I

108TH CONGRESS

1ST SESSION H. R. 1528

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

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,

3

4 SECTION 1. SHORT TITLE; ETC.

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

6 ‘‘Taxpayer Protection and IRS Accountability Act of

7 2003’’.

8 (b) AMENDMENT OF 1986 CODE.—Except as other9 wise expressly provided, whenever in this Act an amend10 ment or repeal is expressed in terms of an amendment
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1 to, or repeal of, a section or other provision, the reference

2 shall be considered to be made to a section or other provi3 sion of the Internal Revenue Code of 1986.

4 (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.

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.
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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

8 by redesignating section 6654 as section 6641 and by

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

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

11 of chapter 67 (as added by subsection (e)(1) of this sec12 tion).

13 (b) PENALTY CONVERTED TO INTEREST CHARGE.—

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

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

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

17 ESTIMATED INCOME TAX.

18 ‘‘(a) IN GENERAL.—Interest shall be paid on any un19 derpayment of estimated tax by an individual for a taxable

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

21 such interest for any day shall be the product of the un22 derpayment rate established under subsection (b)(2) mul23 tiplied by the amount of the underpayment.

24 ‘‘(b) AMOUNT OF UNDERPAYMENT; INTEREST

25 RATE.—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

7 estimated 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

11 rate with respect to any day in an installment

12 underpayment period shall be the under13 payment rate established under section 6621

14 for the first day of the calendar quarter in

15 which such installment underpayment period

16 begins.

17 ‘‘(B) INSTALLMENT UNDERPAYMENT PE18 RIOD.—For purposes of subparagraph (A), the

19 term ‘installment underpayment period’ means

20 the period beginning on the day after the due

21 date for a required installment and ending on

22 the due date for the subsequent required in23 stallment (or in the case of the 4th required in24 stallment, the 15th day of the 4th month fol25 lowing 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 assump4 tion of 365 days in a calendar year.

5 ‘‘(3) TERMINATION OF ESTIMATED TAX INTER6 EST.—No day after the end of the installment un7 derpayment period for the 4th required installment

8 specified in paragraph (2)(B) for a taxable year

9 shall be treated as a day of underpayment with re10 spect to 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

15 read 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

23 is 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)

7 (as redesignated by subsection (c)(2)) and sub8 section (h) of section 6641 (as so designated) are

9 each amended by striking ‘‘addition to tax’’ each

10 place it occurs and inserting ‘‘interest’’.

11 (2) Section 167(g)(5)(D) is amended by strik12 ing ‘‘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 strik10 ing ‘‘addition to tax under section 6654’’ and insert11 ing ‘‘interest required to be paid under section

12 6641’’.

13 (8) Section 6622(b) is amended—

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

15 heading; and

16 (B) by striking ‘‘addition to tax under sec17 tion 6654 or 6655’’ and inserting ‘‘interest re18 quired to be paid under section 6641 or addi19 tion to tax under section 6655’’.

20 (9) Section 6658(a) is amended—

21 (A) by striking ‘‘6654, or 6655’’ and in22 serting ‘‘or 6655, and no interest shall be re23 quired to be paid under section 6641,’’; and

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

25 ‘‘the tax’’ in paragraph (2)(B)(ii).
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1 (10) Section 6665(b) is amended—

2 (A) in the matter preceding paragraph (1)

3 by striking ‘‘, 6654,’’; and

4 (B) in paragraph (2) by striking ‘‘6654

5 or’’.

6 (11) Section 7203 is amended by striking ‘‘sec7 tion 6654 or 6655’’ and inserting ‘‘section 6655 or

8 interest required to be paid under section 6641’’.

9 (e) CLERICAL AMENDMENTS.—

10 (1) Chapter 67 is amended by inserting after

11 subchapter D the following:

12 ‘‘Subchapter E—Interest on Failure by

13 Individual to Pay Estimated Income Tax

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

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

15 amended by adding at the end the following new

16 items:

‘‘Subchapter D. Notice requirements.

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

income tax.’’.

17 (3) The table of sections for part I of sub18 chapter A of chapter 68 is amended by striking the

19 item relating to section 6654.

20 (f) EFFECTIVE DATE.—The amendments made by

21 this section shall apply to installment payments for taxable

22 years beginning after December 31, 2003. SEC.
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1 102. EXCLUSION FROM GROSS INCOME FOR IN2 TEREST ON OVERPAYMENTS OF INCOME TAX

3 BY INDIVIDUALS.

4 (a) IN GENERAL.—Part III of subchapter B of chap5 ter 1 (relating to items specifically excluded from gross

6 income) is amended by inserting after section 139 the fol7 lowing new 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,

12 gross income shall not include interest paid under section

13 6611 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 over16 payment on the original return if the Secretary determines

17 that the principal purpose of such failure is to take advan18 tage of subsection (a).

19 ‘‘(c) SPECIAL RULE FOR DETERMINING MODIFIED

20 ADJUSTED GROSS INCOME.—For purposes of this title,

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

22 shall not be treated as interest which is exempt from tax

23 for purposes of sections 32(i)(2)(B) and 6012(d) or any

24 computation in which interest exempt from tax under this

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

2 for part III of subchapter B of chapter 1 is amended by

3 inserting after the item relating to section 139 the fol4 lowing new item:

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

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

6 this section shall apply to interest received in calendar

7 years beginning after the date of the enactment of this

8 Act.

9 SEC. 103. ABATEMENT OF INTEREST.

10 (a) ABATEMENT OF INTEREST WITH RESPECT TO

11 ERRONEOUS REFUND CHECK WITHOUT REGARD TO SIZE

12 OF REFUND.—Paragraph (2) of section 6404(e) is amend13 ed by striking ‘‘unless—’’ and all that follows and insert14 ing ‘‘unless the taxpayer (or a related party) has in any

15 way caused such erroneous refund.’’.

16 (b) ABATEMENT OF INTEREST TO EXTENT INTER17 EST IS ATTRIBUTABLE TO TAXPAYER RELIANCE ON

18 WRITTEN STATEMENTS OF THE IRS.—Subsection (f) of

19 section 6404 is amended—

20 (1) in the subsection heading, by striking

21 ‘‘PENALTY OR ADDITION’’ and inserting ‘‘INTEREST,

22 PENALTY, OR ADDITION’’; and
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1 (2) in paragraph (1) and in subparagraph (B)

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

3 and inserting ‘‘interest, penalty, or addition’’.

4 (c) EFFECTIVE DATE.—The amendments made by

5 this section shall apply with respect to interest accruing

6 on or after the date of the enactment of this Act.

7 SEC. 104. DEPOSITS MADE TO SUSPEND RUNNING OF IN8 TEREST ON POTENTIAL UNDERPAYMENTS.

9 (a) IN GENERAL.—Subchapter A of chapter 67 (re10 lating to interest on underpayments) is amended by add11 ing at the end the following new section:

12 ‘‘SEC. 6603. DEPOSITS MADE TO SUSPEND RUNNING OF IN13 TEREST ON POTENTIAL UNDERPAYMENTS,

14 ETC.

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

16 AS PAYMENT OF TAX.—A taxpayer may make a cash de17 posit with the Secretary which may be used by the Sec18 retary to pay any tax imposed under subtitle A or B or

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

20 at the time of the deposit. Such a deposit shall be made

21 in such manner as the Secretary shall prescribe.

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

23 such deposit is used by the Secretary to pay tax, for pur24 poses of section 6601 (relating to interest on underpay-
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1 ments), the tax shall be treated as paid when the deposit

2 is made.

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

4 the Secretary determines that collection of tax is in jeop5 ardy, the Secretary shall return to the taxpayer any

6 amount of the deposit (to the extent not used for a pay7 ment of tax) which the taxpayer requests in writing.

8 ‘‘(d) PAYMENT OF INTEREST.—

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

10 6611 (relating to interest on overpayments), a de11 posit which is returned to a taxpayer shall be treated

12 as a payment of tax for any period to the extent

13 (and only to the extent) attributable to a disputable

14 tax for such period. Under regulations prescribed by

15 the Secretary, rules similar to the rules of section

16 6611(b)(2) shall apply.

17 ‘‘(2) DISPUTABLE TAX.—

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

19 section, the term ‘disputable tax’ means the

20 amount of tax specified at the time of the de21 posit as the taxpayer’s reasonable estimate of

22 the maximum amount of any tax attributable to

23 disputable items.

