In the Senate of the United States,

May 19, 2004.

Resolved, That the bill from the House of Representatives (H.R. 1528) entitled ‘‘An Act to amend the Internal

Revenue Code of 1986 to protect taxpayers and ensure accountability of the Internal Revenue Service.’’, do pass with

the following

AMENDMENT:

Strike out all after the enacting clause and insert:

1 SECTION 1. SHORT TITLE; ETC.

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

3 Administration Good Government Act’’.
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1 (b) AMENDMENT OF 1986 CODE.—Except as otherwise

2 expressly provided, whenever in this Act an amendment or

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

4 of, a section or other provision, the reference shall be consid5 ered to be made to a section or other provision of the Inter6 nal Revenue Code of 1986.

7 (c) TABLE OF CONTENTS.—The table of contents for

8 this Act is as follows:

Sec. 1. Short title; etc.

TITLE I—IMPROVEMENTS IN TAX ADMINISTRATION AND TAXPAYER

SAFEGUARDS

Subtitle A—Improvements in Efficiency and Safeguards in Internal Revenue

Service Collection

Sec. 101. Waiver of user fee for installment agreements using automated withdrawals.

Sec. 102. Authorization for IRS to enter into installment agreements that provide

for partial payment.

Sec. 103. Termination of installment agreements.

Sec. 104. Office of Chief Counsel review of offers-in-compromise.

Sec. 105. Authorization for IRS to require increased electronic filing of returns

prepared by paid return preparers.

Sec. 106. Threshold on tolling of statute of limitations during review by Taxpayer

Advocate Service.

Sec. 107. Increase in penalty for bad checks and money orders.

Sec. 108. Extension of time limit for contesting IRS levy.

Sec. 109. Individuals held harmless on improper levy on individual retirement

plan.

Sec. 110. Authorization for Financial Management Service retention of transaction fees from levied amounts.

Sec. 111. Elimination of restriction on offsetting refunds from former residents.

Subtitle B—Processing and Personnel

Sec. 121. Information regarding statute of limitations.

Sec. 122. Annual report on IRS performance measures.

Sec. 123. Disclosure of tax information to facilitate combined employment tax reporting.

Sec. 124. Extension of declaratory judgment procedures to non-501(c)(3) tax-exempt organizations.

Sec. 125. Amendment to Treasury auction reforms.

Sec. 126. Revisions relating to termination of employment of IRS employees for

misconduct.

Sec. 127. Expansion of IRS Oversight Board Authority.

Sec. 128. IRS Oversight Board approval of use of critical pay authority.
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Sec. 129. Low-income taxpayer clinics.

Sec. 130. Taxpayer access to financial institutions.

Sec. 131. Enrolled agents.

Sec. 132. Establishment of disaster response team.

Sec. 133. Study of accelerated tax refunds.

Sec. 134. Study on clarifying recordkeeping responsibilities.

Sec. 135. Streamline reporting process for National Taxpayer Advocate.

Sec. 136. IRS Free File program.

Sec. 137. Modification of TIGTA reporting requirements.

Sec. 138. Study of IRS accounts receivable.

Sec. 139. Electronic Commerce Advisory Group.

Sec. 140. Study on modifications to schedules L and M–1.

Sec. 141. Regulation of Federal income tax return preparers and refund anticipation loan providers.

Sec. 142. Joint task force on offers-in-compromise.

Subtitle C—Other Provisions

Sec. 151. Penalty for failure to report interests in foreign financial accounts.

Sec. 152. Repeal of application of below-market loan rules to amounts paid to

certain continuing care facilities.

Sec. 153. Public support by Indian tribal governments.

Sec. 154. Payroll agents subject to penalty for failure to collect and pay over tax,

or attempt to evade or defeat tax.

TITLE II—REFORM OF PENALTY AND INTEREST

Sec. 201. Individual estimated tax.

Sec. 202. Corporate estimated tax.

Sec. 203. Increase in large corporation threshold for estimated tax payments.

Sec. 204. Abatement of interest.

Sec. 205. Deposits made to suspend running of interest on potential underpayments.

Sec. 206. Freeze of provisions regarding suspension of interest where Secretary

fails to contact taxpayer.

Sec. 207. Clarification of application of Federal tax deposit penalty.

Sec. 208. Frivolous tax returns and submissions.

Sec. 209. Extension of notice requirements with respect to interest and penalty

calculations.

Sec. 210. Expansion of interest netting.

TITLE III—UNITED STATES TAX COURT MODERNIZATION

Subtitle A—Tax Court Procedure

Sec. 301. Jurisdiction of Tax Court over collection due process cases.

Sec. 302. Authority for special trial judges to hear and decide certain employment status cases.

Sec. 303. Confirmation of authority of Tax Court to apply doctrine of equitable

recoupment.

Sec. 304. Tax Court filing fee in all cases commenced by filing petition.

Sec. 305. Amendments to appoint employees.

Sec. 306. Expanded use of Tax Court practice fee for pro se taxpayers.

Subtitle B—Tax Court Pension and Compensation

Sec. 311. Annuities for survivors of Tax Court judges who are assassinated.
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Sec. 312. Cost-of-living adjustments for Tax Court judicial survivor annuities.

Sec. 313. Life insurance coverage for Tax Court judges.

Sec. 314. Cost of life insurance coverage for Tax Court judges age 65 or over.

Sec. 315. Modification of timing of lump-sum payment of judges’ accrued annual

leave.

Sec. 316. Participation of Tax Court judges in the Thrift Savings Plan.

Sec. 317. Exemption of teaching compensation of retired judges from limitation

on outside earned income.

Sec. 318. General provisions relating to magistrate judges of the Tax Court.

Sec. 319. Annuities to surviving spouses and dependent children of magistrate

judges of the Tax Court.

Sec. 320. Retirement and annuity program.

Sec. 321. Incumbent magistrate judges of the Tax Court.

Sec. 322. Provisions for recall.

Sec. 323. Effective date.

TITLE IV—CONFIDENTIALITY AND DISCLOSURE

Sec. 401. Clarification of definition of church tax inquiry.

Sec. 402. Collection activities with respect to joint return disclosable to either

spouse based on oral request.

Sec. 403. Taxpayer representatives not subject to examination on sole basis of

representation of taxpayers.

Sec. 404. Prohibition of disclosure of taxpayer identification information with respect to disclosure of accepted offers-in-compromise.

Sec. 405. Compliance by contractors with confidentiality safeguards.

Sec. 406. Higher standards for requests for and consents to disclosure.

Sec. 407. Civil damages for unauthorized disclosure or inspection.

Sec. 408. Expansion of disclosure in emergency circumstances.

Sec. 409. Disclosure of taxpayer identity for tax refund purposes.

Sec. 410. Disclosure to State officials of proposed actions related to section 501(c)

organizations.

Sec. 411. Treatment of public records.

Sec. 412. Employee identity disclosures.

Sec. 413. Taxpayer identification number matching.

Sec. 414. Form 8300 disclosures.

Sec. 415. Disclosure to law enforcement agencies regarding terrorist activities.

TITLE V—SIMPLIFICATION

Subtitle A—Uniform Definition of Child

Sec. 501. Uniform definition of child, etc.

Sec. 502. Modifications of definition of head of household.

Sec. 503. Modifications of dependent care credit.

Sec. 504. Modifications of child tax credit.

Sec. 505. Modifications of earned income credit.

Sec. 506. Modifications of deduction for personal exemption for dependents.

Sec. 507. Technical and conforming amendments.

Sec. 508. Effective date.

Subtitle B—Simplification Through Elimination of Inoperative Provisions

Sec. 511. Simplification through elimination of inoperative provisions.
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TITLE VI—REVENUE PROVISIONS

Subtitle A—Provisions Designed to Curtail Tax Shelters

Sec. 601. Penalty for failing to disclose reportable transaction.

Sec. 602. Accuracy-related penalty for listed transactions and other reportable

transactions having a significant tax avoidance purpose.

Sec. 603. Modifications of substantial understatement penalty for nonreportable

transactions.

Sec. 604. Tax shelter exception to confidentiality privileges relating to taxpayer

communications.

Sec. 605. Disclosure of reportable transactions.

Sec. 606. Modifications to penalty for failure to register tax shelters.

Sec. 607. Modification of penalty for failure to maintain lists of investors.

Sec. 608. Modification of actions to enjoin certain conduct related to tax shelters

and reportable transactions.

Sec. 609. Understatement of taxpayer’s liability by income tax return preparer.

Sec. 610. Regulation of individuals practicing before the Department of Treasury.

Sec. 611. Penalty on promoters of tax shelters.

Sec. 612. Statute of limitations for taxable years for which required listed transactions not reported.

Sec. 613. Denial of deduction for interest on underpayments attributable to taxmotivated transactions.

Sec. 614. Authorization of appropriations for tax law enforcement.

PART II—OTHER CORPORATE GOVERNANCE PROVISIONS

Sec. 621. Affirmation of consolidated return regulation authority.

Sec. 622. Declaration by chief executive officer relating to Federal annual income

tax return of a corporation.

Sec. 623. Denial of deduction for certain fines, penalties, and other amounts.

Sec. 624. Disallowance of deduction for punitive damages.

Sec. 625. Increase in criminal monetary penalty for individuals to the amount

of the tax at issue.

Sec. 626. Doubling of certain penalties, fines, and interest on underpayments related to certain offshore financial arrangements.

PART III—EXTENSION OF IRS USER FEES

Sec. 631. Extension of IRS user fees.

PART IV—OTHER REVENUE PROVISIONS

Sec. 641. Reporting of taxable mergers and acquisitions.

Sec. 642. Modification of definition of controlled group of corporations.
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1 TITLE I—IMPROVEMENTS IN TAX

2 ADMINISTRATION AND TAX3 PAYER SAFEGUARDS

4 Subtitle A—Improvements in Effi5 ciency and Safeguards in Inter6 nal Revenue Service Collection

7 SEC. 101. WAIVER OF USER FEE FOR INSTALLMENT AGREE8 MENTS USING AUTOMATED WITHDRAWALS.

9 (a) IN GENERAL.—Section 6159 (relating to agree10 ments for payment of tax liability in installments) is

11 amended by redesignating subsection (e) as subsection (f)

12 and by inserting after subsection (d) the following:

13 ‘‘(e) WAIVER OF USER FEES FOR INSTALLMENT

14 AGREEMENTS USING AUTOMATED WITHDRAWALS.—In the

15 case of a taxpayer who enters into an installment agreement

16 in which automated installment payments are agreed to,

17 the Secretary shall waive the fee (if any) for entering into

18 the installment agreement.’’.

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

20 section shall apply to agreements entered into on or after

21 the date which is 180 days after the date of the enactment

22 of this Act.
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1 SEC. 102. AUTHORIZATION FOR IRS TO ENTER INTO IN2 STALLMENT AGREEMENTS THAT PROVIDE

3 FOR PARTIAL PAYMENT.

4 (a) IN GENERAL.—

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

6 agreements) is amended—

7 (A) by striking ‘‘satisfy liability for pay8 ment of’’ and inserting ‘‘make payment on’’, and

9 (B) by inserting ‘‘full or partial’’ after ‘‘fa10 cilitate’’.

11 (2) Section 6159(c) (relating to Secretary re12 quired to enter into installment agreements in certain

13 cases) is amended in the matter preceding paragraph

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

15 (b) REQUIREMENT TO REVIEW PARTIAL PAYMENT

16 AGREEMENTS EVERY TWO YEARS.—Section 6159, as

17 amended by this Act, is amended by redesignating sub18 sections (d), (e), and (f) as subsections (e), (f), and (g), re19 spectively, and inserting after subsection (c) the following

20 new subsection:

21 ‘‘(d) SECRETARY REQUIRED TO REVIEW INSTALL22 MENT AGREEMENTS FOR PARTIAL COLLECTION EVERY TWO

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

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

25 tax liability, the Secretary shall review the agreement at

26 least once every 2 years with the primary purpose of deter-
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1 mining whether the financial condition of the taxpayer has

2 significantly changed so as to warrant an increase in the

3 value of the payments being made.’’.

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

5 section shall apply to agreements entered into on or after

6 the date of the enactment of this Act.

7 SEC. 103. TERMINATION OF INSTALLMENT AGREEMENTS.

8 (a) IN GENERAL.—Section 6159(b)(4) (relating to fail9 ure to pay an installment or any other tax liability when

10 due or to provide requested financial information) is

11 amended by striking ‘‘or’’ at the end of subparagraph (B),

12 by redesignating subparagraph (C) as subparagraph (E),

13 and by inserting after subparagraph (B) the following:

14 ‘‘(C) to make a Federal tax deposit under

15 section 6302 at the time such deposit is required

16 to be made,

17 ‘‘(D) to file a return of tax imposed under

18 this title by its due date (including extensions),

19 or’’.

20 (b) CONFORMING AMENDMENT.—Section 6159(b)(4) is

21 amended by striking ‘‘FAILURE TO PAY AN INSTALLMENT

22 OR ANY OTHER TAX LIABILITY WHEN DUE OR TO PROVIDE

23 REQUESTED FINANCIAL INFORMATION’’ and inserting

24 ‘‘FAILURE TO MAKE PAYMENTS OR DEPOSITS OR FILE RE-
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1 TURNS WHEN DUE OR TO PROVIDE REQUESTED FINANCIAL

2 INFORMATION’’.

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

4 section shall apply to failures occurring on or after the date

5 of the enactment of this Act.

6 SEC. 104. OFFICE OF CHIEF COUNSEL REVIEW OF OFFERS7 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. 105. AUTHORIZATION FOR IRS TO REQUIRE IN21 CREASED ELECTRONIC FILING OF RETURNS

22 PREPARED BY PAID RETURN PREPARERS.

23 (a) IN GENERAL.—Section 6011(e) (relating to regula24 tions requiring returns on magnetic media, etc.) is

25 amended—
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1 (1) by striking the second sentence in paragraph

2 (1), and

3 (2) by striking ‘‘250’’ in paragraph (2)(A) and

4 inserting ‘‘5’’.

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

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

7 Act.

8 SEC. 106. THRESHOLD ON TOLLING OF STATUTE OF LIMITA9 TIONS DURING REVIEW BY TAXPAYER ADVO10 CATE SERVICE.

11 (a) IN GENERAL.—Section 7811(d)(1) (relating to sus12 pension of running of period of limitation) is amended by

13 inserting after ‘‘such application,’’ the following: ‘‘but only

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

15 of the taxpayer’s application’’.

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

17 section shall apply to applications filed after the date of

18 the enactment of this Act.

19 SEC. 107. INCREASE IN PENALTY FOR BAD CHECKS AND

20 MONEY ORDERS.

21 (a) IN GENERAL.—Section 6657 (relating to bad

22 checks) is amended—

23 (1) by striking ‘‘$750’’ and inserting ‘‘$1,250’’,

24 and

25 (2) by striking ‘‘$15’’ and inserting ‘‘$25’’.
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1 (b) EFFECTIVE DATE.—The amendments made by this

2 section apply to checks or money orders received after the

3 date of the enactment of this Act.

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

5 LEVY.

6 (a) EXTENSION OF TIME FOR RETURN OF PROPERTY

7 SUBJECT TO LEVY.—Subsection (b) of section 6343 (relat8 ing to return of property) is amended by striking ‘‘9

9 months’’ and inserting ‘‘2 years’’.

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

11 of section 6532 (relating to suits by persons other than tax12 payers) is amended—

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

14 and inserting ‘‘2 years’’, and

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

16 inserting ‘‘2-year’’.

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

18 section shall apply to—

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

20 of this Act, and

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

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

23 of the Internal Revenue Code of 1986 (without regard

24 to this section) as of such date.
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1 SEC. 109. INDIVIDUALS HELD HARMLESS ON IMPROPER

2 LEVY ON INDIVIDUAL RETIREMENT PLAN.

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

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

5 at the end the following new subsection:

6 ‘‘(f) INDIVIDUALS HELD HARMLESS ON WRONGFUL

7 LEVY, ETC. ON INDIVIDUAL RETIREMENT PLAN.—

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

9 that an individual retirement plan has been levied

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

11 applies and an amount is returned to the individual

12 who is the beneficiary of such plan, the individual

13 may deposit an amount equal to the sum of—

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

15 Secretary on account of such levy, and

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

17 such amount of money,

18 into an individual retirement plan (other than an en19 dowment contract) to which a rollover from the plan

20 levied upon is permitted.

21 ‘‘(2) TREATMENT AS ROLLOVER.—The distribu22 tion on account of the levy and any deposit under

23 paragraph (1) with respect to such distribution shall

24 be treated for purposes of this title as if such distribu25 tion and deposit were part of a rollover described in

26 section 408(d)(3)(A)(i); except that—
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1 ‘‘(A) interest paid under subsection (c) shall

2 be treated as part of such distribution and as not

3 includible in gross income,

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

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

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

7 the individual receives an amount under para8 graph (1) from the Secretary, and

9 ‘‘(C) such deposit shall not be taken into ac10 count under section 408(d)(3)(B).

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

12 If any amount is includible in gross income for a tax13 able year by reason of a levy referred to in paragraph

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

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

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

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

18 credited or refunded as an overpayment made on the

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

20 year.

21 ‘‘(4) INTEREST.—Notwithstanding subsection

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

23 a case in which the Secretary makes a determination

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

25 levy upon an individual retirement plan.’’.
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1 (b) EFFECTIVE DATE.—The amendment made by this

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

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

4 Code of 1986 after December 31, 2004.

5 SEC. 110. AUTHORIZATION FOR FINANCIAL MANAGEMENT

6 SERVICE RETENTION OF TRANSACTION FEES

7 FROM LEVIED AMOUNTS.

8 (a) IN GENERAL.—Notwithstanding any other provi9 sion of law, the Financial Management Service may charge

10 the Internal Revenue Service, and the Internal Revenue

11 Service may pay the Financial Management Service, a fee

12 sufficient to cover the full cost of implementing a continuous

13 levy program under subsection (h) of section 6331 of the

14 Internal Revenue Code of 1986. Any such fee shall be based

15 on actual levies made and shall be collected by the Finan16 cial Management Service by the retention of a portion of

17 amounts collected by levy pursuant to that subsection.

18 Amounts received by the Financial Management Service as

19 fees under that subsection shall be deposited into the account

20 of the Department of the Treasury under section 3711(g)(7)

21 of title 31, United States Code, and shall be collected and

22 accounted for in accordance with the provisions of that sec23 tion. The amount credited against the taxpayer’s liability

24 on account of the continuous levy shall be the amount levied,
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1 without reduction for the amount paid to the Financial

2 Management Service as a fee.

3 (b) EFFECTIVE DATE.—The provisions of this section

4 shall take effect on the date of the enactment of this Act.

5 SEC. 111. ELIMINATION OF RESTRICTION ON OFFSETTING

6 REFUNDS FROM FORMER RESIDENTS.

7 (a) IN GENERAL.—Section 6402(e) (relating to collec8 tion of past-due, legally enforceable State income tax obliga9 tions) is amended by striking paragraph (2) and by redesig10 nating paragraphs (3), (4), (5), (6), and (7) as paragraphs

11 (2), (3), (4), (5), and (6), respectively.

12 (b) CLARIFICATION OF DISCLOSURE AUTHORITY.—

13 Section 6103(l)(10) (relating to disclosure of certain infor14 mation to agencies requesting a reduction under subsection

15 (c), (d), or (e) or section 6402) is amended—

16 (1) by striking ‘‘, (d), or (e)’’ each place it ap17 pears and inserting ‘‘or (d)’’, and

18 (2) by striking ‘‘, (d), OR (e)’’ in the heading and

19 inserting ‘‘OR (d)’’.

20 (c) 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 Subtitle B—Processing and

2 Personnel

3 SEC. 121. INFORMATION REGARDING STATUTE OF LIMITA4 TIONS.

5 The Secretary of the Treasury or the Secretary’s dele6 gate shall—

7 (1) as soon as practicable but not later than 180

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

9 the statement required by section 6227 of the Omni10 bus Taxpayer Bill of Rights (Internal Revenue Serv11 ice Publication No. 1), and

12 (2) for taxable years beginning after December

13 31, 2004, revise any instructions booklet accom14 panying a general income tax return form (including

15 forms 1040, 1040A, 1040EZ, and any similar or suc16 cessor forms relating thereto),

17 to provide for an explanation of the limitations imposed

18 by section 6511 of the Internal Revenue Code of 1986 on

19 credits and refunds, and the consequences under such sec20 tion 6511 of the failure to file a return of tax.

21 SEC. 122. ANNUAL REPORT ON IRS PERFORMANCE MEAS22 URES.

23 (a) IN GENERAL.—Section 7803(a) (relating to Com24 missioner of Internal Revenue) is amended by adding at

25 the end the following new paragraph:
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1 ‘‘(4) ANNUAL REPORT ON IRS PERFORMANCE

2 MEASURES.—Not later than December 31 of each cal3 endar year, the Commissioner shall report to Congress

4 and the Oversight Board on performance goals and

5 projections for the 5-fiscal-year period beginning with

6 the fiscal year ending in such calendar year against

7 which to measure the performance of the Internal

8 Revenue Service in the areas of the public rating of

9 the Internal Revenue Service, customer service, com10 pliance, and management initiatives. The report shall

11 include the long-term performance goal for each meas12 urement and a brief narrative explaining how the

13 Commissioner plans to meet each goal. For each per14 formance goal, the report shall include comparisons

15 between the projected performance level and actual

16 performance level. For each performance measure17 ment, the report shall include a volume projection for

18 such period. If the Internal Revenue Service fails to

19 achieve one of its goals, the report shall explain why.

20 The report shall also include data and a narrative re21 garding the actual and projected level of the workload

22 and resources of the Internal Revenue Service for such

23 5-year period.’’.
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1 (b) EFFECTIVE DATE.—The amendment made by this

2 section shall apply to reports for fiscal year 2004 and there3 after.

4 SEC. 123. DISCLOSURE OF TAX INFORMATION TO FACILI5 TATE COMBINED EMPLOYMENT TAX REPORT6 ING.

7 (a) IN GENERAL.—Paragraph (5) of section 6103(d)

8 (relating to disclosure to State tax officials and State and

9 local law enforcement agencies) is amended to read as fol10 lows:

11 ‘‘(5) DISCLOSURE FOR COMBINED EMPLOYMENT

12 TAX REPORTING.—The Secretary shall disclose tax13 payer identity information and signatures to any

14 agency, body, or commission of any State for the pur15 pose of carrying out with such agency, body, or com16 mission a combined Federal and State employment

17 tax reporting program approved by the Secretary.

18 Subsections (a)(2) and (p)(4) and sections 7213 and

19 7213A shall not apply with respect to disclosures or

20 inspections made pursuant to this paragraph.’’.

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

22 this section shall take effect on the date of the enact23 ment of this Act.
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1 SEC. 124. EXTENSION OF DECLARATORY JUDGMENT PROCE2 DURES TO NON-501(c)(3) TAX-EXEMPT ORGA3 NIZATIONS.

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

5 (relating to creation of remedy) is amended—

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

7 ‘‘509(a))’’ the following: ‘‘or as a private operating

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

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

10 follows:

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

12 or continuing qualification of an organization as

13 an organization described in section 501(c)

14 (other than paragraph (3)) or 501(d) which is

15 exempt from tax under section 501(a), 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 De4 cember 31, 2004.

5 SEC. 125. AMENDMENT TO TREASURY AUCTION REFORMS.

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

7 of the Government Securities Act Amendments of 1993 (31

8 U.S.C. 3121 note) is amended by inserting before the semi9 colon ‘‘(or, if earlier, at the time the Secretary releases the

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

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

12 section shall apply to meetings held after the date of the

13 enactment of this Act.

14 SEC. 126. REVISIONS RELATING TO TERMINATION OF EM15 PLOYMENT OF IRS EMPLOYEES FOR MIS16 CONDUCT.

17 (a) IN GENERAL.—Subchapter A of chapter 80 (relat18 ing to application of internal revenue laws) is amended by

19 inserting after section 7804 the following new section:

20 ‘‘SEC. 7804A. TERMINATION OF EMPLOYMENT FOR MIS21 CONDUCT.

22 ‘‘(a) IN GENERAL.—Subject to subsection (c), the Com23 missioner shall terminate the employment of any employee

24 of the Internal Revenue Service if there is a final adminis25 trative or judicial determination that such employee com-
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1 mitted any act or omission described under subsection (b)

2 in the performance of the employee’s official duties. Such

3 termination shall be a removal for cause on charges of mis4 conduct.

5 ‘‘(b) ACTS OR OMISSIONS.—The acts or omissions de6 scribed under this subsection are—

7 ‘‘(1) willful failure to obtain the required ap8 proval signatures on documents authorizing the sei9 zure of a taxpayer’s home, personal belongings, or

10 business assets,

11 ‘‘(2) providing a false statement under oath with

12 respect to a material matter involving a taxpayer or

13 taxpayer representative,

14 ‘‘(3) with respect to a taxpayer or taxpayer rep15 resentative, the violation of—

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

17 United States, or

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

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

20 Act of 1964,

21 ‘‘(ii) title IX of the Education Amend22 ments of 1972,

23 ‘‘(iii) the Age Discrimination in Em24 ployment Act of 1967,
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1 ‘‘(iv) the Age Discrimination Act of

2 1975,

3 ‘‘(v) section 501 or 504 of the Rehabili4 tation Act of 1973, or

5 ‘‘(vi) title I of the Americans with Dis6 abilities Act of 1990,

7 ‘‘(4) falsifying or destroying documents to con8 ceal mistakes made by any employee with respect to

9 a matter involving a taxpayer or taxpayer represent10 ative,

11 ‘‘(5) assault or battery on a taxpayer or tax12 payer representative, but only if there is a criminal

13 conviction, or a final judgment by a court in a civil

14 case, with respect to the assault or battery,

15 ‘‘(6) violations of this title, Department of the

16 Treasury regulations, or policies of the Internal Rev17 enue Service (including the Internal Revenue Man18 ual) for the purpose of retaliating against, or

19 harassing, a taxpayer or taxpayer representative,

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

21 6103 for the purpose of concealing information from

22 a congressional inquiry,

23 ‘‘(8) willful failure to file any return of tax re24 quired under this title on or before the date prescribed

25 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 for the

7 purpose of extracting personal gain or benefit.

8 ‘‘(c) DETERMINATIONS OF COMMISSIONER.—

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

10 a personnel action other than termination for an act

11 or omission described under subsection (b).

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

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

14 the Commissioner and may not be delegated to any

15 other officer. The Commissioner, in the Commis16 sioner’s sole discretion, may establish a procedure

17 which will be used to determine whether an indi18 vidual should be referred to the Commissioner for a

19 determination by the Commissioner under paragraph

20 (1).

21 ‘‘(3) NO APPEAL.—Any determination of the

22 Commissioner under this subsection may not be ap23 pealed in any administrative or judicial proceeding.

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

25 described in clauses (i), (ii), and (iv) of subsection
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1 (b)(3)(B), references to a program or activity regarding

2 Federal financial assistance or an education program or

3 activity receiving Federal financial assistance shall include

4 any program or activity conducted by the Internal Revenue

5 Service for a taxpayer.’’.

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

7 chapter 80 is amended by inserting after the item relating

8 to section 7804 the following new item:

‘‘Sec. 7804A. Termination of employment for misconduct.’’.

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

10 of the Internal Revenue Service Restructuring and Reform

11 Act of 1998 (Public Law 105–206; 112 Stat. 720) is re12 pealed.

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

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

15 Act.

16 SEC. 127. EXPANSION OF IRS OVERSIGHT BOARD AUTHOR17 ITY.

18 (a) APPROVAL WITH RESPECT TO SENIOR EXECU19 TIVES.—Section 7802(d)(3)(B) (relating to management) is

20 amended by inserting ‘‘and approve’’ after ‘‘review’’.

21 (b) REPORTS.—

22 (1) BUDGET REQUEST.—Section 7802(d) (relat23 ing to specific responsibilities) is amended—

24 (A) by inserting ‘‘with detailed analysis’’

25 after ‘‘budget request’’ in paragraph (4)(B), and
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1 (B) by inserting ‘‘without any additional

2 review or comment from the Commissioner, the

3 Secretary, any other officer or employee of the

4 Department of the Treasury, or the Office of

5 Management and Budget’’ before ‘‘to the Presi6 dent’’ in the last sentence thereof.

7 (2) DATE OF SUBMISSION OF ANNUAL REPORT.—

8 Section 7802(f)(3)(A) (relating to annual reports) is

9 amended by striking ‘‘The Oversight Board shall each

10 year report’’ and insert ‘‘Not later than March 1 of

11 each calendar year, the Oversight Board shall report’’.

12 (c) CONTINUITY IN OFFICE.—Section 7802(b)(2) (re13 lating to qualifications and terms) is amended by adding

14 at the end the following new subparagraph:

15 ‘‘(E) CONTINUATION IN OFFICE.—Any

16 member whose term expires shall serve until the

17 earlier of the date on which the member’s suc18 cessor takes office or the date which is 1 year

19 after the date of the expiration of the member’s

20 term.

21 (d) ACCESS TO HEALTH BENEFITS.—Section 7802(e)

22 (relating to Board personnel matters) is amended by adding

23 at the end the following new paragraph:

24 ‘‘(5) MEMBERS ACCESS TO FEHBP.—Each mem25 ber of the Oversight Board who—
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1 ‘‘(A) is described in subsection (b)(1)(A), or

2 ‘‘(B) is described in subsection (b)(1)(D)

3 and is not otherwise a Federal officer or em4 ployee,

5 shall be considered an employee solely for purposes of

6 chapter 89 of title 5, United States Code.’’.

7 (e) DIRECTOR OF INTERNAL REVENUE SERVICE OVER8 SIGHT BOARD.—Subsection (e) of section 7802, as amended

9 by subsection (d), is amended by redesignating paragraphs

10 (3), (4), and (5) as paragraphs (4), (5), and (6), respec11 tively, and by inserting after paragraph (2) the following

12 new paragraph:

13 ‘‘(3) DIRECTOR.—The Chairperson of the Over14 sight Board shall, without regard to the provisions of

15 title 5, United Stated Code, governing appointments

16 in the competitive service, appoint a Director for the

17 Oversight Board. The Director shall be paid at the

18 same rate as the highest-rate of basic pay established

19 for the Senior Executive Service under section 5382

20 of title 5, United States Code.’’.

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

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

23 Act.
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1 SEC. 128. IRS OVERSIGHT BOARD APPROVAL OF USE OF

2 CRITICAL PAY AUTHORITY.

3 (a) IN GENERAL.—Section 7802(d)(3) (relating to

4 management) is amended by striking ‘‘and’’ at the end of

5 subparagraph (B), by striking the period at the end of sub6 paragraph (C) and inserting ‘‘; and’’, and by adding at

7 the end the following new subparagraph:

8 ‘‘(D) review and approve the Commis9 sioner’s use of critical pay authority under sec10 tion 9502 of title 5, United States Code, and

11 streamlined critical pay authority under section

12 9503 of such title.’’.

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

14 section shall apply to personnel hired after the date of the

15 enactment of this Act.

16 SEC. 129. LOW-INCOME TAXPAYER CLINICS.

17 (a) GRANTS FOR RETURN PREPARATION CLINICS.—

18 (1) IN GENERAL.—Chapter 77 (relating to mis19 cellaneous provisions) is amended by inserting after

20 section 7526 the following new section:

21 ‘‘SEC. 7526A. RETURN PREPARATION CLINICS FOR LOW-IN22 COME TAXPAYERS.

23 ‘‘(a) IN GENERAL.—The Secretary may, subject to the

24 availability of appropriated funds, make grants to provide

25 matching funds for the development, expansion, or continu26 ation of qualified return preparation clinics.
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1 ‘‘(b) DEFINITIONS.—For purposes of this section—

2 ‘‘(1) QUALIFIED RETURN PREPARATION CLIN3 IC.—

4 ‘‘(A) IN GENERAL.—The term ‘qualified re5 turn preparation clinic’ means a clinic which—

6 ‘‘(i) does not charge more than a nomi7 nal fee for its services (except for reimburse8 ment of actual costs incurred), and

9 ‘‘(ii) operates programs which assist

10 low-income taxpayers in preparing and fil11 ing their Federal income tax returns, in12 cluding schedules reporting sole proprietor13 ship or farm income.

14 ‘‘(B) ASSISTANCE TO LOW-INCOME TAX15 PAYERS.—A clinic is treated as assisting low-in16 come taxpayers under subparagraph (A)(ii) if at

17 least 90 percent of the taxpayers assisted by the

18 clinic have incomes which do not exceed 250 per19 cent of the poverty level, as determined in ac20 cordance with criteria established by the Director

21 of the Office of Management and Budget.

22 ‘‘(2) CLINIC.—The term ‘clinic’ includes—

23 ‘‘(A) a clinical program at an eligible edu24 cational institution (as defined in section

25 529(e)(5)) which satisfies the requirements of
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1 paragraph (1) through student assistance of tax2 payers in return preparation and filing, and

3 ‘‘(B) an organization described in section

4 501(c) and exempt from tax under section 501(a)

5 which satisfies the requirements of paragraph

6 (1).

7 ‘‘(c) SPECIAL RULES AND LIMITATIONS.—

8 ‘‘(1) AGGREGATE LIMITATION.—Unless otherwise

9 provided by specific appropriation, the Secretary

10 shall not allocate more than $10,000,000 per year (ex11 clusive of costs of administering the program) to

12 grants under this section.

13 ‘‘(2) OTHER APPLICABLE RULES.—Rules similar

14 to the rules under paragraphs (2) through (7) of sec15 tion 7526(c) shall apply with respect to the awarding

16 of grants to qualified return preparation clinics.’’.

17 (2) CLERICAL AMENDMENT.—The table of sec18 tions for chapter 77 is amended by inserting after the

19 item relating to section 7526 the following new item:

‘‘Sec. 7526A. Return preparation clinics for low-income taxpayers.’’.

20 (b) GRANTS FOR TAXPAYER REPRESENTATION AND

21 ASSISTANCE CLINICS.—

22 (1) INCREASE IN AUTHORIZED GRANTS.—Section

23 7526(c)(1) (relating to aggregate limitation) is
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1 amended by striking ‘‘$6,000,000’’ and inserting

2 ‘‘$10,000,000’’.

3 (2) USE OF GRANTS FOR OVERHEAD EXPENSES

4 PROHIBITED.—

5 (A) IN GENERAL.—Section 7526(c) (relating

6 to special rules and limitations) is amended by

7 adding at the end the following new paragraph:

8 ‘‘(6) USE OF GRANTS FOR OVERHEAD EXPENSES

9 PROHIBITED.—No grant made under this section may

10 be used for the overhead expenses of any clinic or of

11 any institution sponsoring such clinic.’’.

12 (B) CONFORMING AMENDMENTS.—Section

13 7526(c)(5) is amended—

14 (i) by inserting ‘‘qualified’’ before

15 ‘‘low-income’’, and

16 (ii) by striking the last sentence.

17 (3) PROMOTION OF CLINICS.—Section 7526(c),

18 as amended by paragraph (2), is amended by adding

19 at the end the following new paragraph:

20 ‘‘(7) PROMOTION OF CLINICS.—The Secretary is

21 authorized to promote the benefits of and encourage

22 the use of low-income taxpayer clinics through the use

23 of mass communications, referrals, and other means.’’.
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1 (c) EFFECTIVE DATE.—The amendments made by this

2 section shall apply to grants made after the date of the en3 actment of this Act.

4 SEC. 130. TAXPAYER ACCESS TO FINANCIAL INSTITUTIONS.

5 (a) ESTABLISHMENT OF PROGRAM.—The Secretary is

6 authorized to award demonstration project grants (includ7 ing multi-year grants) to eligible entities to provide tax

8 preparation services and assistance in connection with es9 tablishing an account in a federally insured depository in10 stitution for individuals that currently do not have such

11 an account.

