.—The 

10 term ‘appropriate State officer’ means—

11 ‘‘(i) the State attorney general, or 

12 ‘‘(ii) any other State official charged 

13 with overseeing organizations of the type de14 scribed in section 501(c)(3).’’. 

15 (b) CONFORMING AMENDMENTS.—

16 (1) Subparagraph (A) of section 6103(p)(3) is 

17 amended by inserting ‘‘and section 6104(c)’’ after 

18 ‘‘section’’ in the first sentence. 

19 (2) Paragraph (4) of section 6103(p) is amend20 ed—

21 (A) in the matter preceding subparagraph 

22 (A), by inserting ‘‘, or any appropriate State of23 ficer (as defined in section 6104(c)),’’ before ‘‘or 

24 any other person’’,
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1 (B) in subparagraph (F)(i), by inserting 

2 ‘‘or any appropriate State officer (as defined in 

3 section 6104(c)),’’ before ‘‘or any other person’’, 

4 and 

5 (C) in the matter following subparagraph 

6 (F), by inserting ‘‘, an appropriate State officer 

7 (as defined in section 6104(c)),’’ after ‘‘including 

8 an agency’’ each place it appears. 

9 (3) Paragraph (2) of section 7213(a) is amended 

10 by striking ‘‘6103.’’ and inserting ‘‘6103 or under sec11 tion 6104(c).’’. 

12 (4) Paragraph (2) of section 7213A(a) is amend13 ed by inserting ‘‘or 6104(c)’’ after ‘‘6103’’. 

14 (5) Paragraph (2) of section 7431(a) is amended 

15 by inserting ‘‘(including any disclosure in violation 

16 of section 6104(c))’’ after ‘‘6103’’. 

17 (c) EFFECTIVE DATE.—The amendments made by this 

18 section shall take effect on the date of the enactment of this 

19 Act but shall not apply to requests made before such date.

20 SEC. 411. CONFIDENTIALITY OF TAXPAYER COMMUNICA21 TIONS WITH THE OFFICE OF THE TAXPAYER 

22 ADVOCATE. 

23 (a) IN GENERAL.—Subsection (c) of section 7803 is 

24 amended by adding at the end the following new paragraph: 
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1 ‘‘(5) CONFIDENTIALITY OF TAXPAYER INFORMA2 TION.—

3 ‘‘(A) IN GENERAL.—To the extent author4 ized by the National Taxpayer Advocate or pur5 suant to guidance issued under subparagraph 

6 (B), any officer or employee of the Office of the 

7 Taxpayer Advocate may withhold from the Inter8 nal Revenue Service and the Department of Jus9 tice any information provided by, or regarding 

10 contact with, any taxpayer. 

11 ‘‘(B) ISSUANCE OF GUIDANCE.—In con12 sultation with the Chief Counsel for the Internal 

13 Revenue Service and subject to the approval of 

14 the Commissioner of Internal Revenue, the Na15 tional Taxpayer Advocate may issue guidance 

16 regarding the circumstances (including with re17 spect to litigation) under which, and the persons 

18 to whom, employees of the Office of the Taxpayer 

19 Advocate shall not disclose information obtained 

20 from a taxpayer. To the extent to which any pro21 vision of the Internal Revenue Manual would re22 quire greater disclosure by employees of the Of23 fice of the Taxpayer Advocate than the disclosure 

24 required under such guidance, such provision 

25 shall not apply. 
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1 ‘‘(C) EMPLOYEE PROTECTION.—Section 

2 7214(a)(8) shall not apply to any failure to re3 port knowledge or information if—

4 ‘‘(i) such failure to report is authorized 

5 under subparagraph (A), and 

6 ‘‘(ii) such knowledge or information is 

7 not of fraud committed by a person against 

8 the United States under any revenue law.’’. 

9 (b) CONFORMING AMENDMENT.—Subparagraph (A) of 

10 section 7803(c)(4) is amended by inserting ‘‘and’’ at the 

11 end of clause (ii), by striking ‘‘; and’’ at the end of clause 

12 (iii) and inserting a period, and by striking clause (iv). 