24 ‘‘(B) SAFE HARBOR BASED ON 30-DAY

25 LETTER.—In the case of a taxpayer who has
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1 been issued a 30-day letter, the maximum

2 amount of tax under subparagraph (A) shall

3 not be less than the amount of the proposed de4 ficiency specified in such letter.

5 ‘‘(3) OTHER DEFINITIONS.—For purposes of

6 paragraph (2)—

7 ‘‘(A) DISPUTABLE ITEM.—The term ‘dis8 putable item’ means any item of income, gain,

9 loss, deduction, or credit if the taxpayer—

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

11 treatment of such item, and

12 ‘‘(ii) reasonably believes that the Sec13 retary also has a reasonable basis for dis14 allowing the taxpayer’s treatment of such

15 item.

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

17 letter’ means the first letter of proposed defi18 ciency which allows the taxpayer an opportunity

19 for administrative review in the Internal Rev20 enue Service Office of Appeals.

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

22 allowable under this subsection shall be the Federal

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

24 compounded daily.

25 ‘‘(e) USE OF DEPOSITS.—
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1 ‘‘(1) PAYMENT OF TAX.—Except as otherwise

2 provided by the taxpayer, deposits shall be treated

3 as used for the payment of tax in the order depos4 ited.

5 ‘‘(2) RETURNS OF DEPOSITS.—Deposits shall

6 be treated as returned to the taxpayer on a last-in,

7 first-out basis.’’.

8 (b) CLERICAL AMENDMENT.—The table of sections

9 for subchapter A of chapter 67 is amended by adding at

10 the end the following new item:

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

11 (c) EFFECTIVE DATE.—

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

13 this section shall apply to deposits made after the

14 date of the enactment of this Act.

15 (2) COORDINATION WITH DEPOSITS MADE

16 UNDER REVENUE PROCEDURE 84 0958.—In the case

17 of an amount held by the Secretary of the Treasury

18 or his delegate on the date of the enactment of this

19 Act as a deposit in the nature of a cash bond deposit

20 pursuant to Revenue Procedure 84 0958, the date

21 that the taxpayer identifies such amount as a de22 posit made pursuant to section 6603 of the Internal

23 Revenue Code (as added by this Act) shall be treat-
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1 ed as the date such amount is deposited for pur2 poses of such section 6603.

3 SEC. 105. EXPANSION OF INTEREST NETTING FOR INDIVID4 UALS.

5 (a) IN GENERAL.—Subsection (d) of section 6621

6 (relating to elimination of interest on overlapping periods

7 of tax overpayments and underpayments) is amended by

8 adding at the end the following: ‘‘Solely for purposes of

9 the preceding sentence, section 6611(e) shall not apply in

10 the case of an individual.’’.

11 (b) EFFECTIVE DATE.—The amendment made by

12 subsection (a) shall apply to interest accrued after Decem13 ber 31, 2003.

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

15 UNINTENTIONAL MINOR ERRORS.

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

17 to file tax return or to pay tax) is amended by adding

18 at the end the following new subsection:

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

20 MINOR ERRORS.—

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

22 tax imposed by subtitle A filed by an individual, the

23 Secretary may waive an addition to tax under sub24 section (a) if—
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1 ‘‘(A) the individual has a history of compli2 ance with the requirements of this title,

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

4 an unintentional minor error,

5 ‘‘(C) the penalty would be grossly dis6 proportionate to the action or expense that

7 would have been needed to avoid the error, and

8 imposing the penalty would be against equity

9 and good conscience,

10 ‘‘(D) waiving the penalty would promote

11 compliance with the requirements of this title

12 and effective tax administration, and

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

14 to remedy the error promptly after discovering

15 it.

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

17 apply if—

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

19 to tax under this subsection with respect to any

20 prior failure by such individual,

21 ‘‘(B) the failure is a mathematical or cler22 ical error (as defined in section 6213(g)(2)), or

23 ‘‘(C) the failure is the lack of a required

24 signature.’’.
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1 (b) EFFECTIVE DATE.—The amendment made by

2 this section shall take effect on January 1, 2004.

3 SEC. 107. FRIVOLOUS TAX SUBMISSIONS.

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

5 read as follows:

6 ‘‘SEC. 6702. FRIVOLOUS TAX SUBMISSIONS.

7 ‘‘(a) CIVIL PENALTY FOR FRIVOLOUS TAX RE8 TURNS.—A person shall pay a penalty of $5,000 if—

9 ‘‘(1) such person files what purports to be a re10 turn of a tax imposed by this title but which—

11 ‘‘(A) does not contain information on

12 which the substantial correctness of the self-as13 sessment may be judged, or

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

15 indicates that the self-assessment is substan16 tially incorrect; and

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

18 ‘‘(A) is based on a position which the Sec19 retary has identified as frivolous under sub20 section (c), or

21 ‘‘(B) reflects a desire to delay or impede

22 the administration of Federal tax laws.

23 ‘‘(b) CIVIL PENALTY FOR SPECIFIED FRIVOLOUS

24 SUBMISSIONS.—
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1 ‘‘(1) IMPOSITION OF PENALTY.—Except as pro2 vided in paragraph (3), any person who submits a

3 specified frivolous submission shall pay a penalty of

4 $5,000.

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

6 purposes of this section—

7 ‘‘(A) SPECIFIED FRIVOLOUS SUBMIS8 SION.—The term ‘specified frivolous submis9 sion’ means a specified submission if any por10 tion of such submission is based on a position

11 which the Secretary has identified as frivolous

12 under subsection (c).

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

14 ‘specified submission’ means—

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

16 ‘‘(I) section 6320 (relating to no17 tice and opportunity for hearing upon

18 filing of notice of lien), or

19 ‘‘(II) section 6330 (relating to

20 notice and opportunity for hearing be21 fore levy), and

22 ‘‘(ii) an application under—

23 ‘‘(I) section 7811 (relating to

24 taxpayer assistance orders),
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1 ‘‘(II) section 6159 (relating to

2 agreements for payment of tax liabil3 ity in installments), or

4 ‘‘(III) section 7122 (relating to

5 compromises).

6 ‘‘(3) OPPORTUNITY TO WITHDRAW SUBMIS7 SION.—If the Secretary provides a person with no8 tice that a submission is a specified frivolous sub9 mission and such person withdraws such submission

10 within 30 days after such notice, the penalty im11 posed under paragraph (1) shall not apply with re12 spect to such submission.

13 ‘‘(c) LISTING OF FRIVOLOUS POSITIONS.—The Sec14 retary shall prescribe (and periodically revise) a list of po15 sitions which the Secretary has identified as being frivo16 lous for purposes of this subsection. The Secretary shall

17 not include in such list any position that the Secretary

18 determines meets the requirement of section

19 6662(d)(2)(B)(ii)(II).

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

21 reduce the amount of any penalty imposed under this sec22 tion if the Secretary determines that such reduction would

23 promote compliance with and administration of the Fed24 eral tax laws.
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1 ‘‘(e) PENALTIES IN ADDITION TO OTHER PEN2 ALTIES.—The penalties imposed by this section shall be

3 in addition to any other penalty provided by law.’’.

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

5 for part I of subchapter B of chapter 68 is amended by

6 striking the item relating to section 6702 and inserting

7 the following new item:

‘‘Sec. 6702. Frivolous tax submissions.’’.

8 (c) EFFECTIVE DATE.—The amendments made by

9 this section shall apply to submissions made and issues

10 raised after the date on which the Secretary first pre11 scribes a list under section 6702(c) of the Internal Rev12 enue Code of 1986, as amended by subsection (a).

13 SEC. 108. CLARIFICATION OF APPLICATION OF FEDERAL

14 TAX DEPOSIT PENALTY.

15 Nothing in section 6656 of the Internal Revenue

16 Code of 1986 shall be construed to permit the percentage

17 specified in subsection (b)(1)(A)(iii) thereof to apply other

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

19 TITLE II—FAIRNESS OF

20 COLLECTION PROCEDURES

21 SEC. 201. PARTIAL PAYMENT OF TAX LIABILITY IN IN22 STALLMENT AGREEMENTS.

23 (a) IN GENERAL.—

24 (1) Section 6159(a) (relating to authorization

25 of agreements) is amended—
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1 (A) by striking ‘‘satisfy liability for pay2 ment of’’ and inserting ‘‘make payment on’’,

3 and

4 (B) by inserting ‘‘full or partial’’ after ‘‘fa5 cilitate’’.

6 (2) Section 6159(c) (relating to Secretary re7 quired to enter into installment agreements in cer8 tain cases) is amended in the matter preceding para9 graph (1) by inserting ‘‘full’’ before ‘‘payment’’.