12 (b) ELIGIBLE ENTITIES.—

13 (1) IN GENERAL.—An entity is eligible to receive

14 a grant under this section if such an entity is—

15 (A) an organization described in section

16 501(c)(3) of the Internal Revenue Code of 1986

17 and exempt from tax under section 501(a) of

18 such Code,

19 (B) a federally insured depository institu20 tion,

21 (C) an agency of a State or local govern22 ment,

23 (D) a community development financial in24 stitution,

25 (E) an Indian tribal organization,
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1 (F) an Alaska Native Corporation,

2 (G) a Native Hawaiian organization,

3 (H) a labor organization, or

4 (I) a partnership comprised of 1 or more of

5 the entities described in the preceding subpara6 graphs.

7 (2) DEFINITIONS.—For purposes of this

8 section—

9 (A) FEDERALLY INSURED DEPOSITORY IN10 STITUTION.—The term ‘‘federally insured deposi11 tory institution’’ means any insured depository

12 institution (as defined in section 3 of the Federal

13 Deposit Insurance Act (12 U.S.C. 1813)) and

14 any insured credit union (as defined in section

15 101 of the Federal Credit Union Act (12 U.S.C.

16 1752)).

17 (B) COMMUNITY DEVELOPMENT FINANCIAL

18 INSTITUTION.—The term ‘‘community develop19 ment financial institution’’ means any organiza20 tion that has been certified as such pursuant to

21 section 1805.201 of title 12, Code of Federal Reg22 ulations.

23 (C) ALASKA NATIVE CORPORATION.—The

24 term ‘‘Alaska Native Corporation’’ has the same

25 meaning as the term ‘‘Native Corporation’’
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1 under section 3(m) of the Alaska Native Claims

2 Settlement Act (43 U.S.C. 1602(m)).

3 (D) NATIVE HAWAIIAN ORGANIZATION.—The

4 term ‘‘Native Hawaiian organization’’ means

5 any organization that—

6 (i) serves and represents the interests of

7 Native Hawaiians, and

8 (ii) has as a primary and stated pur9 pose the provision of services to Native Ha10 waiians.

11 (E) LABOR ORGANIZATION.—The term

12 ‘‘labor organization’’ means an organization—

13 (i) in which employees participate,

14 (ii) which exists for the purpose, in

15 whole or in part, of dealing with employers

16 concerning grievances, labor disputes,

17 wages, rates of pay, hours of employment,

18 or conditions of work, and

19 (iii) which is described in section

20 501(c)(5).

21 (c) APPLICATION.—An eligible entity desiring a grant

22 under this section shall submit an application to the Sec23 retary in such form and containing such information as

24 the Secretary may require.
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1 (d) LIMITATION ON ADMINISTRATIVE COSTS.—A re2 cipient of a grant under this section may not use more than

3 6 percent of the total amount of such grant in any fiscal

4 year for the administrative costs of carrying out the pro5 grams funded by such grant in such fiscal year.

6 (e) EVALUATION AND REPORT.—For each fiscal year

7 in which a grant is awarded under this section, the Sec8 retary shall submit a report to Congress containing a de9 scription of the activities funded, amounts distributed, and

10 measurable results, as appropriate and available.

11 (f) AUTHORIZATION OF APPROPRIATIONS.—There is

12 authorized to be appropriated to the Secretary, for the grant

13 program described in this section, $10,000,000, or such ad14 ditional amounts as deemed necessary, to remain available

15 until expended.

16 (g) REGULATIONS.—The Secretary is authorized to

17 promulgate regulations to implement and administer the

18 grant program under this section.

19 SEC. 131. ENROLLED AGENTS.

20 (a) IN GENERAL.—Chapter 77 (relating to miscella21 neous provisions) is amended by adding at the end the fol22 lowing new section:

23 ‘‘SEC. 7529. ENROLLED AGENTS.

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

25 regulations as may be necessary to regulate the conduct of
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1 enrolled agents in regards to their practice before the Inter2 nal Revenue Service.

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

4 properly licensed to practice as required under rules pro5 mulgated under section (a) herein shall be allowed to use

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

7 ‘E.A.’.’’.

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

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

10 new item:

‘‘Sec. 7529. Enrolled agents.’’.

11 (c) PRIOR REGULATIONS.—The authorization to pre12 scribe regulations under the amendments made by this sec13 tion may not be construed to have any effect on part 10

14 of title 31, Code of Federal Regulations, or any other related

15 Federal rule or regulation issued before the date of the en16 actment of this Act.

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

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

19 Act.

20 SEC. 132. ESTABLISHMENT OF DISASTER RESPONSE TEAM.

21 (a) IN GENERAL.—Section 7803 (relating to Commis22 sioner of Internal Revenue; other officials) is amended by

23 adding at the end the following new subsection:

24 ‘‘(e) DISASTER RESPONSE TEAM.—
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1 ‘‘(1) RESPONSE TO DISASTERS.—The Secretary

2 shall—

3 ‘‘(A) establish as a permanent office in the

4 national office of the Internal Revenue Service a

5 disaster response team composed of members,

6 who in addition to their regular responsibilities,

7 shall assist taxpayers in clarifying and resolving

8 Federal tax matters associated with or resulting

9 from any Presidentially declared disaster (as de10 fined in section 1033(h)(3)), and

11 ‘‘(B) respond to requests by such taxpayers

12 for filing extensions and technical guidance expe13 ditiously.

14 ‘‘(2) PERSONNEL OF DISASTER RESPONSE

15 TEAM.—The disaster response team shall be composed

16 of—

17 ‘‘(A) personnel from the Office of the Tax18 payer Advocate, and

19 ‘‘(B) personnel from the national office of

20 the Internal Revenue Service with expertise in

21 individual, corporate, and small business tax

22 matters.

23 ‘‘(3) COORDINATION WITH FEMA.—The disaster

24 response team shall operate in coordination with the
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1 Director of the Federal Emergency Management

2 Agency.

3 ‘‘(4) TOLL-FREE TELEPHONE NUMBER.—The

4 Commissioner of Internal Revenue shall establish and

5 maintain a toll-free telephone number for taxpayers

6 to use to receive assistance from the disaster response

7 team.

8 ‘‘(5) INTERNET WEBPAGE SITE.—The Commis9 sioner of Internal Revenue shall establish and main10 tain a site on the Internet webpage of the Internal

11 Revenue Service for information for taxpayers de12 scribed in paragraph (1)(A).’’.

13 (b) FEMA.—The Director of the Federal Emergency

14 Management Agency shall work in coordination with the

15 disaster response team established under section 7803(e) of

16 the Internal Revenue Code of 1986 to provide timely assist17 ance to disaster victims described in such section,

18 including—

19 (1) informing the disaster response team regard20 ing any tax-related problems or issues arising in con21 nection with the disaster,

22 (2) providing the toll-free telephone number es23 tablished and maintained by the Internal Revenue

24 Service for the disaster victims in all materials pro25 vided to such victims, and
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1 (3) providing the information described in sec2 tion 7803(e)(5) of such Code on the Internet webpage

3 of the Federal Emergency Management Agency or

4 through a link on such webpage to the Internet

5 webpage site of the Internal Revenue Service described

6 in such section.

7 (c) EFFECTIVE DATE.—The amendment made by this

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

9 Act.

10 SEC. 133. STUDY OF ACCELERATED TAX REFUNDS.

11 (a) STUDY.—The Secretary of the Treasury shall study

12 the implementation of an accelerated refund program for

13 taxpayers who—

14 (1) maintain the same filing characteristics from

15 year to year, and

16 (2) elect the direct deposit option for any refund

17 under the program.

18 (b) REPORT.—Not later than the date which is 1 year

19 after the date of the enactment of this Act, the Secretary

20 of the Treasury shall transmit a report of the study de21 scribed in subsection (a), including recommendations, to the

22 Committee on Finance of the Senate and the Committee on

23 Ways and Means of the House of Representatives.
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1 SEC. 134. STUDY ON CLARIFYING RECORDKEEPING RE2 SPONSIBILITIES.

3 (a) STUDY.—The Secretary of the Treasury shall

4 study—

5 (1) the scope of the records required to be main6 tained by taxpayers under section 6001 of the Inter7 nal Revenue Code of 1986,

8 (2) the utility of requiring taxpayers to main9 tain all records indefinitely,

10 (3) such requirement given the necessity to up11 grade technological storage for outdated records,

12 (4) the number of negotiated records retention

13 agreements requested by taxpayers and the number

14 entered into by the Internal Revenue Service, and

15 (5) proposals regarding taxpayer record-keeping.

16 (b) REPORT.—Not later than the date which is 1 year

17 after the date of the enactment of this Act, the Secretary

18 of the Treasury shall transmit a report of the study de19 scribed in subsection (a), including recommendations, to the

20 Committee on Finance of the Senate and the Committee on

21 Ways and Means of the House of Representatives.

22 SEC. 135. STREAMLINE REPORTING PROCESS FOR NA23 TIONAL TAXPAYER ADVOCATE.

24 (a) ONE ANNUAL REPORT.—Subparagraph (B) of sec25 tion 7803(c)(2) (relating to functions of Office) is

26 amended—
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1 (1) by striking all matter preceding subclause (I)

2 of clause (ii) and inserting the following:

3 ‘‘(B) ANNUAL REPORT.—

4 ‘‘(i) IN GENERAL.—Not later than De5 cember 31 of each calendar year, the Na6 tional Taxpayer Advocate shall report to the

7 Committee of Ways and Means of the House

8 of Representatives and the Committee on

9 Finance of the Senate on the objectives of

10 the Office of the Taxpayer of Advocate for

11 the fiscal year beginning in such calendar

12 year and the activities of such Office during

13 the fiscal year ending during such calendar

14 year. Any such report shall contain full and

15 substantive analysis, in addition to statis16 tical information, and shall—’’,

17 (2) by striking ‘‘clause (ii)’’ in clause (iv) and

18 inserting ‘‘clause (i)’’, and

19 (3) by redesignating clauses (iii) and (iv) as

20 clauses (ii) and (iii), respectively.

21 (b) ADDITIONAL REPORTS.—Section 7803(c)(2)(C)

22 (relating to other responsibilities) is amended by striking

23 ‘‘and’’ at the end of clause (iii), by striking the period at

24 the end of clause (iv) and inserting ‘‘; and’’, and by adding

25 at the end the following new clause:
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1 ‘‘(v) at the discretion of the National

2 Taxpayer Advocate, report at any time to

3 the Committee of Ways and Means of the

4 House of Representatives and the Committee

5 on Finance of the Senate on significant

6 issues affecting taxpayer rights.’’.

7 (c) EFFECTIVE DATES.—

8 (1) ANNUAL REPORTS.—The amendments made

9 by subsection (a) shall apply to reports in calendar

10 year 2005 and thereafter.

11 (2) ADDITIONAL REPORTS.—The amendments

12 made by subsection (b) shall take effect on the date of

13 the enactment of this Act.

14 SEC. 136. IRS FREE FILE PROGRAM.

15 (a) IN GENERAL.—The Commissioner of Internal Rev16 enue shall require that a taxpayer must provide an affirma17 tive consent before such taxpayer may be solicited with re18 spect to any product or service by an entity participating

19 in the Internal Revenue Service Free File program. Any

20 request for such consent must be prominently displayed and

21 clearly written, in large print, on any material relating

22 to such program.

23 (b) EFFECTIVE DATE.—This section shall take effect

24 with respect to returns filed after December 31, 2004.
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1 SEC. 137. MODIFICATION OF TIGTA REPORTING REQUIRE2 MENTS.

3 (a) IN GENERAL.—Paragraph (1) of section 7803(d)

4 (relating to additional duties of the Treasury Inspector

5 General for Tax Administration) is amended—

6 (1) by striking ‘‘ANNUAL’’ in the heading and in7 serting ‘‘BIENNIAL’’,

8 (2) by inserting ‘‘every 2 years (beginning in

9 2004)’’ after ‘‘one of the semiannual reports’’ in the

10 matter preceding subparagraph (A),

11 (3) by striking clause (ii) of subparagraph (A),

12 (4) by redesignating clauses (iii), (iv), and (v) of

13 subparagraph (A) as clauses (ii), (iii), and (iv) of

14 subparagraph (A), respectively,

15 (5) by striking subparagraph (B),

16 (6) by striking ‘‘and’’ at the end of subpara17 graph (F),

18 (7) by redesignating subparagraphs (C), (D),

19 (E), and (F) as subparagraphs (B), (C), (D), and

20 (E), respectively, and

21 (8) by striking subparagraph (G) and inserting

22 the following new subparagraphs:

23 ‘‘(F) the number of employee misconduct

24 and taxpayer abuse allegations received by the

25 Internal Revenue Service or the Inspector Gen26 eral during the period from taxpayers, Internal
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1 Revenue Service employees, and other sources;

2 and

3 ‘‘(G) with respect to allegations of serious

4 employee misconduct—

5 ‘‘(i) a summary of the status of such

6 allegations; and

7 ‘‘(ii) a summary of the disposition of

8 such allegations, including the outcome of

9 any Department of Justice action and any

10 monies paid as a settlement of such allega11 tions.’’.

12 (b) CONFORMING AMENDMENTS.—Section 7803(d) is

13 amended by striking paragraph (2) and by redesignating

14 paragraph (3) as paragraph (2).

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

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

17 Act.

18 SEC. 138. STUDY OF IRS ACCOUNTS RECEIVABLE.

19 (a) STUDY.—The Secretary of the Treasury shall con20 duct a study of the provisions of the Internal Revenue Code

21 of 1986, and the application of such provisions, regarding

22 collection procedures to determine if impediments exist to

23 the efficient and timely collection of tax debts. Such study

24 shall include an examination of the accounts receivable in25 ventory of the Internal Revenue Service.
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1 (b) REPORT.—Not later than 1 year after the date of

2 the enactment of this Act, the Secretary of the Treasury

3 shall submit a report to the Committee on Ways and Means

4 of the House of Representatives and the Committee on Fi5 nance of the Senate, including the findings of the study de6 scribed in subsection (a) and such legislative or administra7 tive recommendations as the Secretary deems appropriate

8 to increase the efficient and timely collection of tax debts.

9 SEC. 139. ELECTRONIC COMMERCE ADVISORY GROUP.

10 (a) IN GENERAL.—Section 2001(b)(2) of the Internal

11 Revenue Service Restructuring and Reform Act of 1998 is

12 amended by inserting ‘‘, and at least 2 representatives from

13 the consumer advocate community’’ after ‘‘industry’’.

14 (b) APPLICATION OF AMENDMENT.—The initial ap15 pointments in accordance with the amendment made by

16 this section shall be made not later than the date which

17 is 180 days after the date of the enactment of this Act.

18 SEC. 140. STUDY ON MODIFICATIONS TO SCHEDULES L AND

19 M–1.

20 (a) IN GENERAL.—Not later than 6 months after the

21 date of the enactment of this Act, the Secretary of the Treas22 ury shall report to the Committee on Finance of the Senate

23 and the Committee on Ways and Means of the House of

24 Representatives on proposals to modify tax schedules L and
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1 M–1 of Form 1120 to require the disclosure of additional

2 information, such as the items described in subsection (b).

3 (b) ITEMS OF DISCLOSURE.—The items described in

4 this subsection is as follows:

5 (1) The parent company names and identifica6 tion numbers for both tax and book purposes.

7 (2) An asset reconciliation of consolidated book

8 assets on the public financial disclosures with the con9 solidated tax return.

10 (3) Worldwide net income from public financial

11 disclosures.

12 (4) The components of tax expense presently re13 corded in financial statement tax footnotes.

14 (5) The reconciliation of the book income of enti15 ties included in the consolidated financial statement

16 with book income included in the consolidated tax re17 turn.

18 (6) The adjustment for book income from domes19 tic and foreign entities excluded from financial re20 porting but included for tax reconciliation.

21 (7) The book income of United States entities in22 cluded in the United States consolidated return.

23 (8) Taxable income due to actual or deemed divi24 dends from foreign subsidiaries.
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1 (9) A reconciliation which should reflect pretax

2 book income of United States consolidated tax group

3 plus taxable deemed or actual foreign repatriations.

4 (10) The differences in the reporting of income

5 and expense between book and tax reporting, includ6 ing specific reporting on pension expense, stock op7 tions, and the amortization of goodwill.

8 (11) Other reconciliation items in a consistent

9 manner among all entities.

10 (c) PUBLIC AVAILABILITY OF SPECIFIED INFORMA11 TION.—Not later than 1 year after the date of the enactment

12 of this Act, the Securities and Exchange Commission and

13 the Commissioner of Internal Revenue shall each report to

14 the Committee on Finance of the Senate and the Committee

15 on Ways and Means of the House of Representatives on pro16 posals to expand the public availability and clarity of in17 formation relating to book and tax differences and Federal

18 tax liability with respect to corporations.

19 SEC. 141. REGULATION OF FEDERAL INCOME TAX RETURN

20 PREPARERS, REFUND ANTICIPATION LOAN

21 PROVIDERS, AND PAYROLL AGENTS.

22 (a) IN GENERAL.—Chapter 77 (relating to miscella23 neous provisions), as amended by this Act, is amended by

24 adding at the end the following new section:
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1 ‘‘SEC. 7530. FEDERAL INCOME TAX RETURN PREPARERS, RE2 FUND ANTICIPATION LOAN PROVIDERS, AND

3 PAYROLL AGENTS.

4 ‘‘(a) REGISTRATION.—

5 ‘‘(1) IN GENERAL.—The Secretary shall prescribe

6 such regulations as may be necessary—

7 ‘‘(A) to require the registration of Federal

8 income tax return preparers, refund anticipation

9 loan providers, and payroll agents with the Sec10 retary or the designee of the Secretary,

11 ‘‘(B) to prohibit the payment of a refund of

12 tax to a Federal income tax return preparer or

13 refund anticipation loan provider that is the re14 sult of a tax return which is prepared by such

15 preparer or provider which does not include the

16 preparer’s or provider’s registration number, and

17 ‘‘(C) to require the posting of a resonable

18 bond by each registered payroll agent.

19 ‘‘(2) NO DISCIPLINARY ACTION.—The regulations

20 under paragraph (1) shall require that an applicant

21 for registration must not have demonstrated any con22 duct that would warrant disciplinary action under

23 part 10 of title 31, Code of Federal Regulations.

24 ‘‘(3) BURDEN OF REGISTRATION.—In promul25 gating the regulations under paragraph (1), the Sec-
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1 retary shall minimize the burden and cost on the reg2 istrant.

3 ‘‘(b) EXAMINATION.—In promulgating the regulations

4 under subsection (a)—

5 ‘‘(1) IN GENERAL.—The Secretary shall develop

6 a series of examinations designed to test the technical

7 knowledge and competency of each applicant for reg8 istration to prepare Federal tax returns, including an

9 examination testing knowledge of individual income

10 tax return preparation, including the earned income

11 tax credit under section 32.

12 ‘‘(2) INITIAL EXAMINATION.—The Secretary shall

13 require that each applicant for registration pass an

14 initial examination testing the applicant’s technical

15 knowledge and competency to prepare individual and

16 business Federal income tax returns.

17 ‘‘(c) RULES OF CONDUCT.—All registrants shall be

18 subject to rules of conduct that are consistent with the rules

19 that govern any federally authorized tax practitioner with20 in the meaning of section 7525(a)(3)(A).

21 ‘‘(d) DISCLOSURE OF INFORMATION.—The Secretary

22 shall provide guidance on the manner and timing of disclo23 sure to taxpayers of information relating to fees and inter24 est rates imposed in connection with loans made to tax25 payers by refund anticipation loan providers.
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1 ‘‘(e) ANNUAL RENEWAL OF REGISTRATION.—

2 ‘‘(1) IN GENERAL.—The regulations under sub3 section (a) shall require an annual renewal of reg4 istration and shall set forth the manner in which a

5 registered Federal income tax return preparer, refund

6 anticipation loan provider, or payroll agent must

7 renew such registration.

8 ‘‘(2) ANNUAL EXAMINATIONS.—As part of the an9 nual registration, such regulations shall require that

10 each registrant pass an annual refresher examination

11 (including tax law updates).

12 ‘‘(f) FEES.—

13 ‘‘(1) IN GENERAL.—The Secretary may require

14 the payment of reasonable fees for registration and for

15 renewal of registration under the regulations promul16 gated under subsection (a).

17 ‘‘(2) PURPOSE OF FEES.—Any fees described in

18 paragraph (1) shall be available without fiscal year

19 limitation to the Secretary for the purpose of reim20 bursement of the costs of administering the require21 ments of the regulations.

22 ‘‘(g) FEDERAL INCOME TAX RETURN PREPARER.—For

23 purposes of this section—

24 ‘‘(1) IN GENERAL.—The term ‘Federal income

25 tax return preparer’ means any individual who is an
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1 income tax return preparer (within the meaning of

2 section 7701(a)(36)) who prepares not less than 5 re3 turns of tax imposed by subtitle A or claims for re4 funds of tax imposed by subtitle A per taxable year.

5 ‘‘(2) EXCEPTION.—Such term shall not include a

6 federally authorized tax practitioner (as defined in

7 section 7525(a)(3)(A).

8 ‘‘(h) REFUND ANTICIPATION LOAN PROVIDER.—For

9 purposes of this section, the term ‘refund anticipation loan

10 provider’ means a person who makes a loan of money or

11 of any other thing of value to a taxpayer in connection with

12 the taxpayer’s anticipated receipt of a Federal tax refund.’’.

13 (b) PROHIBITION.—

14 (1) IN GENERAL.—Section 6695 (relating to

15 other assessable penalties with respect to the prepara16 tion of income tax returns for other persons) is

17 amended by adding at the end the following new sub18 section:

19 ‘‘(h) ACTIONS ON A TAXPAYER’S BEHALF BY A NON20 REGISTERED PERSON.—Any person not registered pursu21 ant to the regulations promulgated by the Secretary under

22 section 7530 who—

23 ‘‘(1) prepares a tax return for another taxpayer,

24 or
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1 ‘‘(2) provides a loan of money or of any other

2 thing of value to a taxpayer in connection with the

3 taxpayer’s anticipated receipt of a Federal tax re4 fund,

5 shall be subject to a $500 penalty for each incident of non6 compliance.’’.

7 (2) USE OF PENALTIES.—There is authorized to

8 be appropriated and is appropriated to the Secretary

9 of the Treasury for each fiscal year for the adminis10 tration of the requirements of the regulations promul11 gated under section 7530 of the Internal Revenue

12 Code of 1986 an amount equal to the penalties im13 posed under section 6695(h) of such Code for the pre14 ceding fiscal year.

15 (c) COORDINATION WITH SECTION 6060(a).—The Sec16 retary of the Treasury shall coordinate the registration re17 quired under the regulations promulgated under section

18 7530 of the Internal Revenue Code of 1986 with the return

19 requirements of section 6060 of such Code.

20 (d) PUBLIC AWARENESS CAMPAIGN.—

21 (1) IN GENERAL.—The Secretary of the Treasury

22 shall conduct a public information and consumer

23 education campaign, utilizing paid advertising, to in24 form the public of the requirements that Federal in25 come tax return preparers (as defined in section
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1 7530(g) of the Internal Revenue Code of 1986) must

2 sign the return prepared for a fee and display notice

3 of their registration under the regulations promul4 gated under section 7530 of such Code.

5 (2) PUBLIC LIST.—The Secretary of the Treasury

6 shall maintain a public list (in print and electronic

7 media, including Internet-based) of Federal income

8 tax return preparers (as so defined) who are so reg9 istered and whose registration has been revoked.

10 (3) NOTIFICATION.—The Secretary of the Treas11 ury shall notify any taxpayer if such taxpayer’s re12 turn was prepared by such an unregistered Federal

13 income tax return preparer .

14 (e) ADDITIONAL FUNDS AVAILABLE FOR COMPLIANCE

15 ACTIVITIES.—The Secretary of the Treasury may use any

16 specifically appropriated funds for earned income tax credit

17 compliance to improve and expand enforcement of Federal

18 income tax preparers under the regulations promulgated

19 under section 7530 of the Internal Revenue Code of 1986.

20 (f) CLERICAL AMENDMENT.—The table of sections for

21 chapter 77, as amended by this Act, is amended by adding

22 at the end the following new item:

‘‘Sec. 7530. Federal income tax return preparers and refund anticipation loan providers.’’.
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1 (g) EFFECTIVE DATE.—The amendments made by this

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

3 Act.

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

5 (a) IN GENERAL.—The Secretary of the Treasury shall

6 establish a joint task force—

7 (1) to review the Internal Revenue Service’s de8 terminations with respect to offers which raise equi9 table, public policy, or economic hardship grounds for

10 compromise of a tax liability under section 7122 of

11 the Internal Revenue Code of 1986,

12 (2) to review the extent to which the Internal

13 Revenue Service has used its authority to resolve long14 standing cases by forgoing penalties and interest

15 which have accumulated as a result of delay in deter16 mining the taxpayer’s liability,

17 (3) to provide recommendations as to whether the

18 Internal Revenue Service’s evaluation of offers-in19 compromise should include—

20 (A) the taxpayer’s compliance history,

21 (B) errors by the Internal Revenue Service

22 with respect to the underlying tax,

23 (C) wrongful acts by a third party which

24 gave rise to the liability, and
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1 (D) whether the taxpayer has made pay2 ments on the liability, and

3 (4) to annually report to the Committee on Fi4 nance of the Senate and the Committee on Ways and

5 Means of the House of Representatives (beginning in

6 2005) regarding such review and recommendations.

7 (b) MEMBERS OF JOINT TASK FORCE.—The member8 ship of the joint task force under subsection (a) shall consist

9 of 1 representative each from the Department of the Treas10 ury, the Internal Revenue Service Oversight Board, the Of11 fice of the Chief Counsel for the Internal Revenue Service,

12 the Office of the Taxpayer Advocate, the Office of Appeals,

13 and the division of the Internal Revenue Service charged

14 with operating the offer-in-compromise program.

15 (c) REPORT OF NATIONAL TAXPAYER ADVOCATE.—

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

17 7803(c)(2)(B) (relating to annual reports), as amend18 ed by this Act, is amended by striking ‘‘and’’ at the

19 end of subclause (X), by redesignating subclause (XI)

20 as subclause (XII), and by inserting after subclause

21 (X) the following new subclause:

22 ‘‘(XI) include a list of the factors

23 taxpayers have raised to support their

24 claims for offers-in-compromise relief,

25 the number of such offers submitted,
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1 accepted, and rejected, the number of

2 such offers appealed, the period during

3 which review of such offers have re4 mained pending, and the efforts the In5 ternal Revenue Service has made to

6 correctly identify such offers, including

7 the training of employees in identi8 fying and evaluating such offers.’’.

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

10 paragraph (1) shall apply to reports in calendar year

11 2005 and thereafter.

12 Subtitle C—Other Provisions

13 SEC. 151. PENALTY FOR FAILURE TO REPORT INTERESTS IN

14 FOREIGN FINANCIAL ACCOUNTS.

15 (a) IN GENERAL.—Section 5321(a)(5) of title 31,

16 United States Code, is amended to read as follows:

17 ‘‘(5) FOREIGN FINANCIAL AGENCY TRANSACTION

18 VIOLATION.—

19 ‘‘(A) PENALTY AUTHORIZED.—The Sec20 retary of the Treasury may impose a civil money

21 penalty on any person who violates, or causes

22 any violation of, any provision of section 5314.

23 ‘‘(B) AMOUNT OF PENALTY.—

24 ‘‘(i) IN GENERAL.—Except as provided

25 in subparagraph (C), the amount of any
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1 civil penalty imposed under subparagraph

2 (A) shall not exceed $5,000.

3 ‘‘(ii) REASONABLE CAUSE EXCEP4 TION.—No penalty shall be imposed under

5 subparagraph (A) with respect to any viola6 tion if—

7 ‘‘(I) such violation was due to

8 reasonable cause, and

9 ‘‘(II) the amount of the trans10 action or the balance in the account at

11 the time of the transaction was prop12 erly reported.

13 ‘‘(C) WILLFUL VIOLATIONS.—In the case of

14 any person willfully violating, or willfully caus15 ing any violation of, any provision of section

16 5314—

17 ‘‘(i) the maximum penalty under sub18 paragraph (B)(i) shall be increased to the

19 greater of—

20 ‘‘(I) $25,000, or

21 ‘‘(II) the amount (not exceeding

22 $100,000) determined under subpara23 graph (D), and

24 ‘‘(ii) subparagraph (B)(ii) shall not

25 apply.
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1 ‘‘(D) AMOUNT.—The amount determined

2 under this subparagraph is—

3 ‘‘(i) in the case of a violation involving

4 a transaction, the amount of the trans5 action, or

6 ‘‘(ii) in the case of a violation involv7 ing a failure to report the existence of an

8 account or any identifying information re9 quired to be provided with respect to an ac10 count, the balance in the account at the

11 time of the violation.’’.

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

13 section shall apply to violations occurring after the date of

14 the enactment of this Act.

15 SEC. 152. REPEAL OF APPLICATION OF BELOW-MARKET

16 LOAN RULES TO AMOUNTS PAID TO CERTAIN

17 CONTINUING CARE FACILITIES.

18 (a) IN GENERAL.—Section 7872(c)(1) (relating to

19 below-market loans to which section applies) is amended—

20 (1) by striking subparagraph (F), and

21 (2) by striking ‘‘(C), or (F)’’ in subparagraph

22 (E) and inserting ‘‘or (C)’’.

23 (b) FULL EXCEPTION.—Section 7872(g) (relating to

24 exception for certain loans to qualified continuing care fa25 cilities) is amended—
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1 (1) by striking ‘‘made by a lender to a qualified

2 continuing care facility pursuant to a continuing

3 care contract’’ in paragraph (1) and inserting ‘‘owed

4 by a facility which on the last day of such year is

5 a qualified continuing care facility, if such loan was

6 made pursuant to a continuing care contract and’’,

7 (2) by striking ‘‘increased personal care services

8 or’’ in paragraph (3)(C),

9 (3) by adding at the end of paragraph (3) the

10 following new flush sentence:

11 ‘‘The Secretary shall issue guidance which limits such

12 term to contracts which provide to an individual or

13 individual’s spouse only facilities, care, and services

14 described in this paragraph which are customarily of15 fered by continuing care facilities.’’,

16 (4) by inserting ‘‘independent living unit’’ after

17 ‘‘all of the’’ in paragraph (4)(A)(ii),

18 (5) by striking paragraphs (2) and (5),

19 (6) by redesignating paragraphs (3) and (4) as

20 paragraphs (2) and (3), respectively, and

21 (7) by striking ‘‘CERTAIN’’ in the heading there22 of.

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

24 section shall apply to calendar years beginning after 2004.
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1 SEC. 153. PUBLIC SUPPORT BY INDIAN TRIBAL GOVERN2 MENTS.

3 (a) IN GENERAL.—Section 7871(a) (relating to Indian

4 tribal governments treated as States for certain purposes)

5 is amended by striking ‘‘and’’ at the end of subparagraph

6 (C) of paragraph (6), by striking the period at the end of

7 subparagraph (B) of paragraph (7) and inserting ‘‘; and’’,

8 and by adding at the end the following new paragraph:

9 ‘‘(8) for purposes of—

10 ‘‘(A) determining support of an organiza11 tion described in section 170(b)(1)(A)(vi), and

12 ‘‘(B) determining whether an organization

13 is described in paragraph (1) or (2) of section

14 509(a) for purposes of section 509(a)(3).’’.

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

16 section shall apply with respect to—

17 (1) support received before, on, or after the date

18 of the enactment of this Act, and

19 (2) the determination of the status of any orga20 nization with respect to any taxable year beginning

21 after such date of enactment.
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1 SEC. 154. PAYROLL AGENTS SUBJECT TO PENALTY FOR

2 FAILURE TO COLLECT AND PAY OVER TAX, OR

3 ATTEMPT TO EVADE OR DEFEAT TAX.

4 (a) IN GENERAL.—Section 6672(a) is amended by in5 serting ‘‘, including any payroll agent,’’ after ‘‘Any per6 son’’.

7 (b) PENALTY NOT SUBJECT TO DISCHARGE IN BANK8 RUPTCY.—Section 6672(a) is amended by adding at the end

9 the following new sentence: ‘‘Notwithstanding any other

10 provision of law, no penalty imposed under this section

11 may be discharged in bankruptcy.’’.

12 (c) CONSTRUCTION.—The amendment made by sub13 section (a) shall not be construed to create any inference

14 with respect to the interpretation of section 6672 of the In15 ternal Revenue Code of 1986 as such section was in effect

16 on the day before the date of the enactment of this Act.

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

18 section shall apply to failures occurring after the date of

19 the enactment of this Act.

20 TITLE II—REFORM OF PENALTY

21 AND INTEREST

22 SEC. 201. INDIVIDUAL ESTIMATED TAX.

23 (a) INCREASE IN EXCEPTION FOR INDIVIDUALS OWING

24 SMALL AMOUNT OF TAX.—Section 6654(e)(1) (relating to

25 exception where tax is small amount) is amended by strik26 ing ‘‘$1,000’’ and inserting ‘‘$2,000’’.
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1 (b) COMPUTATION OF ADDITION TO TAX.—Subsections

2 (a) and (b) of section 6654 (relating to failure by individual

3 to pay estimated taxes) are amended to read as follows:

4 ‘‘(a) ADDITION TO THE TAX.—

5 ‘‘(1) IN GENERAL.—Except as otherwise provided

6 in this section, in the case of any underpayment of

7 estimated tax by an individual for a taxable year,

8 there shall be added to the tax under chapters 1 and

9 2 for the taxable year the amount determined under

10 paragraph (2) for each day of underpayment.

11 ‘‘(2) AMOUNT.—The amount of the addition to

12 tax for any day shall be the product of the under13 payment rate established under subsection (b)(2) mul14 tiplied by the amount of the underpayment.

15 ‘‘(b) AMOUNT OF UNDERPAYMENT; UNDERPAYMENT

16 RATE.—For purposes of subsection (a)—

17 ‘‘(1) AMOUNT.—The amount of the under18 payment on any day shall be the excess of—

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

20 for the taxable year the due dates for which are

21 on or before such day, over

22 ‘‘(B) the sum of the amounts (if any) of es23 timated tax payments made on or before such

24 day on such required installments.
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1 ‘‘(2) DETERMINATION OF UNDERPAYMENT

2 RATE.—

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

4 with respect to any day in an installment under5 payment period shall be the underpayment rate

6 established under section 6621 for the first day

7 of the calendar quarter in which such install8 ment underpayment period begins.

9 ‘‘(B) INSTALLMENT UNDERPAYMENT PE10 RIOD.—For purposes of subparagraph (A), the

11 term ‘installment underpayment period’ means

12 the period beginning on the day after the due

13 date for a required installment and ending on

14 the due date for the subsequent required install15 ment (or in the case of the 4th required install16 ment, the 15th day of the 4th month following

17 the close of a taxable year).

18 ‘‘(C) DAILY RATE.—The rate determined

19 under subparagraph (A) shall be applied on a

20 daily basis and shall be based on the assumption

21 of 365 days in a calendar year.

22 ‘‘(3) TERMINATION OF ESTIMATED TAX UNDER23 PAYMENT.—No day after the end of the installment

24 underpayment period for the 4th required installment

25 specified in paragraph (2)(B) for a taxable year shall
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1 be treated as a day of underpayment with respect to

2 such taxable year.’’.

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

4 section shall apply to estimated tax payments made for tax5 able years beginning after December 31, 2004.

6 SEC. 202. CORPORATE ESTIMATED TAX.

7 (a) INCREASE IN SMALL TAX AMOUNT EXCEPTION.—

8 Section 6655(f) (relating to exception where tax is small

9 amount) is amended by striking ‘‘$500’’ and inserting

10 ‘‘$1,000’’.

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

12 section shall apply to taxable years beginning after Decem13 ber 31, 2004.

14 SEC. 203. INCREASE IN LARGE CORPORATION THRESHOLD

15 FOR ESTIMATED TAX PAYMENTS.

16 (a) IN GENERAL.—Section 6655(g)(2) (defining large

17 corporation) is amended—

18 (1) by striking ‘‘$1,000,000’’ in subparagraph

19 (A) and inserting ‘‘the applicable amount’’,

20 (2) by striking ‘‘the $1,000,000 amount specified

21 in subparagraph (A)’’ in subparagraph (B)(ii) and

22 inserting ‘‘the applicable amount’’,

23 (3) by redesignating subparagraph (B) as sub24 paragraph (C), and
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1 (4) by inserting after subparagraph (A) the fol2 lowing new subparagraph:

3 ‘‘(B) APPLICABLE AMOUNT.—For purposes

4 of this paragraph, the applicable amount is

5 $1,000,000 increased (but not above $1,500,000)

6 by $50,000 for each taxable year beginning after

7 2004.’’.