13 TITLE V—MISCELLANEOUS 

14 SEC. 501. CLARIFICATION OF DEFINITION OF CHURCH TAX 

15 INQUIRY. 

16 Subsection (i) of section 7611 (relating to section not 

17 to apply to criminal investigations, etc.) is amended by 

18 striking ‘‘or’’ at the end of paragraph (4), by striking the 

19 period at the end of paragraph (5) and inserting ‘‘, or’’, 

20 and by inserting after paragraph (5) the following: 

21 ‘‘(6) information provided by the Secretary re22 lated to the standards for exemption from tax under 

23 this title and the requirements under this title relat24 ing to unrelated business taxable income.’’. 
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1 SEC. 502. EXPANSION OF DECLARATORY JUDGMENT REM2 EDY TO TAX-EXEMPT ORGANIZATIONS. 

3 (a) IN GENERAL.—Paragraph (1) of section 7428(a) 

4 (relating to creation of remedy) is amended—

5 (1) in subparagraph (B) by inserting after 

6 ‘‘509(a))’’ the following: ‘‘or as a private operating 

7 foundation (as defined in section 4942(j)(3))’’; and 

8 (2) by amending subparagraph (C) to read as 

9 follows: 

10 ‘‘(C) with respect to the initial qualification 

11 or continuing qualification of an organization as 

12 an organization described in subsection (c) 

13 (other than paragraph (3)) or (d) of section 501 

14 which is exempt from tax under section 501(a), 

15 or’’. 

16 (b) COURT JURISDICTION.—Subsection (a) of section 

17 7428 is amended in the material following paragraph (2) 

18 by striking ‘‘United States Tax Court, the United States 

19 Claims Court, or the district court of the United States for 

20 the District of Columbia’’ and inserting the following: 

21 ‘‘United States Tax Court (in the case of any such deter22 mination or failure) or the United States Claims Court or 

23 the district court of the United States for the District of 

24 Columbia (in the case of a determination or failure with 

25 respect to an issue referred to in subparagraph (A) or (B) 

26 of paragraph (1)),’’. 
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1 (c) EFFECTIVE DATE.—The amendments made by this 

2 section shall apply to pleadings filed with respect to deter3 minations (or requests for determinations) made after the 

4 date of the enactment of this Act. 

5 SEC. 503. EMPLOYEE MISCONDUCT REPORT TO INCLUDE 

6 SUMMARY OF COMPLAINTS BY CATEGORY. 

7 (a) IN GENERAL.—Clause (ii) of section 7803(d)(2)(A) 

8 is amended by inserting before the semicolon at the end the 

9 following: ‘‘, including a summary (by category) of the 10 

10 most common complaints made and the number of such 

11 common complaints’’. 

12 (b) EFFECTIVE DATE.—The amendment made by sub13 section (a) shall apply with respect to reporting periods 

14 ending after the date of the enactment of this Act. 

15 SEC. 504. ANNUAL REPORT ON AWARDS OF COSTS AND CER16 TAIN FEES IN ADMINISTRATIVE AND COURT 

17 PROCEEDINGS. 

18 Not later than 3 months after the close of each Federal 

19 fiscal year after fiscal year 2003, the Treasury Inspector 

20 General for Tax Administration shall submit a report to 

21 Congress which specifies for such year—

22 (1) the number of payments made by the United 

23 States pursuant to section 7430 of the Internal Rev24 enue Code of 1986 (relating to awarding of costs and 

25 certain fees);
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1 (2) the amount of each such payment; 

2 (3) an analysis of any administrative issue giv3 ing rise to such payments; and 

4 (4) changes (if any) which will be implemented 

5 as a result of such analysis and other changes (if 

6 any) recommended by the Treasury Inspector General 

7 for Tax Administration as a result of such analysis. 

8 SEC. 505. ANNUAL REPORT ON ABATEMENT OF PENALTIES. 

9 Not later than 6 months after the close of each Federal 

10 fiscal year after fiscal year 2003, the Treasury Inspector 

11 General for Tax Administration shall submit a report to 

12 Congress on abatements of penalties under the Internal Rev13 enue Code of 1986 during such year, including information 

14 on the reasons and criteria for such abatements. 