10 (b) REQUIREMENT TO REVIEW PARTIAL PAYMENT

11 AGREEMENTS EVERY TWO YEARS.—Section 6159 is

12 amended by redesignating subsections (d) and (e) as sub13 sections (e) and (f), respectively, and inserting after sub14 section (c) the following new subsection:

15 ‘‘(d) SECRETARY REQUIRED TO REVIEW INSTALL16 MENT AGREEMENTS FOR PARTIAL COLLECTION EVERY

17 TWO YEARS.—In the case of an agreement entered into

18 by the Secretary under subsection (a) for partial collection

19 of a tax liability, the Secretary shall review the agreement

20 at least once every 2 years.’’.

21 (c) EFFECTIVE DATE.—The amendments made by

22 this section shall apply to agreements entered into on or

23 after the date of the enactment of this Act.
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1 SEC. 202. EXTENSION OF TIME FOR RETURN OF PROPERTY.

2 (a) EXTENSION OF TIME FOR RETURN OF PROPERTY

3 SUBJECT TO LEVY.—Subsection (b) of section 6343 (re4 lating to return of property) is amended by striking ‘‘9

5 months’’ and inserting ‘‘2 years’’.

6 (b) PERIOD OF LIMITATION ON SUITS.—Subsection

7 (c) of section 6532 (relating to suits by persons other than

8 taxpayers) is amended—

9 (1) in paragraph (1) by striking ‘‘9 months’’

10 and inserting ‘‘2 years’’, and

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

12 inserting ‘‘2-year’’.

13 (c) EFFECTIVE DATE.—The amendments made by

14 this section shall apply to—

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

16 of this Act, and

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

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

19 of the Internal Revenue Code of 1986 (without re20 gard to this section) as of such date.

21 SEC. 203. INDIVIDUALS HELD HARMLESS ON WRONGFUL

22 LEVY, ETC., ON INDIVIDUAL RETIREMENT

23 PLAN.

24 (a) IN GENERAL.—Section 6343 (relating to author25 ity to release levy and return property) is amended by add26 ing at the end the following new subsection:
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1 ‘‘(f) INDIVIDUALS HELD HARMLESS ON WRONGFUL

2 LEVY, ETC., ON INDIVIDUAL RETIREMENT PLAN.—

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

4 that an individual retirement plan has been levied

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

6 applies, an amount equal to the sum of—

7 ‘‘(A) the amount of money returned by the

8 Secretary on account of such levy, and

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

10 such amount of money,

11 may be deposited into an individual retirement plan

12 (other than an endowment contract) to which a roll13 over from the plan levied upon is permitted.

14 ‘‘(2) TREATMENT AS ROLLOVER.—The distribu15 tion on account of the levy and any deposit under

16 paragraph (1) with respect to such distribution shall

17 be treated for purposes of this title as if such dis18 tribution and deposit were part of a rollover de19 scribed in section 408(d)(3)(A)(i); except that—

20 ‘‘(A) interest paid under subsection (c)

21 shall be treated as part of such distribution and

22 as not includible in gross income,

23 ‘‘(B) the 60-day requirement in such sec24 tion shall be treated as met if the deposit is

25 made not later than the 60th day after the day
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1 on which the individual receives an amount

2 under paragraph (1) from the Secretary, and

3 ‘‘(C) such deposit shall not be taken into

4 account under section 408(d)(3)(B).

5 ‘‘(3) REFUND, ETC., OF INCOME TAX ON

6 LEVY.—If any amount is includible in gross income

7 for a taxable year by reason of a levy referred to in

8 paragraph (1) and any portion of such amount is

9 treated as a rollover under paragraph (2), any tax

10 imposed by chapter 1 on such portion shall not be

11 assessed, and if assessed shall be abated, and if col12 lected shall be credited or refunded as an overpay13 ment made on the due date for filing the return of

14 tax for such taxable year.

15 ‘‘(4) INTEREST.—Notwithstanding subsection

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

17 a case in which the Secretary makes a determination

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

19 levy upon an individual retirement plan.’’.

20 (b) EFFECTIVE DATE.—The amendment made by

21 this section shall apply to amounts paid under subsections

22 (b), (c), and (d)(2)(A) of section 6343 of the Internal Rev23 enue Code of 1986 after December 31, 2003.
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1 SEC. 204. SEVEN-DAY THRESHOLD ON TOLLING OF STAT2 UTE OF LIMITATIONS DURING TAX REVIEW.

3 (a) IN GENERAL.—Section 7811(d)(1) (relating to

4 suspension of running of period of limitation) is amended

5 by inserting after ‘‘application,’’ the following: ‘‘but only

6 if the date of such decision is at least 7 days after the

7 date of the taxpayer’s application’’.

8 (b) EFFECTIVE DATE.—The amendment made by

9 this section shall apply to applications filed after the date

10 of the enactment of this Act.

11 SEC. 205. STUDY OF LIENS AND LEVIES.

12 The Secretary of the Treasury, or the Secretary’s del13 egate, shall conduct a study of the practices of the Inter14 nal Revenue Service concerning liens and levies. The study

15 shall examine—

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

17 Internal Revenue Service, and

18 (2) the practicality of recording liens and lev19 ying against property in cases in which the cost of

20 such actions exceeds the amount to be realized from

21 such property.

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

23 this Act, the Secretary shall submit such study to the

24 Committee on Ways and Means of the House of Rep25 resentatives 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 (re7 lating to application of internal revenue laws) is amended

8 by 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),

12 the Commissioner shall take an action in accordance

13 with the guidelines established under paragraph (2)

14 against any employee of the Internal Revenue Serv15 ice 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

19 a 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

13 the 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 Reha24 bilitation Act of 1973; or
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1 ‘‘(vi) title I of the Americans with

2 Disabilities Act of 1990; or

3 ‘‘(C) the Internal Revenue Service policy

4 on unauthorized inspection of returns or return

5 information;

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

15 of the Treasury regulations, or policies of the Inter16 nal 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 pre24 scribed therefor (including any extensions) when a
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1 tax is due and owing, unless such failure is due to

2 reasonable cause and not due to willful neglect;

3 ‘‘(9) willful understatement of Federal tax li4 ability, unless such understatement is due to reason5 able cause and not due to willful neglect; and

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

7 take other action under this title, for the purpose of

8 extracting personal gain or benefit.

9 ‘‘(c) DETERMINATIONS OF COMMISSIONER.—

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

11 take a personnel action other than a disciplinary ac12 tion provided for in the guidelines under subsection

13 (a)(2) for an act or omission described under sub14 section (b).

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

16 under paragraph (1) shall be at the sole discretion

17 of the Commissioner and may not be delegated to

18 any other officer. The Commissioner, in his sole dis19 cretion, may establish a procedure to determine if an

20 individual should be referred to the Commissioner

21 for a determination by the Commissioner under

22 paragraph (1).

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

24 provision of law, any determination of the Commis25 sioner under this subsection may not be reviewed in
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1 any administrative or judicial proceeding. A finding

2 that an act or omission described under subsection

3 (b) occurred may be reviewed.

4 ‘‘(d) DEFINITION.—For the purposes of the provi5 sions described in clauses (i), (ii), and (iv) of subsection

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

7 Federal financial assistance or an education program or

8 activity receiving Federal financial assistance shall include

9 any program or activity conducted by the Internal Rev10 enue Service for a taxpayer.

11 ‘‘(e) ANNUAL REPORT.—The Commissioner shall

12 submit to Congress annually a report on disciplinary ac13 tions under this section.’’.

14 (b) CLERICAL AMENDMENT.—The table of sections

15 for chapter 80 is amended by inserting after the item re16 lating to section 7804 the following new item:

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

17 (c) REPEAL OF SUPERSEDED SECTION.—Section

18 1203 of the Internal Revenue Service Restructuring and

19 Reform Act of 1998 (Public Law 105 09206; 112 Stat.

20 720) is repealed.

21 (d) EFFECTIVE DATE.—The amendments made by

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

23 of this Act.
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1 SEC. 302. CONFIRMATION OF AUTHORITY OF TAX COURT

2 TO APPLY DOCTRINE OF EQUITABLE

3 RECOUPMENT.

4 (a) CONFIRMATION OF AUTHORITY OF TAX COURT

5 TO APPLY DOCTRINE OF EQUITABLE RECOUPMENT.—

6 Subsection (b) of section 6214 (relating to jurisdiction

7 over other years and quarters) is amended by adding at

8 the end the following new sentence: ‘‘Notwithstanding the

9 preceding sentence, the Tax Court may apply the doctrine

10 of equitable recoupment to the same extent that it is avail11 able in civil tax cases before the district courts of the

12 United States and the United States Court of Federal

13 Claims.’’.

14 (b) EFFECTIVE DATE.—The amendments made by

15 this section shall apply to any action or proceeding in the

16 Tax Court with respect to which a decision has not become

17 final (as determined under section 7481 of the Internal

18 Revenue Code of 1986) as of the date of the enactment

19 of this Act.