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

9 section shall apply to taxable years beginning after Decem10 ber 31, 2004.

11 SEC. 204. ABATEMENT OF INTEREST.

12 (a) ABATEMENT OF INTEREST FOR PERIODS ATTRIB13 UTABLE TO ANY UNREASONABLE IRS ERROR OR DELAY.—

14 Section 6404(e)(1) is amended—

15 (1) by striking ‘‘in performing a ministerial or

16 managerial act’’ in subparagraphs (A) and (B),

17 (2) by striking ‘‘deficiency’’ in subparagraph (A)

18 and inserting ‘‘underpayment of any tax, addition to

19 tax, or penalty imposed by this title’’, and

20 (3) by striking ‘‘tax described in section

21 6212(a)’’ in subparagraph (B) and inserting ‘‘tax,

22 addition to tax, or penalty imposed by this title’’.

23 (b) ABATEMENT OF INTEREST TO EXTENT INTEREST

24 IS ATTRIBUTABLE TO TAXPAYER RELIANCE ON WRITTEN
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1 STATEMENTS OF THE IRS.—Subsection (f) of section 6404

2 is amended—

3 (1) in the subsection heading, by striking ‘‘PEN4 ALTY OR ADDITION’’ and inserting ‘‘INTEREST, PEN5 ALTY, OR ADDITION’’; and

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

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

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

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

10 section shall apply with respect to interest accruing on or

11 after the date of the enactment of this Act.

12 SEC. 205. DEPOSITS MADE TO SUSPEND RUNNING OF IN13 TEREST ON POTENTIAL UNDERPAYMENTS.

14 (a) IN GENERAL.—Subchapter A of chapter 67 (relat15 ing to interest on underpayments) is amended by adding

16 at the end the following new section:

17 ‘‘SEC. 6603. DEPOSITS MADE TO SUSPEND RUNNING OF IN18 TEREST ON POTENTIAL UNDERPAYMENTS,

19 ETC.

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

21 AS PAYMENT OF TAX.—A taxpayer may make a cash de22 posit with the Secretary which may be used by the Sec23 retary to pay any tax imposed under subtitle A or B or

24 chapter 41, 42, 43, or 44 which has not been assessed at
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1 the time of the deposit. Such a deposit shall be made in

2 such manner as the Secretary shall prescribe.

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

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

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

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

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

8 the Secretary determines that collection of tax is in jeop9 ardy, the Secretary shall return to the taxpayer any

10 amount of the deposit (to the extent not used for a payment

11 of tax) which the taxpayer requests in writing.

12 ‘‘(d) PAYMENT OF INTEREST.—

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

14 (relating to interest on overpayments), a deposit

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

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

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

18 period. Under regulations prescribed by the Secretary,

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

20 apply.

21 ‘‘(2) DISPUTABLE TAX.—

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

23 section, the term ‘disputable tax’ means the

24 amount of tax specified at the time of the deposit

25 as the taxpayer’s reasonable estimate of the max-
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1 imum amount of any tax attributable to disput2 able items.

3 ‘‘(B) SAFE HARBOR BASED ON 30-DAY LET4 TER.—In the case of a taxpayer who has been

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

6 tax under subparagraph (A) shall not be less

7 than the amount of the proposed deficiency speci8 fied in such letter.

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

10 paragraph (2)—

11 ‘‘(A) DISPUTABLE ITEM.—The term ‘disput12 able item’ means any item of income, gain, loss,

13 deduction, or credit if the taxpayer—

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

15 treatment of such item, and

16 ‘‘(ii) reasonably believes that the Sec17 retary also has a reasonable basis for dis18 allowing the taxpayer’s treatment of such

19 item.

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

21 letter’ means the first letter of proposed defi22 ciency which allows the taxpayer an opportunity

23 for administrative review in the Internal Rev24 enue Service Office of Appeals.
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1 ‘‘(4) RATE OF INTEREST.—The rate of interest

2 allowable under this subsection shall be the Federal

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

4 compounded daily.

5 ‘‘(e) USE OF DEPOSITS.—

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

7 provided by the taxpayer, deposits shall be treated as

8 used for the payment of tax in the order deposited.

9 ‘‘(2) RETURNS OF DEPOSITS.—Deposits shall be

10 treated as returned to the taxpayer on a last-in, first11 out basis.’’.

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

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

14 end the following new item:

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

15 (c) EFFECTIVE DATE.—

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

17 this section shall apply to deposits made after the

18 date which is 1 year after the date of the enactment

19 of this Act.

20 (2) COORDINATION WITH DEPOSITS MADE UNDER

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

22 amount held by the Secretary of the Treasury or the

23 Secretary’s delegate on the date which is 1 year after

24 the date of the enactment of this Act as a deposit in
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1 the nature of a cash bond deposit pursuant to Rev2 enue Procedure 84–58, the date that the taxpayer

3 identifies such amount as a deposit made pursuant to

4 section 6603 of the Internal Revenue Code (as added

5 by this Act) shall be treated as the date such amount

6 is deposited for purposes of such section 6603.

7 SEC. 206. FREEZE OF PROVISIONS REGARDING SUSPEN8 SION OF INTEREST WHERE SECRETARY FAILS

9 TO CONTACT TAXPAYER.

10 (a) IN GENERAL.—Section 6404(g) (relating to sus11 pension of interest and certain penalties where Secretary

12 fails to contact taxpayer) is amended by striking ‘‘1-year

13 period (18-month period in the case of taxable years begin14 ning before January 1, 2004)’’ both places it appears and

15 inserting ‘‘18-month period’’.

16 (b) EXCEPTION FOR GROSS MISSTATEMENT.—Section

17 6404(g)(2) (relating to exceptions) is amended by striking

18 ‘‘or’’ at the end of subparagraph (C), by redesignating sub19 paragraph (D) as subparagraph (E), and by inserting after

20 subparagraph (C) the following new subparagraph:

21 ‘‘(D) any interest, penalty, addition to tax,

22 or additional amount with respect to any gross

23 misstatement; or’’.

24 (c) EXCEPTION FOR REPORTABLE AND LISTED TRANS25 ACTIONS.—Section 6404(g)(2) (relating to exceptions), as
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1 amended by subsection (b), is amended by striking ‘‘or’’ at

2 the end of subparagraph (D), by redesignating subpara3 graph (E) as subparagraph (F), and by inserting after sub4 paragraph (D) the following new subparagraph:

5 ‘‘(E) any interest, penalty, addition to tax,

6 or additional amount with respect to any report7 able transaction or listed transaction (as defined

8 in 6707A(c)); or’’.

9 (d) EFFECTIVE DATES.—

10 (1) IN GENERAL.—Except as provided in para11 graph (2), the amendments made by this section shall

12 apply to taxable years beginning after December 31,

13 2003.

14 (2) EXCEPTION FOR REPORTABLE OR LISTED

15 TRANSACTIONS.—The amendments made by sub16 section (c) shall apply with respect to interest accru17 ing after May 5, 2004.

18 SEC. 207. CLARIFICATION OF APPLICATION OF FEDERAL

19 TAX DEPOSIT PENALTY.

20 Nothing in section 6656 of the Internal Revenue Code

21 of 1986 shall be construed to permit the percentage specified

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

23 a case where the failure is for more than 15 days.
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1 SEC. 208. FRIVOLOUS TAX RETURNS AND SUBMISSIONS.

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

3 read as follows:

4 ‘‘SEC. 6702. FRIVOLOUS TAX SUBMISSIONS.

5 ‘‘(a) CIVIL PENALTY FOR FRIVOLOUS TAX RE6 TURNS.—A person shall pay a penalty of $5,000 if—

7 ‘‘(1) such person files what purports to be a re8 turn of a tax imposed by this title but which—

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

10 the substantial correctness of the self-assessment

11 may be judged, or

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

13 indicates that the self-assessment is substantially

14 incorrect; and

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

16 ‘‘(A) is based on a position which the Sec17 retary has identified as frivolous under sub18 section (c), or

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

20 administration of Federal tax laws.

21 ‘‘(b) CIVIL PENALTY FOR SPECIFIED FRIVOLOUS SUB22 MISSIONS.—

23 ‘‘(1) IMPOSITION OF PENALTY.—Except as pro24 vided in paragraph (3), any person who submits a

25 specified frivolous submission shall pay a penalty of

26 $5,000.
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1 ‘‘(2) SPECIFIED FRIVOLOUS SUBMISSION.—For

2 purposes of this section—

3 ‘‘(A) SPECIFIED FRIVOLOUS SUBMISSION.—

4 The term ‘specified frivolous submission’ means

5 a specified submission if any portion of such

6 submission—

7 ‘‘(i) is based on a position which the

8 Secretary has identified as frivolous under

9 subsection (c), or

10 ‘‘(ii) reflects a desire to delay or im11 pede the administration of Federal tax

12 laws.

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 no20 tice and opportunity for hearing before

21 levy), and

22 ‘‘(ii) an application under—

23 ‘‘(I) section 6159 (relating to

24 agreements for payment of tax liability

25 in installments),
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1 ‘‘(II) section 7122 (relating to

2 compromises), or

3 ‘‘(III) section 7811 (relating to

4 taxpayer assistance orders).

5 ‘‘(3) OPPORTUNITY TO WITHDRAW SUBMIS6 SION.—If the Secretary provides a person with notice

7 that a submission is a specified frivolous submission

8 and such person withdraws such submission within

9 30 days after such notice, the penalty imposed under

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

11 submission.

12 ‘‘(c) LISTING OF FRIVOLOUS POSITIONS.—The Sec13 retary shall prescribe (and periodically revise) a list of posi14 tions which the Secretary has identified as being frivolous

15 for purposes of this subsection. The Secretary shall not in16 clude in such list any position that the Secretary deter17 mines meets the requirement of section

18 6662(d)(2)(B)(ii)(II).

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

20 reduce the amount of any penalty imposed under this sec21 tion if the Secretary determines that such reduction would

22 promote compliance with and administration of the Federal

23 tax laws.
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1 ‘‘(e) PENALTIES IN ADDITION TO OTHER PEN2 ALTIES.—The penalties imposed by this section shall be in

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

4 (b) TREATMENT OF FRIVOLOUS REQUESTS FOR HEAR5 INGS BEFORE LEVY.—

6 (1) FRIVOLOUS REQUESTS DISREGARDED.—Sec7 tion 6330 (relating to notice and opportunity for

8 hearing before levy) is amended by adding at the end

9 the following new subsection:

10 ‘‘(g) FRIVOLOUS REQUESTS FOR HEARING, ETC.—Not11 withstanding any other provision of this section, if the Sec12 retary determines that any portion of a request for a hear13 ing under this section or section 6320 meets the requirement

14 of clause (i) or (ii) of section 6702(b)(2)(A), then the Sec15 retary may treat such portion as if it were never submitted

16 and such portion shall not be subject to any further admin17 istrative or judicial review.’’.

18 (2) PRECLUSION FROM RAISING FRIVOLOUS

19 ISSUES AT HEARING.—Section 6330(c)(4) is

20 amended—

21 (A) by striking ‘‘(A)’’ and inserting

22 ‘‘(A)(i)’’;

23 (B) by striking ‘‘(B)’’ and inserting ‘‘(ii)’’;

24 (C) by striking the period at the end of the

25 first sentence and inserting ‘‘; or’’; and
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1 (D) by inserting after subparagraph (A)(ii)

2 (as so redesignated) the following:

3 ‘‘(B) the issue meets the requirement of

4 clause (i) or (ii) of section 6702(b)(2)(A).’’.

5 (3) STATEMENT OF GROUNDS.—Section

6 6330(b)(1) is amended by striking ‘‘under subsection

7 (a)(3)(B)’’ and inserting ‘‘in writing under subsection

8 (a)(3)(B) and states the grounds for the requested

9 hearing’’.

10 (c) TREATMENT OF FRIVOLOUS REQUESTS FOR HEAR11 INGS UPON FILING OF NOTICE OF LIEN.—Section 6320 is

12 amended—

13 (1) in subsection (b)(1), by striking ‘‘under sub14 section (a)(3)(B)’’ and inserting ‘‘in writing under

15 subsection (a)(3)(B) and states the grounds for the re16 quested hearing’’, and

17 (2) in subsection (c), by striking ‘‘and (e)’’ and

18 inserting ‘‘(e), and (g)’’.

19 (d) TREATMENT OF FRIVOLOUS APPLICATIONS FOR

20 OFFERS-IN-COMPROMISE AND INSTALLMENT AGREE21 MENTS.—Section 7122 is amended by adding at the end

22 the following new subsection:

23 ‘‘(e) FRIVOLOUS SUBMISSIONS, ETC.—Notwith24 standing any other provision of this section, if the Secretary

25 determines that any portion of an application for an offer-
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1 in-compromise or installment agreement submitted under

2 this section or section 6159 meets the requirement of clause

3 (i) or (ii) of section 6702(b)(2)(A), then the Secretary may

4 treat such portion as if it were never submitted and such

5 portion shall not be subject to any further administrative

6 or judicial review.’’.

7 (e) CLERICAL AMENDMENT.—The table of sections for

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

9 the item relating to section 6702 and inserting the following

10 new item:

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

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

12 section shall apply to submissions made and issues raised

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

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

15 as amended by subsection (a).

16 SEC. 209. EXTENSION OF NOTICE REQUIREMENTS WITH RE17 SPECT TO INTEREST AND PENALTY CALCULA18 TIONS.

19 Sections 3306(c) and 3308(c) of the Internal Revenue

20 Service Restructuring and Reform Act of 1998 are each

21 amended by inserting ‘‘and during the period beginning on

22 the date of the enactment of the Tax Administration Good

23 Government Act, and ending before July 1, 2006,’’ after

24 ‘‘July 1, 2003,’’.
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1 SEC. 210. EXPANSION OF INTEREST NETTING.

2 (a) IN GENERAL.—Subsection (d) of section 6621 (re3 lating to elimination of interest on overlapping periods of

4 tax overpayments and underpayments) is amended by add5 ing at the end the following: ‘‘Solely for purposes of the pre6 ceding sentence, section 6611(e) shall not apply.’’.

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

8 section shall apply to interest accrued after December 31,

9 2010.

10 TITLE III—UNITED STATES TAX

11 COURT MODERNIZATION

12 Subtitle A—Tax Court Procedure

13 SEC. 301. JURISDICTION OF TAX COURT OVER COLLECTION

14 DUE PROCESS CASES.

15 (a) IN GENERAL.—Paragraph (1) of section 6330(d)

16 (relating to proceeding after hearing) is amended to read

17 as follows:

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

19 The person may, within 30 days of a determination

20 under this section, appeal such determination to the

21 Tax Court (and the Tax Court shall have jurisdiction

22 with respect to such matter).’’.

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

24 section shall apply to determinations made after the date

25 which is 60 days after the date of the enactment of this

26 Act.
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1 SEC. 302. AUTHORITY FOR SPECIAL TRIAL JUDGES TO

2 HEAR AND DECIDE CERTAIN EMPLOYMENT

3 STATUS CASES.

4 (a) IN GENERAL.—Section 7443A(b) (relating to pro5 ceedings which may be assigned to special trial judges) is

6 amended by striking ‘‘and’’ at the end of paragraph (4),

7 by redesignating paragraph (5) as paragraph (6), and by

8 inserting after paragraph (4) the following new paragraph:

9 ‘‘(5) any proceeding under section 7436(c), and’’.

10 (b) CONFORMING AMENDMENT.—Section 7443A(c) is

11 amended by striking ‘‘or (4)’’ and inserting ‘‘(4), or (5)’’.

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

13 section shall apply to any proceeding under section 7436(c)

14 of the Internal Revenue Code of 1986 with respect to which

15 a decision has not become final (as determined under sec16 tion 7481 of such Code) before the date of the enactment

17 of this Act.

18 SEC. 303. CONFIRMATION OF AUTHORITY OF TAX COURT TO

19 APPLY DOCTRINE OF EQUITABLE

20 RECOUPMENT.

21 (a) CONFIRMATION OF AUTHORITY OF TAX COURT TO

22 APPLY DOCTRINE OF EQUITABLE RECOUPMENT.—Section

23 6214(b) (relating to jurisdiction over other years and quar24 ters) is amended by adding at the end the following new

25 sentence: ‘‘Notwithstanding the preceding sentence, the Tax

26 Court may apply the doctrine of equitable recoupment to
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1 the same extent that it is available in civil tax cases before

2 the district courts of the United States and the United

3 States Court of Federal Claims.’’.

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

5 section shall apply to any action or proceeding in the

6 United States Tax Court with respect to which a decision

7 has not become final (as determined under section 7481 of

8 the Internal Revenue Code of 1986) as of the date of the

9 enactment of this Act.

10 SEC. 304. TAX COURT FILING FEE IN ALL CASES COM11 MENCED BY FILING PETITION.

12 (a) IN GENERAL.—Section 7451 (relating to fee for fil13 ing a Tax Court petition) is amended by striking all that

14 follows ‘‘petition’’ and inserting a period.

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

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

17 Act.

18 SEC. 305. AMENDMENTS TO APPOINT EMPLOYEES.

19 (a) IN GENERAL.—Subsection (a) of section 7471 (re20 lating to Tax Court employees) is amended to read as fol21 lows:

22 ‘‘(a) APPOINTMENT AND COMPENSATION.—

23 ‘‘(1) CLERK.—The Tax Court may appoint a

24 clerk without regard to the provisions of title 5,

25 United States Code, governing appointments in the
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1 competitive service. The clerk shall serve at the pleas2 ure of the Tax Court.

3 ‘‘(2) LAW CLERKS AND SECRETARIES.—

4 ‘‘(A) IN GENERAL.—The judges and special

5 trial judges of the Tax Court may appoint law

6 clerks and secretaries, in such numbers as the

7 Tax Court may approve, without regard to the

8 provisions of title 5, United States Code, gov9 erning appointments in the competitive service.

10 Any such law clerk or secretary shall serve at the

11 pleasure of the appointing judge.

12 ‘‘(B) EXEMPTION FROM FEDERAL LEAVE

13 PROVISIONS.—A law clerk appointed under this

14 subsection shall be exempt from the provisions of

15 subchapter I of chapter 63 of title 5, United

16 States Code. Any unused sick leave or annual

17 leave standing to the employee’s credit as of the

18 effective date of this subsection shall remain

19 credited to the employee and shall be available to

20 the employee upon separation from the Federal

21 Government.

22 ‘‘(3) OTHER EMPLOYEES.—The Tax Court may

23 appoint necessary employees without regard to the

24 provisions of title 5, United States Code, governing
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1 appointments in the competitive service. Such em2 ployees shall be subject to removal by the Tax Court.

3 ‘‘(4) PAY.—The Tax Court may fix and adjust

4 the compensation for the clerk and other employees of

5 the Tax Court without regard to the provisions of

6 chapter 51, subchapter III of chapter 53, or section

7 5373 of title 5, United States Code. To the maximum

8 extent feasible, the Tax Court shall compensate em9 ployees at rates consistent with those for employees

10 holding comparable positions in the judicial branch.

11 ‘‘(5) PROGRAMS.—The Tax Court may establish

12 programs for employee evaluations, incentive awards,

13 flexible work schedules, premium pay, and resolution

14 of employee grievances.

15 ‘‘(6) DISCRIMINATION PROHIBITED.—The Tax

16 Court shall—

17 ‘‘(A) prohibit discrimination on the basis of

18 race, color, religion, age, sex, national origin, po19 litical affiliation, marital status, or handi20 capping condition; and

21 ‘‘(B) promulgate procedures for resolving

22 complaints of discrimination by employees and

23 applicants for employment.
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1 ‘‘(7) EXPERTS AND CONSULTANTS.—The Tax

2 Court may procure the services of experts and consult3 ants under section 3109 of title 5, United States Code.

4 ‘‘(8) RIGHTS TO CERTAIN APPEALS RESERVED.—

5 Notwithstanding any other provision of law, an indi6 vidual who is an employee of the Tax Court on the

7 day before the effective date of this subsection and

8 who, as of that day, was entitled to—

9 ‘‘(A) appeal a reduction in grade or re10 moval to the Merit Systems Protection Board

11 under chapter 43 of title 5, United States Code,

12 ‘‘(B) appeal an adverse action to the Merit

13 Systems Protection Board under chapter 75 of

14 title 5, United States Code,

15 ‘‘(C) appeal a prohibited personnel practice

16 described under section 2302(b) of title 5, United

17 States Code, to the Merit Systems Protection

18 Board under chapter 77 of that title,

19 ‘‘(D) make an allegation of a prohibited

20 personnel practice described under section

21 2302(b) of title 5, United States Code, with the

22 Office of Special Counsel under chapter 12 of

23 that title for action in accordance with that

24 chapter, or
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1 ‘‘(E) file an appeal with the Equal Employ2 ment Opportunity Commission under part 1614

3 of title 29 of the Code of Federal Regulations,

4 shall be entitled to file such appeal or make such an

5 allegation so long as the individual remains an em6 ployee of the Tax Court.

7 ‘‘(9) COMPETITIVE STATUS.—Notwithstanding

8 any other provision of law, any employee of the Tax

9 Court who has completed at least 1 year of continuous

10 service under a non-temporary appointment with the

11 Tax Court acquires a competitive status for appoint12 ment to any position in the competitive service for

13 which the employee possesses the required qualifica14 tions.

15 ‘‘(10) MERIT SYSTEM PRINCIPLES; PROHIBITED

16 PERSONNEL PRACTICES; AND PREFERENCE ELIGI17 BLES.—Any personnel management system of the Tax

18 Court shall—

19 ‘‘(A) include the principles set forth in sec20 tion 2301(b) of title 5, United States Code;

21 ‘‘(B) prohibit personnel practices prohibited

22 under section 2302(b) of title 5, United States

23 Code; and

24 ‘‘(C) in the case of any individual who

25 would be a preference eligible in the executive
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1 branch, the Tax Court will provide preference for

2 that individual in a manner and to an extent

3 consistent with preference accorded to preference

4 eligibles in the executive branch.’’.

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

6 section shall take effect on the date the United States Tax

7 Court adopts a personnel management system after the date

8 of the enactment of this Act.

9 SEC. 306. EXPANDED USE OF TAX COURT PRACTICE FEE

10 FOR PRO SE TAXPAYERS.

11 (a) IN GENERAL.—Section 7475(b) (relating to use of

12 fees) is amended by inserting before the period at the end

13 ‘‘and to provide services to pro se taxpayers’’.

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

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

16 Act.

17 Subtitle B—Tax Court Pension and

18 Compensation

19 SEC. 311. ANNUITIES FOR SURVIVORS OF TAX COURT

20 JUDGES WHO ARE ASSASSINATED.

21 (a) ELIGIBILITY IN CASE OF DEATH BY ASSASSINA22 TION.—Subsection (h) of section 7448 (relating to annuities

23 to surviving spouses and dependent children of judges) is

24 amended to read as follows:

25 ‘‘(h) ENTITLEMENT TO ANNUITY.—
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1 ‘‘(1) IN GENERAL.—

2 ‘‘(A) ANNUITY TO SURVIVING SPOUSE.—If a

3 judge described in paragraph (2) is survived by

4 a surviving spouse but not by a dependent child,

5 there shall be paid to such surviving spouse an

6 annuity beginning with the day of the death of

7 the judge or following the surviving spouse’s at8 tainment of the age of 50 years, whichever is the

9 later, in an amount computed as provided in

10 subsection (m).

11 ‘‘(B) ANNUITY TO CHILD.—If such a judge

12 is survived by a surviving spouse and a depend13 ent child or children, there shall be paid to such

14 surviving spouse an immediate annuity in an

15 amount computed as provided in subsection (m),

16 and there shall also be paid to or on behalf of

17 each such child an immediate annuity equal to

18 the lesser of—

19 ‘‘(i) 10 percent of the average annual

20 salary of such judge (determined in accord21 ance with subsection (m)), or

22 ‘‘(ii) 20 percent of such average annual

23 salary, divided by the number of such chil24 dren.
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1 ‘‘(C) ANNUITY TO SURVIVING DEPENDENT

2 CHILDREN.—If such a judge leaves no surviving

3 spouse but leaves a surviving dependent child or

4 children, there shall be paid to or on behalf of

5 each such child an immediate annuity equal to

6 the lesser of—

7 ‘‘(i) 20 percent of the average annual

8 salary of such judge (determined in accord9 ance with subsection (m)), or

10 ‘‘(ii) 40 percent of such average annual

11 salary, divided by the number of such chil12 dren.

13 ‘‘(2) COVERED JUDGES.—Paragraph (1) applies

14 to any judge electing under subsection (b)—

15 ‘‘(A) who dies while a judge after having

16 rendered at least 5 years of civilian service com17 puted as prescribed in subsection (n), for the last

18 5 years of which the salary deductions provided

19 for by subsection (c)(1) or the deposits required

20 by subsection (d) have actually been made or the

21 salary deductions required by the civil service re22 tirement laws have actually been made, or

23 ‘‘(B) who dies by assassination after having

24 rendered less than 5 years of civilian service

25 computed as prescribed in subsection (n) if, for
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1 the period of such service, the salary deductions

2 provided for by subsection (c)(1) or the deposits

3 required by subsection (d) have actually been

4 made.

5 ‘‘(3) TERMINATION OF ANNUITY.—

6 ‘‘(A) IN THE CASE OF A SURVIVING

7 SPOUSE.—The annuity payable to a surviving

8 spouse under this subsection shall be terminable

9 upon such surviving spouse’s death or such sur10 viving spouse’s remarriage before attaining age

11 55.

12 ‘‘(B) IN THE CASE OF A CHILD.—The annu13 ity payable to a child under this subsection shall

14 be terminable upon (i) the child attaining the

15 age of 18 years, (ii) the child’s marriage, or (iii)

16 the child’s death, whichever first occurs, except

17 that if such child is incapable of self-support by

18 reason of mental or physical disability the

19 child’s annuity shall be terminable only upon

20 death, marriage, or recovery from such dis21 ability.

22 ‘‘(C) IN THE CASE OF A DEPENDENT CHILD

23 AFTER DEATH OF SURVIVING SPOUSE.—In case

24 of the death of a surviving spouse of a judge

25 leaving a dependent child or children of the
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1 judge surviving such spouse, the annuity of such

2 child or children shall be recomputed and paid

3 as provided in paragraph (1)(C).

4 ‘‘(D) RECOMPUTATION.—In any case in

5 which the annuity of a dependent child is termi6 nated under this subsection, the annuities of any

7 remaining dependent child or children, based

8 upon the service of the same judge, shall be re9 computed and paid as though the child whose

10 annuity was so terminated had not survived

11 such judge.

12 ‘‘(4) SPECIAL RULE FOR ASSASSINATED

13 JUDGES.—In the case of a survivor or survivors of a

14 judge described in paragraph (2)(B), there shall be

15 deducted from the annuities otherwise payable under

16 this section an amount equal to—

17 ‘‘(A) the amount of salary deductions pro18 vided for by subsection (c)(1) that would have

19 been made if such deductions had been made for

20 5 years of civilian service computed as pre21 scribed in subsection (n) before the judge’s death,

22 reduced by

23 ‘‘(B) the amount of such salary deductions

24 that were actually made before the date of the

25 judge’s death.’’.
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1 (b) DEFINITION OF ASSASSINATION.—Section 7448(a)

2 (relating to definitions) is amended by adding at the end

3 the following new paragraph:

4 ‘‘(8) The terms ‘assassinated’ and ‘assassination’

5 mean the killing of a judge that is motivated by the

6 performance by that judge of his or her official du7 ties.’’.

8 (c) DETERMINATION OF ASSASSINATION.—Subsection

9 (i) of section 7448 is amended—

10 (1) by striking the subsection heading and in11 serting the following:

12 ‘‘(i) DETERMINATIONS BY CHIEF JUDGE.—

13 ‘‘(1) DEPENDENCY AND DISABILITY.—’’,

14 (2) by moving the text 2 ems to the right, and

15 (3) by adding at the end the following new para16 graph:

17 ‘‘(2) ASSASSINATION.—The chief judge shall de18 termine whether the killing of a judge was an assas19 sination, subject to review only by the Tax Court. The

20 head of any Federal agency that investigates the kill21 ing of a judge shall provide information to the chief

22 judge that would assist the chief judge in making such

23 a determination.’’.

24 (d) COMPUTATION OF ANNUITIES.—Subsection (m) of

25 section 7448 is amended—
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1 (1) by striking the subsection heading and in2 serting the following:

3 ‘‘(m) COMPUTATION OF ANNUITIES.—

4 ‘‘(1) IN GENERAL.—’’,

5 (2) by moving the text 2 ems to the right, and

6 (3) by adding at the end the following new para7 graph:

8 ‘‘(2) ASSASSINATED JUDGES.—In the case of a

9 judge who is assassinated and who has served less

10 than 3 years, the annuity of the surviving spouse of

11 such judge shall be based upon the average annual

12 salary received by such judge for judicial service.’’.

13 (e) OTHER BENEFITS.—Section 7448 is amended by

14 adding at the end the following:

15 ‘‘(u) OTHER BENEFITS.—In the case of a judge who

16 is assassinated, an annuity shall be paid under this section

17 notwithstanding a survivor’s eligibility for or receipt of

18 benefits under chapter 81 of title 5, United States Code,

19 except that the annuity for which a surviving spouse is eli20 gible under this section shall be reduced to the extent that

21 the total benefits paid under this section and chapter 81

22 of that title for any year would exceed the current salary

23 for that year of the office of the judge.’’.
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1 SEC. 312. COST-OF-LIVING ADJUSTMENTS FOR TAX COURT

2 JUDICIAL SURVIVOR ANNUITIES.

3 (a) IN GENERAL.—Subsection (s) of section 7448 (re4 lating to annuities to surviving spouses and dependent chil5 dren of judges) is amended to read as follows:

6 ‘‘(s) INCREASES IN SURVIVOR ANNUITIES.—Each time

7 that an increase is made under section 8340(b) of title 5,

8 United States Code, in annuities payable under subchapter

9 III of chapter 83 of that title, each annuity payable from

10 the survivors annuity fund under this section shall be in11 creased at the same time by the same percentage by which

12 annuities are increased under such section 8340(b).’’.

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

14 section shall apply with respect to increases made under

15 section 8340(b) of title 5, United States Code, in annuities

16 payable under subchapter III of chapter 83 of that title,

17 taking effect after the date of the enactment of this Act.

18 SEC. 313. LIFE INSURANCE COVERAGE FOR TAX COURT

19 JUDGES.

20 (a) IN GENERAL.—Section 7447 (relating to retire21 ment of judges) is amended by adding at the end the fol22 lowing new subsection:

23 ‘‘(j) LIFE INSURANCE COVERAGE.—For purposes

24 of chapter 87 of title 5, United States Code (relating

25 to life insurance), any individual who is serving as

26 a judge of the Tax Court or who is retired under this
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1 section is deemed to be an employee who is continuing

2 in active employment.’’.

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

4 section shall apply to any individual serving as a judge

5 of the United States Tax Court or to any retired judge of

6 the United States Tax Court on the date of the enactment

7 of this Act.

8 SEC. 314. COST OF LIFE INSURANCE COVERAGE FOR TAX

9 COURT JUDGES AGE 65 OR OVER.

10 Section 7472 (relating to expenditures) is amended by

11 inserting after the first sentence the following new sentence:

12 ‘‘Notwithstanding any other provision of law, the Tax

13 Court is authorized to pay on behalf of its judges, age 65

14 or over, any increase in the cost of Federal Employees’

15 Group Life Insurance imposed after April 24, 1999, includ16 ing any expenses generated by such payments, as authorized

17 by the chief judge in a manner consistent with such pay18 ments authorized by the Judicial Conference of the United

19 States pursuant to section 604(a)(5) of title 28, United

20 States Code.’’.

21 SEC. 315. MODIFICATION OF TIMING OF LUMP-SUM PAY22 MENT OF JUDGES’ ACCRUED ANNUAL LEAVE.

23 (a) IN GENERAL.—Section 7443 (relating to member24 ship of the Tax Court) is amended by adding at the end

25 the following new subsection:
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1 ‘‘(h) LUMP-SUM PAYMENT OF JUDGES’ ACCRUED AN2 NUAL LEAVE.—Notwithstanding the provisions of sections

3 5551 and 6301 of title 5, United States Code, when an indi4 vidual subject to the leave system provided in chapter 63

5 of that title is appointed by the President to be a judge

6 of the Tax Court, the individual shall be entitled to receive,

7 upon appointment to the Tax Court, a lump-sum payment

8 from the Tax Court of the accumulated and accrued current

9 annual leave standing to the individual’s credit as certified

10 by the agency from which the individual resigned.’’.

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

12 section shall apply to any judge of the United States Tax

13 Court who has an outstanding leave balance on the date

14 of the enactment of this Act and to any individual ap15 pointed by the President to serve as a judge of the United

16 States Tax Court after such date.

17 SEC. 316. PARTICIPATION OF TAX COURT JUDGES IN THE

18 THRIFT SAVINGS PLAN.

19 (a) IN GENERAL.—Section 7447 (relating to retire20 ment of judges), as amended by this Act, is amended by

21 adding at the end the following new subsection:

22 ‘‘(k) THRIFT SAVINGS PLAN.—

23 ‘‘(1) ELECTION TO CONTRIBUTE.—

24 ‘‘(A) IN GENERAL.—A judge of the Tax

25 Court may elect to contribute to the Thrift Sav-
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1 ings Fund established by section 8437 of title 5,

2 United States Code.

3 ‘‘(B) PERIOD OF ELECTION.—An election

4 may be made under this paragraph only during

5 a period provided under section 8432(b) of title

6 5, United States Code, for individuals subject to

7 chapter 84 of such title.

8 ‘‘(2) APPLICABILITY OF TITLE 5 PROVISIONS.—

9 Except as otherwise provided in this subsection, the

10 provisions of subchapters III and VII of chapter 84

11 of title 5, United States Code, shall apply with re12 spect to a judge who makes an election under para13 graph (1).

14 ‘‘(3) SPECIAL RULES.—

15 ‘‘(A) AMOUNT CONTRIBUTED.—The amount

16 contributed by a judge to the Thrift Savings

17 Fund in any pay period shall not exceed the

18 maximum percentage of such judge’s basic pay

19 for such period as allowable under section 8440f

20 of title 5, United States Code. Basic pay does not

21 include any retired pay paid pursuant to this

22 section.

23 ‘‘(B) CONTRIBUTIONS FOR BENEFIT OF

24 JUDGE.—No contributions may be made for the
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1 benefit of a judge under section 8432(c) of title

2 5, United States Code.

3 ‘‘(C) APPLICABILITY OF SECTION 8433(b) OF

4 TITLE 5 WHETHER OR NOT JUDGE RETIRES.—

5 Section 8433(b) of title 5, United States Code,

6 applies with respect to a judge who makes an

7 election under paragraph (1) and who either—

8 ‘‘(i) retires under subsection (b), or

9 ‘‘(ii) ceases to serve as a judge of the

10 Tax Court but does not retire under sub11 section (b).

12 Retirement under subsection (b) is a separation

13 from service for purposes of subchapters III and

14 VII of chapter 84 of that title.

15 ‘‘(D) APPLICABILITY OF SECTION 8351(b)(5)

16 OF TITLE 5.—The provisions of section

17 8351(b)(5) of title 5, United States Code, shall

18 apply with respect to a judge who makes an elec19 tion under paragraph (1).

20 ‘‘(E) EXCEPTION.—Notwithstanding sub21 paragraph (C), if any judge retires under this

22 section, or resigns without having met the age

23 and service requirements set forth under sub24 section (b)(2), and such judge’s nonforfeitable ac25 count balance is less than an amount that the
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1 Executive Director of the Office of Personnel

2 Management prescribes by regulation, the Execu3 tive Director shall pay the nonforfeitable account

4 balance to the participant in a single payment.’’.