15 SEC. 506. BETTER MEANS OF COMMUNICATING WITH TAX16 PAYERS. 

17 Not later than 18 months after the date of the enact18 ment of this Act, the Treasury Inspector General for Tax 

19 Administration shall submit a report to Congress evalu20 ating whether technological advances, such as e-mail and 

21 facsimile transmission, permit the use of alternative means 

22 for the Internal Revenue Service to communicate with tax23 payers. 
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1 SEC. 507. EXPLANATION OF STATUTE OF LIMITATIONS AND 

2 CONSEQUENCES OF FAILURE TO FILE. 

3 The Secretary of the Treasury or the Secretary’s dele4 gate shall, as soon as practicable but not later than 180 

5 days after the date of the enactment of this Act, revise the 

6 statement required by section 6227 of the Omnibus Tax7 payer Bill of Rights (Internal Revenue Service Publication 

8 No. 1), and any instructions booklet accompanying a gen9 eral income tax return form for taxable years beginning 

10 after 2002 (including forms 1040, 1040A, 1040EZ, and any 

11 similar or successor forms relating thereto), to provide for 

12 an explanation of—

13 (1) the limitations imposed by section 6511 of 

14 the Internal Revenue Code of 1986 on credits and re15 funds; and 

16 (2) the consequences under such section 6511 of 

17 the failure to file a return of tax. 

18 SEC. 508. AMENDMENT TO TREASURY AUCTION REFORMS. 

19 (a) IN GENERAL.—Clause (i) of section 202(c)(4)(B) 

20 of the Government Securities Act Amendments of 1993 (31 

21 U.S.C. 3121 note) is amended by inserting before the semi22 colon ‘‘(or, if earlier, at the time the Secretary releases the 

23 minutes of the meeting in accordance with paragraph (2))’’. 

24 (b) EFFECTIVE DATE.—The amendment made by sub25 section (a) shall apply to meetings held after the date of 

26 the enactment of this Act. 
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1 SEC. 509. ENROLLED AGENTS. 

2 (a) IN GENERAL.—Chapter 77 (relating to miscella3 neous provisions) is amended by adding at the end the fol4 lowing new section: 

5 ‘‘SEC. 7528. ENROLLED AGENTS. 

6 ‘‘(a) IN GENERAL.—The Secretary may prescribe such 

7 regulations as may be necessary to regulate the conduct of 

8 enrolled agents in regards to their practice before the Inter9 nal Revenue Service. 

10 ‘‘(b) USE OF CREDENTIALS.—Any enrolled agents 

11 properly licensed to practice as required under rules pro12 mulgated under section (a) herein shall be allowed to use 

13 the credentials or designation as ‘enrolled agent’, ‘EA’, or 

14 ‘E.A.’.’’. 

15 (b) CLERICAL AMENDMENT.—The table of sections for 

16 chapter 77 is amended by adding at the end the following 

17 new item:

‘‘Sec. 7528. Enrolled agents.’’.

18 (c) PRIOR REGULATIONS.—Nothing in the amend19 ments made by this section shall be construed to have any 

20 effect on part 10 of title 31, Code of Federal Regulations, 

21 or any other Federal rule or regulation issued before the 

22 date of the enactment of this Act. 

23 SEC. 510. FINANCIAL MANAGEMENT SERVICE FEES. 

24 Notwithstanding any other provision of law, the Fi25 nancial Management Service may charge the Internal Rev-
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1 enue Service, and the Internal Revenue Service may pay 

2 the Financial Management Service, a fee sufficient to cover 

3 the full cost of implementing a continuous levy program 

4 under subsection (h) of section 6331 of the Internal Revenue 

5 Code of 1986. Any such fee shall be based on actual levies 

6 made and shall be collected by the Financial Management 

7 Service by the retention of a portion of amounts collected 

8 by levy pursuant to that subsection. Amounts received by 

9 the Financial Management Service as fees under that sub10 section shall be deposited into the account of the Depart11 ment of the Treasury under section 3711(g)(7) of title 31, 

12 United States Code, and shall be collected and accounted 

13 for in accordance with the provisions of that section. The 

14 amount credited against the taxpayer’s liability on account 

15 of the continuous levy shall be the amount levied, without 

16 reduction for the amount paid to the Financial Manage17 ment Service as a fee.