20 SEC. 303. JURISDICTION OF TAX COURT OVER COLLECTION

21 DUE PROCESS CASES.

22 (a) IN GENERAL.—Section 6330(d)(1) (relating to

23 judicial review of determination) is amended to read as

24 follows:

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

26 The person may, within 30 days of a determination
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1 under this section, appeal such determination to the

2 Tax Court (and the Tax Court shall have jurisdic3 tion with respect to such matter).’’.

4 (b) EFFECTIVE DATE.—The amendment made by

5 subsection (a) shall apply to judicial appeals filed after

6 the date of the enactment of this Act.

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

8 IN COMPROMISE.

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

10 record) is amended by striking ‘‘Whenever a compromise’’

11 and all that follows through ‘‘his delegate’’ and inserting

12 ‘‘If the Secretary determines that an opinion of the Gen13 eral Counsel for the Department of the Treasury, or the

14 Counsel’s delegate, is required with respect to a com15 promise, there shall be placed on file in the office of the

16 Secretary such opinion’’.

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

18 amended by striking the second and third sentences.

19 (c) EFFECTIVE DATE.—The amendments made by

20 this section shall apply to offers-in-compromise submitted

21 or pending on or after the date of the enactment of this

22 Act.
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1 SEC. 305. 15-DAY DELAY IN DUE DATE FOR ELECTRONI2 CALLY FILED INDIVIDUAL INCOME TAX RE3 TURNS.

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

5 filing income tax returns) is amended by adding at the

6 end the following new subsection:

7 ‘‘(f) ELECTRONICALLY FILED RETURNS OF INDIVID8 UALS.—

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

10 under section 6012 or 6013 (other than an indi11 vidual to whom subsection (c) applies) which are

12 filed electronically—

13 ‘‘(A) in the case of returns filed on the

14 basis of a calendar year, shall be filed on or be15 fore the 30th day of April following the close of

16 the calendar year, and

17 ‘‘(B) in the case of returns filed on the

18 basis of a fiscal year, shall be filed on or before

19 the last day of the 4th month following the

20 close of the fiscal year.

21 ‘‘(2) ELECTRONIC FILING.—Paragraph (1)

22 shall not apply to any return unless—

23 ‘‘(A) such return is accepted by the Sec24 retary, and
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1 ‘‘(B) the balance due (if any) shown on

2 such return is paid electronically in a manner

3 prescribed by the Secretary.

4 ‘‘(3) SPECIAL RULES.—

5 ‘‘(A) ESTIMATED TAX.—If—

6 ‘‘(i) paragraph (1) applies to an indi7 vidual for any taxable year, and

8 ‘‘(ii) there is an overpayment of tax

9 shown on the return for such year which

10 the individual allows against the individ11 ual’s obligation under section 6641,

12 then, with respect to the amount so allowed,

13 any reference in section 6641 to the April 15

14 following such taxable year shall be treated as

15 a reference to April 30.

16 ‘‘(B) REFERENCES TO DUE DATE.—Para17 graph (1) shall apply solely for purposes of de18 termining the due date for the individual’s obli19 gation to file and pay tax and, except as other20 wise provided by the Secretary, shall be treated

21 as an extension of the due date for any other

22 purpose under this title.’’.

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

24 this section shall apply to returns filed with respect to tax25 able years beginning after December 31, 2002.
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1 SEC. 306. ACCESS OF NATIONAL TAXPAYER ADVOCATE TO

2 INDEPENDENT LEGAL COUNSEL.

3 Clause (i) of section 7803(c)(2)(D) (relating to per4 sonnel actions) is amended by striking ‘‘and’’ at the end

5 of subclause (I), by striking the period at the end of sub6 clause (II) and inserting ‘‘, and’’, and by adding at the

7 end the following new subclause:

8 ‘‘(III) appoint a counsel in the

9 Office of the Taxpayer Advocate to re10 port solely to the National Taxpayer

11 Advocate.’’.

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

13 BY DIRECT DEPOSIT.

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

15 title 31, United States Code, is amended by adding at the

16 end the following new section:

17 ‘‘ 1A3337. Payment of motor fuel excise tax refunds

18 by direct deposit

19 ‘‘The Secretary of the Treasury shall make payments

20 under sections 6420, 6421, and 6427 of the Internal Rev21 enue Code of 1986 by electronic funds transfer (as defined

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

23 payment—

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

25 funds transfer; and
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1 ‘‘(2) satisfies the requirements of section

2 3332(g) with respect to such payment at such time

3 and in such manner as the Secretary may require.’’.

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

5 for subchapter II of chapter 33 of title 31, United States

6 Code, is amended by adding at the end the following new

7 item:

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

8 SEC. 308. FAMILY BUSINESS TAX SIMPLIFICATION.

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

10 purposes of partnerships) is amended by redesignating

11 subsection (f) as subsection (g) and by inserting after sub12 section (e) the following new subsection:

13 ‘‘(f) QUALIFIED JOINT VENTURE.—

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

15 joint venture conducted by a husband and wife who

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

17 of this title—

18 ‘‘(A) such joint venture shall not be treat19 ed as a partnership,

20 ‘‘(B) all items of income, gain, loss, deduc21 tion, and credit shall be divided between the

22 spouses in accordance with their respective in23 terests in the venture, and

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

25 such spouse’s respective share of such items as
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1 if they were attributable to a trade or business

2 conducted by such spouse as a sole proprietor.

3 ×

4 ‘‘(2) QUALIFIED JOINT VENTURE.—For pur5 poses of paragraph (1), the term ‘qualified joint ven6 ture’ means any joint venture involving the conduct

7 of a trade or business if—

8 ‘‘(A) the only members of such joint ven9 ture are a husband and wife,

10 ‘‘(B) both spouses materially participate

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

12 regard to paragraph (5) thereof) in such trade

13 or business, and

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

15 this subsection.’’.

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

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

18 earnings from self-employment) is amended by strik19 ing ‘‘and’’ at the end of paragraph (14), by striking

20 the period at the end of paragraph (15) and insert21 ing ‘‘; and’’, and by inserting after paragraph (15)

22 the following new paragraph:

23 ‘‘(16) notwithstanding the preceding provisions

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

25 loss from a qualified joint venture shall be taken
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1 into account as provided in section 761(f) in deter2 mining net earnings from self-employment of such

3 spouse.’’.

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

5 Security Act (defining net earnings from self-em6 ployment) is amended by striking ‘‘and’’ at the end

7 of paragraph (14), by striking the period at the end

8 of paragraph (15) and inserting ‘‘; and’’, and by in9 serting after paragraph (15) the following new para10 graph:

11 ‘‘(16) Notwithstanding the preceding provisions

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

13 loss from a qualified joint venture shall be taken

14 into account as provided in section 761(f) of the In15 ternal Revenue Code of 1986 in determining net

16 earnings from self-employment of such spouse.’’.

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

18 this section shall apply to taxable years beginning after

19 December 31, 2002.

20 SEC. 309. HEALTH INSURANCE COSTS OF ELIGIBLE INDI21 VIDUALS.

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

23 35(e) is amended by inserting at the end the following new

24 subparagraph:
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1 ‘‘(C) WAIVER BY ELIGIBLE INDIVID2 UALS.—With respect to any month which ends

3 before January 1, 2006, this paragraph shall

4 not apply with respect to any eligible individual

5 and such individual’s qualifying family members

6 if such eligible individual elects to waive the ap7 plication of this paragraph with respect to such

8 month.’’.

9 (b) EFFECTIVE DATE.—The amendment made by

10 this section 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 exemp15 tion from tax on corporations, certain trusts, etc.) is

16 amended by redesignating subsection (p) as subsection (q)

17 and by inserting after subsection (o) the following new

18 subsection:

19 ‘‘(p) SUSPENSION OF TAX-EXEMPT STATUS OF TER20 RORIST ORGANIZATIONS.—

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

22 under subsection (a) with respect to any organiza23 tion described in paragraph (2), and the eligibility of

24 any organization described in paragraph (2) to apply

25 for recognition of exemption under subsection (a),
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1 shall be suspended during the period described in

2 paragraph (3).