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

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

7 Act, except that United States Tax Court judges may only

8 begin to participate in the Thrift Savings Plan at the next

9 open season beginning after such date.

10 SEC. 317. EXEMPTION OF TEACHING COMPENSATION OF RE11 TIRED JUDGES FROM LIMITATION ON OUT12 SIDE EARNED INCOME.

13 (a) IN GENERAL.—Section 7447 (relating to retire14 ment of judges), as amended by this Act, is amended by

15 adding at the end the following new subsection:

16 ‘‘(l) TEACHING COMPENSATION OF RETIRED

17 JUDGES.—For purposes of the limitation under section

18 501(a) of the Ethics in Government Act of 1978 (5 U.S.C.

19 App.), any compensation for teaching approved under sec20 tion 502(a)(5) of such Act shall not be treated as outside

21 earned income when received by a judge of the Tax Court

22 who has retired under subsection (b) for teaching performed

23 during any calendar year for which such a judge has met

24 the requirements of subsection (c), as certified by the chief

25 judge of the Tax Court.’’.
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1 (b) EFFECTIVE DATE.—The amendment made by this

2 section shall apply to any individual serving as a retired

3 judge of the United States Tax Court on or after the date

4 of the enactment of this Act.

5 SEC. 318. GENERAL PROVISIONS RELATING TO MAG6 ISTRATE JUDGES OF THE TAX COURT.

7 (a) TITLE OF SPECIAL TRIAL JUDGE CHANGED TO

8 MAGISTRATE JUDGE OF THE TAX COURT.—The heading of

9 section 7443A is amended to read as follows:

10 ‘‘SEC. 7443A. MAGISTRATE JUDGES OF THE TAX COURT.’’.

11 (b) APPOINTMENT, TENURE, AND REMOVAL.—Sub12 section (a) of section 7443A is amended to read as follows:

13 ‘‘(a) APPOINTMENT, TENURE, AND REMOVAL.—

14 ‘‘(1) APPOINTMENT.—The chief judge may, from

15 time to time, appoint and reappoint magistrate

16 judges of the Tax Court for a term of 8 years. The

17 magistrate judges of the Tax Court shall proceed

18 under such rules as may be promulgated by the Tax

19 Court.

20 ‘‘(2) REMOVAL.—Removal of a magistrate judge

21 of the Tax Court during the term for which he or she

22 is appointed shall be only for incompetency, mis23 conduct, neglect of duty, or physical or mental dis24 ability, but the office of a magistrate judge of the Tax

25 Court shall be terminated if the judges of the Tax
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1 Court determine that the services performed by the

2 magistrate judge of the Tax Court are no longer need3 ed. Removal shall not occur unless a majority of all

4 the judges of the Tax Court concur in the order of re5 moval. Before any order of removal shall be entered,

6 a full specification of the charges shall be furnished

7 to the magistrate judge of the Tax Court, and he or

8 she shall be accorded by the judges of the Tax Court

9 an opportunity to be heard on the charges.’’.

10 (c) SALARY.—Section 7443A(d) (relating to salary) is

11 amended by striking ‘‘90’’ and inserting ‘‘92’’.

12 (d) EXEMPTION FROM FEDERAL LEAVE PROVI13 SIONS.—Section 7443A is amended by adding at the end

14 the following new subsection:

15 ‘‘(f) EXEMPTION FROM FEDERAL LEAVE PROVI16 SIONS.—

17 ‘‘(1) IN GENERAL.—A magistrate judge of the

18 Tax Court appointed under this section shall be ex19 empt from the provisions of subchapter I of chapter

20 63 of title 5, United States Code.

21 ‘‘(2) TREATMENT OF UNUSED LEAVE.—

22 ‘‘(A) AFTER SERVICE AS MAGISTRATE

23 JUDGE.—If an individual who is exempted

24 under paragraph (1) from the subchapter re25 ferred to in such paragraph was previously sub-
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1 ject to such subchapter and, without a break in

2 service, again becomes subject to such subchapter

3 on completion of the individual’s service as a

4 magistrate judge, the unused annual leave and

5 sick leave standing to the individual’s credit

6 when such individual was exempted from this

7 subchapter is deemed to have remained to the in8 dividual’s credit.

9 ‘‘(B) COMPUTATION OF ANNUITY.—In com10 puting an annuity under section 8339 of title 5,

11 United States Code, the total service of an indi12 vidual specified in subparagraph (A) who retires

13 on an immediate annuity or dies leaving a sur14 vivor or survivors entitled to an annuity in15 cludes, without regard to the limitations imposed

16 by subsection (f) of such section 8339, the days

17 of unused sick leave standing to the individual’s

18 credit when such individual was exempted from

19 subchapter I of chapter 63 of title 5, United

20 States Code, except that these days will not be

21 counted in determining average pay or annuity

22 eligibility.

23 ‘‘(C) LUMP SUM PAYMENT.—Any accumu24 lated and current accrued annual leave or vaca25 tion balances credited to a magistrate judge as of
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1 the date of the enactment of this subsection shall

2 be paid in a lump sum at the time of separation

3 from service pursuant to the provisions and re4 strictions set forth in section 5551 of title 5,

5 United States Code, and related provisions re6 ferred to in such section.’’.

7 (e) CONFORMING AMENDMENTS.—

8 (1) The heading of subsection (b) of section

9 7443A is amended by striking ‘‘SPECIAL TRIAL

10 JUDGES’’ and inserting ‘‘MAGISTRATE JUDGES OF

11 THE TAX COURT’’.

12 (2) Section 7443A(b) is amended by striking

13 ‘‘special trial judges of the court’’ and inserting

14 ‘‘magistrate judges of the Tax Court’’.

15 (3) Subsections (c) and (d) of section 7443A are

16 amended by striking ‘‘special trial judge’’ and insert17 ing ‘‘magistrate judge of the Tax Court’’ each place

18 it appears.

19 (4) Section 7443A(e) is amended by striking

20 ‘‘special trial judges’’ and inserting ‘‘magistrate

21 judges of the Tax Court’’.

22 (5) Section 7456(a) is amended by striking ‘‘spe23 cial trial judge’’ each place it appears and inserting

24 ‘‘magistrate judge’’.

25 (6) Subsection (c) of section 7471 is amended—
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1 (A) by striking the subsection heading and

2 inserting ‘‘MAGISTRATE JUDGES OF THE TAX

3 COURT.—’’, and

4 (B) by striking ‘‘special trial judges’’ and

5 inserting ‘‘magistrate judges’’.

6 SEC. 319. ANNUITIES TO SURVIVING SPOUSES AND DE7 PENDENT CHILDREN OF MAGISTRATE

8 JUDGES OF THE TAX COURT.

9 (a) DEFINITIONS.—Section 7448(a) (relating to defini10 tions), as amended by this Act, is amended by redesignating

11 paragraphs (5), (6), (7), and (8) as paragraphs (7), (8),

12 (9), and (10), respectively, and by inserting after para13 graph (4) the following new paragraphs:

14 ‘‘(5) The term ‘magistrate judge’ means a judi15 cial officer appointed pursuant to section 7443A, in16 cluding any individual receiving an annuity under

17 section 7443B, or chapters 83 or 84, as the case may

18 be, of title 5, United States Code, whether or not per19 forming judicial duties under section 7443C.

20 ‘‘(6) The term ‘magistrate judge’s salary’ means

21 the salary of a magistrate judge received under sec22 tion 7443A(d), any amount received as an annuity

23 under section 7443B, or chapters 83 or 84, as the case

24 may be, of title 5, United States Code, and compensa25 tion received under section 7443C.’’.
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1 (b) ELECTION.—Subsection (b) of section 7448 (relat2 ing to annuities to surviving spouses and dependent chil3 dren of judges) is amended—

4 (1) by striking the subsection heading and in5 serting the following:

6 ‘‘(b) ELECTION.—

7 ‘‘(1) JUDGES.—’’,

8 (2) by moving the text 2 ems to the right, and

9 (3) by adding at the end the following new para10 graph:

11 ‘‘(2) MAGISTRATE JUDGES.—Any magistrate

12 judge may by written election filed with the chief

13 judge bring himself or herself within the purview of

14 this section. Such election shall be filed not later than

15 the later of 6 months after—

16 ‘‘(A) 6 months after the date of the enact17 ment of this paragraph,

18 ‘‘(B) the date the judge takes office, or

19 ‘‘(C) the date the judge marries.’’.

20 (c) CONFORMING AMENDMENTS.—

21 (1) The heading of section 7448 is amended by

22 inserting ‘‘AND MAGISTRATE JUDGES’’ after

23 ‘‘JUDGES’’.

24 (2) The item relating to section 7448 in the table

25 of sections for part I of subchapter C of chapter 76
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1 is amended by inserting ‘‘and magistrate judges’’

2 after ‘‘judges’’.

3 (3) Subsections (c)(1), (d), (f), (g), (h), (j), (m),

4 (n), and (u) of section 7448, as amended by this Act,

5 are each amended—

6 (A) by inserting ‘‘or magistrate judge’’ after

7 ‘‘judge’’ each place it appears other than in the

8 phrase ‘‘chief judge’’, and

9 (B) by inserting ‘‘or magistrate judge’s’’

10 after ‘‘judge’s’’ each place it appears.

11 (4) Section 7448(c) is amended—

12 (A) in paragraph (1), by striking ‘‘Tax

13 Court judges’’ and inserting ‘‘Tax Court judicial

14 officers’’,

15 (B) in paragraph (2)—

16 (i) in subparagraph (A), by inserting

17 ‘‘and section 7443A(d)’’ after ‘‘(a)(4)’’, and

18 (ii) in subparagraph (B), by striking

19 ‘‘subsection (a)(4)’’ and inserting ‘‘sub20 sections (a)(4) and (a)(6)’’.

21 (5) Section 7448(g) is amended by inserting ‘‘or

22 section 7443B’’ after ‘‘section 7447’’ each place it ap23 pears, and by inserting ‘‘or an annuity’’ after ‘‘re24 tired pay’’.

25 (6) Section 7448(j)(1) is amended—
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1 (A) in subparagraph (A), by striking ‘‘serv2 ice or retired’’ and inserting ‘‘service, retired’’,

3 and by inserting ‘‘, or receiving any annuity

4 under section 7443B or chapters 83 or 84 of title

5 5, United States Code,’’ after ‘‘section 7447’’,

6 and

7 (B) in the last sentence, by striking ‘‘sub8 sections (a)(6) and (7)’’ and inserting ‘‘para9 graphs (8) and (9) of subsection (a)’’.

10 (7) Section 7448(m)(1), as amended by this Act,

11 is amended—

12 (A) by inserting ‘‘or any annuity under sec13 tion 7443B or chapters 83 or 84 of title 5,

14 United States Code’’ after ‘‘7447(d)’’, and

15 (B) by inserting ‘‘or 7443B(m)(1)(B) after

16 ‘‘7447(f)(4)’’.

17 (8) Section 7448(n) is amended by inserting ‘‘his

18 years of service pursuant to any appointment under

19 section 7443A,’’ after ‘‘of the Tax Court,’’.

20 (9) Section 3121(b)(5)(E) is amended by insert21 ing ‘‘or magistrate judge’’ before ‘‘of the United States

22 Tax Court’’.

23 (10) Section 210(a)(5)(E) of the Social Security

24 Act is amended by inserting ‘‘or magistrate judge’’ be25 fore ‘‘of the United States Tax Court’’.
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1 SEC. 320. RETIREMENT AND ANNUITY PROGRAM.

2 (a) RETIREMENT AND ANNUITY PROGRAM.—Part I of

3 subchapter C of chapter 76 is amended by inserting after

4 section 7443A the following new section:

5 ‘‘SEC. 7443B. RETIREMENT FOR MAGISTRATE JUDGES OF

6 THE TAX COURT.

7 ‘‘(a) RETIREMENT BASED ON YEARS OF SERVICE.—

8 A magistrate judge of the Tax Court to whom this section

9 applies and who retires from office after attaining the age

10 of 65 years and serving at least 14 years, whether continu11 ously or otherwise, as such magistrate judge shall, subject

12 to subsection (f), be entitled to receive, during the remainder

13 of the magistrate judge’s lifetime, an annuity equal to the

14 salary being received at the time the magistrate judge leaves

15 office.

16 ‘‘(b) RETIREMENT UPON FAILURE OF REAPPOINT17 MENT.—A magistrate judge of the Tax Court to whom this

18 section applies who is not reappointed following the expira19 tion of the term of office of such magistrate judge, and who

20 retires upon the completion of the term shall, subject to sub21 section (f), be entitled to receive, upon attaining the age

22 of 65 years and during the remainder of such magistrate

23 judge’s lifetime, an annuity equal to that portion of the sal24 ary being received at the time the magistrate judge leaves

25 office which the aggregate number of years of service, not

26 to exceed 14, bears to 14, if—
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1 ‘‘(1) such magistrate judge has served at least 1

2 full term as a magistrate judge, and

3 ‘‘(2) not earlier than 9 months before the date on

4 which the term of office of such magistrate judge ex5 pires, and not later than 6 months before such date,

6 such magistrate judge notified the chief judge of the

7 Tax Court in writing that such magistrate judge was

8 willing to accept reappointment to the position in

9 which such magistrate judge was serving.

10 ‘‘(c) SERVICE OF AT LEAST 8 YEARS.—A magistrate

11 judge of the Tax Court to whom this section applies and

12 who retires after serving at least 8 years, whether continu13 ously or otherwise, as such a magistrate judge shall, subject

14 to subsection (f), be entitled to receive, upon attaining the

15 age of 65 years and during the remainder of the magistrate

16 judge’s lifetime, an annuity equal to that portion of the sal17 ary being received at the time the magistrate judge leaves

18 office which the aggregate number of years of service, not

19 to exceed 14, bears to 14. Such annuity shall be reduced

by 1 20 ⁄6 of 1 percent for each full month such magistrate judge

21 was under the age of 65 at the time the magistrate judge

22 left office, except that such reduction shall not exceed 20

23 percent.

24 ‘‘(d) RETIREMENT FOR DISABILITY.—A magistrate

25 judge of the Tax Court to whom this section applies, who
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1 has served at least 5 years, whether continuously or other2 wise, as such a magistrate judge, and who retires or is re3 moved from office upon the sole ground of mental or phys4 ical disability shall, subject to subsection (f), be entitled to

5 receive, during the remainder of the magistrate judge’s life6 time, an annuity equal to 40 percent of the salary being

7 received at the time of retirement or removal or, in the case

8 of a magistrate judge who has served for at least 10 years,

9 an amount equal to that proportion of the salary being re10 ceived at the time of retirement or removal which the aggre11 gate number of years of service, not to exceed 14, bears to

12 14.

13 ‘‘(e) COST-OF-LIVING ADJUSTMENTS.—A magistrate

14 judge of the Tax Court who is entitled to an annuity under

15 this section is also entitled to a cost-of-living adjustment

16 in such annuity, calculated and payable in the same man17 ner as adjustments under section 8340(b) of title 5, United

18 States Code, except that any such annuity, as increased

19 under this subsection, may not exceed the salary then pay20 able for the position from which the magistrate judge retired

21 or was removed.

22 ‘‘(f) ELECTION; ANNUITY IN LIEU OF OTHER ANNU23 ITIES.—

24 ‘‘(1) IN GENERAL.—A magistrate judge of the

25 Tax Court shall be entitled to an annuity under this
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1 section if the magistrate judge elects an annuity

2 under this section by notifying the chief judge of the

3 Tax Court not later than the later of—

4 ‘‘(A) 5 years after the magistrate judge of

5 the Tax Court begins judicial service, or

6 ‘‘(B) 5 years after the date of the enactment

7 of this subsection.

8 Such notice shall be given in accordance with proce9 dures prescribed by the Tax Court.

10 ‘‘(2) ANNUITY IN LIEU OF OTHER ANNUITY.—A

11 magistrate judge who elects to receive an annuity

12 under this section shall not be entitled to receive—

13 ‘‘(A) any annuity to which such magistrate

14 judge would otherwise have been entitled under

15 subchapter III of chapter 83, or under chapter

16 84 (except for subchapters III and VII), of title

17 5, United States Code, for service performed as

18 a magistrate or otherwise,

19 ‘‘(B) an annuity or salary in senior status

20 or retirement under section 371 or 372 of title

21 28, United States Code,

22 ‘‘(C) retired pay under section 7447, or

23 ‘‘(D) retired pay under section 7296 of title

24 38, United States Code.
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1 ‘‘(3) COORDINATION WITH TITLE 5.—A mag2 istrate judge of the Tax Court who elects to receive an

3 annuity under this section—

4 ‘‘(A) shall not be subject to deductions and

5 contributions otherwise required by section

6 8334(a) of title 5, United States Code,

7 ‘‘(B) shall be excluded from the operation of

8 chapter 84 (other than subchapters III and VII)

9 of such title 5, and

10 ‘‘(C) is entitled to a lump-sum credit under

11 section 8342(a) or 8424 of such title 5, as the

12 case may be.

13 ‘‘(g) CALCULATION OF SERVICE.—For purposes of cal14 culating an annuity under this section—

15 ‘‘(1) service as a magistrate judge of the Tax

16 Court to whom this section applies may be credited,

17 and

18 ‘‘(2) each month of service shall be credited as

1 19 ⁄12 of a year, and the fractional part of any month

20 shall not be credited.

21 ‘‘(h) COVERED POSITIONS AND SERVICE.—This section

22 applies to any magistrate judge of the Tax Court or special

23 trial judge of the Tax Court appointed under this sub24 chapter, but only with respect to service as such a mag25 istrate judge or special trial judge after a date not earlier
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than 91 1 ⁄2 years before the date of the enactment of this sub2 section.

3 ‘‘(i) PAYMENTS PURSUANT TO COURT ORDER.—

4 ‘‘(1) IN GENERAL.—Payments under this section

5 which would otherwise be made to a magistrate judge

6 of the Tax Court based upon his or her service shall

7 be paid (in whole or in part) by the chief judge of the

8 Tax Court to another person if and to the extent ex9 pressly provided for in the terms of any court decree

10 of divorce, annulment, or legal separation, or the

11 terms of any court order or court-approved property

12 settlement agreement incident to any court decree of

13 divorce, annulment, or legal separation. Any payment

14 under this paragraph to a person bars recovery by

15 any other person.

16 ‘‘(2) REQUIREMENTS FOR PAYMENT.—Paragraph

17 (1) shall apply only to payments made by the chief

18 judge of the Tax Court after the date of receipt by the

19 chief judge of written notice of such decree, order, or

20 agreement, and such additional information as the

21 chief judge may prescribe.

22 ‘‘(3) COURT DEFINED.—For purposes of this sub23 section, the term ‘court’ means any court of any

24 State, the District of Columbia, the Commonwealth of

25 Puerto Rico, Guam, the Northern Mariana Islands, or
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1 the Virgin Islands, and any Indian tribal court or

2 courts of Indian offense.

3 ‘‘(j) DEDUCTIONS, CONTRIBUTIONS, AND DEPOSITS.—

4 ‘‘(1) DEDUCTIONS.—Beginning with the next

5 pay period after the chief judge of the Tax Court re6 ceives a notice under subsection (f) that a magistrate

7 judge of the Tax Court has elected an annuity under

8 this section, the chief judge shall deduct and withhold

9 1 percent of the salary of such magistrate judge.

10 Amounts shall be so deducted and withheld in a man11 ner determined by the chief judge. Amounts deducted

12 and withheld under this subsection shall be deposited

13 in the Treasury of the United States to the credit of

14 the Tax Court Judicial Officers’ Retirement Fund.

15 Deductions under this subsection from the salary of a

16 magistrate judge shall terminate upon the retirement

17 of the magistrate judge or upon completion of 14

18 years of service for which contributions under this

19 section have been made, whether continuously or oth20 erwise, as calculated under subsection (g), whichever

21 occurs first.

22 ‘‘(2) CONSENT TO DEDUCTIONS; DISCHARGE OF

23 CLAIMS.—Each magistrate judge of the Tax Court

24 who makes an election under subsection (f) shall be

25 deemed to consent and agree to the deductions from
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1 salary which are made under paragraph (1). Pay2 ment of such salary less such deductions (and any de3 ductions made under section 7448) is a full and com4 plete discharge and acquittance of all claims and de5 mands for all services rendered by such magistrate

6 judge during the period covered by such payment, ex7 cept the right to those benefits to which the magistrate

8 judge is entitled under this section (and section 7448).

9 ‘‘(k) DEPOSITS FOR PRIOR SERVICE.—Each mag10 istrate judge of the Tax Court who makes an election under

11 subsection (f) may deposit, for service performed before such

12 election for which contributions may be made under this

13 section, an amount equal to 1 percent of the salary received

14 for that service. Credit for any period covered by that serv15 ice may not be allowed for purposes of an annuity under

16 this section until a deposit under this subsection has been

17 made for that period.

18 ‘‘(l) INDIVIDUAL RETIREMENT RECORDS.—The

19 amounts deducted and withheld under subsection (j), and

20 the amounts deposited under subsection (k), shall be credited

21 to individual accounts in the name of each magistrate judge

22 of the Tax Court from whom such amounts are received,

23 for credit to the Tax Court Judicial Officers’ Retirement

24 Fund.

25 ‘‘(m) ANNUITIES AFFECTED IN CERTAIN CASES.—
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1 ‘‘(1) 1-YEAR FORFEITURE FOR FAILURE TO PER2 FORM JUDICIAL DUTIES.—Subject to paragraph (3),

3 any magistrate judge of the Tax Court who retires

4 under this section and who fails to perform judicial

5 duties required of such individual by section 7443C

6 shall forfeit all rights to an annuity under this sec7 tion for a 1-year period which begins on the 1st day

8 on which such individual fails to perform such duties.

9 ‘‘(2) PERMANENT FORFEITURE OF RETIRED PAY

10 WHERE CERTAIN NON-GOVERNMENT SERVICES PER11 FORMED.—Subject to paragraph (3), any magistrate

12 judge of the Tax Court who retires under this section

13 and who thereafter performs (or supervises or directs

14 the performance of) legal or accounting services in the

15 field of Federal taxation for the individual’s client,

16 the individual’s employer, or any of such employer’s

17 clients, shall forfeit all rights to an annuity under

18 this section for all periods beginning on or after the

19 first day on which the individual performs (or super20 vises or directs the performance of) such services. The

21 preceding sentence shall not apply to any civil office

22 or employment under the Government of the United

23 States.

24 ‘‘(3) FORFEITURES NOT TO APPLY WHERE INDI25 VIDUAL ELECTS TO FREEZE AMOUNT OF ANNUITY.—
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1 ‘‘(A) IN GENERAL.—If a magistrate judge of

2 the Tax Court makes an election under this

3 paragraph—

4 ‘‘(i) paragraphs (1) and (2) (and sec5 tion 7443C) shall not apply to such mag6 istrate judge beginning on the date such

7 election takes effect, and

8 ‘‘(ii) the annuity payable under this

9 section to such magistrate judge, for periods

10 beginning on or after the date such election

11 takes effect, shall be equal to the annuity to

12 which such magistrate judge is entitled on

13 the day before such effective date.

14 ‘‘(B) ELECTION REQUIREMENTS.—An elec15 tion under subparagraph (A)—

16 ‘‘(i) may be made by a magistrate

17 judge of the Tax Court eligible for retire18 ment under this section, and

19 ‘‘(ii) shall be filed with the chief judge

20 of the Tax Court.

21 Such an election, once it takes effect, shall be ir22 revocable.

23 ‘‘(C) EFFECTIVE DATE OF ELECTION.—Any

24 election under subparagraph (A) shall take effect
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1 on the first day of the first month following the

2 month in which the election is made.

3 ‘‘(4) ACCEPTING OTHER EMPLOYMENT.—Any

4 magistrate judge of the Tax Court who retires under

5 this section and thereafter accepts compensation for

6 civil office or employment under the United States

7 Government (other than for the performance of func8 tions as a magistrate judge of the Tax Court under

9 section 7443C) shall forfeit all rights to an annuity

10 under this section for the period for which such com11 pensation is received. For purposes of this paragraph,

12 the term ‘compensation’ includes retired pay or sal13 ary received in retired status.

14 ‘‘(n) LUMP-SUM PAYMENTS.—

15 ‘‘(1) ELIGIBILITY.—

16 ‘‘(A) IN GENERAL.—Subject to paragraph

17 (2), an individual who serves as a magistrate

18 judge of the Tax Court and—

19 ‘‘(i) who leaves office and is not re20 appointed as a magistrate judge of the Tax

21 Court for at least 31 consecutive days,

22 ‘‘(ii) who files an application with the

23 chief judge of the Tax Court for payment of

24 a lump-sum credit,
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1 ‘‘(iii) is not serving as a magistrate

2 judge of the Tax Court at the time of filing

3 of the application, and

4 ‘‘(iv) will not become eligible to receive

5 an annuity under this section within 31

6 days after filing the application,

7 is entitled to be paid the lump-sum credit. Pay8 ment of the lump-sum credit voids all rights to

9 an annuity under this section based on the serv10 ice on which the lump-sum credit is based, until

11 that individual resumes office as a magistrate

12 judge of the Tax Court.

13 ‘‘(B) PAYMENT TO SURVIVORS.—Lump-sum

14 benefits authorized by subparagraphs (C), (D),

15 and (E) of this paragraph shall be paid to the

16 person or persons surviving the magistrate judge

17 of the Tax Court and alive on the date title to

18 the payment arises, in the order of precedence set

19 forth in subsection (o) of section 376 of title 28,

20 United States Code, and in accordance with the

21 last 2 sentences of paragraph (1) of that sub22 section. For purposes of the preceding sentence,

23 the term ‘judicial official’ as used in subsection

24 (o) of such section 376 shall be deemed to mean

25 ‘magistrate judge of the Tax Court’ and the
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1 terms ‘Administrative Office of the United States

2 Courts’ and ‘Director of the Administrative Of3 fice of the United States Courts’ shall be deemed

4 to mean ‘chief judge of the Tax Court’.

5 ‘‘(C) PAYMENT UPON DEATH OF JUDGE BE6 FORE RECEIPT OF ANNUITY.—If a magistrate

7 judge of the Tax Court dies before receiving an

8 annuity under this section, the lump-sum credit

9 shall be paid.

10 ‘‘(D) PAYMENT OF ANNUITY REMAINDER.—

11 If all annuity rights under this section based on

12 the service of a deceased magistrate judge of the

13 Tax Court terminate before the total annuity

14 paid equals the lump-sum credit, the difference

15 shall be paid.

16 ‘‘(E) PAYMENT UPON DEATH OF JUDGE

17 DURING RECEIPT OF ANNUITY.—If a magistrate

18 judge of the Tax Court who is receiving an an19 nuity under this section dies, any accrued annu20 ity benefits remaining unpaid shall be paid.

21 ‘‘(F) PAYMENT UPON TERMINATION.—Any

22 accrued annuity benefits remaining unpaid on

23 the termination, except by death, of the annuity

24 of a magistrate judge of the Tax Court shall be

25 paid to that individual.
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1 ‘‘(G) PAYMENT UPON ACCEPTING OTHER

2 EMPLOYMENT.—Subject to paragraph (2), a

3 magistrate judge of the Tax Court who forfeits

4 rights to an annuity under subsection (m)(4) be5 fore the total annuity paid equals the lump-sum

6 credit shall be entitled to be paid the difference

7 if the magistrate judge of the Tax Court files an

8 application with the chief judge of the Tax Court

9 for payment of that difference. A payment under

10 this subparagraph voids all rights to an annuity

11 on which the payment is based.

12 ‘‘(2) SPOUSES AND FORMER SPOUSES.—

13 ‘‘(A) IN GENERAL.—Payment of the lump14 sum credit under paragraph (1)(A) or a pay15 ment under paragraph (1)(G)—

16 ‘‘(i) may be made only if any current

17 spouse and any former spouse of the mag18 istrate judge of the Tax Court are notified

19 of the magistrate judge’s application, and

20 ‘‘(ii) shall be subject to the terms of a

21 court decree of divorce, annulment, or legal

22 separation, or any court or court approved

23 property settlement agreement incident to

24 such decree, if—
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1 ‘‘(I) the decree, order, or agree2 ment expressly relates to any portion

3 of the lump-sum credit or other pay4 ment involved, and

5 ‘‘(II) payment of the lump-sum

6 credit or other payment would extin7 guish entitlement of the magistrate

8 judge’s spouse or former spouse to any

9 portion of an annuity under subsection

10 (i).

11 ‘‘(B) NOTIFICATION.—Notification of a

12 spouse or former spouse under this paragraph

13 shall be made in accordance with such proce14 dures as the chief judge of the Tax Court shall

15 prescribe. The chief judge may provide under

16 such procedures that subparagraph (A)(i) may

17 be waived with respect to a spouse or former

18 spouse if the magistrate judge establishes to the

19 satisfaction of the chief judge that the where20 abouts of such spouse or former spouse cannot be

21 determined.

22 ‘‘(C) RESOLUTION OF 2 OR MORE OR23 DERS.—The chief judge shall prescribe proce24 dures under which this paragraph shall be ap25 plied in any case in which the chief judge re-
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1 ceives 2 or more orders or decrees described in

2 subparagraph (A).

3 ‘‘(3) DEFINITION.—For purposes of this sub4 section, the term ‘lump-sum credit’ means the

5 unrefunded amount consisting of—

6 ‘‘(A) retirement deductions made under this

7 section from the salary of a magistrate judge of

8 the Tax Court,

9 ‘‘(B) amounts deposited under subsection

10 (k) by a magistrate judge of the Tax Court cov11 ering earlier service, and

12 ‘‘(C) interest on the deductions and deposits

13 which, for any calendar year, shall be equal to

14 the overall average yield to the Tax Court Judi15 cial Officers’ Retirement Fund during the pre16 ceding fiscal year from all obligations purchased

17 by the Secretary during such fiscal year under

18 subsection (o); but does not include interest—

19 ‘‘(i) if the service covered thereby ag20 gregates 1 year or less, or

21 ‘‘(ii) for the fractional part of a month

22 in the total service.

23 ‘‘(o) TAX COURT JUDICIAL OFFICERS’ RETIREMENT

24 FUND.—
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1 ‘‘(1) ESTABLISHMENT.—There is established in

2 the Treasury a fund which shall be known as the ‘Tax

3 Court Judicial Officers’ Retirement Fund’. Amounts

4 in the Fund are authorized to be appropriated for the

5 payment of annuities, refunds, and other payments

6 under this section.

7 ‘‘(2) INVESTMENT OF FUND.—The Secretary

8 shall invest, in interest bearing securities of the

9 United States, such currently available portions of the

10 Tax Court Judicial Officers’ Retirement Fund as are

11 not immediately required for payments from the

12 Fund. The income derived from these investments con13 stitutes a part of the Fund.

14 ‘‘(3) UNFUNDED LIABILITY.—

15 ‘‘(A) IN GENERAL.—There are authorized to

16 be appropriated to the Tax Court Judicial Offi17 cers’ Retirement Fund amounts required to re18 duce to zero the unfunded liability of the Fund.

19 ‘‘(B) UNFUNDED LIABILITY.—For purposes

20 of subparagraph (A), the term ‘unfunded liabil21 ity’ means the estimated excess, determined on

22 an annual basis in accordance with the provi23 sions of section 9503 of title 31, United States

24 Code, of the present value of all benefits payable
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1 from the Tax Court Judicial Officers’ Retirement

2 Fund over the sum of—

3 ‘‘(i) the present value of deductions to

4 be withheld under this section from the fu5 ture basic pay of magistrate judges of the

6 Tax Court, plus

7 ‘‘(ii) the balance in the Fund as of the

8 date the unfunded liability is determined.

9 ‘‘(p) PARTICIPATION IN THRIFT SAVINGS PLAN.—

10 ‘‘(1) ELECTION TO CONTRIBUTE.—

11 ‘‘(A) IN GENERAL.—A magistrate judge of

12 the Tax Court who elects to receive an annuity

13 under this section or under section 321 of the

14 Tax Administration Good Government Act may

15 elect to contribute an amount of such individ16 ual’s basic pay to the Thrift Savings Fund estab17 lished by section 8437 of title 5, United States

18 Code.

19 ‘‘(B) PERIOD OF ELECTION.—An election

20 may be made under this paragraph only during

21 a period provided under section 8432(b) of title

22 5, United States Code, for individuals subject to

23 chapter 84 of such title.

24 ‘‘(2) APPLICABILITY OF TITLE 5 PROVISIONS.—

25 Except as otherwise provided in this subsection, the
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1 provisions of subchapters III and VII of chapter 84

2 of title 5, United States Code, shall apply with re3 spect to a magistrate judge who makes an election

4 under paragraph (1).

5 ‘‘(3) SPECIAL RULES.—

6 ‘‘(A) AMOUNT CONTRIBUTED.—The amount

7 contributed by a magistrate judge to the Thrift

8 Savings Fund in any pay period shall not ex9 ceed the maximum percentage of such judge’s

10 basic pay for such pay period as allowable under

11 section 8440f of title 5, United States Code.

12 ‘‘(B) CONTRIBUTIONS FOR BENEFIT OF

13 JUDGE.—No contributions may be made for the

14 benefit of a magistrate judge under section

15 8432(c) of title 5, United States Code.

16 ‘‘(C) APPLICABILITY OF SECTION 8433(b) OF

17 TITLE 5.—Section 8433(b) of title 5, United

18 States Code, applies with respect to a magistrate

19 judge who makes an election under paragraph

20 (1) and—

21 ‘‘(i) who retires entitled to an imme22 diate annuity under this section (including

23 a disability annuity under subsection (d) of

24 this section) or section 321 of the Tax Ad25 ministration Good Government Act,
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1 ‘‘(ii) who retires before attaining age

2 65 but is entitled, upon attaining age 65, to

3 an annuity under this section or section

4 321 of the Tax Administration Good Gov5 ernment Act, or

6 ‘‘(iii) who retires before becoming enti7 tled to an immediate annuity, or an annu8 ity upon attaining age 65, under this sec9 tion or section 321 of the Tax Administra10 tion Good Government Act.

11 ‘‘(D) SEPARATION FROM SERVICE.—With

12 respect to a magistrate judge to whom this sub13 section applies, retirement under this section or

14 section 321 of the Tax Administration Good

15 Government Act is a separation from service for

16 purposes of subchapters III and VII of chapter

17 84 of title 5, United States Code.

18 ‘‘(4) DEFINITIONS.—For purposes of this sub19 section, the terms ‘retirement’ and ‘retire’ include re20 moval from office under section 7443A(a)(2) on the

21 sole ground of mental or physical disability.

22 ‘‘(5) OFFSET.—In the case of a magistrate judge

23 who receives a distribution from the Thrift Savings

24 Fund and who later receives an annuity under this

25 section, that annuity shall be offset by an amount
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1 equal to the amount which represents the Govern2 ment’s contribution to that person’s Thrift Savings

3 Account, without regard to earnings attributable to

4 that amount. Where such an offset would exceed 50

5 percent of the annuity to be received in the first year,

6 the offset may be divided equally over the first 2 years

7 in which that person receives the annuity.

8 ‘‘(6) EXCEPTION.—Notwithstanding clauses (i)

9 and (ii) of paragraph (3)(C), if any magistrate judge

10 retires under circumstances making such magistrate

11 judge eligible to make an election under subsection (b)

12 of section 8433 of title 5, United States Code, and

13 such magistrate judge’s nonforfeitable account balance

14 is less than an amount that the Executive Director of

15 the Office of Personnel Management prescribes by reg16 ulation, the Executive Director shall pay the non17 forfeitable account balance to the participant in a

18 single payment.’’.