18 SEC. 511. EXTENSION OF INTERNAL REVENUE SERVICE 

19 USER FEES. 

20 (a) IN GENERAL.—Chapter 77 (relating to miscella21 neous provisions), as amended by section 509, is further 

22 amended by adding at the end the following new section: 

23 ‘‘SEC. 7529. INTERNAL REVENUE SERVICE USER FEES. 

24 ‘‘(a) GENERAL RULE.—The Secretary shall establish 

25 a program requiring the payment of user fees for—
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1 ‘‘(1) requests to the Internal Revenue Service for 

2 ruling letters, opinion letters, and determination let3 ters, and 

4 ‘‘(2) other similar requests. 

5 ‘‘(b) PROGRAM CRITERIA.—

6 ‘‘(1) IN GENERAL.—The fees charged under the 

7 program required by subsection (a)—

8 ‘‘(A) shall vary according to categories (or 

9 subcategories) established by the Secretary, 

10 ‘‘(B) shall be determined after taking into 

11 account the average time for (and difficulty of) 

12 complying with requests in each category (and 

13 subcategory), and 

14 ‘‘(C) shall be payable in advance. 

15 ‘‘(2) EXEMPTIONS, ETC.—

16 ‘‘(A) IN GENERAL.—The Secretary shall 

17 provide for such exemptions (and reduced fees) 

18 under such program as the Secretary determines 

19 to be appropriate. 

20 ‘‘(B) EXEMPTION FOR CERTAIN REQUESTS

21 REGARDING PENSION PLANS.—The Secretary 

22 shall not require payment of user fees under such 

23 program for requests for determination letters 

24 with respect to the qualified status of a pension 

25 benefit plan maintained solely by 1 or more eli-
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1 gible employers or any trust which is part of the 

2 plan. The preceding sentence shall not apply to 

3 any request—

4 ‘‘(i) made after the later of—

5 ‘‘(I) the fifth plan year the pen6 sion benefit plan is in existence, or 

7 ‘‘(II) the end of any remedial 

8 amendment period with respect to the 

9 plan beginning within the first 5 plan 

10 years, or 

11 ‘‘(ii) made by the sponsor of any proto12 type or similar plan which the sponsor in13 tends to market to participating employers. 

14 ‘‘(C) DEFINITIONS AND SPECIAL RULES.—

15 For purposes of subparagraph (B)—

16 ‘‘(i) PENSION BENEFIT PLAN.—The 

17 term ‘pension benefit plan’ means a pen18 sion, profit-sharing, stock bonus, annuity, 

19 or employee stock ownership plan. 

20 ‘‘(ii) ELIGIBLE EMPLOYER.—The term 

21 ‘eligible employer’ means an eligible em22 ployer (as defined in section 

23 408(p)(2)(C)(i)(I)) which has at least 1 em24 ployee who is not a highly compensated em25 ployee (as defined in section 414(q)) and is 
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1 participating in the plan. The determina2 tion of whether an employer is an eligible 

3 employer under subparagraph (B) shall be 

4 made as of the date of the request described 

5 in such subparagraph. 

6 ‘‘(iii) DETERMINATION OF AVERAGE

7 FEES CHARGED.—For purposes of any de8 termination of average fees charged, any re9 quest to which subparagraph (B) applies 

10 shall not be taken into account. 

11 ‘‘(3) AVERAGE FEE REQUIREMENT.—The average 

12 fee charged under the program required by subsection 

13 (a) shall not be less than the amount determined 

14 under the following table:

Average 

‘‘Category Fee 

Employee plan ruling and opinion .............................................. $250

Exempt organization ruling ......................................................... $350

Employee plan determination ...................................................... $300

Exempt organization determination ............................................ $275

Chief counsel ruling ....................................................................... $200.

15 ‘‘(c) TERMINATION.—No fee shall be imposed under 

16 this section with respect to requests made after September 

17 30, 2013.’’. 