3 ‘‘(2) TERRORIST ORGANIZATIONS.—An organi4 zation is described in this paragraph if such organi5 zation is designated or otherwise individually

6 identified—

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 or10 ganization,

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

15 United Nations Participation Act of 1945 for

16 the purpose of imposing on such organization

17 an economic 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 sup24 porting or engaging in terrorist activity (as

25 defined in section 212(a)(3)(B) of the Im-
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1 migration and Nationality Act) or sup2 porting terrorism (as defined in section

3 140(d)(2) of the Foreign Relations Author4 ization Act, Fiscal Years 1988 and 1989);

5 and

6 ‘‘(ii) such Executive order refers to

7 this subsection.

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

9 any organization described in paragraph (2), the pe10 riod of suspension—

11 ‘‘(A) begins on the later of—

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

13 a designation or identification described in

14 paragraph (2) with respect to such organi15 zation, or

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

17 subsection, and

18 ‘‘(B) ends on the first date that all des19 ignations and identifications described in para20 graph (2) with respect to such organization are

21 rescinded pursuant to the law or Executive

22 order under which such designation or identi23 fication was made.

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

25 shall be allowed under section 170, 545(b)(2),
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1 556(b)(2), 642(c), 2055, 2106(a)(2), or 2522 for

2 any contribution to an organization described in

3 paragraph (2) during the period described in para4 graph (3).

5 ‘‘(5) DENIAL OF ADMINISTRATIVE OR JUDICIAL

6 CHALLENGE OF SUSPENSION OR DENIAL OF DEDUC7 TION.—Notwithstanding section 7428 or any other

8 provision of law, no organization or other person

9 may challenge a suspension under paragraph (1), a

10 designation or identification described in paragraph

11 (2), the period of suspension described in paragraph

12 (3), or a denial of a deduction under paragraph (4)

13 in any administrative or judicial proceeding relating

14 to the Federal tax liability of such organization or

15 other person.

16 ‘‘(6) ERRONEOUS DESIGNATION.—

17 ‘‘(A) IN GENERAL.—If—

18 ‘‘(i) the tax exemption of any organi19 zation described in paragraph (2) is sus20 pended under paragraph (1),

21 ‘‘(ii) each designation and identifica22 tion described in paragraph (2) which has

23 been made with respect to such organiza24 tion is determined to be erroneous pursu25 ant to the law or Executive order under
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1 which such designation or identification

2 was made, and

3 ‘‘(iii) the erroneous designations and

4 identifications result in an overpayment of

5 income tax for any taxable year by such

6 organization,

7 credit or refund (with interest) with respect to

8 such overpayment shall be made.

9 ‘‘(B) WAIVER OF LIMITATIONS.—If the

10 credit or refund of any overpayment of tax de11 scribed in subparagraph (A)(iii) is prevented at

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

13 law (including res judicata), such credit or re14 fund may nevertheless be allowed or made if the

15 claim therefor is filed before the close of the 1-

16 year period beginning on the date of the last

17 determination described in subparagraph

18 (A)(ii).

19 ‘‘(7) NOTICE OF SUSPENSIONS.—If the tax ex20 emption of any organization is suspended under this

21 subsection, the Internal Revenue Service shall up22 date the listings of tax-exempt organizations and

23 shall publish appropriate notice to taxpayers of such

24 suspension and of the fact that contributions to such
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1 organization are not deductible during the period of

2 such suspension.’’.

3 (b) EFFECTIVE DATE.—The amendments made by

4 this section shall apply to designations made before, on,

5 or after the date of the enactment of this Act.

6 TITLE IV—CONFIDENTIALITY

7 AND DISCLOSURE

8 SEC. 401. COLLECTION ACTIVITIES WITH RESPECT TO

9 JOINT RETURN DISCLOSABLE TO EITHER

10 SPOUSE BASED ON ORAL REQUEST.

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

12 (relating to disclosure of collection activities with respect

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

14 first place it appears.

15 (b) EFFECTIVE DATE.—The amendment made by

16 this section shall apply to requests made after the date

17 of the enactment of this Act.

18 SEC. 402. TAXPAYER REPRESENTATIVES NOT SUBJECT TO

19 EXAMINATION ON SOLE BASIS OF REPRESEN20 TATION OF TAXPAYERS.

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

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

24 amended—
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1 (1) by striking ‘‘Returns’’ and inserting the fol2 lowing:

3 ‘‘(A) IN GENERAL.—Returns’’, and

4 (2) by adding at the end the following new sub5 paragraph:

6 ‘‘(B) TAXPAYER REPRESENTATIVES.—Not7 withstanding subparagraph (A), the return of

8 the representative of a taxpayer whose return is

9 being examined by an officer or employee of the

10 Department of the Treasury shall not be open

11 to inspection by such officer or employee on the

12 sole basis of the representative’s relationship to

13 the taxpayer unless a supervisor of such officer

14 or employee has approved the inspection of the

15 return of such representative on a basis other

16 than by reason of such relationship.’’.

17 (b) EFFECTIVE DATE.—The amendment made by

18 this section shall take effect on the date which is 180 days

19 after the date of the enactment of this Act.

20 SEC. 403. DISCLOSURE IN JUDICIAL OR ADMINISTRATIVE

21 TAX PROCEEDINGS OF RETURN AND RETURN

22 INFORMATION OF PERSONS WHO ARE NOT

23 PARTY TO SUCH PROCEEDINGS.

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

25 (relating to disclosure to certain Federal officers and em-
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1 ployees for purposes of tax administration, etc.) is amend2 ed by adding at the end the following new subparagraph:

3 ‘‘(B) DISCLOSURE IN JUDICIAL OR ADMIN4 ISTRATIVE TAX PROCEEDINGS OF RETURN AND

5 RETURN INFORMATION OF PERSONS NOT PARTY

6 TO SUCH PROCEEDINGS.—

7 ‘‘(i) NOTICE.—Return or return infor8 mation of any person who is not a party to

9 a judicial or administrative proceeding de10 scribed in this paragraph shall not be dis11 closed under clause (ii) or (iii) of subpara12 graph (A) until after the Secretary makes

13 a reasonable effort to give notice to such

14 person and an opportunity for such person

15 to request the deletion of matter from such

16 return or return information, including any

17 of the items referred to in paragraphs (1)

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

19 shall include a statement of the issue or

20 issues the resolution of which is the reason

21 such return or return information is

22 sought. In the case of S corporations, part23 nerships, estates, and trusts, such notice

24 shall be made at the entity level.
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1 ‘‘(ii) DISCLOSURE LIMITED TO PERTI2 NENT PORTION.—The only portion of a re3 turn or return information described in

4 clause (i) which may be disclosed under

5 subparagraph (A) is that portion of such

6 return or return information that directly

7 relates to the resolution of an issue in such

8 proceeding.

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

10 not apply—

11 ‘‘(I) to any civil action under sec12 tion 7407, 7408, or 7409,

13 ‘‘(II) to any ex parte proceeding

14 for obtaining a search warrant, order

15 for entry on premises or safe deposit

16 boxes, or similar ex parte proceeding,

17 ‘‘(III) to disclosure of third party

18 return information by indictment or

19 criminal information, or

20 ‘‘(IV) if the Attorney General or

21 the Attorney General’s delegate deter22 mines that the application of such

23 clause would seriously impair a crimi24 nal tax investigation or proceeding.’’.
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1 (b) CONFORMING AMENDMENTS.—Paragraph (4) of

2 section 6103(h) is amended by—

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

4 inserting ‘‘PROCEEDINGS.—

5 ‘‘(A) IN GENERAL.—Except as provided in

6 subparagraph (B), a return’’;

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

8 (C), and (D) as clauses (i), (ii), (iii), and (iv), re9 spectively; and

10 (3) in the matter following clause (iv) (as so re11 designated), by striking ‘‘subparagraph (A), (B), or

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

13 moving such matter 2 ems to the right.

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

15 this section shall apply to proceedings commenced after

16 the date of the enactment of this Act.

17 SEC. 404. PROHIBITION OF DISCLOSURE OF TAXPAYER

18 IDENTIFICATION INFORMATION WITH RE19 SPECT TO DISCLOSURE OF ACCEPTED OF20 FERS-IN-COMPROMISE.

21 (a) GENERAL.—Paragraph (1) of section 6103(k)

22 (relating to disclosure of certain returns and return infor23 mation for tax administrative purposes) is amended by in24 serting ‘‘(other than the taxpayer’s address and TIN)’’

25 after ‘‘Return information’’.
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1 (b) EFFECTIVE DATE.—The amendment made by

2 this section shall apply to disclosures made after the date

3 of the enactment of this Act.