19 (b) CONFORMING AMENDMENT.—The table of section

20 for part I of subchapter C of chapter 76 is amended by

21 inserting after the item relating to section 7443A the fol22 lowing new item:

‘‘Sec. 7443B. Retirement for magistrate judges of the Tax Court.’’.
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1 SEC. 321. INCUMBENT MAGISTRATE JUDGES OF THE TAX

2 COURT.

3 (a) RETIREMENT ANNUITY UNDER TITLE 5 AND SEC4 TION 7443B OF THE INTERNAL REVENUE CODE OF 1986.—

5 A magistrate judge of the United States Tax Court in active

6 service on the date of the enactment of this Act shall, subject

7 to subsection (b), be entitled, in lieu of the annuity other8 wise provided under the amendments made by this title,

9 to—

10 (1) an annuity under subchapter III of chapter

11 83, or under chapter 84 (except for subchapters III

12 and VII), of title 5, United States Code, as the case

13 may be, for creditable service before the date on which

14 service would begin to be credited for purposes of

15 paragraph (2), and

16 (2) an annuity calculated under subsection (b)

17 or (c) and subsection (g) of section 7443B of the In18 ternal Revenue Code of 1986, as added by this Act,

19 for any service as a magistrate judge of the United

20 States Tax Court or special trial judge of the United

21 States Tax Court but only with respect to service as

22 such a magistrate judge or special trial judge after a

date not earlier than 91 23 ⁄2 years prior to the date of

24 the enactment of this Act (as specified in the election

25 pursuant to subsection (b)) for which deductions and

26 deposits are made under subsections (j) and (k) of
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1 such section 7443B, as applicable, without regard to

2 the minimum number of years of service as such a

3 magistrate judge of the United States Tax Court, ex4 cept that—

5 (A) in the case of a magistrate judge who

6 retired with less than 8 years of service, the an7 nuity under subsection (c) of such section 7443B

8 shall be equal to that proportion of the salary

9 being received at the time the magistrate judge

10 leaves office which the years of service bears to

11 14, subject to a reduction in accordance with

12 subsection (c) of such section 7443B if the mag13 istrate judge is under age 65 at the time he or

14 she leaves office, and

15 (B) the aggregate amount of the annuity

16 initially payable on retirement under this sub17 section may not exceed the rate of pay for the

18 magistrate judge which is in effect on the day be19 fore the retirement becomes effective.

20 (b) FILING OF NOTICE OF ELECTION.—A magistrate

21 judge of the United States Tax Court shall be entitled to

22 an annuity under this section only if the magistrate judge

23 files a notice of that election with the chief judge of the

24 United States Tax Court specifying the date on which serv25 ice would begin to be credited under section 7443B of the
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1 Internal Revenue Code of 1986, as added by this Act, in

2 lieu of chapter 83 or chapter 84 of title 5, United States

3 Code. Such notice shall be filed in accordance with such

4 procedures as the chief judge of the United States Tax Court

5 shall prescribe.

6 (c) LUMP-SUM CREDIT UNDER TITLE 5.—A mag7 istrate judge of the United States Tax Court who makes

8 an election under subsection (b) shall be entitled to a lump9 sum credit under section 8342 or 8424 of title 5, United

10 States Code, as the case may be, for any service which is

11 covered under section 7443B of the Internal Revenue Code

12 of 1986, as added by this Act, pursuant to that election,

13 and with respect to which any contributions were made by

14 the magistrate judge under the applicable provisions of title

15 5, United States Code.

16 (d) RECALL.—With respect to any magistrate judge of

17 the United States Tax Court receiving an annuity under

18 this section who is recalled to serve under section 7443C

19 of the Internal Revenue Code of 1986, as added by this

20 Act—

21 (1) the amount of compensation which such re22 called magistrate judge receives under such section

23 7443C shall be calculated on the basis of the annuity

24 received under this section, and
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1 (2) such recalled magistrate judge of the United

2 States Tax Court may serve as a reemployed annu3 itant to the extent otherwise permitted under title 5,

4 United States Code.

5 Section 7443B(m)(4) of the Internal Revenue Code of 1986,

6 as added by this Act, shall not apply with respect to service

7 as a reemployed annuitant described in paragraph (2).

8 SEC. 322. PROVISIONS FOR RECALL.

9 (a) IN GENERAL.—Part I of subchapter C of chapter

10 76, as amended by this Act, is amended by inserting after

11 section 7443B the following new section:

12 ‘‘SEC. 7443C. RECALL OF MAGISTRATE JUDGES OF THE TAX

13 COURT.

14 ‘‘(a) RECALLING OF RETIRED MAGISTRATE

15 JUDGES.—Any individual who has retired pursuant to sec16 tion 7443B or the applicable provisions of title 5, United

17 States Code, upon reaching the age and service require18 ments established therein, may at or after retirement be

19 called upon by the chief judge of the Tax Court to perform

20 such judicial duties with the Tax Court as may be requested

21 of such individual for any period or periods specified by

22 the chief judge; except that in the case of any such

23 individual—
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1 ‘‘(1) the aggregate of such periods in any 1 cal2 endar year shall not (without such individual’s con3 sent) exceed 90 calendar days, and

4 ‘‘(2) such individual shall be relieved of per5 forming such duties during any period in which ill6 ness or disability precludes the performance of such

7 duties.

8 Any act, or failure to act, by an individual performing ju9 dicial duties pursuant to this subsection shall have the same

10 force and effect as if it were the act (or failure to act) of

11 a magistrate judge of the Tax Court.

12 ‘‘(b) COMPENSATION.—For the year in which a period

13 of recall occurs, the magistrate judge shall receive, in addi14 tion to the annuity provided under the provisions of section

15 7443B or under the applicable provisions of title 5, United

16 States Code, an amount equal to the difference between that

17 annuity and the current salary of the office to which the

18 magistrate judge is recalled. The annuity of the magistrate

19 judge who completes that period of service, who is not re20 called in a subsequent year, and who retired under section

21 7443B, shall be equal to the salary in effect at the end of

22 the year in which the period of recall occurred for the office

23 from which such individual retired.
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1 ‘‘(c) RULEMAKING AUTHORITY.—The provisions of this

2 section may be implemented under such rules as may be

3 promulgated by the Tax Court.’’.

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

5 for part I of subchapter C of chapter 76, as amended by

6 this Act, is amended by inserting after the item relating

7 to section 7443B the following new item:

‘‘Sec. 7443C. Recall of magistrate judges of the Tax Court.’’.

8 SEC. 323. EFFECTIVE DATE.

9 Except as otherwise provided, the amendments made

10 by this subtitle shall take effect on the date of the enactment

11 of this Act.

12 TITLE IV—CONFIDENTIALITY

13 AND DISCLOSURE

14 SEC. 401. CLARIFICATION OF DEFINITION OF CHURCH TAX

15 INQUIRY.

16 (a) IN GENERAL.—Subsection (i) of section 7611 (re17 lating to section not to apply to criminal investigations,

18 etc.) is amended by striking ‘‘or’’ at the end of paragraph

19 (4), by striking the period at the end of paragraph (5) and

20 inserting ‘‘, or’’, and by inserting after paragraph (5) the

21 following:

22 ‘‘(6) information provided by the Secretary re23 lated to the standards for exemption from tax under

24 this title and the requirements under this title relat25 ing to unrelated business taxable income.’’.
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1 (b) EFFECTIVE DATE.—The amendments made by this

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

3 Act.

4 SEC. 402. COLLECTION ACTIVITIES WITH RESPECT TO

5 JOINT RETURN DISCLOSABLE TO EITHER

6 SPOUSE BASED ON ORAL REQUEST.

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

8 (relating to disclosure of collection activities with respect

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

10 first place it appears.

11 (b) ELIMINATION OF REPORTING REQUIREMENT.—

12 Section 7803(d)(1) (relating to annual reporting), as

13 amended by this Act, is amended by striking subparagraph

14 (B) and by redesignating subparagraphs (C), (D), (E), (F),

15 (G), and (H) as subparagraphs (B), (C), (D), (E), (F), and

16 (G), respectively.

17 (c) EFFECTIVE DATES.—

18 (1) SUBSECTION (a).—The amendment made by

19 subsection (a) shall apply to requests made after the

20 date of the enactment of this Act.

21 (2) SUBSECTION (b).—The amendments made by

22 subsection (b) shall apply to reports made after the

23 date of the enactment of this Act.
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1 SEC. 403. TAXPAYER REPRESENTATIVES NOT SUBJECT TO

2 EXAMINATION ON SOLE BASIS OF REPRESEN3 TATION OF TAXPAYERS.

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

5 (relating to disclosure to certain Federal officers and em6 ployees for purposes of tax administration, etc.) is

7 amended—

8 (1) by striking ‘‘TREASURY.—Returns and re9 turn information’’ and inserting ‘‘TREASURY.—

10 ‘‘(A) IN GENERAL.—Returns and return in11 formation’’, and

12 (2) by adding at the end the following new sub13 paragraph:

14 ‘‘(B) TAXPAYER REPRESENTATIVES.—Not15 withstanding subparagraph (A), the return or

16 return information of the representative of a tax17 payer whose return is being examined by an offi18 cer or employee of the Department of the Treas19 ury shall not be open to inspection by such offi20 cer or employee on the sole basis of the represent21 ative’s relationship to the taxpayer unless a su22 pervisor of such officer or employee has approved

23 the inspection of the return or return informa24 tion of such representative on a basis other than

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

2 section shall take effect after the date of the enactment of

3 this Act.

4 SEC. 404. PROHIBITION OF DISCLOSURE OF TAXPAYER

5 IDENTIFICATION INFORMATION WITH RE6 SPECT TO DISCLOSURE OF ACCEPTED OF7 FERS-IN-COMPROMISE.

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

9 (relating to disclosure of certain returns and return infor10 mation for tax administrative purposes) is amended by in11 serting ‘‘(other than the taxpayer’s TIN)’’ after ‘‘Return in12 formation’’.

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

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

15 enactment of this Act.

16 SEC. 405. COMPLIANCE BY CONTRACTORS WITH CONFIDEN17 TIALITY SAFEGUARDS.

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

19 law requirements) is amended by adding at the end the fol20 lowing new paragraph:

21 ‘‘(9) DISCLOSURE TO CONTRACTORS AND OTHER

22 AGENTS.—Notwithstanding any other provision of

23 this section, no return or return information shall be

24 disclosed to any contractor or other agent of a Fed-
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1 eral, State, or local agency unless such agency, to the

2 satisfaction of the Secretary—

3 ‘‘(A) has requirements in effect which re4 quire each such contractor or other agent which

5 would have access to returns or return informa6 tion to provide safeguards (within the meaning

7 of paragraph (4)) to protect the confidentiality

8 of such returns or return information,

9 ‘‘(B) agrees to conduct an on-site review

10 every 3 years (mid-point review in the case of

11 contracts or agreements of less than 1 year in

12 duration) of each contractor or other agent to de13 termine compliance with such requirements,

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

15 review conducted under subparagraph (B) to the

16 Secretary as part of the report required by para17 graph (4)(E), and

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

19 recent annual period that such contractor or

20 other agent is in compliance with all such re21 quirements.

22 The certification required by subparagraph (D) shall

23 include the name and address of each contractor and

24 other agent, a description of the contract or agreement

25 with such contractor or other agent, and the duration
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1 of such contract or agreement. The requirements of

2 this paragraph shall not apply to disclosures pursu3 ant to subsection (n) for purposes of Federal tax ad4 ministration.’’.

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

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

7 (9)’’ after ‘‘subparagraph (A)’’.

8 (c) EFFECTIVE DATE.—

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

10 this section shall apply to disclosures made after the

11 date of the enactment of this Act.

12 (2) CERTIFICATIONS.—The first certification

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

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

15 made with respect to the portion of calendar year

16 2004 following the date of the enactment of this Act.

17 SEC. 406. HIGHER STANDARDS FOR REQUESTS FOR AND

18 CONSENTS TO DISCLOSURE.

19 (a) IN GENERAL.—Subsection (c) of section 6103 (re20 lating to disclosure of returns and return information to

21 designee of taxpayer) is amended—

22 (1) by striking ‘‘TAXPAYER.—The Secretary’’

23 and inserting ‘‘TAXPAYER.—

24 ‘‘(1) IN GENERAL.—The Secretary’’, and
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1 (2) by adding at the end the following new para2 graphs:

3 ‘‘(2) RESTRICTIONS ON PERSONS OBTAINING IN4 FORMATION.—The return of any taxpayer, or return

5 information with respect to such taxpayer, disclosed

6 to a person or persons under paragraph (1) for a

7 purpose specified in writing, electronically, or orally

8 may be disclosed or used by such person or persons

9 only for the purpose of, and to the extent necessary

10 in, accomplishing the purpose for disclosure specified

11 and shall not be disclosed or used for any other pur12 pose.

13 ‘‘(3) REQUIREMENTS FOR FORM PRESCRIBED BY

14 SECRETARY.—For purposes of this subsection, the Sec15 retary shall prescribe a form for written requests and

16 consents which shall—

17 ‘‘(A) contain a warning, prominently dis18 played, informing the taxpayer that the form

19 should not be signed unless it is completed,

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

21 is an attempt to coerce him to sign an incom22 plete or blank form, the taxpayer should report

23 the matter to the Treasury Inspector General for

24 Tax Administration, and
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1 ‘‘(C) contain the address and telephone

2 number of the Treasury Inspector General for

3 Tax Administration.

4 ‘‘(4) CROSS REFERENCE.—

‘‘For provision providing for civil damages for violation of paragraph (2), see section 7431(i).’’.

5 (b) CIVIL DAMAGES.—Section 7431 (relating to civil

6 damages for unauthorized inspection or disclosure of re7 turns and return information) is amended by adding at

8 the end the following new subsection:

9 ‘‘(i) DISCLOSURE OR USE OF RETURNS AND RETURN

10 INFORMATION OBTAINED UNDER SUBSECTION 6103(c).—

11 Disclosure or use of returns or return information obtained

12 under section 6103(c) other than for the purpose of, and

13 to the extent necessary in, accomplishing the purpose for

14 disclosure specified in writing, electronically, or orally,

15 shall be treated as a violation of section 6103(a).’’.

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

17 of the enactment of this Act, the Secretary of the Treasury

18 shall submit a report to the Congress on compliance with

19 the designation and certification requirements applicable to

20 requests for or consent to disclosure of returns and return

21 information under section 6103(c) of the Internal Revenue

22 Code of 1986, as amended by subsection (a). Such report

23 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 Sec11 retary of the Treasury considers necessary or appro12 priate to better achieve the purposes of this section.

13 (d) SUNSET OF EXISTING CONSENTS.—Notwith14 standing any other provision of law, any request for or con15 sent to disclose any return or return information under sec16 tion 6103(c) of the Internal Revenue Code of 1986 made

17 before the date of the enactment of this Act shall remain

18 in effect until the earlier of the date such request or consent

19 is otherwise terminated or the date which is 3 years after

20 such date of enactment.

21 (e) EFFECTIVE DATE.—The amendments made by this

22 section shall apply to requests and consents made after the

23 date which is 3 months after the date of the enactment of

24 this Act.
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1 SEC. 407. CIVIL DAMAGES FOR UNAUTHORIZED DISCLO2 SURE OR INSPECTION.

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

4 7431 (relating to notification of unlawful inspection and

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

6 ‘‘The Secretary shall also notify such taxpayer if the Inter7 nal Revenue Service or, upon notice to the Secretary by

8 a Federal or State agency, if such Federal or State agency,

9 proposes an administrative determination as to discipli10 nary or adverse action against an employee arising from

11 the employee’s unauthorized inspection or disclosure of the

12 taxpayer’s return or return information. The notice de13 scribed in this subsection shall include the date of the in14 spection or disclosure and the rights of the taxpayer under

15 such administrative determination.’’.

16 (b) EXHAUSTION OF ADMINISTRATIVE REMEDIES RE17 QUIRED.—Section 7431, as amended by this Act, is amend18 ed by adding at the end the following new subsection:

19 ‘‘(j) EXHAUSTION OF ADMINISTRATIVE REMEDIES RE20 QUIRED.—A judgment for damages shall not be awarded

21 under subsection (c) unless the court determines that the

22 plaintiff has exhausted the administrative remedies avail23 able to such plaintiff.’’.

24 (c) PAYMENT AUTHORITY CLARIFIED.—
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1 (1) IN GENERAL.—Section 7431, as amended by

2 subsection (b), is amended by adding at the end the

3 following new subsection:

4 ‘‘(k) PAYMENT AUTHORITY.—Claims pursuant to this

5 section shall be payable out of funds appropriated under

6 section 1304 of title 31, United States Code.’’.

7 (2) ANNUAL REPORTS OF PAYMENTS.—The Sec8 retary of the Treasury shall annually report to the

9 Committee of Finance of the Senate and the Com10 mittee on Ways and Means of the House of Represent11 atives regarding payments made from the United

12 States Judgment Fund under section 7431(k) of the

13 Internal Revenue Code of 1986.

14 (d) BURDEN OF PROOF FOR GOOD FAITH EXCEPTION

15 RESTS WITH INDIVIDUAL MAKING INSPECTION OR DISCLO16 SURE.—Section 7431(b) (relating to exceptions) is amended

17 by adding at the end the following new flush sentence:

18 ‘‘In any proceeding involving the issue of the existence of

19 good faith, the burden of proof with respect to such issue

20 shall be on the individual who made the inspection or dis21 closure.’’.

22 (e) REPORTS.—Subsection (p) of section 6103 (relat23 ing to procedure and recordkeeping), as amended by this

24 Act, is amended by adding at the end the following new

25 paragraph:
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1 ‘‘(10) REPORT ON WILLFUL UNAUTHORIZED DIS2 CLOSURE AND INSPECTION.—As part of the report re3 quired by paragraph (3)(C) for each calendar year,

4 the Secretary shall furnish information regarding the

5 willful unauthorized disclosure and inspection of re6 turns and return information, including the number,

7 status, and results of—

8 ‘‘(A) administrative investigations,

9 ‘‘(B) civil lawsuits brought under section

10 7431 (including the amounts for which such law11 suits were settled and the amounts of damages

12 awarded), and

13 ‘‘(C) criminal prosecutions.’’.

14 (f) EFFECTIVE DATES.—

15 (1) NOTICE.—The amendment made by sub16 section (a) shall apply to determinations made after

17 the date which is 180 days after the date of the enact18 ment of this Act.

19 (2) EXHAUSTION OF REMEDIES AND BURDEN OF

20 PROOF.—The amendments made by subsections (b)

21 and (d) shall apply to inspections and disclosures oc22 curring on and after the date which is 180 days after

23 the date of the enactment of this Act.

24 (3) PAYMENT AUTHORITY.—The amendment

25 made by subsection (c)(1) shall take effect on the date
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1 which is 180 days after the date of the enactment of

2 this Act.

3 (4) REPORTS.—The amendment made by sub4 section (e) shall apply to calendar years ending after

5 the date which is 180 days after the date of the enact6 ment of this Act.

7 SEC. 408. EXPANSION OF DISCLOSURE IN EMERGENCY CIR8 CUMSTANCES.

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

10 to danger of death or physical injury) is amended by strik11 ing ‘‘or State law enforcement agency’’ and inserting ‘‘,

12 State, or local law enforcement agency’’.

13 (b) CONFORMING AMENDMENTS.—Section 6103(p)(4)

14 is amended—

15 (1) by striking ‘‘(i)(3)(B)(i) or (7)(A)(ii)’’ and

16 inserting ‘‘(i)(7)(A)(ii)’’, and

17 (2) by striking ‘‘, (i)(3)(B)(i),’’.

18 (c) EFFECTIVE DATE.—The amendment made by this

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

20 Act.

21 SEC. 409. DISCLOSURE OF TAXPAYER IDENTITY FOR TAX

22 REFUND PURPOSES.

23 (a) IN GENERAL.—Section 6103(m)(1) (relating to tax

24 refunds) is amended by striking ‘‘taxpayer identity infor25 mation to the press and other media’’ and by inserting ‘‘a
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1 person’s name and the city, State, and zip code of the per2 son’s mailing address to the press, other media, and through

3 any other means of mass communication,’’.

4 (b) EFFECTIVE DATE.—The amendment 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) ORGA9 NIZATIONS.

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 RE14 LATED TO CHARITABLE ORGANIZATIONS.—

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

16 of an organization to which paragraph (1) ap17 plies, the Secretary may disclose to the appro18 priate State officer—

19 ‘‘(i) a notice of proposed refusal to rec20 ognize such organization as an organization

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

22 proposed revocation of such organization’s

23 recognition as an organization exempt from

24 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 which 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 representatives of the appropriate

24 State officer designated as the individuals who

25 are to inspect or to receive the returns or return
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1 information under this paragraph on behalf of

2 such officer. Such representatives shall not in3 clude any contractor or agent.

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 Federal or State issues relating to the

12 tax-exempt status of such organization.

13 ‘‘(3) DISCLOSURE WITH RESPECT TO CERTAIN

14 OTHER EXEMPT ORGANIZATIONS.—Upon written re15 quest by an appropriate State officer, the Secretary

16 may make available for inspection or disclosure re17 turns and return information of an organization de18 scribed in paragraph (2), (4), (6), (7), (8), (10), or

19 (13) of section 501(c) for the purpose of, and to the

20 extent necessary in, the administration of State laws

21 regulating the solicitation or administration of the

22 charitable funds or charitable assets of such organiza23 tions. Such information may be inspected only by or

24 disclosed only to representatives of the appropriate

25 State officer designated as the individuals who are to
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1 inspect or to receive the returns or return information

2 under this paragraph on behalf of such officer. Such

3 representatives shall not include any contractor or

4 agent.

5 ‘‘(4) USE IN CIVIL JUDICIAL AND ADMINISTRA6 TIVE PROCEEDINGS.—Returns and return informa7 tion disclosed pursuant to this subsection may be dis8 closed in civil administrative and civil judicial pro9 ceedings pertaining to the enforcement of State laws

10 regulating such organizations in a manner prescribed

11 by the Secretary similar to that for tax administra12 tion proceedings under section 6103(h)(4).

13 ‘‘(5) NO DISCLOSURE IF IMPAIRMENT.—Returns

14 and return information shall not be disclosed under

15 this subsection, or in any proceeding described in

16 paragraph (4), to the extent that the Secretary deter17 mines that such disclosure would seriously impair

18 Federal tax administration.

19 ‘‘(6) DEFINITIONS.—For purposes of this

20 subsection—

21 ‘‘(A) RETURN AND RETURN INFORMA22 TION.—The terms ‘return’ and ‘return informa23 tion’ have the respective meanings given to such

24 terms by section 6103(b).
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1 ‘‘(B) APPROPRIATE STATE OFFICER.—The

2 term ‘appropriate State officer’ means—

3 ‘‘(i) the State attorney general,

4 ‘‘(ii) in the case of an organization to

5 which paragraph (1) applies, any other

6 State official charged with overseeing orga7 nizations of the type described in section

8 501(c)(3), and

9 ‘‘(iii) in the case of an organization to

10 which paragraph (3) applies, the head of an

11 agency designated by the State attorney

12 general as having primary responsibility

13 for overseeing the solicitation of funds for

14 charitable purposes.’’.

15 (b) CONFORMING AMENDMENTS.—

16 (1) Subsection (a) of section 6103 is amended—

17 (A) by inserting ‘‘or any appropriate State

18 officer who has or had access to returns or return

19 information under section 6104(c)’’ after ‘‘this

20 section’’ in paragraph (2), and

21 (B) by striking ‘‘or subsection (n)’’ in para22 graph (3) and inserting ‘‘subsection (n), or sec23 tion 6104(c)’’.
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1 (2) Subparagraph (A) of section 6103(p)(3) is

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

3 ‘‘section’’ in the first sentence.

4 (3) Paragraph (4) of section 6103(p), as amend5 ed by section 202(b)(2)(B) of the Trade Act of 2002

6 (Public Law 107–210; 116 Stat. 961), is amended by

7 striking ‘‘or (17)’’ after ‘‘any other person described

8 in subsection (l)(16)’’ each place it appears and in9 serting ‘‘or (18) or any appropriate State officer (as

10 defined in section 6104(c))’’.

11 (4) The heading for paragraph (1) of section

12 6104(c) is amended by inserting ‘‘FOR CHARITABLE

13 ORGANIZATIONS’’.

14 (5) Paragraph (2) of section 7213(a) is amended

15 by inserting ‘‘or under section 6104(c)’’ after ‘‘6103’’.

16 (6) Paragraph (2) of section 7213A(a) is amend17 ed by inserting ‘‘or 6104(c)’’ after ‘‘6103’’.

18 (7) Paragraph (2) of section 7431(a) is amended

19 by inserting ‘‘(including any disclosure in violation

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

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

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

23 Act but shall not apply to requests made before such date.
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1 SEC. 411. TREATMENT OF PUBLIC RECORDS.

2 (a) IN GENERAL.—Section 6103(b) (relating to defini3 tions) is amended by adding at the end the following new

4 paragraph:

5 ‘‘(12) TREATMENT OF PUBLIC RECORDS.—Re6 turns and return information shall not be subject to

7 subsection (a) if disclosed—

8 ‘‘(A) in the course of any judicial or admin9 istrative proceeding or pursuant to tax adminis10 tration activities, and

11 ‘‘(B) properly made part of the public

12 record.’’.

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

14 section shall take effect before, on, and after the date of the

15 enactment of this Act.

16 SEC. 412. EMPLOYEE IDENTITY DISCLOSURES.

17 (a) IN GENERAL.—Section 6103 (confidentiality and

18 disclosure of returns and return information) is amended

19 by redesignating subsection (q) as subsection (r) and by in20 serting after subsection (p) the following new subsection:

21 ‘‘(q) EMPLOYEE IDENTITY DISCLOSURES.—Nothing in

22 this section may be construed to prohibit agents of the De23 partment of the Treasury from identifying themselves, their

24 organizational affiliation, and the nature of an investiga25 tion when contacting third parties in writing or in per26 son.’’.
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1 (b) CONSTRUCTION.—The amendments made by this

2 section shall not be construed to create any inference with

3 respect to the interpretation of any provision of law as such

4 provision was in effect on the day before the date of enact5 ment of this Act.

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

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

8 Act.

9 SEC. 413. TAXPAYER IDENTIFICATION NUMBER MATCHING.

10 (a) IN GENERAL.—Section 6103(k) (relating to disclo11 sure of certain returns and return information for tax ad12 ministration purposes) is amended by adding at the end

13 the following new paragraph:

14 ‘‘(10) TIN MATCHING.—The Secretary may dis15 close to any person required to provide a TIN (as de16 fined in section 7701(a)(41)) to the Secretary whether

17 such information matches records maintained by the

18 Secretary.’’.

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. 414. FORM 8300 DISCLOSURES.

23 (a) IN GENERAL.—Section 6103(p)(4) (relating to

24 safeguards) is amended by striking ‘‘(15),’’ both places it

25 appears.
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1 (b) EFFECTIVE DATE.—The amendment made by this

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

3 Act.

4 SEC. 415. DISCLOSURE TO LAW ENFORCEMENT AGENCIES

5 REGARDING TERRORIST ACTIVITIES.

6 (a) IN GENERAL.—Section 6103(i)(7)(A) (relating to

7 disclosure to law enforcement agencies) is amended by add8 ing at the end the following new clause:

9 ‘‘(v) TAXPAYER IDENTITY.—For pur10 poses of this subparagraph, a taxpayer’s

11 identity shall not be treated as taxpayer re12 turn information.’’.

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

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

15 Act.

16 TITLE V—SIMPLIFICATION

17 Subtitle A—Uniform Definition of

18 Child

19 SEC. 501. UNIFORM DEFINITION OF CHILD, ETC.

20 Section 152 is amended to read as follows:

21 ‘‘SEC. 152. DEPENDENT DEFINED.

22 ‘‘(a) IN GENERAL.—For purposes of this subtitle, the

23 term ‘dependent’ means—

24 ‘‘(1) a qualifying child, or

25 ‘‘(2) a qualifying relative.
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1 ‘‘(b) EXCEPTIONS.—For purposes of this section—

2 ‘‘(1) DEPENDENTS INELIGIBLE.—If an indi3 vidual is a dependent of a taxpayer for any taxable

4 year of such taxpayer beginning in a calendar year,

5 such individual shall be treated as having no depend6 ents for any taxable year of such individual begin7 ning in such calendar year.

8 ‘‘(2) MARRIED DEPENDENTS.—An individual

9 shall not be treated as a dependent of a taxpayer

10 under subsection (a) if such individual has made a

11 joint return with the individual’s spouse under sec12 tion 6013 for the taxable year beginning in the cal13 endar year in which the taxable year of the taxpayer

14 begins.

15 ‘‘(3) CITIZENS OR NATIONALS OF OTHER COUN16 TRIES.—

17 ‘‘(A) IN GENERAL.—The term ‘dependent’

18 does not include an individual who is not a cit19 izen or national of the United States unless such

20 individual is a resident of the United States or

21 a country contiguous to the United States.

22 ‘‘(B) EXCEPTION FOR ADOPTED CHILD.—

23 Subparagraph (A) shall not exclude any child of

24 a taxpayer (within the meaning of subsection

25 (f)(1)(B)) from the definition of ‘dependent’ if—
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1 ‘‘(i) for the taxable year of the tax2 payer, the child has the same principal

3 place of abode as the taxpayer and is a

4 member of the taxpayer’s household, and

5 ‘‘(ii) the taxpayer is a citizen or na6 tional of the United States.

7 ‘‘(c) QUALIFYING CHILD.—For purposes of this

8 section—

9 ‘‘(1) IN GENERAL.—The term ‘qualifying child’

10 means, with respect to any taxpayer for any taxable

11 year, an individual—

12 ‘‘(A) who bears a relationship to the tax13 payer described in paragraph (2),

14 ‘‘(B) who has the same principal place of

15 abode as the taxpayer for more than one-half of

16 such taxable year,

17 ‘‘(C) who meets the age requirements of

18 paragraph (3), and

19 ‘‘(D) who has not provided over one-half of

20 such individual’s own support for the calendar

21 year in which the taxable year of the taxpayer

22 begins.

23 ‘‘(2) RELATIONSHIP.—For purposes of para24 graph (1)(A), an individual bears a relationship to
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1 the taxpayer described in this paragraph if such indi2 vidual is—

3 ‘‘(A) a child of the taxpayer or a descendant

4 of such a child, or

5 ‘‘(B) a brother, sister, stepbrother, or step6 sister of the taxpayer or a descendant of any

7 such relative.

8 ‘‘(3) AGE REQUIREMENTS.—

9 ‘‘(A) IN GENERAL.—For purposes of para10 graph (1)(C), an individual meets the require11 ments of this paragraph if such individual—

12 ‘‘(i) has not attained the age of 19 as

13 of the close of the calendar year in which

14 the taxable year of the taxpayer begins, or

15 ‘‘(ii) is a student who has not attained

16 the age of 24 as of the close of such calendar

17 year.

18 ‘‘(B) SPECIAL RULE FOR DISABLED.—In

19 the case of an individual who is permanently

20 and totally disabled (as defined in section

21 22(e)(3)) at any time during such calendar year,

22 the requirements of subparagraph (A) shall be

23 treated as met with respect to such individual.

24 ‘‘(4) SPECIAL RULE RELATING TO 2 OR MORE

25 CLAIMING QUALIFYING CHILD.—
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1 ‘‘(A) IN GENERAL.—Except as provided in

2 subparagraph (B) and subsection (e), if (but for

3 this paragraph) an individual may be and is

4 claimed as a qualifying child by 2 or more tax5 payers for a taxable year beginning in the same

6 calendar year, such individual shall be treated as

7 the qualifying child of the taxpayer who is—

8 ‘‘(i) a parent of the individual, or

9 ‘‘(ii) if clause (i) does not apply, the

10 taxpayer with the highest adjusted gross in11 come for such taxable year.

12 ‘‘(B) MORE THAN 1 PARENT CLAIMING

13 QUALIFYING CHILD.—If the parents claiming

14 any qualifying child do not file a joint return to15 gether, such child shall be treated as the quali16 fying child of—

17 ‘‘(i) the parent with whom the child re18 sided for the longest period of time during

19 the taxable year, or

20 ‘‘(ii) if the child resides with both par21 ents for the same amount of time during

22 such taxable year, the parent with the high23 est adjusted gross income.

24 ‘‘(d) QUALIFYING RELATIVE.—For purposes of this

25 section—
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1 ‘‘(1) IN GENERAL.—The term ‘qualifying rel2 ative’ means, with respect to any taxpayer for any

3 taxable year, an individual—

4 ‘‘(A) who bears a relationship to the tax5 payer described in paragraph (2),

6 ‘‘(B) whose gross income for the calendar

7 year in which such taxable year begins is less

8 than the exemption amount (as defined in sec9 tion 151(d)),

10 ‘‘(C) with respect to whom the taxpayer

11 provides over one-half of the individual’s support

12 for the calendar year in which such taxable year

13 begins, and

14 ‘‘(D) who is not a qualifying child of such

15 taxpayer or of any other taxpayer for any tax16 able year beginning in the calendar year in

17 which such taxable year begins.

18 ‘‘(2) RELATIONSHIP.—For purposes of para19 graph (1)(A), an individual bears a relationship to

20 the taxpayer described in this paragraph if the indi21 vidual is any of the following with respect to the tax22 payer:

23 ‘‘(A) A child or a descendant of a child.

24 ‘‘(B) A brother, sister, stepbrother, or step25 sister.
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1 ‘‘(C) The father or mother, or an ancestor of

2 either.

3 ‘‘(D) A stepfather or stepmother.

4 ‘‘(E) A son or daughter of a brother or sis5 ter of the taxpayer.

6 ‘‘(F) A brother or sister of the father or

7 mother of the taxpayer.

8 ‘‘(G) A son-in-law, daughter-in-law, father9 in-law, mother-in-law, brother-in-law, or sister10 in-law.

11 ‘‘(H) An individual (other than an indi12 vidual who at any time during the taxable year

13 was the spouse, determined without regard to

14 section 7703, of the taxpayer) who, for the tax15 able year of the taxpayer, has the same principal

16 place of abode as the taxpayer and is a member

17 of the taxpayer’s household.

18 ‘‘(3) SPECIAL RULE RELATING TO MULTIPLE

19 SUPPORT AGREEMENTS.—For purposes of paragraph

20 (1)(C), over one-half of the support of an individual

21 for a calendar year shall be treated as received from

22 the taxpayer if—

23 ‘‘(A) no one person contributed over one-half

24 of such support,
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1 ‘‘(B) over one-half of such support was re2 ceived from 2 or more persons each of whom, but

3 for the fact that any such person alone did not

4 contribute over one-half of such support, would

5 have been entitled to claim such individual as a

6 dependent for a taxable year beginning in such

7 calendar year,

8 ‘‘(C) the taxpayer contributed over 10 per9 cent of such support, and

10 ‘‘(D) each person described in subparagraph

11 (B) (other than the taxpayer) who contributed

12 over 10 percent of such support files a written

13 declaration (in such manner and form as the

14 Secretary may by regulations prescribe) that

15 such person will not claim such individual as a

16 dependent for any taxable year beginning in

17 such calendar year.

18 ‘‘(4) SPECIAL RULE RELATING TO INCOME OF

19 HANDICAPPED DEPENDENTS.—

20 ‘‘(A) IN GENERAL.—For purposes of para21 graph (1)(B), the gross income of an individual

22 who is permanently and totally disabled (as de23 fined in section 22(e)(3)) at any time during the

24 taxable year shall not include income attrib-
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1 utable to services performed by the individual at

2 a sheltered workshop if—

3 ‘‘(i) the availability of medical care at

4 such workshop is the principal reason for

5 the individual’s presence there, and

6 ‘‘(ii) the income arises solely from ac7 tivities at such workshop which are incident

8 to such medical care.

9 ‘‘(B) SHELTERED WORKSHOP DEFINED.—

10 For purposes of subparagraph (A), the term

11 ‘sheltered workshop’ means a school—

12 ‘‘(i) which provides special instruction

13 or training designed to alleviate the dis14 ability of the individual, and

15 ‘‘(ii) which is operated by an organiza16 tion described in section 501(c)(3) and ex17 empt from tax under section 501(a), or by

18 a State, a possession of the United States,

19 any political subdivision of any of the fore20 going, the United States, or the District of

21 Columbia.

22 ‘‘(5) SPECIAL RULES FOR SUPPORT.—For pur23 poses of this subsection—

24 ‘‘(A) payments to a spouse which are in25 cludible in the gross income of such spouse under
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1 section 71 or 682 shall not be treated as a pay2 ment by the payor spouse for the support of any

3 dependent, and

4 ‘‘(B) in the case of the remarriage of a par5 ent, support of a child received from the parent’s

6 spouse shall be treated as received from the par7 ent.