18 (b) CONFORMING AMENDMENTS.—

19 (1) The table of sections for chapter 77 is amend20 ed by adding at the end the following new item:

‘‘Sec. 7529. Internal Revenue Service user fees.’’.
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1 (2) Section 10511 of the Revenue Act of 1987 is 

2 repealed. 

3 (3) Section 620 of the Economic Growth and 

4 Tax Relief Reconciliation Act of 2001 is repealed. 

5 (c) LIMITATIONS.—Notwithstanding any other provi6 sion of law, any fees collected pursuant to section 7527 of 

7 the Internal Revenue Code of 1986, as added by subsection 

8 (a), shall not be expended by the Internal Revenue Service 

9 unless provided by an appropriations Act. 

10 (d) EFFECTIVE DATE.—The amendments made by this 

11 section shall apply to requests made after the date of the 

12 enactment of this Act. 

13 TITLE VI—LOW-INCOME 

14 TAXPAYER CLINICS 

15 SEC. 601. LOW-INCOME TAXPAYER CLINICS. 

16 (a) LIMITATION ON AMOUNT OF GRANTS.—Paragraph 

17 (1) of section 7526(c) (relating to special rules and limita18 tions) is amended by striking ‘‘$6,000,000 per year’’ and 

19 inserting ‘‘$9,000,000 for 2004, $12,000,000 for 2005, and 

20 $15,000,000 for each year thereafter’’. 

21 (b) PROMOTION OF CLINICS.—Section 7526(c) is 

22 amended by adding at the end the following new paragraph: 

23 ‘‘(6) PROMOTION OF CLINICS.—The Secretary is 

24 authorized to promote the benefits of and encourage 
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1 the use of low-income taxpayer clinics through the use 

2 of mass communications, referrals, and other means.’’. 

3 (c) USE OF GRANTS FOR OVERHEAD EXPENSES PRO4 HIBITED.—Section 7526(c), as amended by subsection (b), 

5 is further amended by adding at the end the following new 

6 paragraph: 

7 ‘‘(7) USE OF GRANTS FOR OVERHEAD EXPENSES

8 PROHIBITED.—No grant made under this section may 

9 be used for the general overhead expenses of any insti10 tution sponsoring a qualified low-income taxpayer 

11 clinic.’’. 

12 (d) ELIGIBLE CLINICS.—

13 (1) IN GENERAL.—Paragraph (2) of section 

14 7526(b) is amended to read as follows: 

15 ‘‘(2) ELIGIBLE CLINIC.—The term ‘eligible clinic’ 

16 means— 

17 ‘‘(A) any clinical program at an accredited 

18 law, business, or accounting school in which stu19 dents represent low-income taxpayers in con20 troversies arising under this title; and 

21 ‘‘(B) any organization described in section 

22 501(c) and exempt from tax under section 501(a) 

23 which satisfies the requirements of paragraph (1) 

24 through representation of taxpayers or referral of 

25 taxpayers to qualified representatives.’’. 
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1 (2) CONFORMING AMENDMENT.—Subparagraph 

2 (A) of section 7526(b)(1) is amended by striking 

3 ‘‘means a clinic’’ and inserting ‘‘means an eligible 

4 clinic’’. 

5 TITLE VII—FEDERAL-STATE UN6 EMPLOYMENT ASSISTANCE 

7 AGREEMENTS 

8 SEC. 701. APPLICABILITY OF CERTAIN FEDERAL-STATE 

9 AGREEMENTS RELATING TO UNEMPLOYMENT 

10 ASSISTANCE. 

11 Effective as of May 25, 2003, section 208 of Public 

12 Law 107–147 is amended—

13 (1) in subsection (a)(2), by inserting ‘‘on or’’ 

14 after ‘‘ending’’; and 

15 (2) in subsection (b), by striking ‘‘May 31’’ each 

16 place it appears and inserting ‘‘June 1’’.
Union Calendar No. 39

108TH CONGRESS 

1ST SESSION H. R. 1528

[Report No. 108–61] 

A BILL

To amend the Internal Revenue Code of 1986 to 

protect taxpayers and ensure accountability of the Internal Revenue Service. 

APRIL 8, 2003

Reported with an amendment, committed to the Committee of the Whole House on the State of the Union, 

and ordered to be printed