4 SEC. 405. COMPLIANCE BY CONTRACTORS WITH CONFIDEN5 TIALITY SAFEGUARDS.

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

7 law requirements) is amended by adding at the end the

8 following new paragraph:

9 ‘‘(9) DISCLOSURE TO CONTRACTORS AND

10 OTHER AGENTS.—Notwithstanding any other provi11 sion of this section, no return or return information

12 shall be disclosed to any contractor or other agent

13 of a Federal, State, or local agency unless such

14 agency, to the satisfaction of the Secretary—

15 ‘‘(A) has requirements in effect which re16 quire each such contractor or other agent which

17 would have access to returns or return informa18 tion to provide safeguards (within the meaning

19 of paragraph (4)) to protect the confidentiality

20 of such returns or return information,

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

22 review (mid-point review in the case of con23 tracts of less than 1 year in duration) of each

24 such contractor or other agent to determine

25 compliance with such requirements,
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1 ‘‘(C) submits the findings of the most re2 cent review conducted under subparagraph (B)

3 to the Secretary as part of the report required

4 by paragraph (4)(E), and

5 ‘‘(D) certifies to the Secretary for the most

6 recent annual period that each such contractor

7 or other agent is in compliance with all such re8 quirements.

9 The certification required by subparagraph (D) shall

10 include the name and address of each contractor and

11 other agent, a description of the contract of the con12 tractor or other agent with the agency, and the du13 ration of such contract.’’.

14 (b) CONFORMING AMENDMENT.—Subparagraph (B)

15 of section 6103(p)(8) is amended by inserting ‘‘or para16 graph (9)’’ after ‘‘subparagraph (A)’’.

17 (c) EFFECTIVE DATE.—

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

19 this section shall apply to disclosures made after De20 cember 31, 2003.

21 (2) CERTIFICATIONS.—The first certification

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

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

24 made with respect to calendar year 2004.
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1 SEC. 406. HIGHER STANDARDS FOR REQUESTS FOR AND

2 CONSENTS TO DISCLOSURE.

3 (a) IN GENERAL.—Subsection (c) of section 6103

4 (relating to disclosure of returns and return information

5 to designee of taxpayer) is amended by adding at the end

6 the following new paragraphs:

7 ‘‘(2) REQUIREMENTS FOR VALID REQUESTS

8 AND CONSENTS.—A request for or consent to disclo9 sure under paragraph (1) shall only be valid for pur10 poses of this section, sections 7213, 7213A, and

11 7431 if—

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

13 or consent designates a recipient of such disclo14 sure and is dated, and

15 ‘‘(B) at the time such request or consent

16 is submitted to the Secretary, the submitter of

17 such request or consent certifies, under penalty

18 of perjury, that such request or consent com19 plied with subparagraph (A).

20 ‘‘(3) RESTRICTIONS ON PERSONS OBTAINING

21 INFORMATION.—Any person shall, as a condition for

22 receiving return or return information under para23 graph (1)—

24 ‘‘(A) ensure that such return and return

25 information is kept confidential,
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1 ‘‘(B) use such return and return informa2 tion only for the purpose for which it was re3 quested, and

4 ‘‘(C) not disclose such return and return

5 information except to accomplish the purpose

6 for which it was requested, unless a separate

7 consent from the taxpayer is obtained.

8 ‘‘(4) REQUIREMENTS FOR FORM PRESCRIBED

9 BY SECRETARY.—For purposes of this subsection,

10 the Secretary shall prescribe a form for requests and

11 consents which shall—

12 ‘‘(A) contain a warning, prominently dis13 played, informing the taxpayer that the form

14 should not be signed unless it is completed,

15 ‘‘(B) state that if the taxpayer believes

16 there is an attempt to coerce him to sign an in17 complete or blank form, the taxpayer should re18 port the matter to the Treasury Inspector Gen19 eral for Tax Administration, and

20 ‘‘(C) contain the address and telephone

21 number of the Treasury Inspector General for

22 Tax Administration.’’.

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

24 date of the enactment of this Act, the Treasury Inspector

25 General for Tax Administration shall submit a report to
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1 the Congress on compliance with the designation and cer2 tification requirements applicable to requests for or con3 sent to disclosure of returns and return information under

4 section 6103(c) of the Internal Revenue Code of 1986, as

5 amended by subsection (a). Such report shall—

6 (1) evaluate (on the basis of random sampling)

7 whether—

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

9 is achieving the purposes of this section;

10 (B) requesters and submitters for such dis11 closure are continuing to evade the purposes of

12 this section and, if so, how; and

13 (C) the sanctions for violations of such re14 quirements are adequate; and

15 (2) include such recommendations that the

16 Treasury Inspector General for Tax Administration

17 considers necessary or appropriate to better achieve

18 the purposes of this section.

19 (c) CONFORMING AMENDMENTS.—

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

21 ‘‘TAXPAYER.—The Secretary’’ and inserting ‘‘TAX22 PAYER.—

23 ‘‘(1) IN GENERAL.—The Secretary’’.
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1 (2) Section 7213(a)(1) is amended by striking

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

3 and (n) of section 6103’’.

4 (3) Section 7213A(a)(1)(B) is amended by

5 striking ‘‘subsection (l)(18) or (n) of section 6103’’

6 and inserting ‘‘subsection (c), (l)(18), or (n) of sec7 tion 6103’’.

8 (d) EFFECTIVE DATE.—The amendments made by

9 this section shall apply to requests and consents made

10 after 3 months after the date of the enactment of this

11 Act.

12 SEC. 407. NOTICE TO TAXPAYER CONCERNING ADMINIS13 TRATIVE DETERMINATION OF BROWSING; AN14 NUAL REPORT.

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

16 7431 (relating to notification of unlawful inspection and

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

18 ‘‘The Secretary shall also notify such taxpayer if the

19 Treasury Inspector General for Tax Administration sub20 stantiates that such taxpayer’s return or return informa21 tion was inspected or disclosed in violation of any of the

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

23 (b) REPORTS.—Subsection (p) of section 6103 (relat24 ing to procedure and recordkeeping), as amended by sec-
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1 tion 405, is further amended by adding at the end the

2 following new paragraph:

3 ‘‘(10) REPORT ON UNAUTHORIZED DISCLOSURE

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

5 paragraph (3)(C) for each calendar year, the Sec6 retary shall furnish information regarding the unau7 thorized disclosure and inspection of returns and re8 turn information, including the number, status, and

9 results of—

10 ‘‘(A) administrative investigations,

11 ‘‘(B) civil lawsuits brought under section

12 7431 (including the amounts for which such

13 lawsuits were settled and the amounts of dam14 ages awarded), and

15 ‘‘(C) criminal prosecutions.’’.

16 (c) EFFECTIVE DATE.—

17 (1) NOTICE.—The amendment made by sub18 section (a) shall apply to determinations made after

19 the date of the enactment of this Act.

20 (2) REPORTS.—The amendment made by sub21 section (b) shall apply to calendar years ending after

22 the date of the enactment of this Act.
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1 SEC. 408. EXPANDED DISCLOSURE IN EMERGENCY CIR2 CUMSTANCES.

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

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

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

6 (b) EFFECTIVE DATE.—The amendment made by

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

8 of this Act.

9 SEC. 409. DISCLOSURE OF TAXPAYER IDENTITY FOR TAX

10 REFUND PURPOSES.

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

12 (relating to disclosure of taxpayer identity information) is

13 amended by striking ‘‘and other media’’ and by inserting

14 ‘‘, other media, and through any other means of mass

15 communication,’’.

16 (b) EFFECTIVE DATE.—The amendments made by

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

18 of this Act.

19 SEC. 410. DISCLOSURE TO STATE OFFICIALS OF PROPOSED

20 ACTIONS RELATED TO SECTION 501(c)(3) OR21 GANIZATIONS.

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

23 amended by striking paragraph (2) and inserting the fol24 lowing new paragraphs:

25 ‘‘(2) DISCLOSURE OF PROPOSED ACTIONS.—
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1 ‘‘(A) SPECIFIC NOTIFICATIONS.—In the

2 case of an organization to which paragraph (1)

3 applies, the Secretary may disclose to the ap4 propriate State officer—

5 ‘‘(i) a notice of proposed refusal to

6 recognize such organization as an organi7 zation described in section 501(c)(3) or a

8 notice of proposed revocation of such orga9 nization’s recognition as an organization

10 exempt from taxation,

11 ‘‘(ii) the issuance of a letter of pro12 posed deficiency of tax imposed under sec13 tion 507 or chapter 41 or 42, and

14 ‘‘(iii) the names, addresses, and tax15 payer identification numbers of organiza16 tions that have applied for recognition as

17 organizations described in section

18 501(c)(3).