8 ‘‘(e) SPECIAL RULE FOR DIVORCED PARENTS.—

9 ‘‘(1) IN GENERAL.—Notwithstanding subsection

10 (c)(4) or (d)(1)(C), if—

11 ‘‘(A) a child receives over one-half of the

12 child’s support during the calendar year from

13 the child’s parents—

14 ‘‘(i) who are divorced or legally sepa15 rated under a decree of divorce or separate

16 maintenance,

17 ‘‘(ii) who are separated under a writ18 ten separation agreement, or

19 ‘‘(iii) who live apart at all times dur20 ing the last 6 months of the calendar year,

21 and

22 ‘‘(B) such child is in the custody of 1 or

23 both of the child’s parents for more than one-half

24 of the calendar year,
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1 such child shall be treated as being the qualifying

2 child or qualifying relative of the noncustodial parent

3 for a calendar year if the requirements described in

4 paragraph (2) are met.

5 ‘‘(2) REQUIREMENTS.—For purposes of para6 graph (1), the requirements described in this para7 graph are met if—

8 ‘‘(A) a decree of divorce or separate mainte9 nance or written separation agreement between

10 the parents applicable to the taxable year begin11 ning in such calendar year provides that—

12 ‘‘(i) the noncustodial parent shall be

13 entitled to any deduction allowable under

14 section 151 for such child, or

15 ‘‘(ii) the custodial parent will sign a

16 written declaration (in such manner and

17 form as the Secretary may prescribe) that

18 such parent will not claim such child as a

19 dependent for such taxable year, or

20 ‘‘(B) in the case of such an agreement exe21 cuted before January 1, 1985, the noncustodial

22 parent provides at least $600 for the support of

23 such child during such calendar year.

24 For purposes of subparagraph (B), amounts expended

25 for the support of a child or children shall be treated
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1 as received from the noncustodial parent to the extent

2 that such parent provided amounts for such support.

3 ‘‘(3) CUSTODIAL PARENT AND NONCUSTODIAL

4 PARENT.—For purposes of this subsection—

5 ‘‘(A) CUSTODIAL PARENT.—The term ‘custo6 dial parent’ means the parent with whom a

7 child shared the same principal place of abode

8 for the greater portion of the calendar year.

9 ‘‘(B) NONCUSTODIAL PARENT.—The term

10 ‘noncustodial parent’ means the parent who is

11 not the custodial parent.

12 ‘‘(4) EXCEPTION FOR MULTIPLE-SUPPORT

13 AGREEMENTS.—This subsection shall not apply in

14 any case where over one-half of the support of the

15 child is treated as having been received from a tax16 payer under the provision of subsection (d)(3).

17 ‘‘(f) OTHER DEFINITIONS AND RULES.—For purposes

18 of this section—

19 ‘‘(1) CHILD DEFINED.—

20 ‘‘(A) IN GENERAL.—The term ‘child’ means

21 an individual who is—

22 ‘‘(i) a son, daughter, stepson, or step23 daughter of the taxpayer, or

24 ‘‘(ii) an eligible foster child of the tax25 payer.
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1 ‘‘(B) ADOPTED CHILD.—In determining

2 whether any of the relationships specified in sub3 paragraph (A)(i) or paragraph (4) exists, a le4 gally adopted individual of the taxpayer, or an

5 individual who is lawfully placed with the tax6 payer for legal adoption by the taxpayer, shall be

7 treated as a child of such individual by blood.

8 ‘‘(C) ELIGIBLE FOSTER CHILD.—For pur9 poses of subparagraph (A)(ii), the term ‘eligible

10 foster child’ means an individual who is placed

11 with the taxpayer by an authorized placement

12 agency or by judgment, decree, or other order of

13 any court of competent jurisdiction.

14 ‘‘(2) STUDENT DEFINED.—The term ‘student’

15 means an individual who during each of 5 calendar

16 months during the calendar year in which the taxable

17 year of the taxpayer begins—

18 ‘‘(A) is a full-time student at an edu19 cational organization described in section

20 170(b)(1)(A)(ii), or

21 ‘‘(B) is pursuing a full-time course of insti22 tutional on-farm training under the supervision

23 of an accredited agent of an educational organi24 zation described in section 170(b)(1)(A)(ii) or of

25 a State or political subdivision of a State.
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1 ‘‘(3) DETERMINATION OF HOUSEHOLD STATUS.—

2 An individual shall not be treated as a member of the

3 taxpayer’s household if at any time during the tax4 able year of the taxpayer the relationship between

5 such individual and the taxpayer is in violation of

6 local law.

7 ‘‘(4) BROTHER AND SISTER.—The terms ‘brother’

8 and ‘sister’ include a brother or sister by the half

9 blood.

10 ‘‘(5) SPECIAL SUPPORT TEST IN CASE OF STU11 DENTS.—For purposes of subsections (c)(1)(D) and

12 (d)(1)(C), in the case of an individual who is—

13 ‘‘(A) a child of the taxpayer, and

14 ‘‘(B) a student,

15 amounts received as scholarships for study at an edu16 cational organization described in section

17 170(b)(1)(A)(ii) shall not be taken into account.

18 ‘‘(6) TREATMENT OF MISSING CHILDREN.—

19 ‘‘(A) IN GENERAL.—Solely for the purposes

20 referred to in subparagraph (B), a child of the

21 taxpayer—

22 ‘‘(i) who is presumed by law enforce23 ment authorities to have been kidnapped by

24 someone who is not a member of the family

25 of such child or the taxpayer, and
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1 ‘‘(ii) who had, for the taxable year in

2 which the kidnapping occurred, the same

3 principal place of abode as the taxpayer for

4 more than one-half of the portion of such

5 year before the date of the kidnapping,

6 shall be treated as meeting the requirement of

7 subsection (c)(1)(B) with respect to a taxpayer

8 for all taxable years ending during the period

9 that the child is kidnapped.

10 ‘‘(B) PURPOSES.—Subparagraph (A) shall

11 apply solely for purposes of determining—

12 ‘‘(i) the deduction under section 151(c),

13 ‘‘(ii) the credit under section 24 (relat14 ing to child tax credit),

15 ‘‘(iii) whether an individual is a sur16 viving spouse or a head of a household (as

17 such terms are defined in section 2), and

18 ‘‘(iv) the earned income credit under

19 section 32.

20 ‘‘(C) COMPARABLE TREATMENT OF CERTAIN

21 QUALIFYING RELATIVES.—For purposes of this

22 section, a child of the taxpayer—

23 ‘‘(i) who is presumed by law enforce24 ment authorities to have been kidnapped by
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1 someone who is not a member of the family

2 of such child or the taxpayer, and

3 ‘‘(ii) who was (without regard to this

4 paragraph) a qualifying relative of the tax5 payer for the portion of the taxable year be6 fore the date of the kidnapping,

7 shall be treated as a qualifying relative of the

8 taxpayer for all taxable years ending during the

9 period that the child is kidnapped.

10 ‘‘(D) TERMINATION OF TREATMENT.—Sub11 paragraphs (A) and (C) shall cease to apply as

12 of the first taxable year of the taxpayer begin13 ning after the calendar year in which there is a

14 determination that the child is dead (or, if ear15 lier, in which the child would have attained age

16 18).

17 ‘‘(7) CROSS REFERENCES.—

‘‘For provision treating child as dependent of both

parents for purposes of certain provisions, see sections 105(b), 132(h)(2)(B), and 213(d)(5).’’.

18 SEC. 502. MODIFICATIONS OF DEFINITION OF HEAD OF

19 HOUSEHOLD.

20 (a) HEAD OF HOUSEHOLD.—Clause (i) of section

21 2(b)(1)(A) is amended to read as follows:

22 ‘‘(i) a qualifying child of the indi23 vidual (as defined in section 152(c), deter-
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1 mined without regard to section 152(e)), but

2 not if such child—

3 ‘‘(I) is married at the close of the

4 taxpayer’s taxable year, and

5 ‘‘(II) is not a dependent of such

6 individual by reason of section

7 152(b)(2) or 152(b)(3), or both, or’’.

8 (b) CONFORMING AMENDMENTS.—

9 (1) Section 2(b)(2) is amended by striking sub10 paragraph (A) and by redesignating subparagraphs

11 (B), (C), and (D) as subparagraphs (A), (B), and

12 (C), respectively.

13 (2) Clauses (i) and (ii) of section 2(b)(3)(B) are

14 amended to read as follows:

15 ‘‘(i) subparagraph (H) of section

16 152(d)(2), or

17 ‘‘(ii) paragraph (3) of section 152(d).’’.

18 SEC. 503. MODIFICATIONS OF DEPENDENT CARE CREDIT.

19 (a) IN GENERAL.—Section 21(a)(1) is amended by

20 striking ‘‘In the case of an individual who maintains a

21 household which includes as a member one or more quali22 fying individuals (as defined in subsection (b)(1))’’ and in23 serting ‘‘In the case of an individual for which there are

24 1 or more qualifying individuals (as defined in subsection

25 (b)(1)) with respect to such individual’’.
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1 (b) QUALIFYING INDIVIDUAL.—Paragraph (1) of sec2 tion 21(b) is amended to read as follows:

3 ‘‘(1) QUALIFYING INDIVIDUAL.—The term ‘quali4 fying individual’ means—

5 ‘‘(A) a dependent of the taxpayer (as de6 fined in section 152(a)(1)) who has not attained

7 age 13,

8 ‘‘(B) a dependent of the taxpayer who is

9 physically or mentally incapable of caring for

10 himself or herself and who has the same prin11 cipal place of abode as the taxpayer for more

12 than one-half of such taxable year, or

13 ‘‘(C) the spouse of the taxpayer, if the

14 spouse is physically or mentally incapable of

15 caring for himself or herself and who has the

16 same principal place of abode as the taxpayer

17 for more than one-half of such taxable year.’’.

18 (c) CONFORMING AMENDMENT.—Paragraph (1) of sec19 tion 21(e) is amended to read as follows:

20 ‘‘(1) PLACE OF ABODE.—An individual shall not

21 be treated as having the same principal place of abode

22 of the taxpayer if at any time during the taxable year

23 of the taxpayer the relationship between the indi24 vidual and the taxpayer is in violation of local law.’’.
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1 SEC. 504. MODIFICATIONS OF CHILD TAX CREDIT.

2 (a) IN GENERAL.—Paragraph (1) of section 24(c) is

3 amended to read as follows:

4 ‘‘(1) IN GENERAL.—The term ‘qualifying child’

5 means a qualifying child of the taxpayer (as defined

6 in section 152(c)) who has not attained age 17.’’.

7 (b) CONFORMING AMENDMENT.—Section 24(c)(2) is

8 amended by striking ‘‘the first sentence of section 152(b)(3)’’

9 and inserting ‘‘subparagraph (A) of section 152(b)(3)’’.

10 SEC. 505. MODIFICATIONS OF EARNED INCOME CREDIT.

11 (a) QUALIFYING CHILD.—Paragraph (3) of section

12 32(c) is amended to read as follows:

13 ‘‘(3) QUALIFYING CHILD.—

14 ‘‘(A) IN GENERAL.—The term ‘qualifying

15 child’ means a qualifying child of the taxpayer

16 (as defined in section 152(c), determined without

17 regard to paragraph (1)(D) thereof and section

18 152(e)).

19 ‘‘(B) MARRIED INDIVIDUAL.—The term

20 ‘qualifying child’ shall not include an individual

21 who is married as of the close of the taxpayer’s

22 taxable year unless the taxpayer is entitled to a

23 deduction under section 151 for such taxable

24 year with respect to such individual (or would be

25 so entitled but for section 152(e)).
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1 ‘‘(C) PLACE OF ABODE.—For purposes of

2 subparagraph (A), the requirements of section

3 152(c)(1)(B) shall be met only if the principal

4 place of abode is in the United States.

5 ‘‘(D) IDENTIFICATION REQUIREMENTS.—

6 ‘‘(i) IN GENERAL.—A qualifying child

7 shall not be taken into account under sub8 section (b) unless the taxpayer includes the

9 name, age, and TIN of the qualifying child

10 on the return of tax for the taxable year.

11 ‘‘(ii) OTHER METHODS.—The Sec12 retary may prescribe other methods for pro13 viding the information described in clause

14 (i).’’.

15 (b) CONFORMING AMENDMENTS.—

16 (1) Section 32(c)(1) is amended by striking sub17 paragraph (C) and by redesignating subparagraphs

18 (D), (E), (F), and (G) as subparagraphs (C), (D),

19 (E), and (F), respectively.

20 (2) Section 32(c)(4) is amended by striking

21 ‘‘(3)(E)’’ and inserting ‘‘(3)(C)’’.

22 (3) Section 32(m) is amended by striking ‘‘sub23 sections (c)(1)(F)’’ and inserting ‘‘subsections

24 (c)(1)(E)’’.
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1 SEC. 506. MODIFICATIONS OF DEDUCTION FOR PERSONAL

2 EXEMPTION FOR DEPENDENTS.

3 Subsection (c) of section 151 is amended to read as

4 follows:

5 ‘‘(c) ADDITIONAL EXEMPTION FOR DEPENDENTS.—An

6 exemption of the exemption amount for each individual who

7 is a dependent (as defined in section 152) of the taxpayer

8 for the taxable year.’’.

9 SEC. 507. TECHNICAL AND CONFORMING AMENDMENTS.

10 (1) Section 2(a)(1)(B)(i) is amended by insert11 ing ‘‘, determined without regard to subsections

12 (b)(1), (b)(2), and (d)(1)(B) thereof’’ after ‘‘section

13 152’’.

14 (2) Section 21(e)(5) is amended—

15 (A) by striking ‘‘paragraph (2) or (4) of’’ in

16 subparagraph (A), and

17 (B) by striking ‘‘within the meaning of sec18 tion 152(e)(1)’’ and inserting ‘‘as defined in sec19 tion 152(e)(3)(A)’’.

20 (3) Section 21(e)(6)(B) is amended by striking

21 ‘‘section 151(c)(3)’’ and inserting ‘‘section 152(f)(1)’’.

22 (4) Section 25B(c)(2)(B) is amended by striking

23 ‘‘151(c)(4)’’ and inserting ‘‘152(f)(2)’’.

24 (5)(A) Subparagraphs (A) and (B) of section

25 51(i)(1) are each amended by striking ‘‘paragraphs

26 (1) through (8) of section 152(a)’’ both places it ap-
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1 pears and inserting ‘‘subparagraphs (A) through (G)

2 of section 152(d)(2)’’.

3 (B) Section 51(i)(1)(C) is amended by striking

4 ‘‘152(a)(9)’’ and inserting ‘‘152(d)(2)(H)’’.

5 (6) Section 72(t)(2)(D)(i)(III) is amended by in6 serting ‘‘, determined without regard to subsections

7 (b)(1), (b)(2), and (d)(1)(B) thereof’’ after ‘‘section

8 152’’.

9 (7) Section 72(t)(7)(A)(iii) is amended by strik10 ing ‘‘151(c)(3)’’ and inserting ‘‘152(f)(1)’’.

11 (8) Section 42(i)(3)(D)(ii)(I) is amended by in12 serting ‘‘, determined without regard to subsections

13 (b)(1), (b)(2), and (d)(1)(B) thereof’’ after ‘‘section

14 152’’.

15 (9) Subsections (b) and (c)(1) of section 105 are

16 amended by inserting ‘‘, determined without regard to

17 subsections (b)(1), (b)(2), and (d)(1)(B) thereof’’ after

18 ‘‘section 152’’.

19 (10) Section 120(d)(4) is amended by inserting

20 ‘‘(determined without regard to subsections (b)(1),

21 (b)(2), and (d)(1)(B) thereof)’’ after ‘‘section 152’’.

22 (11) Section 125(e)(1)(D) is amended by insert23 ing ‘‘, determined without regard to subsections

24 (b)(1), (b)(2), and (d)(1)(B) thereof’’ after ‘‘section

25 152’’.
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1 (12) Section 129(c)(2) is amended by striking

2 ‘‘151(c)(3)’’ and inserting ‘‘152(f)(1)’’.

3 (13) The first sentence of section 132(h)(2)(B) is

4 amended by striking ‘‘151(c)(3)’’ and inserting

5 ‘‘152(f)(1)’’.

6 (14) Section 153 is amended by striking para7 graph (1) and by redesignating paragraphs (2), (3),

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

9 (15) Section 170(g)(1) is amended by inserting

10 ‘‘(determined without regard to subsections (b)(1),

11 (b)(2), and (d)(1)(B) thereof)’’ after ‘‘section 152’’.

12 (16) Section 170(g)(3) is amended by striking

13 ‘‘paragraphs (1) through (8) of section 152(a)’’ and

14 inserting ‘‘subparagraphs (A) through (G) of section

15 152(d)(2)’’.

16 (17) Section 213(a) is amended by inserting ‘‘,

17 determined without regard to subsections (b)(1),

18 (b)(2), and (d)(1)(B) thereof’’ after ‘‘section 152’’.

19 (18) The second sentence of section 213(d)(11) is

20 amended by striking ‘‘paragraphs (1) through (8) of

21 section 152(a)’’ and inserting ‘‘subparagraphs (A)

22 through (G) of section 152(d)(2)’’.

23 (19) Section 220(d)(2)(A) is amended by insert24 ing ‘‘, determined without regard to subsections
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1 (b)(1), (b)(2), and (d)(1)(B) thereof’’ after ‘‘section

2 152’’.

3 (20) Section 221(d)(4) is amended by inserting

4 ‘‘(determined without regard to subsections (b)(1),

5 (b)(2), and (d)(1)(B) thereof)’’ after ‘‘section 152’’.

6 (21) Section 529(e)(2)(B) is amended by striking

7 ‘‘paragraphs (1) through (8) of section 152(a)’’ and

8 inserting ‘‘subparagraphs (A) through (G) of section

9 152(d)(2)’’.

10 (22) Section 2032A(c)(7)(D) is amended by

11 striking ‘‘section 151(c)(4)’’ and inserting ‘‘section

12 152(f)(2)’’.

13 (23) Section 2057(d)(2)(B) is amended by insert14 ing ‘‘, determined without regard to subsections

15 (b)(1), (b)(2), and (d)(1)(B) thereof’’ after ‘‘section

16 152’’.

17 (24) Section 7701(a)(17) is amended by striking

18 ‘‘152(b)(4), 682,’’ and inserting ‘‘682’’.

19 (25) Section 7702B(f)(2)(C)(iii) is amended by

20 striking ‘‘paragraphs (1) through (8) of section

21 152(a)’’ and inserting ‘‘subparagraphs (A) through

22 (G) of section 152(d)(2)’’.

23 (26) Section 7703(b)(1) is amended—

24 (A) by striking ‘‘151(c)(3)’’ and inserting

25 ‘‘152(f)(1)’’, and
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1 (B) by striking ‘‘paragraph (2) or (4) of’’.

2 SEC. 508. EFFECTIVE DATE.

3 The amendments made by this subtitle shall apply to

4 taxable years beginning after December 31, 2004.

5 Subtitle B—Simplification Through

6 Elimination of Inoperative Pro7 visions

8 SEC. 511. SIMPLIFICATION THROUGH ELIMINATION OF IN9 OPERATIVE PROVISIONS.

10 (a) IN GENERAL.—

11 (1) ADJUSTMENTS IN TAX TABLES SO THAT IN12 FLATION WILL NOT RESULT IN TAX INCREASES.—

13 Paragraph (7) of section 1(f) is amended to read as

14 follows:

15 ‘‘(7) SPECIAL RULE FOR CERTAIN BRACKETS.—

16 In prescribing tables under paragraph (1) which

17 apply to taxable years beginning in a calendar year

18 after 1994, the cost-of-living adjustment used in mak19 ing adjustments to the dollar amounts at which the

20 36 percent rate bracket begins or at which the 39.6

21 percent rate bracket begins shall be determined under

22 paragraph (3) by substituting ‘1993’ for ‘1992’.’’.

23 (2) CREDIT FOR PRODUCING FUEL FROM NON24 CONVENTIONAL SOURCE.—Section 29 is amended by

25 striking subsection (e) and by redesignating sub-
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1 sections (f) and (g) as subsections (e) and (f), respec2 tively.

3 (3) EARNED INCOME CREDIT.—Paragraph (1) of

4 section 32(b) is amended—

5 (A) by striking subparagraphs (B) and (C),

6 and

7 (B) in subparagraph (A) by striking ‘‘(A)

8 IN GENERAL.—In the case of taxable years begin9 ning after 1995’’ and moving the table 2 ems to

10 the left.

11 (4) GENERAL BUSINESS CREDITS.—Subsection

12 (d) of section 38 is amended by striking paragraph

13 (3).

14 (5) CARRYBACK AND CARRYFORWARD OF UNUSED

15 CREDITS.—Subsection (d) of section 39 is amended by

16 striking paragraphs (1) through (8) and by redesig17 nating paragraphs (9) and (10) as paragraphs (1)

18 and (2), respectively.

19 (6) ADJUSTMENTS BASED ON ADJUSTED CUR20 RENT EARNINGS.—Clause (ii) of section 56(g)(4)(F) is

21 amended by striking ‘‘In the case of any taxable year

22 beginning after December 31, 1992, clause’’ and in23 serting ‘‘Clause’’.

24 (7) ITEMS OF TAX PREFERENCE; DEPLETION.—

25 Paragraph (1) of section 57(a) is amended by striking
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1 ‘‘Effective with respect to taxable years beginning

2 after December 31, 1992, this’’ and inserting ‘‘This’’.

3 (8) INTANGIBLE DRILLING COSTS.—

4 (A) Clause (i) of section 57(a)(2)(E) is

5 amended by striking ‘‘In the case of any taxable

6 year beginning after December 31, 1992, this’’

7 and inserting ‘‘This’’.

8 (B) Clause (ii) of section 57(a)(2)(E) is

9 amended by striking ‘‘(30 percent in the case of

10 taxable years beginning in 1993)’’.

11 (9) ANNUITIES; CERTAIN PROCEEDS OF ENDOW12 MENT AND LIFE INSURANCE CONTRACTS.—Section 72

13 is amended—

14 (A) in subsection (c)(4) by striking ‘‘; except

15 that if such date was before January 1, 1954,

16 then the annuity starting date is January 1,

17 1954’’, and

18 (B) in subsection (g)(3) by striking ‘‘Janu19 ary 1, 1954, or’’ and ‘‘, whichever is later’’.

20 (10) ACCIDENT AND HEALTH PLANS.—Section

21 105(f) is amended by striking ‘‘or (d)’’.

22 (11) FLEXIBLE SPENDING ARRANGEMENTS.—Sec23 tion 106(c)(1) is amended by striking ‘‘Effective on

24 and after January 1, 1997, gross’’ and inserting

25 ‘‘Gross’’.
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1 (12) CERTAIN COMBAT ZONE COMPENSATION OF

2 MEMBERS OF THE ARMED FORCES.—Subsection (c) of

3 section 112 is amended—

4 (A) by striking ‘‘(after June 24, 1950)’’ in

5 paragraph (2), and

6 (B) striking ‘‘such zone;’’ and all that fol7 lows in paragraph (3) and inserting ‘‘such

8 zone.’’.

9 (13) PRINCIPAL RESIDENCE.—Section 121(b)(3)

10 is amended—

11 (A) by striking subparagraph (B); and

12 (B) in subparagraph (A) by striking ‘‘(A)

13 IN GENERAL.—’’ and moving the text 2 ems to

14 the left.

15 (14) CERTAIN REDUCED UNIFORMED SERVICES

16 RETIREMENT PAY.—Section 122(b)(1) is amended by

17 striking ‘‘after December 31, 1965,’’.

18 (15) GREAT PLAINS CONSERVATION PROGRAM.—

19 Section 126(a) is amended by striking paragraph (6)

20 and by redesignating paragraphs (7), (8), (9), and

21 (10) as paragraphs (6), (7), (8), and (9), respectively.

22 (16) MORTGAGE REVENUE BONDS FOR RESI23 DENCES IN FEDERAL DISASTER AREAS.—Section

24 143(k) is amended by striking paragraph (11).
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1 (17) TREBLE DAMAGE PAYMENTS UNDER THE

2 ANTITRUST LAW.—Section 162(g) is amended by

3 striking the last sentence.

4 (18) STATE LEGISLATORS’ TRAVEL EXPENSES

5 AWAY FROM HOME.—Paragraph (4) of section 162(h)

6 is amended by striking ‘‘For taxable years beginning

7 after December 31, 1980, this’’ and inserting ‘‘This’’.

8 (19) HEALTH INSURANCE COSTS OF SELF-EM9 PLOYED INDIVIDUALS.—Paragraph (1) of section

10 162(l) is amended to read as follows:

11 ‘‘(1) ALLOWANCE OF DEDUCTION.—In the case of

12 an individual who is an employee within the mean13 ing of section 401(c)(1), there shall be allowed as a

14 deduction under this section an amount equal to 100

15 percent of the amount paid during the taxable year

16 for insurance which constitutes medical care for the

17 taxpayer and the taxpayer’s spouse and dependents.’’.

18 (20) INTEREST.—

19 (A) Section 163 is amended by striking

20 paragraph (6) of subsection (d) and paragraph

21 (5) (relating to phase-in of limitation) of sub22 section (h).

23 (B) Section 56(b)(1)(C) is amended by

24 striking clause (ii) and by redesignating clauses
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1 (iii), (iv), and (v) as clauses (ii), (iii), and (iv),

2 respectively.

3 (21) CHARITABLE, ETC., CONTRIBUTIONS AND

4 GIFTS.—Section 170 is amended by striking sub5 section (k).

6 (22) AMORTIZABLE BOND PREMIUM.—Subpara7 graph (B) of section 171(b)(1) is amended to read as

8 follows:

9 ‘‘(B)(i) in the case of a bond described in

10 subsection (a)(2), with reference to the amount

11 payable on maturity or earlier call date, and

12 ‘‘(ii) in the case of a bond described in sub13 section (a)(1), with reference to the amount pay14 able on maturity (or if it results in a smaller

15 amortizable bond premium attributable to the

16 period of earlier call date, with reference to the

17 amount payable on earlier call date), and’’.

18 (23) NET OPERATING LOSS CARRYBACKS AND

19 CARRYOVERS.—

20 (A) Section 172 is amended—

21 (i) by striking subparagraph (D) of

22 subsection (b)(1) and by redesignating sub23 paragraphs (E), (F), (G), and (H) as sub24 paragraphs (D), (E), (F), and (G), respec25 tively,
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1 (ii) by striking ‘‘ending after August 2,

2 1989’’ in subsection (b)(1)(D)(i)(II) (as re3 designated by clause (i)),

4 (iii) by striking ‘‘subparagraph (F)’’

5 in subsection (b)(1)(G) (as redesignated by

6 clause (i)) and inserting ‘‘subparagraph

7 (E)’’,

8 (iv) by striking subsection (g), and

9 (v) by striking subparagraph (F) of

10 subsection (h)(2).

11 (B) Section 172(h)(4) is amended by strik12 ing ‘‘subsection (b)(1)(E)’’ each place it appears

13 and inserting ‘‘subsection (b)(1)(D)’’.

14 (C) Section 172(i)(3) is amended by strik15 ing ‘‘subsection (b)(1)(G)’’ each place it appears

16 and inserting ‘‘subsection (b)(1)(F)’’.

17 (D) Section 172(j) is amended by striking

18 ‘‘subsection (b)(1)(H)’’ each place it appears and

19 inserting ‘‘subsection (b)(1)(G)’’.

20 (E) Section 172, as amended by subpara21 graphs (A) through (D) of this paragraph, is

22 amended—

23 (i) by redesignating subsections (h),

24 (i), and (j) as subsections (g), (h), and (i),

25 respectively,
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1 (ii) by striking ‘‘subsection (h)’’ each

2 place it appears and inserting ‘‘subsection

3 (g)’’, and

4 (iii) by striking ‘‘subsection (i)’’ each

5 place it appears and inserting ‘‘subsection

6 (h)’’.

7 (24) RESEARCH AND EXPERIMENTAL EXPENDI8 TURES.—Subparagraph (A) of section 174(a)(2) is

9 amended to read as follows:

10 ‘‘(A) WITHOUT CONSENT.—A taxpayer

11 may, without the consent of the Secretary, adopt

12 the method provided in this subsection for his

13 first taxable year for which expenditures de14 scribed in paragraph (1) are paid or incurred.’’.

15 (25) AMORTIZATION OF CERTAIN RESEARCH AND

16 EXPERIMENTAL EXPENDITURES.—Paragraph (2) of

17 section 174(b)(2) is amended by striking ‘‘beginning

18 after December 31, 1953’’.

19 (26) SOIL AND WATER CONSERVATION EXPENDI20 TURES.—Paragraph (1) of section 175(d) is amended

21 to read as follows:

22 ‘‘(1) WITHOUT CONSENT.—A taxpayer may,

23 without the consent of the Secretary, adopt the method

24 provided in this section for his first taxable year for
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1 which expenditures described in subsection (a) are

2 paid or incurred.’’.

3 (27) ACTIVITIES NOT ENGAGED IN FOR PROF4 IT.—Section 183(e)(1) is amended by striking the last

5 sentence.

6 (28) DIVIDENDS RECEIVED ON CERTAIN PRE7 FERRED STOCK; AND DIVIDENDS PAID ON CERTAIN

8 PREFERRED STOCK OF PUBLIC UTILITIES.—

9 (A) Sections 244 and 247 are hereby re10 pealed and the table of sections for part VIII of

11 subchapter B of chapter 1 is amended by strik12 ing the items relating to sections 244 and 247.

13 (B) Paragraph (5) of section 172(d) is

14 amended to read as follows:

15 ‘‘(5) COMPUTATION OF DEDUCTION FOR DIVI16 DENDS RECEIVED.—The deductions allowed by section

17 243 (relating to dividends received by corporations)

18 and 245 (relating to dividends received from certain

19 foreign corporations) shall be computed without re20 gard to section 246(b) (relating to limitation on ag21 gregate amount of deductions).’’.

22 (C) Paragraph (1) of section 243(c) is

23 amended to read as follows:

24 ‘‘(1) IN GENERAL.—In the case of any dividend

25 received from a 20-percent owned corporation, sub-
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1 section (a)(1) shall be applied by substituting ‘80 per2 cent’ for ‘70 percent’.’’.

3 (D) Section 243(d) is amended by striking

4 paragraph (4).

5 (E) Section 246 is amended—

6 (i) by striking ‘‘, 244,’’ in subsection

7 (a)(1),

8 (ii) in subsection (b)(1)—

9 (I) by striking ‘‘sections

10 243(a)(1), and 244(a),’’ the first place

11 it appears and inserting ‘‘section

12 243(a)(1),’’,

13 (II) by striking ‘‘244(a),’’ the sec14 ond place it appears therein, and

15 (III) by striking ‘‘subsection (a)

16 or (b) of section 245, and 247,’’ and

17 inserting ‘‘and subsection (a) or (b) of

18 section 245,’’, and

19 (iii) by striking ‘‘, 244,’’ in subsection

20 (c)(1).

21 (F) Section 246A is amended by striking ‘‘,

22 244,’’ both places it appears in subsections (a)

23 and (e).

24 (G) Sections 263(g)(2)(B)(iii), 277(a),

25 301(e)(2), 469(e)(4), 512(a)(3)(A), subpara-
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1 graphs (A), (C), and (D) of section 805(a)(4),

2 805(b)(5), 812(e)(2)(A), 815(c)(2)(A)(iii),

3 832(b)(5), 833(b)(3)(E), 1059(b)(2)(B), and

4 1244(c)(2)(C) are each amended by striking ‘‘,

5 244,’’ each place it appears.

6 (H) Section 805(a)(4)(B) is amended by

7 striking ‘‘, 244(a),’’ each place it appears.

8 (I) Section 810(c)(2)(B) is amended by

9 striking ‘‘244 (relating to dividends on certain

10 preferred stock of public utilities),’’.

11 (29) ORGANIZATION EXPENSES.—Section 248(c)

12 is amended by striking ‘‘beginning after December 31,

13 1953,’’ and by striking the last sentence.

14 (30) BOND REPURCHASE PREMIUM.—Section

15 249(b)(1) is amended by striking ‘‘, in the case of

16 bonds or other evidences of indebtedness issued after

17 February 28, 1913,’’.

18 (31) AMOUNT OF GAIN WHERE LOSS PREVIOUSLY

19 DISALLOWED.—Section 267(d) is amended by striking

20 ‘‘(or by reason of section 24(b) of the Internal Rev21 enue Code of 1939)’’ in paragraph (1), by striking

22 ‘‘after December 31, 1953,’’ in paragraph (2), by

23 striking the second sentence, and by striking ‘‘or by

24 reason of section 118 of the Internal Revenue Code of

25 1939’’ in the last sentence.
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1 (32) ACQUISITIONS MADE TO EVADE OR AVOID

2 INCOME TAX.—Paragraphs (1) and (2) of section

3 269(a) are each amended by striking ‘‘or acquired on

4 or after October 8, 1940,’’.

5 (33) INTEREST ON INDEBTEDNESS INCURRED BY

6 CORPORATIONS TO ACQUIRE STOCK OR ASSETS OF AN7 OTHER CORPORATION.—Section 279 is amended—

8 (A) by striking ‘‘after December 31, 1967,’’

9 in subsection (a)(2),

10 (B) by striking ‘‘after October 9, 1969,’’ in

11 subsection (b),

12 (C) by striking ‘‘after October 9, 1969, and’’

13 in subsection (d)(5), and

14 (D) by striking subsection (i) and by redes15 ignating subsection (j) as subsection (i).

16 (34) SPECIAL RULES RELATING TO CORPORATE

17 PREFERENCE ITEMS.—Paragraph (4) of section

18 291(a) is amended by striking ‘‘In the case of taxable

19 years beginning after December 31, 1984, section’’

20 and inserting ‘‘Section’’.

21 (35) QUALIFICATIONS FOR TAX CREDIT EM22 PLOYEE STOCK OWNERSHIP PLAN.—Section 409 is

23 amended by striking subsections (a), (g), and (q).

24 (36) FUNDING STANDARDS.—Section 412(m)(4)

25 is amended—
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1 (A) by striking ‘‘the applicable percentage’’

2 in subparagraph (A) and inserting ‘‘25 percent’’,

3 and

4 (B) by striking subparagraph (C) and by

5 redesignating subparagraph (D) as subpara6 graph (C).

7 (37) RETIREE HEALTH ACCOUNTS.—Section 420

8 is amended—

9 (A) by striking paragraph (4) in subsection

10 (b) and by redesignating paragraph (5) as para11 graph (4), and

12 (B) by amending paragraph (2) of sub13 section (c) to read as follows:

14 ‘‘(2) REQUIREMENTS RELATING TO PENSION

15 BENEFITS ACCRUING BEFORE TRANSFER.—The re16 quirements of this paragraph are met if the plan pro17 vides that the accrued pension benefits of any partici18 pant or beneficiary under the plan become nonforfeit19 able in the same manner which would be required if

20 the plan had terminated immediately before the quali21 fied transfer (or in the case of a participant who sep22 arated during the 1-year period ending on the date of

23 the transfer, immediately before such separation).’’.
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1 (38) EMPLOYEE STOCK PURCHASE PLANS.—Sec2 tion 423(a) is amended by striking ‘‘after December

3 31, 1963,’’.

4 (39) LIMITATION ON DEDUCTIONS FOR CERTAIN

5 FARMING.—Section 464 is amended—

6 (A) by striking ‘‘any farming syndicate (as

7 defined in subsection (c))’’ both places it appears

8 in subsections (a) and (b) and inserting ‘‘any

9 taxpayer to whom subsection (f) applies’’, and

10 (B) by striking subsection (g).

11 (40) DEDUCTIONS LIMITED TO AMOUNT AT

12 RISK.—

13 (A) Paragraph (3) of section 465(c) is

14 amended by striking ‘‘In the case of taxable

15 years beginning after December 31, 1978, this’’

16 and inserting ‘‘This’’.