19 ‘‘(B) ADDITIONAL DISCLOSURES.—Returns

20 and return information of organizations with

21 respect to which information is disclosed under

22 subparagraph (A) may be made available for in23 spection by or disclosed to an appropriate State

24 officer.
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1 ‘‘(C) PROCEDURES FOR DISCLOSURE.—In2 formation may be inspected or disclosed under

3 subparagraph (A) or (B) only—

4 ‘‘(i) upon written request by an ap5 propriate State officer, and

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

7 the extent necessary in, the administration

8 of State laws regulating such organiza9 tions.

10 Such information may only be inspected by or

11 disclosed to a person other than the appropriate

12 State officer if such person is an officer or em13 ployee of the State and is designated by the ap14 propriate State officer to receive the returns or

15 return information under this paragraph on be16 half of the appropriate State officer.

17 ‘‘(D) DISCLOSURES OTHER THAN BY RE18 QUEST.—The Secretary may make available for

19 inspection or disclose returns and return infor20 mation of an organization to which paragraph

21 (1) applies to an appropriate State officer of

22 any State if the Secretary determines that such

23 inspection or disclosure may facilitate the reso24 lution of State or Federal issues relating to the

25 tax-exempt status of such organization.
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1 ‘‘(3) USE IN ADMINISTRATIVE AND JUDICIAL

2 CIVIL PROCEEDINGS.—Returns and return informa3 tion disclosed pursuant to this subsection may be

4 disclosed in administrative and judicial civil pro5 ceedings pertaining to the enforcement of State laws

6 regulating such organizations in a manner pre7 scribed by the Secretary similar to that for tax ad8 ministration proceedings under section 6103(h)(4).

9 ‘‘(4) NO DISCLOSURE IF IMPAIRMENT.—Re10 turns and return information shall not be disclosed

11 under this subsection, or in any proceeding described

12 in paragraph (3), to the extent that the Secretary

13 determines that such disclosure would seriously im14 pair Federal tax administration.

15 ‘‘(5) DEFINITIONS.—For purposes of this

16 subsection—

17 ‘‘(A) RETURN AND RETURN INFORMA18 TION.—The terms ‘return’ and ‘return informa19 tion’ have the respective meanings given to such

20 terms by section 6103(b).

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

22 term ‘appropriate State officer’ means—

23 ‘‘(i) the State attorney general, or
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1 ‘‘(ii) any other State official charged

2 with overseeing organizations of the type

3 described in section 501(c)(3).’’.

4 (b) CONFORMING AMENDMENTS.—

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

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

7 ‘‘section’’ in the first sentence.

8 (2) Paragraph (4) of section 6103(p) is

9 amended—

10 (A) in the matter preceding subparagraph

11 (A), by inserting ‘‘, or any appropriate State of12 ficer (as defined in section 6104(c)),’’ before

13 ‘‘or any other person’’,

14 (B) in subparagraph (F)(i), by inserting

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

16 section 6104(c)),’’ before ‘‘or any other per17 son’’, and

18 (C) in the matter following subparagraph

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

20 (as defined in section 6104(c)),’’ after ‘‘includ21 ing an agency’’ each place it appears.

22 (3) Paragraph (2) of section 7213(a) is amend23 ed by inserting ‘‘or under section 6104(c)’’ after

24 ‘‘6103’’.
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1 (4) Paragraph (2) of section 7213A(a) is

2 amended by inserting ‘‘or 6104(c)’’ after ‘‘6103’’.

3 (5) Paragraph (2) of section 7431(a) is amend4 ed by inserting ‘‘(including any disclosure in viola5 tion of section 6104(c))’’ after ‘‘6103’’.

6 (c) EFFECTIVE DATE.—The amendments made by

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

8 of this Act but shall not apply to requests made before

9 such date.

10 SEC. 411. CONFIDENTIALITY OF TAXPAYER COMMUNICA11 TIONS WITH THE OFFICE OF THE TAXPAYER

12 ADVOCATE.

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

14 amended by adding at the end the following new para15 graph:

16 ‘‘(5) CONFIDENTIALITY OF TAXPAYER INFOR17 MATION.—

18 ‘‘(A) IN GENERAL.—To the extent author19 ized by the National Taxpayer Advocate or pur20 suant to guidance issued under subparagraph

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

22 Taxpayer Advocate may withhold from the In23 ternal Revenue Service and the Department of

24 Justice any information provided by, or regard25 ing contact with, any taxpayer.
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1 ‘‘(B) ISSUANCE OF GUIDANCE.—In con2 sultation with the Chief Counsel for the Inter3 nal Revenue Service and subject to the approval

4 of the Commissioner of Internal Revenue, the

5 National Taxpayer Advocate may issue guid6 ance regarding the circumstances (including

7 with respect to litigation) under which, and the

8 persons to whom, employees of the Office of the

9 Taxpayer Advocate shall not disclose informa10 tion obtained from a taxpayer. To the extent to

11 which any provision of the Internal Revenue

12 Manual would require greater disclosure by em13 ployees of the Office of the Taxpayer Advocate

14 than the disclosure required under such guid15 ance, such provision shall not apply.

16 ‘‘(C) EMPLOYEE PROTECTION.—Section

17 7214(a)(8) shall not apply to any failure to re18 port knowledge or information if—

19 ‘‘(i) such failure to report is author20 ized under subparagraph (A), and

21 ‘‘(ii) such knowledge or information is

22 not of fraud committed by a person

23 against the United States under any rev24 enue law.’’.
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1 (b) CONFORMING AMENDMENT.—Subparagraph (A)

2 of section 7803(c)(4) is amended by inserting ‘‘and’’ at

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

4 clause (iii) and inserting a period, and by striking clause

5 (iv).

6 TITLE V—MISCELLANEOUS

7 SEC. 501. CLARIFICATION OF DEFINITION OF CHURCH TAX

8 INQUIRY.

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

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

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

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

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

14 ‘‘(6) information provided by the Secretary re15 lated to the standards for exemption from tax under

16 this title and the requirements under this title relat17 ing to unrelated business taxable income.’’.

18 SEC. 502. EXPANSION OF DECLARATORY JUDGMENT REM19 EDY TO TAX-EXEMPT ORGANIZATIONS.

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

21 (relating to creation of remedy) is amended—

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

23 ‘‘509(a))’’ the following: ‘‘or as a private operating

24 foundation (as defined in section 4942(j)(3))’’; and
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1 (2) by amending subparagraph (C) to read as

2 follows:

3 ‘‘(C) with respect to the initial qualifica4 tion or continuing qualification of an organiza5 tion as an organization described in subsection

6 (c) (other than paragraph (3)) or (d) of section

7 501 which is exempt from tax under section

8 501(a), or’’.

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

10 7428 is amended in the material following paragraph (2)

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

12 Claims Court, or the district court of the United States

13 for the District of Columbia’’ and inserting the following:

14 ‘‘United States Tax Court (in the case of any such deter15 mination or failure) or the United States Claims Court

16 or the district court of the United States for the District

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

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

19 of paragraph (1)),’’.

20 (c) EFFECTIVE DATE.—The amendments made by

21 this section shall apply to pleadings filed with respect to

22 determinations (or requests for determinations) made

23 after the date of the enactment of this Act.
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1 SEC. 503. EMPLOYEE MISCONDUCT REPORT TO INCLUDE

2 SUMMARY OF COMPLAINTS BY CATEGORY.

3 (a) IN GENERAL.—Clause (ii) of section

4 7803(d)(2)(A) is amended by inserting before the semi5 colon at the end the following: ‘‘, including a summary

6 (by category) of the 10 most common complaints made

7 and the number of such common complaints’’.