17 (B) Paragraph (2) of section 465(e)(2)(A) is

18 amended by striking ‘‘beginning after December

19 31, 1978’’.

20 (41) NUCLEAR DECOMMISSIONING COSTS.—Sec21 tion 468A(e)(2) is amended—

22 (A) by striking ‘‘at the rate set forth in sub23 paragraph (B)’’ in subparagraph (A) and insert24 ing ‘‘at a rate of 20 percent’’, and
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1 (B) by striking subparagraph (B) and by

2 redesignating subparagraphs (C) and (D) as sub3 paragraphs (B) and (C), respectively.

4 (42) PASSIVE ACTIVITY LOSSES AND CREDITS

5 LIMITED.—

6 (A) Section 469 is amended by striking sub7 section (m).

8 (B) Subsection (b) of section 58 is amended

9 by adding ‘‘and’’ at the end of paragraph (1), by

10 striking paragraph (2), and by redesignating

11 paragraph (3) as paragraph (2).

12 (43) ADJUSTMENTS REQUIRED BY CHANGES IN

13 METHOD OF ACCOUNTING.—Section 481(b)(3) is

14 amended by striking subparagraph (C).

15 (44) EXEMPTION FROM TAX ON CORPORATIONS,

16 CERTAIN TRUSTS, ETC.—Section 501 is amended by

17 striking subsection (q).

18 (45) REQUIREMENTS FOR EXEMPTION.—

19 (A) Section 503(a)(1) is amended to read as

20 follows:

21 ‘‘(1) GENERAL RULE.—An organization de22 scribed in paragraph (17) or (18) of section 501(c) or

23 described in section 401(a) and referred to in section

24 4975(g)(2) or (3) shall not be exempt from taxation
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1 under section 501(a) if it has engaged in a prohibited

2 transaction.’’.

3 (B) Paragraph (2) of section 503(a) is

4 amended by striking ‘‘described in section

5 501(c)(17) or (18) or paragraph (a)(1)(B)’’ and

6 inserting ‘‘described in paragraph (1)’’.

7 (C) Subsection (c) of section 503 is amended

8 by striking ‘‘described in section 501(c)(17) or

9 (18) or subsection (a)(1)(B)’’ and inserting ‘‘de10 scribed in subsection (a)(1)’’.

11 (46) AMOUNTS RECEIVED BY SURVIVING ANNU12 ITANT UNDER JOINT AND SURVIVOR ANNUITY CON13 TRACT.—Subparagraph (A) of section 691(d)(1) is

14 amended by striking ‘‘after December 31, 1953, and’’.

15 (47) INCOME TAXES OF MEMBERS OF ARMED

16 FORCES ON DEATH.—Section 692(a)(1) is amended

17 by striking ‘‘after June 24, 1950’’.

18 (48) INSURANCE COMPANY TAXABLE INCOME.—

19 (A) Section 832(e) is amended by striking

20 ‘‘of taxable years beginning after December 31,

21 1966,’’.

22 (B) Section 832(e)(6) is amended by strik23 ing ‘‘In the case of any taxable year beginning

24 after December 31, 1970, the’’ and by inserting

25 ‘‘The’’.
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1 (49) TAX ON NONRESIDENT ALIEN INDIVID2 UALS.—Subparagraph (B) of section 871(a)(1) is

3 amended to read as follows:

4 ‘‘(B) gains described in subsection (b) or (c)

5 of section 631,’’.

6 (50) PROPERTY ON WHICH LESSEE HAS MADE

7 IMPROVEMENTS.—Section 1019 is amended by strik8 ing the last sentence.

9 (51) INVOLUNTARY CONVERSION.—Section 1033

10 is amended by striking subsection (j) and by redesig11 nating subsection (k) as subsection (j).

12 (52) PROPERTY ACQUIRED DURING AFFILI13 ATION.—Section 1051 is repealed and the table of sec14 tions for part IV of subchapter O of chapter 1 is

15 amended by striking the item relating to section 1051.

16 (53) HOLDING PERIOD OF PROPERTY.—

17 (A) Paragraph (5) of section 1223 is

18 amended by striking ‘‘(or under so much of sec19 tion 1052(c) as refers to section 113(a)(23) of the

20 Internal Revenue Code of 1939)’’.

21 (B) Paragraph (7) of section 1223 is

22 amended by striking the last sentence.

23 (C) Paragraph (9) of section 1223 is re24 pealed.
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1 (54) PROPERTY USED IN THE TRADE OR BUSI2 NESS AND INVOLUNTARY CONVERSIONS.—Subpara3 graph (A) of section 1231(c)(2) is amended by strik4 ing ‘‘beginning after December 31, 1981’’.

5 (55) SALE OR EXCHANGE OF PATENTS.—Section

6 1235 is amended—

7 (A) by striking subsection (c) and by redes8 ignating subsections (d) and (e) as (c) and (d),

9 respectively, and

10 (B) by striking ‘‘(d)’’ in subsection (b) and

11 inserting ‘‘(c)’’.

12 (56) DEALERS IN SECURITIES.—Subsection (b)

13 of section 1236 is amended by striking ‘‘after Novem14 ber 19, 1951,’’.

15 (57) SALE OF PATENTS.—Subsection (a) of sec16 tion 1249 is amended by striking ‘‘after December 31,

17 1962,’’.

18 (58) GAIN FROM DISPOSITION OF FARM LAND.—

19 Paragraph (1) of section 1252(a) is amended by strik20 ing ‘‘after December 31, 1969,’’ both places it ap21 pears.

22 (59) TREATMENT OF AMOUNTS RECEIVED ON RE23 TIREMENT OR SALE OR EXCHANGE OF DEBT INSTRU24 MENTS.—Subsection (c) of section 1271 is amended to

25 read as follows:
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1 ‘‘(c) SPECIAL RULE FOR CERTAIN OBLIGATIONS WITH

2 RESPECT TO WHICH ORIGINAL ISSUE DISCOUNT NOT CUR3 RENTLY INCLUDIBLE.—

4 ‘‘(1) IN GENERAL.—On the sale or exchange of

5 debt instruments issued by a government or political

6 subdivision thereof after December 31, 1954, and be7 fore July 2, 1982, or by a corporation after December

8 31, 1954, and on or before May 27, 1969, any gain

9 realized which does not exceed—

10 ‘‘(A) an amount equal to the original issue

11 discount, or

12 ‘‘(B) if at the time of original issue there

13 was no intention to call the debt instrument be14 fore maturity, an amount which bears the same

15 ratio to the original issue discount as the num16 ber of complete months that the debt instrument

17 was held by the taxpayer bears to the number of

18 complete months from the date of original issue

19 to the date of maturity,

20 shall be considered as ordinary income.

21 ‘‘(2) SUBSECTION (a)(2)(A) NOT TO APPLY.—Sub22 section (a)(2)(A) shall not apply to any debt instru23 ment referred to in subparagraph (A) of this para24 graph.
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1 ‘‘(3) CROSS REFERENCE.—

‘‘For current inclusion of original issue discount,

see section 1272.’’.

2 (60) AMOUNT AND METHOD OF ADJUSTMENT.—

3 Section 1314 is amended by striking subsection (d)

4 and by redesignating subsection (e) as subsection (d).

5 (61) ELECTION; REVOCATION; TERMINATION.—

6 Clause (iii) of section 1362(d)(3) is amended by strik7 ing ‘‘unless’’ and all that follows and inserting ‘‘un8 less the corporation was an S corporation for such

9 taxable year.’’.

10 (62) OLD-AGE, SURVIVORS, AND DISABILITY IN11 SURANCE.—Subsection (a) of section 1401 is amended

12 by striking ‘‘the following percent’’ and all that fol13 lows and inserting ‘‘12.4 percent of the amount of the

14 self-employment income for such taxable year.’’.

15 (63) HOSPITAL INSURANCE.—Subsection (b) of

16 section 1401 is amended by striking ‘‘the following

17 percent’’ and all that follows and inserting ‘‘2.9 per18 cent of the amount of the self-employment income for

19 such taxable year.’’.

20 (64) MINISTERS, MEMBERS OF RELIGIOUS OR21 DERS, AND CHRISTIAN SCIENCE PRACTITIONERS.—

22 Paragraph (3) of section 1402(e) is amended by strik23 ing ‘‘whichever of the following dates is later: (A)’’
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1 and by striking ‘‘; or (B)’’ and all that follows and

2 by inserting a period.

3 (65) WITHHOLDING OF TAX ON NONRESIDENT

4 ALIENS.—The first sentence of subsection (b) of sec5 tion 1441 and the first sentence of paragraph (5) of

6 section 1441(c) are each amended by striking ‘‘gains

7 subject to tax’’ and all that follows through ‘‘October

8 4, 1966’’ and inserting ‘‘and gains subject to tax

9 under section 871(a)(1)(D)’’.

10 (66) AFFILIATED GROUP DEFINED.—Subpara11 graph (A) of section 1504(a)(3) is amended by strik12 ing ‘‘for a taxable year which includes any period

13 after December 31, 1984’’ in clause (i) and by strik14 ing ‘‘in a taxable year beginning after December 31,

15 1984’’ in clause (ii).

16 (67) DISALLOWANCE OF THE BENEFITS OF THE

17 GRADUATED CORPORATE RATES AND ACCUMULATED

18 EARNINGS CREDIT.—

19 (A) Subsection (a) of section 1551 is

20 amended by striking paragraph (1) and by re21 designating paragraphs (2) and (3) as para22 graphs (1) and (2), respectively.

23 (B) Section 1551(b) is amended—

24 (i) by striking ‘‘or (2)’’ in paragraph

25 (1), and
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1 (ii) by striking ‘‘(a)(3)’’ in paragraph

2 (2) and inserting ‘‘(a)(2)’’.

3 (68) DEFINITION OF WAGES.—Section 3121(b) is

4 amended by striking paragraph (17).

5 (69) CREDITS AGAINST TAX.—

6 (A) Paragraph (4) of section 3302(f) is

7 amended by striking ‘‘subsection—’’ and all that

8 follows through ‘‘(A) IN GENERAL.—’’, by strik9 ing subparagraph (B), by redesignating clauses

10 (i) and (ii) as subparagraphs (A) and (B), re11 spectively, and by moving the text of such sub12 paragraphs (as so redesignated) 2 ems to the left.

13 (B) Paragraph (5) of section 3302(f) is

14 amended by striking subparagraphs (D) and by

15 redesignating subparagraph (E) as subpara16 graph (D).

17 (70) DOMESTIC SERVICE EMPLOYMENT TAXES.—

18 Section 3510(b) is amended by striking paragraph

19 (4).

20 (71) TAX ON FUEL USED IN COMMERCIAL TRANS21 PORTATION ON INLAND WATERWAYS.—Section

22 4042(b)(2)(A) is amended to read as follows:

23 ‘‘(A) The Inland Waterways Trust Fund fi24 nancing rate is 20 cents per gallon.’’.
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1 (72) TRANSPORTATION BY AIR.—Section 4261(e)

2 is amended—

3 (A) in paragraph (1) by striking subpara4 graph (C), and

5 (B) by striking paragraph (5).

6 (73) TAXES ON FAILURE TO DISTRIBUTE IN7 COME.—Section 4942 is amended—

8 (A) by striking subsection (f)(2)(D),

9 (B) in subsection (g)(2)(A) by striking ‘‘For

10 all taxable years beginning on or after January

11 1, 1975, subject’’ and inserting ‘‘Subject’’,

12 (C) in subsection (g) by striking paragraph

13 (4), and

14 (D) in subsection (i)(2) by striking ‘‘begin15 ning after December 31, 1969, and’’.

16 (74) TAXES ON TAXABLE EXPENDITURES.—Sec17 tion 4945(f) is amended by striking ‘‘(excluding there18 from any preceding taxable year which begins before

19 January 1, 1970)’’.

20 (75) RETURNS.—Subsection (a) of section 6039D

21 is amended by striking ‘‘beginning after December 31,

22 1984,’’.

23 (76) INFORMATION RETURNS.—Subsection (c) of

24 section 6060 is amended by striking ‘‘year’’ and all

25 that follows and inserting ‘‘year.’’.
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1 (77) ABATEMENTS.—Section 6404(f) is amended

2 by striking paragraph (3).

3 (78) FAILURE BY CORPORATION TO PAY ESTI4 MATED INCOME TAX.—Clause (i) of section

5 6655(g)(4)(A) is amended by striking ‘‘(or the cor6 responding provisions of prior law)’’.

7 (79) RETIREMENT.—Section 7447(i)(3)(B)(ii) is

8 amended by striking ‘‘at 4 percent per annum to De9 cember 31, 1947, and at 3 percent per annum there10 after’’, and inserting ‘‘at 3 percent per annum’’.

11 (80) ANNUITIES TO SURVIVING SPOUSES AND DE12 PENDENT CHILDREN OF JUDGES.—

13 (A) Paragraph (2) of section 7448(a) is

14 amended by striking ‘‘or under section 1106 of

15 the Internal Revenue Code of 1939’’ and by

16 striking ‘‘or pursuant to section 1106(d) of the

17 Internal Revenue Code of 1939’’.

18 (B) Subsection (g) of section 7448 is

19 amended by striking ‘‘or other than pursuant to

20 section 1106 of the Internal Revenue Code of

21 1939’’.

22 (C) Subsections (g), (j)(1), and (j)(2) of sec23 tion 7448 are each amended by striking ‘‘at 4

24 percent per annum to December 31, 1947, and at
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1 3 percent per annum thereafter’’ and inserting

2 ‘‘at 3 percent per annum’’.

3 (81) MERCHANT MARINE CAPITAL CONSTRUCTION

4 FUNDS.—Paragraph (4) of section 7518(g) is amend5 ed by striking ‘‘any nonqualified withdrawal’’ and all

6 that follows through ‘‘shall be determined’’ and insert7 ing ‘‘any nonqualified withdrawal shall be deter8 mined’’.

9 (82) VALUATION TABLES.—Paragraph (3) of sec10 tion 7520(c) is amended—

11 (A) by striking ‘‘Not later than December

12 31, 1989, the’’ and inserting ‘‘The’’, and

13 (B) by striking ‘‘thereafter’’ in the last sen14 tence thereof.

15 (83) ADMINISTRATION AND COLLECTION OF

16 TAXES IN POSSESSIONS.—Section 7651 is amended by

17 striking paragraph (4) and by redesignating para18 graph (5) as paragraph (4).

19 (84) DEFINITION OF EMPLOYEE.—(A) Section

20 7701(a)(20) is amended by striking ‘‘chapter 21’’ and

21 all that follows and inserting ‘‘chapter 21.’’.

22 (b) EFFECTIVE DATE.—

23 (1) GENERAL RULE.—Except as otherwise pro24 vided in paragraph (2), the amendments made by
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1 subsection (a) shall take effect on the date of enact2 ment of this Act.

3 (2) SAVINGS PROVISION.—If—

4 (A) any provision amended or repealed by

5 subsection (a) applied to—

6 (i) any transaction occurring before

7 the date of the enactment of this Act,

8 (ii) any property acquired before such

9 date of enactment, or

10 (iii) any item of income, loss, deduc11 tion, or credit taken into account before

12 such date of enactment, and

13 (B) the treatment of such transaction, prop14 erty, or item under such provision would (with15 out regard to the amendments made by sub16 section (a)) affect the liability for tax for periods

17 ending after such date of enactment,

18 nothing in the amendments made by subsection (a)

19 shall be construed to affect the treatment of such

20 transaction, property, or item for purposes of deter21 mining liability for tax for periods ending after such

22 date of enactment.
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1 TITLE VI—REVENUE

2 PROVISIONS

3 Subtitle A—Provisions Designed To

4 Curtail Tax Shelters

5 SEC. 601. PENALTY FOR FAILING TO DISCLOSE REPORT6 ABLE TRANSACTION.

7 (a) IN GENERAL.—Part I of subchapter B of chapter

8 68 (relating to assessable penalties) is amended by inserting

9 after section 6707 the following new section:

10 ‘‘SEC. 6707A. PENALTY FOR FAILURE TO INCLUDE REPORT11 ABLE TRANSACTION INFORMATION WITH RE12 TURN OR STATEMENT.

13 ‘‘(a) IMPOSITION OF PENALTY.—Any person who fails

14 to include on any return or statement any information with

15 respect to a reportable transaction which is required under

16 section 6011 to be included with such return or statement

17 shall pay a penalty in the amount determined under sub18 section (b).

19 ‘‘(b) AMOUNT OF PENALTY.—

20 ‘‘(1) IN GENERAL.—Except as provided in para21 graphs (2) and (3), the amount of the penalty under

22 subsection (a) shall be $50,000.

23 ‘‘(2) LISTED TRANSACTION.—The amount of the

24 penalty under subsection (a) with respect to a listed

25 transaction shall be $100,000.
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1 ‘‘(3) INCREASE IN PENALTY FOR LARGE ENTITIES

2 AND HIGH NET WORTH INDIVIDUALS.—

3 ‘‘(A) IN GENERAL.—In the case of a failure

4 under subsection (a) by—

5 ‘‘(i) a large entity, or

6 ‘‘(ii) a high net worth individual,

7 the penalty under paragraph (1) or (2) shall be

8 twice the amount determined without regard to

9 this paragraph.

10 ‘‘(B) LARGE ENTITY.—For purposes of sub11 paragraph (A), the term ‘large entity’ means,

12 with respect to any taxable year, a person (other

13 than a natural person) with gross receipts in ex14 cess of $10,000,000 for the taxable year in which

15 the reportable transaction occurs or the pre16 ceding taxable year. Rules similar to the rules of

17 paragraph (2) and subparagraphs (B), (C), and

18 (D) of paragraph (3) of section 448(c) shall

19 apply for purposes of this subparagraph.

20 ‘‘(C) HIGH NET WORTH INDIVIDUAL.—For

21 purposes of subparagraph (A), the term ‘high net

22 worth individual’ means, with respect to a re23 portable transaction, a natural person whose net

24 worth exceeds $2,000,000 immediately before the

25 transaction.
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1 ‘‘(c) DEFINITIONS.—For purposes of this section—

2 ‘‘(1) REPORTABLE TRANSACTION.—The term ‘re3 portable transaction’ means any transaction with re4 spect to which information is required to be included

5 with a return or statement because, as determined

6 under regulations prescribed under section 6011, such

7 transaction is of a type which the Secretary deter8 mines as having a potential for tax avoidance or eva9 sion.

10 ‘‘(2) LISTED TRANSACTION.—Except as provided

11 in regulations, the term ‘listed transaction’ means a

12 reportable transaction which is the same as, or sub13 stantially similar to, a transaction specifically identi14 fied by the Secretary as a tax avoidance transaction

15 for purposes of section 6011.

16 ‘‘(d) AUTHORITY TO RESCIND PENALTY.—

17 ‘‘(1) IN GENERAL.—The Commissioner of Inter18 nal Revenue may rescind all or any portion of any

19 penalty imposed by this section with respect to any

20 violation if—

21 ‘‘(A) the violation is with respect to a re22 portable transaction other than a listed trans23 action,
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1 ‘‘(B) the person on whom the penalty is im2 posed has a history of complying with the re3 quirements of this title,

4 ‘‘(C) it is shown that the violation is due to

5 an unintentional mistake of fact;

6 ‘‘(D) imposing the penalty would be against

7 equity and good conscience, and

8 ‘‘(E) rescinding the penalty would promote

9 compliance with the requirements of this title

10 and effective tax administration.

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

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

13 the Commissioner and may be delegated only to the

14 head of the Office of Tax Shelter Analysis. The Com15 missioner, in the Commissioner’s sole discretion, may

16 establish a procedure to determine if a penalty should

17 be referred to the Commissioner or the head of such

18 Office for a determination under paragraph (1).

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

20 provision of law, any determination under this sub21 section may not be reviewed in any administrative or

22 judicial proceeding.

23 ‘‘(4) RECORDS.—If a penalty is rescinded under

24 paragraph (1), the Commissioner shall place in the

25 file in the Office of the Commissioner the opinion of
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1 the Commissioner or the head of the Office of Tax

2 Shelter Analysis with respect to the determination,

3 including—

4 ‘‘(A) the facts and circumstances of the

5 transaction,

6 ‘‘(B) the reasons for the rescission, and

7 ‘‘(C) the amount of the penalty rescinded.

8 ‘‘(5) REPORT.—The Commissioner shall each

9 year report to the Committee on Ways and Means of

10 the House of Representatives and the Committee on

11 Finance of the Senate—

12 ‘‘(A) a summary of the total number and

13 aggregate amount of penalties imposed, and re14 scinded, under this section, and

15 ‘‘(B) a description of each penalty rescinded

16 under this subsection and the reasons therefor.

17 ‘‘(e) PENALTY REPORTED TO SEC.—In the case of a

18 person—

19 ‘‘(1) which is required to file periodic reports

20 under section 13 or 15(d) of the Securities Exchange

21 Act of 1934 or is required to be consolidated with an22 other person for purposes of such reports, and

23 ‘‘(2) which—
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1 ‘‘(A) is required to pay a penalty under

2 this section with respect to a listed transaction,

3 or

4 ‘‘(B) is required to pay a penalty under sec5 tion 6662A with respect to any reportable trans6 action at a rate prescribed under section

7 6662A(c),

8 the requirement to pay such penalty shall be disclosed in

9 such reports filed by such person for such periods as the

10 Secretary shall specify. Failure to make a disclosure in ac11 cordance with the preceding sentence shall be treated as a

12 failure to which the penalty under subsection (b)(2) applies.

13 ‘‘(f) COORDINATION WITH OTHER PENALTIES.—The

14 penalty imposed by this section is in addition to any pen15 alty imposed under this title.’’.

16 (b) CONFORMING AMENDMENT.—The table of sections

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

18 inserting after the item relating to section 6707 the fol19 lowing:

‘‘Sec. 6707A. Penalty for failure to include reportable transaction

information with return or statement.’’.

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

21 section shall apply to returns and statements the due date

22 for which is after the date of the enactment of this Act.
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1 SEC. 602. ACCURACY-RELATED PENALTY FOR LISTED

2 TRANSACTIONS AND OTHER REPORTABLE

3 TRANSACTIONS HAVING A SIGNIFICANT TAX

4 AVOIDANCE PURPOSE.

5 (a) IN GENERAL.—Subchapter A of chapter 68 is

6 amended by inserting after section 6662 the following new

7 section:

8 ‘‘SEC. 6662A. IMPOSITION OF ACCURACY-RELATED PENALTY

9 ON UNDERSTATEMENTS WITH RESPECT TO

10 REPORTABLE TRANSACTIONS.

11 ‘‘(a) IMPOSITION OF PENALTY.—If a taxpayer has a

12 reportable transaction understatement for any taxable year,

13 there shall be added to the tax an amount equal to 20 per14 cent of the amount of such understatement.

15 ‘‘(b) REPORTABLE TRANSACTION UNDERSTATE16 MENT.—For purposes of this section—

17 ‘‘(1) IN GENERAL.—The term ‘reportable trans18 action understatement’ means the sum of—

19 ‘‘(A) the product of—

20 ‘‘(i) the amount of the increase (if any)

21 in taxable income which results from a dif22 ference between the proper tax treatment of

23 an item to which this section applies and

24 the taxpayer’s treatment of such item (as

25 shown on the taxpayer’s return of tax), and
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1 ‘‘(ii) the highest rate of tax imposed by

2 section 1 (section 11 in the case of a tax3 payer which is a corporation), and

4 ‘‘(B) the amount of the decrease (if any) in

5 the aggregate amount of credits determined

6 under subtitle A which results from a difference

7 between the taxpayer’s treatment of an item to

8 which this section applies (as shown on the tax9 payer’s return of tax) and the proper tax treat10 ment of such item.

11 For purposes of subparagraph (A), any reduction of

12 the excess of deductions allowed for the taxable year

13 over gross income for such year, and any reduction

14 in the amount of capital losses which would (without

15 regard to section 1211) be allowed for such year, shall

16 be treated as an increase in taxable income.

17 ‘‘(2) ITEMS TO WHICH SECTION APPLIES.—This

18 section shall apply to any item which is attributable

19 to—

20 ‘‘(A) any listed transaction, and

21 ‘‘(B) any reportable transaction (other than

22 a listed transaction) if a significant purpose of

23 such transaction is the avoidance or evasion of

24 Federal income tax.
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1 ‘‘(c) HIGHER PENALTY FOR NONDISCLOSED LISTED

2 AND OTHER AVOIDANCE TRANSACTIONS.—

3 ‘‘(1) IN GENERAL.—Subsection (a) shall be ap4 plied by substituting ‘30 percent’ for ‘20 percent’ with

5 respect to the portion of any reportable transaction

6 understatement with respect to which the requirement

7 of section 6664(d)(2)(A) is not met.

8 ‘‘(2) RULES APPLICABLE TO ASSERTION AND

9 COMPROMISE OF PENALTY.—

10 ‘‘(A) IN GENERAL.—Only upon the ap11 proval by the Chief Counsel for the Internal Rev12 enue Service or the Chief Counsel’s delegate at

13 the national office of the Internal Revenue Serv14 ice may a penalty to which paragraph (1) ap15 plies be included in a 1st letter of proposed defi16 ciency which allows the taxpayer an opportunity

17 for administrative review in the Internal Rev18 enue Service Office of Appeals. If such a letter is

19 provided to the taxpayer, only the Commissioner

20 of Internal Revenue may compromise all or any

21 portion of such penalty.

22 ‘‘(B) APPLICABLE RULES.—The rules of

23 paragraphs (2), (3), (4), and (5) of section

24 6707A(d) shall apply for purposes of subpara25 graph (A).
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1 ‘‘(d) DEFINITIONS OF REPORTABLE AND LISTED

2 TRANSACTIONS.—For purposes of this section, the terms ‘re3 portable transaction’ and ‘listed transaction’ have the re4 spective meanings given to such terms by section 6707A(c).

5 ‘‘(e) SPECIAL RULES.—

6 ‘‘(1) COORDINATION WITH PENALTIES, ETC., ON

7 OTHER UNDERSTATEMENTS.—In the case of an under8 statement (as defined in section 6662(d)(2))—

9 ‘‘(A) the amount of such understatement

10 (determined without regard to this paragraph)

11 shall be increased by the aggregate amount of re12 portable transaction understatements for pur13 poses of determining whether such understate14 ment is a substantial understatement under sec15 tion 6662(d)(1), and

16 ‘‘(B) the addition to tax under section

17 6662(a) shall apply only to the excess of the

18 amount of the substantial understatement (if

19 any) after the application of subparagraph (A)

20 over the aggregate amount of reportable trans21 action understatements.

22 ‘‘(2) COORDINATION WITH OTHER PENALTIES.—

23 ‘‘(A) APPLICATION OF FRAUD PENALTY.—

24 References to an underpayment in section 6663
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1 shall be treated as including references to a re2 portable transaction understatement.

3 ‘‘(B) NO DOUBLE PENALTY.—This section

4 shall not apply to any portion of an understate5 ment on which a penalty is imposed under sec6 tion 6663.

7 ‘‘(3) SPECIAL RULE FOR AMENDED RETURNS.—

8 Except as provided in regulations, in no event shall

9 any tax treatment included with an amendment or

10 supplement to a return of tax be taken into account

11 in determining the amount of any reportable trans12 action understatement if the amendment or supple13 ment is filed after the earlier of the date the taxpayer

14 is first contacted by the Secretary regarding the ex15 amination of the return or such other date as is speci16 fied by the Secretary.

17 ‘‘(4) CROSS REFERENCE.—

‘‘For reporting of section 6662A(c) penalty to the

Securities and Exchange Commission, see section

6707A(e).’’.

18 (b) DETERMINATION OF OTHER UNDERSTATE19 MENTS.—Subparagraph (A) of section 6662(d)(2) is

20 amended by adding at the end the following flush sentence:

21 ‘‘The excess under the preceding sentence shall be

22 determined without regard to items to which sec23 tion 6662A applies.’’.

24 (c) REASONABLE CAUSE EXCEPTION.—
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1 (1) IN GENERAL.—Section 6664 is amended by

2 adding at the end the following new subsection:

3 ‘‘(d) REASONABLE CAUSE EXCEPTION FOR REPORT4 ABLE TRANSACTION UNDERSTATEMENTS.—

5 ‘‘(1) IN GENERAL.—No penalty shall be imposed

6 under section 6662A with respect to any portion of a

7 reportable transaction understatement if it is shown

8 that there was a reasonable cause for such portion

9 and that the taxpayer acted in good faith with respect

10 to such portion.

11 ‘‘(2) SPECIAL RULES.—Paragraph (1) shall not

12 apply to any reportable transaction understatement

13 unless—

14 ‘‘(A) the relevant facts affecting the tax

15 treatment of the item are adequately disclosed in

16 accordance with the regulations prescribed under

17 section 6011,

18 ‘‘(B) there is or was substantial authority

19 for such treatment, and

20 ‘‘(C) the taxpayer reasonably believed that

21 such treatment was more likely than not the

22 proper treatment.

23 A taxpayer failing to adequately disclose in accord24 ance with section 6011 shall be treated as meeting the
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1 requirements of subparagraph (A) if the penalty for

2 such failure was rescinded under section 6707A(d).

3 ‘‘(3) RULES RELATING TO REASONABLE BE4 LIEF.—For purposes of paragraph (2)(C)—

5 ‘‘(A) IN GENERAL.—A taxpayer shall be

6 treated as having a reasonable belief with respect

7 to the tax treatment of an item only if such

8 belief—

9 ‘‘(i) is based on the facts and law that

10 exist at the time the return of tax which in11 cludes such tax treatment is filed, and

12 ‘‘(ii) relates solely to the taxpayer’s

13 chances of success on the merits of such

14 treatment and does not take into account

15 the possibility that a return will not be au16 dited, such treatment will not be raised on

17 audit, or such treatment will be resolved

18 through settlement if it is raised.

19 ‘‘(B) CERTAIN OPINIONS MAY NOT BE RE20 LIED UPON.—

21 ‘‘(i) IN GENERAL.—An opinion of a

22 tax advisor may not be relied upon to estab23 lish the reasonable belief of a taxpayer if—

24 ‘‘(I) the tax advisor is described

25 in clause (ii), or
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1 ‘‘(II) the opinion is described in

2 clause (iii).

3 ‘‘(ii) DISQUALIFIED TAX ADVISORS.—A

4 tax advisor is described in this clause if the

5 tax advisor—

6 ‘‘(I) is a material advisor (within

7 the meaning of section 6111(b)(1)) who

8 participates in the organization, man9 agement, promotion, or sale of the

10 transaction or who is related (within

11 the meaning of section 267(b) or

12 707(b)(1)) to any person who so par13 ticipates,

14 ‘‘(II) is compensated directly or

15 indirectly by a material advisor with

16 respect to the transaction,

17 ‘‘(III) has a fee arrangement with

18 respect to the transaction which is con19 tingent on all or part of the intended

20 tax benefits from the transaction being

21 sustained, or

22 ‘‘(IV) as determined under regula23 tions prescribed by the Secretary, has a

24 disqualifying financial interest with

25 respect to the transaction.
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1 ‘‘(iii) DISQUALIFIED OPINIONS.—For

2 purposes of clause (i), an opinion is dis3 qualified if the opinion—

4 ‘‘(I) is based on unreasonable fac5 tual or legal assumptions (including

6 assumptions as to future events),

7 ‘‘(II) unreasonably relies on rep8 resentations, statements, findings, or

9 agreements of the taxpayer or any

10 other person,

11 ‘‘(III) does not identify and con12 sider all relevant facts, or

13 ‘‘(IV) fails to meet any other re14 quirement as the Secretary may pre15 scribe.’’.

16 (2) CONFORMING AMENDMENT.—The heading for

17 subsection (c) of section 6664 is amended by inserting

18 ‘‘FOR UNDERPAYMENTS’’ after ‘‘EXCEPTION’’.

19 (d) CONFORMING AMENDMENTS.—

20 (1) Subparagraph (C) of section 461(i)(3) is

21 amended by striking ‘‘section 6662(d)(2)(C)(iii)’’ and

22 inserting ‘‘section 1274(b)(3)(C)’’.

23 (2) Paragraph (3) of section 1274(b) is

24 amended—
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1 (A) by striking ‘‘(as defined in section

2 6662(d)(2)(C)(iii))’’ in subparagraph (B)(i), and

3 (B) by adding at the end the following new

4 subparagraph:

5 ‘‘(C) TAX SHELTER.—For purposes of sub6 paragraph (B), the term ‘tax shelter’ means—

7 ‘‘(i) a partnership or other entity,

8 ‘‘(ii) any investment plan or arrange9 ment, or

10 ‘‘(iii) any other plan or arrangement,

11 if a significant purpose of such partnership, en12 tity, plan, or arrangement is the avoidance or

13 evasion of Federal income tax.’’.

14 (3) Section 6662(d)(2) is amended by striking

15 subparagraphs (C) and (D).

16 (4) Section 6664(c)(1) is amended by striking

17 ‘‘this part’’ and inserting ‘‘section 6662 or 6663’’.

18 (5) Subsection (b) of section 7525 is amended by

19 striking ‘‘section 6662(d)(2)(C)(iii)’’ and inserting

20 ‘‘section 1274(b)(3)(C)’’.

21 (6)(A) The heading for section 6662 is amended

22 to read as follows:
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1 ‘‘SEC. 6662. IMPOSITION OF ACCURACY-RELATED PENALTY

2 ON UNDERPAYMENTS.’’.

3 (B) The table of sections for part II of sub4 chapter A of chapter 68 is amended by striking the

5 item relating to section 6662 and inserting the fol6 lowing new items:

‘‘Sec. 6662. Imposition of accuracy-related penalty on underpayments.

‘‘Sec. 6662A. Imposition of accuracy-related penalty on understatements with respect to reportable transactions.’’.

7 (e) EFFECTIVE DATE.—The amendments made by this

8 section shall apply to taxable years ending after the date

9 of the enactment of this Act.

10 SEC. 603. MODIFICATIONS OF SUBSTANTIAL UNDERSTATE11 MENT PENALTY FOR NONREPORTABLE

12 TRANSACTIONS.

13 (a) SUBSTANTIAL UNDERSTATEMENT OF CORPORA14 TIONS.—Section 6662(d)(1)(B) (relating to special rule for

15 corporations) is amended to read as follows:

16 ‘‘(B) SPECIAL RULE FOR CORPORATIONS.—

17 In the case of a corporation other than an S cor18 poration or a personal holding company (as de19 fined in section 542), there is a substantial un20 derstatement of income tax for any taxable year

21 if the amount of the understatement for the tax22 able year exceeds the lesser of—
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1 ‘‘(i) 10 percent of the tax required to

2 be shown on the return for the taxable year

3 (or, if greater, $10,000), or

4 ‘‘(ii) $10,000,000.’’.

5 (b) REDUCTION FOR UNDERSTATEMENT OF TAXPAYER

6 DUE TO POSITION OF TAXPAYER OR DISCLOSED ITEM.—

7 (1) IN GENERAL.—Section 6662(d)(2)(B)(i) (re8 lating to substantial authority) is amended to read as

9 follows:

10 ‘‘(i) the tax treatment of any item by

11 the taxpayer if the taxpayer had reasonable

12 belief that the tax treatment was more likely

13 than not the proper treatment, or’’.

14 (2) CONFORMING AMENDMENT.—Section 6662(d)

15 is amended by adding at the end the following new

16 paragraph:

17 ‘‘(3) SECRETARIAL LIST.—For purposes of this

18 subsection, section 6664(d)(2), and section 6694(a)(1),

19 the Secretary may prescribe a list of positions for

20 which the Secretary believes there is not substantial

21 authority or there is no reasonable belief that the tax

22 treatment is more likely than not the proper tax

23 treatment. Such list (and any revisions thereof) shall

24 be published in the Federal Register or the Internal

25 Revenue Bulletin.’’.
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1 (c) EFFECTIVE DATE.—The amendments made by this

2 section shall apply to taxable years beginning after the date

3 of the enactment of this Act.

4 SEC. 604. TAX SHELTER EXCEPTION TO CONFIDENTIALITY

5 PRIVILEGES RELATING TO TAXPAYER COM6 MUNICATIONS.

7 (a) IN GENERAL.—Section 7525(b) (relating to section

8 not to apply to communications regarding corporate tax

9 shelters) is amended to read as follows:

10 ‘‘(b) SECTION NOT TO APPLY TO COMMUNICATIONS

11 REGARDING TAX SHELTERS.—The privilege under sub12 section (a) shall not apply to any written communication

13 which is—

14 ‘‘(1) between a federally authorized tax practi15 tioner and—

16 ‘‘(A) any person,

17 ‘‘(B) any director, officer, employee, agent,

18 or representative of the person, or

19 ‘‘(C) any other person holding a capital or

20 profits interest in the person, and

21 ‘‘(2) in connection with the promotion of the di22 rect or indirect participation of the person in any tax

23 shelter (as defined in section 1274(b)(3)(C)).’’.
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1 (b) EFFECTIVE DATE.—The amendment made by this

2 section shall apply to communications made on or after the

3 date of the enactment of this Act.

4 SEC. 605. DISCLOSURE OF REPORTABLE TRANSACTIONS.

5 (a) IN GENERAL.—Section 6111 (relating to registra6 tion of tax shelters) is amended to read as follows:

7 ‘‘SEC. 6111. DISCLOSURE OF REPORTABLE TRANSACTIONS.

8 ‘‘(a) IN GENERAL.—Each material advisor with re9 spect to any reportable transaction shall make a return (in

10 such form as the Secretary may prescribe) setting forth—

11 ‘‘(1) information identifying and describing the

12 transaction,

13 ‘‘(2) information describing any potential tax

14 benefits expected to result from the transaction, and

15 ‘‘(3) such other information as the Secretary

16 may prescribe.

17 Such return shall be filed not later than the date specified

18 by the Secretary.

19 ‘‘(b) DEFINITIONS.—For purposes of this section—

20 ‘‘(1) MATERIAL ADVISOR.—

21 ‘‘(A) IN GENERAL.—The term ‘material ad22 visor’ means any person—

23 ‘‘(i) who provides any material aid,

24 assistance, or advice with respect to orga25 nizing, managing, promoting, selling, im-
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1 plementing, or carrying out any reportable

2 transaction, and

3 ‘‘(ii) who directly or indirectly derives

4 gross income in excess of the threshold

5 amount for such aid, assistance, or advice.

6 ‘‘(B) THRESHOLD AMOUNT.—For purposes

7 of subparagraph (A), the threshold amount is—

8 ‘‘(i) $50,000 in the case of a reportable

9 transaction substantially all of the tax bene10 fits from which are provided to natural per11 sons, and

12 ‘‘(ii) $250,000 in any other case.

13 ‘‘(2) REPORTABLE TRANSACTION.—The term ‘re14 portable transaction’ has the meaning given to such

15 term by section 6707A(c).

16 ‘‘(c) REGULATIONS.—The Secretary may prescribe reg17 ulations which provide—

18 ‘‘(1) that only 1 person shall be required to meet

19 the requirements of subsection (a) in cases in which

20 2 or more persons would otherwise be required to meet

21 such requirements,

22 ‘‘(2) exemptions from the requirements of this

23 section, and

24 ‘‘(3) such rules as may be necessary or appro25 priate to carry out the purposes of this section.’’.
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1 (b) CONFORMING AMENDMENTS.—

2 (1) The item relating to section 6111 in the table

3 of sections for subchapter B of chapter 61 is amended

4 to read as follows:

‘‘Sec. 6111. Disclosure of reportable transactions.’’.

5 (2)(A) So much of section 6112 as precedes sub6 section (c) thereof is amended to read as follows:

7 ‘‘SEC. 6112. MATERIAL ADVISORS OF REPORTABLE TRANS8 ACTIONS MUST KEEP LISTS OF ADVISEES.

9 ‘‘(a) IN GENERAL.—Each material advisor (as defined

10 in section 6111) with respect to any reportable transaction

11 (as defined in section 6707A(c)) shall maintain, in such

12 manner as the Secretary may by regulations prescribe, a

13 list—

14 ‘‘(1) identifying each person with respect to

15 whom such advisor acted as such a material advisor

16 with respect to such transaction, and

17 ‘‘(2) containing such other information as the

18 Secretary may by regulations require.

19 This section shall apply without regard to whether a mate20 rial advisor is required to file a return under section 6111

21 with respect to such transaction.’’.

22 (B) Section 6112 is amended by redesignating

23 subsection (c) as subsection (b).

24 (C) Section 6112(b), as redesignated by subpara25 graph (B), is amended—
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1 (i) by inserting ‘‘written’’ before ‘‘request’’

2 in paragraph (1)(A), and

3 (ii) by striking ‘‘shall prescribe’’ in para4 graph (2) and inserting ‘‘may prescribe’’.

5 (D) The item relating to section 6112 in the

6 table of sections for subchapter B of chapter 61 is

7 amended to read as follows:

‘‘Sec. 6112. Material advisors of reportable transactions must keep

lists of advisees.’’.

8 (3)(A) The heading for section 6708 is amended

9 to read as follows:

10 ‘‘SEC. 6708. FAILURE TO MAINTAIN LISTS OF ADVISEES

11 WITH RESPECT TO REPORTABLE TRANS12 ACTIONS.’’.

13 (B) The item relating to section 6708 in the

14 table of sections for part I of subchapter B of chapter

15 68 is amended to read as follows:

‘‘Sec. 6708. Failure to maintain lists of advisees with respect to reportable transactions.’’.

16 (c) REQUIRED DISCLOSURE NOT SUBJECT TO CLAIM

17 OF CONFIDENTIALITY.—Subparagraph (A) of section

18 6112(b)(1), as redesignated by subsection (b)(2)(B), is

19 amended by adding at the end the following new flush sen20 tence:

21 ‘‘For purposes of this section, the identity of any per22 son on such list shall not be privileged.’’.

23 (d) EFFECTIVE DATE.—
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1 (1) IN GENERAL.—Except as provided in para2 graph (2), the amendments made by this section shall

3 apply to transactions with respect to which material

4 aid, assistance, or advice referred to in section

5 6111(b)(1)(A)(i) of the Internal Revenue Code of 1986

6 (as added by this section) is provided after the date

7 of the enactment of this Act.

8 (2) NO CLAIM OF CONFIDENTIALITY AGAINST DIS9 CLOSURE.—The amendment made by subsection (c)

10 shall take effect as if included in the amendments

11 made by section 142 of the Deficit Reduction Act of

12 1984.

13 SEC. 606. MODIFICATIONS TO PENALTY FOR FAILURE TO

14 REGISTER TAX SHELTERS.

15 (a) IN GENERAL.—Section 6707 (relating to failure to

16 furnish information regarding tax shelters) is amended to

17 read as follows:

18 ‘‘SEC. 6707. FAILURE TO FURNISH INFORMATION REGARD19 ING REPORTABLE TRANSACTIONS.

20 ‘‘(a) IN GENERAL.—If a person who is required to file

21 a return under section 6111(a) with respect to any report22 able transaction—

23 ‘‘(1) fails to file such return on or before the date

24 prescribed therefor, or
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1 ‘‘(2) files false or incomplete information with

2 the Secretary with respect to such transaction,

3 such person shall pay a penalty with respect to such return

4 in the amount determined under subsection (b).

5 ‘‘(b) AMOUNT OF PENALTY.—

6 ‘‘(1) IN GENERAL.—Except as provided in para7 graph (2), the penalty imposed under subsection (a)

8 with respect to any failure shall be $50,000.

9 ‘‘(2) LISTED TRANSACTIONS.—The penalty im10 posed under subsection (a) with respect to any listed

11 transaction shall be an amount equal to the greater

12 of—

13 ‘‘(A) $200,000, or

14 ‘‘(B) 50 percent of the gross income derived

15 by such person with respect to aid, assistance, or

16 advice which is provided with respect to the list17 ed transaction before the date the return includ18 ing the transaction is filed under section 6111.

19 Subparagraph (B) shall be applied by substituting

20 ‘75 percent’ for ‘50 percent’ in the case of an inten21 tional failure or act described in subsection (a).

22 ‘‘(c) CERTAIN RULES TO APPLY.—The provisions of

23 section 6707A(d) shall apply to any penalty imposed under

24 this section.
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1 ‘‘(d) REPORTABLE AND LISTED TRANSACTIONS.—The

2 terms ‘reportable transaction’ and ‘listed transaction’ have

3 the respective meanings given to such terms by section

4 6707A(c).’’.

5 (b) CLERICAL AMENDMENT.—The item relating to sec6 tion 6707 in the table of sections for part I of subchapter

7 B of chapter 68 is amended by striking ‘‘tax shelters’’ and

8 inserting ‘‘reportable transactions’’.

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

10 section shall apply to returns the due date for which is after

11 the date of the enactment of this Act.

12 SEC. 607. MODIFICATION OF PENALTY FOR FAILURE TO

13 MAINTAIN LISTS OF INVESTORS.

14 (a) IN GENERAL.—Subsection (a) of section 6708 is

15 amended to read as follows:

16 ‘‘(a) IMPOSITION OF PENALTY.—

17 ‘‘(1) IN GENERAL.—If any person who is re18 quired to maintain a list under section 6112(a) fails

19 to make such list available upon written request to

20 the Secretary in accordance with section

21 6112(b)(1)(A) within 20 business days after the date

22 of the Secretary’s request, such person shall pay a

23 penalty of $10,000 for each day of such failure after

24 such 20th day.
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1 ‘‘(2) REASONABLE CAUSE EXCEPTION.—No pen2 alty shall be imposed by paragraph (1) with respect

3 to the failure on any day if such failure is due to rea4 sonable cause.’’.

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

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

7 enactment of this Act.

8 SEC. 608. MODIFICATION OF ACTIONS TO ENJOIN CERTAIN

9 CONDUCT RELATED TO TAX SHELTERS AND

10 REPORTABLE TRANSACTIONS.

11 (a) IN GENERAL.—Section 7408 (relating to action to

12 enjoin promoters of abusive tax shelters, etc.) is amended

13 by redesignating subsection (c) as subsection (d) and by

14 striking subsections (a) and (b) and inserting the following

15 new subsections:

16 ‘‘(a) AUTHORITY TO SEEK INJUNCTION.—A civil ac17 tion in the name of the United States to enjoin any person

18 from further engaging in specified conduct may be com19 menced at the request of the Secretary. Any action under

20 this section shall be brought in the district court of the

21 United States for the district in which such person resides,

22 has his principal place of business, or has engaged in speci23 fied conduct. The court may exercise its jurisdiction over

24 such action (as provided in section 7402(a)) separate and
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1 apart from any other action brought by the United States

2 against such person.

3 ‘‘(b) ADJUDICATION AND DECREE.—In any action

4 under subsection (a), if the court finds—

5 ‘‘(1) that the person has engaged in any specified

6 conduct, and

7 ‘‘(2) that injunctive relief is appropriate to pre8 vent recurrence of such conduct,

9 the court may enjoin such person from engaging in such

10 conduct or in any other activity subject to penalty under

11 this title.

12 ‘‘(c) SPECIFIED CONDUCT.—For purposes of this sec13 tion, the term ‘specified conduct’ means any action, or fail14 ure to take action, subject to penalty under section 6700,

15 6701, 6707, or 6708.’’.

16 (b) CONFORMING AMENDMENTS.—

17 (1) The heading for section 7408 is amended to

18 read as follows:

19 ‘‘SEC. 7408. ACTIONS TO ENJOIN SPECIFIED CONDUCT RE20 LATED TO TAX SHELTERS AND REPORTABLE

21 TRANSACTIONS.’’.

22 (2) The table of sections for subchapter A of

23 chapter 67 is amended by striking the item relating

24 to section 7408 and inserting the following new item:

‘‘Sec. 7408. Actions to enjoin specified conduct related to tax shelters and reportable transactions.’’.
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1 (c) EFFECTIVE DATE.—The amendments made by this

2 section shall take effect on the day after the date of the en3 actment of this Act.

4 SEC. 609. UNDERSTATEMENT OF TAXPAYER’S LIABILITY BY

5 INCOME TAX RETURN PREPARER.

6 (a) STANDARDS CONFORMED TO TAXPAYER STAND7 ARDS.—Section 6694(a) (relating to understatements due to

8 unrealistic positions) is amended—

9 (1) by striking ‘‘realistic possibility of being sus10 tained on its merits’’ in paragraph (1) and inserting

11 ‘‘reasonable belief that the tax treatment in such posi12 tion was more likely than not the proper treatment’’,

13 (2) by striking ‘‘or was frivolous’’ in paragraph

14 (3) and inserting ‘‘or there was no reasonable basis

15 for the tax treatment of such position’’, and

16 (3) by striking ‘‘UNREALISTIC’’ in the heading

17 and inserting ‘‘IMPROPER’’.

18 (b) AMOUNT OF PENALTY.—Section 6694 is

19 amended—

20 (1) by striking ‘‘$250’’ in subsection (a) and in21 serting ‘‘$1,000’’, and

22 (2) by striking ‘‘$1,000’’ in subsection (b) and

23 inserting ‘‘$5,000’’.
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1 (c) EFFECTIVE DATE.—The amendments made by this

2 section shall apply to documents prepared after the date

3 of the enactment of this Act.

4 SEC. 610. REGULATION OF INDIVIDUALS PRACTICING BE5 FORE THE DEPARTMENT OF TREASURY.

6 (a) CENSURE; IMPOSITION OF PENALTY.—

7 (1) IN GENERAL.—Section 330(b) of title 31,

8 United States Code, is amended—

9 (A) by inserting ‘‘, or censure,’’ after ‘‘De10 partment’’, and

11 (B) by adding at the end the following new

12 flush sentence:

13 ‘‘The Secretary may impose a monetary penalty on any

14 representative described in the preceding sentence. If the

15 representative was acting on behalf of an employer or any

16 firm or other entity in connection with the conduct giving

17 rise to such penalty, the Secretary may impose a monetary

18 penalty on such employer, firm, or entity if it knew, or

19 reasonably should have known, of such conduct. Such pen20 alty shall not exceed the gross income derived (or to be de21 rived) from the conduct giving rise to the penalty and may

22 be in addition to, or in lieu of, any suspension, disbarment,

23 or censure of the representative.’’.
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1 (2) EFFECTIVE DATE.—The amendments made

2 by this subsection shall apply to actions taken after

3 the date of the enactment of this Act.

4 (b) TAX SHELTER OPINIONS, ETC.—Section 330 of

5 such title 31 is amended by adding at the end the following

6 new subsection:

7 ‘‘(d) Nothing in this section or in any other provision

8 of law shall be construed to limit the authority of the Sec9 retary of the Treasury to impose standards applicable to

10 the rendering of written advice with respect to any entity,

11 transaction plan or arrangement, or other plan or arrange12 ment, which is of a type which the Secretary determines

13 as having a potential for tax avoidance or evasion.’’.

14 SEC. 611. PENALTY ON PROMOTERS OF TAX SHELTERS.

15 (a) PENALTY ON PROMOTING ABUSIVE TAX SHEL16 TERS.—Section 6700(a) is amended by adding at the end

17 the following new sentence: ‘‘Notwithstanding the first sen18 tence, if an activity with respect to which a penalty im19 posed under this subsection involves a statement described

20 in paragraph (2)(A), the amount of the penalty shall be

21 equal to 50 percent of the gross income derived (or to be

22 derived) from such activity by the person on which the pen23 alty is imposed.’’.
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1 (b) EFFECTIVE DATE.—The amendment made by this

2 section shall apply to activities after the date of the enact3 ment of this Act.

4 SEC. 612. STATUTE OF LIMITATIONS FOR TAXABLE YEARS

5 FOR WHICH REQUIRED LISTED TRANS6 ACTIONS NOT REPORTED.

7 (a) IN GENERAL.—Section 6501(c) (relating to excep8 tions) is amended by adding at the end the following new

9 paragraph:

10 ‘‘(10) LISTED TRANSACTIONS.—If a taxpayer

11 fails to include on any return or statement for any

12 taxable year any information with respect to a listed

13 transaction (as defined in section 6707A(c)(2)) which

14 is required under section 6011 to be included with

15 such return or statement, the time for assessment of

16 any tax imposed by this title with respect to such

17 transaction shall not expire before the date which is

18 1 year after the earlier of—

19 ‘‘(A) the date on which the Secretary is fur20 nished the information so required; or

21 ‘‘(B) the date that a material advisor (as

22 defined in section 6111) meets the requirements

23 of section 6112 with respect to a request by the

24 Secretary under section 6112(b) relating to such

25 transaction with respect to such taxpayer.’’.
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1 (b) EFFECTIVE DATE.—The amendment made by this

2 section shall apply to taxable years with respect to which

3 the period for assessing a deficiency did not expire before

4 the date of the enactment of this Act.

5 SEC. 613. DENIAL OF DEDUCTION FOR INTEREST ON UN6 DERPAYMENTS ATTRIBUTABLE TO TAX-MOTI7 VATED TRANSACTIONS.

8 (a) IN GENERAL.—Section 163 (relating to deduction

9 for interest) is amended by redesignating subsection (m) as

10 subsection (n) and by inserting after subsection (l) the fol11 lowing new subsection:

12 ‘‘(m) INTEREST ON UNPAID TAXES ATTRIBUTABLE TO

13 NONDISCLOSED REPORTABLE TRANSACTIONS.—No deduc14 tion shall be allowed under this chapter for any interest

15 paid or accrued under section 6601 on any underpayment

16 of tax which is attributable to the portion of any reportable

17 transaction understatement (as defined in section

18 6662A(b)) with respect to which the requirement of section

19 6664(d)(2)(A) is not met.’’.

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

21 section shall apply to transactions in taxable years begin22 ning after the date of the enactment of this Act.
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1 SEC. 614. AUTHORIZATION OF APPROPRIATIONS FOR TAX

2 LAW ENFORCEMENT.

3 There is authorized to be appropriated $300,000,000

4 for each fiscal year beginning after September 30, 2003, for

5 the purpose of carrying out tax law enforcement to combat

6 tax avoidance transactions and other tax shelters, including

7 the use of offshore financial accounts to conceal taxable in8 come.

9 PART II—OTHER CORPORATE GOVERNANCE

10 PROVISIONS

11 SEC. 621. AFFIRMATION OF CONSOLIDATED RETURN REGU12 LATION AUTHORITY.

13 (a) IN GENERAL.—Section 1502 (relating to consoli14 dated return regulations) is amended by adding at the end

15 the following new sentence: ‘‘In prescribing such regula16 tions, the Secretary may prescribe rules applicable to cor17 porations filing consolidated returns under section 1501

18 that are different from other provisions of this title that

19 would apply if such corporations filed separate returns.’’.

20 (b) RESULT NOT OVERTURNED.—Notwithstanding

21 subsection (a), the Internal Revenue Code of 1986 shall be

22 construed by treating Treasury regulation § 1.1502–

23 20(c)(1)(iii) (as in effect on January 1, 2001) as being in24 applicable to the type of factual situation in 255 F.3d 1357

25 (Fed. Cir. 2001).
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1 (c) EFFECTIVE DATE.—The provisions of this section

2 shall apply to taxable years beginning before, on, or after

3 the date of the enactment of this Act.

4 SEC. 622. DECLARATION BY CHIEF EXECUTIVE OFFICER RE5 LATING TO FEDERAL ANNUAL INCOME TAX

6 RETURN OF A CORPORATION.

7 (a) IN GENERAL.—The Federal annual tax return of

8 a corporation with respect to income shall also include a

9 declaration signed by the chief executive officer of such cor10 poration (or other such officer of the corporation as the Sec11 retary of the Treasury may designate if the corporation does

12 not have a chief executive officer), under penalties of per13 jury, that the corporation has in place processes and proce14 dures to ensure that such return complies with the Internal

15 Revenue Code of 1986 and that the chief executive officer

16 was provided reasonable assurance of the accuracy of all

17 material aspects of such return. The preceding sentence

18 shall not apply to any return of a regulated investment

19 company (within the meaning of section 851 of such Code).

20 (b) EFFECTIVE DATE.—This section shall apply to the

21 Federal annual tax return of a corporation with respect to

22 income for taxable years ending after the date of the enact23 ment of this Act.
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1 SEC. 623. DENIAL OF DEDUCTION FOR CERTAIN FINES, PEN2 ALTIES, AND OTHER AMOUNTS.

3 (a) IN GENERAL.—Subsection (f) of section 162 (relat4 ing to trade or business expenses) is amended to read as

5 follows:

6 ‘‘(f) FINES, PENALTIES, AND OTHER AMOUNTS.—

7 ‘‘(1) IN GENERAL.—Except as provided in para8 graph (2), no deduction otherwise allowable shall be

9 allowed under this chapter for any amount paid or

10 incurred (whether by suit, agreement, or otherwise)

11 to, or at the direction of, a government or entity de12 scribed in paragraph (4) in relation to the violation

13 of any law or the investigation or inquiry by such

14 government or entity into the potential violation of

15 any law.

16 ‘‘(2) EXCEPTION FOR AMOUNTS CONSTITUTING

17 RESTITUTION.—Paragraph (1) shall not apply to any

18 amount which the taxpayer establishes constitutes res19 titution (including remediation of property) for dam20 age or harm caused by or which may be caused by

21 the violation of any law or the potential violation of

22 any law. This paragraph shall not apply to any

23 amount paid or incurred as reimbursement to the

24 government or entity for the costs of any investigation

25 or litigation.
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1 ‘‘(3) EXCEPTION FOR AMOUNTS PAID OR IN2 CURRED AS THE RESULT OF CERTAIN COURT OR3 DERS.—Paragraph (1) shall not apply to any

4 amount paid or incurred by order of a court in a suit

5 in which no government or entity described in para6 graph (4) is a party.

7 ‘‘(4) CERTAIN NONGOVERNMENTAL REGULATORY

8 ENTITIES.—An entity is described in this paragraph

9 if it is—

10 ‘‘(A) a nongovernmental entity which exer11 cises self-regulatory powers (including imposing

12 sanctions) in connection with a qualified board

13 or exchange (as defined in section 1256(g)(7)), or

14 ‘‘(B) to the extent provided in regulations,

15 a nongovernmental entity which exercises self16 regulatory powers (including imposing sanc17 tions) as part of performing an essential govern18 mental function.

19 ‘‘(5) EXCEPTION FOR TAXES DUE.—Paragraph

20 (1) shall not apply to any amount paid or incurred

21 as taxes due.’’.

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

23 section shall apply to amounts paid or incurred after April

24 27, 2003, except that such amendment shall not apply to

25 amounts paid or incurred under any binding order or
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1 agreement entered into on or before April 27, 2003. Such

2 exception shall not apply to an order or agreement requir3 ing court approval unless the approval was obtained on or

4 before April 27, 2003.

5 SEC. 624. DISALLOWANCE OF DEDUCTION FOR PUNITIVE

6 DAMAGES.

7 (a) DISALLOWANCE OF DEDUCTION.—

8 (1) IN GENERAL.—Section 162(g) (relating to

9 treble damage payments under the antitrust laws) is

10 amended by adding at the end the following new

11 paragraph:

12 ‘‘(2) PUNITIVE DAMAGES.—No deduction shall be

13 allowed under this chapter for any amount paid or

14 incurred for punitive damages in connection with

15 any judgment in, or settlement of, any action. This

16 paragraph shall not apply to punitive damages de17 scribed in section 104(c).’’.

18 (2) CONFORMING AMENDMENTS.—

19 (A) Section 162(g) is amended—

20 (i) by striking ‘‘If’’ and inserting:

21 ‘‘(1) TREBLE DAMAGES.—If’’, and

22 (ii) by redesignating paragraphs (1)

23 and (2) as subparagraphs (A) and (B), re24 spectively.
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1 (B) The heading for section 162(g) is

2 amended by inserting ‘‘OR PUNITIVE DAMAGES’’

3 after ‘‘LAWS’’.

4 (b) INCLUSION IN INCOME OF PUNITIVE DAMAGES

5 PAID BY INSURER OR OTHERWISE.—

6 (1) IN GENERAL.—Part II of subchapter B of

7 chapter 1 (relating to items specifically included in

8 gross income) is amended by adding at the end the

9 following new section:

10 ‘‘SEC. 91. PUNITIVE DAMAGES COMPENSATED BY INSUR11 ANCE OR OTHERWISE.

12 ‘‘Gross income shall include any amount paid to or

13 on behalf of a taxpayer as insurance or otherwise by reason

14 of the taxpayer’s liability (or agreement) to pay punitive

15 damages.’’.

16 (2) REPORTING REQUIREMENTS.—Section 6041

17 (relating to information at source) is amended by

18 adding at the end the following new subsection:

19 ‘‘(f) SECTION TO APPLY TO PUNITIVE DAMAGES COM20 PENSATION.—This section shall apply to payments by a

21 person to or on behalf of another person as insurance or

22 otherwise by reason of the other person’s liability (or agree23 ment) to pay punitive damages.’’.
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1 (3) CONFORMING AMENDMENT.—The table of sec2 tions for part II of subchapter B of chapter 1 is

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

‘‘Sec. 91. Punitive damages compensated by insurance or otherwise.’’.

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

5 section shall apply to damages paid or incurred on or after

6 the date of the enactment of this Act.

7 SEC. 625. INCREASE IN CRIMINAL MONETARY PENALTY FOR

8 INDIVIDUALS TO THE AMOUNT OF THE TAX

9 AT ISSUE.

10 (a) IN GENERAL.—Section 7206 (relating to fraud and

11 false statements) is amended—

12 (1) by striking ‘‘Any person who—’’ and insert13 ing ‘‘(a) IN GENERAL.—Any person who—’’, and

14 (2) by adding at the end the following new sub15 section:

16 ‘‘(b) INCREASE IN MONETARY LIMITATION FOR UN17 DERPAYMENT OR OVERPAYMENT OF TAX DUE TO FRAUD.—

18 If any portion of any underpayment (as defined in section

19 6664(a)) or overpayment (as defined in section 6203(a)) of

20 tax required to be shown on a return is attributable to

21 fraudulent action described in subsection (a), the applicable

22 dollar amount under subsection (a) shall in no event be less

23 than an amount equal to such portion. A rule similar to

24 the rule under section 6663(b) shall apply for purposes of

25 determining the portion so attributable.’’.
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1 (b) INCREASE IN PENALTIES.—

2 (1) ATTEMPT TO EVADE OR DEFEAT TAX.—Sec3 tion 7201 is amended—

4 (A) by striking ‘‘$100,000’’ and inserting

5 ‘‘$250,000’’,

6 (B) by striking ‘‘$500,000’’ and inserting

7 ‘‘$1,000,000’’, and

8 (C) by striking ‘‘5 years’’ and inserting ‘‘10

9 years’’.

10 (2) WILLFUL FAILURE TO FILE RETURN, SUPPLY

11 INFORMATION, OR PAY TAX.—Section 7203 is

12 amended—

13 (A) in the first sentence—

14 (i) by striking ‘‘misdemeanor’’ and in15 serting ‘‘felony’’, and

16 (ii) by striking ‘‘1 year’’ and inserting

17 ‘‘10 years’’, and

18 (B) by striking the third sentence.

19 (3) FRAUD AND FALSE STATEMENTS.—Section

20 7206(a) (as redesignated by subsection (a)) is

21 amended—

22 (A) by striking ‘‘$100,000’’ and inserting

23 ‘‘$250,000’’,

24 (B) by striking ‘‘$500,000’’ and inserting

25 ‘‘$1,000,000’’, and
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1 (C) by striking ‘‘3 years’’ and inserting ‘‘5

2 years’’.

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

4 section shall apply to underpayments and overpayments at5 tributable to actions occurring after the date of the enact6 ment of this Act.

7 SEC. 626. DOUBLING OF CERTAIN PENALTIES, FINES, AND

8 INTEREST ON UNDERPAYMENTS RELATED TO

9 CERTAIN OFFSHORE FINANCIAL ARRANGE10 MENTS.

11 (a) GENERAL RULE.—If—

12 (1) a taxpayer eligible to participate in—

13 (A) the Department of the Treasury’s Off14 shore Voluntary Compliance Initiative, or

15 (B) the Department of the Treasury’s vol16 untary disclosure initiative which applies to the

17 taxpayer by reason of the taxpayer’s under18 reporting of United States income tax liability

19 through financial arrangements which rely on

20 the use of offshore arrangements which were the

21 subject of the initiative described in subpara22 graph (A), and

23 (2) any interest or applicable penalty is imposed

24 with respect to any arrangement to which any initia25 tive described in paragraph (1) applied or to any un-
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1 derpayment of Federal income tax attributable to

2 items arising in connection with any arrangement

3 described in paragraph (1),

4 then, notwithstanding any other provision of law, the

5 amount of such interest or penalty shall be equal to twice

6 that determined without regard to this section.

7 (b) DEFINITIONS AND RULES.—For purposes of this

8 section—

9 (1) APPLICABLE PENALTY.—The term ‘‘applica10 ble penalty’’ means any penalty, addition to tax, or

11 fine imposed under chapter 68 of the Internal Rev12 enue Code of 1986.

13 (2) VOLUNTARY OFFSHORE COMPLIANCE INITIA14 TIVE.—The term ‘‘Voluntary Offshore Compliance

15 Initiative’’ means the program established by the De16 partment of the Treasury in January of 2003 under

17 which any taxpayer was eligible to voluntarily dis18 close previously undisclosed income on assets placed

19 in offshore accounts and accessed through credit card

20 and other financial arrangements.

21 (3) PARTICIPATION.—A taxpayer shall be treated

22 as having participated in the Voluntary Offshore

23 Compliance Initiative if the taxpayer submitted the

24 request in a timely manner and all information re25 quested by the Secretary of the Treasury or his dele-
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1 gate within a reasonable period of time following the

2 request.

3 (c) EFFECTIVE DATE.—The provisions of this section

4 shall apply to interest, penalties, additions to tax, and fines

5 with respect to any taxable year if as of the date of the

6 enactment of this Act, the assessment of any tax, penalty,

7 or interest with respect to such taxable year is not prevented

8 by the operation of any law or rule of law.

9 PART III—EXTENSION OF IRS USER FEES

10 SEC. 631. EXTENSION OF IRS USER FEES.

11 (a) IN GENERAL.—Section 7528(c) (relating to termi12 nation) is amended by striking ‘‘December 31, 2004’’ and

13 inserting ‘‘September 30, 2013’’.

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

15 section shall apply to requests after the date of the enact16 ment of this Act.

17 PART IV—OTHER REVENUE PROVISIONS

18 SEC. 641. REPORTING OF TAXABLE MERGERS AND ACQUISI19 TIONS.

20 (a) IN GENERAL.—Subpart B of part III of subchapter

21 A of chapter 61 is amended by inserting after section 6043

22 the following new section:

23 ‘‘SEC. 6043A. TAXABLE MERGERS AND ACQUISITIONS.

24 ‘‘(a) IN GENERAL.—The acquiring corporation in any

25 taxable acquisition shall make a return (according to the
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1 forms or regulations prescribed by the Secretary) setting

2 forth—

3 ‘‘(1) a description of the acquisition,

4 ‘‘(2) the name and address of each shareholder of

5 the acquired corporation who is required to recognize

6 gain (if any) as a result of the acquisition,

7 ‘‘(3) the amount of money and the fair market

8 value of other property transferred to each such share9 holder as part of such acquisition, and

10 ‘‘(4) such other information as the Secretary

11 may prescribe.

12 To the extent provided by the Secretary, the requirements

13 of this section applicable to the acquiring corporation shall

14 be applicable to the acquired corporation and not to the

15 acquiring corporation.

16 ‘‘(b) NOMINEE REPORTING.—Any person who holds

17 stock as a nominee for another person shall furnish in the

18 manner prescribed by the Secretary to such other person

19 the information provided by the corporation under sub20 section (d).

21 ‘‘(c) TAXABLE ACQUISITION.—For purposes of this sec22 tion, the term ‘taxable acquisition’ means any acquisition

23 by a corporation of stock in or property of another corpora24 tion if any shareholder of the acquired corporation is re-
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1 quired to recognize gain (if any) as a result of such acquisi2 tion.

3 ‘‘(d) STATEMENTS TO BE FURNISHED TO SHARE4 HOLDERS.—Every person required to make a return under

5 subsection (a) shall furnish to each shareholder whose name

6 is required to be set forth in such return a written statement

7 showing—

8 ‘‘(1) the name, address, and phone number of the

9 information contact of the person required to make

10 such return,

11 ‘‘(2) the information required to be shown on

12 such return with respect to such shareholder, and

13 ‘‘(3) such other information as the Secretary

14 may prescribe.

15 The written statement required under the preceding sen16 tence shall be furnished to the shareholder on or before Jan17 uary 31 of the year following the calendar year during

18 which the taxable acquisition occurred.’’.

19 (b) ASSESSABLE PENALTIES.—

20 (1) Subparagraph (B) of section 6724(d)(1) (de21 fining information return) is amended by redesig22 nating clauses (ii) through (xviii) as clauses (iii)

23 through (xix), respectively, and by inserting after

24 clause (i) the following new clause:
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1 ‘‘(ii) section 6043A(a) (relating to re2 turns relating to taxable mergers and acqui3 sitions),’’.

4 (2) Paragraph (2) of section 6724(d) (relating to

5 definitions) is amended by redesignating subpara6 graphs (F) through (BB) as subparagraphs (G)

7 through (CC), respectively, and by inserting after sub8 paragraph (E) the following new subparagraph:

9 ‘‘(F) subsections (b) and (d) of section

10 6043A (relating to returns relating to taxable

11 mergers and acquisitions).’’.

12 (c) CLERICAL AMENDMENT.—The table of sections for

13 subpart B of part III of subchapter A of chapter 61 is

14 amended by inserting after the item relating to section 6043

15 the following new item:

‘‘Sec. 6043A. Returns relating to taxable mergers and acquisitions.’’.

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

17 section shall apply to acquisitions after the date of the en18 actment of this Act.

19 SEC. 642. MODIFICATION OF DEFINITION OF CONTROLLED

20 GROUP OF CORPORATIONS.

21 (a) IN GENERAL.—Section 1563(a)(2) (relating to

22 brother-sister controlled group) is amended by striking

23 ‘‘possessing—’’ and all that follows through ‘‘(B)’’ and in24 serting ‘‘possessing’’.
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1 (b) APPLICATION OF EXISTING RULES TO OTHER

2 CODE PROVISIONS.—Section 1563(f) (relating to other defi3 nitions and rules) is amended by adding at the end the

4 following new paragraph:

5 ‘‘(5) BROTHER-SISTER CONTROLLED GROUP DEF6 INITION FOR PROVISIONS OTHER THAN THIS PART.—

7 ‘‘(A) IN GENERAL.—Except as specifically

8 provided in an applicable provision, subsection

9 (a)(2) shall be applied to an applicable provision

10 as if it read as follows:

11 ‘‘‘(2) BROTHER-SISTER CONTROLLED GROUP.—

12 Two or more corporations if 5 or fewer persons who

13 are individuals, estates, or trusts own (within the

14 meaning of subsection (d)(2) stock possessing—

15 ‘‘‘(A) at least 80 percent of the total com16 bined voting power of all classes of stock entitled

17 to vote, or at least 80 percent of the total value

18 of shares of all classes of stock, of each corpora19 tion, and

20 ‘‘‘(B) more than 50 percent of the total com21 bined voting power of all classes of stock entitled

22 to vote or more than 50 percent of the total value

23 of shares of all classes of stock of each corpora24 tion, taking into account the stock ownership of

25 each such person only to the extent such stock
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1 ownership is identical with respect to each such

2 corporation.’

3 ‘‘(B) APPLICABLE PROVISION.—For pur4 poses of this paragraph, an applicable provision

5 is any provision of law (other than this part)

6 which incorporates the definition of controlled

7 group of corporations under subsection (a).’’.

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

9 section shall apply to taxable years beginning after the date

10 of the enactment of this Act.

Attest:

Secretary.
108TH CONGRESS

2D SESSION H. R. 1528

AMENDMENT