8 (b) EFFECTIVE DATE.—The amendment made by

9 subsection (a) shall apply with respect to reporting periods

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

11 SEC. 504. ANNUAL REPORT ON AWARDS OF COSTS AND

12 CERTAIN FEES IN ADMINISTRATIVE AND

13 COURT PROCEEDINGS.

14 Not later than 3 months after the close of each Fed15 eral fiscal year after fiscal year 2003, the Treasury In16 spector General for Tax Administration shall submit a re17 port to Congress which specifies for such year—

18 (1) the number of payments made by the

19 United States pursuant to section 7430 of the Inter20 nal Revenue Code of 1986 (relating to awarding of

21 costs and certain fees);

22 (2) the amount of each such payment;

23 (3) an analysis of any administrative issue giv24 ing rise to such payments; and

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

26 as a result of such analysis and other changes (if
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1 any) recommended by the Treasury Inspector Gen2 eral for Tax Administration as a result of such anal3 ysis.

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

5 Not later than 6 months after the close of each Fed6 eral fiscal year after fiscal year 2003, the Treasury In7 spector General for Tax Administration shall submit a re8 port to Congress on abatements of penalties under the In9 ternal Revenue Code of 1986 during such year, including

10 information on the reasons and criteria for such abate11 ments.

12 SEC. 506. BETTER MEANS OF COMMUNICATING WITH TAX13 PAYERS.

14 Not later than 18 months after the date of the enact15 ment of this Act, the Treasury Inspector General for Tax

16 Administration shall submit a report to Congress evalu17 ating whether technological advances, such as e-mail and

18 facsimile transmission, permit the use of alternative

19 means for the Internal Revenue Service to communicate

20 with taxpayers.

21 SEC. 507. EXPLANATION OF STATUTE OF LIMITATIONS AND

22 CONSEQUENCES OF FAILURE TO FILE.

23 The Secretary of the Treasury or the Secretary’s del24 egate shall, as soon as practicable but not later than 180

25 days after the date of the enactment of this Act, revise
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1 the statement required by section 6227 of the Omnibus

2 Taxpayer Bill of Rights (Internal Revenue Service Publi3 cation No. 1), and any instructions booklet accompanying

4 a general income tax return form for taxable years begin5 ning after 2002 (including forms 1040, 1040A, 1040EZ,

6 and any similar or successor forms relating thereto), to

7 provide for an explanation of—

8 (1) the limitations imposed by section 6511 of

9 the Internal Revenue Code of 1986 on credits and

10 refunds; and

11 (2) the consequences under such section 6511

12 of the failure to file a return of tax.

13 SEC. 508. AMENDMENT TO TREASURY AUCTION REFORMS.

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

15 of the Government Securities Act Amendments of 1993

16 (31 U.S.C. 3121 note) is amended by inserting before the

17 semicolon ‘‘(or, if earlier, at the time the Secretary re18 leases the minutes of the meeting in accordance with para19 graph (2))’’.

20 (b) EFFECTIVE DATE.—The amendment made by

21 subsection (a) shall apply to meetings held after the date

22 of 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

4 following new section:

5 ‘‘SEC. 7528. ENROLLED AGENTS.

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

7 such regulations as may be necessary to regulate the con8 duct of enrolled agents in regards to their practice before

9 the Internal 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

16 for chapter 77 is amended by adding at the end the fol17 lowing 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

3 cover the full cost of implementing a continuous levy pro4 gram under subsection (h) of section 6331 of the Internal

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

6 actual levies made and shall be collected by the Financial

7 Management Service by the retention of a portion of

8 amounts collected by levy pursuant to that subsection.

9 Amounts received by the Financial Management Service

10 as fees under that subsection shall be deposited into the

11 account of the Department of the Treasury under section

12 3711(g)(7) of title 31, United States Code, and shall be

13 collected and accounted for in accordance with the provi14 sions of that section. The amount credited against the tax15 payer’s liability on account of the continuous levy shall

16 be the amount levied, without reduction for the amount

17 paid to the Financial Management 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

2 for ruling letters, opinion letters, and determination

3 letters, 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 deter19 mines to be appropriate.

20 ‘‘(B) EXEMPTION FOR CERTAIN REQUESTS

21 REGARDING PENSION PLANS.—The Secretary

22 shall not require payment of user fees under

23 such program for requests for determination

24 letters with respect to the qualified status of a

25 pension benefit plan maintained solely by 1 or
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1 more eligible employers or any trust which is

2 part of the plan. The preceding sentence shall

3 not apply to 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 pro12 totype or similar plan which the sponsor

13 intends to market to participating employ14 ers.

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

16 For purposes of subparagraph (B)—

17 ‘‘(i) PENSION BENEFIT PLAN.—The

18 term ‘pension benefit plan’ means a pen19 sion, profit-sharing, stock bonus, annuity,

20 or employee stock ownership plan.

21 ‘‘(ii) ELIGIBLE EMPLOYER.—The

22 term ‘eligible employer’ means an eligible

23 employer (as defined in section

24 408(p)(2)(C)(i)(I)) which has at least 1

25 employee who is not a highly compensated
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1 employee (as defined in section 414(q))

2 and is participating in the plan. The deter3 mination of whether an employer is an eli4 gible employer under subparagraph (B)

5 shall be made as of the date of the request

6 described in such subparagraph.

7 ‘‘(iii) DETERMINATION OF AVERAGE

8 FEES CHARGED.—For purposes of any de9 termination of average fees charged, any

10 request to which subparagraph (B) applies

11 shall not be taken into account.

12 ‘‘(3) AVERAGE FEE REQUIREMENT.—The aver13 age fee charged under the program required by sub14 section (a) shall not be less than the amount deter15 mined 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.

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

17 this section with respect to requests made after September

18 30, 2013.’’.

19 (b) CONFORMING AMENDMENTS.—
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1 (1) The table of sections for chapter 77 is

2 amended by adding at the end the following new

3 item:

‘‘Sec. 7529. Internal Revenue Service user fees.’’.

4 (2) Section 10511 of the Revenue Act of 1987

5 is repealed.

6 (3) Section 620 of the Economic Growth and

7 Tax Relief Reconciliation Act of 2001 is repealed.

8 (c) LIMITATIONS.—Notwithstanding any other provi9 sion of law, any fees collected pursuant to section 7527

10 of the Internal Revenue Code of 1986, as added by sub11 section (a), shall not be expended by the Internal Revenue

12 Service unless provided by an appropriations Act.

13 (d) EFFECTIVE DATE.—The amendments made by

14 this section shall apply to requests made after the date

15 of the enactment of this Act.

16 TITLE VI—LOW-INCOME

17 TAXPAYER CLINICS

18 SEC. 601. LOW-INCOME TAXPAYER CLINICS.

19 (a) LIMITATION ON AMOUNT OF GRANTS.—Para20 graph (1) of section 7526(c) (relating to special rules and

21 limitations) is amended by striking ‘‘$6,000,000 per year’’

22 and inserting ‘‘$9,000,000 for 2004, $12,000,000 for

23 2005, and $15,000,000 for each year thereafter’’.
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1 (b) PROMOTION OF CLINICS.—Section 7526(c) is

2 amended by adding at the end the following new para3 graph:

4 ‘‘(6) PROMOTION OF CLINICS.—The Secretary

5 is authorized to promote the benefits of and encour6 age the use of low-income taxpayer clinics through

7 the use of mass communications, referrals, and other

8 means.’’.

9 (c) USE OF GRANTS FOR OVERHEAD EXPENSES

10 PROHIBITED.—Section 7526(c), as amended by sub11 section (b), is further amended by adding at the end the

12 following new paragraph:

13 ‘‘(7) USE OF GRANTS FOR OVERHEAD EX14 PENSES PROHIBITED.—No grant made under this

15 section may be used for the general overhead ex16 penses of any institution sponsoring a qualified low17 income taxpayer clinic.’’.

18 (d) ELIGIBLE CLINICS.—

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

20 7526(b) is amended to read as follows:

21 ‘‘(2) ELIGIBLE CLINIC.—The term ‘eligible clin22 ic’ means—

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

24 law, business, or accounting school in which
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1 students represent low-income taxpayers in con2 troversies arising under this title; and

3 ‘‘(B) any organization described in section

4 501(c) and exempt from tax under section

5 501(a) which satisfies the requirements of para6 graph (1) through representation of taxpayers

7 or referral of taxpayers to qualified representa8 tives.’’.

9 (2) CONFORMING AMENDMENT.—Subparagraph

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

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

12 clinic’’.

13 TITLE VII—FEDERAL-STATE UN14 EMPLOYMENT ASSISTANCE

15 AGREEMENTS

16 SEC. 701. APPLICABILITY OF CERTAIN FEDERAL-STATE

17 AGREEMENTS RELATING TO UNEMPLOY18 MENT ASSISTANCE.

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

20 Law 107 09147 is amended—

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

22 after ‘‘ending’’; and

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

24 each place it appears and inserting ‘‘June 1’’.